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, 2010          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:
Title of each class: Common Stock, par value $0.01 per share	Name of each exchange on which registered: The Nasdaq Global Market

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 the registrant has submitted electronically and posted on its corporate web site, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.402 of this chapter) during the preceding 12 months (or for such shorter period that the registration was required to submit and post such files.   YES    NO  

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

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

Large accelerated filer       Accelerated filer       Non-accelerated filer       Smaller reporting company     x   

(Do not check if a smaller reporting company)

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 high and low traded price of such stock as of the last business day of the registrant's most recently completed second fiscal quarter, was $18.4 million.  (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.)

As of September 16, 2010, there were issued and outstanding 2,087,976 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, 2010.

Part III of Form 10-K - Portions of the Proxy Statement for the 2010 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") Global Market 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. converted from a Missouri chartered stock savings bank to a Missouri state chartered trust company with banking powers ("Charter Conversion").  On June 1, 2009, the institution changed its name to Southern Bank ("Bank").

The primary regulator of the Bank is the Missouri Division of Finance.  The Bank is a member of the Federal Reserve, and the Federal Reserve Board ("FRB") is the Bank’s primary federal regulator. 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 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, 2010, the Company had total assets of $552.1 million, total deposits of $422.9 million and stockholders' equity of $45.6 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, debt securities, MBS, CMOs 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.

On December 5, 2008, as part of the Troubled Asset Relief Program ("TARP") Capital Purchase Program, the Company entered into a Letter Agreement and Securities Purchase Agreement (collectively, the "Purchase Agreement") with the United States Department of the Treasury ("Treasury"), pursuant to which the Company (i) sold 9,550 shares of the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the "Series A Preferred Stock") for a purchase price of $9,550,000 in cash and (ii) issued a warrant (the "Warrant") to purchase 114,326 shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), for a per share price of $12.53 per share. The Series A Preferred Stock is entitled to cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The Series A Preferred Stock may be redeemed by the Company at any time, subject to consultation. The Warrant has a 10-year term and is immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution adjustments, equal to $12.53 per share of the Common Stock. If the Series A Preferred Stock is redeemed, the Warrant will be liquidated at the current market price. Treasury has agreed not to exercise voting power with respect to any shares of Common Stock issued upon exercise of the Warrant that it holds.

Pursuant to the terms of the Purchase Agreement, the ability of the Company to declare or pay dividends or distributions on, or purchase, redeem or otherwise acquire for consideration, shares of its Junior Stock (as defined

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below) and Parity Stock (as defined below) will be subject to restrictions, including a restriction against increasing dividends from the last quarterly cash dividend per share ($0.12) declared on the Common Stock prior to December 5, 2008. The redemption, purchase or other acquisition of trust preferred securities of the Company or its affiliates also will be restricted. These restrictions will terminate on the earlier of (a) the third anniversary of the date of issuance of the Series A Preferred Stock, (b) the date on which the Series A Preferred Stock has been redeemed in whole; and (c) the date Treasury has transferred all of the Series A Preferred Stock to third parties. In addition, the ability of the Company to declare or pay dividends or distributions on, or repurchase, redeem or otherwise acquire for con sideration, shares of its Junior Stock and Parity Stock will be subject to restrictions in the event that the Company fails to declare and pay full dividends (or declare and set aside a sum sufficient for payment thereof) on its Series A Preferred Stock. "Junior Stock" means the Common Stock and any other class or series of stock of the Company the terms of which expressly provide that it ranks junior to the Series A Preferred Stock as to dividend rights and/or rights on liquidation, dissolution or winding up of the Company. "Parity Stock" means any class or series of stock of the Company the terms of which do not expressly provide that such class or series will rank senior or junior to the Series A Preferred Stock as to dividend rights and/or rights on liquidation, dissolution or winding up of the Company (in each case without regard to whether dividends accrue cumulatively or non-cumulatively).

Through June 30, 2010, the Company had placed $7.0 million of TARP proceeds into the Bank, while maintaining the remaining $2.6 million with the Company for general operating purposes. Using the additional capital, along with deposit growth, the Bank increased its investment portfolio by $26 million since obtaining the TARP proceeds in December 2008. These purchases were primarily in mortgage and municipal securities, and would likely have not been made absent the Treasury investment.  Also, since December 2008, the Company has used the additional capital, along with deposit growth, to increase its loan portfolio by $68 million.

On July 17, 2009, the Company acquired 100% of the outstanding stock of Southern Bank of Commerce (SBOC), headquartered in Paragould, Arkansas.  SBOC was merged into the Bank on July 20, 2009. The Company acquired SBOC primarily for the purpose of obtaining entry to markets where it believes the Company's business model will perform well.  At acquisition, SBOC held assets of $29.9 million, including loans of $16.2 million, and held deposits of $29.1 million.

Forward Looking Statements

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

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

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

·   inflation, interest rate, market and monetary fluctuations;

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

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·   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 13 additional full service offices located in Poplar Bluff (2), Van Buren, Dexter, Kennett, Doniphan, Sikeston, Qulin, and Matthews, Missouri, and Paragould, Jonesboro, Leachville, and Brookland, Arkansas. At June 30, 2010, 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 380,000. The largest employers in the Bank's primary market area include Frito-Lay, Nestle, various hospitals and healthcare providers, Briggs & Stratton, Ralcorp (f/k/a Ra lston-Purina), Arkansas State University, Noranda Aluminum, American Railcar, Visiting Nurse Association, Good Humor-Breyers, Emerson Electric, Monroe Shocks, Gates Rubber, Nordyne, various school districts, Wal-Mart Stores, Mid-Continent Nail, Tyson Foods, and ArvinMeritor. The Bank's primary market area is predominantly 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. At June 30, 2010, the Bank was one of 35 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 t hat 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

The Company maintains a website at www.bankwithsouthern.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. The Company currently makes available on or through its website its 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.

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Selected Consolidated Financial Information

This information is incorporated by reference from pages 8 and 9 of the 2010 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 and agricultural real estate, construction loans on residential and commercial properties, commercial and agricultural business loans and consumer loans. The Bank has also occasionally purchased loan participation interests originated by other lenders and secured by properties generally located in the State of Missouri.

Supervision of the loan portfolio is the responsibility of our 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 next level of authority, or to the Loan Officers Committee, comprised of our President and our Chief Lending Officer, along with various appointed loan officers. Loans to one borrower (or group of related borrowers), in aggregate, in excess of $750,000 require the approval of a majority of the Discount Committee, which consists of all Bank directors, prior to the closing of the loan. All loans are subject to ratification by the full Board of Directors.

The aggregate amount of loans that the Bank is permitted to make under applicable federal regulations to any one borrower, including related entities, or the aggregate amount that the Bank could have invested in any one real estate project, is based on the Bank's capital levels. See "Regulation - Loans to One Borrower." At June 30, 2010, the maximum amount which the Bank could lend to any one borrower and the borrower's related entities was approximately $11.6 million. However, the Bank's internal lending limit established by the Board of Directors is $10.0 million. At June 30, 2010, the Bank's five largest credit relationships outstanding ranged from $7.3 million to $9.9 million, net of participation interests sold. As of June 30, 2010, the majority of these credits were commercial real estate, commercial, or multi- family real estate loans and all of them continued to perform 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,
	2010						2009						2008
	Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Type of Loan:
Mortgage Loans:
Residential real estate	$	158,494			37.86	%	$	155,490			42.14	%	$	149,340			43.48	%
Commercial real estate (1)		121,526			29.03			97,161			26.33			85,860			25.00
Construction		27,951			6.68			23,532			6.38			13,945			4.06
Total mortgage loans		307,971			73.56			276,183			74.85			249,145			72.54
Other Loans:
Automobile loans		8,442			2.02			8,329			2.26			8,872			2.58
Commercial business (2)		97,481			23.28			89,066			24.14			81,575			23.75
Home equity		12,879			3.08			10,976			2.97			8,213			2.39
Other		5,003			1.19			3,836			1.04			4,439			1.30
Total other loans		123,805			29.56			112,207			30.41			103,099			30.02
Total loans		431,776			103.13			388,390			105.26			352,244			102.56
Less:
Undisbursed loans in process		8,705			2.08			15,511			4.21			5,668			1.65
Deferred fees and discounts		(121	)		(0.03	)		(107	)		(0.03	)		(61	)		(0.02	)
Allowance for loan losses		4,509			1.08			3,993			1.08			3,199			0.93
Net loans receivable	$	418,683			100.00	%	$	368,993			100.00	%	$	343,438			100.00	%
Type of Security:
Residential real estate
One-to four-family	$	167,622			40.04		$	158,739			43.02		$	154,403			44.96
Multi-family		12,475			2.98			14,171			3.84			22,971			6.69
Commercial real estate		96,601			23.07			74,937			20.31			58,365			16.99
Land		34,518			8.24			29,584			8.02			24,891			7.25
Commercial		94,224			22.51			87,817			23.80			68,379			19.91
Consumer and other		26,336			6.29			23,142			6.27			23,235			6.76
Total loans		431,776			103.13			388,390			105.26			352,244			102.56
Less:
Undisbursed loans in process		8,705			2.08			15,511			4.21			5,668			1.65
Deferred fees and discounts		(121	)		(0.03	)		(107	)		(0.03	)		(61	)		(0.02	)
Allowance for loan losses		4,509			1.08			3,993			1.08			3,199			0.93
Net loans receivable	$	418,683			100.00	%	$	368,993			100.00	%	$	343,438			100.00	%

___________________________

(1)   Commercial real estate loan balances included farmland and other agricultural-related real estate loans of $28.3 million, $21.3 million, and $14.9 million, as of June 30, 2010, 2009, and 2008, respectively.

(2)   Commercial business loan balances included agricultural equipment and production loans of $35.9 million, $27.5 million, and $22.7 million as of June 30, 2010, 2009, and 2008, respectively.

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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,
	2010						2009						2008
	Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Type of Loan:
Fixed-Rate Loans:
Residential real estate	$	107,190			25.60	%	$	107,994			29.27	%	$	108,052			31.46	%
Commercial real estate		70,643			16.87			52,169			14.14			63,983			18.63
Construction		21,467			5.13			18,444			5.00			13,005			3.79
Consumer		13,439			3.21			12,140			3.29			13,280			3.87
Commercial business		50,747			12.12			50,364			13.65			59,796			17.41
Total fixed-rate loans		263,486			62.93			241,111			65.35			258,116			75.16
Adjustable-Rate Loans:
Residential real estate		51,304			12.25			47,497			12.87			41,288			12.02
Commercial real estate		50,883			12.15			44,992			12.19			21,877			6.37
Construction		6,484			1.55			5,087			1.38			940			0.27
Consumer		12,885			3.08			11,002			2.98			8,244			2.40
Commercial business		46,734			11.16			38,701			10.49			21,779			6.34
Total adjustable-rate loans		168,290			40.20			147,279			39.91			94,128			27.40
Total loans		431,776			103.13			388,390			105.26			352,244			102.56
Less:
Undisbursed loans in process		8,705			2.08			15,511			4.21			5,668			1.65
Net deferred loan fees		(121	)		(0.03	)		(107	)		(0.03	)		(61	)		(0.02	)
Allowance for loan loss		4,509			1.08			3,993			1.08			3,199			0.93
Net loans receivable	$	418,683			100.00	%	$	368,993			100.00	%	$	343,438			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, 2010, residential loans secured by one- to four-family residences totaled $149.6 million, or 35.7% of net loans receivable.

The Bank currently offers both fixed-rate and adjustable-rate mortgage ("ARM") loans. During the year ended June 30, 2010, the Bank originated $11.9 million of ARM loans and $17.0 million of fixed-rate loans that were secured by one- to four-family residences. An additional $6.9 million in fixed-rate one- to four-family residential loans were originated for sale on the secondary market.  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 50 basis points, but does not require private mortgage insurance.  For fiscal years ended June 30, 2010, 2009, and 2008, originations of one- to four-family loans in excess of 80% loan-to-value have totaled $7.9 million, $9.6 million, and $10.1 million, respectively.  The remaining balance of those loans at June 30, 2010, was $21.9 million. 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 avai lability of funding, and anticipated profit margins. Fixed and ARM loans originated by the Bank are amortized over periods as long as 30 years, but typically are repaid over shorter periods.

Fixed-rate loans secured by one- to four-family residences have contractual maturities up to 30 years, and are generally fully amortizing with payments due monthly. These loans normally remain outstanding for a substantially shorter period of time because of refinancing and other prepayments. A significant change in the interest rate environment can alter the average life of a residential loan portfolio. The one- to four-family fixed-rate

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loans do not contain prepayment penalties. Most are written using secondary market guidelines. At June 30, 2010, one- to four-family loans with a fixed rate totaled $103.4 million, and had a weighted-average maturity of 193 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, initial rates which may be at a premium or discount, 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 , 2010, loans tied to the CMT index totaled $43.6 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. Most properties securing real estate loans made by the Bank during fiscal 2010 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, 2010, the Bank had $121.5 million in commercial real estate loans, which represented 29.0% of net loans receivable. Of this amount, $28.3 million were loans secured by agricultural properties. The increase over the last several fiscal years in agricultural lending is the result of an intentional focus by the Bank on that segment of our market, including the hiring of personnel with knowledge of agricultural lending and experience in that type of business development.   The Company expects to continue to grow its agricultural lending portfolio, but expects that the rate of growth experienced over the last several fiscal years is unlikely to be maintained.

Most commercial real estate loans originated by the Bank generally are based on amortization schedules of up to 20 years with monthly principal and interest payments. Generally, the interest rate received on these loans is fixed for a maturity for up to five years, with a balloon payment due at maturity. Alternatively, for some loans, the interest rate adjusts at least annually after an initial period up to five years, based upon the Wall Street prime rate.  The Bank typically includes an interest rate "floor" in the loan agreement. The Bank's fixed-rate commercial real estate portfolio has a weighted average maturity of 36 months. Variable rate commercial real estate originations typically adjust daily, monthly, quarterly or annually based on the Wall Street prime rate. Generally, improved commercial real estate loan amounts do not exceed 80% of the lower of the appraised value or the purchase price of the secured property. Agricultural real estate terms offered differ slightly, with amortization schedules of up to 25 years with an 80% loan-to-value ratio, or 30 years with a 75% loan-to-value ratio. Before credit is extended, the Bank analyzes the financial condition of the borrower, the borrower's credit history, and the reliability and predictability of the cash flow generated by the property and the value of the property itself. Generally, personal guarantees are obtained from the borrower in addition to obtaining the secured property as collateral for such loans. The Bank also generally requires appraisals on properties securing commercial real estate to be performed by a Board-approved independent certified fee appraiser.

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

Construction Lending. The Bank originates real estate loans secured by property or land that is under construction or development. At June 30, 2010, the Bank had $28.0 million, or 6.7% of net loans receivable in construction loans outstanding.

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Construction loans originated by the Bank are generally secured by 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 or non-owner occupied commercial real estate. At June 30, 2010, $12.7 million of the Bank's construction loans were secured by one- to four-family residential real estate (of which $3.4 million was for speculative construction), $5.6 million of which were secured by multifamily real estate, and $9.6 million of which were secured by commercial 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 may be converted to monthly payments using amortization schedules of up to 30 years on residential and generally 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 c hanges 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 generally limited to 80% 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, 2010, the Bank's consumer loan portfolio totaled $26.3 million, or 6.3% of net loans receivable.

Home equity loans represented 49.0% of the Bank's consumer loan portfolio at June 30, 2010, and totaled $12.9 million, or 3.1% of net loans receivable.

Home equity lines of credit (HELOCs) are secured with a deed of trust and are issued up to 100% of the appraised or assessed value of the property securing the line of credit, less the outstanding balance on the first mortgage. Interest rates on the HELOCs are adjustable and are tied to the current prime interest rate. This rate is obtained from the Wall Street Journal and adjusts on a daily basis. Interest rates are based upon the loan-to-value ratio of the property with better rates given to borrowers with more equity. HELOCs, which are secured by residential properties, are secured by stronger collateral than automobile loans and because of the adjustable rate structure, contain less interest rate risk to the Bank. Lending up to 100% of the value of the property presents greater credit risk to the Bank. Consequent ly, the Bank limits this product to customers with a favorable credit history. At June 30, 2010, lines of credit up to 80% of the property value represented 83.1% of outstanding balances, and 86.5% of balances and commitments; lines of credit for more than 80%, but not exceeding 90%, of the property value represented 16.1% of outstanding balances and 12.9% of balances and commitments; and lines of credit in excess of 90% of the property value represented 0.8% of outstanding balances and 0.6% of balances and commitments.

Automobile loans represented 32.1% of the Bank's consumer loan portfolio at June 30, 2010, and totaled $8.4 million, or 2.0% of net loans receivable. Of that total, $383,000 represented loans originated by auto dealers. The Bank generally pays a negotiated fee back to the dealer for these loans. 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

9

ability to meet existing and proposed obligations. Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount.

Consumer loans may entail greater credit risk than do residential mortgage loans, because they are generally unsecured or are secured by rapidly depreciable or mobile assets, such as automobiles. 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. 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. At June 30, 2010, the Bank had $97.5 million in commercial business loans outstanding, or 23.3% of net loans receivable. Of this amount, $35.9 million were loans related to agriculture, including amortizing equipment loans and annual production lines. The increase over the last several fiscal years in agricultural lending is the result of an intentional focus by the Bank on that segment of our market, including the hiring of personnel with knowledge of agricultural lending and experience in that type of busines s development.  The Company expects to continue to grow its agricultural lending portfolio, but expects that the rate of growth experienced over the last several fiscal years is unlikely to be maintained.

The Bank currently offers both fixed and adjustable rate commercial business loans. At year end, the Bank had $50.8 million in fixed rate and $46.7 million of adjustable rate commercial business loans. The adjustable rate business loans typically reprice daily, monthly, quarterly, or annually, in accordance with the Wall Street prime rate of interest. The Bank typically includes an interest rate "floor" in the loan agreement. 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 or agricultural production lines are generally for a one year period. The Bank's commercial business loans are evaluated based on the loan application, a determination of the applicant's payment history on other debts, business stability and an assessment of ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount.

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

10

Contractual Obligations and Commitments, Including Off-Balance Sheet Arrangements. The following table discloses our fixed and determinable contractual obligations and commercial commitments by payment date as of June 30, 2010. Commitments to extend credit totaled $68.6 million at June 30, 2010.

	Less Than 1 year		1-3 Years		4-5 years		More Than 5 Years		Total
	(In Thousands)
Federal Home Loan Bank    advances	$	10,000	$	6,000	$	3,000	$	24,500	$	43,500
Certificates of deposit		147,948		31,487		13,085		-		192,520
Total	$	157,948	$	37,487	$	16,085	$	24,500	$	236,020
	Less Than 1 year		1-3 Years		4-5 years		More Than 5 Years		Total
	(In Thousands)
Construction loans in process	$	8,705	$	-	$	-	$	-	$	8,705
Other commitments		44,098		8,490		4,281		3,057		59,926
	$	52,803	$	8,490	$	4,281	$	3,057	$	68,631

Loan Maturity and Repricing

The following table sets forth certain information at June 30, 2010 regarding the dollar amount of loans maturing or repricing in the Bank's portfolio based on their contractual terms to maturity or repricing, but does not include scheduled payments or potential prepayments. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. Mortgage loans that have adjustable rates are shown as maturing at their next repricing date. Listed loan balances are shown before deductions for undisbursed loan proceeds, unearned discounts, unearned income and allowance for loan losses.

	Within One Year		After One Year Through 5 Years		After 5 Years Through 10 Years		After 10 Years		Total
	(In thousands)
Residential real estate	$	11,043	$	43,298	$	20,710	$	83,443	$	158,494
Commercial real estate		39,221		72,574		3,204		6,527		121,526
Construction		26,380		1,518		-		53		27,951
Consumer		3,300		12,223		10,696		105		26,324
Commercial business		59,805		27,664		680		9,332		97,481
Total loans	$	139,749	$	157,277	$	35,290	$	99,460	$	431,776

As of June 30, 2010, loans with a maturity date after June 30, 2011 with fixed interest rates totaled $193.9 million, and loans with a maturity date after June 30, 2011 with adjustable rates totaled $112.4 million.

Loan Originations, Sales and Purchases

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

While the Bank originates both adjustable-rate and fixed-rate loans, the ability to originate loans is dependent upon the relative customer demand for loans in its market. In fiscal 2010, the Bank originated $145.9 million of loans, compared to $141.3 million and $123.6 million in fiscal 2009 and 2008, respectively. Of these loans, mortgage loan originations were $98.6 million, $94.4 million and $82.2 million in fiscal 2010, 2009 and 2008, respectively.

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From time to time, the Bank has purchased loan participations consistent with its loan underwriting standards. In fiscal 2010, the Bank purchased $10.8 million of new loan participations. At June 30, 2010, loan participations totaled $20.6 million, or 4.9% of net loans receivable. At June 30, 2010, all of these participations were performing in accordance to their respective terms. The Bank will evaluate purchasing additional loan participations, based in part on local loan demand, liquidity, portfolio and leverage rate.

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

	Year Ended June 30,
	2010			2009			2008
	(Dollars in thousands)
Total loans at beginning of period	$	388,390		$	352,244		$	316,462
Loans originated:
One-to four-family residential		35,862			36,598			31,879
Multi-family residential and         commercial real estate		41,325			45,956			39,518
Construction loans		21,444			11,821			10,815
Commercial and industrial		31,677			30,921			25,350
Consumer and others		15,638			15,959			16,065
Total loans originated		145,946			141,255			123,627
Loans purchased:
Total loans purchased (1)		25,887			10,887			17,725
Loans sold:
Total loans sold		(6,917	)		(10,203	)		(4,566	)
Principal repayments		(101,162	)		(92,906	)		(90,425	)
Participation principal repayments		(18,442	)		(12,410	)		(9,925	)
Foreclosures		(1,926	)		(477	)		(654	)
Net loan activity		43,386			36,146			35,782
Total loans at end of period	$	431,776		$	388,390		$	352,244

_____________________

(1)   Amount reported in fiscal 2010 includes the Company’s acquisition of loans recorded at a $15.1 million fair value in the July 2009 acquisition of the Southern Bank of Commerce.

Loan Commitments

The Bank issues commitments for one- to four-family residential mortgage loans, operating or working capital lines of credit. Such commitments may be oral or in writing with specified terms, conditions and at a specified rate of interest and standby letters-of-credit. The Bank had outstanding net loan commitments of approximately $68.6 million at June 30, 2010. See Note 14 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.

12

Asset Quality

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

The following table sets forth the Bank's loan delinquencies by type and by amount at June 30, 2010.

	Loans Delinquent For:
	60-89 Days				90 Days and Over				Total Loans Delinquent 60 Days or More
	Numbers		Amounts		Numbers		Amounts		Numbers		Amounts
	(Dollars in thousands)
Residential real estate		4	$	239		4	$	163		8	$	402
Commercial real estate		---		---		4		51		4		51
Commercial non-real estate		3		23		4		43		7		66
Other consumer		6		20		12		75		18		95
Totals		13	$	282		24	$	332		37	$	614

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, 2010, the Bank had 15 loans on which interest was not being accrued, in accordance with ACS Topic 310, formerly SFAS No. 114 as amended by SFAS No. 118. The Bank would have recorded $60,000 of interest income during the year ended June 30, 2010, $52,000 of interest income during the year ended June 30, 2009 and an immaterial amount of interest income during the year ended June 30, 2008, on non-accrual loans, if these loans had been performing in accordance with their terms during such periods. Interest income recognized on non-accrual loans was $6,000, $25,000 and nominal for fiscal 2010, 2009 and 2008, respectively. The Bank also has $125,000 book value in non-performing investment securities. For additional information regarding non-performing investment securities, see "- Investment Securities Analysis ."

13

The following table sets forth information with respect to the Bank's non-performing assets as of the dates indicated. At the dates indicated, the Bank had no restructured loans within the meaning of ASC Topic 310, formerly SFAS 15.

	At June 30,
	2010			2009			2008			2007			2006
	(Dollars in thousands)
Nonaccruing loans:
Residential real estate	$	154		$	343		$	---		$	---		$	---
Commercial real estate		51			241			---			---			---
Consumer		24			9			---			2			51
Commercial business		9			66			---			---			---
Total	$	238		$	659		$	---		$	2		$	51
Loans 90 days past due    accruing interest:
Residential real estate	$	9		$	137		$	---		$	---		$	---
Commercial real estate		---			---			---			20			--
Consumer		51			---			6			4			2
Commercial business		34			---			---			---			---
Total	$	94		$	137		$	6		$	24		$	2
Total nonperforming loans	$	332		$	796		$	6		$	26		$	53
Nonperforming investments	$	125		$	125		$	---		$	---		$	---
Foreclosed assets held for sale:
Real estate owned		1,501			313			38			111			200
Other nonperforming assets		90			137			24			11			16
Total nonperforming assets	$	2,048		$	1,371		$	68		$	148		$	269
Total nonperforming loans    to net loans		0.08	%		0.22	%		0.00	%		0.01	%		0.02	%
Total nonperforming loans    to total assets		0.06	%		0.17	%		0.00	%		0.01	%		0.02	%
Total nonperforming assets    to total assets		0.37	%		0.29	%		0.02	%		0.04	%		0.08	%

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, 2010, the Company's balance of real estate owned totaled $1.5 million and included 13 residential and four nonresidential properties.

Asset Classification. Applicable regulations require that each insured institution review and classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, regulatory examiners have authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. Substandard assets must have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in f ull 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 FRB and the Missouri Division of Finance, which can order the establishment of additional loss allowances.

14

On the basis of management's review of the assets of the Company, at June 30, 2010, classified assets totaled $8.0 million, or 1.4% of total assets as compared $9.7 million, or 2.1% of total assets at June 30, 2009. The full amount classified as of June 30, 2010, was considered substandard. At June 30, 2010, significant classified assets included one loan relationship with outstanding classified balances of $3.0 million, secured by commercial and agricultural real estate, and another loan relationship with outstanding classified balances of $1.7 million, secured by commercial real estate and equipment, both classified due to concerns regarding the borrower's ability to generate sufficient cash flows to service the debt. All of the Company's investments in pooled trust preferred securities, with a book value of $1.5 m illion, were classified, also due to concerns about the ability of the pools to continue to generate sufficient cash flows to service the debt.  Three of these securities, with a book value of $1.0 million (included in the total of $1.5 million, above) have deferred interest payments as of June 30, 2010. With the exception of these three securities, all material classified assets were performing in accordance with terms at June 30, 2010.

Other Loans of Concern. In addition to the non-performing assets discussed above, there was also an aggregate of $5.9 million in loans, consisting primarily of a loan to a bank holding company, 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. The loan continued to perform according to terms as of June 30, 2010, but was identified as 7an other loan of concern due to concerns regarding the borrower’s ability to continue to generate sufficient cash flows to service the debt.  At June 30, 2009, this loan was classified as “substandard” and was upgraded during fiscal 20 10 based on actions taken by the borrower.

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, 2010, of $4.5 million, which represented 220% of nonperforming assets as compared to an allowance of $4.0 million, which represented 291% of nonperforming assets at June 30, 2009.

At June 30, 2010, the Bank also had an allowance for credit losses on off-balance sheet credit exposures of $562,000, as compared to $437,000 at June 30, 2009. This amount is maintained as a separate liability account to cover estimated potential credit losses associated with off-balance sheet credit instruments such as off-balance sheet loan commitments, standby letters of credit, and guarantees.

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

15

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

	Year Ended June 30,
	2010			2009			2008			2007			2006
	(Dollars in thousands)
Allowance at beginning of period	$	3,993		$	3,199		$	2,387		$	1,879		$	1,892
Recoveries
Residential real estate		8			3			1			1			---
Commercial real estate		3			6			---			---			---
Commercial business		5			3			168			22			11
Consumer		5			14			14			15			54
Total recoveries		21			26			183			38			65
Charge offs:
Residential real estate		153			19			34			83			57
Commercial real estate		76			11			---			---			---
Commercial business		118			242			5			24			374
Consumer		83			111			55			56			147
Total charge offs		430			383			94			163			578
Net recoveries (charge offs)		(409	)		(357	)		89			(125	)		(513	)
Provision for loan losses		925			1,151			723			633			500
Balance at end of period	$	4,509		$	3,993		$	3,199		$	2,387		$	1,879
Ratio of allowance to total loans    outstanding at the end of the    period		1.06	%		1.07	%		0.92	%		0.76	%		0.66	%
Ratio of net charge offs to    average loans outstanding    during the period		0.10	%		0.10	%		(0.03	)%		0.04	%		0.19	%

16

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

	At June 30,
	2010					2009					2008					2007					2006
	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)
Residential real estate	$	902		36.71	%	$	750		40.03	%	$	626		42.40	%	$	279		42.98	%	$	205		44.07	%
Construction		198		6.47			128		6.06			88		3.96			70		2.52			81		3.76
Commercial real estate		1,605		28.14			1,217		25.02			969		24.37			774		24.49			619		22.65
Consumer		473		6.10			367		5.96			333		6.11			256		6.10			293		6.97
Commercial business		1,330		22.58			1,038		22.93			952		23.16			784		23.91			678		22.55
Unallocated		---		---			493		---			231		---			234		---			3		---
Total allowance for       loan losses	$	4,508		100.00	%	$	3,993		100.00	%	$	3,199		100.00	%	$	2,387		100.00	%	$	1,879		100.00	%

17

Investment Activities

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

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

Investment purchases and/or sales must be authorized by the appropriate party, depending on the aggregate size of the investment transaction, prior to any investment transaction. The Board of Directors reviews all investment transactions. All investment purchases are identified as available-for-sale ("AFS") at the time of purchase. The Company has not classified any investment securities as hold-to-maturity over the last five years. Securities classified as "AFS" must be reported at fair value with unrealized gains and losses recorded as a separate component of stockholders' equity. At June 30, 2010, AFS securities totaled $67.0 million (excluding FHLB and FRB membership stock). For information regarding the amortized cost and market values of the Company's investments, see Note 2 of Notes to Consolidated Financial S tatements contained in the Annual Report.

As of June 30, 2010, the Company had no high risk derivative instruments and no outstanding hedging activities. Management has reviewed potential uses for derivative instruments and hedging activities, but has no immediate plans to employ these tools.

Debt and Other Securities. At June 30, 2010, the Company's debt and other securities portfolio totaled $32.6 million, or 5.9% of total assets as compared to $19.9 million, or 3.6% of total assets at June 30, 2009. During fiscal 2010, the Bank had $10.2 million in maturities and $21.3 million in security purchases; another $1.6 million was acquired in the July 2009 acquisition of SBOC. Of the securities that matured, $5.7 million was called for early redemption. At June 30, 2010, the investment securities portfolio included $12.4 million in U.S. government and government agency bonds, of which $11.4 million is subject to early redemption at the option of the issuer, and $19.8 million in municipal bonds, of which $19.2 million is subject to ear ly redemption at the option of the issuer. The remaining portfolio consists of $448,000 in other securities (including $191,000 estimated fair value in pooled trust preferred securities). Based on projected maturities, the weighted average life of the investment securities portfolio at June 30, 2010, was 40 months.  Membership stock held in the FHLB of Des Moines, totaling $2.6 million, and the FRB of St. Louis, totaling $583,000, was not included in the above totals.

At June 30, 2010, the Company owned four pooled trust preferred securities with a fair value of $191,000 and a book value of $1.5 million. The June 30, 2010, cash flow analysis for three of these securities showed it is probable the Company will receive all contracted principal and related interest projected, though interest payments have been deferred on two of the three securities. For the fourth security, an analysis at December 31, 2008, indicated other-than temporary impairment (OTTI), and the Company performed further analysis to determine the portion of the loss that was related to credit conditions of the underlying issuers. The credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment . The discounted cash flow was based on anticipated default and recovery rates, and the resulting projected cash flows were discounted based on the yield anticipated at the time the security was purchased. Based on this analysis, the Company recorded an impairment charge of $375,000 for the credit portion of the unrealized loss for this trust preferred security. This loss established a new, lower amortized cost basis of $125,000 for this security, and reduced non-interest income for the second quarter and year ended June 30, 2009.  Analyses performed quarterly and at fiscal year end in 2010 indicated no further impairment of any securities owned by the Company.

Mortgage-Backed Securities. At June 30, 2010, MBS totaled $34.3 million, or 6.2%, of total assets as compared to $40.3 million, or 8.6%, of total assets at June 30, 2009. During fiscal 2010, the Bank had maturities and prepayments of $6.3 million and had no purchases of MBS. At June 30, 2010, the MBS portfolio included $207,000

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in adjustable-rate MBS, $15.3 million in fixed-rate MBS and $18.8 million in fixed rate collateralized mortgage obligations (CMOs), all of 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, 2010 was 29 months. Prepayment rates may cause the anticipated average life of MBS portfolio to extend or shorten based upon actual prepayment rates.

Investment Securities Analysis

The following table sets forth the Company's debt and other securities portfolio at carrying value and membership stock at the dates indicated.

	At June 30,
	2010					2009					2008
	Fair Value		Percent of Portfolio			Fair Value		Percent of Portfolio			Fair Value		Percent of Portfolio
	(Dollars in thousands)
U.S. government and government    agencies	$	12,414		34.64	%	$	3,279		13.39	%	$	4,019		26.39	%
State and political subdivisions		19,769		55.17			13,623		55.60			6,031		39.59
FHLMC preferred stock		6		0.02			8		0.03			295		1.94
Other securities		442		1.23			3,000		12.24			1,563		10.26
FHLB membership stock		2,622		7.32			4,592		18.74			3,324		21.82
FRB membership stock		583		1.63			-		-			-		-
Total	$	35,836		100.00	%	$	24,502		100.00	%	$	15,232		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, 2010.

	Available for Sale Securities June 30, 2010
	Amortized Cost		Fair Value		Tax-Equiv. Wtd.-Avg.Yield
	(Dollars in thousands)
U.S. government and government agency securities:
Due within 1 year	$	1,000	$	1,009		5.14	%
Due after 1 year but within 5 years		1,000		1,000		1.25
Due after 5 years but within 10 years		6,248		6,288		2.89
Due over 10 years		4,097		4,117		3.67
Total		12,345		12,414		3.19
State and political subdivisions:
Due within 1 year		25		25		5.70
Due after 1 year but within 5 years		80		83		7.21
Due after 5 years but within 10 years		2,483		2,503		4.75
Due over 10 years		16,764		17,158		6.00
Total		19,352		19,769		5.68
Other securities:
Due after 1 year but within 5 years		-		6		-
Due after 5 years but within 10 years		246		251		5.94
Due over 10 years		1,525		191		1.11
Total		1,771		448		1.44
No stated maturity:
FHLB membership stock		2,622		2,622		2.00
FRB membership stock		583		583		6.00
Total		3,205		3,205		2.73
Total debt and other securities	$	36,673	$	35,836		4.50	%

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The following table sets forth certain information at June 30, 2010 regarding the dollar amount of MBS and CMOs at amortized cost due, 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, 2010
	(In thousands)
Amounts due:
Within 1 year	$	204
After 1 year through 3 years		308
After 3 years through 5 years		1,332
After 5 years		30,738
Total	$	32,582

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, 2010, which have fixed, floating, or adjustable interest rates.

	At June 30, 2010
	(In thousands)
Interest rate terms on amounts due after 1 year:
Fixed	$	32,378
Adjustable		204
Total	$	32,582

The following table sets forth certain information with respect to each MBS and CMO security at the dates indicated.

	At June 30,
	2010				2009				2008
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
FHLMC certificates	$	7,317	$	7,815	$	10,163	$	10,398	$	13,114	$	12,825
GNMA certificates		99		101		114		115		128		127
FNMA certificates		7,102		7,613		9,812		10,112		11,247		11,093
Collateralized mortgage obligations issued    by government agencies		18,064		18,805		18,925		19,644		3,935		3,961
Total	$	32,582	$	34,334	$	39,014	$	40,269	$	28,424	$	28,006

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.

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Deposits. The Bank's depositors are generally residents and entities located in the State of Missouri or Arkansas. Deposits are attracted from within the Bank's market area through the offering of a broad selection of deposit instruments, including demand deposit 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 an d its customer preferences and concerns. The Bank's Asset/Liability Committee regularly reviews its deposit mix and pricing.

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

The flow of deposits is influenced significantly by general economic conditions, changes in prevailing interest rates, and competition. The Bank has become more susceptible to short-term fluctuations in deposit flows, as customers have become more interest rate conscious. Based on its experience, the Bank believes that its deposits are relatively stable sources of funds. However, the ability of the Bank to attract and maintain certificates of deposit, and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions. The following table depicts the composition of the Bank's deposits at June 30, 2010:

Weighted Average Interest Rate at 6/30			Term	Category	Minimum Amount		Balance		Percentage of Total Deposits
							(In thousands)
	0.00	%	None	Non-interest Bearing	$	100	$	28,795		6.81	%
	2.34		None	NOW Accounts		100		103,713		24.52
	1.10		None	Savings Accounts		100		90,385		21.37
	1.39		None	Money Market Deposit Accounts		1,000		7,480		1.77
				Certificates of Deposit
	1.94		Less than 6 months	Fixed Rate/Term		1,000		9,129		2.16
	1.54		Less than 6 months	IRA Fixed Rate/Term		1,000		733		0.17
	2.42		7-12 months	Fixed Rate/Term		1,000		73,273		17.33
	2.58		7-12 months	IRA Fixed Rate/Term		1,000		9,049		2.14
	2.93		13-24 months	Fixed Rate/Term		1,000		35,971		8.51
	2.80		13-24 months	IRA Fixed Rate/Term		1,000		4,396		1.04
	1.00		13-24 months	IRA Variable Rate/Fixed Term		1,000		253		0.06
	3.69		25-36 months	Fixed Rate/Term		1,000		29,123		6.89
	3.77		25-36 months	IRA Fixed Rate/Term		1,000		7,379		1.74
	4.03		48 months and more	Fixed Rate/Term		1,000		18,851		4.46
	4.26		48 months and more	IRA Fixed Rate/Term		1,000		4,363		1.03
							$	422,893		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, 2010. Jumbo certificates of deposit require minimum deposits of $100,000 and rates paid on such accounts are generally negotiable.

Maturity Period	Amount
	(In thousands)
Three months or less	$	21,393
Over three through six months		15,891
Over six through twelve months		28,603
Over 12 months		19,639
Total	$	85,526

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,
			2010		2009		2008
			(In thousands)
	0.00 - 0.99	%	$	5,577	$	-	$	-
	1.00 - 1.99	%		82,606		45,344		7,135
	2.00 - 2.99	%		57,961		51,949		33,105
	3.00 - 3.99	%		33,905		47,718		50,555
	4.00 - 4.99	%		10,737		13,898		48,414
	5.00 - 5.99	%		1,735		1,397		11,149
Total			$	192,521	$	160,306	$	150,358

The following table sets forth the amount and maturities of all time deposits at June 30, 2010.

	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)
0.00 – 0.99%	$	5,577	$	-	$	-	$	-	$	-	$	5,577		2.90	%
1.00 – 1.99%		78,398		4,201		-		-		7		82,606		42.91
2.00 - 2.99%		40,116		14,311		3,159		375		-		57,961		30.11
3.00 - 3.99%		17,567		561		3,635		5,060		7,082		33,905		17.61
4.00 - 4.99%		6,073		2,137		1,966		561		-		10,737		5.58
5.00 - 5.99%		217		858		660		-		-		1,735		0.90
Total	$	147,948	$	22,068	$	9,420	$	5,996	$	7,089	$	192,521		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,
	2010								2009								2008
	Amount		Percent of Total			Increase (Decrease)			Amount		Percent of Total			Increase (Decrease)			Amount		Percent of Total			Increase (Decrease)
	(Dollars in thousands)
Noninterest bearing	$	28,795		6.81	%		7,491		$	21,304		6.83	%		2,083		$	19,221		6.58	%		(3,055	)
NOW checking		103,713		24.52			38,599			65,114		20.87			27,964			37,150		12.71			6,027
Savings accounts		90,385		21.37			31,787			58,598		18.78			(14,825	)		73,423		25.12			(5,485	)
Money market deposit		7,480		1.77			847			6,633		2.13			(5,472	)		12,105		4.14			4,893
Fixed-rate certificates    which mature(1):
Within one year		147,824		34.96			35,160			112,664		36.12			(17,217	)		129,881		44.44			12,976
Within three years		31,359		7.42			(1,657	)		33,016		10.58			19,698			13,318		4.56			4,565
After three years		13,085		3.09			(1,259	)		14,344		4.60			7,468			6,876		2.35			2,282
Variable-rate certificates    which mature:    Within one year		124		0.03			(22	)		146		0.05			(2	)		144		0.05			(33	)
Within three years		128		0.03			(8	)		136		0.04			(3	)		139		0.05			(1	)
Total	$	422,893		100.00	%	$	110,938		$	311,955		100.00	%	$	19,698		$	292,257		100.00	%	$	22,169

___________________________

(1)           At June 30, 2010, 2009 and 2008, certificates in excess of $100,000 totaled $85.5 million, $62.7 million and $58.2 million, respectively.

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

	At June 30,
	2010		2009		2008
	(In thousands)
Beginning Balance	$	422,893	$	292,257	$	270,088
Net increase before interest credited		104,088		13,700		14,355
Interest credited		6,850		5,998		7,814
Net increase in deposits		110,938		19,698		22,169
Ending balance	$	422,893	$	311,955	$	292,257

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, 2010, the Bank had $43.5 million in FHLB advances, of which $34.5 million had an original term of ten years, subject to early redemption by the FHLB after an initial period of one to five years, $9.0 million in borrowings, all of which had fixed rates and original maturities of five to seven years, and no short-term borrowings. An additional $3.0 million in credit from the FHLB had been utilized, at June 30, 2010, through the issuance of letters of credit to secure public unit deposits.  In order for the Bank to borrow from the FHLB, it has pledged $204.3 million of its residential and commercial real estate loans to the FHLB million (although the actual collateral required for advances taken and letters of credit issued amounts to $63.5 million) and has purchased $2.6 million in FHLB stock. At June 30, 2010, the Bank had additional borrowing capacity on its pledged residential and commercial real estate loans from the FHLB of $103.3 million, as compared to $52.5 million at June 30, 2009.

Additionally, the Bank is approved to borrow from the FRB’s discount window on a primary credit basis.  Primary credit is available to approved institutions on a generally short-term basis at the “discount rate” set by the FOMC.  The bank has pledged agricultural real estate and other loans to farmers as collateral for any amounts borrowed through the discount window.  As of June 30, 2010, the Bank was approved to borrow up to $30.7 million through the discount window, but no balance was outstanding.

Also classified as borrowings are the Bank’s securities sold under agreements to repurchase (“repurchase agreements”). These agreements are typically entered into with local public units or corporations. Generally, the Bank pays interest on these agreements at a rate similar to those available on repurchase agreements with wholesale funding sources, but in the current rate environment the Bank is paying a rate slightly higher than the market for such funding. The Bank views repurchase agreements with local entities as a stable funding source, and collateral requirements relating to public units are somewhat easier to manage using repurchase agreements. At June 30, 2010, the Bank had outstanding $30.4 million in repurchase agreements, as compared to $23.7 million at June 30, 2009.

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, were 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

24

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. See "Regulation" for further discussion on the treatment of the trust-preferred securities.

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,
	2010			2009			2008
	(Dollars in thousands)
Year end balances
Short-term FHLB advances	$	-		$	6,250		$	5,550
Securities sold under agreements to repurchase		30,369			23,748			21,804
Total short-term borrowings	$	30,369		$	29,998		$	27,354
Weighted average rate at year end		0.85	%		0.73	%		1.90	%

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

	Year Ended June 30,
	2010			2009			2008
	(Dollars in thousands)
FHLB advances
Daily average balance	$	57,399		$	77,923		$	58,526
Weighted average interest rate		4.68	%		4.43	%		5.25	%
Maximum outstanding at any month end	$	72,500		$	92,675		$	65,600
Securities sold under agreements to repurchase
Daily average balance	$	27,674		$	24,345		$	20,567
Weighted average interest rate		0.84	%		0.94	%		3.31	%
Maximum outstanding at any month end	$	31,230		$	27,819		$	24,659
Subordinated Debt
Daily average balance	$	7,217		$	7,217		$	7,217
Weighted average interest rate		3.15	%		4.95	%		7.47	%
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, 2010 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

Recently Enacted Regulatory Reform

On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The act imposes new restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions. In addition, the new law changes the jurisdictions of existing bank regulatory agencies, but does not change the banking regulatory agencies with jurisdiction over the Company and the Bank. The new law also establishes an independent federal consumer protection bureau within the FRB. The following discussion summarizes significant aspects of the new law that may affect the Bank and the Company. Regulations implementing many of these changes have not been promulgated, so we cannot determine th e full impact on our business and operations at this time.

The following aspects of the Dodd-Frank Act are related to the operations of the Bank:  

•  A new independent Consumer Financial Protection Bureau (CFPB) will be established within the Federal Reserve, empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws. Financial institutions with assets of less than $10 billion, like the Bank, will be subject to supervision and enforcement by their primary federal banking regulator with respect to federal consumer financial protection laws.

•  The Federal Deposit Insurance Act was amended to direct federal regulators to require depository institution holding companies to serve as a source of strength for their depository institution subsidiaries.

•  The current prohibition on payment of interest on demand deposits was repealed, effective July 21, 2011.

•  Deposit insurance is permanently increased to $250,000 and unlimited deposit insurance for noninterest-bearing transaction accounts is extended through December 31, 2013.

•  The deposit insurance assessment base will be the depository institution's total average assets minus the sum of its average tangible equity during the assessment period.

•  The minimum reserve ratio of the Deposit Insurance Fund increased to 1.35 percent of estimated annual insured deposits or assessment base; however, the Federal Deposit Insurance Corporation is directed to "offset the effect" of the increased reserve ratio for insured depository institutions with total consolidated assets of less than $10 billion.

The following aspects of the financial reform and consumer protection act are related to the operations of the Company:

 •  Tier 1 capital treatment for "hybrid" capital items like trust preferred securities (TPS), but not TARP instruments, is eliminated, but TPS issued before May 21, 2010 by a bank holding company with assts of less than $15 billion as of December 31, 209 will continue to be eligible as Tier 1 capital. Under the Dodd-Frank Act, the federal banking agencies must promulgate new rules on regulatory capital within 18 months from July 21, 2010, for both depository institutions and their holding companies, to include leverage capital and risk-based capital measures at least as stringent as those now applicable to the Bank under the prompt corrective action regulations.

 •  Public companies will be required to provide their shareholders with a non-binding vote: (i) at least once every three years on the compensation paid to executive officers, and (ii) at least once every six years on whether they should have a "say on pay" vote every one, two or three years.

 •  A separate, non-binding shareholder vote will be required regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions or other transactions that would trigger the parachute payments.

 •  Securities exchanges will be required to prohibit brokers from using their own discretion to vote shares not beneficially owned by them for certain "significant" matters, which include votes on the election of directors, executive compensation matters, and any other matter determined to be significant.

26

 •  Stock exchanges, not including the OTC Bulletin Board, will be prohibited from listing the securities of any issuer that does not have a policy providing for (i) disclosure of its policy on incentive compensation payable on the basis of financial information reportable under the securities laws, and (ii) the recovery from current or former executive officers, following an accounting restatement triggered by material noncompliance with securities law reporting requirements, of any incentive compensation paid erroneously during the three-year period preceding the date on which the restatement was required that exceeds the amount that would have been paid on the basis of the restated financial information.

 •  Disclosure in annual proxy materials will be required concerning the relationship between the executive compensation paid and the financial performance of the issuer.

 •  Item 402 of Regulation S-K will be amended to require companies to disclose the ratio of the Chief Executive Officer's annual total compensation to the median annual total compensation of all other employees.

 •  Smaller reporting companies are exempt from complying with the internal control auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

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 FRB 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.

Federal Reserve System. The 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, 2010, the Bank was in compliance with these reserve requirements.

The Bank is authorized to borrow from the Federal Reserve Bank "discount window," but has not pledged any collateral in order to do so.  Additionally, 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 administer the home financing credit function of savings 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 or advances to members 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. See Business - Deposit Activities and Other Sources of Funds - Borrowings.

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As a member, the Bank is required to purchase and maintain stock in the FHLB of Des Moines. At June 30, 2010, the Bank had $2.6 million in FHLB stock, which was in compliance with this requirement. The Bank received $83,000 and $84,000 in dividends from the FHLB of Des Moines for the years ended June 30, 2010 and 2009, respectively.

The FHLBs have continued and continue 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 affected adversely 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.

Federal Deposit Insurance Corporation. The Bank's deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. The general insurance limit is $250,000. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the fund. The FDIC also has the authority to initiate enforcement actions against a member bank of the Federal Reserve system after giving the FRB an opportunity to take such action.

Under its current rules, the FDIC assesses deposit insurance premiums on each FDIC-insured institution quarterly based on annualized rates for one of four risk categories applied to its deposits, subject to certain adjustments. Each institution is assigned to one of four risk categories based on its capital, supervisory ratings and other factors. Well capitalized institutions that are financially sound with only a few minor weaknesses are assigned to Risk Category I. Risk Categories II, III and IV present progressively greater risks to the DIF. Under FDIC's risk-based assessment rules, the initial base assessment rates prior to adjustments range from 12 to 16 basis points for Risk Category I, and  are 22 basis points for Risk Category II, 32 basis points for Risk Category III, and 45 basis points for Risk C ategory IV. Initial base assessment rates are subject to adjustments based on an institution's unsecured debt, secured liabilities and brokered deposits, such that the total base assessment rates after adjustments range from 7 to 24 basis points for Risk Category I, 17 to 43 basis points for Risk Category II, 27 to 58 basis points for Risk Category III, and 40 to 77.5 basis points for Risk Category IV. Rates increase uniformly by 3 basis points effective January 1, 2011.

In addition to the regular quarterly assessments, due to losses and projected losses attributed to failed institutions, the FDIC imposed a special assessment of 5 basis points on the amount of each depository institution's assets reduced by the amount of its Tier 1 capital (not to exceed 10 basis points of its assessment base for regular quarterly premiums) as of June 30, 2009, which was collected on September 30, 2009.

As a result of a decline in the reserve ratio (the ratio of the net worth of the DIF to estimated insured deposits) and concerns about expected failure costs and available liquid assets in the DIF, the FDIC adopted a rule requiring each insured institution to prepay on December 30, 2009 the estimated amount of its quarterly assessments for the fourth quarter of 2009 and all quarters through the end of 2012 (in addition to the regular quarterly assessment for the third quarter due on December 30, 2009). The prepaid amount is recorded as an asset with a zero risk weight and the institution will continue to record quarterly expenses for deposit insurance. For purposes of calculating the prepaid amount, assessments are measured at the institution's assessment rate as of September 30, 2009, with a uniform increase of 3 ba sis points effective January 1, 2011, and are based on the institution's assessment base for the third quarter of 2009, with growth assumed quarterly at annual rate of 5%. If events cause actual assessments during the prepayment period to vary from the prepaid amount, institutions will pay excess assessments in cash, or receive a rebate of prepaid amounts not exhausted after collection of assessments due on June 13, 2013, as applicable. Collection of the prepayment does not preclude the FDIC from changing assessment rates or revising the risk-based assessment system in the future.

In April 2010, the FDIC issued a proposed rule modifying the way assessments are determined. Under the proposed rule, for most institutions, initial base assessment rates would be 10 to 14 basis points for Risk Category I, 22 basis points for Risk Category II, 34 basis points for Risk Category III, and 50 basis points for Risk Category IV. After adjustments based on unsecured long-term debt, secured liabilities and brokered deposits, the total base assessment rates would be 5 to 21 basis points for Risk Category I, 17 to 43 basis points for Risk Category II, 29 to 61 basis points for Risk Category III, and 45 to 85 basis points for Risk Category IV. However, for large institutions (those with $10 billion or more of total assets for four consecutive quarters), the Risk Categories would not apply

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and new scorecard methods would be employed. Rates for all institutions would increase by 3 basis points effective January 1, 2011. New regulations on deposit assessments are expected due to requirements of the Dodd-Frank Act.

In October 2008, the FDIC introduced the Temporary Liquidity Guarantee Program (the "TLGP"), a program designed to improve the functioning of the credit markets and to strengthen capital in the financial system during this period of economic distress. The TLGP has two components: 1) a debt guarantee program, guaranteeing certain newly issued senior unsecured debt, and 2) a transaction account guarantee program, providing a full guarantee of non-interest bearing deposit transaction accounts, Negotiable Order of Withdrawal (or "NOW") accounts paying minimal or no annual interest, and Interest on Lawyers Trust Accounts ("IOLTA"), regardless of the amount. The Company and the Bank have not issued any debt under this program and their ability to do so expired on April 30, 2010. The Bank is discontinued participa tion in the transaction account guarantee program on June 30, 2010.  The program has been extended through the period ending December 31, 2010, with annualized program fees increasing from a flat 10 basis points to 15 basis points on transaction account balances over $250,000 for institutions assigned to Risk Category I for deposit insurance purposes (or 20 basis points for those in Risk Category II and 25 basis points for those in Risk Categories III and IV). Under the Dodd-Frank Act, noninterest-bearing transaction accounts (but not NOW or IOLTA accounts) will have unlimited deposit insurance coverage from December 30, 2010 through December 31, 2012; during this period, no program fees are currently expected. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Bank. There can be no prediction as to what insurance assessment rates will be in the future. Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. Management of the Bank is not aware of any practice, condition or violation that might lead to termination of the Bank's deposit insurance.

In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. This payment is established quarterly and during the fiscal year ending March 31, 2010 averaged 1.04 basis points of assessable deposits. The Financing Corporation was chartered in 1987 solely for the purpose of functioning as a vehicle for the recapitalization of the Federal Savings and Loan Insurance Corporation.

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 capit al 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 FRB 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.

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At June 30, 2010, 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 FRB determines that the Bank fails to meet any standard prescribed by the Guidelines, the agency may requ ire the Bank to submit to the agency an acceptable plan to achieve compliance with the standard.

The American Recovery and Reinvestment Act of 2010. On February 17, 2010, President Obama signed The American Recovery and Reinvestment Act of 2010 ("ARRA") into law. The ARRA is intended to revive the US economy by creating millions of new jobs and stemming home foreclosures. For financial institutions that have received or will receive financial assistance under TARP or related programs, the ARRA significantly rewrites the original executive compensation and corporate governance provisions of Section 111 of the EESA. Among the most important changes instituted by the ARRA are new limits on the ability of TARP recipients to pay incentive compensation to up to 20 of the next most highly-compensated employees in addition to the "senior executi ve officers," a restriction on termination of employment payments to senior executive officers and the five next most highly-compensated employees and a requirement that TARP recipients implement "say on pay" shareholder votes.  As a TARP recipient, the Company has taken the appropriate steps to comply with the foregoing restrictions and requirements, including a "say on pay" proposal in this year's proxy statement.

In February 2010, the Administration also announced its Financial Stability Plan and Homeowners Affordability and Stability Plan ("HASP"). The Financial Stability Plan is the second phase of TARP, to be administrated by the Treasury. Its four key elements include:

·   the development of a public/private investment fund essentially structured as a government sponsored enterprise with the mission to purchase troubled assets from banks with an initial capitalization from government funds;

·   the Capital Assistance Program under which the Treasury will purchase additional preferred stock available only for banks that have undergone a new stress test given by their regulator;

·   an expansion of the Federal Reserve's term asset-backed liquidity facility to support the purchase of up to $1 trillion in AAA-rated asset backed securities backed by consumer, student, and small business loans, and possible other types of loans; and

·   the establishment of a mortgage loan modification program with $50 billion in federal funds further detailed in the HASP.

The HASP is a program aimed to help seven to nine million families restructure their mortgages to avoid foreclosure. The plan also develops guidance for loan modifications nationwide. HASP provides programs and funding for eligible refinancing of loans owned or guaranteed by Fannie Mae or Freddie Mac, along with incentives to lenders, mortgage servicers, and borrowers to modify mortgages of "responsible" homeowners who are at risk of defaulting on their mortgage. The goals of HASP are to assist in the prevention of home foreclosures and to help stabilize falling home prices. See the Company's Annual Report to Shareholders, included as Exhibit 13 for a discussion of the company's participation in the TARP Capital Purchase Program.

Initiatives Prompted by the Subprime Mortgage Crisis. In response to the recent subprime mortgage crisis, federal and state regulatory agencies have focused attention on subprime and nontraditional mortgage products both with an aim toward enhancing the regulation of such loans and providing relief to adversely affected borrowers.

Guidance on Subprime Mortgage Lending. On July 10, 2007, the federal banking agencies issued guidance on subprime mortgage lending to address issues related to certain mortgage products marketed to subprime borrowers, particularly adjustable rate mortgage products that can involve "payment shock" and other risky characteristics. Although the guidance focuses on subprime borrowers, the banking agencies note that institutions

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should look to the principles contained in the guidance when offering such adjustable rate mortgages to non-subprime borrowers. The guidance prohibits predatory lending programs; provides that institutions should underwrite a mortgage loan on the borrower's ability to repay the debt by its final maturity at the fully-indexed rate, assuming a fully amortizing repayment schedule; encourages reasonable workout arrangements with borrowers who are in default; mandates clear and balanced advertisements and other communications; encourages arrangements for the escrowing of real estate taxes and insurance; and states that institutions should develop strong control and monitoring systems. The guidance recommends that institutions refer to the Real Estate Lending Standards (discussed above) which provide underwriting stand ards for all real estate loans.

The federal banking agencies announced their intention to carefully review the risk management and consumer compliance processes, policies and procedures of their supervised financial institutions and their intention to take action against institutions that engage in predatory lending practices, violate consumer protection laws or fair lending laws, engage in unfair or deceptive acts or practices, or otherwise engage in unsafe or unsound lending practices.

Guidance on Loss Mitigation Strategies for Servicers of Residential Mortgages. On September 4, 2007, the federal banking agencies issued a statement encouraging regulated institutions and state-supervised entities that service residential mortgages to pursue strategies to mitigate losses while preserving homeownership to the extent possible and appropriate. The guidance recognizes that many mortgage loans, including subprime loans, have been transferred into securitization trusts and servicing for such loans is governed by contract documents. The guidance advises servicers to review governing documentation to determine the full extent of their authority to restructure loans that are del inquent or are in default or are in imminent risk of default.

The guidance encourages loan servicers to take proactive steps to preserve homeownership in situations where there are heightened risks to homeowners losing their homes to foreclosures. Such steps may include loan modification; deferral of payments; extensions of loan maturities; conversion of adjustable rate mortgages into fixed rate or fully indexed, fully amortizing adjustable rate mortgages; capitalization of delinquent amounts; or any combination of these actions. Servicers are instructed to consider the borrower's ability to repay the modified obligation to final maturity according to its terms, taking into account the borrower's total monthly housing-related payments as a percentage of the borrower's gross monthly income, the borrower's other obligations, and any additional tax liabilities that may result from loan modifications. Where appropriate, servicers are encouraged to refer borrowers to qualified non-profit and other homeownership counseling services and/or to government programs that are able to work with all parties and avoid unnecessary foreclosures. The guidance states that servicers are expected to treat consumers fairly and to adhere to all applicable legal requirements.

Relief for Homeowners. In October 2007, the Treasury helped to facilitate the creation of the HOPE NOW Alliance, a private sector coalition formed to encourage mortgage servicers, mortgage counselors, government officials and non-profit groups to coordinate their efforts to help struggling borrowers restructure their mortgage payments and stay in their homes. HOPE NOW is aimed at coordinating and improving outreach to borrowers, developing best practices for mortgage counselors across the country and ensuring that groups able to help homeowners work out new loan arrangements with lenders have adequate resources to carry out this mission. Treasury has worked with other agencies and HOPE NOW to create a stream-lined loan modification program. In October 2003, HUD implemented Hope for Homeowners, a voluntary FHA program for refinancing affordable home mortgages.

Housing and Economic Recovery Act of 2008. The Housing and Economic Recovery Act of 2008, signed by President Bush on July 30, 2008, was designed to address a variety of issues relating to the subprime mortgage crises. This act established a new maximum conforming loan limit for Fannie Mae and Freddie Mac in high cost areas to 150% of the conforming loan limit of $417,000 to take effect after December 31, 2008. The FHA's maximum conforming loan limit has been increased from 95% to 110% of the area median home price up to 150% of the Fannie Mae/Freddie Mac conforming loan limit, to take effect at the same time. Among other things, the Housing and Economic Recovery Act of 2008 enhanced the regulation of Fannie Mae, Freddie Mac and Federal Housi ng Administration loans; established a new Federal Housing Finance Agency to replace the prior Federal Housing Finance Board and Office of Federal Housing Enterprise Oversight; will require enhanced mortgage disclosures; and will require a comprehensive licensing, supervisory, and tracking system for mortgage originators. Using its new powers, on September 7, 2008 the Federal Housing Finance Agency announced that it had put Fannie Mae and Freddie Mac under conservatorship. The Housing and Economic Recovery Act of 2008 also establishes the

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HOPE for Homeowners program, which is a new, temporary, voluntary program to back Federal Housing Administration-insured mortgages to distressed borrowers. The new mortgages offered by Federal Housing Administration-approved lenders will refinance distressed loans at a significant discount for owner-occupants at risk of losing their homes to foreclosure.

New Regulations Establishing Protections for Consumers in the Residential Mortgage Market. The Federal Reserve Board has issued new regulations under the federal Truth-in-Lending Act and the Home Ownership and Equity Protection Act. For mortgage loans governed by the Home Ownership and Equity Protection Act, the new regulations further restrict prepayment penalties, and enhance the standards relating to the consumer's ability to repay. For a new category of closed-end "higher-priced" mortgage loans, the new regulations restrict prepayment penalties, and require escrows for property taxes and property-related insurance for most first lien mortgage loans. For all closed-end loans secured by a principal dwelling, the new regulations prohibit the coercion of appraisers; require the prompt crediting of payments; prohibit the pyramiding of late fees; require prompt responses to requests for pay-off figures; and require the delivery of transaction-specific Truth-in-Lending Act disclosures are to be provided within three business days following the receipt of an application for a closed-end home loan. The new regulations also impose new restrictions on mortgage loan advertising for both open-end and closed-end products. In general, the new regulations are effective October 1, 2010, but the rules governing escrows for higher-priced mortgages are effective on April 1, 2011, and for higher-priced mortgage loans secured by manufactured housing, on October 1, 2011. The Dodd-Frank Act requires the CFPB to establish an array of new rules protecting consumers in connection with residential mortgage loans and other loans.

Pending Legislation and Regulatory Proposals. As a result of the credit crisis and current financial conditions, federal and state legislators and agencies are considering a broad variety of legislative and regulatory proposals covering lending and related matters, risk management practices, supervision and consumer protection. It is unclear which, if any, of these initiatives will be adopted, what effect they will have on the Company or the Bank and whether any of these initiatives will change the competitive landscape in the banking  industry.

Guidance on Nontraditional Mortgage Product Risks. On September 29, 2006, the federal banking agencies issued guidance to address the risks posed by nontraditional residential mortgage products, that is, mortgage products that allow borrowers to defer repayment of principal or interest. The guidance instructs institutions to ensure that loan terms and underwriting standards are consistent with prudent lending practices, including consideration of a borrower's ability to repay the debt by final maturity at the fully indexed rate and assuming a fully amortizing repayment schedule; requires institutions to recognize, for higher risk loans, the necessity of verifying the borrower's income, assets and liabilities; requires institutions to address the risks associated with simultaneous second-lien loans, introductory interest rates, lending to subprime borrowers, non-owner-occupied investor loans, and reduced documentation loans; requires institutions to recognize that nontraditional mortgages, particularly those with risk-layering features, are untested in a stressed environment; requires institutions to recognize that nontraditional mortgage products warrant strong controls and risk management standards, capital levels commensurate with that risk, and allowances for loan and lease losses that reflect the collectibility of the portfolio; and ensure that consumers have sufficient information to clearly understand loan terms and associated risks prior to making product and payment choices. The guidance recommends practices for addressing the risks raised by nontraditional mortgages, including enhanced communications with consumers, beginning when the consumer is first shopping for a mortgage; pro motional materials and other product descriptions that provide information about the costs, terms, features and risks of nontraditional mortgages, including with respect to payment shock, negative amortization, prepayment penalties, and the cost of reduced documentation loans; more informative monthly statements for payment option adjustable rate mortgages; and specified practices to avoid. Subsequently, the federal banking agencies produced model disclosures that are designed to provide information about the costs, terms, features and risks of nontraditional mortgages.

Guidance on Real Estate Concentrations. On December 6, 2006, the federal banking agencies issued  guidance on sound risk management practices for concentrations in commercial real estate lending. The particular focus is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be sensitive to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is not to limit a bank's commercial real estate lending but to guide banks in developing risk management practices and c apital levels commensurate with the level and nature of real estate concentrations. The FDIC and other bank regulatory agencies will be focusing their supervisory resources on institutions that may have significant

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commercial real estate loan concentration risk. A bank that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial real estate loan, or is approaching or exceeding the following supervisory criteria may be identified for further supervisory analysis with respect to real estate concentration risk.

Capital Requirements. The FRB's minimum capital standards applicable to FRB-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 FRB capital regulations establish a minimum leverage ratio of not less than 4% for banks that are not the most highly ra ted or are anticipating or experiencing significant growth.

The FRB'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 FRB 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 th e FRB. Also, inadequately capitalized state nonmember banks will be subject to such administrative action as the FRB deems necessary.

FRB 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 FRB 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 FRB 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.

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 institu tion 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

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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 FRB has adopted the Federal Financial Institutions Examination Council's recommendation regarding the adoption of ASC Topic 320, formerly 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 available for sale debt and equity securities should not be included when calculating core and risk-based capital ratios.

FRB 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 FRB capital regulations state that, where the FRB 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 FRB 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 FRB Capital requirements at June 30, 2010, see Note 12 of the Notes to the Consolidated Financial Statements in the annual report to stockholders included in Exhibit 13 and hereby incorporated by reference.

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

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

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

Federally insured banks are subject, with certain exceptions, to certain restrictions (including collateralization) on extensions of credit to their parent holding companies or other affiliates, on investments in the

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stock or other securities of affiliates and on the taking of such stock or securities as collateral from any borrower. In addition, such banks are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or the providing of any property or service.

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

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.

The SEC has adopted rules under which, if certain conditions are met, the holders of 3% of voting shares of the Company who have held their shares for three years may require the Company to include their nominees for board seats in proxy materials distributed by the Company.  "Smaller reporting companies", like the Company, will be subject to these new rules after a three-year phase-in period.

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

The Company is subject to the activity limitations imposed on bank holding companies. The BHCA prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect  ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by FRB regulation or order, have been identified as activities closely related to the business of banking or

35

managing or controlling banks. The list of activities permitted by the FRB includes, among other things, operating a savings institution, mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; providing certain investment and financial advice; underwriting and acting as an insurance agent for certain types of credit-related insurance; leasing property on a full-payout, non-operating basis; selling money orders, travelers' checks and United States Savings Bonds; real estate and personal property appraising; providing tax planning and preparation services; and, subject to certain limitations, providing securities brokerage services for customers. The scope of permissible activities may be expanded from time to time by the FRB. Such activities may also be affected by federal legislation.

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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, historically has been computed using an amount based on the Bank's actual loss experience, in accordance with IRC 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.

The Bank’s average assets for the current year exceeded $500 million, thus classifying it as a large bank for purposes of IRC Section 585.  Under IRC Section 585(c)(3), a bank that becomes a large bank must change its method of accounting from the reserve method to a specific charge-off method under IRC Section 166.  The Bank’s deductions with respect to their loans are computed under the specific charge-off method.  The specific charge-off method will be used in the current year and all subsequent tax years.

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 acc umulated 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

General.  Missouri-based banks, such as the Bank, are subject to a Missouri bank franchise and income tax.

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Bank Franchise Tax.  The Missouri bank franchise tax is imposed on (i) the bank's taxable income at the rate of 7%, less credits for certain Missouri taxes, including income taxes.  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 bank's net assets at a rate of .033%.  Net assets are defined as total assets less deposits and the investment in greater than 50% owned subsidiaries - asset-based calculation.

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

Arkansas Taxation

General.  Due to its loan activity and the acquisition of an Arkansas bank in the current year, the Bank is subject to an Arkansas income tax.  The tax is imposed on the Bank’s apportioned taxable income at a rate of 6%.

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, 2010, the Company had 116 full-time employees and 28 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.

INTERNET WEBSITE

We maintain a website with the address of www.bankwithsouthern.com. The information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. This Annual Report on Form 10-K and our other reports, proxy statements and other information, including earnings press releases, filed with the SEC are available on that website through a link to the SEC's website at "Resource Center - Investor Relations - SEC Filings." For more information regarding access to these filings on our website, please contact our Corporate Secretary, Southern Missouri Bancorp, Inc., 531 Vine Street, Poplar Bluff, Missouri, 63901; telephone number (573) 778-1800.

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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.

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

Our business is directly affected by market conditions, trends in industry and finance, legislative and regulatory changes, and changes in governmental monetary and fiscal policies and inflation, all of which are beyond our control. In 2008, the housing and real estate sectors experienced an economic slowdown that has continued into 2009. Further deterioration in economic conditions, in particular within our primary market area in Southeast Missourireal estate markets, could result in the following consequences, among others, any of which could hurt our business materially:

·   loan delinquencies may increase;

·   problem assets and foreclosures may increase;

·   demand for our products and services may decline; and

·   collateral for loans made by us, especially real estate, may decline in value, in turn reducing a customer's borrowing power and reducing the value of assets and collateral securing our loans.

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

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

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

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

Rising interest rates may hurt our profits.

To be profitable we have to earn more interest on our loans and investments than we pay on our deposits and borrowings. If interest rates were 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, 2010, $103.4 million, or 24.7% of our loan portfolio consisted of fixed rate one- to four-family residential real estate loans. In addition, rising interest rates may hurt our income because they may reduce the demand for loans and the value of our securi ties. A flat or inverted yield curve may also hurt our income, because it would reduce our ability to reinvest proceeds from loan and investment repayments at higher rates. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report as Exhibit 13.

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

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

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

40

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 b usiness. In addition, larger competitors may be able to price loans and deposits more aggressively than we do, and smaller newer competitors may also be more aggressive in terms of pricing loan and deposit products than we are in order to obtain a share of the market. Some of the financial institutions and financial services organizations with which we compete are not subject to the same degree of regulation as is imposed on bank holding companies, federally insured state-chartered banks and national banks and federal savings banks. As a result, these nonbank competitors have certain advantages over us in accessing funding and in providing various services.

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

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

If we are unable to redeem our Series A Preferred Stock after five years, the cost of this capital to us will increase substantially.

If we are unable to redeem the Series A Preferred Stock prior to December 5, 2013, the cost of this capital to us will increase substantially on that date, from 5.0% per annum (approximately $478,000 annually) to 9.0% per annum (approximately $860,000 annually). Depending on our financial condition at the time, this increase in the annual dividend rate on the Series A Preferred Stock could have a material negative effect on our earnings.

The securities purchase agreement between us and Treasury limits our ability to pay dividends on and repurchase our common stock.

The securities purchase agreement between us and Treasury provides that prior to the earlier of (i) December 5, 2013, and (ii) the date on which all of the shares of the Series A Preferred Stock have been redeemed by us or transferred by Treasury to third parties, we may not, without the consent of Treasury, (a) increase the cash dividend on our common stock or (b) subject to limited exceptions, redeem, repurchase or otherwise acquire shares of our common stock or preferred stock (other than the Series A Preferred Stock) or any trust preferred securities then outstanding. In addition, we are unable to pay any dividends on our common stock unless we are current in our

41

dividend payments on the Series A Preferred Stock. These restrictions, together with the potentially dilutive impact of the warrant described in the next risk factor, could have a negative effect on the value of our common stock. Moreover, holders of our common stock are entitled to receive dividends only when, as and if declared by our Board of Directors. Although we have historically paid cash dividends on our common stock, we are not required to do so and our Board of Directors could reduce or eliminate our common stock dividend in the future.

The Series A Preferred Stock impacts net income available to our common shareholders and earnings per common share, and the warrant we issued to Treasury may be dilutive to holders of our common stock.

The dividends declared on the Series A Preferred Stock will reduce the net income available to common shareholders and our earnings per common share. The Series A Preferred Stock will also receive preferential treatment in the event of liquidation, dissolution or winding up of Southern Missouri Bancorp, Inc. Additionally, the ownership interest of the existing holders of our common stock will be diluted to the extent the warrant we issued to Treasury in conjunction with the sale to Treasury of the Series A Preferred Stock is exercised. The shares of common stock underlying the warrant represent approximately 5.2% of the shares of our common stock outstanding (including the shares issuable upon exercise of the warrant in total shares outstanding). Although Treasury has agreed not to vote any of the shares of common st ock it receives upon exercise of the warrant, a transferee of any portion of the warrant or of any shares of common stock acquired upon exercise of the warrant is not bound by this restriction.

Item 1B.                      Unresolved Staff Comments

None.

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Item 2.                      Description of Properties

The following table sets forth certain information regarding the Bank's offices as of June 30, 2010.

Location	Year Opened	Building Net Book Value as of June 30, 2010		Land Owned/ Leased	Building Owned/ Leased
	(Dollars in thousands)
Main Office
531 Vine St. Poplar Bluff, Missouri	1966	$	638	Owned	Owned
Branch Offices
502 Main St. Van Buren, Missouri	1982		15	Owned	Owned
1330 N. Westwood Blvd. Poplar Bluff, Missouri	1976		51	Leased	Owned
4214 Highway PP Poplar Bluff, Missouri	2001		488	Owned	Owned
713 Business 60 West Dexter, Missouri	1979		28	Owned	Owned
301 First St. Kennett, Missouri	2000		760	Owned	Owned
302 Washington St. Doniphan, Missouri	2001		535	Owned	Owned
13371 Highway 53 Qulin, Missouri	2000		89	Owned	Owned
1205 S. Main St. Sikeston, Missouri	2006		897	Owned	Owned
100 W. Main St. Matthews, Missouri	2008		---	Leased	Leased
1727 W. Kingshighway Paragould, Arkansas	2009		628	Leased	Owned
2775 E. Nettleton Jonesboro, Arkansas	2009		348	Owned	Owned
100 N. Main Leachville, Arkansas	2009		103	Owned	Owned
601 N. Holman Brookland, Arkansas	2009		138	Owned	Owned

Item 3.                      Legal Proceedings

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.

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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, 2010.

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PART II

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

Equity Securities

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

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

The following table summarizes the Company's stock repurchase activity for each month during the three months ended June 30, 2010.

	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
06/01/10-06/30/10 period		-		-		-		-
05/01/10-05/31/10 period		-		-		-		-
04/01/10-04/30/10 period		-		-		-		-

Item 6.    Selected Financial Data

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

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

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

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, 2010 and 2009*
(b)	Consolidated Statements of Income for the Years Ended June 30, 2010, 2009 and 2008*
(c)	Consolidated Statements of Stockholders' Equity For the Years Ended June 30, 2010, 2009 and 2008*
(d)	Consolidated Statements of Cash Flows For the Years Ended June 30, 2010, 2009 and 2008*
(e)	Notes to Consolidated Financial Statements*

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

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

None.

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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, 2010, was carried out under the supervision and with the participation of our Chief Executive Officer, who is also our Chief Financial Officer, and several other members of our senior management. Our Chief Executive Officer concluded that our disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed in the reports the Company files or submits under the Exchange Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time pe riods 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, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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

The Company does not expect that its disclosure controls and procedures will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The des ign of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

Management's Report on Internal Control Over Financial Reporting

The management of Southern Missouri Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company's internal control over financial reporting is a process designed to provide reasonable assurance to the Company's management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the finan cial statements.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control

46

over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company's internal control over financial reporting as of June 30, 2010. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, we believe that, as of June 30, 2010, the Company's internal control over financial reporting was effective based on those criteria.

This annual report does not include an attestation of our independent public accounting firm regarding internal controls over financial reporting. Management's report was not subject to attestation by our independent public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

Date:  September 17, 2010 By: /s/ Greg A. Steffens                                                           Greg A. Steffens President (Principal Executive and Principal Financial   and Accounting Officer)

Item 9B.  Other Information

None.

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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 18, 2010, 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 18, 2010, a copy of which will be field not later than 120 days after the close of the fiscal year.

Audit Committee Matters and Audit Committee Financial Expert

The Board of Directors of the Company has a standing Audit/Compliance Committee, which has been established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of that committee are Directors Love (Chairman), Smith, Bagby, Black, Schalk, Moffitt, Brooks, and Robison, all of whom are considered independent under applicable Nasdaq listing standards. The Board of Directors has determined that Mr. Love is an "audit committee financial expert" as defined in applicable SEC rules. Additional information concerning the audit committee of the Company's Board of Directors is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Stockholders to be held in October 2010, except for information contained under the heading "Compensation Committee Report" and "Re port of the Audit Committee", a copy of which will be filed not later than 120 days after the close of the fiscal year.

Section 16(a) Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's directors and executive officers, and persons who own more than 10% of the Company's Common Stock, file with the SEC initial reports of ownership and reports of changes in ownership of the Company's Common Stock. Officers, directors and greater than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge no late reports occurred during the fiscal year ended June 30, 2010. All other Section 16(a) filing requirements applicable to our executive officers, directors and greater than 10% beneficial owners were complied with.

Code of Ethics

On January 20, 2005, the Company adopted a written Code of Conduct and Ethics (the "Code") based upon the standards set forth under Item 406 of the Securities Exchange Act. The Code was subsequently amended in 2010. The Code applies to all of the Company's directors, officers and employees. The Code may be reviewed at the Company's website, www.bankwithsouthern.com, by following the "investor relations" and "corporate governance" links.

Nomination Procedures

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

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 18, 2010, 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.

48

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 18, 2010, 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, 2010 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		105,500	$	13.77		4,500
Equity Compensation Plans Not Approved By Security Holders		---		---		---
Capital Purchase Program Implemented by the U.S. Treasury		114,326	$	12.53		n/a

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 18, 2010, 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 2010 Annual Meeting of Stockholders, a copy of which will be filed not later than 120 days after the close of the fiscal year.

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.

49

(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	**
		(d)	Director's Retirement Agreements
			(ii)	Samuel H. Smith	***
			(iii)	Sammy A. Schalk	****
			(iv)	Ronnie D. Black	****
			(v)	L. Douglas Bagby	****
			(vi)	Rebecca McLane Brooks	*****
			(vii)	Charles R. Love	*****
			(viii)	Charles R. Moffitt	*****
			(ix)	Dennis C. Robison	++
		(e)	Tax Sharing Agreement		***
11	Statement Regarding Computation of Per Share Earnings				11
13	2010 Annual Report to Stockholders				13
14	Code of Conduct and Ethics				14
21	Subsidiaries of the Registrant				21
23	Consent of Auditors				23
31	Rule 13a-14(a)/15d-14(a) Certifications				31
32	Section 1350 Certifications				32
99	31 C.F.R. section 30.15 Certification of Principal Executive and Financial Officer				99

_______________________

*	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 Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2008.

50

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 17, 2010	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/ Samuel H. Smith                                                                  Samuel H. Smith Chairman of the Board of Directors	September 17, 2010
By:	/s/ Greg A. Steffens                                                                  Greg A. Steffens President (Principal Executive and Financial    and Accounting Officer)	September 17, 2010
By:	/s/ Sammy A. Schalk Sammy A. Schalk Vice Chairman and Director	September 17, 2010
By:	/s/ Ronnie D. Black                                                                  Ronnie D. Black Secretary and Director	September 17, 2010
By:	/s/ L. Douglas Bagby                                                                 L. Douglas Bagby Director	September 17, 2010
By:	/s/ Rebecca McLane Brooks                                                   Rebecca McLane Brooks Director	September 17, 2010
By:	/s/ Charles R. Love                                                                  Charles R. Love Director	September 17, 2010
By:	/s/ Charles R. Moffitt                                                               Charles R. Moffitt Director	September 17, 2010
By:	/s/ Dennis C. Robison                                                               Dennis C. Robison Director	September 17, 2010

51

Index to Exhibits

Regulation S-K Exhibit Number	Document
10.1	Named Executive Officer Salary and Bonus Agreement for 2010
10.2	Director Fee Arrangements
11	Statement Regarding Computation of Per Share Earnings
13	2010 Annual Report to Stockholders
14	Code of Conduct and Ethics
21	Subsidiaries of the Registrant
23.1	Consent of Auditors
23.2	Consent of Auditors
31	Rule 13a-14(a)/15d-14(a) Certifications
32	Section 1350 Certifications
99	31 C.F.R. section 30.15 Certification of Principal Executive and Financial Officer

EX-10.1

EXHIBIT 10.1

Named Executive Officer Salary and Bonus Arrangements for 2010

Base Salaries

The base salaries for 2010 for the executive officers (the "named executive officers") of Southern Missouri Bancorp, Inc. (the "Company") who will be named in the compensation table that will appear in the Company's upcoming 2010 annual meeting proxy statement are as follows:

Name and Title	Base Salary
Greg A. Steffens President, Chief Executive Officer, and Chief Financial Officer, Southern Missouri Bancorp., Inc.; President and Chief Executive Officer, Southern Bank	$217,000

Description of 2010 Bonus Arrangement

The Company has no formal, written incentive bonus plan for executive management; however, the compensation committee does have written guidelines regarding bonus payments. The guidelines indicate that the amount of bonus available for award to executive management should be predicated on the Company's performance in meeting various goals, including return on equity, growth in earnings per share, efficiency and control of non-interest expense, and diversification of revenues. Officers outside of executive management (including market area presidents) generally participate in a bonus program that conditions awards upon reaching employee and branch goals regarding loan and deposit growth, and overall company profitability.

Additional information about the 2010 bonus compensation is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Stockholders to be held in October 2010, except for information contained under the heading "Report of the Audit Committee," a copy of which will be filed not later than 120 days after the close of the fiscal year.

EX-10.2

EXHIBIT 10.2

Director Fee Arrangements for 2010

Each director of Southern Missouri Bancorp, Inc. (the "Company") also is a director of Southern Bank (the "Bank"). For 2010, each director receives an annual fee of $10,800 for serving on the Company's Board of Directors and $13,200 for serving on the Bank's Board of Directors.

EX-11

EXHIBIT 11

Statement Regarding Computation of Per Share Earnings

SOUTHERN MISSOURI BANCORP, INC. AND SUBSIDIARY

STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS

	Year Ended June 30,
	2010		2009		2008
Basic    Average shares outstanding		2,083,458		2,123,144		2,199,928
Net income	$	4,625,588	$	3,835,077	$	3,613,480
Less: effective dividend on preferred shares		510,006		288,841		-
Net income available to common stockholders	$	4,115,582	$	3,546,236	$	3,613,480
Basic earnings per share available to common       stockholders	$	1.98	$	1.67	$	1.64
Diluted    Average shares outstanding		2,083,458		2,123,144		2,199,928
Net effect of dilutive stock options - based on the       treasury stock method using the period end market       price, if greater than average market price		21,834		1,225		12,204
Total		2,105,292		2,124,369		2,212,132
Net income	$	4,625,588	$	3,835,077	$	3,613,480
Less: effective dividend on preferred shares		510,006		288,841		-
Net income available to common stockholders	$	4,115,582	$	3,546,236	$	3,613,480
Diluted earnings per share available to common       stockholders	$	1.95	$	1.67	$	1.63

EX-13

> CORPORATE P R O F I L E <

Southern Missouri Bancorp, Inc. (NASDAQ: SMBC)

is the holding company for Southern Bank.

The Company reported record earnings and

asset growth in fiscal 2010, posted strong deposit growth,

and maintained sound asset quality,

thriving in a difficult environment.

>TABLE ofCONTENTS<

Letter to Shareholders	2
Common Share Data	7
Financial Review	8
Report of Independent
Registered Public Accounting Firm	19
Consolidated Financial Statements	20
Notes to Consolidated Financial Statements	26
Corporate and Investor Information	48
Directors and Officers	49

> FINANCIAL SUMMARY <

	2010	2009	CHANGE(%)
EARNINGS (dollars in thousands)
Net interest income	$               16,316	$          14,097	15.7
Provision for loan losses	925	1,151	-19.6
Noninterest income	3,094	1,820	70.0
Noninterest expense	12,498	9,219	35.6
Income taxes	1,361	1,712	-20.5
Net income	4,626	3,835	20.6
Effective dividend on preferred shares	510	289	76.5
Net income available to common stockholders	4,116	3,546	16.1
PER COMMON SHARE
Net income:
Basic	$                 1.98	$            1.67	18.6
Diluted	1.95	1.67	16.8
Tangible book value	16.62	14.82	12.1
Closing market price	15.01	9.95	50.9
Cash dividends declared	.48	.48	-
AT YEAR-END (dollars in thousands)
Total assets	$             552,084	$        466,334	18.4
Loans, net of allowance	418,683	368,993	13.5
Reserves as a percent of nonperforming loans	1,358 %	502 %
Deposits	$             422,893	$        311,955	35.7
Stockholders’ equity	45,649	42,008	8.7
FINANCIAL RATIOS
Return on average common stockholders’ equity	11.85 %	11.38 %
Return on average assets	0.88	0.87
Net interest margin	3.27	3.37
Efficiency ratio	64.39	57.92
Allowance for loan losses to loans	1.06	1.07
Equity to average assets at year-end	8.68	9.51
OTHER DATA(1)
Common shares outstanding	2,087,976	2,087,976
Average common and dilutive shares outstanding	2,105,292	2,124,369
Common stockholders of record	280	283
Full-time equivalent employees	133	108
Assets per employee (in thousands)	$                4,151	$           4,318
Banking offices	14	10

[1]

>   LETTER to SHAREHOLDERS   <

Dear Shareholder, Southern Missouri Bancorp continued its strong performance in fiscal 2010, thriving in a difficult environment. We achieved record profitability and record asset growth, progressed towards a significant shift in our funding strategies, integrated our new northeast Arkansas branches, and continued to build shareholder value.  

For fiscal 2010, net income available to common shareholders was $4.1 million, up 16.1% from fiscal 2009, and was $1.95 per diluted share, up from $1.67 in the prior year.  The Company generated a return on average common equity of 11.8% and a return on average assets of 0.88% for fiscal 2010, both up slightly from fiscal 2009 results.  We accomplished this with a 15.7% increase in net interest income, as

we grew earning assets by 19.0%, offsetting a 10 basis point decline in our margin.  Our efficiency ratio was 64.4%, up from last year, as we incurred expenses to bring new facilities into our network, continued to pay more in FDIC premiums as a result of base assessment rate increases, and incurred some one-time charges related to asset retirement and early redemption of long-term debt.   Return on common equity remains ahead of peer banks Our ROE was up slightly as competitor banks continued to struggle.

(1) Peer data is based on the average year-end figures (December) from SNL DataSource’s Index of publicly traded commercial banks and thrifts with assets of $100 million to $1 billion, headquartered in Missouri, Arkansas, Illinois, Iowa, Kansas, Kentucky, Nebraska, Oklahoma, and Tennessee. SMBC data is as of fiscal year-end (June).

[2]

Our deposit portfolio exceeded even our own optimistic growth projections for fiscal 2010, and was up $110.9 million, or 35.6%. This growth resulted primarily from our popular Kasasa-branded rewards checking product, attractively-priced savings accounts in our new Arkansas markets, other checking accounts (both interest-bearing and noninterest-bearing), and deposits acquired in our July merger.  We have been successful over the last 18 months in making a significant shift away from wholesale funding through strong growth in transaction accounts. In that time period, Federal Home Loan Bank borrowings are down $49.2 million, while transaction account balances are up $62.8 million.

The loan portfolio grew $49.7 million, or 13.5%, in fiscal 2010, with much of the growth in commercial real estate, construction, and commercial operating and equipment loans.  Agricultural lending continued to account for a significant amount of the commercial growth, and increased $15.4 million, or 31.6%, during the year.

Continued steady growth in our core business

Deposit growth was above-trend as we made a strategic shift in our funding goals.

Early in the year, we expanded into the Jonesboro and Paragould, Arkansas, markets as we completed our acquisition of a small northeast Arkansas financial institution. We’ve made significant progress cleaning up acquired problem assets, and have seen strong deposit growth in those markets. Additionally, we’re starting to see improvement in loan origination, which we believe will contribute to growth for fiscal 2011.

[3]

We improved book value per common share by 11.6% and tangible book value per common share by 12.1% in fiscal 2010.  As the financial markets stabilized and our results held up, our stock price benefited, up 50.9%, compared to an increase of 13.0% in the SNL Bank Index and a decline of 11.4% in the SNL Micro Cap Bank Index.  Meanwhile, we paid a dividend that represented a 3.2% return on our June 30, 2010, closing stock price of $15.01, and a 3.8% return on our average closing stock price for fiscal 2010.   Tangible Book Value per share growth beats peers We have regularly exceeded our peer banks (1) in this key measure of shareholder value.

In December 2008, the Company accepted an investment of $9.6 million from the U.S. Treasury under the terms of its Capital Purchase Program, one component of the Troubled Asset Relief Program.  While we were well in excess of capital levels necessary to be classified as “well-capitalized,” we believed we could put the capital to use in a manner that would help to accomplish Treasury’s stated objectives – increasing the flow of financing to U.S. businesses and consumers, and supporting the U.S. economy.  We utilized this capital by leveraging it to expand our loan and investment portfolios, meeting the Treasury’s objectives of increasing the flow of financing.  And, we’ve also supported the economy through the acquisition of what was a troubled financial institution in northeast Arkansas.  That institution had significantly reduced new lending activity in the periods leading up to the acquisition, and disclosed in its proxy materials to its shareholders that it was a likely failure candidate absent the acquisition.

The Company is currently reviewing options to raise capital to redeem the Treasury’s preferred shares, and to build a war chest to be ready to take advantage of future opportunities, which we expect to continue to become available in the coming years.  We have an interest in using this troubled environment to complete deals that make sense for our organization – improving our growth opportunities, demographics, and profitability – at pricing that has not always been available.  We would be willing to consider deals that include FDIC assistance through the receivership process, or, like our recent acquisition, do not.

[4]

While the national economy appears to begin a fragile recovery, our local markets have remained relatively stable, and we’ve had fewer asset quality issues as a result. But our credit quality exceeds peers within our market area, also, and we attribute that to a strict focus on strong underwriting of quality loans. Despite the July 2009 acquisition of a troubled financial institution, we continued to show very solid asset quality. Credit quality is sound Problem assets increased, but credit quality remained relatively strong.

Our goals for 2011 include...

Ø	Opening a new loan production office in Springfield, Missouri.  Springfield is an attractive market located in southwest Missouri, outside our current footprint, and a logical next step for our organization to accomplish several strategic objectives: continued sound asset growth, meeting loan portfolio composition targets, and improving our market demographics.
Ø	Improving profitability of our newly-acquired Arkansas branches.  After working through many of the acquired problem assets, it’s time to take advantage of our opportunities in those markets to achieve sound loan growth and contribute to the Company’s bottom line.

Ø	Enhancing our efficiency.  The legal and operational impact of the acquisition, the bank’s name change, and the costs of working through acquired problem assets, as well as an early payoff of a Federal Home Loan Bank (FHLB) advance, all contributed to increase our efficiency ratio to a level that does not meet our target.  We see opportunities for  improvement in this area in 2011.	Efficiency remains ahead of peers But this is a ratio we intend to improve upon in 2011.
Ø	Continuing to build shareholder value.  We believe our stock represents an attractive value for current and potential
	shareholders, and while we’d like to see better multiples, we know that if the Company continues to post solid returns, the stock price should, over time, move proportionally.

[5]

It was a great year, and I can’t say enough about the hard work of our employees, officers, and our board of directors in 2010.  Many industry experts foresee a much different landscape in community banking over the next several years, as regulatory reform increases the burden on small banks and accelerates the consolidation already underway.  We know that achieving this consistent level of profitability will be more difficult going forward, and our employees are working to address many new issues as this letter goes to press.  Nothing will come easily in 2011, but I know that we’ll be equal to the challenges that are ahead.  

I thank you, our shareholders, for your confidence in Southern Missouri Bancorp, and I trust you will find these results to be worthy of your investment.  

And, last but not certainly not least, I am so appreciative of our many loyal and valued customers.  We take seriously the idea that they are partners in our success, and that we are partners in theirs, and we look forward to much future success in 2011 and beyond.  

/s/ Greg Steffens

GREG STEFFENS

PRESIDENT and CHIEF EXECUTIVE OFFICER

SOUTHERN MISSOURI BANCORP, INC.

PLEASE JOIN US

at our 2010 Annual Meeting, where shareholders and those considering investing

in Southern Missouri Bancorp, Inc. will hear management review this year’s performance in detail

and discuss our plans to achieve continued superior results.

ANNUAL MEETING

MONDAY, OCTOBER 18, 2010 AT 9:00 AM

CHAMBER OF COMMERCE BUILDING

1111 WEST PINE, POPLAR BLUFF, MISSOURI

[6]

>   COMMON SHARE DATA   <

The common stock of the Company is listed on the NASDAQ Stock Market under the symbol “SMBC.” The following bar graph sets forth the high, low and closing market prices of the  common stock for the last three fiscal years.

The following table sets forth per share market price and dividend information for the Company’s common stock. As of June 30, 2010, there were approximately 280 common stockholders of record. This does not reflect the number of persons or entities who hold common stock in nominee or “street name.”

Fiscal 2010	High	Low	Close	Book Value At End of Period	Market Price To Book Value	Dividends Declared
4th Quarter (6-30-10)	$16.75	$ 14.15	$15.01	$17.39	86.31%	$0.12
3rd Quarter (3-31-10)	$14.50	$ 11.80	$14.20	$17.07	83.19%	$0.12
2nd Quarter (12-31-09)	$11.80	$ 10.80	$11.75	$16.65	70.57%	$0.12
1st Quarter (9-30-09)	$12.15	$   9.39	$10.80	$16.40	65.85%	$0.12
Fiscal 2009
4th Quarter (6-30-09)	$11.00	$  8.99	$  9.95	$15.58	63.86%	$0.12
3rd Quarter (3-31-09)	$11.70	$  7.63	$10.80	$15.16	71.24%	$0.12
2nd Quarter (12-31-08)	$14.91	$  9.87	$11.09	$14.75	75.19%	$0.12
1st Quarter (9-30-08)	$15.01	$12.36	$13.05	$14.23	91.71%	$0.12
Fiscal 2008
4th Quarter (6-30-08)	$15.89	$11.21	$15.49	$13.95	111.04%	$0.10
3rd Quarter (3-31-08)	$15.10	$12.75	$15.10	$13.95	108.24%	$0.10
2nd Quarter (12-31-07)	$15.02	$12.75	$13.99	$13.76	101.67%	$0.10
1st Quarter (9-30-07)	$15.25	$14.45	$14.96	$13.35	112.06%	$0.10

Any future dividend declarations and payments are subject to the discretion of the Board of Directors of the Company.

The ability of the Company to pay dividends on its common stock depends primarily on the ability of the Bank to pay dividends to the Company. For a discussion of the restrictions on the Bank’s ability to pay dividends, see Note 12 of Notes to Consolidated Financial Statements included elsewhere in this report.

[7]

>   FINANCIAL REVIEW   <

BUSINESS OF THE COMPANY AND THE BANK Southern Missouri Bancorp, Inc. (Southern Missouri or Company) is a Missouri corporation and owns all of the outstanding stock of Southern Bank (the Bank). The Company’s earnings are primarily dependent on the operations of the Bank. As a result, the following discussion relates primarily to the operations of the Bank. The Bank was originally chartered by the State of Missouri in 1887 and converted from a state-chartered stock savings and loan association to a Federally-chartered stock savings bank in 1995. In 1998, the Bank converted its charter to a state-chartered stock savings bank. Finally, in 2004, the Bank converted to a state chartered trust company with banking powers. The Bank’s deposit accounts are generally insured up to a maximum of $250,000 under current law by the Deposit Insurance Fund (DIF), which is administered by the Federal Deposit Insurance Corporation (FDIC). The Bank’s primary business consists of attracting deposits from the communities it serves and investing those funds in loans secured by one- to four-family residences, commercial real estate, commercial business and consumer loans. The Company’s results of operations are primarily dependent on its net interest margin, which is the difference between the average yield on loans, mortgage-related securities and investments and the average rate paid on deposits, securities sold under agreements to repurchase and borrowings. The net interest margin is affected by economic, regulatory and competitive factors that influence interest rates, loan demand and deposits. Lending activities are funded through the attraction of deposit accounts consisting of checking accounts, passbook and statement savings accounts, money market deposit accounts, certificate of deposit accounts with terms of 60 months or less, securities sold under agreements to repurchase, advances from the Federal Home Loan Bank of Des Moines, and, to a lesser extent, brokered deposits. As of June 30, 2010, the Bank conducted its business through its home office located in Poplar Bluff and thirteen full service branch facilities in Poplar Bluff (2), Van Buren, Dexter, Kennett, Doniphan, Sikeston, Matthews, and Qulin, Missouri, and Paragould, Jonesboro, Leachville, and Brookland , Arkansas.

(dollars in thousands)	At June 30
Financial Condition Data:	2010		2009		2008		2007		2006
Total assets	$	552,084	$	466,334	$	418,188	$	380,106	$	350,808
Loans receivable, net		418,683		368,993		343,438		312,242		281,055
Mortgage-backed securities		34,334		40,269		28,006		10,723		14,440
Cash, interest-bearing deposits
and investment securities		67,103		27,983		19,931		31,492		30,328
Deposits		422,893		311,955		292,257		270,088		258,069
Borrowings		73,869		102,498		85,854		71,758		57,296
Subordinated debt		7,217		7,217		7,217		7,217		7,217
Stockholders’ equity		45,649		42,008		30,472		28,714		26,554

(dollars in thousands, except per share data)	For The Year Ended June 30
Operating Data:	2010		2009		2008		2007		2006
Interest income	$	27,541	$	25,301	$	25,327	$	23,550	$	20,363
Interest expense		11,225		11,204		13,547		13,621		10,763
Net interest income		16,316		14,097		11,780		9,929		9,600
Provision for loan losses		925		1,151		723		633		500
Net interest income after
provision for loan losses		15,391		12,946		11,057		9,296		9,100
Noninterest income		3,094		1,820		2,412		2,207		2,144
Noninterest expense		12,498		9,219		8,081		7,430		7,083
Income before income taxes		5,987		5,547		5,388		4,073		4,161
Income taxes		1,361		1,712		1,775		1,145		1,377
Net income	$	4,626	$	3,835	$	3,613	$	2,928	$	2,784
Less: effective dividend on preferred stock		510		289		-		-
Net income available to common stockholders	$	4,116	$	3,546	$	3,613	$	2,928	$	2,784
Basic earnings per share available to
common stockholders	$	1.98	$	1.67	$	1.64	$	1.32	$	1.25
Diluted earnings per share available to
common stockholders	$	1.95	$	1.67	$	1.63	$	1.29	$	1.24
Dividends per share	$	.48	$	.48	$	.40	$	.36	$	.36

[8]

>   FINANCIAL REVIEW   (continued)   <

	At June 30
Other Data:	2010		2009		2008		2007		2006
Number of:
Real estate loans		3,282		2,957		2,868		2,795		2,808
Deposit accounts		25,353		22,069		20,560		19,978		18,845
Full service offices		14		10		9		9		9

	At Or For The Year Ended June 30
Key Operating Ratios:	2010			2009			2008			2007			2006
Return on assets (net income    divided by average assets)		.88	%		.87	%		.92	%		.80	%		.80	%
Return on average common equity (net    income available to common stockholders    divided by average common equity)		11.85			11.38			12.06			10.49			10.83
Average equity to average assets		8.39			8.29			7.60			7.66			7.43
Interest rate spread (spread    between weighted average rate on    all interest-earning assets and all    interest-bearing liabilities)		3.06			3.11			2.86			2.57			2.69
Net interest margin (net interest    income as a percentage of average    interest-earning assets)		3.27			3.37			3.17			2.90			2.96
Noninterest expense to average assets		2.38			2.09			2.05			2.05			2.03
Average interest-earning assets to    average interest-bearing liabilities		109.57			109.77			108.60			108.29			108.15
Allowance for loan losses to gross    loans (1)		1.06			1.07			.92			.76			.66
Allowance for loan losses to    nonperforming loans (1)		1,358.45			501.63			53,316.67			9,180.77			3,545.28
Net charge-offs (recoveries) to average    outstanding loans during the period		.10			.10			(0.03	)		.04			.19
Ratio of nonperforming assets    to total assets (1)		.37			.29			.02			.04			.08
Common shareholder dividend    payout ratio (common dividends as a    percentage of earnings available to    common shareholders)		24.35			28.27			24.49			27.50			28.80

(1) At end of period

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW Southern Missouri Bancorp, Inc. is a Missouri corporation originally organized for the principal purpose of becoming the holding company of Southern Missouri Savings Bank. The Bank converted from a Federally-chartered stock savings bank to a state-chartered stock savings bank effective February 17, 1998. The Company’s state of incorporation changed from Delaware to Missouri effective April 1, 1999. On June 4, 2004, the Bank converted to a state chartered trust company with banking powers, and the Company became a bank holding company supervised by the Federal Reserve. On June 1, 2009, the Bank changed its name to Southern Bank. The principal business of Southern Bank consists of attracting deposits from the general public and using such deposits along with advances from the Federal Home Loan Bank of Des Moines (FHLB) to finance mortgage loans secured by one- to four-family residences, commercial real estate loans and commercial business loans. These funds have also been used to purchase investment securities, mortgage-backed securities (MBS), U.S. government and federal agency obligations and other permissible securities. Southern Bank’s results of operations are primarily dependent on the levels of its net interest margin and noninterest income, and its ability to control operating expenses. Net interest margin is dependent primarily on the difference or spread between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, as well as the relative amounts of these assets and liabilities. Southern Bank is subject to interest rate risk to the degree that its interest-earning assets mature or reprice at different times, or on a varying basis, from its interest-bearing liabilities. Southern Bank’s noninterest income consists primarily of fees charged on transaction and loan accounts, interchange income from customer debit and ATM card use, gains on sales of loans to the secondary market, and increased cash surrender value of bank owned life insurance (“BOLI”). Southern Bank’s operating expenses include: employee compensation and benefits, occupancy expenses, legal and professional fees, federal deposit insurance premiums, amortization of intangible assets, and other general and administrative expenses.  Southern Bank’s operations are significantly influenced by general economic conditions including monetary and fiscal policies of the U.S. government and the Federal Reserve Board. Additionally, Southern Bank is subject to policies and regulations issued by financial institution regulatory agencies including the Federal Reserve, the Missouri Division of Finance, and the Federal Deposit Insurance Corporation. Each of these factors may influence interest rates, loan demand, prepayment rates and deposit flows. Interest rates available on competing investments as well as general market interest rates influence the Bank’s cost of funds. Lending activities are affected by the demand for real estate and other types of loans, which in turn is affected by the interest rates at which such financing may be offe red. The Bank intends to continue to focus on its lending programs for one- to four-family residential real estate, commercial real estate, commercial business and consumer financing on loans secured by properties or collateral located primarily in southeast Missouri and northeast Arkansas.   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, estim ates and the intentions of management and are not guarantees of future performance. The important factors we discuss below, as well as other factors discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and identified in our filings with the SEC and those presented elsewhere by our management from time to time, could cause actual results to differ materially from those indicated by the forward-looking statements made in this document: • the strength of the United States economy in general and the strength of the local economies in which we conduct operations; • the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; • inflation, interest rate, market and monetary fluctuations; • the timely development 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.   CRITICAL ACCOUNTING POLICIES The Company has established various accounting policies, which govern the application of accounting principles generally accepted in the United States of America in the preparation of our financial statements. Our significant accounting policies are described in the footnotes to the Consolidated Financial Statements. Certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates that could have a material impact on the carrying values of assets and liabilities and the results of operations of the Company. The allowance for losses on loans represents management’s best estimate of probable losses in the existing loan portfolio. The allowance for losses on loans

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is increased by the provision for losses on loans charged to expense and reduced by loans charged off, net of recoveries. The provision for losses on loans is determined based on management’s assessment of several factors: reviews and evaluations of specific loans, changes in the nature and volume of the loan portfolio, current economic conditions and the related impact on specific borrowers and industry groups, historical loan loss experience, the level of classified and nonperforming loans and the results of regulatory examinations. Integral to the methodology for determining the adequacy of the allowance for loan losses is portfolio segmentation and impairment measurement. Under the Company’s methodology, loans are first segmented into 1) those comprising large groups of smaller-balance homogeneous loans, including single-family mortgages and installment loans, which are collectively evaluated for impairment and 2) all other loans which are individually evaluated. Those loans in the second category are further segmented utilizing a defined grading system which involves categorizing loans by severity of risk based on conditions that may affect the ability of the borrowers to repay their debt, such as current financial information, collateral valuations, historical payment experience, credit documentation, public information, and current trend s. The loans subject to credit classification represent the portion of the portfolio subject to the greatest credit risk and where adjustments to the allowance for losses on loans as a result of provisions and charge-offs are most likely to have a significant impact on operations. A periodic review of selected credits (based on loan size and type) is conducted to identify loans with heightened risk or probable losses and to assign risk grades. The primary responsibility for this review rests with the loan administration personnel. This review is supplemented with periodic examinations of both selected credits and the credit review process by applicable regulatory agencies. The information from these reviews assists management in the timely identification of problems and potential problems and provides a basis for deciding whether the credit represents a probable loss or risk that should be recognized. Loans are considered impaired if, based on current information and events, it is probable that Southern Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the fair value of the collateral for collateral-dependent loans. If the loan is not collateral-dependent, the measurement of impairment is based on the present value of expected future cash flows discounted at the historical effective interest rate or the observable market price of the loan. In measuring the fair value of the collateral, management uses the assumptions (i.e., discount rates) and methodologies (i.e., comparison to the recent selling price of similar assets) consistent with those that would be utilized by unrelated third parties. Impairment identified through this evaluation process is a component of the allowance for loan losses. If a loan that is individually evaluated for impairment is found to have none, it is grouped together with loans having similar characteristics (i.e., the same risk grade), and an allowance for loan losses is based upon historical average charge-offs for similar loans over the past five years, the historical average charge-off rate for developing trends in the economy, in industries and other factors. For portfolio loans that are evaluated for impairment as part of homogenous pools, an allowance is maintained based upon the average charge-offs for the past five years.       Changes in the financial condition of individual borrowers, in economic conditions, in historical loss experience and in the conditions of the various markets in which collateral may be sold may all affect the required level of the allowance for losses on loans and the associated provision for losses on loans.   FINANCIAL CONDITION General. The Company’s total assets increased $85.8 million, or 18.4%, to $552.1 million at June 30, 2010, when compared to $465.3 million at June 30, 2009. The growth was due to growth in the net loan portfolio of $49.7 million, growth in cash and equivalents of $25.3 million, and growth in available for sale investments of $6.8 million. Asset growth was funded by growth in deposit balances of $110.9 million, growth in repurchase agreement balances of $6.6 million, and an increase in equity of $3.6 million. The growth in deposits also funded a $35.3 million paydown in FHLB advances. Cash and equivalents.  Cash and equivalents increased $25.3 million, or 313.4%, to $33.4 million at June 30, 2010, from $8.1 million at June 30, 2009. The growth was primarily comprised of excess balances held at the Federal Reserve, and was attributed to strong deposit growth during the fiscal year. Loans. Loans increased $49.7 million, or 13.5%, to $418.7 million at June 30, 2010, from $369.0 million at June 30, 2009. The growth in the loan portfolio was comprised principally of commercial real estate loans of $24.4 million, construction loans of $11.2 million, commercial loans of $8.4 million, consumer loans of $3.2 million, and residential real estate loans of $3.0 million. Allowance for Loan Losses. The allowance for loan losses increased $516,000, or 12.9%, from $4.0 million at June 30, 2009, to $4.5 million at June 30, 2010.  The allowance for loan losses represented 1.06% of gross loans receivable at June 30, 2010, as compared to 1.07% of gross loans receivable at June 30, 2009. At June 30, 2010, nonperforming loans, which included loans past due greater than 90 days and nonaccruing loans, were $332,000, compared to $796,000 at June 30, 2009 (see also, Provision for Loan Losses, under Comparison of Operating Results for the Years Ended June 30, 2010 and 2009). Investments. The investment portfolio increased $6.8 million, or 11.3%, to $67.0 million at June 30, 2010, from $60.2 million at June 30, 2009. Investment growth was comprised primarily of U.S. government agencies and obligations of state and political subdivisions, and was partially offset by principal repayments on mortgage-backed securities (MBSs) and collateralized mortgage obligations (CMOs). Premises and Equipment. Premises and equipment decreased $485,000, to $7.7 million at June 30, 2010, from $8.1 million at June 30, 2009. The decrease was due to the sale of property previously acquired for future expansion and increased accumulated depreciation, partially offset by investment in buildings and equipment, including four new locations acquired in the July 2009 acquisition of the Southern Bank of Commerce (the July 2009 Acquisition). BOLI. The Bank purchased “key person” life insurance policies on six employees with a cash surrender value of $4.0 million in February, 2003. In addition, in October, 2004, the Bank purchased “key person” life insurance policies on 20 employees for $2.0 million. At June 30, 2010, the cash surrender value had increased to $7.8 million. Intangible Assets. Intangible assets generated through branch acquisitions in 2000 decreased $255,000 to $1.3 million as of June 30, 2010, and will continue to be amortized in accordance with ASC Topic 350.  The July 2009 acquisition resulted in goodwill of $126,000, which will not be amortized, but will be tested for impairment at least annually, and a $184,000 core deposit intangible, which is being amortized over a five-year period using the straight-line method. Deposits. Deposits increased $110.9 million, or 35.6%, to $422.9 million at June 30, 2010, from $312.0 million at June 30, 2009. The deposit growth was  

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primarily comprised of increases in interest checking accounts of $38.6 million, certificate of deposit balances of $32.2 million, and passbook and statement savings accounts of $31.8 million.  The increase in interest checking balances was attributed to the success of the Bank’s rewards checking product, and the increase in certificates and savings accounts was attributed to the July 2009 acquisition, followed by promotion of an above-market savings account product at those new locations for much of the fiscal year.  Brokered CDs totaled $7.0 million at June 30, 2010, compared to $5.8 million at June 30, 2009.  During fiscal 2010, public unit deposits increased by $11.5 million. Average interest-bearing deposits carried an average rate of 2.23% in fiscal 2010, compared to 2.64% in fis cal 2009. Borrowings. FHLB advances decreased $35.3 million, or 44.8%, to $43.5 million at June 30, 2010, from $78.8 million at June 30, 2009. The decrease was attributed to cash availability resulting from deposit growth and reasonable prepayment fees.  At June 30, 2010, outstanding advances included no overnight or short term borrowings, compared to $6.3 million in overnight and short-term borrowings at June 30, 2009. Of the $43.5 million in advances, the entire amount carries fixed interest rates, and $34.5 million is subject to early redemption by the issuer.   At June 30, 2010, long-term FHLB advances had a weighted average maturity of 4.8 years, compared to 3.8 years at June 30, 2009. At June 30, 2010, all FHLB advances had a weighted-average cost of 4.48%, as compared to 4.31% at June 30, 2009. Subordinated Debt. In March 2004, $7.0 million of Floating Rate Capital Securities of Southern Missouri Statutory Trust I with a liquidation value of $1,000 per share were issued. The securities mature in March 2034, were redeemable beginning in March 2009, and bear interest at a floating rate of three month LIBOR plus 275 basis points. Stockholders’ Equity. The Company’s stockholders’ equity increased by $3.6 million, or 8.7%, to $45.6 million at June 30, 2010, from $42.0 million at June 30, 2009. This increase was due to net income of $4.6 million, and a $470,000 increase in the market value of the investment portfolio, net of tax, and was partially offset by common and preferred dividend payments of $1.5 million. The Company completed its most recently announced share repurchase program on November 19, 2008, and has not announced a new repurchase plan. Due to the Company’s participation in the CPP, new repurchase activity is restricted. COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 2010 AND 2009 Net Income. The Company’s net income available to common stockholders for the fiscal year ended June 30, 2010, was $4.1 million, an increase of $569,000, or 16.1%, from the $3.5 million net income available to common stockholders for the prior fiscal year.  Before an effective dividend on preferred shares of $510,000, net income was $4.6 million for the 2010 fiscal year, an increase of $791,000, or 20.6%, compared to the $3.8 million in net income for the prior fiscal year.  The increase in net income was primarily due to a $2.2 million increase in net interest income, a $1.3 million increase in noninterest income, a $351,000 decrease in income tax provisions, and a $150,000 decrease in loan loss provisions, partially offset by a $3.2 mill ion increase in noninterest expense.   Net Interest Income. Net interest income for fiscal 2010 was $16.3 million, an increase of $2.2 million, or 15.7%, when compared to the prior fiscal year. The increase was due to a $79.7 million increase in average interest-earning assets, partially offset by a five basis point decrease in the average interest rate spread. The decrease in interest rate spread was primarily a result of our strong deposit growth, accomplished in part due to our rewards checking product and an above-market savings account special in our new Arkansas market, coupled with resulting higher average cash balances (which earn a lower rate of return than our average interest-earning assets) during the fiscal year. For fiscal 2010, the average interest rate spread was 3.06%, compared to 3.11% for fiscal year 2009. At June 30, 2010, the spread was 3.08%.   Interest Income. Interest income for fiscal 2010 was $27.5 million, an increase of $2.2 million, or 8.9%, when compared to the prior fiscal year. The increase was due to the $79.7 million increase in the average balance of interest-earning assets, partially offset by a 51 basis point decrease in the average yield earned on interest-earning assets, from 6.04% in fiscal 2009 to 5.53% in fiscal 2010. Interest income on loans receivable for fiscal 2010 was $24.6 million, an increase of $1.7 million, or 7.6%, when compared to the prior fiscal year.       The increase was due to a $45.1 million increase in the average balance of loans receivable, partially offset by a 29 basis point decrease in the average yield earned on loans receivable, reflecting the decrease in market rates. Interest income on the investment portfolio and other interest-earning assets was $3.0 million for fiscal 2010, an increase of $516,000, or 20.9%, when compared to the prior fiscal year. The increase was due to a $34.7 million increase in the average balance of these assets, partially offset by a 92 basis point decrease in the average yield earned on these assets.  The decreased yield was due primarily to higher average cash balances.   Interest Expense. Interest expense was $11.2 million for fiscal 2010, an increase of $21,000, or 0.2%, when compared to the prior fiscal year.  The increase was due to the $73.5 million increase in the average balance of interest-bearing liabilities, partially offset by a 46 basis point decrease in the average rate paid on interest-bearing liabilities, from 2.93% in fiscal 2009 to 2.47% in fiscal 2010. Interest expense on deposits was $8.1 million for fiscal 2010, an increase of $911,000, or 12.7%, when compared to the prior fiscal year. The increase was due to a $90.7 million increase in the average balance of interest-bearing deposits, partially offset by a 41 basis point decrease in the average rate paid on deposits outstanding, reflecting the decrease in market rates, despite above-market rates paid in new markets. Interest expense on FHLB advances was $2.7 million for fiscal 2010, a decrease of $764,000, or 22.1%, when compared to the prior fiscal year.  The decrease was due to a $20.5 million decrease in the average balance of FHLB advances, partially offset by a 25 basis point increase in the average rate paid on advances, reflecting the repayment of short-term borrowings while long-term advances remained outstanding. In March 2009, $7.0 million of Floating Rate Capital Securities were issued, with an interest rate of three month LIBOR plus 275 basis points, repricing quarterly. Interest expense on these securities was $227,000 for fiscal 2010, as compared to $357,000 for the prior fiscal year, as the average rate paid decreased by 180 basis points, due to the decrease in the index.   Provision for Loan Losses. A provision for loan losses is charged to earnings to bring the total allowance for loan losses to a level considered adequate by management to provide for probable loan losses based on prior loss experience, type and amount of loans in the portfolio, adverse situations that  

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may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions. Management also considers other factors relating to the collectability of the loan portfolio. The provision for loan losses was $925,000 for fiscal 2010, compared to $1.2 million for the prior fiscal year. The decrease in provision was primarily due to less uncertainty in the regional economy and real estate market as compared to the prior fiscal year, while charge-offs and non-performing loans remained stable in the current fiscal year.  Additionally, loans acquired through the July 2009 acquisition performed slightly better than anticipated, and have not required significant further provisioning. In fiscal 2010, net charge offs were $409,000, compared to $357,000 for the prior year. At June 30, 2010, classified assets totaled $8.0 million, or 1.4% of total assets, as compared to $9.7 million, or 2.1% of total assets, at June 30, 2009.  Classified assets were generally comprised of loans sec ured by commercial and agricultural real estate, or inventory and equipment, as well as the Company’s investments in trust preferred securities, which totaled $1.5 million in book value.  Three of these investments in pooled trust preferred securities with a total book value of $1.0 million (included in the total of $1.5 million, above) have deferred interest payments as of June 30, 2010; all other classified assets were performing in accordance with terms. All assets were classified due to concerns as to the borrowers’ ability to continue to generate sufficient cash flows to service the debt. The above provision was made based on management’s analysis of the various factors which affect the loan portfolio and management’s desire to maintain the allowance at a level considered adequate. Management performed a detailed analysis of the loan portfolio, including types of loans, the charge-off history, and an analysis of the allowance for loan losses. Management also considered the continued origination of loans secured by commercial businesses and commercial real estate, which bear an inherently higher level    of credit risk. While management believes the allowance for loan losses at    June 30, 2010, is adequate to cover all losses inherent in the portfolio, there can be no assurance that, in the future, increases in the allowance will not be necessary, or th at actual losses will not exceed the allowance.   Noninterest Income. Noninterest income was $3.1 million for fiscal 2010, an increase of $1.3 million, or 70.0%, when compared to the prior fiscal year.  The increase was due to increased NSF fee collection, additional ATM and debit card transaction fee income, and increased gains on sales of secondary market loans, as well as charges of $679,000 incurred during fiscal 2009 to recognize the other-than-temporary impairment (OTTI) of two investments held by the Company (see Note 2 – Securities), with no corresponding charges in the current period.  Exclusive of those fiscal 2009 OTTI charges, noninterest income would have increased 23.8% in fiscal 2010. The company expects noninterest income in fiscal 2011 to be lower or to show no increase f rom fiscal 2010, due primarily to new regulatory requirements related to NSF charges.         Noninterest Expense. Noninterest expense was $12.5 million for fiscal 2010, an increase of $3.3 million, or 35.6%, when compared to the prior fiscal year.  The increase resulted primarily from higher compensation, occupancy, and electronic banking expenses, a prepayment penalty for the FHLB advance prepaid in March 2010, a charge to dispose of fixed assets, and charges to write down the carrying value of foreclosed real estate held for sale.  Compensation expenses were $6.3 million for fiscal 2010, an increase of $1.5 million, or 31.1%, when compared to the prior fiscal year.  The increase was due to the July 2009 acquisition, the addition of key personnel, increased salaries, personnel, and increased benefit expenses.  Occupancy expenses were $1.9 million for fiscal 2010, an increase of $341,000, or 22.3%, as we added four new locations with the July 2009 acquisition.  Electronic banking and other charges increased due to the development and promotion of our popular new rewards checking product, as well as the additional costs of servicing those accounts.     Provision for Income Taxes. The Company expensed an income tax provision of $1.4 million for fiscal 2010, a decrease of $351,000, or 20.5%, compared to $1.7 million expensed for fiscal 2009. The decrease was primarily due to tax benefits associated with the July 2009 acquisition, as well as continuing investments in tax-exempt securities and tax credits, partially offset by increased pre-tax income.   COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 2009 AND 2008 Net Income. The Company’s net income available to common stockholders for the fiscal year ended June 30, 2009, was $3.5 million, a decrease of $67,000, or 1.9%, from the $3.6 million net income available to common stockholders for the prior fiscal year.  Before an effective dividend on preferred shares of $289,000, net income was $3.8 million for the 2009 fiscal year, an increase of $222,000, or 6.1%, compared to the $3.6 million in net income for the prior fiscal year.  The increase in net income was primarily due to a $2.3 million increase in net interest income, partially offset by a $1.3 million increase in non-interest expense, a $592,000 decrease in non-interest income, and a $280,000 increase in loan loss provisions.   Net Interest Income. Net interest income increased $2.3 million, or 19.7%, to $14.1 million for fiscal 2009, when compared to the prior fiscal year. The increase was primarily due to a $47.0 million increase in average interest-earning assets, combined with a 25 basis point increase in the average interest rate spread. The increase in interest rate spread was primarily a result of decreasing short-term interest rates, prompted by actions of the Federal Reserve’s Federal Open Market Committee, as well as a steepened yield curve for most of the fiscal year. For fiscal 2009, the average interest rate spread was 3.11%, compared to 2.86% for fiscal year 2008. At June 30, 2009, the spread was 3.11%.   Interest Income. Interest income decreased $26,000 or 0.1%, to $25.3 million for fiscal 2009, when compared to the prior fiscal year. The decrease was primarily due to the 78 basis point decrease in the average yield earned            on interest-earning assets, from 6.82% in fiscal 2008 to 6.04% in fiscal 2009, mostly offset by the $47.0 million increase in the average balance of interest-earning assets. Interest income on loans receivable decreased by $455,000, or 2.0%, to $22.8 million for fiscal 2009 when compared to the prior fiscal year. The decrease was due to a 77 basis point decrease in the average yield earned on loans receivable, partially offset by a $32.2 million increase in the average balance of loans receivable. Interest income on the investment portfolio and other interest-earning assets increased $430,000 or 21.1%, to $2.5 million for fiscal 2009 when compared to the prior fiscal year. The increase was due to a $14.8 million increase in the average balance of these assets, partially offset by a 36 basis point decrease in the average yield earned on these assets.

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Interest Expense. Interest expense decreased $2.3 million, or 17.3%, to $11.2 million for fiscal 2009 when compared to the prior fiscal year. The decrease was due to the 103 basis point decrease in the average rate paid on interest-bearing liabilities, from 3.96% in fiscal 2008 to 2.93% in fiscal 2009, reflecting the decrease in market rates, partially offset by a $39.2 million increase in the average balance of interest-bearing liabilities. Interest expense on deposits decreased $2.1 million, or 22.6%, to $7.2 million for fiscal 2009 when compared to the prior fiscal year. The decrease was due to a 98 basis point decrease in the average rate paid on deposits, partially offset by a $16.0 million increase in average deposits outstanding. Interest expense on FHLB advances increased $378,000, or 12.3%, to $3.5 million for fiscal 2009 when compared to the prior fiscal year. The increase was due to the $19.4 million increase in the average balance of FHLB advances for fiscal 2009, partially offset by the 82 basis point decrease in the average rate paid on advances, reflecting the decrease in market rates. In March 2009, $7.0 million of Floating Rate Capital Securities were issued, with an interest rate of three month LIBOR plus 275 basis points, repricing quarterly. Interest expense on these securities was $357,000 for fiscal 2009 as compared to $539,000 for the prior fiscal year. This decrease was due to the average rate paid decreasing by 252 basis points.   Provision for Loan Losses. A provision for loan losses is charged to earnings to bring the total allowance for loan losses to a level considered adequate by management to provide for probable loan losses based on prior loss experience, type and amount of loans in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions. Management also considers other factors relating to the collectability of the loan portfolio. The provision for loan losses was $1.2 million for fiscal 2009, compared to $723,000 for the prior fiscal year. The increase in provision was primarily due to loan growth, the deteriorating health of the national and regional economy, the potential for declining real estate collateral values, and increased non-performing asset levels experienced by the Company. In fiscal 2009, net charge offs were $357,000, compared to net recoveries of $90,000 for the prior year. At June 30, 2009, classified assets totaled $9.7 million, or 2.1% of total assets, compared to classified assets of $4.5 million, or 1.1% of total assets, at June 30, 2008.  The increase is primarily due to the classification of two loans totaling $3.5 million outstanding to a bank holding company, as well as the classification of the Company’s investments in pooled trust preferred securities with a book value of $1.5 million (see Note 2 – Securities). Other classified assets were generally comprised of loans secured by commercial and agricultural real estate, or inventory and equipment.  Two investments in pooled trust preferred securities with a total book value of $559,000 (included in the total of $1.5 million, above) have deferred interest payments as of June 30, 2009; all other classified assets were performing in accordance with terms.  All assets were classified due to concerns as to the borrowers’ ability to continue to generate sufficient cash flows to service the debt.       The above provision was made based on management’s analysis of the various factors which affect the loan portfolio and management’s desire to maintain the allowance at a level considered adequate. Management performed a detailed analysis of the loan portfolio, including types of loans, the charge-off history, and an analysis of the allowance for loan losses. Management also considered the continued origination of loans secured by commercial businesses and commercial real estate, which bear an inherently higher level of credit risk. While management believes the allowance for loan losses at June 30, 2009, is adequate to cover all losses inherent in the portfolio, there can be no assurance that, in the future, increases in the allowance will not be necessary, or that actual losses will not exceed the allowance.   Noninterest Income. Noninterest income decreased $592,000, or 24.6%, to $1.8 million for fiscal 2009, when compared to the prior fiscal year.  The decrease was primarily due to charges of $679,000 incurred to recognize the other-than-temporary impairment of two investments held by the Company (see Note 2 – Securities).  Exclusive of those charges, noninterest income would have increased 3.6% in fiscal 2009, attributable to increased debit and ATM card income, secondary market income, loan fees and late charges, partially offset by decreases in NSF and account service charges, miscellaneous customer fees, and smaller increases in the cash surrender value of BOLI.   Noninterest Expense. Noninterest expense increased $1.1 million, or 14.1%, to $9.2 million for fiscal 2009, when compared to the prior fiscal year.  The increase resulted primarily from higher deposit insurance assessments, compensation expenses, legal and professional fees, and electronic banking and other charges.  These increases were partially offset by lower charges for correspondent banking services and insurance.  Deposit insurance assessments were $536,000 for fiscal 2009, an increase of $506,000 when compared to the prior year, the result of base assessment rate increases and special assessments collected by the FDIC to rebuild depleted insurance fund balances.  Compensation expenses were $4.8 million, an increase of $371,000, or 8.4%, when compared to the prior fiscal year.  The increase was due to increased salaries, the addition of key personnel, and increased health care benefit costs.  Legal expenses increased due primarily to work required for the acquisition of the Southern Bank of Commerce.  Electronic banking and other charges increased due to the development and promotion of our popular new rewards checking product, as well as the additional costs of servicing those accounts.     Provision for Income Taxes. The Company expensed an income tax provision of $1.7 million for fiscal 2009, a decrease of $63,000, or 3.6%, compared to $1.8 million in fiscal 2008. The decrease was primarily due to larger investments in tax-exempt securities and tax credits, partially offset by increased pre-tax income.  

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The goal of the Company’s asset/liability management strategy is to manage the interest rate sensitivity of both interest-earning assets and interest-bearing liabilities in order to maximize net interest income without exposing the Company to an excessive level of interest rate risk. The Company employs various strategies intended to manage the potential effect that changing interest rates may have on future operating results. The primary asset/liability management strategy has been to focus on matching the anticipated repricing intervals of interest-earning assets and interest-bearing liabilities. At times, however, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the Company may increase its interest rate ri sk position in order to maintain its net interest margin. In an effort to manage the interest rate risk resulting from fixed rate lending, the Company has utilized longer term (up to 10 year maturities), fixed-rate FHLB advances, which may be subject to early redemption, to offset interest rate risk. Other elements of the Company’s current asset/liability strategy include: (i) increasing originations of commercial real estate, commercial business loans, agricultural real estate, and agricultural operating lines, which typically provide higher yields and shorter repricing periods, but inherently increase credit risk, (ii) limiting the price volatility of the investment portfolio by maintaining a weighted average maturity of five years or less, (iii) actively soliciting less rate-sensitive deposits, and (iv) offering competitively priced money market accounts and CDs with maturities of up to five years. The degree to which each segment of the strategy is achieved will affect profitability and exposure to interest rate risk. The Company continues to generate long-term, fixed-rate residential loans. During the year ended June 30, 2010, fixed rate residential loan originations totaled $17.0 million, compared to $23.1 million during the prior year. At June 30, 2010, the fixed-rate residential loan portfolio totaled $103.3 million, with a weighted average maturity of 192 months, compared to $96.6 million with a weighted average maturity of 206 months at June 30, 2009. The Company originated $11.9 million in adjustable rate residential loans during the year ended June 30, 2010, compared to $14.3 million during the prior year. At June 30, 2010, fixed rate loans with remaining maturities in excess of 10 years totaled $99.5 million, or 23.5%, of loans receivable, compared to $90.4 million, or 24.2%, of loans receivable, at June 30, 2009. The Compan y originated $53.2 million in fixed rate commercial and commercial real estate loans during the year ended June 30, 2010, compared to $57.7 million during the prior fiscal year. The Company also originated $68.4 million in adjustable rate commercial and commercial real estate loans during the year ended June 30, 2010, compared to $74.0 million during the prior year. At June 30, 2010, adjustable-rate home equity lines of credit had increased to $12.9 million as compared to $11.0 million as of June 30, 2009.       At June 30, 2010, the Company’s weighted average life of its investment portfolio was 2.9 years, as compared to 3.9 years at June 30, 2009.  At June 30, 2010, CDs with original terms of two years or more totaled $66.8 million compared to $45.7 million at June 30, 2009. INTEREST RATE SENSITIVITY ANALYSIS The following table sets forth as of June 30, 2010, and 2009, management’s estimates of the projected changes in net portfolio value in the event of 1%, 2% and 3%, instantaneous, permanent increases or decreases in market interest rates. Computations in the table below are based on prospective effects of hypothetical changes in interest rates and are based on an internally generated model using the actual maturity and repricing schedules for Southern Bank’s	loans and deposits, adjusted by management’s assumptions for prepayment rates and deposit runoff. Further, the computations do not consider any reactions that the Bank may undertake in response to changes in interest rates. These projected changes should not be relied upon as indicative of actual results in any of the aforementioned interest rate changes. Management cannot accurately predict future interest rates or their effect on the Company’s NPV and net interest income in the future. Certain shortcomings are inherent in the method of analysis presented in the computation of NPV and net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Additionally, most of Southern Bank’s loans have features which restrict changes in interest rates on a short-term basis and over the life of t he asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the foregoing table. Finally, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase.
	June 30, 2010
		Net Portfolio			NPV as % of PV of Assets
		$ Amount	$ Change	% Change	NPV Ratio	Change
	Change in Rates	(dollars in thousands)
	+300 bp	$  59,399	$   7,513	14	10.93	1.63
	+200 bp	58,204	6,318	12	10.60	1.30
	+100 bp	56,030	4,144	8	10.11	0.81
	0 bp	51,886	-	-	9.30	-
	-100 bp	46,599	(5,287)	(10)	8.30	-1.00
	-200 bp	41,009	(10,877)	(21)	7.26	-2.04
	-300 bp	39,297	(12,589)	(24)	6.92	-2.38
	June 30, 2009
		Net Portfolio			NPV as % of PV of Assets
		$ Amount	$ Change	% Change	NPV Ratio	Change
	Change in Rates	(dollars in thousands)
	+300 bp	$  42,388	$  (5,131)	(11)	9.51	-0.61
	+200 bp	44,863	(2,656)	(6)	9.90	-0.22
	+100 bp	46,998	(521)	(1)	10.19	0.07
	0 bp	47,519	-	-	10.12	-
	-100 bp	44,881	(2,638)	(6)	9.45	-0.67
	-200 bp	42,397	(5,122)	(11)	8.88	-1.24
	-300 bp	41,942	(5,577)	(12)	8.78	-1.41
	The Company has worked to limit its exposure to rising rates in the current historically low rate environment by (a) increasing the share of funding on its balance sheet obtained from non-maturity transaction accounts, (b) reducing FHLB borrowings - of which, the reduced balances were generally short in duration, (c) holding cash at June 30, 2010, as compared to an overnight borrowing position at June 30, 2009, and (d) limiting the duration of its available-for-sale investment portfolio.

[15]

>   FINANCIAL REVIEW   (continued)   <

LIQUIDITY AND CAPITAL RESOURCES Southern Missouri’s primary potential sources of funds include deposit growth, securities sold under agreements to repurchase, FHLB advances, amortization and prepayment of loan principal, investment maturities and sales, and ongoing operating results. While scheduled repayments on loans and securities as well as the maturity of short-term investments are a relatively predictable source of funding, deposit flows, FHLB advance redemptions and loan and security prepayment rates are significantly influenced by factors outside of the Bank’s control, including general economic conditions and market competition. The Bank has relied on FHLB advances as a source for funding cash or liquidity needs. Southern Missouri uses its liquid assets as well as other funding sources to meet ongoing commitments, to fund loan commitments, to repay maturing certificates of deposit and FHLB advances, to make investments, to fund other deposit withdrawals and to meet operating expenses. At June 30, 2010, the Bank had outstanding commitments to extend credit of $68.6 million (including $54.2 million in unused lines of credit). Total commitments to originate fixed-rate loans with terms in excess of one year were $3.9 million at rates ranging from 3.75% to 10.00%, with a weighted-average of 5.92%. Management anticipates that current funding sources will be adequate to meet foreseeable liquidity needs. For the year ended June 30, 2010, Southern Missouri increased deposits and securities sold under agreements to repurchase by $110.9 million and $6.6 million, respectively, and decreased FHLB advances by $35.3 million. During the prior year, Southern Missouri increased deposits, securities sold under agreements to repurchase, and FHLB advances by $19.7 million, $1.9 million, and $14.7 million, respectively. At June 30, 2010, the Bank had pledged $204.3 million of its residential and commercial real estate loan portfolios to the FHLB for available credit of approximately $149.8 million, of which $43.5 million had been advanced, and another $3 million had been used for the issuance of a letter of credit to secure a public unit deposit.  The Bank also pledged $45.8 of its agricultural real estate and agricultural operating and equipment loans to the Federal Reserve’s discount window for available credit of approximately $30.7, none of which had been advanced.  In addition, the Bank has the ability to pledge several of its other loan portfolios, including, for example, its home equity and commercial business loans, which could provide collateral for an additional $19.9 million in borrowings at June 30, 2010.  In total, FHLB borrowings are generally limited to 40% of Bank assets, or approximately $220 million, which means that an amount up to $173.5 million may still be eligible to be borrowed from the FHLB, subject to available collateral. Along with the ability to borrow from the FHLB and Federal Reserve, management believes its liquid resources will be sufficient to meet the Company’s liquidity needs. Liquidity management is an ongoing responsibility of the Bank’s management. The Bank adjusts its investment in liquid assets based upon a variety of factors including (i) expected loan demand and deposit flows, (ii) anticipated investment and FHLB advance maturities, (iii) the impact on profitability, and (iv) asset/liability management objectives. At June 30, 2010, the Bank had $147.9 million in CDs maturing within one year and $260.7 million in other deposits and securities sold under agreements to repurchase without a specified maturity, as compared to the prior year of $112.8 million in CDs maturing within one year and $175.4 million in other deposits and securities sold under agreements to repurchase without a specified maturity. Management believes that most maturing interest-bearing liabilities will be retained or replaced by new interest-bearing liabilities. Also at June 30, 2010, the Bank had $18.0 million in FHLB advances eligible for early redemption by the lender within one year.   REGULATORY CAPITAL Federally insured financial institutions are required to maintain minimum levels of regulatory capital. FDIC regulations establish capital requirements, including a leverage (or core capital) requirement and a risk-based capital requirement. The FDIC is also authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis. At June 30, 2010, the Bank exceeded regulatory capital requirements with core and total risk-based capital of $45.4 million and $50.5 million, or 8.36% and 12.50% of adjusted total assets and risk-weighted assets, respectively. These capital levels exceeded minimum requirements of 4.0% and 8.0%, respectively, and well-capitalized requirements of 5% and 10%, respectively for adjusted total assets and risk-weighted assets. (See Note 12 - Stockholders’ Equity and Regulatory Capital.)   IMPACT OF INFLATION The consolidated financial statements and related data presented herein have been prepared in accordance with U.S. generally accepted accounting principles, which require the measurement of financial position and operating results in historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on the operations of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates generally have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price s of goods and services. In the current interest rate environment, liquidity and maturity structure of the Company’s assets and liabilities are critical to the maintenance of acceptable performance levels.   AVERAGE BALANCE, INTEREST AND AVERAGE YIELDS AND RATES The table on the following page sets forth certain information relating to the Company’s average interest-earning assets and interest-bearing liabilities and reflects the average yield on assets and the average cost of liabilities for the periods indicated. These yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the years indicated. Nonaccrual loans are included in the net loan category. The table also presents information with respect to the difference between the weighted-average yield earned on interest-earning assets and the weighted-average rate paid on interest-bearing liabilities, or interest rate spread, which financial institutions have traditionally used as an indicator of profitability. Another indicator of an institution’s net interest income is its net yield on interest-earning assets, which is its net interest income divided by the average balance of interest-earning assets. Net interest income is affected by the interest rate spread and by the relative amounts of interest-earning assets and interest-bearing liabilities. When interest-earning assets approximate or exceed     interest-bearing liabilities, any positive interest rate spread will generate net int erest income.  

[16]

>   FINANCIAL REVIEW   (continued)   <

(dollars in thousands)

				2010								2009								2008
Year Ended June 30	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
Interest-earning assets:
Mortgage loans (1)	$	287,216		$	17,917		6.24	%	$	254,355		$	16,781		6.60	%	$	232,500		$	16,541		7.11	%
Other loans (1)		115,155			6,638		5.76			102,963			6,050		5.88			92,614			6,745		7.28
Total net loans		402,371			24,555		6.10			357,318			22,831		6.39			325,114			23,286		7.16
Mortgage-backed securities		35,862			1,715		4.78			35,714			1,729		4.84			19,372			923		4.76
Investment securities (2)		30,878			1,156		3.74			20,487			706		3.45			22,552			1,059		4.69
Other interest-earning assets		29,282			115		0.39			5,133			35		0.68			4,567			59		1.29
TOTAL INTEREST-
EARNING ASSETS (1)		498,393			27,541		5.53			418,652			25,301		6.04			371,605			25,327		6.82
Other noninterest-earning assets (3)		27,741			-		-			23,045			-		-			22,429			-		-
TOTAL ASSETS	$	526,134		$	27,541		-		$	441,697		$	25,301		-		$	394,034		$	25,327		-
Interest-bearing liabilities:
Savings accounts	$	79,512		$	1,186		1.49	%	$	64,349		$	1,155		1.80	%	$	76,126		$	2,426		3.19	%
NOW accounts		85,911			2,076		2.42			49,325			1,015		2.06			32,461			427		1.31
Money market accounts		6,951			99		1.42			6,905			99		1.43			6,319			112		1.77
Certificates of deposit		190,190			4,715		2.48			151,316			4,896		3.24			140,955			6,287		4.46
TOTAL INTEREST-
BEARING DEPOSITS		362,564			8,076		2.23			271,895			7,165		2.64			255,861			9,252		3.62
Borrowings:
Securities sold under agreements to repurchase		27,674			233		0.84			24,345			229		0.94			20,567			682		3.31
FHLB advances		57,399			2,689		4.68			77,923			3,453		4.43			58,526			3,074		5.25
Junior subordinated debt		7,217			227		3.15			7,217			357		4.95			7,217			539		7.47
TOTAL INTEREST-
BEARING LIABILITIES		454,854			11,225		2.47			381,380			11,204		2.93			342,171			13,547		3.96
Noninterest-bearing demand deposits		25,701			-		-			23,140			-		-			20,055			-		-
Other liabilities		1,438			-		-			546			-		-			1,848			-		-
TOTAL LIABILITIES		481,993			11,225		-			405,066			11,204		-			364,074			13,547		-
Stockholders’ equity		44,141			-		-			36,631			-		-			29,960			-		-
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	526,134		$	11,225		-		$	441,697		$	11,204		-		$	394,034		$	13,547		-
Net interest income				$	16,316							$	14,097							$	11,780
Interest rate spread (4)							3.06	%							3.11	%							2.86	%
Net interest margin (5)							3.27	%							3.37	%							3.17	%
Ratio of average interest-earning assets to average interest-bearing liabilities		109.57	%							109.77	%							108.60	%

(1)	Calculated net of deferred loan fees, loan discounts and loans-in-process. Nonaccrual loans are included in average loans.
(2)	Includes FHLB stock and related cash dividends.
(3)	Includes equity securities and related cash dividends.
(4)	Represents the difference between the average rate on interest-earning assets and the average cost of interest-bearing liabilities.
(5)	Represents net interest income divided by average interest-earning assets.

[17]

YIELDS EARNED AND RATES PAID

The following table sets forth for the periods and at the dates indicated, the weighted average yields earned on the Company’s assets, the weighted average interest rates paid on the Company’s liabilities, together with the net yield on interest-earning assets.

	At June 30, 2010	For The Year Ended June 30,
		2010	2009	2008
Weighted-average yield on loan portfolio	5.98%	6.10%	6.39%	7.16%
Weighted-average yield on mortgage-backed securities	4.85	4.78	4.84	4.76
Weighted-average yield on investment securities (1)	3.43	3.74	3.45	4.69
Weighted-average yield on other interest-earning assets	0.37	0.39	0.68	1.29
Weighted-average yield on all interest-earning assets	5.44	5.53	6.04	6.82
Weighted-average rate paid on deposits	2.23	2.23	2.64	3.62
Weighted-average rate paid on securities sold under agreements to repurchase	0.85	0.84	0.94	3.31
Weighted-average rate paid on FHLB advances	4.48	4.68	4.43	5.25
Weighted-average rate paid on subordinated debt	3.29	3.15	4.95	7.47
Weighted-average rate paid on all interest-bearing liabilities	2.36	2.47	2.93	3.96
Interest rate spread (spread between weighted average rate on all interest-earning assets and all interest-bearing liabilities)	3.08	3.06	3.11	2.86
Net interest margin (net interest income as a percentage of average interest-earning assets)	3.27	3.27	3.37	3.17
(1) Includes Federal Home Loan Bank stock.

RATE/VOLUME ANALYSIS

The following table sets forth the effects of changing rates and volumes on net interest income of the Company. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate), (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) changes in rate/volume (change in rate multiplied by change in volume).

	Years Ended June 30, 2010 Compared to 2009 Increase (Decrease) Due to												Years Ended June 30, 2009 Compared to 2008 Increase (Decrease) Due to
							Rate/												Rate/
(dollars in thousands)	Rate			Volume			Volume			Net			Rate			Volume			Volume			Net
Interest-earning assets
Loans receivable (1)	$	(1,036	)	$	2,879		$	(119	)	$	1,724		$	(2,503	)	$	2,306		$	(258	)	$	(455	)
Mortgage-backed securities		(21	)		7			-			(14	)		15			778			13			806
Investment securities (2)		59			358			33			450			(280	)		(97	)		24			(353	)
Other interest-earning deposits		(15	)		164			(69	)		80			(28	)		7			(3	)		(24	)
Total net change in income on interest-earning assets		(1,013	)		3,408			(155	)		2,240			(2,796	)		2,994			(224	)		(26	)
Interest-bearing liabilities:
Deposits		(1,172	)		2,288			(205	)		911			(2,556	)		317			152			(2,087	)
Securities sold under agreements to repurchase		(24	)		31			(3	)		4			(487	)		125			(91	)		(453	)
Subordinated debt		(130	)		-			-			(130	)		(182	)		-			-			(182	)
FHLB advances		195			(909	)		(50	)		(764	)		(480	)		1,018			(159	)		379
Total net change in expense on    interest-bearing liabilities		(1,131	)		1,410			(258	)		21			(3,705	)		1,460			(98	)		(2,343	)
Net change in net interest income	$	118		$	1,998		$	103		$	2,219		$	909		$	1,534		$	(126	)	$	2,317

(1)	Does not include interest on loans placed on nonaccrual status.
(2)	Does not include dividends earned on equity securities.

[18]

>   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   <

 

[19]

>   CONSOLIDATED BALANCE SHEETS   <

JUNE 30, 2010 AND 2009

Southern Missouri Bancorp, Inc.

Assets	2010			2009
Cash and cash equivalents	$	33,383,278		$	8,074,465
Interest-bearing time deposits		1,089,000			-
Available for sale securities (Note 2)		66,965,413			60,177,992
Stock in FHLB of Des Moines		2,621,600			4,592,300
Stock in Federal Reserve Bank of St. Louis		583,100			-
Loans, net of allowance for loan losses of $4,508,611 and $3,992,961 at
June 30, 2010 and 2009, respectively (Note 3)		418,682,927			368,993,211
Accrued interest receivable		3,043,324			2,650,161
Premises and equipment, net (Note 4)		7,650,244			8,135,092
Bank owned life insurance - cash surrender value		7,836,929			7,563,855
Intangible assets, net		1,604,372			1,582,645
Prepaid expenses and other assets		8,623,520			4,564,164
TOTAL ASSETS	$	552,083,707		$	466,333,885
Liabilities and Stockholders’ Equity
Deposits (Note 5)	$	422,892,907		$	311,955,468
Securities sold under agreements to repurchase (Note 6)		30,368,748			23,747,557
Advances from FHLB of Des Moines (Note 7)		43,500,000			78,750,000
Accounts payable and other liabilities		1,598,436			1,666,436
Accrued interest payable		857,418			989,086
Subordinated debt (Note 8)		7,217,000			7,217,000
TOTAL LIABILITIES		506,434,509			424,325,547
Commitments and contingencies (Note 14)		-			-
Preferred stock, $.01 par value; $1,000 liquidation value 500,000 shares authorized; 9,550 issued and outstanding		9,421,321			9,388,815
Common stock, $.01 par value; 4,000,000 shares authorized; 2,957,226 shares issued		29,572			29,572
Warrants to acquire common stock		176,790			176,790
Additional paid-in capital		16,367,698			16,344,725
Retained earnings		33,060,723			29,947,297
Treasury stock of 869,250 shares in 2010 and 2009, at cost		(13,994,870	)		(13,994,870	)
Accumulated other comprehensive income		587,964			116,009
TOTAL STOCKHOLDERS’ EQUITY		45,649,198			42,008,338
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	552,083,707		$	466,333,885

See accompanying notes to consolidated financial statements.

[20]

> CONSOLIDATED STATEMENTS OF INCOME <

YEARS ENDED JUNE 30, 2010, 2009 AND 2008

Southern Missouri Bancorp, Inc.

Interest income:	2010			2009			2008
Loans	$	24,554,917		$	22,830,730		$	23,285,907
Investment securities		1,155,795			706,429			1,058,742
Mortgage-backed securities		1,715,309			1,728,958			923,039
Other interest-earning assets		115,239			35,010			58,992
TOTAL INTEREST INCOME		27,541,260			25,301,127			25,326,680
Interest expense:
Deposits		8,076,400			7,165,030			9,251,569
Securities sold under agreements to repurchase		232,773			228,893			681,817
Advances from FHLB of Des Moines		2,688,747			3,452,840			3,074,378
Subordinated debt		227,019			357,387			539,017
TOTAL INTEREST EXPENSE		11,224,939			11,204,150			13,546,781
NET INTEREST INCOME		16,316,321			14,096,977			11,779,899
Provision for loan losses (Note 3)		924,933			1,150,985			722,516
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		15,391,388			12,945,992			11,057,383
Noninterest income:
Net gains on sales of available for sale securities		-			-			6,084
AFS securities losses due to other-than-temporary     impairment		-			(678,973	)		-
Customer service charges		1,360,526			1,223,449			1,257,525
Loan late charges		214,444			155,454			142,232
Increase in cash surrender value         of bank owned life insurance		273,074			274,036			291,254
Other		1,246,088			845,778			715,016
TOTAL NONINTEREST INCOME		3,094,132			1,819,744			2,412,111
Noninterest expense:
Compensation and benefits		6,291,436			4,800,224			4,428,909
Occupancy and equipment		1,869,597			1,528,850			1,525,999
Deposit insurance premium		554,467			535,971			30,393
Professional fees		306,069			311,461			223,136
Advertising		252,404			217,295			176,479
Postage and office supplies		417,699			317,844			275,585
Amortization of intangible assets		289,066			255,258			255,258
Other		2,518,209			1,252,256			1,165,452
TOTAL NONINTEREST EXPENSE		12,498,947			9,219,159			8,081,211
INCOME BEFORE INCOME TAXES		5,986,573			5,546,577			5,388,283
Income taxes (Note 10)
Current		1,901,985			2,004,500			2,278,803
Deferred		(541,000	)		(293,000	)		(504,000	)
		1,360,985			1,711,500			1,774,803
NET INCOME	$	4,625,588		$	3,835,077		$	3,613,480
Less: effective dividend on preferred shares		510,006			288,841			-
NET INCOME AVAILABLE TO
COMMON STOCKHOLDERS	$	4,115,582		$	3,546,236		$	3,613,480
Basic earnings per share available to common stockholders	$	1.98		$	1.67		$	1.64
Diluted earnings per share available to common stockholders	$	1.95		$	1.67		$	1.63
Dividends paid	$	.48		$	.48		$	.40
See accompanying notes to consolidated financial statements.

[21]

> CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY <

YEARS ENDED JUNE 30, 2010, 2009 AND 2008

Southern Missouri Bancorp, Inc.

	Preferred Stock		Common Stock		Warrants to Acquire Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance at June 30, 2007	$	-	$	29,572	$	-	$	17,389,156		$	24,634.854		$	(12,990,541	)	$	(348,802	)	$	28,714,239
Net Income											3,613,480									3,613,480
Change in unrealized loss on available for sale securities																	(277,871	)		(277,871	)
Defined benefit pension plan net gain																	31,495			31,495
Total Comprehensive Income																				3,367,104
Purchases of treasury stock														(1,364,279	)					(1,364,279	)
Dividends paid on common stock ($.40 per share)											(884,115	)								(884,115	)
SOP Expense								48,481												48,481
MRP expense								19,777												19,777
Tax benefit of MRP								4,817												4,817
Exercise of stock options								(786,392	)					1,352,017						565,625
Balance at June 30, 2008	$	-	$	29,572	$	-	$	16,675,839		$	27,364.219		$	(13,0002,803	)	$	(595,178	)	$	30,471,649
Net income											3,835,077									3,835,077
Change in unrealized gain on available for sale securities																	733,603			733,603
Defined benefit pension plan net loss																	(22,416	)		(22,416	)
Total Comprehensive Income																				4,456,264
Preferred stock issues		9,373,210				176,790		(38,871	)											9,511,129
Purchases of treasury stock														(1,507,825	)					(1,507,825	)
Dividends paid on common stock ($.48 per share)											(1,024,172	)								(1,024,172	)
Dividends paid on preferred stock											(212,222	)								(212,222	)
Accretion of discount on preferred stock		15,605									(15,605	)								-
SOP Expense								47,215												47,215
MRP expense								12,809												12,809
Tax benefit of MRP								2,422												2,422
Exercise of stock options								(354,689	)					515,758						161,069
Balance at June 30, 2009	$	9,388,815	$	29,572	$	176,790	$	16,344,725		$	29,947,297		$	(13,994,870	)	$	116,009		$	42,008,338
Net income											4,625,588									4,625,588
Change in unrealized gain on available for sale securities																	469,737			469,737
Defined benefit pension plan net gain																	2,218			2,218
Total Comprehensive Income																				5,097,543
Dividends paid on common stock ($.48 per share)											(1,002,156	)								(1,002,156	)
Dividends paid on preferred stock											(477,500	)								(477,500	)
Accretion of discount on preferred stock		32,506									(32,506	)								-
SOP Expense								11,072												11,072
MRP expense								11,901												11,901
Balance at June 30, 2010	$	9,421,321	$	29,572	$	176,790	$	16,367,698		$	33,060,723		$	(13,994,870	)	$	587,964		$	45,649,198

[22-23]

> CONSOLIDATED STATEMENTS OF CASH FLOWS <

YEARS ENDED JUNE 30, 2010, 2009 AND 2008

Southern Missouri Bancorp, Inc.

Cash flows from operating activities:	2010			2009			2008
Net income Items not requiring (providing) cash:	$	4,625,588		$	3,835,077		$	3,613,480
Depreciation		709,981			625,582			680,693
Loss on disposal of fixed assets		280,521			-			-
SOP and MRP expense		22,973			62,446			73,075
AFS securities losses due to other-than-temporary      impairment		-			678,973			-
Net realized gains on available     for sale securities		-			-			(6,084	)
Loss (gain) on sale of foreclosed assets		84,324			(21,369	)		(18,455	)
Amortization of intangible assets		289,066			255,258			255,258
Increase in cash surrender value        of bank owned life insurance		(273,074	)		(274,036	)		(291,254	)
Provision for loan losses		924,993			1,150,985			722,516
Amortization of premiums and discounts     on securities		200,952			136,347			(52,965	)
Deferred income taxes		(541,000	)		(293,000	)		(504,000	)
Changes in:
Accrued interest receivable		(261,572	)		361,616			(763,713	)
Prepaid expenses and other assets		(1,090,179	)		95,720			49,053
Accounts payable and other liabilities		(26,288	)		454,379			327,570
Accrued interest payable		(192,688	)		(210,683	)		(206,511	)
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	4,753,537		$	6,857,295		$	3,878,663
Cash flows from investing activities:
Net cash received in acquisitions	$	9,713,304		$	-		$	-
Net change in interest-bearing deposits		(1,089,000	)		1,980,000			(1,980,000	)
Net increase in loans		(37,503,760	)		(27,425,708	)		(32,445,458	)
Proceeds from sales of     available for sale securities		-			-			233,500
Proceeds from maturities of     available for sale securities		16,631,759			9,227,820			24,698,058
Purchases of available for     sale securities		(21,270,406	)		(29,141,403	)		(30,345,266	)
Investment in federal and state tax credits		(1,250,000	)		(1,263,944	)		-
Redemption (purchase) of Federal Home Loan Bank stock		1,970,700			(1,268,600	)		(253,100	)
Purchase of Federal Reserve Bank of St. Louis stock		(583,100	)		-			-
Purchase of premises and equipment		(1,131,254	)		(556,043	)		(234,651	)
Proceeds from sale of fixed assets		2,006,263			-			-
Proceeds from sale of foreclosed and repossessed property		1,296,410			352,194			578,367
NET CASH USED IN INVESTING ACTIVITIES	$	(31,209,084	)	$	(48,095,684	)	$	(39,748,550	)

See accompanying notes to consolidated financial statements.

[24]

> CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)<

YEARS ENDED JUNE 30, 2010, 2009 AND 2008

Southern Missouri Bancorp, Inc.

Cash flows from financing activities:	2010			2009			2008
Net increase in demand deposits and savings accounts	$	74,540,768		$	9,750,488		$	2,405,635
Net increase in certificates of deposit		7,332,057			9,947,935			19,763,314
Net increase in securities sold under agreements to repurchase		6,621,191			1,944,044			4,045,149
Proceeds from Federal Home Loan Bank advances		30,950,000			212,675,000			353,550,000
Repayments of Federal Home Loan Bank advances		(66,200,000	)		(197,975,000	)		(343,500,000	)
Proceeds from issuance of preferred stock		-			9,511,129			-
Dividends paid on preferred stock		(477,500	)		(212,222	)		-
Dividends paid on common stock		(1,002,156	)		(1,024,172	)		(884,115	)
Exercise of stock options		-			161,069			565,625
Purchases of treasury stock		-			(1,507,825	)		(1,364,279	)
NET CASH PROVIDED BY FINANCING ACTIVITIES	$	51,764,360		$	43,270,446		$	34,581,329
Increase (Decrease) in cash and cash equivalents		25,308,813			2,032,057			(1,288,558	)
Cash and cash equivalents at beginning of year		8,074,465			6,042,408			7,330,966
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	33,383,278		$	8,074,465		$	6,042,408
Supplemental disclosures of cash flow information:
Noncash investing and financing activities
Conversion of loans to foreclosed real estate	$	1,925,854		$	477,177		$	654,369
Conversion of foreclosed real estate to loans	$	196,944		$	13,172		$	235,000
Cash paid during the period for
Interest (net of interest credited)	$	4,142,105		$	4,981,065		$	5,050,895
Income taxes	$	1,598,000		$	1,886,405		$	1,965,393

See accompanying notes to consolidated financial statements.

[25]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   <

Southern Missouri Bancorp, Inc.

NOTE 1:  Organization and Summary of Significant Accounting Policies Organization. Southern Missouri Bancorp, Inc., a Missouri corporation (the Company) was organized in 1994 and is the parent company of Southern Bank (the Bank). Substantially all of the Company’s consolidated revenues are derived from the operations of the Bank, and the Bank represents substantially all of the Company’s consolidated assets and liabilities.   Basis of Financial Statement Presentation. The financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America and general practices within the banking industry. In the normal course of business, the Company encounters two significant types of risk: economic and regulatory. Economic risk is comprised of interest rate risk, credit risk, and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities reprice on a different basis than its interest-earning assets. Credit risk is the risk of default on the Company’s loan portfolio that results from the borrowers’ inability or unwillingness to make contractually required paymen ts. Market risk reflects changes in the value of collateral underlying loans receivable and the value of the Company’s investment in real estate.   Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. All significant intercompany accounts and transactions have been eliminated.   Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, other-than-temporary impairments (OTTI), and fair value of financial instruments.   Cash and Cash Equivalents. For purposes of reporting cash flows, cash and cash equivalents includes cash, due from depository institutions and interest-bearing deposits in other depository institutions with original maturities of three months or less. Interest-bearing deposits in other depository institutions were $31,246,703 and $5,614,330 at June 30, 2010 and 2009, respectively. The deposits are held in various commercial banks in amounts not exceeding the FDIC’s deposit insurance limits, as well as at the Federal Reserve and the Federal Home Loan Bank of Des Moines.   Available for Sale Securities. Available for sale securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future are carried at fair value. Unrealized gains and losses, net of tax, are reported in accumulated other comprehensive income, a component of stockholders’ equity. All securities have been classified as available for sale. Premiums and discounts on debt securities are amortized or accreted as adjustments to income over the estimated life of the security using the level yield method. Realized gains or losses on the sale of securities is based on the specific identification method. The fair value of securities is based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. The Company does not invest in collateralized mortgage obligations that are considered high risk. Effective April 1, 2009, the Company adopted new accounting guidance related to recognition and presentation of other-than-temporary impairment (ASC 320-10). When the Company does not intend to sell a debt security, and it is more likely than not the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. As a result of this guidance, the Company’s consolidated statement of income as of June 30, 2010, reflects the full impairment (that is, the difference between the security’s amortized cost basis and fair value) on debt securities that the Company intends to sell or would more likely than not be required to sell before the expected recovery of the amortized cost basis. For available-for-sale debt securities that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive income. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be re ceived over the remaining term of the security as projected based on cash flow projections. Prior to the adoption of the recent accounting guidance on April 1, 2009, management considered, in determining whether other-than-temporary impairment exists, (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the company to retain its investment in the issuer for a period time sufficient to allow for any anticipated recovery in fair value.   Federal Reserve Bank and Federal Home Loan Bank Stock. The Bank is a member of the Federal Reserve and the Federal Home Loan Bank (FHLB) systems. Capital stock of the Federal Reserve and the FHLB is a required investment based upon a predetermined formula and is carried at cost.   Loans. Loans are generally stated at unpaid principal balances, less the allowance for loan losses and net deferred loan origination fees. Interest on loans is accrued based upon the principal amount outstanding. The accrual of interest on loans is discontinued when, in management’s judgment, the collectibility of interest or principal in the normal course of business is doubtful. A loan is considered delinquent when a payment has not been made by the contractual due date. Interest income previously accrued but not collected at the date a loan is placed on nonaccrual status is reversed against interest income. Cash receipts on a nonaccrual loan are applied to principal and interest in accordance with its contractual terms unless full payment of principal is not expected, in which case cash receipts, whether designated as principal or interest, are applied as a reduction of the carrying value of the loan. A nonaccrual loan is generally returned to acc rual status when principal and interest payments are current, full collectibility of principal and interest is reasonably assured and a consistent record of performance has been demonstrated. The allowance for losses on loans represents management’s best estimate of losses probable in the existing loan portfolio. The allowance for losses on loans is increased by the provision for losses on loans charged to expense and reduced by loans charged off, net of recoveries. Loans are charged off in the period deemed uncollectible. Recoveries of loans previously charged off are recorded when received. The provision for losses on loans is determined based on management’s assessment of several factors: reviews and evaluations of specific loans, changes in the nature and volume of the loan portfolio, current economic conditions and the related impact on specific borrowers and industry groups, historical loan loss experience, the level of classified and nonperforming loans and the results of regulatory examin ations.  

[26]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

Valuation allowances are established for impaired loans for the difference between the loan amount and fair value of collateral less estimated selling costs. Impairment losses are recognized through an increase in the allowance for loan losses. Loans are considered impaired if, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the interest method over the contractual life of the loans.   Foreclosed Real Estate. Real estate acquired by foreclosure or by deed in lieu of foreclosure is initially recorded at the lower of cost or fair value less estimated selling costs. Costs for development and improvement of the property are capitalized. Valuations are periodically performed by management, and an allowance for losses is established by a charge to operations if the carrying value of a property exceeds its estimated fair value, less estimated selling costs. Loans to facilitate the sale of real estate acquired in foreclosure are discounted if made at less than market rates. Discounts are amortized over the fixed interest period of each loan using the interest method.   Premises and Equipment. Premises and equipment are stated at cost less accumulated depreciation and include expenditures for major betterments and renewals. Maintenance, repairs, and minor renewals are expensed as incurred. When property is retired or sold, the retired asset and related accumulated depreciation are removed from the accounts and the resulting gain or loss taken into income. The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment loss recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. Depreciation is computed by use of straight-line and accelerated methods over the estimated useful lives of the assets. Estimated lives are generally 20 to 40 years for premises, and five to seven years for equipment.   Intangible Assets. The Company’s gross amount of intangible assets at June 30, 2010 and 2009 was $4,114,401 and $3,837,416, respectively, with accumulated amortization of $2,510,029 and $2,254,771, respectively. The Company’s intangible assets are being amortized over periods ranging from five to fifteen years, with amortization expense expected to be approximately $292,000 per year over the next five years.   Income Taxes. The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they o ccur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to the management’s judgement. Deferred tax assets are reduced by a valuation all owance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company recognizes interest and penalties on income taxes as a component of income tax expense. The Company files consolidated income tax returns with its subsidiary.   Incentive Plan. The Company accounts for its management and recognition plan (MRP) in accordance with ASC 718, formerly Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment.” The aggregate purchase price of all shares owned by the incentive plan is reflected as a reduction of stockholders’ equity. Compensation expense is based on the market price of the Company’s stock on the date the shares are granted and is recorded over the vesting period. The difference between the aggregate purchase price and the fair value on the date the shares are considered earned is recorded as an adjustment to additional paid in capital.   Outside Directors’ Retirement. The Bank adopted a directors’ retirement plan in April 1994 for outside directors. The directors’ retirement plan provides that each non-employee director (participant) shall receive, upon termination of service on the Board on or after age 60, other than termination for cause, a benefit in equal annual installments over a five year period. The benefit will be based upon the product of the participant’s vesting percentage and the total Board fees paid to the participant during the calendar year preceding termination of service on the Board. The vesting percentage shall be determined based upon the participant’s years of service on the Board, whether before or after the reorganization date. In the event that the participant dies before collecting any or all of the benefits, the Bank shall pay the participant’s beneficiary. No benefits shall be payable to anyone other than the beneficiary, and shall terminate on the death of the beneficiary.   Stock Options. The Company adopted ASC 718, formerly Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment,” which requires the compensation costs related to share-based payment transactions to be recognized in financial statements, in the first quarter of fiscal 2006, primarily due to the Company’s transition from a small business filer to a full filer. With limited exceptions, the amount of compensation cost is measured based on the grant-date fair value of the equity instruments issued. Compensation cost is recognized over the vesting period during which an employee provides service in exchange for the award. Stock-based compensation has been recognized for all stock options granted or modified after J uly 1, 2005. In addition, stock options not vested on July 1, 2005, were recognized in expense over their remaining vesting period.   Employee Stock Ownership Plan. The Company accounts for its employee stock ownership plan (ESOP) in accordance with ASC 718, formerly American Institute of Certified Public Accountants (AICPA) Statement of Position 93-6.  

[27]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

As of June 30, 2005, the ESOP shares reserved at the initial public offering were fully distributed and the ESOP began purchasing additional shares using annual cash contributions to the plan from the Bank.   Earnings Per Share. Basic earnings per share available to common stockholders is computed using the weighted-average number of common shares outstanding. Diluted earnings per share available to common stockholders includes the effect of all dilutive potential common shares (stock options and warrants) outstanding during each year.   Comprehensive Income. Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation (depreciation) on available-for-sale securities, unrealized appreciation (depreciation) on available-for-sale securities for which a portion of an other-than-temporary impairment has been recognized in income, and changes in the funded status of defined benefit pension plans.   Treasury Stock. Treasury stock is stated at cost. Cost is determined by the first-in, first-out method.   Reclassification. Certain amounts included in the 2009 and 2008 consolidated financial statements have been reclassified to conform to the 2010 presentation. These reclassifications had no effect on net income.   The following paragraphs summarize the impact of new accounting pronouncements: In December 2007, the FASB issued ASC 805, formerly Statement No. 141 (revised 2007), “Business Combinations—A Replacement of FASB Statement No. 141” and ASC 810, formerly Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB No. 51.”  ASC 805 establishes principles and requirements for how an acquirer recognizes and measures certain items in a business combination, as well as disclosures about the nature and financial effects of a business combination.  ASC 810 establishes accounting and reporting standards surrounding noncontrolling interest, or minority interests, which are the portions of equity in a subsidiary not attributable, directly or indirectly, to a parent.  The pronouncements were effective for the Company beginning July 1, 2009.  Presentation and disclosure requirements related to noncontrolling interests must be retrospectively applied.  The Company was impacted by the adoption of ASC 805 with its July 2009 acquisition.  The Company does not have any noncontrolling interests; thus, there was no effect to the financial statements related to the adoption of ASC 810. In April 2009, the FASB issued ASC 825, formerly FASB Staff Position on FAS 107-1 and APB No. 28-1, “Interim Disclosures About Fair Value of Financial Instruments,” which requires disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements.  The provisions of ASC 825 were effective for the Company’s interim period ending September 30, 2009.  As ASC 825 amends only the disclosure requirements about fair value of financial instruments in interim periods, the adoption of ASC 825 did not affect the Company’s consolidated financial statements. On June 12, 2009, the FASB issued ASC 860, formerly Statement No. 166, “Accounting for Transfers of Financial Assets”. ASC 860 is a revision to SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and will require more information about transfers of financial assets, including securitization transactions, and where companies will have continuing exposure to the risks related to transferred financial assets. ASC 860 also eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. ASC 860 will be effective as of the beginning of the Company’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The recognition and measurement provisions of ASC 860 shall be applied to transfers that occur on or after the effective date. The Company will adopt ASC 860 on July 1, 2010, as required. Management does not expect adoption of the Statement to have a material impact on the Company’s consolidated financial statements. On June 12, 2009, the FASB issued ASC 810, formerly Statement No. 167, “Amendments to FASB Interpretation No. 46(R)”. ASC 810 is a revision to FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities,” and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design, and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. ASC 810 will be effective as of the Company’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and annual reporting periods thereafter. Earlier application is prohibited. The Company will adopt ASC 810 on July 1, 2010, as required. Management does not expect adoption of the Statement to have a material impact on the Company’s consolidated financial statements. In February 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-09,  “Subsequent Events (Topic 855) – Amendments to Certain Recognition and Disclosure Requirements.”   ASU 2010-09 amends the subsequent event disclosure guidance.  The amendments include a definition of an SEC filer, requires and SEC filer to evaluate subsequent events through the date the financial statements are issued, and removes the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated.  ASU 2010-09 was effective upon issuance, and adoption did not have a material impact on the Company’s consolidated financial statements. In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements.”  ASU 2010-06 amends the fair value disclosure guidance.  The amendments include new disclosures and changes to clarify existing disclosure requirements.  ASU 2010-06 was effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements of Level 3 fair value measurements; those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  Adoption of the ASU did not have a material effect on the Company’s financial statements. In June 2010, the FASB issued an Exposure Draft of a proposed Accounting Standards Update (the Proposed Update) regarding Fair Value Measurement and Disclosures (Topic 820) – Amendments for Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.  The Proposed Update would establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards.  An effective date for the Proposed Update would be established at the time a final ASU was issued. The Company is continuing to evaluate the potential impact of adoption of the Proposed Update, but it is expected to have a material effect on the Company’s financial statements.  

[28]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

In July 2010, the FASB issued ASU No. 2010-10, “Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.”  ASU 2010-10 requires disclosures that allow financial statement users to evaluate the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses.  ASU 2010-10 will be effective for interim and annual reporting periods beginning on or after December 15, 2010; the Company does not expect adoption of the ASU to have a material effect on the Company’s financial statements.  

NOTE 2:  Available-for-Sale Securities

The amortized cost, gross unrealized gains, gross unrealized losses and approximate fair value of securities available for sale consisted of the following:

	June 30, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Debt and equity securities:
U.S. government and     Federal agency obligations	$	12,345,409	$	68,568	$	-		$	12,413,977
Obligations of states and     political subdivisions		19,351,837		454,941		(37,661	)		19,769,117
FHLMC preferred stock		-		6,000		-			6,000
Other securities		1,771,299		4,306		(1,333,737	)		441,868
TOTAL DEBT AND EQUITY SECURITIES		33,468,545		533,815		(1,371,398	)		32,630,962
Mortgage-backed securities:
FHLMC certificates		7,316,562		498,133		-			7,814,695
GNMA certificates		99,148		2,028		-			101,176
FNMA certificates		7,101,611		511,596		(148	)		7,613,059
CMOs issued by government agencies		18,064,231		741,290		-			18,805,521
TOTAL MORTGAGE-BACKED SECURITIES		32,581,552		1,753,047		(148	)		34,334,451
TOTAL	$	66,050,097	$	2,286,862	$	(1,371,546	)	$	66,965,413
			June 30, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Debt and equity securities:
U.S. government and Federal agency obligations	$	3,216,975	$	61,733	$	-		$	3,278,708
Obligations of states and     political subdivisions		13,512,789		212,308		(102,402	)		13,622,695
FHLMC preferred stock		-		7,920		-			7,920
Other securities		4,264,409		-		(1,264,753	)		2,999,656
TOTAL DEBT AND EQUITY SECURITIES		20,994,173		281,961		(1,367,155	)		19,908,979
Mortgage-backed securities:
FHLMC certificates		10,163,401		236,649		(1,839	)		10,398,211
GNMA certificates		113,986		667		(153	)		114,500
FNMA certificates		9,811,522		307,453		(6,795	)		10,112,180
CMOs issued by government agencies		18,925,210		718,912		-			19,644,122
TOTAL MORTGAGE-BACKED SECURITIES		39,014,119		1,263,681		(8,787	)		40,269,013
TOTAL	$	60,008,292	$	1,545,642	$	(1,375,942	)	$	60,177,992

[29]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

The amortized cost and fair value of available-for-sale securities, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		June 30, 2010
		Amortized		Estimated Fair
Available for Sale		Cost		Value
Within one year		$	1,024,775	$	1,034,591
After one but less than five years			1,080,000		1,089,152
After five but less than 10 years			8,977,332		9,040,922
After 10 years			22,386,438		21,466,297
Total investment securities			33,468,545		32,630,962
Mortgage-backed securities - GSE residential			32,581,552		34,334,451
	TOTAL	$	66,050,097	$	66,965,413

The carrying value of investment and mortgage-backed securities pledged as collateral to secure public deposits and securities sold under agreements to repurchase amounted to $62,020,336 and $46,361,060 at June 30, 2010 and 2009, respectively. No gains or losses resulted from sales of available-for-sale securities in 2010 or 2009. Gross gains of $6,084, and no gross losses resulted from sales of available-for-sale securities in 2008. With the exception of U.S. government agencies and corporations, the Company did not hold any securities of a single issuer, payable from and secured by the same source of revenue or taxing authority, the book value of which exceeded 10% of stockholders’ equity at June 30, 2010.   Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at June 30, 2010 was $4.9 million, which is approximately 7.3% of the Company’s available for sale investment portfolio, as compared to $5.6 million or approximately 9.3% of the Company’s available for sale investment portfolio at June 30, 2009. Except as discussed below, management believes the declines in fair value for these securities to be temporary. The tables below show our investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2010 and 2009.  

	Less than 12 months				12 months or more				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
For the year ended June 30, 2010
Mortgage-backed securities - GSE residential	$	-	$	-	$	27,349	$	148	$	27,349	$	148
Other securities		-		-		191,218		1,333,737		191,218		1,333,737
Obligations of state and political subdivisions		4,677,991		37,661		-		-		4,677,991		37,661
Total temporarily impaired securities	$	4,677,991	$	37,661	$	218,567	$	1,333,885	$	4,896,558	$	1,371,546
	Less than 12 months				12 months or more				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
For the year ended June 30, 2009
Mortgage-backed securities - GSE residential	$	276,201	$	1,992	$	291,621	$	6,795	$	567,822	$	8,787
Other securities		-		-		249,656		1,264,753		249,656		1,264,753
Obligations of state and political subdivisions		3,243,030		82,933		1,547,675		19,469		4,790,705		102,402
Total temporarily impaired securities	$	3,519,231	$	84,925	$	2,088,952	$	1,291,017	$	5,608,183	$	1,375,942

[30]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

Other Securities. At June 30, 2010, there were four pooled trust preferred securities with a fair value of $191,000 and unrealized losses of $1.3 million in a continuous unrealized loss position for twelve months or more.  These unrealized losses were primarily due to the long-term nature of the pooled trust preferred securities, a lack of demand or inactive market for these securities, and concerns regarding the financial institutions that have issued the underlying trust preferred securities. The June 30, 2010 cash flow analysis for three of these securities showed it is probable the Company will receive all contracted principal and related interest projected, though interest payments have been deferred on two of the three securities. The cash flow an alysis used in making this determination was based on anticipated default and recovery rates, amounts of prepayments, and the resulting cash flows were discounted based on the yield anticipated at the time the securities were purchased.  Other inputs include the actual collateral attributes, which include credit ratings and other performance indicators of the underlying financial institutions, including profitability, capital ratios, and asset quality.  Assumptions for these securities included no prepayments, no recoveries on issuers currently in default, recoveries of 28% to 36% on currently deferred issuers in the next two years, no new deferrals for the next two years, and annual defaults of 36 basis points (with 10% recoveries, lagged two years) thereafter.   Because the Company does not intend to sell these securities and it is not more-likely-than-not that the Company will be required to sell these securities prior to recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other than temporarily impaired at June 30, 2010.   At December 31, 2008, analysis of the fourth pooled trust preferred security indicated other-than-temporary impairment (OTTI) and the Company performed further analysis to determine the portion of the loss that was related to credit conditions of the underlying issuers. The credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment. The discounted cash flow was based on anticipated default and recovery rates, and resulting projected cash flows were discounted based on the yield anticipated at the time the security was purchased.  Based on this analysis, the Company recorded an impairment charge of $375,000 for the credit portion of the unrealized loss for this trust preferred security. This loss established a new, lower amortized cost basis of $125,000 for this security, and reduced non-interest income for the second quarter and the twelve months ended June 30, 2009. At June 30, 2010, cash flow analyses showed it is probable the Company will receive all of the remaining cost basis and related interest projected for the security. Because the Company does not intend to sell this security and it is not more-likely-than-not the Company will be required to sell this security before recovery of its new, lower amortized cost basis, which may be maturity, the Company does not consider the remainder of the investment in this security to be other-than-temporarily impaired at June 30, 2010. During the first quarter of fiscal 2009, the Company’s investments in Freddie Mac Preferred Stock was deemed other than temporarily impaired, based on quoted market prices which reflected market participants’ expectations regarding the likelihood of recovery of their investment following the placement of the firm into receivership by the U.S. Treasury Department.  Accordingly, the Company recorded an impairment charge for the full amortized cost of the security, $304,000.  The loss established a new, lower amortized cost basis of $0 for this security, and reduced non-interest income for the first quarter of fiscal 2009.	The Company does not believe any other individual unrealized loss as of June 30, 2010, represents OTTI. However, given the continued disruption in the financial markets, the Company may be required to recognize OTTI losses in future periods with respect to its available for sale investment securities portfolio. The amount and timing of any additional OTTI will depend on the decline in the underlying cash flows of the securities. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in the period the other-than-temporary impairment is identified. Credit Losses Recognized on Investments. As described above, some of the Company’s investments in trust preferred securities have experienced fair value deterioration due to credit losses, but are not otherwise other-than-temporarily impaired. During fiscal 2009, the Company adopted ASC 820, formerly FASB Staff Position 157-4, “Determining Fair Value when the Volume and Level of Activity For the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” The following table provides information about the trust preferred security for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income (loss) for the years ended June 30, 2010 and 2009.
		Accumulated Credit Losses
		Year Ended June 30
		2010	2009
	Credit losses on debt securities held
	Beginning of period	$                   375,000	$                     -
	Additions related to OTTI       losses not previously recognized	-	375,000
	Reductions due to sales	-	-
	Reductions due to change in intent       or likelihood of sale	-	-
	Additions related to increases in       previously recognized OTTI       losses	-	-
	Reductions due to increases in expected cash flows	-	-
	End of period	$                   375,000	$            375,000

[31]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

NOTE 3:  Loans and Allowance for Loan Losses

Loans are summarized as follows:

		June 30
		2010	2009
Real estate loans:
Residential		$          158,494,230	$          155,490,317
Construction		27,951,418	23,531,528
Commercial		121,525,818	97,160,828
Consumer loans		26,323,936	23,141,738
Commercial		97,480,888	89,065,652
		431,776,290	388,390,063
Loans in process		(8,705,521 )	(15,511,237 )
Deferred loan fees, net		120,769	107,346
Allowance for loan losses		(4,508,611 )	(3,992,961 )
	TOTAL	$          418,682,927	$          368,993,211

Adjustable rate loans included in the loan portfolio amounted to $168,099,280 and $154,037,379 at June 30, 2010 and 2009, respectively.

One- to four-family residential real estate loans amounted to $150,061,555 and $141,340,882 at June 30, 2010 and 2009, respectively.

Real estate construction loans are secured principally by single and multi-family dwelling units.

Commercial real estate loans are secured principally by commercial buildings, motels, medical centers, churches, restaurants and farmland.

Following is a summary of activity in the allowance for loan losses:

	June 30
	2010	2009	2008
Balance, beginning of period	$  3,992,961	$  3,198,969	$  2,386,909
Loans charged-off	(430,224)	(382,542)	(93,755)
Recoveries of loans previously charged-off	20,941	25,549	183,299
Net recoveries (charge-offs)	(409,283)	(356,993)	89,544
Provision charged to expense	924,933	1,150,985	722,516
Balance, end of period	$  4,508,611	$  3,992,961	$  3,198,969

Total loans past due 90 days or more and still accruing interest amounted to $94,000 and $137,000 at June 30, 2010 and 2009, respectively. The Company had ceased recognition of interest income on loans with a  book value of $238,000 and $659,000 at June 30, 2010 and 2009, respectively. The average balance of nonaccrual loans for the years ended June 30, 2010, 2009, and 2008 was $1.0 million, $66,000, and $28,000, respectively.  The allowance for losses allocated to nonaccrual loans at June 30, 2010 and 2009 was approximately $32,000 and $67,000, respectively.  Interest income recognized on these loans for the year ended June 30, 2010 and 2009 was $6,000 and $25,000, respectively, while interest income recognized on these loans for the year ended June 30, 2008, was immaterial.  Gross interest income would have been $60,000 and $52,000 for the years ended June 30, 2010 and 2009 respectively, and would have been immater ial for the year ended June 30, 2008,  if interest payments had been received in accordance with the original terms.  The Company is not committed to lend additional funds to customers whose loans have been placed on nonaccrual status.	Of the above nonaccrual loans at June 30, 2010, $33,000 was considered to be impaired, compared to $0 at June 30, 2009. Following is a summary of loans to directors, executive officers and loans to corporations in which executive officers and directors have a substantial interest:
		2010	2009
	Beginning balance	$    8,463,714	$      8,460,333
	Additions	2,653,939	1,196,839
	Repayments	(709,913)	(1,193,458)
	Ending balance	$  10,407,740	$    8,463,714

[32]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

NOTE 4:  Premises and Equipment

Following is a summary of premises and equipment:

	June 30
	2010		2009
Land	$	1,488,697	$	3,487,898
Buildings and improvements		7,558,799		6,202,134
Furniture, fixtures and equipment		5,695,979		4,918,784
Automobiles		74,080		41,775
		14,817,555		14,650,591
Less accumulated depreciation		7,167,310		6,515,499
TOTAL	$	7,650,244	$	8,135,092

NOTE 5:  Deposits

Deposits are summarized as follows:

	June 30
	2010		2009
Noninterest-bearing accounts	$	28,795,215	$	21,303,646
NOW accounts		103,712,619		65,114,474
Money market deposit accounts		7,479,938		6,632,987
Savings accounts		90,384,521		58,598,085
TOTAL TRANSACTION ACCOUNTS	$	230,372,293	$	151,649,192

Certificates:
0.00 - 0.99%	$	5,576,442	$	-
1.00 - 1.99%		82,606,152		45,305,667
2.00 - 2.99%		57,960,992		51,985,401
3.00 - 3.99%		33,905,369		47,719,837
4.00 - 4.99%		10,736,794		13,898,373
5.00 - 5.99%		1,734,865		1,396,998
TOTAL CERTIFICATES		192,520,614		160,306,276
TOTAL DEPOSITS	$	422,892,907	$	311,955,468

The aggregate amount of deposits with a minimum denomination of $100,000 was $177,568,630 and $111,757,633 at June 30, 2010 and 2009, respectively.

Certificate maturities at June 30, 2010 are summarized as follows:

July 1, 2010 to June 30, 2011	$	147,948,096
July 1, 2011 to June 30, 2012		22,067,689
July 1, 2012 to June 30, 2013		9,419,516
July 1, 2013 to June 30, 2014		5,995,859
July 1, 2014 to June 30, 2015		7,089,454
Thereafter		-
TOTAL	$	192,520,614

[33]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

NOTE 6:  Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase, which are classified as borrowings, generally mature within one to four days. The following table presents balance and interest rate information on the securities sold under agreements to repurchase.

The market value of the securities underlying the agreements at June 30, 2010 and 2009, was $31,990,091 and $24,832,415, respectively. The securities sold under agreements to repurchase are under the Company’s control.

	June 30
	2010			2009
Year-end balance	$	30,368,748		$	23,747,557
Average balance during the year		27,673,908			24,344,511
Maximum month-end balance during the year		31,229,801			27,819,186
Average interest during the year		0.84	%		0.94	%
Year-end interest rate		0.85	%		0.67	%

NOTE 7:  Advances from Federal Home Loan Bank

Advances from Federal Home Loan Bank are summarized as follows:

			June 30
Maturity	Call Date or Quarterly Thereafter	Interest Rate	2010	2009
Overnight borrowings and short-term   repurchase agreements	-	0.96%	$                  -	$    6,250,000
10-26-09	09-01-03	5.58%	-	10,000,000
01-08-10	-	1.43%	-	5,000,000
01-20-10	07-20-03	5.85%	-	5,000,000
10-27-10	10-27-03	5.94%	-	9,000,000
12-09-10	12-09-05	6.01%	10,000,000	10,000,000
10-30-12	-	4.87%	3,000,000	3,000,000
04-01-13	-	3.65%	3,000,000	3,000,000
01-30-15	-	3.75%	3,000,000	3,000,000
11-29-16	11-29-07	3.93%	5,000,000	5,000,000
11-29-16	11-29-11	4.42%	5,000,000	5,000,000
11-20-17	11-22-10	3.87%	3,000,000	3,000,000
11-29-17	11-29-12	4.07%	2,500,000	2,500,000
08-14-18	08-15-11	3.53%	4,000,000	4,000,000
08-14-18	08-14-13	4.04%	5,000,000	5,000,000
		TOTAL	$  43,500,000	$  78,750,000
Weighted-average rate			4.48%	4.31%

In addition to the above advances, the Bank had an available line of credit amounting to $103,318,000 and $52,515,000, with FHLB at June 30, 2010 and 2009, respectively. Advances from FHLB of Des Moines were secured by FHLB stock and commercial real estate and one- to four-family mortgage loans of $59,317,000 and $105,288,000 at June 30, 2010 and 2009, respectively. The principal maturities of FHLB advances at June 30, 2010, are at right:	FHLB Advance Maturities
	July 1, 2010 to June 30, 2011		$10,000,000
	July 1, 2011 to June 30, 2012		-
	July 1, 2012 to June 30, 2013		6,000,000
	July 1, 2013 to June 30, 2014		-
	July 1, 2014 to June 30, 2015		3,000,000
	July 1, 2015 and thereafter		24,500,000
		Total	$43,500,000

[34]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

NOTE 8:  Subordinated Debt Southern Missouri Statutory Trust I issued $7.0 million of 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. At June 30, 2010, the current rate was 3.29%. The securities represent undivided beneficial interests in the trust, which was established by Southern Missouri 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 from the sale of the Trust Preferred Securities to purchase Junior Subordinated Debentures of Southern Missouri Bancorp. Southern Missouri Bancorp, Inc. used its net proceeds for working capital and investment in its subsidiaries.  

NOTE 9:  Employee Benefits

401(k). The Bank has a 401(k) profit sharing plan that covers substantially all eligible employees. Contributions to the plan are at the discretion of the Board of Directors of the Bank. During 2010, 2009, and 2008, there were no contributions made to the plan. Employee Stock Ownership Plan (ESOP). The Bank established a tax-qualified ESOP in April 1994. The plan covers substantially all employees who have attained the age of 21 and completed one year of service. Benefits are vested over five years. Forfeitures are allocated on the same basis as other contributions. Benefits are payable upon a participant’s retirement, death, disability or separation of service. The Bank makes discretionary contributions to the ESOP. The ESOP expense for 2010, 2009, and 2008 was $240,000, $210,000, and $200,000, respectively. The number of ESOP shares at June 30, 2010 and 2009 were as follows:			The Board of Directors can terminate the MRPs at any time, and if it does so, any shares not allocated will revert to the Company. The MRP expense for 2010, 2009, and 2008, was $11,900, $12,809, and $19,777, respectively. Unvested compensation expense related to the MRP was immaterial. Stock Option Plan. The Company adopted a stock option plan in April 1994. The purpose of the plan was to provide additional incentive to certain directors, officers and key employees of the Bank. In October 1999, the stockholders voted to increase the number of shares reserved for options by 67,932 shares. The stock options were granted at the fair market value of the common stock on the date of the grant. For shares granted after June 30, 1999, the vesting period ranged from the grant date up to a five year period. All options expire ten years from the date of the grant. The 1994 stock option plan expired in April 2004, though 10,000 options awarded under that plan remain outstanding and exercisable. In October 2003, a new stock option and incentive plan was adop ted (“2003 Plan”). Under the 2003 Plan, the Company has granted 95,500 options to employees and directors. Under both plans, exercised options may be issued from either authorized but unissued shares or treasury shares. As of June 30, 2010, there was $44,000 in remaining unrecognized compensation expense related to nonvested stock options, which will be recognized over the remaining weighted average vesting period. The aggregate intrinsic value of stock options outstanding at June 30, 2010, was $146,000.  The aggregate intrinsic value of stock options exercisable at June 30, 2010, was $88,000. No options were exercised or forfeited in fiscal 2010. The intrinsic value of options vested in fiscal 2010, 2009, and 2008 was $3,610, $0, and $4,000, respectively.
	2010	2009
Allocated shares	225,139	194,919
Unreleased shares	-	-
TOTAL ESOP SHARES	225,139	194,919
Management Recognition Plan (MRP). The Bank adopted an MRP for  the benefit of non-employee directors and two MRPs for officers and key employees (who may also be directors) in April 1994. During 2007, the Bank granted 1,000 MRP shares to employees; during 2008, an additional 2,500 shares were granted. The shares granted are in the form of restricted stock payable at the rate of 20% of such shares per year. During 2010, 700 MRP shares vested, which had been awarded in 2007 and 2008. Compensation expense, in the amount of the fair market value of the common stock at the date of grant, will be recognized pro-rata over the five years during which the shares are payable.

[35]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

Changes in options outstanding were as follows:

	Year Ended June 30
	2010				2009					2008
	Weighted Average Price		Number		Weighted Average Price		Number			Weighted Average Price		Number
Outstanding at beginning of year	$	14.01		85,500	$	12.43		104,500		$	10.73		176,500
Granted		12.75		20,000		12.15		5,000			-		-
Exercised		-		-		6.71		(24,000	)		8.08		(70,000	)
Forfeited		-		-		-		-			15.23		(2,000	)
Outstanding at year-end	$	13.77		105,500	$	14.01		85,500		$	12.43		104,500
Options exercisable at year-end	$	14.10		80,500	$	14.08		75,500		$	11.88		86,800

The following is a summary of the assumptions used in the Black-Scholes pricing model in determining the fair values of options granted during fiscal years 2010, 2009, and 2008 (no options were granted in fiscal 2008):

	2010			2009			2008
Assumptions:
Expected dividend yield		3.76	%		3.95	%		-
Expected volatility		18.08	%		17.85	%		-
Risk-free interest rate		3.70	%		3.68	%		-
Weighted-average expected life		10.0			10.0			-
Weighted-average fair value of
options granted during the year	$	1.95		$	1.73			-

The following table summarizes information about stock options under the plan outstanding at June 30, 2010:

		Options Outstanding		Options Exercisable
Exercise Price	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$6.7500	10,000	6.6 mo.	$6.7500	10,000	$6.7500
15.2300	50,500	46.6 mo.	15.2300	50,500	15.2300
15.3000	15,000	51.6 mo.	15.3000	15,000	15.3000
14.2600	5,000	62.5 mo.	14.2600	4,000	14.2600
12.1500	5,000	100.7 mo.	12.1500	1,000	12.1500
12.7500	20,000	114.6 mo.	12.7500	-	-

[36]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

NOTE 10:  Income Taxes

The Company files income tax returns in the U.S. Federal jurisdiction and various states. The Company is no longer subject to U.S. federal and state tax examinations by tax authorities for years before 2007. The Company recognized no interest or penalties related to income taxes.

The components of net deferred tax assets (liabilities) are summarized as follows:

	2010	2009
Deferred tax assets:
Provision for losses on loans	$ 2,139,472	$ 1,671,156
Accrued compensation and benefits	149,666	125,617
Other-than-temporary impairment on available
for sale securities	261,405	261,405
NOL carry forwards acquired	187,706	-
Unrealized loss on other real estate	89,570	-
Other	70,570	-
Total deferred tax assets	2,898,389	2,058,178
Deferred tax liabilities:
FHLB stock dividends	188,612	188,612
Purchase accounting adjustments	49,045	55,664
Depreciation	375,894	271,362
Prepaid expenses	126,217	125,361
Unrealized gain on available for sale securities	338,678	62,770
Other	-	36,209
Total deferred tax liabilities	1,078,446	739,978
NET DEFERRED TAX ASSET	$ 1,819,943	$ 1,318,200

As of June 30, 2010, the Company had approximately $750,000 of federal and state net operating loss carryforwards which were acquired in the July 2009 acquisition of Southern Bank of Commerce. The amount reported is net of the IRC Sec. 382 limitation, or state equivalent, related to the utilization of net operating loss carryforwards of acquired corporations. Unless otherwise utilized, the net operating losses will begin to expire in 2027.

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:

	Year Ended June 30
	2010	2009	2008
Tax at statutory rate	$2,032,389	$1,806,276	$1,832,016
Increase (reduction) in taxes
resulting from:
Nontaxable municipal income	(327,299)	(217,004)	(56,886)
State tax, net of Federal benefit	104,354	181,500	74,951
Cash surrender value of bank
owned life insurance	(92,845)	(93,172)	(99,026)
Tax benefits realized on acquisition	(258,000)	-	-
Federal tax credits	(239,703)	-	-
Acquisition costs	51,594	-	-
Other, net	90,495	33,900	23,748
ACTUAL PROVISION	$1,360,985	$1,711,500	$1,774,803

[37]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

NOTE 11:  Other Comprehensive (Loss) Income

Other comprehensive (loss) income components and related taxes were as follows:

	Year Ended June 30
	2010	2009	2008
Unrealized gains (losses) on available for sale securities:
Unrealized holding gains (losses) arising during period	$743,719	$1,206,610	$(434,981)
Unrealized gains (losses) on available-for-sale securities for       which a portion of an other-than-temporary impairment       has been recognized in income	1,896	(42,162)	-
Less: realized gains included in net income	-	-	(6,084)
Total unrealized gains (losses) on securities	$745,615	$1,164,448	$(441,065)
Defined benefit pension plan net (loss) gain	2,218	(22,416)	31,495
Income tax (expense) benefit	(275,878)	(430,845)	163,194
Other comprehensive income (loss)	$471,955	$711,187	$(246,376)

The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:

	June 30
	2010	2009
Net unrealized gain (loss) on securities available-for-sale	$1,033,466	$289,717
Net unrealized gain (loss) on securities available-for-sale    securities for which a portion of an other-than-temporary     impairment has been recognized in income	(118,121)	(120,017)
Unrealized gain from defined benefit pension plan	11,297	9,079
	926,642	178,779
Tax effect	(338,678)	(62,770)
Net of tax amount	$587,964	$116,009

[38]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

NOTE 12:  Stockholders’ Equity and Regulatory Capital The Bank is subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other facto rs. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average total assets (as defined). Management believes, as of June 30, 2010, that the Bank meets all capital adequacy requirements to which it is subject. As of June 30, 2010, the most recent notification from the Federal Reserve categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category. The Company’s only significant activity is ownership of the Bank, and, therefore, its capital, capital ratios, and minimum required levels of capital are materially the same as the Bank’s. The following table summarizes the Bank’s actual and required regulatory capital:  

dollars in thousands)	Actual		For Capital Adequacy Purposes		To Be Well Capitalized Under Prompt Corrective Action Provisions
As of June 30, 2010	Amount	Ratio	Amount	Ratio	Amount	Ratio
Total Capital (to Risk-Weighted Assets)	$ 50,474	12.50%	$ 32,305	>8.00%	$ 40,382	>10.00%
Tier I Capital (to Risk-Weighted Assets)	45,423	11.25%	16,153	>4.00%	24,229	>6.00%
Tier I Capital (to Average Assets)	45,423	8.36%	21,742	>4.00%	27,178	>5.00%
As of June 30, 2009
Total Capital (to Risk-Weighted Assets)	$ 44,699	12.98%	$ 27,557	>8.00%	$ 34,446	>10.00%
Tier I Capital (to Risk-Weighted Assets)	40,388	11.72%	13,779	>4.00%	20,668	>6.00%
Tier I Capital (to Average Assets)	40,388	8.87%	18,215	>4.00%	22,769	>5.00%

The Bank’s ability to pay dividends on its common stock to the Company is restricted to maintain adequate capital as shown in the above tables. Additionally, prior regulatory approval is required for the declaration of any dividends generally in excess of the sum of net income for that calendar year and retained net income for the preceding two calendar years. At June 30, 2010, approximately $6.7 million of the equity of the Bank was available for distribution as dividends to the Company without prior regulatory approval.

[39]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

NOTE 13:  Capital Purchase Program Implemented by the U.S. Treasury In December 2008, the Company received $9.6 million from the U.S. Treasury through the sale of 9,550 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, as part of the Treasury’s Capital Purchase Program.  The Company also issued to the U.S. Treasury a warrant to purchase 114,326 shares of common stock at $12.53 per share.  The amount of preferred shares sold represented approximately 3% of the Company’s risk-weighted assets as of September 30, 2008.       The transaction was part of the Treasury’s program to infuse capital into the nation’s healthiest and strongest banks for the purpose of stabilizing the US financial system and promoting economic activity.  The Company elected to participate in the program given the uncertain economic outlook, the relatively attractive cost of capital compared to the current market, and the strategic opportunities the Company foresees regarding potential uses of the capital.  The additional capital increased the Company’s already well-capitalized position.  The Company used the proceeds of the issue for working capital and investment in its banking subsidiary. The preferred shares pay a cumulative dividend of 5% per year for the first five years and 9% per year thereafter.  The preferred shares are callable at 100% of the issue price, subject to the approval of the Company’s federal regulator.    

NOTE 14:  Commitments and Credit Risk Standby Letters of Credit. In the normal course of business, the Company issues various financial standby, performance standby, and commercial letters of credit for its customers. As consideration for the letters of credit, the institution charges letter of credit fees based on the face amount of the letters and the creditworthiness of the counterparties. These letters of credit are stand-alone agreements, and are unrelated to any obligation the depositor has to the Company. Standby letters of credit are irrevocable conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Financial standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Performance standby letters of credit are issued to guarantee performance of certain customers under non-financial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. The Company had total outstanding standby letters of credit amounting to $920,000 at June 30, 2010, and $1.1 million at June 30, 2009, with terms ranging from 12 to 24 months. At June 30, 2010, the Company’s deferred revenue under standby letters of credit agreements was nominal. Off-balance-sheet and Credit Risk. The Company’s Consolidated Financial Statements do not reflect various financial instruments to extend credit to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments. The Company had $68.6 million in commitments to extend credit at June 30, 2010 and $64.2 million at June 30, 2009. At June 30, 2010, total commitments to originate fixed-rate loans with terms in excess of one year were $3.9 million at rates ranging from 3.75% to 10.00%, with a weighted-average rate of 5.92%. Commitments to extend credit and standby letters of credit include exposure to some credit loss in the event of nonperformance of the customer. The Company’s policies for credit commitments and financial guarantees are the same as those for extension of credit that are recorded in the balance sheet. The commitments extend over varying periods of time with the majority being disbursed within a thirty-day period. The Company grants collateralized commercial, real estate, and consumer loans to customers in Southeast Missouri. Although the Company has a diversified portfolio, loans aggregating $158,494,000 at June 30, 2010, are secured by single and multi-family residential real estate in the Company’s primary lending area.  

[40]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

NOTE 15:  Earnings Per Share

The following table sets forth the computations of basic and diluted earnings per common share:

	Year Ended June 30
	2010	2009	2008
Net income	$  4,625,588	$3,835,077	$3,613,480
Less: Effective dividend on preferred shares	510,006	288,841	-
Net income available to common stockholders	$  4,115,582	$3,546,236	$3,613,480
Denominator for basic earnings per share -
Weighted-average shares outstanding	2,083,458	2,123,144	2,199,928
Effect of dilutive securities stock options	21,834	1,225	12,204
Denominator for diluted earnings per share	2,105,292	2,124,369	2,212,132
Basic earnings per share available to common stockholders	$1.98	$1.67	$1.64
Diluted earnings per share available to common stockholders	$1.95	$1.67	$1.63

The Company had 15,000 and 180,000 exercisable stock options and warrants outstanding at June 30, 2010 and 2009, respectively, with a grant price exceeding the market price. These stock options were excluded from the above calculation as they were anti-dilutive. At June 30, 2008, no options or warrants were outstanding with a grant price exceeding the market price.

NOTE 16:  Fair Value Measurements ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:   Level 1.   Quoted prices in active markets for identical assets or liabilities Level 2.   Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3.   Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.   Available-for-sale Securities.  Available-for-sale securities are recorded at fair value on a recurring basis. Available-for-sale securities is the only balance sheet category our Company is required, in accordance with accounting principles generally accepted in the United States of America (US GAAP), to carry at fair value on a recurring basis. When quoted markets are available in an active market, securities are classified within Level 1.  Level 1 securities include exchange-traded equities.  If quoted market prices are not available, then fair values are estimated using pricing models or quoted prices of securities with similar characteristics. For these securities, our Company obtains fair value measurements from an independent p ricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Level 2 securities include U.S. Government sponsored enterprises, state and political subdivisions, other securities and mortgage-backed GSE residential securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.  

[41]

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Southern Missouri Bancorp, Inc.

:	Fair Value Measurements at June 30, 2010, Using:
	Fair Value	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
U.S. government sponsored enterprises (GSEs)	$            12,413,977	$               -	$               12,413,977	$               -
State and political subdivisions	19,769,116	-	19,769,116	-
Other securities	441,868	-	441,868	-
FHLMC preferred stock	6,000	6,000	-	-
Mortgage-backed GSE residential	34,334,451	-	34,334,451	-

	Fair Value Measurements at June 30, 2009, Using:
	Fair Value	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
U.S. government sponsored enterprises (GSEs)	$        3,278,708	$               -	$                3,278,708	$               -
State and political subdivisions	13,622,695	-	13,622,695	-
Other securities	2,999,656	-	2,999,656	-
FHLMC preferred stock	7,920	7,920	-	-
Mortgage-backed GSE residential	40,269,013	-	40,269,013	-

The following is a description of valuation methodologies used for financial assets measured at fair value on a nonrecurring basis at June 30, 2010.          Impaired Loans (Collateral Dependent).  A collateral dependent loan is considered to be impaired when it is probable that all of the principal and interest due may not be collected according to its contractual terms.  Generally, when a collateral dependent loan is considered impaired, the amount of reserve required is measured based on the fair value of the underlying collateral. The Company makes such measurements on all material collateral dependent loans deemed impaired using the fair value of the collateral for collateral dependent loans. The fair value of collateral used by the Company is determined by obtaining an observable market price or by obtaining an appraised value from an independent, licensed o r certified appraiser, using observable market data. This data includes information such as selling price of similar properties and capitalization rates of similar properties sold within the market, expected future cash flows or earnings of the subject property based on current market expectations, and other relevant factors. In addition, management may apply selling and other discounts to the underlying collateral value to determine the fair value. If an appraised value is not available, the fair value of the collateral dependent impaired loan is determined by an adjusted appraised value including unobservable cash flows.  The Company records collateral dependent impaired loans as Nonrecur- ring Level 3. If a collateral dependent loan’s fair value, as estimated by the Company, is less than its carrying value, the Company either records a charge-off of the portion of the loan that exceeds the fair value or establishes a specific reserve as part of the allowance for loan losses.   Foreclosed and Repossessed Assets Held for Sale.  Foreclosed and repossessed assets held for sale are valued at the time the loan is foreclosed upon or collateral is repossessed and the asset is transferred to foreclosed or repossessed assets held for sale. The value of the asset is based on third party or internal appraisals, less estimated costs to sell and appropriate discounts, if any. The appraisals are generally discounted based on current and expected market conditions that may impact the sale or value of the asset and management’s knowledge and experience with similar assets. Such discounts typically may be significant and result in a Level 3 classification of the inputs for determining fair value of these assets. Foreclosed and reposses sed assets held for sale are continually evaluated for additional impairment and are adjusted accordingly if impairment is identified.   The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis during the period and the level within the ASC 820 fair value hierarchy in which the fair value measurements fell at June 30, 2010:  

[42]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

	Fair Value Measurements at June 30, 2010, Using:
	Fair Value	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans	$           2,317,007	$                          -	$                          -	$               2,317,007
Foreclosed and repossessed assets held for sale	1,501,182	-	-	1,501,182

ASC 825, formerly Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments,” requires all entities to disclose the estimated fair value of their financial instrument assets and liabilities.  For the Company, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments as defined in ASC 825.  Many of the Company’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.  It is also the Company’s general practice and intent to hold its financial instruments to maturity and to not engage in trading or sales activities except for loans held-for-sale and available-fo r-sale securities.  Therefore, significant estimations and assumptions, as well as present value calculations, were used by the Company for the purposes of this disclosure.   Estimated fair values have been determined by the Company using the best available data and an estimation methodology suitable for each category of financial instruments.  For those loans and deposits with floating interest rates, it is presumed that estimated fair values generally approximate the recorded book balances.   The estimated methodologies used, the estimated fair values, and the recorded book balances at June 30, 2010 and 2009, were as follows:  

	2010				2009
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in thousands)				(in thousands)
Financial Assets
Cash and cash equivalents	$	33,383	$	33,383	$	8,074	$	8,074
Interest-bearing time deposits		1,089		1,089		-		-
Investment and mortgage-
backed securities
available for sale		66,965		66,965		60,178		60,178
Stock in FHLB		2,622		2,622		4,592		4,592
Stock in Federal Reserve Bank
of St. Louis		583		583		-		-
Loans receivable, net		418,683		419,917		368,556		374,328
Accrued interest receivable		3,043		3,043		2,650		2,650
Financial Liabilities
Deposits		422,893		426,738		311,955		313,059
Securities sold under
agreements to repurchase		30,369		30,369		23,748		23,748
Advances from FHLB		43,500		47,010		78,750		82,510
Accrued interest payable		857		857		989		989
Subordinated Debt		7,217		3,001		7,217		7,217
Unrecognized financial instruments
(net of contract amount)
Commitments to originate loans		-		-		-		-
Letters of Credit		-		-		-		-
Lines of Credit		-		-		-		-

[43]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

The following methods and assumptions were used in estimating the fair values of financial instruments: Cash and cash equivalents and interest-bearing time deposits are valued at their carrying amounts which approximates fair value. Stock in FHLB and the Federal Reserve Bank of St. Louis is valued at cost which approximates fair value. Fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics are aggregated for purposes of the calculations. The carrying amounts of accrued interest approximate their fair values. Deposits with no defined maturities, such as NOW accounts, savings accounts and money market deposit accounts, are valued at their carrying amount which approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities. The carrying amounts of securities sold under agreements to repurchase approximate fair value.   Fair value of advances from the FHLB is estimated by discounting maturities using an estimate of the current market for similar instruments. The fair value of subordinated debt is estimated using rates currently available to the Company for debt with similar terms and maturities. The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and committed rates.  The fair value of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.  

NOTE 17:  Significant Estimates Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are described in Note 1. Current Economic Conditions.  The current economic environment presents financial institutions with unprecedented circumstances and challenges which in some cases have resulted in large declines in the fair values of investments and other assets, constraints on liquidity and significant credit   quality problems, including severe volatility in the valuation of real estate and other collateral supporting loans. The financial statements have been prepared using values and information currently available to the Company.  Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in asset values, the allowance for loan losses, and capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.  

[44]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

NOTE 18:  Condensed Parent Company Only Financial Statements

The following condensed balance sheets, statements of income and cash flows for Southern Missouri Bancorp, Inc. should be read in conjunction with the consolidated financial statements and the notes thereto.

	June 30
Condensed Balance Sheets	2010		2009
Assets
Cash and cash equivalents	$	4,461,236	$	1,606,209
Premise and equipment		-		2,109,667
Other assets		841,579		3,493,480
Investment in common stock of Bank		47,614,605		42,086,832
TOTAL ASSETS	$	52,917,420	$	49,296,188
Liabilities and Stockholders’ Equity
Accrued expenses and other liabilities	$	51,222	$	70,850
Subordinated debt		7,217,000		7,217,000
TOTAL LIABILITIES		7,268,222		7,287,850
Stockholders’ equity		45,649,198		42,008,338
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	52,917,420	$	49,296,188

	Year Ended June 30
Condensed Statements of Income	2010			2009			2008
Interest income	$	62,324		$	37,908		$	23,843
Interest expense		227,020			357,387			539,017
Net interest income (expense)		(164,696	)		(319,479	)		(515,174	)
Dividends from Bank		2,000,000			2,000,000			1,600,000
Operating expenses		467,661			464,801			316,897
Income before income taxes and       equity in undistributed income       of the Bank		1,367,643			1,215,720			767,929
Income tax benefit		225,100			293,500			311,000
Income before equity in undistributed       income of the Bank		1,592,743			1,509,220			1,078,929
Equity in undistributed income       of the Bank		3,032,845			2,325,857			2,534,551
NET INCOME	$	4,625,588		$	3,835,077		$	3,613,480

[45]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

	Year Ended June 30
Condensed Statements of Cash Flow	2010			2009			2008
Cash flows from operating activities:
Net income	$	4,625,588		$	3,835,077		$	3,613,480
Changes in:
Equity in undistributed income
of the Bank		(3,032,845	)		(2,325,857	)		(2,534,551	)
Other adjustments, net		258,960			(459,564	)		(18,919	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		1,851,703			1,049,656			1,060,010
Cash flows from investing activities:
Investment in loan participations		(284,011	)		-			-
Purchase of available for sale securities		-			(2,750,000	)		-
Investment in real estate		-			-			(30,009	)
Proceeds from sale of real estate		2,016,991			-			-
Proceeds from maturities of
available-for-sale securities		2,750,000			-			161,025
Investment in Bank subsidiary		(2,000,000	)		(5,000,000	)		-
NET CASH PROVIDED BY OR (USED IN) INVESTING ACTIVITIES		2,482,980			(7,750,000	)		131,016
Cash flows from financing activities:
Proceeds from issuance
of preferred stock		-			9,511,129			-
Dividends on preferred stock		(477,500	)		(212,222	)		-
Dividends on common stock		(1,002,156	)		(1,024,172	)		(884,115	)
Exercise of stock options		-			161,069			565,625
Payments to acquire treasury stock		-			(1,507,825	)		(1,364,279	)
NET CASH PROVIDED BY OR (USED IN) FINANCING ACTIVITIES		(1,479,656	)		6,927,979			(1,682,769	)
Net increase (decrease) in cash and
cash equivalents		2,855,027			227,635			(491,743	)
Cash and cash equivalents at beginning
of year		1,606,209			1,378,574			1,870,317
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	4,461,236		$	1,606,209		$	1,378,574

[46]

>   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (continued)   <

Southern Missouri Bancorp, Inc.

NOTE 19:  Quarterly Financial Data (Unaudited)

Quarterly operating data is summarized as follows (in thousands):

	June 30, 2010
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Interest income	$	6,896	$	6,894	$	6,805	$	6,947
Interest expense		2,824		2,849		2,797		2,755
Net interest income		4,072		4,045		4,008		4,192
Provision for loan losses		210		310		160		245
Noninterest income		704		791		713		886
Noninterest expense		3,183		2,935		3,239		3,142
Income before income taxes		1,383		1,591		1,322		1,691
Income tax expense		193		428		245		495
NET INCOME	$	1,190	$	1,163	$	1,077	$	1,196
	June 30, 2009
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Interest income	$	6,342	$	6,304	$	6,290	$	6,365
Interest expense		2,889		2,846		2,714		2,755
Net interest income		3,453		3,458		3,576		3,610
Provision for loan losses		400		200		410		141
Noninterest income		336		240		582		662
Noninterest expense		2,037		2,206		2,341		2,635
Income before income taxes		1,352		1,292		1,407		1,496
Income tax expense		425		404		423		460
NET INCOME	$	927	$	888	$	984	$	1,036
	June 30, 2008
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Interest income	$	6,333	$	6,377	$	6,386	$	6,231
Interest expense		3,701		3,606		3,310		2,930
Net interest income		2,632		2,771		3,076		3,301
Provision for loan losses		110		90		350		173
Noninterest income		590		602		601		621
Noninterest expense		1,899		1,978		1,987		2,220
Income before income taxes		1,213		1,305		1,340		1,529
Income tax expense		400		432		442		500
NET INCOME	$	813	$	873	$	898	$	1,029

[47]

>   CORPORATE INFORMATION   <

CORPORATE HEADQUARTERS	INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
531 Vine Street	BKD, LLP
Poplar Bluff, Missouri 63901	St. Louis, Missouri 63102
COMPANY WEBSITE	COMMON STOCK
www.bankwithsouthern.com	Nasdaq Stock Market Nasdaq Symbol: SMBC
SPECIAL COUNSEL
Silver, Freedman & Taff, LLP
Washington, D.C. 20007
TRANSFER AGENT Stockholders should report lost stock certificates or direct inquiries concerning dividend payments, change of name, address, or ownership, or consolidation of accounts, to the Company’s transfer agent:  Registrar and Transfer Company  10 Commerce Drive  Cranford, New Jersey 07016  (800) 368-5948 ANNUAL MEETING The Annual Meeting of Stockholders will be held Monday, October 18, 2010, at 9:00 a.m., Central Time, at the Greater Poplar Bluff Area Chamber of Commerce Building, 1111 West Pine, Poplar Bluff, Missouri 63901. ANNUAL REPORT ON FORM 10-K AND OTHER REPORTS A copy of the Company’s annual report on Form 10-K, including financial statement schedules and our quarterly reports as filed with the Securities and Exchange Commission, will be furnished without charge to stockholders as of the record date upon written request to the Secretary, Southern Missouri Bancorp, Inc., 531 Vine Street, Poplar Bluff, Missouri 63901. These documents also may be accessed through Southern Bank’s website at www.bankwithsouthern.com, under the Investor Relations tab.

[48]

>   DIRECTORS and OFFICERS   <

Standing:  Sammy Schalk, Dennis Robison, Rebecca Brooks, Charles Moffitt, Charles Love, Bonnie Black   Seated: Douglas Bagby, Samuel Smith, Greg Steffens

SOUTHERN MISSOURI BANCORP, INC.

Directors   Samuel H. Smith Chairman of the Board, Engineer and Majority Owner, S.H. Smith and Company, Inc.   L. Douglas Bagby Vice-Chairman of the Board, City Manager, City of Poplar Bluff   Ronnie D. Black Retired Executive Director, General Association of General Baptists       Sammy A. Schalk President, Gamblin Lumber Company   Greg A. Steffens President and Chief Executive Officer, Southern Missouri Bancorp, Inc.   Rebecca M. Brooks Financial Manager, McLane Transport   Charles R. Love Certified Public Accountant, Kraft, Miles and Tatum       Charles R. Moffitt Agency Manager, Morse Harwell Jiles Insurance Agency   Dennis C. Robison President, Robison Farms, Inc.   Leonard W. Ehlers Director Emeritus, Retired Court Reporter, 36th Judicial Circuit   James W. Tatum Director Emeritus, Retired Certified Public Accountant

SOUTHERN BANK

Directors   L. Douglas Bagby Vice-Chairman of the Board, City Manager, City of Poplar Bluff   Sammy A. Schalk President, Gamblin Lumber Company   Samuel H. Smith Chairman of the Board, Engineer and Majority Owner, S.H. Smith and Company, Inc.   Ronnie D. Black Retired Executive Director, General Association of General Baptists       Greg A. Steffens President and Chief Executive Officer, Southern Missouri Bancorp, Inc.   Rebecca M. Brooks Financial Manager, McLane Transport   Charles R. Love Certified Public Accountant, Kraft, Miles and Tatum   Charles R. Moffitt Agency Manager, Morse Harwell Jiles Insurance Agency   Dennis C. Robison President, Robison Farms, Inc.   Senior Officers Greg A. Steffens President and Chief Executive Officer   Kimberly A. Capps Chief Operations Officer   William D. Hribovsek Chief Lending Officer   Matthew T. Funke Chief Financial Officer   Lora L. Daves Chief of Credit Administration  

[49]

EX-14

EXHIBIT 14

SOUTHERN MISSOURI BANCORP, INC.

CODE OF CONDUCT AND ETHICS

This Code of Conduct and Ethics (this “Code”) sets the standard of ethical business and personal conduct for Southern Missouri Bancorp, Inc. and its subsidiaries (“Bank”). Unless otherwise noted, this Code applies to all the members of the board of directors, officers and employees of Southern Bank (collectively, the “Employees” and each, individually, an “Employee”). This Code replaces all previous codes of conduct of Southern Bank and shall be effective as of June 1, 2010.

We place special emphasis on compliance with the Code by the members of the Board of Directors of Southern Missouri Bancorp, Inc. and its Chief Executive Officer, Chief Financial Officer, and persons performing similar functions for Southern Missouri Bancorp, Inc. This Code contains provisions which constitute the Code of Ethics for such persons as specified under the Federal securities laws.

It is a long-established policy that Southern Bank and its Employees observe and comply with all laws and regulations of federal, state and local governments affecting Southern Bank and its Employees. All Employees must avoid activities which could lead to involvement of Southern Bank or themselves in any unlawful or unethical practice. Any violation of any provision of this Code may subject the Employee to any and all punishments described under Section 10.0. Further, Employees should avoid conduct which, although not unlawful or unethical, may give the appearance of impropriety.

1.0PRINCIPLES AND GUIDELINES

The most important personal aspect of every bank is the trust and confidence of its depositors and customers. Southern Bank’s reputation for integrity has been built by the individuals who work here now, and who have worked here in the past. A good reputation is a fragile thing which must be earned on a continuing basis by conducting all of our affairs in a fair and honest way, complying not only with the letter, but also with the spirit of the law.

This Code is meant to guide each of you in dealing with certain business decisions. This Code does not provide a detailed description of all Southern Bank policies and it in no way limits or restricts the applicability of any provision of any other Southern Bank policy. Employees are expected to be aware of all other Southern Bank policies and conduct themselves in accordance with such policies at all times. In cases of conflict and/or question, you should seek guidance of the President/CEO or the Human Resources Director.

The foundation of our Code consists of basic standards of business as well as personal conduct: (a) honesty and candor in our activities, (b) avoidance of conflicts between personal interests and the interest of Southern Bank, or even the appearance of such conflicts, (c) maintenance of our reputation and avoidance of activities which might reflect adversely on Southern Bank, and (d) integrity in dealing with Southern Bank’s assets.

2.0COMPLIANCE

To ensure continuing observance of this Code, the Board of Directors requires that Employees periodically review these guidelines and sign a statement acknowledging their understanding and adherence (Appendix A). New Employees will sign a statement at the time of hiring (Appendix B).

Notwithstanding the statement, Employees should promptly report any breach or possible breach of this Code as outlined in Section 9.0 of this Code. Strict adherence to the principles of this Code is a condition of continued employment.

3.0           CONFIDENTIAL INFORMATION

3.1           General

One of our most critical responsibilities is to maintain the trust placed in us by our customers. Confidential information - whether obtained from those with whom Southern Bank does business or from sources within Southern Bank - must be safeguarded.

This concern applies to more than customer information which has been explicitly designated confidential. There are other situations in which information is not publicly available and unauthorized disclosure could have serious effects on a customer or Southern Bank.

Employees of Southern Bank have access to a wide range of confidential information about customers and fellow Employees. You should never seek out any confidential information for the purpose of personal advantage or idle curiosity. Any information that is not needed as part of regular work responsibilities is off limits.

Confidentiality is important regardless of the form the information takes - oral, in print, or on electronic equipment. You must take care in what you say, to whom and where; about how you treat memos, files and reports; and about seeing that there is no misuse of the information you display on computer screens and store in data bases. Should you remove from Southern Bank’s premises any written, printed, or electronically generated material belonging to or generated by Southern Bank or derived from its files, you should do so only for the benefit of Southern Bank and you must take every precaution to insure the security and confidentiality of the information.

3.2           Information about Customers

Information received directly from a customer should be disclosed only to those within Southern Bank who need the information to serve that particular customer. Customer information from sources within Southern Bank - such as customer identification, balances, loans, and other account information should be disclosed only to those in Southern Bank who require the information to perform their duties.

Customer information should never be disclosed to anyone outside Southern Bank - other than Southern Bank’s independent auditors, legal counsel, or regulatory examiners - unless authorized by the customer or required by proper legal process as determined by legal counsel.

3.3           Inside Information

Inside information about Southern Bank generally means information not known to the public. Information such as financial information, performance data and future plans could have significant value to others and therefore must always be kept confidential. Information is “material” if an investor would consider it important in making an investment decision regarding the purchase or sale of the stock of Southern Missouri Bancorp, Inc. Any person who has “material” information about Southern Bank not known to the public is prohibited from using it for personal gain, including

2

purchasing or selling the stock of Southern Missouri Bancorp, Inc., and from disclosing such information to anyone else (including family members and friends). The same prohibitions apply to an Employee with respect to information not known to the public concerning a customer or other company that has a relationship with Southern Bank.

3.4           Information about Southern Bank Employees

Southern Bank is committed to protecting the privacy of its Employees. Only information needed for legitimate business purposes is collected, used or retained about Employees, former Employees, or job applicants - and the information is used only for the purpose for which it was specifically collected.

Requests from outside Southern Bank for Employee information - including that required by law - should be referred to the Human Resources department.

In response to legitimate requests from external sources, only an Employee’s name, job title, and dates worked are routinely confirmed. More detailed information is released only when required by law or when the Employee gives written permission.

Questions concerning the confidentiality of and access to Employee information should be directed to the Human Resources Director who is responsible for issuing specific guidelines for the collection, use, retention, and disclosure of information about Employees.

3.5           Proprietary Information

Just as Southern Bank expects Employees to respect internal confidentiality, Southern Bank also expects Employees to respect the property rights of others. Employees are prohibited from acquiring or seeking to acquire by improper means any competitor’s trade secrets or other proprietary or confidential information. The same prohibitions exist regarding the unauthorized use, copying, distribution or alteration of software or other intellectual property.

4.0           PERSONAL FINANCES

4.1           Financial Responsibility

Employees within the Financial Industry are often looked to by customers as financial advisors. Because of this nature of the financial business, you are held to a higher standard in handling your personal financial responsibilities. Your personal financial situation (including maintenance of deposit accounts, payment of debts, management of assets, etc.), if improperly maintained, could undermine your credibility and that of Southern Bank.  Every Employee of Southern Bank is expected to manage his/her personal finances in a manner consistent with his/her position. Employees shall exercise prudence in making personal investments and shall avoid situations that might influence the Employee’s judgment in affairs involving Southern Bank.  An Employee should never process transactions on his/h er own account.

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4.2           Borrowing

Employees are not permitted to borrow from customers or suppliers of Southern Bank, except those who engage in lending in the usual course of their business and then only on terms offered to others in similar circumstances, without special treatment as to interest rates, terms, security, repayment terms, and the like. This prohibition does not preclude borrowing from anyone related to the Employee by blood or marriage.

Loans to directors and executive officers shall be made in accordance with Regulation O. Loans to Employees other than directors and executive officers are limited to one loan for the purpose of owning and occupying a home, and other loans not to exceed $100,000 total. Any other extension of credit in excess of these limits will require the prior approval of the loan committee. All loans shall be underwritten and comply with existing loan policies.

4.3           Inheritances

Inheritance under wills or trusts from customers who are not family members could appear to be the result of a personal dealing by an Employee. If you discover you are about to be named as a beneficiary under a will or trust of a non-family member, you should consult with the President/CEO or the Human Resources Director prior to accepting.

5.0           CONFLICTS OF INTEREST

5.1           General

You should be prudent in your personal borrowing, investments, business and other activities to ensure that you do not put yourself in a position in which your personal interest - financial or other - might influence or give the appearance of influencing any action you take, judgment you make, or advice you give on behalf of Southern Bank.

The nature of the financial industry makes it difficult to spell out every possible application of this broad general principle. There can be, however, no excuse for not bearing in mind the importance of avoiding conflicts of interest in the handling of one’s personal affairs and those of one’s family. A transaction which appears to give rise to, even when it is not necessarily, a conflict of interest can under some circumstances be as embarrassing for Southern Bank and the individual involved as a transaction which does in fact give rise to such a conflict.

Whenever an Employee finds that she/he is inadvertently placed in a potentially compromising position due to relationships with business associates, customers, suppliers or competitors, the Employee should report the matter immediately to the President/CEO or the Human Resources Director and discontinue any activities associated with the entity until the matter has been resolved.

5.2           Gifts and Fees

No Employee of Southern Bank shall solicit or accept anything of value, including but not limited to, gifts, gratuities, amenities, travel or related expenses, in connection with any transaction or business of Southern Bank. No Employee shall provide or give gifts or favors to others where these could or

4

might appear to influence others improperly in their relations with Southern Bank. To do so could constitute a violation of Federal criminal laws.

As a general rule, Employees and members of their families may not accept gifts, entertainment or favors from customers, prospective customers or suppliers. The following exceptions are permissible when it is apparent from the circumstances that what is accepted is NOT offered or received as an inducement to or as a quid pro quo for entering into any transaction or business of Southern Bank, or to influence or affect in any way any decision or action by Southern Bank:

• Unsolicited advertising or promotional materials (such as pens, calendars, etc.) and other gifts of nominal value distributed generally or routinely to others in the ordinary course of business may be accepted. Nominal value would generally include any gift having a fair market value of not more than $100.

• Normal business-related entertainment may be accepted or given if it is not excessive and provided it is reasonable under all of the circumstances in which it takes place.

Cash, checks, loans (except from established banking or financial institutions), stocks or other marketable securities in any amount must not be accepted or given under any circumstances.

No Employee may accept a personal fee for arranging a loan from Southern Bank or from any other person or lending institution. Employees may not accept from customers or suppliers any fee or other form of remuneration which violates the law or the spirit of this Code. A “fee” would include special discounts, commissions, or any direct or indirect payment of money or property.

Offering bribes, kickbacks, and similar inducements is, of course, prohibited.

In the event that any Employee is offered, receives or anticipates receiving anything of value from a customer, prospective customer, vendor, supplier or consultant of Southern Bank beyond what is authorized in this Code; detailed information about the event should be provided to his/her manager.

5.3           Offering Business Courtesies

Certain Employees are allowed to offer business courtesies as a function of their position with Southern Bank.  Any Employee who offers a business courtesy must assure that it cannot reasonably be interpreted as an attempt to gain an unfair business advantage or otherwise reflect negatively upon Southern Bank.  An employee may never use personal funds or resources to do something that cannot be done with Southern Bank resources. Accounting for business courtesies must be done in accordance with approved company procedures.

Other than to certain government customers, for whom special rules may apply, authorized Employees may provide nonmonetary gifts (such as pens, calendars or similar promotional items) to our customers.  Further, management may approve other courtesies, including meals, refreshments or entertainment of reasonable value provided that:

• The practice does not violate any law or regulation or the standards of conduct of the recipient’s organization.

• The business courtesy is consistent with industry practice, is infrequent in nature and is not lavish.

5

•      The business courtesy is properly reflected on the books and records of Southern Bank.

5. 4           Southern Bank Assets

Employees may not use the name and influence of Southern Bank for any personal purposes. Official stationery should not be used to give authority to personal or other non-bank related correspondence.

6.0           HUMAN RESOURCES

In addition and as a supplement to our existing human resources policies, we require the following:

6.1           General

Generally, Southern Bank encourages Employee participation in civic, charitable and professional organizations and political activities to the extent that such activities do not interfere with the Employees’ job performance. Occasional time off to participate in these activities may be asked for and granted by the Employee’s supervisor with approval from the appropriate member of Senior Management/Department Head.

6.2           Outside Business Interests

It is not the purpose or the intent of Southern Bank to monitor or control any Employees’ life or activities away from the workplace. However, it is important to understand during working hours, your time should be devoted 100% to Southern Bank. If you maintain other employment outside of Southern Bank work hours, it is important for management to be informed to prevent possible conflicts of interest and to insure that job performance at Southern Bank is not adversely affected.

No Southern Bank Employee is to have an outside business interest or other employment that could reflect unfavorably upon or adversely affect the good name of Southern Bank.

Employees are required to disclose outside business interest on the Code Affirmation annually (Appendix A).

6.3           Political Activities

Employees who run for office must represent themselves as individual citizens and must not represent Southern Bank in any way in carrying out public duties. Employees who consider running for or accepting public office should notify the President/CEO as soon as possible. The essential purpose of Southern Bank’s policy is to prevent a conflict or even the appearance of a conflict between employment and the officeholder’s performance of duties.

To avoid the appearance of sponsorship, Southern Bank may not be identified in mailed material, advertisements, or campaign literature. In addition, Southern Bank property may not be used for campaigning or other political purposes except at the discretion of Management. For example, use of Southern Bank personnel, stationery, postage or mailing service is prohibited.

6

6.4           Ethical Conduct

It is Southern Bank’s policy to ensure equal employment opportunity for all, regardless of age, sex, race, religion, color, national origin, marital status, disability, status as a covered veteran, or any other protected status in accordance with applicable federal, state and local laws - and to deal with customers and prospective customers on a nondiscriminatory basis.

If you supervise others, you are directly responsible for implementing this Code. In addition, all Employees are expected to maintain a business environment free of offense, harassment, and intimidation.

6.5           Sexual Harassment

In keeping with Southern Bank’s continued commitment to fair and equal treatment of all Employees, Southern Bank maintains and enforces a policy against sexual harassment. Under this policy, it is the responsibility of every supervisor to see that Employees are not subjected to any form of sexual harassment.

6.6           Legal Advice

In many cases, discussions with customers lead to a request that the Employee make statements which many relate to the legality or illegality of a proposed transaction. Southern Bank recognizes the exclusive authority of attorneys to practice law or give advice. Therefore, extreme care must be exercised in discussions with customers and Employees; nothing should be said or written that might be interpreted as the giving of legal advice.

6.7           Customer Recommendations

As a matter of policy, Employees are not to recommend attorneys, accountants, insurance brokers or agents, stockbrokers, real estate agents and the like to customers unless, in every case, several names are given without indicating favoritism.

6.8           Fiduciary Relationships

Employees may not accept appointment as an administrator, trustee, personal representative, conservator, or any similar fiduciary capacity without prior approval of the President/CEO, except when the Employee acts:

•      at the request of Southern Bank

•      as a fiduciary on an account of their own family

6.9           Fidelity Coverage

Employees of Southern Bank are covered by a corporate fidelity bond. Southern Bank cannot continue to employ anyone who ceases to be eligible for this coverage. Coverage under the terms of our bond ceases as to anyone who has been found to have committed any dishonest or fraudulent act.

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6.10           Media Inquiries

As a publicly traded financial institution, from time to time, Southern Bank’s Employees may be approached by reporters and other members of the media. In order to ensure that we speak with one voice and provide accurate information about the company, all media inquiries should be directed to the President/CEO or the Director of Marketing. No one may issue a press release without first consulting with the President/CEO or the Director of Marketing.

7.0           FINANCIAL INTEGRITY AND COMPANY RECORDS

Southern Bank relies on our accounting records to produce reports for our management, shareholders, creditors, governmental agencies, and others. We are committed to maintaining books and records that accurately and fairly reflect our financial transactions. Each Employee must maintain accurate and fair records of transactions, time reports, expense accounts and other business records. You also must comply with any applicable record retention policy of Southern Bank.

In this respect, the following guidelines must be followed:

• No undisclosed or unrecorded funds or assets may be established for any purpose.

• Assets and liabilities of Southern Bank must be recognized and stated in accordance with our standard practices and

  Generally Accepted Accounting Principles (“GAAP”).

• No false or artificial entries may be made or misleading reports issued.

• No false or fictitious invoices may be paid or created.

• No information may be concealed from internal auditors or independent auditors.

Special emphasis is placed on compliance with this Section by the members of the Board of Directors of Southern Missouri Bancorp, Inc., the named executive officers, other senior officers and persons performing similar functions.

If you believe that our books and records are not being maintained in accordance with these requirements, you should report the matter immediately pursuant to Section 9.0.

8.0           SECURITIES LAW DISCLOSURES AND PUBLIC COMMUNI CATIONS

Southern Bank is committed to full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications. All Employees have responsibility to ensure that false or intentionally misleading information is not given in the filings with the Commission or in public communications by Southern Bank.

Special emphasis is placed on compliance with this Section by the members of the Board of Directors of Southern Missouri Bancorp, Inc., the named executive officers, other senior officers and persons performing similar functions.

If you believe that incomplete, false or intentionally misleading information has been given in the securities filings or public communications of Southern Missouri Bancorp, Inc., or that an Employee has engaged in insider trading, you should report the matter immediately pursuant to Section 9.0.

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9.0           DISCLOSURE AND REPORTING VIOLATIONS

The discovery of any event which is questionable, fraudulent, or illegal in nature or which is in violation of this Code should immediately be reported. Reporting of Code violations can be made directly through the bank’s Audit Committee Chairman – Charles Love (573) 785-6438.  When a report is made through the Audit Committee Chairman, the Employee may elect to disclose personal identifying information or to remain anonymous.

If the Employee prefers to speak with someone directly about concerns, they may discuss the issue with his/her direct supervisor, the Human Resources Director, the Internal Auditor or the President/CEO. The supervisor receiving a report should disclose the concern to the Human Resources Director, the Internal Auditor or the President/CEO as appropriate based on the nature of the concern.

If any Employee is not satisfied with the response from any level of management or is reluctant to share the concern with any member of Executive Management, the Employee should document the irregularity in a letter to the Chair of the Southern Bank Audit Committee, addressed in care of the Corporate Secretary.

Failure to report such events constitutes a violation of this Code and may result in punishment, including the punishments outlined in Section 10.0.

Employees can discuss their concerns without fear of any form of retaliation. When an Employee reports a violation of the Code through the established procedures, the:

• Employee will be treated with respect.

• Employee’s concerns will be taken seriously. If the Employee’s concerns are not resolved at the time of his/her report, he/she will be informed of the outcome.

• Employee will not be required to disclose his/her identity (when contacting the Audit Committee Chairman).

• Employee’s communications will be protected to the greatest extent possible.

• Employee will not be penalized or made subject to any corrective action as a result of good faith reporting of suspected violations.

10.0           CODE VIOLATIONS

We take the provisions of this Code very seriously, and we will treat any violations of the Code accordingly. A failure by any Employee to comply with applicable laws, rules or regulations governing our business, this Code or any other Southern Bank policies or requirements may result in prompt disciplinary action up to and including, where appropriate, suspension or termination of employment. Any disciplinary action taken by Southern Bank does not waive Southern Bank’s right to take appropriate legal action or to assist any local, state, or Federal law enforcement agency in the prosecution of Employees who violate the laws and agreements covered in this Code. Southern Bank will not be obligated to reimburse Employees for any fines or legal costs incurred by them or on their behalf.

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11.0           WAIVERS OF THE CODE AND DISCLOSURE

Except as provided in the next sentence, any waiver of the Code for Employees must be made by the President/CEO. Any waiver of the Code for the members of the Board of Directors of Southern Missouri Bancorp, Inc. or its Chief Executive Officer, Chief Financial Officer, and persons performing similar functions may be made only by the Audit Committee of the Board of Directors.

All requests for waivers will be considered on a case-by-case basis. All waivers of this Code for the members of the Board of Directors of Southern Missouri Bancorp, Inc. and its Chief Executive Officer, Chief Financial Officer, and persons performing similar functions shall be promptly disclosed to the public as may be required by applicable laws, rules and regulations.

12.0           CODE SHALL BE PUBLICLY AVAILABLE

This Code, and any amendments or supplements hereto, shall always be available on our website at www.bankwithsouthern.com.

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Appendix A

CODE OF CONDUCT & ETHICS

ANNUAL AFFIRMATION FORM & INFORMATION UPDATE

As part of the standards set forth within the Code of Conduct and Ethics (the “Code”) of Southern Missouri Bancorp, Inc. and its subsidiaries, I am reporting the following information regarding my employment:

Update of Additional Official Positions Held

Please check one of the following statements and provide any additional information requested.

☐	Except for my position with Southern Bank, I do not presently hold a position as director, officer, partner, or other official position in any additional business or professional enterprise.
☐	In addition to my position with Southern Bank, I do presently hold a position as director, officer, partner, or other official position in the following business(es) and/or professional enterprise(s):

Name and Address of Corporation or Firm Official Capacity Held Percent of Ownership or Interest Income or Fees Past 12 Months

v	Please attach a separate memorandum if more space is needed.
v	If a position is held solely for the purpose of representing Southern Missouri Bancorp, Inc., please state this fact.

Update of Outside Business Activity and/or Employment

Please check one of the following statements and provide any additional information requested.

☐	Except for my position with Southern Bank, I am not presently engaged in any other outside business activity, nor do I have any other outside employment.
☐	In addition to my position with Southern Bank, I am presently engaged in the following outside business activity and/or outside employment:

Business Activity of Employer Capacity Hours of Work (per week)

Affirmation of Non-Violation

If in agreement with the following statement, please place a check-mark in the space provided.

☐ I am not now, nor have I been during the past year, in violation of any of the following sections of the “Code” or I have received a written waiver from the President:

Confidential Information	Financial Integrity and Records
Personal Finances	Securities Law Disclosures
Conflicts of Interest	Disclosure and Reporting Violations
Human Resources

■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■

I affirm that the information provided above is correct.  I also affirm that I received a copy of or have been given the opportunity to review the Code of Conduct and Ethics (the “Code”) of Southern Missouri Bancorp, Inc. and its subsidiaries, and that I agree to conform to each of the various standards set forth therein.

__________________________________________	______________________________
	Date__________________________
Signature of ________________________________

Appendix B

CODE OF CONDUCT & ETHICS

RECEIPT ACKNOWLEDGEMENT FORM & INFORMATION DISCLOSURE

Acknowledgement of Receipt of Code of Conduct and Ethics

I acknowledge receipt of a copy of the Code of Conduct and Ethics of Southern Missouri Bancorp, Inc. and its subsidiaries, dated June 1, 2010.  I have read and understood the document and agree to conform to each of the various standards set forth therein.

____________________________________________
EMPLOYEE’S SIGNATURE
____________________________________________	______________________________
PRINT NAME	DATE

■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■

As part of the standards set forth within the Code of Conduct and Ethics (the “Code”) of Southern Missouri Bancorp, Inc. and its subsidiaries, I am reporting the following information regarding my employment:

Additional Official Positions Held

Please check one of the following statements and provide any additional information requested.

☐	Except for my position with Southern Bank, I do not presently hold a position as director, officer, partner, or other official position in any additional business or professional enterprise.
☐	In addition to my position with Southern Bank, I do presently hold a position as director, officer, partner, or other official position in the following business(es) and/or professional enterprise(s):

Name and Address of Corporation or Firm Official Capacity Held Percent of Ownership or Interest Income or Fees Past 12 Months

v	Please attach a separate memorandum if more space is needed.
v	If a position is held solely for the purpose of representing Southern Missouri Bancorp, Inc., please state this fact.

Outside Business Activity and/or Employment

Please check one of the following statements and provide any additional information requested.

☐	Except for my position with Southern Bank, I am not presently engaged in any other outside business activity, nor do I have any other outside employment.
☐	In addition to my position with Southern Bank, I am presently engaged in the following outside business activity and/or outside employment:

Business Activity of Employer Capacity Hours of Work (per week)

EX-21

EXHIBIT 21

Parent
Southern Missouri Bancorp, Inc.
Subsidiaries (a)	Percentage of Ownership	Jurisdiction or State of Incorporation
Southern Bank	100%	Missouri
SMS Financial Services, Inc.(b)	100%	Missouri

___________________________

(a) The operation of the Company's wholly owned subsidiaries are included in the Company's Financial Statements contained in Item 7 hereof.

(b)           Wholly-owned subsidiary of Southern Bank; subsidiary is inactive.

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the registration statement on Form S-3 (File No. 333-156563), and the registration statements on Form S-8 (File No. 333-2320 and File No. 333-127134) of the Southern Missouri Bancorp, Inc. 1994 and 2003 Stock Option Plans, of Southern Missouri Bancorp, Inc. of our report dated September 17, 2010 with respect to the consolidated financial statements of Southern Missouri Bancorp, Inc., which report appears in this Annual Report on Form 10-K of Southern Missouri Bancorp, Inc. for the year ended June 30, 2010.

/s/ BKD, LLP

St. Louis, Missouri

September 17, 2010

EX-31

EXHIBIT 31

CERTIFICATION

I, Greg A. Steffens, certify that:

1)	I have reviewed this annual report on Form 10-K of Southern Missouri Bancorp, Inc.;
2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)	I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5)	I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting

Date: September 17, 2010 By: /s/ Greg A. Steffens                                                               Greg A. Steffens President (Principal Executive and Principal Financial and Accounting Officer)

EX-32

EXHIBIT 32

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies in his capacity as an officer of Southern Missouri Bancorp, Inc. (the "Company") that the Annual Report of the Company on Form 10-K for the fiscal year ended June 30, 2010 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such report.

Date: September 17, 2010 By: /s/ Greg A. Steffens Greg A. Steffens President (Principal Executive and Principal Financial and Accounting Officer)

EX-99

EXHIBIT 99

SOUTHERN MISSOURI BANCORP, INC.

CERTIFICATION

OF THE PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER

I, Greg A. Steffens, President, Chief Executive Officer and Chief Financial Officer, certify, based on my knowledge, that:

(i) The compensation committee of Southern Missouri Bancorp, Inc. has discussed, reviewed, and evaluated with senior risk officers at least every six months during any part of the most recently completed fiscal year that was a TARP period, senior executive officer (SEO) compensation plans and employee compensation plans and the risks these plans pose to Southern Missouri Bancorp, Inc..;

(ii) The compensation committee of Southern Missouri Bancorp, Inc. has identified and limited during any part of the most recently completed fiscal year that was a TARP period any features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of Southern Missouri Bancorp, Inc. and has identified any features of the employee compensation plans that pose risks to Southern Missouri Bancorp, Inc. and has limited those features to ensure that Southern Missouri Bancorp, Inc. is not unnecessarily exposed to risks;

(iii) The compensation committee has reviewed, at least every six months during any part of the most recently completed fiscal year that was a TARP period, the terms of each employee compensation plan and identified any features of the plan that could encourage the manipulation of reported earnings of Southern Missouri Bancorp, Inc. to enhance the compensation of an employee, and has limited any such features;

(iv) The compensation committee of Southern Missouri Bancorp, Inc. will certify to the reviews of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;

(v) The compensation committee of Southern Missouri Bancorp, Inc. will provide a narrative description of how it limited during any part of the most recently completed fiscal year that was a TARP period the features in

(A) SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of Southern Missouri Bancorp, Inc.;

(B) Employee compensation plans that unnecessarily expose Southern Missouri Bancorp, Inc. to risks; and

(C) Employee compensation plans that could encourage the manipulation of reported earnings of Southern Missouri Bancorp, Inc. to enhance the compensation of an employee;

(vi) Southern Missouri Bancorp, Inc. has required that bonus payments to SEOs and its applicable employees, as defined in the regulations and guidance established under section 111 of EESA (bonus payments), be subject to a recovery or "clawback" provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;

(vii) Southern Missouri Bancorp, Inc. has prohibited any golden parachute payment, as defined in the regulations and guidance established under section 111 of EESA, to a SEO or any of the next five most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;

(viii) Southern Missouri Bancorp, Inc. has limited bonus payments to its applicable employees in accordance with section 111 of EESA and the regulations and guidance established thereunder during any part of the most recently completed fiscal year that was a TARP period;

(ix) Southern Missouri Bancorp, Inc. and its employees have complied with the excessive or luxury expenditures policy, as defined in the regulations and guidance established under section 111 of EESA, during any part of the most recently completed fiscal year that was a TARP period; and any expenses that, pursuant to the policy, required approval of the board of directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility were properly approved;

(x) Southern Missouri Bancorp, Inc. will permit a non-binding shareholder resolution in compliance with any applicable federal securities rules and regulations on the disclosures provided under the federal securities laws related to SEO compensation paid or accrued during any part of the most recently completed fiscal year that was a TARP period;

(xi) Southern Missouri Bancorp, Inc. will disclose the amount, nature, and justification for the offering, during any part of the most recently completed fiscal year that was a TARP period, of any perquisites, as defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus payment limitations identified in paragraph (viii);

(xii) Southern Missouri Bancorp, Inc. will disclose whether Southern Missouri Bancorp, Inc., the board of directors of Southern Missouri Bancorp, Inc., or the compensation committee of Southern Missouri Bancorp, Inc. has engaged during any part of the most recently completed fiscal year that was a TARP period a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;

(xiii) Southern Missouri Bancorp, Inc. has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;

(xiv) Southern Missouri Bancorp, Inc. has substantially complied with all other requirements related to employee compensation that are provided in the agreement between Southern Missouri Bancorp, Inc. and Treasury, including any amendments;

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

(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both.

Date:                      September 17, 2010                                           By:              /s/ Greg A. Steffens                               ;