SFB BANCORP INC, DEF 14A, 1998-04-17

SFB BANCORP INC
DEF 14A, 1998-04-17
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the registrant [X]
Filed by a party other than the registrant [ ]

Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of the Commission
Only (as permitted by Rule 14a 6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to ss. 240.14a-11(c) or ss. 240.14a-12

SFB Bancorp, Inc.
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(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------

(5) Total fee paid:
- --------------------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

(1) Amount previously paid:
- --------------------------------------------------------------------------------

(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
- --------------------------------------------------------------------------------

(4) Date Filed:
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<PAGE>

[SFB Bancorp, Inc. Letterhead]

April 17, 1998

Dear Fellow Stockholder:

On behalf of the Board of Directors and management of SFB Bancorp,
Inc., (the "Company"), I cordially invite you to attend the first Annual Meeting
of Stockholders to be held at the offices of the Company, 632 East Elk Avenue,
Elizabethton, Tennessee, on Monday, June 1, 1998, at 2:00 p.m. The attached
Notice of Annual Meeting and Proxy Statement describe the formal business to be
transacted at the Annual Meeting. During the Annual Meeting, I will report on
the operations of the Company. Directors and officers of the Company, as well as
a representative of Crisp Hughes Evans LLP, certified public accountants, will
be present to respond to any questions stockholders may have.

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING POSTAGE-PAID
RETURN ENVELOPE AS PROMPTLY AS POSSIBLE. This will not prevent you from voting
in person at the Annual Meeting, but will assure that your vote is counted if
you are unable to attend the Annual Meeting. YOUR VOTE IS VERY IMPORTANT.

Sincerely,

/s/Peter W. Hampton
---------------------------------------
Peter W. Hampton
President

<PAGE>

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 1, 1998
- --------------------------------------------------------------------------------

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Meeting")
of SFB Bancorp, Inc. ("the Company"), will be held at the offices of the
Company, 632 East Elk Avenue, Elizabethton, Tennessee, on Monday, June 1, 1998,
at 2:00 p.m.

The Meeting is for the purpose of considering and acting upon the following
matters:

1. The election of two directors of the Company;

2. The approval of the SFB Bancorp, Inc. 1998 Stock Option Plan (the "1998
Stock Option Plan" or "Option Plan");

3. The approval of the Security Federal Bank Restricted Stock Plan (the
"Restricted Stock Plan" or "RSP");

4. The ratification of the appointment of Crisp Hughes Evans LLP, as
independent auditors of the Company for the fiscal year ending December 31,
1998; and

5. Such other matters as may properly come before the Meeting or any
adjournments thereof.

The Board of Directors is not aware of any other business to come before the
Meeting. Any action may be taken on the foregoing proposals at the Meeting on
the date specified above or on any date or dates to which, by original or later
adjournment, the Meeting may be adjourned. Stockholders of record at the close
of business on April 10, 1998 are the stockholders entitled to vote at the
Meeting and any adjournments thereof.

EACH STOCKHOLDER, WHETHER OR NOT HE PLANS TO ATTEND THE MEETING, IS REQUESTED TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY WITHOUT DELAY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. ANY SIGNED PROXY GIVEN BY THE STOCKHOLDER MAY BE REVOKED
BY FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A DULY
EXECUTED PROXY BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE MEETING MAY
REVOKE HIS PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE MEETING.
HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN
NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO VOTE
PERSONALLY AT THE MEETING.

BY ORDER OF THE BOARD OF DIRECTORS

/s/Peter W. Hampton, Jr.
----------------------------------
Peter W. Hampton, Jr.
Secretary
Elizabethton, Tennessee
April 17, 1998

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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM AT THE MEETING. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES.
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<PAGE>

- --------------------------------------------------------------------------------
PROXY STATEMENT
OF
SFB BANCORP, INC.
632 EAST ELK AVENUE
ELIZABETHTON, TENNESSEE 37643
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- --------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS
JUNE 1, 1998
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- --------------------------------------------------------------------------------
GENERAL
- --------------------------------------------------------------------------------

This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of SFB Bancorp, Inc. (the "Company") to be
used at the Annual Meeting of Stockholders of the Company which will be held at
the offices of the Company, 632 East Elk Avenue, Elizabethton, Tennessee, on
June 1, 1998, 2:00 p.m. local time (the "Meeting"). The accompanying Notice of
Annual Meeting of Stockholders and this Proxy Statement are being first mailed
to stockholders on or about April 17, 1998. The Company acquired all of the
outstanding stock of Security Federal Bank (the "Bank") issued in connection
with the completion of the Bank's mutual-to-stock conversion on May 29, 1997
(the "Conversion").

At the Meeting, stockholders will consider and vote upon (i) the
election of two directors, (ii) the approval of the 1998 Stock Option Plan,
(iii) the approval of the Restricted Stock Plan, (iv) the ratification of the
appointment of Crisp Hughes Evans LLP, as independent auditors of the Company
for the fiscal year ending December 31, 1998, and (v) such other matters as may
properly come before the Meeting or any adjournments thereof. The Board of
Directors of the Company (the "Board" or the "Board of Directors") knows of no
additional matters that will be presented for consideration at the Meeting.
Execution of a proxy, however, confers on the designated proxy holder
discretionary authority to vote the shares represented by such proxy in
accordance with their best judgment on such other business, if any, that may
properly come before the Meeting or any adjournment thereof.

The approval of the 1998 Stock Option Plan provides for authorizing the
issuance of an additional 76,700 shares of common stock of the Company ("Common
Stock") upon the exercise of stock options to be awarded to officers, directors,
key employees and other persons providing services to the Company or any present
or future parent or subsidiary of the Company from time to time. The approval of
the Restricted Stock Plan provides for authorization to issue up to an
additional 30,680 shares of Common Stock upon awards to personnel of experience
and ability in key positions of responsibility with the Bank and its
subsidiaries from time to time. At the present time, the Bank intends to acquire
such Common Stock for RSP purposes through open-market purchases. The RSP has
the authority, however, to purchase such Common Stock directly from the Company.
Approval of the Option Plan and the RSP may be deemed to have certain
anti-takeover effects with regard to the Company. See "Approval of the 1998
Stock Option Plan - Effect of Mergers, Change of Control and Other Adjustments,
and Possible Dilutive Effects of the Option Plan" and "Approval of the
Restricted Stock Plan - Possible Dilutive Effects of RSP."

<PAGE>

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INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
- --------------------------------------------------------------------------------

Employees, officers, and directors of the Company have an interest in
certain matters being presented for stockholder approval. Upon stockholder
approval, employees, officers, and directors of the Company may be granted stock
options and restricted stock awards pursuant to the 1998 Stock Option Plan and
the Restricted Stock Plan. The approval of the 1998 Stock Option Plan and the
RSP are being presented as Proposal II and Proposal III, respectively. See
"Voting Securities and Principal Holders Thereof" for information regarding the
number of shares of Common Stock beneficially owned by executive officers and
directors.

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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
- --------------------------------------------------------------------------------

Stockholders of record as of the close of business on April 10, 1998
(the "Record Date"), are entitled to one vote for each share of common stock of
the Company (the "Common Stock") then held. As of the Record Date, the Company
had 767,000 shares of Common Stock issued and outstanding.

The charter of the Company ("Charter") provides that in no event shall
any record owner of any outstanding Common Stock which is beneficially owned,
directly or indirectly, by a person who beneficially owns in excess of 10% of
the then outstanding shares of Common Stock (the "Limit") be entitled or
permitted to any vote with respect to the shares held in excess of the Limit.
Beneficial ownership is determined pursuant to the definition in the Charter and
includes shares beneficially owned by such person or any of his or her
affiliates (as such terms are defined in the Charter), or which such person or
any of his or her affiliates has the right to acquire upon the exercise of
conversion rights or options and shares as to which such person or any of his or
her affiliates or associates have or share investment or voting power, but
neither any employee stock ownership or similar plan of the Company or any
subsidiary, nor any trustee with respect thereto or any affiliate of such
trustee (solely by reason of such capacity of such trustee), shall be deemed,
for purposes of the Charter, to beneficially own any Common Stock held under any
such plan.

The presence in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote (after subtracting any
shares held in excess of the Limit) is necessary to constitute a quorum at the
Meeting. With respect to any matter, any shares for which a broker indicates on
the proxy that it does not have discretionary authority as to such shares to
vote on such matter (the "Broker Non-Votes") will be considered present for
purposes of determining whether a quorum is present. In the event there are not
sufficient votes for a quorum or to ratify any proposals at the time of the
Meeting, the Meeting may be adjourned in order to permit the further
solicitation of proxies.

As to the election of directors, as set forth in Proposal I, the proxy
being provided by the Board enables a stockholder to vote for the election of
the nominees proposed by the Board, or to withhold authority to vote for the
nominees being proposed. Directors are elected by a plurality of votes of the
shares present in person or represented by proxy at a meeting and entitled to
vote in the election of directors.

As to the approval of the 1998 Stock Option Plan as set forth in
Proposal II, the approval of Restricted Stock Plan as set forth in Proposal III,
and the ratification of independent auditors as set forth in Proposal IV, by
checking the appropriate box, a stockholder may: vote "FOR" the item, (ii) vote
"AGAINST" the item, or (iii) vote to "ABSTAIN" on such item. Unless otherwise
required by law, Proposals II, III and IV and any other matters shall be
determined by a majority of votes cast

-2-

<PAGE>

affirmatively or negatively without regard to (a) Broker Non-Votes or (b)
proxies marked "ABSTAIN" as to that matter.

Persons and groups owning in excess of 5% of the Common Stock are
required to file certain reports regarding such ownership pursuant to the
Securities Exchange Act of 1934, as amended (the "1934 Act"). The following
table sets forth, as of March 15, 1998, persons or groups who own more than 5%
of the Common Stock and the ownership of all executive officers and directors of
the Company as a group. Other than as noted below, management knows of no person
or group that owns more than 5% of the outstanding shares of Common Stock at
that date.
<TABLE>
<CAPTION>
Percent of Shares
Amount and Nature of of Common Stock
Name and Address of Beneficial Owner Beneficial Ownership Outstanding
- ------------------------------------ -------------------- -----------
<S> <C> <C>
Security Federal Bank
Employee Stock Ownership Plan ("ESOP")
632 East Elk Avenue
Elizabethton, Tennessee 37643 (1) 61,360 8.0%

Mr. Terry Maltese
Malta Hedge Fund, L.P.
Malta Partners, L.P.
Sandler O'Neill Asset Management LLC
SOAM Holdings, LLC
712 Fifth Avenue, 22nd Floor
New York, New York 10019 (2) 40,600 5.3%

All directors and executive officers of the
Company as a group (7 persons) (3) 49,380 6.4%
</TABLE>

-------------------------------------
(1) The ESOP purchased such shares for the exclusive benefit of plan
participants with funds borrowed from the Company. These shares are
held in a suspense account and will be allocated among ESOP
participants annually on the basis of compensation as the ESOP debt is
repaid. The Board of Directors has appointed a committee consisting of
non-employee directors Tetrick, Crockett, and Julian T. Caudill to
serve as the ESOP administrative committee ("ESOP Committee") and to
serve as the ESOP trustees ("ESOP Trustee"). The ESOP Committee or the
Board instructs the ESOP Trustee regarding investment of ESOP plan
assets. The ESOP Trustee must vote all shares allocated to participant
accounts under the ESOP as directed by participants. Unallocated shares
and shares for which no timely voting direction is received, will be
voted by the ESOP Trustee as directed by the ESOP Committee. As of the
Voting Record Date, 6,136 shares have been allocated under the ESOP to
participant accounts.
(2) Based upon a Schedule 13D filed with the Securities and Exchange
Commission, dated December 16, 1997, for which shared voting and
dispositive power is shown with respect to 40,600 shares.
(3) Includes shares of Common Stock held directly as well as by spouses or
minor children, in trust and other indirect ownership, over which
shares the individuals effectively exercise sole voting and investment
power, unless otherwise indicated. Excludes 59,301 shares (61,360
shares minus 2,059 shares allocated to executive officers) held by the
ESOP over which certain directors, as trustees to the ESOP, exercise
shared voting and investment power. Such individuals disclaim
beneficial ownership with respect to such shares held by the ESOP.

-3-

<PAGE>

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
- --------------------------------------------------------------------------------

Section 16(a) of the 1934 Act requires the Company's officers and
directors, and persons who own more than ten percent of the Common Stock, to
file reports of ownership and changes in ownership of the Common Stock, on Forms
3, 4 and 5, with the Securities and Exchange Commission ("SEC") and to provide
copies of those Forms 3, 4 and 5 to the Company. The Company is not aware of any
beneficial owner of more than ten percent of its Common Stock. Based upon a
review of the copies of the forms furnished to the Company, or written
representations from certain reporting persons that no Forms 5 were required,
the Company believes that all Section 16(a) filing requirements applicable to
its officers and directors were complied with during the 1997 fiscal year.

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PROPOSAL I - INFORMATION WITH RESPECT TO NOMINEES
FOR DIRECTOR, DIRECTORS CONTINUING IN OFFICE, AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------

Election of Directors

The Charter requires that the Board of Directors be divided into three
classes, each of which contains approximately one-third of the members of the
Board. The directors are elected by the stockholders of the Company for
staggered three-year terms, or until their successors are elected and qualified.
The Board of Directors currently consists of six members. Two directors will be
elected at the Meeting to serve for a three-year term or until their successors
have been elected and qualified.

John R. Crockett, Jr. and Julian T. Caudill have been nominated by the
Board of Directors to serve as directors. Messrs. Crockett and Caudill are
currently members of the Board and have been nominated for a three-year term to
expire in 2000. It is intended that the persons named in the proxies solicited
by the Board will vote for the election of the named nominees. If any of the
nominees are unable to serve, the shares represented by all valid proxies will
be voted for the election of such substitute as the Board of Directors may
recommend or the size of the Board may be reduced to eliminate the vacancy. At
this time, the Board knows of no reason why the nominees might be unavailable to
serve.

The following table sets forth information with respect to the
nominees, their name, age, the year they first became a director of the Company
or the Bank, the expiration date of their current term as a director, and the
number and percentage of shares of the Common Stock beneficially owned. Each
director of the Company is also a member of the Board of Directors of the Bank.
Beneficial ownership of executive officers and directors of the Company, as a
group, is shown under "Voting Securities and Principal Holders Thereof."

-4-

<PAGE>
<TABLE>
<CAPTION>
Shares of
Common Stock
Current Beneficially
Year First Term Owned as of
Elected or to March 15, Percent
Name and Title Age(1) Appointed(2) Expire 1998 (3) Owned
- -------------- ------ ------------ ------- --------- ------
<S> <C> <C> <C> <C> <C>
BOARD NOMINEES FOR TERM TO EXPIRE IN 2000

Julian T. Caudill
Director 79 1963 1997 5,000(4) --(5)

John R. Crockett, Jr.
Treasurer and Director 77 1963 1997 --(4) --(5)

DIRECTORS CONTINUING IN OFFICE

Estill L. Caudill, Jr.
Director 81 1963 1998 100 --(5)

Peter W. Hampton
President and Director 78 1963 1998 18,700 2.4%

Peter W. Hampton, Jr.
Secretary and Director 47 1994 1999 10,000 1.3%

Donald W. Tetrick
Director 80 1963 1999 10,095(4) 1.3%

</TABLE>

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(1) At December 31, 1997
(2) Refers to the year the individual first became a director of the Company or
the Bank.
(3) Includes shares of Common Stock held directly as well as by spouses or
minor children, in trust, and other indirect ownership, over which shares
the individuals effectively exercise sole or shared voting and investment
power, unless otherwise indicated.
(4) Excludes 61,360 shares of Common Stock held under the ESOP for which such
individual serves as either a member of the ESOP Committee or as an ESOP
Trustee. Such individual disclaims beneficial ownership with respect to
shares held in a fiduciary capacity. The ESOP purchased such shares for the
exclusive benefit of ESOP participants with funds borrowed from the
Company. These shares are held in a suspense account and will be allocated
among ESOP participants annually on the basis of compensation as the ESOP
debt is repaid. The Board of Directors has appointed Messrs. Tetrick,
Crockett, and Julian T. Caudill to serve on the ESOP Committee and to serve
as ESOP Trustees. The ESOP Committee or the Board instructs the ESOP
Trustee regarding investment of ESOP plan assets. The ESOP Trustees must
vote all shares allocated to participant accounts under the ESOP as
directed by ESOP participants. Unallocated shares and shares for which no
timely voting direction is received will be voted by the ESOP Trustees as
directed by the ESOP Committee. As of the Voting Record Date, 6,136 shares
have been allocated under the ESOP to participant accounts.
(5) Less than 1.0% or not applicable.

-5-

<PAGE>

Executive Officers of the Company

The following individuals hold the executive offices in the Company set
forth below opposite their names.

Age as of
Name December 31, 1997 Positions Held With the Company
- ---- ----------------- -------------------------------

Peter W. Hampton 78 President and Director

Peter W. Hampton, Jr. 47 Secretary and Director

John R. Crockett, Jr. 77 Treasurer and Director

Bobby K.S. Hyatt 29 Principal Accounting Officer

Biographical Information

Set forth below is certain information with respect to the directors,
including director nominees and executive officers of the Company. All directors
of the Bank in May, 1997 became directors of the Company at that time. Executive
Officers receive compensation from the Bank. See "-- Director and Executive
Officer Compensation." All directors and executive officers have held their
present positions for five years unless otherwise stated.

Estill L. Caudill, Jr. has been a member of the Board of Directors of
the Bank since 1963 and of the Company since its formation. Mr. Caudill is a
retired physician. Mr. Caudill is the brother of Julian T. Caudill.

Julian T. Caudill has been a member of the Board of Directors of the
Bank since 1963 and of the Company since its formation. Mr. Caudill is a retired
pharmacist. Mr. Caudill is a member of the Elizabethton Rotary Club and the
American Cancer Society. He is the brother of Estill L. Caudill, Jr.

John R. Crockett, Jr. has been a member of the Board of Directors and
Treasurer and Secretary of the Bank since 1963. He has been a member of the
Board of the Company and its Treasurer since the Company's formation. Mr.
Crockett is a retired realtor.

Peter W. Hampton has been the President and a member of the Board of
Directors of the Bank since 1963, and of the Company since 1997. Mr. Hampton is
a member of the Elizabethton/Carter County Economic Development Commission and
the Carter County Chamber of Commerce. Mr. Hampton is the father of Peter W.
Hampton, Jr.

Peter W. Hampton, Jr. has been a member of the Board of Directors of
the Bank since 1994 and has served as Vice Chairman of the Board since December
1996. Mr. Hampton has also been a Director of the Company's Board, and its
Secretary, since the Company's formation in 1997. Since 1977, Mr. Hampton has
been an attorney in the law firm of Hampton & Street and has been employed as
our General Counsel since 1994. Mr. Hampton is the son of Peter W. Hampton.

Donald W. Tetrick has been Chairman of the Bank's Board of Directors
since 1963 and has served the Company in the same capacity since its formation.
Mr. Tetrick is the Secretary of the

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<PAGE>

Elizabethton Kiwanis Club, the Carter County Chamber of Commerce and a member of
the Board of Directors of First United Methodist Church. Mr. Tetrick is also a
retired funeral home director.

Bobby K.S. Hyatt has been the Principle Accounting Officer of the
Company since 1997 and an Assistant Vice President of the Bank since 1995. Prior
to that he was an accountant with the firm of T. Alan Walls, C.P.A., P.C. and
prior to that he was employed by the Bank. He received his certified public
accountant designation in 1993.

Nominations for Director

Pursuant to Article II, Section 15 of the Company's Bylaws,
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to a notice in writing to the Secretary of the
Company that is delivered to, or mailed and received at, the principal executive
offices of the Company not less than 60 days prior to the anniversary date of
the immediately preceding annual meeting of stockholders of the Company;
provided, however, that with respect to the first scheduled annual meeting,
notice by the stockholder must be so delivered or received no later than the
close of business on the tenth day following the day on which notice of the date
of the scheduled meeting is to be delivered or received no later than the close
of business on the fifth day preceding the date of the meeting.

Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a director
and as to the stockholder giving the notice (i) the name, age, business address,
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of Common Stock
which are beneficially owned by such person on the date of such stockholder
notice, and (iv) any other information relating to such person that is required
to be disclosed in solicitations of proxies with respect to nominees for
election as directors; and (b) as to the stockholder giving the notice (i) the
name and address, as they appear on the Company's books, of such stockholder and
any other stockholders known by such stockholder to be supporting such nominees
and (ii) the class and number of shares of Common Stock which are beneficially
owned by such stockholder on the date of such stockholder notice and, to the
extent known, by any other stockholders known by such stockholder to be
supporting such nominees on the date of such stockholder notice. At the request
of the Board of Directors, any person nominated by, or at the direction of, the
Board for election as a director at an annual meeting shall furnish to the
Secretary of the Company that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee.

The Board of Directors may reject any nomination by a stockholder not
made in accordance with the requirements of the Bylaws. If the presiding officer
at the meeting determines that a nomination was not made in accordance with the
terms of the Bylaws, he shall so declare at the annual meeting and the defective
nomination shall be disregarded.

Meetings and Committees of the Board of Directors

The Board of Directors conducts its business through meetings of the
Board and through activities of its committees. During the year ended December
31, 1997, the Board of Directors held 12 regular meetings and one special
meeting. No director attended fewer than 75% of the total meetings of the Board
of Directors and committees on which such director served during the year ended
December 31, 1997.

-7-

<PAGE>

All of the directors are members of the executive/loan committee. The
executive/loan committee is principally responsible for (i) insuring that our
lending policies are implemented and observed, (ii) approving certain loan
applications, and (iii) approving other operational and administrative matters.
The executive/loan committee met 52 times during the fiscal year ended December
31, 1997.

The Compensation and Benefits Committee is comprised of the entire
Board of Directors. This standing committee establishes the Bank's salary
budget, director and committee member fees, and employee benefits provided by
the Bank for approval by the Board of Directors. The Committee met once during
the 1997 fiscal year.

The Audit Committee is comprised of Directors Donald W. Tetrick, Peter
W. Hampton, Jr. and Julian T. Caudill. This standing committee is responsible
for developing and maintaining the Bank's audit program. The Committee also
meets with the Bank's outside auditors to discuss the results of the annual
audit and any related matters. The Audit Committee met once during the 1997
fiscal year.

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DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
- --------------------------------------------------------------------------------

Director Compensation

Each of the directors is paid a monthly fee of $600. Additionally, each
director is also a member of the Executive/Loan Committee and receives a fee of
$35 per meeting attended. Total aggregate fees paid to the current directors for
the year ended December 31, 1997 were $53,140.

Directors will receive awards of stock options and restricted stock
under the 1998 Stock Option Plan and the RSP upon stockholder approval of these
plans. See "Proposal II -- Approval of the 1998 Stock Option Plan" and "Proposal
III -- Approval of the Restricted Stock Plan" herein.

Executive Officer Compensation

The Company has no full time employees, but relies on the employees of
the Bank for the limited services required by the Company. All compensation paid
to officers and employees is paid by the Bank.

Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by the chief executive officer. No
other executive officer of either the Bank or the Company had a salary and bonus
during the years ended December 31, 1997 and 1996 that exceeded $100,000 for
services rendered in all capacities to the Bank or the Company.

-8-

<PAGE>

<TABLE>
<CAPTION>
Annual Compensation
-------------------
All
Name and Fiscal Other Annual Other
Principal Position Year Salary ($) Bonus ($) Compensation ($) (1) Compensation ($)
- ------------------- ---- ---------- --------- -------------------- ----------------

<S> <C> <C> <C> <C> <C>
Peter W. Hampton 1997 77,295 24,000 10,238 13,542(2)
President
1996 73,614 24,500 9,280 9,811(3)

</TABLE>
- ----------------
(1) Consists of director and committee fees of $7,750, and $1,530 for health,
life and disability insurance premiums paid on behalf of the executive in
1996, and $8,715 and $1,523 respectively, for these fees and premiums in
1997.
(2) Includes contributions allocated under the ESOP of $13,542, resulting in
the allocation of 1,354 shares of common stock with a market value of
$20,483 as of December 31, 1997.
(3) Consists of payments made on behalf of the executive to our Savings Plan.

Employment Agreement. The Bank entered into an employment agreement
with Peter W. Hampton, President of the Bank ("Agreement"). Mr. Hampton's base
salary under the Agreement is $73,614. The Agreement has a term of three years
and may be terminated by the Bank for "just cause" as defined in the Agreement.
If the Bank terminates Mr. Hampton without just cause, Mr. Hampton will be
entitled to a continuation of his salary from the date of termination through
the remaining term of the Agreement. The Agreement contains a provision stating
that in the event of the termination of employment in connection with a change
in control of the Bank, Mr. Hampton will be paid a lump sum amount equal to 2.99
times his five year average annual taxable compensation. If such payments had
been made under the Agreement as of December 31, 1997, such payments would have
equaled approximately $265,000. The Agreement may be renewed annually by the
Bank's Board of Directors upon a determination of satisfactory performance
within the Board's sole discretion. If Mr. Hampton shall become disabled during
the term of the Agreement, he shall continue to receive payment of 100% of the
base salary for a period of 12 months and 60% of such base salary for the
remaining term of such Agreement. Such payments shall be reduced by any other
benefit payments made under other disability programs in effect for the Bank's
employees.

Employee Stock Ownership Plan. The Bank maintains an employee stock
ownership plan ("ESOP") for the exclusive benefit of participating employees.
Participating employees are employees who have completed one year of service
with the Savings Bank and attained age 21. The ESOP is funded by contributions
made by the Bank in cash or the Common Stock. The ESOP has borrowed funds from
the Company in order to purchase Common Stock in the Conversion. This loan is
secured by the shares purchased and earnings of ESOP assets. Shares purchased
with such loan proceeds are held in a suspense account for allocation among
participants as the loan is repaid. The Bank is contributing $61,360 annually to
the ESOP to meet principal obligations under the ESOP loan. This loan is
expected to be fully repaid by the year 2006.

Contributions to the ESOP and shares released from the suspense account
will be allocated among participants on the basis of total compensation. All
participants must be employed at least 1,000 hours in a plan year or shall have
terminated employment due to disability, death or retirement in order to receive
an allocation for such plan year. Participant benefits become partially vested
in the ESOP each

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year over a seven year period of service, with 100% vested after seven years of
service. Employment prior to the adoption of the ESOP shall count toward
vesting. Vesting will be accelerated upon retirement, death, disability or
termination of the ESOP. Benefits may be payable in the form of a lump sum upon
retirement, death, disability or separation from service. The Bank's
contributions to the ESOP are discretionary; therefore, benefits payable under
the ESOP cannot be estimated.

Savings Plan. The Bank sponsors a tax-qualified defined contribution
savings and retirement plan ("Savings Plan") for the benefit of the Bank's
employees. The funds contributed are deposited in savings accounts with the
Bank. Employees become eligible to participate under the Savings Plan after
reaching age 21 and completing one year of service. Benefits are payable upon
termination of employment, retirement, death, disability, or plan termination.
Normal retirement age under the Savings Plan is age 65.

- --------------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------

Certain Related Transactions

The Bank, like many financial institutions, has followed a policy of
granting various types of loans to officers, directors, and employees. The loans
have been made in the ordinary course of business and on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with the Bank's other customers, and do not involve
more than the normal risk of collectibility, or present other unfavorable
features.

Peter W. Hampton, Jr., is a partner of the law firm of Hampton & Street
in Elizabethton, Tennessee. The Bank retains the services of Mr. Hampton's firm,
and the firm performs certain legal work for the Bank. Fees paid to the law firm
by the Bank's borrowers for services performed on the Bank's behalf were $68,535
during 1997 and $65,000 during 1996.

- --------------------------------------------------------------------------------
PROPOSAL II - APPROVAL OF THE 1998 STOCK OPTION PLAN
- --------------------------------------------------------------------------------

General

The Company's Board of Directors has adopted the 1998 Stock Option
Plan. The Option Plan is subject to approval by the Company's stockholders.
Pursuant to the Option Plan, up to 76,700 shares of Common Stock equal to up to
10% of the total Common Stock issued in the Conversion are to be reserved under
the Company's authorized but unissued shares for issuance by the Company upon
exercise of stock options to be granted to officers, directors, key employees
and other persons from time to time. The purpose of the Option Plan is to
attract and retain qualified personnel for positions of substantial
responsibility and to provide additional incentive to certain officers,
directors, key employees and other persons to promote the success of the
business of the Company and the Bank. The Option Plan, which shall become
effective upon the date of approval of the Option Plan by the stockholders of
the Company ("Effective Date"), provides for a term of ten years, after which
time no awards may be made. The following summary of the material features of
the Option Plan is qualified in its entirety by reference to the complete
provisions of the Option Plan which is attached hereto as Exhibit A.

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<PAGE>

The Option Plan will be administered by the Board of Directors or a
committee of not less than two non-employee directors appointed by the Company's
Board of Directors and serving at the pleasure of the Board (the "Option
Committee"). Members of the Option Committee shall be deemed "Non- Employee
Directors" within the meaning of Rule 16b-3 pursuant to the 1934 Act. The Option
Committee may select the officers and employees to whom options are to be
granted and the number of options to be granted based upon several factors
including prior and anticipated future job duties and responsibilities, job
performance, the Bank's financial performance and a comparison of awards given
by other institutions that have converted from mutual to stock form. A majority
of the members of the Option Committee shall constitute a quorum and the action
of a majority of the members present at any meeting at which a quorum is present
shall be deemed the action of the Option Committee.

Officers, directors, key employees and other persons who are designated
by the Option Committee will be eligible to receive, at no cost to them, options
under the Option Plan (the "Optionees"). Each option granted pursuant to the
Option Plan shall be evidenced by an instrument in such form as the Option
Committee shall from time to time approve. It is anticipated that options
granted under the Option Plan will constitute either Incentive Stock Options
(options that afford favorable tax treatment to recipients upon compliance with
certain restrictions pursuant to Section 422 of the Internal Revenue Code
("Code") and that do not normally result in tax deductions to the Company) or
Non- Incentive Stock Options (options that do not afford recipients favorable
tax treatment under Code Section 422). Option shares may be paid for in cash,
shares of Common Stock, or a combination of both. The Company will receive no
monetary consideration for the granting of stock options under the Option Plan.
Further, the Company will receive no consideration other than the option
exercise price per share for Common Stock issued to Optionees upon the exercise
of those Options.

Options to be awarded to employees, officers, and directors shall be
conditioned upon receipt of stockholder approval of the Option Plan. Options
awarded to employees, officers, and directors become first exercisable at a rate
of 20% annually commencing on the date of grant, except upon the death,
disability or retirement of the Optionee, or upon a change in control of the
Company. In the event of the death, disability or retirement of an Optionee, or
a change in control (as such term is described in the Option Plan), the options
granted to such Optionee shall become immediately exercisable without regard to
any vesting schedule.

Shares issuable under the Option Plan may be from authorized but
unissued shares, treasury shares or shares purchased in the open market. An
Option which expires, becomes unexercisable, or is forfeited for any reason
prior to its exercise will again be available for issuance under the Option
Plan. No Option or any right or interest therein is assignable or transferable
except by will or the laws of descent and distribution. The Option Plan shall
continue in effect for a term of ten years from the Effective Date.

Stock Options

The Option Committee may grant either Incentive Stock Options or
Non-Incentive Stock Options. In general, if an Optionee ceases to serve as an
employee of the Company for any reason other than disability, death or
retirement, an exercisable Incentive Stock Option may continue to be exercisable
for three months but in no event after the expiration date of the option, except
as may otherwise be determined by the Option Committee at the time of the award.
In the event of the disability or death of an Optionee during employment, an
exercisable Incentive Stock Option will continue to be exercisable for one year
and two years, respectively, to the extent exercisable by the Optionee
immediately prior to

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<PAGE>

the Optionee's disability or death but only if, and to the extent that, the
Optionee was entitled to exercise such Incentive Stock Options on the date of
termination of employment. The terms and conditions of Non-Incentive Stock
Options relating to the effect of an Optionee's termination of employment or
service, retirement, disability, or death shall be such terms as the Option
Committee, in its sole discretion, shall determine at the time of termination of
service, disability or death, unless specifically determined at the time of
grant of such options.

The exercise price for the purchase of Common Stock subject to an
Option may not be less than one hundred percent (100%) of the Fair Market Value
of the Common Stock covered by the Option on the date of grant of such Option.
For purposes of determining the Fair Market Value of the Common Stock, if the
Common Stock is traded otherwise than on a national securities exchange at the
time of the granting of an Option, then the exercise price per share of the
Option shall be not less than the mean between the last bid and ask price on the
date the Option is granted or, if there is no bid and ask price on said date,
then on the immediately prior business day on which there was a bid and ask
price. If no such bid and ask price is available, then the exercise price per
share shall be determined in good faith by the Option Committee. If the Common
Stock is listed on a national securities exchange at the time of the granting of
an the Option, then the exercise price per share of the Option shall be not less
than the average of the highest and lowest selling price of the Common Stock on
such exchange on the date such Option is granted or, if there were no sales on
said date, then the exercise price shall be not less than the mean between the
last bid and ask price on such date. If an officer or employee owns Common Stock
representing more than ten percent of the outstanding Common Stock at the time
an Incentive Stock Option is granted, then the exercise price shall not be less
than one hundred and ten percent (110%) of the Fair Market Value of the Common
Stock at the time the Incentive Stock Option is granted. No more than $100,000
of Incentive Stock Options can become exercisable for the first time in any one
year for any one person. The Option Committee may impose additional conditions
upon the right of an Optionee to exercise any Option granted hereunder which are
not inconsistent with the terms of the Option Plan or the requirements for
qualification as an Incentive Stock Option, if such Option is intended to
qualify as an incentive stock option.

No shares of Common Stock shall be issued upon the exercise of an
Option until full payment has been received by the Company, and no Optionee
shall have any of the rights of a stockholder of the Company until shares of
Common Stock are issued to such Optionee, except to the extent that dividend
equivalent rights are awarded under the Option Plan. Upon the exercise of an
Option by an Optionee (or the Optionee's personal representative), the Option
Committee, in its sole and absolute discretion, may make a cash payment to the
Optionee, in whole or in part, in lieu of the delivery of shares of Common
Stock. Such cash payment to be paid in lieu of delivery of Common Stock shall be
equal to the difference between the Fair Market Value of the Common Stock on the
date of the Option exercise and the exercise price per share of the Option. Such
cash payment shall be in exchange for the cancellation of such Option. Such cash
payment shall not be made in the event that such transaction would result in
liability to the Optionee and the Company under Section 16(b) of the 1934 Act,
and regulations promulgated thereunder.

The Option Plan provides that the Board of Directors of the Company may
authorize the Option Committee to direct the execution of an instrument
providing for the modification, extension or renewal of any outstanding option,
provided that no such modification, extension or renewal shall confer on the
Optionee any right or benefit which could not be conferred on the Optionee by
the grant of a new Option at such time, and shall not materially decrease the
Optionee's benefits under the Option without the Optionee's consent, except as
otherwise provided under the Option Plan.

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<PAGE>

Awards Under the Option Plan

The Board or the Option Committee shall from time to time determine the
officers, directors, key employees and other persons who shall be granted Awards
under the Plan, the number of Awards to be granted to any participant under the
Plan, and whether Awards granted to each such participant under the Plan shall
be Incentive Stock Options and/or Non-Incentive Stock Options. In selecting
participants and in determining the number of shares of Common Stock subject to
Options to be granted to each such participant, the Board or the Option
Committee may consider the nature of the services rendered by each such
participant, each such participant's current and potential contribution to the
Company and such other factors as may be deemed relevant. Participants who have
been granted an Award may, if otherwise eligible, be granted additional Awards.
In no event shall Shares subject to Options granted to non-employee directors in
the aggregate under this Plan exceed more than 30% of the total number of Shares
authorized for delivery under this Plan, and no more than 7.5% of total Plan
shares may be awarded to any individual non-employee Director. In no event shall
Shares subject to Options granted to any Employee exceed more than 28% of the
total number of Shares authorized for delivery under the Plan.

Pursuant to the terms of the Option Plan, Non-Incentive Stock Options
to purchase 5,752 shares of Common Stock will be granted to each non-employee
Director of the Company, as of the Effective Date, at an exercise price equal to
the Fair Market Value of the Common Stock on such date of grant. Options may be
granted to newly appointed or elected non-employee directors within the sole
discretion of the Option Committee, and the exercise price shall be equal to the
Fair Market Value of such Common Stock on the date of grant. Twenty (20) percent
of the Options granted to non-employee directors on the Effective Date will be
first exercisable as of the Effective Date and 20% annually thereafter, during
such period of service as a Director or a Director Emeritus. Such Options
granted to non-employee directors will remain exercisable for up to ten years
from such date of grant. Upon the death, disability or retirement of a Director
or Director Emeritus, such Options shall be deemed immediately 100% exercisable
for their remaining term. All outstanding option awards shall become immediately
exercisable in the event of a change in control of the Company or the Bank.
Subject to vesting requirements, if applicable, except in the event of death or
disability of the Optionee or Change in Control, a minimum of six months must
elapse between the date of the grant of an Option and the date of the sale of
the Common Stock received through the exercise of such Option.

The table below presents information related to stock option awards
anticipated to be awarded upon stockholder approval of the Option Plan.

NEW PLAN BENEFIT
1998 STOCK OPTION PLAN
----------------------
Number of Options
Name and Position Dollar Value(1) to be Granted
- ----------------- --------------- -------------
Peter W. Hampton
Director and President.............. N/A 21,476(2)(3)
Peter W. Hampton, Jr.
Director and Secretary.............. N/A 19,942(2)(3)
Estill L. Caudill, Jr.
Director............................ N/A 5,752(3)(4)
Julian T. Caudill
Director............................ N/A 5,752(3)(4)

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<PAGE>

Number of Options
Name and Position Dollar Value(1) to be Granted
- ----------------- --------------- -------------

John R. Crockett, Jr.
Director and Treasurer.............. N/A 5,752(3)(4)(5)
Donald W. Tetrick
Director............................ N/A 5,752(3)(4)
Executive Officer Group (3 persons)... N/A 44,486(5)
Non-Executive Officer Director Group
(4 persons)......................... N/A 23,008(5)
Non-Executive Officer Employee Group
(11 persons) ....................... N/A 6,136

- -----------------
(1) The exercise price of such Options shall be equal to the Fair Market Value
of the Common Stock on the date of stockholder approval of the Option Plan.
Accordingly, the dollar value of the options was not determinable at the
time of mailing this Proxy Statement. On April 7, 1998, the last reported
bid price on the OTC Bulletin Board was $15 3/4 per share. It is intended
that Options awarded to Mr. Hampton and to the directors as of the
Effective Date shall include Dividend Equivalent Rights. Future Awards
under the Plan may also include Dividend Equivalent Rights.
(2) Options awarded to officers and employees will be exercisable as follows:
Options awarded at the time of stockholder approval are first exercisable
at the rate of 20% on the date of grant and 20% annually thereafter during
periods of continued service as an employee, Director or Director Emeritus.
Such awards shall be 100% exercisable in the event of death, disability,
retirement, or upon a change in control of the Company or the Bank. Options
awarded to employees shall continue to be exercisable during continued
service as an employee, Director or Director Emeritus. Options not
exercised within three months of termination of service as an employee
shall thereafter be deemed non-incentive stock options.
(3) Awards shall vest during periods of continued service as an employee,
director, or director emeritus. Upon vesting, awards shall remain
exercisable for ten years from the date of grant without regard to
continued service as an employee, director, or director emeritus.
(4) Options awarded to directors are first exercisable at a rate of 20% on the
date of stockholder approval of the Option Plan and 20% annually
thereafter, during such period of service as a director or director
emeritus, and shall remain exercisable for ten years without regard to
continued service as a director or director emeritus. Upon disability,
death, retirement or a change in control of the Company or the Bank, such
awards shall be 100% exercisable.
(5) Awards to John R. Crockett, Jr., non-employee Director and Treasurer, are
classified under "Non- Executive Officer Director Group." Only Executive
Officers that are employees are classified under "Executive Officer Group."

Dividend Equivalent Rights

The Committee, in its sole discretion, may include as a term of any
Option, the right of the Optionee to receive Dividend Equivalent Rights. Such
rights shall provide that upon the payment of a dividend on the Common Stock,
the holder of such Options shall receive payment of compensation in an amount
equivalent to the dividend payable as if such Options had been exercised and
such Common Stock held as of the dividend record date. Such rights shall expire
upon the expiration or exercise of such underlying Options. Such rights are
nontransferable and shall attach to Options whether or not such Options are
immediately exercisable. The dividend equivalent payments associated with
Options that are

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<PAGE>

not yet immediately exercisable shall be paid within 30 days of the related
dividend payment date. All Options granted to non-employee directors of the
Company or the Bank as of the Effective Date in accordance with the Plan are
intended to have Dividend Equivalent Rights associated with such Options.

Effect of Mergers, Change of Control and Other Adjustments

Subject to any required action by the stockholders of the Company,
within the sole discretion of the Option Committee, the aggregate number of
shares of Common Stock for which Options may be granted hereunder or the number
of shares of Common Stock represented by each outstanding Option will be
proportionately adjusted for any increase or decrease in the number of issued
and outstanding shares of Common Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend or any other increase
or decrease in the number of shares of Common Stock effected without the receipt
or payment of consideration by the Company. Subject to any required action by
the stockholders of the Company, in the event of any change in control,
recapitalization, merger, consolidation, exchange of shares, spin-off,
reorganization, tender offer, partial or complete liquidation or other
extraordinary corporate action or event, the Option Committee, in its sole
discretion, shall have the power, prior to or subsequent to such action or
events, to (i) appropriately adjust the number of shares of Common Stock subject
to each Option, the exercise price per share of such Option, and the
consideration to be given or received by the Company upon the exercise of any
outstanding Options; (ii) cancel any or all previously granted Options, provided
that appropriate consideration is paid to the Optionee in connection therewith;
and/or (iii) make such other adjustments in connection with the Option Plan as
the Option Committee, in its sole discretion, deems necessary, desirable,
appropriate or advisable. However, no action may be taken by the Option
Committee which would cause Incentive Stock Options granted pursuant to the
Option Plan to fail to meet the requirements of Section 422 of the Code without
the consent of the Optionee. Upon the payment of a special or non-recurring cash
dividend that has the effect of a return of capital to the stockholders, the
Option exercise price per share shall be adjusted proportionately, except to the
extent that the Optionee shall otherwise receive payments associated with
Dividend Equivalent Rights attributable to such Options with regard to such
special or non-recurring cash dividends.

The Option Committee will at all times have the power to accelerate the
exercise date of all Options granted under the Option Plan. In the case of a
Change in Control of the Company as determined by the Option Committee, all
outstanding options shall become immediately exercisable. A Change in Control is
defined to include (i) the sale of all, or a material portion, of the assets of
the Company; (ii) the merger or recapitalization of the Company whereby the
Company is not the surviving entity; (iii) a change in control of the Company as
otherwise defined or determined by the OTS or its regulations; or (iv) the
acquisition, directly or indirectly, of the beneficial ownership (within the
meaning of Section 13(d) of the 1934 Act and rules and regulations promulgated
thereunder) of 25% or more of the outstanding voting securities of the Company
by any person, trust, entity, or group. This limitation shall not apply to the
purchase of shares by underwriters in connection with a pubic offering of
Company stock or the purchase of shares of up to 25% of any class of securities
of the Company by a tax qualified employee stock benefit plan which is exempt
from the approval requirements set forth under 12 C.F.R. ss.574.3(c)(1)(vi).

In the event of such a Change in Control, the Option Committee and the
Board of Directors will take one or more of the following actions to be
effective as of the date of such Change in Control: (i) provide that such
Options shall be assumed, or equivalent options shall be substituted,
("Substitute Options") by the acquiring or succeeding corporation (or an
affiliate thereof), provided that: (A) any such

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Substitute Options exchanged for Incentive Stock Options shall meet the
requirements of Section 424(a) of the Code, and (B) the shares of stock issuable
upon the exercise of such Substitute Options shall constitute securities
registered in accordance with the Securities Act of 1933, as amended, ("1933
Act") or such securities shall be exempt from such registration in accordance
with Sections 3(a)(2) or 3(a)(5) of the 1933 Act, (collectively, "Registered
Securities"), or in the alternative, if the securities issuable upon the
exercise of such Substitute Options shall not constitute Registered Securities,
then the Optionee will receive upon consummation of the Change in Control
transaction a cash payment for each Option surrendered equal to the difference
between (1) the Fair Market Value of the consideration to be received for each
share of Common Stock in the Change in Control transaction times the number of
shares of Common Stock subject to such surrendered Options, and (2) the
aggregate exercise price of all such surrendered Options, or (ii) in the event
of a transaction under the terms of which the holders of the Common Stock of the
Company will receive upon consummation thereof a cash payment (the "Merger
Price") for each share of Common Stock exchanged in the Change in Control
transaction, to make or to provide for a cash payment to the Optionees equal to
the difference between (A) the Merger Price times the number of shares of Common
Stock subject to such Options held by each Optionee (to the extent then
exercisable at prices not in excess of the Merger Price) and (B) the aggregate
exercise price of all such surrendered Options in exchange for such surrendered
Options.

The power of the Option Committee to accelerate the exercise of Options
and the immediate exercisability of Options in the case of a Change in Control
of the Company could have an anti-takeover effect by making it more costly for a
potential acquiror to obtain control of the Company due to the higher number of
shares outstanding following such exercise of Options. The power of the Option
Committee to make adjustments in connection with the Option Plan, including
adjusting the number of shares subject to Options and canceling Options, prior
to or after the occurrence of an extraordinary corporate action, allows the
Option Committee to adapt the Option Plan to operate in changed circumstances,
to adjust the Option Plan to fit a smaller or larger company, and to permit the
issuance of Options to new management following such extraordinary corporate
action. However, this power of the Option Committee also has an anti-takeover
effect, by allowing the Option Committee to adjust the Option Plan in a manner
to allow the present management of the Company to exercise more options and hold
more shares of the Company's Common Stock, and to possibly decrease the number
of Options available to new management of the Company.

Although the Option Plan may have an anti-takeover effect, the
Company's Board of Directors did not adopt the Option Plan specifically for
anti-takeover purposes. The Option Plan could render it more difficult to obtain
support for stockholder proposals opposed by the Company's Board and management
in that recipients of Options could choose to exercise such Options and thereby
increase the number of shares for which they hold voting power. Also, the
exercise of such Options could make it easier for the Board and management to
block the approval of certain transactions requiring the voting approval of 80%
of the Common Stock in accordance with the Charter. In addition, the exercise of
such Options could increase the cost of an acquisition by a potential acquiror.

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<PAGE>

Amendment and Termination of the Option Plan

The Board of Directors may alter, suspend or discontinue the Option
Plan, except that no action of the Board shall increase the maximum number of
shares of Common Stock issuable under the Option Plan (except for adjustments in
the Common Stock of the Company), materially increase the benefits accruing to
Optionees under the Option Plan, or materially modify the requirements for
eligibility for participation in the Option Plan, unless such action of the
Board shall be subject to approval or ratification by the stockholders of the
Company.

Possible Dilutive Effects of the Option Plan

The Common Stock to be issued upon the exercise of Options awarded
under the Option Plan may either be authorized but unissued shares of Common
Stock or shares purchased in the open market. Because the stockholders of the
Company do not have preemptive rights, to the extent that the Company funds the
Option Plan, in whole or in part, with authorized but unissued shares, the
interests of current stockholders will be diluted. If upon the exercise of all
of the Options, the Company delivers newly issued shares of Common Stock (i.e.,
76,700, shares of Common Stock), then the dilutive effect to current
stockholders would be approximately 9.1%.

Federal Income Tax Consequences

Under present federal tax laws, awards under the Option Plan will have
the following consequences:

1. The grant of an Option will not by itself result in the
recognition of taxable income to an Optionee nor entitle the
Company to a tax deduction at the time of such grant.

2. The exercise of an Option which is an "Incentive Stock Option"
within the meaning of Section 422 of the Code generally will not,
by itself, result in the recognition of taxable income to an
Optionee nor entitle the Company to a deduction at the time of
such exercise. However, the difference between the Option
exercise price and the Fair Market Value of the Common Stock on
the date of Option exercise is an item of tax preference which
may, in certain situations, trigger the alternative minimum tax
for an Optionee. An Optionee will recognize capital gain or loss
upon resale of the shares of Common Stock received pursuant to
the exercise of Incentive Stock Options, provided that such
shares are held for at least one year after transfer of the
shares or two years after the grant of the Option, whichever is
later. Generally, if the shares are not held for that period, the
Optionee will recognize ordinary income upon disposition in an
amount equal to the difference between the Option exercise price
and the Fair Market Value of the Common Stock on the date of
exercise, or, if less, the sales proceeds of the shares acquired
pursuant to the Option.

3. The exercise of a Non-Incentive Stock Option will result in the
recognition of ordinary income by the Optionee on the date of
exercise in an amount equal to the difference between the
exercise price and the Fair Market Value of the Common Stock
acquired pursuant to the Option.

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<PAGE>

4. The Company will be allowed a tax deduction for federal tax
purposes equal to the amount of ordinary income recognized by an
Optionee at the time the Optionee recognizes such ordinary
income, including the receipt of cash paid related to Dividend
Equivalent Rights.

5. In accordance with Section 162(m) of the Code, the Company's tax
deductions for compensation paid to the most highly paid
executives named in the Company's Proxy Statement may be limited
to no more than $1 million per year, excluding certain
"performance-based" compensation. The Company intends for the
award of Options under the Option Plan to comply with the
requirement for an exception to Section 162(m) of the Code
applicable to stock option plans so that the Company's deduction
for compensation related to the exercise of Options would not be
subject to the deduction limitation set forth in Section 162(m)
of the Code.

Accounting Treatment

Neither the grant nor the exercise of an Option under the Option Plan
currently requires any charge against earnings under generally accepted
accounting principles. Common Stock issuable pursuant to outstanding Options
which are exercisable under the Option Plan will be considered outstanding for
purposes of calculating fully diluted earnings per share.

Stockholder Approval

Stockholder approval of the Option Plan is being sought in order to
qualify the Option Plan for the granting of Incentive Stock Options in
accordance with the Code, to enable Optionees to qualify for certain exemptive
treatment from the short-swing profit recapture provisions of Section 16(b) of
the 1934 Act, and to meet the requirements for the tax-deductibility of certain
compensation items under Section 162(m) of the Code. An affirmative vote of the
majority of the votes cast at the Meeting, in person or by proxy, is required to
constitute stockholder approval of this Proposal I.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE 1998 STOCK OPTION PLAN.

- --------------------------------------------------------------------------------
PROPOSAL III - APPROVAL OF THE RESTRICTED STOCK PLAN
- --------------------------------------------------------------------------------

General

The Board of Directors of the Company has adopted the RSP as a method
of providing directors, officers, and key employees of the Bank with a
proprietary interest in the Company in a manner designed to encourage such
persons to remain in the employment or service of the Bank. The Bank will
contribute sufficient funds to the RSP to purchase Common Stock representing up
to 4% of the aggregate number of shares issued in the Conversion (i.e., 30,680
shares of Common Stock) in the open market. Alternatively, the RSP may purchase
authorized but unissued shares of Common Stock or treasury shares from the
Company. All of the Common Stock to be purchased by the RSP will be purchased at
the Fair Market Value of such stock on the date of purchase. Awards under the
RSP will be made in recognition of expected future services to the Bank by its
directors, officers and key employees responsible for implementation of the
policies adopted by the Bank's Board of Directors and as a means of providing a

-18-

<PAGE>

further retention incentive. The following is a summary of the material features
of the RSP which is qualified in its entirety by reference to the complete
provisions of the RSP which is attached hereto as Exhibit B.

Awards Under the RSP

Benefits under the RSP ("Plan Share Awards") may be granted at the sole
discretion of a committee comprised of not less than two directors who are not
employees of the Bank or the Company (the "RSP Committee") appointed by the
Bank's Board of Directors. The RSP is managed by trustees (the "RSP Trustees")
who are non-employee directors of the Bank or the Company and who have the
responsibility to invest all funds contributed by the Bank to the trust created
for the RSP (the "RSP Trust"). Unless the terms of the RSP or the RSP Committee
specifies otherwise, awards under the RSP will be in the form of restricted
stock payable as the Plan Share Awards shall be earned and non- forfeitable.
Twenty (20%) of such awards shall be earned and non-forfeitable as of the date
of grant of such awards, and 20% annually thereafter, provided that the
recipient of the award remains an employee, Director or Director Emeritus during
such period. A recipient of such restricted stock will not be entitled to voting
rights associated with such shares prior to the applicable date such shares are
earned. Dividends paid on Plan Share Awards shall be paid within 30 days of the
dividend payment date without regard to the vested status of such Plan Share
Awards. Any shares held by the RSP Trust which are not yet earned shall be voted
by the RSP Trustees, as directed by the RSP Committee. If a recipient of such
restricted stock terminates employment or service for reasons other than death,
disability, retirement or a change in control of the Company or the Bank, the
recipient forfeits all rights to the awards under restriction. If the
recipient's termination of employment or service is caused by death, disability,
retirement or a change in control of the Company or the Bank, all restrictions
expire and all shares allocated shall become unrestricted. Awards of restricted
stock to directors shall be immediately non-forfeitable in the event of the
death, disability or retirement of such director, or a change in control of the
Company or the Bank, and will be distributed as soon as practicable thereafter.
The Board of Directors can terminate the RSP at any time, and if it does so, any
shares not allocated will revert to the Company.

Plan Share Awards under the RSP will be determined by the RSP
Committee. In no event shall any Employee receive Plan Share Awards in excess of
30% of the aggregate Plan Shares authorized under the Plan. Plan Share Awards
may be granted to newly elected or appointed non-employee directors of the Bank
subsequent to the effective date (as defined in the RSP) provided that the Plan
Share Awards made to non-employee directors shall not exceed 30% of total Plan
Share Reserve in the aggregate under the Plan or 7.5% of the total Plan Share
Reserve to any individual non-employee Director.

The aggregate number of Plan Shares available for issuance pursuant to
the Plan Share Awards and the number of shares to which any Plan Share Award
relates shall be proportionately adjusted for any increase or decrease in the
total number of outstanding shares of Common Stock issued subsequent to the
effective date (as defined in the RSP) of the RSP resulting from any split,
subdivision or consolidation of the Common Stock or other capital adjustment,
change or exchange of Common Stock, or other increase or decrease in the number
or kind of shares effected without receipt or payment of consideration by the
Company.

-19-

<PAGE>

The following table presents information related to the anticipated
award of Common Stock under the RSP as authorized pursuant to the terms of the
RSP or the anticipated actions of the RSP Committee.

NEW PLAN BENEFITS
RESTRICTED STOCK PLAN
---------------------

Name and Position Dollar Value $(1) Number of Shares (2)(3)
- ----------------- ----------------- -----------------------
Peter W. Hampton
Director and President ............ 144,963 9,204
Peter W. Hampton, Jr.
Director and Secretary............. 115,967 7,363
Estill L. Caudill, Jr.
Director........................... 36,240 2,301
Julian T. Caudill
Director........................... 36,240 2,301
John R. Crockett, Jr.
Director and Treasurer............. 36,240 2,301(4)
Donald W. Tetrick
Director........................... 36,240 2,301
Executive Officer Group (3 persons).. 280,255 17,794(4)
Non-Executive Officer Director
Group (4 persons).................. 144,963 9,204(4)
Non-Executive Officer Employee
Group (11 persons)................. 57,960 3,680

- -----------------
(1) These values are based on the last reported bid price for the Common Stock
as reported on the OTC Bulletin Board on April 7, 1998, which was $15 3/4
per share. The exact dollar value of the Common Stock granted will equal
the market price of the Common Stock on the date of vesting of such awards.
Accordingly, the exact dollar value is not presently determinable.
(2) All Plan Share Awards presented herein shall be earned at the rate of 20%
on the date of stockholder approval of the RSP and 20% annually thereafter.
All awards shall become immediately 100% vested upon death, disability,
retirement or termination of service following a change in control (as
defined in the RSP).
(3) Plan Share Awards shall continue to vest during periods of service as an
employee, director, or director emeritus.
(4) Awards to John R. Crockett, Jr., a non-employee Director and Treasurer are
classified under "Non- Executive Officer Director." Only executive officers
that are employees are classified under "Executive Officer."

Amendment and Termination of the Plan

The Board may amend or terminate the RSP at any time. However, no
action of the Board may increase the maximum number of Plan Shares permitted to
be awarded under the RSP (except for adjustments in the Common Stock of the
Company), materially increase the benefits accruing to participants under the
RSP, or materially modify the requirements for eligibility for participation in
the RSP, unless such action of the Board shall be subject to ratification by the
stockholders of the Company.

-20-

<PAGE>

Possible Dilutive Effects of RSP

The RSP provides that Common Stock to be awarded may be acquired by the
RSP through open-market purchases or from authorized but unissued shares of
Common Stock from the Company. In that stockholders do not have preemptive
rights, to the extent that the Company utilizes authorized but unissued shares
to fund RSP awards, the interests of current stockholders will be diluted. If
all Plan Share Awards are funded with newly issued shares, the dilutive effect
to existing stockholders would be approximately 3.9%. It is the Company's
present intention to fund the RSP through open-market purchases of Common Stock.

Federal Income Tax Consequences

Common Stock awarded under the RSP is generally taxable to the
recipient at the time that such awards become earned and non-forfeitable, based
upon the Fair Market Value of such stock at the time of such vesting.
Alternatively, a recipient may make an election pursuant to Section 83(b) of the
Code within 30 days of the date of transfer of the award to elect to include in
gross income for the current taxable year the Fair Market Value of such stock as
of the date of transfer of the award. Such election must be filed with the
Internal Revenue Service within 30 days of the date of the granting of the stock
award. The Company will be allowed a tax deduction for federal tax purposes as a
compensation expense equal to the amount of ordinary income recognized by a
recipient of Plan Share Awards at the time the recipient recognizes taxable
ordinary income. A recipient of a Plan Share Award may elect to have a portion
of such award withheld by the RSP Trust in order to meet any necessary tax
withholding obligations.

Accounting Treatment

For accounting purposes, the Company will recognize compensation
expense in the amount of the Fair Market Value of the Common Stock subject to
Plan Share Awards at the grant date pro rata over the period of years during
which the awards are earned.

Stockholder Approval

The Company is submitting the RSP to stockholders for approval to
enable recipients of Plan Share Awards to qualify for certain exemptive
treatment from the short-swing profit recapture provisions of Section 16(b) of
the 1934 Act. The affirmative vote of the majority of votes cast at the Meeting,
in person or by proxy, is required to constitute stockholder approval of this
Proposal III.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE RESTRICTED STOCK PLAN.

- --------------------------------------------------------------------------------
PROPOSAL IV - RATIFICATION OF APPOINTMENT OF AUDITORS
- --------------------------------------------------------------------------------

Crisp Hughes Evans LLP, was the Company's independent public accountant
for the 1997 fiscal year. The Board of Directors of the Company presently
intends to renew the Company's arrangement with Crisp Hughes Evans LLP to be its
auditors for the fiscal year ended December 31, 1998. A representative of Crisp
Hughes Evans LLP is expected to be present at the meeting to respond to
stockholders' questions and will have the opportunity to make a statement if the
representative so desires.

-21-

<PAGE>

Ratification of the appointment of the auditors requires the approval
of a majority of the votes cast by the stockholders of the Company at the
Meeting. The Board of Directors recommends that stockholders vote "FOR" the
ratification of the appointment of Crisp Hughes Evans LLP, as the Company's
auditors for the fiscal year ending December 31, 1998.

- --------------------------------------------------------------------------------
OTHER MATTERS
- --------------------------------------------------------------------------------

The Board of Directors is not aware of any business to come before the
Meeting other than those matters described in this Proxy Statement. However, if
any other matters should properly come before the Meeting, it is intended that
proxies in the accompanying form will be voted in respect thereof in accordance
with the judgment of the persons named in the accompanying proxy.

- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------

The cost of soliciting proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitations by mail,
directors, officers, and regular employees of the Company may solicit proxies
personally or by telegraph or telephone without additional compensation.

The Company's Annual Report to Stockholders for the year ended December
31, 1997, including financial statements, will be mailed to all stockholders of
record as of the close of business on April 10, 1998. Any stockholder who has
not received a copy of such Annual Report may obtain a copy by writing to the
Secretary of the Company. Such Annual Report is not to be treated as a part of
the proxy solicitation material or as having been incorporated herein by
reference.

- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------

In order to be eligible for inclusion in the Company's proxy materials
for next year's Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Company's executive offices at
632 East Elk Avenue, Elizabethton, Tennessee 37643, no later than December 18,
1998. Any such proposals shall be subject to the requirements of the proxy rules
adopted under the 1934 Act.

- --------------------------------------------------------------------------------
FORM 10-KSB
- --------------------------------------------------------------------------------

A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997 WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE
RECORD DATE UPON WRITTEN REQUEST TO THE SECRETARY, SFB BANCORP, INC., 632 EAST
ELK AVENUE, ELIZABETHTON, TENNESSEE 37643.

BY ORDER OF THE BOARD OF DIRECTORS

/s/Peter W. Hampton, Jr.
Peter W. Hampton, Jr.
Secretary

Elizabethton, Tennessee
April 17, 1998

-22-

<PAGE>

- --------------------------------------------------------------------------------
SFB BANCORP, INC.
632 EAST ELK AVENUE
ELIZABETHTON, TENNESSEE 37643
- --------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS
JUNE 1, 1998
- --------------------------------------------------------------------------------

The undersigned hereby appoints the Board of Directors of SFB Bancorp,
Inc. (the "Company"), or its designee, with full powers of substitution, to act
as attorneys and proxies for the undersigned, to vote all shares of Common Stock
of the Company which the undersigned is entitled to vote at the Annual Meeting
of Stockholders (the "Meeting"), to be held at the offices of the Company, 632
East Elk Avenue, Elizabethton, Tennessee, on June 1, 1998, at 2:00 p.m. and at
any and all adjournments thereof, in the following manner:

FOR WITHHELD
--- --------

1. The election as directors of the nominees
listed below (except as marked to the |_| |_|
contrary below):

John R. Crockett, Jr.
Julian T. Caudill

(Instruction: To withhold authority to vote
for any individual nominee, write that nominee's name
on the space provided below)

-----------------------------------------------------------------------------

FOR AGAINST ABSTAIN
--- ------- -------
2. The approval of the SFB Bancorp, Inc.
1998 Stock Option Plan. |_| |_| |_|

3. The approval of the Security Federal Bank
Restricted Stock Plan. |_| |_| |_|

4. The ratification of the appointment of
Crisp Hughes Evans LLP as independent
auditors of SFB Bancorp, Inc. for the
fiscal year ending December 31, 1998. |_| |_| |_|

In their discretion, such attorneys and proxies are authorized to vote on any
other business that may properly come before the Meeting or any adjournments
thereof.

The Board of Directors recommends a vote "FOR" the above listed
propositions.

- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS
IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS
OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------

<PAGE>

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Annual Meeting of Stockholders, a Proxy
Statement dated April 17, 1998 and the 1997 Annual Report.

Dated: , 1998
-----------------------------

- ----------------------------------- ---------------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER

- ----------------------------------- ---------------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER

Please sign exactly as your name appears on this Proxy. When signing as
attorney, executor, administrator, trustee, or guardian, please give your full
title. If shares are held jointly, each holder should sign.

- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
- --------------------------------------------------------------------------------

<PAGE>
Exhibit A

SFB BANCORP

1998 STOCK OPTION PLAN

1. Purpose of the Plan. The Plan shall be known as the SFB Bancorp
("Company") 1998 Stock Option Plan (the "Plan"). The purpose of the Plan is to
attract and retain qualified personnel for positions of substantial
responsibility and to provide additional incentive to officers, directors, key
employees and other persons providing services to the Company, or any present or
future parent or subsidiary of the Company to promote the success of the
business. The Plan is intended to provide for the grant of "Incentive Stock
Options," within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") and Non-Incentive Stock Options, options that do
not so qualify. The provisions of the Plan relating to Incentive Stock Options
shall be interpreted to conform to the requirements of Section 422 of the Code.

2. Definitions. The following words and phrases when used in this Plan
with an initial capital letter, unless the context clearly indicates otherwise,
shall have the meaning as set forth below. Wherever appropriate, the masculine
pronoun shall include the feminine pronoun and the singular shall include the
plural.

(a) "Award" means the grant by the Committee of an Incentive
Stock Option or a Non-Incentive Stock Option, or any combination thereof, as
provided in the Plan.

(b) "Board" shall mean the Board of Directors of the Company,
or any successor or parent corporation thereto.

(c) "Change in Control" shall mean: (i) the sale of all, or a
material portion, of the assets of the Company; (ii) the merger or
recapitalization of the Company whereby the Company is not the surviving entity;
(iii) a change in control of the Company, as otherwise defined or determined by
the Office of Thrift Supervision or regulations promulgated by it; or (iv) the
acquisition, directly or indirectly, of the beneficial ownership (within the
meaning of that term as it is used in Section 13(d) of the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five
percent (25%) or more of the outstanding voting securities of the Company by any
person, trust, entity or group. This limitation shall not apply to the purchase
of shares by underwriters in connection with a public offering of Company stock,
or the purchase of shares of up to 25% of any class of securities of the Company
by a tax-qualified employee stock benefit plan which is exempt from the approval
requirements, set forth under 12 C.F.R. ss.574.3(c)(1)(vi) as now in effect or
as may hereafter be amended. The term "person" refers to an individual or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a Change
in Control has occurred shall be conclusive and binding.

(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and regulations promulgated thereunder.

A-1

<PAGE>

(e) "Committee" shall mean the Board or the Stock Option
Committee appointed by the Board in accordance with Section 5(a) of the Plan.

(f) "Common Stock" shall mean the common stock of the Company,
or any successor or parent corporation thereto.

(g) "Company" shall mean the SFB Bancorp, Inc., the parent
corporation of the Savings Bank, or any successor or Parent thereof.

(h) "Continuous Employment" or "Continuous Status as an
Employee" shall mean the absence of any interruption or termination of
employment with the Company or any present or future Parent or Subsidiary of the
Company. Employment shall not be considered interrupted in the case of sick
leave, military leave or any other leave of absence approved by the Company or
in the case of transfers between payroll locations, of the Company or between
the Company, its Parent, its Subsidiaries or a successor.

(i) "Director" shall mean a member of the Board of the
Company, or any successor or parent corporation thereto.

(j) "Director Emeritus" shall mean a person serving as a
director emeritus, advisory director, consulting director, or other similar
position as may be appointed by the Board of Directors of the Savings Bank or
the Company from time to time.

(k) "Disability" means (a) with respect to Incentive Stock
Options, the "permanent and total disability" of the Employee as such term is
defined at Section 22(e)(3) of the Code; and (b) with respect to Non-Incentive
Stock Options, any physical or mental impairment which renders the Participant
incapable of continuing in the employment or service of the Savings Bank or the
Parent in his then current capacity as determined by the Committee.

(l) "Dividend Equivalent Rights" shall mean the rights to
receive a cash payment in accordance with Section 12 of the Plan.

(m) "Effective Date" shall mean the date specified in Section
15 hereof.

(n) "Employee" shall mean any person employed by the Company
or any present or future Parent or Subsidiary of the Company.

(o) "Fair Market Value" shall mean: (i) if the Common Stock is
traded otherwise than on a national securities exchange, then the Fair Market
Value per Share shall be equal to the mean between the last bid and ask price of
such Common Stock on such date or, if there is no bid and ask price on said
date, then on the immediately prior business day on which there was a bid and
ask price. If no such bid and ask price is available, then the Fair Market Value
shall be determined by the Committee in good faith; or (ii) if the Common Stock
is listed on a national securities exchange, then the Fair Market Value per
Share shall be not less than the average of the highest and lowest selling price
of such Common Stock on such exchange on such date, or if there were no sales on
said date, then the Fair Market Value shall be not less than the mean between
the last bid and ask price on such date.

A-2

<PAGE>

(p) "Incentive Stock Option" or "ISO" shall mean an option to
purchase Shares granted by the Committee pursuant to Section 8 hereof which is
subject to the limitations and restrictions of Section 8 hereof and is intended
to qualify as an incentive stock option under Section 422 of the Code.

(q) "Non-Incentive Stock Option" or "Non-ISO" shall mean an
option to purchase Shares granted pursuant to Section 9 hereof, which option is
not intended to qualify under Section 422 of the Code.

(r) "Option" shall mean an Incentive Stock Option or
Non-Incentive Stock Option granted pursuant to this Plan providing the holder of
such Option with the right to purchase Common Stock.

(s) "Optioned Stock" shall mean stock subject to an Option
granted pursuant to the Plan.

(t) "Optionee" shall mean any person who receives an Option or
Award pursuant to the Plan.

(u) "Parent" shall mean any present or future corporation
which would be a "parent corporation" as defined in Sections 424(e) and (g) of
the Code.

(v) "Participant" means any director, officer or key employee
of the Company or any Parent or Subsidiary of the Company or any other person
providing a service to the Company who is selected by the Committee to receive
an Award, or who by the express terms of the Plan is granted an Award.

(w) "Plan" shall mean the SFB Bancorp, Inc. 1998 Stock Option
Plan.

(x) "Retirement" shall mean termination of service in all
capacities as an Employee, Director and Director Emeritus following attainment
of not less than age 55 and completion of not less than ten years of Service to
the Company or the Savings Bank. Service to the Company or the Savings Bank
rendered prior to the Effective Date shall be recognized in determining
eligibility to meet the requirements of Retirement under the Plan.

(y) "Savings Bank" shall mean Security Federal Bank,
Elizabethton, Tennessee, or any successor corporation thereto.

(z) "Share" shall mean one share of the Common Stock.

(aa) "Subsidiary" shall mean any present or future corporation
which constitutes a "subsidiary corporation" as defined in Sections 424(f) and
(g) of the Code.

3. Shares Subject to the Plan. Except as otherwise required by the
provisions of Section 13 hereof, the aggregate number of Shares with respect to
which Awards may be made pursuant to the Plan shall not exceed *76,700 Shares.
Such Shares may either be from authorized but unissued shares

- --------
* 10% of shares outstanding as of date of Board adoption.

A-3

<PAGE>

or shares purchased in the market for Plan purposes. If an Award shall expire,
become unexercisable, or be forfeited for any reason prior to its exercise, new
Awards may be granted under the Plan with respect to the number of Shares as to
which such expiration has occurred.

4. Six Month Holding Period.

Subject to vesting requirements, if applicable, except in the
event of death or Disability of the Optionee or a Change in Control of the
Company, a minimum of six months must elapse between the date of the grant of an
Option and the date of the sale of the Common Stock received through the
exercise of such Option.

5. Administration of the Plan.

(a) Composition of the Committee. The Plan shall be
administered by the Board of Directors of the Company or a Committee which shall
consist of not less than two Directors of the Company appointed by the Board and
serving at the pleasure of the Board. All persons designated as members of the
Committee shall meet the requirements of a "Non-Employee Director" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, as
found at 17 CFR ss.240.16b-3.

(b) Powers of the Committee. The Committee is authorized (but
only to the extent not contrary to the express provisions of the Plan or to
resolutions adopted by the Board) to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the form and
content of Awards to be issued under the Plan and to make other determinations
necessary or advisable for the administration of the Plan, and shall have and
may exercise such other power and authority as may be delegated to it by the
Board from time to time. A majority of the entire Committee shall constitute a
quorum and the action of a majority of the members present at any meeting at
which a quorum is present shall be deemed the action of the Committee. In no
event may the Committee revoke outstanding Awards without the consent of the
Participant.

The President of the Company and such other officers as shall
be designated by the Committee are hereby authorized to execute written
agreements evidencing Awards on behalf of the Company and to cause them to be
delivered to the Participants. Such agreements shall set forth the Option
exercise price, the number of shares of Common Stock subject to such Option, the
expiration date of such Options, and such other terms and restrictions
applicable to such Award as are determined in accordance with the Plan or the
actions of the Committee.

(c) Effect of Committee's Decision. All decisions,
determinations and interpretations of the Committee shall be final and
conclusive on all persons affected thereby.

6. Eligibility for Awards and Limitations.

(a) The Committee shall from time to time determine
the officers, Directors, key employees and other persons who shall be granted
Awards under the Plan, the number of Awards to be granted to each such persons,
and whether Awards granted to each such Participant under the Plan shall be
Incentive and/or Non-Incentive Stock Options. In selecting Participants and in
determining the number of Shares of Common Stock to be granted to each such
Participant, the Committee may consider the nature of the prior and anticipated
future services rendered by each such Participant, each such

A-4

<PAGE>

Participant's current and potential contribution to the Company and such other
factors as the Committee may, in its sole discretion, deem relevant.
Participants who have been granted an Award may, if otherwise eligible, be
granted additional Awards.

(b) The aggregate Fair Market Value (determined
as of the date the Option is granted) of the Shares with respect to which
Incentive Stock Options are exercisable for the first time by each Employee
during any calendar year (under all Incentive Stock Option plans, as defined in
Section 422 of the Code, of the Company or any present or future Parent or
Subsidiary of the Company) shall not exceed $100,000. Notwithstanding the prior
provisions of this Section 6, the Committee may grant Options in excess of the
foregoing limitations, provided said Options shall be clearly and specifically
designated as not being Incentive Stock Options.

(c) In no event shall Shares subject to Options
granted to non-employee Directors in the aggregate under this Plan exceed more
than 28% of the total number of Shares authorized for delivery under this Plan
pursuant to Section 3 herein or more than 7.5% to any individual non-employee
Director. In no event shall Shares subject to Options granted to any Employee
exceed more than 28% of the total number of Shares authorized for delivery under
the Plan.

7. Term of the Plan. The Plan shall continue in effect for a term of
ten (10) years from the Effective Date, unless sooner terminated pursuant to
Section 18 hereof. No Option shall be granted under the Plan after ten (10)
years from the Effective Date.

8. Terms and Conditions of Incentive Stock Options. Incentive Stock
Options may be granted only to Participants who are Employees. Each Incentive
Stock Option granted pursuant to the Plan shall be evidenced by an instrument in
such form as the Committee shall from time to time approve. Each Incentive Stock
Option granted pursuant to the Plan shall comply with, and be subject to, the
following terms and conditions:

(a) Option Price.

(i) The price per Share at which each Incentive
Stock Option granted by the Committee under the Plan may be exercised shall not,
as to any particular Incentive Stock Option, be less than the Fair Market Value
of the Common Stock on the date that such Incentive Stock Option is granted.

(ii) In the case of an Employee who owns Common Stock
representing more than ten percent (10%) of the outstanding Common Stock at the
time the Incentive Stock Option is granted, the Incentive Stock Option exercise
price shall not be less than one hundred and ten percent (110%) of the Fair
Market Value of the Common Stock on the date that the Incentive Stock Option is
granted.

(b) Payment. Full payment for each Share of Common Stock
purchased upon the exercise of any Incentive Stock Option granted under the Plan
shall be made at the time of exercise of each such Incentive Stock Option and
shall be paid in cash (in United States Dollars), Common Stock or a combination
of cash and Common Stock. Common Stock utilized in full or partial payment of
the exercise price shall be valued at the Fair Market Value at the date of
exercise. The Company shall accept full or partial payment in Common Stock only
to the extent permitted by applicable law. No Shares of Common Stock shall be
issued until full payment has been received by the Company, and no Optionee

A-5

<PAGE>

shall have any of the rights of a stockholder of the Company until Shares of
Common Stock are issued to the Optionee.

(c) Term of Incentive Stock Option. The term of exercisability
of each Incentive Stock Option granted pursuant to the Plan shall be not more
than ten (10) years from the date each such Incentive Stock Option is granted,
provided that in the case of an Employee who owns stock representing more than
ten percent (10%) of the Common Stock outstanding at the time the Incentive
Stock Option is granted, the term of exercisability of the Incentive Stock
Option shall not exceed five (5) years.

(d) Exercise Generally. Except as otherwise provided in
Section 10 hereof, no Incentive Stock Option may be exercised unless the
Optionee shall have been in the employ of the Company at all times during the
period beginning with the date of grant of any such Incentive Stock Option and
ending on the date three (3) months prior to the date of exercise of any such
Incentive Stock Option. The Committee may impose additional conditions upon the
right of an Optionee to exercise any Incentive Stock Option granted hereunder
which are not inconsistent with the terms of the Plan or the requirements for
qualification as an Incentive Stock Option. Except as otherwise provided by the
terms of the Plan or by action of the Committee at the time of the grant of the
Options, the Options will be first exercisable at the rate of 20% on the date of
grant and 20% annually thereafter during such periods of service as an Employee,
Director or Director Emeritus.

(e) Cashless Exercise. Subject to vesting requirements, if
applicable, an Optionee who has held an Incentive Stock Option for at least six
months may engage in the "cashless exercise" of the Option. Upon a cashless
exercise, an Optionee shall give the Company written notice of the exercise of
the Option together with an order to a registered broker-dealer or equivalent
third party, to sell part or all of the Optioned Stock and to deliver enough of
the proceeds to the Company to pay the Option exercise price and any applicable
withholding taxes. If the Optionee does not sell the Optioned Stock through a
registered broker-dealer or equivalent third party, the Optionee can give the
Company written notice of the exercise of the Option and the third party
purchaser of the Optioned Stock shall pay the Option exercise price plus any
applicable withholding taxes to the Company.

(f) Transferability. An Incentive Stock Option granted
pursuant to the Plan shall be exercised during an Optionee's lifetime only by
the Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.

9. Terms and Conditions of Non-Incentive Stock Options. Each
Non-Incentive Stock Option granted pursuant to the Plan shall be evidenced by an
instrument in such form as the Committee shall from time to time approve. Each
Non-Incentive Stock Option granted pursuant to the Plan shall comply with and be
subject to the following terms and conditions.

(a) Options Granted to Directors. Subject to the limitations
of Section 6(c), Non- Incentive Stock Options to purchase 5,752 shares of Common
Stock will be granted to each Director who is not an Employee as of the
Effective Date, at an exercise price equal to the Fair Market Value of the
Common Stock on such date of grant. The Options will be first exercisable at the
rate of 20% on the Effective Date and 20% annually thereafter during such
periods of service as a Director or Director Emeritus. Upon the death,
Disability or Retirement of the Director or Director Emeritus, such Option shall
be deemed immediately 100% exercisable. Such Options shall continue to be
exercisable for a period of ten years following the date of grant without regard
to the continued services of such Director as a Director or Director Emeritus.
In the event of the Optionee's death, such Options may be exercised

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by the personal representative of his estate or person or persons to whom his
rights under such Option shall have passed by will or by the laws of descent and
distribution. Options may be granted to newly appointed or elected non-employee
Directors within the sole discretion of the Committee. The exercise price per
Share of such Options granted shall be equal to the Fair Market Value of the
Common Stock at the time such Options are granted. All Options awarded in
accordance with this Section 9(a) as of the Effective Date shall have Dividend
Equivalent Rights associated with such Options, as detailed at Section 12
herein. All outstanding Awards shall become immediately exercisable in the event
of a Change in Control of the Savings Bank or the Company. Unless otherwise
inapplicable, or inconsistent with the provisions of this paragraph, the Options
to be granted to Directors hereunder shall be subject to all other provisions of
this Plan.

(b) Option Price. The exercise price per Share of Common Stock
for each Non-Incentive Stock Option granted pursuant to the Plan shall be at
such price as the Committee may determine in its sole discretion, but in no
event less than the Fair Market Value of such Common Stock on the date of grant
as determined by the Committee in good faith.

(c) Payment. Full payment for each Share of Common Stock
purchased upon the exercise of any Non-Incentive Stock Option granted under the
Plan shall be made at the time of exercise of each such Non-Incentive Stock
Option and shall be paid in cash (in United States Dollars), Common Stock or a
combination of cash and Common Stock. Common Stock utilized in full or partial
payment of the exercise price shall be valued at its Fair Market Value at the
date of exercise. The Company shall accept full or partial payment in Common
Stock only to the extent permitted by applicable law. No Shares of Common Stock
shall be issued until full payment has been received by the Company and no
Optionee shall have any of the rights of a stockholder of the Company until the
Shares of Common Stock are issued to the Optionee.

(d) Term. The term of exercisability of each Non-Incentive
Stock Option granted pursuant to the Plan shall be not more than ten (10) years
from the date each such Non-Incentive Stock Option is granted.

(e) Exercise Generally. The Committee may impose additional
conditions upon the right of any Participant to exercise any Non-Incentive Stock
Option granted hereunder which is not inconsistent with the terms of the Plan.
Except as otherwise provided by the terms of the Plan or by action of the
Committee at the time of the grant of the Options, the Options will be first
exercisable at the rate of 20% on the date of grant and 20% annually thereafter
during such periods of service as an Employee, Director or Director Emeritus.

(f) Cashless Exercise. Subject to vesting requirements, if
applicable, an Optionee who has held a Non-Incentive Stock Option for at least
six months may engage in the "cashless exercise" of the Option. Upon a cashless
exercise, an Optionee shall give the Company written notice of the exercise of
the Option together with an order to a registered broker-dealer or equivalent
third party, to sell part or all of the Optioned Stock and to deliver enough of
the proceeds to the Company to pay the Option exercise price and any applicable
withholding taxes. If the Optionee does not sell the Optioned Stock through a
registered broker-dealer or equivalent third party, the Optionee can give the
Company written notice of the exercise of the Option and the third party
purchaser of the Optioned Stock shall pay the Option exercise price plus any
applicable withholding taxes to the Company.

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(g) Transferability. Any Non-Incentive Stock Option granted
pursuant to the Plan shall be exercised during an Optionee's lifetime only by
the Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.

10. Effect of Termination of Employment, Disability, Death and
Retirement on Incentive Stock Options.

(a) Termination of Employment. In the event that any
Optionee's employment with the Company shall terminate for any reason, other
than Disability or death, all of any such Optionee's Incentive Stock Options,
and all of any such Optionee's rights to purchase or receive Shares of Common
Stock pursuant thereto, shall automatically terminate on (A) the earlier of (i)
or (ii): (i) the respective expiration dates of any such Incentive Stock
Options, or (ii) the expiration of not more than three (3) months after the date
of such termination of employment; or (B) at such later date as is determined by
the Committee at the time of the grant of such Award based upon the Optionee's
continuing status as a Director or Director Emeritus of the Savings Bank or the
Company, but only if, and to the extent that, the Optionee was entitled to
exercise any such Incentive Stock Options at the date of such termination of
employment, and further that such Award shall thereafter be deemed a
Non-Incentive Stock Option. In the event that a Subsidiary ceases to be a
Subsidiary of the Company, the employment of all of its employees who are not
immediately thereafter employees of the Company shall be deemed to terminate
upon the date such Subsidiary so ceases to be a Subsidiary of the Company.

(b) Disability. In the event that any Optionee's employment
with the Company shall terminate as the result of the Disability of such
Optionee, such Optionee may exercise any Incentive Stock Options granted to the
Optionee pursuant to the Plan at any time prior to the earlier of (i) the
respective expiration dates of any such Incentive Stock Options or (ii) the date
which is one (1) year after the date of such termination of employment, but only
if, and to the extent that, the Optionee was entitled to exercise any such
Incentive Stock Options at the date of such termination of employment.

(c) Death. In the event of the death of an Optionee, any
Incentive Stock Options granted to such Optionee may be exercised by the person
or persons to whom the Optionee's rights under any such Incentive Stock Options
pass by will or by the laws of descent and distribution (including the
Optionee's estate during the period of administration) at any time prior to the
earlier of (i) the respective expiration dates of any such Incentive Stock
Options or (ii) the date which is two (2) years after the date of death of such
Optionee but only if, and to the extent that, the Optionee was entitled to
exercise any such Incentive Stock Options at the date of death. For purposes of
this Section 10(c), any Incentive Stock Option held by an Optionee shall be
considered exercisable at the date of his death if the only unsatisfied
condition precedent to the exercisability of such Incentive Stock Option at the
date of death is the passage of a specified period of time. At the discretion of
the Committee, upon exercise of such Options the Optionee may receive Shares or
cash or a combination thereof. If cash shall be paid in lieu of Shares, such
cash shall be equal to the difference between the Fair Market Value of such
Shares and the exercise price of such Options on the exercise date.

(d) Incentive Stock Options Deemed Exercisable. For purposes
of Sections 10(a), 10(b) and 10(c) above, any Incentive Stock Option held by any
Optionee shall be considered exercisable at the date of termination of
employment if any such Incentive Stock Option would have been exercisable at
such date of termination of employment without regard to the Disability or death
of the Participant.

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(e) Termination of Incentive Stock Options; Vesting Upon
Retirement. Except as may be specified by the Committee at the time of grant of
an Option, to the extent that any Incentive Stock Option granted under the Plan
to any Optionee whose employment with the Company terminates shall not have been
exercised within the applicable period set forth in this Section 10, any such
Incentive Stock Option, and all rights to purchase or receive Shares of Common
Stock pursuant thereto, as the case may be, shall terminate on the last day of
the applicable period. Notwithstanding the foregoing, the Committee may
authorize at the time of the grant of an Option that such Award shall be
immediately 100% exercisable upon the Retirement of the Optionee.

11. Effect of Termination of Employment, Disability, Death or
Retirement on Non-Incentive Stock Options. The terms and conditions of
Non-Incentive Stock Options relating to the effect of the Retirement or other
termination of an Optionee's employment or service, Disability of an Optionee or
his death shall be such terms and conditions as the Committee shall, in its sole
discretion, determine at the time of termination of service, unless specifically
provided for by the terms of the Agreement at the time of grant of the Award.

12. Dividend Equivalent Rights. The Committee, in its sole discretion,
may include as a term of any Option, the right of the Optionee to receive
Dividend Equivalent Rights. Such rights shall provide that upon the payment of a
cash dividend on the Common Stock, the holder of such Options shall receive
payment of compensation in an amount equivalent to the dividend payable as if
such Options had been exercised and such Common Stock held as of the dividend
record date. Such rights shall expire upon the expiration or exercise of such
underlying Options. Such rights are non-transferable and shall attach to Options
whether or not such Options are immediately exercisable. The dividend equivalent
payments associated with Options shall be paid to the Option holder within 30
days of the dividend payment date of the Common Stock. All Options granted to
non-employee Directors of the Company or the Savings Bank as of the Effective
Date in accordance Section 9(a) of the Plan shall have Dividend Equivalent
Rights associated with such Options.

13. Recapitalization, Merger, Consolidation, Change in Control and
Other Transactions.

(a) Adjustment. Subject to any required action by the
stockholders of the Company, within the sole discretion of the Committee, the
aggregate number of Shares of Common Stock for which Options may be granted
hereunder, the number of Shares of Common Stock covered by each outstanding
Option, and the exercise price per Share of Common Stock of each such Option,
shall all be proportionately adjusted for any increase or decrease in the number
of issued and outstanding Shares of Common Stock resulting from a subdivision or
consolidation of Shares (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, or
otherwise) or the payment of a stock dividend (but only on the Common Stock) or
any other increase or decrease in the number of such Shares of Common Stock
effected without the receipt or payment of consideration by the Company (other
than Shares held by dissenting stockholders).

(b) Change in Control. All outstanding Awards shall become
immediately exercisable in the event of a Change in Control of the Company. In
the event of such a Change in Control, the Committee and the Board of Directors
will take one or more of the following actions to be effective as of the date of
such Change in Control:

(i) provide that such Options shall be assumed, or equivalent
options shall be substituted, ("Substitute Options") by the acquiring or
succeeding corporation (or an affiliate thereof), provided that:

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(A) any such Substitute Options exchanged for Incentive Stock Options shall meet
the requirements of Section 424(a) of the Code, and (B) the shares of stock
issuable upon the exercise of such Substitute Options shall constitute
securities registered in accordance with the Securities Act of 1933, as amended,
("1933 Act") or such securities shall be exempt from such registration in
accordance with Sections 3(a)(2) or 3(a)(5) of the 1933 Act, (collectively,
"Registered Securities"), or in the alternative, if the securities issuable upon
the exercise of such Substitute Options shall not constitute Registered
Securities, then the Optionee will receive upon consummation of the Change in
Control transaction a cash payment for each Option surrendered equal to the
difference between (1) the Fair Market Value of the consideration to be received
for each share of Common Stock in the Change in Control transaction times the
number of shares of Common Stock subject to such surrendered Options, and (2)
the aggregate exercise price of all such surrendered Options, or

(ii) in the event of a transaction under the terms of which
the holders of the Common Stock of the Company will receive upon consummation
thereof a cash payment (the "Merger Price") for each share of Common Stock
exchanged in the Change in Control transaction, to make or to provide for a cash
payment to the Optionees equal to the difference between (A) the Merger Price
times the number of shares of Common Stock subject to such Options held by each
Optionee (to the extent then exercisable at prices not in excess of the Merger
Price) and (B) the aggregate exercise price of all such surrendered Options in
exchange for such surrendered Options.

(c) Extraordinary Corporate Action. Notwithstanding any
provisions of the Plan to the contrary, subject to any required action by the
stockholders of the Company, in the event of any Change in Control,
recapitalization, merger, consolidation, exchange of Shares, spin-off,
reorganization, tender offer, partial or complete liquidation or other
extraordinary corporate action or event, the Committee, in its sole discretion,
shall have the power, prior or subsequent to such action or event to:

(i) appropriately adjust the number of Shares of
Common Stock subject to each Option, the Option exercise price per Share of
Common Stock, and the consideration to be given or received by the Company upon
the exercise of any outstanding Option;

(ii) cancel any or all previously granted Options,
provided that appropriate consideration is paid to the Optionee in connection
therewith; and/or

(iii) make such other adjustments in connection with
the Plan as the Committee, in its sole discretion, deems necessary, desirable,
appropriate or advisable; provided, however, that no action shall be taken by
the Committee which would cause Incentive Stock Options granted pursuant to the
Plan to fail to meet the requirements of Section 422 of the Code without the
consent of the Optionee.

(d) Acceleration. The Committee shall at all times have the
power to accelerate the exercise date of Options previously granted under the
Plan.

(e) Non-recurring Dividends. Upon the payment of a special or
non-recurring cash dividend that has the effect of a return of capital to the
stockholders, the Option exercise price per share shall be adjusted
proportionately and in an equitable manner, except to the extent that the
Participant shall otherwise receive payments associated with Dividend Equivalent
Rights attributable to such Options with regard to such special or non-recurring
cash dividends.

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Except as expressly provided in Sections 13(a), 13(b) and 13(e) hereof,
no Optionee shall have any rights by reason of the occurrence of any of the
events described in this Section 13.

14. Time of Granting Options. The date of grant of an Option under the
Plan shall, for all purposes, be the date on which the Committee makes the
determination of granting such Option. Notice of the grant of an Option shall be
given to each individual to whom an Option is so granted within a reasonable
time after the date of such grant in a form determined by the Committee.

15. Effective Date. The Plan shall become effective upon the date of
approval of the Plan by the stockholders of the Company. The Committee may make
a determination related to Awards prior to the Effective Date with such Awards
to be effective upon the date of stockholder approval of the Plan.

16. Approval by Stockholders. The Plan shall be approved by
stockholders of the Company within twelve (12) months before or after the date
the Plan is approved by the Board.

17. Modification of Options. At any time and from time to time, the
Board may authorize the Committee to direct the execution of an instrument
providing for the modification of any outstanding Option, provided no such
modification, extension or renewal shall confer on the holder of said Option any
right or benefit which could not be conferred on the Optionee by the grant of a
new Option at such time, or shall not materially decrease the Optionee's
benefits under the Option without the consent of the holder of the Option,
except as otherwise permitted under Section 18 hereof.

18. Amendment and Termination of the Plan.

(a) Action by the Board. The Board may alter, suspend or
discontinue the Plan, except that no action of the Board may increase (other
than as provided in Section 13 hereof) the maximum number of Shares permitted to
be optioned under the Plan, materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility for participation in the Plan unless such action of the Board shall
be subject to approval or ratification by the stockholders of the Company.

(b) Change in Applicable Law. Notwithstanding any other
provision contained in the Plan, in the event of a change in any federal or
state law, rule or regulation which would make the exercise of all or part of
any previously granted Option unlawful or subject the Company to any penalty,
the Committee may restrict any such exercise without the consent of the Optionee
or other holder thereof in order to comply with any such law, rule or regulation
or to avoid any such penalty.

19. Conditions Upon Issuance of Shares; Limitations on Option Exercise;
Cancellation of Option Rights.

(a) Shares shall not be issued with respect to any Option granted under
the Plan unless the issuance and delivery of such Shares shall comply with all
relevant provisions of applicable law, including, without limitation, the
Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, any applicable state securities laws and the requirements of any
stock exchange upon which the Shares may then be listed.

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(b) The inability of the Company to obtain any necessary
authorizations, approvals or letters of non-objection from any regulatory body
or authority deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares issuable hereunder shall relieve the Company of
any liability with respect to the non-issuance or sale of such Shares.

(c) As a condition to the exercise of an Option, the Company may
require the person exercising the Option to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of federal or state securities law.

(d) Notwithstanding anything herein to the contrary, upon the
termination of employment or service of an Optionee by the Company or its
Subsidiaries for "cause" as defined at 12 C.F.R. 563.39(b)(1) as determined by
the Board of Directors, all Options held by such Participant shall cease to be
exercisable as of the date of such termination of employment or service.

(e) Upon the exercise of an Option by an Optionee (or the Optionee's
personal representative), the Committee, in its sole and absolute discretion,
may make a cash payment to the Optionee, in whole or in part, in lieu of the
delivery of shares of Common Stock. Such cash payment to be paid in lieu of
delivery of Common Stock shall be equal to the difference between the Fair
Market Value of the Common Stock on the date of the Option exercise and the
exercise price per share of the Option. Such cash payment shall be in exchange
for the cancellation of such Option. Such cash payment shall not be made in the
event that such transaction would result in liability to the Optionee or the
Company under Section 16(b) of the Securities Exchange Act of 1934, as amended,
and regulations promulgated thereunder.

20. Reservation of Shares. During the term of the Plan, the Company
will reserve and keep available a number of Shares sufficient to satisfy the
requirements of the Plan.

21. Unsecured Obligation. No Participant under the Plan shall have any
interest in any fund or special asset of the Company by reason of the Plan or
the grant of any Option under the Plan. No trust fund shall be created in
connection with the Plan or any grant of any Option hereunder and there shall be
no required funding of amounts which may become payable to any Participant.

22. Withholding Tax. The Company shall have the right to deduct from
all amounts paid in cash with respect to the cashless exercise of Options and
Dividend Equivalent Rights under the Plan any taxes required by law to be
withheld with respect to such cash payments. Where a Participant or other person
is entitled to receive Shares pursuant to the exercise of an Option, the Company
shall have the right to require the Participant or such other person to pay the
Company the amount of any taxes which the Company is required to withhold with
respect to such Shares, or, in lieu thereof, to retain, or to sell without
notice, a number of such Shares sufficient to cover the amount required to be
withheld.

23. No Employment Rights. No Director, Employee or other person shall
have a right to be selected as a Participant under the Plan. Neither the Plan
nor any action taken by the Committee in administration of the Plan shall be
construed as giving any person any rights of employment or retention as an
Employee, Director or in any other capacity with the Company, the Savings Bank
or other Subsidiaries.

24. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of Tennessee, except to the extent that
federal law shall be deemed to apply.

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Exhibit B

Security Federal Bank
Restricted Stock Plan
and Trust Agreement

Article I

ESTABLISHMENT OF THE PLAN AND TRUST

1.01 Security Federal Bank ("Savings Bank") hereby establishes the
Restricted Stock Plan (the "Plan") and Trust (the "Trust") upon the terms and
conditions hereinafter stated in this Restricted Stock Plan and Trust Agreement
(the "Agreement").

1.02 The Trustee hereby accepts this Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.

Article II

PURPOSE OF THE PLAN

2.01 The purpose of the Plan is to reward and to retain personnel of
experience and ability in key positions of responsibility with the Savings Bank
and its subsidiaries, by providing such personnel of the Savings Bank and its
subsidiaries with an equity interest in the parent corporation of the Savings
Bank, SFB Bancorp, Inc. ("Parent"), as compensation for their prior and
anticipated future professional contributions and service to the Savings Bank
and its subsidiaries.

Article III

DEFINITIONS

The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meaning as set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.

3.01 "Beneficiary" means the person or persons designated by the
Participant to receive any benefits payable under the Plan in the event of such
Participant's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if
any, or if none, the Participant's estate.

3.02 "Board" means the Board of Directors of the Savings Bank, or any
successor corporation thereto.

3.03 "Cause" means the personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profits, intentional
failure to perform stated duties, willful violation of a material provision of
any law, rule or regulation (other than traffic violations and similar offense),
or

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a material violation of a final cease-and-desist order or any other action which
results in a substantial financial loss to the Parent, Savings Bank or its
Subsidiaries.

3.04 "Change in Control" shall mean: (i) the sale of all, or a material
portion, of the assets of the Parent or Savings Bank; (ii) the merger or
recapitalization of the Parent or the Savings Bank whereby the Parent or Savings
Bank is not the surviving entity; (iii) a change in control of the Parent or
Savings Bank, as otherwise defined or determined by the Office of Thrift
Supervision ("OTS") or regulations promulgated by it; or (iv) the acquisition,
directly or indirectly, of the beneficial ownership (within the meaning of that
term as it is used in Section 13(d) of the 1934 Act and the rules and
regulations promulgated thereunder) of twenty-five percent (25%) or more of the
outstanding voting securities of the Parent or Savings Bank by any person,
trust, entity or group. This limitation shall not apply to the purchase of
shares of up to 25% of any class of securities of the Parent or Savings Bank by
a tax-qualified employee stock benefit plan which is exempt from the approval
requirements, set forth under 12 C.F.R. ss.574.3(c)(1)(vi) as now in effect or
as may hereafter be amended. The term "person" refers to an individual or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a Change
in Control has occurred shall be conclusive and binding.

3.05 "Committee" means the Board of Directors of the Parent or the
Restricted Stock Plan Committee appointed by the Board of Directors of the
Parent pursuant to Article IV hereof.

3.06 "Common Stock" means shares of the common stock of the Savings
Bank or any successor corporation or Parent thereto.

3.07 "Conversion" means the effective date of the stock charter of the
Savings Bank and simultaneous acquisition of all of the outstanding stock of the
Savings Bank by the Parent.

3.08 "Director" means a member of the Board of the Savings Bank.

3.09 "Director Emeritus" means a person serving as a director emeritus,
advisory director, consulting director, or other similar position as may be
appointed by the Board of Directors of the Savings Bank or the Parent from time
to time.

3.10 "Disability" means any physical or mental impairment which renders
the Participant incapable of continuing in the employment or service of the
Savings Bank or the Parent in his current capacity as determined by the
Committee.

3.11 "Employee" means any person who is employed by the Savings Bank
or a Subsidiary.

3.12 "Effective Date" shall mean the date of stockholder approval of
the Plan by the Parent's stockholders.

3.13 "Parent" shall mean SFB Bancorp, Inc., the parent corporation of
the Savings Bank.

3.14 "Participant" means an Employee, Director or Director Emeritus who
receives a Plan Share Award under the Plan.

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3.15 "Plan Shares" means shares of Common Stock held in the Trust which
are awarded or issuable to a Participant pursuant to the Plan.

3.16 "Plan Share Award" or "Award" means a right granted to a
Participant under this Plan to earn or to receive Plan Shares.

3.17 "Plan Share Reserve" means the shares of Common Stock held by the
Trust pursuant to Sections 5.03 and 5.04.

3.18 "Retirement" means the termination of service in all capacities as
an Employee, Director and Director Emeritus following attainment of not less
than age 55 and completion of not less than ten years of Service to the Company
or the Savings Bank. Service to the Company or the Savings Bank rendered prior
to the Effective Date shall be recognized in determining eligibility to meet the
requirements of Retirement under the Plan.

3.19 "Savings Bank" means Security Federal Bank, and any successor
corporation thereto.

3.20 "Subsidiary" means those subsidiaries of the Savings Bank which,
with the consent of the Board, agree to participate in this Plan.

3.21 "Trustee" or "Trustee Committee" means that person(s) or entity
nominated by the Committee and approved by the Board pursuant to Sections 4.01
and 4.02 to hold legal title to the Plan assets for the purposes set forth
herein.

Article IV

ADMINISTRATION OF THE PLAN

4.01 Role of the Committee. The Plan shall be administered and
interpreted by the Board of Directors of the Parent or a Committee appointed by
said Board, which shall consist of not less than two non-employee members of the
Board, which shall have all of the powers allocated to it in this and other
sections of the Plan. All persons designated as members of the Committee shall
be "Non-Employee Directors" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended ("1934 Act"). The interpretation and
construction by the Committee of any provisions of the Plan or of any Plan Share
Award granted hereunder shall be final and binding. The Committee shall act by
vote or written consent of a majority of its members. Subject to the express
provisions and limitations of the Plan, the Committee may adopt such rules,
regulations and procedures as it deems appropriate for the conduct of its
affairs. The Committee shall report its actions and decisions with respect to
the Plan to the Board at appropriate times, but in no event less than one time
per calendar year. The Committee shall recommend to the Board one or more
persons or entity to act as Trustee in accordance with the provision of this
Plan and Trust and the terms of Article VIII hereof.

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4.02 Role of the Board. The members of the Committee and the Trustee
shall be appointed or approved by, and will serve at the pleasure of the Board.
The Board may in its discretion from time to time remove members from, or add
members to, the Committee, and may remove, replace or add Trustees. The Board
shall have all of the powers allocated to it in this and other sections of the
Plan, may take any action under or with respect to the Plan which the Committee
is authorized to take, and may reverse or override any action taken or decision
made by the Committee under or with respect to the Plan, provided, however, that
the Board may not revoke any Plan Share Award already made except as provided in
Section 7.01(b) herein.

4.03 Limitation on Liability. No member of the Board, the Committee or
the Trustee shall be liable for any determination made in good faith with
respect to the Plan or any Plan Share Awards granted. If a member of the Board,
Committee or any Trustee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by any reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Parent and
the Savings Bank shall indemnify such member against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the Parent, the Savings Bank and its
Subsidiaries and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Notwithstanding anything
herein to the contrary, in no event shall the Savings Bank take any actions with
respect to this Section 4.03 which is not in compliance with the limitations or
requirements set forth at 12 CFR 545.121, as may be amended from time to time.

Article V

CONTRIBUTIONS; PLAN SHARE RESERVE

5.01 Amount and Timing of Contributions. The Board of Directors of the
Savings Bank shall determine the amounts (or the method of computing the
amounts) to be contributed by the Savings Bank to the Trust established under
this Plan. Such amounts shall be paid to the Trustee at the time of
contribution. No contributions to the Trust by Participants shall be permitted
except with respect to amounts necessary to meet tax withholding obligations.

5.02 Initial Investment. Any funds held by the Trust prior to
investment in the Common Stock shall be invested by the Trustee in such
interest-bearing account or accounts at the Savings Bank as the Trustee shall
determine to be appropriate.

5.03 Investment of Trust Assets. Following approval of the Plan by
stockholders of the Parent and receipt of any other necessary regulatory
approvals, the Trust shall purchase Common Stock of the Parent in an amount
equal to up to 100% of the Trust's assets, after providing for any required
withholding as needed for tax purposes, provided, however, that the Trust shall
not purchase more than 30,680 shares of Common Stock, representing 4% of the
aggregate shares of Common Stock issued by the Parent in the Conversion. The
Trustee may purchase shares of Common Stock in the open market or, in the
alternative, may purchase authorized but unissued shares of the Common Stock or
treasury shares from the Parent sufficient to fund the Plan Share Reserve.

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5.04 Effect of Allocations, Returns and Forfeitures Upon Plan Share
Reserves. Upon the allocation of Plan Share Awards under Sections 6.02 and 6.05,
or the decision of the Committee to return Plan Shares to the Parent, the Plan
Share Reserve shall be reduced by the number of Shares subject to the Awards so
allocated or returned. Any Shares subject to an Award which are not earned
because of forfeiture by the Participant pursuant to Section 7.01 shall be added
to the Plan Share Reserve.

Article VI

ELIGIBILITY; ALLOCATIONS

6.01 Eligibility. Employees and Directors Emeritus are eligible to
receive Plan Share Awards within the sole discretion of the Committee. Directors
who are not otherwise Employees shall receive Plan Share Awards pursuant to
Section 6.05.

6.02 Allocations. The Committee will determine which of the Employees
will be granted Plan Share Awards and the number of Shares covered by each
Award, provided, however, that in no event shall any Awards be made which will
violate the Charter or Bylaws of the Savings Bank or its Parent or Subsidiaries
or any applicable federal or state law or regulation. In the event Shares are
forfeited for any reason or additional Shares are purchased by the Trustee, the
Committee may, from time to time, determine which of the Employees will be
granted Plan Share Awards to be awarded from forfeited Shares. In selecting
those Employees and Directors Emeritus to whom Plan Share Awards will be granted
and the number of shares covered by such Awards, the Committee shall consider
the prior and anticipated future position, duties and responsibilities of the
Employees, the value of their prior and anticipated future services to the
Savings Bank and its Subsidiaries, and any other factors the Committee may deem
relevant. All actions by the Committee shall be deemed final, except to the
extent that such actions are revoked by the Board. Notwithstanding anything
herein to the contrary, in no event shall any Participant receive Plan Share
Awards in excess of 30% of the aggregate Plan Shares authorized under the Plan.

6.03 Form of Allocation. As promptly as practicable after a
determination is made pursuant to Section 6.02 or Section 6.05 that a Plan Share
Award is to be made, the Committee shall notify the Participant in writing of
the grant of the Award, the number of Plan Shares covered by the Award, and the
terms upon which the Plan Shares subject to the award may be earned. The date on
which the Committee makes its award determination or the date the Committee so
notifies the Participant shall be considered the date of grant of the Plan Share
Awards as determined by the Committee. The Committee shall maintain records as
to all grants of Plan Share Awards under the Plan.

6.04 Allocations Not Required. Notwithstanding anything to the contrary
at Sections 6.01, 6.02 or 6.05, no Employee shall have any right or entitlement
to receive a Plan Share Award hereunder, such Awards being at the sole
discretion of the Committee and the Board, nor shall the Employees as a group
have such a right. The Committee may, with the approval of the Board (or, if so
directed by the Board) return all Common Stock in the Plan Share Reserve to the
Savings Bank at any time, and cease issuing Plan Share Awards.

6.05 Awards to Directors. Notwithstanding anything herein to the
contrary, upon the Effective Date, a Plan Share Award consisting of 2,301 Plan
Shares shall be awarded to each Director of the Savings Bank that is not
otherwise an Employee. Such Plan Share Award shall be earned and non-
forfeitable at the rate of one-fifth as of the Effective Date and an additional
one-fifth following each of

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the next four successive years during such periods of service as a Director or
Director Emeritus. Further, such Plan Share Award shall be immediately 100%
earned and non-forfeitable in the event of the death, Disability or Retirement
of such Director or Director Emeritus, or upon a Change in Control of the
Savings Bank or Parent. Subsequent to the Effective Date, Plan Share Awards may
be awarded to newly elected or appointed Directors of the Savings Bank by the
Committee, provided that total Plan Share Awards granted to non-employee
Directors of the Savings Bank shall not exceed 28% of the total Plan Share
Reserve in the aggregate under the Plan or 7.5% of the total Plan Share Reserve
to any individual non-employee Director.

Article VII

EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS

7.01 Earnings Plan Shares; Forfeitures.

(a) General Rules. Unless the Committee shall specifically states to
the contrary at the time a Plan Share Award is granted, Plan Shares subject to
an Award shall be earned and non-forfeitable by a Participant at the rate of
one-fifth of such Award as of the date of the granting of such Award, and an
additional one-fifth following each of the next four successive years; provided
that such Participant remains an Employee, Director, or Director Emeritus during
such period.

(b) Revocation for Misconduct. Notwithstanding anything herein to the
contrary, the Board shall, by resolution, immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously awarded under
this Plan, to the extent Plan Shares have not been delivered thereunder to the
Participant, whether or not yet earned, in the case of a Participant who is
discharged from the employ or service of the Parent, Savings Bank or a
Subsidiary for Cause, or who is discovered after termination of employment or
service to have engaged in conduct that would have justified termination for
Cause. A determination of Cause shall be made by the Board within its sole
discretion.

(c) Exception for Terminations Due to Death, Disability or Retirement.
Notwithstanding the general rule contained in Section 7.01(a) above, all Plan
Shares subject to a Plan Share Award held by a Participant whose employment or
service with the Parent, Savings Bank or a Subsidiary terminates due to death,
Disability or Retirement, shall be deemed earned and nonforfeitable as of the
Participant's last date of employment or service with the Parent, Savings Bank
or Subsidiary and shall be distributed as soon as practicable thereafter.

(d) Exception for Termination after a Change in Control.
Notwithstanding the general rule contained in Section 7.01 above, all Plan
Shares subject to a Plan Share Award held by a Participant shall be deemed to be
immediately 100% earned and non-forfeitable in the event of a Change in Control
of the Parent or Savings Bank and shall be distributed as soon as practicable
thereafter.

7.02 Accrual and Payment of Dividends. A holder of a Plan Share Award,
whether or not 100% earned and non-forfeitable, shall also be entitled to
receive an amount equal to any cash dividends declared and paid with respect to
shares of Common Stock represented by such Plan Share Award between the date the
relevant Plan Share Award was granted to such Participant and the date the Plan
Shares are distributed. Such cash dividend amounts shall be paid to such
Participant, less applicable income tax withholding, within 30 days of the
dividend payment date attributable to such dividend

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payable on the Common Stock. Such payment shall also include an appropriate
amount of earnings, if any, of the Trust assets with respect to any cash
dividends so distributed.

7.03 Distribution of Plan Shares.

(a) Timing of Distributions: General Rule. Except as provided in
Subsections (d) and (e) below, Plan Shares shall be distributed to the
Participant or his Beneficiary, as the case may be, as soon as practicable after
they have been earned. No fractional shares shall be distributed.
Notwithstanding anything herein to the contrary, at the discretion of the
Committee, Plan Shares may be distributed prior to such Shares being 100%
earned, provided that such Plan Shares shall contain a restrictive legend
detailing the applicable limitations of such shares with respect to transfer and
forfeiture.

(b) Form of Distribution. All Plan Shares, together with any shares
representing stock dividends, shall be distributed in the form of Common Stock.
One share of Common Stock shall be given for each Plan Share earned. Payments
representing cash dividends (and earnings thereon) shall be made in cash.
Notwithstanding anything within the Plan to the contrary, upon a Change in
Control whereby substantially all of the Common Stock of the Company shall be
acquired for cash, all Plan Shares associated with Plan Share Awards, together
with any shares representing stock dividends associated with Plan Share Awards,
shall be, at the sole discretion of the Committee, distributed as of the
effective date of such Change in Control, or as soon as administratively
feasible thereafter, in the form of cash equal to the consideration received in
exchange for such Common Stock represented by such Plan Shares.

(c) Withholding. The Trustee may withhold from any payment or
distribution made under this Plan sufficient amounts of cash or shares of Common
Stock necessary to cover any applicable withholding and employment taxes, and if
the amount of such payment or distribution is not sufficient, the Trustee may
require the Participant or Beneficiary to pay to the Trustee the amount required
to be withheld in taxes as a condition of delivering the Plan Shares. The
Trustee shall pay over to the Parent, Savings Bank or Subsidiary which employs
or employed such Participant any such amount withheld from or paid by the
Participant or Beneficiary.

(d) Timing: Exception for 10% Shareholders. Notwithstanding Subsection
(a) above, no Plan Shares may be distributed prior to the date which is five
years from the effective date of the Conversion to the extent the Participant or
Beneficiary, as the case may be, would after receipt of such Shares own in
excess of ten percent (10%) of the issued and outstanding shares of Common Stock
held by parties other than Parent, unless such action is approved in advance by
a majority vote of disinterested directors of the Board of the Parent. Any Plan
Shares remaining undistributed solely by reason of the operation of this
Subsection (d) shall be distributed to the Participant or his Beneficiary on the
date which is five years from the effective date of the Conversion.

(e) Regulatory Exceptions. No Plan Shares shall be distributed,
however, unless and until all of the requirements of all applicable law and
regulation shall have been fully complied with, including the receipt of
approval of the Plan by the stockholders of the Parent by such vote, if any, as
may be required by applicable law and regulations as determined by the Board.

7.04 Voting of Plan Shares. After a Plan Share Award has become earned
and non- forfeitable, the Participant shall be entitled to direct the Trustee as
to the voting of the Plan Shares which are associated with the Plan Share Award
and which have not yet been distributed pursuant to Section

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7.03, subject to rules and procedures adopted by the Committee for this purpose.
All shares of Common Stock held by the Trust as to which Participants are not
entitled to direct, or have not directed, the voting of such Shares, shall be
voted by the Trustee as directed by the Committee.

Article VIII

TRUST

8.01 Trust. The Trustee shall receive, hold, administer, invest and
make distributions and disbursements from the Trust in accordance with the
provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
the Plan.

8.02 Management of Trust. It is the intention of this Plan and Trust
that the Trustee shall have complete authority and discretion with respect to
the management, control and investment of the Trust, and that the Trustee shall
invest all assets of the Trust, except those attributable to cash dividends paid
with respect to Plan Shares not held in the Plan Share Reserve, in Common Stock
to the fullest extent practicable, except to the extent that the Trustee
determines that the holding of monies in cash or cash equivalents is necessary
to meet the obligations of the Trust. In performing their duties, the Trustees
shall have the power to do all things and execute such instruments as may be
deemed necessary or proper, including the following powers:

(a) To invest up to one hundred percent (100%) of all Trust assets in
the Common Stock without regard to any law now or hereafter in force
limiting investments for Trustees or other fiduciaries. The investment
authorized herein may constitute the only investment of the Trust, and
in making such investment, the Trustee is authorized to purchase Common
Stock from the Parent or from any other source, and such Common Stock
so purchased may be outstanding, newly issued, or treasury shares.

(b) To invest any Trust assets not otherwise invested in accordance
with (a) above in such deposit accounts, and certificates of deposit
(including those issued by the Savings Bank), obligations of the United
States government or its agencies or such other investments as shall be
considered the equivalent of cash.

(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be
maintained showing that such security is an asset of the Trust).

(e) To hold cash without interest in such amounts as may be in the
opinion of the Trustee reasonable for the proper operation of the Plan
and Trust.

(f) To employ brokers, agents, custodians, consultants and accountants.

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(g) To hire counsel to render advice with respect to their rights,
duties and obligations hereunder, and such other legal services or
representation as they may deem desirable.

(h) To hold funds and securities representing the amounts to be
distributed to a Participant or his Beneficiary as a consequence of a
dispute as to the disposition thereof, whether in a segregated account
or held in common with other assets.

(i) As may be directed by the Committee or the Board from time to time,
the Trustee shall pay to the Saving Bank earnings of the Trust
attributable to the Plan Share Reserve.

Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of a court for the exercise of any power
herein contained, or to maintain bond.

8.03 Records and Accounts. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Committee.

8.04 Earnings. All earnings, gains and losses with respect to Trust
assets shall be allocated in accordance with a reasonable procedure adopted by
the Committee, to bookkeeping accounts for Participants or to the general
account of the Trust, depending on the nature and allocation of the assets
generating such earnings, gains and losses. In particular, any earnings on cash
dividends received with respect to shares of Common Stock shall be allocated to
accounts for Participants, except to the extent that such cash dividends are
distributed to Participants, if such shares are the subject of outstanding Plan
Share Awards, or, otherwise to the Plan Share Reserve.

8.05 Expenses. All costs and expenses incurred in the operation and
administration of this Plan, including those incurred by the Trustee, shall be
paid by the Savings Bank.

8.06 Indemnification. Subject to the requirements and limitations of
applicable laws and regulations, the Parent and the Savings Bank shall
indemnify, defend and hold the Trustee harmless against all claims, expenses and
liabilities arising out of or related to the exercise of the Trustee's powers
and the discharge of their duties hereunder, unless the same shall be due to
their gross negligence or willful misconduct.

Article IX

MISCELLANEOUS

9.01 Adjustments for Capital Changes. The aggregate number of Plan
Shares available for issuance pursuant to the Plan Share Awards and the number
of Shares to which any Plan Share Award relates shall be proportionately
adjusted for any increase or decrease in the total number of outstanding shares
of Common Stock issued subsequent to the effective date of the Plan resulting
from any split, subdivision or consolidation of the Common Stock or other
capital adjustment, change or exchange of the Common Stock, or other increase or
decrease in the number or kind of shares effected without receipt or payment of
consideration by the Parent.

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9.02 Amendment and Termination of the Plan. The Board may, by
resolution, at any time, amend or terminate the Plan. The power to amend or
terminate the Plan shall include the power to direct the Trustee to return to
the Parent all or any part of the assets of the Trust, including shares of
Common Stock held in the Plan Share Reserve, as well as shares of Common Stock
and other assets subject to Plan Share Awards which have not yet been earned by
the Participants to whom they have been awarded. However, the termination of the
Trust shall not affect a Participant's right to earn Plan Share Awards and to
the distribution of Common Stock relating thereto, including earnings thereon,
in accordance with the terms of this Plan and the grant by the Committee or the
Board.

9.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall
not be transferable by a Participant, and during the lifetime of the
Participant, Plan Shares may only be earned by and paid to the Participant who
was notified in writing of the Award by the Committee pursuant to Section 6.03.
No Participant or Beneficiary shall have any right in or claim to any assets of
the Plan or Trust, nor shall the Parent, Savings Bank, or any Subsidiary be
subject to any claim for benefits hereunder.

9.04 No Employment Rights. Neither the Plan nor any grant of a Plan
Share Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right,
either express or implied, on the part of any Participant to continue in the
employ or service of the Parent, Savings Bank, or a Subsidiary thereof.

9.05 Voting and Dividend Rights. No Participant shall have any voting
or dividend rights of a stockholder with respect to any Plan Shares covered by a
Plan Share Award, except as expressly provided in Sections 7.02 and 7.04 above,
prior to the time said Plan Shares are actually distributed to such Participant.

9.06 Governing Law. The Plan and Trust shall be governed by and
construed under the laws of the State of Tennessee, except to the extent that
Federal Law shall be deemed applicable.

9.07 Effective Date. The Plan shall be effective as of the date of
approval of the Plan by stockholders of the Parent.

9.08 Term of Plan. This Plan shall remain in effect until the earlier
of (i) termination by the Board, (ii) the distribution of all assets of the
Trust, or (iii) 21 years from the Effective Date. Termination of the Plan shall
not effect any Plan Share Awards previously granted, and such Plan Share Awards
shall remain valid and in effect until they have been earned and paid, or by
their terms expire or are forfeited.

9.09 Tax Status of Trust. It is intended that the Trust established
hereby shall be treated as a grantor trust of the Savings Bank under the
provisions of Section 671 et seq. of the Internal Revenue Code of 1986, as
amended, as the same may be amended from time to time.

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