BANCORPSOUTH INC, 424B5, 1995-08-04

BANCORPSOUTH INC
424B5, 1995-08-04
STATE COMMERCIAL BANKS

Previous: MYERS L E CO GROUP, SC 13D/A, 1995-08-04

Next: SEI CASH & PLUS TRUST, 497, 1995-08-04

<PAGE> 1
Registration No. 33-91338
Filed Pursuant to Rule 424(b)(5)

SHELBY BANK

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

6675 Stage Road
Bartlett, Tennessee 38134

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

August 1, 1995
Dear Stockholder:

You are cordially invited to attend a special meeting of the stockholders
of Shelby Bank to be held in the board room at the offices of Shelby Bank at
6675 Stage Road, Bartlett, Tennessee on August 31, 1995 at 9:00 a.m. Central
Time. At this special meeting, you will be asked to consider and vote upon a
Purchase and Assumption Agreement, dated as of May 9, 1995, pursuant to which
Volunteer Bank, a Tennessee banking corporation, is to acquire substantially
all of the assets, and assume certain liabilities, of Shelby Bank in exchange
for shares of common stock of BancorpSouth, Inc., a Mississippi corporation and
the parent holding company of Volunteer Bank, as described in the Purchase and
Assumption Agreement and in the enclosed Joint Prospectus Supplement and Proxy
Statement. You will also be asked to consider and vote upon a plan of
reorganization providing for the dissolution and liquidation of Shelby Bank, as
discussed in the enclosed Joint Prospectus Supplement and Proxy Statement and
attached as Annex B thereto.

Further information concerning the special meeting and the proposed
purchase and assumption transaction and plan of reorganization is set forth in
the enclosed Notice of Special Meeting and Joint Prospectus Supplement and
Proxy Statement. Shelby Bank's management and legal counsel will attend the
special meeting to answer questions and to explain the proposed purchase and
assumption transaction and the plan of reorganization in detail.

Your vote on these matters is of great importance. The affirmative vote
of the holders of a majority of the outstanding shares of Common Stock of
Shelby Bank entitled to vote, among other conditions, is required for the
approval of the proposed purchase and assumption transaction. The affirmative
vote of the holders of two-thirds of the outstanding shares of Common Stock of
Shelby Bank is required for approval of the plan of reorganization. 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 Shelby Bank has considered and approved the
proposed purchase and assumption by Volunteer Bank and the plan of
reorganization, and recommends that stockholders vote FOR approval of both of
these proposals.

Very truly yours,

James L. Reid
Chairman of the Board

<PAGE> 2

SHELBY BANK

_______________________

6675 Stage Road
Bartlett, Tennessee 38134

_______________________

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 31, 1995

_______________________

A special meeting of the stockholders of Shelby Bank is to be held in
the board room at the offices of Shelby Bank, 6675 Stage Road, Bartlett,
Tennessee on August 31, 1995 at 9:00 a.m. Central Time, for the following
purposes:

(1) To consider and vote upon a Purchase and Assumption Agreement,
dated as of May 9, 1995, which provides for the purchase of
substantially all of the assets, and assumption of certain
liabilities, of Shelby Bank by Volunteer Bank, a Tennessee
banking corporation, in exchange for shares of common stock of
BancorpSouth, Inc., a Mississippi corporation and the parent
holding company of Volunteer Bank;

(2) To consider and vote upon a plan of reorganization providing for
the dissolution and liquidation of Shelby Bank; and

(3) 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 Shelby Bank at the close of business on
August 1, 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 purchase and assumption transaction and the plan of reorganization at
the special meeting, this meeting may be adjourned to permit further
solicitation.

Stockholders of Shelby Bank are entitled to assert dissenters' rights
with respect to the proposed purchase and assumption transaction, pursuant to
Sections 45-2-1309 and 48-23-101 et seq. of the Tennessee Code Annotated, a
copy of which is included as Annex A to the enclosed Joint Prospectus
Supplement and Proxy Statement. Any stockholder desiring to dissent from the
proposed purchase and assumption transaction and receive the fair value of that
stockholder's shares must, prior to the vote at the special meeting, deliver
written notice to the Secretary of Shelby Bank at the address set forth above
of such stockholder's intent to demand payment for the stockholder's shares if
the proposed purchase and assumption transaction is effectuated, and must not
vote his or her shares in favor of the purchase and assumption transaction.
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,

Billy F. Campbell
Secretary

Bartlett, Tennessee
August 1, 1995

<PAGE> 3

JOINT PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 9, 1995)
AND PROXY STATEMENT
78,516 SHARES

BANCORPSOUTH, INC.

COMMON STOCK

_______________________

This Joint Supplement and Proxy Statement ("Supplement/Proxy Statement")
relates to the issuance of an aggregate of up to 78,516 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"), in connection with a Purchase
and Assumption Agreement, dated as of May 9, 1995 (the "Purchase Agreement"),
among the Company, Volunteer Bank, a Tennessee banking corporation and a
wholly-owned subsidiary of the Company ("Volunteer"), and Shelby Bank, a
Tennessee banking corporation ("Shelby Bank"). Pursuant to the Purchase
Agreement, Volunteer is to acquire substantially all of the assets, and assume
certain liabilities, of Shelby Bank (the "Purchase and Assumption") in exchange
for an aggregate of up to 78,516 shares of BancorpSouth Common Stock, to be
issued to holders of outstanding shares of Common Stock of Shelby Bank, $1 par
value per share (the "Shelby Bank Common Stock"), in accordance with such
holders' respective ownership interests in the outstanding shares of Shelby
Bank Common Stock. This Supplement/Proxy Statement also relates to a plan of
reorganization providing for the dissolution and liquidation of Shelby Bank
after consummation of the Purchase and Assumption (the "Plan of
Reorganization"), a copy of which plan is attached hereto as Annex B.

This Supplement/Proxy Statement also serves as the proxy statement of
Shelby Bank with respect to a special meeting of the stockholders of Shelby
Bank to be held on August 31, 1995, or any adjournment thereof, to consider and
vote upon the transactions described in the Purchase Agreement and the Plan of
Reorganization (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 PURCHASE AGREEMENT, IS AVAILABLE UPON REQUEST FROM
CATHY M. ROBERTSON, CORPORATE SECRETARY, BANCORPSOUTH, INC., ONE MISSISSIPPI
PLAZA, TUPELO, MISSISSIPPI 38801, (601) 680-2000. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, ANY REQUEST SHOULD BE
MADE BY AUGUST 24, 1995.

_______________________

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.

_______________________

SHARES OF BANCORPSOUTH COMMON STOCK TO BE ISSUED PURSUANT TO THE
PURCHASE 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 AUGUST 1, 1995

<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . S-4

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5

SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14

THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Matters to Be Considered at the Special Meeting . . . . . . . . . . . . . . . . . . . S-19
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Shares Entitled to Vote; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Voting and Revocability of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20

THE PURCHASE AND ASSUMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Background of the Purchase and Assumption . . . . . . . . . . . . . . . . . . . . . . S-22
Reasons for the Purchase and Assumption; Recommendation of the Board of Directors . . S-22
Regulatory Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
Interests of Certain Persons in the Purchase and Assumption . . . . . . . . . . . . . S-24
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . S-25
Resale Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
Comparison of Rights of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . S-26

THE PURCHASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
The Purchase and Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
Assets to be Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
Liabilities to be Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
Plan of Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
Issuance of BancorpSouth Common Stock . . . . . . . . . . . . . . . . . . . . . . . . S-28
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
Conduct of Business Pending the Purchase and Assumption . . . . . . . . . . . . . . . S-29
Conditions to Consummation of the Purchase and Assumption . . . . . . . . . . . . . . S-29
Employment of Shelby Bank Employees . . . . . . . . . . . . . . . . . . . . . . . . . S-30
Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
Amendment of the Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . S-31
Termination of the Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . S-31

PLAN OF REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-32
</TABLE>

S-2

<PAGE> 5

<TABLE>
<S> <C>
SHELBY BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
FDIC Cease and Desist Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Certain Additional Financial and Statistical Data . . . . . . . . . . . . . . . . . . S-35

SHELBY BANK MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . S-39
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . S-39
Impact of Inflation and Changes in Prices . . . . . . . . . . . . . . . . . . . . . . S-41
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . S-41

DESCRIPTION OF SHELBY BANK CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Voting Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Beneficial Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42

COMPARISON OF RIGHTS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Indemnification of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Permitted Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Right to Call Special Meetings of the Stockholders . . . . . . . . . . . . . . . . . S-44

LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45

EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45

Index to Shelby Bank Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

Annex A -- Provisions Relating to Dissenters' Rights . . . . . . . . . . . . . . . . . . . . A-1
Annex B -- Plan of Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>

S-3
<PAGE> 6

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.

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

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The Company's Annual Report on Form 10-K for the year ended December 31,
1994, Quarterly Report on Form 10-Q for the quarter ended March 31, 1995,
Current Report on Form 8-K filed with the Commission on June 22, 1995 and
Current Report on Form 8-K filed with the Commission on July 14, 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 Supplement/Proxy
Statement shall be deemed to be incorporated by reference into this
Supplement/Proxy Statement. 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 Supplement/Proxy Statement 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 Supplement/Proxy Statement.

THIS SUPPLEMENT/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. A COPY OF THESE DOCUMENTS,
INCLUDING THE PURCHASE 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
AUGUST 24, 1995.

S-4
<PAGE> 7

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.

PARTIES TO THE PURCHASE AND ASSUMPTION

BANCORPSOUTH, INC.; VOLUNTEER BANK

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, a Mississippi
banking corporation with its principal office located in Tupelo, Mississippi
and 84 branch offices located across the State of Mississippi; Volunteer, 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.

Effective as of July 31, 1995, First Federal Bank for Savings ("First
Federal"), a federally chartered savings bank located in Starkville,
Mississippi, merged with and into Bank of Mississippi in exchange for shares of
BancorpSouth Common Stock. First Federal was chartered in 1934 as a federal
savings and loan association converted to a mutual savings bank in 1988 and
converted to a stock savings bank in October 1993. First Federal operated from
a single office located in Starkville, Mississippi and, at March 31, 1995, had
total assets of approximately $25 million and total deposits of approximately
$22 million. The Company accounted for the merger with First Federal as a
pooling of interests for financial reporting and accounting purposes.

Effective as of June 16, 1995, the Company and Volunteer entered into an
agreement and plan of merger with Wes-Tenn Bancorp, Inc. ("Wes-Tenn"), a
Tennessee corporation and the parent holding company of Tennessee Community
Bank ("TCB"), a Tennessee banking corporation, whereby Wes-Tenn is to merge
with and into the Company and TCB is to merge with and into Volunteer, in
exchange for shares of BancorpSouth Common Stock. Tennessee Community Bank
operates a general commercial banking business through 11 offices located
throughout west Tennessee and, at March 31, 1995, had total assets of
approximately $296 million and total deposits of approximately $242.5 million.
These proposed mergers are subject to, among other things, approval by the
Federal Deposit Insurance Corporation (the "FDIC"), the Tennessee Department of
Financial Institutions (the "TDFI") and the stockholders of Wes-Tenn. The
Company intends to account for the mergers as a pooling of interests for
financial reporting and accounting purposes. The Company's Current Report on
Form 8-K, filed with the Commission on July 14, 1995, contains certain pro
forma financial information reflecting the impact of the proposed mergers with
Wes-Tenn and TCB upon the consolidated financial statements of the Company.

S-5

<PAGE> 8

SHELBY BANK

Shelby Bank is a Tennessee banking corporation which commenced
operations in January 1988. Shelby Bank operates a single bank location in
Bartlett, Shelby County, Tennessee. The principal executive offices of Shelby
Bank are located at 6675 Stage Road, Bartlett, Tennessee 38134, and its
telephone number is (901) 382-2265.

Shortly after beginning operations in 1988, Shelby Bank experienced
operating difficulties due to the general poor credit quality of its loans.
The deterioration of Shelby Bank's capital position due to Shelby Bank's
operating losses and increases in nonperforming loans led to increased
regulatory oversight from the FDIC and the TDFI. The Board of Directors of
Shelby Bank took a number of actions to address this situation, including
changes in senior management and, to counter the decrease in its capital
position, in 1992, the issuance and sale of approximately $1.875 million
of Shelby Bank Common Stock (including the conversion of loans from
directors of Shelby Bank in the aggregate amount of $550,000 into shares of
Shelby Bank Common Stock).

Notwithstanding these actions by Shelby Bank, since May 1992, Shelby
Bank has been operating under an FDIC cease and desist order to which the TDFI
is also a party. Under the order, Shelby Bank is required to cease engaging in
hazardous lending and lax collection practices, operating with inadequate
capital and a large volume of poor quality loans, and operating in a manner as
to produce operating losses or in violation of various federal and state
banking regulations. In addition, the order requires Shelby Bank to maintain
qualified management, implement and maintain a management policy and plan for
increasing earnings, increase its capital and maintain adequate loan loss
reserves, establish a loan committee and an internal periodic loan review
program and restrict extensions of credit to borrowers with previously
uncollected or doubtful loans from Shelby Bank. Shelby Bank is to provide the
FDIC with periodic progress reports regarding Shelby Bank's compliance with the
order. The terms of the cease and desist order will remain in effect until the
order is cancelled by the FDIC. In the event that Shelby Bank fails to
continue to comply with the provisions of the cease and desist order, the FDIC
could take over the operations of Shelby Bank or place it into receivership, or
the TDFI could revoke Shelby Bank's charter.

While operating under the cease and desist order, Shelby Bank was
required by the FDIC to raise additional capital or risk additional action
being taken by the FDIC and the TDFI. Accordingly, in April 1993, Shelby Bank
issued and sold approximately $900,000 of Shelby Bank Common Stock, primarily
to members of the Board of Directors of Shelby Bank and made changes in its
senior management. Donald E. Russell, the President and Chief Executive
Officer of Shelby Bank, and other members of the current senior management of
Shelby Bank, began working with Shelby Bank in April 1993 or after such date.

Shelby Bank is subject to continuing review by the FDIC and the TDFI and
has continued to receive comments from both agencies regarding violations of
various federal and state banking provisions. Management of Shelby Bank
believes that all deficiencies have currently been corrected, except with
respect to the existence of an outstanding loan which, although made in
compliance with applicable regulations, exceeds the amount of Shelby Bank's
current lending limits.

In the event that the Purchase and Assumption is not approved, the Board
of Directors of Shelby Bank intend to continue to operate Shelby Bank as an
independent institution and to seek additional capital for Shelby Bank. Shelby
Bank would continue to be subject to the FDIC cease and desist order until such
time, if any, as the FDIC and the TDFI determine to cancel the order. There is
no assurance, however, that the FDIC or the TDFI would permit Shelby Bank to
continue to operate.

S-6

<PAGE> 9

THE PURCHASE AND ASSUMPTION

If the Purchase Agreement is approved by the stockholders of Shelby
Bank, certain other conditions are satisfied and the stockholders of Shelby
Bank approve the Plan of Reorganization: (i) Volunteer will acquire
substantially all of the assets, and assume certain liabilities, of Shelby Bank
in exchange for up to 78,516 shares of BancorpSouth Common Stock to be issued
to holders of the Shelby Bank Common Stock pursuant to the Purchase Agreement
and (ii) Shelby Bank will dissolve and liquidate.

The Purchase Agreement contains various representations and warranties
by the Company and Shelby Bank, and the obligations of such parties are subject
to certain conditions. See "The Purchase Agreement."

ASSETS TO BE PURCHASED

The Purchase Agreement provides for the purchase by Volunteer of all of
the assets of Shelby Bank, including its bank location, outstanding loans, cash
and investments, except Shelby Bank's charter and up to $50,000 in cash, which
will be placed in an account with Volunteer for use following the Purchase and
Assumption solely to pay Shelby Bank's expenses related to its liquidation and
dissolution, unknown or contingent claims and contractual liabilities not
assumed by Volunteer. Donald E. Russell, the President of Shelby Bank, and
James L. Reid, the Chairman of the Board of Directors of Shelby Bank, will be
the only persons authorized to draw against this account. Any funds remaining
in such account following completion of the liquidation of Shelby Bank will
become the property of Volunteer. The risk of loss with respect to the assets
of Shelby Bank proposed to be acquired by Volunteer, and the risks and
obligations with respect to the security of persons and property on Shelby
Bank's bank location premises, will remain with Shelby Bank until consummation
of the Purchase and Assumption.

LIABILITIES TO BE ASSUMED

The Purchase Agreement provides for the assumption by Volunteer of all
of Shelby Bank's deposit liabilities, all other recorded liabilities on the
Shelby Bank general ledger as of February 28, 1995, additional liabilities
recorded on the general ledger of Shelby Bank between February 28, 1995 and the
consummation of the Purchase and Assumption (provided such liabilities are of a
type consistent with liabilities recorded on the general ledger on February 28,
1995), certain contractual liabilities, potential liability in connection with
certain pending litigation and trade payables for landscaping, maintenance,
janitorial and similar services in an aggregate amount of up to $1,000.
Volunteer and the Company will not be responsible for any other obligations or
liabilities of Shelby Bank.

ISSUANCE OF BANCORPSOUTH COMMON STOCK

Upon effectiveness of the Purchase and Assumption, the stockholders of
Shelby Bank, other than dissenting stockholders, will be entitled to receive up
to an aggregate of 78,516 shares of BancorpSouth Common Stock in accordance
with such holders' respective ownership interest in the outstanding shares of
Shelby Bank Common Stock and cash in lieu of the issuance of fractional shares
of BancorpSouth Common Stock (the "Purchase Consideration"). Assuming that
5,287,552 shares of Shelby Bank Common Stock are outstanding upon consummation
of the Purchase and Assumption (including 500,000 shares subject to outstanding
options to purchase), holders of each share of Shelby Bank Common Stock, other
than dissenting stockholders, would be entitled to receive approximately 0.0148
shares of BancorpSouth Common Stock (the "Exchange Ratio"). In no event will
the Company be obligated to provide aggregate cash consideration, for
fractional shares or otherwise, in an amount greater than 1% of the aggregate
Purchase Consideration or otherwise to the extent such payment would not be in
accordance with Section 368 of the Internal Revenue Code of 1986, as amended
(the "Code"). The amount of the Purchase Consideration was

S-7

<PAGE> 10

determined through arm's-length negotiations between the Company and Shelby
Bank. See "The Purchase and Assumption -- Background of the Purchase and
Assumption".

PLAN OF REORGANIZATION

In connection with the Purchase and Assumption, the Board of Directors
of Shelby Bank has adopted the Plan of Reorganization. The Plan of
Reorganization is intended to meet the requirements of Section 368(a)(1)(C) of
the Code and is to be approved by the stockholders of Shelby Bank. Pursuant to
the Plan of Reorganization, Shelby Bank will dissolve and liquidate following
the Purchase and Assumption. The remaining net assets of Shelby Bank, if any,
which are not conveyed to Volunteer will be distributed to the stockholders of
Shelby Bank. A copy of the Plan of Reorganization is attached hereto as Annex
B. See "Plan of Reorganization."

SPECIAL MEETING OF STOCKHOLDERS OF SHELBY BANK

The Special Meeting will be held on August 31, 1995 at 9:00 a.m. Central
Time in the board room at the offices of Shelby Bank at 6675 Stage Road,
Bartlett, Tennessee. The purpose of the Special Meeting is to consider and vote
upon the Purchase Agreement, the Plan of Reorganization and any other matters
that may be properly brought before the stockholders of Shelby Bank at the
Special Meeting. Only holders of record of shares of Shelby Bank Common Stock
at the close of business on August 1, 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 Purchase and Assumption will require the affirmative
vote of the holders of a majority of the outstanding shares of Shelby Bank
Common Stock. Approval of the Plan of Reorganization will require the
affirmative vote of the holders of two-thirds of the outstanding shares of
Shelby Bank Common Stock. Each share of Shelby Bank Common Stock is entitled to
one vote. At August 1, 1995, Shelby Bank's directors, executive officers and
affiliates beneficially owned 3,030,367 shares of Shelby Bank Common Stock, or
approximately 63% of the then outstanding shares of Shelby Bank Common Stock.
The directors and executive officers of Shelby Bank have indicated that they
intend to vote their shares of Shelby Bank Common Stock for approval and
adoption of the Purchase Agreement and the Plan of Reorganization. Accordingly,
approval of the Purchase and Assumption is virtually assured. See "Special
Meeting -- Vote Required."

THE SHELBY BANK BOARD OF DIRECTORS HAS APPROVED THE PURCHASE AGREEMENT
AND THE PLAN OF REORGANIZATION AS BEING IN THE BEST INTERESTS OF THE SHELBY
BANK STOCKHOLDERS AND RECOMMENDS THAT THE SHELBY BANK STOCKHOLDERS VOTE FOR THE
APPROVAL AND ADOPTION OF THE PURCHASE AGREEMENT AND THE PLAN OF REORGANIZATION.

The vote of the holders of BancorpSouth Common Stock is not required to
approve the Purchase and Assumption.

BACKGROUND OF AND REASONS FOR THE PURCHASE AND ASSUMPTION

S-8

<PAGE> 11

possible business combination with Volunteer. On February 28, 1995, Mr. Weeks
met with the Shelby Bank Board of Directors and presented terms of a proposed
merger between Volunteer and Shelby Bank. In February 1995, representatives of
the Company and Volunteer began a due diligence review of the records and
operations of Shelby Bank. Due to the Company's and Volunteer's concerns
regarding the assumption of potential but unknown liabilities through a merger
transaction, Mr. Weeks proposed a revised transaction wherein Volunteer would
acquire Shelby Bank's assets and assume its known liabilities but would not be
responsible for any other liabilities. On April 11, 1995, following continued
negotiation regarding the proposed purchase and assumption, a letter of intent
with respect to the proposed purchase and assumption was entered into among the
Company, Volunteer and Shelby Bank. On May 9, 1995, the Shelby Bank Board of
Directors approved the terms of the Purchase Agreement, which was executed on
behalf of each of the parties as of such date. Although the Shelby Bank Board
of Directors considered retaining an independent third party to issue a
fairness opinion with respect to the consideration to be conveyed in the
Purchase and Assumption, the directors determined not to obtain such a fairness
opinion as the Shelby Bank Board of Directors considered relevant statistical
and financial information relating to a number of transactions in the
southeastern United States involving banks of less than $100 million in assets
in assessing the adequacy and fairness of the financial terms of the proposed
transaction, among other factors that the Shelby Bank Board of Directors
considered to be relevant. Accordingly, the Shelby Bank Board of Directors
concluded that a fairness opinion would add little additional value.

The Shelby Bank Board of Directors concluded, in light of the
current operations of Shelby Bank and its financial condition, including its
capital position, and the alternatives reasonably available to it, that it
would be in the best interests of Shelby Bank, its stockholders, depositors and
customers for Shelby Bank to combine with Volunteer in the proposed Purchase
and Assumption. The Board of Directors of Shelby Bank also concluded, after
considering information presented regarding other bank acquisitions in relation
to the proposed consideration to be received by the stockholders of Shelby Bank
in the Purchase and Assumption, the book value of Shelby Bank Common Stock and
Shelby Bank's recent earnings, that this proposed consideration was fair to the
stockholders of Shelby Bank.

STOCKHOLDERS' RIGHTS OF APPRAISAL

Stockholders of Shelby Bank are entitled to dissent from the Purchase
and Assumption and, if the Purchase and Assumption is consummated, to receive
cash from the Company equal to the fair value of their shares of Shelby Bank
Common Stock. Any stockholder of Shelby Bank who elects to dissent from the
Purchase and Assumption and demand payment of the fair value of their shares of
Shelby Bank Common Stock must strictly comply with the applicable provisions
set forth in Sections 45-2-1309 and 48-23-101 et seq. of the Tennessee Code
Annotated, a copy of which is attached hereto as Annex A. If a stockholder of
Shelby Bank elects to exercise the stockholder's right to dissent from the
Purchase and Assumption and demand payment of the fair value of such
stockholder's shares of Shelby Bank Common Stock, the stockholder must satisfy
both of the following conditions, as well as the other applicable procedural
requirements: (i) the stockholder must deliver to Shelby Bank prior to the vote
at the Special Meeting a written notice of the stockholder's intent to demand
payment for his or her shares, and (ii) the stockholder may not vote his or her
shares in favor of the Purchase and Assumption. Written notice with respect to
dissenters' rights should be submitted to Billy F. Campbell, Secretary, Shelby
Bank, 6675 Stage Road, Bartlett, Tennessee 38134. See "The Special Meeting --
Dissenters' Rights" and Annex A hereto.

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

S-9

<PAGE> 12

CONDITIONS; REGULATORY APPROVALS

Consummation of the Purchase and Assumption is subject to certain
conditions, including the approval of Shelby Bank stockholders and the receipt
of applicable regulatory approvals or consents, including those of the FDIC and
the TDFI. Volunteer filed applications with the FDIC and the TDFI with respect
to the Purchase and Assumption on May 23, 1995 and anticipates a response to
each application prior to August 15, 1995. See "The Purchase and Assumption --
Regulatory Approvals" and "The Purchase Agreement -- Conditions to Consummation
of the Purchase and Assumption."

INTERESTS OF CERTAIN PERSONS IN THE PURCHASE AND ASSUMPTION

At August 1, 1995, the directors and executive officers of Shelby Bank
beneficially owned an aggregate of 3,030,367 shares of the then outstanding
Shelby Bank Common Stock. Based upon an Exchange Ratio of 0.0148 and assuming
such shares and an additional 500,000 shares of Shelby Bank Common Stock which
Donald E. Russell, the President and Chief Executive Officer of Shelby Bank,
holds options to purchase, are owned upon effectiveness of the Purchase and
Assumption, such officers and directors would receive an aggregate of
approximately 52,249 shares of BancorpSouth Common Stock upon consummation of
the Purchase and Assumption. In connection with the Purchase and Assumption,
Mr. Russell will enter into a confidentiality and non-competition agreement with
Volunteer, which agreement will provide, in part, that, for a period of two
years from the consummation of the Purchase and Assumption, Mr. Russell will not
compete with Volunteer or solicit its customers, and Mr. Russell will receive
certain severance payments in the event that his employment with Volunteer is
terminated without cause and following a change in control of Volunteer or the
Company prior to two years following the Purchase and Assumption. In addition,
Volunteer has entered into a purchase agreement to acquire all of the assets of
First Mortgage Express, Inc., a Tennessee corporation ("First Mortgage"), for
$50,000 in cash. The capital stock of First Mortgage, which engages in a
mortgage origination business, is held by directors of Shelby Bank other than
Mr. Russell. See "The Purchase and Assumption -- Interests of Certain Persons
in the Purchase and Assumption," "The Purchase Agreement -- Employment of Shelby
Bank Employees" and "Description of Shelby Bank Capital Stock -- Beneficial
Ownership."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The Purchase and Assumption is intended to constitute a tax-free
reorganization under Section 368(a)(1)(C) of the Code. If the Purchase and
Assumption was determined not to qualify as a "reorganization" under Section
368(a) of the Code, the Purchase and Assumption would be treated as a taxable
sale of assets by Shelby Bank followed by the liquidation of Shelby Bank. A
stockholder of Shelby Bank who receives cash in lieu of a fractional share of
BancorpSouth Common Stock in the Purchase and Assumption 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 Shelby Bank Common Stock are held by such stockholder as a
capital asset at the Effective Time. The receipt of cash for shares of Shelby
Bank Common Stock as a result of the exercise of dissenters' rights will be
taxable as a redemption of those shares for the cash. Stockholders of Shelby
Bank are urged to consult their own tax advisors as to specific tax
consequences of the Purchase and Assumption. See "The Purchase and Assumption
-- Certain Federal Income Tax Consequences."

S-10

<PAGE> 13

ACCOUNTING TREATMENT

The Company intends to account for the Purchase and Assumption using the
purchase method for accounting purposes. See "The Purchase and Assumption --
Accounting Treatment."

RESALE RESTRICTIONS

Shares of BancorpSouth Common Stock received by the stockholders of
Shelby Bank in the Purchase and Assumption 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 Shelby Bank 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, if any. See "The
Purchase and Assumption -- Resale Restrictions."

S-11

<PAGE> 14

COMPARATIVE MARKET DATA

The BancorpSouth Common Stock has been traded on The Nasdaq Stock Market
National Market ("Nasdaq") under the symbol "BOMS" since October 14, 1985. At
August 1, 1995, there were approximately 5,952 stockholders of record of the
BancorpSouth Common Stock.

At May 8, 1995, there were approximately 176 stockholders of record of
the Shelby Bank Common Stock. There is no established public trading market
for shares of Shelby Bank Common Stock.

At April 11, 1995, the date immediately preceding the public announcement
of the proposed Purchase and Assumption, the closing price per share as
reported on Nasdaq for the BancorpSouth Common Stock was $36.50. At
August 1, 1995, the closing price per share of BancorpSouth Common Stock was
$39.50.

The table below sets forth, for the periods indicated, the range of
closing sales prices as reported on Nasdaq for the BancorpSouth Common Stock.
<TABLE>
<CAPTION>
BANCORPSOUTH
COMMON STOCK(1)
------------

HIGH LOW
---- ---
1995
----
<S> <C> <C>
First Quarter . . . . . . . . . . . . . . . . $36.50 $32.25
Second Quarter . . . . . . . . . . . . . . . $40.00 $36.00
Third Quarter (through August 1, 1995). . . . $40.50 $38.75

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-12

<PAGE> 15

COMPARATIVE PER SHARE DATA

The following table presents selected comparative unaudited per share
data (i) of each of the Company and Shelby Bank on a historical basis, (ii)
for the Company and Shelby Bank on a pro forma basis, (iii) the Company,
Shelby Bank and other pending acquisitions on a pro forma basis, (iv)
Shelby Bank on a pro forma equivalent basis, and (v) Shelby Bank and other
pending acquisitions on a pro forma equivalent basis.

<TABLE>
<CAPTION>
BOOK VALUE PER SHARE:
December 31, 1994 March 31, 1995
----------------- --------------
<S> <C> <C>
The Company historical (1) $25.71 $26.33
Shelby Bank historical 0.25 0.26
The Company and Shelby Bank pro forma (2) 25.82 26.33
The Company, Shelby Bank and other pending
acquisitions pro forma (3) 24.67 25.31
Shelby Bank pro forma equivalent (4) 0.38 0.39
Shelby Bank and other pending acquisitions
pro forma equivalent (5) 0.37 0.37
</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 (1)(6) $2.40 $3.34 $3.11 $0.80
Shelby Bank historical (0.09) (0.03) 0.01 0.01
The Company and Shelby Bank pro forma (2) 2.21 3.28 3.08 0.79
The Company, Shelby Bank and other pending
acquisitions pro forma (3) 2.15 3.14 2.94 0.75
Shelby Bank pro forma equivalent (4) 0.03 0.05 0.05 0.01
Shelby Bank and other pending acquisitions
pro forma equivalent (5) 0.03 0.05 0.04 0.01
</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) $1.02 $1.08 $1.11 $0.30
Shelby Bank historical - - - -
The Company and Shelby Bank pro forma (2) 1.02 1.08 1.11 0.30
The Company, Shelby Bank and other pending
acquisitions pro forma (3) 1.02 1.08 1.11 0.30
Shelby Bank pro forma equivalent (4) 0.02 0.02 0.02 -
Shelby Bank and other pending acquisitions
pro forma equivalent (5) 0.02 0.02 0.02 -
</TABLE>

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

(1) Presented as if the merger of LF Bancorp, Inc. ("LF Bancorp") with and
into the Company as of March 31, 1995 (the "LF Bancorp Merger") had
been effective throughout the periods presented.
(2) Presented as if the transation between the Company and Shelby Bank had
been effective throughout the periods presented.
(3) Presented as if the transaction between the Company, Shelby Bank and
other pending acquisitions had been effective thoroughout the periods
presents.
(4) Calculated by multiplying the Company and Shelby Bank pro forma value
by the quotient calculated by dividing the number of shares of
BancorpSouth common stock issuable under the Agreement by the number
of shares of Shelby Bank common stock outstanding as of the end of the
period, adjusted for the issuance of 500,000 shares of Shelby Bank
Common Stock under option.
(5) Calculated by multiplying the Company, Shelby Bank and other pending
acquisitions pro forma value by the quotient calculated by dividing
the number of shares of BancorpSouth common stock issuable under the
Agreement by the number of shares of Shelby Bank common stock
outstanding as of the end of the period, adjusted for the issuance of
500,000 shares of Shelby Bank Common Stock under option.
(6) Does not include the effect of LF Bancorp's net income per share prior
to LF Bancorp's conversion from mutual to stock ownership on December
30, 1992.

S-13
<PAGE> 16

SELECTED FINANCIAL DATA

The following tables set forth for the Company and Shelby Bank 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 Shelby
Bank appearing elsewhere in this Prospectus/Proxy Statement and the unaudited
pro forma condensed consolidated financial statements and the notes thereto,
appearing elsewhere in this Prospectus/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. The historical financial statements of the Company
for the years ended December 31, 1990, 1991, 1992, 1993 and 1994 have not been
restated for the LF Bancorp Merger, as such merger was not significant. In the
opinion of management of the Company and Shelby Bank, 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>
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 $ 178,703 $ 178,448 $ 164,139 $ 157,250 $ 173,208 $ 42,490 $ 52,510
Intertest expense 104,673 93,730 71,200 61,952 69,332 17,046 22,513
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest revenue 74,030 84,718 92,939 95,298 103,876 25,444 29,997
Provision for credit losses 5,965 8,436 11,483 7,754 5,652 1,064 1,176
Other revenue 17,540 19,427 19,981 23,781 23,421 4,884 7,062
Other expense 63,783 71,988 77,472 80,742 85,799 21,860 25,457
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income tax
and accounting change 21,822 23,721 23,965 30,583 35,846 7,404 10,426
Applicable income taxes 4,429 5,283 5,400 7,200 10,400 2,015 3,385
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before accounting change 17,393 18,438 18,565 23,383 25,446 5,389 7,041
Accounting change, net of tax - - - 3,200 - - -
Net income $ 17,393 $ 18,438 $ 18,565 $ 26,583 $ 25,446 $ 5,389 $ 7,041
========== ========== ========== ========== ========== ========== ==========

Per Share Data:
Primary
Income before accounting change $ 2.33 $ 2.47 $ 2.47 $ 2.99 $ 3.21 $ 0.62 $ 0.80
Accounting change, net of taxes - - - 0.41 - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 2.33 $ 2.47 $ 2.47 $ 3.40 $ 3.21 $ 0.62 $ 0.80
========== ========== ========== ========== ========== ========== ==========
Fully diluted
Income before accounting change $ 2.26 $ 2.40 $ 2.40 $ 2.97 $ 3.21 $ 0.62 $ 0.80
Accounting change, net of taxes - - - 0.40 - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 2.26 $ 2.40 $ 2.40 $ 3.37 $ 3.21 $ 0.62 $ 0.80
========== ========== ========== ========== ========== ========== ==========

Cash dividends $ 0.86 $ 0.94 $ 1.02 $ 1.08 $ 1.11 $ 0.27 $ 0.30
Book value $ 18.32 $ 19.95 $ 21.55 $ 23.95 $ 25.94 $ 24.27 $ 26.33

Balance Sheet Data (period end):
Total assets $1,870,693 $2,001,210 $2,137,004 $2,306,709 $2,518,398 $2,584,688 $2,791,532
Loans, net of unearned income 1,187,001 1,266,340 1,332,283 1,507,593 1,733,730 1,650,153 1,863,048
Allowance for credit losses 17,676 18,825 21,205 24,019 27,529 25,360 28,780
Securities 451,763 466,716 469,842 485,746 566,256 578,972 637,211
Deposits 1,621,039 1,752,967 1,876,093 2,031,477 2,171,748 2,259,770 2,445,850
Long-term debt:
Parent 33,996 33,309 32,541 24,508 24,508 24,508 24,508
Subsidiaries - - - - 23,520 22,223 22,529
Total stockholders' equity 135,288 148,570 161,668 188,600 205,329 211,499 230,765

Balance Sheet Data (averages):
Total assets $1,830,881 $1,939,678 $2,052,408 $2,197,330 $2,418,415 $2,504,011 $2,723,628
Total stockholders' equity 128,547 141,607 155,327 177,304 195,884 208,317 227,696
Average shares outstanding 7,349,488 7,414,576 7,474,192 7,775,139 7,888,662 8,713,325 8,760,239

Selected Ratios (annualized):
Return on average assets 0.95% 0.95% 0.90% 1.21% 1.05% 0.86% 1.03%
Return on average stockholders' equity 13.53% 13.02% 11.95% 15.06% 12.99% 10.35% 12.37%
Net interest margin 4.69% 4.99% 5.19% 4.95% 4.86% N/A 5.08%
Net charge-offs to average loans 0.43% 0.63% 0.70% 0.35% 0.13% N/A 0.12%
Tier 1 capital to risk-weighted assets 10.14% 9.99% 9.90% 11.00% 10.63% N/A 11.51%
Total capital to risk-weighted assets 13.94% 13.42% 13.10% 13.70% 12.89% N/A 13.71%
Leverage ratio 7.29% 7.57% 7.50% 8.30% 8.00% N/A 8.20%
</TABLE>

----------------------------
N/A - Information not available

S-14

<PAGE> 17

Shelby Bank
Selected Historical Financial Data
(Dollars in thousands except per share amounts)

<TABLE>
<CAPTION>
For the Three
For the Years Ended Months Ended
December 31, March 31,
----------------------------- ------------------
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest revenue $ 1,191 $ 1,200 $ 1,386 $ 320 $ 402
Intertest expense 770 603 581 127 202
------- ------- ------- ------- -------
Net interest revenue 421 597 805 193 200
Provision for credit losses 84 15 57 5 1
Other revenue 289 252 193 64 49
Other expense 1,059 998 867 222 211
------- ------- ------- ------- -------
Income before income tax (433) (164) 74 30 37
Applicable income taxes - - - - -
------- ------- ------- ------- -------
Net income (loss) $ (433) $ (164) $ 74 $ 30 $ 37
======= ======= ======= ======= =======

PER SHARE DATA:
Net income $ (0.09) $ (0.03) $ 0.01 $ 0.01 $ 0.01
Cash dividends - - - - -
Book value $ 0.12 $ 0.28 $ 0.25 $ 0.28 $ 0.26

BALANCE SHEET DATA (PERIOD END):
Total assets $19,061 $19,205 $21,389 $18,879 $22,685
Loans, net of unearned income 9,366 11,949 12,177 13,396 12,419
Allowance for credit losses 965 396 246 381 273
Securities 6,449 4,322 4,094 3,201 5,087
Deposits 18,399 17,806 20,134 16,480 21,384
Total equity 591 1,326 1,214 1,339 1,251
</TABLE>

S-15

<PAGE> 18
Pro Forma Condensed Consolidated Financial Information

The following tables contain unaudited consolidated pro forma condensed
financial information showing a balance sheet at March 31, 1995 and statements
of earnings for the three months ended March 31, 1994 and 1995, and for the
years ended December 31, 1992, 1993 and 1994, for (i) the Company; (ii) the
Company and Shelby Bank ("Shelby"); and (iii) the Company, Shelby and other
pending acquisitions. The other pending acquisitions are (i) the merger with
First Federal; and (ii) the merger with Wes-Tenn. The unaudited pro forma
financial information reflects each acquisition using either the pooling of
interests or purchase method of accounting in accordance with the accounting
requirements applicable to each respective transaction. The unaudited pro
forma financial information should be read in conjunction with the historical
consolidated financial statements and notes thereto of the Company, Shelby,
First Federal and Wes-Tenn. The historical financial statements of the Company
for the 1992, 1993 and 1994 fiscal years and the three months ended March 31,
1995 include financial information of LF Bancorp which was accounted for as a
pooling of interests. Pro forma results are not necessarily indicative
of future operating results.

Pro Forma Condensed Consolidated Balance Sheet
March 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Historical
------------------------------------------
Other Pending
The Company Shelby Bank Acquisitions Adjustments Pro Forma
------------ ----------- ------------ ----------- ---------
ASSETS (In thousands)
<S> <C> <C> <C> <C> <C>
Cash and due from banks $ 130,745 $ 3,880 $ 15,417 $ 150,042
Held-to maturity securities 499,473 - 61,631 561,104
Loans and leases, net 1,834,268 12,147 223,451 2,069,866
Available-for-sale securities 137,738 5,087 47,745 190,570
Mortgages held for sale 11,180 - - 11,180
Premises and equipment, net 69,524 1,175 5,359 250 (1) 76,308
Other assets 108,604 396 6,239 1,434 (2) 116,673
---------- ------- -------- ------- ----------
Total assets $2,791,532 $22,685 $359,842 $ 1,684 $3,175,743
========== ======= ======== ======= ==========

LIABILITIES
Deposits
Non-interest bearing $ 319,785 $ 4,379 $ 21,931 $ 346,095
Interest bearing 2,126,065 17,005 277,041 2,420,111
---------- ------- -------- ----------
Total deposits 2,445,850 21,384 298,972 2,766,206
Short-term borrowings 31,864 - 3,225 35,089
Long-term debt 47,037 - 20,903 67,940
Other liabilities 36,016 49 3,737 39,802
---------- ------- -------- ----------
Total liabilites 2,560,767 21,433 326,837 2,909,037
---------- ------- -------- ----------

STOCKHOLDERS' EQUITY
Common stock 22,045 2,873 787 118 (4)
(2,677) (3)
3,335 (5) 26,481
Capital surplus 73,782 2,818 14,885 (118) (4)
(78) (3)
(3,335) (5) 87,954
Unrealized gain (loss) on
available-for-sale securities 125 (186) (419) 186 (3) (294)
Retained earnings 135,847 (4,253) 17,752 4,253 (3) 153,599
Less cost of treasury stock (1,034) - - (1,034)
---------- ------- -------- ------- ----------
Total stockholders' equity 230,765 1,252 33,005 1,684 266,706
---------- ------- -------- ------- ----------
Total liabilities and stockholders' equity $2,791,532 $22,685 $359,842 $ 1,684 $3,175,743
========== ======= ======== ======= ==========
</TABLE>

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

(1) Estimated write-up of premises and equipment acquired from Shelby
Bank.
(2) Cost in excess of fair value of net assets acquired from Shelby
Bank.
(3) Adjustments to capital accounts to reflect the transaction with
Shelby Bank.
(4) Reclassification of capital accounts to reflect the exchange of First
Federal's Common Stock for BancorpSouth Common Stock.
(5) Reclassification of capital accounts to reflect the exchange of
Wes-Tenn's Common Stock for BancorpSouth Common Stock.

S-16
<PAGE> 19

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
For the three months ended March 31,
-----------------------------------------------------------------------------------------------------
1994 1995
------------------------------------------------ ------------------------------------------------
The Company, The Company,
Shelby Bank Shelby Bank
The Company & Other Pending The Company & Other Pending
The Company & Shelby Bank Acquisitions The Company & Shelby Bank Acquisitions
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 $42,490 $42,811 $49,034 $52,510 $52,912 $59,735
Interest expense 17,046 17,173 19,799 22,513 22,715 26,213
------- ------- ------- ------- ------- -------
Net interest revenue 25,444 25,638 29,235 29,997 30,197 33,522
Provision for credit losses 1,064 1,069 1,120 1,176 1,177 1,299
------- ------- ------- ------- ------- -------
Net interest revenue, after
provision for credit losses 24,380 24,569 28,115 28,821 29,020 32,223
Other revenue 4,884 4,948 5,501 7,062 7,111 7,807
Other expense 21,860 22,108 24,506 25,457 25,694 28,327
------- ------- ------- ------- ------- -------
Income before income tax
and accounting change 7,404 7,409 9,110 10,426 10,437 11,703
Applicable income taxes 2,015 2,014 2,499 3,385 3,384 3,774
------- ------- ------- ------- ------- -------

Net income $ 5,389 $ 5,395 $ 6,611 $ 7,041 $ 7,053 $ 7,929
======= ======= ======= ======= ======= =======

Earnings per share
Primary $ 0.62 $ 0.61 $ 0.63 $ 0.80 $ 0.79 $ 0.75
======= ======= ======= ======= ======= =======
Fully diluted $ 0.62 $ 0.61 $ 0.63 $ 0.80 $ 0.79 $ 0.75
======= ======= ======= ======= ======= =======

Average shares
Primary 8,733 8,812 10,508 8,801 8,880 10,576
Fully diluted 8,733 8,812 10,508 8,803 8,882 10,579
</TABLE>

S-17
<PAGE> 20

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
For the three years ended December 31,
---------------------------------------------------------------------------------------
1992 1993
-------------------------------------------- ------------------------------------------
The Company, The Company,
Shelby Bank Shelby Bank
The Company & Other Pending The Company & Other Pending
The Company & Shelby Bank Acquisitions The Company & Shelby Bank Acquisitions
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 $180,285 $181,476 $207,836 $171,035 $172,235 $198,753
Interest expense 79,996 80,766 94,267 68,112 68,715 80,580
-------- -------- -------- -------- -------- --------
Net interest revenue 100,289 100,710 113,569 102,923 103,520 118,173
Provision for credit losses 11,818 11,902 12,968 7,886 7,901 9,097
-------- -------- -------- -------- -------- --------
Net interest revenue, after
provision for credit losses 88,471 88,808 100,601 95,037 95,619 109,076
Other revenue 21,105 21,394 23,856 24,027 24,279 26,911
Other expense 82,394 83,557 92,227 84,837 85,939 95,906
-------- -------- -------- -------- -------- --------
Income before income tax
and accounting change 27,182 26,645 32,230 34,227 33,959 40,081
Applicable income taxes 6,954 6,951 9,339 8,402 8,399 10,386
-------- -------- -------- -------- -------- --------
Income before accounting
change 20,228 19,694 22,891 25,825 25,560 29,695
Accounting change, net of tax - - - 3,380 3,380 3,380
Extraordinary item (284) (284) (284) - - -
-------- -------- -------- -------- -------- --------

Net income $ 19,944 $ 19,410 $ 22,607 $ 29,205 $ 28,940 $ 33,075
======== ======== ======== ======== ======== ========

Earnings per share
Primary:
Income before
accounting change $ 2.43 $ 2.34 $ 2.26 $ 2.99 $ 2.93 $ 2.85
Accounting change,
net of taxes - - - 0.39 0.39 0.32
Extraordinary item (0.03) (0.03) (0.03) - - -
-------- -------- -------- -------- -------- --------
Net income $ 2.40 $ 2.31 $ 2.23 $ 3.38 $ 3.32 $ 3.17
======== ======== ======== ======== ======== ========

Fully diluted:
Income before
accounting change $ 2.32 $ 2.24 $ 2.18 $ 2.95 $ 2.90 $ 2.82
Accounting change,
net of taxes - - - 0.39 0.38 0.32
Extraordinary item (0.03) (0.03) (0.03) - - -
-------- -------- -------- -------- -------- --------
Net income $ 2.29 $ 2.21 $ 2.15 $ 3.34 $ 3.28 $ 3.14
======== ======== ======== ======== ======== ========

Average shares
Primary 8,335 8,414 10,110 8,651 8,730 10,426
Fully diluted 8,731 8,810 10,506 8,747 8,826 10,522

<CAPTION>
For the three years ended December 31,
--------------------------------------------
1994
--------------------------------------------
The Company,
Shelby Bank
The Company & Other Pending
The Company & Shelby Bank Acquisitions
Historical Pro Forma Pro Forma
------------ ------------- ---------------
(In thousands except per share amounts)
<S> <C> <C> <C>
Interest revenue $185,256 $186,642 $211,884
Interest expense 75,102 75,683 86,983
-------- -------- --------
Net interest revenue 110,154 110,959 124,901
Provision for credit losses 5,652 5,709 6,004
-------- -------- --------
Net interest revenue, after
provision for credit losses 104,502 105,250 118,897
Other revenue 24,347 24,540 26,552
Other expense 91,671 92,642 102,931
-------- -------- --------
Income before income tax
and accounting change 37,178 37,148 42,518
Applicable income taxes 10,876 10,873 12,466
-------- -------- --------
Income before accounting
change 26,302 26,275 30,052
Accounting change, net of tax 962 962 962
Extraordinary item - - -
-------- -------- --------

Net income $ 27,264 $ 27,237 $ 31,014
======== ======== ========

Earnings per share
Primary:
Income before
accounting change $ 3.01 $ 2.98 $ 2.86
Accounting change,
net of taxes 0.11 0.11 0.09
Extraordinary item - - -
-------- -------- --------
Net income $ 3.12 $ 3.09 $ 2.95
======== ======== ========

Fully diluted:
Income before
accounting change $ 3.00 $ 2.97 $ 2.85
Accounting change,
net of taxes 0.11 0.11 0.09
Extraordinary item - - -
-------- -------- --------
Net income $ 3.11 $ 3.08 $ 2.94
======== ======== ========

Average shares
Primary 8,750 8,828 10,524
Fully diluted 8,757 8,836 10,532
</TABLE>

S-18

<PAGE> 21

THE SPECIAL MEETING

MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING

The Special Meeting will be held on August 31, 1995 at 9:00 a.m. Central
Time in the board room at the offices of Shelby Bank at 6675 Stage Road,
Bartlett, Tennessee. The purpose of the Special Meeting is to consider and vote
upon the Purchase Agreement, the Plan of Reorganization and any other matters
that may be properly brought before the stockholders of Shelby Bank at the
Special Meeting. In the event that there are insufficient shares represented
to approve the Purchase and Assumption or the Plan of Reorganization at the
Special Meeting, the Special Meeting may be adjourned to permit further
solicitation.

VOTE REQUIRED

Consummation of the Purchase and Assumption will require the affirmative
vote of the holders of a majority of the outstanding shares of Shelby Bank
Common Stock. Approval of the Plan of Reorganization will require the
affirmation vote of the holders of two-thirds of the outstanding shares of
Shelby Bank Common Stock. Each share of Shelby Bank Common Stock is entitled
to one vote. At August 1, 1995, Shelby Bank's directors, executive officers
and affiliates beneficially owned 3,030,367 shares of Shelby Bank Common Stock,
or approximately 63% of the then outstanding shares of Shelby Bank Common
Stock. The directors and executive officers of Shelby Bank have indicated that
they intend to vote their shares of Shelby Bank Common Stock for approval and
adoption of the Purchase Agreement and the Plan of Reorganization.
Accordingly, approval of the Purchase and Assumption is virtually assured.

The vote of the holders of BancorpSouth Common Stock is not required to
approve the Purchase and Assumption.

SHARES ENTITLED TO VOTE; QUORUM

Only holders of record of shares of Shelby Bank Common Stock at the
close of business on August 1, 1995 will be entitled to receive notice of and to
vote at the Special Meeting. At August 1, 1995, there were 4,787,552 shares of
Shelby Bank Common Stock outstanding. A majority of the outstanding shares of
Shelby Bank 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 Purchase Agreement and the Plan of
Reorganization. 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 Shelby Bank 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

S-19
<PAGE> 22

adoption of the Purchase Agreement and the Plan of Reorganization. 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 Shelby Bank 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 Shelby Bank may revoke a proxy at any time prior to its exercise
by delivering to Billy F. Campbell, Secretary, Shelby Bank, 6675 Stage Road,
Bartlett, Tennessee 38134, a duly executed revocation or a proxy bearing a
later date, or by voting in person at the Special Meeting.

SOLICITATION OF PROXIES

Shelby Bank 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
Shelby Bank may solicit proxies from stockholders of Shelby Bank by telephone,
facsimile 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 Shelby Bank 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

If a stockholder of Shelby Bank elects to exercise the stockholder's
right to dissent from the Purchase and Assumption and demand payment of the
fair value of such stockholder's shares of Shelby Bank Common Stock, the
stockholder must satisfy both of the following conditions, as well as the other
applicable procedural requirements: (i) the stockholder must deliver to Shelby
Bank prior to the vote at the Special Meeting a written notice of the
stockholder's intent to demand payment for his or her shares, and (ii) the
stockholder may not vote his or her shares in favor of the Purchase and
Assumption. Written notice with respect to dissenters' rights should be
submitted to Billy F. Campbell, Secretary, Shelby Bank, 6675 Stage Road,
Bartlett, Tennessee 38134. 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 and adoption of the Purchase
Agreement; accordingly, a stockholder wishing to dissent from the Purchase and
Assumption should be certain to complete such stockholder's proxy
appropriately.

Within ten days after approval of the Purchase Agreement by the
stockholders of Shelby Bank, Shelby Bank will provide written notice to each
dissenting stockholder of where and by when demand for

S-20

<PAGE> 23

payment must be sent, and where and when certificates representing shares of
Shelby Bank Common Stock must be deposited. In addition, Shelby Bank will
provide a form for demanding payment. A dissenting stockholder must, in order
to be entitled to appraisal rights, demand payment for his or her shares of
Shelby Bank Common Stock, certify whether beneficial ownership of shares was
acquired before April 11, 1995, the date of the first announcement to the news
media of the principal terms of the Purchase Agreement, and deposit the
certificates representing the shares in accordance with Shelby Bank's notice to
the stockholder. A dissenting stockholder may not withdraw his or her demand
for appraisal and accept the terms offered in the Purchase and Assumption
unless Shelby Bank consents to such withdrawal.

Upon the later of the consummation of the Purchase and Assumption or
receipt of a demand for payment, the Company will pay to each dissenting
stockholder who has complied with the requirements discussed above the
Company's estimate of the fair value of such stockholder's shares of Shelby
Bank Common Stock, plus accrued interest. Such payment will be accompanied by
a copy of Shelby Bank's financial statements at and for the year ended December
31, 1994 and Shelby Bank's latest available interim financial statements, a
statement of the Company's estimate of the fair value of the stockholder's
shares, an explanation of how interest was calculated and a statement of such
stockholder's right to reject the Company's offer and demand the fair value of
his or her shares. If the Company and a dissenting stockholder do not agree
upon the fair value of such stockholder's shares, the Company must commence a
judicial proceeding within two months of receiving the stockholder's payment
demand and petition the court to determine the fair market value of the shares
and accrued interest.

S-21

<PAGE> 24

THE PURCHASE AND ASSUMPTION

GENERAL

The Purchase Agreement provides for the purchase of substantially all of
the assets, and assumption of certain liabilities, of Shelby Bank by Volunteer
in exchange for the issuance of up to 78,516 shares of BancorpSouth Common
Stock to the holders of shares of Shelby Bank Common Stock. The Board of
Directors of Shelby Bank has adopted the Plan of Reorganization, which will
provide for the dissolution of Shelby Bank after consummation of the Purchase
and Assumption. The Purchase and Assumption transaction is intended to qualify
as a tax-free reorganization for federal income tax purposes. The discussion
in this Supplement/Proxy Statement regarding the Purchase and Assumption and
the description of the principal terms of the Purchase Agreement are subject to
and qualified in their entirety by reference to the Purchase Agreement, which
has been filed as an exhibit hereto with the Commission.

BACKGROUND OF THE PURCHASE AND ASSUMPTION

In January 1995, Michael W. Weeks began serving as the Chairman and
Chief Executive Officer of Volunteer. In late January 1995, Mr. Weeks
contacted Donald E. Russell, the President of Shelby Bank, with whom Mr. Weeks
was acquainted, and inquired whether Shelby Bank was interested in discussing a
possible business combination with Volunteer. Discussions regarding such a
transaction continued between Mr. Weeks and Mr. Russell during January and
February 1995. On February 28, 1995, Mr. Weeks met with the Shelby Bank Board
of Directors and presented terms of a proposed merger between Volunteer and
Shelby Bank. Negotiation of the proposed transaction continued between Mr.
Weeks and Mr. Russell. In February 1995, representatives of the Company and
Volunteer began a due diligence review of the records and operations of Shelby
Bank. Due to the Company's and Volunteer's concerns regarding the assumption
of potential but unknown liabilities through a merger transaction, Mr. Weeks
proposed a revised transaction wherein Volunteer would acquire Shelby Bank's
assets and assume its known liabilities but would not be responsible for any
other liabilities. On March 17, 1995, the Shelby Bank Board of Directors met
to discuss the proposed purchase and assumption. On April 11, 1995, following
continued negotiation regarding the proposed purchase and assumption, a letter
of intent with respect to the proposed purchase and assumption was entered into
among the Company, Volunteer and Shelby Bank. On May 9, 1995, the Shelby Bank
Board of Directors approved the terms of the Purchase Agreement, which was
executed on behalf of each of the parties as of such date. Although the Shelby
Bank Board of Directors considered retaining an independent third party to
issue a fairness opinion with respect to the consideration to be conveyed in
the Purchase and Assumption, the directors determined not to obtain such a
fairness opinion as the Shelby Bank Board of Directors considered relevant
statistical and financial information relating to a number of transactions in
the southeastern United States involving banks of less than $100 million in
assets in assessing the adequacy and fairness of the financial terms of the
proposed transaction, among other factors that the Shelby Bank Board of
Directors considered to be relevant. Accordingly, the Shelby Bank Board of
Directors concluded that a fairness opinion would add little additional value.

REASONS FOR THE PURCHASE AND ASSUMPTION; RECOMMENDATION OF THE BOARD OF
DIRECTORS

Volunteer's operating strategy is to expand its market area and to be
perceived as a community bank. Management of the Company and Volunteer
perceive Shelby Bank as being well positioned in its market as a "community
bank" and that the suburban Shelby County, Tennessee markets, including
Bartlett, Cordova, and Collierville, Tennessee, represent ideal markets in
which Volunteer can be successful in perpetuating its strategy. Although
Shelby Bank has historically had an unprofitable operation, management of the
Company and Volunteer believe that given adequate capitalization, Shelby Bank
could operate

S-22

<PAGE> 25

successfully. Management of the Company and Volunteer believe that the
combination of Volunteer and Shelby Bank will allow the Company to be
successful in the Shelby County, Tennessee marketplace. Management of
Volunteer also believes that, under the leadership of Mr. Russell, the
performance of Shelby Bank has improved. Accordingly, management of Volunteer
believes that entering into an employment arrangement with Mr. Russell will
strengthen the Company's entire Tennessee banking activities.

In evaluating the Company's proposal regarding the Purchase and
Assumption, the Board of Directors of Shelby Bank concluded that, in light of
Shelby Bank's weak capital position, it was unlikely that the bank would grow or
achieve significant earnings, or that the FDIC would cancel its cease and desist
order, without a substantial infusion of additional capital. The Shelby Bank
Board of Directors noted that capital was unlikely to be increased through
retained earnings for the foreseeable future. The Shelby Bank Board of
Directors also noted that it was unlikely that Shelby Bank could raise
additional capital on favorable terms given its historical regulatory and
financial problems. The only realistic source of additional equity, in the
Shelby Bank directors' view, was additional investment by the directors
themselves. Accordingly, the Shelby Bank Board of Directors evaluated the
Company's proposal based upon a comparison of the long-term prospects of a
well-capitalized bank holding company, such as the Company, with the
uncertainties presently faced by Shelby Bank.

In reaching its determination to approve the Purchase and Assumption, the
Board of Directors of Shelby Bank noted that the aggregate market value of the
BancorpSouth Common Stock to be received was approximately $2.5 million, based
on a market price of $34.50 per share. Adjusted to give effect to the exercise
of options by Donald E. Russell, the value was approximately $2.7 million. The
Board concluded that this offer exceeded even prices mentioned informally in
previous general discussions with other possible bidders and was the only firm
offer which had been received. The Shelby Bank Board of Directors also noted
that, between the negotiation of the purchase consideration and the date of the
meeting of the Shelby Bank Board of Directors, the market price of BancorpSouth
Common Stock had increased to $37.50 per share (based upon the average of the
"bid" and "ask" prices as reported on Nasdaq) on May 5, 1995, the date two
business days prior to the date of the Purchase Agreement. The number of shares
to be issued did not change. Thus, the increased market price of BancorpSouth
Common Stock equated to an aggregate purchase price of $2.9 million. The
specific financial data which the Board of Directors evaluated when analyzing
the transaction included the ratio of the aggregate consideration offered by the
acquiring bank to: (i) book value of the target bank; (ii) trailing earnings per
share of the target bank; and (iii) total deposits of the target bank. Based
upon the value of the purchase consideration, the ratio of the purchase
consideration offered to the book value of Shelby Bank was approximately 2 to 1,
the ratio of the purchase consideration to the prior year's earnings was nearly
40 to 1, and the purchase consideration offered was approximately 15% of the
total deposits of Shelby Bank. The Shelby Bank Board of Directors also reviewed
the terms of 24 acquisitions announced since May 1, 1994 of banks located in the
southeastern United States with total assets of less than $100 million. The
Board analyzed the same financial data as described above and concluded that the
Company's proposal was above all but three of the announced transactions with
respect to the book value and earnings multiples received in these transactions.
Based upon a ratio of purchase price to total deposits, the Company's proposal
was below the average of these other transactions; however, the Shelby Bank
Board of Directors did not consider this to be determinative.

In addition, the Shelby Bank Board of Directors considered (i) that Shelby
Bank has been operating under an FDIC cease and desist order since May 1992,
which has constrained Shelby Bank's operations and subjected it to frequent
examination by the FDIC and the TDFI; (ii) the lack of other potential acquirors
of Shelby Bank; (iii) that the Purchase and Assumption will allow stockholders
of Shelby Bank to become stockholders of the Company, a well-capitalized
institution whose stock is traded on Nasdaq and whose recent earnings and stock
price performance have been strong; (iv) the benefits to depositors and
customers of Shelby Bank and to other persons in Shelby Bank's market that will
result from the enhanced level of services to be offered by the bank as a result
of the transaction; and (v) informal discussions regarding the proposed Purchase
and Assumption with staff of the TDFI.

The Board of Directors of Shelby Bank concluded that, in light of these
factors, it would be in the best interests of Shelby Bank, its stockholders,
depositors and customers for Shelby Bank to combine with Volunteer in the
proposed Purchase and Assumption, and that the consideration proposed to be
exchanged by the Company in the Purchase and Assumption was fair to the
stockholders of Shelby Bank. In view of the variety of factors considered in
connection with its evaluation of the Purchase and Assumption, the Board of
Directors of Shelby Bank 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.

S-23

<PAGE> 26

THE BOARD OF DIRECTORS OF SHELBY BANK RECOMMENDS THAT
STOCKHOLDERS OF SHELBY BANK VOTE TO APPROVE AND ADOPT THE
PURCHASE AGREEMENT AND THE PLAN OF REORGANIZATION.

REGULATORY APPROVAL

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

As a state non-member bank, Volunteer must file an application for
approval of the Purchase and Assumption 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 Purchase and Assumption tends to create or result in a
monopoly, substantially lessens competition or would be in restraint of trade.
Volunteer filed its application with the FDIC on May 23, 1995 and anticipates a
response from the FDIC regarding approval or disapproval of the application
prior to August 15, 1995. Following approval of the application by the FDIC,
the Department of Justice would have an additional 15 calendar days to submit
any adverse comments with regard to Purchase and Assumption relating to
competitive factors.

INTERESTS OF CERTAIN PERSONS IN THE PURCHASE AND ASSUMPTION

In connection with the Purchase and Assumption, Mr. Russell will enter
into a confidentiality and non-competition agreement with Volunteer, which
agreement will provide, in part, that, for a period of two years from the
consummation of the Purchase and Assumption, Mr. Russell will not compete with
Volunteer or solicit its customers, and Mr. Russell will receive certain
severance payments in the event that his employment with Volunteer is
terminated without cause and following a change in control of Volunteer or the
Company prior to two years following the Purchase and Assumption. In all other
respects, Mr. Russell will be an at-will employee on the same basis as all
other employees of Shelby Bank.

In addition, Volunteer has entered into a purchase agreement to acquire
all of the assets of First Mortgage for $50,000 in cash. The capital stock of
First Mortgage, which engages in a mortgage origination business, is held by
directors of Shelby Bank other than Mr. Russell. See "The Purchase Agreement
-- Employment of Shelby Bank Employees" and "Description of Shelby Bank Capital
Stock -- Beneficial Ownership."

ACCOUNTING TREATMENT

The Company intends to account for the Purchase and Assumption using the
purchase method of accounting. Under this method of accounting, the Company
will record the assets and liabilities of Shelby Bank after the Purchase and
Assumption at their respective fair values, and will record the amount by which
the Purchase Consideration exceeds such amounts as goodwill, which will be
amortized over a period of 15 years.

S-24

<PAGE> 27

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the material federal income tax
consequences of the Purchase and Assumption. This summary relates only to
shares of Shelby Bank 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 Purchase and Assumption. Stockholders
of Shelby Bank are urged to consult their own tax advisors as to specific tax
consequences of the Purchase and Assumption.

The Purchase and Assumption is intended to constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code.
Assuming the transaction qualifies as a reorganization under Section
368(a)(1)(C) of the Code, (i) no gain or loss will be recognized by Shelby Bank
or the Company as a result of the Purchase and Assumption; (ii) the basis of
the assets of Shelby Bank in the hands of the Company will be the same as the
basis of such assets in the hands of Shelby Bank immediately prior to the
transaction; (iii) the holding period of the assets of Shelby Bank acquired by
the Company will include the period during which the assets were held by Shelby
Bank; (iv) no gain or loss will be recognized by the Shelby Bank stockholders
upon the receipt of BancorpSouth Common Stock; (v) the basis of the
BancorpSouth Common Stock (including any fractional share interest) received by
a stockholder of Shelby Bank in connection with the transaction will be the
same as the basis of the shares of Shelby Bank Common Stock (including any
fractional share interest) held by such stockholder; (vi) the holding period of
the BancorpSouth Common Stock received by a stockholder of Shelby Bank in
connection with the Purchase and Assumption will include the holding period of
the shares of Shelby Bank Common Stock held by such stockholder, provided that
the shares of Shelby Bank Common Stock are held as a capital asset; and (vii)
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.

If the Purchase and Assumption was determined not to qualify as a
"reorganization" under Section 368(a) of the Code, the Purchase and Assumption
would be treated as a taxable sale of assets by Shelby Bank followed by the
liquidation of Shelby Bank.

A stockholder of Shelby Bank who receives cash in lieu of a fractional
share of BancorpSouth Common Stock in the Purchase and Assumption 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 Shelby Bank Common Stock are held by such stockholder as
a capital asset.

The receipt of cash for shares of Shelby Bank 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 Company has not obtained, and does not intend to obtain, an opinion
of counsel or a private letter ruling as to federal income tax consequences of
the Purchase and Assumption.

S-25

<PAGE> 28

THE DISCUSSION SET FORTH ABOVE DOES NOT ADDRESS ANY STATE, LOCAL OR
FOREIGN TAX ASPECTS OF THE PURCHASE AND ASSUMPTION. 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 SHELBY BANK
SHOULD CONSULT THE STOCKHOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC
TAX CONSEQUENCES OF THE PURCHASE AND ASSUMPTION 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
Shelby Bank in the Purchase and Assumption 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 Shelby
Bank prior to the Purchase and Assumption 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 Shelby Bank 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 Shelby Bank as
well as principal stockholders of Shelby Bank. 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 Shelby Bank. It is expected that no
affiliates of Shelby Bank will own as much as 1% of the outstanding shares of
BancorpSouth Common Stock following the Purchase and Assumption. Accordingly,
such affiliates should be able to sell their BancorpSouth Common Stock
following the public announcement of 30 days of combined operations.

COMPARISON OF RIGHTS OF STOCKHOLDERS

At the Effective Time, stockholders of Shelby Bank will become
stockholders of the Company (except for stockholders of Shelby Bank 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 and its Bylaws. Shelby Bank is a
Tennessee banking corporation which is governed by regulations of the FDIC, the
TDFI and Shelby Bank's Charter and Bylaws. The stockholders of Shelby Bank
will continue to hold their shares of Shelby Bank Common Stock until Shelby
Bank is dissolved pursuant to the Plan of Reorganization. See "Comparison of
Rights of Stockholders."

S-26

<PAGE> 29

THE PURCHASE AGREEMENT

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

THE PURCHASE AND ASSUMPTION

Subject to the terms and conditions of the Purchase Agreement, at the
Effective Time, Volunteer will acquire substantially all of the assets, and
assume certain liabilities, of Shelby Bank in exchange for up to 78,516 shares
of BancorpSouth Common Stock. The Purchase and Assumption is intended to
qualify as a tax-free reorganization for federal income tax purposes.

The closing of the Purchase and Assumption (the "Closing") is to take
place at a time and place mutually agreeable to the parties on the last day of
the month during which all approvals of all relevant governmental regulatory
authorities have been granted and become final (the "Closing Date"), and all
statutory waiting periods have expired or been terminated, and the Closing is
to be effective as of 12:01 a.m. (Memphis Time) on the following day (the
"Effective Time").

At the Effective Time, holders of each share of Shelby Bank Common Stock,
other than dissenting stockholders, will be entitled to receive the Purchase
Consideration, consisting of approximately 0.0148 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. No adjustment will be made
to the amount of Purchase Consideration in the event of a change in the market
price of shares of BancorpSouth Common Stock prior to the Effective Time. The
amount of the Purchase Consideration was determined through arm's-length
negotiations between the Company and Shelby Bank. See "The Purchase and
Assumption -- Background of the Purchase and Assumption."

ASSETS TO BE PURCHASED

The Purchase Agreement provides for the purchase by Volunteer of
substantially all of the assets of Shelby Bank, including its bank location,
outstanding loans, cash and investments, except Shelby Bank's charter and up to
$50,000 in cash, which will be placed in an account with Volunteer for use
following the Purchase and Assumption solely to pay Shelby Bank's expenses
related to its liquidation and dissolution, unknown or contingent claims and
contractual liabilities not assumed by Volunteer. Donald E. Russell, the
President of Shelby Bank and James L. Reid, the Chairman of the Board of
Directors of Shelby Bank, will be the only persons authorized to draw against
this account. Any funds remaining in such account following completion of the
liquidation of Shelby Bank will become the property of Volunteer. The risk of
loss with respect to the assets of Shelby Bank proposed to be acquired by
Volunteer, and the risks and obligations with respect to the security of
persons and property on Shelby Bank's bank location premises, will remain with
Shelby Bank until consummation of the Purchase and Assumption.

LIABILITIES TO BE ASSUMED

S-27

<PAGE> 30

landscaping, maintenance, janitorial and similar services in an aggregate
amount of up to $1,000. Volunteer and the Company will not be responsible for
any other obligations or liabilities of Shelby Bank.

PLAN OF REORGANIZATION

In connection with the Purchase and Assumption, the Board of Directors of
Shelby Bank has adopted the Plan of Reorganization. The Plan of Reorganization
is intended to meet the requirements of Section 368(a)(1)(C) of the Code and is
to be approved by the stockholders of Shelby Bank. Pursuant to the Plan of
Reorganization, Shelby Bank will dissolve and liquidate following the Purchase
and Assumption. The remaining net assets of Shelby Bank, if any, which are not
conveyed to Volunteer, will be distributed to the stockholders of Shelby Bank.
A copy of the Plan of Reorganization is attached hereto as Annex B. See "Plan
of Reorganization."

ISSUANCE OF BANCORPSOUTH COMMON STOCK

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 Purchase
and Assumption. 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
Shelby Bank Common Stock ("Shelby Bank Certificate"), other than shares with
respect to which dissenters' rights are exercised, will be entitled to receive
a certificate or certificates representing the aggregate number of whole shares
of BancorpSouth Common Stock computed by multiplying the Exchange Ratio by the
number of such holder's shares of Shelby Bank Common Stock and cash in lieu of
any fractional shares. As soon as practicable after the Effective Time, the
Exchange Agent will mail to each holder of record of a Shelby Bank Certificate
a notice and transmittal form advising such holder of the effectiveness of the
Purchase and Assumption and the procedure to be used in receiving shares of
BancorpSouth Common Stock.

No fractional shares of BancorpSouth Common Stock will be issued 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 Shelby Bank Common Stock who
would otherwise be entitled to receive a fractional share of BancorpSouth
Common Stock will be entitled to receive from the Exchange Agent a cash payment
in lieu of such fractional share equal to such fraction multiplied by $34.50,
which will not be adjusted in the event of a change in the market price per
share of BancorpSouth Common Stock. In no event will the Company be obligated
to provide aggregate cash consideration, for fractional shares or otherwise, in
an amount greater than 1% of the aggregate Purchase Consideration or otherwise
to the extent such payment would not be in accordance with Section 368 of the
Code.

REPRESENTATIONS AND WARRANTIES

The Purchase Agreement contains certain representations and warranties by
Shelby Bank to the Company, including those relating to: (i) Shelby Bank's
capital structure; (ii) title to its assets; (iii) investigations, litigation
or claims with respect to its assets and liabilities; (iv) its lease
agreements; (v) its outstanding loans; (vi) insurance of its deposit accounts;
(vii) compliance with environmental laws; (viii) its financial statements; (ix)
its undisclosed liabilities or obligations; (x) filing of its tax returns and
payment of taxes; (xi) its material contracts or agreements, and any defaults
thereunder; (xii) its casualty and liability

S-28

<PAGE> 31

insurance; (xiii) compliance of its operations with applicable laws and
regulations; (xiv) its directors, officers and employees; (xv) interests of its
directors or officers in property used in its operations; and (xvi) since
February 28, 1995, the incurrence of material liability, except in the ordinary
course of business, material adverse changes in its equity, reserves,
prospects, business, operations, assets, liabilities or financial condition,
payment or satisfaction of liabilities or claims, encumbrance of its assets,
write-downs of its assets or write-offs of notes or accounts receivable,
cancellation of any debts, sale of any of its assets, increases in the
compensation of its officers and employees, capital expenditures, payment of
dividends, changes in its methods of accounting and transactions with its
directors and officers.

The Purchase Agreement contains certain representations and warranties by
each of the Company and Shelby Bank, including those relating to: (i) their
respective due organization, power and standing; (ii) the authorization,
execution, delivery and enforceability of the Purchase Agreement; (iii) the
absence of conflicts with their respective governing documents or any law,
contract, right, lease, pledge, lien, security interest, instrument, indenture,
mortgage, charge, encumbrance, agreement, order, writ, injunction, decree or
judgment to which they are subject; (iv) the absence of broker or finder fees
in connection with the Purchase and Assumption; (v) this Supplement/Proxy
Statement; and (vi) the accuracy of information furnished by each party to
another party in connection with the Purchase Agreement or the Purchase and
Assumption.

CONDUCT OF BUSINESS PENDING THE PURCHASE AND ASSUMPTION

Shelby Bank has agreed, among other things, prior to the consummation of
the Purchase and Assumption, to conduct its operations according to its
ordinary and usual manner, to use its best efforts to promote the successful
operations of Shelby Bank, to avoid acts that would adversely affect its assets
or liabilities, to maintain its assets in customary repair and condition, to
maintain its books and records in the ordinary and usual manner, and to not
take any action that would cause its representations and warranties in the
Purchase Agreement to be untrue. Shelby Bank agreed that it will not (i) grant
any increases in salary or benefits to any officer, employee or director except
in the ordinary course of business in connection with regularly scheduled
salary reviews; (ii) sell, pledge or otherwise dispose of any of its assets
having a value in excess of $5,000, other than investment securities and
federal funds in the ordinary course of business; (iii) declare, set aside or
pay any dividend; or (iv) redeem any of its capital stock. Shelby Bank has
also agreed that it will cause the exercise of outstanding options held by
Donald E. Russell to purchase 500,000 shares of Shelby Bank Common Stock at an
exercise price of $0.32 per share.

The Company and Shelby Bank have each agreed to proceed in good faith,
and to cooperate in good faith with the other, in seeking to satisfy the
conditions set forth in the Purchase Agreement, and to use its best efforts to
ensure that the Purchase and Assumption qualifies as a reorganization under
Section 368 of the Code.

CONDITIONS TO CONSUMMATION OF THE PURCHASE AND ASSUMPTION

The respective obligations of the Company, Volunteer and Shelby Bank
under the Purchase 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
required in connection with the Purchase and Assumption; (ii) no action, suit
or proceeding shall have been instituted or threatened against a party which
seeks to restrain or prohibit, or to obtain damages in respect of, or which is
related to or arises out of the Purchase Agreement or the transactions
contemplated thereby, and which in the opinion of an adverse party makes it
inadvisable to consummate the Purchase Agreement; (iii) the Purchase Agreement
shall have been adopted and approved by a majority vote of the stockholders of
Shelby Bank; (iv) the respective Boards of Directors of each party shall have
approved the Purchase Agreement;

S-29

<PAGE> 32

(v) the representations and warranties of each party 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
Purchase Agreement to be performed and complied with by such party on or prior
to the Closing Date.

The obligations of Shelby Bank under the Purchase Agreement are subject
to satisfaction of the following additional conditions on or prior to the
Closing Date, unless waived: (i) 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 which has resulted in, or could reasonably
be expected to result in, a decrease in the Company's stockholders' equity of
10% or more; (ii) the Company shall have delivered to Shelby Bank an opinion of
counsel, dated as of the Closing Date; and (iii) the Registration Statement
shall have been declared effective by the Commission and no order suspending
the sale of BancorpSouth Common Stock in any jurisdiction shall have been
issued.

The obligations of the Company and Volunteer under the Purchase Agreement
are subject to the satisfaction of the following additional conditions on or
prior to the Closing Date, unless waived: (i) the bank location and personal
property of Shelby Bank shall not have been adversely affected in any material
way by, or sustained any material loss, whether or not insured, as a result of,
any fire, flood, accident, explosion, strike, labor disturbance, riot, act of
God or the public enemies, or other calamity or casualty; (ii) the Registration
Statement shall have been declared effective by the Commission, no order
suspending the sale 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) 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 Shelby Bank which has
resulted in, or could reasonably be expected to result in, a decrease in Shelby
Bank's stockholders' equity of 10% or more (with certain specified exceptions);
(iv) Shelby Bank shall have delivered to the Company an opinion of counsel,
dated as of the Closing Date; (v) no proceeding shall have instituted or
threatened which could result in the condemnation or other taking of a material
portion of Shelby Bank's bank location or which could materially restrict or
impair its continued use; (vi) Volunteer shall have received a special warranty
deed conveying to Volunteer good and marketable fee simple title to Shelby
Bank's bank location premises, subject to no adverse claims or encumbrances
claiming or attaching by or through Shelby Bank; (vii) Volunteer shall have
received an owner's policy of title insurance, insuring its interest in Shelby
Bank's bank location premises and subject to no exceptions and qualifications
that are unacceptable to Volunteer; (viii) Mr. Russell shall have entered into
a non-competition agreement with Volunteer; and (ix) options to acquire a
total of 500,000 shares of Shelby Bank Common Stock shall have exercised and
Shelby Bank shall have received the exercise price of $0.32 per share in cash.

EMPLOYMENT OF SHELBY BANK EMPLOYEES

Volunteer has agreed to offer continued employment to all employees of
Shelby Bank who are employed on the date of the Purchase and Assumption and who
deliver a release of liability to Shelby Bank. The Company has no obligation,
however, to continue such employment after the Purchase and Assumption. All
employment agreements between Shelby Bank and any of its current employees are
to be terminated at the Effective Time.

Volunteer will enter into a confidentiality and non-competition
agreement with Mr. Russell. This agreement is to provide that Mr. Russell will
not, during the term of his employment with Volunteer

S-30

<PAGE> 33

and thereafter until two years following the consummation of the Purchase and
Assumption: (i) compete with Volunteer; (ii) operate, develop, be employed by
or a consultant with, or own (other than ownership of less than 5% of the
equity securities of a publicly traded bank) any business that owns, manages or
operates a financial institution located within 50 miles of Shelby Bank's bank
location; or (iii) solicit any of Volunteer's customers, clients, suppliers or
employees. Mr. Russell would be permitted to own, operate or be employed by a
business confined solely to originating or servicing residential mortgage
loans. In addition, the agreement is to provide that Mr. Russell will not use
or disclose any confidential information of Volunteer during or after Mr.
Russell's employment with Volunteer, other than as required to perform his
duties as an employee of Volunteer. In the event that Mr. Russell's employment
with Volunteer is terminated both without cause and following a change in
control of Volunteer or the Company, as defined in the agreement, prior to two
years following consummation of the Purchase and Assumption, Mr. Russell would
be entitled to severance pay equal to the lesser of (i) the gross salary, less
legal deductions, that would have otherwise been paid to Mr. Russell had his
employment with Volunteer been continued for such two year period, or (ii) Mr.
Russell's then current annual gross salary, less legal deductions. In all
other respects, Mr. Russell will be an at-will employee on the same basis as
all other employees of Shelby Bank.

EMPLOYEE BENEFITS

Volunteer has agreed to provide Shelby Bank employees who become
employees of Volunteer with the same employee benefits, including medical
insurance, vacation pay and sick leave, as are extended to Volunteer's other
non-executive new hires. No uninsured waiting periods or pre-existing
condition limitations are to be imposed with respect to medical insurance
coverage.

AMENDMENT OF THE PURCHASE AGREEMENT

The Purchase Agreement may be amended and any condition therein waived by
a written agreement between the parties, except that regulatory approval of the
Purchase and Assumption may not be waived.

TERMINATION OF THE PURCHASE AGREEMENT

The Purchase Agreement may be terminated at or prior to the Closing: (i)
by mutual written consent of the Company and Shelby Bank, or (ii) by either
party, in writing, if any opposing party breaches a representation or warranty
in any material respect or breaches any covenant, undertaking or obligation
contained in the Purchase Agreement and such breach has not been cured by the
earlier of 30 days after the giving of notice to the breaching party of such
breach or the Closing Date. The Purchase Agreement may be terminated at any
time by either party, in writing, after any relevant regulatory authority has
denied an application of the Company for approval of the transactions
contemplated in the Purchase Agreement and the time period for all appeals or
requests for reconciliation with respect to such application have run. The
Purchase Agreement may be terminated, at the Closing, by any party, in writing,
if the conditions to such party's obligation to close under the Purchase
Agreement have not been met by the opposing party or waived in writing by the
terminating party. The Purchase Agreement shall terminate automatically and
without action on the part of any party unless the Purchase and Assumption is
consummated on or before November 1, 1995, unless mutually extended by the
respective boards of directors of the Company and Shelby Bank; provided that,
if the Purchase and Assumption cannot be consummated on or before November 1,
1995 because of delays in obtaining approvals or consents from relevant
regulatory authorities, such deadline will be extended to a date to be mutually
agreed to by the parties to the Purchase Agreement (but not beyond May 1,
1996).

S-31

<PAGE> 34

PLAN OF REORGANIZATION

The Board of Directors of Shelby Bank has adopted the Plan of
Reorganization which provides that, upon the effectiveness of the Purchase and
Assumption, Shelby Bank shall voluntarily dissolve pursuant to the provisions
of the Tennessee Banking Law. The Plan of Reorganization provides that, after
giving effect to the consummation of the Purchase and Assumption, (a) the only
outstanding capital stock shall be the 5,287,552 shares of Shelby Bank Common
Stock; (b) pursuant to the provisions of the Purchase Agreement and in
accordance with Section 368(a)(1)(C) of the Code, BancorpSouth Common Stock
will be distributed directly to the holders of Shelby Bank Common Stock in
consideration of the assets and assumption of liabilities of Shelby Bank; and
(c) the sole assets of Shelby Bank shall be the $50,000 expense fund which will
be used to pay all remaining known liabilities of Shelby Bank in connection
with the dissolution. The Plan of Reorganization provides for the approval by
the Tennessee Commissioner of Financial Institutions (the "Tennessee
Commissioner") of the voluntary dissolution of Shelby Bank, in accordance with
the Tennessee Banking Act, and that Shelby Bank will send a notice of
liquidation by mail to each depositor, creditor, person interested in funds
held as a fiduciary, lessee of a safe deposit box or bailor of property, to the
extent that there are any such persons immediately following the effectiveness
of the Purchase and Assumption. It is not anticipated that there will be any
such persons. Further, since Shelby Bank will not have any premises after the
effectiveness of the Purchase and Assumption, Shelby Bank will post the notice
of liquidation required by law in a manner prescribed by the Tennessee
Commissioner. If there are any assets of Shelby Bank remaining after discharge
of all its obligations and after making provision with the Tennessee
Commissioner with respect to any disputed claims as required by law, the
remaining assets, if any, will be distributed to the stockholders of Shelby
Bank in accordance with their respective interests. It is not anticipated that
there will be any remaining assets available for distribution.

The Plan of Reorganization also provides that immediately after the
effectiveness of the Purchase and Assumption and in any event, within 365 days,
Shelby Bank will deliver to the Tennessee Commissioner (a) its charter, for
cancellation by the Tennessee Commissioner as required by applicable law and
(b) Articles of Dissolution, which will include an Order of Dissolution for
entry by the Tennessee Commissioner. After entry by the Tennessee Commissioner
of the Order of Dissolution, Shelby Bank will file the Articles of Dissolution
and Order of Dissolution with the Tennessee Secretary of State. The Plan of
Reorganization provides that Shelby Bank may terminate or abandon it at any
time prior to the closing of the transactions under the Purchase Agreement, but
that it may not be terminated or abandoned after the consummation of the
Purchase and Assumption.

S-32

<PAGE> 35

SHELBY BANK

GENERAL

Shelby Bank is a Tennessee banking corporation which was chartered on
August 19, 1987, and commenced operations in January 1988. Shelby Bank is not a
member of the Federal Reserve System, but it is an FDIC insured bank. Shelby
owns its only office which is located at 6675 Stage Road, Bartlett, Shelby
County, Tennessee.

Shelby Bank engages in a general commercial banking business in Shelby
County, Tennessee, by providing banking services to individual, small to medium
size commercial and governmental customers. These services include checking
accounts, money market checking accounts, money market savings accounts,
certificates of deposit, individual retirement accounts, letters of credit,
collection services, cashier's checks, traveler's checks, wire transfers,
personal loans, automobile loans, home improvement loans, commercial loans,
construction loans, drive-in banking, banking by mail and night depository
facilities. Although Shelby has made some home mortgage loans, it generally
has originated residential mortgage loans for other lenders.

Shelby Bank obtains a majority of its deposits and makes a majority of
its loans to customers who live and/or work in Bartlett, Tennessee and the
north Shelby County, Tennessee area communities. Within these areas are a large
concentration of residential as well as multi-use commercial, governmental and
retail developments. Memphis is the largest city in Shelby County, Tennessee.
Bartlett is one of the leading growth areas of Tennessee with its population
having increased from 17,170 to 26,989 between 1980 and 1990 according to the
United States Census Bureau.

Shelby Bank considers its competitors to be other commercial banks,
savings and loans associations and credit unions with locations within the
Shelby County, Tennessee areas. Many of these competitors are able to offer
customers larger loans than Shelby Bank can (due to the limitations on the size
of loans it can make based upon its capital), and a wider range of services.

REGULATION

Shelby Bank is subject to applicable provisions of Tennessee law, insofar
as they do not conflict with or are not preempted by federal law, including
laws relating to usury, various consumer and commercial loans and the operation
of branch banks.

In recent years, significant federal legislation designed to encourage
competition among financial institutions and restructure the financial services
industry, among other things, has been enacted, including the Depository
Institutions Deregulation and Monetary Control Act of 1980, the Garn-St.
Germain Depository Institutions Act of 1982, the Competitive Equality Banking
Act of 1987, the Financial Institutions Reform Recovery and Enforcement Act of
1989 and the Omnibus Crime Control Act of 1990. Various bills which could
affect the operations of commercial banks and other financial institutions are
introduced periodically in Congress and the state legislature. The likelihood
of passage of such legislation, its final form, the manner of implementation or
its impact on Shelby Bank cannot be foreseen; however, efforts in Congress and
with regulatory agencies are underway that may make operating insured
depository institutions more burdensome and more costly.

S-33

<PAGE> 36

In addition to the foregoing factors, the business of Shelby Bank is
affected by the monetary and fiscal policies adopted by the United States
government and federally ruled regulatory bodies, including the Board of
Governors of the Federal Reserve System, which, among other actions, may raise
or lower the current reserve requirements respecting deposits and change the
discount rate on member banks borrowing. These policies influence to a
significant extent the overall growth of bank loans, investments and deposits
and the interest rates charged on loans and paid on deposits. The nature of
future monetary and fiscal policies and the effect of such policies on the
business and earnings of Shelby Bank cannot be predicted.

FDIC CEASE AND DESIST ORDER

Shortly after beginning operations in 1988, Shelby Bank experienced
operating difficulties due to the general poor credit quality of its loans.
The deterioration of Shelby Bank's capital position due to Shelby Bank's
operating losses and increases in nonperforming loans led to increased
regulatory oversight from the FDIC and the TDFI. The Board of Directors of
Shelby Bank took a number of actions to address this situation, including
changes in senior management and, to counter the decrease in its capital
position, in 1992, the issuance and sale of approximately $1.875 million of
Shelby Bank Common Stock (including the conversion of loans from directors
of Shelby Bank in the aggregate amount of $550,000 into shares of Shelby Bank
Common Stock).

Notwithstanding these actions by Shelby Bank, since May 1992, Shelby Bank
has been operating under an FDIC cease and desist order to which the TDFI is
also a party. Under the order, Shelby Bank is required to cease engaging in
hazardous lending and lax collection practices, operating with inadequate
capital and a large volume of poor quality loans, and operating in a manner as
to produce operating losses or in violation of various federal and state
banking regulations. In addition, the order requires Shelby Bank to maintain
qualified management, implement and maintain a management policy and plan for
increasing earnings, increase its capital and maintain adequate loan loss
reserves, establish a loan committee and an internal periodic loan review
program and restrict extensions of credit to borrowers with previously
uncollected or doubtful loans from Shelby Bank. Shelby Bank is to provide the
FDIC with periodic progress reports regarding Shelby Bank's compliance with the
order. The terms of the cease and desist order will remain in effect until the
order is cancelled by the FDIC. In the event that Shelby Bank fails to
continue to comply with the provisions of the cease and desist order, the FDIC
could take over the operations of Shelby Bank or place it into receivership, or
the TDFI could revoke Shelby Bank's charter.

S-34

<PAGE> 37

CERTAIN ADDITIONAL FINANCIAL AND STATISTICAL DATA

The following information presents certain financial and statistical
disclosures with respect to the condition and operations of Shelby Bank for and
during its last two fiscal years.

Loan Portfolio

The following table sets forth loans outstanding, according to type of
loan, at the indicated dates:
<TABLE>
<CAPTION>
December 31,
---------------------------
1993 1994
----------- -----------
(in thousands)
<S> <C> <C>
Commercial, financial and
agricultural . . . . . . . . . . . . . . . . . . . . . $ 4,477 $ 4,032
Real estate - construction . . . . . . . . . . . . . . . 2,488 2,503
Real estate - mortgage . . . . . . . . . . . . . . . . . 1,750 1,857
Installment loans to individuals . . . . . . . . . . . . 2,044 2,064
Lease financing . . . . . . . . . . . . . . . . . . . . . 1,238 1,774
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . $ 11,997 $ 12,230
======== ========
</TABLE>

There were no agricultural loans included in the commercial, financial
and agricultural loans at December 31, 1994. Commercial and industrial loans
are loans generally advanced for business purposes to fund long term capital
and short term working capital needs. These loans may be collateralized by
cash, marketable securities, accounts receivable, inventory, equipment and
other business assets, or may be unsecured. Agricultural loans are generally
for farming purposes and may be collateralized by farm land, equipment or
crops. Credit standards applied to these loans, as well as all other loans,
primarily include repayment ability based on cashflow capacity, as well as
certain equity and loan to value requirements.

The following table sets forth loans (excluding real estate-mortgage,
installment loans to individuals and lease financing) outstanding as of
December 31, 1994, which, based on remaining scheduled repayments of principal,
are due in the periods indicated. Also, the total amounts of all these leases
which are due after one year are classified according to their sensitivity to
changes in interest rates.

<TABLE>
<CAPTION>
Maturing
---------------------
After One
Within But Within After Five
One Year Five Years Years Total
----------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Commercial financial and
agricultural . . . . . . . . . . . . . . $ 2,879 $ 745 $ 408 $ 4,032
Real estate-construction . . . . . . . . . 2,503 --- --- 2,503
---------- ---------- ------ --------
Total . . . . . . . . . . . . . . . $ 5,382 $ 745 $ 408 $ 6,535
========== ========== ====== ========

Loans maturing after one year with:
Fixed interest rates . . . . . . . . 408
Variable interest rates . . . . . . 745
--------
Total . . . . . . . . . . . . $ 1,153
========
</TABLE>

S-35

<PAGE> 38

Non-Accrual, Past Due and Restructured Loans

The following table summarizes information concerning non-accrual and
past due loans:

<TABLE>
<CAPTION>
December 31,
----------------------------
1993 1994
------------ ----------
(in thousands)
<S> <C> <C>
Non-accruing loans . . . . . . . . . . . . . . . . . . . $ 281 $ 40
Restructured loans . . . . . . . . . . . . . . . . . . . -- --
Interest income which would have been recorded
under original terms:
Non-accrual loans . . . . . . . . . . . . . . . . 25 3
Restructured loans . . . . . . . . . . . . . . . . -- --
Interest income recorded during the period:
Non-accrual loans . . . . . . . . . . . . . . . . -- --
Restructured loans . . . . . . . . . . . . . . . . -- --
Accruing loans past due 90 days or more . . . . . . . 5 23
</TABLE>

There were no restructured loans at the end of either period and there
was no interest recorded on restructured loans or that would have been recorded
under the original terms of the loans. There were no other loans which were
"troubled debt restructurings" as defined in the Statement of Financial
Accounting Statements No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructurings."

The accrual of interest income is discontinued when, in the opinion of
management, the collectibility of such interest is doubtful. When interest
accruals are discontinued, interest credited to income in the current year is
reversed, and interest accrued in the prior year is charged to the allowance
for possible loan losses. Management may elect to continue the accrual of
interest when the estimated net realizable value of collateral is sufficient to
cover the principal balance and accrued interest.

Potential Problem Loans

Shelby Bank had $395,795 at December 31, 1993 and $824,969 at December
31, 1994 in loans subject to special management attention because the borrowers
were experiencing financial difficulties which caused management to have
serious doubts about the ability of those borrowers to comply with the present
loan repayment terms and which may result in the inclusion of those loans in
the preceding table. These loans are subject to constant management attention
with their classification and potential loss, if any, reviewed on a monthly
basis. Management believes that any loss from these loans, as well as those set
forth in the above table of non-accrual, past due and restructured loans, will
not have a material impact on Shelby Bank's future operating results, liquidity
or capital position.

Loan Concentrations

At December 31, 1994, Shelby Bank did not have any loan concentrations
to borrowers which are engaged in the same industry or similar industries that
exceeded 10% of the total amount of loans outstanding.

S-36

<PAGE> 39

Other Interest-Earning Assets

At December 31, 1994; Shelby Bank did not have any interest-earning
assets, other than loans, that would require disclosure as non-accrual, past
due, restructured loans or potential problem loans if such assets were loans.

Summary of Loan Loss Experience

The following table summarizes changes in the allowance for possible
loan losses arising from loans charged off and recoveries on loans previously
charged off by loan category and additions to the allowance which have been
charged to operating expense:

<TABLE>
<CAPTION>
December 31,
----------------------------
1993 1994
-------- --------
(in thousands)
<S> <C> <C>
Balance at beginning of period . . . . . . . . . . . . . $ 535 $ 396
Loans charged off:
Commercial, financial and
agricultural . . . . . . . . . . . . . . . . . . . . . 247 276
Real estate - construction . . . . . . . . . . . . . . . -- --
Real estate - mortgage . . . . . . . . . . . . . . . . . -- --
Installment loans to individuals . . . . . . . . . . . . 36 7
-------- --------
Total loans charged off . . . . . . . . . . . . . 283 283

Recoveries of loans previously charged off:
Commercial, financial and
agricultural . . . . . . . . . . . . . . . . . 120 52
Real estate - construction . . . . . . . . . . . . -- --
Real estate - mortgage . . . . . . . . . . . . . . -- --
Installment loans to individuals . . . . . . . . . 9 24

Total recoveries . . . . . . . . . . . . . 129 76
-------- --------
Net loans charged off . . . . . . . . . . . . . . . . . . (154) (207)
Additions charged to operations . . . . . . . . . . . . . 15 57
-------- --------
Balance at end of periods . . . . . . . . . . . . . . . . $ 396 $ 246
======== ========
Ratio of net charge-offs during period to average
loans outstanding . . . . . . . . . . . . . . . . . 1.61% 1.70%
======== ========
</TABLE>

Management of Shelby Bank reviews Shelby Bank's loan portfolio to
identify potential credit difficulties on a monthly basis, and determines
whether allowances for possible loan losses are adequate for loans considered
to be in potential difficulty. In the event that management of Shelby Bank
increases allowances for possible loan losses, a corresponding charge is made
to operating expenses. In addition, all recoveries on loans previously charged
off are credited back to allowances for possible loan losses and are not
credited to operating earnings.

Allowance for Possible Loan Losses

The allowance for possible loan losses is maintained at a level, deemed
adequate by management of Shelby Bank, to absorb potential losses in the loan
portfolio. Management's determination of the adequacy

S-37

<PAGE> 40

of the allowance is based on an evaluation of the loan portfolio, past loan
loss experience, current domestic economic conditions, loan volume, growth and
composition of the portfolio and any other factors management deems relevant.
The allowance may be further increased by provisions for loan losses charged
against current operating income.

The allowance for loan losses represents management's best estimate of
the future losses which may be sustained when existing loans become due, based
on several factors including Shelby Bank's historical loan loss experience, a
comparison with Shelby Bank's peer group, and an evaluation of the
collectibility of loans outstanding using results of Shelby Bank's quarterly
loan review. The provision for loan losses represents the amount charged
against earnings during the accounting period to bring the allowance for loan
losses up to an adequate level.

The allowance for possible loan losses has been allocated according to
the amount which might reasonably be necessary for losses incurred within the
following categories of loans at December 31 for the years indicated:
<TABLE>
<CAPTION>
December 31,
----------------------------
1993 1994
------------ -----------
(in thousands)
<S> <C> <C>
Commercial, financial and
agricultural . . . . . . . . . . . . . . . . . . . . . $ 120 $ 125
Real estate :
Construction . . . . . . . . . . . . . . . . . . . 142 87
Mortgage . . . . . . . . . . . . . . . . . . . . . -- --
Installment loans to
individuals . . . . . . . . . . . . . . . . . . . . . 44 34
--------- --------
Total . . . . . . . . . . . . . . . . . . . . . . $ 306 $ 246
========= ========
</TABLE>

S-38

<PAGE> 41

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

The following discussion provides certain information concerning Shelby
Bank's financial condition and results of operations. For a more complete
understanding of the following discussion, reference should be made to the
financial statements of Shelby Bank and related notes thereto presented
elsewhere in this Supplement/Proxy Statement. The financial statements of
Shelby Bank as of and for the year ended December 31, 1994 have been audited.
All other financial statements of Shelby Bank included in this Supplement/Proxy
Statement are unaudited.

FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

The Banking Industry. In the banking industry, net income is largely
dependent upon net interest income, which is the spread between (i) income
received on the loan portfolio and other investments, and (ii) the cost of
money, consisting primarily of interest paid on deposit accounts. Accordingly,
net interest income is affected by the average yield on interest-earning
assets, the average rate paid on interest-bearing liabilities and the average
outstanding balance of interest-earning assets and interest-bearing
liabilities.

Two key measures of profitability in the banking industry are return on
equity ("ROE") and return on assets ("ROA"). ROE is the ratio of income earned
to average stockholders' equity, and ROA measures how effectively a corporation
uses its assets to produce earnings.

Liquidity is the ability of a financial institution to maintain
sufficient cash to support loan growth, deposits, withdrawals, and other
financial obligations, even during times of stress in financial markets.
Liquidity is achieved through the continual maturing of interest-earning
assets, as well as by investing in short term marketable securities. Liquidity
is also available through deposit growth, borrowing capacity, and repayments of
principal on loans and securities. High levels of liquidity are normally
obtained at a net interest cost because yields are typically reduced as the
proportion of short term, liquid earning assets are increased. In addition,
higher interest expenses are normally incurred in connection with the extension
of deposit maturities. The trade-off of the level of desired liquidity versus
its cost is evaluated in determining the appropriate amount of liquidity at any
one time.

The allowance for loan losses is established through a provision for loan
losses charged to expenses. The allowance represents an amount which, in
management's judgment, will be adequate to absorb probable losses on existing
loans that may become uncollectible. The adequacy of the allowance for loan
losses is determined on an ongoing basis by the historical loan loss experience
of Shelby Bank, loan delinquency trends and the economic conditions within the
relevant market area. Also, allocations are made to the allowance based on
specifically identified potential loss situations. These potential loss
situations are identified by management.

Shelby Bank's policy is to place loans in excess of 90 days past due on
nonaccrual status, unless there is sufficient evidence to indicate probable
collection in the near future. At the discretion of management, loans less
than 90 past due may be placed on nonaccrual status.

Three Months Ended March 31, 1995 Compared to Three Months Ended March
31, 1994. Net income for the three months ended March 31, 1995, was $37,232,
as compared to $30,862 for the three months ended March 31, 1994, for an
increase of 20.6%. This increase was attributable to an increase in net
interest income. ROE was 10.5% at March 31, 1995, as compared to 9.08% at March
31, 1994. ROA rose to 0.69% on March 31, 1995, from 0.67% on March 31, 1994.

S-39

<PAGE> 42

Interest income increased by $82,126 during the three-month period ending
March 31, 1995, as compared to the three-month period ending March 31, 1994,
and interest expense increased by $75,800 over the same period, for an
improvement in the net interest income (after provision for loan losses) of
$10,326. Non-interest income decreased by approximately $14,396 and operating
expense decreased by approximately $10,440 during the three-month period ended
March 31, 1995, as compared to the same period during 1994.

The provision made for loan losses was $1,000 during the three-month
period ended March 31, 1995, as compared to $5,000 for the same period during
1994. This decrease was a result of a decrease of $900,000 in the loan
portfolio and a determination that the provision for loan losses was adequate.

At March 31,1995, total assets were $22,684,629, an increase of
approximately 20.2% from $18,879,052 in total assets at March 31, 1994. The
increase in total assets was primarily due to an increase in Federal funds of
$2.9 million and an increase in investment securities of $1.9 million. Total
deposits increased to $21,384,137 at March 31, 1995, as compared to $16,479,644
at March 31, 1994, due to a marketing campaign to increase deposits. The ratio
of total loans to total deposits was 58.07% at March 31, 1995, compared to
81.29% at March 31, 1994.

The loan loss reserve at March 31, 1995 was $272,652 or 2.19% of total
loans, compared to $380,941 or 2.84% of total loans at March 31, 1994. As of
March 31, 1995 and 1994, there was approximately $75,000 and $264,000
respectively, in nonaccrual loans, and approximately $1,000 and $327,000
respectively, in accruing loans more than 90 days past due.

Total stockholders' equity at March 31, 1995 was $1,437,127 compared to
$1,364,380 at March 31, 1994. This increase in total stockholders' equity was
attributable to earnings and does not take into account unrealized losses on
securities available for sale. The capital to assets ratio on March 31, 1995
was 6.34%.

Year Ended December 31, 1994 Compared to Year Ended December 31, 1993.
Net income for 1994 was $74,110 as compared to a net loss of $163,821 for 1993.
Net interest income (after provision for loan losses) increased to $747,937 in
1994, as compared to $582,238 in 1993.

Income from interest and loan fees for 1994 was $1,385,520 as compared to
$1,199,948 in 1993. The increase is primarily due to an increase of
approximately $300,000 in the loan portfolio and an increase in the prime rate
during 1994.

Interest expense for 1994 was $580,583 as compared to $602,710 in 1993.
The shift from time deposits to demand deposits was primarily due to a $1.0
million increase in non-interest bearing checking accounts as well as a
reduction in the level of certificates of deposit over $100,000.

Non-interest (operating) expense was $866,915 in 1994, a decrease from
$997,736 in 1993. The decrease is primarily due to a reduction in legal and
other expenses paid during 1993 in connection with the Cease and Desist Order
issued in May 1992. See "Shelby Bank -- FDIC Cease and Desist Order."

The provision made for loan losses was $57,000 during 1994, as compared
to a $15,000 provision during 1993. The increase in the provision in 1994 was
primarily due to a loan loss in the amount of $150,000 that was taken in
December 1994.

Total assets increased 11.4%, to $21,389,418 at December 31, 1994, from
$19,205,025 at December 31, 1993, and total deposits increased 13.08%, from
$17,805,947 to $20,134,186 at December 31, 1993 and 1994, respectively. The
ratio of total loans to total deposits was 60.48% at December 31, 1994,
compared to 67.14% at December 31, 1993.

S-40

<PAGE> 43

The loan loss reserve at December 31, 1994 was $246,150 or 2.01% of total
loans, compared to $396,270 or 3.32% of total loans at December 31, 1993. The
decrease in the loan loss reserves was due primarily to a loss of $150,000
taken in December 1994 and a determination that the reserve level was adequate.
As of December 31,1994, and 1993, there was approximately $40,000 and $281,000
respectively, in nonaccrual loans and $ 23,000 and $5,000, respectively, in
accruing loans contractually past due 90 days or more as to principal or
interest payments.

Total stockholders' equity at December 31, 1994 was $1,399,900, an
increase of $74,106, or 5.59%, since December 31, 1993. This amount does not
include unrealized losses on securities available for sale of $186,000. The
capital to assets ratio on December 31, 1994 was 6.5%.

Year Ended December 31, 1993 Compared to Year Ended December 31, 1992.
Shelby Bank experienced a net loss of $163,821 during 1993 as compared to a net
loss of $432,944 for 1992. Net interest income (after provision for loan losses)
during 1993 increased 73%, or $245,520, over 1992, primarily due to a decrease
in interest expenses associated with time deposits.

Total assets at December 31, 1993 were $19,205,025, representing a slight
increase over $19,060,838 at December 31, 1992. The loan loss reserve at
December 31, 1993 was $396,270 or 3.32% of total loans, compared to $535,000 or
5.71% of total loans at December 31, 1992. The decrease in the loan loss
reserve was attributable to a reduction in classified loans to $986,000 at
December 31, 1993 compared to $3,135,000 at December 31, 1992. During 1993,
total charge offs were $283,347 compared to recoveries for the same period of
$129,616. Management of Shelby Bank considered that the level of the reserves
to total loans was adequate at December 31, 1993.

Total stockholders equity at December 31, 1993 was $1,325,794 as compared
to $590,841 at December 31, 1992.

IMPACT OF INFLATION AND CHANGES IN PRICES

The 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. Because virtually all of
the assets of Shelby Bank are monetary in nature, interest rates have a more
significant impact on its performance than the general level of inflation.
Interest does not necessarily move in conjunction with or in proportion to
inflation rates.

LIQUIDITY AND CAPITAL RESOURCES

Since the commencement of Shelby Bank's operations in 1988, it has
experienced an inadequate capital position, due in part to operating losses and
non-performing loans. This inadequacy has, among other things, resulted in
substantial regulatory oversight of the operations of Shelby Bank and the
issuance of a cease and desist order by the FDIC. See "Shelby Bank -- FDIC
Cease and Desist Order." To address its inadequate capital position and the
concerns of the FDIC and the TDFI, Shelby Bank issued and sold $1.875 million
of shares of Shelby Bank Common Stock in 1992 and an additional $900,000 of
shares of Shelby Bank Common Stock in 1993. Management of Shelby Bank believes
that in order for Shelby Bank to continue to operate as an independent
institution, additional capital will be required. There is no assurance that
such capital could be obtained.

S-41

<PAGE> 44

DESCRIPTION OF SHELBY BANK CAPITAL STOCK

VOTING SECURITIES

Stockholders of record of Shelby Bank Common Stock as of the close of
business on August 1, 1995 are entitled to one vote for each share of Shelby
Bank Common Stock then held at the Special Meeting. As of August 1, 1995,
Shelby Bank had 4,787,552 shares of Shelby Bank Common Stock issued and
outstanding, which is the only outstanding class of Shelby Bank's capital stock.

The presence in person or by proxy of at least a majority of the
outstanding shares of Shelby Bank 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 Shelby Bank
Common Stock and a comparison of those rights with those of the BancorpSouth
Common Stock, see "Comparison of Rights of Stockholders."

BENEFICIAL OWNERSHIP

The following table sets forth, at August 1, 1995, certain information as
to those persons who were beneficial owners of more than 5% of the outstanding
shares of Shelby Bank Common Stock and the beneficial ownership of each
director and executive officer of Shelby Bank and all directors and executive
officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF OUTSTANDING SHARES
SHELBY BANK OF SHELBY BANK
COMMON STOCK COMMON STOCK
DIRECTORS AND EXECUTIVE OFFICERS: BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)(3)
--------------------- ------------------------
<S> <C> <C>
Robert E. Brawner . . . . . . . . . . . . . . 175,000(2) 3.31%
Billy F. Campbell . . . . . . . . . . . . . . 360,960(2) 6.83
Sammy Joe Garner . . . . . . . . . . . . . . 612,600(2) 11.59
James O. Miller . . . . . . . . . . . . . . . 596,355(2) 11.28
Harry E. Mongue . . . . . . . . . . . . . . . 299,268(2) 5.66
James L. Reid . . . . . . . . . . . . . . . . 1,212,500(2) 22.93
Asher Roberts . . . . . . . . . . . . . . . . 198,284(2) 3.75
Donald E. Russell . . . . . . . . . . . . . . 600,000(2)(3) 11.35
Clair Vander Schaaf . . . . . . . . . . . . . 275,000(2) 5.20
C. Alan Hall . . . . . . . . . . . . . . . . 400 *
All directors and executive
officers as a group (ten persons) . . . . . . 3,530,367(2)(3) 66.77
OTHER 5% STOCKHOLDERS:
John Hyneman . . . . . . . . . . . . . . . . 468,750 8.87
Kevin Hyneman(4). . . . . . . . . . . . . . . 312,500 5.91
---------------------
</TABLE>
* Less than 1%
(1) A person or entity is considered to beneficially own shares of Shelby
Bank 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 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.
(2) Number of shares and percentages includes 100,000 shares owned by Shelby
Bancshares, Inc., which has identical directors as Shelby Bank.
Therefore, each of the directors of Shelby Bank has shared voting power
with respect to these shares.
(3) Includes 500,000 shares of Shelby Bank Common Stock which Mr. Russell
holds option to purchase, which options are currently exercisable.
(4) Shares are held by Kevin Hyneman as trustee for Hyneman Homes,
Inc.--Profit Sharing Plan. Kevin Hyneman controls Hyneman Homes, Inc.

S-42

<PAGE> 45

COMPARISON OF RIGHTS OF STOCKHOLDERS

The following is a comparison of the rights a stockholder of Shelby Bank
now possesses under Shelby Bank's governing documents and would possess as a
stockholder of the Company with respect to the various factors set forth below:

VOTING RIGHTS

Company - Each outstanding share of BancorpSouth Common Stock entitles
the holder thereof to one vote on each matter with respect to which
stockholders are entitled to vote.

Shelby Bank - Each outstanding shares of Shelby Bank Common Stock
entitles the holder thereof to one vote on each matter submitted to a vote at a
meeting of the stockholders of Shelby Bank.

CHANGE OF CONTROL

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 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. The Company has implemented a
shareholders rights plan under which a common stock purchase right attaches to
and trades with each share of BancorpSouth Common Stock. 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, then the
holders of each such purchase right (except those held by the acquiring
person,) will be entitled to purchase a share of BancorpSouth Common Stock at
50% of the then current market price.

Shelby Bank - The charter and bylaws of Shelby Bank do not contain any
similar impediments to a change of control.

BOARD OF DIRECTORS

Company - The business and affairs of the Company are to be 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 August 1, 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.

Shelby Bank - The property, affairs and business of Shelby Bank are to
be managed by its Board of Directors. Directors of Shelby Bank are elected for
one year terms. The number of members of the Board of Directors of Shelby Bank
is determined by the vote of its stockholders at its annual meeting of
stockholders, and at August 1, 1995 consisted of nine members.

S-43

<PAGE> 46

REMOVAL OF DIRECTORS

Company - 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.

Shelby Bank - A director of Shelby Bank may be removed without cause by
the majority vote of the stockholders of Shelby Bank.

INDEMNIFICATION OF MANAGEMENT

Company - Directors of the Company are not personally liable to the
Company 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. If the law of Mississippi is amended to limit or
expand the liability of directors, the liability of directors will be limited
or expanded according to such amended provisions. The Company is to 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.

Shelby Bank - Directors, officers and employees of Shelby Bank are to be
indemnified by Shelby Bank against judgments resulting from, and expenses
reasonably incurred in connection with, any action to which such a person may
be made a party by reason of being a director, officer or employee of Shelby
Bank, except as to matters with respect to which such person shall be finally
adjudged to be liable for his or her negligence or misconduct, and except that
in the event of a settlement of such an action, only in connection with the
matters covered by the settlement as to which Shelby Bank is advised by counsel
that the person to be indemnified was not liable for such negligence or
misconduct.

PERMITTED ACTIVITIES

Company - The Company's Restated Articles of Incorporation provide that
the Company may engage in any business activity or exercise any power permitted
by law.

Shelby Bank - Shelby Bank's Charter provides that Shelby Bank was
organized to conduct a general banking business, with all powers granted to
banking corporations under the laws of the State of Tennessee, including trust
powers, and with all other corporate powers not specifically prohibited to such
banking corporations.

RIGHT TO CALL SPECIAL MEETINGS OF THE STOCKHOLDERS

Company - 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.

Shelby Bank - Special meetings of the stockholders of Shelby Bank may be
called by the president, a majority of its directors, or by the holders of not
less than 10% of the outstanding shares of Shelby Bank Common Stock.

S-44

<PAGE> 47

LEGAL MATTERS

The validity of the shares of BancorpSouth Common Stock to be issued to
the stockholders of Shelby Bank in the Purchase and Assumption and certain
federal income tax consequences in connection with the Purchase and Assumption
will be passed upon by Waller Lansden Dortch & Davis, Nashville, Tennessee,
special counsel to the Company. Certain matters concerning the Purchase and
Assumption 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
Purchase and Assumption will be passed upon on behalf of Shelby Bank by
Sherrard & Roe, P.L.C., Nashville, Tennessee.

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 report of KPMG Peat Marwick LLP refers to the Company adopting the
provisions of Financial Accounting Standards Board's Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes" in 1993 and
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" in 1994.

The financial statements of Shelby Bank as of December 31, 1994 and for
the year ended December 31, 1994, included in this Supplement/Proxy Statement,
are included in reliance upon the report of Fouts & Morgan, Certified Public
Accountants, P.C., independent certified public accountants, upon the authority
of such firm as experts in accounting and auditing.

S-45
<PAGE> 48
INDEX TO SHELBY BANK
FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Accountants' Compilation Report . . . . . . . . . . . . . . . . . . . . . . . F-2

Shelby Bank Statement of Financial Condition at
December 31, 1993 and 1992 (unaudited). . . . . . . . . . . . . . . . . . . F-3

Shelby Bank Statement of Income for the Year Ended
December 31, 1993 and 1992 (unaudited). . . . . . . . . . . . . . . . . . . F-4

Shelby Bank Statement of Cash Flows for the Year
Ended December 31, 1993 and 1992 (unaudited). . . . . . . . . . . . . . . . F-5

Accountants' Compilation Report. . . . . . . . . . . . . . . . . . . . . . . . F-6

Shelby Bank Statement of Financial Condition at
March 31, 1995 and 1994 (unaudited) . . . . . . . . . . . . . . . . . . . . F-7

Shelby Bank Statement of Income for the Three
Months Ended March 31, 1995 and 1994 (unaudited). . . . . . . . . . . . . . F-8

Shelby Bank Statement of Cash Flows for the
Three Months Ended March 31, 1995 and 1994 (unaudited). . . . . . . . . . . F-9

Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . F-10

Shelby Bank Statement of Financial Condition at December 31, 1994. . . . . . . F-11

Shelby Bank Statement of Income for the Year Ended December
31, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-12

Shelby Bank Statement of Changes in Stockholders' Equity for
the Year Ended December 31, 1994. . . . . . . . . . . . . . . . . . . . . . F-13

Shelby Bank Statement of Cash Flows for the Year Ended December
31, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14

Shelby Bank Notes to Financial Statements. . . . . . . . . . . . . . . . . . . F-15
</TABLE>

F-1
<PAGE> 49
Board of Directors
The Shelby Bank
Bartlett, Tennessee

We have compiled the accompanying statement of financial condition of The
Shelby Bank as of December 31, 1993 and 1992, and the related statements of
income and cash flows for the years then ended, in accordance with Statements
on Standards for Accounting and Review Services issued by the American
Institute of Certified Public Accountants.

A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.

Management has elected to omit the statement of changes in stockholders' equity
and substantially all of the disclosures required by generally accepted
accounting principles. If the omitted disclosures were included in the
financial statements, they might influence the user's conclusions about the
Bank's financial position, results of operations, and cash flows. Accordingly,
these financial statements are not designed for those who are not informed
about such matters.

FOUTS & MORGAN
Certified Public Accountants

Memphis, Tennessee
July 5, 1995

F-2
<PAGE> 50
THE SHELBY BANK

STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1993 AND 1992
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
December 31, December 31,
1992 1993
-------------------- -------------------
<S> <C> <C>
Cash and due from banks $ 1,161,595 $ 755,973
Federal funds sold 800,000 800,000
-------------------- -------------------
Cash and cash equivalents 1,961,595 1,555,973
Interest bearing deposits in banks 73,250 73,250
Investment securities, at cost 6,448,577 4,322,101
Loans 9,365,555 11,948,700
Less: Reserve for loan losses (535,000) (396,270)
-------------------- -------------------
Net loans 8,830,555 11,552,430
Accrued interest receivable 125,184 104,774
Bank premises and equipment 1,472,866 1,557,587
Less: Accumulated depreciation (195,272) (319,493)
-------------------- -------------------
Net bank premises and equipment 1,277,594 1,238,094
Deferred income taxes 1,624,868
Less: Deferred income tax valuation allowance 0 (1,624,868)
-------------------- -------------------
Net deferred income taxes 0 0
Other real estate 173,052 270,637
Other assets 170,831 87,766
-------------------- -------------------

Total Assets $ 19,060,638 $ 19,205,025
==================== ===================

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

Liabilities
-----------
Deposits
Demand $ 2,070,698 $ 5,965,886
Savings and NOW accounts 3,495,396 1,271,393
Time deposits under $100,000 8,916,395 6,660,966
Time deposits over $100,000 3,916,807 3,907,702
-------------------- -------------------
Total deposits 18,399,296 17,805,947
Accrued interest payable on deposits 63,278 63,093
Accrued taxes and other liabilities 2,223 10,191
-------------------- -------------------
Total liabilities 18,469,797 17,879,231

Stockholders' Equity
--------------------
Common stock - $1 par value, 10,000,000 shares
authorized, 4,787,552 shares issued and outstanding $ 1,973,702 2,872,531
Capital surplus 2,816,141 2,817,743
Retained earnings (deficit) (4,199,002) (4,364,480)
-------------------- -------------------
Total stockholders' equity 590,841 1,325,794
-------------------- -------------------

Total Liabilities and Stockholders' Equity $ 19,060,638 $ 19,205,025
==================== ===================
</TABLE>

See accountants' compilation report.

F-3
<PAGE> 51
THE SHELBY BANK

STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993 AND 1992
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, December 31,
1992 1993
-------------------- -------------------
<S> <C> <C>
Interest Income
---------------
Interest and fees on loans $ 723,312 $ 897,927
Interest on investment securities:
U.S. Treasury Securities 38,423 43,836
Obligations of other U.S. Government agencies
and corporations 402,882 198,610
-------------------- -------------------
441,305 242,446
Interest on federal funds sold 26,312 56,279
Interest on deposits in banks 0 3,296
-------------------- -------------------
Total interest income 1,190,929 1,199,948

Interest Expense
----------------
Interest on demand deposits 83,941 82,441
Interest on savings and NOW accounts 27,758 33,221
Interest on deposits under $100,000 480,971 309,796
Interest on deposits over $100,000 177,665 177,252
-------------------- -------------------
Total interest expense 770,335 602,710
-------------------- -------------------

Net interest income 420,594 597,238
Provision for loan losses 83,876 15,000
-------------------- -------------------

Net interest income after provision for loan losses 336,718 582,238

Other Income
------------
Service charges on deposit accounts 160,707 125,342
Gain on sale of investment securities 133,446 15,548
Loss on sale of other real estate (20,737) (14,876)
Other operating income 16,183 125,663
-------------------- -------------------
Total other income 289,599 251,677

Operating Expenses
------------------
Advertising and promotion 27,422 21,385
Collection and repossession expenses 8,794 4,928
Data processing 55,107 49,552
Depreciation 68,093 71,354
Employee benefits and payroll taxes 55,115 44,521
Insurance, bonds and FDIC assessments 65,166 85,736
Office expenses and postage 57,645 70,708
Other operating expenses 54,236 75,513
Other real estate expense 44,221 26,226
Professional services and fees 194,411 135,046
Property tax expense 15,600 18,000
Repairs and maintenance 33,280 35,556
Salaries and directors fees 327,225 308,152
Telephone and utilities 35,326 28,908
Travel, courier and entertainment expenses 17,620 22,151
-------------------- -------------------
Total operating expenses 1,059,261 997,736
-------------------- -------------------

Net Income $ (432,944) $ (163,821)
==================== ===================
</TABLE>

See accountants' compilation report.

F-4
<PAGE> 52
THE SHELBY BANK

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993 AND 1992
(UNAUDITED)

<TABLE>
<CAPTION>
December 31, December 31,
1992 1993
-------------------- -------------------
<S> <C> <C>
Cash Flows from Operating Activities
------------------------------------
Net income (loss) $ (432,944) $ (163,821)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 68,093 71,354
Provision for loan losses 83,876 15,000
Write-down of other real estate 9,419 18,000
Accretion of discounts and amortization of premiums
on investment securities 12,393 15,121
(Gain) loss on sale of securities (133,446) (15,548)
(Gain) loss on sale of other real estate 20,737 14,876
(Increase) decrease in accrued interest receivable 75,146 20,410
(Increase) decrease in other assets (19,883) 54,119
Increase (decrease) in accrued interest payable on deposits (69,850) (5,185)
Increase (decrease) in accrued taxes and other liabilities (954) 7,968
-------------------- -------------------
Total adjustments 45,531 196,115
-------------------- -------------------
Net cash provided (used) by operating activities (387,413) 32,294

Cash Flows from Investing Activities
------------------------------------
Proceeds from sale and call of securities 7,787,067 5,722,153
Proceeds from the sale of other real estate 377,272 201,005
Purchase of fixed assets (9,894) (2,908)
Purchase of securities (8,778,546) (3,595,250)
Loans made to customers, net of collections (1,829,313) (3,068,342)
-------------------- -------------------
Net cash provided (used) by investing activities (2,453,414) (743,342)
-------------------- -------------------

Cash Flows from Financing Activities
------------------------------------
Net increase (decrease) in demand deposits, savings,
and NOW accounts 164,944 (585,901)
Proceeds from issuance of stock 1,242,498 900,432
Net increase (decrease) in time deposits 1,816,807 (9,105)
-------------------- -------------------
Net cash provided (used) by financing activities 3,224,249 305,426
-------------------- -------------------

Net increase (decrease) in cash and cash equivalents 383,422 (405,622)

Cash and cash equivalents at beginning of period 1,578,173 1,961,595
-------------------- -------------------

Cash and cash equivalents at end of period $ 1,961,595 $ 1,555,973
==================== ===================
</TABLE>

See accountants' compilation report.

F-5
<PAGE> 53

Board of Directors
The Shelby Bank
Bartlett, Tennessee

We have compiled the accompanying statement of financial condition of The
Shelby Bank as of March 31, 1995 and 1994, and the related statements of income
and cash flows for the three months then ended, in accordance with Statements
on Standards for Accounting and Review Services issued by the American
Institute of Certified Public Accountants.

FOUTS & MORGAN
Certified Public Accountants

Memphis, Tennessee
July 5, 1995

F-6
<PAGE> 54
THE SHELBY BANK

STATEMENT OF FINANCIAL CONDITION
MARCH 31, 1995 AND 1994
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
March 31, March 31,
1994 1995
-------------------- -------------------
<S> <C> <C>
Cash and due from banks $ 960,708 $ 907,183
Federal funds sold 0 2,900,000
-------------------- -------------------
Cash and cash equivalents 960,708 3,807,183
Interest bearing deposits in banks 73,250 73,250
Investment securities:
Securities available-for-sale, at fair value 3,200,545 5,086,770
Loans 13,396,310 12,419,281
Less: Reserve for loan losses (380,941) (272,652)
-------------------- -------------------
Net loans 13,015,369 12,146,629
Accrued interest receivable 111,428 133,774
Bank premises and equipment 1,476,269 1,476,900
Less: Accumulated depreciation (268,390) (302,272)
-------------------- -------------------
Net bank premises and equipment 1,207,879 1,174,628
Deferred income taxes 1,534,174 1,534,174
Less: Deferred income tax valuation allowance (1,534,174) (1,534,174)
-------------------- -------------------
Net deferred income taxes 0 0
Other real estate 213,347 186,438
Other assets 96,526 75,957
-------------------- -------------------

Total Assets $ 18,879,052 $ 22,684,629
==================== ===================

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

Liabilities
-----------
Deposits
Demand $ 5,249,742 $ 4,378,517
Savings and NOW accounts 1,465,006 8,489,076
Time deposits under $100,000 5,864,138 5,856,463
Time deposits over $100,000 3,900,758 2,660,081
-------------------- -------------------
Total deposits 16,479,644 21,384,137
Federal funds purchased 1,000,000 0
Accrued interest payable on deposits 48,162 49,457
Accrued taxes and other liabilities 12,489 (236)
-------------------- -------------------
Total liabilities 17,540,295 21,433,358

Stockholders' Equity
--------------------
Common stock - $1 par value, 10,000,000 shares
authorized, 4,787,552 shares issued and outstanding $ 2,872,531 2,872,531
Capital surplus 2,817,743 2,817,743
Retained earnings (deficit) (4,325,894) (4,253,147)
Unrealized loss on securities available-for-sale (25,623) (185,856)
-------------------- -------------------
Total stockholders' equity 1,338,757 1,251,271
-------------------- -------------------

Total Liabilities and Stockholders' Equity $ 18,879,052 $ 22,684,629
==================== ===================
</TABLE>

See accountants' compilation report.

F-7
<PAGE> 55
THE SHELBY BANK

STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 31,
1994 1995
-------------------- -------------------
<S> <C> <C>
Interest Income
---------------
Interest and fees on loans $ 274,993 $ 303,591
Interest on investment securities:
U.S. Treasury Securities 10,459 15,735
Obligations of other U.S. Government agencies
and corporations 32,725 45,186
-------------------- --------------
43,184 60,921
Interest on federal funds sold 1,345 37,136
Interest on deposits in banks 813 813
-------------------- -------------------
Total interest income 320,335 402,461

Interest Expense
----------------
Interest on demand deposits 19,331 88,903
Interest on savings and NOW accounts 9,842 9,392
Interest on deposits under $100,000 61,563 66,792
Interest on deposits over $100,000 35,899 37,348
-------------------- -------------------
Total interest expense 126,635 202,435
-------------------- -------------------

Net interest income 193,700 200,026
Provision for loan losses 5,000 1,000
-------------------- -------------------

Net interest income after provision for loan losses 188,700 199,026

Other Income
------------
Service charges on deposit accounts 29,135 42,925
Loss on sale of investment securities (1,310) 0
Gain on sale of fixed assets 26,246 0
Other operating income 9,736 6,486
-------------------- -------------------
Total other income 63,807 49,411

Operating Expenses
------------------
Advertising and promotion 1,679 4,085
Automobile lease 0 1,558
Collection and repossession expenses 991 0
Data processing 13,834 18,159
Depreciation 14,546 13,023
Employee benefits and payroll taxes 6,927 7,737
Insurance, bonds and FDIC assessments 16,984 21,199
Office expenses and postage 17,811 17,223
Other operating expenses 666 321
Other real estate expense 4,081 254
Professional services and fees 28,917 7,215
Property tax expense 4,500 4,500
Repairs and maintenance 8,470 9,373
Salaries and directors fees 91,412 93,068
Telephone and utilities 6,984 7,266
Travel, courier and entertainment expenses 3,843 6,224
-------------------- -------------------
Total operating expenses 221,645 211,205
-------------------- -------------------

Net Income $ 30,862 $ 37,232
==================== ===================
</TABLE>

See accountants' compilation report.

F-8
<PAGE> 56
THE SHELBY BANK

STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)

<TABLE>
<CAPTION>
March 31, March 31,
1994 1995
-------------------- -------------------
<S> <C> <C>
Cash Flows from Operating Activities
------------------------------------
Net income $ 30,862 $ 37,232
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 14,456 13,023
Provision for loan losses 5,000 1,000
Accretion of discounts and amortization of premiums
on investment securities (2,877) (7,747)
(Gain) loss on sale of securities 1,310 0
(Gain) loss on sale of fixed assets (26,246) 0
Reserve for contingencies 7,728 0
(Increase) decrease in accrued interest receivable (6,654) (9,935)
(Increase) decrease in other assets (8,760) 9,981
Increase (decrease) in accrued interest payable on deposits (14,931) 9,346
Increase (decrease) in accrued taxes and other liabilities 2,298 (1,313)
-------------------- -------------------
Total adjustments (28,676) 14,355
-------------------- -------------------
Net cash provided (used) by operating activities 2,186 51,587

Cash Flows from Investing Activities
------------------------------------
Proceeds from sale of fixed assets 42,500 0
Proceeds from sale and call of securities 1,097,500 0
Proceeds from the sale of other real estate 168,297 0
Purchase of fixed assets (495) 0
Purchase of securities 0 (985,167)
Loans made to customers, net of collections (1,467,943) (216,803)
Purchase of other real estate (111,007) 0
-------------------- -------------------
Net cash provided (used) by investing activities (271,148) (1,201,970)
-------------------- -------------------

Cash Flows from Financing Activities
------------------------------------
Net increase (decrease) in demand deposits, savings,
and NOW accounts (522,531) 1,750,566
Purchase of federal funds 1,000,000 0
Net increase (decrease) in time deposits (803,772) (500,620)
-------------------- -------------------
Net cash provided (used) by financing activities (326,303) 1,249,946
-------------------- -------------------

Net increase (decrease) in cash and cash equivalents (595,265) 99,563

Cash and cash equivalents at beginning of period 1,555,973 3,707,620
-------------------- -------------------

Cash and cash equivalents at end of period $ 960,708 $ 3,807,183
==================== ===================
</TABLE>

See accountants' compilation report.

F-9
<PAGE> 57

Board of Directors
The Shelby Bank
Bartlett, Tennessee

Independent Auditors' Report

We have audited the accompanying statement of financial condition of The Shelby
Bank as of December 31, 1994, and the related statements of income, changes in
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Shelby Bank as of December
31, 1994, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.

FOUTS & MORGAN
Certified Public Accountants

Memphis, Tennessee
January 31, 1995 (except for Note O, as to
which the date is June 16, 1995)

F-10
<PAGE> 58

THE SHELBY BANK

STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1994

<TABLE>
<S> <C> <C>
ASSETS
------

Cash and due from banks $ 1,007,620
Federal funds sold 2,700,000
------------------
Cash and cash equivalents 3,707,620
Interest bearing deposits in banks 73,250
Investment securities:
Securities available-for-sale, at fair value 4,093,856
Loans $ 12,176,976
Less: Reserve for loan losses (246,150)
-------------------
Net loans 11,930,826
Accrued interest receivable 123,839
Bank premises and equipment 1,474,887
Less: Accumulated depreciation (289,249) 1,185,638
-------------------
Deferred income taxes 1,534,174
Less: Deferred income tax valuation allowance (1,534,174) 0
-------------------
Other real estate 187,174
Other assets 87,215
------------------

Total Assets $ 21,389,418
==================

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

Liabilities
-----------
Deposits
Demand $ 5,746,840
Savings and NOW accounts 5,370,182
Time deposits under $100,000 5,655,791
Time deposits over $100,000 3,361,373
------------------
Total deposits 20,134,186
Accrued interest payable on deposits 40,111
Accrued taxes and other liabilities 1,077
------------------
Total liabilities 20,175,374

Stockholders' Equity
--------------------
Common stock - $1 par value, 10,000,000 shares
authorized, 4,787,552 shares issued and outstanding $ 2,872,531
Capital surplus 2,817,743
Retained earnings (deficit) (4,290,374)
Unrealized loss on securities available-for-sale (185,856)
-------------------
Total stockholders' equity 1,214,044
------------------

Total Liabilities and Stockholders' Equity $ 21,389,418
==================
</TABLE>

See accompanying notes.

F-11
<PAGE> 59

THE SHELBY BANK

STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994

<TABLE>
<S> <C> <C>
Interest Income
---------------
Interest and fees on loans $ 1,175,941
Interest on investment securities:
U.S. Treasury Securities $ 46,989
Obligations of other U.S. Government agencies
and corporations 127,318 174,307
-------------------
Interest on federal funds sold 32,256
Interest on deposits in banks 3,016
------------------
Total interest income 1,385,520

Interest Expense
----------------
Interest on demand deposits $ 111,373
Interest on savings and NOW accounts 43,392
Interest on deposits under $100,000 251,652
Interest on deposits over $100,000 174,166
-------------------
Total interest expense 580,583
------------------

Net interest income 804,937
Provision for loan losses 57,000
------------------

Net interest income after provision for loan losses 747,937

Other Income
------------
Service charges on deposit accounts 147,491
Loss on sale of investment securities (1,310)
Gain on sale of fixed assets 26,603
Other operating income 20,304 193,088
-------------------

Operating Expenses
------------------
Advertising and promotion 13,644
Automobile lease 1,473
Collection and repossession expenses 2,115
Data processing 60,440
Depreciation 51,050
Employee benefits and payroll taxes 60,428
Insurance, bonds and FDIC assessments 81,090
Office expenses and postage 78,696
Other operating expenses 17,350
Other real estate expense 6,723
Professional services and fees 63,079
Property tax expense 13,351
Repairs and maintenance 38,901
Salaries and directors fees 332,585
Telephone and utilities 28,797
Travel, courier and entertainment expenses 17,193
-------------------
Total operating expenses 866,915
------------------

Net Income $ 74,110
==================

Net Income per Share $ 0.0149
==================
</TABLE>

See accompanying notes.

F-12
<PAGE> 60

THE SHELBY BANK

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1994

<TABLE>

Shares of
Common
Stock Common Capital
Issued Stock Surplus
--------------- ---------------- ----------------
<S> <C> <C> <C>
Balance - January 1, 1994 4,787,552 $ 2,872,531 $ 2,817,743

Net income for the year ended
December 31, 1994

Change in unrealized loss on
securities available-for-sale
--------------- ---------------- ----------------

Balance - December 31, 1994 4,787,552 $ 2,872,531 $ 2,817,743
=============== ================ ================

Unrealized
Loss on
Retained Securities
Earnings Available
(Deficit) For Sale Total
--------------- ---------------- ---------------
<S> <C> <C> <C>
Balance - January 1, 1994 $ (4,364,484) $ 0 $ 1,325,790

Net income for the year ended
December 31, 1994 74,110 74,110

Change in unrealized loss on
securities available-for-sale (185,856) (185,856)
--------------- ---------------- ---------------

Balance - December 31, 1994 $ (4,290,374) $ (185,856) $ 1,214,044
=============== ================ ===============
</TABLE>

See accompanying notes.

F-13
<PAGE> 61

THE SHELBY BANK

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994

<TABLE>
<S> <C> <C>
Cash Flows from Operating Activities
------------------------------------
Net income $ 74,110
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation $ 51,050
Provision for loan losses 57,000
Accretion of discounts and amortization of premiums
on investment securities (11,765)
Loss on sale of securities 1,310
Gain on sale of fixed assets (26,603)
Increase in accrued interest receivable (19,065)
Decrease in other assets 551
Decrease in accrued interest payable on deposits (22,982)
Decrease in accrued taxes and other liabilities (9,118)
-------------
Total adjustments 20,378
--------------
Net cash provided by operating activities 94,488

Cash Flows from Investing Activities
------------------------------------
Proceeds from sale of fixed assets 47,950
Proceeds from sale and call of securities 1,097,500
Proceeds from the sale of other real estate 301,534
Purchase of fixed assets (17,051)
Purchase of securities (1,044,656)
Loans made to customers, net of collections (463,681)
Purchase of other real estate (192,676)
-------------
Net cash used by investing activities (271,080)

Cash Flows from Financing Activities
------------------------------------
Net increase in demand deposits, savings, and NOW accounts 3,879,743
Net decrease in time deposits (1,551,504)
-------------
Net cash provided by financing activities 2,328,239
--------------

Net increase in cash and cash equivalents 2,151,647

Cash and cash equivalents at beginning of year 1,555,973
--------------

Cash and cash equivalents at end of year $ 3,707,620
==============
</TABLE>

See accompanying notes.

F-14
<PAGE> 62

THE SHELBY BANK

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994

Note A - Summary of Significant Accounting Policies

Basis of Presentation - The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles and
with general practices of the banking industry. Prior to May 5, 1992,
the Bank was owned 100% by Shelby Bancshares, Inc. and was included in
the consolidated financial statements thereof. As of May 5, 1992, Shelby
Bancshares, Inc.'s holdings were diluted to approximately 5%.
Accordingly, Shelby Bank's financial statements have been presented
separately and do not reflect the accounts and transactions of Shelby
Bancshares, Inc.

Cash and Cash Equivalents - For purposes of reporting cash flows, cash
and cash equivalents include cash on hand, amounts due from banks and
federal funds sold. Generally, federal funds sold are for one-day
periods.

Investment Securities - Debt securities that management has the ability
and intent to hold to maturity are classified as held- to-maturity and
carried at cost, adjusted for amortization of premium and accretion of
discounts using methods approximating the interest method. Other
marketable securities are classified as available-for-sale and are
carried at fair value. Unrealized gains and losses on securities
available-for-sale are recognized as direct increases or decreases in
stockholders' equity. Cost of securities sold is recognized using the
specific identification method.

Loans - Loans are stated at the principal amount outstanding, net of
unearned discount and the allowance for loan losses. Unearned discount
represents the unamortized amount of finance charges, principally related
to installment loans, and is recognized as income using the interest
method. Interest on other loans is recognized as income by using the
simple interest method on daily balances of the principal amount
outstanding.

Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest is discontinued on
loans past due 90 days or more, or sooner, if management believes, after
considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that collection of principal
or interest is doubtful. The decision to place a loan on nonaccrual
status is based on an evaluation of the borrower's financial condition,
collateral liquidation value, economic and business conditions and other
factors that affect the borrower's ability to pay. When a loan is placed
on nonaccrual status, the accrued but unpaid interest is charged off
against current period income. Thereafter, interest on nonaccrual loans
is recognized only as received if future collection of principal is
probable. If the collectability of outstanding principal is doubtful,
interest received is applied as a reduction of principal. A loan may be
restored to an accrual status when principal and interest are no longer
past due or it otherwise becomes both well secured and in the process of
collection and collectability is reasonably assured.

Fees on loans and costs incurred in origination of loans are recognized
at the time the loan is recorded. Because loan fees are not significant
and the majority of loans have maturities of one year or less, the
results of operations are not materially different than the results which
would be obtained by accounting for loan fees and costs in accordance
with generally accepted accounting principles as set forth in Statement
of Financial Accounting Standards No. 91.

Reserve for Loan Losses - The reserve for loan losses is established
through a provision for loan losses charged to expense. Loans are
charged against the reserve for loan losses when management believes that
the collectability of principal is unlikely. Recoveries of amounts
previously charged off are credited to the reserve.

F-15
<PAGE> 63

NOTES CONTINUED

Note A - Summary of Significant Accounting Policies (Continued)

The reserve for loan losses is maintained at a level that management
considers adequate to absorb possible losses on outstanding loans that
may become uncollectible. Factors considered in management's evaluation
of the adequacy of the reserve are current and anticipated economic
conditions, changes in the nature, volume and composition of the loan
portfolio, industry or other concentrations of credit, review of specific
problem loans, the level of classified and nonperforming loans, the
results of regulatory examination, the fair value of underlying
collateral and overall quality of the loan portfolio.

The level of the reserve and the amount of the provision involve
uncertainties and matters of judgment and therefore cannot be determined
with precision. Material estimates that are particularly susceptible to
significant change in the near term are a necessary part of the valuation
process. Future additions to the reserve may be necessary based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the adequacy of the Bank's reserve for loan losses. Such agencies
may require the Bank to recognize additions to the reserve based on their
judgments about information available to them at the time of their
examination.

Premises and Equipment - Premises and equipment are stated at cost less
accumulated depreciation. Provisions for deprecation are computed
principally on the straight-line method and are charged to noninterest
expense over the estimated useful lives of the assets. Maintenance
agreements are amortized to expense over the period of time covered by
the agreement. Costs of major additions, replacements or improvements
are capitalized while expenditures for maintenance and repairs are
charged to expense as incurred.

Other Real Estate Acquired Through Foreclosure - Other real estate
acquired through foreclosure is carried at the lower of cost or fair
value. Cost includes loan principal, accrued but unpaid interest not
previously charged off and expenditures for subsequent improvements.
Fair value is the amount the Bank could reasonably expect to receive in a
current sale of the subject property to a willing buyer in other than a
forced or liquidation sale. The excess of cost over fair value at the
time of foreclosure is charged to the reserve for loan losses.
Subsequent declines in fair value are recognized as a valuation allowance
and charged to noninterest expense.

Income Taxes - Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences
between the basis of fixed assets, other real estate, and the reserve for
loan losses for financial and income tax reporting. Additional
differences result from the use of the accrual method of accounting for
financial reporting and the cash basis of accounting for income tax
reporting. The deferred tax assets and liabilities represent the future
tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes also are recognized for operating losses that
are available to offset future taxable income and tax credits that are
available to offset future federal income taxes.

Note B - Cash and Due from Banks

Banks are required by Federal regulation to maintain average reserve
balances which are based on the types and amounts of its deposit
liabilities. However, the Bank's total amount of deposit liabilities
upon which required reserves are calculated was within certain exemption
levels provided in the applicable Federal regulations. Accordingly, the
Bank was not required to maintain specified average reserve balances at
December 31, 1994.

F-16
<PAGE> 64
NOTES CONTINUED

Note B - Cash and Due from Banks (Continued)

At December 31, 1994, the Bank had concentrations of credit risk with
financial institutions in the form of correspondent bank accounts and
federal funds sold. The bank had amounts due from the institutions
totalling $3,707,620 at December 31, 1994 as follows:

<TABLE>
<S> <C>
Due from banks $ 1,007,620
Federal funds sold 2,700,000
-------------
$ 3,707,620
=============
</TABLE>

If the financial institutions failed to completely perform under the
terms of the financial instruments, the exposure for credit loss would be
the amount of the financial instruments less amounts covered by
regulatory insurance.

Correspondent bank balances are maintained for check clearing and other
services.

Note C - Investment Securities

Carrying amounts and approximate market values of investment securities
available-for-sale at December 31, 1994 are summarized as follows:

<TABLE>
<CAPTION>
Gross Gross Approximate
Carrying Unrealized Unrealized Market
Amount Gains Losses Value
------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
U.S. Treasury
securities $ 1,156,639 $ 0 $ 30,498 $ 1,126,141
Obligations of
other U.S.
Government
agencies and
corporations 3,123,073 0 155,358 2,967,715
------------------- ------------------ ------------------- ------------------
$ 4,279,712 $ 0 $ 185,856 $ 4,093,856
=================== ================== =================== ==================
</TABLE>

The maturities of investment securities available-for-sale at December
31, 1994 were as follows:

<TABLE>
<CAPTION>
Carrying Market
Amount Value
------------------- ------------------
<S> <C> <C>
Due in one year or less $ 545,743 $ 540,520
Due from one to five years 3,532,583 3,357,836
Due from five to ten years 201,386 195,500
------------------- ------------------
$ 4,279,712 $ 4,093,856
=================== ==================
</TABLE>

Proceeds from sales of investment securities prior to maturity, call or
prepayment, gross realized gains and gross realized losses from such
sales for the period ended December 31, 1994 are as follows:

<TABLE>
<S> <C>
Proceeds from calls $ 100,000
==================
Proceeds from sales $ 997,500
==================
Gross realized gains $ 0
==================
Gross realized losses $ (1,310)
==================
Net realized losses $ (1,310)
==================
</TABLE>

Investment securities with a carrying amount of approximately $2,235,539
and a market value of $2,111,677 at December 31, 1994 were pledged to
secure public deposits and for other purposes as required or permitted
by law.
F-17
<PAGE> 65
NOTES CONTINUED

Note D - Loans

Major classification of loans at December 31, 1994 are as follows:

<TABLE>
<S> <C>
Commercial and industrial loans $ 1,837,800
Loans to individuals 3,118,800
Construction loans 1,927,199
Real estate loans 3,570,814
Leases 1,774,969
Overdrafts 740
------------------
Total loans 12,230,322
Unearned discount (36,299)
Deferred loan loss (17,047)
------------------
12,176,976
Reserve for loan losses (246,150)
------------------
Net Loans $ 11,930,826
==================
</TABLE>

At December 31, 1994, nonaccrual loans totalled $40,000. Interest
income received on nonaccrual loans and included in net income is not
significant for the period ended December 31, 1994. There were no
commitments to lend additional funds to borrowers whose loans are
classified as nonaccrual.

Related party loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated borrowers and do not involve more
than normal risk of collectability or present other unfavorable
features. There were no related party loans at December 31, 1994 that
were restructured or charged off. Direct and indirect loans to
executive officers and directors of the Bank, and their related
interests for the period ended December 31, 1994 were as follows:
<TABLE>
<S> <C>
Balance at beginning of year $ 509,659
New loans during the year 869,915
Repayments during the year (819,380)
------------------
Balance at end of year $ 560,194
==================
</TABLE>

Note E - Reserve for Loan Losses

Changes in the reserve for loan losses for the period ended December 31,
1994 were as follows:

<TABLE>
<S> <C>
Balance at beginning of year $ 396,270

Provision for loan losses 57,000
Recoveries on loans previously charged off 77,004
------------------
530,274
Loans charged off (284,124)
------------------
Balance at end of year $ 246,150
==================
</TABLE>

Note F - Premises and Equipment

Major classification of these assets at December 31, 1994 are as follows:

<TABLE>
<S> <C>
Land $ 404,188
Building and improvements 934,376
Furniture, fixtures and equipment 136,323
------------------
Total cost 1,474,887
Less: Accumulated depreciation (289,249)
------------------
$ 1,185,638
==================
</TABLE>

Depreciation expense on premises and equipment was $51,050 for the
period ending December 31, 1994.

F-18
<PAGE> 66

NOTES CONTINUED

Note G - Income Taxes

The Bank experienced a current loss for tax purposes. In addition, the
Bank has substantial loss carryforwards available to offset future
taxable income. Accordingly, no current provision for income taxes has
been provided for in the financial statements.

Total loss carryforwards of $4,504,949 and $4,860,979 are available to
the Bank to offset future federal and state taxable income,
respectively. If not used, the carryforwards will expire as follows:

<TABLE>
<CAPTION>
Loss Carryforward
Year Ended -----------------
December 31, 1994 Federal State
----------------- ------------------- ------------------
<S> <C> <C>
2005 $ 1,981,343 $ 2,334,048
2006 1,433,037 1,432,610
2007 481,589 482,846
2008 301,067 301,703
2009 307,913 309,772
------------------- ------------------
$ 4,504,949 $ 4,860,979
=================== ==================
</TABLE>

Deferred tax assets and liabilities at December 31, 1994 consists of the
following:

<TABLE>
<CAPTION>
Federal State Total
------------------ ------------------- ------------------
<S> <C> <C> <C>
Deferred tax assets $ 1,501,232 $ 267,708 $ 1,768,940
Deferred tax liabilities (212,045) (22,721) (234,766)
Deferred tax valuation allowance (1,289,187) (244,987) (1,534,174)
------------------ ------------------- ------------------
Net Deferred Tax Assets $ 0 $ 0 $ 0
================== =================== ==================
</TABLE>

A deferred tax valuation allowance has been provided to offset the net
deferred tax assets because management believes there is not more than a
50% chance that the benefit will be realized. The need for an allowance
will be evaluated annually and changes to the valuation allowance will
be recognized in the period of change.

The effect of deferred income taxes in current year earnings is as
follows:

<TABLE>
<CAPTION>
Federal State Total
------------------ ------------------- ------------------
<S> <C> <C> <C>
Deferred income tax expense $ 76,947 $ 14,439 $ 91,386
Deferred income tax benefit (589) (104) (693)
Change in deferred tax valuation
allowance (76,358) (14,335) (90,693)
------------------ ------------------- ------------------
Amount Included in Current Year Earnings $ 0 $ 0 $ 0
================== =================== ==================
</TABLE>

Note H - Supplemental Disclosure of Cash Flow Information

<TABLE>
<S> <C>
Income taxes paid $ 0
==================
Interest paid on deposits $ 603,564
==================
Amounts transferred from loans to other real estate $ 0
==================
</TABLE>

Note I - 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 financial needs of its
customers. These financial instruments represent commitments to extend
credit, including home equity credit lines. These instruments involve,
to varying degrees, elements of credit risk, interest rate risk and
liquidity risk, in excess of the amount recognized in the balance sheet.
The contract amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments.

The Bank's exposure to credit loss in the event of nonperformance by one
of the other parties to the financial instruments for commitments to
extend credit is represented by the contractual amount of those
instruments. The bank uses the same credit policies and procedures in
making commitments and conditional obligations as it does for
on-balance-sheet instruments.

F-19
<PAGE> 67

NOTES CONTINUED

Note I - Financial Instruments with Off-Balance-Sheet Risk (Continued)

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 have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments
may expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of the
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the customer.
Collateral held, if any, varies, but may include certificates of
deposit, accounts receivable, inventory, property and equipment, real
estate and income-producing properties.

In the normal course of business, the Bank has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements. The principal commitments of the
bank are as follows:

<TABLE>
<S> <C>
Home equity loans $ 24,000
==================
Real estate loans $ 664,000
==================
Lines of credit $ 66,000
==================
Other unused loans $ 419,000
==================
</TABLE>

At December 31, 1994, there were no outstanding letters of credit.

The Bank has funds on deposit with a financial institution in excess of
federally insured limits.

Concentration of Credit Risk - The Bank primarily grants commercial,
residential and consumer loans to customers within its defined market
area, Northeast Shelby County, Tennessee. Although the Bank reviews the
diversification of the loan portfolio on a regular basis to avoid
concentrations of credit risk, the overall quality of the loan portfolio
is, to some extent, affected by the health of the local economy taken as
a whole.

Note J - Regulatory Requirements

The Bank operates pursuant to various federal and state banking
regulations. At December 31, 1994, the Bank was operating under an
agreement and understanding with the State of Tennessee Department of
Financial Institutions effective in 1990. In 1991, the Federal Deposit
Insurance Corporation, the Bank's primary federal regulatory agency,
issued an order to cease and desist certain unsafe and unsound banking
practices.

The Bank has taken corrective steps to comply with the above orders and
agreements.

The Bank is required by state and federal banking regulations to
maintain certain levels of capital.

Banking laws and regulations limit the payment of dividends by the Bank
without prior regulatory approval. In addition, the Bank must meet
minimum capital levels prior to the payment of dividends.

Note K - Stock Options

The Bank, pursuant to an agreement with its president, has granted to
such officer options to purchase 500,000 shares of the common stock of
the Bank at an exercise price of $.32 per share at any time prior to
expiration on May 1, 1996. On May 1, 1996, if these options have not
been exercised, this agreement will be extended for an additional three
years at the current book value at that time. Accordingly, at December
31, 1994, approximately 500,000 shares of authorized, but previously
unissued common stock of the Bank is reserved under these options.

F-20
<PAGE> 68

NOTES CONTINUED

Note L - Operating Leases

The Bank is party to an operating lease which expires December 15, 1997.
Lease expense included in current period expenses is $20,337.

Future minimum lease payments under the terms of the lease are:

Note M - 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 officer 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 4,787,552
Common stock equivalent (stock options) 201,665
------------------
Total shares 4,989,217
==================
</TABLE>

Note N - Change in Accounting Principle

In 1994, the Bank adopted Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities.

Note O - Plan of Sale

On May 9, 1995, Shelby Bank executed a definitive Purchase and
Assumption Agreement with Volunteer Bank of Jackson, Tennesse and its
parent, BancorpSouth, Inc. This agreement provides that Volunteer Bank
will buy substantially all of the assets and assume all the deposit
liabilities and certain other liabilities of Shelby Bank in exchange for
an aggregate of 78,516 shares of common stock of BancorpSouth.
Consummation of the transaction is subject to regulatory approval,
approval by the shareholders of Shelby Bank and certain other matters.

F-21
<PAGE> 69
ANNEX A

TENNESSEE CODE ANNOTATED Section Section 45-2-1309 AND 48-23-101 ET. SEQ.

45-2-1309. DISSENTING STOCKHOLDERS. -- The owners of shares of
a state bank shall have dissenters rights as provided by chapter 23 of
the Tennessee Business Corporation Act (Section Section 48-23-101, et
seq.) with respect to any plan of merger, merger agreement, plan of
conversion, plan of share exchange or any other corporate action
described in Section 48-23-102. [Acts 1969, ch. 36, Section
1(3.409); 1973, ch. 294, Section 6; T.C.A., Section 45-609; Acts
1981, ch. 330, Section 2; 1983, ch. 441, Section 2; 1994, ch. 551,
Section 15.]

48-23-101. DEFINITIONS. -- (1) "Beneficial shareholder" means
the person who is a beneficial owner of shares held by a nominee as
the record shareholder;
(2) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving or acquiring
corporation by merger or share exchange of that issuer;
(3) "Dissenter" means a shareholder who is entitled to dissent
from corporate action under Section 48-23-102 and who exercises that
right when and in the manner required by Section Section 48-
23-201--48-23-209;
(4) "Fair value", with respect to a dissenter's shares, means
the value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any
appreciation or depreciation in anticipation of the corporate action;
(5) "Interest" means interest from the effective date of the
corporate action that gave rise to the shareholder's right to dissent
until the date of payment, at the average auction rate paid on United
States treasury bills with a maturity of six (6) months (or the
closest maturity thereto) as of the auction date for such treasury
bills closest to such effective date;
(6) "Record shareholder" means the person in whose name shares
are registered in the records of a corporation or the beneficial owner
of shares to the extent of the rights granted by a nominee certificate
on file with a corporation; and
(7) "Shareholder" means the record shareholder or the
beneficial shareholder. [Acts 1986, ch. 887, Section 13.01.]

48-23-102. RIGHT TO DISSENT. -- (a) A shareholder is entitled to
dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation
is a party:
(A) If shareholder approval is required for the merger
by Section 48-21-103 or the charter and the shareholder is
entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged
with its parent under Section 48-21-104;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than
in the usual and regular course of business, if the shareholder is
entitled to vote on the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to court order or a sale
for cash pursuant to a plan by which all or substantially all of the
net proceeds of the sale will be distributed to the shareholders within
one (1) year after the date of sale;

A-1
<PAGE> 70

(4) An amendment of the charter that materially and adversely
affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the
shares;
(B) Creates, alters, or abolishes a right in respect
of redemption, including a provision respecting a sinking fund
for the redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to
vote on any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or other
securities with similar voting rights; or
(E) Reduces the number of shares owned by the
shareholder to a fraction of a share, if the fractional share
is to be acquired for cash under Section 48-16-104; or
(5) Any corporate action taken pursuant to a shareholder vote
to the extent the charter, bylaws, or a resolution of the Board of
Directors provides that voting or nonvoting shareholders are entitled
to dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for
his shares under this chapter may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent
with respect to the shareholder or the corporation.
(c) Notwithstanding the provisions of subsection (a), no
shareholder may dissent as to any shares of a security which, as of
the date of the effectuation of the transaction which would otherwise
give rise to dissenters' rights, is listed on an exchange registered
under Section 6 of the Securities Exchange Act of 1934, as amended,
or is a "national market system security," as defined in rules
promulgated pursuant to the Securities Exchange Act of 1934, as
amended. [Acts 1986, ch. 887, Section 13.02.]

48-23-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- (a) A
record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to
all shares beneficially owned by any one (1) person and notifies the
corporation in writing of the name and address of each person on whose
behalf he asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the shares as to
which he dissents and his other shares were registered in the names of
different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as
to shares of any one (1) or more classes held on his behalf only if:
(1) He submits to the corporation the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
(2) He does so with respect to all shares of the same class of
which he is the beneficial shareholder or over which he has power to
direct the vote. [Acts 1986, ch. 887, Section 13.03.]

48-23-201. NOTICE OF DISSENTERS' RIGHTS. -- (a) If proposed
corporate action creating dissenters' rights under Section 48-23-102
is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert
dissenters' rights under this chapter and be accompanied by a copy of
this chapter.
(b) If corporate action creating dissenters' rights under
Section 48-23-102 is taken without a vote of shareholders, the
corporation shall notify in writing all shareholders entitled to
assert dissenters' rights that the action was taken and send them the
dissenters' notice described in Section 48-23-203.
(c) A corporation's failure to give notice pursuant to this
section will not invalidate the corporate action. [Acts 1986, ch. 887,
Section 13.20.]

A-2
<PAGE> 71

48-23-202. NOTICE OF INTENT TO DEMAND PAYMENT. -- (a) If
proposed corporate action creating dissenters' rights under Section
48-23-102 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
No such written notice of intent to demand payment is required of any
shareholder to whom the corporation failed to provide the notice
required by Section 48-23-201.
(b) A shareholder who does not satisfy the requirements of
subsection (a) is not entitled to payment for his shares under this
chapter. [Acts 1986, ch. 887, Section 13.21.]

48-23-203. DISSENTERS' NOTICE. -- (a) If proposed corporate
action creating dissenters' rights under Section 48-23-102 is
authorized at a shareholders' meeting, the corporation shall deliver a
written dissenters' notice to all shareholders who satisfied the
requirements of Section 48-23-202.
(b) The dissenters' notice must be sent no later than ten (10)
days after the corporate action was authorized by the shareholders or
effectuated, whichever is the first to occur, and must:
(1) State where the payment demand must be sent and where and
when certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received;
(3) Supply a form for demanding payment that includes the date
of the first announcement to news media or to shareholders of the
principal terms of the proposed corporate action and requires that the
person asserting dissenters' rights certify whether or not he acquired
beneficial ownership of the shares before that date;
(4) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than one (1) nor more than
two (2) months after the date the subsection (a) notice is delivered;
and
(5) Be accompanied by a copy of this chapter if the
corporation has not previously sent a copy of this chapter to the
shareholder pursuant to Section 48-23-201. [Acts 1986, ch. 887,
Section 13.22.]

48-23-204. DUTY TO DEMAND PAYMENT. -- (a) A shareholder sent a
dissenters' notice described in Section 48-23-203 must demand
payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenters'
notice pursuant to Section 48-23-203(b)(3), and deposit his
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) retains all other rights of a
shareholder until these rights are cancelled or modified by the
effectuation of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his
share certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for his shares under
this chapter.
(d) A demand for payment filed by a shareholder may not be
withdrawn unless the corporation with which it was filed, or the
surviving corporation, consents thereto. [Acts 1986, ch. 887, Section
13.23.]

48-23-205. SHARE RESTRICTIONS. - (a) The corporation may
restrict the transfer of uncertificated shares from the date the
demand for their payment is received until the proposed corporate
action is effectuated or the restrictions released under Section
48-23-207.

A-3
<PAGE> 72

(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until
these rights are cancelled or modified by the effectuation of the
proposed corporate action. [Acts 1986, ch. 887, Section 13.24.]

48-23-206. PAYMENT. -- (a) Except as provided in Section
48-23-208, as soon as the proposed corporate action is effectuated, or
upon receipt of a payment demand, whichever is later, the corporation
shall pay each dissenter who complied with Section 48-23-204 the
amount the corporation estimates to be the fair value of his shares,
plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal
year ending not more than sixteen (16) months before the date of
payment, an income statement for that year, a statement of changes in
shareholders' equity for that year, and the latest available interim
financial statements, if any;
(2) A statement of the corporation's estimate of the fair
value of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment
under Section 48-23-209; and
(5) A copy of this chapter if the corporation has not
previously sent a copy of this chapter to the shareholder pursuant to
Section 48-23-201 or Section 48-23-203. [Acts 1986, ch. 887, Section
13.25.]

48-23-207. FAILURE TO TAKE ACTION. -- (a) If the corporation
does not effectuate the proposed action that gave rise to the
dissenters' rights within two (2) months after the date set for
demanding payment and depositing share certify, the corporation shall
return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing
transfer restrictions, the corporation effectuates the proposed
action, it must send a new dissenters' notice under Section 48-
23-203 and repeat the payment demand procedure. [Acts 1986, ch. 887,
Section 13.26.]

48-23-208. AFTER-ACQUIRED SHARES. -- (a) A corporation may elect
to withhold payment required by Section 48-23-206 from a dissenter
unless he was the beneficial owner of the shares before the date set
forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the principal terms of the
proposed corporate action.
(b) To the extent the corporation elects to withhold payment
under subsection (a), after effectuating the proposed corporate
action, it shall estimate the fair value of the shares, plus accrued
interest, and shall pay this amount to each dissenter who agrees to
accept it in full satisfaction of his demand. The corporation shall
send with its offer a statement of its estimate of the fair value of
the shares, an explanation of how the interest was calculated, and a
statement of the dissenter's right to demand payment under Section
48-23-209. [Acts 1986, ch. 887, Section 13.27.]

48-23-209. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER. -- (a) A dissenter may notify the corporation in writing of his
own estimate of the fair value of his shares and amount of interest
due, and demand payment of his estimate (less any payment under
Section 48-23-206), or reject the corporation's offer under Section
48-23-208 and demand payment of the fair value of his shares and
interest due, if:
(1) The dissenter believes that the amount paid under Section
48-23-206 or offered under Section 48-23-208 is less than the fair
value of his shares or that the interest due is incorrectly
calculated;
(2) The corporation fails to make payment under Section
48-23-206 within two (2) months after the date set for demanding
payment; or

A-4
<PAGE> 73

(3) The corporation, having failed to effectuate the proposed
action, does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within two (2)
months after the date set for demanding payment.
(b) A dissenter waives his right to demand payment under this
section unless he notifies the corporation of his demand in writing
under subsection (a) within one (1) month after the corporation made
or offered payment for his shares. [Acts 1986, ch. 887, Section
13.28.]

48-23-301. COURT ACTION. -- (a) If a demand for payment under
Section 48-23-209 remains unsettled, the corporation shall commence a
proceeding within two (2) months after receiving the payment demand
and petition the court to determine the fair value of the shares and
accrued interest. If the corporation does not commence the proceeding
within the two-month period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in a court
of record having equity jurisdiction in the county where the
corporation's principal office (or, if none in this state, its
registered office) is located. If the corporation is a foreign
corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose
shares were acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not
residents of this state) whose demands remain unsettled, parties to
the proceeding as in an action against their shares and all parties
must be served with a copy of the petition. Nonresidents may be served
by registered or certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is
commenced under subsection (b) is plenary and exclusive. The court may
appoint one (1) or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have
the powers described in the order appointing them, or in any amendment
to it. The dissenters are entitled to the same discovery rights as
parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled
to judgment:
(1) For the amount, if any, by which the court finds the fair
value of his shares, plus accrued interest, exceeds the amount paid
by the corporation; or
(2) For the fair value, plus accrued interest, of his
after-acquired shares for which the corporation elected to withhold
payment under Section 48-23-208. [Acts 1986, ch. 887, Section
13.30.]

48-23-302. COURT COSTS AND COUNSEL FEES. -- (a) The court in an
appraisal proceeding commenced under Section 48-23-301 shall
determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The
court shall assess the costs against the corporation, except that the
court may assess costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under Section 48-23-209.
(b) The court may also assess the fees and expenses of counsel
and experts for the respective parties, in amounts the court finds
equitable:
(1) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially
comply with the requirements of Section Section 48-23-201 -- 48-23-
209; or
(2) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously, or not
in good faith with respect to the rights provided by this chapter.

A-5
<PAGE> 74

(c) If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly
situated, and that the fees for those services should not be assessed
against the corporation, the court may award to these counsel
reasonable fees to be paid out of the amounts awarded to the
dissenters who were benefited. [Acts 1986, ch. 887, Section 13.31.]

A-6
<PAGE> 75

ANNEX B

PLAN OF REORGANIZATION

SHELBY BANK

PLAN OF REORGANIZATION

1. Shelby Bank, a state banking corporation organized under the
laws of the State of Tennessee ("Shelby Bank"), has entered into a Purchase and
Assumption Agreement dated as of May 9, 1995, as amended from time to time (the
"P&A Agreement"), with Volunteer Bank, a state banking corporation organized
under the laws of the State of Tennessee ("Volunteer") and BancorpSouth, Inc.,
a Mississippi corporation and registered bank holding company of which
Volunteer is a wholly owned subsidiary ("BancorpSouth"), pursuant to which
Volunteer will acquire substantially all of the assets, and assume certain
liabilities of Shelby Bank, including all of Shelby Bank's deposit liabilities,
in exchange for up to 78,516 shares of common stock, par value $2.50 per share,
of BancorpSouth (the "BancorpSouth Common Stock") to be issued to the holders
of outstanding common stock, par value $1.00 per share, of Shelby Bank (the
"Shelby Bank Common Stock"). The transfer of assets and assumption of
liabilities in consideration of shares of BancorpSouth Common Stock are
collectively referred to herein as the "Transaction". The parties to the P&A
Agreement intend that the Transaction qualify as a reorganization within the
meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, Shelby Bank adopts this Plan of
Reorganization (the "Plan") for the purpose of proceeding with the voluntary
liquidation and dissolution of Shelby Bank promptly following the effective
time of the Transaction (the "Effective Time").

2. In furtherance of the foregoing, the officers of Shelby Bank
shall proceed with the voluntary dissolution of Shelby Bank under the laws of
the State of Tennessee after (a) adoption of the Plan by the Board of
Directors of Shelby Bank, (b) approval of the Plan by the affirmative vote of
the holders of two-thirds of the outstanding Shelby Bank Common Stock, and (c)
approval by the Commissioner of Financial Institutions of the State of
Tennessee (the "Commissioner") pursuant to Sections 45-2-1501 et seq. of the
Tennessee Banking Act, as amended (the "Act").

3. As of the date hereof, there are 4,787,552 shares of Shelby
Bank Common Stock issued and outstanding. As of the Effective Time, there will
be 5,287,552 shares of Shelby Bank Common Stock outstanding. No other capital
stock of Shelby Bank will be outstanding.

4. Pursuant to the provisions of Section 4.06 of the P&A
Agreement, subsequent to the Effective Time and in consideration of the
transfer of assets and assumption of liabilities of Shelby Bank, the
BancorpSouth Common Stock issued in connection with the Transaction will be
distributed by BancorpSouth directly to the holders of Shelby Bank Common
Stock.

5. Subsequent to the Effective Time, the sole assets of Shelby
Bank shall be an amount not to exceed $50,000 (the "Expense Fund"), which will
be held in an account with Volunteer pursuant to Section 4.04 of the P&A
Agreement. This account will be used solely for the purpose of paying (a)
contractual liabilities of Shelby Bank not assumed by Volunteer, (b) claims
that are unknown or contingent which may be asserted against Shelby Bank
subsequent to the closing of the Transaction (the "Closing"), and (c)
liquidation or dissolution expenses of Shelby Bank. James L. Reid, the
Chairman of the Board of Directors of Shelby Bank, and Donald E. Russell, the
President and Chief Executive Officer of Shelby Bank, (or such other persons as
Shelby Bank may designate in writing at the Closing) shall be the only

B-1
<PAGE> 76

persons authorized to draw upon this account. At the conclusion of the
dissolution and liquidation of Shelby Bank, any balance in the Expense Fund
shall be the property of, and be transferred to, Volunteer as provided in
Section 4.04 of the P&A Agreement.

6. Immediately following the Effective Time, Shelby Bank shall
forthwith cease to do business and shall proceed to pay its creditors and to
wind up its affairs as provided herein and in compliance with T.C.A. Sections
45-2-1501, et seq.

7. Promptly after the Closing and within 30 days following
receipt of approval of the Plan by the Commissioner (or such later period as
the Commissioner shall approve), Shelby Bank will send a notice of liquidation
by mail to each depositor, creditor, person interested in funds held as a
fiduciary, lessee of a safe deposit box or bailor of property, to the extent
there are any such persons immediately following the Effective Time. As Shelby
Bank will not have any premises subsequent to the Effective Time, Shelby Bank
will post and publish such notice in the manner as the Commissioner shall
require. The notice shall demand that property held by Shelby Bank as bailee
or in a safe deposit box be withdrawn by the person entitled thereto and that
claims of depositors and creditors, if the amount claimed differs from that
stated in the notice to be due, be filed with Shelby Bank before a specified
date not earlier than 60 days thereafter in accordance with the procedure
described in the notice.

8. After the Effective Time, Shelby Bank shall hold no fiduciary
positions.

9. After the Transaction and after discharge of all the
obligations of Shelby Bank, and after provision has been made with the
Commissioner with respect to any disputed claims pursuant to Section
45-2-1501(b)(6) of the Act, there will not be any assets remaining for
distribution to the stockholders of Shelby Bank.

10. The officers and directors of Shelby Bank are authorized and
directed to execute and file all documents and notices which are necessary or
advisable to carry out the purposes and intentions of this Plan and any and all
information required on Treasury Department forms, together with income tax
returns and the information required by applicable regulations and the Code.
The officers and directors of Shelby Bank are authorized and directed to do any
and all other things in its name and behalf which they deem necessary or
advisable to carry out the purposes and intentions of this Plan. The officers,
directors and stockholders shall be held harmless by Shelby Bank for any action
under this Plan taken in good faith, and any expense or liability so incurred
by them shall be that of Shelby Bank.

11. Immediately after the Effective Time and completion of the
foregoing liquidation, and in any event no later than 365 days after the date
of the Effective Time, Shelby Bank shall deliver to the Commissioner (a) its
Charter, for cancellation by the Commissioner, and (b) Articles of Dissolution
containing an Order of Dissolution for entry by the Commissioner.

12. Upon entry by the Commissioner of the Order of Dissolution,
Shelby Bank shall cause the Articles of Dissolution and the Order of
Dissolution to be filed with the Tennessee Secretary of State.

B-2
<PAGE> 77

13. Shelby Bank may terminate or abandon this Plan at any time
prior to the Closing. This Plan may not be terminated or abandoned after the
Closing.

Shelby Bank

By: /s/ DONALD E. RUSSELL
---------------------
Donald E. Russell
President

Dated: July 25, 1995

B-3
<PAGE> 78

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> 79

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> 80

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> 81

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> 82

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> 83

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> 84

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> 85

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> 86

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.