BANCORPSOUTH INC, 424B5, 1995-06-09

BANCORPSOUTH INC
424B5, 1995-06-09
STATE COMMERCIAL BANKS

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[LOGO]

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310 Main Street
Starkville, Mississippi 39759

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June 9, 1995

Dear Stockholder:

You are cordially invited to attend a special meeting of the stockholders
of First Federal Bank for Savings to be held at the Holiday Inn on Highway 12
in Starkville, Mississippi on July 17, 1995 at 4:30 p.m. Central Time. At this
special meeting, you will be asked to consider and vote upon an Agreement and
Plan of Merger, dated as of January 27, 1995, pursuant to which First Federal
Bank for Savings is to merge with and into Bank of Mississippi, a Mississippi
banking corporation, with Bank of Mississippi being the surviving corporation.
As a result of this merger, your shares of Common Stock of First Federal Bank
for Savings will be converted into shares of Common Stock of BancorpSouth,
Inc., a Mississippi corporation and the parent holding company of Bank of
Mississippi, in accordance with the exchange ratio described in the Agreement
and Plan of Merger and in the enclosed Prospectus (including the Joint
Prospectus Supplement and Proxy Statement).

Further information concerning the special meeting and the proposed
merger is set forth in the enclosed Notice of Special Meeting and Prospectus
(including the Joint Prospectus Supplement and Proxy Statement). First Federal
Bank for Savings's management and legal counsel and representatives of Bank of
Mississippi and BancorpSouth, Inc. will be in attendance at the special meeting
to answer questions and to explain the proposed merger in detail.

Your vote on the proposed merger is of great importance. The affirmative
vote of the holders of two-thirds of the outstanding shares of the Common Stock
of First Federal Bank for Savings entitled to vote, among other conditions, is
required for the approval of the proposed merger. Even if you plan to attend
the special meeting, we ask that you execute and promptly return your completed
proxy in the enclosed postage-paid envelope so that your vote can be recorded
at the meeting. If you attend the meeting, you may withdraw your proxy and
vote your shares personally.

The Board of Directors of First Federal Bank for Savings has considered
and approved the proposed merger with Bank of Mississippi, and unanimously
recommends that stockholders vote FOR approval of the merger.

Very truly yours,

Erie H. Staggers, III
President and Chief Executive Officer
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FIRST FEDERAL BANK FOR SAVINGS

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310 Main Street
Starkville, Mississippi 39759

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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD JULY 17, 1995

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A special meeting of the stockholders of First Federal Bank for Savings
is to be held at the Holiday Inn on Highway 12 in Starkville, Mississippi on
July 17, 1995 at 4:30 p.m. Central Time, for the following purposes:

(1) To consider and vote upon an Agreement and Plan of Merger, dated
as of January 27, 1995, which provides for the merger of First
Federal Bank for Savings with and into Bank of Mississippi, a
Mississippi banking corporation, with Bank of Mississippi being
the surviving corporation; and

(2) To transact such other business as may properly come before the
special meeting or any adjournment of the special meeting.

Only stockholders of record of First Federal Bank for Savings at the
close of business on May 26, 1995 are entitled to notice of and to vote at the
special meeting. In the event that there are insufficient shares represented
to approve the proposed merger at the special meeting, such meeting may be
adjourned to permit further solicitation.

Office of Thrift Supervision regulations provide that holders of
shares of First Federal Common Stock outstanding at the time of the Special
Meeting who do not vote in favor of the Merger Agreement and who otherwise
comply with certain notice and other requirements set forth in 12 C.F.R. Section
552.14 will have the right to dissent and to be paid cash for the fair value of
their shares. Any stockholder of First Federal Bank for Savings dissenting
from the proposed merger and desiring to receive the appraised fair value of
such stockholder's shares pursuant to Office of Thrift Supervision regulations
set forth in 12 C.F.R. Section 552.14, a copy of which is included as Annex A
to the enclosed Joint Prospectus Supplement and Proxy Statement, must file with
the Secretary of First Federal Bank for Savings prior to or at the special
meeting a written objection to the proposed merger, stating that the
stockholder intends to dissent in the event that the proposed merger is
effected. For a detailed discussion of the procedures required to exercise
these rights, see "The Special Meeting-Dissenters' Rights" and Annex A in the
enclosed Joint Prospectus Supplement and Proxy Statement.

Even if you plan to attend the special meeting, we ask that you execute
and promptly return your completed proxy in the enclosed postage-paid envelope
so that your vote can be recorded at the meeting. If you attend the meeting,
you may withdraw your proxy and vote your shares personally.

By Order of the Board of Directors,

Betty L. Gentry
Secretary

Starkville, Mississippi

June 9, 1995

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JOINT PROSPECTUS SUPPLEMENT

(TO PROSPECTUS DATED JUNE 9, 1995)

AND PROXY STATEMENT
118,153 SHARES

BANCORPSOUTH, INC.

COMMON STOCK

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This Joint Supplement and Proxy Statement ("Supplement/Proxy Statement")
relates to the issuance of an aggregate of up to 118,153 shares of Common
Stock, $2.50 par value per share (the "BancorpSouth Common Stock"), of
BancorpSouth, Inc. (the "Company"), a Mississippi corporation, a bank holding
company registered under the Bank Holding Company Act of 1956, as amended (the
"BHCA"), and a savings and loan holding company registered under the Savings
and Loan Holding Company Act, as amended (the "SLHCA"), to the stockholders of
First Federal Bank for Savings ("First Federal"), a federally chartered savings
bank, in connection with an Agreement and Plan of Merger, dated as of January
27, 1995 (the "Merger Agreement"), described herein. Pursuant to the Merger
Agreement, First Federal is to be merged with and into Bank of Mississippi
("BOM"), a Mississippi banking corporation and a wholly-owned subsidiary of the
Company (the "Merger"), and each outstanding share of Common Stock of First
Federal, $1 par value per share (the "First Federal Common Stock"), is to be
converted into 0.698 shares of BancorpSouth Common Stock as described in the
Merger Agreement and herein. At May 26, 1995, the closing price per share of
BancorpSouth Common Stock was 38 1/4.

This Supplement/Proxy Statement also serves as the proxy statement of
First Federal with respect to a special meeting of the stockholders of First
Federal to be held on July 17, 1995, or any adjournment thereof, to consider and
vote upon the transactions described in the Merger Agreement (the "Special
Meeting").

THIS SUPPLEMENT/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. A COPY OF THESE
DOCUMENTS, INCLUDING THE MERGER AGREEMENT, IS AVAILABLE UPON REQUEST FROM CATHY
M. ROBERTSON, CORPORATE SECRETARY, BANCORPSOUTH, INC., ONE MISSISSIPPI PLAZA,
TUPELO, MISSISSIPPI 38801, (601) 681-2000. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, ANY REQUEST SHOULD BE MADE BY
JULY 10, 1995.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROSPECTUS
SUPPLEMENT AND PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

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SHARES OF BANCORPSOUTH COMMON STOCK TO BE ISSUED PURSUANT TO THE MERGER
AGREEMENT ARE NOT A SAVINGS OR DEPOSIT ACCOUNT AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.

--------------------

THE DATE OF THIS JOINT PROSPECTUS SUPPLEMENT AND PROXY STATEMENT IS JUNE 9, 1995

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TABLE OF CONTENTS

<TABLE>
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<S> <C>
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4

SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10

THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Matters to Be Considered at the Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Shares Entitled to Vote; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Voting and Revocability of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16

THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Reasons for the Merger; Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . S-19
Regulatory Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Resale Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Comparison of Rights of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23

THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29
Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-29
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
Conduct of Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
Conditions to Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
Employment of First Federal Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-32
Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
Filing for Regulatory Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
Amendment of the Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
Termination of the Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33

FIRST FEDERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Market Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Lending Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Non-Performing Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Investment Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-48
Sources of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
</TABLE>

S-2
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<TABLE>
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FIRST FEDERAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Business of First Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Liquidity-Asset/Liability Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-65
Impact of Inflation and Changes in Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
Common Stock Market Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-66

DESCRIPTION OF FIRST FEDERAL CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-67
Voting Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-67
Beneficial Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-67

COMPARISON OF RIGHTS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-68
Voting Rights; Cumulative Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-68
Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-68
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
Indemnification of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-69
Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-70
Permitted Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-70
Rights of Stockholders to Call Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . S-70

LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71

EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-71

INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

Annex A -- Provisions of 12 C.F.R. Section 552.14 Relating to Dissenters' Rights . . . . . . . . . . . . . . . . . A-1
Annex B -- Fairness Opinion of Mercer Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>

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No person has been authorized to give any information or to make
any representations other than those contained in this Supplement/Proxy
Statement in connection with the offering made hereby, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company. This Supplement/Proxy Statement does not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the shares of BancorpSouth Common Stock offered hereby or an offer to sell or a
solicitation of an offer to buy such shares to any person, or the solicitation
of a proxy from any person, in any jurisdiction in which such offer,
solicitation of an offer or proxy solicitation is unlawful. The delivery of
this Supplement/Proxy Statement at any time does not imply that the information
herein is correct as of any time subsequent to its date.

S-3
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SUMMARY

The following summary of certain information contained elsewhere in this
Supplement/Proxy Statement does not purport to be complete and is qualified in
its entirety by the more detailed information appearing elsewhere or
incorporated by reference herein. Unless the context otherwise requires, all
references to the "Company" include BancorpSouth, Inc. and its wholly-owned
subsidiaries. Unless the context otherwise requires, all references to "First
Federal" include First Federal Bank for Savings and its wholly-owned
subsidiary.

PARTIES TO THE MERGER

BANCORPSOUTH, INC.; BANK OF MISSISSIPPI

The Company was incorporated in February 1982 in the State of
Mississippi, and is a bank holding company registered under the BHCA and a
savings and loan holding company registered under the SLHCA. The Company owns
all of the outstanding capital stock of Bank of Mississippi ("BOM"), a
Mississippi banking corporation with its principal office located in Tupelo,
Mississippi and 84 branch offices located across the State of Mississippi;
Volunteer Bank, a Tennessee banking corporation with its principal office
located in Jackson, Tennessee and 14 branch offices located in west Tennessee;
and Laurel Federal Savings and Loan Association, a federally chartered savings
and loan association with its principal office located in Laurel, Mississippi
and seven branch offices located in west Mississippi. The principal executive
offices of the Company are located at One Mississippi Plaza, Tupelo,
Mississippi 38801, and its telephone number is (601) 680-2000.

As of May 9, 1995, the Company entered into a purchase and assumption
agreement with Shelby Bank, a Tennessee banking corporation, whereby Volunteer
Bank is to acquire the assets and assume certain liabilities of Shelby Bank in
exchange for shares of BancorpSouth Common Stock. Shelby Bank operates from a
single office located in Bartlett, Shelby County, Tennessee and at April 13,
1995 had assets of approximately $24 million.

FIRST FEDERAL BANK FOR SAVINGS

First Federal was chartered in 1934 as a federal savings and loan
association. In 1988, First Federal converted to a mutual savings bank and
changed its name from First Federal Savings and Loan Association of Starkville
to First Federal Bank for Savings. In October 1993, First Federal converted
from a mutual to a stock form of organization through the issuance and sale of
157,466 shares of First Federal Common Stock. First Federal operates from a
single office located at 310 Main Street, Starkville, Mississippi 39759, and
its telephone number is (601) 323-2921.

THE MERGER

If the Merger Agreement is approved by the stockholders of First Federal
and certain other conditions are satisfied: (i) First Federal will merge with
and into BOM pursuant to the Merger Agreement; (ii) the First Federal Common
Stock will be converted into BancorpSouth Common Stock in accordance with the
Exchange Ratio, as defined below; and (iii) the separate existence of First
Federal will cease.

The Merger Agreement contains various representations and warranties by
the Company and First Federal, and the obligations of such parties are subject
to certain conditions. See "The Merger Agreement."

S-4
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WAIVER OF ANTI-TAKEOVER PROVISION

On June 1, 1995, the stockholders of First Federal approved an amendment
to First Federal's federal stock charter which eliminated an anti-takeover
provision in the charter that provided that, prior to October 1, 1998, in no
event shall any person, directly or indirectly, offer to acquire or acquire
more than 10% of any class of capital stock of First Federal, except wherein
First Federal formed a holding company, and any shares of First Federal capital
stock benefically owned by any person in excess of such 10% limit would be
considered "excess shares" and would not be counted as shares entitled to vote.
The Board of Directors of First Federal unanimously approved such amendment and
submitted it for stockholder approval after determining that eliminating such
anti-takeover provision was necessary for consummation of the Merger and,
therefore, such elimination was in the best interests of the First Federal
stockholders.

CONVERSION OF FIRST FEDERAL COMMON STOCK

Upon effectiveness of the Merger, each share of First Federal Common
Stock, other than shares held by dissenting stockholders, will be converted
into, and become exchangeable for, 0.698 shares of BancorpSouth Common Stock
(the "Exchange Ratio"), and cash in lieu of the issuance of fractional shares
of BancorpSouth Common Stock (together, the "Merger Consideration"). The
Exchange Ratio was determined through arm's-length negotiations between the
management of the Company and management of First Federal. The Exchange Ratio
will not be adjusted in the event of a change in the price per share of
BancorpSouth Common Stock. A decline in the price per share of BancorpSouth
Common Stock will not be considered a material adverse change allowing First
Federal to terminate its obligations under the Merger Agreement. There can be
no assurance that the price per share of BancorpSouth Common Stock will not
decline prior to consumation of the Merger.

SPECIAL MEETING OF STOCKHOLDERS OF FIRST FEDERAL

The Special Meeting will be held on July 17, 1995 at 4:30 p.m. Central
Time at the Holiday Inn on Highway 12 in Starkville, Mississippi. The purpose
of the Special Meeting is to consider and vote upon the Merger Agreement and
any other matters that may be properly brought before the stockholders of First
Federal at the Special Meeting. Only holders of record of shares of First
Federal Common Stock at the close of business on May 26, 1995 will be entitled
to receive notice of and to vote at the Special Meeting.

VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS

Consummation of the Merger will require the affirmative vote of the
holders of two-thirds of the outstanding shares of First Federal Common Stock
entitled to vote. Each share of First Federal Common Stock is entitled to one
vote. At May 26, 1995, First Federal's directors, executive officers and
affiliates beneficially owned 49,206 shares of First Federal Common Stock, or
approximately 29.1% of the then outstanding shares of First Federal Common
Stock. The directors and executive officers of First Federal have indicated
that they intend to vote their shares of First Federal Common Stock for
approval and adoption of the Merger Agreement. See "Special Meeting -- Vote
Required."

THE FIRST FEDERAL BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AS BEING IN THE BEST INTERESTS OF THE FIRST FEDERAL STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT THE FIRST FEDERAL STOCKHOLDERS VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.

The vote of the holders of BancorpSouth Common Stock is not required to
approve the Merger.

S-5
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BACKGROUND OF AND REASONS FOR THE MERGER

During 1994, the management of First Federal received unsolicited
indications of interest in acquiring First Federal from the Company and two
other financial institutions. On September 27, 1994, Aubrey B. Patterson,
Chairman of the Board and Chief Executive Officer of the Company, met with E.H.
Staggers, III, President and Chief Executive Officer of First Federal, to
discuss a possible acquisition of First Federal. On October 19, 1994, Mr.
Staggers informed Mr. Patterson that the Board of Directors of First Federal
was interested in additional discussions with the Company. On October 28,
1994, Albert Clark, the Chairman of the Board of First Federal, Mr. Staggers
and Mr. Patterson met at the Company's headquarters to discuss a possible
acquisition by the Company and the opportunities for their respective
stockholders and employees. During December 1994, each of the two financial
institutions that, in addition to the Company, had expressed interest in
acquiring First Federal, determined independently that they would not pursue
such an acquisition at that time. On December 13, 1994, Mr. Patterson, Mr.
Clark and Mr. Staggers met to discuss the amount of consideration to be offered
by the Company in the proposed business combination with First Federal. On
December 28, 1994, the First Federal Board of Directors voted to authorize the
officers of First Federal to negotiate, with the advice of counsel, the terms
of the Merger Agreement. On January 3, 1995, representatives of First Federal
and the Company met at the Company's headquarters and executed a letter of
intent. Following a period of continued negotiation, the Merger Agreement was
executed in Starkville, Mississippi on January 27, 1995. See "The Merger -
Background and Reasons for the Merger" for additional information.

FAIRNESS OPINION

Mercer Capital, a valuation advisory firm headquartered in Memphis,
Tennessee, was retained by First Federal to advise management of First Federal
with respect to consideration proposed to be conveyed in the Merger, and on
March 7, 1995, following execution of the Merger Agreement, Mercer Capital
rendered a formal written an opinion addressed to the Board of Directors of
First Federal as to the fairness from a financial point of view of the terms of
the Merger to the stockholders of First Federal (the "Fairness Opinion"). See
"The Merger -- Fairness Opinion." A copy of the Fairness Opinion is attached
hereto as Annex B.

STOCKHOLDERS' RIGHTS OF APPRAISAL

Office of Thrift Supervision ("OTS") regulations provide that holders of
shares of First Federal Common Stock outstanding at the time of the Special
Meeting who do not vote in favor of the Merger Agreement and who otherwise
comply with certain notice and other requirements set forth in 12 C.F.R.
Section 552.14 will have the right to dissent and to be paid cash for the fair
value of their shares. See "The Special Meeting -- Dissenters' Rights" and
Annex A hereto.

If a stockholder of First Federal elects to exercise such stockholder's
right to dissent from the Merger and demand payment of the fair or appraised
value of such stockholder's shares of First Federal Common Stock, such
stockholder must satisfy both of the following conditions, as well as the other
applicable procedural requirements: (i) the stockholder must deliver to First
Federal prior to the Special Meeting a written demand for appraisal of and
payment for such stockholder's shares, and (ii) the stockholder may not vote
his or her shares in favor of the Merger. Written demands for appraisal of
shares of First Federal Common Stock should be submitted to Betty L. Gentry,
Secretary, First Federal, 310 Main Street, Starkville, Mississippi 39759. A
proxy or vote against the Merger without prior delivery of a written notice of
intent to dissent is not sufficient to satisfy the notice requirements of the
OTS regulations.

Holders of BancorpSouth Common Stock are not entitled to dissenters'
rights with respect to the Merger.

CONDITIONS; REGULATORY APPROVALS

Consummation of the Merger is subject to certain conditions, including
the approval of First Federal stockholders and the receipt of applicable
regulatory approvals or consents, including those of the Federal Deposit
Insurance Corporation ("FDIC"), the OTS and the Mississippi Department of
Banking and Consumer Finance. The Company filed an application with the FDIC
on April 14, 1995 and anticipates a response to such application by June 30,
1995. The OTS has approved an application filed by the Company with respect to
the Merger pursuant to First Federal's conversion in 1993 to a stock form of
savings bank. A notice of the Merger was filed by the Company with OTS on
April 14, 1995 and acknowledged by the OTS on April 20, 1995. See "The Merger
- -- Regulatory Approvals" and "The Merger Agreement -- Conditions to
Consummation of the Merger."

S-6
<PAGE> 9
INTERESTS OF CERTAIN PERSONS IN THE MERGER

Upon completion of the Merger, Erie H. Staggers, III and Betty L.
Gentry, the President and Senior Vice President of First Federal, respectively,
will be employed by the Company, with anticipated annual salaries of
approximately $60,000 and $37,725, respectively. At May 26, 1995, the
directors and executive officers of First Federal, including Mr. Staggers and
Ms. Gentry, beneficially owned an aggregate of 49,206 shares of First Federal
Common Stock and, based upon an Exchange Ratio of 0.698 and assuming such
shares are owned upon effectiveness of the Merger, would receive an aggregate
of approximately 34,345 shares of BancorpSouth Common Stock upon consummation
of the Merger. See "The Merger -- Interests of Certain Persons in the Merger"
and "Description of First Federal Capital Stock -- Beneficial Ownership."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

Consummation of the Merger is conditioned upon the receipt by First
Federal of an opinion of Waller Lansden Dortch & Davis, special counsel to the
Company, to the effect that, for federal income tax purposes, the Merger will
constitute a tax-free reorganization under Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code"). The opinion of Waller Lansden
Dortch & Davis will not be binding on the Internal Revenue Service or any
court. If the Merger was determined not to qualify as a "reorganization" under
Section 368(a) of the Code, the Merger would be treated as a taxable sale of
assets by First Federal followed by the liquidation of First Federal. A
stockholder of First Federal who receives cash in lieu of a fractional share of
BancorpSouth Common Stock in the Merger will recognize gain (or loss) as if the
fractional share had been received and then redeemed for the cash. The amount
of gain or loss will equal the difference between the amount of cash and the
stockholder's basis in the fractional share interest. In such event, any gain
or loss recognized will be capital gain (or loss) if the shares of First
Federal Common Stock are held by such stockholder as a capital asset at the
Effective Time. The receipt of cash for shares of First Federal Common Stock
as a result of the exercise of dissenters' rights will be taxable as a
redemption of those shares for the cash. Any stockholder considering the
exercise of dissenters' rights should consult their tax advisor regarding the
tax consequences of exercising dissenters' rights. See "The Merger -- Certain
Federal Income Tax Consequences."

ACCOUNTING TREATMENT

The Company intends to account for the Merger under the pooling of
interests method for accounting and financial reporting purposes. Certain
events, including the exercise of dissenters' or appraisal rights by holders of
greater than 10% of the outstanding shares of First Federal Common Stock,
could, however, preclude the Company's use of the pooling of interests method.
See "The Merger -- Accounting Treatment."

RESALE RESTRICTIONS

Shares of BancorpSouth Common Stock received by the stockholders of
First Federal in the Merger will be freely transferable, except that shares of
BancorpSouth Common Stock received by persons who are deemed to be "affiliates"
(as that term is defined under the Securities Act of 1933, as amended (the
"Securities Act")) of First Federal at the time of the Special Meeting may be
re-sold by them only in certain permitted circumstances. This Supplement/Proxy
Statement is not intended to be used in connection with the resale of
BancorpSouth Common Stock by such affiliates. See "The Merger -- Resale
Restrictions."

S-7
<PAGE> 10

COMPARATIVE MARKET DATA

The BancorpSouth Common Stock has been traded on the Nasdaq Stock Market
National Market ("Nasdaq/NM") under the symbol "BOMS" since October 14, 1985.
At May 26, 1995, there were approximately 5,885 stockholders of record of the
BancorpSouth Common Stock.

At May 26, 1995, there were approximately 186 stockholders of record of
the First Federal Common Stock. There is no established public trading market
for shares of First Federal Common Stock. The shares of First Federal Common
Stock were issued on October 1, 1993 at an offering price of $10 per share.

At January 26, 1995, the date immediately preceding the public
announcement of the proposed Merger, the closing price per share as reported on
the Nasdaq/NM for the BancorpSouth Common Stock was $34 1/16. At May 26, 1995,
the closing price per share of BancorpSouth Common Stock was $38 1/4.

The table below sets forth, for the periods indicated, the range of
closing sales prices as reported on the Nasdaq/NM for the BancorpSouth Common
Stock.

<TABLE>
<CAPTION>
BANCORPSOUTH
COMMON STOCK(1)
---------------

HIGH LOW
---- ---
<S> <C> <C>
1995
----

First Quarter . . . . . . . . . . . . $36.50 $32.25

1994
----

First Quarter . . . . . . . . . . . . $33.00 $29.00
Second Quarter . . . . . . . . . . . 33.25 29.00
Third Quarter . . . . . . . . . . . 36.25 34.00
Fourth Quarter . . . . . . . . . . . 34.75 31.00

1993
----

First Quarter . . . . . . . . . . . . $31.96 $29.57
Second Quarter . . . . . . . . . . . 35.00 31.09
Third Quarter . . . . . . . . . . . 34.78 31.63
Fourth Quarter . . . . . . . . . . . 36.96 31.00
1992
----

First Quarter . . . . . . . . . . . . $27.17 $23.26
Second Quarter . . . . . . . . . . . 27.83 25.65
Third Quarter . . . . . . . . . . . 27.83 23.91
Fourth Quarter . . . . . . . . . . . 31.09 26.09
</TABLE>

- --------------------
(1) All share prices for BancorpSouth Common Stock have been adjusted to give
effect to a 15% stock dividend paid on December 1, 1993 to all
shareholders of record on November 15, 1993.

S-8
<PAGE> 11

COMPARATIVE PER SHARE DATA

The following table presents selected comparative unaudited per share
data (i) of each of the Company and First Federal on a historical basis, (ii)
for the Company and LF Bancorp, Inc. ("LF Bancorp"), a savings and loan holding
company which merged with and into the Company on March 31, 1995 (the "LF
Bancorp Merger"), on a pro forma basis assuming the LF Bancorp Merger had been
effective for the periods indicated in the table, (iii) for the Company, LF
Bancorp and First Federal on a pro forma basis assuming the Merger and the LF
Bancorp Merger had been effective for the periods indicated in the table, and
(iv) for First Federal on a pro forma equivalent basis.

<TABLE>
<CAPTION>
BOOK VALUE PER SHARE:
December 31, 1994 MARCH 31, 1995
------------------------------- ------------------
<S> <C> <C>
The Company historical . . . . . . . . . . . . . . . . . . . . $25.94 $26.33
First Federal historical . . . . . . . . . . . . . . . . . . . 17.70 17.92
The Company and LF Bancorp pro forma (1) . . . . . . . . . . . 25.71 26.33
The Company, LF Bancorp and First Federal pro forma (2) . . . . 25.71 26.01
First Federal pro forma equivalent (3) . . . . . . . . . . . . 17.95 18.15
</TABLE>

<TABLE>
<CAPTION> THREE MONTHS ENDED
NET INCOME PER SHARE: YEAR ENDED DECEMBER 31, MARCH 31
------------------------------ ------------------
1992 1993 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
The Company historical . . . . . . . . . . . . . . . . . . . . $2.40 $3.37 $3.21 $0.80
First Federal historical (4) . . . . . . . . . . . . . . . . . N/A N/A 1.43 0.22
The Company and LF Bancorp pro forma (1)(5) . . . . . . . . . . N/A 3.34 3.11 0.80
The Company, LF Bancorp and First Federal pro forma (2)(4) . . N/A N/A 3.10 0.79
First Federal pro forma equivalent (4)(6) . . . . . . . . . . . N/A N/A 2.16 0.55
</TABLE>

<TABLE>
<CAPTION> THREE MONTHS ENDED
CASH DIVIDENDS PER SHARE YEAR ENDED DECEMBER 31, MARCH 31
------------------------------ ------------------
1992 1993 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
The Company historical . . . . . . . . . . . . . . . . . . . . $1.02 $1.08 $1.11 $0.30
First Federal historical (4) . . . . . . . . . . . . . . . . . N/A N/A 0.25 -
The Company and LF Bancorp pro forma (1)(5) . . . . . . . . . . N/A 1.08 1.11 0.30
The Company, LF Bancorp and First Federal pro forma (2)(4) . . N/A N/A 1.11 0.30
First Federal pro forma equivalent (4)(7) . . . . . . . . . . . N/A N/A 0.77 0.21
</TABLE>

- -------------------------------
(1) Presented as if the LF Bancorp Merger had been effective throughout the
periods presented.
(2) Presented as if the Merger and the LF Bancorp Merger had been effective
throughout the periods presented.
(3) Calculated by multiplying the Company and LF Bancorp's pro forma value by
the quotient calculated by dividing the number of shares of BancorpSouth
Common Stock issuable under the Merger Agreement by the number of shares
of First Federal Common Stock outstanding as of the end of the period.
(4) Not applicable for periods prior to First Federal's conversion from
mutual to stock ownership on October 31, 1993.
(5) Not applicable for periods prior to LF Bancorp's conversion from mutual
to stock ownership on December 30, 1992.
(6) Calculated by multiplying the Company and LF Bancorp's pro forma combined
net income per share by a quotient calculated by dividing the number of
shares issuable under the Merger Agreement by the average number of
shares of First Federal Common Stock outstanding during the period.
(7) Calculated by multiplying the Company and LF Bancorp's pro forma combined
cash dividends per share by the quotient described in Note (6) above.

S-9
<PAGE> 12

SELECTED FINANCIAL DATA

The following tables set forth for the Company and First Federal certain
historical consolidated financial information, and for the Company, certain
unaudited pro forma condensed consolidated financial information. The
financial information set forth below is derived from, and should be read in
conjunction with, the respective consolidated financial statements, and the
notes thereto, of the Company which have been incorporated herein by reference,
and of First Federal, appearing elsewhere in this Supplement/Proxy Statement
and the unaudited pro forma condensed consolidated financial statements, and
the notes hereto, appearing elsewhere in this Supplement/Proxy Statement.
The unaudited historical financial data for the three month periods ended March
31, 1994 and 1995 have been derived from the unaudited financial statements of
the Company which have been restated for the LF Bancorp merger, which was
accounted for as a pooling of interests. In the opinion of management of the
Company and First Federal, all adjustments necessary for a fair presentation of
the consolidated financial statements have been included.

BANCORPSOUTH, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest revenue . . . . . . . . . . $ 178,703 $ 178,448 $ 165,346 $ 158,463 $ 173,208
Interest expense . . . . . . . . . . 104,673 93,730 71,200 61,952 69,332
---------- ---------- ---------- ---------- ----------
Net interest revenue . . . . . . 74,030 84,718 94,146 96,511 103,876
Provision for credit losses . . . . 5,965 8,436 11,483 7,754 5,652
Other revenue . . . . . . . . . . . 17,540 19,427 19,790 22,568 23,421
Other expense . . . . . . . . . . . 63,783 71,988 78,488 80,742 85,799
---------- ---------- ---------- ---------- ----------
Income before income tax and
accounting change . . . . . . . . 21,822 23,721 23,965 30,583 35,846
Applicable income taxes . . . . . . 4,429 5,283 5,400 7,200 10,400
---------- ---------- ---------- ---------- ----------
Income before accounting change . 17,393 18,438 18,565 23,383 25,446
Accounting change, net of tax . . . -- -- -- 3,200 --
Net income . . . . . . . . . . . . . $ 17,393 $ 18,438 $ 18,565 $ 26,583 $ 25,446
========== ========== ========== ========== ==========

PER SHARE DATA:
Primary
Income before accounting change . $ 2.33 $ 2.47 $ 2.47 $ 2.99 $ 3.21
Accounting change, net of taxes . -- -- -- 0.41 --
---------- ---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . $ 2.33 $ 2.47 $ 2.47 $ 3.40 $ 3.21
========== ========== ========== ========== ==========
Fully diluted
Income before accounting change . $ 2.26 $ 2.40 $ 2.40 $ 2.97 $ 3.21
Accounting change, net of taxes . -- -- -- 0.40 --
---------- ---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . $ 2.26 $ 2.40 $ 2.40 $ 3.37 $ 3.21
========== ========== ========== ========== ==========

Cash dividends . . . . . . . . . . . $ 0.86 $ 0.94 $ 1.02 $ 1.08 $ 1.11
Book value . . . . . . . . . . . . . $ 18.32 $ 19.95 $ 21.55 $ 23.95 $ 25.94

BALANCE SHEET DATA (PERIOD END):
Total assets . . . . . . . . . . . . $1,870,693 $2,001,210 $2,137,004 $2,306,709 $2,518,398
Loans, net of unearned income . . . 1,187,001 1,266,340 1,332,283 1,507,593 1,733,730
Allowance for credit losses . . . . 17,676 18,825 21,205 24,019 27,529
Securities . . . . . . . . . . . . . 451,763 466,716 469,842 485,746 566,256
Deposits . . . . . . . . . . . . . . 1,621,039 1,752,967 1,876,093 2,031,477 2,171,748
Long-term debt:
Parent . . . . . . . . . . . . . . 33,996 33,309 32,541 24,508 24,508
Subsidiaries . . . . . . . . . . . -- -- -- -- 23,520
Total stockholders' equity . . . . . 135,288 148,570 161,668 188,600 205,329

N/A-Information not available

Three Months Ended
March 31
------------------------
1994 1995

EARNINGS SUMMARY:
Interest revenue . . . . . . . . . . $ 42,490 $ 52,510
Interest expense . . . . . . . . . . 17,046 22,613
---------- ----------
Net interest revenue . . . . . . 25,444 29,997
Provision for credit losses . . . . 1,064 1,176
Other revenue . . . . . . . . . . . 4,884 7,062
Other expense . . . . . . . . . . . 21,860 25,457
---------- ----------
Income before income tax and
accounting change . . . . . . . . 7,404 10,426
Applicable income taxes . . . . . . 2,015 3,385
---------- ----------
Income before accounting change . 5,389 7,041
Accounting change, net of tax . . . -- --
Net income . . . . . . . . . . . . . $ 5,389 $ 7,041
========== ==========

PER SHARE DATA:
Primary
Income before accounting change . $ 0.62 $ 0.80
Accounting change, net of taxes . -- --
---------- ----------
Net income . . . . . . . . . . . . $ 0.62 $ 0.80
========== ==========
Fully diluted
Income before accounting change . $ 0.62 $ 0.80
Accounting change, net of taxes . -- --
---------- ----------
Net income . . . . . . . . . . . . $ 0.62 $ 0.80
========== ==========

Cash dividends . . . . . . . . . . . $ 0.27 $ 0.30
Book value . . . . . . . . . . . . . $ 24.27 $ 26.33

BALANCE SHEET DATA (PERIOD END):
Total assets . . . . . . . . . . . . $2,584,688 $2,791,532
Loans, net of unearned income . . . 1,650,153 1,863,048
Allowance for credit losses . . . . 25,360 28,780
Securities . . . . . . . . . . . . . 578,972 637,211
Deposits . . . . . . . . . . . . . . 2,259,770 2,445,850
Long-term debt:
Parent . . . . . . . . . . . . . . 24,508 24,508
Subsidiaries . . . . . . . . . . . 22,223 22,529
Total stockholders' equity . . . . . 211,499 230,765

N/A-Information not available
</TABLE>

S-10
<PAGE> 13

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AVERAGES):
Total assets . . . . . . . . . . . . $1,830,881 $1,939,678 $2,052,408 $2,197,330 $2,418,415
Total stockholders' equity . . . . . 128,547 141,607 155,327 177,304 195,884
Average shares outstanding . . . . . 7,349,488 7,414,576 7,474,192 7,775,139 7,888,662

SELECTED RATIOS (ANNUALIZED):
Return on average assets . . . . . . 0.95% 0.95% 0.90% 1.21% 1.05%
Return on average stockholders'
equity . . . . . . . . . . . . . . 13.53 13.02 11.95 15.06 12.99
Net interest margin . . . . . . . . 4.69 4.99 5.19 4.95 4.86
Net charge-offs to average loans . . 0.43 0.63 0.70 0.35 0.13
Tier 1 capital to risk-weighted
assets . . . . . . . . . . . . . . 10.14 9.99 9.90 11.00 10.63
Total capital to risk-weighted
assets . . . . . . . . . . . . . . 13.94 13.42 13.10 13.70 12.89
Leverage ratio . . . . . . . . . . . 7.29 7.57 7.50 8.30 8.00

For the Three
Months
Ended
March 31,
------------------------
1994 1995
---------- ----------
BALANCE SHEET DATA (AVERAGES):
Total assets . . . . . . . . . . . . $2,504,011 $2,723,628
Total stockholders' equity . . . . . 211,499 227,696
Average shares outstanding . . . . . 8,713,325 8,760,239

SELECTED RATIOS (ANNUALIZED):
Return on average assets . . . . . . 0.86% 1.03%
Return on average stockholders'
equity . . . . . . . . . . . . . . 10.35% 12.37%
Net interest margin . . . . . . . . N/A 5.08%
Net charge-offs to average loans . . N/A 0.12%
Tier 1 capital to risk-weighted
assets . . . . . . . . . . . . . . N/A 11.51%
Total capital to risk-weighted
assets . . . . . . . . . . . . . . N/A 13.71%
Leverage ratio . . . . . . . . . . . N/A 8.20%
N/A - information not available

</TABLE>

S-11
<PAGE> 14

FIRST FEDERAL BANK FOR SAVINGS
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

(dollars in thousands except per share amounts)

<TABLE>
<CAPTION> THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------ ----------------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest revenue . . . . . . . . . . . $ 2,241 $ 2,099 $ 1,798 $ 1,571 $ 1,612 $ 384 $ 422
Interest expense . . . . . . . . . . . 1,682 1,493 1,060 813 773 183 212
------- ------- ------- ------- -------- -------- --------
Net interest revenue . . . . . . . 559 606 738 758 839 201 210
Provision for credit losses . . . . . 9 7 14 83 10 3 4
Other revenue . . . . . . . . . . . . 116 127 209 294 215 59 32
Other expense . . . . . . . . . . . . 490 501 555 620 695 163 191
------- ------- ------- ------- -------- -------- --------
Income before income tax . . . . . . 176 225 378 349 349 94 47
Applicable income taxes . . . . . . . -- -- 148 131 108 36 12
------- ------- ------- ------- -------- -------- --------
Net income . . . . . . . . . . . . . $ 176 $ 225 $ 230 $ 218 $ 241 $ 58 $ 35
======= ======= ======= ======= ======== ======== ========

PER SHARE DATA: (1)
Net income . . . . . . . . . . . . . . N/A N/A N/A N/A $ 1.43 $ 0.37 $ 0.22
Cash dividends . . . . . . . . . . . . N/A N/A N/A -- 0.25 -- --
Book value . . . . . . . . . . . . . . N/A N/A N/A $ 16.43 $ 17.70 $ 16.79 $ 17.92

BALANCE SHEET DATA (PERIOD END):
Total assets . . . . . . . . . . . . . $23,487 $24,167 $24,059 $25,495 $ 25,306 $ 25,591 $ 25,037
Loans, net of unearned income . . . . 16,337 15,193 14,710 13,685 14,178 12,852 13,879
Allowance for credit losses . . . . . 8 15 20 100 100 100 100
Securities . . . . . . . . . . . . . . 4,781 4,217 6,022 8,370 9,591 8,880 9,079
Deposits . . . . . . . . . . . . . . . 22,741 23,236 22,805 22,546 22,328 22,650 22,012
Total equity . . . . . . . . . . . . . 516 741 1,029 2,587 2,787 2,644 2,822

BALANCE SHEET DATA (AVERAGES):
Total assets . . . . . . . . . . . . . $23,213 $24,448 $24,158 $25,316 $ 25,467 $ 25,433 $ 25,043
Total equity . . . . . . . . . . . . . 456 642 865 1,349 2,700 2,616 2,802
Average shares outstanding (2) . . . . N/A N/A N/A N/A 157,466 157,466 157,466

SELECTED RATIOS (ANNUALIZED):
Return on average assets . . . . . . . 0.76% 0.92% 0.95% 0.86% 0.92% 0.91% 0.56%
Return on average equity . . . . . . . 38.60 35.05 26.59 16.14 8.65 8.87% 5.00%
Net interest margin . . . . . . . . . 2.38 2.40 3.12 2.82 3.11 3.04% 3.02%
Net charge-offs to average loans . . . 0.01 -- 0.12 0.03 0.07 -- --
Tier 1 capital to risk-weighted assets 5.20 7.54 10.34 26.23 27.31 27.46% 27.88%
Leverage ratio . . . . . . . . . . . . 2.30 3.07 4.28 10.15 11.01 10.33% 11.27%
</TABLE>

- --------------------
(1) Per share data not presented for periods prior to conversion from stock
ownership on October 1, 1993.
(2) Not applicable prior to conversion from mutual to stock ownership on
October 1, 1993.

S-12
<PAGE> 15

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1995
(unaudited)

<TABLE>
<CAPTION>
Historical
----------------------------------
The Company First Federal Adjustments Pro Forma
----------- ------------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . $ 130,745 $ 1,356 $ 132,101
Held-to-maturity securities . . . . . . . . 499,473 9,288 508,761
Loans and leases, net . . . . . . . . . . . 1,834,268 13,880 1,848,148
Available-for-sale securities . . . . . . . 137,738 - 137,738
Mortgages held for sale . . . . . . . . . . 11,180 - 11,180
Premises and equipment, net . . . . . . . . 69,524 226 69,750
Other assets . . . . . . . . . . . . . . . . 108,604 287 108,891
---------- ------- ----------
Total assets . . . . . . . . . . . . $2,791,532 $25,037 $2,861,569
========== ======= ==========

LIABILITIES
Deposits . . . . . . . . . . . . . . . . . .
Non-interest bearing . . . . . . . . . . . . 319,785 - 319,785
Interest bearing . . . . . . . . . . . . . . 2,126,065 22,012 2,148,077
---------- ------- ----------
Total deposits . . . . . . . . . . . . . . . 2,445,850 22,012 2,467,862
Short-term borrowings . . . . . . . . . . . 31,864 - 31,864
Long-term debt . . . . . . . . . . . . . . . 47,037 - 47,037
Other liabilities . . . . . . . . . . . . . 36,016 203 36,219
---------- ------- ----------
Total liabilities . . . . . . . . . . 2,560,767 22,215 2,582,982
========== ======= ==========

STOCKHOLDERS' EQUITY
Common stock . . . . . . . . . . . . . . . . $ 22,045 $ 157 118 (1) 22,320
Capital surplus . . . . . . . . . . . . . . 73,782 1,239 (118) (1) 74,903
Unrealized gain (loss) on
available-for-sale securities . . . . . 125 - 125
Retained earnings . . . . . . . . . . . . . 135,847 1,426 137,273
Less cost of treasury stock . . . . . . . . (1,034) - (1,034)
---------- ------- ---- ----------
Total stockholders' equity . . . . . 230,765 2,822 - 233,587
========== ======= ---- ==========
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . $2,791,532 $25,037 - $2,816,569
========== ======= ==== ==========
</TABLE>

-----------------
(1) Reclassification of capital accounts to reflect the exchange of First
Federal Common Stock for BancorpSouth Common Stock.

S-13

<PAGE> 16

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

<TABLE>
<CAPTION>
For the three years ended December 31,
------------------------------------------------------------------------------------------------
1992 1993
----------------------------------------------- ---------------------------------------------
The Company, The Company,
The Company LF Bancorp The Company LF Bancorp
The Company & LF Bancorp & First Federal The Company & LF Bancorp & First Federal
Historical Pro Forma Pro Forma Historical Pro Forma Pro Forma
---------- --------- --------- ---------- --------- ---------
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Interest revenue . . . . . . . . $165,346 $180,285 $182,079 $158,463 $171,035 $172,606
Interest expense . . . . . . . . 71,200 79,996 81,056 61,952 68,112 68,925
-------- -------- -------- -------- -------- --------
Net interest revenue . . . . . . 94,146 100,289 101,023 96,511 102,923 103,681
Provision for credit losses . . . 11,483 11,818 11,836 7,754 7,886 7,969
-------- -------- -------- -------- -------- --------
Net interest revenue, after
provision for credit losses . 82,663 88,471 89,187 88,757 95,037 95,712
Other revenue . . . . . . . . . . 19,790 21,105 21,321 22,568 24,027 24,321
Other expense . . . . . . . . . . 78,488 82,394 82,949 80,742 84,837 85,457
-------- -------- -------- -------- -------- --------
Income before income tax and
accounting change . . . . . . 23,965 27,182 27,559 30,583 34,227 34,576
Applicable income taxes . . . . . 5,400 6,954 7,101 7,200 8,402 8,533
-------- -------- -------- -------- -------- --------
Income before accounting change . 18,565 20,228 20,458 23,383 25,825 26,043
Accounting change, net of tax . . - - - 3,200 3,380 3,380
Extraordinary item . . . . . . . - (284) (284) - - -

Net income . . . . . . . . . . . $ 18,565 $ 19,944 $ 20,174 $ 26,583 $ 29,205 $ 29,423
======== ======== ======== ======== ======== ========

EARNINGS PER SHARE
Primary:
Income before accounting
change . . . . . . . . . . . $ 2.47 N/A(1) N/A(2) $ 2.99 $ 2.99 N/A(2)
Accounting change, net of
taxes . . . . . . . . . . . - - - 0.41 0.39 -
Net income . . . . . . . . . . $ 2.47 N/A(1) N/A(2) $ 3.40 $ 3.38 N/A(2)
======== ======== ======== ======== ======== ========

Fully diluted:
Income before accounting
change . . . . . . . . . . . $ 2.40 N/A(1) N/A(2) $ 2.97 $ 2.95 N/A(2)
Accounting change, net of
taxes . . . . . . . . . . . - - - 0.40 0.39 -
Net income . . . . . . . . . . $ 2.40 N/A(1) N/A(2) $ 3.37 $ 3.34 N/A(2)
======== ======== ======== ======== ======== ========

AVERAGE SHARES
Primary . . . . . . . . . . . . 7,503 N/A(1) N/A(2) 7,819 8,651 N/A(2)
Fully diluted . . . . . . . . . 7,899 N/A(1) N/A(2) 7,915 8,747 N/A(2)

For the three years ended December 31,
----------------------------------------------
1994
----------------------------------------------
The Company,
The Company LF Bancorp
The Company & LF Bancorp & First Federal
Historical Pro Forma Pro Forma
---------- --------- ---------
(in thousands except per share amounts)
<S> <C> <C> <C>
Interest revenue . . . . . . . . $173,208 $185,256 $186,868
Interest expense . . . . . . . . 69,332 75,102 75,875
-------- -------- --------
Net interest revenue . . . . . . 103,876 110,154 110,993
Provision for credit losses . . . 5,652 5,652 5,662
-------- -------- --------
Net interest revenue, after
provision for credit losses . 98,224 104,502 105,331
Other revenue . . . . . . . . . . 23,421 24,347 24,562
Other expense . . . . . . . . . . 85,799 91,671 92,366
-------- -------- --------
Income before income tax and
accounting change . . . . . . 35,846 37,178 37,527
Applicable income taxes . . . . . 10,400 10,876 10,984
-------- -------- --------
Income before accounting change . 25,446 26,302 26,543
Accounting change, net of tax . . - 962 962
Extraordinary item . . . . . . . - - -

Net income . . . . . . . . . . . $ 25,446 $ 27,264 $ 27,505
======== ======== ========

EARNINGS PER SHARE
Primary:
Income before accounting
change . . . . . . . . . . . $ 3.21 $ 3.01 $ 3.00
Accounting change, net of
taxes . . . . . . . . . . . - 0.11 0.11
Net income . . . . . . . . . . $ 3.21 $ 3.12 $ 3.11
======== ======== ========

Fully diluted:
Income before accounting
change . . . . . . . . . . . $ 3.21 $ 3.00 $ 2.99
Accounting change, net of
taxes . . . . . . . . . . . - 0.11 0.11
Net income . . . . . . . . . . $ 3.21 $ 3.11 $ 3.10
======== ======== ========

AVERAGE SHARES
Primary . . . . . . . . . . . . 7,918 8,750 8,860
Fully diluted . . . . . . . . . 7,925 8,757 8,867

For the three months ended March 31,
------------------------------------------------------------------------------------
1994 1995
--------------------------------------- ---------------------------------------
Historical Historical
--------------------------- ---------------------------
The Company First Federal Pro Forma The Company First Federal Pro Forma
----------- ------------- --------- ----------- ------------- ---------
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Interest revenue . . . . . . . . $ 42,490 $ 384 $ 42,874 $ 52,510 $ 422 $ 52,932
Interest expense . . . . . . . . 17,046 183 17,229 22,513 212 22,725
-------- ------ -------- -------- ------ --------
Net interest revenue . . . . . . 25,444 201 25,645 29,997 210 30,207
Provision for credit losses . . . 1,064 3 1,067 1,176 4 1,180
-------- ------ -------- -------- ------ --------
Net interest revenue, after
provision for credit losses . 24,380 198 24,578 28,821 206 29,027
Other revenue . . . . . . . . . . 4,884 59 4,943 7,062 32 7,094
Other expense . . . . . . . . . . 21,860 163 22,023 25,457 191 25,648
-------- ------ -------- -------- ------ --------
Income before income tax and
accounting change . . . . . . 7,404 94 7,498 10,426 47 10,473
Applicable income taxes . . . . . 2,015 36 2,051 3,385 12 3,397
-------- ------ -------- -------- ------ --------

Net income . . . . . . . . . . . $ 5,389 $ 58 $ 5,447 $ 7,041 $ 35 $ 7,076
======== ====== ======== ======== ====== ========

EARNINGS PER SHARE
Primary: . . . . . . . . . . . . $ 0.62 $ 0.37 $ 0.62 $ 0.80 $ 0.22 $ 0.79
======== ====== ======== ======== ====== ========
Fully Diluted: . . . . . . . . . $ 0.62 $ 0.37 $ 0.62 $ 0.80 $ 0.22 $ 0.79
======== ====== ======== ======== ====== ========

AVERAGE SHARES
Primary . . . . . . . . . . . . 8,733 157 8,844 8,763 157 8,874
Fully diluted . . . . . . . . . 8,733 157 8,844 8,763 157 8,874
</TABLE>

- --------------------
(1) Not applicable for periods prior to LF Bancorp's conversion from mutual to
stock ownership on December 30, 1992.
(2) Not applicable for periods prior to First Federal's conversion from mutual
to stock ownership on October 1, 1993.

S-14

<PAGE> 17

THE SPECIAL MEETING

MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING

The Special Meeting will be held on July 17, 1995 at 4:30 p.m. Central
Time at the Holiday Inn on Highway 12 in Starkville, Mississippi. The purpose
of the Special Meeting is to consider and vote upon the Merger Agreement and
any other matters that may be properly brought before the stockholders of First
Federal at the Special Meeting. In the event that there are insufficient
shares represented to approve the Merger at the Special Meeting, the Special
Meeting may be adjourned to permit further solicitation.

VOTE REQUIRED

The vote of the holders of Bancorpsouth Common Stock is not required to
approve the Merger.

SHARES ENTITLED TO VOTE; QUORUM

Only holders of record of shares of First Federal Common Stock at the
close of business on May 26, 1995 will be entitled to receive notice of and to
vote at the Special Meeting. At May 26, 1995, there were 169,274 shares
of First Federal Common Stock outstanding. A majority of the outstanding
shares of First Federal Common Stock entitled to vote must be represented in
person or by proxy at the Special Meeting in order for a quorum to be present
at the Special Meeting for the purpose of voting on the Merger Agreement. Any
stockholder present in person or by proxy at the Special Meeting, but who
abstains from voting, shall be counted for purposes of determining whether a
quorum exists.

VOTING AND REVOCABILITY OF PROXIES

Shares of First Federal Common Stock represented by properly executed
proxies received at or prior to the Special Meeting will be voted at the
Special Meeting in the manner specified by the holders of such shares.
Properly executed proxies which do not contain voting instructions will be
voted FOR approval and adoption of the Merger Agreement. With respect to the
matters considered at the Special Meeting, an abstention has the same effect as
a vote against the proposal.

The grant of a proxy does not preclude a stockholder of First Federal
from voting in person or otherwise revoking a proxy. Attendance at the Special
Meeting will not in and of itself constitute revocation of a proxy. A
stockholder of First Federal may revoke a proxy at any time prior to its
exercise by

S-15
<PAGE> 18

delivering to Betty L. Gentry, Secretary, First Federal Bank for Savings, 310
Main Street, Starkville, Mississippi 39759, a duly executed revocation or a
proxy bearing a later date, or by voting in person at the Special Meeting.

SOLICITATION OF PROXIES

First Federal will bear the cost of the solicitation of proxies from its
stockholders, except that the Company will bear the cost of printing and
mailing the Prospectus (including this Supplement/Proxy Statement). In
addition to solicitation by mail, the directors, officers and employees of
First Federal may solicit proxies from stockholders of First Federal by
telephone, telegram or in person. Such persons will not be additionally
compensated, but will be reimbursed for reasonable out-of-pocket expenses
incurred in connection with such solicitation. Arrangements may also be made
with brokerage firms, nominees, fiduciaries and other custodians for the
forwarding of solicitation materials to the beneficial owners of shares held of
record by such persons, and First Federal will reimburse such persons for their
reasonable out-of-pocket expenses in connection therewith. STOCKHOLDERS SHOULD
NOT SEND STOCK CERTIFICATES WITH THEIR PROXY.

DISSENTERS' RIGHTS

Stockholders of First Federal are entitled to dissent from the Merger
and, if the Merger is consummated, to receive cash from the Company equal to
the fair or appraised value of their shares of First Federal Common Stock. Any
stockholder of First Federal who elects to dissent from the Merger and demand
payment of the fair or appraised value of their shares of First Federal Common
Stock must strictly comply with the applicable provisions of OTS regulations
set forth in 12 C.F.R. Section 552.14, a copy of which is attached hereto as
Annex A. THE FOLLOWING DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE
APPLICABLE DISSENSION OR APPRAISAL REQUIREMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO ANNEX A HERETO.

At the time the Merger becomes effective in accordance with the laws of
the State of Mississippi and the United States (the "Effective Time"), the
shares of First Federal Common Stock held by a dissenting stockholder will be
cancelled and such stockholder will be entitled to no further rights except the
right to receive payment of the fair or appraised value of such shares.
However, if a dissenting stockholder fails to perfect or withdraws or loses his
or her right to dissent, such stockholder's shares of First Federal Common
Stock shall be exchanged for shares of BancorpSouth Common Stock as provided in
the Merger Agreement.

If a stockholder of First Federal elects to exercise their right to
dissent from the Merger and demand payment of the fair or appraised value of
their shares of First Federal Common Stock, they must satisfy both of the
following conditions, as well as the other applicable procedural requirements:
(i) the stockholder must deliver to First Federal prior to the Special Meeting
a written demand for appraisal of and payment for such stockholder's shares, and
(ii) the stockholder may not vote his or her shares in favor of the Merger.
Written demands for appraisal of shares of First Federal Common Stock should be
submitted to Betty L. Gentry, Secretary, First Federal, 310 Main Street,
Starkville, Mississippi 39759. A proxy or vote against the Merger without
prior delivery of a written notice of intent to dissent is not sufficient to
satisfy the notice requirements of the OTS regulations. As discussed in "The
Special Meeting -- Voting and Revocability of Proxies," executed proxies that
are returned without specific instructions will be voted FOR the approval

S-16
<PAGE> 19

and adoption of the Merger Agreement; accordingly, a stockholder wishing to
dissent from the Merger should be certain to complete such stockholder's proxy
appropriately.

Within ten days after the Effective Time, the Company will provide
written notice of the Effective Time to each dissenting stockholder and the
price deemed by the Company to be the fair value of the dissenting shares of
First Federal Common Stock. At any time within 60 days of the Effective Time,
a dissenting stockholder of First Federal may withdraw his or her demand for
appraisal and accept the terms offered in the Merger.

If the Company and a dissenting stockholder do not agree upon the fair
value of such stockholder's shares within 60 days following the Effective Time,
the Company or the dissenting stockholder may file a petition with the OTS
demanding a determination of the fair market value of the shares of First
Federal Common Stock of all dissenting stockholders. A dissenting stockholder
entitled to file such a petition with the OTS will be deemed to have accepted
the terms offered in the Merger Agreement if such stockholder fails to file a
petition within 60 days following the Effective Time. The OTS will determine
the fair market value of the First Federal Common Stock of the dissenting
stockholder, without considering any element of value arising from the Merger.
The OTS will then direct that the Company pay to the dissenting stockholder the
appraised fair market value to which such stockholder is entitled, with
interest as determined by the OTS. The OTS may determine the amount of the
costs of the proceeding, and may assess such costs against the parties as the
OTS deems equitable.

S-17

<PAGE> 20

THE MERGER

GENERAL

The Merger Agreement provides for the merger of First Federal with and
into BOM, and the conversion of shares of First Federal Common Stock into
shares of BancorpSouth Common Stock. At the Effective Time, the separate
existence of First Federal will cease. The Merger transactions are intended to
qualify as a pooling of interests for accounting purposes and as a tax-free
reorganization for federal income tax purposes. The discussion in this
Supplement/Proxy Statement regarding the Merger and the description of the
principal terms of the Merger Agreement are subject to and qualified in their
entirety by reference to the Merger Agreement.

BACKGROUND OF THE MERGER

Federal banking statutes have been amended within the past five years to
authorize bank holding companies, such as the Company, to acquire control of
savings banks, such as First Federal. These statutes also authorize bank
holding companies to merge or transfer the assets and liabilities of savings
banks to bank subsidiaries. As a result of these provisions, there have been a
number of acquisitions of savings banks by bank holding companies and other
financial institutions in recent years.

In November 1994, in light of indications of interest and a general trend
toward consolidation by financial institutions, the Board of Directors of First
Federal determined that it was in the best interests of First Federal and its
stockholders to assess the merits of First Federal being acquired. On November
17, 1994, Mr. Clark informed Mr. Patterson that the Board of Directors of
First Federal was prepared to proceed with further negotiations. On November
29, 1994, the Company began a due diligence review of the operations and
records of First Federal. The Board of Directors of First Federal instructed
the officers of First Federal to retain financial and legal representation to
assist the Board in its assessments.

During December 1994, each of the two financial institutions that, in
addition to the Company, had expressed interest in acquiring First Federal,
determined independently that they would not pursue such an acquisition at that
time. One of such institutions indicated to management of First Federal that
First Federal's relatively small size and market share was the basis of its
determination. The other institution has not provided First Federal any basis
for its determination. First Federal engaged in no further discussions
regarding a possible acquisition with either of these institutions.

S-18
<PAGE> 21

On December 5, 1994, the Company proposed the exchange of shares of
BancorpSouth Common Stock equal to a value of $20, or an aggregate value of
approximately $3.4 million, for each outstanding share of First Federal Common
Stock. On December 13, 1994, Mr. Patterson, Mr. Clark and Mr. Staggers met to
discuss the amount of consideration to be offered by the Company in the
proposed business combination with First Federal, and agreed that Messrs. Clark
and Staggers would present the First Federal Board of Directors with proposed
consideration consisting of shares of BancorpSouth Common Stock valued at an
aggregate amount of $3.8 million, or approximately $22.45 per share of First
Federal Common Stock outstanding. During December 1994, Mr. Clark and Mr.
Patterson held several additional discussions and submitted proposals regarding
the amount of consideration to be offered in the proposed business combination.
Management of the Company and First Federal ultimately agreed to aggregate
consideration consisting of shares of BancorpSouth Common Stock valued at $4.0
million, or approximately $23.63 per share of First Federal Common Stock
outstanding.

In December 1994, First Federal consulted with Mercer Capital, a national
valuation firm headquartered in Memphis, Tennessee which has expertise in the
valuation of financial institutions, regarding the proposed consideration to be
conveyed in the Merger. A representative of Mercer Capital advised management
of First Federal that, based upon Mercer Capital's preliminary analysis of the
proposed consideration and First Federal's financial performance, the range of
consideration proposed by the Company appeared to be reasonable. Mercer
Capital did not, nor was it retained to, solicit potential acquirors or merger
candidates for First Federal.

On December 28, 1994, the First Federal Board of Directors voted to
authorize the officers of First Federal to negotiate, with the advice of
counsel, the terms of the Merger Agreement. In January 1995, First Federal
retained Mercer Capital to issue the Fairness Opinion. On January 3, 1995,
representatives of First Federal and the Company met at the Company's
headquarters and executed a letter of intent. Following a period of continued
negotiation, the Merger Agreement was executed on behalf of First Federal, and
the Company in Starkville, Mississippi on January 27, 1995. A condition to
First Federal's obligations under the Merger Agreement is receipt of the
Fairness Opinion. In March 1995, following execution of the Merger Agreement,
Mercer Capital delivered the Fairness Opinion and the supporting fairness
memorandum (the "Fairness Memorandum") to the Board of Directors of First
Federal.

REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors of First Federal believes that the Merger is fair
to, and in the best interests of, First Federal and its stockholders.

In reaching this determination, the Board of Directors of First Federal
considered a number of factors, both from a short-term and long-term
perspective, including, without limitation, the following: (i) its familiarity
with and review of First Federal's business, operations, financial conditions,
earnings and prospects; (ii) the current and prospective economic environment
and competitive and regulatory constraints facing financial institutions,
particularly those the size of First Federal; (iii) the opportunities for
growth in First Federal's market area; (iv) the ability to generate an
acceptable return on equity for its stockholders without taking undue risk; (v)
its review of the business, operations, financial condition, earnings and
prospects of parties that submitted indications of interest in acquiring First
Federal, as well as other potential acquirors; (vi) prior to execution of the
Merger Agreements, informal advice of Mercer Capital, based upon its
preliminary analysis, that the acquisition proposal by the Company appeared to
be reasonable; (vii) the apparent risks in continuing to operate First Federal
as an independent institution, including increased competition in First
Federal's market, decreased loan demand and the costs and operational risks
associated with the facilities and equipment upgrades necessary to maintain
First Federal's competitiveness; (viii) the terms of the Merger Agreement and
the other documents executed in connection with the Merger; and (ix) the
Merger will provide the stockholders of First Federal with a more liquid
investment.

In view of the variety of factors considered in connection with its
evaluation of the Merger, the Board of Directors of First Federal did not find
it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in reaching its
determination.

The Board of Directors of the Company believes that the Merger will
provide the Company and First Federal the opportunity to increase the number of
locations and enhance the variety of services offered to the citizens of
Starkville and Oktibbeha County, Mississippi by combining the resources of
First Federal and BOM. In addition, employees of both institutions should have
greater opportunities for career progression.

S-19
<PAGE> 22
THE BOARD OF DIRECTORS OF FIRST FEDERAL UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS OF FIRST FEDERAL VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT.

REGULATORY APPROVAL

Consummation of the Merger is conditioned on, among other things, the
receipt of approvals by governmental authorities required in connection with
the Merger, including approvals by the FDIC and the OTS.

As a state non-member bank, BOM must file an application for approval of
the Merger pursuant to Sections 5(d) and 18(c) of the Federal Deposit
Insurance Act. The FDIC may disapprove the application if it finds that the
Merger tends to create or result in a monopoly, substantially lessens
competition or would be in restraint of trade. BOM filed such application
with the FDIC on April 14, 1995 and anticipates a response from the FDIC
regarding approval or disapproval of the application prior to June 30, 1995.
Following approval of the application by the FDIC, the United States Department
of Justice would have an additional 15 calendar days to submit any adverse
comments with regard to the Merger relating to competitive factors.

On October 1, 1993, First Federal converted from a mutual form of savings
bank to a stock form. OTS regulations prohibit the direct or indirect
acquisition, without prior OTS approval, of more than 10% of any equity
security of a savings institution within three years of such a conversion.
Accordingly, on March 1, 1995, the Company filed an application with the OTS
for approval of the Merger. The OTS approved the Company's application on
April 12, 1995. The OTS may disapprove such an application if it finds that
the proposed acquisition (i) would frustrate the purposes of the provisions
of the regulations regarding conversions; (ii) would be manipulative or
deceptive; (iii) would subvert the fairness of the conversion; (iv) would be
likely to result in injury to First Federal; (v) would not be consistent with
economical home financing; (vi) would otherwise violate law or regulation; or
(vii) would not contribute to the prudent deployment of First Federal's
conversion proceeds.

In addition, the Company must file a separate notice of the Merger with
the OTS pursuant to 12 C.F.R. Sections 563.22(b)(1)(i) and 563.22(h)(l) no
later than the date on which an application relating to the Merger is filed
with the primary regulator of the resulting institution. Accordingly, the
Company filed the notice to the OTS on April 14, 1995, the same date that BOM
submitted its application to the FDIC. Such an acknowledgement is tantamount
to approval, subject to notification subsequent to Closing Date that the Merger
was consummated in accordance with applicable laws and the filed notice.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the recommendation of the Board of Directors of First
Federal with respect to the Merger Agreement and the transactions contemplated
thereby, stockholders of First Federal should be aware that the Company has
agreed, pursuant to separate employment agreements, to employ Mr. Staggers and
Ms. Gentry, the President and Senior Vice President, respectively, of First
Federal. Certain of the provisions of these employment agreements are more
limited in scope than the comparable provisions of Mr. Staggers' and Mr.
Gentry's existing employment agreements with First Federal. Each of the
employment agreements with the Company provides for a term which expires on
October 1, 1996, as compared to a three-year term expiring on October 1, 1996,
which may be extended an additional year each year by the First Federal Board
of Directors, as provided in the existing employment agreements with First
Federal. In addition, the employment agreements with the Company do not
provide, as do the existing employment agreements with First Federal, for
severance or disability payments in the event of termination of employment due
to a change in control of the employer, failure of the employee to be elected
as an officer or to be nominated as a director of the employer, a material
change in the employee's function, duties or responsibilities, a relocation of
the employee's principal place of employment or the employee's continuing
disability. The employment agreements with the Company do not provide for
arbitration or indemnification of the employee, as does the existing employment
agreements with First Federal. At May 26, 1995, the directors and executive
officers of First Federal, including Mr. Staggers and Ms. Gentry, beneficially
owned an aggregate of 49,206 shares of First Federal Common Stock and, based
upon an Exchange Ratio of 0.698 and assuming such shares are owned at the
Effective Time, would receive an aggregate of approximately 34,345 shares of
BancorpSouth Common Stock upon consummation of the Merger. See "Description
of First Federal Capital Stock -- Beneficial Ownership."

S-20
<PAGE> 23

ACCOUNTING TREATMENT

The Company intends to account for the Merger under the pooling of
interests method of accounting. Under this method of accounting, the Company
will record the assets and liabilities of First Federal after the Effective
Time at the amounts recorded on the books of First Federal prior to the Merger.
Certain events, including the exercise of dissenter's or appraisal rights by
holders of greater than 10% of the outstanding shares of First Federal Common
Stock, could preclude use of the pooling of interests method.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the material federal income tax
consequences of the Merger. This summary relates only to shares of First
Federal Common Stock held as a capital asset within the meaning of Section 1221
of the Code by persons who are citizens or residents of the United States.
This summary does not discuss the tax consequences to categories of holders
entitled to special treatment under the Code (including, without limitation,
foreign persons, tax-exempt organizations, insurance companies, financial
institutions and dealers in stocks and securities). No rulings will be sought
from the Internal Revenue Service with respect to the federal income tax
consequences of the Merger. Stockholders of First Federal are urged to consult
their own tax advisors as to specific tax consequences of the Merger.

A condition to the consummation of the Merger is the receipt of an
opinion of Waller Lansden Dortch & Davis, special counsel to the Company, to
the effect that (i) assuming the Merger qualifies as a statutory merger under
applicable law, the Merger will be a "reorganization" within the meaning of
Section 368(a)(1)(A) of the Code; (ii) First Federal and the Company will each
"be a party to a reorganization" within the meaning of Section 368(b) of the
Code, assuming the stockholders of First Federal have a sufficient continuing
ownership interest in the Company to meet the continuity of interest
requirement; (iii) no gain or loss will be recognized by First Federal or the
Company as a result of the Merger; (iv) the basis of the assets of First
Federal in the hands of the Company will be the same as the basis of such
assets in the hands of First Federal immediately prior to the Merger; (v) the
holding period of the assets of First Federal acquired by the Company will
include the period during which the assets were held by First Federal; (vi) no
gain or loss will be recognized by the First Federal stockholders upon the
receipt of BancorpSouth Common Stock in exchange for shares of First Federal
Common Stock, in connection with the Merger; (vii) the basis of the
BancorpSouth Common Stock (including any fractional share interest) received by
a First Federal stockholder in connection with the Merger will be the same as
the basis of the shares of First Federal Common Stock surrendered in exchange
therefor; (viii) the holding period of the BancorpSouth Common Stock (including
any fractional share interest) received by a stockholder of First Federal in
connection with the Merger will include the holding period of the shares of
First Federal Common Stock surrendered in exchange therefor, provided that the
shares of First Federal Common Stock are held as a capital asset at the
Effective Time; and (ix) cash received in lieu of a fractional share of
BancorpSouth Common Stock will be treated as having been received as a
distribution in full payment in exchange for a fractional share interest in
BancorpSouth Common Stock.

The opinion of Waller Lansden Dortch & Davis will be based on customary
assumptions and representations regarding, among other things, the ownership of
shares of First Federal Common Stock, the future ownership of the BancorpSouth
Common Stock and the Company's future business plans. One important assumption
is that the continuity of interest test will be met, which requires, among
other things, that, at the Effective Time, there will be no plan or intention
by stockholders of First Federal to sell or otherwise dispose of more than 50%,
in the aggregate, of the shares of BancorpSouth Common Stock received in the
Merger. For purposes of that assumption, the sale or redemption of any shares
of First Federal Common Stock in anticipation of the Merger, as well as the
exercise of dissenters' rights, will be treated as a sale of the number of
shares of BancorpSouth Common Stock that would have been received

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in exchange for such shares had they not been sold, redeemed or the subject of
dissenters' rights. The opinion of Waller Lansden Dortch & Davis will not be
binding on the Internal Revenue Service or any court. If the Merger was
determined not to qualify as a "reorganization" under Section 368(a) of the
Code, the Merger would be treated as a taxable sale of assets by First Federal
followed by the liquidation of First Federal.

A stockholder of First Federal who receives cash in lieu of a fractional
share of BancorpSouth Common Stock in the Merger will recognize gain (or loss)
as if the fractional share had been received and then redeemed for the cash.
The amount of gain or loss will equal the difference between the amount of cash
and the stockholder's basis in the fractional share interest. In such event,
any gain or loss recognized will be capital gain (or loss) if the shares of
First Federal Common Stock are held by such stockholder as a capital asset at
the Effective Time.

The receipt of cash for shares of First Federal Common Stock as a result
of the exercise of dissenters' rights will be taxable as a redemption of those
shares for the cash. Any stockholder considering the exercise of dissenters'
rights should consult the stockholder's tax advisor regarding the tax
consequences of exercising dissenters' rights.

THE DISCUSSION SET FORTH ABOVE DOES NOT ADDRESS ANY STATE, LOCAL OR
FOREIGN TAX ASPECTS OF THE MERGER. THE DISCUSSION IS BASED ON CURRENTLY
EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS
THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE
FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGES COULD AFFECT THE
CONTINUING VALIDITY OF THIS DISCUSSION. EACH STOCKHOLDER OF FIRST FEDERAL
SHOULD CONSULT THE STOCKHOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION
AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.

RESALE RESTRICTIONS

All shares of BancorpSouth Common Stock received by stockholders of First
Federal in the Merger will be freely transferable, except that shares of
BancorpSouth Common Stock received by persons who are deemed to be "affiliates"
(as such term is defined under the Securities Act) of First Federal prior to
the Merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of First Federal generally include individuals or entities that control, are
controlled by, or are under common control with, such party and may include
certain officers and directors of First Federal as well as principal
stockholders of First Federal. Rule 145 permits affiliates to sell up to 1% of
the outstanding BancorpSouth Common Stock in each three month period commencing
with the public announcement of the results of 30 days of combined operations
of the Company and First Federal. It is expected that no affiliates of First
Federal will own as much as 1% of the outstanding shares of BancorpSouth Common
Stock following the Merger. Accordingly, such affiliates should be able to
sell their BancorpSouth Common Stock following the public announcement of 30
days of combined operations. The Merger Agreement requires First Federal to
exercise its reasonable efforts to cause each of its affiliates to execute a
written agreement to the effect that such person will not offer to sell,
transfer or otherwise dispose of any of the shares of BancorpSouth Common Stock
issued to such person in or pursuant to the Merger unless (a) such sale,
transfer or other disposition has been registered under the Securities Act, (b)
such sale, transfer or other disposition is made in conformity with Rule 145
under the Securities Act or (c) in the

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opinion of counsel, such sale, transfer or other disposition is exempt from
registration under the Securities Act. This Supplement/Proxy Statement is not
intended to be used in connection with the resale of BancorpSouth Common Stock
by such affiliates.

COMPARISON OF RIGHTS OF STOCKHOLDERS

At the Effective Time, stockholders of First Federal will automatically
become stockholders of the Company (except for stockholders of First Federal
who exercise dissenters' rights). The Company is a Mississippi corporation
which is governed by provisions of the Mississippi Business Corporation Act,
the Company's Restated Articles of Incorporation, as amended, and its Bylaws.
First Federal is a federally chartered savings bank which is governed by
regulations of the OTS and First Federal's Federal Stock Charter and Bylaws.
See "Comparison of Rights of Stockholders."

FAIRNESS OPINION

Prior to the mailing of this Supplement/Proxy Statement, Mercer Capital
delivered an updated Fairness Opinion that the consideration to be received by
First Federal's stockholders is fair from a financial point of view as of such
date. A copy of the Fairness Opinion, which sets forth certain assumptions
made, matters considered and limitations on the reviews undertaken, is attached
hereto as Annex B.

Mercer Capital is a national valuation advisory firm headquartered in
Memphis, Tennessee, which was retained by First Federal to advise First
Federal's management with respect to consideration proposed to be conveyed in
the Merger and to render the Fairness Opinion. The Board of Directors of First
Federal selected Mercer Capital in December 1995 based upon Mercer Capital's
extensive experience in the valuation of financial institutions generally and
in the State of Mississippi, and upon Mr. Staggers' familiarity with Mercer
Capital and its president.

Mercer Capital delivered the Fairness Opinion and the Fairness
Memorandum, both dated March 7, 1995, to the Board of Directors of First
Federal. The Fairness Opinion was issued from a financial point of view on
behalf of First Federal stockholders and stated that in Mercer Capital's
opinion, the Merger was fair from a financial point of view. An updated
Fairness Opinion was subsequently issued by Mercer Capital to coincide with the
mailing of the Supplement/Proxy Statement and is included as Annex B hereto.

The Fairness Opinion should not be construed as a recommendation to any
First Federal shareholder as to how their shares should be voted. Nor does the
Fairness Opinion address the underlying business decision to effect the Merger.
Stockholders are urged to read the Fairness Opinion in its entirety.

In connection with the rendering their opinion, Mercer Capital reviewed
and analyzed, among other things, the following (1) the Prospectus and related
Supplement/Proxy Statement; (2) the Merger Agreement; (3) audited financial
statements for First Federal for the fiscal years ended December 31, 1990
through 1994, First Federal's annual reports on Form 10-K for fiscal years
ended December 31, 1993 and 1994 and quarterly reports on Form 10-Q for the
quarters ended March 31, June 30 and September 30, 1994; (4) audited financial
statements for the Company and the Company's annual reports on Form 10-K for
the fiscal years ended December 31 1990 through 1994 and quarterly reports on
Form 10-Q for the quarters ended March 31, June 30 and September 30, 1994; (5)
the Joint Prospectus and Proxy Statement with respect to the LF Bancorp Merger;
(6) the Offering Circular and Proxy Statement for First Federal's 1993
conversion; (7) historical pricing information for the BancorpSouth Common
Stock and First Federal Common Stock; (8) certain information with respect to
the pricing of transactions which Mercer Capital believes to be comparable to
the Merger; and (9) certain information with respect to the pricing of bank
holding companies which Mercer Capital believes to be comparable to the
Company.

As part of its due diligence process, representatives of Mercer Capital
met with officers of both the Company and First Federal and discussed the
market for each institution's shares, historical financial performance and
prospective performance, asset quality, operating strategies and other matters
Mercer Capital believed relevant to the inquiry.

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<PAGE> 26

In arriving at its opinion, Mercer Capital assumed and relied upon the
accuracy and completeness of all of the financial and other information
provided to it or that was publicly available. Mercer Capital did not attempt
to verify any such information, nor did it seek to determine the adequacy of
the loan loss provision for either institution. Mercer Capital did not conduct
a physical inspection of the properties of First Federal or the Company, nor
did its personnel obtain any independent appraisals of any properties.

The following is summary of the factors considered in Fairness Opinion as
presented to the First Federal Board of Directors in the Fairness Memorandum.

1. Terms of the Merger Agreement;

2. An analysis of the consideration proposed to be exchanged in the
Merger in relation to indications of fair market value of First
Federal derived through considering comparable (guideline)
transactions, discounted cash flow and earnings dilution analyses;

3. An analysis of the estimated pro forma changes in book value per
share, earnings per share and overall ownership from the perspective
of First Federal stockholders;

4. A review of the Company's historical financial performance, historical
stock pricing, the liquidity of its shares and current pricing in
relation to other publicly traded bank holding companies based in the
mid-south United States;

5. Tax consequences of the Merger for First Federal stockholders;

6. Restrictions or lack thereof placed on the shares of BancorpSouth
Common Stock received by the First Federal stockholders in the Merger;
and

7. Actions taken by the First Federal Board of Director's which
culminated in the signing of the Merger Agreement.

Transaction Overview. Under the terms of the Merger Agreement, First
Federal stockholders will receive 0.698 shares of BancorpSouth Common Stock for
each share of First Federal Common Stock. At March 7, 1995, First Federal had
157,466 outstanding shares of First Federal Common Stock and 11,808 outstanding
incentive stock options which are to be converted into an equivalent number of
options to purchase shares of BancorpSouth Common Stock after giving effect to
the Exchange Ratio. For purposes of the analysis, Mercer Capital did not make
any distinction between First Federal's outstanding shares of First Federal
Common Stock and outstanding incentive stock options since the exercise price
of each option is $10.00 per share of First Federal Common Stock. Accordingly,
on March 7, 1995, First Federal had 169,274 outstanding First Federal Common
Stock share equivalents.

Based upon the Exchange Ratio of 0.698, 118,153 shares of BancorpSouth
Common Stock would be issued in exchange for 169,274 shares of First Federal
Common Stock and share equivalents. No fractional shares will be issued in the
Merger; rather, fractional shares will be converted into cash.

Based upon the closing price of $34.50 per share of BancorpSouth Common
Stock immediately prior to the issuance of the Fairness Memorandum, Mercer
Capital noted that First Federal stockholders would receive consideration equal
to $24.08 per share of First Federal Common Stock, while the aggregate
consideration would total approximately $4.08 million. Based upon the share
price of BancorpSouth Common Stock at the time, the purchase price represented
141% of fully diluted book value per share as

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<PAGE> 27

of December 31, 1994 and 18.2 times First Federal's fully diluted earnings per
share for the year ended December 31, 1994 of $1.32 per share. First Federal's
stated book value per share was $17.64 per share as of December 31, 1994, while
the fully diluted book value was $17.11 per share after considering the
dilutive impact of the options. Valuation multiples referenced throughout the
Fairness Memorandum are based upon fully diluted book value and earnings per
share because the option's low strike price ($10.00 per share) in relation to
the merger price ($24.00 per share) implies that exercise is highly likely at
some point in the future.

Valuation Analysis. The valuation of First Federal considered three
separate valuation methods: comparable transaction, dilution analysis, and
discounted cash flow. The purpose of the valuation analysis was to develop an
estimated range of fair market value for First Federal under the assumption of
a change-in-control and compare the results with the pricing of the Merger.

Comparable Transaction Method. The comparable transaction method seeks to
develop an indication of value for a subject company by analyzing prices paid
for similar institutions which have been acquired. With regard to the banking
industry, most transactions are measured in terms of price/book ratios and
price/earnings ratios.

Although the price/book ratio tends to be the more widely quoted of the
two, Mercer Capital noted that the price/earnings ratio is generally more
important since acquirors are most concerned with the target's earning
capacity. Also, the market's relative pricing of the buyer (in relation to
earnings) will dictate the size of an offer before earnings dilution becomes an
issue. In addition, price/book multiples vary depending upon the amount of
equity used to finance the balance sheet. Price/book ratios tend to decline as
equity rises and increase when equity decreases.

Mercer Capital also noted that price/earnings ratios vary, particularly
when the seller's earnings are extremely high or low relative to the industry.
In general, price/earnings ratios decline as return on assets increases and
rise as earnings fall.

With regard to First Federal, Mercer Capital reviewed prices paid for
acquired thrifts in relation to the sellers' book value and earnings as
compiled by SNL Securities. The data was divided into four groups: (1) all
privately acquired thrifts, (2) southeastern United States based thrifts, (3)
small transactions, and (4) small thrifts with high equity capital. A small
transaction is defined as a purchase price less than $10 million, and the high
equity group consists of thrifts with equity capital in excess of 10% of assets
and less than $250 million in assets.

Based upon Mercer Capital's analysis, the most relevant groups considered
in developing an estimated range of fair market value were those thrifts which
were acquired for less than $10 million (generally small thrifts) and thrifts
with high equity capital. Given First Federal's small size and high equity
capital base, Mercer Capital indicated that it would not expect pricing for
First Federal to be directly comparable to the broader averages since highly
capitalized institutions with relatively small asset bases generally obtain
prices which reflect "below average" price/book multiples. In effect,
acquirors pay a premium for core capital and then pay approximately
dollar-for-dollar for equity in excess of 7% to 8%. Also, pricing tends to
increase as assets increase since larger institutions presumably command
greater market share.

Indications of value using the transaction method were based upon First
Federal's fully diluted 1994 earnings of $1.32 per share and book value of
$17.11 per share at December 31, 1994.

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<PAGE> 28

Based upon the comparable transaction data involving the acquisition of
thrifts with high equity capital and small transactions, Mercer Capital
calculated the average price/book ratio for each comparable group in 1993 and
1994. In addition, the median price/earnings ratio was calculated for each
comparable group in 1993 and 1994. The respective price/book and
price/earnings ratios were then multiplied times First Federal's fully diluted
book value and earnings per share to derive a range of indicated value. The
range of value was then compared with the price offered by the Company.

The average price/book ratio for small transactions and high equity
thrifts was, respectively, 130% and 135% in 1993 and 142% in 1994. These
average price/book ratios were then multiplied with First Federal's fully
diluted book value per share of $17.11 per share to derive a range of value
with a low of $22.24 per share, a high of $24.29 per share and a mid-point of
$23.27 per share.

The median price/earnings ratio for small transactions and high equity
thrifts was, respectively, 11.0x and 11.6x in 1993 and 13.7x and 17.0x in 1994.
These median price/earnings ratios were then multiplied with First Federal's
fully diluted book value per share of $1.32 per share to derive a range of
value with a low of $14.56 per share, a high of $22.24 per share and a
mid-point of $18.40 per share, Mercer Capital noted that the upper end of the
earnings based range, $22.44 per share, was based upon the 1994 median
price/earnings ratio of 17.0x for high equity thrifts. A review of prices
paid for these institutions indicated a number of P/E ratios which were
unusually high. The average and median price/earnings ratio approximated 14.5x
to 15.0x, a multiple which is more in line with overall averages, once
transactions were excluded where the price/earnings ratio exceeds 20.0x.
Mercer Capital thus concluded that the earnings based range was somewhat lower
if the outliers were excluded.

The overall range of value based upon 1994 data only was $18.13 per
share (13.7 x $1.32 per share) to $24.29 per share (142% x $17.11 per share)
with a mid-point of $21.21 per share. Mercer Capital noted that the price
offered by the Company was at the extreme upper end of the cited ranges based
upon the closing price of shares of BancorpSouth Common Stock immediately prior
to issuing the Fairness Memorandum.

Dilution Analysis. A dilution analysis was conducted whereby hypothetical
acquisition offers for First Federal were generated under the assumption that
the buyer would structure an offer so that pro forma earnings dilution would be
minimal (generally less than 1.0% for the smaller acquirors and less than 0.50%
for the larger buyers) in a stock-for-stock transaction.

Mercer Capital noted that a dilution analysis can be affected by many
things. Relatively higher pricing may be obtainable if the buyer is large in
relation to the target, if the buyer's shares are trading at a rich multiple to
earnings and/or substantial merger economies are obtainable. The implication
is that larger buyers or those with particularly strong stock prices can pay a
higher price without incurring much dilution in the acquisition of smaller
institutions if they have a strategic or competitive reason to do so.

A stock-for-stock valuation analysis for First Federal assuming a
non-dilutive merger with The Peoples Holding Company, Magna Bancorp, Trustmark
and Deposit Guaranty was conducted in which the buyers were assumed to realize
merger economies on the order of 7% to 8% of First Federal's existing expense
structure. The institutions listed above were selected since they are publicly
traded with readily available information and, to varying degrees, represented
possible acquirors of First Federal.

Mercer Capital's analysis indicated that an overall range of estimated
value of $18.50 per share to $24.00 per share given the constraints of avoiding
dilution to pro-forma earnings. The analysis indicated that the Company's
offer was at the upper end of likely acquisition prices, unless an acquiror
chose to "pay-up" for First Federal to achieve certain corporate objectives.

Discounted Cash Flow. A discounted cash flow analysis was also conducted
to develop an estimate of value an acquiror might place on First Federal viewed
from the perspective of cash flow potential. Free cash flow for a financial
institution differs from the traditional definition typically associated with
other industries. Free cash flow for a financial institution is defined as the
amount of earnings which can be distributed and still maintain a targeted
equity-to-asset ratio since capital management is imperative for financial
institutions.

Value obtained via the discounted cash flow method for First Federal was
defined as equal to the existing excess equity, plus the present value of all
distributable earnings projected during the next five years and a terminal
value. The terminal value represented the estimated value of First Federal at
the end of the projection period and was based upon a multiple of projected
1999 earnings. The terminal value was derived by multiplying assumed

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acquisition multiples of 14.0x and 15.0x times First Federal's projected 1999
earnings. The terminal values' price/earnings multiples were selected as
ratios which presently approximate median acquisition multiples for thrifts as
reported by SNL Securities.

Projections were prepared with the assistance of management of First
Federal regarding First Federal's future performance. Although many
assumptions regarding yields, overhead, etc., were made, the projections were
geared so that future performance would approximate current earnings (a return
on average assets of about 0.90%) with some slight upward bias, while asset
growth was assumed minimal (about 3.0%) per year. The projections also assumed
that an acquiror would extract $1.0 million of equity capital immediately,
reducing the equity to asset ratio to 7.3% and then maintain a ratio of roughly
7.5%.

Projections used as a basis for the discounted cash flow analysis were
prepared by Mercer Capital with First Federal management's concurrence as to
the reasonableness of the underlying assumptions and projection results.

A range of estimated value was derived based upon discount rates, or
required rates of return for potential acquirors, of 12.0% to 13.0%, and
price/earnings multiples applied to projected 1999 earnings of 14.0 to 15.0.
The indicated values were from $3.46 million ($20.45 per share) to $3.70
million ($21.88 per share). Discount rates used to discount the projected cash
flows to their present value represent estimated rates of return an investor
would require from an investment in First Federal. The discount rates were
developed using the capital asset pricing model.

Based upon the three valuation methods, Mercer Capital noted that the
terms of the Merger resulted in pricing at the upper end of the indicated range
of value.

Pro Forma Analysis. Mercer Capital analyzed the prospective change in
pro forma dividends per share, earnings per share, book value per share and
overall ownership from the perspective of First Federal shareholders. The
following is a summary of Mercer Capital's findings:

Dividends Per Share. The Company's current indicated dividend of $1.20
per share is equivalent to $0.84 per First Federal exchange adjusted share, or
an increase of 235% above the current First Federal payout of $0.25 per share.
First Federal shareholders will therefore experience a significant increase in
the dividend cash flow associated with their investment.

Earnings Per Share. Pro forma 1994 earnings are estimated to total $2.23
per exchange adjusted First Federal share. The increase exceeds First
Federal's fully diluted 1994 earnings by $0.91, or 69%.

Book Value Per Share. Exchange adjusted book value is estimated to
increase about 6% from $17.11 per fully diluted share at year-end 1994 to
$18.09 per exchange adjusted share.

Ownership. The collective ownership of First Federal stockholders will
decline from 100% to approximately 1.5% of the shares of BancorpSouth Common
Stock after the Merger is consummated.

Mercer Capital has made no warranties or representations regarding the
actual change in proforma earnings and book value and other such calculations
for First Federal stockholders. The analysis was developed making certain
assumptions regarding accounting treatment and the like. Actual pro forma
changes may differ.

Review of the Company's Financial Performance. Mercer Capital noted that
the Company is a $2.5 billion asset institution whose primary subsidiaries
operate in Mississippi (BOM) and west Tennessee (Volunteer Bank). The Company
has completed or announced three acquisitions in the past three years,
Volunteer Bancshares, Inc. (Jackson, Tennessee), LF Bancorp, Inc. (Laurel,
Mississippi) and First Federal. Mercer Capital noted that the Company is
believed to have one or more of the more attractive franchises in Mississippi
since it primarily operates in the state's higher growth markets and has
avoided the Mississippi delta. Other factors reviewed included (1) historical
earnings; (2) balance sheet composition and overall growth trends; (3) asset
quality; (4) capital structure; (5) composition of the loan portfolio; (6)
deposit and other funding sources; and (7) analyst's outlook for shares of
BancorpSouth Common Stock.

Shareholder Liquidity. Mercer Capital noted that another primary benefit
of the Merger is the ability of First Federal stockholders to exchange illiquid
shares of First Federal Common Stock for the Company's publicly traded shares,
which are listed on the Nasdaq Stock Market. During the past two years,
average

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weekly trading volume of shares of BancorpSouth Common Stock has totaled
approximately 25,000 shares. The market for shares of First Federal Common
Stock is virtually non-existent. Mercer Capital reviewed the trading history
of BancorpSouth Common Stock for the prior two years and compared it with the
Nasdaq Bank Stock Index. Comparisons were also made with the current and
historical valuation of the Company in relation to the mid-south United States
(defined as Alabama, Arkansas, Louisiana, Kentucky, Mississippi, Missouri and
Tennessee) based bank holding companies which Mercer Capital believed to be
comparable to the Company.

Other Considerations. In addition to the items discussed above, other
factors considered in rendering the Fairness Opinion included:

1. First Federal stockholders will receive shares of BancorpSouth Common
Stock which are freely tradable. First Federal stockholders who are
deemed affiliates of the Company will be able to sell their shares 30
days after public dissemination of financial operations for the
combined institutions;

2. It is anticipated that the transaction will be treated as a tax-free
reorganization under Section 368(a) of the Code for federal income tax
purposes. Thus, the Merger would not trigger capital gains tax
liabilities for First Federal stockholders;

3. The Board of Directors of First Federal explored interest in First
Federal with selected Mississippi financial institutions that had
approached the management of First Federal regarding a possible
business combination with First Federal. These institutions either
determined not to pursue a possible merger with or acquisition of
First Federal or did not offer pricing and terms as favorable as those
of the Company.

4. First Federal stockholders will benefit through increased
diversification. As investors in the Company, a bank holding company
whose operations span Mississippi and west Tennessee, First Federal
shareholders will not be solely dependent upon the Starkville,
Mississippi market.

For its services a as financial advisor, First Federal paid Mercer
Capital a fee of $15,000, plus reasonable out-of-pocket expenses.

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THE MERGER AGREEMENT

The following is a brief summary of certain provisions of the Merger
Agreement. This summary is qualified in its entirety by reference to the full
text of the Merger Agreement which was filed as an exhibit to the Registration
Statement and which is incorporated herein by reference.

THE MERGER

Subject to the terms and conditions of the Merger Agreement, at the
Effective Time, First Federal will be merged with and into BOM, and the
separate existence of First Federal will cease. BOM will be the surviving
corporation in the Merger and will continue to be governed by the laws of the
State of Mississippi, and the separate corporate existence of BOM and all of
its rights and liabilities as a banking corporation organized under the laws of
the State of Mississippi will continue. The shares of First Federal Common
Stock will be converted into shares of BancorpSouth Common Stock in
transactions intended to qualify as a pooling of interests for accounting
purposes and as a tax-free reorganization for federal income tax purposes.

The Merger is to be consummated at the offices of the Company in Tupelo,
Mississippi, on or before 30 days following the satisfaction or waiver of the
conditions to closing set forth in the Merger Agreement (the "Closing Date") at
11:00 a.m. (Mississippi Time), or at any other place and date as the parties
fix by mutual consent. Subject to and in accordance with the laws of the
United States and the State of Mississippi, the Effective Time will occur at
the date and time that Articles of Merger with respect to the Merger (the
"Articles of Merger") are filed with the Mississippi Department of Banking and
Consumer Finance or such later time or date as may be specified in the Articles
of Merger.

At the Effective Time, by virtue of the Merger and without any action on
the part of any holder of any capital stock of First Federal, each share of
First Federal Common Stock, other than shares held by dissenting stockholders,
will be converted into, and become exchangeable for, the Merger Consideration,
consisting of 0.698 shares of BancorpSouth Common Stock, in accordance with the
Exchange Ratio, and cash in lieu of the issuance of fractional shares of
BancorpSouth Common Stock. Each option to acquire a share of First Federal
Common Stock will be converted into an option to acquire the number of whole
shares of BancorpSouth Common Stock determined by multiplying the number of
shares of First Federal Common Stock into which the option is convertible by
the Exchange Ratio, with cash being paid in lieu of any resulting fractional
shares. No adjustment will be made to the Exchange Ratio in the event of a
change in the market price of shares of BancorpSouth Common Stock prior to the
Effective Time. The Exchange Ratio was determined through arm's-length
negotiations between the management of the Company and management of First
Federal.

EXCHANGE PROCEDURES

On or prior to the Closing Date, the Company will direct Trust Company
Bank, Atlanta, Georgia (the "Exchange Agent") to issue certificates
representing shares of BancorpSouth Common Stock to be issued in the Merger.
The Company will also deposit with the Exchange Agent the cash required to make
cash payments in lieu of fractional shares.

From and after the Effective Time, each holder of a certificate which
immediately prior to the Effective Time represented outstanding shares of First
Federal Common Stock ("First Federal Certificate"), other than shares with
respect to which dissenters' rights, if any, are granted by reason of the
Merger under

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<PAGE> 32

OTS regulations, will be entitled to receive in exchange therefor, upon
surrender thereof to the Exchange Agent, a certificate or certificates
representing the number of whole shares of BancorpSouth Common Stock into which
such holder's shares of First Federal Common Stock were converted and cash in
lieu of any fractional shares. Notwithstanding any other provision of the
Merger Agreement, until holders or transferees of First Federal Certificates
have surrendered such certificates for exchange as provided herein, no
dividends shall be paid with respect to any shares represented by such
certificates and no payment for fractional shares shall be made. Upon
surrender of a First Federal Certificate, there shall be paid to the holder of
such certificate, without interest, the amount of any dividends which
theretofore became payable, but which were not paid by reason of the foregoing,
with respect to the number of whole shares of BancorpSouth Common Stock
represented by the certificate or certificates issued upon such surrender.

As soon as practicable after the Effective Time, the Exchange Agent will
mail to each holder of record of a First Federal Certificate a notice and
transmittal form advising such holder of the effectiveness of the Merger and
the procedure for use in effecting the surrender of First Federal Certificates
in exchange for certificates representing shares of BancorpSouth Common Stock.
Upon surrender of First Federal Certificates to the Exchange Agent the
certificates shall be cancelled.

No fractional shares of BancorpSouth Common Stock will be issued upon the
surrender for exchange of First Federal Certificates and no BancorpSouth Common
Stock dividend, stock split or interest shall relate to any fractional
security, and such fractional interests shall not entitle the owner thereof to
vote or to any other rights of a security holder. In lieu of any such
fractional shares, each holder of shares of First Federal Common Stock who
would otherwise be entitled to a fractional share of BancorpSouth Common Stock
upon surrender of First Federal Certificates for exchange, will be entitled to
receive from the Exchange Agent a cash payment in lieu of such fractional share
equal to such fraction multiplied by $33.875.

REPRESENTATIONS AND WARRANTIES

The Merger Agreement contains certain representations and warranties by
First Federal to the Company, including those relating to: (i) brokers' and
finders' fees with respect to the Merger; (ii) since December 31, 1993, the
incurrence of any material liability, except in the ordinary course of
business, any material adverse change in First Federal's business, operations,
assets or condition, any material change in its mode of management, operation
or method of accounting, or any failure to operate its business in all material
respects in the ordinary course consistent with its past practice; (iii)
employee benefit plans; and (iv) ownership of BancorpSouth Common Stock by
First Federal or its directors and officers.

The Merger Agreement contains certain representations and warranties by
each of the Company and First Federal to the other party, including those
relating to: (i) their due organization, power and standing; (ii) the
authorization, execution, delivery and enforceability of the Merger Agreement;
(iii) their capital structure; (iv) the absence of conflicts with their
governing documents or any law, rule, regulation, judgment, decree, order or
agreement to which they are subject; (v) reports and financial information to
be provided by each party to the other party; (vi) this Supplement/Proxy
Statement; (vii) reports filed under the Exchange Act; and (viii) the accuracy
of such representations and warranties as of the date this Supplement/Proxy
Statement is mailed to stockholders and as of the Closing Date.

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<PAGE> 33

CONDUCT OF BUSINESS PENDING THE MERGER

First Federal has agreed, among other things, prior to the consummation
of the Merger, to conduct its operations according to its usual, regular and
ordinary course in substantially the same manner as theretofore conducted.
Except with the prior written consent of the Company, First Federal will not
(i) renew, extend or otherwise modify any material contractual arrangement with
its employees or any other persons; (ii) issue any shares of First Federal
Common Stock, except in connection with the exercise of options and warrants
outstanding as of January 27, 1995 (the date of the Merger Agreement); (iii)
declare, set aside or pay any dividend; (iv) make any change in its capital
stock; or (v) encourage, solicit or initiate any proposals or offers from any
person relating to any acquisition of purchase of all or a material amount of
the assets or securities of First Federal, or any merger, consolidation or
business combinations with First Federal, or, except as required by fiduciary
obligations, participate in any discussions or negotiations regarding the
foregoing.

First Federal and the Company have each agreed to afford the officers and
representatives of the other party, until consummation of the Merger, full
access to their business records, to use their best efforts to consummate the
transactions contemplated by the Merger Agreement and to use reasonable care to
ensure that the Merger qualifies for the pooling of interests method of
accounting.

CONDITIONS TO CONSUMMATION OF THE MERGER

The obligations of the Company and First Federal under the Merger
Agreement are subject to satisfaction of the following conditions on or prior
to the Closing Date, unless waived: (i) receipt of approvals from all
appropriate state and federal governmental authorities, including the FDIC, the
OTS and the Mississippi Department of Banking and Consumer Finance, required in
connection with the Merger not later than July 31, 1995 (which date may be
extended to October 31, 1995, upon request by the Company and approval by First
Federal), subject to no conditions which in the reasonable judgment of the
Company would restrict its or its subsidiaries' operations and business
activities following the Merger; (ii) any waiting period required prior to the
Merger shall have elapsed, and the Merger shall not be then enjoined,
restrained or prohibited by a court, tribunal or government agency; (iii) the
Merger Agreement shall have been adopted and approved by a two-thirds vote of
the stockholders of First Federal; (iv) First Federal shall have obtained the
Fairness Opinion, dated as of the mailing date, that the transactions
contemplated by the Merger Agreement are fair from a financial point of view;
(v) the representations and warranties of each party in the Merger Agreement
shall have been true and correct when made and, in addition, shall be true and
correct on and as of the Closing Date, with the same force and effect as though
made on and as of the Closing Date; and (vi) each party shall have performed in
all material respects all obligations and agreements and complied with all
covenants contained in the Merger Agreement to be performed and complied with
by such party on or prior to the Closing Date.

The obligations of First Federal under the Merger Agreement are subject
to satisfaction of the following additional conditions on or prior to the
Closing Date, unless waived: (i) between January 27, 1995 (the date of the
Merger Agreement) and the Closing Date, there shall not have occurred any
material adverse change in the assets, business, operations, employees,
revenue, income, prospects, condition (financial or otherwise), liabilities,
net worth or results of operations of the Company and BOM, taken as a whole,
provided that changes in the market price of BancorpSouth Common Stock shall
not be considered with respect to this condition; (ii) the Company shall have
delivered to First Federal an opinion or opinions of counsel, dated as of the
Closing Date, in form and substance satisfactory to First Federal and its
counsel; and (iii) First Federal shall have obtained an opinion of Waller
Lansden Dortch & Davis, special counsel

S-31
<PAGE> 34

to the Company, to the effect that the Merger shall be treated for federal
income tax purposes as a tax-free reorganization under Section 368(a)(1)(A) of
the Code.

The obligations of the Company under the Merger Agreement are subject to
the satisfaction of the following additional conditions on or prior to the
Closing Date, unless waived: (i) to the extent that any applicable law or any
lease, contract or agreement to which First Federal is a party or by which it
is bound or to which any of its properties is subject shall require the consent
of any other person or entity to the Merger, such consent shall have been
obtained by the Closing Date, unless the Company specifically agrees that such
consent need not be obtained by the Closing Date; (ii) the Registration
Statement shall have been declared effective by the Commission, no order
suspending the sale of the shares of BancorpSouth Common Stock in any
jurisdiction shall have been issued and no proceedings for that purpose shall
have been instituted or shall be, to the Company's knowledge, contemplated;
(iii) between January 27, 1995 (the date of the Merger Agreement) and the
Closing Date, there shall not have occurred any material adverse change in the
assets, business, operations, employees, revenue, income, prospects, condition
(financial or otherwise), liabilities, net worth, or results of operations of
First Federal; (iv) First Federal shall have delivered to the Company an
opinion or opinions of counsel, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Company and its counsel; (v) the
officers and directors of First Federal shall have submitted their resignations
from such positions, effective as of the Effective Time; (vi) First Federal
shall have made arrangements to terminate its participation in any employee
pension plan, employee welfare benefit plan or other employee benefit plan,
with such arrangements being satisfactory in all respects to the Company; (vii)
each of Mr. Staggers and Ms. Gentry shall have entered into employment
agreements with BOM; (viii) each holder of an option to acquire shares of First
Federal Common Stock shall have surrendered or exercised such option; and (ix)
First Federal shall have delivered or caused to be delivered to the Company
such other documents or instruments and shall have taken or caused to be taken
such other actions, as may reasonably have been requested by the Company or its
counsel with respect to the transactions contemplated by the Merger Agreement.

EMPLOYMENT OF FIRST FEDERAL EMPLOYEES

The Company has agreed to offer continued employment to all employees of
First Federal who are employed on the date of the Merger, at the salary levels
in effect at that time. The Company has no obligation, however, to continue
such employment after the Merger. Employees of First Federal who are
terminated after the Merger other than for cause will be offered severance
benefits in accordance with the Company's customary severance procedures in
effect at the time of termination. The Company has agreed to enter into
employment agreements with Mr. Staggers and Ms. Gentry, the President and
Senior Vice President, respectively, of First Federal providing for their
employment with the Company.

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<PAGE> 35

EMPLOYEE BENEFITS

The Company has agreed to provide First Federal employees with the same
employee benefits, (except with respect to the Company's pension plan and
employee stock ownership plan) including medical insurance, vacation pay and
sick leave, as are extended to the Company's other similarly situated
employees, giving effect to all years of service with First Federal prior to
the Merger. No uninsured waiting periods or pre-existing condition limitations
are to be imposed on otherwise eligible employees. With respect to the
Company's pension plan and employee stock ownership plan, the Company has
agreed to provide employees of First Federal with the same benefits as are
extended to the Company's newly hired employees, with no effect being given to
years of service with First Federal for determination of benefit eligibility,
vesting or level of benefits. Former participants in First Federal's pension
plan will not be entitled to "roll over" accrued benefits from First Federal's
pension plan into the Company's pension plan. The Company has agreed to afford
First Federal the opportunity to revise its pension plan to the extent
necessary to increase the benefits under such plan to fully utilize any funding
surplus under the pension plan for the benefit of First Federal employees. One
of the conditions to the Company's obligations under the Merger Agreement is
that First Federal will have made arrangements to terminate its participation
in any pension plan, employee welfare benefit plan or other employee benefit
plan, with such arrangements being satisfactory in all respects to the Company.

The Company has also agreed to provide the executive officers and
directors of First Federal, for a period of three years following the Merger,
with indemnification against liabilities asserted against such persons for
actions or omissions in their official capacities prior to the Merger on the
same terms provided by First Federal.

FILING FOR REGULATORY APPROVAL

The Company and First Federal have each agreed to cooperate in the
preparation and submission of applications or other documents to be filed in
connection with regulatory approval of the Merger and to furnish information
reasonably necessary with respect to applying for such approval.

AMENDMENT OF THE MERGER AGREEMENT

The Merger Agreement may be amended or discharged by a written agreement
between the parties. However, after approval of the Merger Agreement by First
Federal's stockholders, the parties may not amend the Merger Agreement if such
amendment would be materially adverse, in the judgment of First Federal's Board
of Directors, to the rights of the First Federal stockholders.

TERMINATION OF THE MERGER AGREEMENT

The Company or First Federal may, on or at any time prior to the Closing
Date, terminate the Merger Agreement: (i) by mutual written consent authorized
by the Boards of Directors of the Company and First Federal, (ii) by either
party, upon delivery of written notice to the other party, if any event occurs
that renders impossible the satisfaction in any material respect one or more of
the conditions set forth in the Merger Agreement to the obligations of the
notifying party, and noncompliance is not waived by the notifying party; or
(iii) by either party, if the Effective Time does not occur on or before
September 30, 1995 (or December 31, 1995, in the event that the parties agree
to extend the period for obtaining governmental approvals of the Merger to
October 31, 1995), or any court of competent jurisdiction in the United States
or other federal or state governmental body shall have issued an order, decree,
or ruling or taken any other action restraining, enjoining, or otherwise
prohibiting the Merger or other transactions contemplated and such order,
decree, ruling or other action shall become final and non-appealable.

S-33
<PAGE> 36

FIRST FEDERAL

GENERAL

First Federal was established in 1934. In 1988, First Federal converted
to a mutual savings bank and changed its name from First Federal Savings and
Loan Association of Starkville to First Federal Bank for Savings. In October
1993, First Federal converted from a mutual to a stock form of organization
through the sale and issuance of 157,466 shares of First Federal Common Stock.

The business of First Federal consists principally of attracting deposits
from its market area and using such deposits to originate mortgage loans
secured by one- to four- family residences and to purchase U.S. government and
federal agency securities, mortgage-backed securities and interest-earning
deposits. To a lesser extent, First Federal also originates multi-family real
estate loans and consumer loans. First Federal's emphasis on providing
traditional financial services to its local community has enabled it to be
consistently profitable. First Federal has earned a profit in each of the past
nine years and its return on average assets has approximated or exceeded 0.75%
since 1990. Moreover, First Federal's non-performing loans and real estate
owned to total loans has not exceeded 0.35% for the past five years and First
Federal had no non-performing loans or real estate owned at December 31, 1994.

First Federal's financial condition and results of operations are
significantly affected by changes in market interest rates, government policies
and actions of regulatory authorities. In particular, the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
significantly changed the regulation of all savings associations including
First Federal by, among other things, changing the components of regulatory
capital, increasing the capital requirements and deposit insurance premiums
applicable to savings associations, limiting the dollar amount of loans to one
borrower, and implementing a more stringent qualified thrift lender ("QTL")
test.

Certain provisions of FIRREA have significantly impacted the manner in
which First Federal conducts its operations. For example, through the early
1980s, First Federal primarily emphasized the origination of one- to four-
family fixed-rate residential real estate loans. First Federal, like most
thrift institutions, funded its assets with relatively short-term liabilities,
primarily deposits, and to a lesser extent, borrowings. As short-term interest
rates increased considerably during the early 1980s, management of First
Federal decided to restructure First Federal's balance sheet composition in an
attempt to make its interest-earning assets more rate-sensitive. In 1984,
management of First Federal sold approximately $8.8 million of lower-yielding,
fixed-rate one- to four- family residential real estate loans and incurred
losses on these sales totalling approximately $1.8 million during this period.
Under regulatory accounting rules then in effect, First Federal was permitted
to defer recognition and amortize the losses over the lives of the loans, which
was approximately 20 years. However, in 1989 FIRREA abolished the use of
regulatory accounting principles by savings institutions and required that all
institutions operate in accordance with generally accepted accounting
principles ("GAAP"). GAAP required that First Federal immediately recognize
these previously deferred losses. First Federal recognized the remaining $1.4
million in deferred loan losses in 1989 through a restatement of retained
earnings, which resulted in a decrease in First Federal's regulatory capital by
$1.4 million.

Another provision of FIRREA increased the regulatory capital requirements
of all savings institutions, including First Federal, by establishing three
levels of capital: a tangible capital requirement of 1.50% of total assets; a
core capital requirement of 3.0% of total assets and a risk-based capital
requirement of 8.0% of total risk-weighted assets. The $1.4 million loss that
First Federal was required to recognize in 1989, coupled with the increased
regulatory capital requirements mandated by FIRREA resulted in First Federal

S-34
<PAGE> 37

failing all but one of its new capital requirements, the tangible capital
requirement, and First Federal only exceeded that requirement by a marginal
amount. As a result, First Federal was required to submit a Capital
Restoration Plan ("Capital Plan") to the OTS. The Capital Plan, which was
approved by the OTS in March 1990, established how First Federal intended to
come into compliance with each of the three regulatory capital requirements by
September, 1994. The Capital Plan established a "no growth" policy for First
Federal. Specifically, under the Capital Plan, First Federal was prohibited
from growing in excess of interest credited on deposit accounts. Given that
First Federal had been consistently profitable and had a historically low level
of non-performing loans and real estate owned, First Federal projected that by
restricting growth, First Federal could come into compliance with its capital
requirements as its retained earnings increased.

While under the Capital Plan, First Federal continued its practice of
limiting its lending activities to the origination of one- to four- family
mortgage loans, and to a limited extent, multi-family loans in its market area,
as well as consumer loans to existing customers of First Federal. First
Federal's level of multi-family loans has increased since 1988 primarily as a
result of loans First Federal has made to sororities and fraternities at
Mississippi State University, which are secured by the houses occupied by those
organizations on the Mississippi State University campus. In addition, First
Federal has sought to limit its exposure to interest rate risk by emphasizing
the origination of ARM loans, originating fixed-rate loans for immediate sale
to investors and the purchase of mortgage-backed securities and investment
securities with average maturities ranging, in general, between two and five
years. This policy, coupled with First Federal's efforts at controlling
operating expenses resulted in First Federal continuing to operate profitably
while operating under its Capital Plan and exceeding all three capital
requirements by December 31, 1992. The OTS released First Federal from its
Capital Plan in January, 1993. At December 31, 1994, First Federal continued
to exceed all of its regulatory capital requirements with tangible, core and
risk-based capital of 11.01% of total assets, 11.01% of total assets and 27.31%
of total risk-weighted assets, respectively.

MARKET AREA

First Federal is a community oriented financial institution offering a
variety of financial services to meet the needs of the communities it serves.
First Federal currently operates out of its one office located in Starkville,
Mississippi. First Federal's deposit gathering and lending base is
concentrated in Oktibbeha County, Mississippi. Oktibbeha County generally was
spared the effects of the national recession in the 1980's and early 1990's in
large part because Oktibbeha County is home to Mississippi State University,
one of the largest universities in Mississippi with approximately 13,000
students when in full session. In addition, the Mississippi Research and
Technology Park, which was developed to enhance high technology research, is
also located in Oktibbeha County. Additionally, there are several light
manufacturing plants in Oktibbeha County which employ numerous people.
Finally, the construction of the Tennessee-Tombigbee Waterway, which is located
approximately 20 miles from First Federal and serves as a major waterway for
commercial and recreational activities, and construction related to the
expansion program currently underway by Weyerhaeuser, a company producing pulp
and paper products in northeast Mississippi, have also contributed to the
area's relatively low unemployment rate and have therefore helped to boost the
local economy in spite of the national recession.

LENDING ACTIVITIES

Loan Portfolio Composition. First Federal's loan portfolio composition
consists primarily of conventional adjustable-rate and fixed-rate first
mortgage loans secured by one- to four- family residences. First Federal also
makes multi-family mortgage loans, consumer loans and commercial real estate
loans. First Federal generally makes consumer loans only to existing customers
of First Federal. At December 31,

S-35
<PAGE> 38

1994, First Federal's mortgage loans outstanding were $12.9 million, of which
$11.0 million were one- to four-family residential mortgage loans. Of the one-
to four-family residential mortgage loans outstanding at that date, 68.66% were
ARMs and 31.34% were fixed-rate loans. Total ARM mortgage loans in First
Federal's portfolio at December 31, 1994 amounted to $7.5 million or 58.56% of
total mortgage loans. At that same date, multi-family residential loans
totalled $1.9 million and consumer loans totalled $755,000.

ARM loans originated by First Federal are primarily held for investment,
while fixed-rate conforming mortgage loans with terms greater than 15 years are
generally originated to be sold in the secondary mortgage market.

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<PAGE> 39

Analysis of Loans and Mortgage-Backed Securities. The following table
sets forth the composition of First Federal's loan and mortgage-backed
securities portfolios in dollar amounts and in percentages at the dates
indicated:

<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------
1990 1991 1992
----------------------------------------------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four- family residential . . . $11,808 72.31% $10,944 72.10% $10,198 69.42%

Multi-family residential . . . . . . . 2,705 16.57 2,408 15.86 2,138 14.55

Commercial real estate . . . . . . . . 146 0.89 97 0.64 -- --

Investor loans closed but not funded . -- -- -- -- 597 4.06
------- ------ ------- ------ ------- ------

Total mortgage loans . . . . . . . . . 14,659 89.77 13,449 88.60 12,933 88.03
------- ------ ------- ------ ------- ------
Consumer and other loans:
Consumer and deposit account loans . 1,680 10.28 1,746 11.50 1,778 12.10
------- ------ ------- ------ ------- ------

Total loans . . . . . . . . . . . . . 16,339 100.05 15,195 100.10 14,711 100.13
------- ------ ------- ------ ------- ------
Less:
Allowance for loan losses . . . . . . . 8 0.04 15 0.09 20 0.13

Unearned interest and deferred loan fees
2 0.01 2 0.01 1 --
------- ------ ------- ------ ------- ------

Total loans, net . . . . . . . . . . $16,329 100.00% $15,178 100.00% $14,690 100.00%
======= ====== ======= ====== ======= ======

Adjustable rate loans . . . . . . . . . . $10,920 66.83% $9,911 65.23% $ 8,421 57.24%

Fixed-rate . . . . . . . . . . . . . . . 5,419 33.17 5.284 34.77 6,290 42.76

Mortgage-backed securities net(1) . . . . 1,802 2,698 3,999

<CAPTION>
At December 31,
------------------------------------------
1993 1994
------------------------------------------
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
<S> <C> <C> <C> <C>
Mortgage loans:
One- to four- family residential . . . $10,712 78.85% $10,969 77.92%

Multi-family residential . . . . . . . 1,901 13.99 1,891 13.43

Commercial real estate . . . . . . . . 17 -- 499 3.55

Investor loans closed but not funded . 458 4.06 64 0.45
------- ------ ------- ------

Total mortgage loans . . . . . . . . . 13,088 88.03 13,423 95.35
------- ------
Consumer and other loans:
Consumer and deposit account loans . 597 12.10 755 5.36
------- ------ ------- ------

Total loans . . . . . . . . . . . . . 13,685 100.13 14,178 100.71
------- ------ ------- ------
Less:
Allowance for loan losses . . . . . . . 100 0.13 100 0.71

Unearned interest and deferred loan fees -- -- -- --
------- ------ ------- ------

Total loans, net . . . . . . . . . . $13,585 100.00% $14,078 100.00%
======= ====== ======= ======

Adjustable rate loans . . . . . . . . . . $ 7,719 57.24% $ 7,531 53.12%

Fixed-rate . . . . . . . . . . . . . . . 5,966 42.76 6,647 46.88

Mortgage-backed securities net(1) . . . . 2,856 2,091
</TABLE>

- ----------------------------

(1) All mortgage-backed securities are insured or guaranteed by the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC").

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<PAGE> 40

The following table sets forth the dollar amount of all loans due with fixed
interest rates and those with floating or adjustable interest rates.

Maturity of Loans. The following table summarizes at December 31, 1994 the
dollar amount of principal repayments becoming due on loans during the years
indicated.

<TABLE>
<CAPTION>
Due Within Due Within
Due Within One To Three to Due Within Due Within Due After
One Year Three Years Five Years Five to Ten Ten to 20 20 Years
After After After Years After Years After After
12/31/94 12/31/94 12/31/94 12/31/94 12/31/94 12/31/94 Total
-------- -------- -------- -------- -------- -------- -----

(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
One- to four- family and multi-
family mortgage loans . . . . . $ 22 $280 $287 $686 $10,933 $652 $13,423

Consumer loans . . . . . . . . . 433 78 240 4 -- -- 755
---- ---- ---- ---- ------- ---- -------

Total gross loans receivable . . $455 $358 $527 $690 $10,933 $652 $14,178
==== ==== ==== ==== ======= ==== =======
</TABLE>

<TABLE>
<CAPTION>
Due One Year After December 31, 1994
------------------------------------
Fixed Rate Floating or Adjustable Rates Total
---------- ---------------------------- -----
(in thousands)
<S> <C> <C> <C>
One- to four- family and multi-
family mortgage loans . . . . . . . . . . . . $5,892 $7,531 $13,423

Consumer loans . . . . . . . . . . . . . . . . 755 -- 755
------ ------ -------

Total gross loans receivable . . . . . . . . . $6,647 $7,531 $14,178
====== ====== =======
</TABLE>

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<PAGE> 41

Origination, Purchase and Sale of Loans and Mortgage-Backed
Securities. The following table sets forth First Federal's loan origination,
purchases, sales and principal repayments and other activity for the periods
indicated.

<TABLE>
<CAPTION>
For the Year Ended
December 31,
-------------------------------
1992 1993 1994
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Mortgage loans:
At beginning of period . . . . . . . . . . . . . $13,449 $12,933 $13,088
------- ------- -------
Mortgage loans originated:
One- to four- family portfolio . . . . . . . . 2,041 3,775 3,387
------- ------- -------
One- to four- family investor . . . . . . . . 4,075 7,261 3,014
------- ------- -------
Total mortgage loans originated . . . . . . 6,116 11,036 6,401
------- ------- -------
Principal repayments . . . . . . . . . . . . . (3,154) (4,078) (3,116)
Sale of one- to four- family investor loans . (4,075) (7,261) (3,014)
Investor loans closed but not funded . . . . . 597 458 64
------- ------- -------
At end of period . . . . . . . . . . . . . . $12,933 $13,088 $13,423
======= ======= =======

Consumer loans:
At beginning of period . . . . . . . . . . . . . $ 1,746 $ 1,778 $ 597
Consumer loans originated . . . . . . . . . . 644 167 614
Principal repayments . . . . . . . . . . . . . (612) (1,348) (456)
------- ------- -------
At end of period . . . . . . . . . . . . . . $ 1,778 $ 597 $ 755
======= ======= =======

Mortgage-backed securities:
At beginning of period . . . . . . . . . . . . . $ 2,710 $ 3,994 $ 2,856
Mortgage-backed securities purchased. . . . . 2,041 490 --
Principal repayments . . . . . . . . . . . . . (757) (1,628) (765)
------- ------- -------
At end of period . . . . . . . . . . . . . . $ 3,994 $ 2,856 $ 2,091
======= ======= =======
</TABLE>

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<PAGE> 42

One- to Four- Family Mortgage Loans. First Federal offers first mortgage
loans secured by one- to four- family residences in First Federal's lending
area. Typically, such residences are single-family homes that serve as the
primary residence of the owner. First Federal generally originates one- to
four- family residential mortgage loans in amounts up to 80% of the appraised
value. Loans originated in amounts over 80% of the appraised value generally
are required to carry private mortgage insurance on the amount in excess of
80%.

Loan originations are generally obtained from existing or past customers,
members of the local community and referrals from realtors within First
Federal's lending area. Fixed-rate mortgage loans originated and held by First
Federal in its portfolio generally include due-on-sale clauses which provide
First Federal with the contractual right to deem the loan immediately due and
payable in the event that the borrower transfers ownership of the property
without First Federal's consent.

At December 31, 1994, 77.92% of total loans consisted of one- to
four-family residential loans, of which 68.66% were ARM loans. Borrower demand
for ARMs versus fixed-rate mortgage loans is a function of the level of
interest rates, the expectations of changes in the level of interest rates and
the difference between the interest rates and loan fees offered for fixed-rate
mortgage loans, and loan fees for ARMs. The relative amount of fixed-rate
mortgage loans and ARMs that can be originated at any time is largely
determined by the demand for each in a competitive environment.

First Federal currently offers ARM loans that adjust annually. Currently
First Federal's ARM loans carry an initial interest rate that is determined by
First Federal in accordance with market and competitive factors and as of
December 31, 1994 was approximately 7.0%. The ARM loans currently being
originated by First Federal adjust by a maximum of 2.0% per adjustment, with a
lifetime cap of 6.0% over the initial interest rate. ARM loans are originated
for a term of up to 30 years.

The majority of First Federal's fixed-rate loan originations with terms in
excess of 15 years are sold, with servicing released, in the secondary-mortgage
market. Occasionally, First Federal originates non-conforming, fixed-rate
loans with terms of 15 years or less for its portfolio. During the years ended
December 31, 1992, 1993 and 1994, First Federal sold $4.1 million, $7.7
million, and $3.0 million of fixed-rate loans, respectively, all of which had
been originated for sale. For the years ended December 31, 1992, 1993 and
1994, First Federal realized gains on the sale of fixed-rate mortgage loans of
approximately $84,000, $161,000 and $85,000, respectively.

Multi-Family Loans and Commercial Real Estate Loans. First Federal also
originates and participates in loans secured by non-owner occupied residential
multi-family dwelling units (more than four units) primarily secured by
apartments and also sorority and fraternity houses at Mississippi State
University. First Federal has also made commercial real estate loans. At
December 31, 1994, First Federal had eight multi-family loans totalling $1.9
million or 13.43% of total loans. All of the properties securing such loans
are located in Oktibbeha County, Mississippi.

First Federal originates permanent loans secured by multi-family dwelling
units up to 80% of the appraised value. Currently, it is First Federal's
philosophy to originate loans secured by multi-family dwelling units only to
borrowers known to First Federal and on properties in its market area. These
loans generally have prepayment schedules of 15 years or less. At December 31,
1994, First Federal had no multi-family or commercial real estate loans
accounted for on a non-accrual basis.

Loans secured by multi-family and commercial real estate are generally
larger and involve a greater degree of risk than one- to four- family
residential mortgage loans. Of primary concern in multi-family

S-40
<PAGE> 43

and commercial real estate lending is the borrower's credit worthiness and the
feasibility and cash flow potential of the project. Loans secured by income
properties are generally larger and involve greater risks than residential
mortgage loans because payments on loans secured by income properties are often
dependent on successful operation or management of the properties. As a
result, repayment of such loans may be subject, to a greater extent than
residential real estate loans, to adverse conditions in the real estate market
or the economy.

Consumer and Other Loans. First Federal also offers consumer loans in the
form of home improvement loans, deposit share loans, education loans automobile
loans and other secured and unsecured consumer loans. These loans totalled
$755,000 or 5.36% of total loans receivable at December 31, 1994. Federal
regulations permit federally chartered thrift institutions to make secured and
unsecured loans up to 35% of an institution's assets. In addition, a federal
thrift has lending authority above the 35% category for certain consumer loans,
property improvement loans, and loans secured by savings accounts. First
Federal originates consumer loans in order to provide a wide range of financial
services to its customers and because the shorter terms and normally higher
interest rates on such loans help maintain a profitable spread between its
average loan yield and its cost of funds.

In connection with consumer loan applications, First Federal verifies the
borrower's income and reviews a credit bureau report. In addition, the
relationship of the loan to the value of the collateral is considered.
Consumer loans are generally made only to individuals with an existing customer
relationship with First Federal.

First Federal intends to continue to emphasize the origination of consumer
loans. Consumer loans tend to be originated at higher interest rates than
conventional residential mortgage loans and for shorter terms, which benefits
First Federal's interest rate risk management. Consumer loans, however, tend
to have a higher risk of default than residential mortgage loans. Based upon
statistics provided by the FHLB-Dallas, management of First Federal believes
that its loan loss experience in connection with its consumer loan portfolio is
favorable in comparison to industry averages. At December 31, 1994, First
Federal had no consumer loans accounted for on a non-accrual basis.

Loan Approval Authority and Underwriting. All mortgage loans and all
secured consumer loans in amounts in excess of $30,000 per borrower and all
unsecured consumer loans in excess of $5,500 per borrower must have the
approval of the First Federal Loan Committee, which currently consists of Mr.
Clark, Mr. Bill Simmons and Mr. Charles McElroy. Mr. Staggers participates in
meetings of the First Federal Loan Committee but does not execute loan
approvals. The First Federal Loan Committee meets on an as needed basis. All
other loans may be approved by Mr. Staggers and a lending officer of First
Federal and are reviewed by the First Federal Board of Directors.

One- to four- family residential mortgage loans are generally underwritten
according to the FHLMC and FNMA guidelines. For all loans originated by First
Federal, upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered, income and certain other information is
verified and, if necessary, additional financial information is requested. An
appraisal of the real estate intended to secure the proposed loan is required
which currently is performed by an independent appraiser designated and
approved by First Federal. It is First Federal's policy to obtain title
insurance or a title opinion on all real estate first mortgage loans.
Borrowers must also obtain hazard or flood insurance (for loans on property
located in a flood zone) prior to closing the loan. For loans in excess of 80%
of the loan to value ratio, borrowers are generally required to advance funds
on a monthly basis together with each payment of principal and interest to an
escrow account from which First Federal makes disbursements for items such as
real estate taxes and hazard insurance premiums.

S-41
<PAGE> 44

Mortgage-Backed and Related Securities. First Federal also invests in
mortgage-backed and related securities. At December 31, 1994, net
mortgage-backed and related securities aggregated $2.1 million, or 8.27% of
total assets of which all had fixed-rates of interest. All of the
mortgage-backed securities in First Federal's portfolio at December 31, 1994
were insured or guaranteed by either the GNMA, FNMA or FHLMC. All of the
mortgage-backed and related securities in the portfolio had coupon rates as of
December 31, 1994, ranging from 5.50% to 9.00% with a weighted average yield of
7.21%.

Investment Securities. First Federal also invests in securities
guaranteed or insured by various government agencies. At December 31, 1994,
net investment securities totalled $7.5 million or 29.67% of total assets of
which all had fixed-rates of interest. The securities in First Federal's
portfolio at December 31, 1994 were insured or guaranteed by FNMA, FHLB, FHLMC,
Federal Farm Credit Bank ("FFCB") or Tennessee Valley Authority ("TVA").
Coupon rates ranged from 3.83% to 6.90% with a weighted average yield of 5.03%

NON-PERFORMING ASSETS

Collection Procedures. With respect to originated mortgage loans, First
Federal's collection procedures include sending a late notice at 16 days and a
delinquent notice after payment is 30 days past due. In the event that payment
is not received, letters are sent or phone calls are made to the borrower.
When contact is made with the borrower at any time prior to foreclosure, First
Federal will attempt to obtain full payment or work out a repayment schedule
with the borrower to avoid foreclosure. Generally, foreclosure notices are
sent when a loan is over 90 days delinquent.

First Federal management's periodic evaluation of the adequacy of the
allowance is based on First Federal's past loan loss experience, known and
inherent risks 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.

Interest on loans that are contractually past due 90 or more days is
generally charged off, or an allowance is established based on management's
periodic evaluation unless the obligation is well secured and in the process of
collection. The allowance is established by a charge to interest income equal
to all interest previously accrued. Additionally, an allowance is established
for interest on loans delinquent less than 90 days, but which in management's
opinion may become uncollectible in part or in full.

Management places loans on a non-accrual status when it is determined that
the borrower is unable to meet his contractual obligations or when interest or
principal is 90 days or more past due, unless the loan is adequately secured by
way of collateralization, guarantees, or other security. At December 31, 1994,
First Federal had one loan that was 90 days or more past-due. This is a second
mortgage loan on which First Federal has the first mortgage. The first
mortgage is paid current.

S-42
<PAGE> 45

Delinquent Loans. At December 31, 1992, 1993 and 1994 delinquencies in
First Federal's loan portfolio consisted of three or fewer one- to four- family
mortgage loans and were as follows:

<TABLE>
<CAPTION>
At December 31,

---------------------------------------------------------------------------------------------
1992 1993
------------------------ -----------------------

60-89 Days 90 Days or More 60-89 Days 90 Days or More
---------- --------------- ---------- ---------------
---------------------------------------------------------------------------------------------
Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
---------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total delinquent loans 3 $119 -- -- 1 $42 -- --

<CAPTION>
At December 31,

-----------------------------------------------
1994
------------------------

60-89 Days 90 Days or More
---------- ---------------
-----------------------------------------------
Number Principal Number Principal
of Balance of Balance
Loans of Loans Loans of Loans
-----------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Total delinquent loans 1 $87 1 $2
</TABLE>

S-43
<PAGE> 46

The following table sets forth information regarding non-performing
loans and "real estate owned" held by First Federal at the dates indicated:

<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------

1990 1991 1992 1993 1994
------ ------ ------ ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
One- to four- family residential real estate
loans:
Accruing loans contractually 90 days or
more past due (1) . . . . . . . . . . . . . . $ 28 $ 84 $ -- $ -- $ --

Total Non-performing loans . . . . . . . . . . . 28 84 -- -- --

Real estate owned . . . . . . . . . . . . . . . . -- -- 22 -- --
------ ------ ------ ------ ------

Total non-performing loans and real
estate owned . . . . . . . . . . . . . . . . . $ 28 $ 84 $ 22 -- --
====== ====== ====== ====== ======
Total non-performing loans and real
estate owned to total assets . . . . . . . . . 0.12% 0.35% 0.09% -- --

Total non-performing loans to total loans . . . . 0.17% 0.55% -- -- --
</TABLE>

- -------------------------------
(1) First Federal did not place a loan on non-accrual status during the five
years ended December 31, 1994.

S-44
<PAGE> 47

Classified Assets. Federal regulations provide for the classification of
loans and other assets, such as debt and equity securities, considered by the
OTS to be of lesser quality as "substandard", "doubtful" or "loss" assets. An
asset is considered "substandard" if it is inadequately protected by the paying
capacity and net worth of the obligor or the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," "highly
questionable and improbable," on the basis of currently existing facts,
conditions, and values. Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
which do not currently expose the insured institution to a sufficient degree of
risk to warrant classification in one of the aforementioned categories but
possess credit deficiencies or potential weaknesses are required to be
designated "special mention" by management.

When an insured institution classifies problem assets as either
substandard or doubtful, it is required to establish general allowances for
losses in an amount deemed prudent by management. General allowances represent
loss allowances which have been established to recognize the inherent risk
associated with lending activities, but which, unlike specific allowances, have
not been allocated to particular problem assets. When an insured institution
classifies problem assets as "loss," it is required to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge-off such amount. An institution's determination as to the
classification of its assets and the amount of additional general or specific
loss allowances. First Federal regularly reviews the assets in its portfolio
to determine whether any assets require classification in accordance with
applicable regulations.

At December 31, 1994, First Federal had no assets classified as special
mention and substandard, respectively, and no assets classified doubtful or
loss.

Allowances for Loan Losses and Real Estate Acquired in Settlement of
Loans. First Federal provides valuation allowances for estimated losses from
uncollectible loans and real estate acquired in settlement of loans. First
Federal management's periodic evaluation of the adequacy of the allowance for
loan losses is based on loss experience, known and inherent risk in the
portfolio, prevailing market conditions, and management's judgment as to
collectibility. First Federal's determination as to the amount of its
allowance for loan losses is subject to review of the federal regulatory
agencies, the OTS and FDIC, which can order the establishment of additional
general or specific loan loss reserves. The allowance for loan losses is
increased by charges to earnings and decreased by charge-offs (net of
recoveries). First Federal provides valuation allowances for losses on real
estate acquired in settlement of loans based on the lower of fair value, minus
estimated cost to sell, or cost.

S-45
<PAGE> 48

The following table sets forth an analysis of First Federal's allowance
for loan losses, all of which are unallocated.

<TABLE>
<CAPTION>
At or For the Year Ended
December 31,
--------------------------

1992 1993 1994
---- ---- ----

(in thousands)
<S> <C> <C> <C>
Balance at beginning of period . . . . . . . $15 $20 $100

Additions charged to operations . . . . . . . 23 84 10

Deductions:
Loan/checking accounts charged-off . . . . 18 4 10

Balance at end of period . . . . . . . . . . 20 100 100
</TABLE>

S-46
<PAGE> 49

The following table sets forth the allocation of First Federal's
allowance for loan losses by loan category and the percent of loans in each
category to total loans receivable, net, at the dates indicated. The portion
of the loan loss allowance allocated to each category does not represent the
total available for future losses which may occur within the loan category
since the total loan loss allowance is a valuation reserve applicable to the
entire loan portfolio.

<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------

1992 1993 1994
------------------------- ------------------------- -------------------------

Percent of Loans Percent of Loans Percent of Loans
Amount to Total Loans Amount to Total Loans Amount to Total Loans
------ -------------- ------ -------------- ------ --------------

(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four- family . . . . . . $15 73.38% $ 95 81.48% $ 95 77.66%
Commercial real estate
and multi-family . . . . . . . -- 14.53 -- 14.12 -- 16.98

Consumer and other loans . . . . 5 12.09 5 4.40 5 5.36
--- ------ ---- ------ ---- ------
Total allowance . . . . . . . $20 100.00% $100 100.00% $100 100.00%
=== ====== ==== ====== ==== ======
</TABLE>

S-47
<PAGE> 50

INVESTMENT ACTIVITIES

Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds sold. Subject to various restrictions,
federally chartered savings institutions may also invest a portion of their
assets in commercial paper, corporate debt securities and asset-backed
securities. The investment policy of First Federal, which is established by
the First Federal Board of Directors and is implemented by First Federal
management, is designed primarily to provide and maintain liquidity, to
generate a favorable return on investments without incurring undue interest
rate and credit risk, and to complement and fund First Federal's lending
activities.

The following table sets forth the composition of First Federal's
investment portfolio at the dates indicated.

<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------
1992 1993 1994
-------------------- ---------------------- -----------------------
Book % of Book % of Book % of
Value Total Value Total Value Total
--------- --------- --------- ---------- --------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits . . . $ 2,550 100.00% $ 2,694 100.00% $ 781 100.00%
Federal funds sold . . . . . . -- -- -- -- -- --
---------- ------ --------- ------ --------- ------

Total . . . . . . . . . $ 2,550 100.00% $ 2,694 100.00% $ 781 100.00%
========== ====== ========= ====== ========= ======

Investment Securities:
Federal Agency Obligations . . $ 2,023 91.95% $ 5,514 96.79% $ 7,507 97.52%
Other . . . . . . . . . -- -- -- -- -- --
---------- ------ --------- ------ --------- ------

Total . . . . . . . . . 2,023 91.95 5,514 96.79 7,507 97.52

FHLB stock . . . . . . . . . . 177 8.05 183 3.21 191 2.48
---------- ------ --------- ------ --------- ------

Total investment
securities and FHLB stock $ 2,200 100.00% $ 5,697 100.00% $ 7,698 100.00%
========== ====== ========= ====== ========= ======
</TABLE>

S-48
<PAGE> 51

SOURCES OF FUNDS

General. First Federal's primary sources of funds are deposits,
repayments on loans and mortgage-backed and related securities and retained
earnings. First Federal may obtain advances from the FHLB-Dallas upon the
security of its capital stock of the FHLB-Dallas and certain of its mortgage
loans. Since 1988, First Federal has not utilized FHLB-Dallas advances, and at
December 31, 1994, First Federal had no outstanding advances from the
FHLB-Dallas, or any other borrowings.

Deposits. First Federal offers a variety of deposit accounts having a
range of interest rates and terms. First Federal's deposits principally
consist of fixed-term certificates, statement savings accounts, money market
accounts, IRAs, NOW accounts and commercial checking and demand
(non-interest-bearing) accounts. The flow of deposits is influenced
significantly by general economic conditions, the restructuring of the thrift
industry, changes in money market and other prevailing interest rates and
competition. First Federal's deposits are typically obtained from its primary
market area, Oktibbeha County, Mississippi. First Federal relies primarily on
customer service and long-standing relationships with customers to attract and
retain these deposits. First Federal has no brokered deposits.

First Federal seeks to maintain a high level of stable core deposits by
advertising and providing personalized service to its customers. The volume of
demand and statement savings accounts have been increasing because of the low
interest rate environment. When pricing deposits, consideration is given to
local competition, First Federal's interest rate risk position, United States
Treasury 90-day and six-month rates and the need for funds. First Federal
management's strategy is to price at or just above the median competition,
contingent upon the need for funds, and to stratify the pricing system to
attract deposits and maintain a controlled interest rate risk position.

There are no concentrations of deposits which are dependent on a specific
industry, governmental entity, etc., including deposits held by students and
faculty at Mississippi State University, which if withdrawn would significantly
impact First Federal's financial condition.

S-49
<PAGE> 52

The following table sets forth the deposit activities of First Federal
during the periods indicated.

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1992 1993 1994
--------- --------- --------
(in thousands)
<S> <C> <C> <C>
Beginning balance . . . . . . . . . $23,236 $22,805 $22,546
Net deposits (withdrawals) . . . . (945) (884) (798)
Interest credited . . . . . . . . . 514 625 580
------- ------- -------
Net increase (decrease)
in deposits . . . . . . . . . . . (431) (259) (218)
------- ------- -------

Ending balance . . . . . . . . $22,805 $22,546 $22,328
======= ======= =======
</TABLE>

At December 31, 1994, First Federal had outstanding deposit accounts in
amounts of $100,000 or more maturing as follows:

<TABLE>
<CAPTION>
Amount
------
(in thousands)
<S> <C>
Maturity Period:

Three months or less . . . . . . . . . . . . . . . . . . $ 890
Over three months through six months . . . . . . . . . . 400
Over six months through 12 months . . . . . . . . . . . . 301
Over 12 months . . . . . . . . . . . . . . . . . . . . . 205
------

Total . . . . . . . . . . . . . . . . . . . . . . . . $1,796
======
</TABLE>

S-50
<PAGE> 53

The following table sets forth the distribution and weighted-average
rates of First Federal's deposit accounts at the dates indicated:

<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------
1992 1993
--------------------------------- ---------------------------------
Weighted Weighted
Percent Average Percent Average
of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate
------ -------- ------- ------ -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement savings . . . . . . $ 3,354 14.71% 3.01% $ 3,435 15.23% 2.54%
------- ------ ------- ------

NOW accounts . . . . . . . . 1,987 8.72 2.59 2,465 10.93 2.20
------- ------ ------- ------

Money market accounts . . . . 1,973 8.65 2.59 1,650 7.32 2.55
------- ------ ------- ------

Certificate accounts:
Accounts with original
maturities of:
31-91 days . . . . . . 839 3.67 5.40 584 2.59 2.89
4-11 months . . . . . 5,273 23.12 3.36 5,227 23.18 3.14
12-23 months . . . . . 4,312 18.91 4.07 3,678 16.32 3.37
24-60 months . . . . . 3,446 15.11 6.31 4,087 18.13 5.37
96 months . . . . . . 36 0.16 8.00 38 0.17 8.00
IRA accounts . . . . . . 1,584 6.95 4.93 1,381 6.13 4.24
------- ------ ------- ------

Total certificates . . 15,490 67.92 4.36 14,995 66.52 3.93
------- ------ ------- ------

Total Deposits . . . . . . . $22,805 100.00% 3.88% $22,545 100.00% 3.40%
======= ====== ======= ======

<CAPTION>
At December 31,
----------------------------------
1994
----------------------------------
Weighted
Percent Average
of Total Nominal
Amount Deposits Rate
------ -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Statement savings . . . . . . $ 3,014 13.50% 2.50%
------- ------

NOW accounts . . . . . . . . 2,469 11.06 1.94
------- ------

Money market accounts . . . . 1,552 6.95 2.48
------- ------

Certificate accounts:
Accounts with original
maturities of:
31-91 days . . . . . . 574 2.57 3.64
4-11 months . . . . . 5,319 23.82 4.13
12-23 months . . . . . 3,305 14.80 4.06
24-60 months . . . . . 4,563 20.44 5.10
96 months . . . . . . -- -- --
IRA accounts . . . . . . 1,531 6.86 4.39
------- ------

Total certificates . . 15,293 68.49 3.93
------- ------

Total Deposits . . . . . . . $22,328 100.00% 3.75%
======= ======
</TABLE>

S-51
<PAGE> 54

The following table presents, by various rate categories, the amount of
certificate accounts outstanding at December 31, 1992, 1993 and 1994, and the
periods to maturity of the certificate accounts outstanding at December 31,
1994.

<TABLE>
<CAPTION>
AT DECEMBER 31, PERIOD TO MATURITY FROM DECEMBER 31, 1994
------------------------ -----------------------------------------

WITHIN ONE TO
1992 1993 1994 ONE YEAR THREE YEARS THEREAFTER TOTAL
---- ---- ---- -------- ----------- ---------- -----

(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:

3.99% or less . . . . $ 8,383 $10,434 $ 5,598 $ 5,412 $ 186 $ -- $ 5,590

4.00% to 5.00% . . . 3,506 1,720 7,048 5,355 1,679 14 7,048

5.00% to 6.00% . . . 1,118 1,523 1,940 334 1,228 378 1,940

6.00% to 7.00% . . . 1,328 800 497 108 271 118 497

7.00% to 8.00% . . . 982 475 210 176 34 -- 210

8.00% to 9.00% . . . 173 38 -- -- -- -- --

9.00% to 9.99% . . . -- -- -- -- -- -- --
------- ------- ------- ------- ------- -------- -------

Total . . . . . . $15,490 $14,995 $15,293 $11,385 $ 3,398 $ 510 $15,293
======= ======= ======= ======= ======= ======== =======
</TABLE>

S-52
<PAGE> 55

BORROWINGS

First Federal has had no borrowed funds since 1984.

SUBSIDIARY

First Federal has one service corporation, First Service Corporation of
Starkville ("First Service"), which was organized to own and hold stock in the
corporation that provides data processing services for First Federal.

REGULATION

First Federal is a federally-chartered savings bank, the deposits of which
are federally insured and backed by the full faith and credit of the United
States. Accordingly, First Federal is subject to broad federal regulation and
oversight extending to all of its operations. First Federal is a member of the
FHLB of Dallas and is subject to certain limited regulation by the Federal
Reserve Board. First Federal is a member of the Savings Association Insurance
Fund ("SAIF") and the deposits of First Federal are insured by the FDIC. As a
result, the FDIC has certain regulatory and examination authority over First
Federal.

Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.

Federal Regulation of Savings Institutions. The OTS has extensive
authority over the operations of savings institutions. As a part of this
authority, First Federal is required to file periodic reports with the OTS and
is subject to periodic examinations by the OTS and FDIC. The OTS and FDIC have
entered into an agreement to provide for joint examinations unless compelling
reasons otherwise dictate. When these examinations are conducted by the OTS
and the FDIC, the examiners may require First Federal to provide for higher
general or specific loan loss reserves. Financial institutions in various
regions of the United States have been called upon by examiners to write down
assets and to establish increased levels of reserves, primarily as a result of
perceived weaknesses in real estate values and a more restrictive regulatory
climate. First Federal was examined by the OTS in October 1994.

The OTS has established a schedule for the assessment of fees upon all
savings institutions to fund the operations of the OTS. The general
assessment, to be paid on a semi-annual basis, is computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
the institution's latest quarterly thrift financial report. Savings
institutions that are classified as "troubled" (i.e., having a supervisory
rating of "4" or "5" or subject to a conservatorship) are required to pay a
premium 50% over the standard assessment. First Federal's OTS assessment for
the year ended December 31, 1994 was $8,788.

The OTS also has extensive enforcement authority over all savings
institutions, including First Federal. This enforcement authority includes,
among other things, the ability to assess civil money penalties, to issue
cease-and-desist or removal orders and to initiate injunctive actions. In
general, these enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound practices. Other actions or inactions may
provide the basis for enforcement action, including misleading or untimely
reports filed with the OTS. Except under certain circumstances, public
disclosure of final enforcement actions by the OTS is required.

In addition, the investment and lending authority of First Federal is
prescribed by federal laws and regulations, and it is prohibited from engaging
in any activities not permitted by such laws and

S-53
<PAGE> 56

regulations. For instance, no savings institution may invest in corporate debt
securities not rated in one of the four highest rating categories by a
nationally recognized rating organization. In addition, the permissible level
of investment by federal institutions in loans secured by non-residential real
property may not exceed 400% of regulatory capital, except with approval of the
OTS. First Federal is in compliance with each of these restrictions.

First Federal's permissible lending limit for loans-to-one-borrower is
equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus).
At December 31, 1994, First Federal's lending limit under this restriction was
$500,000. A broader limitation (the lesser of $30 million or 30% of unimpaired
capital and surplus) is provided, under certain circumstances and subject to
OTS approval, for loans to develop domestic residential housing units. In
addition, First Federal may provide purchase money financing for the sale of
any asset without regard to the loan-to-one borrower limitation so long as no
new funds are advanced and First Federal is not placed in a more detrimental
position than if it had held the asset.

In December 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted into law. FDICIA provides for, among other
things, enhanced federal supervision of depository institutions, including
greater authority for the appointment of a conservator or receiver for
undercapitalized institutions; the adoption of safety and soundness standards
by the federal banking regulators, to be effective no later than December 1,
1993, on matters such as loan underwriting and documentation, interest rate
risk exposure and compensation and other employee benefits; the establishment
of risk-based deposit insurance premiums; liberalization of the qualified
thrift lender test; greater restrictions on transactions with affiliates; and
mandated consumer protection disclosures with respect to deposit accounts.

Insurance of Accounts and Regulation by the FDIC. First Federal is a
member of SAIF, which is administered by the FDIC. Savings deposits are
insured up to applicable limits by the FDIC and such insurance is backed by the
full faith and credit of the United States. 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 FDIC. The FDIC also has the
authority to initiate enforcement actions against savings institutions, after
giving the OTS an opportunity to take such action, and may terminate the
deposit insurance if it determines that the institution has engaged or is
engaging in unsafe or unsound practices, or is in an unsafe or unsound
condition.

The annual assessment for SAIF members for deposit insurance is 0.23% of
domestic deposits. The FDIC is authorized to increase assessment rates, on a
semiannual basis, if it determines that the reserve ratio of the SAIF will be
less than the designated reserve ratio of 1.25% of SAIF insured deposits. In
setting these increased assessments, the FDIC must seek to restore the reserve
ratio to that designated reserve level, or such higher reserve ratio as
established by the FDIC. In addition, under FDICIA, the FDIC may impose
special assessments on SAIF members to repay amounts borrowed from the United
States Treasury or for any other reason deemed necessary by the FDIC.

FDICIA also authorizes the FDIC to implement a risk-based deposit
insurance assessment system. Pursuant to this requirement, the FDIC has
adopted a transitional risk-based assessment system, effective January 1, 1993,
under which all insured depository institutions are placed into one of nine
categories and assessed insurance premiums, ranging from 0.23% to 0.31% of
deposits, based upon their level of capital and supervisory evaluation.

S-54
<PAGE> 57

The permanent system, adopted in June 1993 and effective January 1, 1994,
continues the risk classification system established under the transitional
rule. Under the system, institutions classified as well capitalized (i.e., a
core capital ratio of at least 5%, a ratio of Tier 1 or core capital to
risk-weighted assets ("Tier 1 risk-based capital") of at least 6% and a
risk-based capital ratio of at least 10%) and considered healthy would pay the
lowest premium while institutions that are less than adequately capitalized
(i.e., core and Tier risk-based capital ratios of less than 4% or a risk-based
capital ratio of less than 8%) and considered of substantial supervisory
concern would pay the highest premium. Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.

The financing corporations created by federal law and the Competitive
Equality Banking Act of 1987 are also empowered to assess premiums on savings
institutions to help fund the liquidation or sale of troubled savings
institutions. Such premiums cannot, however, exceed the amount of SAIF
assessments and are paid in lieu thereof.

The FDIC has proposed regulations that generally prohibit payments to
directors, officers and employees contingent upon termination of their
affiliation with an FDIC-insured institution or its holding company (i.e.,
"golden parachute payments") if the payment is received after or in
contemplation of, among other things, insolvency, or a determination the
institution or holding company is in "troubled condition." Certain types of
employee benefit plans are not subject to the prohibition. The proposed
regulations would also generally prohibit certain indemnification payments for
civil money penalties or other enforcement action. No assurance can be given
as to the final form of any such regulation, the date of its effectiveness or
its effect on First Federal.

Regulatory Capital Requirements. Federally insured savings institutions
such as First Federal, are required to maintain a minimum level of regulatory
capital. The OTS has established capital standards, including a tangible
capital requirement, a leverage ratio (or core capital) requirement and a
risk-based capital requirement applicable to such savings institutions. These
capital requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual institutions on a
case-by-case basis.

The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, certain noncumulative
perpetual preferred stock and related income. In addition, all intangible
assets, other than a limited amount of purchased mortgage servicing rights (in
no event exceeding the amount tangible capital), must be deducted from tangible
capital. At December 31, 1994, First Federal did not have any unamortized
purchased mortgage servicing rights.

The OTS regulations establish special capitalization requirements for
savings institutions that own subsidiaries. Under these regulations certain
subsidiaries are consolidated for capital purposes and others are excluded from
assets and capital. At December 31, 1994, First Federal did not have any
service corporations or other subsidiaries which were excluded from assets and
capital of First Federal.

At December 31, 1994, First Federal had tangible capital of $2.8 million,
or 11.01% of adjusted total assets, which is approximately $2.4 million above
the minimum requirement of 1.5% of adjusted total assets in effect on that
date.

The capital standards also require core capital equal to at least 3% of
adjusted total assets (as defined by regulation). Core capital generally
consists of tangible capital plus certain intangible assets, including
supervisory goodwill (which is phased-out over a five-year period) and up to
25% of other intangibles

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which meet certain separate salability and market valuation tests. At December
31, 1994, First Federal had no intangibles which were subject to these tests.

Effective December 31, 1990, national banks are required to maintain a
ratio of core capital to adjusted total assets of at least 3%. Only those
national banks that receive a composite rating of one (the highest rating)
under the "CAMEL" rating system for commercial banks and that, in general, are
considered strong banking organizations will qualify for the 3% requirement.
All other national banks must maintain a core capital ratio of 3% plus an
additional 100 to 200 basis points that would be established on a case-by-case
basis. As required by federal law, the OTS has proposed a rule revising its
minimum core capital requirements to be no less stringent than that imposed on
national banks. The OTS has proposed that only those savings institutions
rated a composite one (the highest rating) under the MACRO rating system for
savings institutions will be permitted to operate at or near the regulatory
minimum leverage ratio of 3%. All other savings institutions will be required
to maintain a minimum leverage ratio of 3% plus at least an additional 100 to
200 basis points. The OTS will assess each individual savings institution
through the supervisory process on a case-by-case basis to determine the
applicable requirements. No assurance can be given as to the final form of any
such regulation, the date of its effectiveness or the requirement applicable to
First Federal.

Certain supervisory goodwill recognized under GAAP and certain additional
goodwill recognized under former regulatory accounting principles (or
"regulatory goodwill"), which together constitute "qualifying supervisory
goodwill," are permitted to be included, on a phased-out basis, in core capital
for all eligible savings institutions through the end of 1994. As of December
31, 1994, First Federal did not have any supervisory goodwill.

At December 31, 1994, First Federal had core capital equal to $2.8 million
or 11.01% of adjusted total assets, which is approximately $2.0 million above
the minimum leverage ratio requirement of 3% as in effect on that date.

The OTS risk-based requirement requires savings associations to have total
capital of at least 8% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be
used to satisfy the risk-based requirement only to the extent of core capital.

Certain exclusions from capital and assets are required to be made for the
purpose of calculating total capital, in addition to the adjustments required
for calculating core capital. Such exclusions consist of equity investments
(as defined by regulation) and that portion of land loans and nonresidential
construction loans in excess of and 80% loan-to-value ratio (these items are
excluded on a sliding scale through June 30, 1994, after which they must be
excluded in their entirety) and reciprocal holdings of qualifying capital
instruments. First Federal had no such exclusions from capital and assets at
December 31, 1994.

In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight based on
the risks inherent in the type of assets. The risk weights assigned by the OTS
for principal categories of assets are (i) 0% for cash and securities issued by
the United States or unconditionally backed by the full faith and credit of the
United States; (ii) 20% for securities (other than equity securities) issued by
United States sponsored agencies and mortgage-backed securities issued by, or
fully guaranteed as to principal and interest by, FNMA or FHLMC except for
those classes with residual characteristics or stripped mortgaged-related
securities; (iii) 50% for

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prudently underwritten permanent one- to four- family first lien mortgage loans
not more than 90 days delinquent and having a loan to value ratio of not more
than 80% at origination unless insured to such ratio by an insurer approved by
FNMA or FHLMC; and (iv) 100% for all other loans and investments, including
consumer loans, commercial loans, and repossessed assets and loans more than 90
days past due.

On December 31, 1994, First Federal had total capital of $2.9 million
(including $2.8 million in core capital and no qualifying supplementary
capital) and risk-weighted assets of $10.6 million or total capital of 27.31%
of risk-weighted assets. This amount was $2.0 million above the 8.0%
requirement in effect on that date.

Under FDICIA all the federal banking agencies, including the OTS, must
revise their risk-based capital requirements to ensure that such requirements
account for interest rate risk, concentration of credit risk and the risks of
non-traditional activities, and that they reflect the actual performance of and
expected loss on multi-family loans. Such standards must be adopted within 18
months of the enactment of FDICIA.

The OTS has issued a proposed rule that would require every savings
institution to maintain additional total capital equal to 50% of its
interest-rate risk exposure multiplied by the market value of its assets. This
exposure is a measure of the potential decline in the market value of portfolio
equity of a savings institution, greater that 2%, based upon a hypothetical 200
basis point increase or decrease in interest rates (whichever results in a
greater decline) affecting on- and off-balance sheet assets and liabilities.
The proposed effective date of the new requirement is January 1, 1994. No
assurance can be given as to whether or in what form the proposed rule will be
adopted, or, if adopted, what impact such rule would have on First Federal. If
ultimately adopted, however, it must result in an overall risk-based standard
for savings associations that is not materially lower than that for national
banks.

The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against institutions that fail to meet
capital requirements. Effective December 1992, the federal banking agencies,
including the OTS, were given additional enforcement authority over
undercapitalized depository institutions. The OTS is generally required to
take action to restrict the activities of an "undercapitalized institution"
(generally defined to be one with less than either a 4% core ratio, a Tier 1
risk-based capital ratio or an 8% risk-based capital ratio). Any such
institution must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions, discussed below, that are applicable to significantly
undercapitalized institutions.

As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized institution must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.

Any savings institution that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
subject to one or more of additional specified actions and operating
restrictions mandated by FDICIA. These actions and restrictions include
requiring the issuance of additional voting securities; limitations on asset
growth; mandated asset reduction; changes in senior management; divestiture,
merger or acquisition of the institution; restrictions on executive
compensation; and any other action the OTS deems appropriate.

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An institution that becomes "critically undercapitalized" (i.e., a
tangible capital ratio of 2% or less) is subject to further restrictions on its
activities in addition to those applicable to significantly undercapitalized
institutions. The FDIC must restrict the activities of a critically
undercapitalized institution and, among other things, prohibit any material
transaction outside the ordinary course of business or engaging in certain
transactions with affiliates, without the approval of the FDIC. The OTS must
be appointed as a receiver (or conservator with the concurrence of the FDIC)
for a savings institution, with certain limited exceptions, within 90 days
after it becomes critically undercapitalized.

Any undercapitalized institution is subject to other possible enforcement
actions by the OTS or the FDIC. Such actions could include a capital
directive, a cease-and-desist order, civil money penalties, the establishment
of restrictions on all aspects of the institution's operations or the
appointment of a conservator or receiver or a forced merger into another
institution. The grounds for appointment of a conservator or receiver include
substantially insufficient capital and losses or likely losses that will
deplete substantially all capital with no reasonable prospect for replenishment
of capital without federal assistance.

If the OTS determines that an institution is in an unsafe or unsound
condition or is engaged in an unsafe or unsound practice it is authorized to
reclassify a well-capitalized institution as an adequately capitalized
institution and if the institution is adequately capitalized, to impose the
restrictions applicable to an undercapitalized institution. If the institution
is undercapitalized, the OTS is authorized to impose the restrictions
applicable to a significantly undercapitalized institution.

The imposition by the OTS or the FDIC of any of these measures on First
Federal may have a substantial adverse effect on First Federal's operations and
profitability and the value of its common stock. The OTS and FDIC may also
require such institution to raise additional capital through the issuance of
common stock or other capital instruments. First Federal's shareholders do not
have preemptive rights, and therefore, if First Federal is directed by the OTS
or the FDIC to issue additional shares of First Federal Common Stock, such
issuance may result in the dilution in the percentage of ownership of the
stockholders of First Federal.

Limitations on Dividends and Other Capital Distributions. OTS regulations
impose various restrictions or requirements on institutions with respect to
their ability to pay dividends or make other distributions of capital. OTS
regulations prohibit an institution from declaring or paying any dividends or
from repurchasing any of its stock if, as a result, the regulatory (or total
capital of the institution would be reduced below the amount required to be
maintained for the liquidation account established in connection with its
mutual to stock conversion.

The OTS utilizes a three-tiered approach to permit institutions, based on
their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account.

Generally, Tier 1 institutions, which are institutions that before and
after the proposed distribution meet or exceed their fully phased-in capital
requirements, may make capital distributions during any calendar year equal to
100% of net income for the year-to-date plus 50% of the amount by which the
lesser of the institution's tangible, core or risk-based capital exceeds its
fully phased-in capital requirement for such capital component, as measured at
the beginning of the calendar year, or the amount authorized for a Tier 2
institution. However, a Tier 1 institution deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
institution as a result of such a determination. First Federal meets the
requirements for a Tier 1 institution and has not been notified of a need for
more than normal supervision. Tier 2 institutions, which are institutions that
before and

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after the proposed distribution meet their current minimum capital
requirements, may make capital distributions of up to 75% of net income over
for the most recent four quarter period.

Tier 3 institutions (which are institutions that do not meet current
minimum capital requirements) that propose to make a capital distribution in
excess of the noted safe harbor level must obtain OTS approval prior to making
such distribution. Tier 2 institutions proposing to make a capital
distribution within the safe harbor provisions and Tier 1 institutions
proposing to make any capital distribution need only submit written notice to
the OTS 30 days prior to such distribution. The OTS may object to the
distribution during that 30-day period based on safety and soundness concerns.

Liquidity. All savings institutions, including First Federal, are
required to maintain an average daily balance of liquid assets equal to a
certain percentage of the sum of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. This liquid asset
ratio requirement may vary from time to time (between 4% and 10%) depending
upon economic conditions and savings flows of all savings institutions. At the
present time, the minimum liquid asset ratio is 5%.

In addition, short-term liquid assets (e.g., cash, certain time deposits,
certain bankers acceptance and short-term United States Treasury obligations)
currently must constitute at least 1% of the institution's average daily
balance of net withdrawable deposit accounts and current borrowings. Penalties
may be imposed upon institutions for violations of either liquid asset ratio
requirement. At December 31, 1994, First Federal was in compliance with both
requirements, with an overall liquid asset ratio of 18.35%.

Accounting. An OTS policy statement applicable to all savings
institutions clarifies and re-emphasizes that the investment activities of a
savings institution must be in compliance with approved and documented
investment policies and strategies, and must be accounted for in accordance
with GAAP. Under the policy statement, management must support its
classification of and accounting for loans and securities (i.e., whether held
for investment, sale or trading) with appropriate documentation. First Federal
is in compliance with these amended rules.

The OTS has proposed an amendment to its accounting regulations, which may
be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS.

Qualified Thrift Lender Test. All savings institutions, including First
Federal, are required to meet a QTL test to avoid certain restrictions on their
operations. This test requires a savings institution to have at least 65% of
its portfolio assets (which consists of total assets less intangibles,
properties used to conduct the savings institution's business and liquid assets
not exceeding 20% of total assets) in qualified thrift investments on a monthly
average for nine out of every 12 months on a rolling basis. At December 31,
1994, First Federal met the test and has always met the test since its
effectiveness.

Loans and mortgage-backed securities secured by domestic residential
housing and FHLB stock, as well as certain obligations of the Federal Savings
and Loan Insurance Corporation ("FSLIC"), the FDIC and certain other related
entities may be included in qualifying thrift investments without limit. FHLMC
and FNMA stock and certain other housing-related and non-residential real
estate loans and investments, including loans to develop churches, nursing
homes, hospitals and schools, and consumer loans and investments in
subsidiaries engaged in housing-related activities may also be included, in
varying amounts, to the extent of 20% of portfolio assets.

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Any savings institution that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an institution does not requalify and converts to a national bank
charter, it must remain SAIF-insured until at least December 31, 1993, or
until the FDIC permits it to transfer to the Bank Insurance Fund, if later.
Generally, such transfers are not permitted until August 1994. If an
institution that fails the test has not yet requalified and has not converted
to a national bank, its new investments and activities are limited to those
permissible for both a savings institution and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
institution is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such institution
has not requalified or converted to a national bank within three years after
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties.

Transactions with Affiliates. Generally, transactions between a savings
institution or its subsidiaries and its affiliates are required to be on terms
as favorable to the institution as transactions with non-affiliates. In
addition, certain of these transactions are restricted to a percentage of the
institution's capital. Affiliates of First Federal include any company which
is under common control with First Federal. In addition, an institution may
not lend to any affiliate engaged in activities not permissible for a bank
holding company or acquire the securities of most affiliates.

Certain transactions with directors, officers or controlling persons are
also subject to certain conflict of interest regulations enforced by the OTS.
These conflict of interest regulations and other statutes also impose
restrictions on loans to such persons and their related interests. Among other
things, such loans must be made on terms substantially the same as for loans to
unaffiliated persons. At December 31, 1994, First Federal was in compliance
with these requirements.

Federal Reserve System. The Board of Governors of the Federal Reserve
System (the "Federal Reserve") requires all depository institutions to maintain
non-interest bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts) and
non-personal time deposits. At December 31, 1994, First Federal was in
compliance with these reserve requirements. The balances maintained to meet
the reserve requirements imposed by the Federal Reserve may be used to satisfy
liquidity requirements that may be imposed by the OTS.

Savings institutions are authorized to borrow from the Federal Reserve
"discount window," but Federal Reserve regulations require institutions to
exhaust other reasonable alternative sources of funds, including FHLB
borrowings, before borrowing from the Federal Reserve.

Federal Home Loan Bank System. First Federal is a member of the FHLB of
Dallas, which is one of 12 regional FHLBs, that regulates 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 to members (i.e., advances) in accordance with
policies and procedures established by the board of directors of the FHLB.
These policies and procedures are subject to the regulation and oversight of
the Federal Housing Finance Board. All advances from the FHLB are required to
be fully secured by sufficient collateral as determined by the FHLB. In
addition, all long-term advances are required to provide funds for residential
home financing.

As a member, First Federal is required to purchase and maintain stock in
the FHLB of Dallas. At December 31, 1994, First Federal had $191,400 in FHLB
stock, which was in compliance with this

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requirement. In past years, First Federal has received substantial dividends
on its FHLB stock. Such dividends were 5.78% for calendar year 1994.

For the year ended December 31, 1994, dividends paid by the FHLB of
Dallas, to First Federal totaled $8,800, which constitutes a $2600 increase
from the amount of dividends received in fiscal year 1993. The $2,700 dividend
received for the quarter ended December 31, 1994 reflects an annualized rate of
5.78%.

The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to low and moderately priced housing
programs through direct loans or interest subsidies on advances targeted for
community investment and low- and moderate-income housing projects. These
contributions have 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 First Federal's FHLB stock may result in a corresponding reduction in First
Federal's capital.

Federal and State Taxation. Thrift institutions such as First Federal
that meet certain definitional tests relating to the composition of assets and
other conditions prescribed by the Code, are permitted to establish reserves
for bad debts and to make annual additions thereto which may, within specified
formula limits, be taken as a deduction in computing taxable income for federal
income tax purposes. The amount of the bad debt reserve deduction for
"non-qualifying loans" is computed under the experience method. The amount of
the bad debt reserve deduction for "qualifying real property loans" (generally
loans secured by improved real estate) may be computed under either the
experience method or the percentage of taxable income method (based on an
annual election).

Under the experience method, the bad debt reserve deduction is an amount
determined under a formula based generally upon the bad debts actually
sustained by the savings institution over a period of years.

The percentage of specially computed taxable income that is used to
compute a thrift institution's bad debt reserve deduction under the percentage
of taxable income method (the "percentage bad debt deduction") is 8%. The
percentage bad debt deduction thus computed is reduced by the amount permitted
as a deduction for non-qualifying loans under the experience method. The
availability of the percentage of taxable income method permits qualifying
thrift institutions to be taxed at a lower effective federal income tax rate
than that applicable to corporation generally (approximately 31.3% assuming the
maximum percentage bad debt deduction).

If an institution's specified assets (generally, loans secured by
residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets the
institution may not deduct any addition to a bad debt reserve and generally
must include existing reserves in income over a four year period. First
Federal anticipates that it will meet the 60% test for subsequent taxable
years.

Under the percentage of taxable income method, the percentage bad debt
deduction cannot exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year or the greater of (i) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for "non-qualifying loans" equals the amount by
which 12% of the amount comprising savings accounts at year-end exceeds the sum
of surplus, undivided profits and reserves at the beginning of the year.

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In addition to the regular income tax, corporations, including thrift
institutions such as First Federal, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1992, corporations, including thrift institutions such as
First Federal, are also subject to an environmental tax equal to 0.12% of the
excess of alternative minimum taxable income for the taxable year (determined
without regard to net operating losses and the deduction for the environmental
tax) over $2 million.

To the extent earnings appropriated to a thrift institution's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the institution's supplemental reserves
for the losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for payment of cash dividends or other distributions
to a shareholder (including distributions on redemption, dissolution or
liquidation) or for any other purpose (except to absorb bad debt losses). As
of December 31, 1994, First Federal's Excess for tax purposes totaled
approximately $0.

First Federal and its subsidiary file consolidated federal income tax
returns on a December 31 fiscal year basis using the accrual method of
accounting.

First Federal has not been audited by the IRS in the last 20 years.

Change in Accounting for Income Taxes. Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), was issued by the Financial Accounting
Standards Board ("FASB") in early 1992 and is required for fiscal years
beginning after December 15, 1992. SFAS No. 109 requires a change from the
deferred method to the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities. Under SFAS No 109, the effect on deferred taxes of a change
in tax rates is recognized in income in the period that includes the enactment
date. Under the deferred method, deferred taxes were recognized using the tax
rate applicable to the year of the calculation and were not adjusted for
subsequent changes in tax rates. The 1994 implementation of SFAS 109 resulted
in a $0 charge to operations.

In December 1990, the FASB issued SFAS No. 106, "Employers' Accounting for
Post-retirement Benefits Other Than Pensions." This statement will change the
current practice of accounting for post-retirement benefits on a cash basis by
requiring accrual, during the years that the employee renders the necessary
service, of the expected cost of providing those benefits to an employee.
First Federal was required to adopt this new method of accounting in fiscal
1993. The statement allows for two transition methods. First Federal adopted
this standard which had no material effect on its financial position and
results of operations.

Mississippi Taxation. First Federal is subject to Mississippi income tax,
which is imposed at a rate of 3% on the first $5,000 of taxable income, 4% on
the next $5,000 of taxable income and 5% on taxable income in excess of
$10,000. First Federal is also subject to the Mississippi franchise tax, which
is imposed at a rate of $2.50 per $1,000, or fractional part thereof, of
capital, surplus, undivided profits and reserves employed in Mississippi. A
Mississippi combination return of corporate income and franchise tax must be
filed annually.

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EMPLOYEES

At December 31, 1994, First Federal had a total of nine full-time and two
part-time employees. First Federal's employees are not represented by any
collective bargaining group. Management of First Federal considers its
employee relations to be good.

EXECUTIVE OFFICERS

The following table sets forth the names, ages and positions of each
of the executive officers of First Federal and the year in which each was
elected to his or her current position.

<TABLE>
<CAPTION>
Year
Elected
Name Age Position to Position
------------------------ --- ---------------------------- -----------
<S> <C> <C> <C>
Erie H. Staggers, III 43 President, Chief Executive 1985
Officer and Director

Betty L. Gentry 44 Senior Vice President, 1986
Secretary
</TABLE>

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

BUSINESS OF FIRST FEDERAL

First Federal was originally founded in 1934 as a federally chartered
savings and loan association under the name of First Federal Savings and Loan
Association of Starkville and converted to a federally chartered mutual savings
bank under its current name in 1988. First Federal converted to a stock
institution effective October 1, 1993. First Federal is a member of the FHLB
system and its deposits are insured by the FDIC. First Federal provides
financial services, ranging from checking accounts and deposit accounts to one-
to four- family residential mortgage loans, commercial real estate loans and
consumer loans.

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Three Months Ended March 31, 1995 Compared to Three Months Ended March 31, 1994

Total assets at March 31, 1995 were $25,037,412 as compared to
$25,306,785 at December 31, 1994, a decrease of $269,373. Deposits decreased
in this three month period by $315,879, from $22,327,758 at December 31, 1994
to $22,011,879 at March 31, 1995. Investment securities decreased by
$500,902, due to maturities of securities.

Net increase income before provision for loan losses increased to
$210,000 for the three month period ending March 31, 1995, due primarily to an
increase in interest on investment securities purchased during 1994.

Total interest expense increased to $212,000 for the three month
period ended March 31, 1995 from $183,000 for the three months ended March 31,
1994. This increase was primarily due to the increase in the cost of deposits
from 3.5% for the three month period ending March 31, 1994 to 3.83% for the
three months ending March 31, 1995.

The provision for loan losses for the three month period ended March
31, 1995 was $4,000 as compared to $3,000 for the same period in 1994.
Management of First Federal determined that the provision for loan losses was
sufficient for any potential default in portfolio loans at $100,000, given
First Federal's history of losses on loans. The $4,000 added for the three
months ended March 31, 1995 was for the write-off of overdrawn checking
accounts, which were considered loans by the OTS.

Non-interest income decreased by $26,000 for the three month period
ended March 31, 1995, due to the decrease in investor loan processing fees as a
result of the decreased level of loan refinancing.

Non-interest expense increased for the three month period of 1995 due
to the additional expenses incurred in the three month period ending March 31,
1995, as compared to the same period in 1994, due to First Federal's conversion
to a stock association and increased costs from reports and mailings required
to be provided to stockholders of First Federal. In addition expenses have
been incurred in the three month period ending March 31, 1995, as compared to
the same period in 1994, due to the Merger. Expenses associated with the Merger
totalled approximately $22,500 at March 31, 1995.

Although income before taxes decreased for the three month period
ended March 31, 1995, to the same period of 1994, income tax expense for the
three months ended March 31, 1995 decreased by $24,000 from the same period of
1994. This was due to the investment in agency securities exempt from
Mississippi state income tax.

Twelve Months Ended December 31, 1994 Compared to Prior Twelve Month Periods

At December 31, 1994, total assets were $25.3 million, a decrease of
$189,0900, or .74% from $25.5 million at December 31, 1993. During the five
year period ended December 31, 1994, total assets have increased 7.74%, or $1.8
million. For the five year period, net loans have ranged from $13.6 million at
December 31, 1993 to $16.3 million at December 31, 1990. This represents a
decrease of 16.8% for the period, generally as a result of customers
refinancing adjustable-rate loans held in First Federal's loan portfolio for
fixed-rate loans which First Federal then sold in the secondary mortgage
market. First Federal generally does not intend to originate fixed-rate
long-term mortgage loans to be held in First Federal's loan portfolio due to
the interest rate risk associated with such loans. Net loans aggregated $14.1
million at December 31, 1994, an increase of $493,000, or 3.63%, from $13.6
million at December 31, 1993. This increase was due primarily to the making of
several commercial real estate loans. Total deposits have remained relatively
steady over the five-year period. Total capital increased from 2.30% of assets
in 1990 to 11.01% in 1994. The primary reason for this increase was the $1.4
million (after expenses) generated from the stock conversion completed on
October 1, 1993. The remaining increase was from a steady growth in retained
earnings over the five-year period.

S-64
<PAGE> 67
Net income for the period from 1990 to 1992 increased from $176,000 in
1990 to $230,000 in 1992. The annual increases were due primarily to an
increase in net interest income due to interest sensitive liabilities repricing
more quickly than interest earning assets. The consistent implementation of
First Federal's asset/liability management policy has allowed net interest
income to continue to increase. Net income decreased from $230,000 in 1992 to
$218,000 in 1993. The major reason for this decrease was the addition of
$83,000 to provision for loan losses as compared to $14,000 added in 1992;
$7,000 in 1991; and $9,000 in 1990. The increases in net income were also
lessened in 1992 and 1993 by the payment of income taxes. Prior to 1992, First
Federal had a deferred loss for tax purposes which was used up at year-end
1991. Net income increase from $218,000 in 1993 to $234,000 in 1994. This
increase was due primarily to a decrease in income taxes as a result of the
purchase of agency securities which are non-taxable for the State of
Mississippi.

The provision for loan losses is maintained to insure that First
Federal provides adequate protection against potential future loan losses.
Although First Federal's loan losses have historically been extremely low,
management's assessment of the risk inherent generally in First Federal's
portfolio and the risk related to consumer lending, has caused management to
increase the provision for loan losses to $100,0000 over the five-year period.
It is the opinion of management of First Federal and the OTS that this level of
provision for loan losses is adequate for First Federal given its history and
risk factors.

Non-interest income increased from $116,000 in 1990 to $294,000 in
1993, an increase of $178,000. The increase was due primarily to fees earned
on fixed-rate loans sold into the secondary market. 1992 and 1993 saw many
borrowers taking advantage of historically low mortgage rates. An additional
increase was due to service charges on checking accounts. First Federal
introduced a new non-interest bearing checking account that has generated
additional non-interest income in the form of insufficient funds charges and
service charges. Non-interest income decreased from $294,000 in 1993 to
$215,000 in 1994, a decrease of $79,000. This decrease was due primarily to a
decrease in the fees earned on fixed-rate loans sold into the secondary market.

Non-interest expense increased from $490,000 in 1990 to $695,000 in
1994. The increase was due in large part to increases in employee salaries and
the hiring of a management trainee. In addition, an increase in directors fees
in 1993, which carried over into 1994, resulted in additional non-interest
expense. Deposit insurance premiums were up for the period due to the usage of
First Federal's secondary reserve credit with the FSLIC. Additional expenses
were also incurred in the twelve month period, as compared to the same period
of 1993, due to the stock conversion. These increased costs came from reports
and mailings required to stockholders.

LIQUIDITY-ASSET/LIABILITY MANAGEMENT

Liquidity may be defined as the ability of First Federal to meet cash
flow requirements created by decreases in deposits and/or other sources of
funds or increases in loan demand. First Federal has experienced no problem
with liquidity during any of the years noted and anticipates that all liquidity
requirements will be met comfortably in the foreseeable future. First
Federal's traditional source of funds from deposit increases, maturing loans,
and earnings have allowed it to consistently generate funds for liquidity
needs.

At December 31, 1994, First Federal had interest-earning assets of
$24.8 million, having a weighted rate of 6.893%, and interest-bearing
liabilities of $22.3 million, having a weighted average effective interest rate
of 3.75%

As noted previously, First Federal maintains a strict asset/liability
management policy. The adherence to such a policy has an obvious impact on the
structure of First Federal's balance sheet, and, to some degree, on its
liquidity positions.

The OTS requires members of the FHLB system to maintain minimum levels
of liquid assets. OTS regulations require First Federal to maintain an average
daily balance of liquid assets equal to at least 5% of the sum of its average
daily balance of net withdrawable deposit accounts and borrowings payable in
one year or less. At December 31, 1994, First Federal's regulatory liquidity
was 18.4%.

At December 31, 1994, First Federal had 17 time certificates of
deposit of $100,000 or more aggregating $1,796,000. In First Federal's
experience, these have been stable deposits. While management of First Federal
believes that a significant portion of these certificates will be reinvested
with First Federal upon maturity, no assurances can be made that this will
occur.

S-65
<PAGE> 68
CAPITAL RESOURCES

During fiscal 1993, in connection with the conversion of First Federal
to a stock institution, 157,466 shares of common stock were issued to 186
stockholders at a price of $10.00 per share. Expenses of $177,037 directly
related to the conversion were charged against paid-in capital. This had the
effect of increasing stockholders' equity by $1,397,623.

First Federal's primary source of capital has historically been
internally generated earnings. Because of First Federal's earnings history and
financial position, management believes that there are adequate resources to
fund First Federal's growth.

Federally insured thrift institutions, such as First Federal, are
required to maintain certain minimum regulatory capital ratios. As is shown in
the notes to the accompanying financial statements and the financial summary,
First Federal has met and exceeded those requirements.

IMPACT OF INFLATION AND CHANGES IN PRICES

The consolidated financial statements and related data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and results of
operations in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, virtually all of the assets and liabilities of First
Federal are monetary in nature. As a result, interest rates have a more
significant impact on a financial institution's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services.
In the current interest rate environment, the liquidity, maturity structure and
quality of First Federal's assets and liabilities are critical to the
maintenance of acceptable performance levels.

COMMON STOCK MARKET INFORMATION

Currently, there is no established market in which the First Federal
Common Stock is regularly traded, nor any uniformly quoted price for such
shares. At May 26, 1995, there were 186 holders of record of the First
Federal Common Stock.

S-66
<PAGE> 69
DESCRIPTION OF FIRST FEDERAL CAPITAL STOCK

VOTING SECURITIES

Stockholders of record of First Federal Common Stock as of the close of
business on May 26, 1995 are entitled to one vote for each share of First
Federal Common Stock then held at the Special Meeting. At May 26, 1995, First
Federal had 169,274 shares of First Federal Common Stock issued and
outstanding, which is the only outstanding class of First Federal's capital
stock.

The presence in person or by proxy of at least a majority of the
outstanding shares of First Federal Common Stock entitled to vote is necessary
to constitute a quorum at the Special Meeting. In the event that there are not
sufficient votes present for a quorum, or to ratify any proposal at the time of
the Special Meeting, the Special Meeting may be adjourned in order to permit
the further solicitation of proxies.

For a description of the rights and privileges of holders of First
Federal Common Stock and a comparison of those rights with those of the
BancorpSouth Common Stock, see "Comparison of Rights of Stockholders."

BENEFICIAL OWNERSHIP

Persons and groups owning in excess of 5% of the First Federal Common
Stock are required to file certain reports with the Securities and Exchange
Commission (the "Commission") regarding such ownership pursuant to the Exchange
Act. Based upon such reports and information provided by First Federal's
transfer agent, the following table sets forth, at May 26, 1995, certain
information as to those persons who were beneficial owners of more than 5% of
the outstanding shares of First Federal Common Stock and the beneficial
ownership of each director and executive officer and all directors and
executive officers as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
SHARES OF
SHARES OF FIRST FIRST FEDERAL
FEDERAL COMMON COMMON STOCK
STOCK BENEFICIALLY BENEFICIALLY
OWNED(1) OWNED(1)
------------------ ------------
<S> <C> <C>
Erie H. Staggers, III . . . . . . 13,877 8.7%
Bradford M. Johnson . . . . . . . 12,500 7.9
Albert Clark . . . . . . . . . . 9,468 5.9
Betty L. Gentry . . . . . . . . . 8,857 5.6
All directors and executive
officers of First Federal as a
group (six persons) . . . . . . . 49,206 29.1
</TABLE>

- ------------------
(1) Pursuant to rules promulgated under the Exchange Act, a person or
entity is considered to beneficially own shares of Common Stock if
he or she directly or indirectly has or shares (1) voting power,
which includes the power to vote or to direct the voting of the
shares; or (2) investment power, which includes the power to dispose
or direct the disposition of the shares. Unless otherwise
indicated, includes all shares held directly by the named
individuals as well as by spouses, minor children in trust and other
indirect ownership, over which shares the named individual
effectively exercises sole voting and investment power with respect
to the indicated shares.

S-67
<PAGE> 70

COMPARISON OF RIGHTS OF STOCKHOLDERS

The following is a comparison of the rights a stockholder of First
Federal now possesses under applicable governing authority and would possess as
a stockholder of the Company with respect to the various factors set forth
below:

VOTING RIGHTS; CUMULATIVE VOTING

First Federal - The Federal Stock Charter of First Federal (the
"First Federal Charter") provides that each outstanding share of First Federal
Common Stock is entitled to one vote, except as to the cumulation of votes for
the election of directors. The Bylaws of First Federal provides that
stockholders may cumulate votes in an election of directors, with each
stockholder being entitled to cast a number of votes equal to the number of
shares of First Federal Common Stock owned by such stockholder multiplied times
the number of directors to be elected; however, the First Federal Charter
prohibits cumulative voting at an election of directors prior to October 1,
1998.

Company - The Restated Articles of Incorporation of the Company, as
amended (the "BancorpSouth Charter") provides that each share of issued and
outstanding BancorpSouth Common Stock entitles the holder to one vote on each
matter with respect to which stockholders are entitled to vote. The
BancorpSouth Charter and Bylaws do not provide for cumulative voting by
stockholders.

CHANGE OF CONTROL

First Federal - The Board of Directors of First Federal is divided
into three classes so that only one-third of the directors will be subject to
reelection at each annual meeting of the stockholders of First Federal.

Company - The BancorpSouth Charter contains several provisions which
make a change of control of the Company more difficult to accomplish without
the approval of the Board of Directors of the Company. The Board of Directors
of the Company is divided into three classes so that only one-third of the
directors will be subject to reelection at each annual meeting of the
stockholders of the Company. The BancorpSouth Charter also provides that the
affirmative vote of the holders of not less than 80% of the outstanding shares
of voting stock of the Company is required in the event that the Board of
Directors of the Company does not recommend to the stockholders of the Company
a vote in favor of a merger or consolidation of the Company with, or a sale or
lease of all or substantially all of the assets of the Company to, any person
or entity. In addition, the affirmative vote of the holders of not less than
80% of the outstanding shares of voting stock of the Company, as well as at
least 67% of the outstanding shares of voting stock of the Company not held by
a person owning or controlling 20% or more of the Company's voting stock
("Controlling Person"), shall be required for the approval of a merger,
consolidation, or sale or lease of all or substantially all of the Company's
assets with or to a Controlling Person, except in certain instances.

S-68
<PAGE> 71
BOARD OF DIRECTORS

First Federal - The First Federal Charter provides that the business
and affairs of First Federal is to be under the direction of the Board of
Directors of First Federal. The number of members of the Board of Directors of
First Federal is to be no fewer than seven nor more than 15, except when a
greater number is approved by the OTS, as designated in the First Federal
Bylaws. The First Federal Bylaws designates that the Board of Directors of
First Federal is to consist of six members, which are to be divided into three
classes, with the classes elected for staggered three-year terms. Each
director must be the beneficial owner of at least 100 shares of First Federal
capital stock.

Company - The Company's Bylaws provide that the business and affairs
of the Company are to managed by the Company's Board of Directors. The
Company's Board of Directors is to consist of nine to 24 members, as determined
from time to time by the Company's Board of Directors, and at May 26, 1995,
consisted of 12 members. The members of the Company's Board of Directors are
divided into three classes, with the classes elected for staggered three-year
terms.

REMOVAL OF DIRECTORS

First Federal - The First Federal Charter provides that a director
of First Federal may be removed for cause at a meeting of the stockholders of
First Federal called expressly for the purpose of such removal, upon the
affirmative vote of holders of a majority of the shares entitled to vote. If
less than the entire Board of Directors is to be removed, no one director may
be removed if the votes cast against such director's removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part.

Company - The BancorpSouth Charter provides that a director of the
Company may be removed for cause by the affirmative vote of a majority of the
entire Board of Directors of the Company, and may be removed by the
stockholders of the Company only for cause.

INDEMNIFICATION OF MANAGEMENT

First Federal - The First Federal Charter provides that, subject to
any applicable federal law, First Federal shall indemnify, to the extent not
covered by applicable liability insurance, directors, officers and employees of
First Federal against all expenses and liabilities, including attorney fees,
reasonably incurred by or imposed upon such person in connection with any
proceeding to which such person may be made a party, or in which such person
may become involved, because such person is or was a director, officer or
employee of First Federal, or any settlement thereof. Such indemnification is
prohibited, however, in any cases wherein the director, officer or employee is
adjudged guilty of willful or criminal misconduct in the performance of such
person's duties; provided, that in the event of a settlement, such person may
be indemnified only when a majority of the disinterested directors determines
that such person was acting in good faith within the scope of such person's
employment or authority as such person could reasonably have perceived it under
the circumstances, and for a purpose such person could reasonably have believed
was in the best interests of First Federal or its stockholders under the
circumstances.

Company - The BancorpSouth Charter provides that directors of
BancorpSouth shall not be personally liable to BancorpSouth or its stockholders
for monetary damages for the amount of a financial benefit received by a
director to which he is not entitled, an intentional infraction of harm on the
Company or its stockholders, a violation of Section 79-4-8.33 of the
Mississippi Business Corporation Act, or an intentional violation of criminal
law. The BancorpSouth Charter also provides that, if the law of Mississippi is
amended to limit or expand the liability of directors, the liability of
directors will be limited or expanded

S-69
<PAGE> 72

according to such amended provisions. In addition, the BancorpSouth Charter
provides that the Company shall indemnify, and upon request shall advance
expenses to any officer or director who was, or is a party to, or is threatened
to be made a party to, any threatened, pending or completed action, suit or
proceeding because such person is or was a director or officer of the Company.

DURATION

First Federal - The First Federal Charter provides that the duration
of First Federal is perpetual.

Company - The BancorpSouth Charter provides that the duration of the
Company is perpetual.

PERMITTED ACTIVITIES

First Federal - The First Federal Charter provides that First
Federal is permitted to pursue any lawful objective of a federal capital stock
savings bank chartered under Section 5 of the Home Owners Loan Act, and to
exercise all express, implied and incidental powers conferred thereby.

Company - The BancorpSouth Charter provides that the Company may
engage in any business activity or exercise any power permitted by law.

RIGHTS OF STOCKHOLDERS TO CALL SPECIAL MEETINGS

First Federal - The First Federal Charter provides that until
October 1, 1998, any special meeting of the stockholders of First Federal
relating to a change in control or an amendment to the First Federal Charter
may be called only by the Board of Directors of First Federal.

Company - The BancorpSouth Charter provides that special meetings of
the stockholders of the Company may be called by the chief executive officer or
secretary of the Company, or by the holders of not less than a majority of the
shares entitled to vote at such meeting.

S-70
<PAGE> 73

LEGAL MATTERS

The validity of the shares of BancorpSouth Common Stock to be issued
to the stockholders of First Federal in the Merger and certain federal income
tax consequences in connection with the Merger will be passed upon by Waller
Lansden Dortch & Davis, Nashville, Tennessee, special counsel to the Company.
Certain matters concerning the Merger will be passed upon on behalf of the
Company by Riley, Ford, Caldwell & Cork, P.A., Tupelo, Mississippi. Frank A.
Riley, a shareholder of such firm, is a director of the Company. Certain legal
matters concerning the Merger will be passed upon on behalf of First Federal by
Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C.

EXPERTS

The Consolidated Financial Statements of the Company, as of December
31, 1994 and 1993, and for each of the years in the three-year period ended
December 31, 1994, have been incorporated by reference in this Supplement/Proxy
Statement and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of such firm as experts in accounting
and auditing.

The Consolidated Financial Statements of First Federal as of
December 31, 1994 and 1993 and for each of the years in the three-year period
ended December 31, 1994, included in this Supplement/Proxy Statement, are
included in reliance upon the report of T.E. Lott & Company, independent
certified public accountants, upon the authority of such firm as experts in
accounting and auditing.

S-71
<PAGE> 74

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Certified Public Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

First Federal Bank for Savings and Subsidiary Consolidated Statements
of Financial Condition at December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . F-3

First Federal Bank for Savings and Subsidiary Consolidated Statements
of Operations for Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . F-4

First Federal Bank for Savings and Subsidiary Consolidated Statements
of Changes in Stockholders' Equity for Years Ended December 31,
1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5

First Federal Bank for Savings and Subsidiary Consolidated Statements
of Cash Flows for Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . F-6

First Federal Bank for Savings and Subsidiary Notes to Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8

First Federal Bank for Savings and Subsidiary Consolidated Statements
of Financial Condition at March 31, 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . F-26

First Federal Bank for Savings and Subsidiary Consolidated Statements
of Operations for three months ended March 31, 1995 and 1994 (Unaudited) . . . . . . . . . . . . F-27

First Federal Bank for Savings and Subsidiary Consolidated Statements
of Cash Flows for the three months ended March 31, 1995 and March 31, 1994,
respectively (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-28

First Federal Bank for Savings and Subsidiary Consolidated Statement
of Stockholders' Equity for the three months ended March 31, 1995 (Unaudited). . . . . . . . . . F-29

First Federal Bank for Savings and Subsidiary Notes to Consolidated
Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-30
</TABLE>

F-1
<PAGE> 75

REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
First Federal Bank for Savings
Starkville, Mississippi

We have audited the accompanying consolidated statements of financial condition
of First Federal Bank for Savings (the Bank) and Subsidiary as of December 31,
1994 and 1993, and the related consolidated statements of operations, changes
in stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1994. These consolidated financial statements are
the responsibility of the Bank's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Federal
Bank for Savings and Subsidiary as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.

T.E. Lott & Company

Starkville, Mississippi
January 24, 1995 (Except for Note P,
as to which the date is January 27, 1995)

F-2
<PAGE> 76

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31, 1994 AND 1993

<TABLE>
<CAPTION>
ASSETS 1994 1993
--------------- ---------------
<S> <C> <C>
Cash $ 180,002 $ 186,350
Interest-earning deposits 777,542 2,671,962
--------------- ----------------
Total cash and cash equivalents 957,544 2,858,312
Mortgage-backed and related securities (approximate market
value $2,017,685 at December 31, 1994, and $2,941,699
at December 31, 1993) (Notes A-2 and B) 2,091,116 2,856,328
Investment securities (approximate market value of $7,298,300
at December 31, 1994, and $5,585,100 at December 31, 1993)
(Notes A-2 and B) 7,507,474 5,573,905
Federal Home Loan Bank stock, at cost (Note E) 191,400 182,800
Savings and Loan Data Corporation stock 15,000 15,000
Loans receivable, net (Notes A-3 and C) 14,077,946 13,583,976
Properties and equipment (Notes A-5 and D) 231,966 202,276
Accrued interest receivable (Note F) 161,964 143,692
Other assets 72,375 78,496
--------------- ----------------

$ 25,306,785 $ 25,494,785
=============== ================

LIABILITIES AND RETAINED EARNINGS

Liabilities:
Deposits (Note G) $ 22,327,758 $ 22,545,657
Advances from borrowers for taxes and insurance 104,301 252,165
Accrued interest payable on deposits 38,536 24,587
Accrued expenses and other liabilities 49,211 85,832
--------------- ----------------
Total liabilities 22,519,806 22,908,241

Commitments and contingencies (Note K)

Stockholders' equity:
Common stock, $1 par value, 207,000 shares authorized;
157,466 shares issued and outstanding (Note N) 157,466 157,466
Additional paid in capital 1,238,723 1,240,157
Retained earnings, substantially restricted (Notes I and N) 1,390,790 1,188,921
--------------- ----------------
Total stockholders' equity 2,786,979 2,586,544
--------------- ----------------

$ 25,306,785 $ 25,494,785
=============== ================
</TABLE>

The accompanying notes are an integral part of these statements.

F-3
<PAGE> 77

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE>
<CAPTION>
1994 1993 1992
-------------- ----------------- ----------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 1,038,350 $ 1,053,067 $ 1,288,266
Interest on mortgage-backed and related securities 162,417 248,310 322,756
Interest on investment securities 334,945 172,271 70,416
FHLB stock dividends 8,811 6,243 6,687
Interest on deposits due from banks 67,233 90,939 105,971
-------------- ----------------- ----------------
1,611,756 1,570,830 1,794,096
INTEREST EXPENSE
Interest on deposits 773,327 813,123 1,059,687
-------------- ----------------- ----------------

Net interest income 838,429 757,707 734,409
Provision for losses on loans 9,663 83,031 17,613
-------------- ----------------- ----------------

Net interest income after provision for losses on loans 828,766 674,676 716,796
-------------- ----------------- ----------------

NON-INTEREST INCOME
Loan fees and service charges 39,825 57,915 78,442
Investor loan processing fees 85,247 160,551 83,492
NOW account fees 76,620 63,929 48,782
Other 13,871 11,811 4,964
-------------- ----------------- ----------------
215,563 294,206 215,680
-------------- ----------------- ----------------
NON-INTEREST EXPENSE
Compensation and benefits (Note J) 334,888 286,913 245,032
Occupancy 26,648 25,020 21,847
Furniture and equipment 24,847 27,148 30,702
Deposit insurance premium 56,059 47,366 49,850
Loss on foreclosed real estate - - 3,408
Data processing 51,248 47,440 48,334
Other 201,411 186,361 155,744
-------------- ----------------- ----------------
695,101 620,248 554,917
-------------- ----------------- ----------------

Income before income taxes 349,228 348,634 377,559

Income tax expense:
Current 106,320 151,579 135,488
Deferred 1,673 (20,659) 12,073
-------------- ----------------- ----------------
107,993 130,920 147,561
-------------- ----------------- ----------------

Net income $ 241,235 $ 217,714 $ 229,998
============== ================= ================

Net income per share (Note O) $ 1.43 $ - $ -
============== ================= ================
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE> 78

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE>
<CAPTION>
Additional
Common Paid in Retained
Stock Capital Earnings Total
--------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Balance, January 1, 1992 $ - $ - $ 741,209 $ 741,209

Net income for 1992 - - 229,998 229,998
--------------- ---------------- ---------------- -----------------

Balance, December 31, 1992 - - 971,207 971,207

Issuance of common stock (Note N) 157,466 1,240,157 - 1,397,623

Net income for 1993 - - 217,714 217,714
--------------- ---------------- ---------------- -----------------

Balance, December 31, 1993 157,466 1,240,157 1,188,921 2,586,544

Conversion expense - (1,434) - (1,434)

Cash dividends declared, $.25 per
share - - (39,366) (39,366)

Net income for 1994 - - 241,235 241,235
--------------- ---------------- ---------------- -----------------

Balance, December 31, 1994 $ 157,466 $ 1,238,723 $ 1,390,790 $ 2,786,979
=============== ================ ================ =================
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE> 79

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE>
<CAPTION>
1994 1993 1992
--------------- -------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 241,235 $ 217,714 $ 229,998
Adjustments to reconcile net earnings to net cash:
Depreciation of properties and equipment 19,264 16,096 16,713
Deferred income taxes (benefits) 1,673 (20,659) 12,074
Provision for losses on loans 9,663 83,031 17,613
FHLB stock dividends (8,811) (6,243) (6,400)
(Increase) decrease in accrued interest receivable (18,272) (11,465) 27,615
(Increase) decrease in other assets 6,122 (55,466) 5,262
(Increase) decrease in investor loans 393,871 139,540 (597,185)
Increase (decrease) in accrued interest payable
on deposits 13,949 (4,081) (22,397)
Increase (decrease) in accrued expenses and
other liabilities (38,294) (19,997) 76,480
Loss on retirement of equipment - - 316
--------------- -------------- ---------------

Net cash provided by (used in) operating activities 620,400 338,470 (239,911)

CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in loans (897,504) 883,141 1,028,908
Purchases of investment securities to be
held-to-maturity (1,159,546) (2,309,409) (1,681,303)
Purchase of properties and equipment (48,955) (2,171) (4,489)
Purchase of FHLB stock (8,600) (6,100) (6,400)
Sale of foreclosed real estate - 22,110 -
--------------- -------------- ---------------

Net cash used in investing activities (2,114,605) (1,412,429) (663,284)
</TABLE>

( Continued )

The accompanying notes are an integral part of these statements.

F-6
<PAGE> 80

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

(Continued)

<TABLE>
<CAPTION>
1994 1993 1992
--------------- -------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in deposits $ (217,899) $ (258,883) $ (431,348)
Increase (decrease) in advances from borrowers for
taxes and insurance (147,864) 115,479 26,755
Issuance of common stock, net of conversion costs (1,434) 1,397,623 -
Cash dividends paid (39,366) - -
--------------- --------------- ----------------

Net cash provided by (used in) financing activities (406,563) 1,254,219 (404,593)
--------------- --------------- ----------------

Net increase (decrease) in cash and cash equivalents (1,900,768) 180,260 (1,307,788)

Cash and cash equivalents at beginning of period 2,858,312 2,678,052 3,985,840
--------------- --------------- ----------------

Cash and cash equivalents at end of period $ 957,544 $ 2,858,312 $ 2,678,052
=============== =============== ================

CASH PAID DURING THE PERIOD FOR:

Interest on deposits $ 799,174 $ 817,204 $ 1,082,084
Income taxes 138,381 186,111 42,800

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Acquisition of real estate in settlement of loans - 47,288 94,938
</TABLE>

The accompanying notes are an integral part of these statements.

F-7
<PAGE> 81

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE A - SUMMARY OF ACCOUNTING POLICIES

As more fully discussed in Note N, First Federal Bank for Savings (the Bank)
and Subsidiary converted from a mutual to a capital stock form of ownership.
The accounting and reporting practices of the Bank conform to generally
accepted accounting principles.

A summary of the Bank's significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows.

1. PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Bank and
its wholly-owned subsidiary, First Service Corporation of Starkville. All
significant intercompany accounts and transactions are eliminated in
consolidation.

2. SECURITIES

Mortgage-backed and related securities and investment securities are
classified into three categories and are accounted for as follows:

Available-for-Sale Securities

Securities classified as available-for-sale are those securities that are
intended to be held for an indefinite period of time, but not necessarily to
maturity. Any decision to sell a security classified as available-for-sale
would be based on various factors, including movements in interest rates,
liquidity needs, security risk assessments, changes in the mix of assets and
liabilities and other similar factors. These securities are carried at their
estimated fair value, and the net unrealized gain or loss is reported in
stockholders' equity, net of tax, until realized.

Gains and losses on the sale of available-for-sale securities are determined
using the adjusted cost of the specific security sold.

Premiums and discounts are recognized in interest income using the interest
method.

There were no available-for-sale securities at December 31, 1994.

( Continued )

F-8
<PAGE> 82

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)

Securities to be Held-to-Maturity

Securities classified as held-to-maturity are those securities for which
there is a positive intent and ability to hold to maturity. These securities
are carried at cost adjusted for amortization of premium and accretion of
discount, computed by the interest method.

Trading Account Securities

Trading account securities are those securities which are held for the
purpose of selling them at a profit. There were no trading account
securities on hand at December 31, 1994 and 1993.

For years prior to 1994, securities were carried at cost, adjusted for
amortization of premiums and accretion of discounts, computed principally by
the interest method. The adjusted cost of the specific security sold was
used to compute gains or losses.

The yield on, and recoverability of, the carrying value of mortgage-backed
and related securities may be affected by changes in interest rates and
prepayments. Management periodically evaluates the effects of matters such
as rate changes and prepayments and adjusts yields as necessary.

The Bank's policy is to invest in collateralized mortgage obligations (CMOs)
with higher priority basis tranches with an average remaining life ranging
from two to five years, and the CMOs are not classified as high risk under
the Federal Financial Institution Examination Council (FFIEC) high risk test.
CMOs are subjected to the FFIEC high risk test at least annually. The Bank's
policy is to sell any CMO if it should not pass the test.

3. LOANS RECEIVABLE, NET

Loans receivable, net are stated at unpaid principal balances, less the
allowance for loan losses, and net deferred loan- origination fees and
discounts.

Discounts on first mortgage loans are amortized to income using the interest
method over the remaining period to contractual maturity, adjusted for
anticipated prepayments. Discounts on consumer loans are recognized over the
lives of the loans using methods that approximate the interest method.

( Continued )

F-9
<PAGE> 83

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)

3. LOANS RECEIVABLE, NET (Continued)

The allowance for loan losses is increased by charges to income and decreased
by charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Bank's past loan loss experience,
known and inherent risks 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.

Interest on loans that are contractually past due 90 or more days is
generally charged off, or an allowance is established based on management's
periodic evaluation unless the obligation is well secured and in the process
of collection. The allowance is established by a charge to interest income
equal to all interest previously accrued. Additionally, an allowance is
established for interest on loans delinquent less than 90 days, but which in
management's opinion may become uncollectible in part or in full.

Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate.
Mortgage loans held for sale at December 31, 1994 and 1993, were $63,774 and
$457,645, respectively.

4. FORECLOSED REAL ESTATE

Real estate acquired in settlement of loans is recorded at cost or at
estimated fair value less estimated costs to sell, whichever is less, at the
date acquired, plus capital improvements made thereafter to facilitate sale.
An allowance for losses is maintained to reflect declines, if any, in net
fair values below the recorded amounts. Additions to the allowance are
charged to operations. Costs of holding real estate acquired in settlement
of loans are reflected as expense currently. Subsequent gains or losses on
foreclosed real estate are reported in other operating income or expenses.
Depreciation on operating properties is recorded using the straight-line
method over the estimated life of the property.

5. PROPERTIES AND EQUIPMENT

Properties and equipment are stated at cost less accumulated depreciation.
Depreciation is computed primarily on a straight-line basis over the
estimated useful life of each type of asset for both financial reporting and
income tax purposes. Expenditures for maintenance and repairs which do not
materially prolong the useful life of the assets are charged to operating
expenses as incurred, and improvements are capitalized. Gains and losses on
sale of assets are reflected in current operations.

( Continued )

F-10
<PAGE> 84

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)

6. LOAN ORIGINATION AND COMMITMENT FEES

Significant loan fees and certain direct costs of underwriting and closing
loans are deferred in compliance with Financial Accounting Standards Board
(FASB) Statement No. 91, accounting for non-refundable funds and costs
associated with originating or acquiring loans and initial direct costs of
leases. The deferred fees and discounts received in connection with mortgage
loans made are amortized to income over the life of mortgage loans, using the
interest method.

7. DEFERRED INCOME TAXES

Deferral of income taxes results primarily from different methods of
accounting for loan fees, and recognition of certain items, primarily loan
loss provisions, in different periods for financial and income tax reporting
purposes.

Effective January 1, 1993, the Bank and its subsidiary adopted the provisions
of FASB Statement No. 109, "Accounting for Income Taxes." The cumulative
effect of adopting Statement 109 was not significant. As permitted by the
Statement, prior year financial statements have not been restated.

8. STATEMENT OF CASH FLOWS

For purposes of the consolidated statement of cash flows, all highly liquid
debt instruments with an original maturity of three months or less are
considered to be cash equivalents.

9. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

In the ordinary course of business the Bank enters into off-balance sheet
financial instruments consisting of commitments to extend credit, commercial
letters of credit and commitments to purchase securities. Such financial
instruments are recorded in the financial statements when they are exercised.

( Continued )

F-11
<PAGE> 85

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)

10. ACCOUNTING PRONOUNCEMENTS

In December, 1991, the FASB issued Statement No. 107, "Disclosures About Fair
Value of Financial Instruments." Statement No. 107 requires all entities to
disclose, in financial statements or the notes thereto, the fair value of
financial instruments, both assets and liabilities recognized and not
recognized in the statement of financial condition, for which it is
practicable to estimate fair value. For institutions with total assets less
than $150 million, Statement No. 107 is effective for years ending after
December 15, 1995. Substantially all of the Bank's assets and liabilities
are financial instruments and, as a result, Statement No. 107 requires the
fair value of such assets and liabilities to be disclosed. Management has
not yet determined the impact the adoption of Statement No. 107 may have on
its financial statements.

In May, 1993, FASB issued Statement No. 114, "Accounting by Creditors for
Impairment of a Loan." The statement requires that impaired loans, as
defined, be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, if more practical, at
the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. The provisions of this statement apply to
financial statements for fiscal years beginning after December 15, 1994.
Management of the Bank does not anticipate that the statement will have a
significant impact on the financial statements when adopted.

In October, 1994, FASB issued Statement No. 119, "Disclosure About Derivative
Financial Statements and Fair Value of Financial Instruments." The Statement
requires disclosures about derivative financial instruments which it defines
as a futures, forward, swap, or option contract, or other financial
instruments with similar characteristics. The Statement was effective for
years ended after December 15, 1994. It is the policy of management not to
invest in these types of financial instruments.

11. RECLASSIFICATIONS

Certain prior periods amounts have been reclassified to conform with the 1994
presentation.

F-12
<PAGE> 86

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE B - SECURITIES

The amortized cost and estimated market values of investment securities and
mortgage-backed and related securities are as follows:

<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Description Cost Gains Losses Value
------------------------------------------- ---------------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
FHLB agency debentures $ 7,507,474 $ - $ 209,174 $ 7,298,300
Mortgage-backed and related
securities 2,091,116 - 73,431 2,017,685
----------------- ------------ -------------- ---------------

$ 9,598,590 $ - $ 282,605 $ 9,315,985
================= ============ ============== ===============
</TABLE>

<TABLE>
<CAPTION>
December 31, 1993
------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Description Cost Gains Losses Value
----------------------------------------- ---------------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
FHLB agency debentures $ 5,573,905 $ 15,320 $ 4,125 $ 5,585,100
Mortgage-backed and related
securities 2,856,328 85,371 - 2,941,699
----------------- ------------ -------------- ---------------

$ 8,430,233 $ 100,691 $ 4,125 $ 8,526,799
================= ============ ============== ===============
</TABLE>

The amortized cost and estimated market values of investment securities by
contractual maturities are as follows as of December 31, 1994 and 1993.

<TABLE>
<CAPTION>
1994 1993
-------------------------------- ---------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Due in one year or less $ 2,499,844 $ 2,476,100 $ 60,000 $ 60,000
Due after one year through five
years 5,007,630 4,822,200 5,513,905 5,525,100
--------------- --------------- ---------------- ---------------

$ 7,507,474 $ 7,298,300 $ 5,573,905 $ 5,585,100
=============== =============== ================ ===============
</TABLE>

There were no sales of securities during the years ended December 31, 1994
and 1993.

( Continued )

F-13
<PAGE> 87

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE B - SECURITIES (Continued)

The carrying values of mortgage-backed and related securities are summarized
as follows:

<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------------------------------------------------
Estimated
Principal Unamortized Unearned Carrying Market
Description Balance Premiums Discounts Value Value
------------------------------ -------------- ----------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
FNMA 7-Year Fixed
Balloon $ 259,764 $ - $ 2,771 $ 256,992 $ 261,753
FHLMC Gold Balloon 1,060,888 7,285 392 1,067,781 1,028,465
GNMA PC Gold 329,477 - - 329,477 325,787
FLMC 5-Year Gold
Balloon 432,193 4,672 - 436,866 401,680
--------------- -------------- -------------- ---------------- ---------------

$ 2,082,322 $ 11,957 $ 3,163 $ 2,091,116 $ 2,017,685
=============== ============== ============== ================ ===============

<CAPTION>
December 31, 1993
---------------------------------------------------------------------------------
Estimated
Principal Unamortized Unearned Carrying Market
Description Balance Premiums Discounts Value Value
------------------------------ -------------- -------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
FNMA 7-Year Fixed
Balloon $ 414,868 $ - $ 5,692 $ 409,176 $ 432,520
FHLMC Gold Balloon 1,468,637 11,167 573 1,479,231 1,518,363
GNMA PC Gold 471,622 - - 471,622 500,816
FLMC 5-Year PC Gold
Balloon 490,000 6,299 - 496,299 490,000
--------------- -------------- -------------- ---------------- ---------------

$ 2,845,127 $ 17,466 $ 6,265 $ 2,856,328 $ 2,941,699
=============== ============== ============== ================ ===============
</TABLE>

F-14
<PAGE> 88

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE C - LOANS RECEIVABLE, NET

Loans receivable, net are summarized as follows:

<TABLE>
<CAPTION>
(In Thousands)
December 31,
-------------------------------
1994 1993
------------- ------------
<S> <C> <C>
MORTGAGE LOANS
Principal balances:
One-to-four family residential $ 10,652 $ 10,712
Multi-family 1,891 1,900
Commercial real estate 499 17
Investor 64 458
------------- ------------

Total mortgage loans 13,106 13,087

CONSTRUCTION LOANS
Principal balances 317 -

CONSUMER AND OTHER LOANS
Principal balances:
Consumer and deposit account loans 755 597
------------- ------------

Total loans receivable 14,178 13,684
Less allowance for loan losses 100 100
------------- ------------

Loans Receivable, Net $ 14,078 $ 13,584
============= =============
</TABLE>

Loans receivable delinquent are as follows:
<TABLE>
<CAPTION>
(In Thousands)
December 31,
-------------------------------
1994 1993
------------- ------------
<S> <C> <C>
Past due 30-89 days and still accruing $ 196 $ 321
Past due 90 days or more and still accruing 2 -
------------- ------------
198 321

Nonaccrual loans - -
------------- ------------

$ 198 $ 321
============= ============
</TABLE>
( Continued )

F-15
<PAGE> 89

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE C - LOANS RECEIVABLE, NET (Continued)

The effect of nonaccrual loans was to reduce net income as follows:

<TABLE>
<CAPTION>
Years Ended December 31:
<S> <C>
1992 $ -
1993 -
1994 -
</TABLE>

Troubled debt restructured and included in the consolidated statements of
condition are as follows:

<TABLE>
<CAPTION>
Period Amount
-------------- ------------
<S> <C>
December 31, 1993 $ -
December 31, 1994 -
</TABLE>

Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal
balances of these loans and custodial escrow balances maintained in
connection therewith are summarized as follows:

<TABLE>
<CAPTION>
(In Thousands)
Mortgage
Loan Custodial
Portfolios Escrow
Years Ended December 31, Serviced Balances
------------- --------------
<S> <C> <C>
1992 $ 2,915 $ 24
1993 1,774 18
1994 1,335 16
</TABLE>

Activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------------------------------
1994 1993 1992
------------ ------------- --------------
<S> <C> <C> <C>
Balance at beginning of period $ 100,000 $ 20,100 $ 15,100

Additions:
Provision for losses on loans 9,663 83,031 17,613

Deductions:
Loans charged off, net of recoveries (9,663) (3,131) 12,613
------------ ------------- --------------

Balance at end of period $ 100,000 $ 100,000 $ 20,100
============ ============= ==============
</TABLE>

F-16
<PAGE> 90

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE D - PROPERTIES AND EQUIPMENT

Properties and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1993
------------- --------------
<S> <C> <C>
Land $ 107,178 $ 107,178
Building 194,955 194,955
Furniture and equipment 129,610 126,939
------------- --------------
431,743 429,072
Less accumulated depreciation 199,777 226,796
------------- --------------

$ 231,966 $ 202,276
============= ==============
</TABLE>

Depreciation expense totaled $19,264, $16,096 and $16,713, respectively, for
the years ended December 31, 1994, 1993 and 1992.

NOTE E - FEDERAL HOME LOAN BANK STOCK

The Bank is a member of the Federal Home Loan Bank system. As a member, it
is required to maintain an investment in capital stock of the Federal Home
Loan Bank (FHLB) in an amount equal to the greater of 1% of outstanding home
mortgage loans or one-twelfth of its outstanding advances from the FHLB. No
ready market exists for such stock, and it has no quoted market value;
therefore, the stock is assumed to have a market value which is equal to
cost.

NOTE F - ACCRUED INTEREST RECEIVABLE

Accrued interest receivable consisted of interest accrued on the following:

<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1993
------------- --------------
<S> <C> <C>
Loans $ 84,289 $ 67,501
Mortgage-backed and related securities 12,612 17,658
Investment securities 65,063 54,813
Interest-earning deposits - 3,720
-------------- ---------------

$ 161,964 $ 143,692
============== ===============
</TABLE>

F-17
<PAGE> 91

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE G - DEPOSITS

Approximate deposit balances by interest rates are summarized as follows:

<TABLE>
<CAPTION>
(Dollars In Thousands)
December 31,
---------------------------------------------------------------------------
1994 1993
----------------------------------- ------------------------------------
Percent Weighted Percent Weighted
Of Average Of Average
Total Nominal Total Nominal
Amount Deposits Rate Amount Deposits Rate
-------- ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Demand Accounts:
NOW and Money Market $ 4,021 18.01% 2.15% $ 4,115 18.25% 2.51%
Savings 3,014 13.50% 2.50% 3,435 15.24% 2.24%
--------- -------- --------- ---------- --------- ----------
7,035 31.51% 2.30% 7,550 33.49% 2.36%
--------- -------- --------- ---------- --------- ----------
Certificate Accounts:
Ninety day 5,185 23.22% 3.90% 5,562 24.67% 3.58%
Three to six months 3,293 14.75% 4.42% 3,430 15.21% 3.57%
Six to nine months 1,610 7.21% 4.20% 1,805 8.01% 3.98%
Nine to twelve months 1,296 5.81% 4.65% 1,042 4.61% 3.75%
Two years 2,086 9.34% 4.92% 1,341 5.95% 4.70%
Three years 856 3.83% 5.14% 928 4.12% 5.10%
Four years 456 2.04% 5.23% 452 2.01% 5.33%
Four to six years 510 2.29% 5.78% 436 1.93% 5.34%
--------- -------- --------- ---------- --------- ----------
15,292 68.49% 4.42% 14,996 66.51% 3.93%
--------- -------- --------- ---------- --------- ----------

Total Deposits $ 22,327 100.00% 3.75% $ 22,546 100.00% 3.41%
========= ======== ========= ========== ========= ==========
</TABLE>

The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was approximately $1,796,000 and $1,204,000 at December 31, 1994
and 1993, respectively.

The approximate value of contractual maturities of certificate accounts at
December 31, 1994, are as follows (in thousands):

<TABLE>
<S> <C>
Three months or less $ 669
More than three months through one year 8,739
More than one year through three years 5,061
More than three years through six years 823
---------
$ 15,292
=========
</TABLE>

( Continued )

F-18
<PAGE> 92

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE G - DEPOSITS (Continued)

Interest expense on deposits is summarized as follows (in thousands):

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1994 1993 1992
--------- ---------- ---------
<S> <C> <C> <C>
Now Accounts and Money Market Accounts $ 46 $ 47 $ 61
Savings 130 150 168
Certificate Accounts 597 616 831
---------- ----------- ----------

$ 773 $ 813 $ 1,060
========== =========== ==========
</TABLE>

NOTE H - INCOME TAXES

In computing federal and state income taxes, the Bank is allowed a statutory
bad debt deduction of 8% of otherwise taxable income, subject to certain
limitations based on aggregate loans and savings balances. Such bad debt
deductions amounted to approximately $26,500, $34,500 and $43,500, as of
December 31, 1994, 1993 and 1992, respectively. A provision for income taxes
has been made at the statutory 34 percent federal corporate tax rate and 5
percent state tax rate.

The provision for federal income taxes differs from that computed at the
statutory 34 percent federal corporate tax rate as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ---------
<S> <C> <C> <C>
Federal income tax rates 34% 34% 34%
Change in taxes resulting from:
Bad debt deductions (4%) (2%) 3%
Nontaxable income (1%) - (1%)
State income tax, net 1% 5% 3%
--------- ---------- ---------
30% 37% 39%
========= ========== =========
</TABLE>

The components of the deferred tax asset (liability) at December 31, 1994 and
1993, are as follows:

<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Deferred tax asset:
Allowance for loan losses $ - $ 8,500

Deferred tax liability:
Allowance for loan losses (1,700) -
----------- ----------

Net deferred tax asset (liability) $ (1,700) $ 8,500
=========== ==========
</TABLE>

F-19
<PAGE> 93

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE I - REGULATORY MATTERS

The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) places regulatory and examination responsibility into the Office of
Thrift Supervision (OTS), and insurance of deposit accounts is placed with
the Federal Deposit Insurance Corporation (FDIC) which also has examination
authority. Under FIRREA, savings institutions insured by the FDIC must meet
three regulatory capital requirements:

Tangible Capital - primarily retained earnings less certain intangible
assets.

Core Capital - Tangible Capital plus, through 1994, certain intangible
assets.

Risk-Based Capital - Core Capital plus general allowance for loan losses.

Regulatory capital is the basis by which the OTS determines whether an
institution is insolvent, and whether an institution is meeting its
regulatory capital requirement.

If a requirement is not met, regulatory authorities may take legal or
administrative actions, including restrictions on growth or operations or, in
extreme cases, seizure. Institutions not in compliance must submit a
recapitalization or merger plan.

Prior to the year ended December 31, 1991, the Bank was not in compliance
with certain regulatory requirements. As a result, the Bank submitted a
capital plan to the OTS, which was approved on March 8, 1990. The Bank was
released from all provisions of the capital plan in January, 1993.

At December 31, 1994 and 1993, the Bank was in compliance with all regulatory
capital requirements.

The Bank's regulatory capital position and requirements were as follows (in
thousands):

<TABLE>
<CAPTION>
1994 1993
--------------------------------------- ----------------------------------------
Risk- Risk-
Tangible Core Based Tangible Core Based
---------- ----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Available Capital:
Balance $ 2,787 $ 2,787 $ 2,787 $ 2,584 $ 2,584 $ 2,584
% of Base 11.01% 11.01% 27.31% 10.44% 10.14% 26.23%

Required Capital:
Balance $ 380 $ 759 $ 846 $ 382 $ 765 $ 819
% of Base 1.50% 3.00% 8.00% 1.50% 3.00% 8.00%

Excess Over Requirement:
Balance $ 2,407 $ 2,028 $ 2,041 $ 2,202 $ 1,819 $ 1,865
% of Base 9.51% 8.01% 19.31% 8.64% 7.14% 18.23%
</TABLE>

( Continued )

F-20
<PAGE> 94

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE I - REGULATORY MATTERS (Continued)

The following is a reconciliation of generally accepted accounting principles
("GAAP") capital to regulatory capital at December 31, 1994:
<TABLE>
<CAPTION>
Risk-
Tangible Core Based
Capital Capital Capital
---------------- ------------- ------------
<S> <C> <C> <C>
GAAP capital $ 2,787 $ 2,787 $ 2,787
General valuation allowance - - 100
---------------- ------------- ------------

Computed regulatory capital $ 2,787 $ 2,787 $ 2,887
================ ============= ============
</TABLE>

FIRREA also includes restrictions on loans to one borrower, on certain types
of investments and loans, on loans to officers, directors, and principal
shareholders, on brokered deposits and on transactions with affiliates.

FIRREA modified the Qualified Thrift Lender (QTL) test on July 1, 1992, to
require approximately 70% of assets to be maintained in housing related
finance and other specified areas. If the QTL test is not met, limits are
placed on growth, branching, new investments, FHLB advances, and dividends or
the Bank must convert to a commercial bank charter. The requirements of the
QTL test were met at December 31, 1994.

NOTE J - EMPLOYEE BENEFIT PLANS

The Bank participates in a multiemployer, noncontributory defined benefit
pension plan for substantially all of its full- timeemployees by being a
member of the Financial Institutions Retirement Fund, a large, non-profit,
tax-exempt pension trust which is administered by a Board of Directors
comprised of presidents of FHLB and officers of various participating
associations. The Fund invests the contributions made to it and, under its
Comprehensive Retirement Program, it pays out retirement, disability and
death benefits. The multiemployer plan's assets exceed the actuarially
computed value of vested benefits at June 30, 1994, the most recent valuation
date. There is no unfunded liability for past service. Plan benefits are
fully vested after five years of service and are based on an employee's years
of service and a percentage of the employee's average salary, using the five
highest consecutive years preceding retirement. The Bank's funding policy is
to make contributions to the plan equal to the amount accrued as pension
expense. The plan was fully funded for 1994 and 1993; and accordingly, no
contributions were made.

( Continued )

F-21
<PAGE> 95

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE J - EMPLOYEE BENEFIT PLANS (Continued)

The Board of Directors of the Bank has adopted the First Federal Bank for
Savings 1993 Incentive Stock Option Plan (the "Option Plan"). The Board of
Directors has reserved an amount of authorized but unissued shares of common
stock equal to 2.50% of the amount of shares to be issued in Conversion for
issuance under the Option Plan. Officers of the Bank are eligible to
participate in the Option Plan. The Option Plan will be administered by a
committee of outside directors. The Option Plan authorizes the grant (i)
options to purchase Bank Common Stock intended to qualify as incentive stock
options under Section 422 of the Code, (ii) options that do not so qualify
("non-statutory options") and (iii) Limited Rights (discussed below), which
are exercisable only upon a change in control of the Bank.

The exercise price will be at least 100% of the fair market value at the time
of the grant of the underlying common stock. Options shall become
exercisable in whole or in part at such times (no later than 10 years from
the date of grant) as the committee shall determine. The exercise price may
be paid in cash or common stock.

The Bank has established the Recognition Plans as a method of providing
officers of the Bank with a proprietary interest in the Bank in a manner
designed to encourage such persons to remain with the Bank. The Bank
contributed $62,990 to the Recognition Plans to enable them to acquire up to
4% of the shares of Common Stock issued in the Conversion. The Recognition
Plans purchased 6,299 shares of the Common Stock offered in the Conversion.
At December 31, 1994, 3,464 shares had been distributed to officers.
Compensation expense is being recognized as the stock becomes vested. In
1994 and 1993, the total expense related to the plan was $29,390 and $5,250,
respectively. Unearned compensation was $28,350 at December 31, 1994, and is
included in other assets in the consolidated financial statements. A
committee of the outside directors may make discretionary awards to officers.
Under the Recognition Plans, awards are granted to officers in the form of
shares of Common Stock to be held in trust under the Recognition Plans.
Awards are nontransferable and nonassignable. Officers of the Bank will earn
(i.e., become vested in) shares of Common Stock covered by the award at a
rate of 33-1/3% per year commencing immediately upon Conversion. Awards will
be 100% vested upon termination of employment due to death, disability or
retirement or following a change in the control of the Bank. In the event
that an employee terminates employment for any other reason, the employee's
nonvested awards will be forfeited. When shares become vested in accordance
with the Recognition Plan, the participants will recognize income equal to
the fair market value of the Common Stock at that time. The amount of income
recognized by the participants will be a deductible expense for tax purposes
for the Bank. When shares become vested and are actually distributed in
accordance with the Recognition Plans, the participants will also receive
amounts equal to any accrued dividends with respect thereto. Prior to
vesting, recipients of awards may direct the voting of the shares allocated
to them. Unallocated shares will be voted by the Recognition Plan trustees.
Earned shares are distributed to recipients as soon as practicable following
the day on which they are earned.

F-22
<PAGE> 96

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE K - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount recognized in the
statements of financial condition.

The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notational amount
of these instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for balance sheet
instruments. There are no standing letters of credit at December 31, 1994.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Standby letters of credit and
financial guarantees written are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.

Approximate contract or notational amounts of financial instruments whose
contract amounts represent credit risk at December 31, 1994 and 1993, are
commitments of $93,500 and $223,000 to extend credit collateralized by
mortgages on dwelling units. All commitments relate to fixed rates loans
originated to be sold in the secondary market. Interest rates range from 7%
to 7.5% on these commitments.

There are no outstanding commitments to lend additional funds to debtors who
have restructured troubled loans with the Bank.

NOTE L - CONCENTRATION OF CREDIT RISK

Ninety-eight percent of the Bank's loans and commitments have been granted to
customers in the Bank's market area. Generally, such customers are also
depositors of the Bank. The concentrations of credit by type of loan are set
forth in Note C. The distribution of commitments to extend credit
approximates the distribution of loans outstanding.

At December 31, 1994 and 1993, the Bank had no deposits with financial
institutions in excess of federally insured limits.

F-23
<PAGE> 97

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE M - RELATED PARTY TRANSACTIONS

In the normal course of business, the Bank makes loans to its directors and
executive officers and to companies in which they have a significant ownership
interest. These loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons. An analysis of activity follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1993
------------ -----------
<S> <C> <C>
Balance at beginning of period $ 180,865 $ 197,794
New loans 17,000 1,800
Payments (24,550) (18,729)
------------- ------------

Balance at end of period $ 173,315 $ 180,865
============= ============
</TABLE>

NOTE N - CONVERSION TO STOCK FORM OF OWNERSHIP

On April 20, 1993, the Board of Directors adopted a Plan of Conversion (Plan)
for the Bank to convert from a federally-chartered mutual institution to a
Federally-chartered stock savings bank. The Conversion was completed October
1, 1993. As a part of the conversion, the Bank issued 157,466 shares of its
common stock. The costs associated with the conversion were deducted from the
proceeds. The Bank may not declare or pay a cash dividend, or purchase any of
its stock, if the effect would be to reduce the net worth of the Bank below
the amount required for federal regulatory capital requirements.

NOTE O - NET INCOME PER SHARE

Net income per share for 1994 is computed on the basis of the weighted average
shares of common stock outstanding plus common stock equivalents arising from
the effect of director stock options, using the treasury stock method. The
following is a reconciliation of the weighted average number of shares of
common stock actually outstanding with the number of shares used in the
computation of net income per share. Total shares outstanding were the same
for primary and fully diluted income per share computations.

<TABLE>
<S> <C>
Weighted number of shares actually outstanding
157,466
Common stock equivalent (stock options) 11,808
-------
Total shares 169,274
=======
</TABLE>

The year ended December 31, 1994, was the first full year of operations since
the Bank's initial stock offering and, accordingly, per share amounts are not
reflected for previous years.

F-24
<PAGE> 98

FIRST FEDERAL BANK FOR SAVINGS

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1993

NOTE P - PLAN OF MERGER

On January 27, 1995, the Bank entered into an agreement with Bancorp South,
Inc., for the merger of First Federal Bank for Savings and Subsidiary into
Bank of Mississippi, a subsidiary of Bancorp South, Inc. The merger is
subject to the approval of the shareholders of the Bank and regulatory
authorities.

F-25
<PAGE> 99

FIRST FEDERAL BANK FOR SAVINGS
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF MARCH 31, 1995
(Unaudited)

<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash $ 231,968
Interest-earning deposits 1,123,552
-----------
Total cash and cash equivalents 1,355,520
Mortgage-backed and related secruities
(approximate market value $2,053,472
at March 31, 1995) 2,072,011
Investment securities (approximate market
value $6,887,000 at March 31, 1995) 7,006,572
Federal Home Loan Bank stock 194,300
Savings and Loan Data Corporation stock 15,000
Loans receivable, net 13,879,827
Foreclosed real estate -0-
Properties and equipment 226,399
Accrued interest receivable 211,302
Other assets 76,481
-----------

Total Assets $25,037,412
===========

LIABILITIES AND STOCKHOLDERS EQUITY
- -----------------------------------

Liabilities:
Deposits $22,011,879
Advances from borrowers for taxes and insurance 109,161
Accrued interest payable on deposits 35,722
Accrued expenses and other liabilities 58,666
-----------
Total liabilities $22,215,428

Stockholders Equity:
Common stock - par value $1.00 per share -
4,000,000 shares authorized,
157,466 issued and outstanding 157,466
Additional paid-in capital 1,238,723
Retained earnings 1,425,795
-----------
Total stockholders equity 2,821,984
-----------

Total Liabilities and Stockholders Equity $25,037,412
===========
</TABLE>

F-26

<PAGE> 100

FIRST FEDERAL BANK FOR SAVINGS AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

<TABLE>
<CAPTION>
Three months ended
March 31,
1995 1994
---------------------------
Interest income: (In Thousands)
<S> <C> <C>
Interest and fees on loans $282 $248
Interest on mortgage-backed
and related securities 37 45
Interest on investment securities 93 72
FHLB stock dividends 2 2
Interest on deposits due from banks 8 17
Total interest income 422 384

Interest expense:
Interest on deposits 212 183
Interest on borrowed funds -0- -0-
Total interest expense 212 183
Net interest income before
provision for losses on loans 210 201
Provision for losses on loans 4 3
Net interest income after
provision for losses on loans 206 198

Non-interest income:
Loan fees and service charges 6 11
Investor loan processing fees 8 31
NOW and savings account fees 18 16
Other 1 1
Total non-interest income 33 59

Non-interest expense:
Compensation and benefits 84 81
Occupancy 7 6
Furniture and equipment 6 5
Deposit insurance premium 13 15
Loss on foreclosed real estate -0- -0-
Data processing 14 12
Other 67 44
Total non-interest expense 191 163

Income before income taxes 48 94

Income tax expense 12 36

Net income $ 36 $ 58
===========================
Earnings per share .22 $.37
===========================
Dividends per share -0- $-0-
===========================

</TABLE>

F-27

<PAGE> 101

FIRST FEDERAL BANK FOR SAVINGS AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 35,005 $ 57,492
Adjustments to reconcile net earnings
net cash:
Depreciation 5,567 3,697
Deferred income taxes -0- -0-
Provision for losses on loans 3,551 3,389
(Increase) decrease in accrued
interest receivable (49,338) (25,440)
(Increase) decrease in other assets (4,106) (131,338)
Increase (decrease) in accrued interest
payable on deposits (2,835) 653
Increase (decrease) in accrued expenses
and other liabilities 3,024 65,683
---------- ----------
Net cash provided by operating activities (9,132) (25,864)

CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in loans 198,119 1,002,212
(Increase) decrease in investment securities 520,007 (995,167)
Purchase of properties and equipment -0- -0-
Purchase of FHLB Stock -0- -0-
---------- ----------

Net cash provided by (used in)
investing activities 718,126 7,045

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits (315,878) 112,040
Increase (decrease) in advances -0- -0-
Increase (decrease) in advances from
borrowers for taxes and insurance 4,860 43,939
---------- ----------
Net cash provided by (used in)
financing activities (311,018) 155,979
---------- ----------

Net increase (decreae) in cash
and cash equivalents 397,976 137,160
Cash and cash equivalents at beginning of period 957,544 2,858,312
---------- ----------
Cash and cash equivalents at end of period 1,355,520 2,995,472
========== ==========
Supplemental cash flow information:
Interest paid on customer deposits $ 212,234 $ 183,388
Income taxes $ 12,414 $ 36,090

</TABLE>

F-28

<PAGE> 102

FIRST FEDERAL BANK FOR SAVINGS AND SUBSIDIARY

Consolidated Statement of Stockholders' Equity
(Unaudited)

Three months ended March 31, 1995
<TABLE>
<CAPTION>

Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
-------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $157,466 $1,238,723 $1,390,790 $2,786,979
Net Income 35,005 35,005
-------- ---------- ---------- ----------
Balance at September 30, 1994 $157,466 $1,238,723 $1,425,795 $2,821,984
======== ========== ========== ==========
</TABLE>

* = Additional Conversion Expenses

See notes to consolidated financial statements.

F-29

<PAGE> 103

FIRST FEDERAL BANK FOR SAVINGS
AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1995, are not
necessarily indicative of the results that may be expected for the full year.

These Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, for the year ended
December 31, 1994, included in the Association's 1994 Audited Financial
Statements.

(2) Principles of Consolidation

The consolidated financial statements include the accounts and transactions of
First Federal Bank for Savings and its wholly-owned subsidiary, First Service
Corp. Intercompany transactions and balances have been eliminated in
consolidation.

(3) Loan Commitments

As of March 31, 1995, the Bank had outstanding mortgage loan commitments of
$447,000.

(4) Credit Quality

At March 31, 1995, and December 31, 1994, the allowances for loan losses were
$100,000 and $100,000, respectively. These allowances represent general
reserves which are not attached to specific assets. An analysis of the
activity of the Allowance for Loan Loss is detailed below:

<TABLE>
<CAPTION>
Year-End Y-T-D
12-31-94 3-31-95
-------- -------
(In Thousands)
<S> <C> <C>
Balance at beginning of period $100 $100
Additions charged to operations 10 4
Deductions:
Loans/checking accounts charged-off 10 4
Balance at end of period $100 $100
---- ----
</TABLE>
F-30

<PAGE> 104

FIRST FEDERAL BANK FOR SAVINGS
AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited) - Continued

(4) Credit Quality - (continued)

The following table sets forth information concerning delinquent mortgage and
other loans at March 31, 1995. The amounts represent the total remaining
principal balances of the related loans, rather than the actual payment amounts
which are overdue.

<TABLE>
<CAPTION>
Real Estate Loans
----------------------------
1 - 4 Family
Residential Other Consumer
No. Amt. No. Amt. No. Amt. Total
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-89 days 7 $401,063 - - 3 $ 8,967 $410,030
90 days and over - -0- - - 1 1,907 1,907
------- ------- --------

Total-March 31, 1995 7 $401,063 - - 4 $10,874 $411,937
=======================================================

</TABLE>

F-31

<PAGE> 105

FIRST FEDERAL BANK FOR SAVINGS
AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited) - Continued

(5) Stockholders' Equity

Regulatory capital is the basis by which the Office of Thrift Supervision
determines whether a savings association is insolvent and whether a savings
association is meeting its regulatory capital requirement.

Stockholders' equity, or total capital, continues to exceed minimum regulatory
capital requirements as a percent of assets at March 31, 1995:

<TABLE>
<CAPTION>
Amount Percent
---------- -------
<S> <C> <C> <C>
Tangible capital $2,821,984 11.271%
Requirement 375,561 1.500%
----------

Excess $2,446,423 9.771%

Leverage (Core) capital $2,821,984 11.271%
Requirement 751,122 3.000%
---------- ------

Excess $2,070,862 8.271%

Risk-based capital (1) $2,921,984 27.876%
Requirement 838,560 8.000%
---------- ------

Excess $2,083,424 19.876%
</TABLE>

(1) Includes the Bank's allowance for loan losses of $100,000 as
supplemental capital, as defined.

F-32
<PAGE> 106

ANNEX A

Section 552.14 DISSENTER AND APPRAISAL RIGHTS.

(a) Right to demand payment of fair or appraised value. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with Section 552.13 of this part shall have
the right to demand payment of the fair or appraised value of his stock:
Provided, That such stockholder has not voted in favor of the combination and
complies with the provisions of paragraph (c) of this section.

(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to Section 552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ, or any combination of such
shares of stock and cash.

(c) Procedure -- (1) Notice. Each constituent Federal stock
association shall notify all stockholder entitled to rights under this section,
not less than twenty days prior to the meeting at which the combination
agreement is to be submitted for stockholder approval, of the right to demand
payment of appraised value of shares, and shall include in such notice a copy
of this section. Such written notice shall be mailed to stockholders of record
and may be part of management's proxy solicitation for such meeting.

(2) Demand for appraisal and payment. Each stockholder electing
to make a demand under this section shall deliver to the Federal stock
association, before voting on the combination, a writing identifying himself or
herself and stating his or her intention thereby to demand appraisal of and
payment for his or her shares. Such demand must be in addition to and separate
from any proxy or vote against the combination by the stockholder.

(3) Notification of effective date and written offer. Within ten
days after the effective date of the combination, the resulting association
shall:

(i) Give written notice by mail to stockholders of constituent
Federal stock associations who have complied with the provisions of paragraph
(c)(2) of this section and have not voted in favor of the combination, of the
effective date of the combination;

(ii) Make a written offer to each stockholder to pay for dissenting
shares at a specified price deemed by the resulting association to be the fair
value thereof; and

(iii) Inform them that, within sixty days of such date, the
respective requirements of paragraphs (c)(5) and (c)(6) of this section (set
out in the notice) must be satisfied.

The notice and offer shall be accompanied by a balance sheet and statement of
income of the association the shares of which the dissenting stockholder holds,
for a fiscal year ending not more than sixteen months before the date of notice
and offer, together with the latest available interim financial statements.

A-1
<PAGE> 107

(4) Acceptance of offer. If within sixty days of the effective date
of the combination the fair value is agreed upon between the resulting
association and any stockholder who has complied with the provisions of
paragraph (c)(2) of this section, payment therefore shall be made within ninety
days of the effective date of the combination.

(5) Petition to be filed if offer not accepted. If within sixty days
of the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file a
petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market value of
the stock of all such stockholders. A stockholder entitled to file a petition
under this section who fails to file such petition within sixty days of the
effective date of the combination shall be deemed to have accepted the terms
offered under the combination.

(6) Stock certificates to be noted. Within sixty days of the
effective date of the combination, each stockholder demanding appraisal and
payment under this section shall submit to the transfer agent his certificates
of stock for notation thereon that an appraisal and payment have been demanded
with respect to such stock and that appraisal proceedings are pending. Any
stockholder who fails to submit his or her stock certificates for such notation
shall no longer be entitled to appraisal rights under this section and shall be
deemed to have accepted the terms offered under the combination.

(7) Withdrawal of demand. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any stockholder
shall have the right to withdraw his or her demand for appraisal and to accept
the terms offered upon the combination.

(8) Valuation and payment. The Director shall, as he or she may
elect, either appoint one or more independent persons or direct appropriate
staff of the Office to appraise the shares to determine their fair market
value, as of the effective date of the combination, exclusive of any element of
value arising from the accomplishment or expectation of the combination.
Appropriate staff of the Office shall review and provide an opinion on
appraisals prepared by independent persons as to the suitability of the
appraisal methodology and the adequacy of the analysis and supportive data.
The Director after consideration of the appraisal report and the advice of the
appropriate staff shall, if he or she concurs in the valuation of the shares,
direct payment by the resulting association of the appraised fair market value
of the shares, upon surrender of the certificates representing such stock.
Payment shall be made, together with interest from the effective date of the
combination, at a rate deemed equitable by the Director.

(9) Costs and expenses. The costs and expenses of any proceeding
under this section may be apportioned and assessed by the Director as he or she
may deem equitable against all or some of the parties. In making this
determination the Director shall consider whether any party has acted
arbitrarily, vexatiously, or not in good faith in respect to the rights
provided by this section.

(10) Voting and distribution. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock for any purpose nor be
entitled to the payment of dividends or other distributions on the stock
(except dividends or other distribution payable to, or a vote to be taken by
stockholders of record at a date which is on or prior to, the effective date of
the combination): Provided, That if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and accepts
or is deemed to have accepted the terms offered upon the combination, such
stockholder shall thereupon be entitled to vote and receive the distributions
described above.

A-2
<PAGE> 108

(11) Status. Shares of the resulting association into which shares
of the stockholders demanding appraisal rights would have been converted or
exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.

A-3
<PAGE> 109

ANNEX B

(LOGO) MERCER
CAPITAL
================================================================================
5860 Ridgeway Center Parkway, Suite 410 * Memphis, Tennessee 38120-4048
Phone: (901) 685-2120 * Telecopier: (901) 685-2199

June 2, 1995

The Board of Directors
c/o Mr. Buddy Staggers
First Federal Bank for Savings
310 Main Street
Post Office Box 1347
Starkville, Mississippi 39759

RE: Updated Fairness Opinion regarding the acquisition of First Federal Bank
for Savings by BancorpSouth

Dear Directors:

Mercer Capital Management, Inc. ("Mercer Capital") has been retained by the
Board of Directors of First Federal Bank for Savings ("FFBS") to issue a
fairness opinion for the proposed merger between FFBS and BancorpSouth
("BOMS"). The fairness opinion is issued from a financial point of view on
behalf of FFBS shareholders. Our original fairness opinion was issued on March
7, 1995 and was accompanied with a fairness memorandum which discussed the
factors considered in issuing the opinion. This fairness opinion represents an
update to our March 7, 1995 opinion to coincide with the issuance of the
proxy/prospectus statement.

Under the terms of the merger agreement, dated January 27, 1995, FFBS
shareholders will receive 0.698 shares of BOMS for each FFBS share. FFBS has
157,466 outstanding common shares and 11,808 incentive stock options which will
be converted into an equivalent number of BOMS options after giving effect to
the exchange ratio. For purposes of the analysis, we did not make any
distinction between FFBS' outstanding shares and options since the options are
deep in the money (exercise price of $10.00 per existing FFBS share).
Accordingly, FFBS has 169,274 outstanding common share equivalents.

B-1

AMERICA'S BUSINESS VALUATION RESOURCE

<PAGE> 110

June 2, 1995
The Board of Directors
June 2, 1995
Page two

The exchange ratio implies that 118,153 BOMS shares will be issued for FFBS'
169,274 common share equivalents. Based upon BOMS' recent closing price of
$38.38 per share, FFBS shareholder's will receive consideration equal to $26.79
per FFBS share, while the aggregate consideration will total $4.53 million.
The purchase price represents 154% of fully diluted book value per share as of
March 31, 1995 and 20.9x fully diluted earnings of $1.28 per share for the
latest twelve month period ended March 31, 1995.(1)

As part of the engagement, Mercer Capital visited with FFBS management in
Starkville, as well as BOMS management in Tupelo, Mississippi. Factors
considered in rendering the opinion include:

1. Terms of the Agreement and Plan of Merger ("the Agreement");

2. An analysis of the BOMS acquisition pricing in relation to indications
of fair market value of FFBS derived through considering comparable
(guideline) transactions, discounted cash flow and earnings dilution
analyses;

3. An analysis of the estimated pro-forma changes in book value per
share, earnings per share, dividends per share and overall ownership
from the perspective of the FFBS shareholders;

4. A review of BOMS' historical financial performance, historical stock
pricing, the liquidity of its shares and current pricing in relation
to other publicly traded bank holding companies based in the
Mid-South;

5. Tax consequences of the merger for FFBS shareholders;

6. Restrictions (lack of) placed on BOMS shares received in the merger;
and,

______________________________

(1) a) FFBS' stated book value per share was $17.92 per share as of March 31,
1995, while the fully diluted book value was $17.37 per share after considering
the dilutive impact of the options. Valuation multiples are based upon fully
diluted book value and earnings per share because the option's low strike price
($10.00 per share) in relation to the merger price ($24.00 per share) implies
that exercise is highly likely at some point in the future.

b) FFBS posted net income for the latest twelve months ended March 31, 1995
totaled $219 thousand, or $1.28 per fully diluted share.

B-2

<PAGE> 111

June 2, 1995
The Board of Directors
June 2, 1995
Page three

7. Actions taken by the FFBS Board of Director's leading up to the signing
of the definitive agreement with BOMS.

Mercer Capital did not compile nor audit FFBS' or BOMS' financial statement, nor
have we independently verified the information reviewed. We have relied upon
such information as being complete and accurate in all material respects. We
have not made an independent valuation of the loan portfolio, adequacy of the
loan loss reserve or other assets of either institution.

Based upon our analysis of the proposed transaction, it is our opinion that the
acquisition of First Federal Bank for Savings by BankcorpSouth is fair from a
financial point of view for FFBS' shareholders.

Sincerely yours,

MERCER CAPITAL MANAGEMENT, INC.

/s/ Jeff K. Davis
Jeff K. Davis, CFA, ASA
Vice President

B-3

<PAGE> 112

PROSPECTUS

2,175,000 SHARES

BANCORPSOUTH, INC.

COMMON STOCK

--------------------

BancorpSouth, Inc. (the "Company"), a Mississippi corporation, a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (the "BHCA"), and a savings and loan holding company registered under
the Savings and Loan Holding Company Act, as amended ("SLHCA"), may from time
to time offer shares of common stock, par value $2.50 per share (the
"BancorpSouth Common Stock"), in an aggregate amount of up to 2,175,000 shares,
on terms to be determined at the time of such offering. The BancorpSouth
Common Stock may be offered in such amounts, at such prices and on such terms
to be set forth in a supplement to this Prospectus (a "Supplement").

The BancorpSouth Common Stock is to be offered directly by the Company
in connection with the acquisition of, or business combination with, certain
banking or savings institutions. The specific terms under which the
BancorpSouth Common Stock is being offered in connection with the delivery of
this Prospectus will be set forth in the applicable Supplement and will include
the specific number of shares of BancorpSouth Common Stock and the issuance
price per share. BancorpSouth Common Stock may not be sold through this
Prospectus without delivery of the applicable Supplement.

--------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

--------------------

THE DATE OF THIS PROSPECTUS IS JUNE 9, 1995

<PAGE> 113

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Supervision and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

DESCRIPTION OF BANCORPSOUTH COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Dividend Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Liquidation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Certain Anti-takeover Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
BancorpSouth Common Stock Purchase Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>

--------------------

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection
with the offering made hereby, and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the shares of
BancorpSouth Common Stock offered hereby or an offer to sell or a solicitation
of an offer to buy such shares to any person, or the solicitation of a proxy
from any person, in any jurisdiction in which such offer, solicitation of an
offer or proxy solicitation is unlawful. The delivery of this Prospectus at
any time does not imply that the information herein is correct as of any time
subsequent to its date.

2
<PAGE> 114

AVAILABLE INFORMATION

The Company has filed a Registration Statement on Form S-4, including
amendments thereto, if any, with respect to the BancorpSouth Common Stock (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission"). This Prospectus and any accompanying Supplement do not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or as
previously filed with the Commission and incorporated herein by reference. For
further information with respect to the Company and the BancorpSouth Common
Stock, reference is made to such Registration Statement, exhibits and
schedules. A copy of the Registration Statement may be inspected by anyone
without charge at the Commission's principal office at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from the Commission upon payment of certain fees
prescribed by the Commission.

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549, as well as the following Commission Regional
Offices: New York Regional Office, 7 World Trade Center, 13th Floor, New York,
New York 10048; and Chicago Regional Office, 500 West Madison Street, 14th
Floor, Chicago, Illinois 60601-2511. Copies can be obtained by mail at
prescribed rates. Requests should be directed to the Commission's Public
Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The Company's Annual Report on Form 10-K for the period ending
December 31, 1994, and Quarterly Report on Form 10-Q for the period ending
March 31, 1995, are incorporated herein by reference.

All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus shall
be deemed to be incorporated by reference into this Prospectus. Any statement
contained herein, or in a document incorporated or deemed to be incorporated by
reference herein, shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.

THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. A COPY OF THESE DOCUMENTS IS AVAILABLE
UPON REQUEST FROM CATHY M. ROBERTSON, CORPORATE SECRETARY, BANCORPSOUTH, INC.,
ONE MISSISSIPPI PLAZA, TUPELO, MISSISSIPPI 38801, (601) 681-2000.

3
<PAGE> 115

THE COMPANY

The Company is a Mississippi corporation, a bank holding company and a
savings and loan holding company, with commercial banking operations in
Mississippi and Tennessee, and savings and loan operations in Mississippi. The
principal executive offices of the Company are located at One Mississippi
Plaza, Tupelo, Mississippi 38801, and its telephone number is (601) 680-2000.

SUPERVISION AND REGULATION

The Company is a bank holding company registered under the BHCA and is
subject to supervision by the Board of Governors of the Federal Reserve System
(the "Federal Reserve") and the Federal Reserve Bank of St. Louis. The Company
is also a savings and loan holding company registered under the SLHCA, and is
subject to supervision by the Office of Thrift Supervision ("OTS") and the
periodic reporting requirements of the OTS. Bank of Mississippi ("BOM") and
Volunteer Bank ("Volunteer"), which are subsidiaries of the Company, are
Mississippi and Tennessee state banks, respectively, and are subject to
regulation by the banking regulatory agency in their respective state. The
deposits of each of the Company's subsidiaries are insured by the Federal
Deposit Insurance Corporation ("FDIC") and therefore each is subject to
examination by the FDIC.

Federal Reserve. The Company is required to file periodic reports and
such additional information as the Federal Reserve may require pursuant to the
BHCA. The Federal Reserve may also examine the Company and its subsidiaries.

The BHCA requires Federal Reserve approval before the Company may acquire
substantially all the assets of any bank if by the acquisition the Company
would own or control more than 5% of the voting shares of the bank, or for a
merger or consolidation with another bank holding company. The Company may,
however, engage in or acquire an interest in a company that engages in
activities which the Federal Reserve has determined by regulation or order to
be so closely related to banking or managing or controlling banks as to be
properly incident thereto.

The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") amended provisions of the BHCA to specifically authorize the Federal
Reserve to approve an application by a bank holding company to acquire control
of a savings association. FIRREA also authorized a bank holding company that
controls a savings association to merge or consolidate the assets and
liabilities of the savings association with, or transfer assets and liabilities
to, any subsidiary bank which is a member of the Bank Insurance Fund ("BIF")
with the approval of the appropriate federal banking agency and the Federal
Reserve Board. The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") further amended the BHCA to permit federal savings associations
to acquire or be acquired by any insured depository institution. As a result
of these provisions, there have been a number of acquisitions of savings
associations by bank holding companies and other financial institutions in
recent years.

The Federal Reserve has adopted a risk-based capital adequacy assessment
system for bank holding companies. Assets are weighted by a risk factor and a
ratio is calculated by dividing qualifying capital by the risk-weighted assets.
Tier I capital generally includes common stock and retained earnings. Total
capital is comprised of Tier I capital and Tier II capital, which includes
certain allowances for loan losses, certain subordinated debt and perpetual
preferred stock.

4
<PAGE> 116

The Company is a legal entity which is separate and distinct from its
subsidiaries. Federal law restricts extensions of credit by its subsidiaries
to the Company or its affiliates. Dividends to stockholders of the Company may
be paid only from dividends paid to the Company by its subsidiaries.

CRA. The Community Reinvestment Act of 1977 ("CRA") and its implementing
regulations are intended to encourage regulated financial institutions to meet
the credit needs of their local community or communities, including low and
moderate income neighborhoods, consistent with the safe and sound operation of
such financial institutions. The regulations provide that the appropriate
regulatory authority will assess CRA reports in connection with applications
for establishment of domestic branches, acquisition of banks or mergers
involving bank holding companies.

FDIC. Deposits in each of the Company's subsidiaries are insured by the
FDIC and, pursuant to provisions of the Federal Deposit Insurance Act ("FDIA"),
any FDIC-insured subsidiary of the Company can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with the default of a commonly controlled FDIC-insured subsidiary or any
assistance by the FDIC to any commonly controlled FDIC-insured subsidiary in
danger of default.

FDICIA. FDICIA implemented a number of provisions applicable to insured
banks and bank holding companies. Federal bank regulatory agencies are
required to establish standards for safety and soundness of banks and bank
holding companies relating to internal controls and audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth
and compensation. FDICIA also requires bank holding companies to guarantee
compliance with any capital restoration plans entered into by a subsidiary bank
and the FDIC. The activities of insured state banks, including non-subsidiary
equity investment, is generally limited under the FDICIA to those permitted for
national banks. FDICIA also requires regulations by federal banking agencies
establishing minimum loan to value ratios for all real estate mortgage and
construction loans. The FDICIA also requires regulations to limit risks posed
by an insured bank's "exposure" to another bank. Exposure includes extension
of credit, purchases of securities issued by the other bank or acceptance of
securities issued by the other bank as collateral for an extension of credit.
Regulations pursuant to FDICIA limit such exposure.

Interstate Banking. In September 1994, the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 ("IBBEA") was enacted. Beginning
September 29, 1995, IBBEA permits adequately capitalized and managed bank
holding companies to acquire control of banks in states other than their home
states, subject to federal regulatory approval, without regard to whether such
a transaction is prohibited by the laws of any state. IBBEA permits states to
continue to require that an acquired bank have been in existence for a certain
minimum time period, which may not exceed five years. A bank holding company
may not, following an interstate acquisition, control more than 10% of the
nation's total amount of bank deposits or 30% of bank deposits in the relevant
state (unless the state enacts legislation to raise the 30% limit). States
retain the ability to adopt legislation to effectively lower the 30% limit.
Beginning June 1, 1997, federal banking regulators may approve merger
transactions involving banks located in different states, without regard to
laws of any state prohibiting such transactions; except that, mergers may not
be approved with respect to banks located in states that, prior to June 1,
1997, enacted legislation prohibiting mergers by banks located in such state
with out-of-state institutions. Federal banking regulators may permit an
out-of-state bank to open new branches in another state if such state has
enacted legislation permitting interstate branching. Affiliated institutions
are authorized to accept deposits for existing accounts, renew time deposits,
and close and service loans for affiliated institutions without being deemed an
impermissible branch of the affiliate.

5
<PAGE> 117

OTS. The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to
register and file periodic reports with the OTS and is subject to regulation
and examination by the OTS. As a federally-chartered savings association,
Laurel Federal Savings and Loan Association ("Laurel Federal"), a subsidiary of
the Company, is subject to extensive regulation by the OTS. Laurel Federal
must file reports with the OTS concerning its activities and financial
condition, in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with or acquisitions of other savings
institutions. The regulatory structure gives the OTS extensive discretion in
connection with its supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes.

State Banking Regulation. BOM is subject to supervision, regulation and
examination by the Mississippi Department of Banking and Consumer Finance.
Volunteer is subject to supervision, regulation and examination by the
Tennessee Department of Financial Institutions. State regulations in
Mississippi and Tennessee relate to such matters as loans, mortgages,
consolidations, required reserves, allowable investments, issuance of
securities, payment of dividends, establishment of branches, filing of periodic
reports and other matters affecting the business of BOM and Volunteer.

6
<PAGE> 118

DESCRIPTION OF BANCORPSOUTH COMMON STOCK

The Company has authorized 500 million shares of BancorpSouth Common
Stock, $2.50 par value.

DIVIDEND RIGHTS

Holders of outstanding shares of BancorpSouth Common Stock are entitled
to receive such dividends, if any, as may be declared by the Board of Directors
of the Company, in its discretion, out of funds legally available therefor.

VOTING RIGHTS

Holders of BancorpSouth Common Stock are entitled to one vote per share
on all matters to be voted on by the stockholders of the Company, including the
election of directors, and do not have cumulative voting rights. Under the
Mississippi Business Corporation Act, an affirmative vote of the majority of
the stockholders present at a meeting is sufficient in order to take most
stockholder actions. Certain extraordinary actions require greater percentages
of affirmative stockholder votes, including an increase, without a
recommendation by the Board of Directors of such increase, in the maximum
number of members of the Board of Directors of the Company or an amendment or
repeal of the anti-takeover provision described below.

LIQUIDATION RIGHTS

In the event of the liquidation of the Company, the holders of
BancorpSouth Common Stock are entitled to receive pro rata any assets
distributed to stockholders with respect to their shares, after payment of all
debts and payments to holders of preferred stock of the Company, if any.

PREEMPTIVE RIGHTS

Holders of BancorpSouth Common Stock have no right to subscribe to
additional shares of capital stock that may be issued by the Company.

CERTAIN ANTI-TAKEOVER PROVISIONS

The Company's Restated Articles of Incorporation, as amended, generally
require the affirmative vote of the holders of 80% of the outstanding shares of
BancorpSouth Common Stock to approve (i) a merger or consolidation of the
Company with, or (ii) a sale, exchange or lease of all or substantially all of
the assets (as defined in the Restated Articles of Incorporation) of the
Company to any person or entity, unless such transaction is approved by the
Board of Directors of the Company.

The Restated Articles of Incorporation of the Company also require the
affirmative vote of the holders of 80% of the outstanding shares of the
BancorpSouth Common Stock, and the affirmative vote of the holders of 67% of
the shares of BancorpSouth Common Stock held by stockholders other than a
Controlling Party (as defined below), for the approval or authorization of any
merger, consolidation, sale, exchange or lease of all or substantially all of
the assets of the Company if such transaction involves any stockholders "owning
or controlling" 20% or more of the BancorpSouth Common Stock outstanding at the
time of the proposed transaction (a "Controlling Party"). The terms "owning or
controlling" are not defined in the Company's Restated Articles of
Incorporation. Management of the Company assumes that such terms would be
interpreted in accordance with the meaning of the term "beneficial ownership"
under the Exchange Act; however, if is uncertain how such terms would be
construed under the laws of the State of Mississippi or whether such terms
would encompass the possession of a revocable proxy to direct the vote of
shares of BancorpSouth Common Stock. However, these voting requirements are
not applicable in transactions in which: (a) the cash or fair market value of
the property, securities or other consideration to be received (which includes
BancorpSouth Common Stock retained by the Company's

7
<PAGE> 119

existing stockholders in a transaction in which the Company is the surviving
entity) per share by holders of BancorpSouth Common Stock in such transaction
is not less than the highest per share price (with appropriate adjustments for
recapitalizations, stock splits, stock dividends and distributions) paid by the
Controlling Party in the acquisition of any of its holdings of the BancorpSouth
Common Stock in the three years preceding the announcement of the proposed
transaction, or (b) the transaction is approved by a majority of the Board of
Directors of the Company.

Neither of these provisions of the Restated Articles of Incorporation may
be repealed or amended except by the affirmative vote of 80% of the total
voting power of the Company.

BANCORPSOUTH COMMON STOCK PURCHASE RIGHTS

Following stockholder approval of a Shareholder Rights Plan in April
1991, the Company issued one common stock purchase right (a "Right") for each
issued and outstanding share of BancorpSouth Common Stock. Each Right attaches
to and trades with each share of BancorpSouth Common Stock; provided, however,
that the Rights will separate from the BancorpSouth Common Stock and be
distributed upon the occurrence of certain events, including the acquisition of
or tender for 20% or more of the outstanding shares of BancorpSouth Common
Stock by any person (an "Acquiring Person") or if the Board of Directors of the
Company determines that a person beneficially owning 10% or more of the
outstanding shares of BancorpSouth Common Stock has become an "Adverse Person,"
as defined in the Shareholder Rights Plan.

In the event that a person becomes an Acquiring Person or is declared an
Adverse Person by the Board of Directors of the Company, then each Right will
entitle the holder thereof to purchase one share of BancorpSouth Common Stock
at 50% of the then current market price, subject to adjustments as described in
the Shareholder Rights Plan. At any time after the aforementioned events, the
Board of Directors of the Company may exchange each Right for one share of
BancorpSouth Common Stock, subject to adjustment as described in the
Shareholder Rights Plan. If an Acquiring Person effects certain transactions
with the Company, including a merger, share exchange, or transfer of over 50%
of the Company's assets or earning power, then each Right shall entitle the
holder thereof to purchase a share of common stock of the Acquiring Person at
50% of the then current market price for such common stock. Shares of
BancorpSouth Common Stock owned by an Acquiring Person or Adverse Person will
not be entitled to exercise the Rights as set forth above.

The Rights are redeemable at $.01 per Right at any time prior to the
close of business on the tenth day after the public announcement that a person
has become an Acquiring Person or been declared an Adverse Person by the Board
of Directors of the Company. The Rights are not exercisable until the
expiration of the applicable ten day period, and the Rights will expire at the
close of business on April 24, 2001, unless earlier redeemed. The Board of
Directors of the Company is entitled to interpret the provisions of the
Shareholder Rights Plan, which may be amended in certain respects by the Board
of Directors of the Company at any time.

8
<PAGE> 120

LEGAL MATTERS

The validity of the shares of BancorpSouth Common Stock to be offered
hereunder will be passed upon by Waller Lansden Dortch & Davis, Nashville,
Tennessee, special counsel to the Company. Certain matters concerning this
offering will be passed upon on behalf of the Company by Riley, Ford, Caldwell
& Cork, P.A., Tupelo, Mississippi. Frank A. Riley, a shareholder of such
firm, is a director of the Company.

EXPERTS

The Consolidated Financial Statements of the Company, as of December 31,
1994 and 1993, and for each of the years in the three-year period ended
December 31, 1994, have been incorporated by reference in this Prospectus and
in the Registration Statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of such firm as experts in accounting and
auditing.