UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB

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


        For the Quarter ended March 31, 1999 Commission File No. 0-25994


                                SFS BANCORP, INC.
             (Exact name of registrant as specified in its charter)



          DELAWARE                                        22-3366295
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)


                   251-263 STATE STREET, SCHENECTADY, NY 12305
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (518) 395-2300


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes  X   No     
                                      -----   -----

Indicate the number of shares of outstanding of each of the issuer's  classes of
common stock, as of the latest practicable date:

                                              Number of shares outstanding
  Class of Common Stock                           as of April 30, 1999
  ---------------------                       ---------------------------
  Common Stock, Par Value $.01                         1,208,472


Transitional Small Business Disclosure Format (Check One): Yes      No  X  
                                                              -----   -----
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                                 March 31, 1999
INDEX

Part I    FINANCIAL INFORMATION
                                                                            Page
                                                                            ----

Item 1.   Interim Financial Statements......................................   1

            Consolidated Statements of Income for the three
            months ended March 31, 1999 and 1998, (Both Unaudited)..........   2

            Consolidated Statements of Financial Condition as
            of March 31, 1999, (Unaudited) and December 31, 1998............   3

            Consolidated Statements of Changes in Stockholders' Equity for
            the three months ended March 31, 1999 and 1998, (Both Unaudited)   4

            Consolidated Statements of Cash Flows for the three
            months ended March 31, 1999 and 1998  (Both Unaudited)..........   5

            Notes to unaudited consolidated interim financial statements....   6

Item 2.  Management's Discussion and Analysis
            of Financial Condition and Results of Operations................   7


Part II   OTHER INFORMATION

Item 1.    Legal Proceedings................................................  20

Item 2.    Changes in Securities............................................  20

Item 3.    Defaults Upon Senior Securities..................................  20

Item 4.    Submission of Matters to a Vote of Security Holders..............  20

Item 5.    Other Information................................................  20

Item 6.    Exhibits and Reports on Form 8-K.................................  20

Signatures..................................................................  21
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                                 March 31, 1999

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

                         PART I - FINANCIAL INFORMATION


Item 1. - Interim Financial Statements

         SFS Bancorp,  Inc. (the  "Company") was formed in March of 1995 for the
purpose of acquiring all of the common stock of Schenectady Federal Savings Bank
(the  "Bank"),  concurrent  with its  conversion  from  mutual to stock  form of
ownership.  SFS Bancorp,  Inc.  completed its initial  public stock  offering of
1,495,000  shares of $.01 par value stock on June 29, 1995. The Company utilized
approximately  one half of the net stock sale  proceeds  to  acquire  all of the
common stock issued by the Bank.  For  additional  discussion  of the  Company's
formation and intended operations,  see the Form S-1 Registration Statement (No.
33-95422) filed with the Securities and Exchange Commission.

         The interim financial  statements presented in this Form 10-QSB reflect
the  consolidated  financial  condition and results of operations of the Company
and its subsidiary.

<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
                        Consolidated Statements of Income
                      (In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED 
                                                                          MARCH 31,
                                                                     -----------------
                                                                      1999       1998                            
                                                                     ------     ------
                                                                        (Unaudited)
<S>                                                                  <C>         <C>  
Interest income:
      Loans                                                          $2,613      2,638
      Investment securities                                             181        434
      Securities available for sale                                     255         71
      Federal funds sold and cash deposits                               12         19
      Stock in Federal Home Loan Bank                                    22         24
                                                                     ------     ------
             Total interest income                                    3,083      3,186
Interest expense:
      
      Deposits                                                        1,520      1,713
      Borrowings                                                         10          1
                                                                     ------     ------
             Total interest expense                                   1,530      1,714
                                                                     ------     ------

             Net interest income                                      1,553      1,472

Provision for loan losses                                                15         30
                                                                     ------     ------
             Net interest income after provision for loan losses      1,538      1,442
                                                                     ------     ------
Noninterest income:
      Other loan charges                                                 28         41
      Bank fees and service charges                                      46         39
      Other                                                              34         25
                                                                     ------     ------
             Total noninterest income                                   108        105
                                                                     ------     ------

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED 
                                                                          MARCH 31,
                                                                     -----------------
                                                                      1999       1998                            
                                                                     ------     ------
                                                                        (Unaudited)
<S>                                                                  <C>         <C>  
Noninterest expense:
      Compensation and employee benefits                                676        699
      Advertising and business promotion                                 24          9
      Office occupancy and equipment expense                            168        157
      Federal deposit insurance premiums                                 23         23
      Other insurance premiums                                           17         17
      Data processing fees                                               51         47
      Professional service fees                                          61         60
      Other                                                              86         74
                                                                     ------     ------
    Total noninterest expense                                         1,106      1,086
                                                                     ------     ------
             Income before taxes                                        540        461

Income tax expense
                                                                        221        191
                                                                     ------     ------
             Net income                                              $  319     $  270
                                                                     ======     ======
Earnings per share:
     Basic                                                           $  .29     $  .25
                                                                     ======     ======
     Diluted                                                         $  .28     $  .23
                                                                     ======     ======
</TABLE>

See accompanying notes to unaudited consolidated interim financial statements.

                                      - 2 -
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
                 Consolidated Statements of Financial Condition
                        (in Thousands, Except Share Data)
<TABLE>
<CAPTION>
                                                                                               March 31,      December 31,
                                                                                                 1999              1998
                                                                                             ------------------------------     
      Assets                                                                                 (Unaudited)
      ------
<S>                                                                                           <C>                     <C>  
      Cash and due from banks                                                                 $     1,419             1,712
      Federal funds sold                                                                            2,100             2,100
                                                                                              -----------        ----------
                  Total cash and cash equivalents                                                   3,519             3,812

      Securities available for sale, at fair value                                                 15,790            16,954
      Investment securities (estimated fair value of $10,612
                   at March 31, 1999 and $11,758 at December 31, 1998)                             10,511            11,661
      Stock in Federal Home Loan Bank of NY, at cost                                                1,466             1,338
      Loans receivable, net                                                                       140,612           140,210
      Accrued interest receivable                                                                   1,116             1,133
      Premises and equipment, net                                                                   2,162             2,191
      Real estate owned                                                                               263               271
      Prepaid expenses and other assets                                                               638               597
                                                                                              -----------        ----------
           Total Assets                                                                       $   176,077           178,167
                                                                                              ===========        ==========

</TABLE>
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
                 Consolidated Statements of Financial Condition (Continued)
                        (in Thousands, Except Share Data)
<TABLE>
<CAPTION>
                                                                                               March 31,      December 31,
                                                                                                 1999              1998
                                                                                             ------------------------------     
                                                                                             (Unaudited)
<S>                                                                                           <C>                     <C>  
      Liabilities and Stockholders' Equity
      ------------------------------------

      Liabilities:
          Due to depositors:
                Non-interest bearing deposits                                                 $     1,622             2,103
                Interest-bearing deposits                                                         147,462           148,475
                                                                                              -----------        ----------
                  Total Deposits                                                                  149,084           150,578

         Advance payments by borrowers for property taxes and insurance                             1,051             1,425
         Borrowings                                                                                   700               700
         Accrued expenses and other liabilities                                                     1,428             1,854
                                                                                              -----------        ----------
           Total Liabilities                                                                      152,263           154,557
                                                                                              -----------        ----------
      Stockholders' Equity:
      Preferred stock, $.01 par value.  Authorized 500,000 shares; none issued                         --                --
      Common stock, $.01 par value. Authorized 2,500,000 shares; 1,495,000
                  shares issued at March 31, 1999 and December 31, 1998                                15                15
      Additional paid-in capital                                                                   14,609            14,576
      Retained earnings, substantially restricted                                                  14,360            14,150
      Common stock acquired by Employee stock ownership plan ("ESOP")                                (718)             (718)
      Unearned recognition and retention plan                                                        (276)             (318)
      Treasury stock, at cost (286,528 shares at March 31, 1999 and
         December 31, 1998)                                                                        (4,098)           (4,089)
      Accumulated other comprehensive income                                                          (78)               (6)
                                                                                              -----------        ----------
           Total Stockholders' Equity                                                              23,814            23,610
                                                                                              -----------        ----------
           Total Liabilities and Stockholders' Equity                                         $   176,077           178,167
                                                                                              ===========        ==========
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.

                                      - 3 -
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                           (In Thousands) (Unaudited)

<TABLE>
<CAPTION>
                                                                                                   Accumulated                    
                                                                               Common     Common     Other
                                             Additional                        Stock      Stock      Compre    Compre 
                                    Common    Paid-in   Retained  Treasury    Acquired   Acquired    hensive   hensive  
                                    Stock     Capital   Earnings    Stock      By ESOP    By RRP     Income    Income     Total
                                   --------  --------   --------   --------   --------   --------   --------   --------  -------- 
<S>                                <C>        <C>       <C>        <C>        <C>        <C>        <C>        <C>       <C>   
Three Months Ended
March 31, 1999
--------------
Balance at December 31, 1998       $     15    14,576     14,150     (4,089)      (718)      (318)        (6)              23,610

Comprehensive income:
  Net income                             --        --        319         --         --         --         --   $    319       319
  Other comprehensive income,
  net of tax:
    Unrealized net holding losses
        arising during the period
        (pre-tax $120)                   --        --         --         --         --         --        (72)       (72)      (72)
                                                                                                               --------           
Comprehensive income                                                                                           $    247
                                                                                                               ========           

Amortization of unearned RRP
   compensation                          --        --         --         --         --         33         --                   33

Cash dividends  declared                 --        --       (109)        --         --         --         --                 (109)

Tax benefit related to vested
      RRP shares                         --        33         --         --         --         --         --                   33

Forfeiture of RRP shares                 --        --         --         (9)        --          9         --                   --
                                   --------  --------   --------   --------   --------   --------   --------             -------- 
Balance at March 31, 1999          $     15    14,609     14,360     (4,098)      (718)      (276)       (78)              23,814
                                   ========  ========   ========   ========   ========   ========   ========             ========
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
                                                                                                   Accumulated                    
                                                                               Common     Common     Other
                                             Additional                        Stock      Stock      Compre    Compre 
                                    Common    Paid-in   Retained  Treasury    Acquired   Acquired    hensive   hensive  
                                    Stock     Capital   Earnings    Stock      By ESOP    By RRP     Income    Income     Total
                                   --------  --------   --------   --------   --------   --------   --------   --------  -------- 
<S>                                <C>        <C>       <C>        <C>        <C>        <C>        <C>        <C>       <C>   
Three Months Ended March 31, 1998
Balance at December 31, 1997       $     15    14,365     12,422     (4,089)      (837)      (455)        10               21,431

Comprehensive income:
  Net income                             --        --        270         --         --         --         --   $    270       270
  Other comprehensive income,
  net of tax:
    Unrealized net holding losses
      arising during the period
      (pre-tax $5)                       --        --         --         --         --         --         (3)        (3)       (3)
                                                                                                               --------           
Comprehensive income                                                                                           $    267
                                                                                                               ========           

Amortization of unearned RRP
   compensation                          --        --         --         --         --         35         --                   35

Cash dividends  declared                 --        --        (98)        --         --         --         --                  (98)

Tax benefit related to vested
     RRP shares                          --        46         --         --         --         --         --                   46
                                   --------  --------   --------   --------   --------   --------   --------             -------- 

Balance at March 31, 1998          $     15    14,411     12,594     (4,089)      (837)      (420)         7               21,681
                                   ========  ========   ========   ========   ========   ========   ========             ========
</TABLE>
                                      -4-
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                                            Three Months Ended
                                                                                                 March 31,
                                                                                      --------------------------------
                                                                                         1999                  1998
                                                                                      ---------              ---------
<S>                                                                                   <C>                    <C>
Increase (decrease) in cash and cash equivalents:                                                (Unaudited)
    Reconciliation of net income to net cash provided
         by operating activities:
         Net income                                                                   $     319                    270
         Adjustments to reconcile net income to
            net cash provided by operating activities:
              Depreciation and amortization                                                  59                     51
              Net accretion on investment securities                                         --                    (38)
              Net amortization (accretion) on securities available for sale                   5                     (2)
              Amortization of unearned RRP compensation                                      33                     35
              Provision for loan losses                                                      15                     30
              Writedown of real estate owned                                                  8                     --
              Decrease in accrued interest receivable                                        17                    124
              Increase in prepaid expense and other assets                                  (41)                  (117)
              Increase in accrued expense and other liabilities                            (345)                   269
                                                                                      ---------              ---------
                   Total adjustments                                                       (249)                   352
                                                                                      ---------              ---------
                 Net cash provided by operating activities                                   70                    622
                                                                                      ---------              ---------
Cash flows from investing activities:
    Proceeds from maturity/paydown of investment securities                                  48                  6,044
    Proceeds from maturity/paydown of securities available for sale                       4,000                     --
    Purchase of securities available for sale                                           ( 2,961)                (3,000)
    Purchase of Federal Home Loan Bank stock                                               (128)                    --
    Principal repayments on mortgage-backed securities                                    1,102                  1,167
    Net (increase) decrease in loans receivable                                            (312)                (2,125)
    Purchase of loans receivable                                                           (166)                (1,031)
    Capital expenditures, net of disposals                                                  (30)                   (24)
    Proceeds from the sale of real estate owned                                              61                     27
                                                                                      ---------              ---------
                  Net cash provided by investing activities                               1,614                  1,058
                                                                                      ---------              ---------
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
                                                                                            Three Months Ended
                                                                                                 March 31,
                                                                                      --------------------------------
                                                                                         1999                  1998
                                                                                      ---------              ---------
                                                                                               (Unauditied)
<S>                                                                                   <C>                    <C>
Cash flows from financing activities:
    Net increase (decrease) in deposits                                                  (1,494)                   717
    Net decrease in advance payments by borrowers for
         property taxes and insurance                                                      (374)                  (196)
    Dividends paid                                                                         (109)                   (98)
                                                                                      ---------              ---------
                  Net cash provided (used) by financing activities                       (1,977)                   423
                                                                                      ----------             ---------
    Net increase (decrease) in cash and cash equivalents                                   (293)                 2,103
    Cash and cash equivalents at beginning of period                                      3,812                  2,176
                                                                                      ---------              ---------
    Cash and cash equivalents at end of period                                        $   3,519                  4,279
                                                                                      =========              =========

Supplemental  disclosures of cash flow information:  
    Cash paid during the period for:
         Interest paid                                                                $  1,530                   1,728
                                                                                      =========              =========
         Taxes paid                                                                   $     687                     15
                                                                                      =========              =========
    Transfer of loans to other real estate owned                                      $      61                     --
                                                                                      =========              =========
    Net unrealized loss on securities available for sale, net of taxes                $     (72)                    (3)
                                                                                      =========              =========
    Tax (benefit) expense on unrealized gain/loss
         on securities available for sale                                             $     (48)                    (2)
                                                                                      =========              =========
    Deferred tax benefit related to vested RRP shares                                 $      33                     46
                                                                                      =========              =========
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.

                                      - 5 -
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
          NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

NOTE 1.  Presentation of Financial Information

The accompanying  unaudited  consolidated interim financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  The accompanying unaudited consolidated interim financial
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements  and the related  management's  discussion  and analysis of financial
condition  and  results of  operations  filed  with the 1998 Form  10-KSB of SFS
Bancorp,  Inc.  and  Subsidiary  (the  "Company").  Amounts  in  prior  periods'
unaudited  consolidated interim financial  statements are reclassified  whenever
necessary  to conform  to the  current  periods'  presentation.  The  results of
operations  for the three  months  ended  March 31,  1999,  are not  necessarily
indicative  of results that may be expected for the entire year ending  December
31, 1999.

The unaudited  consolidated interim financial statements include the accounts of
SFS Bancorp,  Inc.  (the  "Holding  Company")  and its wholly owned  subsidiary,
Schenectady Federal Savings Bank and subsidiary (the "Bank").


NOTE 2.  Earnings Per Share

The following is a  reconciliation  of the numerators and  denominators  for the
basic and diluted  earnings  per share (EPS)  calculations  for the three months
ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
                                               (in thousands except share and per share information)
                                                                          1999
                                                     ------------------------------------------         
                                                                          Weighted     Per Share
                                                      Net Income       Average Shares    Amount
                                                      ----------       --------------    ------
<S>                                                  <C>                   <C>          <C>    
Basic EPS                                            $        319          1,112,704    $  0.29
                                                                                        =======
Dilutive effect of potential common shares
   related to stock based compensation                         --             43,077
                                                      ----------       --------------         
Diluted EPS                                          $        319          1,155,781    $  0.28
                                                     ============      =============    =======

                                                                          1998
                                                     ------------------------------------------         
                                                                          Weighted     Per Share
                                                      Net Income        Average Shares   Amount
                                                      ----------       --------------    ------
Basic EPS                                            $        270         1,090,697     $  0.25
                                                                                        =======
Dilutive effect of potential common shares
   related to stock based compensation                         --            62,019
                                                      ----------       --------------          
Diluted EPS                                          $        270          1,152,716    $  0.23
                                                     ============      =============    =======
</TABLE>
                                      - 6 -
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                                 MARCH 31, 1999


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

General

SFS Bancorp, Inc. (the "Holding Company") is the holding company for Schenectady
Federal  Savings Bank and its  subsidiary  (the "Bank"),  a federally  chartered
stock savings bank. On June 29, 1995, the Bank  completed its conversion  from a
federal mutual savings and loan  association to a federal stock savings bank. On
that date, the Holding  Company  issued and sold 1,495,000  shares of its common
stock at $10.00 per share in connection with the conversion. Net proceeds to the
Holding  Company were $14.2  million  after  reflecting  conversion  expenses of
$750,000.  The Holding  Company used $7.1 million of the net proceeds to acquire
all of the issued and outstanding stock of the Bank.

The Bank operates as a thrift  institution with the principal business being the
solicitation of deposits from the general public; these deposits,  together with
funds generated from operations, are invested primarily in single-family,  owner
occupied  mortgage loans.  The Bank is a member of the Federal Home Loan Bank of
New  York  ("FHLB")  and is  subject  to  certain  regulations  of the  Board of
Governors of the Federal Reserve System with respect to reserves  required to be
maintained  against  deposits  and certain  other  matters.  The Bank's  deposit
accounts are insured by the Savings  Association  Insurance  Fund  ("SAIF"),  as
administered by the Federal Deposit Insurance  Corporation  ("FDIC"),  up to the
maximum amount permitted by law. The Bank is subject to regulation by the Office
of Thrift  Supervision  ("OTS").  The Bank conducts its business  through a four
branch network  located in Schenectady  County  situated in eastern  upstate New
York. The Bank's  results of operations are dependent  primarily on net interest
income,  which is the difference  between the interest income earned on its loan
and mortgage-backed securities portfolios,  investment securities and securities
available for sale portfolios and other earning  assets,  and its cost of funds,
consisting  of the  interest  paid on its deposits  and  borrowings.  The Bank's
operating  results are also impacted by the provision for loan losses,  and to a
lesser extent, by noninterest income. The Bank's operating expenses  principally
consist of  employee  compensation  and  benefits,  occupancy  expense and other
general and administrative  expenses.  The Bank's results of operations are also
significantly   affected  by  general   economic  and  competitive   conditions,
particularly  changes in market interest rates,  government policies and actions
of the regulatory authorities.

                                      - 7 -
<PAGE>
Except for historical  information  contained  herein,  the matters contained in
this quarterly  report are  "forward-looking  statements"  that involve risk and
uncertainties,  including statements concerning future events or performance and
assumptions  and other  statements of historical  facts.  The Company  wishes to
caution its readers that the following  important factors,  among others,  could
cause the Company's actual results for subsequent  periods to differ  materially
from those  expressed in any  forward-looking  statement made by or on behalf of
the Company herein:

o    the effect of changes in laws and regulations,  including federal and state
     banking  laws and  regulations,  with  which the  Company  and its  banking
     subsidiary  must  comply,  the cost of such  compliance  and the  potential
     material  adverse  effect if the Company or any of its  banking  subsidiary
     were not in  substantial  compliance  either  currently or in the future as
     applicable;
o    the effect of changes  in  accounting  policies  and  practices,  as may be
     adopted by the regulatory  agencies as well as by the Financial  Accounting
     Standards Board, or changes in the Company's organization, compensation and
     benefit plans;
o    the effect on the Company's  competitive position within its market area of
     increasing   consolidation  within  the  banking  industry  and  increasing
     competition from "larger regional" and out-of-state  banking  organizations
     as well as non-bank providers of various financial services;
o    the effect of unforeseen changes in interest rates;
o    the effect of  changes  in  business  cycles  and  downturns  in the local,
     regional, or national economies.

LIQUIDITY AND CAPITAL RESOURCES

The Company's most liquid assets are cash and cash equivalents and available for
sale  securities.  The  level of these  assets  is  dependent  on the  Company's
operating,  financing and investing activities during any given period. Cash and
cash  equivalents  of $3.8 million at December 31, 1998,  decreased  $300,000 to
$3.5  million at March 31,  1999 as a result of a decrease  in cash and due from
banks.  The  Company's  primary  sources of funds are deposits and principal and
interest  payments on its loan and securities  portfolios.  While maturities and
scheduled  amortization of loans and securities  are, in general,  a predictable
source of funds,  deposit flows and loan  prepayments are greatly  influenced by
general interest rates, economic conditions and competition.

The Bank is required to maintain  minimum  levels of liquid assets as defined by
OTS Regulations.  This  requirement,  which may vary at the direction of the OTS
depending on economic  conditions and deposit flows,  is based upon a percentage
of deposits and  short-term  borrowings.  The required ratio of liquid assets to
deposits and short-term  borrowings is currently 4%. The Bank's  liquidity ratio
was 17.53% and 19.24% at March 31, 1999 and December 31, 1998, respectively.

                                      - 8 -
<PAGE>
The Company's cash flows are comprised of three classifications: cash flows from
operating activities;  cash flows from investing activities; and cash flows from
financing   activities.   Net  cash  flows  provided  by  operating  activities,
consisting  primarily of interest and  dividends  received less interest paid on
deposits, was $70,000 and $622,000 for the three months ended March 31, 1999 and
1998,  respectively.  Net cash  provided  by  investing  activities,  consisting
primarily of  disbursements  for the  origination  and purchase of loans and the
acquisition of securities available for sale offset by principal  collections on
loans and mortgage-backed securities and by proceeds from the maturity, call and
paydown of  investment  securities,  was $1.1 million for the three months ended
March 31, 1998.  Net cash of $1.6  million was provided by investing  activities
for the three  months ended March 31, 1999 and  consisted  primarily of proceeds
from the  maturity,  call  and  paydown  of  investment  securities,  securities
available  for sale and  mortgage-backed  securities  offset by the  purchase of
securities  available  for sale and the increase in loans  receivable.  Net cash
provided by  financing  activities,  consisting  primarily  of a net increase in
deposits offset by a net decrease in advance  payments by borrowers for property
taxes and insurance and dividends  paid, was $423,000 for the three months ended
March 31, 1998. Net cash used by financing activities, consisting primarily of a
net  decrease in deposits  and in advanced  payments by  borrowers  for property
taxes and insurance combined with dividends paid, was $2.0 million for the three
months ended March 31, 1999.

During the three month  periods  ended March 31, 1999 and 1998,  the Company did
not  repurchase  any of its  shares.  The  Office  of Thrift  Supervision  (OTS)
restricts  the number of shares which may be  repurchased  during the three year
period following  conversion.  Generally,  only 5% of shares  outstanding may be
repurchased annually during the first three years following conversion. However,
the OTS has  allowed  additional  share  repurchases  of 5%  annually  based  on
extenuating facts and circumstances.

At March 31, 1999, the Bank's capital exceeded each of the capital  requirements
of the OTS. At March 31, 1999, the Bank's  tangible and core capital levels were
both $20.7 million (11.8% of total adjusted  assets) and its risk-based  capital
level was $21.7  million  (23.0% of total  risk-weighted  assets).  The  current
minimum  regulatory  capital ratio  requirements are 1.5% for tangible  capital,
3.0% for core capital and 8.0% for risk-weighted capital.

FINANCIAL CONDITION

Total assets  decreased  $2.1 million (1.2%) to $176.1 million at March 31, 1999
from  $178.2  million  at  December  31,  1998.  Securities  available  for sale
decreased  by $1.2  million  (6.9%)  to $15.8  million  at March 31,  1999.  The
decrease in  securities  available for sale was  primarily  attributable  to the
calls of certain  securities.  Investment  securities  decreased by $1.1 million
(9.9%) to $10.5 million at March 31, 1999  primarily  resulting from paydowns on
mortgage-backed securities.

At March 31, 1999, total liabilities were $152.3 million representing a decrease
of $2.3  million  (1.5%) from  December 31,  1998.  The  decrease was  primarily
attributable  to a net decrease in deposits  and  payments  made by the Bank for
property  taxes and insurance on behalf of its borrowers.  Stockholders'  equity
increased  $204,000  to $23.8  million at March 31,  1999 as  compared  to $23.6
million at December 31, 1998.  Retained earnings increased by $210,000 primarily
as a result of net income of the Company for the three month  period ended March
31, 1999 totaling $319,000 offset by dividends paid totaling $109,000.

                                      - 9 -
<PAGE>
Nonperforming assets decreased $99,000 (8.8%) totaling $1.0 million at March 31,
1999,   compared  with  $1.1  million  at  December  31,  1998.   The  ratio  of
nonperforming  loans to total  loans  receivable  was  .54% at March  31,  1999,
compared with .61% at December 31, 1998.  The ratio of  nonperforming  assets to
total  assets at March 31,  1999,  was .59%  compared  with .64% at December 31,
1998.

Loan Receivable, Net
--------------------

A summary of loans receivable, net at March 31, 1999 and December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
                                                                      March 31, 1999                  December 31, 1998
                                                                      --------------                  -----------------
<S>                                                                    <C>                                      <C>    
Loans secured by real estate:
   Residential:
      Conventional                                                     $     114,269                            112,568
      Home Equity                                                             18,772                             19,570
      FHA Insured                                                              1,948                              2,107
      VA Guaranteed                                                            1,190                              1,358
   Commercial and multi-family                                                 4,817                              4,914
                                                                       -------------                      -------------
                                                                             140,996                            140,517
Other loans                                                                      717                                776
                                                                       -------------                      -------------
                                                                             141,713                            141,293
                                                                       -------------                      -------------
Less:
   Unearned discount and net deferred loan fees                                  131                                130
   Allowance for loan losses                                                     970                                953
                                                                       -------------                      -------------
                                                                               1,101                              1,083
                                                                       -------------                      -------------

Loans receivable, net                                                  $     140,612                            140,210
                                                                       =============                      =============
</TABLE>

<TABLE>
<CAPTION>
The  following  table sets forth the  information  with regard to  nonperforming assets.

                                                                      March 31, 1999                  December 31, 1998
                                                                      --------------                  -----------------
<S>                                                                    <C>                                        <C>
Loans on a nonaccrual status                                           $         688                                725
Loans contractually past due 90 days or
   more and still accruing interest                                               81                                135
                                                                       -------------                      -------------
      Total nonperforming loans                                                  769                                860
Other real estate owned                                                          263                                271
                                                                       -------------                      -------------
      Total nonperforming assets                                       $       1,032                              1,131
                                                                       =============                      =============
</TABLE>
                                     - 10 -

<PAGE>
The  following  table sets forth the  information  with regard to changes in the
allowance for loan losses.
<TABLE>
<CAPTION>
                                                                             For the three months ended March 31,
                                                                             1999                               1998
                                                                       -------------                      -------------
<S>                                                                    <C>                                          <C>
Balance, beginning of period                                           $         953                                778
Provision charged to operations                                                   15                                 30
Loans charged off                                                                 --                                 --
Recoveries on loans previously charged off                                         2                                 32
                                                                       -------------                      -------------

Balance, end of period                                                 $         970                                840
                                                                       =============                      =============
</TABLE>
Average Balance Data,  Interest Rates and Interest  Differential and Rate/Volume
--------------------------------------------------------------------------------
Analysis
--------

The following  information  regarding average balances and rates earned/paid and
the rate/volume analysis is an integral component of the discussion of operating
results  for  the  three  months  ended  March  31,  1999,   compared  with  the
corresponding period of the prior year.

The average  balance data that follows  reflects the average yield on assets and
average cost of liabilities for the periods indicated. Such yields and costs are
derived by  dividing  income or  expenses  by the  average  balance of assets or
liabilities,  respectively,  for the periods shown. The yields and costs include
fees which are considered adjustments to yields.

The rate/volume  analysis table presents the extent to which changes in interest
rates and changes in the volume of interest-earning  assets and interest-bearing
liabilities have affected the Bank's interest income and interest expense during
the periods indicated.  Information is provided in each category with respect to
(i) changes  attributable to changes in volume (changes in volume  multiplied by
prior  rate),  (ii)  changes  attributable  to changes in rate  (changes in rate
multiplied by prior volume),  and (iii) the net change. The changes attributable
to the combined impact of volume and rate have been allocated proportionately to
the changes due to volume and the changes due to rate.

                                     - 11 -
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
         Average Balance Data, Interest Rates and Interest Differential
                       (Dollars in Thousands) (Unaudited)

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED MARCH  31,
                                          ------------------------------------------------------------------------------
                                                        1999                                        1998
                                          -----------------------------------      -------------------------------------
                                            AVERAGE         INTEREST                 AVERAGE          INTEREST
                                          OUTSTANDING        EARNED/   YIELD/      OUTSTANDING         EARNED/     YIELD/
                                            BALANCE           PAID      RATE         BALANCE            PAID       RATE
                                          -----------       --------   ------      ------------       ---------    ------
<S>                                        <C>              <C>         <C>         <C>                 <C>        <C>  
Interest-earning assets:
      Loans receivable, net (1)            $ 141,364        $   2,613    7.50%      $  135,377          $  2,638   7.90%
      Mortgage-backed securities               9,326              149    6.48           16,545               259   6.35
      Securities available for sale           17,047              255    6.07            4,308                71   6.68
      Debt securities                          1,807               32    7.18           10,419               175   6.81
      Other interest-earning asset
           including cash equivalents          1,007               12    4.83            1,461                19    5.27
       FHLB stock                              1,352               22    6.60            1,338                24    7.27
                                          ----------        ---------               ----------          --------
Total interest-earning assets                171,903            3,083    7.27          169,448             3,186   7.63
                                          ----------        ---------               ----------          --------

      Savings accounts                        35,943              219    2.47           36,323               269   3.00
      Money market accounts                    8,608               68    3.20            7,558                63   3.38
      Demand and NOW accounts (2)             12,089               33    1.11           10,514                37   1.43
      Certificate accounts                    92,157            1,195    5.26           95,395             1,339   5.69
      Escrow                                     901                5    2.23              952                 5   2.13
      Borrowings                                 814               10    4.98               76                 1   5.34
                                          ----------       ----------               ----------          --------
Total interest-bearing liabilities           150,512            1,530    4.12          150,818             1,714    4.61
                                          ----------       ----------               ----------          -------
Net interest income                                        $   1,553                                    $  1,472
                                                           =========                                    ========
Net interest rate spread                                                3.15%                                      3.02%
                                                                        =====                                      =====
Net earning assets                       $   21,391                                 $   18,630
                                         ==========                                 ==========
Net yield on average
       interest-earning assets                                          3.66%                                      3.52%
                                                                        =====                                      =====
Average interest-earning
       assets to average
       interest-bearing liabilities            1.14X                                     1.12X
                                               =====                                     ===== 
</TABLE>
(1)  Calculated net of deferred loan fees and includes nonaccrual loans.
(2)  Includes noninterest-bearing demand accounts.

                                     - 12 -
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
                              RATE VOLUME ANALYSIS
                           (In Thousands) (Unaudited)

                        THREE MONTHS ENDED MARCH 31, 1999
                                  COMPARED WITH
                        THREE MONTHS ENDED MARCH 31, 1998
                        ---------------------------------

<TABLE>
<CAPTION>
                                                               INCREASE   (DECREASE)
                                                            ----------------------------------------------
                                                                      DUE TO
                                                            ----------------------------           
                                                             VOLUME               RATE               NET
                                                            -------              -------           -------
<S>                                                         <C>                    <C>                 <C> 
                  Interest-earning assets:
                    Loans receivable, net                   $   154                (179)               (25)
                    Mortgage-backed securities                 (115)                  5               (110)
                    Securities-available for sale               191                  (7)               184
                    Debt securities                            (153)                 10               (143)
                    Other interest-earning assets               (6)                  (1)                (7)
                    FHLB stock                                    0                  (2)                (2)
                                                            -------              -------           -------
                  Total interest-earning assets             $    71                (174)              (103)
                                                            =======              =======           =======
                  Interest-bearing liabilities:
                    Savings deposits                        $    (3)                 (47)              (50)
                    Money market accounts                         8                   (3)                5
                    Demand and NOW deposits                       5                   (9)               (4)
                    Certificate accounts                        (44)                (100)             (144)
                    Escrow                                        0                    0                 0
                    Borrowings                                    9                    0                 9
                                                            -------              --------          --------
                  Total interest-bearing liabilities        $   (25)                (159)             (184)
                                                            =======              =======           =======

                  Change in net interest income                                                    $    81
                                                                                                   =======
</TABLE>
                                     - 13 -
<PAGE>
COMPARISONS OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999

Three months ended March 31, 1999 compared with 1998

Net income for the quarter  ended  March 31,  1999,  was  $319,000 or $.29 basic
earnings per share and $.28  diluted  earnings per share.  This  represented  an
increase of $49,000  (18.1%) from the comparable  quarter of the prior year. The
increase in net income was primarily attributable to an increase in net interest
income and a decrease in provision for loan losses.  These  positive  impacts to
earnings were partially  offset by increases in non-interest  expense and income
tax expense.  Noninterest income was relatively consistent with the same quarter
a year ago.  The  annualized  return on average  assets  ("ROA") for the current
quarter  amounted to .73% compared with .62% for the  comparable  quarter a year
ago.  The  annualized  return on average  equity  ("ROE")  was 5.68% (on average
equity  of $22.5  million)  compared  with  5.10%  (on  average  equity of $21.1
million) a year earlier.

Interest income for the three months ended March 31, 1999, totaled $3.1 million,
a  decrease  of  $103,000   (3.2%)  from  1998's  first  quarter.   The  factors
contributing  to the  decrease in interest  income was a decrease in earnings on
loans which decreased $25,000 (3.2%) as a result of a 40 basis point decrease in
average  rates earned  offset by a $6.0 million  (4.4%)  increase in the average
balance invested. Average loans as a percentage of total interest-earning assets
increased  from 79.9% during the first quarter 1998 to 82.2% for the same period
in 1999.  Interest  earned  on  mortgage-backed  securities  decreased  $110,000
(42.5%) as a result of a $7.2 million  (43.6%)  decrease in the average  balance
invested  offset by a 13 basis point increase in average rates earned.  Interest
income on securities  available for sale increased $184,000 (259.2%) as a result
of an increase of $12.7 million  (295.7%) in the average invested balance offset
by a decrease of 61 basis points in average  rates  earned.  Interest  income on
debt securities  decreased $143,000 (81.7%) as a result of a decrease in average
invested  balances  of $8.6  million  (82.7%)  offset by an increase of 37 basis
points in rates earned.

Interest expense for the quarter ended March 31, 1999, amounted to $1.5 million,
$184,000  (10.7%)  less than the  corresponding  quarter of the prior year.  The
decrease  occurred as a result of a $308,000 (0.2%) decrease in average interest
bearing liabilities to $150.5 million combined with a 49 basis point decrease in
average rates paid to 4.12%. The mix within the funding structure changed as the
average  balances grew in money market  accounts by $1.2 million  (15.6%) and in
demand and NOW accounts by $1.6 million (15.0%). In addition, average borrowings
increased  $738,000  (971.1%)  to  $814,000.  The average  certificate  accounts
balance  declined  $3.3  million  (3.5%) and  average  savings  account  balance
declined  $380,000  (1.0%).  The  decrease in average  rates paid on all deposit
accounts  was  a  reflection  of  general   interest  rates  and  a  competitive
environment that prevailed during the first quarter of 1999 compared with 1998.

Net  interest  income for the three  months  ended March 31, 1999  totaled  $1.6
million,  $81,000  (5.5%)  greater than the  comparable  quarter a year ago. The
interest  rate spread  increased 13 basis points to 3.15% for the quarter  ended
March 31, 1999. The net interest margin for the most recent quarter of 3.66% was
14 basis points greater than the comparable quarter a year ago.

                                     - 14 -
<PAGE>
Provision for Loan Losses
-------------------------

The  provision  for loan losses  amounted to $15,000 for the quarter ended March
31, 1999,  down $15,000  from the same  quarter in 1998.  The Bank  utilizes the
provision for loan losses to maintain an allowance for loan losses that it deems
appropriate  to provide for known and inherent risks in its loan  portfolio.  In
determining the adequacy of its allowance for loan losses, management takes into
account the current status of the Bank's loan portfolio and changes in appraised
values of collateral  as well as general  economic  conditions.  As of March 31,
1999,  the Bank's  allowance for loan losses  totaled  $970,000  (0.68% of total
gross loans and 126.14% of nonperforming loans) compared with $953,000 (0.67% of
total gross loans and 110.76% of nonperforming loans) at December 31, 1998.

Noninterest Income
------------------

Noninterest  income  amounted to $108,000  for the three  months ended March 31,
1999 compared to $105,000 for the three months ended March 31, 1998.

Noninterest Expense
-------------------

Noninterest  expense  increased  $20,000  (1.8%) to $1.1  million  for the three
months  ended  March  31,  1999,  as  compared  with  the same  period  in 1998.
Compensation  and  employee  benefits   decreased  $23,000  (3.3%)  between  the
respective quarters.  This decrease was primarily attributable to a reduction in
staffing  and  a  decrease  in  the  employee  stock   ownership  plan  expense.
Advertising  and  business  promotion  increased  $15,000  (166.7%)  to  $24,000
resulting  primarily from  increased  advertising in relation to the new product
offerings and  promotions.  Office  occupancy and  equipment  expense  increased
$9,000  (7.0%) to $168,000  due  primarily  to the  outsourcing  of  maintenance
services previously performed by the Bank's maintenance staff. Other noninterest
expense  increased  $12,000 (16.2%) to $86,000 due in part to the writedown of a
foreclosed  property to its net realizable  value after entering into a contract
to sell the property.  FDIC insurance premiums,  other insurance premiums,  data
processing fees and professional  service fees remained  relatively the same for
the quarters ended March 31, 1999 and March 31, 1998.

Income Tax Expense
------------------

Income tax expense  totaled  $221,000  and  $191,000  for the three months ended
March 31, 1999 and 1998,  respectively.  The  increase in income tax expense was
primarily attributable to the $79,000 (17.1%) increase in income before taxes to
$540,000 for the three months ended March 31, 1999.  The  effective tax rate for
the quarter ended March 31, 1999 was 40.9%  compared to 41.4% for the comparable
quarter in the previous year.
                                     - 15 -
<PAGE>
Impact of New Accounting Standards
----------------------------------

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of  Financial   Accounting   Standards  No.  133,   "Accounting  for  Derivative
Instruments and Hedging Activities," which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other  contracts,  and for hedging  activities.  It requires that an
entity  recognize  all  derivatives  as  either  assets  or  liabilities  in the
statement of financial  condition and measure those  instruments  at fair value.
This  statement is effective for all fiscal  quarters of fiscal years  beginning
after June 15,  1999.  Management  is  currently  evaluating  the impact of this
Statement on the Company's consolidated financial statements.

Impact of the Year 2000
-----------------------

General.  The Year 2000 ("Y2K") issue confronting the Company and its suppliers,
customers,  customers'  suppliers  and  competitors  centers on the inability of
computer systems to recognize the year 2000. Many existing computer programs and
systems  originally  were programmed with six digit dates that provided only two
digits to identify the calendar year in the date field. . With the impending new
millennium,  these  programs and computers  will recognize "00" as the year 1900
rather than the year 2000.

Financial institution  regulators have increased their focus upon Y2K compliance
issues  and have  issued  guidance  concerning  the  responsibilities  of senior
management and directors. The Federal Financial Institutions Examination Council
("FFIEC") has issued several  interagency  statements on Y2K Project  Management
Awareness.  These  statements  require  financial  institutions  to, among other
things,  examine  the Y2K  implications  of their  reliance  on vendors and with
respect  to data  exchange  and the  potential  impact of the Y2K issue on their
customers, suppliers and borrowers. These statements also require each federally
regulated  financial  institution  to survey its exposure,  measure its risk and
prepare a plan to address  the Y2K  issue.  In  addition,  the  federal  banking
regulators have issued safety and soundness guidelines to be followed by insured
depository  institutions,  such as the  Bank,  to assure  resolution  of any Y2K
problems.  The  federal  banking  agencies  have  assessed  that Y2K testing and
certification is a key safety and soundness issue in conjunction with regulatory
exams and, thus, that an institution's  failure to address appropriately the Y2K
issue  could  result in  supervisory  action,  including  the  reduction  of the
institution's  supervisory  ratings,  the denial of applications for approval of
mergers or acquisitions or the imposition of civil money penalties.

                                     - 16 -
<PAGE>
Risks. Like most financial  services  providers,  the Company and its operations
may be  significantly  affected  by the  Y2K  issue  due  to its  dependence  on
technology and  date-sensitive  data.  Computer  software and hardware and other
equipment,  both within and  outside the  Company's  direct  control,  and third
parties  with  whom  the  Company  electronically  or  operationally  interfaces
(including  without limitation its customers and third party vendors) are likely
to be  affected.  If computer  systems  are not  modified in order to be able to
identify  the  year  2000,  many  computer  applications  could  fail or  create
erroneous  results.  As a result,  many  calculations  which  rely on date field
information,  such  as  interest,  payment  or due  dates  and  other  operating
functions,  could generate results which are  significantly  misstated,  and the
Company  could  experience  an  inability  to  process   transactions,   prepare
statements or engage in similar  normal  business  activities.  Likewise,  under
certain  circumstances,  a failure to  adequately  address  the Y2K issue  could
adversely affect the viability of the Company's  suppliers and creditors and the
creditworthiness of its borrowers.  Thus, if not adequately  addressed,  the Y2K
issue could result in a significant  adverse impact on the Company's  operations
and, in turn, its financial condition and results of operations.

State of Readiness.  During May 1998, the Company formally  approved its plan to
address  the Y2K issue.  Since  that time the  Company  has taken the  following
steps:

o    Established senior management advisory and review responsibilities;
o    Completed a Company-wide inventory of applications and system software;
o    Implemented  a tracking  database  for  applications  and  vendor  software
     created by regulators;
o    Developed compliance plans and schedules for all lines of business;
o    Begun computer application testing;
o    Initiated vendor compliance verification;
o    Contacted  significant vendors with whom the Company interacts to determine
     their state of readiness;
o    Begun  awareness and education  activities for employees  through  existing
     internal communication channels;
o    Developed a process to respond to customer inquires as well as help educate
     customers on the Y2K issue; and
o    Developed a contingency and business resumption plan.

The following paragraphs summarize the phases of the Company's Y2K plan:

1.  Awareness  Phase.  The Company  formally  established a Y2K plan headed by a
senior manager, and a Y2K committee was assembled for management of the project.
The project committee created a plan of action that includes milestones,  budget
estimates,  strategies,  and methodologies to track and report the status of the
project.  Members  of  the  project  committee  also  attended  conferences  and
information  sharing  sessions  to gain  more  insight  into the Y2K  issue  and
potential strategies for addressing it. This phase is complete.

                                     - 17 -

<PAGE>
2.  Assessment  Phase.  The Company's  strategies  were further  developed  with
respect  to how the  objectives  of the Y2K plan  would be  achieved,  and a Y2K
business  risk  assessment  was made to quantify the extent of the Company's Y2K
exposure. A corporate inventory (which is periodically updated as new technology
is acquired and as systems progress through  subsequent phases) was developed to
identify and monitor Y2K readiness for information systems (hardware,  software,
utilities,  and vendors) as well as  environmental  systems  (security  systems,
facilities,  etc.).  Systems  were  prioritized  based on  business  impact  and
available  alternatives.  Mission  critical  systems  supplied  by vendors  were
researched to determine Y2K readiness. If Y2K-ready versions were not available,
the  Company  began  identifying  functional   replacements  which  were  either
upgradeable to currently  Y2K-ready,  and a formal plan was developed to repair,
upgrade or replace all mission critical systems. This phase is complete.

Beginning in 1997 and  throughout  1998, the Company began Y2K evaluation of all
commercial  borrowers  at the time of the  annual  review  of their  loans.  All
commercial customers were evaluated for Y2K exposure by the Internal Loan Review
Committee using a questionnaire  developed by the Company's Y2K committee and an
assessment as to the borrower's  reliance on data processing and the risk to the
overall  viability  of the  business.  As part of the  current  credit  approval
process, all new and renewed loans are evaluated for Y2K risk. While the Company
will continue to monitor the progress being made by its commercial  customers in
addressing their own Y2K issues, to date the Company is generally satisfied with
customers'  responses  and their  progress  in  addressing  their Y2K risk.  The
Company's primary assets are residential mortgage loans which have been assessed
with minimal risk as it relates to Y2K and the impact on the creditworthiness of
these loans individually or as a whole.

3. Conversion/Renovation  Phase. The Company's corporate inventory revealed that
upgrades are available for all  vendor-supplied  mission critical  systems.  All
mission critical  applications and the majority of other  applications which are
deemed  Y2K-ready have been received and placed into production and have entered
the validation process. This phase is substantially complete.

4.  Validation/Implementation  Phase. This phase is designed to test the ability
of hardware and software to accurately  process date sensitive data. The Company
has substantially completed validation testing of mission critical applications.
The Company's Y2K test environment,  periodically supplied by its service bureau
data  center,   is  virtually   insulated  from   production   and   development
environments.  The Company has reassigned internal personnel responsibilities in
anticipation  of the increased  work efforts and has increased  staff to support
normal business  activities.  During the validation  testing process to date, no
significant  Y2K  problems  have been  identified  relating  to any  modified or
upgraded mission critical systems.

                                     - 18 -
<PAGE>
Company's Resources Invested.  The Company's Y2K committee has been assigned the
task of ensuring that all systems  across the Company are  identified,  analyzed
for Y2K  compliance,  corrected  if  necessary,  tested,  and  changes  put into
service.  The Y2K  committee  members  represent  all  functional  areas  of the
Company,  including  retail  banking,  data  processing,   loan  administration,
accounting,   operations,   compliance,  human  resources,  and  marketing.  The
committee  is headed by a senior  vice  president  who  reports  directly to the
Company's chief executive officer. The Company's Board of Directors oversees the
Y2K plan and provides guidance and resources to the project committee. The Board
is updated periodically as to the progress of the committee.

The Company is expensing all costs  associated  with required  system changes as
those projects are incurred,  and such costs are being funded through  operating
cash flow. Expenditures incurred for hardware upgrades are being capitalized and
depreciated in accordance with the Company's  policies.  The total  expenditures
associated with the Y2K conversion  project,  exclusive of internal  costs,  are
estimated  to be  approximately  $100,000.  As of March 31,  1999,  the  Company
incurred or was  contractually  committed for  services,  equipment and software
totaling  approximately $73,000 for the Y2K conversion project. The Company does
not expect significant  increases in future data processing costs related to Y2K
compliance above the aforementioned estimate.

Contingency  Plans.  Virtually all the Company's  mission  critical  systems are
dependent on third party vendors or service  providers.  Therefore,  contingency
plans include selecting a new vendor or service provider and converting to their
system. In the event a current vendor's system fails during  validation  testing
and it is  determined  that the vendor is unable or  unwilling  to  correct  the
failure,  the Company  will  convert to a new system from a list of  prospective
vendors.  In each case,  realistic  trigger dates have been established to allow
for orderly and successful conversion.  The Board of Directors approved a formal
contingency and business resumption plan in December 1998.

                                     - 19 -
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
                                   FORM 10-QSB
                                 MARCH 31, 1999

                           PART II - OTHER INFORMATION
                           ---------------------------

Item 1.       Legal Proceedings
              The  Holding  Company  and the Bank are not  engaged  in any legal
              proceedings of a material nature at the present time.

Item 2.       Changes in Securities
              None

Item 3.       Defaults upon Senior Securities
              None

Item 4.       Submission of Matters to a Vote of Security Holders
              None

Item 5.       Other Information
              None

Item 6.       Exhibits and Reports on Form 8-K

              (a) Exhibits
                  None

              (b) Reports on Form 8-K
                  None

                                      - 20-
<PAGE>
                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

                                          SFS BANCORP, INC.
                                          (Registrant)

DATE:  May 17, 1999                   BY: /s/ Joseph H. Giaquinto
                                      ---------------------------
                                          Joseph H. Giaquinto
                                          Chairman of the Board,
                                          President and Chief Executive Officer
                                          (Duly Authorized Officer)


DATE:  May 17, 1999                   BY: /s/ David J. Jurczynski
                                      ---------------------------
                                          David J. Jurczynski
                                          Senior Vice President, Treasurer and
                                          Chief Financial Officer
                                          (Principal Financial Officer)


                                     - 21 -