<PAGE>   1





                                 EXHIBIT 10.1.1
<PAGE>   2

                          SOUTHFIRST BANCSHARES, INC.

                              EMPLOYMENT AGREEMENT

                                October 1, 1996

                               (Joe K. McArthur)


         THIS AGREEMENT is entered into as of the first day of October, 1996
(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, Chief Financial
Officer and Secretary 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 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 Executive
Vice-President, Chief Operating Officer, Chief Financial 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.  In lieu of paying the Employee a base salary during the term of
this Agreement, the Holding Company 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.  Nevertheless, the Board may in its
discretion, at any time during the term of this Agreement, agree to pay the
Employee a base salary for the remaining term of this Agreement.  If the Board
agrees to pay such salary, the Board shall thereafter review, not less often
than annually, the rate of the Employee's salary, and in its sole discretion
may decide to increase his salary.

         3.      Discretionary Bonuses.  The Employee shall participate in an
equitable manner with all other senior management employees of the Holding
Company in discretionary bonuses that the Board may award from time to time to
the Holding Company's senior management employees.  No other compensation
provided for in this Agreement shall be deemed a substitute for the Employee's
right to participate in such discretionary bonuses.

         4.      (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.
<PAGE>   3

                 (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, 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.

         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 36 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 his employment hereunder and
except for illnesses, reasonable vacation periods, and reasonable leaves of
absence, the Employee shall devote all his full business time, attention,
skill, and efforts to the faithful performance of his 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 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 and Sick Leave.  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:

                 (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 Holding Company.

                 (b)      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.
<PAGE>   4

                 (c)      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.

                 (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 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, 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.

                 (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 salary provided
<PAGE>   5

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, disability and other benefits
(excluding any bonus, stock option or other compensation 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 Association to the Employee hereunder shall not exceed three (3) times
the Employee's "average annual compensation".  The Employee's "annual average
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 plans, directors fees or committees 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 SouthFirst
Bancshares, Inc. (the "Corporation"), the Employee shall be paid an amount
equal to the difference between (i) the product of 2.99 times his "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) a change in the ownership, holding or
power to vote more than 25% of the Holding Company's or corporation's voting
stock, (2) a change in the ownership or possession of the ability to control
the election of a majority of the Holding Company's or Corporation's directors,
(3) a change in the ownership or possession of the ability to exercise a
controlling influence over the management or policies of the Holding Company or
the Corporation 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 Holding Company or
its 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
<PAGE>   6

constitute the Board of Directors of the Corporation 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, or 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
Holding Company or the Corporation, and the Employee shall thereupon be
entitled to receive the payment described in Section 11(a) of this Agreement.

                 (c)      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.

                 (d)      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 an, 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 cancelled 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)      since the Holding Company is contracting for the
unique and personal skills of the Employee, the Employee 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.

         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
<PAGE>   7

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
on the day and year first hereinabove written.


ATTEST:                                 SOUTHFIRST BANCSHARES, INC.


/s/ Joe K. McArthur                     BY:  /s/ Donald C. Stroup
------------------------------------       -------------------------------------
Secretary                                          President and Chief
                                                     Executive Officer

WITNESS:


/s/ Paul A. Brown                       /s/ Joe K. McArthur
------------------------------------    ----------------------------------------
Outside Director                        Joe K. McArthur ("Employee")