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                                                                    EXHIBIT 10.1



                                [EXECUTION COPY]


                           SOUTHFIRST BANCSHARES, INC.

                              EMPLOYMENT AGREEMENT

                       (Effective as of September 1, 2001)

                                (JOE K. MCARTHUR)


         THIS AGREEMENT is entered into as of the 1st day of September, 2001
(the "Effective Date"), by and between SouthFirst Bancshares, Inc. , the parent
and holding company (the "Holding Company") of First Federal of the South (the
"Association") and Joe K. McArthur (the "Employee").

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

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

         NOW, THEREFORE, it is AGREED as follows:

         1.       Employment. The Employee is hereby employed as the Chief
Executive Officer of the Holding Company. The Employee shall render such
administrative and management services for the Holding Company 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 Holding
Company. The Employee's other duties shall be such as the Board of Directors of
the Holding Company ("Board") may from time to time reasonably direct, including
normal duties as an officer of the Holding Company.

         2.       Consideration from Holding Company: Joint and Several
Liability. The Holding Company, in lieu of paying the Employee a base salary
during the term of this Agreement, hereby agrees that, to the extent permitted
by law, it shall be jointly and severally liable with the Association for the
payment of all amounts due under the employment agreement of even date herewith
between the Association and the Employee (the "Association Contract").
Nevertheless, the Board may in its discretion, at any time during the term of
this Agreement, determine and agree to pay the Employee a base salary for the
remaining term of this Agreement; provided that, prior to such determination by
the Board, the term "base salary" as used herein shall refer to the base salary
paid to Employee by the Association under the Association Contract. If the Board
agrees to pay such salary, the Board shall thereafter review, not less often



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than annually, the rate of the Employee's salary, and in its sole discretion may
decide to increase his 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.       Additional Compensation.

                  (a)      Participation in Retirement, Medical and Other Plans.
The Employee shall participate in any plan that the Holding Company maintains
for the benefit of its 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
Holding Company's senior management employees, including for example: any stock
option or incentive compensation plans, club memberships, provision of company
owned or leased automobile, 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 he shall incur in connection with his services under
this Agreement upon substantiation of such expenses in accordance with the
policies of the Holding Company, including country club initiation fees and
dues, which further the interests of the Holding Company and Association.

                  (c)      Stock Options. Beginning on the Effective Date, and
in addition to other compensation provided to the Employee pursuant to this
Agreement, and in addition to the Employee's participation in any incentive
stock option plan adopted by the Holding Company, Employee shall be eligible to
receive a grant of such stock options, pursuant to such provisions therein
regarding amount, exercise price, vesting, expiration and other relevant option
terms, all as may be determined in the sole discretion of the Board.

         5.       Term. The Holding Company 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 anniversary of 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 his employment hereunder and
except for illnesses, reasonable vacation periods, and reasonable leaves of
absence, the Employee shall


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devote all his full business time, attention, skill, and efforts to the faithful
performance of his duties hereunder; provided, however, that, 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 Holding Company 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 his
employment under this Agreement, the Employee shall not engage in any business
or activity contrary to the business affairs or interests of the Holding
Company, 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 Holding Company,
or, solely as a passive or minority investor, in any business.

         7.       Standards. The Employee shall perform his duties under this
Agreement in accordance with such reasonable standards as the Board may
establish from time to time. The Holding Company will provide Employee with the
working facilities and staff customary for similar executives and necessary for
him to perform his duties.

         8.       Vacation, Sick Leave and Annual Physical Examination.

                  (a)      The Employee shall be entitled, without loss of pay,
to absent himself voluntarily from the performance of his duties under this
Agreement in accordance with the terms set forth below, all such voluntary
absences to count as vacation time; provided that:

                           (i)      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 Holding Company.

                           (ii)     The Employee shall not receive any
additional compensation from the Holding Company on account of his 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.

                           (iii)    In addition to the aforesaid paid vacations,
the Employee shall be entitled, without loss of pay, to absent himself
voluntarily from the performance of his employment obligations with the Holding
Company 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.

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



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                  (b)      The Employee, at least once during each 12-month
period, beginning on the Effective Date and each anniversary thereof, shall
schedule and submit to a full physical examination by a licensed medical
physician and, if requested, shall submit the findings of such examination to
the Board of Directors.

         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 the event of his 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 his death occurred.

                  (b)      Disability. The Holding Company 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 his duties under this Agreement and which results in the
Employee becoming eligible for long-term disability benefits under the Holding
Company's long-term disability plan or under any disability insurance otherwise
provided to Employee (or, if the Holding Company has no such plan in effect,
which impairs the Employee's ability to substantially perform his 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 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 his 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.


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                  (d)      Without Cause. Subject to the provisions of Section
11 hereof, the Board may, by written notice to the Employee, immediately
terminate his 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 base 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 Holding Company 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 Holding Company 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 money or provision of any other thing of value in consideration of
employment, paid or guaranteed hereunder this Agreement, including, without
limitation, base salary, bonuses, pensions and profit sharing plans, directors
fees or committee fees, fringe benefits and deferred compensation accruals.

                  (e)      Voluntary Termination by Employee. Subject to the
provisions of Section 11 hereof, the Employee may voluntarily terminate
employment with the Holding Company 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 his compensation, vested rights and employee
benefits accrued up to the date of his 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 Holding
Company, 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 Holding Company or the
Association, the Employee shall be paid an amount equal to the difference
between (i) the product of 2.99 times his "base amount," as paid or guaranteed
under this Agreement, and 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


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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
Holding Company's or Association'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
Holding Company's or Association'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 Holding Company or the Association, by any person,
or by 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
Holding Company 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 Association or the Holding
Company (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", a corporation, partnership, trust, association, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization or any other form of
entity not specifically listed herein.

                  (b)      Notwithstanding any other provision of this Agreement
to the contrary, the Employee may voluntarily terminate his employment under
this Agreement within twelve (12) months following a change in control of the
Association or the Holding Company, 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 his personal residence, or
perform his principal executive functions, more than thirty-five (35) miles from
his 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 Holding Company 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 him 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
Holding Company which would directly or indirectly reduce any of such benefits
or deprive the Employee of any material fringe benefit enjoyed by him 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 his
position as referenced at Section 1; (v) a failure to elect or reelect the
Employee to the Board of Directors of the Holding Company 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 his employment with
the Holding Company.



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

                  (d)      Any and all amounts paid to Employee under Section 9
and/or Section 11 of the Association Contract shall be deemed to be paid in
satisfaction of, and shall therefore offset, any amounts to be paid to Employee
pursuant to Section 9 hereof or pursuant to this Section 11, to the extent that
any amounts to be paid under Section 9 hereof or under this Section 11 are
attributable to, or related to, the base salary, or other compensation and
amounts, paid to Employee by the Association under the Association Contract.

                  (e)      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.

                  (f)      In the event that any dispute arises between the
Employee and the Holding Company as to the terms or interpretation of this
Agreement, including this Section 11, whether instituted by formal legal
proceedings or otherwise, including any, action that the Employee takes to
enforce the terms of this Section 11 or to defend against any action taken by
the Holding Company, 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
Holding Company 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.      Successors and Assigns.

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

                  (b)      The Holding Company and Employee agree that the
Holding Company is contracting for the unique and personal skills of the
Employee. The Employee, therefore, shall be precluded from assigning or
delegating his rights or duties hereunder, without first obtaining the written
consent of the Holding Company.

         13.      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.



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         14.      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.

         15.      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.

         16.      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. Further,
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.

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


ATTEST:                             SOUTHFIRST BANCSHARES, INC.


                                    BY:
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Secretary                              Allen G. McMillan, III
                                       Chairman of the Board of Directors

WITNESS:

-------------------------              ----------------------------------------
                                       Joe K. McArthur ("Employee")



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