BANCORPSOUTH

Cathy M. Robertson

Executive Vice President of the Company and BancorpSouth Bank

Cathy S. Freeman

First Vice President and Corporate Secretary of the Company and BancorpSouth Bank

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The aggregate market value of the Registrant’s common stock held by non-affiliates of the Registrant on June 28, 2002 was approximately $1,549,000,000, based on the last reported sale price per share of the Registrant’s common stock as reported on the New York Stock Exchange on June 28, 2002.

As of January 31, 2003, the Registrant had outstanding 77,628,997 shares of Common Stock, par value $2.50 per share.

Portions of the definitive Proxy Statement used in connection with Registrant’s 2003 Annual Meeting of Shareholders, to be held April 22, 2003, are incorporated by reference into Part III of this Report.

BANCORPSOUTH, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2002
CONTENTS


PART I
Item	1.	Business	3
Item	2.	Properties	21
Item	3.	Legal Proceedings	22
Item	4.	Submission of Matters to a Vote of Security Holders	22
PART II
Item	5.	Market for the Registrant’s Common Stock and Related Stockholder Matters	23
Item	6.	Selected Financial Data	24
Item	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item	7A.	Quantitative and Qualitative Disclosures About Market Risk	39
Item	8.	Financial Statements and Supplementary Data	41
Item	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	67
PART III
Item	10.	Directors and Executive Officers of the Registrant	68
Item	11.	Executive Compensation	70
Item	12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	70
Item	13.	Certain Relationships and Related Transactions	70
Item	14.	Controls and Procedures	70
Item	15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	71

BancorpSouth, Inc. (the “Company”) is a bank holding company incorporated in 1982, with commercial banking and financial services operations in Mississippi, Tennessee, Alabama, Arkansas, Texas and Louisiana. Its principal subsidiary is BancorpSouth Bank (the “Bank”). At December 31, 2002, the Company and its subsidiaries had total assets of approximately $10.19 billion and total deposits of approximately $8.55 billion. The Company’s principal office is located at One Mississippi Plaza, 201 South Spring Street, Tupelo, Mississippi 38804 and its telephone number is (662) 680-2000.

The Company’s Internet website address is www.bancorpsouth.com. The Company makes available free of charge through its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. The Company’s Internet website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.

The Bank has its principal office in Tupelo, Lee County, Mississippi, and conducts a general commercial banking and trust business through 244 offices in 128 municipalities or communities in Mississippi, Tennessee, Alabama, Arkansas, Texas and Louisiana. The Bank has grown through the acquisition of other banks and insurance companies, the purchase of assets from federal regulators and through the opening of new branches and offices.

The Bank and its subsidiaries provide a range of financial services to individuals and small-to-medium size businesses. The Bank operates investment services, consumer finance, credit life insurance and insurance agency subsidiaries which engage in investment brokerage services, consumer lending, credit life insurance sales and sales of other insurance products. The Bank’s trust department offers a variety of services including personal trust and estate services, certain employee benefit accounts and plans, including individual retirement accounts, and limited corporate trust functions.

The Company has registered the trademarks “BancorpSouth” (typed form and design) and “Bank of Mississippi” (typed form and design) with the U.S. Patent and Trademark Office. The trademark “BancorpSouth” will expire in 2011, and “Bank of Mississippi” will expire in 2010, unless the Company extends these trademarks for additional 10 year periods.

At December 31, 2002, the Company and its subsidiaries had 3,828 full-time equivalent employees. The Company and its subsidiaries are not a party to any collective bargaining agreements and employee relations are considered to be good.

Vigorous competition exists in all major areas where the Company is engaged in business. The Bank competes for available loans and depository accounts with state and national commercial banks as well as savings and loan associations, insurance companies, credit unions, money market mutual funds, automobile finance companies and financial services companies. None of these competitors is dominant in the entire area served by the Bank.

The principal areas of competition in the banking industry center on a financial institution’s ability and willingness to provide credit on a timely and competitively priced basis, to offer a sufficient range of deposit and investment opportunities at a competitive price and maturity, and to offer personal and other services of sufficient quality and at competitive prices. The Company and its subsidiaries believe they can compete effectively in all these areas.

The following is a brief summary of the regulatory environment in which the Company and its subsidiaries operate and is not designed to be a complete discussion of all statutes and regulations affecting such operations, including those statutes and regulations specifically mentioned herein.

The Company is a bank holding company and is registered as such under the Bank Holding Company Act of 1956 (the “Bank Holding Company Act”) with the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and is subject to regulation and supervision by the Federal Reserve. The Company is required to file annual reports with the Federal Reserve and such other information as it may require. The Federal Reserve may also conduct examinations of the Company. According to Federal Reserve Board policy, bank holding companies are expected to act as a source of financial strength to its subsidiary banks and to commit resources to support each such subsidiary. This support may be required at times when a bank holding company may not be able to provide such support.

The Bank is incorporated under the banking laws of the State of Mississippi and is subject to the applicable provisions of Mississippi banking laws and the laws of various states in which we operate, as well as federal law. The Bank is subject to the supervision of the Mississippi Department of Banking and Consumer Finance and to regular examinations by that department. Deposits in the Bank are insured by the Federal Deposit Insurance Corporation (the “FDIC”) and, therefore, the Bank is subject to the provisions of the Federal Deposit Insurance Act and to examination by the FDIC. FDIC regulations require that management report annually on its responsibility for preparing its institution’s financial statements, and establishing and maintaining an internal control structure and procedures for financial reporting and compliance with designated laws and regulations concerning safety and soundness. The Bank is not a member of the Federal Reserve.

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) permits, among other things, the acquisition by bank holding companies of savings associations, irrespective of their financial condition, and increased the deposit insurance premiums for banks and savings associations. FIRREA also provides that commonly controlled federally insured financial institutions must reimburse the FDIC for losses incurred by the FDIC in connection with the default of another commonly controlled financial institution or in connection with the provision of FDIC assistance to such a commonly controlled financial institution in danger of default. Reimbursement liability under FIRREA is superior to any obligations to shareholders of such federally insured institutions (including a bank holding company such as the Company if it were to acquire another federally insured financial institution), arising as a result of their status as shareholders of a reimbursing financial institution.

The Company and the Bank are subject to the provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”). This statute provides for increased funding for the FDIC’s deposit insurance fund and expands the regulatory powers of federal banking agencies to permit prompt corrective actions to resolve problems of insured depository institutions through the regulation of banks and their affiliates, including bank holding companies. Its provisions are designed to minimize the potential loss to depositors and to FDIC insurance funds if financial institutions default on their obligations to depositors or become in danger of default. Among other things, FDICIA provides a framework for a system of supervisory actions based primarily on the capital levels of financial institutions. FDICIA also provides for a risk-based deposit insurance premium structure. The FDIC charges an annual assessment for the insurance of deposits based on the risk a particular institution poses to its deposit insurance fund. While most of the Company’s deposits are in the Bank Insurance Fund, certain other of the Company’s deposits which were acquired from thrifts over the years remain in the Savings Association Insurance Fund.

The Company is required to comply with the risk-based capital guidelines established by the Federal Reserve and with other tests relating to capital adequacy that the Federal Reserve adopts from time to time. See Note 20 to the Company’s Consolidated Financial Statements included in this Report for a discussion of the Company’s capital amounts and ratios.

The Company is a legal entity that is separate and distinct from its subsidiaries. There are various legal limitations on the extent to which the Bank may extend credit, pay dividends or otherwise supply funds to the Company or its affiliates. In particular, the Bank is subject to certain restrictions imposed by federal law on any extensions of credit to the Company or, with certain exceptions, other affiliates.

The primary source of funds for dividends paid to the Company’s shareholders is dividends paid to the Company by the Bank. Various federal and state laws limit the amount of dividends that the Bank may pay to the Company without regulatory approval. Under Mississippi law, the Bank must obtain written approval of the Commissioner of the Mississippi Department of Banking and Consumer Finance prior to paying any dividend on the Bank’s common stock. Under FDICIA, the Bank may not pay any dividends, if after paying the dividend, it would be undercapitalized under applicable capital requirements. The FDIC also has the authority to prohibit the Bank from engaging in business practices that the FDIC considers to be unsafe or unsound, which, depending on the financial condition of the Bank, could include the payment of dividends.

In addition, the Federal Reserve has the authority to prohibit the payment of dividends by bank holding companies if their actions constitute unsafe or unsound practices. In 1985, the Federal Reserve issued a policy statement on the payment of cash dividends by bank holding companies, which outlined the Federal Reserve’s view that a bank holding company that is experiencing earnings weaknesses or other financial pressures should not pay cash dividends that exceed its net income, that are inconsistent with its capital position or that could only be funded in ways that weaken its financial health, such as by borrowing or selling assets. The Federal Reserve indicated that, in some instances, it may be appropriate for a bank holding company to eliminate its dividends.

In September 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (“IBBEA”) was signed into law. 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 that 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. Federal banking regulators may approve merger transactions involving banks located in different states, without regard to laws of any state prohibiting such transactions; provided, however, 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.

The Community Reinvestment Act of 1997 (“CRA”) and its implementing regulations are intended to encourage regulated financial institutions to meet the credit need 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, acquisitions of banks or mergers involving bank holding companies. An unsatisfactory CRA rating may serve as a basis to deny an application to acquire or establish a new bank, to establish a new branch or to expand banking services. At December 31, 2002, the Company had a “satisfactory” CRA rating.

The federal Gramm-Leach-Bliley Act of 1999 (the “GLBA”) was signed into law on November 12, 1999. Under the GLBA, banks are no longer prohibited by the Glass-Steagall Act from associating with a company engaged principally in securities activities. The GLBA also permits bank holding companies to elect to become a “financial holding company,” which would expand the powers of a bank holding company. Financial holding company powers relate to financial activities that are determined by the Federal Reserve to be financial in nature, incidental to an activity that is financial in nature or complementary to a financial activity (provided that the complementary activity does not pose a safety and soundness risk). The GLBA itself defines certain activities as financial in nature, including lending activities, underwriting and selling insurance, providing financial or investment advice, underwriting, dealing and making markets in securities and merchant banking. In order to qualify as a financial holding company, a bank holding company’s depository subsidiaries must be both well-capitalized and well-managed and must have at least a satisfactory rating under the CRA. The bank holding company must also declare its intention to become a financial holding company to the Federal Reserve and certify that its depository subsidiaries meet the capitalization and management requirements. The GLBA also provides for minimum federal standards of privacy to protect the confidentiality of the personal financial information of customers and to regulate use of such information by financial

institutions. A bank holding company that does not elect to become a financial holding company remains subject to the Bank Holding Company Act. Management believes that the Company currently meets the requirements to make an election to become a financial holding company under the GLBA. The Company has not elected to become a financial holding company and currently does not expect to make such an election.

On October 26, 2001, President Bush signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”). Among its other provisions, the USA Patriot Act requires each financial institution: (i) to establish an anti-money laundering program; (ii) to establish due diligence policies, procedures and controls with respect to its private banking accounts and correspondent banking accounts involving foreign individuals and certain foreign banks; and (iii) to avoid establishing, maintaining, administering, or managing correspondent accounts in the United States for, or on behalf of, foreign banks that do not have a physical presence in any country. The USA Patriot Act also requires that financial institutions must follow certain minimum standards to verify the identity of customers, both foreign and domestic, when a customer opens an account. In addition, the USA Patriot Act contains a provision encouraging cooperation among financial institutions, regulatory authorities and law enforcement authorities with respect to individuals, entities and organizations engaged in, or reasonably suspected of engaging in, terrorist acts or money laundering activities.

The Equal Credit Opportunity Act requires non-discrimination in the provision of banking services. The applicable federal enforcement agencies have recently cited institutions for red-lining (refusing to extend credit to residents of a specific geographic area known to be comprised predominantly of minorities) or reverse red-lining (extending credit to minority applicants on terms less favorable than those offered to non-minority applicants). Violations can result in the assessment of substantial civil penalties.

The Bank’s insurance subsidiaries are regulated by the insurance regulatory authorities and applicable laws and regulations of the states in which they operate.

The Bank’s investment services subsidiary is a registered adviser under the Investment Advisers Act of 1940, is regulated by the SEC and is a member of the National Association of Securities Dealers.

On July 30, 2002, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) was signed into law. The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity or debt securities registered under the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act establishes: (i) new requirements for audit committees, including independence, expertise and responsibilities; (ii) additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) new standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for the reporting company and their directors and executive officers; and (v) new and increased civil and criminal penalties for violation of the securities laws. Many of the provisions became effective immediately while other provisions become effective over a period of 30 to 270 days and are subject to rulemaking by the Securities and Exchange Commission. Although the Company anticipates that it will incur additional expense in complying with the provisions of the Sarbanes-Oxley Act and the resulting regulations, the Company does not expect that such compliance will have a material impact on the Company’s or the Bank’s results of operations or financial condition.

In addition, there have been a number of legislative and regulatory proposals that would have an impact on the operation of bank holding companies and their bank and nonbank subsidiaries. It is impossible to predict whether or in what form these proposals may be adopted in the future and, if adopted, what their effect will be on the Company.

The Company’s lending activities include both commercial and consumer loans. Loan originations are derived from a number of sources including real estate broker referrals, mortgage loan companies, direct solicitation by the Company’s loan officers, existing depositors and borrowers, builders, attorneys, walk-in customers and, in some instances, other lenders. The Company has established systematic procedures for approving and monitoring loans that vary depending on the size and nature of the loan and applies these procedures in a disciplined manner.

The Bank offers a variety of commercial loan services including term loans, lines of credit, equipment and receivable financing and agricultural loans. A broad range of short-to-medium term commercial loans, both secured and unsecured, are made available to businesses for working capital (including inventory and receivables), business expansion (including acquisition and development of real estate and improvements), and the purchase of equipment and machinery. At times, the Company also makes construction loans to real estate developers for the acquisition, development and construction of residential subdivisions.

Commercial loans are granted based on the borrower’s ability to generate cash flow to support its debt obligations and other cash related expenses. A borrower’s ability to repay commercial loans is substantially dependent on the success of the business itself and on the quality of its management. As a general practice, the Bank takes as collateral a security interest in any available real estate, equipment, inventory, receivables or other personal property, although such loans may also be made infrequently on an unsecured basis. Generally, the Bank requires personal guaranties of its commercial loans to offset the risks associated with such loans.

The Bank has had very little exposure as an agricultural lender. Crop production loans have been either fully supported by the collateral and financial strength of the borrower, or else a 90% loan guaranty has been obtained through the Farmers Home Administration on such loans.

A portion of the Bank’s lending activities consists of the origination of fixed and adjustable rate residential mortgage loans secured by owner-occupied property located in the Bank’s primary market areas. Home mortgage lending is unique in that a broad geographic territory may be serviced by originators working from strategically placed offices either within the Bank’s traditional banking facilities or from affordable storefront locations in commercial buildings. In addition, the Bank offers construction loans, second mortgage home improvement loans and home equity lines of credit.

The Bank finances the construction of individual, owner-occupied houses on the basis of written underwriting and construction loan management guidelines. First mortgage construction loans are made to solvent and competent contractors on both a pre-sold and a “speculation” basis. Such loans are also made to qualified individual borrowers and are generally supported by a take-out commitment from a permanent lender. The Bank makes residential construction loans to individuals who intend to erect owner occupied housing on a purchased parcel of real estate. The construction phase of these loans has certain risks, including the viability of the contractor, the contractor’s ability to complete the project and changes in interest rates.

In most cases, the Bank will sell its mortgage loans with terms of 15 years or more in the secondary market. The sale to the secondary market allows the Bank to manage the interest rate risks related to such lending operations. This brokerage arrangement allows the Bank to accommodate its clients’ demands while eliminating the interest rate risk for the 15 to 30 year period generally associated with such loans. After the sale of a loan, the Bank’s only involvement is to act as a servicing agent. In certain cases, the Bank may be required to repurchase mortgage loans upon which customers have defaulted that were previously sold in the secondary market if these loans did not meet the underwriting standards of the entity that purchased the loans. These loans would be held by the Bank in its mortgage loan portfolio.

In most cases, the Bank requires title, fire, extended casualty insurance and, where required by applicable regulations, flood insurance to be obtained by the borrower. The Bank maintains its own errors and omissions insurance policy to protect against loss in the event of failure of a mortgagor to pay premiums on fire and other hazard insurance policies. Mortgage loans originated by the Bank customarily include a “due on sale” clause giving the Bank the right to declare a loan immediately due and payable in the event, among other matters, that the borrower sells or otherwise disposes of the real property subject to a mortgage. In general, the Bank enforces due on sales clauses. Borrowers are typically permitted to refinance or repay loans at their option without penalty.

Non-residential consumer loans made by the Bank include loans for automobiles, recreation vehicles, boats, personal (secured and unsecured) and deposit account secured loans. In addition, the Bank provides federally insured or guaranteed student loans to students at universities and community colleges in the Bank’s market areas. The Bank also conducts various indirect lending activities through established retail companies in its market areas. Indirect lending activities have been declining as a result of the Company’s decision to reduce its exposure to indirect automobile sales financing by allowing its portfolio of such loans to decline. We expect this decline in indirect lending activities to continue. Non-residential consumer loans are attractive to the Bank because they typically have a shorter term and carry higher interest rates than that charged on other types of loans. Non-residential consumer loans, however, do pose additional risks of collectability when compared to traditional types of loans granted by commercial banks such as residential mortgage loans.

The Bank also issues credit cards solicited on the basis of applications received through referrals from the Bank’s branches and other marketing efforts. The Bank generally has a small portfolio of credit card receivables outstanding. Credit card lines are underwritten using conservative credit criteria, including past credit history and debt-to-income ratios, similar to the credit policies applicable to other personal consumer loans. Historically, the Bank believes that its credit card losses have been well below industry norms.

Consumer loans are granted based on employment and financial information solicited from prospective borrowers as well as credit records collected from various reporting agencies. Stability of the borrower, willingness to pay and credit history are the primary factors to be considered. The availability of collateral is also a factor considered in making such a loan. The Bank seeks collateral that can be assigned and has good marketability with a clearly adequate margin of value. The geographic area of the borrower is another consideration, with preference given to borrowers in the Bank’s primary market areas.

The Bank’s consumer finance subsidiary extends consumer loans to individuals and entities that may not satisfy the Bank’s lending standards and operates in 49 offices located in 48 communities in Mississippi and Tennessee.

The Bank’s insurance service subsidiary serves as agents in the sale of title insurance, commercial lines of insurance and a full line of property and casualty, life, health and employee benefits products and services and operates in Mississippi, Tennessee and Alabama.

The Bank’s investment services subsidiary provides brokerage, investment advisory and asset management services and operates in certain communities in Mississippi, Tennessee, Alabama, Arkansas and Louisiana.

See Note 21 to the Company’s Consolidated Financial Statements included elsewhere in this Report for financial information about each segment of the Company, as defined by generally accepted accounting principles.

Management seeks to maintain a high quality of assets through conservative underwriting and sound lending practices. Management intends to follow this policy even though it may result in foregoing the funding of higher yielding loans. While there is no assurance that the Company will not suffer losses on its loans, management believes that the Company has adequate underwriting and loan administration policies in place and personnel to manage the associated risks prudently.

In an effort to maintain the quality of the loan portfolio, management seeks to minimize higher risk types of lending. Undesirable loans include loans to provide initial equity and working capital to new businesses with no other capital strength, loans secured by unregistered stock, loans for speculative transactions in stock, land or commodity markets, loans to borrowers or the taking of collateral outside the Company’s primary market areas, loans dependent on secondary liens as primary collateral and non-recourse loans. To the extent risks are identified, additional precautions are taken in order to reduce the Company’s risk of loss. Commercial loans entail certain additional risks since they usually

involve large loan balances to single borrowers or a related group of borrowers, resulting in a more concentrated loan portfolio. Further, since payment of these loans is usually dependent upon the successful operation of the commercial enterprise, the risk of loss with respect to these loans may increase in the event of adverse conditions in the economy.

The Board of Directors of the Bank focuses much of its efforts and resources, and that of the Bank’s management and lending officials, on loan review and underwriting policies. Loan status and monitoring is handled through the Bank’s Loan Administration Department. Weak financial performance is identified and monitored using past due reporting, the internal loan rating system, loan review reports, the various loan committee functions, and periodic Asset Quality Rating Committee meetings. Senior loan officers have established a review process with the objective of quickly identifying, evaluating and initiating necessary corrective action for substandard loans. The results of loan reviews are reported to the Audit Committee of both the Company’s and the Bank’s Board of Directors. This process is an integral element of the Bank’s loan program. Nonetheless, management maintains a cautious outlook in anticipating the potential effects of uncertain economic conditions (both locally and nationally) and the possibility of more stringent regulatory standards.

On February 28, 2002, Pinnacle Bancshares, Inc., a $130 million bank holding company headquartered in Little Rock, Arkansas, merged with and into the Company. Pursuant to the merger, Pinnacle Bancshare’s subsidiary, Pinnacle Bank, merged into the Bank. Consideration paid to complete this transaction consisted of 554,602 shares of common stock in addition to cash paid to the Pinnacle shareholders in the aggregate amount of $9,524,000. This transaction was accounted for as a purchase and, accordingly, the results of operations have been included since the date of acquisition. This acquisition was not material to the results of operations of the Company.

On May 3, 2002, certain assets of First Land and Investment Company were purchased by the Company. Consideration paid to complete this transaction consisted of 45,024 shares of the Company’s common stock. This transaction was accounted for as a purchase and, accordingly, the results of operations have been included since the date of acquisition. This acquisition was not material to the results of operations of the Company.

Set forth in this section is certain selected statistical information relating to the Company’s business.

Distribution of Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differentials

See “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Net Interest Revenue” included herein for information regarding the distribution of assets, liabilities and shareholders’ equity, and interest rates and interest differentials.

See “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Net Interest Revenue” included herein for information regarding the analysis of changes in effective interest differential.

The following table shows the amortized cost of held-to-maturity securities at December 31, 2002, 2001 and 2000:

The following table shows the maturities and weighted average yields as of the end of the latest period for the investment categories presented above:


	December 31, 2002

			U.S.
	U.S.		Government		States &				Weighted
	Treasury		Agency		Political		Other		Average
	Securities		Securities		Subdivisions		Securities		Yield

	(Dollars in thousands)
Period to Maturity:
Maturing within one year	$	21,014	$	101,353	$	28,241	$	10,005		5.66	%
Maturing after one year but within five years		7,392		627,474		71,230		52,283		4.91	%
Maturing after five years but within ten years		—		161,864		40,399		7,025		7.03	%
Maturing after ten years		—		4,990		60,105		—		7.21	%

TOTAL	$	28,406	$	895,681	$	199,975	$	69,313

The yield on tax-exempt obligations of states and political subdivisions has been adjusted to a taxable equivalent basis using a 35% tax rate.

The following table shows the book value of available-for-sale securities at December 31, 2002, 2001 and 2000:

The following table shows the maturities and weighted average yields as of the end of the latest period for the investment categories presented above:


	December 31, 2002

			U.S.
	U.S.		Government		State &				Weighted
	Treasury		Agency		Political		Other		Average
	Securities		Securities		Subdivisions		Securities		Yield

	(Dollars in thousands)
Period to Maturity:
Maturing within one year	$	—	$	77,293	$	10,897	$	40,769		5.16	%
Maturing after one year but within five years		332		1,021,665		55,230		30,153		4.51	%
Maturing after five years but within ten years		—		152,064		48,683		1,882		5.54	%
Maturing after ten years		—		126,486		69,443		7,275		5.51	%

TOTAL	$	332	$	1,377,508	$	184,253	$	80,079

The yield on tax-exempt obligations of states and political subdivisions has been adjusted to a taxable equivalent basis using a 35% tax rate. See “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Securities and Other Earning Assets” included herein for more information regarding the Company’s securities portfolio.

The Company’s loans are widely diversified by borrower and industry. The following table shows the composition of loans by collateral type of the Company at December 31 for the years indicated. See “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition – Loans” included herein for more information regarding the Company’s loan portfolio.

The maturity distribution of the Company’s loan portfolio is one factor in management’s evaluation of the risk characteristics of the loan portfolio. The following table shows the maturity distribution of loans net of unearned discount of the Company as of December 31, 2002:

The interest rate sensitivity of the Company’s loan portfolio is important in the management of effective interest differential. The Company attempts to manage the relationship between the interest rate sensitivity of its assets and liabilities to produce an effective interest differential that is not significantly impacted by the level of interest rates. The following table shows the interest rate sensitivity of the Company’s loans net of unearned discount as of December 31, 2002:

The total amount of interest earned on non-performing loans was approximately $274,000, $493,000 and $263,000 in 2002, 2001 and 2000, respectively. The gross interest income that would have been recorded under the original terms of those loans amounted to $936,000, $1,402,000 and $878,000 in 2002, 2001 and 2000, respectively.

Loans considered impaired under Statement of Financial Accounting Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan,” as amended by SFAS No. 118, “Accounting by Creditors for Impairment of a Loan – Income Recognition and Disclosure,” are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company’s recorded investment in loans considered impaired at December 31, 2002, 2001 and 2000 was $18,871,000, $17,578,000 and $14,669,000, respectively, with a valuation allowance of $7,095,000, $6,546,000 and $5,639,000, respectively. The average recorded investment in impaired loans during 2002, 2001 and 2000 was $19,408,000, $19,065,000 and $21,796,000, respectively.

The Company’s policy provides that loans, other than installment loans, are generally placed in non-accrual status if, in management’s opinion, payment in full of principal or interest is not expected or payment of principal or interest is more than 90 days past due, unless the loan is both well-secured and in the process of collection.

In the normal course of business, management becomes aware of possible credit problems in which borrowers exhibit potential for the inability to comply with the contractual terms of their loans, but which do not currently meet the criteria for disclosure as non-performing loans. Historically, some of these loans are ultimately restructured or placed in non-accrual status. At December 31, 2002, no loans were known to be potential non-performing loans.

At December 31, 2002, the Company did not have any concentration of loans in excess of 10% of total loans outstanding. Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities, which would cause them to be similarly impacted by economic or other conditions. However, the Company does conduct business in a geographically concentrated area. The ability of the Company’s borrowers to repay loans is to some extent dependent upon the economic conditions prevailing in the Company’s market area.

In the normal course of business, the Company assumes risks in extending credit. The Company manages these risks through its lending policies, loan review procedures and the diversification of its loan portfolio. Although it is not possible to predict loan losses with certainty, management continuously reviews the characteristics of the loan portfolio to determine its overall risk profile and quality.

Attention is paid to the quality of the loan portfolio through a formal loan review process. The Board of Directors of the Bank has appointed a Loan Loss Reserve Valuation Committee (the “Loan Loss Committee”) that is responsible for ensuring that the allowance for credit losses provides coverage of both known and inherent losses. The Loan Loss Committee considers estimates of loss for individually analyzed credits as well as factors such as historical experience, changes in economic and business conditions and concentrations of risk in determining the level of the allowance for credit losses. The Loan Loss Committee meets at least quarterly to determine the amount of additions to the allowance for credit losses. The Loan Loss Committee is composed of senior management from the Bank’s Loan Administration, Lending and Finance departments. In each period, the Loan Loss Committee bases the allowance for credit losses on its loan classification system as well as an analysis of general economic and business trends in the Company’s region and nationally.

A key input for determining the amount of the allowance for loan losses is the Company’s loan classification system. The Company has a systematic approach for assigning credit ratings and classifications to individual loans. Each loan is assigned a grade by the loan officer at origination that serves as a basis for the credit analysis of the entire portfolio. Periodically, loan officers review the status of each loan and update its grading. The grades assigned by the loan officer are reviewed by an independent Loan Review Department. The Loan Review Department is responsible for reviewing the credit rating and classification of individual loans. The Loan Review Department also assesses trends in the overall portfolio, adherence to internal credit policies and Loan Administration procedures and other factors that may affect the overall adequacy of the allowance for credit losses. Throughout this on-going process, management and the Loan Loss Committee are advised of the condition of individual loans and of the quality profile of the entire loan portfolio for consideration in establishing the allowance for credit losses.

Any loan or portion thereof which is classified as “loss” by regulatory examiners or which is determined by management to be uncollectible because of such factors as the borrower’s failure to pay interest or principal, the borrower’s financial condition, economic conditions in the borrower’s industry or the inadequacy of underlying collateral, is charged off.

The provision for credit losses charged to operating expense is an amount that, in the judgment of management, is necessary to maintain the allowance for credit losses at a level that is adequate to meet the risks of losses on the Company’s current portfolio of loans. Management’s judgment is based on a variety of factors which include the Company’s experience related to loan balances, charge-offs and recoveries, scrutiny of individual loans and risk factors, results of regulatory agency reviews of loans and economic conditions of the Company’s market area. Material estimates that are particularly susceptible to significant change in the near term are a necessary part of this process. Future additions to the allowance 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 Company’s allowance for credit losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

The breakdown of the allowance by loan category is based in part on evaluations of specific loans’ past history and on economic conditions within specific industries or geographical areas. Accordingly, since all of these conditions are subject to change, the allocation is not necessarily indicative of the breakdown of any losses.

The following table presents (a) the breakdown of the allowance for credit losses by loan category and (b) the percentage of each category in the loan portfolio to total loans at December 31 for the years presented:


		2002					2001					2000					1999					1998

		ALLOW-					ALLOW-					ALLOW-					ALLOW-					ALLOW-
		ANCE		% OF			ANCE		% OF			ANCE		% OF			ANCE		% OF			ANCE		% OF
		FOR		LOANS TO			FOR		LOANS TO			FOR		LOANS TO			FOR		LOANS TO			FOR		LOANS TO
		CREDIT		TOTAL			CREDIT		TOTAL			CREDIT		TOTAL			CREDIT		TOTAL			CREDIT		TOTAL
		LOSS		LOANS			LOSS		LOANS			LOSS		LOANS			LOSS		LOANS			LOSS		LOANS

		(Dollars in thousands)
Commercial & agricultural		$	10,509		11.14	%	$	10,923		11.29	%	$	12,259		12.30	%	$	11,127		12.67	%	$	7,840		14.32	%
Consumer & installment			12,212		11.30	%		12,853		14.12	%		23,702		17.29	%		22,231		21.28	%		21,421		22.50	%
Real estate mortgage			61,987		72.27	%		50,068		69.34	%		37,279		65.38	%		32,897		61.22	%		28,887		58.45	%
Lease financing			2,904		4.84	%		2,584		4.75	%		3,290		4.69	%		3,196		4.60	%		2,802		4.20	%
Other			263		0.45	%		6,722		0.50	%		5,200		0.34	%		4,781		0.23	%		7,435		0.53	%

	TOTAL	$	87,875		100.00	%	$	83,150		100.00	%	$	81,730		100.00	%	$	74,232		100.00	%	$	68,385		100.00	%

The following table sets forth certain information with respect to the Company’s loans (net of unearned discount) and the allowance for credit losses for the five years ended December 31, 2002. See “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Provisions for Credit Losses and Allowance for Credit Losses” included herein for more information regarding the Company’s allowance for credit losses.


		2002			2001			2000			1999			1998

		(Dollars in thousands)
LOANS
Average loans for the period		$	6,283,798		$	6,010,841		$	5,797,569		$	5,211,539		$	4,710,847

ALLOWANCE FOR CREDIT LOSSES
Balance, beginning of period		$	83,150		$	81,730		$	74,232		$	68,385		$	61,932
Loans charged off:
	Commercial & agricultural		(8,855	)		(3,763	)		(5,974	)		(2,565	)		(4,504	)
	Consumer & installment		(14,838	)		(16,898	)		(14,203	)		(12,007	)		(11,793	)
	Real estate mortgage		(5,490	)		(3,764	)		(4,082	)		(1,936	)		(2,745	)
	Lease financing		(193	)		(464	)		(347	)		(94	)		(75	)

Total loans charged off			(29,376	)		(24,889	)		(24,606	)		(16,602	)		(19,117	)

Recoveries:
	Commercial & agricultural		838			394			1,843			833			1,408
	Consumer & installment		2,085			3,092			2,443			2,411			3,120
	Real estate mortgage		501			511			646			334			560
	Lease financing		37			53			40			59			20

Total recoveries			3,461			4,050			4,972			3,637			5,108

Net charge-offs			(25,915	)		(20,839	)		(19,634	)		(12,965	)		(14,009	)
Provision charged to operating expense			29,411			22,259			26,166			17,812			19,310
Acquisitions			1,229			—			966			1,000			1,152

Balance, end of period		$	87,875		$	83,150		$	81,730		$	74,232		$	68,385

RATIOS
Net charge-offs to average loans			0.41	%		0.35	%		0.34	%		0.25	%		0.30	%

Deposits represent the principal source of funds for the Company. The distribution and market share of deposits by type of deposit and by type of depositor are important considerations in the Company’s assessment of the stability of its funds sources and its access to additional funds. Furthermore, management shifts the mix and maturity of the deposits depending on economic conditions and loan and investment policies in an attempt, within set policies, to minimize cost and maximize effective interest differential. See “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Deposits” included herein for more information regarding deposits made with the Company.

The following table shows the classification of deposits on an average basis for the three years ended December 31, 2002:

Time deposits of $100,000 and over, including certificates of deposits of $100,000 and over, at December 31, 2002, had maturities as follows:

Return on average equity, return on average assets and the dividend payout ratios based on net income for each of the years in the three-year period ended December 31, 2002 are presented below:

The Company’s average equity as a percentage of average assets was 8.21%, 8.60% and 8.70% for 2002, 2001 and 2000, respectively. In 2002, the Company’s return on average equity (which is calculated by dividing net income by average shareholders’ equity) and return on average assets (which is calculated by dividing net income by average total assets) increased and its dividend payout ratio (which is calculated by dividing dividends declared per share by net income per share) decreased. See “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Three Years Ended December 31, 2002 Results of Operations Summary” included herein for more information regarding the Company’s net income and the calculation of return on average equity and return on average assets.

The Company uses borrowed funds as an additional source of funds for growth in earning assets. Short-term borrowings consist of federal funds purchased, flexible repurchase agreements purchased, securities sold under repurchase agreements and short-term Federal Home Loan Bank advances.

The following table sets forth, for the periods indicated, certain information about short-term borrowings and the components thereof:


		End of Period					Daily Average					Maximum
												Outstanding
				Interest					Interest			At Any
		Balance		Rate			Balance		Rate			Month End

		(Dollars in thousands)
2002:
Federal funds purchased		$	1,300		0.9	%	$	3,412		1.6	%	$	15,900
Flex-repos purchased			134,508		4.7	%		141,882		5.6	%		163,898
Securities sold under repurchase agreements			321,581		1.1	%		309,012		1.5	%		356,198
Short-term Federal Home Loan Bank advances			—		—			1,337		4.3	%		4,000

	Total	$	457,389				$	455,643				$	539,996

2001:
Federal funds purchased		$	—		—		$	621		5.7	%	$	400
Flex-repos purchased			168,511		5.6	%		186,841		5.7	%		198,085
Securities sold under repurchase agreements			305,401		1.4	%		313,299		3.5	%		339,462

	Total	$	473,912				$	500,761				$	537,947

2000:
Federal funds purchased		$	—		—		$	29,859		6.3	%	$	71,500
Flex-repos purchased			198,925		5.6	%		25,804		5.7	%		202,300
Securities sold under repurchase agreements			304,502		5.6	%		253,354		5.3	%		304,502
Short-term Federal Home Loan Bank advances			—		—			136,792		6.8	%		570,000

	Total	$	503,427				$	445,809				$	1,148,302

Federal funds purchased generally mature the day following the date of purchase while securities sold under repurchase agreements generally mature within 30 days from the date of the sale. At December 31, 2002, the Bank had established informal federal funds borrowing lines of credit aggregating $300 million.

The Bank has entered into a blanket floating lien security agreement with the Federal Home Loan Bank of Dallas. Under the terms of this agreement, the Bank is required to maintain sufficient collateral to secure borrowings in an aggregate amount of the lesser of 75% of the book value (unpaid principal balance) of the Bank’s eligible mortgage collateral or 35% of the Bank’s assets.

Certain statements contained in this Annual Report may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by reference to a

future period(s) or by the use of forward-looking terminology, such as “anticipate,” “estimate,” “expect,” “foresee,” “may,” “might,” “will,” “would,” “could” or “intend,” future or conditional verb tenses, and variations or negatives of such terms. These forward-looking statements include, without limitation, those relating to the Company’s future growth, revenue, assets, asset quality, profitability and customer service, critical accounting policies, mortgage servicing asset and mortgage servicing rights, net interest margin, non-interest revenue, market conditions related to the Company’s stock repurchase program, allowance for credit losses, the effect of certain new accounting standards on the Company’s financial statements, income tax deductions, credit quality, the level of credit losses from lending commitments, net interest revenue, interest rate sensitivity, loan loss experience, liquidity, capital resources, market risk, earnings, effect of pending litigation, acquisition strategy, legal and regulatory limitations and compliance and competition.

We caution you not to place undue reliance on the forward-looking statements contained in this Report in that actual results could differ materially from those indicated in such forward-looking statements, due to a variety of factors. These factors include, but are not limited to, changes in the Company’s operating or expansion strategy, availability of and costs associated with obtaining adequate and timely sources of liquidity, the ability to maintain credit quality, possible adverse rulings, judgments, settlements and other outcomes of pending litigation, the ability of the Company to collect amounts due under loan agreements, changes in consumer preferences, effectiveness of the Company’s interest rate hedging strategies, laws and regulations affecting financial institutions in general or relating to taxes, the effect of pending or future legislation, the ability of the Company to repurchase its common stock on favorable terms and the risk factors that are described in greater detail in this section below. Other relevant risk factors may be detailed from time to time in the Company’s press releases and filings with the Securities and Exchange Commission. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date of this Report.

Rising Interest Rates May Result in Higher Interest Rates Being Paid on Interest Bearing Deposits Than Are Charged on Outstanding Loans.

If interest rates rise, we may pay interest on our customers’ interest-bearing deposits and our other liabilities at higher rates than the interest rates paid to us by our customers on outstanding loans that were made when interest rates were at a lower level. This situation would result in a negative interest rate spread with respect to those loans and cause an adverse effect on our earnings. This adverse effect would increase if interest rates continued to rise while we had outstanding loans payable at fixed interest rates that could not be adjusted to a higher interest rate.

BancorpSouth, Inc. is a registered bank holding company under the Bank Holding Company Act of 1956, and the Bank is a Mississippi state banking corporation. Accordingly, both are subject to extensive governmental regulation, legislation and control. These laws limit the manner in which we operate, including the amount of loans we can originate, interest we can charge on loans and fees we can charge for certain services. We cannot predict whether, or the extent to which, the government and governmental organizations may change any of these laws or controls. We also cannot predict how any of these changes would adversely affect our business and prospects.

We Compete with Other Bank Holding Companies, Banks and Financial Services Companies.

The banking business is extremely competitive in our service areas in Mississippi, Tennessee, Alabama, Arkansas, Texas and Louisiana. We compete, and will continue to compete, with well-established banks, credit unions and other financial institutions, several of which have significantly greater resources and lending limits. Some of these competitors provide certain services that we do not provide.

Our Growth Strategy Includes Risks That Could Have an Adverse Effect on Financial Performance.

A material element of our growth strategy is the acquisition of additional banks and bank holding companies in order to achieve greater economies of scale. We cannot assure you that the current level of growth opportunities will continue to exist, that we will be able to acquire banks and bank holding companies that satisfy our criteria or that any such acquisition will be on terms favorable to us. Further, our growth strategy will require that we continue to hire qualified personnel, while concurrently expanding our managerial and operational infrastructure. We cannot assure you that we will be able to hire and retain qualified personnel or that we will be able to successfully expand our infrastructure to accommodate future acquisitions or growth. As a result of these factors, we may not realize the expected economic benefits associated with our acquisitions. This could have a material adverse effect on our financial performance.

The stock market has, from time to time, experienced extreme price and volume fluctuations, which often have been unrelated to the operating performance of particular companies. Any announcement with respect to the banking industry, market conditions or any variance in our revenues or earnings from levels generally expected by securities analysts for a given period could have an immediate and significant effect on the trading price of our common stock.

We, Like Other Financial Services Companies in Our Market Areas, Are Being Sued By Numerous Plaintiffs for Large Amounts of Damages.

In some states in which we operate, and particularly in Mississippi, there has been a significant increase in litigation against financial services companies in connection with lending, insurance and other financial transactions during the year ended December 31, 2002. While the allegations vary from case to case and from company to company, in general such cases allege that loans were originated or renewed at a time or in a way that improperly increased the charges paid by the borrower and/or that the borrowers were charged fees or sold insurance products without appropriate disclosures or which were unnecessary under the particular circumstances. These actions tend to seek large amounts of actual and punitive damages for claims arising out of transactions that involve relatively small amounts of money. There have been several cases involving such claims tried against other companies in our market area that have resulted in large awards of actual and punitive damages for individual claimants, but it is not clear whether such large awards will be upheld on appeal. Some companies have engaged in settlements of such cases rather than face the risk and uncertainty of such awards.

Cases of this type have been filed against some of our subsidiaries. Such claims are now being asserted by several hundred individuals in an increasing number of cases filed in several different counties in Mississippi in which individuals have received large jury awards against other companies. Since attorneys have actively advertised for such claimants, and since some of the attorneys who have already filed cases purport to represent hundreds of additional claimants for whom they have not yet filed proceedings, the number of cases filed and the number of individuals asserting such claims will in all probability continue to increase.

During the fourth quarter of 2002, we entered into two pending settlements with a total of approximately 1,800 individual claimants. Under the terms of these pending settlements, claimants whose loan documents contain arbitration agreements would receive smaller amounts to settle their claims than those whose loan documents do not contain arbitration agreements. We do not have accurate numbers of the number of claimants or whether or not they have arbitration agreements, and are not currently able to determine the actual amount that will be required to settle these lawsuits. We did, however, accrue $3.2 million during the fourth quarter of 2002, which we believe is the maximum amount needed to settle the claims covered in the settlements.

As to similar claims, whether presently pending or that may be brought in the future, it is not currently possible to quantify the potential exposure presented by these claims or determine whether these claims will ultimately have a material adverse effect on our financial condition. Our inability to determine our exposure at this time is based on a number of reasons, which include but are not limited to the following: some of the cases have only been recently filed, the facts vary from case to case and are usually disputed, some of the principles of law that apply to these cases are not clearly delineated, existing law provides juries little specific guidance to determine the amounts of actual and punitive damages they may award and/or to judges in reviewing those awards, and the amounts of jury awards differ from county to county and case to case. Future legislation and court decisions may also limit or affect the amount of damages that can be recovered in such cases; however, we cannot predict the course of any such legislation or court decisions or the effect that they may have with respect to litigation directed toward us and our subsidiaries.

Issuing Additional Shares of Our Common Stock to Acquire Other Banks and Bank Holding Companies May Result in Dilution for Existing Shareholders.

In connection with our growth strategy, we have issued, and may issue in the future, shares of our common stock to acquire additional banks and bank holding companies. Resales of substantial amounts of common stock in the public market and the potential of such sales could adversely affect the prevailing market price of our common stock and impair our ability to raise additional capital through the sale of equity securities. We usually must pay an acquisition premium above the fair market value of acquired assets for the acquisition of banks and bank holding companies. Paying this acquisition premium, in addition to the dilutive effect of issuing additional shares, may also adversely affect the prevailing market price of our common stock.

Diversification in Types of Financial Services May Adversely Affect Our Financial Performance.

As part of our business strategy, we have in the past diversified, and may further diversify, our lines of business into areas that are not traditionally associated with the banking business. As a result, we must now manage the development of new business lines in which we have not previously participated. Each new business line requires the investment of additional capital and the significant involvement of our senior management to develop and integrate the insurance and investment services subsidiaries with our traditional banking operations. We can offer no assurances that we will be able to develop and integrate these new services without adversely affecting our financial performance.

We derive our income solely from dividends received from owning the Bank’s common stock. Federal and state law limits the Bank’s ability to declare and pay dividends. In addition, the Board of Governors of the Federal Reserve System may impose restrictions on our ability to declare and pay dividends on our common stock.

Monetary Policies and Economic Factors May Limit Our Ability to Attract Deposits or Make Loans.

The monetary policies of federal regulatory authorities, particularly the Board of Governors of the Federal Reserve System, and economic conditions in our service area and the United States generally, affect our ability to attract deposits and extend loans. We cannot predict either the nature and timing of any changes in these monetary policies and economic conditions or their impact on our financial performance. The banking business is subject to various material business risks, which may become more acute in periods of economic slowdown or recession. During such periods, foreclosures generally increase and such conditions could also lead to a potential decline in deposits and demand for loans.

Our governing documents and certain agreements to which we are a party contain several provisions which make a change-in-control difficult to accomplish, and may discourage a potential acquirer. These include a shareholder rights plan, or “poison pill,” a classified or “staggered” Board, change-in-control agreements with members of management and supermajority voting requirements. These anti-takeover provisions may have an adverse effect on the market for our common stock.

We conduct business in the limited geographic area of Mississippi, Tennessee, Alabama, Arkansas, Texas and Louisiana. An economic downturn in the economies of these states or the southern portion of the United States could adversely affect our financial performance, particularly our ability to attract deposits and extend loans.

In evaluating an investment in shares of our common stock, the factors set forth in this section should be carefully considered, along with other matters discussed in reports and other filings that we have made with the Securities and Exchange Commission. It should not be assumed that we have listed or described the only risks that could affect our future performance or the market price of our common stock.

BancorpSouth Bank – The main office is located at One Mississippi Plaza, 201 South Spring Street in the central business district of Tupelo, Mississippi in a seven-floor modern glass, concrete and steel office building owned by the Bank. The Bank occupies approximately 80% of the rentable space, with the remainder leased to various unaffiliated tenants.

The Bank owns 205 of its 234 branch banking facilities. The remaining 29 branch banking facilities are occupied under leases with unexpired terms ranging from one to seven years. The Bank also owns other buildings that provide space for computer operations, lease servicing, mortgage lending, warehouse needs and other general purposes.

The Bank considers all its buildings and leased premises to be in good condition. The Bank also owns several parcels of property acquired under foreclosure. Ownership of and rentals on other real property by the Bank are not material.

Personal Finance Corporation – This wholly-owned subsidiary of the Bank occupies 48 leased offices, with the unexpired terms varying in length from one to four years. The average size of these leased offices is approximately 1,000 square feet. All of these premises are considered to be in good condition.

BancorpSouth Insurance Services, Inc. – This wholly-owned subsidiary of the Bank owns three of the six offices it occupies. It leases three offices that have unexpired terms varying in length from one to three years.

There has been a trend toward increased litigation against financial services companies arising out of consumer lending and other consumer financial transactions, especially in Mississippi. Some of these actions have resulted in large settlements or substantial damage awards.

Some of the Company’s subsidiaries are subject to similar cases that seek substantial damages for claims arising out of transactions that involve relatively small amounts of money. While the allegations vary from case to case, in general they allege that loans were originated or renewed in a way that enhances the charges paid by the borrower and that the borrowers were improperly sold insurance products, such as credit life insurance. Further, the Company has been informed that additional claims may be filed against the Company on these matters. See “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Certain Litigation Contingencies” included herein for more information regarding this litigation.

During the fourth quarter of 2002, the Company entered into two pending settlements with a total of approximately 1,800 individual claimants. Under the terms of these pending settlements, claimants whose loan documents contain arbitration agreements would receive smaller amounts to settle their claims than those whose loan documents do not contain arbitration agreements. The Company does not have accurate numbers of the number of claimants or whether or not they have arbitration agreements, and is not currently able to determine the actual amount that will be required to settle these lawsuits. The Company did, however, accrue $3.2 million during the fourth quarter of 2002, which the Company believes is the maximum amount needed to settle the claims covered in the settlements.

The number of these lawsuits filed against some of the Company’s subsidiaries increased during 2002. Similarly, the number of plaintiffs participating in these lawsuits has increased significantly. Management has no reason to believe that these trends will not continue. It is not possible to determine with any certainty at this point in time the potential exposure related to damages in connection with these suits. Future legislation and court decisions in some states may limit the amount of damages that can be recovered in legal proceedings; however, the Company cannot predict at this time whether such legislation and court decisions will occur or the effect they may have on cases involving the Company’s subsidiaries.

Additionally, the Company and its subsidiaries are defendants in various other lawsuits arising out of the normal course of business, including claims against entities to which the Company is a successor as a result of business combinations. In the opinion of management, the ultimate resolutions of this category of claims should not have a material adverse effect on the Company’s consolidated financial position or results of operations.

No matter was submitted to a vote of security holders during the fourth quarter of 2002.

For information regarding executive officers of the Company, see “Item 10. – Directors and Executive Officers of the Registrant” in this Report.

Item 5. – Market for the Registrant’s Common Stock and Related Stockholder Matters

The common stock of the Company trades on the New York Stock Exchange under the symbol “BXS.” The following table sets forth, for the quarters indicated, the range of sale prices of the Company’s common stock as reported on the New York Stock Exchange.

As of February 27, 2003, there were 9,017 shareholders of record of the Company’s common stock.

The Company declared cash dividends each quarter in an aggregate amount of $0.61 per share during 2002, $0.57 during 2001 and $0.53 during 2000. Future dividends, if any, will vary depending on the Company’s profitability, anticipated capital requirements and applicable federal and state regulations. See “Item 1. – Business – Regulation and Supervision” and Note 16 to the Company’s Consolidated Financial Statements included elsewhere in this Report for more information on restrictions and limitations on the Company’s ability to pay dividends.

In the table below is the Company’s selected financial and operating data. When reviewing this selected financial and operating data, it is important that you read along with it the historical financial statements and related notes included elsewhere in this Report, as well as the section of this Report captioned “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations” for, among other things, a discussion of accounting changes and business combinations.


		Years Ended December 31

		2002			2001			2000			1999			1998

		(Dollars in thousands, except per share amounts)
Earnings Summary:
Interest revenue		$	590,418		$	660,475		$	669,158		$	592,340		$	570,806
Interest expense			218,892			331,093			346,883			280,150			277,104

Net interest revenue			371,526			329,382			322,275			312,190			293,702
Provision for credit losses			29,411			22,259			26,166			17,812			19,310

Net interest revenue, after provision for credit losses			342,115			307,123			296,109			294,378			274,392
Other revenue			132,239			133,993			90,455			104,651			89,026
Other expense			312,398			295,313			274,227			251,882			232,928

Income before income taxes			161,956			145,803			112,337			147,147			130,490
Income tax expense			49,938			47,340			37,941			44,736			42,249

Net income		$	112,018		$	98,463		$	74,396		$	102,411		$	88,241


Per Share Data:
Net income: Basic		$	1.40		$	1.19		$	0.88		$	1.20		$	1.04
	Diluted		1.39			1.19			0.88			1.19			1.03
Cash dividends			0.61			0.57			0.53			0.49			0.45
Book value			10.40			9.92			9.39			8.84			8.44

Balance Sheet – Year-End Balances:
Total assets		$	10,189,247		$	9,395,429		$	9,044,034		$	8,441,697		$	7,899,655
Total securities			2,835,547			2,193,654			2,046,529			2,111,597			2,147,609
Loans, net of unearned discount			6,389,385			6,073,200			6,095,315			5,541,961			4,935,668
Total deposits			8,548,918			7,856,840			7,480,920			7,066,645			6,720,906
Long-term debt			139,757			140,939			152,049			166,247			197,420
Total shareholders’ equity			807,823			805,403			789,576			757,111			723,162

Selected Ratios:
Return on average assets			1.13	%		1.06	%		0.85	%		1.26	%		1.16	%
Return on average equity			13.81	%		12.36	%		9.76	%		13.89	%		12.95	%


		QUARTER ENDED

		Mar 31		Jun 30		Sept 30		Dec 31

		(In thousands, except per share amounts)
2002
Interest revenue		$	149,547	$	148,825	$	147,508	$	144,538
Net interest revenue			92,429		94,083		92,622		92,392
Provision for credit losses			6,760		7,215		8,208		7,228
Income before income taxes			43,427		45,112		37,948		35,469
Net income			29,398		30,927		26,072		25,621
Earnings per share: Basic			0.36		0.38		0.33		0.33
	Diluted		0.36		0.38		0.33		0.33
Dividends per share			0.15		0.15		0.15		0.16

2001
Interest revenue		$	172,940	$	168,280	$	163,584	$	155,671
Net interest revenue			80,398		79,527		83,039		86,418
Provision for credit losses			4,097		4,769		6,852		6,541
Income before income taxes			32,620		34,900		31,033		47,250
Net income			22,319		23,246		21,583		31,315
Earnings per share: Basic			0.27		0.28		0.26		0.39
	Diluted		0.27		0.28		0.26		0.38
Dividends per share			0.14		0.14		0.14		0.15

2000
Interest revenue		$	157,543	$	162,374	$	172,111	$	177,130
Net interest revenue			80,142		81,245		79,354		81,534
Provision for credit losses			4,615		5,398		10,656		5,497
Income before income taxes			39,267		38,510		16,871		17,689
Net income			26,645		25,984		9,492		12,275
Earnings per share: Basic			0.31		0.31		0.11		0.15
	Diluted		0.31		0.31		0.11		0.15
Dividends per share			0.13		0.13		0.13		0.14

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

The Company is a bank holding company headquartered in Tupelo, Mississippi. The Bank, which is the Company’s banking subsidiary, has commercial banking operations in Mississippi, Tennessee, Alabama, Arkansas, Texas and Louisiana. The Bank and its consumer finance, credit life insurance, insurance agency and brokerage subsidiaries provide commercial banking, leasing, mortgage origination and servicing, life insurance, brokerage and trust services to corporate customers, local governments, individuals and other financial institutions through an extensive network of branches and offices. BancorpSouth Capital Trust I, a business trust organized in January of 2002 for the purpose of issuing preferred securities to the public, is treated as a subsidiary of the Company for financial reporting purposes (see Note 11 to Consolidated Financial Statements).

The following discussion provides certain information concerning the consolidated financial condition and results of operations of the Company. For a complete understanding of the following discussion, you should refer to the Consolidated Financial Statements and Notes thereto presented elsewhere in this Annual Report.

The table below summarizes the Company’s net income, return on average assets and return on average shareholders’ equity for the years ended December 31, 2002, 2001 and 2000. The Company’s discussion and analysis is based on reported financial information; however, certain information is also being provided regarding the impact of certain large or unusual amounts that occurred during 2000 in the form of restructuring, merger-related and other charges incurred because of the merger with First United Bancshares, Inc. on August 31, 2000 (see Note 2 to Consolidated Financial Statements). The additional information is provided to enhance comparability of financial information between years and to provide a better understanding of the Company’s continuing operations.

Net income increased 13.8% to $112.0 million in 2002 from $98.5 million in 2001, which represented a 32.3% increase from $74.4 million in 2000. The significant increase in 2002’s net income over 2001’s net income can be primarily attributed to the Company’s ability to increase its net interest revenue during 2002. Contributing to the increase in 2001 earnings, when compared to 2000, were $22.5 million (net of tax) in restructuring, merger-related and other charges included in 2000’s results. These restructuring, merger-related and other charges principally impacted the third and fourth quarter of 2000 and reduced net income per share in 2000 by $0.27 and $0.26, basic and diluted, respectively. The components of net income are discussed in more detail in the various headings that follow.

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates and assumptions (see Note 1 to Consolidated Financial Statements). The Company believes that its determination of the allowance for credit losses and the valuation of mortgage servicing rights involve a higher degree of judgment and complexity than the Company’s other significant accounting policies. Further, these estimates can be materially impacted by changes in (1) market conditions or (2) the actual or perceived financial condition of the Company’s borrowers, subjecting the Company to significant volatility of earnings.

The allowance for credit losses is established through the provision for credit losses, which is a charge against earnings. Provisions for credit losses are made to reserve for estimated probable losses on loans. The allowance for credit losses is a significant estimate and is regularly evaluated by the Company for adequacy by taking into consideration factors such as changes in the nature and volume of the loan portfolio; trends in actual and forecasted portfolio credit quality, including delinquency, charge-off and bankruptcy rates; and current economic conditions that may affect a borrower’s ability to pay. The use of different estimates or assumptions could produce different provisions for credit losses.

The need for and the amount of valuation allowance to reflect the carrying value of capitalized mortgage servicing rights at the lower of cost or fair value is a significant estimate and, if determined necessary, is reflected as a charge against mortgage lending revenue. In determining the fair value of capitalized mortgage servicing rights, the Company utilizes the expertise of an independent third party. Relying on assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends, and industry demand, an estimate of the fair value of the Company’s capitalized mortgage servicing rights is performed and reviewed by management. The use of different estimates or assumptions could produce different fair values. The Company does not routinely hedge the value of capitalized mortgage servicing rights and is susceptible to significant fluctuations in value in rapidly changing interest rate environments. At December 31, 2002, the Company’s servicing asset was $25.3 million, net of impairment.

The Federal Reserve reduced short-term interest rates only once during 2002 by 50 basis points compared to 11 times over the course of 2001, for a total of 475 basis points. This relatively stable interest rate environment during 2002 enabled the Company to improve its net interest revenue as a larger volume of its interest bearing liabilities were being repriced to lower interest rates faster than its interest earning assets. Net interest revenue increased 12.8% to $371.5 million in 2002 from $329.4 million in 2001, which represented an increase of 2.2% from $322.3 million in 2000. Net interest revenue is the difference between interest revenue earned from earning assets such as loans, leases and securities, and interest expense paid on liabilities such as deposits and borrowings, and continues to provide the Company with its principal source of revenue. Net interest revenue is affected by the general level of interest rates, changes in interest rates and by changes in the amount and composition of interest earning assets and interest bearing liabilities. The Company’s long-term objective is to manage those assets and liabilities to maximize net interest revenue, while balancing interest rate, credit, liquidity and capital risks. For purposes of the following discussion, revenue from tax-exempt loans and investment securities has been adjusted to fully taxable equivalent amounts, using an effective tax rate of 35%. Also, interest revenue, net interest revenue and net interest margins for all periods presented and throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations have been adjusted to reflect the reclassification of certain credit card related fees to non-interest revenue.

Interest revenue decreased 10.4% to $602.1 million in 2002 from $672.1 million in 2001, which represented a decrease of 1.3% from $681.2 million in 2000. While average interest earning assets increased 6.7% to $9.2 billion in 2002, this increase in the amount of interest earning assets was more than offset by a decrease of 1.25 basis points in the yield of those assets to 6.52% in 2002, resulting in a decrease in interest revenue. The decrease in interest revenue during 2001 was attributable to a 5.7% increase in average interest earning assets to $8.7 billion with this increase more than offset by a decrease of 55 basis points in the yield of those assets to 7.77% in 2001. The increase in interest revenue during 2000 was attributable to a 7.6% increase in average interest earning assets, to $8.2 billion during 2000, and an increase of 38 basis points in the yield of those assets to 8.32% in 2000.

Interest expense decreased 33.9% to $218.9 million in 2002 from $331.1 million in 2001, which represented a decrease of 4.6% from $346.9 million in 2000. While average interest bearing liabilities increased 7.6% to $7.9 billion in 2002, this increase in the amount of interest bearing liabilities was more than offset by a decrease of 175 basis points in the average rate paid on those liabilities to 2.77% in 2002. The decrease in interest expense during 2001 was attributable to a 6.0% increase in average interest bearing liabilities to $7.3 billion in 2001, but this increase was more than offset by a decrease of 50 basis points in the average rate paid on those liabilities to 4.51% in 2001. The increase in interest expense during 2000 was attributable to the combination of an 8.6% increase in average interest bearing liabilities, to $6.9 billion in 2000, and an increase of 61 basis points in average rates paid on those liabilities to 5.01%.

The relative performance of the lending and deposit-raising functions is frequently measured by two calculations – net interest margin and net interest rate spread. Net interest margin is determined by dividing fully-taxable equivalent net interest revenue by average earning assets. Net interest rate spread is the difference between the average fully-taxable equivalent yield earned on interest earning assets and the average rate paid on interest bearing liabilities. Net interest margin is generally greater than the net interest rate spread due to the additional income earned on those assets funded by non-interest bearing liabilities, or free funding, such as demand deposits and shareholders’ equity.

Net interest margin for 2002 was 4.15%, an increase of 21 basis points from 3.94% for 2001, which represented a decline of 14 basis points from 4.08% for 2000. Net interest rate spread for 2002 was 3.75%, an increase of 49 basis points from 3.26% for 2001, which represented a decrease of five basis points from 3.31% for 2000. The increase in net interest margin and net interest spread in 2002 was primarily due to the Company’s ability to offset the decline in asset yield by a larger decrease in funding cost. Short-term interest rates set by the Federal Reserve were unchanged from December of 2001 until November of 2002. Because the Company was asset sensitive in the short-term, many of its interest earning assets had repriced to the prevailing interest rates by the end of 2001, while the opportunity to reprice many of its interest bearing liabilities to a lower interest rate occurred during 2002. The decline in net interest margin and net interest rate spread in 2001 was due to the decrease in asset yield that was not fully offset by the smaller decrease in funding cost. Because the Company was asset sensitive in the short-term in 2001, the 475 basis point decline in short-term interest rates during 2001 resulted in interest bearing assets being repriced more quickly than interest bearing liabilities, thus reducing net interest margin and net interest rate spread.

The Company experienced significant growth in average interest earning assets and average interest bearing liabilities during the three years ended December 31, 2002. Average interest earning assets increased 6.7% during 2002, 5.7% during 2001 and 7.6% during 2000, due to increases in the Company’s loan and securities portfolios. Average interest bearing liabilities increased 7.6% during 2002, 6.0% during 2001 and 8.6% during 2000, due to increases in the Company’s deposits and short-term borrowings.

The following table presents average interest earning assets, average interest bearing liabilities, net interest income, net interest margin and net interest rate spread for the three years ended December 31, 2002. Each of the measures is reported on a fully-taxable equivalent basis.


			2002								2001								2000

			Average					Yield/			Average					Yield/			Average					Yield/
(Taxable equivalent basis)			Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate

			(Dollars in thousands)
ASSETS
Loans (net of unearned income) (1)(2)			$	6,283,798		$	449,610		7.16	%	$	6,010,840		$	510,738		8.50	%	$	5,791,569		$	522,741		9.03	%
Mortgages held for sale				58,884			3,371		5.72	%		53,559			3,381		6.31	%		39,461			3,111		7.88	%
Held-to-maturity securities:
	Taxable			998,800			55,091		5.52	%		920,939			56,417		6.13	%		796,125			49,086		6.17	%
	Non-taxable (3)			194,089			14,905		7.68	%		214,694			16,411		7.64	%		325,027			24,108		7.42	%
Available-for-sale securities:
	Taxable			1,160,733			54,066		4.66	%		831,885			50,848		6.11	%		1,040,875			68,740		6.60	%
	Non-taxable (4)			199,218			13,287		6.67	%		180,370			13,073		7.25	%		73,829			6,011		8.14	%
Federal funds sold and short-term investments				337,093			11,810		3.50	%		439,621			21,200		4.82	%		119,752			7,440		6.21	%

	Total interest earning assets and revenue			9,232,615			602,140		6.52	%		8,651,908			672,068		7.77	%		8,186,638			681,237		8.32	%
Other assets				735,800								691,608								646,878
Less: allowance for credit losses				(86,247	)							(81,604	)							(77,042	)

		Total	$	9,882,168							$	9,261,912							$	8,756,474

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
	Demand — interest bearing		$	2,338,775		$	35,756		1.53	%	$	1,893,075		$	50,727		2.68	%	$	1,672,466		$	54,226		3.24	%
	Savings			852,694			12,689		1.49	%		885,025			31,839		3.60	%		874,707			38,948		4.45	%
	Time			3,991,757			140,085		3.51	%		3,912,405			218,272		5.58	%		3,758,003			217,191		5.78	%
Federal funds purchased, securities sold under repurchase agreements and other short-term borrowings (5)				457,347			12,574		2.75	%		503,024			21,614		4.30	%		454,089			26,742		5.89	%
Junior subordinated debt				114,726			9,423		8.21	%
Long-term debt				140,085			8,366		5.97	%		145,097			8,641		5.96	%		164,683			9,776		5.94	%

	Total interest bearing liabilities and expense			7,895,384			218,893		2.77	%		7,338,626			331,093		4.51	%		6,923,948			346,883		5.01	%
Demand deposits - non-interest bearing				1,064,218								1,003,229								967,823
Other liabilities				111,673								123,351								102,819

	Total liabilities			9,071,275								8,465,206								7,994,590
Shareholders’ equity				810,893								796,706								761,884

	Total		$	9,882,168							$	9,261,912							$	8,756,474

Net interest revenue						$	383,247							$	340,975							$	334,354

Net interest margin									4.15	%							3.94	%							4.08	%
Net interest rate spread									3.75	%							3.26	%							3.31	%
Interest bearing liabilities to interest earning assets									85.52	%							84.82	%							84.58	%

Net interest revenue may also be analyzed by segregating the rate and volume components of interest revenue and interest expense. The table that follows presents an analysis of rate and volume change in net interest revenue from 2001 to 2002 and from 2000 to 2001. Changes that are not solely due to volume or rate have been allocated to volume.


		2002 OVER 2001 - INCREASE (DECREASE)									2001 OVER 2000 - INCREASE (DECREASE)

(Taxable equivalent basis)		Volume			Rate			Total			Volume			Rate			Total

		(In thousands)
INTEREST REVENUE
Loans (net of unearned income)		$	19,530		$	(80,658	)	$	(61,128	)	$	18,631		$	(30,634	)	$	(12,003	)
Mortgages held for sale			305			(315	)		(10	)		890			(620	)		270
Held-to-maturity securities:
	Taxable		4,295			(5,621	)		(1,326	)		7,646			(315	)		7,331
	Non-taxable		(1,582	)		76			(1,506	)		(8,434	)		737			(7,697	)
Available-for-sale securities:
	Taxable		15,317			(12,099	)		3,218			(12,774	)		(5,118	)		(17,892	)
	Non-taxable		1,257			(1,043	)		214			7,722			(660	)		7,062
Federal funds sold and short-term investments			(3,592	)		(5,798	)		(9,390	)		15,425			(1,665	)		13,760

	Total		35,530			(105,458	)		(69,928	)		29,106			(38,275	)		(9,169	)

INTEREST EXPENSE
Demand – interest bearing			6,814			(21,785	)		(14,971	)		5,911			(9,411	)		(3,500	)
Savings			(481	)		(18,669	)		(19,150	)		371			(7,482	)		(7,111	)
Time			2,785			(80,972	)		(78,187	)		8,614			(7,534	)		1,080
Federal funds purchased, securities sold under repurchase agreements and other short-term borrowings			(1,256	)		(7,784	)		(9,040	)		2,103			(7,231	)		(5,128	)
Long-term debt			(299	)		24			(275	)		(1,166	)		30			(1,136	)

	Total		7,563			(129,186	)		(121,623	)		15,833			(31,628	)		(15,795	)

Total increase (decrease)		$	27,967		$	23,728		$	51,695		$	13,273		$	(6,647	)	$	6,626

The interest rate sensitivity gap is the difference between the maturity or repricing scheduling of interest sensitive assets and interest sensitive liabilities for a given period of time. A prime objective of asset/liability management is to maximize net interest margin while maintaining a reasonable mix of interest sensitive assets and liabilities. The following table sets forth the Company’s interest rate sensitivity at December 31, 2002.


		INTEREST RATE SENSITIVITY
		Maturing or Repricing

					91 Days			Over 1
		0 to 90			to			Year to		Over
		Days			1 Year			5 Years		5 Years

		(In thousands)
Interest earning assets:
Interest bearing deposits with banks		$	5,007		$	—		$	—	$	—
Federal funds sold & repurchase agreements			139,508			—			—		—
Held-to-maturity securities			39,118			122,043			753,389		278,825
Available-for-sale securities			196,342			44,272			1,017,140		384,418
Loans, net of unearned discount			2,591,737			1,308,734			2,342,007		146,907
Mortgages held for sale			57,804			—			—		—

	Total interest earning assets		3,029,516			1,475,049			4,112,536		810,150

Interest bearing liabilities:
Interest bearing demand deposits & savings			3,280,723			—			—		—
Time deposits			1,131,046			1,817,245			1,134,596		2,181
Federal funds purchased & securities sold under repurchase agreements			457,389			—			—		—
Long-term debt			—			—			5,000		259,757
Other			98			191			644		159

	Total interest bearing liabilities		4,869,256			1,817,436			1,140,240		262,097

Interest rate sensitivity gap		$	(1,839,740	)	$	(342,387	)	$	2,972,296	$	548,053

Cumulative interest sensitivity gap		$	(1,839,740	)	$	(2,182,127	)	$	790,169	$	1,338,222

In the event interest rates decline after 2002, based on this interest rate sensitivity gap, it is likely that the Company would experience a slightly positive effect on net interest income in the following one year period, as the cost of funds will decrease at a more rapid rate than interest income on interest earning assets. Conversely, in periods of increasing interest rates, based on this interest rate sensitivity gap, the Company would likely experience decreased net interest income. It should be noted that the balances shown in the table above are for a specific point in time and may not be reflective of positions at other times during the year or in subsequent periods. Allocations to specific interest rate sensitivity periods are based on the earlier of maturity or repricing dates.

The provision for credit losses is the annual cost of providing an allowance or reserve for estimated probable losses on loans. The Company employs a systematic methodology for determining its allowance for credit losses and considers both qualitative and quantitative factors. Some of the quantitative factors considered by the Company include loan growth, changes in the size and characteristics of the loan portfolio, net charge-offs, changes in nonperforming and past due loans, historical loan loss experience, changes in the composition of the loan portfolio, delinquencies, management’s assessment of loan portfolio quality, the value of collateral, concentrations of loans to specific borrowers or industries and other factors. Some of the qualitative factors that the Company considers include existing general economic conditions, the existing risks of individual loans and other factors.

The process of determining the adequacy of the provision requires that management make material estimates and assumptions that are particularly susceptible to significant change. In employing its systematic methodology, the Company follows several processes to determine the allowance for credit losses.

The allowance for credit losses for commercial loans is based principally upon the Company’s loan classification system. The Company has a disciplined approach for assigning credit ratings and classifications to individual credits. Each credit is assigned a grade by the relevant loan officer, which serves as a basis for the credit analysis of the entire portfolio. The grade assigned considers the borrower’s creditworthiness, collateral values, cash flows and other factors. An independent loan review department is responsible for reviewing the credit rating and classification of individual credits and assessing trends in the portfolio, adherence to internal credit policies and procedures and other factors that may affect the overall adequacy of the allowance. The loan review department is supplemented by regulatory agencies that provide an additional level of review. The loss factors assigned to each classification are based upon the attributes (loan to collateral values, borrower creditworthiness, etc.) of the loans typically assigned to each grade. Management periodically reviews the loss factors assigned in light of the general economic environment and overall condition of the loan portfolio and modifies the loss factors assigned to each classification as deemed appropriate. The allowance for credit losses for the consumer loan portfolio is based upon delinquencies and historic loss rates. The overall allowance includes a component representing the results of other analyses intended to ensure that the allowance is adequate to cover other probable losses inherent in the portfolio. This component considers analyses of changes in credit risk resulting from the differing underwriting criteria in acquired loan portfolios, industry concentrations, changes in the mix of loans originated, overall credit criteria and other economic indicators.

The provision for credit losses, the allowance for credit losses as a percentage of loans outstanding at the end of 2002, 2001 and 2000 and net charge-offs for those years are shown in the following table:

The provision for credit losses for 2002 increased 32.1% from the provision for 2001. The increase in provision for credit losses in 2002 versus 2001 reflects the increased level of charge-offs in 2002 versus 2001, which were $25.9 million in 2002 compared to $20.8 million in 2001. The provision for credit losses for 2001 decreased 14.9% from the provision for 2000, which reflected a special charge of $6.1 million made to provide for probable losses in the loan portfolio acquired in the merger with First United Bancshares, Inc., and to reflect differences in underwriting standards at the acquired company. In part, these differences in underwriting standards also led to a 6.1% increase in net charge-offs during 2001 and increases in internal credit ratings and classifications of the Company’s overall loan portfolio at December 31, 2001. If the provision for credit losses for 2000 is reduced by the special charge of $6.1 million, the Company’s provision for credit losses for 2001 increased by $2.2 million, or 10.9%, as compared to the adjusted provision for credit losses for 2000. This increase in provision reflects the increased level of net charge-offs in 2001 versus 2000, which were $20.8 million in 2001 compared to $19.6 million in 2000. Non-performing assets totaled $57.7 million at December 31, 2002, compared to $60.0 million at December 31, 2001 and $50.1 million at December 31, 2000.

For further information on nonperforming and classified loans, see “Financial Condition – Loans.”

The components of other revenue for the years ended December 31, 2002, 2001 and 2000 and the percentage change from the prior year are shown in the following table:


	2002					2001					2000

	Amount		% Change			Amount		% Change			Amount			% Change

	(Dollars in thousands)
Mortgage lending	$	9,928		-42.2	%	$	17,186		+58.0	%	$	10,874			-40.5	%
Service charges		49,249		+15.2			42,759		+5.7			40,472			+10.9
Life insurance premiums		4,340		-4.2			4,528		+5.3			4,300			+8.2
Trust income		7,021		+1.3			6,929		+3.4			6,700			+4.7
Securities gains (losses), net		5,486		-48.6			10,671	NM				(15,632	)	NM
Insurance commissions		23,604		+15.6			20,422		+27.4			16,034			+18.1
Other		32,611		+3.5			31,498		+13.7			27,707			+28.9

Total other revenue	$	132,239		-1.3	%	$	133,993		+48.1	%	$	90,455			-13.6	%

The Company’s revenue from mortgage lending is primarily attributable to two activities, origination of new mortgage loans and servicing mortgage loans, and typically fluctuates as interest rates change. The Company’s normal practice is to generate mortgage loans, sell them in the secondary market and retain the servicing rights to the sold loans. The mortgage servicing rights are capitalized and carried as an asset at the lower of cost or fair value and represent the present value of the future stream of servicing fees expected to be earned over the estimated lives of the loans being serviced. The origination process generates loan origination fees and net gains or losses from the sale of the mortgage loans originated, which is also referred to as secondary marketing. These activities produced revenue of $24.0 million, $19.0 million and $8.2 million for 2002, 2001 and 2000, respectively. Of the revenue from the origination process, the sale of mortgage loans resulted in a net gain of $2.2 million in 2002 and net losses of $1.7 million and $1.5 million for 2001 and 2000, respectively. Historically, origination volumes have varied as mortgage interest rates have changed. Rising mortgage interest rates have generally resulted in a decrease in the volume of originations, while falling mortgage interest rates have generally resulted in an increased volume of originations. The Company originated mortgage loans totaling $1,012 million during 2002, $824 million during 2001 and $255 million during 2000. The servicing process includes the actual servicing of loans and the recognition of changes in the valuation of capitalized mortgage servicing rights. Capitalized mortgage servicing rights are evaluated for impairment based on the excess of the carrying amount of the mortgage servicing rights over their fair value. The Company does not routinely hedge the value of its mortgage servicing asset and is susceptible to significant fluctuations in value in changing interest rate environments. When mortgage interest rates decline, refinancing of home mortgages typically accelerates and the value of the Company’s mortgage servicing asset typically declines as the expected lives of the underlying mortgages shorten. When mortgage interest rates are rising, refinancing of home mortgages typically decline and the value of the Company’s mortgage servicing asset typically increases as the expected lives of the underlying mortgages lengthen. The servicing process generated a loss of $14.1 million in 2002, a loss of $1.8 million in 2001, and revenues of $2.7 million in 2000. The fluctuation in servicing revenue is primarily due to changes in the valuation of capitalized mortgage servicing rights. Changing mortgage interest rates in 2002, 2001 and 2000 resulted in impairment expense of $16.0 million in 2002, $4.9 million in 2001, and $1.0 million in 2000. The following table presents the principal amount of mortgage loans serviced at December 31, 2002, 2001 and 2000 and the percentage change from the previous year-end.

Service charges on deposit accounts increased in 2002, 2001 and 2000 because of higher volumes of items processed, growth in the number of deposit accounts, rate increases and expansion of overdraft privileges to depositors. Life insurance premium revenue decreased 4.2% in 2002 after having increased 5.3% in 2001 and 8.2% in 2000. The decrease in 2002 is due to a reduced emphasis toward selling credit life insurance products and the decreased volume of consumer finance lending. We expect this trend of declining life insurance premium revenue to continue. Trust income increased 1.3% in 2002, 3.4% in 2001 and 4.7% in 2000 as a result of increases in the value of assets under care (either managed or in custody). Net securities gains of $5.5 million were recorded in 2002 compared to net securities gains of $10.7 million in 2001 and net security losses of $15.6 million in 2000. These transactions reflect the sales of securities from the available-for-sale portfolio and certain securities that were within three months of maturity from the held-to-maturity

portfolio. In the second half of 2001, approximately $200 million in intermediate term securities were purchased in anticipation of further reductions in interest rates that could result in the recognition of additional impairment charges related to the Company’s mortgage servicing asset. These securities were sold in the third quarter of 2001 with a gain of $3.9 million. The proceeds were again reinvested in intermediate term securities and these securities were sold in the fourth quarter of 2001 with a gain of $3.6 million. In 2000, the Company restructured the securities portfolio acquired through the August 31, 2000 merger with First United Bancshares, Inc. by selling approximately $680 million of securities and reinvesting the net proceeds in higher yielding securities, which resulted in securities losses of $15.7 million in 2000. Revenue from insurance commissions grew steadily during 2002, 2001 and 2000 as the Company continued to expand those products and services. The increases in the other component of other revenue in 2002, 2001 and 2000 were primarily attributable to fees generated from brokerage activities as well as increased analysis charges and debit card net interchange fees.

The components of other expense for the years ended December 31, 2002, 2001 and 2000 and the percentage change from the prior year are shown in the following table:

Salaries and employee benefits expense for 2002, 2001 and 2000 increased due to increases in incentive payments, salary increases, especially commission based, increases in the cost of employee heath care benefits, increases in pension plan costs and the hiring of employees to staff the banking locations added during those years. Pension plan costs, a component of salaries and employee benefits expense, increased to $4.3 million in 2002 compared to $2.9 million in 2001 and $1.2 million in 2000. This trend of increasing pension plan costs is primarily reflective of market performance below expectations for the plan assets. Salaries and employee benefits expense for all three years were also impacted by changes in stock appreciation rights (“SARs”) expense, which is included in salaries and employee benefits expense. The Company previously granted SARs to certain of its employees, which requires the Company to recognize an expense in the event of an increase in the market price of the Company’s common stock or a reduction of expense in the event of a decline in the market price of the Company’s common stock. In 2002, the Company’s common stock price increased approximately 17.0%, which resulted in SAR expense of $1,329,000. In 2001, the Company’s common stock price increased approximately 36.2%, and declined by approximately 25.3% in 2000, which resulted in SAR expense of $1,903,000 in 2001 and a reduction in expense of $1,844,000 in 2000. At December 31, 2002, the Company had approximately 277,000 SARs outstanding. Based on that amount, a dollar increase in the Company’s stock price would result in $277,000 in SAR expense while a dollar decrease in the Company’s stock price would result in a $277,000 reduction in SAR expense.

Occupancy expense increased in 2002, 2001 and 2000 principally as a result of additional branch offices in operation in each year plus a full year of operation in 2002 of the new 90,000 square foot building added to the Company’s Tupelo, Mississippi campus in the fall of 2001. Equipment expense declined in 2002 when compared to 2001 due primarily to the elimination of duplicate data processing operations as the former First United Bancshares banks were converted to the Company’s operating systems during 2001. Equipment upgrades and upgrades to the Company’s internal operating systems were the primary factors contributing to the increase in equipment expense in 2001 compared to 2000. Telecommunications expense decreased in 2002 when compared to 2001 as the costs of expanded voice and data networks and the expansion of the Bank’s call center, all of which related to providing higher levels of convenient consumer oriented banking services, were more than offset by the reductions in telecommunications costs as a result of the conversion of the former First United Bancshares banks during 2001.

As a direct result of the Company’s merger activity, merger-related and other costs of $9.2 million were recorded in 2000. These merger-related and other costs included termination and change of control payments, contract termination charges, professional fees, elimination of duplicate facilities charges and other charges. Included in other expense is $3.2 million reserved in the fourth quarter of 2002 to settle certain litigation against certain of our subsidiaries. The other components of other expense reflect normal increases and general inflation in the cost of services and supplies purchased by the Company. In addition, in the fourth quarter of 2002, the Company’s net income was reduced by $1.8 million due to charges related to loan system conversion matters.

Income tax expense was $49.9 million in 2002, $47.3 million in 2001 and $37.9 million in 2000. The effective tax rate for 2002 was 30.8% compared to 32.5% in 2001 and 33.8% in 2000. The decrease in the Company’s effective tax rate for 2002 was primarily driven by a revision to the Company’s 401(k) plan that enables the Company to deduct for tax purposes the dividends it pays to the plan for shares of BancorpSouth common stock held in the plan. This change was retroactive to January 1, 2002, which permitted the Company to deduct all such dividends for 2002 in the fourth quarter of 2002. These dividends will be deducted in the future on a quarterly basis. The higher effective tax rate for 2000 reflects the impact of certain charges related to the First United Bancshares, Inc. merger which were non-deductible for tax purposes.

The Company’s loan portfolio represents the largest single component of the Company’s earning asset base, comprising 68.1% of average earning assets during 2002. The following table indicates the average loans, year-end balances of the loan portfolio and the percentage increases for the years presented.

Average loans increased 4.6% in 2002 when compared to 2001, and loans outstanding at December 31, 2002 increased 5.2% when compared to December 31, 2001. Loan growth has been slowed by the general weakness in the economy of many of the markets served by the Company. In addition, loan growth in 2002, 2001 and 2000 has been impacted by the Company’s decision to reduce its exposure to indirect automobile sales financing by allowing its portfolio of such loans to decline. The Company’s portfolio of indirect automobile loans totaled $260.3 million at December 31, 2000, $146.4 million at December 31, 2001 and was down to $65.5 million at December 31, 2002.

Quality is stressed in the Company’s lending policy as opposed to growth. The Company’s non-performing assets, which are carried either in the loan account or other assets on the consolidated balance sheets, were as follows at the end of each year presented.

The increases in the Company’s non-performing assets in 2002 and 2001 over the level in 2000 reflect a general slow down in the overall economy of the region serviced by the Company. The Company has not, as a matter of policy, participated in any highly leveraged transactions nor made any loans or investments relating to corporate transactions

such as leveraged buyouts or leveraged recapitalizations. At December 31, 2002, 2001 and 2000, the Company did not have any concentration of loans in excess of 10% of loans outstanding. Loan concentrations are considered to exist when there are amounts loaned to multiple borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions. However, the Company does conduct business in a geographically concentrated area. The ability of the Company’s borrowers to repay loans may be dependent upon the economic conditions prevailing in the Company’s market area.

Included in non-performing assets above were loans the Company considered impaired totaling $18.9 million, $17.6 million and $14.7 million at December 31, 2002, 2001 and 2000, respectively.

The securities portfolio is used to make various term investments, to provide a source of liquidity and to serve as collateral to secure certain types of deposits and borrowings. A portion of the Company’s securities portfolio continues to be tax-exempt. Investments in tax-exempt securities totaled $358.0 million at December 31, 2002, compared to $365.8 million at the end of 2001. The Company invests only in investment grade securities, with the exception of obligations of certain counties and municipalities within the Company’s market area, and avoids other high yield non-rated securities and investments.

At December 31, 2002, the Company’s available-for-sale securities totaled $1.6 billion. These securities, which are subject to possible sale, are recorded at fair value. At December 31, 2002, the Company held no securities whose decline in fair value was considered other than temporary.

Net unrealized gains on investment securities as of December 31, 2002 totaled $111.2 million. Net unrealized gains on held-to-maturity securities comprised $49.9 million of that total, while net unrealized gains on available-for-sale securities were $61.3 million. Net unrealized gains on investment securities as of December 31, 2001 totaled $77.3 million. Of that total, $37.9 million was attributable to held-to-maturity securities and $39.4 million to available-for-sale securities.

In the fourth quarter of 2000, the Company restructured the securities portfolio acquired in the August 31, 2000 merger with First United Bancshares, Inc. by selling approximately $680 million of securities and reinvesting the net proceeds in higher yielding securities.

Deposits are the Company’s primary source of funds to support its earning assets. The Company has been able to effectively compete for deposits in its primary market areas, which has resulted in the increases in deposits for the years presented.

The following table presents the Company’s average deposit mix and percentage change for the years indicated.

One of the Company’s goals is to provide adequate funds to meet changes in loan demand or any potential increase in the normal level of deposit withdrawals. This goal is accomplished primarily by generating cash from operating activities and maintaining sufficient short-term liquid assets. These sources, coupled with a stable deposit base and a strong reputation in the capital markets, allows the Company to fund earning assets and maintain the availability of funds. Management believes that the Company’s traditional sources of maturing loans and investment securities, sales of mortgages held for sale, cash from operating activities and a strong base of core deposits are adequate to meet the

Company’s liquidity needs for normal operations. To provide additional liquidity, the Company utilizes short-term financing through the purchase of federal funds and securities lending arrangements. Further, the Company maintains a borrowing relationship with the Federal Home Loan Bank (“FHLB”) which provides liquidity to fund term loans with borrowings of matched or longer maturities. At December 31, 2002, the Company had long-term advances from the FHLB totaling approximately $140 million, bearing interest rates from 5.86% to 7.19%. The Company has pledged eligible mortgage loans to secure the FHLB borrowings and had approximately $1.4 billion in additional borrowing capacity under the existing FHLB borrowing agreement at December 31, 2002. Further, the Company had informal federal funds borrowing arrangements aggregating approximately $300 million at December 31, 2002. Secured borrowing arrangements utilizing the Company’s securities portfolio also provide substantial additional liquidity to the Company. Such arrangements typically provide for borrowings of 95% to 98% of the unencumbered fair value of the Company’s U.S. Government and government agencies securities portfolio. If the Company’s traditional sources of liquidity were constrained, the Company would be forced to pursue avenues of funding not typically used and the Company’s net interest margin could be impacted negatively. The Company has not used in the past and does not expect to use in the future off-balance sheet entities to support the Company’s liquidity and capital needs. These entities are commonly referred to as special purpose entities and are often used as a mechanism to facilitate the sale of assets. The Company does utilize, among other tools, maturity gap tables, interest rate shock scenarios and an active asset and liability management committee to analyze, manage and plan asset growth and to assist in managing the Company’s net interest margin and overall level of liquidity. The Company’s approach to providing adequate liquidity has been successful in the past and management does not anticipate any near- or long-term changes to its liquidity strategies.

In the ordinary course of business, the Company enters into various off-balance sheet commitments and other arrangements to extend credit, that are not reflected in the consolidated balance sheet of the Company. The business purpose of these off-balance sheet commitments is the routine extension of credit. As of December 31, 2002, commitments to extend credit included approximately $65 million for letters of credit and approximately $1.3 billion for mortgage financing, construction credit, credit card and other revolving line of credit arrangements. While most of the commitments to extend credit are made at variable rates, included in these commitments are forward commitments to fund individual fixed-rate mortgage loans of approximately $75.9 million at December 31, 2002, with a carrying value and fair value of $1.1 million, which has been recognized in the Company’s results of operations. Fixed-rate lending commitments expose the Company to risks associated with movements in interest rates. As a method to manage these risks, the Company also enters into forward commitments to sell individual fixed-rate mortgage loans. At December 31, 2002, the Company had $122.0 million in such commitments to sell, with a carrying value and fair value reflecting a loss of $1.4 million. The Company also faces the risk of deteriorating credit quality of borrowers to whom a commitment to extend credit has been made; however, no significant credit losses are expected from these commitments and arrangements.

The Company is required to comply with the risk-based capital guidelines established by the Board of Governors of the Federal Reserve System. These guidelines apply a variety of weighting factors which vary according to the level of risk associated with the assets. Capital is measured in two “Tiers”: Tier I consists of common shareholders’ equity and qualifying noncumulative perpetual preferred stock, less goodwill and certain other intangible assets, and Tier II consists of general allowance for losses on loans and leases, “hybrid” debt capital instruments, and all or a portion of other subordinated capital debt, depending upon remaining term to maturity. Total capital is the sum of Tier I and Tier II capital. The Company’s Tier I capital and total capital, as a percentage of total risk-adjusted assets, was 11.92% and 13.16%, respectively, at December 31, 2002, compared to 10.70% and 11.91%, respectively, at December 31, 2001. Both ratios exceeded the required minimum levels for these ratios of 4% and 8%, respectively, for each period. In addition, the Company’s Tier I leverage capital ratio (Tier I capital divided by total assets, less goodwill) was 8.41% at December 31, 2002 and 7.94% at December 31, 2001, compared to the required minimum leverage capital ratio of 3%.

The FDIC’s capital-based supervisory system for insured financial institutions categorizes the capital position for banks into five categories, ranging from well capitalized to critically undercapitalized. For a bank to classify as “well capitalized,” the Tier I risk-based capital, total risk-based capital and leverage capital ratios must be at least 6%, 10% and 5%, respectively. The Bank met the criteria for the “well capitalized” category at December 31, 2002.

There are various legal and regulatory limits on the extent to which the Bank may pay dividends or otherwise supply funds to the Company. In addition, federal and state regulatory agencies also have the authority to prevent a bank or bank holding company from paying a dividend or engaging in any other activity that, in the opinion of the agency, would constitute an unsafe or unsound practice. The Company does not expect these limitations to cause a material adverse effect with regard to its ability to meet its cash obligations.

The Company may pursue acquisition transactions of depository institutions and businesses closely related to banking which further the Company’s business strategies. The Company anticipates that a portion of the consideration for substantially all of these transactions, if any, would be shares of the Company’s common stock; however, transactions involving only cash consideration or other forms of consideration may also be considered.

On March 5, 2001, the Company announced a stock repurchase program whereby the Company could acquire up to 4.2 million shares of its common stock, or approximately 5% of the shares of common stock then outstanding. The shares were to be repurchased from time to time in the open market at prevailing market prices or in privately negotiated transactions. During 2001, 2,965,115 shares of the Company’s common stock were repurchased under this repurchase program with the remaining authorization of 1,234,885 shares repurchased in the first half of 2002. Repurchased shares are held as authorized but unissued stock and are available for use in connection with the Company’s stock option plans and other compensation programs, or for other corporate purposes as determined by the Company’s Board of Directors.

On February 15, 2002, the Company announced another stock repurchase program whereby the Company may acquire up to 4.1 million shares of its common stock, in addition to the 4.2 million shares that the Company repurchased pursuant to the common stock repurchase program authorized on March 5, 2001. The shares are to be repurchased from time to time in the open market at prevailing market prices or in privately negotiated transactions. The extent and time of any repurchases will depend on market conditions and other corporate considerations. This repurchase program is expected to be completed within 18 months from its announcement date. As described above, repurchased shares will be held as authorized but unissued shares and will be available for use in connection with the Company’s stock option plans and other compensation programs, or for other corporate purposes as determined by the Company’s Board of Directors. As of December 31, 2002, 3,472,608 shares of the Company’s common stock had been repurchased under this repurchase program.

The Company conducts its stock repurchase program by using funds received in the ordinary course of business. The Company has not experienced a material effect on its capital resources or liquidity, and does not expect to experience any material effects in connection with its stock repurchase programs during the terms of these programs.

On January 28, 2002, BancorpSouth Capital Trust I (the “Trust”), a business trust which is treated as a subsidiary of the Company for financial reporting purposes, issued 5,000,000 shares of 8.15% trust preferred securities, $25 face value per share, due January 28, 2032 and callable at the option of the Company after January 28, 2007. Payment of distributions on the trust preferred securities is guaranteed by the Company, but only to the extent the Trust has funds legally and immediately available to make such distributions. The Trust invested the net proceeds of $121,062,500 in the 8.15% Junior Subordinated Debt Securities issued by the Company, which will mature on January 28, 2032. The net proceeds to the Company from the issuance of its Junior Subordinated Debt Securities to the Trust were used for general corporate purposes, including the repurchase of shares of its outstanding common stock. The $125 million in trust preferred securities issued by the Trust qualifies as Tier I capital of the Company.

In some states in which the Company operates, and particularly in Mississippi, there has been a significant increase in litigation against financial services companies in connection with lending, insurance and other financial transactions during the year ended December 31, 2002. While the allegations vary from case to case and from company to company, in general such cases allege that loans were originated or renewed at a time or in a way that improperly increased the charges paid by the borrower and/or that the borrowers were charged fees or sold insurance products without appropriate disclosures or which were unnecessary under the particular circumstances. These actions tend to seek large amounts of actual and punitive damages for claims arising out of transactions that involve relatively small amounts of money. There have been several cases involving such claims tried against other companies in the Company’s market area that have resulted in large awards of actual and punitive damages for individual claimants, but it is not clear whether such large awards will be upheld on appeal. Some companies have engaged in settlements of such cases rather than face the risk and uncertainty of such awards.

Cases of this type have been filed against some of the Company’s subsidiaries. Such claims are now being asserted by several hundred individuals in an increasing number of cases filed in several different counties in Mississippi in which individuals have received large jury awards against other companies. Since attorneys have actively advertised for such claimants, and since some of the attorneys who have already filed cases purport to represent hundreds of additional claimants for whom they have not yet filed proceedings, the number of cases filed and the number of individuals asserting such claims will in all probability continue to increase.

As to similar claims, whether presently pending or that may be brought in the future, it is not currently possible to quantify the potential exposure presented by these claims or determine whether these claims will ultimately have a material adverse effect on the financial condition of the Company. The Company’s inability to determine its exposure at this time is based on a number of reasons, which include but are not limited to the following: some of the cases have only been recently filed, the facts vary from case to case and are usually disputed, some of the principles of law that apply to these cases are not clearly delineated, existing law provides juries little specific guidance to determine the amounts of actual and punitive damages they may award and/or to judges in reviewing those awards, and the amounts of jury awards differ from county to county and case to case. Future legislation and court decisions may also limit or affect the amount of damages that can be recovered in such cases; however, the Company cannot predict the course of any such legislation or court decisions or the effect that they may have with respect to litigation directed toward the Company and its subsidiaries.

Market risk reflects the risk of economic loss resulting from changes in interest rates and market prices. This risk of loss can be reflected in either reduced potential net interest revenue in future periods or diminished market values of financial assets.

The Company’s market risk arises primarily from interest rate risk that is inherent in its lending, investment and deposit taking activities. Financial institutions derive their income primarily from the excess of interest collected over interest paid. The rates of interest the Company earns on its assets and owes on its liabilities are established contractually for a period of time. Since market interest rates change over time, the Company is exposed to lower profit margins (or losses) if it cannot adapt to interest rate changes. Several techniques might be used by a financial institution to minimize interest rate risk. One approach used by the Company is to periodically analyze its assets and liabilities and make future financing and investing decisions based on payment streams, interest rates, contractual maturities, repricing opportunities and estimated sensitivity to actual or potential changes in market interest rates. Such activities fall under the broad definition of asset/liability management. The Company’s primary asset/liability management technique is the measurement of its asset/liability gap, that is, the difference between the amounts of interest-sensitive assets and liabilities that will be refinanced (repriced) during a given period. If the asset amount to be repriced exceeds the corresponding liability amount for a certain day, month, year or longer period, the Company is in an asset-sensitive gap position. In this situation, net interest revenue would increase if market interest rates rose or decrease if market interest rates fell. If, alternatively, more liabilities than assets will reprice, the Company is in a liability-sensitive position. Accordingly, net interest revenue would decline when rates rose and increase when rates fell. These examples assume that interest-rate changes for assets and liabilities are of the same magnitude, whereas actual interest-rate changes generally differ in magnitude for assets and liabilities.

Management seeks to manage interest-rate risk through the utilization of various tools that include matching repricing periods for new assets and liabilities and managing the composition and size of the investment portfolio so as to reduce the risk in the deposit and loan portfolios, while at the same time maximizing the yield generated from the portfolio.

The following table provides information about the Company’s financial instruments that are sensitive to changes in interest rates as of December 31, 2002. The expected maturity categories take into account repricing opportunities as well as contractual maturities. For core deposits without contractual maturities (interest-bearing checking, savings and money market accounts), the table presents cash flows based on management’s judgment concerning their most likely runoff or repricing behaviors. The fair value of loans, deposits and other borrowings are based on the discounted value of expected cash flows using a discount rate which is commensurate with the maturity. The fair value of securities is based on market prices or dealer quotes.


																						Fair value
	Principal Amount Maturing/Repricing in:																					December 31,
	2003			2004			2005			2006			2007			Thereafter			Total			2002

	(Dollars in thousands)
Rate-sensitive assets:
Fixed interest rate loans	$	2,460,751		$	1,067,451		$	687,590		$	388,068		$	198,897		$	146,908		$	4,949,665		$	5,062,119
Average interest rate		6.98	%		7.18	%		6.91	%		6.86	%		6.71	%		7.12	%		7.00	%
Variable interest rate loans	$	1,497,524			—			—			—			—			—		$	1,497,524		$	1,507,514
Average interest rate		5.27	%		—			—			—			—			—			5.27	%
Fixed interest rate securities	$	512,377		$	356,833		$	550,614		$	431,819		$	350,805		$	633,099		$	2,835,547		$	2,885,406
Average interest rate		4.20	%		5.06	%		5.08	%		5.42	%		5.38	%		5.71	%		5.15	%
Other interest bearing assets	$	144,515			—			—			—			—			—		$	144,515		$	144,515
Average interest rate		2.67	%		—			—			—			—			—			2.67	%
Mortgage servicing rights (1)		—			—			—			—			—			—		$	25,254		$	25,254

Rate-sensitive liabilities:
Savings & interest bearing checking	$	3,280,723			—			—			—			—			—		$	3,280,723		$	3,280,723
Average interest rate		1.51	%		—			—			—			—			—			1.51	%
Fixed interest rate time deposits	$	2,948,291		$	621,924		$	203,207		$	83,448		$	226,017		$	2,181		$	4,085,068		$	4,154,200
Average interest rate		2.80	%		3.83	%		4.51	%		4.68	%		4.83	%		5.68	%		3.20	%
Fixed interest rate borrowings	$	289		$	272		$	5,292		$	51		$	29		$	259,916		$	265,849		$	282,854
Average interest rate		7.24	%		7.38	%		6.38	%		7.49	%		7.59	%		7.01	%		7.00	%
Variable interest rate borrowings	$	457,389			—			—			—			—			—		$	457,389		$	457,389
Average interest rate		2.30	%		—			—			—			—			—			2.30	%

Rate-sensitive off balance sheet items:
Commitments to extend credit for single family mortgage loans	$	100,982			—			—			—			—			—		$	100,982		$	100,982
Average interest rate		5.59	%		—			—			—			—			—			5.59	%
Forward contracts	$	78,500			—			—			—			—			—		$	78,500		$	78,500
Average interest rate		5.33	%		—			—			—			—			—			5.33	%

(1) Mortgage servicing rights represent a non-financial asset that is rate-sensitive in that its value is dependent upon the underlying

For additional information about the Company’s market risk and its strategies for minimizing this risk, see “Item 1. – Business – Investment Portfolio” and Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Interest Rate Sensitivity” and “ – Securities and Other Earning Assets.”

We have audited the consolidated balance sheets of BancorpSouth, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, shareholders’ equity and comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BancorpSouth, Inc. and subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1, the Company changed its method of accounting for goodwill and other intangibles to adopt the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets,” in 2002. As discussed in Note 1, the Company changed its method of accounting for long-lived assets to adopt the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” in 2002.


				December 31

				2002		2001

				(In thousands)
Assets
Cash and due from banks (Note 22)				$	356,976	$	341,513
Interest bearing deposits with other banks					5,007		18,030
Held-to-maturity securities (Note 3) (fair value of $1,243,234 and $1,148,333)					1,193,375		1,110,463
Available-for-sale securities (Note 4) (amortized cost of $1,580,867 and $1,043,766)					1,642,172		1,083,191
Federal funds sold and securities purchased under agreement to resell					139,508		343,511
Loans (Notes 5, 6, 10, 18 and 22)					6,435,268		6,127,045
		Less: Unearned discount			45,883		53,845
			Allowance for credit losses		87,875		83,150

		Net loans			6,301,510		5,990,050
Mortgages held for sale					57,804		65,537
Premises and equipment, net (Note 7)					210,183		211,576
Accrued interest receivable					83,614		85,359
Other assets (Note 8 and 19)					199,098		146,199

		Total Assets		$	10,189,247	$	9,395,429

Liabilities and Shareholders’ Equity
Deposits:
	Demand:
		Non-interest bearing		$	1,183,127	$	1,108,499
		Interest bearing			2,455,821		2,158,698
	Savings				824,902		910,682
	Other time (Note 9)				4,085,068		3,678,961

		Total deposits			8,548,918		7,856,840
Federal funds purchased and securities sold under repurchase agreements (Note 9)					457,389		473,912
Accrued interest payable					23,306		31,124
Guaranteed preferred beneficial interests in junior subordinated debt securities (Note 11)					125,000		—
Long-term debt (Note 10)					139,757		140,939
Other liabilities (Notes 12 and 13)					87,054		87,211

		Total Liabilities			9,381,424		8,590,026

Shareholders’ Equity (Notes 2, 16 and 17)
Common stock, $2.50 par value
		Authorized - 500,000,000 shares; Issued - 77,680,664 and 81,225,790 shares			194,202		203,064
Capital surplus					20,773		11,457
Accumulated other comprehensive income					37,744		24,243
Retained earnings					555,104		566,639

		Total Shareholders’ Equity			807,823		805,403

Commitments and contingent liabilities (Note 22)					—		—
		Total Liabilities and Shareholders’ Equity		$	10,189,247	$	9,395,429


				Years Ended December 31

				2002		2001		2000

				(In thousands, except per share amounts)
Interest Revenue
Loans				$	447,756	$	509,464	$	521,203
Deposits with other banks					279		521		1,175
Federal funds sold and securities purchased under agreement to resell					11,531		20,677		6,266
Held-to-maturity securities:
	Taxable				55,091		56,417		49,086
	Tax-exempt				9,688		10,667		15,670
Available-for-sale securities:
	Taxable				54,066		50,848		68,740
	Tax-exempt				8,636		8,500		3,907
Mortgages held for sale					3,371		3,381		3,111

		Total interest revenue			590,418		660,475		669,158

Interest Expense
Deposits					188,530		300,838		310,365
Federal funds purchased and securities sold under repurchase agreements					12,461		21,535		16,966
Other					17,901		8,720		19,552

		Total interest expense			218,892		331,093		346,883

		Net interest revenue			371,526		329,382		322,275
Provision for credit losses (Note 6)					29,411		22,259		26,166

		Net interest revenue, after provision for credit losses			342,115		307,123		296,109

Other Revenue
Mortgage lending					9,928		17,186		10,874
Service charges					49,249		42,759		40,472
Life insurance premiums					4,340		4,528		4,300
Trust income					7,021		6,929		6,700
Securities gains (losses), net					5,486		10,671		(15,632	)
Insurance commissions					23,604		20,422		16,034
Other					32,611		31,498		27,707

		Total other revenue			132,239		133,993		90,455

Other Expense
Salaries and employee benefits (Notes 13 and 15)					171,104		155,680		133,855
Occupancy, net of rental income					21,658		20,529		18,343
Equipment					24,962		26,799		24,137
Telecommunications					7,827		8,693		7,234
Merger related					—		—		9,215
Other					86,847		83,612		81,443

		Total other expense			312,398		295,313		274,227

		Income before income taxes			161,956		145,803		112,337
Income tax expense (Note 12)					49,938		47,340		37,941

		Net Income		$	112,018	$	98,463	$	74,396

Net Income Per Share (Note 16): Basic				$	1.40	$	1.19	$	0.88

			Diluted	$	1.39	$	1.19	$	0.88

Consolidated Statements of Shareholders’ Equity and Comprehensive Income
BancorpSouth, Inc. and Subsidiaries
Years Ended December 31, 2002, 2001 and 2000


											Accumulated
		Common Stock									Other
								Capital			Comprehensive			Retained
		Shares			Amount			Surplus			Income			Earnings			Total

		(Dollars in thousands, except per share amounts)
Balance, December 31, 1999			85,655,416		$	214,139		$	70,581		$	(14,149	)	$	486,540		$	757,111
Net income			—			—			—			—			74,396			74,396
Change in fair value of available-for-sale securities, net of tax effect of $16,969 (Note 17)			—			—			—			29,351			—			29,351

	Comprehensive income		—			—			—			—			—			103,747
Business combinations (Note 2)			95,000			237			1,123			—			—			1,360
Other shares issued			271,074			677			1,001			—			(10	)		1,668
Recognition of stock compensation			—			—			1,463			—			(1,065	)		398
Purchase of stock			(1,978,150	)		(4,945	)		(25,501	)		—			—			(30,446	)
Cash dividends declared, $0.53 per share			—			—			—			—			(44,262	)		(44,262	)

Balance, December 31, 2000			84,043,340			210,108			48,667			15,202			515,599			789,576
Net income			—			—			—			—			98,463			98,463
Change in fair value of available-for-sale securities, net of tax effect of $5,765 (Note 17)			—			—			—			9,041			—			9,041

	Comprehensive income		—			—			—			—			—			107,504
Shares issued			127,305			318			866			—			—			1,184
Recognition of stock compensation			56,000			140			935			—			(115	)		960
Purchase of stock			(3,000,855	)		(7,502	)		(39,011	)		—			—			(46,513	)
Cash dividends declared, $0.57 per share			—			—			—			—			(47,308	)		(47,308	)

Balance, December 31, 2001			81,225,790			203,064			11,457			24,243			566,639			805,403
Net income			—			—			—			—			112,018			112,018
Change in fair value of available-for-sale securities, net of tax effect of $8,379 (Note 17)			—			—			—			13,501			—			13,501

	Comprehensive income		—			—			—			—			—			125,519
Business combinations (Note 2)			599,626			1,500			9,230			—			—			10,730
Other shares issued			566,531			1,416			4,281			—			—			5,697
Recognition of stock compensation			28,000			70			2,343			—			459			2,872
Purchase of stock			(4,739,283	)		(11,848	)		(6,538	)		—			(75,379	)		(93,765	)
Cash dividends declared, $0.61 per share			—			—			—			—			(48,633	)		(48,633	)

Balance, December 31, 2002			77,680,664		$	194,202		$	20,773		$	37,744		$	555,104		$	807,823


				Years Ended December 31

				2002			2001			2000

				(In thousands)
Operating Activities:
Net income				$	112,018		$	98,463		$	74,396
	Adjustment to reconcile net income to net cash provided by operating activities:
		Provision for credit losses			29,411			22,259			26,166
		Depreciation and amortization			26,528			27,328			22,697
		Deferred taxes			16			3,452			(1,833	)
		Amortization of intangibles			1,783			3,744			3,741
		Amortization of debt securities premium and discount, net			2,087			(1,190	)		(1,464	)
		Security losses (gains), net			(5,486	)		(10,671	)		15,632
		Net deferred loan origination expense			1,434			1,134			(4,576	)
		(Increase) decrease in interest receivable			1,745			4,246			(16,529	)
		Increase (decrease) in interest payable			(7,818	)		(9,487	)		9,682
		Realized gain on student loans sold			(2,651	)		(2,403	)		(2,736	)
		Proceeds from mortgages sold			1,049,713			876,143			345,507
		Origination of mortgages held for sale			(1,041,980	)		(913,860	)		(336,326	)
		Other, net			1,374			(3,913	)		5,431

			Net cash provided by operating activities		168,174			95,245			139,788

Investing Activities:
	Proceeds from calls and maturities of held- to-maturity securities				699,713			509,300			306,825
	Proceeds from calls and maturities of available- for-sale securities				1,332,836			348,464			573,948
	Proceeds from sales of held-to-maturity securities				5,278			51,212			308
	Proceeds from sales of available-for-sale securities				661,246			766,110			719,568
	Purchases of held-to-maturity securities				(788,020	)		(649,328	)		(416,789	)
	Purchases of available-for-sale securities				(2,522,523	)		(1,142,904)	(1		,163,648	)
	Net (increase) decrease in short-term investments				204,003			(130,586	)		(102,050	)
	Proceeds from student loans sold				92,351			93,688			94,361
	Net increase in loans				(432,005	)		(91,143	)		(661,807	)
	Purchases of premises and equipment				(27,934	)		(44,912	)		(49,188	)
	Proceeds from sale of premises and equipment				5,773			6,437			3,342
	Other, net				(31,881	)		(24,479	)		61,859

			Net cash used in investing activities		(801,163	)		(308,141	)		(633,271	)

Financing Activities:
	Net increase in deposits				692,078			375,920			414,275
	Net increase (decrease) in short-term debt and other liabilities				(22,662	)		(27,018	)		147,742
	Advances on long-term debt				—			—			26,682
	Repayment of long-term debt				(18,682	)		(11,110	)		(40,976	)
	Issuance of junior subordinated debt				121,063			—			—
	Issuance of common stock				5,697			1,184			951
	Purchase of common stock				(93,765	)		(46,513	)		(30,446	)
	Payment of cash dividends				(48,300	)		(46,599	)		(39,781	)

			Net cash provided by financing activities		635,429			245,864			478,447

Increase (Decrease) in Cash and Cash Equivalents					2,440			32,968			(15,036	)
Cash and Cash Equivalents at Beginning of Year					359,543			326,575			341,611

Cash and Cash Equivalents at End of Year				$	361,983		$	359,543		$	326,575

Notes to Consolidated Financial Statements
BancorpSouth, Inc. and Subsidiaries
December 31, 2002, 2001 and 2000

The consolidated financial statements of BancorpSouth, Inc. (the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheets and revenues and expenses for the periods reported. Actual results could differ significantly from those estimates. The Company and its subsidiaries are engaged in the business of banking and activities closely related to banking. The Company and its subsidiaries are subject to the regulations of certain federal and state agencies and undergo periodic examinations by those regulatory agencies. The following is a summary of the more significant accounting and reporting policies.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, BancorpSouth Bank (the “Bank”). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain 2001 and 2000 amounts have been reclassified to conform with the 2002 presentation.

Cash equivalents include cash and amounts due from banks, including interest bearing deposits with other banks. The Company paid interest of approximately $226,710,000, $340,580,000 and $337,201,000 and income taxes of approximately $54,930,000, $48,081,000 and $42,131,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

Securities are classified as either held-to-maturity, trading or available-for-sale. Held-to-maturity securities are debt securities that the Company has the ability and management has the positive intent to hold to maturity. They are reported at amortized cost. Trading securities are debt and equity securities that are bought and held principally for the purpose of selling them in the near term. They are reported at fair value, with unrealized gains and losses included in earnings. Available-for-sale securities are debt and equity securities not classified as either held-to-maturity securities or trading securities. They are reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, as a separate component of shareholders’ equity until realized. Gains and losses on securities are determined on the identified certificate basis. Amortization of premium and accretion of discount are computed using the interest method. Changes in the valuation of securities which are considered other than temporary are recorded as losses in the period recognized.

The Bank has entered into a secured borrowing arrangement with the State of Mississippi whereby the Bank is required to provide collateral amounts of 102%, in U.S. Treasury or Government National Mortgage Association (“GNMA”) securities, of the fair value and accrued income of the securities sold under repurchase agreements. The Bank has entered into third party lending arrangements, structured as securities purchased under agreements to resell, that mirror the collateral provisions of the agreement with the State of Mississippi, and provide for a fixed spread between the interest rate paid and earned by the Bank. The Bank remains responsible for repayment of the monies borrowed from the State of Mississippi.

Loans are recorded at the face amount of the notes reduced by collections of principal. Loans include net unamortized deferred origination costs. Unearned discount on discount-basis consumer loans and net deferred origination costs are recognized as income using a method which approximates the interest method. Interest is recorded monthly as earned on all other loans. Where doubt exists as to the collectibility of the loans, interest income is recorded as payment is received.

The provision for credit losses charged to expense is an amount that, in the judgment of management, is necessary to maintain the allowance for credit losses at a level that is adequate based on estimated probable losses on the Company’s current portfolio of loans. Management’s judgment is based on a variety of factors which include the Company’s experience related to loan balances, charge-offs and recoveries, scrutiny of individual loans and risk factors, results of regulatory agency reviews of loans, and present economic conditions in the Company’s market area. Material estimates that are particularly susceptible to significant change in the near term are a necessary part of this process. Future additions to the allowance 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 Company’s allowance for credit losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

Mortgages held for sale are recorded at the lower of aggregate cost or fair value as determined by current investor yield requirements.

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Provisions for depreciation and amortization, computed using straight-line and accelerated methods, are charged to expense over the shorter of the lease term or the estimated useful lives of the assets. Costs of major additions and improvements are capitalized. Expenditures for routine maintenance and repairs are charged to expense as incurred.

Real estate acquired in settlement of loans is carried at the lower of cost or fair value, less selling costs. Fair value is based on independent appraisals and other relevant factors. At the time of acquisition, any excess of cost over fair value is charged to the allowance for credit losses. Gains and losses realized on sales are included in other revenue.

Mortgage servicing rights are capitalized as assets by allocating the total cost incurred between the loan and the servicing rights based on their relative fair values. Fair values are determined using a valuation model that calculates the present value of future cash flows using prepayment assumptions based upon dealer consensus and discount rates based upon market indices at the date of determination. Capitalized mortgage servicing rights are being amortized in proportion to, and over the period of, the estimated net servicing income of the underlying asset. On a quarterly basis, capitalized mortgage servicing rights are evaluated for impairment based on the excess of the carrying amount of the mortgage servicing rights over their fair value. Impairment is recognized through a valuation allowance.

The Company maintains a non-contributory defined benefit pension plan that covers all employees who qualify as to age and length of service. Net periodic pension expense is actuarially determined.

At December 31, 2002, the Company has three stock-based employee compensation plans, which are described more fully in Note 15, Stock Incentive and Stock Option Plans. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” for the years ended December 31, 2002, 2001 and 2000.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in 2002, 2001 and 2000: expected options lives of 7 years for all three years; expected dividend yield of 3.10%, 3.70% and 3.00%; expected volatility of 22%, 23% and 23% and risk-free interest rates of 5.0%, 5.5% and 6.0%.

Certain of the Company’s stock option plans contain provisions for stock appreciation rights (“SARs”). Accounting rules for SARs require the recognition of expense for appreciation in the market value of the Company’s common stock or a reduction of expense in the event of a decline in the market value of the Company’s common stock. See Note 15, Stock Incentive and Stock Option Plans, for further disclosures regarding SARs.

The derivatives held by the Company are commitments to fund fixed-rate mortgage loans to customers and forward commitments to sell individual fixed-rate mortgage loans. The Company’s objective in obtaining the forward commitments is to mitigate the interest rate risk associated with the commitments to fund the fixed-rate mortgage loans. Both the commitments to fund fixed-rate mortgage loans and the forward commitments are reported at fair value, with adjustments being recorded in current period earnings, and are not accounted for as hedges.

SFAS No. 141, “Business Combinations,” requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, as well as all purchase method business combinations completed after June 30, 2001. SFAS No. 141 also specifies certain criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported separate from goodwill. SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to the estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” SFAS No. 141 was adopted effective July 1, 2001 and SFAS No. 142 was adopted effective January 1, 2002. The adoption of SFAS No. 141 and SFAS No. 142 has had no material impact on the financial position or results of operations of the Company. See Note 8, Goodwill and Other Intangible Assets, for further disclosure.

SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” supersedes both SFAS No. 121 and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business (as previously defined in Opinion No. 30). SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with SFAS No. 121. For example, SFAS No. 144 provides guidance on how a long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the accounting for a long-lived asset that will be disposed of other than by sale. SFAS No. 144 retains the basic provisions of Opinion No. 30 on how to present discontinued operations in the income statement but broadens that presentation to include a component of an entity (rather than a segment of a business). Unlike SFAS No. 121, an impairment assessment under SFAS No. 144 will never result in a write down of goodwill. Rather, goodwill is evaluated for impairment under SFAS No. 142. This statement was adopted effective January 1, 2002 and has had no material impact on the financial position or results of operations of the Company.

In July 2002, SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” was issued. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recorded when it is incurred and can be measured at fair value. The statement is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 is expected to have no material impact on the financial position or results of operations of the Company.

SFAS No. 147, “Acquisitions of Certain Financial Institutions,” removes acquisitions of financial institutions, with the exception of transactions between two or more mutual enterprises, from the scope of both SFAS No. 72, “Accounting for Certain Acquisitions of Banking or Thrift Institutions,” and FASB Interpretation No. 9, “Applying Accounting Principles Board Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method.” SFAS No. 147 requires that those transactions be accounted for in accordance with SFAS No. 141 and SFAS No. 142. In addition, SFAS No. 147 amends SFAS No. 144 to include in its scope long-term customer relationship intangible assets of financial institutions such as depositor and borrower relationship intangible assets and credit cardholder intangible assets. Consequently, these intangible assets must be evaluated for impairment just like other long-lived assets as required by SFAS No. 144. This statement was adopted effective October 1, 2002 and has had no material impact on the financial position or results of operations of the Company.

In November 2002, FASB Interpretation (“FIN”) No. 45, “Guarantors Accounting and Disclosure Requirement for Guarantees, Including Indirect Guarantees of Indebtedness of Others” was issued. FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements regarding its obligations under certain guarantees that it has issued. The interpretation also clarifies the requirement of the guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this interpretation are effective on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements of this interpretation are effective for financial statements of interim and annual periods ending after December 15, 2002. The adoption of FIN No. 45 is expected to have no material impact on the financial position or results of operations of the Company.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company, with the exception of the Bank’s credit life insurance subsidiary, files a consolidated federal income tax return.

Trust income is recorded on the cash basis as received, which results in an amount that does not differ materially from the amount that would be recorded under the accrual basis.

On August 31, 2000, First United Bancshares, Inc., a $2.7 billion bank holding company headquartered in El Dorado, Arkansas, merged with and into the Company. Pursuant to the merger, First United Bancshares’ subsidiary banks and trust company merged into the Bank. Each share of stock of First United Bancshares was converted into 1.125 shares of the Company’s common stock, which resulted in the Company issuing a total of 28,489,225 shares of common stock to the former First United Bancshares shareholders. This transaction was accounted for as a pooling of interests and the Company’s financial statements for all periods presented include the consolidated accounts of First United Bancshares.

On October 10, 2000, the Pittman Insurance Agency and the Kilgore, Seay and Turner Insurance Agency, each based in Jackson, Mississippi, merged with and into BancorpSouth Insurance Services, Inc., a subsidiary of the Bank. Consideration given to complete these transactions consisted of an aggregate of cash in the amount of $3,065,000 and 95,000 shares of the Company’s common stock. These transactions were accounted for as purchases and, accordingly, their results of operations have been included since the date of acquisition. These acquisitions were not material to the results of operations of the Company.

On October 31, 2000, Texarkana First Financial Corporation, a $218 million savings and loan holding company headquartered in Texarkana, Arkansas, merged with and into the Company. Pursuant to the merger, Texarkana First Financial Corporation’s subsidiary, First Federal Savings and Loan Association of Texarkana, merged into the Bank. Consideration paid to complete this transaction consisted of cash in the aggregate amount of $37,500,000. This transaction was accounted for as a purchase and, accordingly, the results of operations have been included since the date of acquisition. This acquisition was not material to the results of operations of the Company.

A comparison of amortized cost and estimated fair values of held-to-maturity securities as of December 31, 2002 and 2001 follows:

Gross gains of $310,000 and gross losses of $129,000 were recognized in 2002, gross gains of $767,000 and gross losses of $29,000 were recognized in 2001 and gross gains of $33,000 and gross losses of $172,000 were recognized in 2000 on held-to-maturity securities. Except for the following, these gains and losses were the result of held-to-maturity securities being called prior to maturity. Included in the 2002 amounts is a gross loss of $44,000 related to the sale of a held-to-maturity security with an amortized cost of $5,322,000. This security was sold because of deterioration in the issuer’s creditworthiness. Included in the 2001 amounts is a gross gain of $218,000 related to the sale of held-to-maturity securities with amortized cost of $45,682,000. These securities were sold because the actual maturity date was within 90 days of the sale date.

Held-to-maturity securities with a carrying value of approximately $806,000,000 at December 31, 2002 were pledged to secure public and trust funds on deposit and for other purposes. Included in held-to-maturity securities at December 31, 2002 were securities with a carrying value of $138.0 million issued by the State of Mississippi and securities with a carrying value of $24.9 million issued by the State of Arkansas.

The amortized cost and estimated fair value of held-to-maturity securities at December 31, 2002 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

A comparison of amortized cost and estimated fair values of available-for-sale securities as of December 31, 2002 and 2001 follows:

Gross gains of $5,448,000 and gross losses of $143,000 were recognized in 2002, gross gains of $10,856,000 and gross losses of $923,000 were recognized in 2001 and gross gains of $549,000 and gross losses of $16,042,000 were recognized in 2000 on available-for-sale securities.

Available-for-sale securities with a carrying value of approximately $901,000,000 at December 31, 2002 were pledged to secure public and trust funds on deposit and for other purposes. Included in available-for-sale securities at December 31, 2002, were securities with a carrying value of $73.6 million issued by the State of Mississippi and securities with a carrying value of $82.9 million issued by the State of Arkansas.

The amortized cost and estimated fair value of available-for-sale securities at December 31, 2002 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Equity securities are considered as maturing after 10 years unless they have a repricing feature.

A summary of loans classified by collateral type at December 31, 2002 and 2001 follows:

Non-performing loans consist of both non-accrual loans and loans which have been restructured (primarily in the form of reduced interest rates) because of the borrower’s weakened financial condition. The aggregate principal balance of non-accrual loans was $10,514,000 and $10,825,000 at December 31, 2002 and 2001, respectively. Restructured loans totaled $20,000 and $40,000 at December 31, 2002 and 2001, respectively.

The total amount of interest earned on non-performing loans was approximately $274,000, $493,000 and $263,000 in 2002, 2001 and 2000, respectively. The gross interest income which would have been recorded under the original terms of those loans amounted to $936,000, $1,402,000 and $878,000 in 2002, 2001 and 2000, respectively.

Loans considered impaired, under SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” as amended by SFAS No. 118, “Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures,” are loans which, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company’s recorded investment in loans considered impaired at December 31, 2002 and 2001 was $18,871,000 and $17,578,000, respectively, with a valuation allowance of $7,095,000 and $6,546,000, respectively. The average recorded investment in impaired loans during 2002 and 2001 was $19,408,000 and $19,065,000, respectively.

The following summarizes the changes in the allowance for credit losses for the years ended December 31, 2002, 2001 and 2000:

The following table presents the changes in the carrying amount of goodwill for the years ended December 31, 2002 and 2001:

The following table presents information regarding the components of the Company’s identifiable intangible assets for the years ended December 31, 2002 and 2001:

The following table provides the transitional disclosures required under SFAS No. 142 for the Company’s goodwill and other intangible assets:

Certificates of deposit and other time deposits of $100,000 or more amounting to approximately $1,818,159,000 and $1,415,351,000 were outstanding at December 31, 2002 and 2001, respectively. Total interest expense relating to certificate and other time deposits of $100,000 or more totaled approximately $50,191,000, $75,015,000 and $77,077,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

For time deposits with a remaining maturity of more than one year at December 31, 2002, the aggregate amount of maturities for each of the following five years is presented in the following table:

Presented below is information relating to short-term debt for the years ended December 31, 2002 and 2001:


			End of Period					Daily Average					Maximum
													Outstanding
					Interest					Interest			At Any
			Balance		Rate			Balance		Rate			Month End

			(Dollars in thousands)
	2002:
Federal funds purchased			$	1,300		0.9	%	$	3,412		1.6	%	$	15,900
Flex-repos purchased				134,508		4.7	%		141,882		5.6	%		163,898
Securities sold under repurchase agreements				321,581		1.1	%		309,012		1.5	%		356,198
Short-term Federal Home Loan Bank advances				—		—			1,337		4.3	%		4,000

		Total	$	457,389				$	455,643				$	539,996

	2001:
Federal funds purchased			$	—		—		$	621		5.7	%	$	400
Flex-repos purchased				168,511		5.6	%		186,841		5.7	%		198,085
Securities sold under repurchase agreements				305,401		1.4	%		313,299		3.5	%		339,462

		Total	$	473,912				$	500,761				$	537,947

Federal funds purchased generally mature the day following the date of purchase while securities sold under repurchase agreements generally mature within 30 days from the date of sale. At December 31, 2002, the Bank had established informal federal funds borrowing lines of credit aggregating $300,000,000.

The Bank has entered into a blanket floating lien security agreement with the Federal Home Loan Bank (“FHLB”) of Dallas. Under the terms of this agreement, the Bank is required to maintain sufficient collateral to secure borrowings in an aggregate amount of the lesser of 75% of the book value (unpaid principal balance) of the Bank’s eligible mortgage loans pledged as collateral or 35% of the Bank’s assets.

At December 31, 2002, the following FHLB fixed term advances were repayable as follows:

On January 28, 2002, BancorpSouth Capital Trust I (the “Trust”), a business trust which is treated as a subsidiary of the Company for financial reporting purposes, issued 5,000,000 shares of 8.15% trust preferred securities, $25 face value per share, due January 28, 2032 and callable at the option of the Company after January 28, 2007. Payment of distributions on the trust preferred securities is guaranteed by the Company, but only to the extent the Trust has funds legally and immediately available to make such distributions. The Trust invested the net proceeds of $121,062,500 in the 8.15% Junior Subordinated Debt Securities issued by the Company, which will mature on January 28, 2032. The net proceeds to the Company from the issuance of its Junior Subordinated Debt Securities to the Trust were used for general corporate purposes, including repurchase of shares of its outstanding common stock.

Total income taxes for the years ended December 31, 2002, 2001 and 2000 are allocated as follows:

The components of income tax expense (credit) attributable to continuing operations are as follows for the years ended December 31, 2002, 2001 and 2000:

Income tax expense differs from the amount computed by applying the U.S. federal income tax rate of 35% to income before income taxes due to the following:

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2002 and 2001 are as follows:


				2002			2001

				(In thousands)
Deferred tax assets:
	Loans, principally due to allowance for credit losses			$	38,515		$	34,447
	Accrued liabilities, principally due to compensation arrangements and vacation accruals				8,291			7,010
	Net operating loss carryforwards				489			559

		Total gross deferred tax assets			47,295			42,016
		Less: valuation allowance			—			—

		Deferred tax assets		$	47,295		$	42,016

Deferred tax liabilities:
	Premises and equipment, principally due to differences in depreciation and lease transactions			$	34,559		$	28,661
	Other assets, principally due to expense recognition				3,783			1,247
	Investments, principally due to interest income recognition				5,302			4,129
	Capitalization of mortgage servicing rights				5,296			9,513
	Unrealized gains on available-for-sale securities				23,397			15,018

			Total gross deferred tax liabilities		72,337			58,568

			Net deferred tax liabilities	$	(25,042	)	$	(16,552	)

Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences existing at December 31, 2002.

At December 31, 2002, the Company has net operating loss carryforwards related to business combinations for federal income tax purposes of approximately $1,278,000 that are available to offset future federal taxable income, subject to various limitations, through 2009.

The Company maintains a noncontributory defined benefit pension plan managed by a trustee covering substantially all full-time employees who have at least one year of service and have attained the age of 21. Benefits are based on years of service and the employee’s compensation. The Company’s funding policy is to contribute to the pension plan the amount that meets the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional amounts as the Company determines to be appropriate. The difference between the pension cost included in current income and the funded amount is included in other assets or other liabilities, as appropriate. Actuarial assumptions are evaluated periodically.

The BancorpSouth, Inc. Restoration Plan (the “Restoration Plan”) provides for the payment of retirement benefits to certain participants in the BancorpSouth, Inc. Retirement Plan (the “Basic Plan”). The Restoration Plan covers any employee whose benefit under the Basic Plan is limited by the provisions of the Internal Revenue Code of 1986 and any employee who elects to participate in the BancorpSouth, Inc. Deferred Compensation Plan, thereby reducing their benefit under the Basic Plan. The Company has a nonqualified supplemental retirement plan for certain key employees. Benefits commence when the employee retires and are payable over a period of 10 years.

A summary of the defined benefit retirement plans at and for the years ended December 31, 2002, 2001 and 2000 follows:


	2002			2001			2000

	(In thousands)
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	55,100		$	49,371		$	38,808
Service cost		3,865			3,220			1,998
Interest cost		3,977			3,516			3,096
Amendments		—			1,420			779
Actuarial loss		5,356			825			6,828
Benefits paid		(5,166	)		(3,252	)		(2,138	)

Projected benefit obligation at end of year	$	63,132		$	55,100		$	49,371

Change in plan assets:
Fair value of plan assets at beginning of year	$	42,651		$	45,609		$	48,095
Actual return on assets		(2,453	)		294			(348	)
Employer contributions		7,145			—			—
Benefits paid		(5,166	)		(3,252	)		(2,138	)

Fair value of plan assets at end of year	$	42,177		$	42,651		$	45,609

Funded status:
Projected benefit obligation	$	(63,132	)	$	(55,100	)	$	(49,371	)
Fair value of plan assets		42,177			42,651			45,609
Unrecognized transition amount		220			238			254
Unrecognized prior service cost		3,120			3,319			2,016
Unrecognized loss		16,216			4,624			89

Net amount recognized	$	(1,399	)	$	(4,268	)	$	(1,403	)

Components of net periodic pension cost:
Service cost	$	3,865		$	3,220		$	1,998
Interest cost		3,977			3,516			3,096
Expected return on assets		(3,882	)		(4,045	)		(3,289	)
Amortization of unrecognized transition amount		17			17			16
Recognized prior service cost		199			117			117
Recognized net (gain) loss		100			40			(745	)

Net periodic pension cost	$	4,276		$	2,865		$	1,193

Plan assets consist primarily of listed bonds and commingled funds. The assumptions used for measuring net periodic pension cost for the years ended December 31, 2002, 2001 and 2000 are presented in the following table.

The Company has a deferred compensation plan (commonly referred to as a “401(k) Plan”), whereby employees may contribute a portion of their compensation, as defined in the 401(k) Plan, subject to the limitations as established by the Internal Revenue Code. Employee contributions (up to 5% of defined compensation) are matched dollar-for-dollar by the Company. Under the terms of the plan, contributions matched by the Company are used to purchase shares of Company common stock at prevailing market prices. During 2002, the 401(k) Plan was amended to permit employees to diversify their holdings of shares of Company common stock by selling some or all of their shares of Company common stock and reinvesting the proceeds in other investments. Plan expense for the years ended December 31, 2002, 2001 and 2000 was $4,733,000, $4,191,000 and $3,507,000, respectively.

SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates, methods and assumptions are set forth below for the Company’s financial instruments.

The carrying amounts for short-term securities approximate fair value because of their short-term maturity (90 days or less) and present no unexpected credit risk. The fair value of most longer-term securities is estimated based on market prices or dealer quotes. See Note 3, Held-to-Maturity Securities, and Note 4, Available-for-Sale Securities, for fair values.

Fair values are estimated for portfolios of loans with similar financial characteristics. The fair value of loans is calculated by discounting scheduled cash flows through the estimated maturity using rates currently available that reflect the credit and interest rate risk inherent in the loan. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information.

Average maturity represents the expected average cash flow period, which in some instances is different than the stated maturity. Management has made estimates of fair value discount rates that are believed to be reasonable. However, because there is no market for many of these financial instruments, management has no basis to determine whether the fair value presented would be indicative of the value negotiated in an actual sale. New loan rates were used as the discount rate on new loans of the same type, credit quality and maturity.

Under SFAS No. 107, the fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, interest bearing demand deposits and savings, is equal to the amount payable on demand as of December 31, 2002 and 2001. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar maturities.

The carrying amounts for federal funds purchased and repurchase agreements approximate fair value because of their short-term maturity. The fair value of the Company’s fixed-term FHLB advances is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently available for advances of similar maturities.

The Company has commitments to fund fixed-rate mortgage loans and forward commitments to sell individual fixed-rate mortgage loans. The fair value of these derivative instruments is based on observable market price. See Note 22, Commitments and Contingent Liabilities, for additional fair value information regarding these instruments.

The Company’s lending commitments are negotiated at current market rates and are relatively short-term in nature. As a matter of policy, the Company generally makes commitments for fixed-rate loans for relatively short periods of time; therefore, the estimated value of the Company’s lending commitments approximates the carrying amount and is immaterial to the financial statements. See Note 22, Commitments and Contingent Liabilities, for additional information regarding lending commitments.

The following table presents carrying and fair value information at December 31, 2002 and 2001:


	2002						2001

	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value

	(In thousands)
Assets:
Cash and due from banks	$	356,976		$	356,976		$	341,513		$	341,513
Interest bearing deposits with other banks		5,007			5,007		$	18,030			18,030
Held-to-maturity securities		1,193,375			1,243,234			1,110,463			1,148,333
Available-for-sales securities		1,642,172			1,642,172			1,083,191			1,083,191
Federal funds sold and securities purchased under agreement to resell		139,508			139,508			343,511			343,511
Loans, net of unearned discount		6,389,385			6,511,829			6,073,200			6,191,528
Mortgages held for sale		57,804			58,782			65,537			65,537

Liabilities:
Noninterest bearing deposits		1,183,127			1,183,127			1,108,499			1,108,499
Savings and interest bearing deposits		3,280,723			3,280,723			3,069,380			3,069,380
Other time deposits		4,085,068			4,154,200			3,678,961			3,740,105
Federal funds purchased and securities sold under repurchase agreements		457,389			457,389			473,912			473,912
Long-term debt and other borrowings		265,849			282,854			143,267			142,084

Derivative instruments:
Forward commitments		(1,400	)		(1,400	)		1,500			1,500
Commitments to fund	$	1,100		$	1,100		$	(69	)	$	(69	)

In 1995, the Company issued 60,000 shares of common stock to a key employee. The shares vested over a 10-year period subject to the Company meeting certain performance goals. This employee terminated his employment with the Company during 2002. The Company retired the 18,000 unearned shares in 2002 and there was no compensation expense associated with this award in 2002. The compensation expense associated with this award was $51,600 for 2001 and 2000.

In 1998, the Company issued 70,000 shares of common stock to a key employee and, in 2002, an additional 56,000 shares were issued. The remaining shares vest over a 5-year period subject to the Company meeting certain performance goals. The unearned shares are held in escrow and totaled 70,000 at December 31, 2002. The compensation expense associated with this award was $305,800 for each of the years in the three-year period ended December 31, 2002.

In 2000, the Company issued 100,000 shares of common stock to a key employee. The remaining shares vest over a 3-year period subject to the Company meeting certain performance goals. The unearned shares are held in escrow and totaled 60,000 at December 31, 2002. The compensation expense associated with this award was $292,500 for each of the years in the three-year period ended December 31, 2002.

In 2002, the Company issued 28,000 shares of common stock to key employees. The shares vest over a three-year period subject to attainment of certain performance goals by the employees. The unearned shares are held in escrow and totaled 28,000 at December 31, 2002.

Key employees and directors of the Company and its subsidiaries have been granted stock options and SARs under the Company’s 1990, 1994 and 1995 stock incentive plans. The 1994 and 1995 stock incentive plans were amended in 1998 to eliminate SARs and to allow a limited number of restricted stock awards. All options and SARs granted pursuant to these plans have an exercise price equal to the market value on the date of the grant and are exercisable over periods of one to ten years. At December 31, 2002, the Company had outstanding 277,009 SARs exercisable in conjunction with certain of the options outstanding. The Company recorded compensation expense of $1,329,000 and $1,903,000 in 2002 and 2001, respectively, and a reduction in compensation expense of $1,844,000 in 2000, related to the SARs because of the changes in market value of the Company’s common stock.

In 1998, the Company adopted a stock plan through which a minimum of 50% of the compensation payable to each director is paid in the form of the Company’s common stock effective January 1, 1999. Directors may elect under the plan to receive up to 100% of their compensation in the form of common stock.

A summary of the status of the Company’s stock options outstanding as of December 31, 2002, 2001 and 2000, and changes during the years ended on those dates is presented below:


	2002					2001					2000

				Weighted-					Weighted-					Weighted-
				Average					Average					Average
				Exercise					Exercise					Exercise
Options	Shares			Price		Shares			Price		Shares			Price

Outstanding at beginning of year		2,758,534		$	14.51		2,509,102		$	14.08		2,194,934		$	13.74
Granted		534,221			16.85		400,000			15.48		539,298			13.01
Exercised		(567,900	)		10.06		(127,606	)		9.31		(196,530	)		6.71
Expired or cancelled		(61,418	)		16.67		(22,962	)		14.67		(28,600	)		19.10

Outstanding at end of year		2,663,437		$	15.88		2,758,534		$	14.51		2,509,102		$	14.08

Exercisable at end of year		1,905,713					2,043,197					1,873,802

For options granted in 2002, 2001 and 2000, the weighted-average fair values as of the grant date were $4.40, $3.44 and $2.64, respectively.

The following table summarizes information about stock options at December 31, 2002:

The computation of basic earnings per share is based on the weighted average number of common shares outstanding. The computation of diluted earnings per share is based on the weighted average number of common shares outstanding plus the shares resulting from the assumed exercise of all outstanding stock options using the treasury stock method. The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years ended December 31, 2002, 2001 and 2000:


	2002						2001						2000

	Income		Shares		Per Share		Income		Shares		Per Share		Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount

	(In thousands, except per share amounts)
Basic EPS:
Income available to common shareholders	$	112,018		79,926	$	1.40	$	98,463		82,539	$	1.19	$	74,396		84,474	$	0.88

Effect of dilutive stock options		—		555				—		440				—		337

Diluted EPS:
Income available to common shareholders plus assumed exercise	$	112,018		80,481	$	1.39	$	98,463		82,979	$	1.19	$	74,396		84,811	$	0.88

Dividends to shareholders are paid from dividends paid to the Company by the Bank which are subject to approval by the applicable state regulatory authority. At December 31, 2002, the Bank could have paid dividends to the Company of $291,000,000 under current regulatory guidelines.

The following table presents the components of other comprehensive income and the related tax effects allocated to each component for the years ended December 31, 2002, 2001 and 2000:


		2002									2001									2000

		Before			Tax			Net			Before			Tax			Net			Before		Tax			Net
		tax			(expense)			of tax			tax			(expense)			of tax			tax		(expense)			of tax
		amount			benefit			amount			amount			benefit			amount			amount		benefit			amount

		(In thousands)
Unrealized gains on securities:
	Unrealized gains (losses) arising during holding period	$	27,184		$	(10,409	)	$	16,775		$	24,739		$	(9,564	)	$	15,175		$	30,827	$	(11,042	)	$	19,785
	Reclassification adjustment for net losses (gains) realized in net income		(5,304	)		2,030			(3,274	)		(9,933	)		3,799			(6,134	)		15,493		(5,927	)		9,566

Other comprehensive income (loss)		$	21,880		$	(8,379	)	$	13,501		$	14,806		$	(5,765	)	$	9,041		$	46,320	$	(16,969	)	$	29,351

The Bank has made, and expects in the future to continue to make in the ordinary course of business, loans to directors and executive officers of the Company and their affiliates. In management’s opinion, these transactions with directors and executive officers were made on substantially the same terms as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of collectibility or present any other unfavorable features. An analysis of such outstanding loans is as follows:

Originated mortgage servicing rights (“OMSRs”), as well as purchased mortgage servicing rights (“PMSRs”), are capitalized as assets by allocating the total cost incurred between the loan and the servicing rights based on their relative fair values. To determine the fair value of the servicing rights created, the Company uses a valuation model that calculates the present value of future cash flows. The significant assumptions utilized by the valuation model are prepayment assumptions based upon dealer consensus and discount rates based upon market indices at the date of determination. PMSRs and OMSRs are being amortized in proportion to, and over the period of, the estimated net servicing income. Capitalized mortgage servicing rights are evaluated for impairment based on the excess of the carrying amount of the mortgage servicing rights over their fair value. A quarterly value impairment analysis is performed using a discounted methodology that is disaggregated by predominant risk characteristics. The Company has determined those risk characteristics to include: note rate, note term and loan type based on 1) loan guarantee (i.e., conventional or government), and 2) interest characteristic (i.e., fixed-rate or adjustable-rate). In measuring impairment, the carrying amount is based on one or more predominant risk characteristics of the underlying loans. Impairment is recognized through a valuation allowance for each individual stratum.

The following is a summary of capitalized mortgage servicing rights, net of accumulated amortization, and a valuation allowance for impairment:

The Company is subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by regulators about components, risk weightings and other factors. Quantitative measures established by the Board of Governors of the Federal Reserve (“FRB”) to ensure capital adequacy require the Company to maintain minimum capital amounts and ratios (risk-based capital ratios). All banking companies are required to have core capital (“Tier I”) of a least 4% of risk-weighted assets, total capital of at least 8% of risk-weighted assets and a minimum Tier I leverage ratio of 3% of adjusted average assets. The regulations also define well capitalized levels of Tier I, total capital and Tier I leverage as 6%, 10% and 5%, respectively. The Company had Tier I, total capital and Tier I leverage above the well capitalized levels at December 31, 2002 and 2001, respectively, as set forth in the following table:

The Company’s principal activity is community banking which includes providing a full range of deposit products, commercial loans and consumer loans. General corporate and other includes leasing, mortgage lending, trust services, credit card activities, insurance services, personal finance lending and other activities not allocated to community banking.

Results of operations and selected financial information by operating segment for the three years ended December 31, 2002, 2001 and 2000 are presented below:


			General
	Community		Corporate
	Banking		and Other		Total

	(In thousands)
2002
Results of Operations
Net interest revenue	$	313,543	$	57,983	$	371,526
Provision for credit losses		25,500		3,911		29,411

Net interest income after provision for credit losses		288,043		54,072		342,115
Other revenue		80,398		51,841		132,239
Other expense		246,334		66,064		312,398

Income before income taxes		122,107		39,849		161,956
Income taxes		37,651		12,287		49,938

Net income	$	84,456	$	27,562	$	112,018

Selected Financial Information
Total assets	$	9,277,374	$	911,873	$	10,189,247
Depreciation & amortization		24,765		1,763		26,528

2001
Results of Operations
Net interest revenue	$	278,196	$	51,186	$	329,382
Provision for credit losses		18,998		3,261		22,259

Net interest income after provision for credit losses		259,198		47,925		307,123
Other revenue		74,373		59,620		133,993
Other expense		234,839		60,474		295,313

Income before income taxes		98,732		47,071		145,803
Income taxes		32,057		15,283		47,340

Net income	$	66,675	$	31,788	$	98,463

Selected Financial Information
Total assets	$	8,551,441	$	843,988	$	9,395,429
Depreciation & amortization		25,506		1,822		27,328

2000
Results of Operations
Net interest revenue	$	271,722	$	50,553	$	322,275
Provision for credit losses		24,379		1,787		26,166

Net interest income after provision for credit losses		247,343		48,766		296,109
Other revenue		42,817		47,638		90,455
Other expense		224,374		49,853		274,227

Income before income taxes		65,786		46,551		112,337
Income taxes		22,219		15,722		37,941

Net Income	$	43,567	$	30,829	$	74,396

Selected Financial Information
Total assets	$	8,225,415	$	818,619	$	9,044,034
Depreciation & amortization		20,844		1,853		22,697

Rent expense was approximately $4,592,000 for 2002, $4,599,000 for 2001 and $4,793,000 for 2000. Future minimum lease payments for all non-cancelable operating leases with initial or remaining terms of one year or more consisted of the following at December 31, 2002:

The Company services mortgage loans for others which are not included in the accompanying financial statements. Included in the $2.8 billion of loans serviced for investors at December 31, 2002 is approximately $2.4 million of primary recourse servicing where the Company is responsible for any losses incurred in the event of nonperformance by the mortgagor. The Company’s exposure to credit loss in the event of such nonperformance is the unpaid principal balance at the time of default. This exposure is limited by the underlying collateral, which consists of single family residences and either federal or private mortgage insurance.

Forward contracts are agreements to purchase or sell securities at a specified future date at a specific price or yield. Risks arise from the possibility that counterparties may be unable to meet the term of their contracts and from movements in securities values and interest rates. At December 31, 2002 and 2001, the Company had forward commitments to sell individual fixed-rate mortgage loans and commitments to fund individual fixed-rate mortgage loans. At December 31, 2002, the notional amount of forward commitments to sell individual fixed-rate mortgage loans was $122.0 million with a carrying value and fair value reflecting a loss of $1.4 million. At December 31, 2001, the notional amount of forward commitments to sell individual fixed-rate mortgage loans was $81.2 million with a carrying value and fair value of $1.5 million. At December 31, 2002, the notional amount of commitments to fund individual fixed-rate mortgage loans was $75.9 million with a carrying value and fair value of $1.1 million. At December 31, 2001, the notional amount of commitments to fund individual fixed-rate mortgage loans was $45.7 million with a carrying value and fair value reflecting an unrealized loss of $69,000. The forward commitments to sell fixed-rate mortgage loans and the commitments to fund fixed-rate mortgage loans are reported at fair value in the Company’s financial statements, with adjustments being recorded in current period earnings, and are not accounted for as hedges.

In the normal course of business, there are outstanding various commitments and other arrangements for credit which are not reflected in the consolidated balance sheets. As of December 31, 2002, these included approximately $65 million for letters of credit and approximately $1.3 billion for interim mortgage financing, construction credit, credit card and revolving line of credit arrangements. No significant credit losses are expected from these commitments and arrangements.

without appropriate disclosures or which were unnecessary under the particular circumstances. These actions tend to seek large amounts of actual and punitive damages for claims arising out of transactions that involve relatively small amounts of money. There have been several cases involving such claims tried against other companies in the Company’s market area that have resulted in large awards of actual and punitive damages for individual claimants, but it is not clear whether such large awards will be upheld on appeal. Some companies have engaged in settlements of such cases rather than face the risk and uncertainty of such awards.

During the fourth quarter of 2002, the Company entered into two pending settlements with a total of approximately 1,800 individual claimants. Under the terms of these pending settlements, claimants whose loan documents contain arbitration agreements would receive smaller amounts to settle their claims than those whose loan documents do not contain arbitration agreements. The Company does not have accurate numbers of the number of claimants or whether or not they have arbitration agreements, and is not currently able to determine the actual amount that will be required to settle these lawsuits. The Company did, however, accrue $3.2 million during the fourth quarter of 2002, which the Company believes is the maximum possible amount needed to settle the claims covered in the settlements.

As to similar claims, whether presently pending or that may be brought in the future, it is not currently possible to quantify the potential exposure presented by these claims or determine whether these claims will ultimately have a material adverse effect on the financial condition of the Company. The Company’s inability to determine its exposure at this time is based on a number of reasons, which include but are not limited to the following: some of the cases have only been recently filed, the facts vary from case to case and are usually disputed, some of the principles of law that apply to these cases are not clearly delineated, existing law provides juries little specific guidance to determine the amounts of actual and punitive damages they may award and/or to judges in reviewing those awards, and the amounts of jury awards differ from county to county and case to case. Future legislation and court decisions may also limit or affect the amount of damages that can be recovered in such cases; however, the Company cannot predict the course of any such legislation or court decisions or the effect that they may have with respect to litigation directed toward the Company and its subsidiaries.

Aggregate reserves (in the form of deposits with the Federal Reserve Bank) of $71,948,000 were maintained to satisfy Federal regulatory requirements at December 31, 2002.

The following condensed financial information reflects the accounts and transactions of BancorpSouth, Inc. (parent company only) for the dates indicated:


Condensed Statements of Income		Years Ended December 31

		2002			2001		2000

		(In thousands)
Dividends from subsidiaries		$	141,291		$	97,500	$	62,600
Other operating income			56			334		3,142

	Total income		141,347			97,834		65,742
Operating expenses			13,937			4,661		12,623

Income before tax benefit and equity in undistributed earnings			127,410			93,173		53,119
Income tax benefit			7,007			1,510		1,383

Income before equity in undistributed earnings of subsidiaries			134,417			94,683		54,502
Equity in undistributed earnings of subsidiaries			(22,399	)		3,780		19,894

	Net income	$	112,018		$	98,463	$	74,396


Condensed Statements of Cash Flows		Years Ended December 31

		2002			2001			2000

		(In thousands)
Operating activities:
	Net income	$	112,018		$	98,463		$	74,396
	Adjustments to reconcile net income to net cash provided by operating activities		(98,783	)		(1,973	)		(45,614	)

Net cash provided by operating activities			13,235			96,490			28,782
Net cash used in financing activities			(15,153	)		(91,832	)		(51,340	)

Increase (decrease) in cash and cash equivalents			(1,918	)		4,658			(22,558	)
Cash and cash equivalents at beginning of year			28,184			23,526			46,084

Cash and cash equivalents at end of year		$	26,266		$	28,184		$	23,526

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

There have been no disagreements with the Company’s independent accountants and auditors on any matter of accounting principles or practices or financial statement disclosure.

Information concerning the directors and nominees of the Company appears under the captions “Proposal 1: Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive Proxy Statement for its 2003 annual meeting of shareholders, and is incorporated herein by reference.

Information follows concerning the executive officers of the Company who are subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934.


Name	Offices Held	Age

Aubrey B. Patterson	Chairman of the Board of Directors and Chief Executive Officer of the Company and BancorpSouth Bank; Director of the Company		60

James V. Kelley	President and Chief Operating Officer of the Company and BancorpSouth Bank; Director of the Company		53

L. Nash Allen, Jr.	Treasurer and Chief Financial Officer of the Company; Executive Vice President, Chief Financial Officer and Cashier, BancorpSouth Bank		58

Harry R. Baxter	Executive Vice President of the Company and Vice Chairman and Director of Marketing of BancorpSouth Bank		58

Gary R. Harder	Executive Vice President of the Company and Executive Vice President, Audit and Loan Review of BancorpSouth Bank		58

W. James Threadgill, Jr.	Executive Vice President of the Company and Vice Chairman of BancorpSouth Bank		48

Michael L. Sappington	Executive Vice President of the Company and Vice Chairman of BancorpSouth Bank		53

Gregg Cowsert	Executive Vice President of the Company and Vice Chairman and Chief Lending Officer of BancorpSouth Bank		55

None of the executive officers of the Company are related by blood, marriage or adoption. There are no arrangements or understandings between any of the executive officers and any other person pursuant to which the individual named above was or is to be selected as an officer. The executive officers of the Company are elected by the Board of Directors at its first meeting following the annual meeting of shareholders, and they hold office until the next annual meeting or until their successors are duly elected and qualified.

Mr. Patterson has served as Chairman of the Board and Chief Executive Officer of the Bank and the Company for at least the past five years.

Mr. Kelley has served as President and Chief Operating Officer of the Bank and the Company since the August 31, 2000 merger of First United Bancshares, Inc. with the Company. Prior to the merger, he served as Chairman of the Board, President and Chief Executive Officer of First United Bancshares, Inc. for at least three years prior to the merger. First United Bancshares, Inc. was a $2.7 billion bank holding company headquartered in El Dorado, Arkansas at the time of its merger with the Company.

Mr. Allen has served as Executive Vice President of the Bank for at least the past five years. He has served as Treasurer and Chief Financial Officer of the Company during this same period.

Mr. Baxter has served as Executive Vice President of the Company and Vice Chairman and Director of Marketing of the Bank for at least the past five years.

Mr. Harder has served as Executive Vice President, Audit and Loan Review of the Bank for at least the past five years. He has also served as Executive Vice President of the Company during this same period.

Mr. Threadgill had served as Southern Mississippi Region President of BancorpSouth Bank for at least four years prior to April 2002 when he was named Vice Chairman of BancorpSouth Bank and Executive Vice President of the Company.

Mr. Sappington has served as Executive Vice President of the Company and Vice Chairman of the Bank for at least the past five years.

Mr. Cowsert has served as Executive Vice President of the Company and Vice Chairman and Chief Lending Officer of the Bank for at least the past five years.

Mrs. Robertson has served as Senior Vice President and Executive Vice President of the Bank for at least the past five years. She has also served as Executive Vice President of the Company during this same period.

Mrs. Freeman has served as First Vice President and Corporate Secretary of the Company and the Bank for at least the past five years.

Information regarding audit committee financial experts serving on the Audit Committee of the Company’s Board of Directors appears under the caption “Audit Committee Financial Expert” in the Company’s definitive Proxy Statement for its 2003 annual meeting of shareholders to be held during 2003, and is incorporated herein by reference.

The Company has adopted a code of ethics that applies to its chief executive officer, chief financial officer and other financial reporting personnel. A copy of the code of ethics is available on our website at www.bancorpsouth.com.

Information concerning the remuneration of executive officers of the Company appears under the caption “Executive Compensation” in the Company’s definitive Proxy Statement for its 2003 annual meeting of shareholders, and is incorporated herein by reference. Information concerning the remuneration of directors of the Company appears under the caption “Compensation of Directors” in the Company’s definitive Proxy Statement for its 2003 annual meeting of shareholders, and is incorporated herein by reference.

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

Information concerning the security ownership of certain beneficial owners and directors, nominees and executive officers of the Company appears under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Company’s definitive Proxy Statement for its 2003 annual meeting of shareholders, and is incorporated herein by reference.

Information concerning the Company’s equity compensation plans appears under the caption “Equity Compensation Plan Information” in the Company’s definitive Proxy Statement for its 2003 annual meeting of shareholders, and is incorporated herein by reference.

Information concerning certain relationships and related transactions with management and others appears under the caption “Certain Relationships and Related Transactions” in the Company’s definitive Proxy Statement for its 2003 annual meeting of shareholders, and is incorporated herein by reference.

The Company, with the participation of its management, including our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934) as of a date within 90 days prior to the filing of this Report. Based upon, and as of the date of, that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to information required to be disclosed in its reports that the Company files or submits to the Securities and Exchange Commission under the Securities Exchange Act of 1934.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation by the Company’s Chief Executive Officer and Chief Financial Officer.

Item 15. – Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) Index to Consolidated Financial Statements, Financial Statement Schedules and Exhibits:


(3)	(a)	Articles of Incorporation, as amended and restated. (1)
	(b)	Bylaws, as amended and restated. (2)
	(c)	Amendment No. 1 to Amended and Restated Bylaws. (3)
(4)	(a)	Specimen Common Stock Certificate. (4)
	(b)	Rights Agreement, dated as of April 24, 1991, including as Exhibit A the forms of Rights Certificate and of Election to Purchase and as Exhibit B the summary of Rights to Purchase Common Shares. (5)
	(c)	First Amendment to Rights Agreement, dated as of March 28, 2001. (6)
	(d)	Amended and Restated Certificate of Trust of BancorpSouth Capital Trust I. (7)
	(e)	Second Amended and Restated Trust Agreement of BancorpSouth Capital Trust I, dated as of January 28, 2002, between BancorpSouth, Inc., The Bank of New York, The Bank of New York (Delaware) and the Administrative Trustees named therein. (8)
	(f)	Junior Subordinated Indenture, dated as of January 28, 2002, between BancorpSouth, Inc. and The Bank of New York. (8)
	(g)	Guarantee Agreement, dated as of January 28, 2002, between BancorpSouth, Inc. and The Bank of New York. (8)
	(h)	Junior Subordinated Debt Security Specimen. (8)
	(i)	Trust Preferred Security Certificate for BancorpSouth Capital Trust I. (8)
(10)	(a)	1998 Director Stock Plan. (2)(19)
	(b)	Form of deferred compensation agreement between Bancorp of Mississippi, Inc. and certain key executives. (9)(19)
	(c)	1990 Stock Incentive Plan. (10)(19)
	(d)	1994 Stock Incentive Plan. (11)(19)
	(e)	1998 Stock Option Plan. (12)(19)
	(f)	1995 Non-Qualified Stock Option Plan for Non-Employee Directors. (11)(19)
	(g)	BancorpSouth, Inc. Restoration Plan.*
	(h)	BancorpSouth, Inc. Deferred Compensation Plan.*
	(i)	Home Office Incentive Plan.*
	(j)	Dividend Reinvestment Plan. (13)
	(k)	Stock Bonus Agreement between BancorpSouth, Inc. and Aubrey B. Patterson, dated January 20, 1998 and Escrow Agreement between BancorpSouth Bank and Aubrey B. Patterson, dated March 20, 1998. (14)(19)
	(l)	First Amendment, dated January 30, 2000, to Stock Bonus Agreement, dated January 20, 1998, between BancorpSouth, Inc. and Aubrey B. Patterson. (15)(19)
	(m)	Second Amendment, dated January 31, 2001, to Stock Bonus Agreement, dated January 20, 1998, between BancorpSouth, Inc. and Aubrey B. Patterson. (3)(19)
	(n)	Stock Bonus Agreement between BancorpSouth, Inc. and James V. Kelley, dated April 16, 2000 and Escrow Agreement between BancorpSouth Bank and James V. Kelley, dated April 16, 2000. (16)(19)
	(o)	Amendment, dated July 24, 2000, to Stock Bonus Agreement, dated April 16, 2000, between BancorpSouth, Inc. and James V. Kelley. (17)(19)
	(p)	Information regarding Bancorp of Mississippi, Inc., amended and restated Salary Deferral-Profit Sharing Employee Stock Ownership Plan. (18)(19)
(11)	Statement re computation of per share earnings.*

No report on Form 8-K was filed during the quarter ended December 31, 2002 (excluding a current report on Form 8-K furnished on November 6, 2002 reporting information under “Item 9. Regulation FD Disclosures”).

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


/s/Aubrey B. Patterson Aubrey B. Patterson	Chairman of the Board, Chief Executive Officer (Principal Executive Officer) and Director	March 26, 2003

/s/L. Nash Allen, Jr. L. Nash Allen, Jr.	Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)	March 26, 2003

Shed H. Davis	Director	March 26, 2003

/s/Hassell H. Franklin Hassell H. Franklin	Director	March 26, 2003

/s/W. G. Holliman, Jr. W. G. Holliman, Jr.	Director	March 26, 2003

/s/James V. Kelley James V. Kelley	President, Chief Operating Officer and Director	March 26, 2003

/s/Larry G. Kirk Larry G. Kirk	Director	March 26, 2003

/s/Turner O. Lashlee Turner O. Lashlee	Director	March 26, 2003

/s/R. Madison Murphy R. Madison Murphy	Director	March 26, 2003

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


Exhibit No.		Description

(3)	(a)	Articles of Incorporation, as amended and restated. (1)
	(b)	Bylaws, as amended and restated. (2)
	(c)	Amendment No. 1 to Amended and Restated Bylaws. (3)
(4)	(a)	Specimen Common Stock Certificate. (4)
	(b)	Rights Agreement, dated as of April 24, 1991, including as Exhibit A the forms of Rights Certificate and of Election to Purchase and as Exhibit B the summary of Rights to Purchase Common Shares. (5)
	(c)	First Amendment to Rights Agreement, dated as of March 28, 2001. (6)
	(d)	Amended and Restated Certificate of Trust of BancorpSouth Capital Trust I. (7)
	(e)	Second Amended and Restated Trust Agreement of BancorpSouth Capital Trust I, dated as of January 28, 2002, between BancorpSouth, Inc., The Bank of New York, The Bank of New York (Delaware) and the Administrative Trustees named therein. (8)
	(f)	Junior Subordinated Indenture, dated as of January 28, 2002, between BancorpSouth, Inc. and The Bank of New York. (8)
	(g)	Guarantee Agreement, dated as of January 28, 2002, between BancorpSouth, Inc. and The Bank of New York. (8)
	(h)	Junior Subordinated Debt Security Specimen. (8)
	(i)	Trust Preferred Security Certificate for BancorpSouth Capital Trust I. (8)
(10)	(a)	1998 Director Stock Plan. (2)(19)
	(b)	Form of deferred compensation agreement between Bancorp of Mississippi, Inc. and certain key executives. (9)(19)
	(c)	1990 Stock Incentive Plan. (10)(19)
	(d)	1994 Stock Incentive Plan. (11)(19)
	(e)	1998 Stock Option Plan. (12)(19)
	(f)	1995 Non-Qualified Stock Option Plan for Non-Employee Directors. (11)(19)
	(g)	BancorpSouth, Inc. Restoration Plan.*
	(h)	BancorpSouth, Inc. Deferred Compensation Plan.*
	(i)	Home Office Incentive Plan.*
	(j)	Dividend Reinvestment Plan. (13)
	(k)	Stock Bonus Agreement between BancorpSouth, Inc. and Aubrey B. Patterson, dated January 20, 1998 and Escrow Agreement between BancorpSouth Bank and Aubrey B. Patterson, dated March 20, 1998. (14)(19)
	(l)	First Amendment, dated January 30, 2000, to Stock Bonus Agreement, dated January 20, 1998, between BancorpSouth, Inc. and Aubrey B. Patterson. (15)(19)
	(m)	Second Amendment, dated January 31, 2001, to Stock Bonus Agreement, dated January 20, 1998, between BancorpSouth, Inc. and Aubrey B. Patterson. (3)(19)
	(n)	Stock Bonus Agreement between BancorpSouth, Inc. and James V. Kelley, dated April 16, 2000 and Escrow Agreement between BancorpSouth Bank and James V. Kelley, dated April 16, 2000. (16)(19)
	(o)	Amendment, dated July 24, 2000, to Stock Bonus Agreement, dated April 16, 2000, between BancorpSouth, Inc. and James V. Kelley. (17)(19)
	(p)	Information regarding Bancorp of Mississippi, Inc., amended and restated Salary Deferral-Profit Sharing Employee Stock Ownership Plan. (18)(19)
(11)		Statement re computation of per share earnings.*
(21)		Subsidiaries of the Registrant.*
(23)		Consent of Independent Accountants.*

79 EX-10.G 3 g81397exv10wg.txt EX-10.G RESTORATION PLAN EXHIBIT 10(g) BANCORPSOUTH, INC. RESTORATION PLAN 1. Name and Purpose The name of this plan is the BancorpSouth, Inc. Restoration Plan (the "Plan"). It has been established by BancorpSouth, Inc. and its subsidiary companies (BancorpSouth, Inc. and such subsidiaries are sometimes collectively called the "Bank") to provide for the payment of retirement benefits to certain participants in the BancorpSouth, Inc. Retirement Plan (the "Basic Plan"). 2. Definitions All terms used in this Plan shall have the same meaning assigned to them under the provisions of the Basic Plan unless otherwise qualified by the context hereof. 3. Administration This Plan shall be administered by the Committee which shall administer it in a manner consistent with the administration of the Basic Plan, as from time to time amended and in effect, except that this Plan shall be administered as an unfunded plan which is not intended to meet the qualification requirements of Section 401 of the Internal Revenue Code of 1986, as amended. The Committee shall have full power and authority to interpret, construe and administer this Plan and the Committee's interpretations and construction thereof, and actions thereunder, including the amount or recipient of the payment to be made therefrom, shall be binding and conclusive on all persons for all purposes. 4. Eligibility Any Employee whose benefit under the Basic Plan is limited by the provisions of the Internal Revenue Code of 1986 and any Employee who elects to participate in the BancorpSouth, Inc. Deferred Compensation Plan shall be eligible for a benefit under this Plan, and is hereinafter called a "Participant". 5. Amount of Benefit The benefit payable to a Participant or his Beneficiary shall be equal to the benefit which would have been paid under the Basic Plan if the Basic Plan: (a) were administered without regard to the maximum amount of retirement income limitations set forth in Section 415 of the Internal Revenue Code of 1986, as amended. (b) were administered without regard to the maximum compensation limitations set forth in Section 401(a)(17) of the Internal Revenue Code of 1986, as amended, and (c) if the amount of any compensation deferred under the terms of the BancorpSouth, Inc. Deferred Compensation Plan was included in the computation of Final Average Monthly Compensation. The benefit payable shall be reduced by the benefit which is payable to the Participant or his Beneficiary under the Basic Plan. The amount of benefits so determined shall be subject to such adjustments as the Committee deems appropriate to reflect changes in the application of the limitations imposed by the Internal Revenue Code. Any decision of the Committee concerning an increase or decrease in the amount of the benefit payable through this plan shall be binding and conclusive on all person. 6. Payment of Benefits The payment of the benefits to a Participant or Beneficiary under this Plan shall be paid coincident with and in the same manner as the payment of the benefits to such Participant or Beneficiary under the Basic Plan. 7. Participant's Rights A Participant's rights under this Plan, including this rights to vested benefits, shall be the same as his rights under the Basic Plan, except that he shall not be entitled to any payments from the trust fund maintained under the Basic Plan with respect to any benefits to which he may be entitled under this Plan. All benefits payable under this Plan shall be paid from the general assets of the Bank. Benefits shall not be paid from any special or separate fund, and no special or separate fund shall be established, or other segregation of assets made, to make payments of benefits to a Participant or his Beneficiary hereunder. No Participant, his Beneficiary or any other person shall have, under any circumstances, any interest whatever in any particular property or assets of the Bank by virtue of this Plan. 8. Actuarial Equivalents In determining actuarially equivalent values for the purposes of this Plan, the Committee shall use the mortality and interest assumptions that are used under the Basic Plan. 9. Amendment and Discontinuance The Board of Directors of the Bank may at any time amend or discontinue this Plan. However, if this Plan should be amended or discontinued, the Bank shall be liable for any benefits accrued by Participants as of the date of such amendment or discontinuance. Such accrued benefits shall be the actuarially determined benefits as of such date of amendment or discontinuance which each Participant or his Beneficiary is receiving under this Plan or, with respect to any Participant in the employment of the Bank, the benefit which such Participant would be eligible to receive as of such date under this Plan if his employment had terminated as of the date of the amendment or discontinuance. 10. Restrictions on Assignment The rights of any Participant or his Beneficiary to the payment of benefits from this Plan shall not be assigned, transferred, pledged or encumbered or be subject in any manner to alienation or anticipation. No Participant may borrow against future benefits. No benefit shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, whether voluntary or involuntary, including but not limited to any liability which is for alimony or other payment for the support of a spouse or former spouse, or for any other relative of any Participant. 11. Continued Employment Nothing contained in this Plan shall be construed as conferring upon an Employee the right to continue in the employment of the Bank in any capacity. 12. Liability of Committee No member of the Committee shall be liable for any loss unless resulting from his own fraud or willful misconduct, and no member shall be personally liable for or with respect to any agreement, act, transaction or omission executed, committed or suffered to be committed by himself as a member of the Committee or by any other member, agent, representative or employee of the Committee. The Committee and any individual member of the Committee and any agent thereof shall be fully protected in ruling upon the advice of the following professional consultants or advisors employed by the Bank or the Committee: any attorney insofar as legal matters are concerned, any accountant insofar as accounting matters are concerned and any actuary insofar as actuarial matters are concerned. 2 13. Indemnification The Bank aggress to hold harmless and indemnify the members of the Committee and all directors, officers and employees of the Bank against any and all parties whomsoever, and all losses therefrom, including without limitation, costs of defense and attorneys' fees, based upon or arising out of any act or omission relating to, or in connection with, this Plan other than losses resulting from such person's fraud or willful misconduct. 14. Benefits Forfeited If Retired or Terminated Participant Engages in Competitive Employment A Participant who retires under the Basic Plan or whose service is terminated (voluntarily or involuntarily) and who is entitled to a benefit under the provisions of the Basic Plan, may enter into any employment with an employer or enter into any business or occupation on a self-employed basis, without affecting his rights to receive benefits hereunder; provided, however, that such retired or terminated Participant shall forfeit his right to any and all benefits under this Plan if, within a period of two (2) years after his retirement or termination of his employment, he shall, for himself or on behalf of any person, corporation, association or other entity other than the Bank: (i) engage in the banking business in any county in any state in which the Bank maintains an office or is engaged in a banking business that produces in excess of 5% of the net income after tax of the Bank for the twelve months prior to the date of retirement or termination of employment; or (ii) directly or indirectly solicit or attempt to solicit business from any customer of the Bank existing on the date of retirement or termination of such employment; provided, however, that this covenant not to compete shall not apply after a termination of employment if such termination occurs for cause under Paragraph 15 below. Any commercial bank or other enterprise, the principal business of which is the provision of any service customarily provided by the Bank shall be deemed an employer which is in competition with the Bank. It shall be the duty of the Committee to determine whether or not any retired or terminated Participant is, under the facts pertaining to him, affected by the provisions of this Section, and any determination made by the Committee with respect thereto shall be final, binding and conclusive on all Participants and their Beneficiaries and on all other persons whomsoever interested hereunder. 15. Termination of Service for Cause A Participant who is terminated "for cause", as herein defined, shall forfeit his right to any and all benefits under this Plan. Termination "for cause" shall mean termination upon: (i) the Participant's final conviction of a felony crime involving moral turpitude, or the Participant's deliberate and intentional continuing refusal to substantially perform his duties and obligations under his employment (except by reason of incapacity due to illness or accident) if he shall have either failed to remedy such alleged breach within forty-five (45) days from his receipt of written notice from the Bank demanding that he remedy such alleged breach, or shall have failed to take reasonable steps in good faith to that end during such forty-five (45) day period and thereafter; or (ii) a determination that the Participant has engaged in willful fraud or defalcation or other dishonesty involving the funds, assets or the operation of the Bank. 16. Binding on Employer, Participants and Their Successors This Plan shall be binding upon and inure to the benefit of the Bank, their successors and assigns and the Participant and his heirs, executors, administrators, and duly appointed legal representatives. 3 17. Law Governing Except to the extent superseded by federal law, the laws of the State of Mississippi shall be controlling in all matters relating to the Plan, including construction and performance hereof. 18. Effective Date This Plan shall be effective January 1, 1994 with respect to payments made to or on behalf of Participants on and after such date. IN WITNESS WHEREOF, BANCORPSOUTH, INC. has caused this instrument to be executed by its duly authorized officers on this 22nd day of December, 1993. BANCORPSOUTH, INC. By /s/ Aubrey B. Patterson ----------------------------------------- Chairman and Chief Executive Officer 4 EX-10.H 4 g81397exv10wh.txt EX-10.H DEFERRED COMPENSATION PLAN EXHIBIT 10(h) BANCORPSOUTH, INC. DEFERRED COMPENSATION PLAN I. Name and Purpose The name of this plan is the BancorpSouth, Inc. Deferred Compensation Plan (the "Plan"). Its purpose is to provide certain employees of BancorpSouth, Inc. and its subsidiary companies (BancorpSouth, Inc. and such subsidiaries are sometimes collectively called the "Bank") with the opportunity to defer the receipt of compensation otherwise payable to them as employees of the Bank. II. Effective Date The Plan shall be effective as of January 1, 1994. III. Participants The Bank shall designate the employees that shall be eligible to participate in the Plan. Any Employee who elects to participate in the Plan is hereinafter called a "Participant". The Bank will establish for each Participant an unfunded deferred compensation account, as specified in Section V. IV. Election of Deferral Each Participant shall be entitled to make an irrevocable election (in the form of Exhibit A hereto), as specified in Section VII, to defer receipt of a portion of the compensation otherwise payable by the Bank to the Participant. Any such election for a calendar year must be completed prior to January 1 of that year. V. Deferred Compensation Accounts A separate account shall be established and maintained for each Participant, which account shall reflect the compensation deferred pursuant hereto by such Participant and specified in the applicable election form and all interest credited thereto from time to time. Each Participant's account shall be credited with interest as of June 30 and December 31 of each year. In the event that a Participant's account balance is distributed on a date other than June 30 or December 31, his account shall be credited with interest thereon from the immediately preceding June 30 or December 31 to the date of distribution. No interest shall be credited to a Participant's account after the complete distribution of such Participant's account balance. Interest to be credited for any period shall be at a rate equal to the yield as quoted for the last business day of each year in The Wall Street Journal for the most recently issued U. S. Treasury Note with an original maturity of 10 years. This interest rate will be determined annually on January 1 and will remain in effect for the entire calendar year. Interest credits shall be computed on the basis of a 365-day year and credited on the average daily balance. VI. Method of Distribution of Deferred Compensation A Participant's deferred compensation plus any interest credited thereon shall be payable in a series of substantially equal monthly payments commencing on the first day of the month coincident with or next following the later of (i) the earliest date that the Participant could elect to begin receiving a retirement income under the terms of the BancorpSouth, Inc. Retirement Plan, and (ii) the Participant's termination of employment. Said payments shall continue for a period of ten years or such other period determined by the Bank in its discretion. No distribution of a Participant's deferred compensation or any interest credited thereon may be made except as provided in this Section VI. VII. Manner of Electing Deferral A Participant may elect to defer compensation by giving written notice to the Bank. Such notice must be received by the Bank prior to January 1 of the year for which the deferral is elected, must be in the form of Exhibit A hereto and set forth the Participant's irrevocable election as to the amount of compensation to be deferred. VIII. Distribution Upon Death If any Participant dies before receiving all amounts credited to his account, the unpaid amounts in the Participant's account shall be paid to the Participant's surviving spouse, or if the Participant has no surviving spouse, to the Participant's estate, with payments to be made for the period elected by the Participant. Notwithstanding the foregoing, if a Participant's spouse fails to survive the Participant by at least ten (10) days, that spouse shall be deemed to have predeceased the Participant for purposes hereof. IX. Benefit Plans The amount of each Participant's compensation which he elects to defer under the Plan shall not be deemed to be compensation for the purpose of calculating the amount of a Participant's benefits or contributions under any plan qualified under Section 401(a) of the Internal Revenue Code, the amount of life insurance payable under any life insurance plan established or maintained by the Bank, or the amount of any disability benefit payments payable under any disability plan established or maintained by the bank, except to the extent specifically provided in any such plan. X. Participant's Rights Establishment of the Plan shall not be construed as giving any Participant the right to be retained in the Bank's service or employ or the right to receive any benefits not specifically provided by the Plan. A Participant shall not have any interest in the compensation deferred or interest credited to his account until such account is distributed in accordance with the Plan. All deferred compensation held for the account of a Participant under the Plan shall remain the sole property of the Bank, subject to the claims of its general creditors and available for its use for whatever purposes desired. With respect to amounts deferred or otherwise held for the account of a Participant, the Participant is merely a general creditor of the Bank; and the obligation of the Bank hereunder is purely contractual and shall not be funded or secured in any way. XI. Non-alienability and Non-transferability The rights of a Participant to the payment of deferred compensation as provided in the Plan shall not be assigned, transferred, pledged or encumbered or be subject in any manner to alienation or anticipation. No Participant may borrow against his account. No account shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, whether voluntary or involuntary, including but not limited to any liability which is for alimony or other payment for the support of a spouse or former spouse, or for any other relative of any Participant. XII. Administration The Administrator of this Plan shall be the Board of Directors of BancorpSouth, Inc. except as otherwise determined by such Board of Directors. Such Board of Directors shall have the authority to adopt rules and regulations for carrying out the Plan and to interpret, construe and implement the provisions hereof. Any decision or interpretation of any provision of the Plan adopted by such board shall be final and conclusive. A Participant who is also a member of the Board of Directors shall not participate in any 2 decision involving any request made by him or relating in any way solely to his rights, duties and obligations as a Participant under the Plan. XIII. Amendment and Termination The Plan may, at any time or from time to time, be amended, modified or terminated by the Board of Directors of BancorpSouth, Inc. However, no amendment, modification or termination of the Plan shall, without the consent of a Participant, adversely affect such Participant's rights with respect to amounts then accrued in his account. XIV. General Provisions (A) Controlling Law. Except to the extent superseded by federal law, the laws of the State of Mississippi shall be controlling in all matters relating to the Plan, including construction and performance hereof. (B) Captions. The captions of Sections and paragraphs of this Plan are for convenience of reference only and shall not control or affect the meaning or construction of any of its provisions. (C) Facility of Payment. Any amounts payable hereunder to any person who is under legal disability or who, in the judgment of the Board of Directors of BancorpSouth, Inc., is unable to properly manage his financial affairs may be paid to the legal representative of such person or may be applied for the benefit of such person in any manner which the Board of Directors may select, and any such payment shall be deemed to be payment of such person's account and shall be a complete discharge of all liability of the Bank with respect to the amount so paid. (D) Withholding Payroll Taxes. To the extent required by the laws in effect at the time compensation or deferred compensation payments are made, the Bank shall withhold from such compensation, or from deferred compensation payments made hereunder, any taxes required to be withheld for federal, state or local government purposes. (E) Administrative Expenses. All expense of administering the Plan shall be borne by the Bank and no part thereof shall be charged against any Participant's account or any amounts distributable hereunder. (F) Any provision of this Plan prohibited by the law of any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition without invalidating the remaining provision hereof. (G) Except as otherwise expressly provided herein, no member of the Board of Directors of BancorpSouth, Inc. and no officer, employee, or agent of the Bank, shall have any liability to any person, firm or corporation based on or arising out of the Plan except in the case of gross negligence or fraud. XV. Unfunded Status of the Plan Any and all payments made to the Participant pursuant to the Plan shall be made only from the general assets of the Bank. All accounts under the Plan shall be for bookkeeping purposes only and shall not represent a claim against specific assets of the Bank. Nothing contained in this Plan shall be deemed to create a trust of any kind or create any fiduciary relationship. 3 IN WITNESS WHEREOF, BancorpSouth, Inc. has caused this Plan to be executed this 23rd day of November, 1993. BANCORPSOUTH, INC. By /s/ Aubrey B. Patterson ----------------------------------------- Chairman and Chief Executive Officer 4 EXHIBIT A NOTICE OF ELECTION To: The Secretary of BancorpSouth, Inc. In accordance with the provisions of the BancorpSouth, Inc. Deferred Compensation Plan, I hereby elect to defer the portion of my compensation specified below that would otherwise be payable to me for services as an employee of BancorpSouth, Inc. or its subsidiaries for the period beginning January 1, ______ and ending December 31, _____. Deferral Election ___% of compensation otherwise payable to me for the above period. or $ __________ All payments will be made in the manner specified in the Plan. This election is irrevocable and is subject to the terms of the Plan, a copy of which has been given to me. - ------------------------------ ------------------------------ Employee Date Received on behalf of BancorpSouth, Inc. - ------------------------------ ------------------------------ Secretary Date A-1 EX-10.I 5 g81397exv10wi.txt EX-10.I HOME OFFICE INCENTIVE PLAN EXHIBIT 10(i) BANCORPSOUTH, INC. HOME OFFICE INCENTIVE PLAN (HOIP) Reflecting Revisions Effective January 1, 2002 I. Purpose The Home Office Incentive Plan (HOIP) is intended to motivate management participants to focus on actions and results that will allow BancorpSouth to meet or exceed its corporate goals. II. Administration The Executive Compensation Committee of the Board of Directors (the Committee) has the ultimate responsibility for the Plan; the Chairman with assistance from the Director of Human Resources and Comptroller will conduct the daily business of the Plan and will report directly to the Committee concerning the Plan. Each year, the Chairman will ensure that each participant in the Plan is notified of their eligibility to participate in the current Plan Year, their award opportunities under the Plan, the performance criteria and goals for the Plan Year and the resulting awards earned. III. Plan Year The first Plan Year under this Plan began January 1, 1985 and ended December 31, 1985. The measurement period for award purposes is the full calendar year. Each Plan Year will consist of one year, beginning January 1 and ending December 31. IV. Participation Upper level management employees with a responsibility level significant enough to have impact on corporate results. To be eligible, participants must be recommended by the Chairman and approved by the Committee and the full Board. V. Award Opportunities and Performance Measures The award opportunities and performance measures have been amended several times over the life of the Plan. Current award opportunities are based on the chart shown as Exhibit A that was approved by the Board in January of 2002. The performance measures used in the Plan were amended by the Board in January of 1994 to be based on bank performance alone, and not on individual performance. The Plan was further amended in January of 2002 to allow the incorporation of Responsibility Area performance (in addition to overall bank performance) relevant to the various participants as may be determined appropriate by the Chairman and approved by the Committee. Overall bank performance is based on growth and profitability - measured in terms of Return on Average Equity (ROAE) for the profitability measurement and Average Deposits for the growth measurement. Responsibility Area performance is measured using criteria customized to reflect the role and contribution of the specific individual participant. The relative importance of overall bank performance versus responsibility area performance is determined each Plan Year by the Chairman for each participant, and is approved by the Committee. A Bank Performance award matrix showing the unweighted performance/award relationships for various combinations of ROAE and Deposit Growth is shown as Exhibit B. The matrix is revised each year to reflect the next year's ROAE and average deposit goals. In addition, goals will be set for each measure of Responsibility Area performance used under the Plan, with unweighted performance/award relationships defined. At the end of the Plan Year, the levels of performance achieved with respect to both overall bank performance goals and Responsibility Area performance goals will be determined, the associated unweighted award opportunities will be identified, the assigned relative importance weightings will be applied, and the total earned award will be calculated. VI. Plan Trigger The Plan has a "trigger" which must be achieved in order to be activated. The current Plan trigger is to achieve the threshold level of ROAE and Average Deposits set forth in Exhibit B. If the Plan Trigger is not satisfied, no incentive awards can be paid on the basis of Responsibility Area performance - unless the Committee determines that the Plan's alternative funding mechanism should be activated. VII. Award Payments Awards earned under the Plan will be paid following the measurement period, after appropriate verification of results and approvals are obtained. VIII. Extraordinary Items Reported results will be adjusted, for the purposes of determining awards under the Plan, to reflect the effects of any direct merger related expenses, the accounting impact of Stock Appreciation Rights (SARs), extraordinary items, and such other items as may be deemed appropriate by the Committee. Any adjustments to reported results that are used in the determination of awards must be approved by the Board of Directors. IX. Terminations In the event of termination of employment during the Plan Year as the result of approved retirement, long-term disability or death, the participant (or his/her beneficiary or estate) will be eligible for a pro rata award - payable on the Plan's normal award payment date - based on levels of performance achieved year-to-date at the time of termination and the participant's actual base salary received during the Plan Year. Participants whose employment is terminated for any other reason prior to the award payment date will not be eligible for any award under the Plan. X. Alternative Funding Approach If the Plan Trigger is not achieved for a Plan Year, but BancorpSouth's performance with respect to ROAE and/or Deposit Growth exceeds that of a peer group selected by the Compensation Committee, the Compensation Committee may determine to pay selective incentive awards for that Year on the basis of the facts and circumstances of the situation. The Committee's determination will be discretionary, but based on such information and analyses as it may request from the Chairman. XI. Compliance Notwithstanding anything in the Plan to the contrary, the amount of any award due under this Plan may be reduced (including reduction to $0) by BancorpSouth (in its sole discretion) in the event that it determines that the performance of the participant(s), or the business unit in which the participant is employed, is unsatisfactory with respect to BancorpSouth standing corporate policies, or has resulted in a violation of such policies or of federal, state or local statutes or regulations. XII. Amendment and Plan Termination BancorpSouth expressly reserves the right to amend or terminate the Plan at any time. XIII. Awards are Compensation for Tax Purposes Any payment under the Plan is compensation for federal and state tax purposes, and will be reported as ordinary income in the year for which the award is paid. 2 EX-11 6 g81397exv11.txt EX-11 STATEMENT RE COMP. OF PER SHARE EARNINGS . . . EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS

EX-21 7 g81397exv21.txt EX-21 SUBSIDIARIES OF THE REGISTRANT . . . EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT

EX-23 8 g81397exv23.txt EX-23 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 Independent Auditors' Consent The Board of Directors BancorpSouth, Inc.: We consent to incorporation by reference in the Registration Statement (No. 333-28081) on Form S-4, the Registration Statements (Nos. 2-88488, 33-43796, 33-60699, 333-84389, 333-84395 and 333-88226) on Form S-8 and the Registration Statements (Nos. 33-03009 and 333-72712) on Form S-3 of BancorpSouth, Inc. of our report dated January 20, 2003, relating to the consolidated balance sheets of BancorpSouth, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2002, which report is included in the 2002 annual report on Form 10-K of BancorpSouth, Inc. Our report refers to changes in the method of accounting for goodwill, other intangible and long-lived assets. /s/ KPMG LLP Memphis, Tennessee March 26, 2003 -----END PRIVACY-ENHANCED MESSAGE-----


Mississippi		64-0659571

(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

One Mississippi Plaza
201 South Spring Street
Tupelo, Mississippi		38804

(Address of principal executive offices)		(Zip Code)


		Name of Each Exchange on
Title of Each Class		Which Registered

Common stock, $2.50 par value		New York Stock Exchange
Common stock purchase rights		New York Stock Exchange


PART I
Item 1. — Business
Item 2. — Properties
Item 3. — Legal Proceedings
Item 4. — Submission of Matters to a Vote of Security Holders
PART II
Item 5. — Market for the Registrant’s Common Stock and Related Stockholder Matters
Item 6. — Selected Financial Data
Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. – Quantitative and Qualitative Disclosures About Market Risk
Item 8. – Financial Statements and Supplementary Data
Item 9. – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Item 10. – Directors and Executive Officers of the Registrant
Item 11. — Executive Compensation
Item 12. — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. — Certain Relationships and Related Transactions
Item 14. — Controls and Procedures
Item 15. — Exhibits, Financial Statement Schedules, and Reports on Form 8-K
INDEX TO EXHIBITS
EX-10.G RESTORATION PLAN
EX-10.H DEFERRED COMPENSATION PLAN
EX-10.I HOME OFFICE INCENTIVE PLAN
EX-11 STATEMENT RE COMP. OF PER SHARE EARNINGS
EX-21 SUBSIDIARIES OF THE REGISTRANT
EX-23 CONSENT OF INDEPENDENT ACCOUNTANTS


		December 31

		2002		2001		2000

		(In thousands)
U.S. Treasury securities		$	28,406	$	23,034	$	22,019
U.S. Government agency securities			895,681		798,887		826,353
Taxable obligations of states and political subdivisions			15,749		12,154		13,949
Tax exempt obligations of states and political subdivisions			184,226		201,343		326,808
Other securities			69,313		75,045		—

	TOTAL	$	1,193,375	$	1,110,463	$	1,189,129


		December 31

		2002		2001		2000

		(In thousands)
U. S. Treasury securities		$	332	$	7,383	$	26,621
U. S. Government agency securities			1,377,508		821,607		689,612
Taxable obligations of states and political subdivisions			10,481		13,007		9,601
Tax exempt obligations of states and political subdivisions			173,772		164,800		64,521
Other securities			80,079		76,394		67,045

	TOTAL	$	1,642,172	$	1,083,191	$	857,400


	One Year		One to		After
	or Less		Five Years		Five Years

	(In thousands)
Commercial & agricultural	$	434,514	$	260,900	$	16,365
Consumer & installment		440,691		264,610		16,598
Real estate mortgages		2,818,681		1,692,454		106,163
Lease financing		188,966		113,463		7,117
Other		17,619		10,580		663

Total Loans, net of unearned discount	$	3,900,471	$	2,342,007	$	146,907


		December 31, 2002

		Fixed		Variable
		Rate		Rate

		(In thousands)
Loan Portfolio
	Due after one year	$	2,029,958	$	458,956


		Year Ended December 31

		2002					2001					2000

		Average		Average			Average		Average			Average		Average
		Amount		Rate			Amount		Rate			Amount		Rate

		(Dollars in thousands)
Non-interest bearing demand deposits		$	1,064,218		—		$	1,003,229		—		$	967,823		—
Interest bearing demand deposits			2,338,775		1.53	%		1,893,075		2.68	%		1,672,466		3.24	%
Savings deposits			852,694		1.49	%		885,025		3.60	%		874,707		4.45	%
Time deposits			3,991,757		3.51	%		3,912,405		5.58	%		3,758,003		5.78	%

	Total deposits	$	8,247,444				$	7,693,734				$	7,272,999


		DECEMBER 31, 2002

		(In thousands)
Three months or less		$	596,560
Over three months through six months			747,086
Over six months through twelve months			298,773
Over twelve months			141,977

	TOTAL	$	1,784,396


		High		Low

2002	Fourth	$	20.19	$	17.43
	Third		21.10		16.61
	Second		22.21		19.37
	First		20.00		15.90

2001	Fourth	$	17.00	$	14.25
	Third		16.97		13.45
	Second		17.00		14.00
	First		15.63		12.06

(1)		Includes taxable equivalent adjustment of $1,854,000, $1,273,000 and $1,538,000 in 2002, 2001 and 2000, respectively, using an effective tax rate of 35%.
(2)		Non-accrual loans are immaterial for each of the years presented.
(3)		Includes taxable equivalent adjustments of $5,217,000, $5,744,000 and $8,438,000 in 2002, 2001 and 2000, respectively, using an effective tax rate of 35%.
(4)		Includes taxable equivalent adjustment of $4,651,000, $4,576,000 and $2,103,000 in 2002, 2001 and 2000, respectively, using an effective tax rate of 35%.
(5)		Interest expense includes interest paid on liabilities not included in averages.


		2002

				Gross		Gross		Estimated
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value

		(In thousands)
U.S. Treasury		$	28,406	$	1,008	$	—	$	29,414
U.S. Government agencies and corporations			895,681		38,009		15		933,675
Obligations of states and political subdivisions			199,975		7,996		273		207,698
Other			69,313		3,482		348		72,447

	Total	$	1,193,375	$	50,495	$	636	$	1,243,234


		Estimated
		Useful Life
		Years		2002		2001

		(In thousands)
Land			N/A	$	35,274	$	33,447
Buildings and improvements			20-50		164,210		158,952
Leasehold improvements			10-20		5,811		6,007
Equipment, furniture and fixtures			3-12		176,428		159,279
Construction in progress			N/A		11,328		12,710

	Subtotal				393,051		370,395
Accumulated depreciation and amortization					182,868		158,819

	Premises and equipment, net			$	210,183	$	211,576


			Year ended				Year ended
			December 31, 2002				December 31, 2001

			Gross Carrying		Accumulated		Gross Carrying		Accumulated
			Amount		Amortization		Amount		Amortization

			(In thousands)
Amortized intangible assets:
	Core deposit intangibles		$	11,549	$	4,192	$	9,299	$	2,689
	Customer lists			4,877		601		4,904		321
	Mortgage servicing rights			77,615		29,164		64,852		20,532

		Total	$	94,041	$	33,957	$	79,055	$	23,542


		Core Deposit		Customer		Mortgage
		Intangible		Lists		Servicing Rights		Total

		(In thousands)
Estimated amortization expense:
	For the year ended December 31, 2003	$	1,372	$	280	$	5,500	$	7,152
	For the year ended December 31, 2004		1,280		280		5,200		6,760
	For the year ended December 31, 2005		1,197		280		5,000		6,477
	For the year ended December 31, 2006		1,113		280		4,700		6,093
	For the year ended December 31, 2007		851		280		4,500		5,631


	December 31

	2002		2001		2000		1999		1998

	(In thousands)
Commercial & agricultural	$	716,891	$	691,463	$	757,885	$	712,799	$	721,001
Consumer & installment		727,083		865,188		1,065,324		1,197,277		1,133,218
Real estate mortgage		4,650,455		4,248,467		4,027,751		3,444,172		2,943,774
Lease financing		311,769		291,116		288,884		258,811		211,367
Other		29,070		30,811		21,238		12,984		26,669

Total gross loans	$	6,435,268	$	6,127,045	$	6,161,082	$	5,626,043	$	5,036,029


	2002					2001					2000

	Average		%			Average		%			Average		%
	Balance		Change			Balance		Change			Balance		Change

	(Dollars in millions)
Interest bearing deposits	$	7,183		+7.4	%	$	6,690		+6.1	%	$	6,305		+6.5	%
Non-interest bearing deposits		1,064		+6.1			1,003		+3.7			967		+3.6

Total average deposits	$	8,247		+7.2	%	$	7,693		+5.8	%	$	7,272		+6.1	%


		For the year ended December 31

		2002		2001		2000

		(In thousands, except per share amounts)
Reported net income		$	112,018	$	98,463	$	74,396
Add back: Goodwill amortization			—		3,013		3,244

Adjusted net income		$	112,018	$	101,476	$	77,640

Basic earnings per share:
	Reported net income	$	1.40	$	1.19	$	0.88
	Goodwill amortization		—		0.04		0.04

	Adjusted net income	$	1.40	$	1.23	$	0.92

Diluted earnings per share:
	Reported net income	$	1.39	$	1.19	$	0.88
	Goodwill amortization		—		0.04		0.04

	Adjusted net income	$	1.39	$	1.23	$	0.92


Maturing in			Amount

			(In thousands)
		2004	$	621,924
		2005		203,207
		2006		83,448
		2007		226,017
		2008		303
Thereafter				1,878

	Total		$	1,136,777


Final due date		Interest rate	Amount

			(In thousands)
2005		6.32%	$	5,000
2008 and beyond		5.86% - 7.19%		134,757

	Total		$	139,757


		Options Outstanding						Options Exercisable

Range of		Number		Weighted-Avg		Weighted-Avg		Number		Weighted-Avg
Exercise Prices		Outstanding		Remaining Life		Exercise Price		Exercisable		Exercise Price

	$6.30 to $9.38		206,382		1.6	$	8.43		206,382	$	8.43
$11.06 to $14.98			827,533		5.5		12.73		718,376		12.68
$15.06 to $17.69			767,654		7.4		16.41		544,087		16.79
$19.18 to $22.50			861,868		7.6		20.21		436,868		20.96

$6.30 to $22.50			2,663,437		6.4	$	15.88		1,905,713	$	15.29


(In thousands)	Amount

Loans outstanding at December 31, 2001	$	24,742
New loans		17,521
Repayments		(13,621	)
Changes in directors and executive officers		(765	)

Loans outstanding at December 31, 2002	$	27,877


(In thousands)	Amount

2003	$	3,569
2004		3,114
2005		2,063
2006		1,312
2007		824
Thereafter		2,905

Total future minimum lease payments	$	13,787


Condensed Balance Sheets		December 31

		2002		2001

		(In thousands)
Assets:
Cash on deposit with subsidiary bank		$	26,266	$	28,184
Investment in subsidiaries			905,787		782,718
Other assets			21,558		11,340

	Total assets	$	953,611	$	822,242

Liabilities and shareholders’ equity:
Total liabilities		$	145,788	$	16,839
Shareholders’ equity			807,823		805,403

	Total liabilities and shareholders’ equity	$	953,611	$	822,242


1.		Consolidated Financial Statements: See “Item 8. – Financial Statements and Supplementary Data.”

2.		Consolidated Financial Statement Schedules: All schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.

3.		Exhibits:

(1)		Filed as exhibits 3.1 and 3.2 to the Company’s registration statement on Form S-4 filed on January 6, 1995 (Registration No. 33-88274) and incorporated by reference thereto.
(2)		Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998 (file number 1-12991) and incorporated by reference thereto.
(3)		Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (file number 1-12991) and incorporated by reference thereto.
(4)		Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1994 (file number 0-10826) and incorporated by reference thereto.
(5)		Filed as exhibit 1 to the Company’s registration statement on Form 8-A filed on April 24, 1991 (file number 0-10826) and incorporated by reference thereto.
(6)		Filed as exhibit 2 to the Company’s amended registration statement on Form 8-A/A filed on March 28, 2001 (file number 1-12991) and incorporated by reference thereto.
(7)		Filed as exhibits 4.12 and 4.13 to the Company’s registration statement on Form S-3 filed on November 2, 2001 (Registration No. 33-72712) and incorporated by reference thereto.
(8)		Filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 28, 2002 (file number 1-12991) and incorporated by reference thereto.
(9)		Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1988 (file number 0-10826) and incorporated by reference thereto.
(10)		Filed as exhibit 28(a) to the Company’s registration statement on Form S-8 filed on November 1, 1991 (file number 33-43796) and incorporated by reference thereto.
(11)		Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 1998 (file number 1-12991) and incorporated by reference thereto.
(12)		Filed as exhibit 99.1 to the Company’s Post-Effective Amendment No. 5 on Form S-3 to the registration statement on Form S-4 filed on February 23, 1999 (file number 333-28081) and incorporated by reference thereto.
(13)		Filed in the Company’s Post-Effective Amendment No. 4 to the registration statement on Form S-3 filed on December 30, 1997 (file number 33-03009) and incorporated by reference thereto.
(14)		Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 (file number 1-12991), and incorporated by reference thereto.
(15)		Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2000 (file number 1-12991) and incorporated by reference thereto.
(16)		Filed as exhibits 10.3 and 10.4 to the Company’s registration statement on Form S-4 filed June 14, 2000 (Registration No. 333-39326) and incorporated by reference thereto.
(17)		Filed as an exhibit to the Company’s Current Report on Form 8-K filed on July 24, 2000 (file number 1-12991) and incorporated by reference thereto.
(18)		Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1990 (file number 0-10826) and incorporated by reference thereto.
(19)		Compensatory plans or arrangements.

*		Filed herewith

(b)		Reports on Form 8-K:


		BANCORPSOUTH, INC.

DATE: March 26, 2003	By:	/s/Aubrey B. Patterson

		Aubrey B. Patterson Chairman of the Board and Chief Executive Officer



/s/Robert C. Nolan Robert C. Nolan	Director	March 26, 2003

/s/W. Cal Partee, Jr. W. Cal Partee, Jr.	Director	March 26, 2003

/s/Alan W. Perry Alan W. Perry	Director	March 26, 2003

/s/Travis E. Staub Travis E. Staub	Director	March 26, 2003


March 26, 2003	By:	/s/ Aubrey B. Patterson

		Aubrey B. Patterson
		Chairman of the Board and Chief Executive Officer


March 26, 2003	By:	/s/ L. Nash Allen, Jr.

		L. Nash Allen, Jr. Treasurer and Chief Financial Officer