<PAGE>   1

                    SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-QSB
               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934



For Quarterly Period Ended                              Commission File Number:
             June 30, 1999                                              1-13640



                          SOUTHFIRST BANCSHARES, INC.
                          ---------------------------
             (Exact name of registrant as specified in its charter)



Delaware                                                         63-1121255
---------------------------------------------------------------------------
(State or other jurisdiction of                                (I.R.S. Employer
incorporation or organization)                              Identification No.)



126 North Norton Avenue, Sylacauga, Alabama                               35150
-------------------------------------------------------------------------------
(Address of principal executive offices)                             (Zip Code)

Registrant's telephone number, including area code:                205-245-4365
-------------------------------------------------------------------------------

Not applicable
-------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

              Yes [X]               No[ ]

Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:

Common Stock, par value $.01 per share                   928,834 shares
-------------------------------------
                Class                            Outstanding at August 13, 1999



<PAGE>   2

                          SOUTHFIRST BANCSHARES, INC.

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                                            Page
                                                                                                                            ----
<S>                                                                                                                         <C>
PART I - FINANCIAL INFORMATION

Consolidated Statements of Financial Condition (Unaudited) at June 30, 1999
      and September 30, 1998 .............................................................................................    1

Consolidated Statements of Earnings (Unaudited) for the Nine and Three Months Ended
      June 30, 1999 and 1998...............................................................................................   2

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the
      Nine Months Ended June 30, 1999.....................................................................................    3

Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended
      June 30, 1999 and 1998...............................................................................................   4

Notes to Consolidated Financial Statements (Unaudited).....................................................................   6

Item 2: Management's Discussion and Analysis of Financial Condition and Results
      of Operations........................................................................................................   7

PART II - OTHER INFORMATION...............................................................................................   13

SIGNATURES................................................................................................................   13
</TABLE>



<PAGE>   3
PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                          SOUTHFIRST BANCSHARES, INC.
                                AND SUBSIDIARIES

                 Consolidated Statements of Financial Condition
                June 30, 1999 (Unaudited) and September 30, 1998
<TABLE>
<CAPTION>
                                                                           June 30,          September 30,
                                    Assets                                   1999                1998
                                    ------                                   ----                ----
                                                                                              (Audited)
<S>                                                                     <C>                <C>
Cash and amounts due from depository institutions                       $  5,445,147       $  9,213,906
Investment securities held to maturity at cost                               947,669            971,106
Investment securities available for sale, at fair value                   29,782,278         36,823,772
Loans receivable                                                         106,867,442        105,322,213
Less allowance for loan losses                                              (636,674)          (732,021)
                                                                        ------------       ------------
         Net loans                                                       106,230,768        104,590,192
Loans held for sale at cost (which approximates fair value)                  331,970             92,750
Premises and equipment, net                                                5,225,413          3,903,308
Foreclosed real estate, net                                                  729,407                 --
Accrued interest receivable                                                  901,908          1,044,978
Other assets                                                               1,567,176          1,733,463
Investment in affiliates                                                     134,983            144,617
                                                                        ------------       ------------
         Total assets                                                   $151,296,719       $158,518,092
                                                                        ============       ============

                      Liabilities and Stockholders' Equity
                      ------------------------------------
Liabilities:
   Deposits:
      Non-interest bearing                                              $  3,568,321       $  3,435,519
      Interest bearing                                                   112,574,377        120,448,157
                                                                        ------------       ------------
         Total deposits                                                  116,142,698        123,883,676

   Advances by borrowers for property taxes and insurance                    367,715            327,126
   Accrued interest payable                                                1,049,941          1,071,183
   Borrowed funds                                                         17,154,068         16,169,068
   Accrued expenses and other liabilities                                  1,525,440          1,396,424
                                                                        ------------       ------------
         Total liabilities                                               136,239,862        142,847,477
                                                                        ------------       ------------
Stockholders' equity:
   Common stock, $.01 par value, 2,000,000 shares authorized;
   999,643 shares issued and 898,032 outstanding shares at
   June 30, 1999 and 999,643 shares issued and 914,432
   outstanding shares at September 30, 1998                                    9,996              9,996
   Additional paid-in capital                                              9,810,963          9,810,963
   Treasury stock                                                         (1,126,099)          (867,087)
   Unearned compensation on common stock employee benefit plans             (763,582)          (778,508)
   Retained earnings, substantially restricted                             5,886,359          5,953,346
   Accumulated other comprehensive income                                  1,239,220          1,541,905
                                                                        ------------       ------------
         Total stockholders' equity                                       15,056,857         15,670,615
                                                                        ------------       ------------
      Total liabilities and stockholders' equity                        $151,296,719       $158,518,092
                                                                        ============        ===========
</TABLE>


See accompanying notes to consolidated financial statements.



                                       1
<PAGE>   4

                          SOUTHFIRST BANCSHARES, INC.
                                AND SUBSIDIARIES


            Consolidated Statements of Earnings (Unaudited) for the
             Nine Months Ended June 30, 1999 and June 30, 1998 and
               Three Months Ended June 30, 1999 and June 30, 1998
<TABLE>
<CAPTION>
                                                                    Nine Months Ended June 30,        Three Months Ended June 30,
                                                                         1999             1998             1999             1998
                                                                         ----             ----             ----             ----
<S>                                                                  <C>                <C>              <C>             <C>
Interest and dividend income:
    Interest and fees on loans                                       $ 6,299,134        6,096,716        2,144,202       2,088,299
    Interest and dividend income on investment securities              1,510,106        2,138,958          444,148         699,593
                                                                     -----------        ---------        ---------       ---------
        Total interest and dividend income                             7,809,240        8,235,674        2,588,350       2,787,892
                                                                     -----------        ---------        ---------       ---------
Interest expense:
     Interest on deposits                                              4,142,750        3,881,926        1,301,642       1,484,011
     Interest on borrowed funds                                          675,735          904,469          226,442         298,296
                                                                     -----------        ---------        ---------       ---------
         Total interest expense                                        4,818,485        4,786,395        1,528,084       1,782,307
         Net interest income                                           2,990,755        3,449,279        1,060,266       1,005,585
Provision for loan losses                                                108,847           41,352           70,123          19,682
                                                                     -----------        ---------        ---------       ---------
          Net interest income after provision for loan loss losses     2,881,908        3,407,927          990,143         985,903
Other income:
    Service charges and other fees                                       610,793          509,080          218,777         197,351
    Employee benefit consulting fees                                     821,557          568,674          302,511         232,033
    Gain on sale of loans                                                313,559          180,895           90,783          50,239
    Gain (loss) on sale of foreclosed real estate                         (4,041)             864               --           2,969
    Gain (loss) on maturity of investment security AFS                   137,586            1,140           85,978              --
    Profit (loss) from sale of equipment                                    (378)           2,565             (378)             --
    Equity in net (loss) Income of affiliate                              (9,634)         (29,919)         (19,437)         (8,191)
    Other                                                                160,019          157,790           56,803          40,947
                                                                     -----------        ---------        ---------       ---------
       Total other income                                              2,029,461        1,391,089          735,037         515,348
                                                                     -----------        ---------        ---------       ---------
Other expenses:
    Compensation and benefits                                          2,701,335        2,485,963          884,695         863,261
    Net occupancy expense                                                229,954          209,402           78,196          75,906
    Furniture and fixtures                                               329,417          240,518          115,382          94,164
    Data processing                                                      255,048          205,197           82,511          87,887
    Office supplies and expenses                                         282,802          264,824          102,902          92,627
    Deposit insurance premiums                                            88,354           66,036           28,840          20,890
    Other                                                                422,587          476,791          172,874         114,671
                                                                     -----------        ---------        ---------       ---------
        Total other expenses                                           4,309,497        3,948,731        1,465,400       1,349,406
                                                                     -----------        ---------        ---------       ---------
        Income before taxes                                              601,872          850,285          259,780         151,845
Income tax expense                                                       236,376          334,190          101,231          60,180
                                                                     -----------        ---------        ---------       ---------
        Net income                                                   $   365,496          516,095          158,549          91,665
                                                                     ===========        =========        =========       =========
Primary earnings per common share                                    $      0.41             0.56             0.18            0.10
Fully Diluted earnings per common share                              $      0.41             0.55             0.18            0.10
Dividends per common share                                           $      0.45             0.45             0.15            0.15
Primary weighted average common shares outstanding                       901,080          925,480          898,032         938,207
Fully Diluted weighted average common shares outstanding                 901,381          946,091          898,032         958,818
</TABLE>

See accompanying notes to the consolidated financial statements.




                                       2
<PAGE>   5

                          SOUTHFIRST BANCSHARES, INC.
                                AND SUBSIDIARIES

          Consolidated Statements of Changes in Stockholders' Equity
                    for the Nine Months Ended June 30, 1999

-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                          Deferred
                                                                          Compensation    Retained      Accumulated
                                                 Additional               on Common       Earnings      Other         Total
                                      Common     Paid In     Treasury     Stock Employee  Substantially Comprehensive Stockholders
                                      Stock      Capital     Stock        Benefit Plans   Restricted    Income        Equity
                                      ------     ---------   --------     --------------  ------------- ------------- -------------
<S>                                  <C>        <C>          <C>          <C>             <C>           <C>           <C>
Balance at September 30, 1998        $   9,996  $ 9,810,963  $  (867,087) $(778,508)       $5,953,346    $ 1,541,905   $ 1,670,615
Comprehensive Income
     Net Income                                                                               365,496                       365,49
    Other Comprehensive Income,
     net of tax:
    Change in unrealized gain on
     securities available-for-sale,
     net of deferred income taxes of
     $185,517                                                                                               (302,685)     (302,685)
                                                                                                                       -----------

Total Comprehensive Income                                                                                                  62,811
                                                                                                                       -----------

Purchase of Treasury Stock                                      (259,012)                                                 (259,012)

Vesting of Deferred Compensation                                             14,926                                         14,926
Shares
Cash Dividends Declared                                                                      (432,483)                   (432,483)

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

Balance at June 30,1999              $   9,996  $ 9,810,963  $(1,126,099) $(763,582)       $5,886,359    $ 1,239,220  $ 15,056,857
                                     =========  ===========  ===========  =========        ==========    ===========  ============
</TABLE>

See accompanying notes to consolidated financial statements.



                                       3
<PAGE>   6

                          SOUTHFIRST BANCSHARES, INC.
                                AND SUBSIDIARIES


           Consolidated Statements of Cash Flows (Unaudited) for the
               Nine Months Ended June 30, 1999 and June 30, 1998
<TABLE>
<CAPTION>
                                                                                    1999               1998
                                                                                    ----               ----
<S>                                                                            <C>                <C>
Operating activities:
      Net income                                                               $    365,496       $   516,095
Adjustments to reconcile net income to net
      cash provided by operating activities:
           Depreciation and amortization                                            224,143           227,984
           Provision for loan losses                                                108,847           (41,352)
           Loss on sale of unconsolidated affiliate                                      --             6,564
           Loss on Sale of premises and equipment                                       378            (2,565)
           Equity in loss of unconsolidated affiliates                                9,634            29,919
           (Gain) on sale of loans                                                 (313,559)         (180,895)
           (Gain) loss on sale of investment securities                            (137,586)            1,140
           Increase (decrease) in deferred loan origination fees                     13,755           (17,469)
           Net amortization of premium/discount
               on investment securities held to maturity                             (1,066)            2,422
           Net amortization of premium/discount
               on investment securities available for sale                         (166,877)         (161,621)
           Gain on sale of foreclosed real estate                                     4,041               864
           Loans originated for sale                                            (17,089,411)       (8,393,671)
           Proceeds from sale of loans                                           17,163,750         8,250,175
           (Increase) decrease in accrued interest receivable                       143,070          (157,304)
           (Increase) decrease  in other assets                                     166,287        (1,097,917)
           Increase (decrease) in accrued interest payable                          (21,242)         (213,844)
           Increase in income taxes payable                                              --           201,272
           Deferred compensation expense                                             14,926
           Increase in accrued expenses and other liabilities                       129,016         1,008,402
                                                                               ------------         ---------
                    Net cash provided by (used in) operating activities        $    613,602         $ (21,801)
                                                                               ------------         ---------
Investing activities:
      Net cash paid in acquisition of subsidiary                                         --          (160,082)
      Proceeds from sale of unconsolidated affiliate                                     --            90,100
      Purchase of held to maturity securities                                            --          (942,334)
      Investment in unconsolidated affiliated companies                                  --           (75,000)
      (Sale) of interest-bearing deposits in other financial institutions        (1,193,618)               --
      Re-Inv of Div.-Int-bearing deposits in other fin. institutions                 (6,716)               --
      Principal repayments and maturities of investment
            securities held to maturity                                           1,753,231            24,054
</TABLE>

See accompanying notes to consolidated financial statements.



                                       4
<PAGE>   7

                          SOUTHFIRST BANCSHARES, INC.
                                AND SUBSIDIARIES

           Consolidated Statements of Cash Flows (Unaudited) for the
               Nine Months Ended June 30, 1999 and June 30, 1998
<TABLE>
<CAPTION>

                                                                                      1999                1998
                                                                                      ----                ----
      <S>                                                                        <C>                <C>
      Principal repayments and maturities of investment
            securities available for sale                                           6,136,952          6,516,541
      Purchase of investment securities available for sale                        (18,716,968)                --
      Purchase of discount of investments available for sale                          306,172                 --
      Proceeds from sale of investments available for sale                         18,812,444         14,619,018
      Reinvestment of mutual fund dividend                                            (23,722)           (28,485)
      Net (increase) decrease in loans                                             (1,763,178)         4,151,797
      Proceeds from sale of foreclosed real estate                                     36,000             84,114
      Proceeds from sale of other assets                                               12,000                 --
      Transfer from loans of real estate owned property                              (769,448)                --
      Purchase of premises and equipment                                           (1,558,626)          (850,804)
                                                                                 ------------       ------------
                    Net cash provided by (used in) investing activities          $  3,024,523       $ 23,428,919
                                                                                 ------------       ------------
Financing activities:
      Net increase (decrease) in deposits                                        $ (7,740,978)        (1,331,852)
      Proceeds from borrowed funds                                                 34,626,593          4,588,414
      Cash dividends paid                                                            (432,483)          (386,177)
      Treasury stock purchased                                                       (259,012)          (163,925)
      Repayment of borrowed funds                                                 (33,641,593)        (6,800,266)
      Decrease in advances by borrowers
           for property taxes and insurance                                            40,589           (100,244)
                                                                                 ------------       ------------
                        Net cash provided by (used in) financing activities        (7,406,884)        (4,194,050)
                                                                                 ------------       ------------
Increase (decrease) in cash and amounts due from
           depository institutions                                                 (3,768,759)        19,213,068
Cash and amounts due from depository institutions
      at beginning of period                                                        9,213,906          2,448,123
                                                                                 ------------       ------------
Cash and amounts due from depository institutions
      at end of period                                                           $  5,445,147       $ 21,661,191
                                                                                 ============       ============
Supplemental information on cash payments:
      Interest paid                                                              $  4,826,248       $  4,786,395
                                                                                 ============       ============
      Income taxes paid                                                          $      4,950       $    334,190
                                                                                 ============       ============
Supplemental information on noncash transactions:
      Transfers to investment securities available for sale from
               investment securities held to maturity                                      --                 --
                                                                                 ============       ============
      Change in net unrealized gain on investment securities
           available for sale                                                    $   (302,685)      $    393,522
                                                                                 ============       ============
</TABLE>


See accompanying notes to consolidated financial statements.



                                       5
<PAGE>   8

                          SOUTHFIRST BANCSHARES, INC.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                        Nine months ended June 30, 1999

(1)      Basis of Presentation

         Information filed on this Form 10-QSB as of and for the quarter ended
         June 30, 1999, was derived from the financial records of SouthFirst
         Bancshares, Inc. and its wholly-owned subsidiary, First Federal of the
         South ("First Federal"), and First Federal's wholly owned subsidiary,
         Pension & Benefit Financial Services, Inc., a Montgomery,
         Alabama-based employee benefits consulting firm. SouthFirst and its
         subsidiaries are collectively referred to herein as the "Company."

         In the opinion of management of the Company, the accompanying
         unaudited consolidated financial statements contain all adjustments
         (none of which are other than normal recurring accruals) necessary for
         a fair statement of the financial position of the Company and the
         results of operations for the nine-month periods ended June 30, 1999
         and 1998. The results contained in these statements are not
         necessarily indicative of the results which may be expected for the
         entire year.

(2)      New Accounting Standard

         As of October 1, 1998, SouthFirst adopted Statement of Financial
         Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
         Income." SFAS No. 130 establishes new rules for the reporting and
         display of comprehensive income and its components; however, the
         adoption of SFAS No. 130 had no impact on net income or stockholders'
         equity. SFAS No. 130 requires unrealized gains and losses from
         available for sale securities, which prior to adoption were reported
         separately in stockholders' equity, to be included in other
         comprehensive income. Prior year financial statements have been
         reclassified to conform to the requirement of SFAS No. 130.

         By September 30, 1999, SouthFirst will adopt Statement of Financial
         Accounting Standards No. 131 (SFAS No. 131), "Disclosure About
         Segments of an Enterprise and Related Information." SFAS No. 131
         establishes standards for the way public business enterprises report
         information about operating segments in annual financial statements
         and requires those enterprises to report selected information about
         operating segments in interim financial reports. The adoption of SFAS
         No. 131 will have no effect on the results of operations or financial
         position of SouthFirst.

(3)      Subsequent events

         On July 21, 1999, the Company declared a regular dividend of $0.15 per
         share, payable on August 16, 1999 to stockholders of record on August
         2, 1999.



                                       6
<PAGE>   9

                          SOUTHFIRST BANCSHARES, INC.
                                AND SUBSIDIARIES


Item 2:  Management's Discussion and Analysis of Financial Condition and

         Results of Operations

                        REVIEW OF RESULTS OF OPERATIONS

         Overview

         Net income for the three months and nine months ended June 30, 1999
         increased $66,884, or 73%, and decreased $150,599, or 29.2%,
         respectively, when compared to the same periods in fiscal 1998. Net
         interest income for the three months and nine months ended June 30,
         1999, increased $54,681, or 5.4%, and decreased $458,524, or 13.3%,
         respectively, as compared to the same periods in fiscal 1998. Other
         income increased $219,689, or 42.6%, for the three month period ended
         June 30, 1999, and $638,372, or 45.9%, for the nine-month period ended
         June 30, 1999, when compared to the same periods in fiscal 1998, while
         other expenses increased $115,999, or 8.6%, and $360,766, or 9.1%, for
         the three month and nine month periods, respectively, ended June 30,
         1999 compared to the same periods in fiscal 1998.

         A significant amount of the above increases or decreases are
         attributable to the acquisition of First Federal Savings and Loan
         Association of Chilton County ("Chilton County") on October 31, 1997.
         Chilton County was merged with and into SouthFirst's wholly owned
         subsidiary, First Federal of the South ("First Federal"). Net interest
         income decreased as a result of acquiring a significantly higher cost
         of funds base, as well as acquiring a consumer loan base requiring
         significant charge offs. Primary earnings per common share, based on
         weighted average shares outstanding, was $0.18 and $0.10 for the three
         months ended June 30, 1999 and 1998, and $0.41 and $0.56 for the nine
         months ended June 30, 1999 and 1998, respectively.

         Those items significantly affecting net earnings are discussed in
         detail below.

         Net Interest Income

         Net interest income is the difference between the interest and fees
         earned on loans, securities, and other interest-bearing assets
         (interest income) and the interest paid on deposits and borrowed funds
         (interest expense). Net interest income is directly related to the
         interest rate spread, the difference between the interest rates on
         interest-earning assets and interest-bearing liabilities.

         For the three-month period ended June 30, 1999, net interest income
         increased $54,681, or 5.4%, as compared to the same period in 1998.
         The interest rate spread during the three month period ended June 30,
         1999 increased 22 basis points as rates earned on interest-earning
         assets increased 26 basis points to 7.37% while the cost of funds
         increased 4 basis points to 4.81%. The increase in rates paid and the
         increase in rates charged during this three month interval reflects
         the recent increases in the overall interest rate environment.

         For the nine months ended June 30, 1999, net interest income decreased
         $458,524, or 13.3%, as compared to the same period in fiscal 1998. The
         interest rate spread decreased 80 basis points, from 3.37% for the
         nine months ended June 30, 1999 to 2.57% for the nine months ended
         June 30, 1998. The average balance of interest-earning assets
         decreased $1.7 million, or 1.2%, during the nine-month period ended
         June 30,1999, from $143.2 million to $141.5 million, while the average
         balance of interest-bearing liabilities decreased $.4 million, or .3%,
         from $134.1 million to $133.7 million.



                                       7
<PAGE>   10

         Other Income

         Total other income for the nine months ended June 30, 1999 increased
         $638,000, to $2,029,000, as compared to the nine months ended June 30,
         1998. A significant portion of the increase in total other income was
         attributable to approximately $253,000 in employee benefit consulting
         fees earned by Pension & Benefit Financial Services Inc. ("Pension &
         Benefit"), First Federal's wholly owned operating subsidiary, during
         the first nine months of fiscal 1999. In addition, gains on sales of
         loans increased approximately $133,000, gain on sales of investments
         increased $136,000, and service charges and other fees increased
         $102,000 compared to the same period in fiscal 1998. The acquisition
         of Chilton County accounted for a portion of the service charge and
         other fees increase while increased mortgage loans sold accounted for
         the gain on sale of loans.

         For the three month period ended June 30, 1999, total other income
         increased by approximately $220,000, to $735,000, compared to the same
         period in fiscal 1998. This increase was primarily the result of
         increases of $41,000 from gains on sales of loans, $86,000 from gain
         on sales of investments, an increase of $21,000 on income from service
         charges and fees, an increase of $70,000 in employee benefit
         consulting fees, and an increase of $16,000 in other income.

         Other Expense

         Total other expense for the nine months ended June 30, 1999, increased
         by approximately $361,000, to $4,309,000, as compared to the nine
         months ended June 30, 1998. The increase is primarily due to increases
         in compensation expense of $215,000, data processing expense of
         $50,000, and furniture and fixtures expense of $89,000. These expense
         increases are primarily attributable to increased costs associated
         with the Chilton County acquisition, as well as additional personnel
         and other costs associated with the opening of the loan production
         office in Dothan, Alabama. The increase in data processing expense is
         primarily attributable to the increased data processing activity as a
         result of the acquisition of Chilton County and the upgrading of its
         information technology systems, which was undertaken as a result of
         SouthFirst's recent acquisitions, and to ensure that the systems would
         by Year 2000 compliant. (See discussion of Year 2000 below).

         For the three month period ended June 30, 1999, total other expense
         increased approximately $116,000 to $1,465,000 as compared to the same
         period in fiscal 1998. Compensation expense increased $21,000,
         furniture and fixtures expense increased $21,000, office supplies
         expense increased $10,000, and other expense increased $58,000 as
         compared to fiscal 1998.

         Income Tax Expense

         SouthFirst's effective tax rate for the nine-month periods ended June
         30, 1999 and 1998 was 39.3%, compared to the federal statutory rate of
         34.0%. SouthFirst's effective tax rate was higher than the statutory
         rate due primarily to state income taxes. Income tax expense decreased
         approximately $98,000, or 29.3%, to $236,000 for the nine months ended
         June 30, 1999, as compared to the nine months ended June 30, 1998, due
         to the decrease in pre-tax earnings.



                                       8
<PAGE>   11

         Year 2000

         Many companies may face a potentially serious information systems
         problem because their computer software applications and operational
         programs may not properly recognize calendar dates beginning in the
         year 2000. This problem could force computers to either shut down or
         provide incorrect data or information. First Federal began the process
         of identifying the changes required to its computer programs and
         hardware in early 1997. Software upgrades designed to correct the year
         2000 problem were completed during the early part of calendar year
         1998. SouthFirst has also recently upgraded certain of it information
         technology systems due to the recent acquisitions of Chilton County
         and Pension & Benefit. Presently, First Federal is in the process of
         testing all of its operating systems in order to be ready for year
         2000. SouthFirst does not anticipate the cost of any future software
         and hardware changes (if necessary) to have a material adverse impact
         on its business, financial condition, or results of operation.
         However, there can be no assurance that unforeseen difficulties or
         costs will not arise. First Federal has issued certification requests
         to the data processing and software companies on which its computer
         programs rely and to all major vendors and customers seeking assurance
         that they will be year 2000 compliant. The majority of the major
         vendors have responded. All of the respondents have indicated that
         they are year 2000 compliant now or will be well in advance of the
         year 2000.

         First Federal also recognizes the importance of determining that its
         borrowers are facing the Year 2000 problem in a timely manner to avoid
         deterioration of its loan portfolio solely due to this issue. All
         material relations have been identified to assess the inherent risks.
         First Federal plans to work on a one-on-one basis with any borrower
         who has been identified as having high Year 2000 risk exposure.

         First Federal's contingency plans relative to Year 2000 issues have
         not been finalized. Management will develop and modify a "worst case
         scenario" contingency plan which will, among other things, anticipate
         that the First Federal's deposit customers will have increased demands
         for cash in the latter part of 1999.

                         REVIEW OF FINANCIAL CONDITION

         Overview

         Management continuously monitors the financial condition of SouthFirst
         in order to protect depositors, increase retained earnings, and
         protect current and future earnings.

         Return on average stockholders' equity is one way of assessing the
         return SouthFirst has generated for its stockholders. The table below
         sets forth the return on average stockholders' equity and other
         performance ratios of SouthFirst for the periods indicated.



                                       9
<PAGE>   12

<TABLE>
<CAPTION>
                                                                               At or for the
                                                                               nine months ended
                                                                                   June 30,
                                                                               1999          1998
                                                                               ----          ----
          <S>                                                             <C>          <C>
          Return on shareholders' equity                                       3.14%        4.28%
          Return on assets                                                     0.31%        0.44%
          Equity-to-assets ratio                                               9.98%       10.26%
          Interest rate spread                                                 2.57%        3.43%
          Net interest margin                                                  2.83%        3.51%
          Total risk-based capital ratio                                      18.41%       19.68%
          Nonperforming loans to loans                                         1.28%        2.47%
          Allowance for loan losses to loans                                   0.59%        0.76%
          Allowance for loan losses to nonperforming loans                    46.19%       30.80%
          Ratio of net charge-offs to average loans outstanding                0.16%        0.05%
          Book value per common share outstanding                         $   16.71    $   17.51
</TABLE>

         Significant factors affecting the SouthFirst's financial condition
         during the nine months ended June 30, 1999 are detailed below:

         Assets

         Total assets decreased $7,221,000, or 4.6%, from $158,518,000 at
         September 30, 1998 to $151,297,000 at June 30, 1999. Net loans
         increased $1,641,000, or 1.6%, compared to September 30, 1998,
         primarily due to seasonal changes in mortgage loan demand. Investment
         securities held to maturity decreased $23,000 while investment
         securities available for sale decreased $7,041,000 for a total
         decrease of $7,064,000.

         Liabilities

         Total liabilities decreased $6,607,000, or 4.6%, from $142,847,000 at
         September 30, 1998 to $136,240,000 at June 30, 1999. Deposits
         decreased approximately $7,741,000 during the period, borrowed funds
         increased $985,000 to $17,154,068 and accrued expenses and other
         liabilities increased approximately $129,000. Deposit decreases were
         primarily attributable to the relatively low interest rate environment
         with savings deposits leaving in search of higher yields. The increase
         in accrued expenses is primarily the result of fluctuations in
         accounts payable balances.

         Loan Quality

         A major key to long-term earnings growth is maintenance of a
         high-quality loan portfolio. SouthFirst's directive in this regard is
         carried out through its policies and procedures for review of loans.
         The goal and result of these policies and procedures is to provide a
         sound basis for new credit extensions and an early recognition of
         problem assets to allow the most flexibility in their timely
         disposition.

         At June 30, 1999, the allowance for loan losses was $636,674, as
         compared to $732,021 at September 30, 1998. The decrease is primarily
         due to charging off loans which were acquired in the acquisition of
         Chilton County. SouthFirst recorded provisions for loan losses of
         $108,847 and $41,352 in the first nine months of fiscal 1999 and 1998,
         respectively. Nonperforming loans at June 30, 1999 were approximately
         $1,378,000 as compared to approximately $2,128,000 at September 30,
         1998. The reduction of non-performing loans is due to charge-offs and
         foreclosures. At June 30, 1999 and September 30, 1998, the allowance
         for loan losses represented 0.59% and 0.70% of loans outstanding,
         respectively. The allowances for loan losses is based upon
         management's continuing evaluation of the collectibility of the loan
         portfolio under current



                                      10
<PAGE>   13

         economic conditions and includes analyses of underlying collateral
         value and other factors which could affect collectibility. Management
         considers the allowance for loan losses to be adequate based upon the
         evaluations of specific loans, internal loan rating systems and
         guidelines provided by the banking regulatory authorities governing
         First Federal. Although loans have increased, management believes loan
         loss reserves are adequate due to the fact significant loan
         charge-offs have not been experienced.

         Liquidity and Interest Sensitivity

         Liquidity is the ability of an organization to meet its financial
         commitments and obligations on a timely basis. These commitments and
         obligations include credit needs of customers, withdrawals by
         depositors, and payment of operating expenses and dividends.

         SouthFirst is required under applicable federal regulations to
         maintain specified levels of cash and "liquid" investments in
         qualifying types of United States Treasury and Federal Agency
         securities, and other investments generally having maturities of five
         years or less. Such investments serve as a source of funds upon which
         the Company may rely to meet deposit withdrawals and other short-term
         needs. The Company closely monitors its cash flow position to assure
         necessary liquidity and to take advantage of market opportunities.
         Management believes that the Company's liquidity is adequate to fund
         all outstanding commitments and other cash needs.

         Changes in interest rates will necessarily lead to changes in the net
         interest margin. It is the Company's goal to minimize volatility in
         the net interest margin by taking an active role in managing the
         level, mix and maturities of assets and liabilities.

         To reduce the adverse effect of changes in interest rates on its net
         interest margin, the Company is pursuing various strategies to improve
         the rate sensitivity of its assets and stabilize net interest income.

         Capital Adequacy and Resources

         Management is committed to maintaining First Federal's capital at a
         level sufficient to protect depositors, provide for reasonable growth,
         and fully comply with all regulatory requirements. Management's
         strategy to achieve this goal is to retain sufficient earnings while
         providing a reasonable return on equity.

         The Office of Thrift Supervision has issued guidelines identifying
         minimum regulatory "tangible" capital equal to 1.50% of adjusted total
         assets, a minimum 4.0% core capital ratio, and a minimum risk-based
         capital of 8.0% of risk-weighted assets. First Federal has satisfied
         the majority of its capital requirements through the retention of
         earnings.

         As of June 30, 1999, First Federal has satisfied all regulatory
         capital requirements. First Federal's compliance with the current
         standards is as follows:



                                      11
<PAGE>   14
<TABLE>
<CAPTION>
                                                                                   Percent of
                                                                   Amount          asset base
                                                                   ------          ----------
                                                                       (Dollars in thousands)
         <S>                                                    <C>                    <C>
         Tangible Capital                                       $  14,229,000           9.34%
         Core     Capital                                       $  14,229,000           9.34%
         Risk-Based Capital                                     $  13,782,000          18.41%
</TABLE>

         Cautionary Statement Concerning Forward-Looking Statements

         Certain statements in this Quarterly Report on Form 10-QSB contain
         "forward-looking statements" within the meaning of the Private
         Securities Litigation Reform Act of 1995, which statements generally
         can be identified by the use of forward-looking terminology, such as
         "may," "will," "expect," "estimate," "anticipate," "believe,"
         "target," "plan," "project," or "continue" or the negatives thereof or
         other variations thereon or similar terminology, and are made on the
         basis of management's plans and current analyses of the Company, its
         business and the industry as a whole. These forward-looking statements
         are subject to risks and uncertainties, including, but not limited to,
         economic conditions, competition, interest rate sensitivity and
         exposure to regulatory and legislative changes. The above factors, in
         some cases, have affected, and in the future could affect, the
         Company's financial performance and could cause actual results to
         differ materially from those expressed or implied in such
         forward-looking statements. The Company does not undertake to publicly
         update or revise its forward-looking statements even if experience or
         future changes make it clear that any projected results expressed or
         implied therein will not be realized.



                                      12
<PAGE>   15

                           PART II. OTHER INFORMATION

ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits.  The following exhibit is filed with this report.

            Exhibit No.              Description

               27                    Financial Data Schedule (For SEC use only)

(b)      Reports on Form 8-K.  No report on form 8-K was filed during the
         quarter ended June 30, 1999.


                                   SIGNATURES

         Pursuant to the requirements 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.

                               SOUTHFIRST BANCSHARES, INC.



Date: August 12, 1999          By: /s/ Donald C. Stroup
                                   --------------------------------------------
                                   Donald C. Stroup, President and
                                   Chief Executive Officer
                                   (principal executive officer)


Date: August 12, 1999         By:  /s/ Joe K. McArthur
                                   --------------------------------------------
                                   Joe K. McArthur, Executive Vice President
                                   and Chief Financial Officer
                                   (principal financial and accounting officer)

651709



                                      13