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 September 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 incorporation    (I.R.S. Employer Identification
             or organization)                            Number)

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

Registrant's telephone number, including area code:  (423) 543-1000
                                                     --------------

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 November 6, 1998,  there were 728,650  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 September 30, 1998.........................3

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

Consolidated Statements of Cash Flows - (Unaudited) for the nine months
  ended September 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.................................................................................9-13

PART II.
--------

OTHER INFORMATION

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

Item 2.    Changes in Securities..............................................................................14

Item 3.    Defaults Upon Senior Securities....................................................................14

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

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

Item 6.    Exhibits and Reports on Form 8-K................................................................14-15

Signatures................................................................................................... 16

</TABLE>
                                       2
<PAGE>


                        SFB BANCORP, INC. AND SUBSIDIARY

                           Consolidated Balance Sheets
                                   (Unaudited)
                                 (in thousands )
<TABLE>
<CAPTION>
                                                                    December 31,        September 30,       
                                                                    ------------       ------------ 
             Assets                                                      1997               1998
             ------                                                      ----               ----
                                                                                      
<S>                                                                   <C>                <C>     
Cash on hand                                                          $    453           $    620
Interest-earning deposits in other banks                                 4,139              1,922
Investment securities:                                                                 
   Held to maturity (market value of $526                                              
      in 1997 and $1,223 in 1998)                                          577              1,219
   Available for sale (amortized cost of $1,149                                        
      in 1997 and $2,425 in 1998)                                        1,148              2,432
Loans receivable, net                                                   40,648             41,013
Mortgage-backed securities:                                                            
   Available for sale (amortized cost of $5,117 in                                     
      1997 and $3,971 in 1998)                                           5,030              3,934
Premises and equipment, net                                                575                742
Federal Home Loan Bank stock                                               423                446
Accrued interest receivable                                                316                270
Prepaid expenses and other assets                                           28                 62
                                                                      --------           --------
                                                                                       
          Total assets                                                $ 53,337           $ 52,660
                                                                      ========           ========
                                                                                       
   Liabilities and Stockholders' Equity                                                
   ------------------------------------                                                
Deposits                                                              $ 40,587           $ 40,288
Advance payments by borrowers for taxes and insurance                      199                444
Accrued expenses and other liabilities                                     144                228
Income taxes payable:                                                                  
   Current                                                                 164                 --
   Deferred                                                                 62                 72
                                                                      --------           --------
                                                                                       
          Total liabilities                                             41,156             41,032
                                                                      --------           --------
                                                                                       
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 at December 31, 1997 and         77                 77
     728,650 outstanding at September 30, 1998)                                        
   Paid-in capital                                                       7,336              7,365
   Retained earnings, substantially restricted                           5,373              5,690
     Treasury shares, at cost (38,350 shares)                               --               (596)
   Accumulated other comprehensive income (loss)                           (53)               (18)
   Unearned compensation:                                                              
     Employee stock ownership plan                                        (552)              (506)
     Restricted stock plan                                                  --               (384)
                                                                      --------           --------
                                                                                       
          Total stockholders' equity                                    12,181             11,628
                                                                      --------           --------
                                                                                       
          Total liabilities and stockholders' equity                  $ 53,337           $ 52,660
                                                                      ========           ========
</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)
                                 (in thousands)
<TABLE>
<CAPTION>

                                              For Three Months Ended      For Nine Months Ended
                                                  September 30,                September 30,
                                              ----------------------      ---------------------
                                                 1997     1998               1997     1998          
                                                ------   ------             ------   ------
<S>                                            <C>      <C>                <C>      <C>   
Interest income:                                                           
   Loans                                        $  827   $  864             $2,399   $2,541
   Mortgage-backed securities                       77       56                239      188
   Investments                                      29       56                 79      132
   Interest-earning deposits                        61       35                121      131
                                                ------   ------             ------   ------
          Total interest income                    994    1,011              2,838    2,992
                                                ------   ------             ------   ------
                                                                           
Interest expense:                                                          
   Deposits                                        489      502              1,491    1,470
   Federal Home Loan Bank advances                  --       --                  3       --
                                                ------   ------             ------   ------
          Total interest expense                   489      502              1,494    1,470
                                                ------   ------             ------   ------
          Net interest income                      505      509              1,344    1,522
                                                                           
Provision for loan losses                            3        8                  3       23
                                                ------   ------             ------   ------
          Net interest income after provision                              
             for loan losses                       502      501              1,341    1,499
                                                                           
Non-interest income:                                                       
   Loan fees and service charges                    37       40                107      115
   Other                                             3        4                  9        9
                                                ------   ------             ------   ------
          Total non-interest income                 40       44                116      124
                                                ------   ------             ------   ------
                                                                           
Non-interest expenses:                                                     
   Compensation                                    112      154                361      520
   Employee benefits                                15       32                 49       98
   Net occupancy expense                            19       21                 53       60
   Deposit insurance premiums                        7        7                 15       19
   Data processing                                  19       22                 55       64
   Other                                            70       74                179      243
                                                ------   ------             ------   ------
          Total non-interest expenses              242      310                712    1,004
                                                ------   ------             ------   ------
                                                                           
          Income  before income taxes              300      235                745      619
                                                                           
Income tax expense                                 111       86                272      229
                                                ------   ------             ------   ------
                                                                           
          Net income                               189      149                473      390
                                                                           
Other comprehensive income:                                                
  Net unrealized gains (losses) on                                         
  securities available for sale net of                                     
  income  taxes of $29 and $14, for the                                    
  three months, and $37 and $23, for the nine                              
  months, respectively                              44       21                 61       35
                                                ------   ------             ------   ------
                                                                           
          Comprehensive income                  $  233   $  170             $  534   $  425
                                                ======   ======             ======   ======
</TABLE>                                                                   
                                                                   

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

                                       5
<PAGE>
                        SFB BANCORP, INC. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                     Nine Months Ended
                                                                                        September 30,
                                                                                  ----------------------
                                                                                       1997       1998
                                                                                    ---------  ---------  
<S>                                                                                <C>        <C>    
Operating activities:
   Net income                                                                       $   473    $   390
   Adjustments  to  reconcile  net  income  to net cash  provided  by  operating
      activities:
     Depreciation                                                                        39         41
     Provision for loan losses                                                            3         23
     Increase (decrease) in reserve for uncollected interest                              4         15
     Deferred income taxes (benefit)                                                     (2)       (15)
     Net increase (decrease) in deferred loan fees                                      (11)         1
     Accretion of discounts on investment securities, net                               (15)       (15)
     Amortization of premiums on mortgage-backed securities                               9         10
     Amortization of unearned compensation                                               30        216
        Repurchase of shares - RSP                                                       --       (525)
     FHLB stock dividends                                                               (22)       (23)
     (Increase) decrease in other assets                                                (17)       (34)
     (Increase) decrease in accrued interest receivable                                 (25)        31
     Increase (decrease) in accrued expenses and other liabilities                      107         84
     Increase (decrease)  in current income taxes                                       136       (164)
                                                                                    -------    -------
          Net cash provided by operating activities                                     709         35
                                                                                    -------    -------
Investing activities:
   Purchase of investment securities held to maturity                                  (500)      (710)
   Maturity of investment securities held to maturity                                    94         84
   Purchase of investment securities available for sale                                (550)    (2,475)
   Maturities of investment securities available for sale                               550      1,200
   Principal payments on mortgage-backed securities
     available for sale                                                                 589      1,135
   Proceeds from sale real estate                                                        10         --
   Net (increase) decrease in loans                                                  (3,127)      (389)
   Purchase of premises and equipment                                                   (47)      (208)
                                                                                    -------    -------
          Net cash used by investing activities                                      (2,981)    (1,363)
                                                                                    -------     ------  
Financing activities:
   Net increase (decrease) in deposits                                                 (912)      (299)
   Increase (decrease) in advance payments by borrowers
     for taxes and insurance                                                            278        245
   Repayment of FHLB advances                                                          (800)        --
     Issuance of  common stock                                                        7,056         --
    Purchase of treasury stock                                                           --       (596)
   Payment of accrued conversion cost                                                  (286)        --
   Payment of cash dividend                                                              --        (72)
                                                                                    -------    -------
          Net cash provided (used) by financing activities                            5,336       (722)
                                                                                    -------    -------
          Increase (decrease) in cash and cash equivalents                            3,064     (2,050)

Cash and cash equivalents at beginning of period                                      1,414      4,592
                                                                                    -------    -------
Cash and cash equivalents at end of period                                          $ 4,478    $ 2,542
                                                                                    =======    =======

Supplemental  disclosures of cash flow information:  Cash paid during the period
   for:
     Interest                                                                       $ 1,478    $ 1,452
     Income taxes                                                                       129        426
                                                                                               
Noncash transactions
     Unrealized gain (loss) on securities available for sale, net of deferred tax
          liability                                                                      61         35
        Loans to facilitate sale of real estate                                          40         --
        Loan charge off's                                                                --          6
</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)
                         (Tabular amounts in thousands)

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
      nine  month  periods  ending   September  30,  1998  are  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 nine month  periods
       ending September 30, 1998 and the three months ending September 30, 1997,
       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.  Diluted 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
       nine months ending  September 30, 1997,  since the initial stock offering
       was only completed in May 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
                                                            -----------------------------------------------
                                                                                               For Nine
                                                            For Three Months Ended           Months Ended
                                                                 September 30,               September 30,
                                                            ----------------------      -------------------
                                                                1997        1998                 1998     
                                                              --------    --------              -------
<S>                                                          <C>         <C>                  <C>    
Common Shares Outstanding                                      767,000     753,661              762,505
  Less:  Unallocated ESOP shares                               (59,742)    (51,653)             (53,169)
                                                              --------    --------             --------  
Basic EPS computation                                          707,258     702,008              709,336
Effect of dilutive securities:                                                               
  Restricted Stock Plan                                             --          --                   38
  Stock Options                                                     --          --                  166
                                                              --------    --------             --------  
Diluted EPS computation                                        707,258     702,008              709,540
  Basic net income per share                                  $    .27    $    .21             $    .55
  Diluted net income per share                                $    .27    $    .21             $    .55
</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 (SOP) 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 RSP, and on July 15, 1998, announced in a press
      release that it would initially  repurchase up to 5% for its approved SOP.
      As of September  30,  1998, a total of 30,680  shares of common stock have
      been  purchased to fund the RSP and 38,350 have been purchased and held in
      treasury to fund shares granted under the SOP.

      The Company granted and awarded on June 1, 1998 under its approved SOP and
      RSP 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 September  30,
      1998.

      The  shares  awarded  under  the RSP  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 nine month periods ending  September
      30,  1998 for the RSP  awards  was  approximately  $26,000  and  $141,000,
      respectively.

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


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 September 30, 1998, respectively.  As of
      the dates  indicated,  the Bank had no loans  categorized as troubled debt
      restructuring within the meaning of SFAS 15.

                                                     December 31,  September 30,
                                                         1997           1998
                                                         ----           ----

          Nonaccrual loans                             $   209        $   411 
          Repossessed real estate                         --             --
                                                       -------        -------
          Total nonperforming assets                   $   209        $   411
                                                       =======        =======
                                                                        
          Nonperforming loans to net loans                0.51%          1.00%
          Nonperforming assets to total assets            0.39%          0.78%
                                                            


                                       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 Nine  Months  Ending
September 30, 1997 and 1998

Net Income. Net income for the three months ending September 30, 1998, decreased
$40,000 to $149,000  compared to $189,000 in 1997. Net income decreased  $83,000
to $390,000 for the nine months  ending  September 30, 1998 compared to $473,000
in 1997. The decreases for the three and nine months ending  September 30, 1998,
were primarily the result of increases in  compensation  and employee  benefits,
offset by an increase in net interest income.

Net Interest Income.  Net interest income increased $4,000 from $505,000 for the
three months  ending  September 30, 1997 to $509,000 for the three months ending
September 30, 1998.  Net interest  income  increased  $178,000,  or 13.2%,  from
approximately  $1.3  million for the nine months  ending  September  30, 1997 to
approximately  $1.5 million for the nine months ending  September 30, 1998.  The
improvement in net interest  income for the three month period in 1998 primarily
reflects an increase in the  interest  rate spread of 53 basis points from 2.59%
for three months ending  September 30, 1997 to 3.12% for the three months ending
September  30,  1998.  Average  interest-earning  assets in  excess  of  average
interest-bearing liabilities remained relatively constant during the period. The
overall increase in net interest income for the nine months ending September 30,
1998,  primarily  reflects an increase in average  interest-earning  assets over
average  interest-bearing  liabilities of approximately $683,000, as compared to
the same period in 1997. The interest rate spread increased 14 basis points from
2.87% for the nine months ending September 30, 1997 to 3.01% for the nine months
ending September 30, 1998. The increase in the average  interest-earning  assets
for the nine months  ending  September  30,  1998,  reflects the infusion of the
proceeds  raised in the Company's stock offering which was completed in late May
of 1997.  Therefore,  the nine months ending  September  30, 1997,  only had the
stock proceeds  available to be deployed for approximately  four months in 1997,
whereas  for 1998,  the  Company  was able to invest the funds for the full nine
months.

Interest  Income.  Interest  income  increased by $17,000 from  $994,000 for the
three months  ending  September 30, 1997 to  approximately  $1.0 million for the
three months ending September 30, 1998, as the average yield on interest-earning
assets  increased  56 basis  points  from  7.52%  for the  three  months  ending
September  30, 1997 to 8.08% for the same period in 1998.  During the same three
month period, average  interest-earning  assets decreased approximately $583,000
as compared to 1997.  This  decrease  was mainly the result of  interest-earning
assets, primarily interest-earning assets in other banks, being used to purchase
approximately  $1.1  million  of the  Company's  stock in 


                                       9
<PAGE>

the market to fund the  Bank's  Restricted  Stock  Plan (RSP) and to  repurchase
common stock under the approved stock repurchase plan. Interest income increased
$154,000 or 5.4% from  approximately  $2.8  million  for the nine months  ending
September  30, 1997,  to  approximately  $3.0 million for the nine months ending
September 30, 1998.  This increase in interest  income was the result of average
interest-earning assets increasing approximately $2.0 million for the nine month
period  in  1998,  as  compared  to  1997.  Furthermore,  the  average  yield on
interest-earning assets increased 22 basis points from 7.68% for the nine months
ending  September  30, 1997 to 7.90% for the nine months  ending  September  30,
1998.

Interest  Expense.  Interest expense  increased by $13,000 from $489,000 for the
three months  ending  September 30, 1997 to $502,000 for the three months ending
September 30, 1998. Interest expense decreased by $24,000 during the nine months
ending September 30, 1998, from  approximately  $1.5 million for the nine months
ending September 30, 1997. The increase in interest expense for the three months
ending  September  30,  1998,  was  primarily  the  result  of  an  increase  of
approximately  $779,000 in the average balance of deposits  compared to 1997, in
addition to a 4 basis point increase in the average cost of funds.  The decrease
for the nine months  ending  September  30, 1998,  was primarily the result of a
$1.3 million decrease in average  deposits  outstanding and no Federal Home Loan
Bank advances outstanding during the period,  offset by a 8 basis point increase
in the average cost of funds.

Provision  for Loan Losses.  The provision for loan losses was $3,000 and $8,000
for the three month period ending September 30, 1997 and 1998, respectively. The
provision  for loan  losses  was $3,000 and  $23,000  for the nine month  period
ending  September  30, 1997 and 1998,  respectively.  The  Company's  management
routinely  performs an analysis to  quantify  the  inherent  risk of loss in its
portfolio.  At September 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 September  30, 1998 was
77.37%, and nonperforming assets represented 0.78% of total consolidated assets.
Nonperforming  assets were $411,000 at September 30, 1998,  compared to $534,000
at September 30, 1997.  Management is not aware of any trends or events inherent
to its  loan  portfolio  that  have  not  been  provided  for in its  loan  loss
allowance. However, there can be no assurance that future losses will not exceed
estimated  amounts or that  additional  provisions  for loan  losses will not be
required in future periods

Non-Interest Income. Non-interest income continues to be an additional 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 $44,000 and $124,000 for the three and nine months ending  September
30, 1998,  respectively,  and $40,000 and $116,000 for the three and nine months
ending September 30, 1997, respectively.  Total non-interest income has remained
stable during these periods as the Company has not  experienced  any significant
loan or deposit growth.

Non-Interest  Expense.  Non-interest  expense increased by $68,000 from $242,000
for the three  months  ending  September  30,  1997 to  $310,000  for 1998.  The
increase  for the three  month  period was  primarily  the  result of  increased
compensation  expense of  $42,000  and  employee  benefit  expense  of  $17,000.
Non-interest  expense  increased by $292,000  from  $712,000 for the nine 

                                       10
<PAGE>

months  ending  September  30, 1997 to  approximately  $1.0 million for the same
period in 1998. The increase was primarily the result of increased  compensation
expense of $159,000,  employee  benefit  expense of $49,000 and $64,000 of other
expense during the period. The increase in compensation  expense for the quarter
ending  September 30, 1998,  was primarily  attributable  to the  recognition of
additional   compensation  expense  associated  with  the  stockholder  approved
Restricted Stock Plan (RSP). On June 1, 1998, the plan's approval resulted in an
immediate  recognition  of 20% of such  plan  expenses  and  subsequent  monthly
accruals for the vesting benefits as earned. The expenses recognized for the RSP
during  the  three  and  nine  month  period  ending  September  30,  1998,  was
approximately  $26,000  and  $140,000,  respectively.  The  increase in employee
benefit  expense  for the three and nine  months  ending  September  30, 1998 of
$17,000 and $49,000, respectively, was attributable to the continued recognition
of ESOP expenses for the entire three and nine month period in 1998, as compared
to only four months in the nine month period  ending  September  30,  1997.  The
increase in other non-interest  expense was mainly  attributable to professional
fees and expenses  incurred by the Company in  connection  with its first annual
meeting, SEC filings, and proxy material preparation and mailing. Net occupancy,
deposit insurance  premiums,  and data processing  expenses remained  relatively
stable during both three and nine month periods.  As discussed herein,  the Bank
plans to open an additional  branch office in nearby  Mountain City,  Tennessee,
during the month of January 1999. The Company expects that non-interest  expense
might  increase  during  1999  due to the  costs  associated  with  opening  and
maintaining this new branch office.

Income Taxes.  Income tax expense for the three months ending September 30, 1998
was $86,000 compared to $111,000 for the same period in 1997. Income tax expense
for the nine months ending September 30, 1998 was $229,000  compared to $272,000
for the same period in 1997.  The decrease for the three and nine month  periods
in 1998 was principally  the result of lower pre-tax  income.  The effective tax
rate for both the three and nine months in 1997 and 1998 was approximately 38%.

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 September 30, 1998 were  approximately
$573,000.

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 for $135,000 land and
an existing  building  for the branch  office which is to be located in Mountain
City,  Tennessee.  The Company's  management  estimated that costs incidental to
renovating  and  equipping  the  building to be  approximately  $120,000.  As of
September 30, 1998,  the Company had invested  approximately  $33,000 toward the
renovation and equipping of the building.


                                       11
<PAGE>

At September  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 September 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 September  30, 1998.  The
Bank had the following capital ratios at September 30, 1998:

<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 September 30, 1998:

   Total Capital
      (To risk weighted assets)           $      8,831       29.9%        $      2,363         8.0%`      $      2,954        10.0%

   Tier I Capital
      (To risk weighted assets)           $      8,512       28.8%        $      1,182         4.0%       $      1,772         6.0%

   Tier I Capital
      (To total assets)                   $      8,512       16.9%        $        886         3.0%       $      1,477         5.0%

   Tangible Capital
      (To total assets)                   $      8,512       16.9%        $        443         1.50%      $      1,477         5.0%

</TABLE>

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

Year 2000 compliance.  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
service bureau has advised the Bank that it expects to have substantially all of
the Year 2000  problems  resolved by the end of 1998.  In addition,  the service
bureau has informed the Bank that it will not be assessing  special  charges for
the renovation and testing of its hardware and software in preparation  for 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 Bank has formulated a Year 2000 Compliance Plan and a Year 2000  Contingency
Plan. The Year 2000  Compliance Plan is structured in accordance with the Office
of Thrift Supervision's Year 2000 Examination Checklist, Version 2. It addresses
the identified  phases of:  Awareness,  Assessment,  Renovation,  Validation and
Implementation.  The purpose of the plan is to outline the 

                                       12
<PAGE>

procedures  necessary for assuring that the Bank is in readiness for the century
date  change.  Execution  of the plan is  currently  on  target.  The Year  2000
Contingency  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  addresses  vital  mission  critical
applications and states both the plans in the event of  noncompliance  and dates
for when the plan will be put into effect.

The Company has contacted  other material  vendors and supplier  regarding their
Year 2000 state of readiness.  The Company has obtained  written  assurance from
these third party vendors  indicating that they expect to be Year 2000 compliant
prior to the Year 2000.

The Bank's third party service bureau during October 1998, converted the Bank to
its new state of the art core account processing  platform.  This new technology
was built  with Year 2000  compatible  components.  The  service  bureau  during
October 1998,  conducted Year 2000 proxy testing on this new platform.  The Bank
expects to commence  testing in December 1998. In addition,  each application of
the  system  has been  renovated  to run on the new  platform  and  date  fields
expanded  to a four digit year.  Other  service  bureau  products  and  services
utilized by the Bank are expected to be brought  Year 2000  compliant by the end
of 1998 or first part of 1999.

The Bank is planning to upgrade its teller  operating  system  during the fourth
quarter of 1998.  This upgrade will further  ensure Year 2000 readiness by using
Year 2000 certified software and hardware.  The Company's  management  estimates
costs  incidental  to the upgrade to be  approximately  $100,000.  The Company's
management anticipates that substantially all of such costs will be capitalized.
These costs  should not be material  to the  Company in any single  year.  As of
September 30, 1998, no material  costs have been  capitalized  in regard to Year
2000 compliance.

The Company's successful and timely completion of the Year 2000 project is based
on estimates  derived by management on assumptions  of future events,  which are
inherently uncertain,  including the progress and results of the Company's third
party service provider,  testing plans, and all vendors,  suppliers and customer
readiness.

                                       13
<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
              September 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
        ---------------------------------------------------

              None

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.

                                       14
<PAGE>

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

(b)                  Reports on Form 8-K

                      None.



                                       15



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






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