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                                                                    EXHIBIT 10.3




                                [EXECUTION COPY]



                           FIRST FEDERAL OF THE SOUTH

                              EMPLOYMENT AGREEMENT

                       (Effective as of November 1, 2001)

                              (SANDRA H. STEPHENS)

         THIS AGREEMENT is entered into as of the 1st day of November, 2001 (the
"Effective Date"), by and between First Federal of the South (the "Association")
and Sandra H. Stephens (the "Employee").

         WHEREAS, the Employee has heretofore been employed by the Association
as Executive Vice-President and Chief Operating Officer and is experienced in
all phases of the business of the Association; and

         WHEREAS, the parties desire by this writing to establish and to set
forth the employment relationship between the Association and the Employee.

         NOW, THEREFORE, it is AGREED as follows:

         1.       Employment. The Employee is hereby employed as the Executive
Vice President and Chief Operating Officer. The Employee shall render such
administrative and management services for the Association as are currently
rendered and as are customarily performed by persons situated in a similar
executive capacity. The Employee shall also promote, by entertainment or
otherwise, as and to the extent permitted by law, the business of the
Association. The Employee's other duties shall be such as the Board of Directors
of the Association ("Board") may from time to time reasonably direct, including
normal duties as an officer of the Association.

         2.       Base Compensation. The Association agrees to pay the Employee
during the term of this Agreement a salary at the rate of $115,000 per annum,
payable in cash not less frequently than monthly. The Board shall review, not
less often than annually, the rate of the Employee's salary, and in its sole
discretion may decide to increase her salary.

         3.       Performance Bonus. Beginning on the Effective Date, and in
addition to Employee's base salary, Employee shall be eligible to receive such
performance bonuses as may be determined in the sole discretion of the Board.

         4.       (a)      Participation in Retirement, Medical and Other Plans.
The Employee shall participate in any plan that the Association maintains for
the benefit of its


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employees if the plan relates to (i) pension, profit-sharing, or other
retirement benefits, (ii) medical insurance or the reimbursement of medical or
dependent care expenses, or (iii) other group benefits, including disability and
life insurance plans.

                  (b)      Employee Benefits; Expenses. The Employee shall
participate in any fringe benefits which are or may become available to the
Association's senior management employees, including for example: any stock
option or incentive compensation plans, club memberships, and any other benefits
which are commensurate with the responsibilities and functions to be performed
by the Employee under this Agreement. The Employee shall be reimbursed for all
reasonable out-of-pocket business expenses which she shall incur in connection
with her services under this Agreement upon substantiation of such expenses in
accordance with the policies of the Association.

         5.       Term. The Association hereby employs the Employee, and the
Employee hereby accepts such employment under this Agreement, for the period
commencing on the Effective Date and ending 24 months thereafter (or such
earlier date as is determined in accordance with Section 9). Additionally, on
each annual anniversary date from the Effective Date, this Agreement and the
Employee's term of employment shall be extended for an additional one-year
period beyond the then effective expiration date, provided the Board determines
in a duly adopted resolution that the performance of the Employee has met the
Board's requirements and standards, and that this Agreement shall be extended.

         6.       Loyalty; Full Time and Attention.

                  (a)      During the period of her employment hereunder and
except for illnesses, reasonable vacation periods, and reasonable leaves of
absence, the Employee shall devote all her full business time, attention, skill,
and efforts to the faithful performance of her duties hereunder; provided,
however, from time to time, Employee may serve on the boards of directors of,
and hold any other offices or positions in, companies or organizations, which
will not present any conflict of interest with the Association or any of its
subsidiaries or affiliates, or unfavorably affect the performance of Employee's
duties pursuant to this Agreement, or will not violate any applicable statute or
regulation. "Full business time" is hereby defined as that amount of time
usually devoted to like companies by similarly situated executive officers.
During the term of her employment under this Agreement, the Employee shall not
engage in any business or activity contrary to the business affairs or interests
of the Association, or be gainfully employed in any other position or job other
than as provided above.

                  (b)      Nothing contained in this Paragraph 6 shall be deemed
to prevent or limit the Employee's right to invest in the capital stock or other
securities of any business dissimilar from that of the Association, or, solely
as a passive or minority investor, in any business.

         7.       Standards. The Employee shall perform her duties under this
Agreement in accordance with such reasonable standards as the Board may
establish from time to time. The



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Association will provide Employee with the working facilities and staff
customary for similar executives and necessary for her to perform her duties.

         8.       Vacation and Sick Leave. The Employee shall be entitled,
without loss of pay, to absent herself voluntarily from the performance of her
duties under this Agreement in accordance with the terms set forth below, all
such voluntary absences to count as vacation time; provided that:

                  (a)      The Employee shall be entitled to an annual vacation
in accordance with the policies that the Board periodically establishes for
senior management employees of the Association.

                  (b)      The Employee shall not receive any additional
compensation from the Association on account of her failure to take a vacation,
and the Employee shall not accumulate unused vacation from one fiscal year to
the next, except in either case to the extent authorized by the Board.

                  (c)      In addition to the aforesaid paid vacations, the
Employee shall be entitled without loss of pay, to absent herself voluntarily
from the performance of her employment obligations with the Association for such
additional periods of time and for such valid and legitimate reasons as the
Board may in its discretion approve. Further, the Board may grant to the
Employee a leave or leaves of absence, with or without pay, at such time or
times and upon such terms and conditions as the Board in its discretion may
determine.

                  (d)      In addition, the Employee shall be entitled to an
annual sick leave benefit as established by the Board.

         9.       Termination and Termination Pay. Subject to the provisions of
Section 11 hereof, the Employee's employment hereunder may be terminated under
the following circumstances:

                  (a)      Death. The Employee's employment under this Agreement
shall terminate upon her death during the term of this Agreement, in which event
the Employee's estate shall be entitled to receive the compensation due the
Employee through the last day of the calendar month in which her death occurred.

                  (b)      Disability. The Association may terminate the
Employee's employment after having established, through a determination by the
Board, the Employee's Disability. For purposes of this Agreement, "Disability"
means a physical or mental infirmity which impairs the Employee's ability to
substantially perform her duties under this Agreement and which results in the
Employee becoming eligible for long-term disability benefits under the
Association's long-term disability plan (or, if the Association has no such plan
in effect, which impairs the Employee's ability to substantially perform her
duties under this Agreement for a period of one hundred eighty (180) consecutive
days). The Employee shall be entitled to the compensation and benefits provided
for under this Agreement for (i) any period during the term



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of this Agreement and prior to the establishment of the Employee's Disability
during which the Employee is unable to work due to the physical or mental
infirmity, or (ii) any period of Disability which is prior to the Executive's
termination of employment pursuant to this Section 9(b).

                  (c)      For Cause. The Board may, by written notice to the
Employee, immediately terminate her employment at any time, for Cause. The
Employee shall have no right to receive compensation or other benefits for any
period after termination for Cause. Termination for "Cause" shall mean
termination because of, in the good faith determination of the Board, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. Notwithstanding the foregoing, the
Employee shall not be deemed to have been terminated for Cause unless there
shall have been delivered to the Employee a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the entire membership of the
Board (excluding the Employee if a member of the Board) at a meeting of the
Board called and held for the purpose (after reasonable notice to the Employee
and an opportunity for the Employee to be heard before the Board), finding that
in the good faith opinion of the Board the Employee was guilty of conduct set
forth above in the second sentence of this Subsection (c) and specifying the
particulars thereof in detail.

                  (d)      Without Cause. Subject to the provisions of Section
11 hereof, the Board may, by written notice to the Employee, immediately
terminate her employment at any time for any reason; provided that if such
termination is for any reason other than pursuant to Sections 9 (a) (b) or (c)
above, the Employee shall be entitled to receive the following compensation and
benefits: (i) the salary provided pursuant to Section 2 hereof, up to the date
of expiration of the term (including any renewal term then in effect) of this
Agreement (the "Termination Date"), plus said salary for an additional 12-month
period, and (ii) the cost to the Employee of obtaining all health, life and
disability benefits which the Employee would have been eligible to participate
in through the Termination Date, based upon the benefit levels substantially
equal to those that the Association provided for the Employee at the date of
termination of employment. Said sum shall be paid, at the option of the
Employee, either (I) in periodic payments over the remaining term of this
Agreement, as if the Employee's employment had not been terminated, or (II) in
one lump sum within ten (10) days of such termination; provided however, that
the amount to be paid by the Association to the Employee hereunder shall not
exceed two (2) times the Employee's "average annual compensation". The
Employee's "average annual compensation" shall be the average of the total
annual "compensation" acquired by the Employee during each of the five (5)
fiscal years (or the number of full fiscal years of employment, if the
Employee's employment is less than five (5) years at the termination thereof)
immediately preceding the date of termination. The term "compensation" shall
mean any payment of money or provision of any other thing of value in
consideration of employment, including, without limitation, base compensation,
bonuses, pension and profit sharing plan, director fees or committee fees,
fringe benefits and deferred compensation accruals.



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                  (e)      Voluntary Termination by Employee. Subject to the
provisions of Section 11 hereof, the Employee may voluntarily terminate
employment with the Association during the term of this Agreement, upon at least
60 days' prior written notice to the Board of Directors, in which case the
Employee shall receive only her compensation, vested rights and employee
benefits accrued up to the date of her termination.

         10.      No Mitigation. The Employee shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment or otherwise, and no such payment shall be offset or reduced by the
amount of any compensation or benefits provided to the Employee in any
subsequent employment.

         11.      Change in Control.

                  (a)      Notwithstanding any provision herein to the contrary,
if the Employee's employment under this Agreement is terminated by the
Association, without the Employee's prior written consent and for a reason other
than for Cause, death or disability in connection with or within twenty-four
(24) months after any change in control of the Association or SouthFirst
Bancshares, Inc. (the "Corporation"), the Employee shall be paid an amount equal
to the difference between (i) the product of 2.99 times her "base amount" as
defined in Section 28OG(b)(3) of the Internal Revenue Code of 1986, as amended
(the "Code") and regulations promulgated thereunder, and (ii) the sum of any
other "parachute payments" (as defined under Section 28OG(b)(2) of the Code)
that the Employee receives on account of the change in control. Said sum shall
be paid in one lump sum within ten (10) days of such termination. The term
"change in control" shall mean (1) an increase in the ownership of, or the
holding of, or the power to vote, by any person, or by any persons acting as a
"group" (within the meaning of Section 13(d) of the Securities Exchange Act of
1934), the Association's or Corporation's voting stock, to an amount which is
more than 25% of the issued and outstanding shares thereof, (2) a change in the
ownership of, or possession of, the ability to control the election of a
majority of the Association's or Corporation's directors, (3) a change in the
ownership of, or possession of, the ability to exercise a controlling influence
over the management or policies of the Association or the Corporation, by any
person, or by any persons acting as a "group" (within the meaning of Section
13(d) of the Securities Exchange Act of 1934) (except in the case of (1), (2)
and (3) hereof, ownership or control of the Association, or its board of
directors, by the Corporation itself shall not constitute a "change in
control"), or (4) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the
Corporation or the Association (the "Company Board") (the "Continuing
Directors") cease for any reason to constitute at least two-thirds thereof,
provided that any individual whose election or nomination for election as a
member of the Company Board was approved by a vote of at least two-thirds of the
Continuing Directors then in office shall be considered a Continuing Director.
The term "person" means an individual (other than the Employee), individuals
acting in concert or as a "group", or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.



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                  (b)      Notwithstanding any other provision of this Agreement
to the contrary, the Employee may voluntarily terminate her employment under
this Agreement within twelve (12) months following a change in control of the
Association or the Corporation, and the Employee shall thereupon be entitled to
receive the payment described in Section 11(a) of this Agreement, upon the
occurrence of any of the following events, or within ninety (90) days
thereafter, which have not been consented to in advance by the Employee in
writing: (i) the requirement that the Employee move her personal residence, or
perform her principal executive functions, more than thirty-five (35) miles from
her primary office as of the date of the change in control; (ii) a material
reduction in the Employee's base compensation as in effect on the date of the
change in control, as the same may be increased from time to time; (iii) the
failure by the Association to continue to provide the Employee with compensation
and benefits provided for under this Agreement, as the same may be increased
from time to time, or with benefits substantially similar to those provided to
her under any of the employee benefit plans in which the Employee now or
hereafter becomes a participant, or the taking of any action by the Association
which would directly or indirectly reduce any of such benefits or deprive the
Employee of any material fringe benefit enjoyed by her at the time of the change
in control; (iv) the assignment to the Employee of duties and responsibilities
materially different from those normally associated with her position as
referenced at Section 1; (v) a failure to elect or reelect the Employee to the
Board of Directors of the Association if the Employee is serving on such Board
on the date of the change in control; or (vi) a material diminution or reduction
in the Employee's responsibilities or authority (including reporting
responsibilities) in connection with her employment with the Association.

                  (c)      Notwithstanding any other provision of this Agreement
to the contrary, the Employee may voluntarily terminate her employment under
this Agreement within twelve (12) months following a change in control of the
Corporation or the Association, and the Employee shall thereupon be entitled to
receive the payment described in Section 11(a) of this Agreement.

                  (d)      Any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder.

                  (e)      In the event that any dispute arises between the
Employee and the Association as to the terms or interpretation of this
Agreement, including this Agreement, whether instituted by formal legal
proceedings or otherwise, including any action that the Employee takes to
enforce the terms of this Agreement or to defend against any action taken by the
Association, the Employee shall be reimbursed for all costs and expenses,
including reasonable attorneys' fees, arising from such dispute, proceedings or
actions, provided that the Employee shall have obtained a final judgement by a
court of competent jurisdiction in favor of the Employee. Such reimbursement
shall be paid within ten (10) days of Employee's furnishing to the Association
written evidence, which may be in the form, among other things, of a canceled
check or receipt, of any costs or expenses incurred by the Employee.

         12.      Requirements of Applicable Regulations of OTS



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                  (a)      The Association's board of directors may terminate
the Employee's employment at any time, but any termination by the Association's
board of directors, other than termination for cause, shall not prejudice the
Employee's right to compensation or other benefits under this Agreement. The
Employee shall have no right to receive compensation or other benefits for any
period after termination for cause (as defined in Section 9(c) hereof).

                  (b)      If the Employee is suspended and/or temporarily
prohibited from participating in the conduct of the Association's affairs by a
notice served under section 8(e)(3) or (g)(1) of Federal Deposit Insurance Act
(12 U.S.C. 1818 (e)(3) and (g)(1)), the Association's obligations under this
Agreement shall be suspended as of the date of service unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay the Employee all or part of the
compensation withheld while its obligations were suspended, and (ii) reinstate
(in whole or in part) any of its obligations which were suspended.

                  (c)      If the Employee is removed and/or permanently
prohibited from participating in the conduct of the Association's affairs by an
order issued under section 8(e)(4) or (g)(1) of the Federal Deposit Insurance
Act (12 U.S.C. 1818 (e)(4) or (g)(1)), all obligations of the Association under
this Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.

                  (d)      If the Association is in default (as defined in
section 3(x)(1) of the Federal Deposit Insurance Act), all obligations under
this Agreement shall terminate as of the date of default, but this Section 12(d)
shall not affect any vested rights of the parties.

                  (e)      All obligations under this Agreement shall be
terminated, except to the extent determined that the continuation of this
Agreement is necessary of the continued operation of the Association:

                           (i)      By the Director of the Office of Thrift
Supervision (the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation or Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Association under the
authority contained in 13(c) of the Federal Deposit Insurance Act; or

                           (ii)     By the Director or his or her designee, at
the time the Director or his or her designee approves a supervisory merger to
resolve problems related to operation of the association or when the association
is determined by the Director to be in an unsafe or unsound condition.

                           Any rights of the Employee that have already vested,
however, shall not be affected by such action.

                  (f)      Should any provision of this Agreement give rise to a
discrepancy or conflict with respect to any applicable law or regulation, then
the applicable law or regulation shall control the relevant construction and
operation of this Agreement.



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         13.      Successors and Assigns.

                  (a)      This Agreement shall inure to the benefit of and be
binding upon any corporate or other successor of the Association which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Association.

                  (b)      since the Association is contracting for the unique
and personal skills of the Employee, the Employee shall be precluded from
assigning or delegating her rights or duties hereunder without first obtaining
the written consent of the Association.

         14.      Amendments. No amendments or additions to this Agreement shall
be binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.

         15.      Applicable Law. Except to the extent preempted by Federal law,
the laws of the State of Delaware shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.

         16.      Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.

         17.      Entire Agreement. This Agreement, together with any
understanding or modifications thereof as agreed to in writing by the parties,
shall constitute the entire agreement between the parties hereto.

                  IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first hereinabove written.


ATTEST:                             FIRST FEDERAL OF THE SOUTH


                                    BY:
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Secretary                              Joe K. McArthur, President and
                                       Chief Executive Officer



WITNESS:


-------------------------              ----------------------------------------
                                       Sandra H. Stephens ("Employee")




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