<PAGE>   1

                     U.S. 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 the quarterly period ended: June 30, 2001

                         Commission File Number: 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)

                                  256-245-4365
                                  ------------
                         (Registrant's telephone number)

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

Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ]

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

Common Stock, par value $.01 per share                  928,568 shares
--------------------------------------                  --------------
            (Class)                            (Outstanding at August 13, 2001)

Transitional Small Business Disclosure Format (Check one):  Yes [ ]   No [X]


<PAGE>   2

                           SOUTHFIRST BANCSHARES, INC.

                                TABLE OF CONTENTS

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

Item 1: Financial Statements .......................................................................       1

        Consolidated Statements of Financial Condition at June 30, 2001 (Unaudited)
        and September 30, 2000 .....................................................................       1

        Consolidated Statements of Earnings (Unaudited) for the Nine Months Ended
        June 30, 2001 and June 30, 2000 and Three Months Ended June 30, 2001
        and June 30, 2000 ..........................................................................       2

        Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the
        Nine Months Ended June 30, 2001 ............................................................       3

        Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended
        June 30, 2001 and 2000 .....................................................................       4

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

Item 2: Management's Discussion and Analysis of Financial Condition and Results
        of Operations ..............................................................................       9

PART II -- OTHER INFORMATION

Item 1: Legal Proceedings ..........................................................................      14

Item 6: Exhibits and Reports on Form 8-K ...........................................................      14

SIGNATURES .........................................................................................      15
</TABLE>


<PAGE>   3

                          PART I. FINANCIAL INFORMATION

ITEM 1:  FINANCIAL STATEMENTS

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
           JUNE 30, 2001 (UNAUDITED) AND SEPTEMBER 30, 2000 (AUDITED)

<TABLE>
<CAPTION>
                                                                                         JUNE 30, 2001         SEPTEMBER 30, 2000
                                                                                         -------------         ------------------
                                                                                          (UNAUDITED)
<S>                                                                                      <C>                   <C>
                                    ASSETS

Cash and amounts due from depository institutions                                        $   5,980,243           $   4,667,295

Interest-bearing deposits in other financial institutions                                      893,766               1,737,099

Investment securities available for sale, at fair value                                     36,089,216              38,326,808

Loans receivable                                                                           101,785,373             109,054,392

Less allowance for loan losses                                                                (667,926)               (700,619)
                                                                                         -------------           -------------

     Net Loans                                                                             101,117,447             108,353,773

Loans held for sale at cost (which approximates fair value)                                    160,000                 181,662

Premises and equipment, net                                                                  4,874,511               4,992,261

Foreclosed real estate, net                                                                    323,229                 174,500

Other repossessed assets                                                                         9,440                   1,000

Accrued interest receivable                                                                    912,922               1,183,485

Other assets                                                                                 1,489,151               1,407,751
                                                                                         -------------           -------------

              TOTAL ASSETS                                                               $ 151,849,925           $ 161,025,634
                                                                                         =============           =============

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:

      Deposits:

          Non-interest bearing                                                           $   3,210,943           $   2,990,806

          Interest bearing                                                                  99,159,053             102,372,295
                                                                                         -------------           -------------

               TOTAL DEPOSITS                                                              102,369,996             105,363,101

     Advances by borrowers for property taxes and insurance                                    309,340                 297,004

     Accrued interest payable                                                                1,480,036               1,403,005

     Borrowed funds                                                                         31,905,000              38,889,068

     Accrued expenses and other liabilities
                                                                                               511,692                 147,972
                                                                                         -------------           -------------

               TOTAL LIABILITIES
                                                                                           136,576,064             146,100,150
                                                                                         -------------           -------------

Stockholders' equity:

     Common stock, $01 par value, 2,000,000 shares authorized; 999,643
         shares issued and 928,568 outstanding shares at June 30, 2001
         and at September 30, 2000                                                               9,996                   9,996

     Additional paid-in capital                                                              9,835,352               9,835,352

     Treasury stock                                                                         (1,140,781)             (1,140,781)

     Unearned compensation on common stock employee benefit plans                             (523,116)               (482,325)

     Retained earnings, substantially restricted                                             7,198,843               7,186,244

     Accumulated comprehensive other income (loss)                                            (106,433)               (483,002)
                                                                                         -------------           -------------

          TOTAL STOCKHOLDERS' EQUITY                                                        15,273,861              14,925,484
                                                                                         -------------           -------------

          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $ 151,849,925           $ 161,025,634
                                                                                         =============           =============
</TABLE>


See accompanying notes to consolidated financial statements.


                                      -1-

<PAGE>   4

                          SOUTHFIRST BANCSHARES, INC.
                                AND SUBSIDIARIES

             CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE
              NINE MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000 AND
               THREE MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000

<TABLE>
<CAPTION>
                                                                      NINE MONTHS ENDED JUNE 30,        THREE MONTHS ENDED JUNE 30,
                                                                      --------------------------        ---------------------------
                                                                        2001              2000            2001             2000
                                                                      ---------        ---------        ---------        ---------
<S>                                                                   <C>              <C>              <C>              <C>
Interest and dividend income:

     Interest and fees on loans                                       6,520,783        6,951,951        2,032,590        2,397,216

        Interest income on deposit in other financial
          institutions                                                  246,118           96,093           86,495           36,247

        Interest and dividend income on investment securities         1,637,259        1,813,410          485,698          615,992
                                                                      ---------        ---------        ---------        ---------

        Total interest and dividend income                            8,404,160        8,861,454        2,604,783        3,049,455
                                                                      ---------        ---------        ---------        ---------

Interest expense:

     Interest on deposits                                             3,837,258        3,354,016        1,249,221        1,089,182

     Interest on borrowed funds                                       1,598,764        1,882,241          445,505          740,788
                                                                      ---------        ---------        ---------        ---------

         Total interest expense                                       5,436,022        5,236,257        1,694,726        1,829,970
                                                                      ---------        ---------        ---------        ---------

         Net interest income                                          2,968,138        3,625,197          910,057        1,219,485

Provision for loan losses                                               (50,000)           5,572               --            5,572
                                                                      ---------        ---------        ---------        ---------

          Net interest income after provision for loan losses         3,018,138        3,619,625          910,057        1,213,913

Other Income:

    Service charges and other fees                                      318,301          343,986          114,569          108,288

    Employee benefit consulting fees                                    876,356          821,060          301,192          331,389

    Gain on sale of loans                                               285,367          252,298          108,102           78,979

    Gain (loss) on sale of foreclosed real estate                        (5,031)          34,431           (7,167)              --

    Profit (loss) on sale of other repossessed assets                    (1,349)              --           (1,349)              --

    Gain on sale of investment securities available for sale                859            1,937               --               --

    Equity in net (loss) income of affiliate                                 --           (2,177)              --           (2,177)

    Other                                                               271,318          155,242           99,806           58,620
                                                                      ---------        ---------        ---------        ---------

       Total non-interest income                                      1,745,821        1,606,777          615,153          575,099
                                                                      ---------        ---------        ---------        ---------
Other expenses:

    Compensation and benefits                                         2,334,035        2,251,235          764,200          740,551

    Net occupancy expense                                               259,197          259,617           82,721           85,679

    Furniture and fixtures                                              366,623          327,135          134,806          106,246

    Data processing                                                     245,087          233,773           86,256           75,285

    Office supplies and expense                                         324,460          272,602          106,784           88,683

    Deposit insurance premiums                                           48,783           61,015           16,020           16,493

    Goodwill expense                                                     40,459           47,346           13,487           15,782

    Other                                                               441,040          599,089          160,517          194,407
                                                                      ---------        ---------        ---------        ---------

        Total non-interest expenses                                   4,059,684        4,051,812        1,364,791        1,323,126
                                                                      ---------        ---------        ---------        ---------
        Income before income taxes                                      704,275        1,174,590          160,419          465,886

Income tax expense                                                      275,314          455,993           63,513          180,995
                                                                      ---------        ---------        ---------        ---------

        Net income                                                      428,961          718,597           96,906          284,891
                                                                      =========        =========        =========        =========

Primary earnings                                                           0.47             0.79             0.11             0.31

Fully diluted earnings                                                     0.47             0.79             0.11             0.31

Cash dividends declared                                                    0.45             0.45             0.15             0.15

Weighted average shares outstanding

Primary                                                                 910,102          904,822          910,102          904,822

Fully Diluted                                                           912,242          904,822          914,540          904,822
</TABLE>


See accompanying notes to consolidated financial statements.


                                      -2-

<PAGE>   5

                           SOUTHFIRST BANCSHARES, INC.
                                AND SUBSIDIARIES

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                     FOR THE NINE MONTHS ENDED JUNE 30, 2001

<TABLE>
<CAPTION>
                                                                           Deferred
                                                                            Compen-                   Accumulated
                                                                           sation on     Retained        Other
                                             Additional                   Common Stock   Earnings       Compre-        Total
                                  Common      Paid In       Treasury       Employee    Substantially    hensive    Stockholders'
                                  Stock       Capital        Stock       Benefit Plans  Restricted      (Loss)        Equity
                                 -------   ------------   ------------   ------------- -------------  -----------  -------------
<S>                              <C>       <C>            <C>            <C>           <C>            <C>          <C>
Balance at September 30,
  2000                           $ 9,996   $  9,835,352   $ (1,140,781)   $ (482,325)   $ 7,186,244    $ (483,002)   $ 14,925,484

Comprehensive Income

  Net Income                                                                                428,961                       428,961

  Other Comprehensive Income,
    net of tax:
  Change in unrealized
    gain/loss on securities
    available for sale, net
    of deferred income
    taxes of $230,306                                                                                     376,569         376,569
                                                                                                                     ------------

Total Comprehensive Income                                                                                                805,530
                                                                                                                     ------------

Vesting of Deferred
Compensation Shares                                                           74,577                                       74,577

Addition of Management
Recognition Plan Shares                                                     (115,368)                                    (115,368)

Cash Dividends Declared                                                                    (416,362)                     (416,362)
                                 -------   ------------   ------------    ----------    -----------    ----------    ------------

Balance at June 30, 2001         $ 9,996   $  9,835,352   $ (1,140,781)   $ (523,116)   $ 7,198,843    $ (106,433)   $ 15,273,861
                                 =======   ============   ============    ==========    ===========    ==========    ============
</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, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                                             2001                    2000
                                                                                         -------------           -------------
<S>                                                                                      <C>                     <C>
OPERATING ACTIVITIES:

     NET INCOME                                                                          $     428,961           $     718,597

     Adjustments to reconcile net income to net cash provided by operating
     activities:

               Provision for loan losses                                                       (50,000)                  5,572

               Depreciation and amortization                                                   280,523                 268,005

               Equity in loss of unconsolidated affiliate                                           --                   2,177

               (Gain) Loss on sale of securities                                                  (859)                     --

               (Gain) Loss on sale of loans                                                   (285,367)               (252,298)

               Increase (decrease) in deferred loan origination fees                            (2,896)                 15,729

               Net amortization of premium on investment securities available
               for sale                                                                        (84,272)                 12,241

               (Gain) Loss on sale of foreclosed real estate                                     5,031                 (34,431)

               Loans originated for sale                                                   (14,889,283)            (11,705,162)

               Proceeds from sale of loans                                                  15,196,312              12,694,120

               (Increase) decrease in accrued interest receivable                              270,563                   8,814

               Increase (decrease) in other assets                                             (81,400)               (138,459)

               Deferred compensation expense                                                    74,577                  14,926

               Increase (decrease) in accrued interest payable                                  77,031                (153,468)

               Increase (decrease) in accrued expenses and other liabilities                   133,414                (400,058)
                                                                                         -------------           -------------

                          Net Cash provided by (used in) operating activities                1,072,335               1,056,305
</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, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                                             2001                    2000
                                                                                         -------------           -------------
<S>                                                                                      <C>                     <C>
INVESTING ACTIVITIES

               Net change in interest bearing deposits in other financial                      843,334                (217,443)
               institutions

               Proceeds from maturity/repayment of investments held to maturity                     --                  28,783

               Proceeds from maturity/repayment of investments available for
               sale                                                                          6,851,586               1,500,750

               Purchase of investment securities available for sale                         (6,834,375)             (1,562,500)

               Proceeds from sale of investments available for sale                          2,912,387                      --

               Reinvestment of mutual fund dividend                                                 --                  (5,670)

               Net (increase) decrease in loans                                              7,289,222              (5,019,293)

               Purchase of premises & equipment                                               (162,774)                (89,981)

               Proceeds from sale of foreclosed real estate                                    529,976                 743,692

               Proceeds from sale of other assets                                               15,639                      --

               Transfer from loans of real estate owned property                              (683,736)               (382,665)

               Transfer from loans to other repossessed assets                                 (24,079)                (32,146)
                                                                                         -------------           -------------

                  NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                       10,737,180              (5,036,473)
</TABLE>


See accompanying notes to consolidated financial statements.


                                      -5-

<PAGE>   8

                           SOUTHFIRST BANCSHARES, INC.
                                AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE
                    NINE MONTHS ENDED JUNE 30, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                                             2001                    2000
                                                                                         -------------           -------------
<S>                                                                                      <C>                     <C>
FINANCING ACTIVITIES

               Increase (decrease) in deposits                                              (2,993,105)             (8,421,536)

               Proceeds from borrowed funds                                                 17,450,000              30,150,000

               Repayment of borrowed funds                                                 (24,434,068)            (16,565,000)

               Cash dividends paid                                                            (416,362)               (418,086)

               Acquisition of management recognition plan shares                              (115,368)                     --

               Decrease in advances by borrowers for property taxes and
               insurance                                                                        12,336                 (90,522)
                                                                                         -------------           -------------

                  Net cash provided by (used in) financing activities                      (10,496,567)              4,654,856
                                                                                         -------------           -------------

(Decrease) in cash and cash equivalents                                                      1,312,948                 674,688

Cash and cash equivalents at beginning of period                                             4,667,295               4,969,578
                                                                                         -------------           -------------

Cash and cash equivalents at end of period                                                   5,980,243               5,644,266
                                                                                         =============           =============

Supplemental information on cash payments:

               Interest paid                                                                 3,837,258               5,389,725
                                                                                         =============           =============

               Income taxes paid
                                                                                               254,170               1,222,260
                                                                                         =============           =============

Supplemental information on noncash transactions

               Change in net unrealized gain (loss) on investment securities
               available for sale                                                              376,569                (246,426)
                                                                                         =============           =============

               Real Estate obtained through foreclosure                                        683,736                 382,665
                                                                                         =============           =============
</TABLE>


See accompanying notes to consolidated financial statements.


                                      -6-

<PAGE>   9

                           SOUTHFIRST BANCSHARES, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                             JUNE 30, 2001 AND 2000

(1)      BASIS OF PRESENTATION

         Information filed on this Form 10-QSB as of and for the quarter ended
         June 30, 2001, was derived from the financial records of SouthFirst
         Bancshares, Inc. ("SouthFirst") and its wholly-owned subsidiaries,
         First Federal of the South ("First Federal"), and SouthFirst Financial
         Services, Inc. ("SouthFirst Financial") and First Federal's wholly
         owned subsidiaries, Pension and Benefit Trust Company ("Pension &
         Benefit"), a Montgomery, Alabama-based employee benefits consulting
         firm, and SouthFirst Mortgage, Inc., a Birmingham, Alabama based
         residential construction loan and mortgage loan origination office.
         Collectively, SouthFirst Bancshares, Inc. and its subsidiaries are
         referred to herein as the "Company" and as "SouthFirst."

         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, 2001 and 2000. The
         results contained in these statements are not necessarily indicative of
         the results which may be expected for the entire year.

(2)      NEW ACCOUNTING STANDARDS

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 133,
         Accounting for Derivative Instruments and Hedging Activities. This
         Statement establishes accounting and reporting standards for derivative
         instruments embedded in other contracts (collectively referred to as
         derivatives) and for hedging activities. It requires that an entity
         recognize all derivatives as either assets or liabilities in the
         statement of financial position and measure those instruments at fair
         value. The Company adopted the provision of SFAS No. 133 on October 1,
         2000. However, based on the Company's current operating activities, the
         adoption of this statement did not have a material impact on the
         Company's financial condition or results of operations.

         In September 2000, the FASB issued SFAS No. 140, Accounting for
         Transfers and Servicing of Financial Assets and Extinguishment of
         Liabilities. The statement revises the standards for accounting for
         securitization and other transfers of financial assets and collateral,
         and requires certain disclosures. This statement is effective for
         transfers and servicing of financial assets and extinguishments of
         liabilities occurring after March 31, 2001. This statement is effective
         for recognition and reclassification of collateral and for disclosures
         relating to securitization transactions and collateral for fiscal years
         ending after December 15, 2000. The statement is to be applied
         prospectively with certain exceptions. Other than those exceptions,
         earlier or retroactive application of its accounting provisions is not
         permitted. Based on the Company's current operating activities, the
         adoption of this statement will not have a material impact on the
         presentation of the Company's financial condition or results of
         operations.

(3)      BUSINESS SEGMENT INFORMATION

         The Company organized its business units into two reportable segments:
         traditional banking activities and employee-benefit-plan trust and
         consulting activities. The banking segment provides a full range of
         banking services within its primary market areas of central Alabama.
         The employee benefit trust and consulting firm operates primarily in
         the Montgomery, Alabama area. The Company's reportable business
         segments are strategic business units that offer different products and
         services. Each segment is managed separately, because each unit is
         subject to different marketing and regulatory environments.


                                      -7-

<PAGE>   10

                           SOUTHFIRST BANCSHARES, INC.
                                AND SUBSIDIARIES

         The accounting policies used by each reportable segment are the same as
         those discussed in Note 1 to the Consolidated Financial Statements
         included under Item 7 of the Annual Report on Form 10-KSB. The
         following table presents financial information for each reportable
         segment:

<TABLE>
<CAPTION>
                                                      Nine Months Ended                          Nine Months Ended
                                                        June 30, 2001                              June 30, 2000
                                           ---------------------------------------    -----------------------------------------
                                                           Employee                                   Employee
                                              Banking      Benefits                     Banking       Benefits
                                            Activities   Consulting       Total        Activities    Consulting        Total
                                           -----------   -----------   -----------    -----------    -----------    -----------
<S>                                        <C>           <C>           <C>            <C>            <C>            <C>
Interest dividend income                   $ 8,378,575   $    25,585   $ 8,404,160    $ 8,833,327    $    28,127    $ 8,861,454

Interest expenses                            5,436,022            --     5,436,022      5,236,257             --      5,236,257
                                           -----------   -----------   -----------    -----------    -----------    -----------

Net interest income                          2,942,553        25,585     2,968,138      3,597,070         28,127      3,625,197

Provision for loan losses                      (50,000)           --       (50,000)         5,572             --          5,572
                                           -----------   -----------   -----------    -----------    -----------    -----------

Net interest income after
   provision for loan losses                 2,992,553        25,585     3,018,138      3,591,498         28,127      3,619,625

Other Income                                   860,465       885,356     1,745,821        776,588        830,189      1,606,777

Other Expenses                               3,315,946       743,738     4,059,684      3,384,470        667,342      4,051,812
                                           -----------   -----------   -----------    -----------    -----------    -----------

Income before income taxes                     537,072       167,203       704,275        983,616        190,974      1,174,590

Income Taxes                                   211,605        63,709       275,314        383,304         72,689        455,993
                                           -----------   -----------   -----------    -----------    -----------    -----------

Net Income                                 $   325,467   $   103,494   $   428,961    $   600,312    $   118,285    $   718,597
                                           ===========   ===========   ===========    ===========    ===========    ===========
</TABLE>


         There have been no differences from the last annual report in the basis
         of measuring segment profit or loss. There have been no material
         changes in the amount of assets for any operating segment since the
         last annual report.

(4)      SUBSEQUENT EVENTS

         On July 18, 2001, the Company declared a regular dividend of $0.15 per
share, payable on August 15, 2001 to stockholders of record on August 1, 2001.


                                      -8-

<PAGE>   11

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, 2001 decreased
$187,985, or 66.0%, and $289,636, or 40.3%, respectively, compared to the same
periods in fiscal 2000. Net interest income for the three months and nine months
ended June 30, 2001 decreased $303,856, or 25.0%, and $601,487, or 16.6%,
respectively, compared to the same periods in fiscal 2000. Non-interest income
increased $40,054 or 7.0%, for the three month period ended June 30, 2001, and
increased 139,044 or 8.7% for the nine-month period ended June 30, 2001, when
compared to the same periods in fiscal 2000, while non-interest expense
increased $41,665 or 3.1%, and $7,872, or .2%, for the three month and nine
month periods, respectively, ended June 30, 2001 compared to the same periods in
fiscal 2000.

Primary earnings per common share, based on weighted average shares outstanding,
was $.11 and $.31 for the three months ended June 30, 2001 and 2000, and $.47
and $.79 for the nine months ended June 30, 2001 and 2000, 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.

As of June 30, 2001, the interest-rate spread decreased 48 basis points, as the
weighted-average rates earned on interest-earning assets decreased 44 basis
points, to 7.58%, while the weighted-average cost of funds increased 4 basis
points, to 5.12%, when compared to the same period in fiscal year 2000. The
recent rapid decline in interest rates has created a temporary disparity in
net-interest income by causing an immediate reduction in interest income,
especially on prime-rate-based assets, with an offsetting decline in the overall
cost of funds occurring at a slower pace. The average balance of
interest-earning assets decreased $14.6 million, or 9.6%, from $152.0 million to
$137.4 million, while the average balance of interest-bearing liabilities
decreased $11.7 million, or 8.1%, from $144.1 million to $132.4 million. The
combined effect of the changes in average balances and the changes in interest
rates discussed resulted in a decrease in the interest-rate spread, from 2.94%
to 2.46%, and a decrease in net-interest income of $303,856, or 25.0%, and
$601,487, or 16.6%, for the three months and nine months, respectively, ended
June 30, 2001, as compared to the same periods in fiscal year 2000.

NON-INTEREST INCOME

Total non-interest income for the nine months ended June 30, 2001, increased
$139,000, to approximately $1,746,000, as compared to the nine months ended June
30, 2000. Employee-benefit-plan trust and consulting fees increased
approximately $55,000 as a result of increased activities at Pension and Benefit
Trust Company. Gain on sale of loans increased approximately $33,000 and other
non-interest income increased approximately $116,000 as compared to the same
period in fiscal 2000. These increases were offset by a decline in service
charges and other fees of approximately $26,000.

For the three-month period ended June 30, 2001, total non-interest income
increased by approximately $40,000 to $615,000, as compared to the same period
in fiscal year 2000. This increase was primarily the result of an increase of
$7,000 from service charges and other fees, an increase of $29,000 from gain on
sales of loans, an increase of $41,000 from other non-interest income, partially
offset by a decrease of $30,000 in employee benefit consulting fees as compared
to the same period in fiscal year 2000.


                                      -9-

<PAGE>   12

NON-INTEREST EXPENSE

Total non-interest expense for the nine months ended June 30, 2001, increased by
approximately $8,000, to $4,060,000, compared to $4,052,000 for the nine months
ended June 30, 2000. The increase is primarily due to increases in compensation
and benefits of approximately $83,000.

For the three-month period ended June 30, 2001, total non-interest expense
increased approximately $42,000, to $1,365,000, from $1,323,000 for the
three-month period ended June 30, 2000. Other non-interest expense decreased
approximately $34,000. Compensation and benefit expense increased approximately
$24,000, while office supplies increased approximately $18,000, with furniture
and fixtures increasing by approximately $29,000.

INCOME TAX EXPENSE

SouthFirst's effective tax rate for the nine-month periods ended June 30, 2001
and 2000 was 39.1% and 38.8%, respectively, 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 $181,000, or 39.6%, to $275,000 for the nine months ended June 30,
2001, as compared to $456,000 for the nine months ended June 30, 2000, due to
the decrease in pre-tax earnings.


                                      -10-

<PAGE>   13

                          REVIEW OF FINANCIAL CONDITION

OVERVIEW

Management continuously monitors the financial condition of the Company 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.

<TABLE>
<CAPTION>
                                                                                   At or for the
                                                                                three months ended
                                                                                      June 30,
                                                                         ---------------------------------
                                                                           2001                     2000
                                                                         --------                  -------
<S>                                                                      <C>                       <C>
Return on assets                                                             0.36%                    0.59%
Return on equity                                                             3.82%                    6.72%
Equity-to-assets ratio                                                       9.50%                    8.75%
Interest rate spread                                                         2.61%                    2.95%
Net interest margin                                                          2.78%                    3.19%
Total risk-based capital ratio                                              16.59%                   14.78%
Nonperforming loans to loans                                                  .56%                     .39%
Allowance for loan losses to loans                                            .64%                    0.63%
Allowance for loan losses to nonperforming loans                           113.55%                  159.75%
Ratio of net charge-offs to average loans outstanding                       (0.02)%                   0.14%
Book value per common share outstanding                                   $ 16.44                  $ 15.94
</TABLE>

Significant factors affecting SouthFirst's financial condition during the six
months ended June 30, 2001 are detailed below:

ASSETS

Total assets decreased $9,176,000, or 5.7%, from $161,026,000 at September 30,
2000 to 151,850,000 at June 30, 2001. Net loans decreased $7,236,000, or 6.7%,
compared to September 30, 2000, primarily due to seasonal changes in mortgage
loan demand and the number of loans purchased. Investment securities available
for sale decreased $2,238,000, or 5.8% from $38,327,000 to $36,089,000.

LIABILITIES

Total liabilities decreased approximately $9,524,000, or 6.5%, from $146,100,000
at September 30, 2000 to $136,576,000 at June 30, 2001. Deposits decreased
approximately $2,993,000 during the period, borrowed funds decreased $6,984,000,
while accrued expenses and other liabilities increased approximately $364,000,
compared to September 30, 2000. The decrease in deposits was primarily
attributable to the relatively low interest rate environment. Many customers
with savings deposits have removed these accounts in search of higher yielding
alternatives. The decrease in borrowed funds is the result of the repayment of
FHLB advances. The increase in accrued expenses is primarily the result of
fluctuations in accounts payable balances.


                                      -11-

<PAGE>   14

LOAN QUALITY

A major key to long-term earnings growth is maintenance of a high-quality loan
portfolio. SouthFirst maintains a high-quality loan portfolio by implementing
and carrying out 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, 2001, the allowance for loan losses was $667,926 as compared to
$700,619 at September 30, 2000. The decrease is primarily due to the charge-off
of consumer loans. SouthFirst recorded provisions for loan losses of ($50,000)
and $5,572 in the first nine months of fiscal 2001 and 2000, respectively.
Nonperforming loans at June 30, 2001 were approximately $588,000 as compared to
approximately $1,258,000 at September 30, 2000. The reduction of non-performing
loans is due to charge-offs and loans transferred to repossessed assets. At June
30, 2001 and September 30, 2000, the allowance for loan losses represented 0.64%
and 0.64% 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 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. While
loans have decreased, 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 may 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 comply
fully 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.


                                      -12-

<PAGE>   15

As of June 30, 2001, First Federal has satisfied all regulatory capital
requirements. First Federal's compliance with the current standards is as
follows:

<TABLE>
<CAPTION>
                                                                              Percent of
                                                       Amount                 asset base
                                                    ------------              ----------
                                                            (Dollars in thousands)
<S>                                                 <C>                       <C>
Tangible Capital                                    $ 14,618,000                  9.66%
Core Capital                                        14,618,000                  9.66%
Risk-Based Capital                                    15,214,000                 16.59%
</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.


                                      -13-

<PAGE>   16

                           SOUTHFIRST BANCSHARES, INC.
                                AND SUBSIDIARIES

                           PART II. OTHER INFORMATION

ITEM 1:  LEGAL PROCEEDINGS

In the normal course of business, SouthFirst and First Federal from time to time
are involved in legal proceedings. Management believes that there are no pending
or threatened legal proceedings which, upon resolution, are expected to have a
material effect upon SouthFirst's or First Federal's financial condition.

Further, on January 19, 2000, Bobby R. Cook, President of the Western Division
of First Federal and a member of the Board of Directors of SouthFirst and First
Federal, filed a lawsuit, in Chilton County, Alabama, against First Federal,
SouthFirst and Donald C. Stroup, alleging wrongful termination of his
employment, as President of the Western Division, and other claims. On
January 24, 2000, the employment of Mr. Cook, was terminated for cause by the
Board of Directors of First Federal, pursuant to the provisions of Mr. Cook's
employment agreement with First Federal. Further, Mr. Cook, on January 25, 2000,
following the approval of the Board of Directors of SouthFirst, was removed for
cause as a member of the Board of Directors of First Federal, upon the unanimous
written consent of SouthFirst, the sole shareholder of First Federal. Management
believes Mr. Cook's lawsuit to be without merit and is vigorously defending the
case. Mr. Cook failed to receive a nomination to stand for election as a member
of the Board of Directors of SouthFirst, and, therefore, was not re-elected by
the shareholders of SouthFirst at the annual meeting of stockholders held on
April 11, 2001.

ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits. No Exhibits are filed with this report.

(b)      Reports on Form 8-K. No report on form 8-K was filed during the quarter
         ended June 30, 2001.


                                      -14-

<PAGE>   17

                                   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 14, 2001          By: /s/ Donald C. Stroup
                                   -------------------------------------------
                                   Donald C. Stroup, President and
                                   Chief Executive Officer
                                   (principal executive officer)



Date: August 14, 2001          By:  /s/ Joe K. McArthur
                                    ------------------------------------------
                                    Joe K. McArthur, Executive Vice President
                                    and Chief Financial Officer
                                    (principal financial and accounting officer)


                                      -15-