U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                           ---------------------------

                                   FORM 10-QSB

[X]  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF  THE  SECURITIES
     EXCHANGE ACT OF 1934

     For the quarterly period ended June 30, 1998

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION 13 OR 15 (d)  OF  THE  SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from            to 
                                    ----------    ----------               

                         Commission File Number 0-22587
                                                -------

                                SFB BANCORP, INC.
     ----------------------------------------------------------------------
             (Exact name of Registrant as specified in its Charter)


          Tennessee                                  62-1683732
-------------------------------          ---------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

632 East Elk Avenue, Elizabethton, Tennessee               37643
--------------------------------------------            -------------
 (Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code:  (423) 543-3518
                                                     --------------

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

                                X   Yes          No
                              ----           ---

As of August 10, 1998,  there were  752,980  shares of the  Registrant's  common
stock,  par value  $0.10 per share,  outstanding.  The  Registrant  has no other
classes of common equity outstanding.

Transitional small business disclosure format:

                                    Yes       X  No
                                ---          ---

                                       
<PAGE>

                                SFB BANCORP, INC.
                                 AND SUBSIDIARY

                             Elizabethton, Tennessee

                                      Index
<TABLE>
<CAPTION>
PART I.                                                                                                             Page(s)
-------                                                                                                             -------
<S>                                                                                                                <C>
FINANCIAL INFORMATION

Item 1.
Financial Statements

Consolidated Balance Sheets-(Unaudited) as of December 31, 1997 and June 30, 1998.......................................3

Consolidated  Statements of  Comprehensive  Income - (Unaudited) for the three and six
  month periods ended June 30, 1997 and 1998............................................................................4

Consolidated Statements of Cash Flows - (Unaudited) for the six months
  ended June 30, 1997 and 1998..........................................................................................5

Notes to (Unaudited) Consolidated Financial Statements................................................................6-8

Item 2.
Management's Discussion and Analysis of Financial Condition
  and Results of Operations..........................................................................................9-12

PART II.

OTHER INFORMATION

Item 1.  Legal Proceedings.............................................................................................13

Item 2.  Changes in Securities.........................................................................................13

Item 3.  Defaults Upon Senior Securities...............................................................................13

Item 4.  Submission of Matters to a Vote of Security Holders........................................................13-14

Item 5.  Other Information.............................................................................................14

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

Signatures.............................................................................................................15

</TABLE>

                                       2
<PAGE>

                        SFB BANCORP, INC. AND SUBSIDIARY

                           Consolidated Balance Sheets
                                   (Unaudited)
                                                        
<TABLE>
<CAPTION>
                                                                            December 31,           June 30,
                                                                         -------------------- --------------------
           Assets                                                               1997                 1998
           ------                                                               ----                 ----
<S>                                                                      <C>                  <C>              
Cash on hand                                                             $             453    $             573
Interest earning deposits in other banks                                             4,139                2,774
Investment securities:
   Held to maturity (market value of $526
     in 1997 and $1,248 in 1998)                                                       577                1,277
   Available for sale (amortized cost of $1,149
     in 1997 and $2,299 in 1998)                                                     1,148                2,397
Loans receivable, net                                                               40,648               40,342
Mortgage-backed securities:
   Available for sale (amortized cost of $5,117 in
     1997 and $4,446 in 1998)                                                        5,030                4,384
Premises and equipment, net                                                            575                  707
Federal Home Loan Bank stock                                                           423                  439
Accrued interest receivable                                                            316                  287
Prepaid expenses and other assets                                                       28                   58
                                                                           ---------------      ---------------

         Total assets                                                    $          53,337    $          53,238
                                                                           ===============      ===============

   Liabilities and Stockholders' Equity
   ------------------------------------
Deposits                                                                 $          40,587    $          40,273
Advance payments by borrowers for taxes and insurance                                  199                  452
Accrued expenses and other liabilities                                                 144                  175
Income taxes payable:
   Current                                                                             164                    -
   Deferred                                                                             62                   41
                                                                           ---------------      ---------------

         Total liabilities                                                          41,156               40,941
                                                                           ---------------      ---------------

Commitments and contingencies

Stockholders' equity:
   Preferred stock ($.10 par value, 1,000,000 shares authorized;
     none outstanding)                                                                   -                    -
   Common stock ($.10 par value, 4,000,000 shares authorized;
     767,000 shares issued and outstanding)                                             77                   77
   Paid-in capital                                                                   7,336                7,356
   Retained earnings, substantially restricted                                       5,373                5,542
   Accumulated other comprehensive income (loss)                                       (53)                 (39)
   Unearned compensation:
     Employee stock ownership plan                                                    (552)                (522)
     Restricted stock plan                                                               -                 (117)
                                                                           ---------------      ----------------

         Total stockholders' equity                                                 12,181               12,297
                                                                           ---------------      ---------------

         Total liabilities and stockholders' equity                      $          53,337    $          53,238
                                                                           ===============      ===============
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       3
<PAGE>
                        SFB BANCORP, INC. AND SUBSIDIARY

                 Consolidated Statements of Comprehensive Income
                                   (Unaudited)
                                                           
<TABLE>
<CAPTION>

                                                     For Three Months Ended              For Six Months Ended
                                                            June 30,                           June 30,
                                                 -------------------------------    -------------------------------
                                                      1997            1998               1997            1998
                                                      ----            ----               ----            ----
<S>                                                <C>             <C>                <C>             <C>         
Interest income:
   Loans                                           $        793    $        843       $      1,572    $      1,677
   Mortgage-backed securities                                79              63                162             132
   Investments                                               26              45                 50              76
   Interest earning deposits                                 51              43                 60              96
                                                   ------------    ------------       ------------    ------------
         Total interest income                              949             994              1,844           1,981
                                                   ------------    ------------       ------------    ------------

Interest expense:
   Deposits                                                 511             487              1,002             968
   Federal Home Loan Bank advances                            -               -                  3               -
                                                   ------------    ------------       ------------    ------------
         Total interest expense                             511             487              1,005             968
                                                   ------------    ------------       ------------    ------------
         Net interest income                                438             507                839           1,013

Provision for loan losses                                     -               7                  -              15
                                                   ------------    ------------       ------------    ------------
         Net interest income after provision
           for loan losses                                  438             500                839             998

Non-interest income:
   Loan fees and service charges                             35              38                 70              75
   Other                                                      1               2                  6               5
                                                   ------------    ------------       ------------    ------------
         Total non-interest income                           36              40                 76              80
                                                   ------------    ------------       ------------    ------------

Non-interest expenses:
   Compensation                                             131             249                249             366
   Employee benefits                                         18              34                 34              66
   Net occupancy expense                                     18              20                 34              39
   Deposit insurance premiums                                 6               6                  8              12
   Data processing                                           17              22                 36              42
   Other                                                     63              79                109             169
                                                   ------------    ------------       ------------    ------------
         Total non-interest expenses                        253             410                470             694
                                                   ------------    ------------       ------------    ------------

         Income  before income taxes                        221             130                445             384

Income tax expense                                           82              49                161             143
                                                   ------------    ------------       ------------    ------------

         Net income                                         139              81                284             241

Other  comprehensive   income:  
  Net  unrealized gains (losses) on
  securities available for sale net of
  income  taxes of $18 and $4, for the 
  three  months, and $10 and $7, for the six
  months, respectively                                       27               6                 17              14
                                                 --------------  --------------     --------------  --------------

         Comprehensive income                    $          166  $           87     $          301  $          255
                                                  =============  ==============     ==============  ==============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       4
<PAGE>
                        SFB BANCORP, INC. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                       Six Months Ended
                                                                                            June 30,
                                                                                ----------------------------------
                                                                                       1997             1998
                                                                                       ----             ----
<S>                                                                                 <C>             <C>         
Operating activities:
   Net income                                                                       $      284      $        241

   Adjustments  to  reconcile  net  income  to net cash  provided 
      by  operating activities:
     Depreciation                                                                           25                27
     Provision for loan losses                                                               -                15
     Increase (decrease) in reserve for uncollected interest                                 7                 9
     Deferred income taxes (benefit)                                                         -               (30)
     Net increase (decrease) in deferred loan fees                                         (16)                5
     Accretion of discounts on investment securities, net                                  (12)              (11)
     Amortization of premiums on mortgage-backed securities                                  6                 7
     Amortization of unearned compensation                                                   8                50
        Repurchase of shares - RSP                                                           -              (117)
     FHLB stock dividends                                                                  (15)              (16)
     (Increase) decrease in other assets                                                   (14)              (30)
     (Increase) decrease in accrued interest receivable                                    (16)               20
     Increase (decrease) in accrued expenses and other liabilities                          61                31
     Increase (decrease)  in current income taxes                                           71              (164)
                                                                                     ---------      ------------
         Net cash provided by operating activities                                         389                37
                                                                                     ---------      ------------

Investing activities:
   Purchase of investment securities held to maturity                                        -              (710)
   Maturity of investment securities held to maturity                                        -                21
   Purchase of investment securities available for sale                                   (300)           (2,150)
   Maturities of investment securities available for sale                                  250               900
   Principal payments on mortgage-backed securities
     available for sale                                                                    359               663
   Proceeds from sale real estate                                                            -                 -
   Net (increase) decrease in loans                                                     (1,221)              286
   Purchase of premises and equipment                                                      (22)             (159)
                                                                                     ----------     -------------

         Net cash used by investing activities                                            (934)           (1,149)
                                                                                     ----------     -------------

Financing activities:
   Net increase (decrease) in deposits                                                    (739)             (314)
   Increase (decrease) in advance payments by borrowers
     for taxes and insurance                                                               258               253
   Repayment of FHLB advances                                                             (800)                -
     Issuance of  common stock                                                           7,056                 -
   Payment of accrued conversion cost                                                     (286)                -
   Payment of cash dividend                                                                  -               (72)
                                                                                     ---------      -------------
         Net cash provided (used) by financing activities                                5,489              (133)
                                                                                     ---------      -------------

         Increase (decrease) in cash and cash equivalents                                4,944            (1,245)

Cash and cash equivalents at beginning of period                                         1,414             4,592
                                                                                     ---------      ------------

Cash and cash equivalents at end of period                                           $   6,358      $      3,347
                                                                                     =========      ============


Supplemental  disclosures  of cash flow  information:  Cash paid during the year
   for:
     Interest                                                                        $     999      $        972
     Income taxes                                                                           81               326

Noncash transactions
     Unrealized gain (loss) on securities  available for sale, net of deferred tax          17                14
        liability
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       5
<PAGE>


SFB BANCORP, INC. AND SUBSIDIARY      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

                                SFB BANCORP, INC.
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.   Basis of Preparation
     --------------------

     The accompanying  unaudited consolidated financial statements were prepared
     in  accordance  with  instructions  for Form 10-QSB and  therefore,  do not
     include  all  disclosures  necessary  for a  complete  presentation  of the
     consolidated  balance  sheets,  consolidated  statements  of  comprehensive
     income,  consolidated  statements of stockholders' equity, and consolidated
     statements of cash flows in conformity with generally  accepted  accounting
     principles.   However,  all  adjustments  which  are,  in  the  opinion  of
     management,  necessary for the fair  presentation of the interim  financial
     statements  have  been  included.  All  such  adjustments  are of a  normal
     recurring nature. The statements of comprehensive  income for the three and
     six month periods ending June 30, 1998 is not necessarily indicative of the
     results  which may be  expected  for the entire  year or any other  interim
     period.

     It is suggested  that these  consolidated  financial  statements be read in
     conjunction with the audited  consolidated  financial  statements and notes
     thereto  for the  Company  for the year ended  December  31, 1997 which are
     included in the Form 10-KSB by reference (file no. 0-22587).

2.   Earnings Per Share
     ------------------

      Basic  earnings  per share  amounts  for the  three and six month  periods
      ending June 30, 1998 are based on the average number of shares outstanding
      throughout  the  period  less  unallocated  ESOP  shares,  which  are  not
      considered  as  outstanding  for  purposes of this  calculation.  Dilutive
      earnings per share are based on the dilutive  effect for potential  common
      shares  outstanding  during the period  which  would  include  unpurchased
      shares  granted for the Bank's  Restricted  Stock Plan and shares  granted
      under the Company's  Stock Option Plan.  No earnings per share  disclosure
      has been included for the three and six months ending June 30, 1997, since
      the initial stock  offering was completed on May 29, 1997.  Therefore,  it
      was determined that this information would not be meaningful.

                                       6
<PAGE>
SFB BANCORP, INC. AND SUBSIDIARY      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                      Weighted average shares outstanding
                                              -------------------------------------------------
                                                 Three month period         Six month period
                                                 ended June 30, 1998       ended June 30, 1998
                                                 -------------------       -------------------
<S>                                                   <C>                        <C>    
    Common Shares Outstanding                         767,000                    767,000
      Less:  Unallocated ESOP shares                  (53,191)                   (53,939)
                                                   ------------                ----------
    Basic EPS computation                             713,809                    713,061
    Effect of dilutive securities:
      Restricted Stock Plan                               115                         58
      Stock Options                                       492                        250
                                                   ----------                  ---------
    Diluted EPS computation                           714,416                    713,369
      Basic net income per share                         $.11                       $.34
      Diluted net income per share                       $.11                       $.34

</TABLE>

3.   Stock Option Plan and Restricted Stock Plan
     -------------------------------------------

     On June 1, 1998,  the  stockholders  of the Company  approved the Company's
     Stock Option Plan and Restricted  Stock Plan (RSP) at the Company's  annual
     meeting.  Shares issued to directors and employees under these plans may be
     from  authorized  but  unissued  shares  of  common  stock  or they  may be
     purchased in the open market.  The Company announced on June 15, 1998, in a
     press release that it would  repurchase up to 4% of its outstanding  common
     stock to fund its  approved  Restricted  Stock  Plan and on July 15,  1998,
     announced in a press  release that it would  initially  repurchase up to 5%
     for its approved  Stock Option Plan. As of June 30, 1998, a total of 13,500
     shares of common stock had been repurchased.

     The Company  granted and awarded on June 1, 1998 under its  approved  Stock
     Option Plan and RSP Plan 73,630 and 30,678 shares, respectively.  The stock
     options were granted to employees and non-employee directors at an exercise
     price of $16.69  per share  and are  exercisable  at the rate of 20% on the
     date of grant and 20% annually thereafter. No shares have been exercised as
     of June 30, 1998.

     The  shares  awarded  under the RSP plan will be earned  and  vested to the
     employees  and  non-employee  directors  over a four year  period  with 20%
     vesting  on the date of grant  and 20%  annually  thereafter.  Compensation
     expense recognized for the three and six month periods ending June 30, 1998
     for the RSP awards was $114,000.

     4.Asset Quality
       -------------
   
     The following table provides information regarding the Bank's nonperforming
     loans  (i.e.,  loans which are  contractually  past due 90 days or more) at
     December  31,  1997  and  June  30,  1998,  respectively.  As of the  dates
     indicated, the Bank had no loans categorized as troubled debt restructuring
     within the meaning of SFAS 15.

                                       7
<PAGE>
SFB BANCORP, INC. AND SUBSIDIARY      Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

                                              December 31,          June 30,
                                                 1997                1998
                                                 ----                ----
                                                  (Dollars in Thousands)

       Nonaccrual loans                       $      209         $      386
       Repossessed real estate                         -                  -
                                              ----------         ----------
       Total nonperforming assets             $      209         $      386
                                              ==========         ==========

       Nonperforming loans to net loans             0.51%              0.96%
       Nonperforming assets to total assets         0.39%              0.73%


                                       8

<PAGE>

Item 2. 
     MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
                             RESULTS OF OPERATIONS

General

The following discussion and analysis is intended to assist in understanding the
financial condition and the results of operations of the Company.  References to
the  "Company"  include  SFB  Bancorp,  Inc.  and/or  Security  Federal  Bank as
appropriate.

Comparison of Results of Operations for the Three and Six Months Ending June 30,
1997 and 1998

Net Income.  Net income for the three  months  ending June 30,  1998,  decreased
$58,000 from $139,000 in 1997, to $81,000 in 1998. Net income decreased  $43,000
to $241,000 for the six months ending June 30, 1998,  from $284,000 in 1997. The
decrease for the three and six months  ending June 30, 1998,  was  primarily the
result of an  increase  in  compensation  and  employee  benefits,  offset by an
increase in net interest income.

Net  Interest  Income.  Net  interest  income  increased  $69,000  or 15.8% from
$438,000  for the three  months  ending June 30, 1997 to $507,000  for the three
months ending June 30, 1998.  Net interest  income  increased  $174,000 or 20.7%
from  $839,000  for the six months  ending June 30, 1997 to  approximately  $1.0
million for the six months ending June 30, 1998. The improvement in net interest
income for the three  month  period in 1998  primarily  reflects  an increase in
average  interest-earning  assets over average  interest-bearing  liabilities of
$5.3 million for the three months ending June 30, 1998, as compared to 1997. The
overall increase in net interest income for the six months ending June 30, 1998,
primarily reflects an increase in average  interest-earning  assets over average
interest-bearing  liabilities of $6.3 million, as compared to the same period in
1997.  The interest  rate spread  decreased 12 basis points from 2.95% for three
months  ending June 30, 1997 to 2.83% for the three months ending June 30, 1998,
and  decreased 17 basis points from 3.02% for six months ending June 30, 1997 to
2.85% for the six months  ending June 30,  1998.  The  increases  in the average
interest-earning  assets  were  primarily  the  result  of the  infusion  of and
subsequent investment of the proceeds raised in the Company's stock offering.

Interest  Income.  Interest  income  increased by $45,000 from  $949,000 for the
three months  ending June 30, 1997 to $994,000 for the three months  ending June
30,  1998,  as average  interest-earning  assets  increased  approximately  $2.0
million for the three  month  period in 1998,  as compared to 1997.  The average
yield on interest-earning  assets was 7.71% for the three months ending June 30,
1997 and 1998.  Interest income increased $137,000 or 7.4% from $1.8 million for
the six months  ending June 30, 1997 to  approximately  $2.0 million for the six
months  ending  June 30,  1998,  as average  interest-earning  assets  increased
approximately  $4.0  million  for the six month  period in 1998,  as compared to
1997. These increases in the average  interest-earning assets were primarily the
result of the infusion of cash received in the stock offering. The average yield
on  interest-earning  assets  decreased  7 basis  points  from 7.77% for the six
months  ending June 30, 1997 to 7.70% for the six months  ending June 30,  1998.


                                       9

<PAGE>

Interest  Expense.  Interest expense  decreased by $24,000 from $511,000 for the
three months  ending June 30, 1997 to $487,000 for the three months  ending June
30, 1998.  Interest expense decreased by $37,000 from approximately $1.0 million
for the six months  ending June 30, 1997 to $968,000  for the six months  ending
June 30,  1998.  The decrease  for the three  months  ending June 30, 1998,  was
primarily the result of a decrease of approximately  $2.9 million in the average
balance of deposits for the three months ending June 30, 1998, compared to 1997,
offset by a 12 basis point  increase in the average cost of funds.  The decrease
for the six months  ending June 30,  1998,  was  primarily  the result of a $2.3
million decrease in average deposits and the repayment of Federal Home Loan Bank
advances, offset by a 10 basis point increase in the average cost of funds.

Provision for Loan Losses.  The provision for loan losses for three month period
ending June 30, 1998 was $7,000.  There was no provision  recorded for the three
month period  ending June 30, 1997.  The  provision  for loan losses for the six
month period ending June 30, 1998 was $15,000.  There was no provision  recorded
for the six  month  period  ending  June  30,  1997.  The  Company's  management
routinely  performs an analysis to  quantify  the  inherent  risk of loss in its
portfolio.  At June 30, 1998 the allowance for loan losses was at a level deemed
adequate  by  management  to provide for losses in the  portfolio.  The ratio of
allowance for loan loss to non-performing loans at June 30, 1998 was 82.12%, and
nonperforming   assets   represented   0.73%  of  total   consolidated   assets.
Nonperforming assets were $386,000 at June 30, 1998 compared to $209,000 at June
30, 1997.

Non-Interest Income. Non-interest income continues to be an insignificant source
of income for the Company. The income is produced by fees on new loan production
and service  fees on other  products and  services.  Total  non-interest  income
amounted to $40,000  and  $80,000  for the three and six months  ending June 30,
1998, respectively,  and $36,000 and $76,000 for the three and six months ending
June 30, 1997, respectively.

Non-Interest  Expense.  Non-interest expense increased by $157,000 from $253,000
for the three months ending June 30, 1997 to $410,000 for 1998. The increase for
the three  month  period  was  primarily  the result of  increased  compensation
expenses of $118,000  and  employee  benefit  expenses of $16,000.  Non-interest
expense  increased by $224,000  from $470,000 for the six months ending June 30,
1997 to $694,000 for 1998.  The increase was  primarily  the result of increased
compensation  expense of $117,000,  employee  benefits of $32,000 and $60,000 of
other expenses during the period.  The increase in compensation  expense for the
quarter ending June 30, 1998, was primarily  attributable  to the recognition of
additional compensation expense associated with the approval by the stockholders
of the Company's  Restricted Stock Plan ("RSP").  On June 1, 1998, such approval
resulted in an immediate recognition of 20% of such plan expenses.  The expenses
recognized  for the RSP  during  the  entire  three  and six  month  period  was
approximately  $114,000. The increase in employee benefit expenses for the three
and six months  ending June 30, 1998 of $16,000 and $32,000,  respectively,  was
attributable  to the  recognition  of ESOP expenses for the entire three and six
month  period in 1998,  as compared to only one month in 1997.  The  increase in
other expenses was mainly  attributable to professional  fees and other expenses
incurred  by the  Company  in  connection  with its  annual  meeting  and  proxy
material.  Net  occupancy,  deposit  insurance  premiums,  and  data  processing
expenses remained relatively stable during both three and six month periods.


                                       10
<PAGE>

Income  Taxes.  Income tax expense for the three months ending June 30, 1998 was
$49,000 compared to $82,000 for the same period in 1997.  Income tax expense for
the six months  ending June 30, 1998 was  $143,000  compared to $161,000 for the
same  period in 1997.  The  decrease  for the three  and six month  periods  was
principally the result of lower pre-tax income.  The effective tax rate for both
the three and six months in 1997 and 1998 was approximately 37%.

Liquidity and Capital Resources.  The Company's primary sources of funds are new
deposits, proceeds from principal and interest payments on loans, and repayments
on mortgage-backed  securities.  While maturities and scheduled  amortization of
loans are a predictable source of funds,  deposit flows and mortgage prepayments
are greatly  influenced  by general  interest  rates,  economic  conditions  and
competition. The Company's primary investing activity is loan originations.  The
Company maintains liquidity levels adequate to fund loan commitments, investment
opportunities,  deposit withdrawals and other financial commitments. Obligations
to fund  outstanding  loan  commitments  at June  30,  1998  were  approximately
$513,000.

During the quarter ended June 30, 1998, the Bank filed a notice with the OTS for
the  establishment  of a branch office.  The Bank purchased land and an existing
building for $135,000 for the proposed  branch  office which is to be located in
Mountain  City,  Tennessee.   The  Company's  management  estimates  that  costs
incidental to renovating the building will be  approximately  $120,000.  For the
three and six month period ending June 30, 1998,  renovation had not begun,  and
other  incidental  expenses  were  not  material.  Management  anticipates  that
substantially all of the costs will be capitalized.

At  June  30,  1998,  management  had no  knowledge  of any  trends,  events  or
uncertainties  that will have or are reasonably  likely to have material effects
on the liquidity,  capital resources or operations of the Company.  Furthermore,
at June 30, 1998, management was not aware of any current recommendations by the
regulatory authorities which, if implemented, would have such an effect.

The Bank exceeded all of its capital requirements at June 30, 1998. The Bank had
the following capital ratios at June 30, 1998:


                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                                     For Capital               Categorized as
                                            Actual                Adequacy Purposes         "Well Capitalized"(1)
                                    ------------------------    -----------------------    ------------------------
                                      Amount       Ratio          Amount      Ratio          Amount       Ratio
                                    ------------ -----------    ----------- -----------    ------------ -----------
<S>                                 <C>              <C>        <C>              <C>       <C>              <C>  
     As of June 30, 1998:

     Total Capital
        (To risk weighted assets)   $    8,941       31.0%      $    2,306       8.0%`     $    2,883       10.0%

     Tier I Capital
        (To risk weighted assets)   $    8,624       29.9%      $    1,153       4.0%      $    1,730        6.0%

     Tier I Capital
        (To total assets)           $    8,624       17.2%      $      865       3.0%      $    1,441        5.0%

     Tangible Capital
        (To total assets)           $    8,624       17.2%      $      432       1.50%     $    1,441        5.0%

</TABLE>

     (1) As categorized under the Prompt Corrective Action Provisions.

A great  deal of  information  has been  disseminated  about the year 2000 as it
relates to computer  systems.  Many computer  programs that can only distinguish
the final two  digits of the year  entered  (a common  programming  practice  in
earlier  years) are  expected to read entries for the year 2000 as the year 1900
and  compute  payment,  interest or  delinquency  based on the wrong date or are
expected to be unable to compute  payment,  interest or  delinquency.  Rapid and
accurate data processing is essential to the Bank's operations.  Data processing
is also essential to most other financial institutions and many other companies.
Substantially  all of the Bank's material data processing that could be affected
by this problem is provided by a third party service bureau.  The Bank's service
bureau has advised the Bank that it expects to resolve  this  potential  problem
before the year 2000.  However,  if the service bureau is unable to resolve this
potential  problem in time, the Bank would likely  experience  significant  data
processing  delays,  mistakes or failures.  These  delays,  mistakes or failures
could have a significant  adverse impact on our financial  condition and results
of operation.  The Company does not expect to incur material costs in addressing
year  2000  issues  primarily  as a result  of its third  party  service  bureau
advising that it would not be assessing  additional  fees for the renovation and
testing of its hardware and software in preparation for year 2000.

The Bank has formulated a contingency plan for its mission-critical services and
products.  The plan is designed  to prepare the  institution  for  returning  to
operation in the event that systems do not perform as planned  either  before or
after the century date change.  The plan also outlines  certain  "trigger dates"
allowing  sufficient time to change service providers and/or software vendors if
the applicable system or software is not compliant.
                                                     

                                       12
<PAGE>

Part II.                   OTHER INFORMATION

Item 1.  Legal Proceedings
         -----------------

            From time to time, the Company and its  subsidiaries  may be a party
            to various legal proceedings  incident to its or their business.  At
            June 30, 1998, there were no legal  proceedings to which the Company
            or any subsidiary was a party,  or to which of any of their property
            was  subject,  which  were  expected  by  management  to result in a
            material loss.

Item 2.  Changes in Securities
         ---------------------

            None

Item 3.  Defaults Upon Senior Securities
         -------------------------------

            None

Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------

          The Annual Meeting of Stockholders of the Company ("Meeting") was held
          on June 1, 1998.  The results of the vote on the matters  presented at
          the Meeting were as follows:

          1.   The following  individuals were elected as directors,  each for a
               three-year term:

                                                Vote For           Vote Withheld
                                                --------           -------------

                 John R. Crockett, Jr.           678,176              44,425

                 Julian T. Caudill               678,176              44,425

          2.   The Company's 1998 Stock Option Plan was approved by stockholders
               by the following vote:

                 For  509,562;   Against  56,654   Abstain  1,350

          3.   The 1998 Security Federal Bank Restricted Stock Plan was approved
               by stockholders by the following vote

                 For  449,462;   Against 118,054;  Abstain    150


                                       13
<PAGE>

          4.   Ratification  of the appointment of Crisp Hughes Evans LLP as the
               Company's  independent audit firm was approved by stockholders by
               the following vote

                For  721,551;  Against  700;  Abstain  350

Item 5.  Other Information
         -----------------

            None

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

(a)      3(i)     Charter of SFB Bancorp, Inc.*

          3(ii)   Bylaws of SFB Bancorp, Inc. *

          4       Specimen Stock Certificate *

          10      Employment Agreement with Peter W. Hampton  *

          10.1    SFB Bancorp, Inc. 1998 Stock Option Plan * *

          10.2    Security Federal Bank Restricted Stock Plan * *

          27      Financial Data Schedule ( Electronic filing only)

          *    Incorporated by reference to the  Registration  Statement on Form
               SB-2, File No. 333-23505.

          **   Incorporated  by  reference to the Company's  Proxy Statement for
               the 1998 Annual  Meeting of  Stockholders,  filed with the SEC on
               April 17, 1998 (File No. 0- 22587).


(b)            Reports on Form 8-K

                      None.


                                       14

<PAGE>
                                   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.

                                      SFB Bancorp, Inc.



Date:     August 12, 1998             By  /s/ Peter W. Hampton
                                         ---------------------------------------
                                         Peter W. Hampton
                                         (President and Chief Executive Officer)






Date:     August 12, 1998             By  /s/Bobby Hyatt
                                          --------------------------------------
                                          Bobby Hyatt
                                          (Principal Accounting Officer)


                                       15