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, 1997 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 
incorporation or organization)                    Identification Number)


                   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, 1997
 ---------------------                       ---------------------------
 Common Stock, Par Value $.01                            1,235,997


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

                                   FORM 10-QSB

                                 March 31, 1997


INDEX

Part I    FINANCIAL INFORMATION
 

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

            Consolidated Statements of Income for the Three
            months ended March 31, 1997 and 1996, (Unaudited)...................

            Consolidated Statements of Financial Condition as
            of March 31, 1997, (Unaudited) and December 31, 1996................

            Consolidated Statements of Changes in Stockholders' Equity for
            the Three months ended March 31, 1997 and 1996,  (Unaudited)........

            Consolidated Statements of Cash Flows for the Three
            months ended March 31, 1997 and 1996  (Unaudited)...................

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

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

Part II   OTHER INFORMATION

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

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

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

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

Item 5.   Other Information.....................................................
 
Item 6.   Exhibits and Reports on Form 8-K......................................

Signatures......................................................................

Exhibit 3. Amendment to Bylaws .................................................
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                                 March 31, 1997



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


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

                                                                     THREE MONTHS ENDED
                                                                          MARCH 31,
                                                                     ------------------
                                                                      1997       1996
                                                                     ------     ------
                                                                        (Unaudited)
<S>                                                                  <C>        <C>
Interest income:
      Real estate loans ........................................     $2,300      2,079
      Other loans ..............................................          9         13
      Mortgage-backed securities ...............................        317        387
      Debt securities ..........................................        237        290
      Federal funds sold and cash deposits .....................         47         89
      Securities available for sale ............................         37        119
      Stock in Federal Home Loan Bank ..........................         20         19
                                                                     ------     ------
             Total interest income .............................      2,967      2,996

Interest expense:
      Deposits .................................................      1,548      1,566
                                                                     ------     ------
             Net interest income ...............................      1,419      1,430

Provision for loan losses ......................................         30         30
                                                                     ------     ------
             Net interest income after provision for loan losses      1,389      1,400
                                                                     ------     ------

Noninterest income:
      Service fee income .......................................          4          5
      Other loan charges .......................................         38         43
      Bank fees and service charges ............................         38         32
      Other ....................................................         11         11
                                                                     ------     ------
             Total noninterest income ..........................         91         91
                                                                     ------     ------
<PAGE>
<CAPTION>
                            SFS BANCORP, INC. AND SUBSIDIARY
                            Consolidated Statements of Income
                          (In Thousands, Except Per Share Data)
                                      (continued)

                                                                     THREE MONTHS ENDED
                                                                          MARCH 31,
                                                                     ------------------
                                                                      1997       1996
                                                                     ------     ------
                                                                        (Unaudited)
<S>                                                                  <C>        <C>
Noninterest expense:
      Compensation and employee benefits .......................        695        615
      Advertising and business promotion .......................         42         36
      Office occupancy and equipment expense ...................        157        130
      Federal deposit insurance premiums .......................          5         81
      Other insurance premiums .................................         22         23
      Mortgage servicing fees ..................................          9         10
      Data processing fees .....................................         45         42
      Professional service fees ................................         65         68
      Other ....................................................         83         71
                                                                     ------     ------
             Total noninterest expense .........................      1,123      1,076
                                                                     ------     ------

             Income before taxes ...............................        357        415

Income tax expense .............................................        132        126
                                                                     ------     ------
             Net income ........................................     $  225        289
                                                                     ======     ======

Earnings per share .............................................     $  .19        .21
                                                                     ======     ======


See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                      SFS BANCORP, INC. AND SUBSIDIARY
                               Consolidated Statements of Financial Condition
                                     (In Thousands, Except Share Data)

                                                                                   March 31,   December 31,
                                                                                     1997           1996
                                                                                  ---------      ---------
                                                                                 (Unaudited)
<S>                                                                               <C>            <C>
Assets 
      
Cash and due from banks .....................................................     $   1,481          1,296
Federal funds sold ..........................................................         4,100          1,600
                                                                                  ---------      ---------
            Total cash and cash equivalents .................................         5,581          2,896

Securities available for sale, at fair value ................................         4,951          1,990
Investment securities:
     Debt securities (approximate fair value of $14,344
             at March 31, 1997 and $15,642 at December 31, 1996) ............        14,519         15,746
   Mortgage-backed securities (approximate fair value of
            $19,431 at March 31, 1997 and $20,322 at December 31, 1996) .....        19,657         20,434
Investment required by law, stock in Federal Home Loan Bank of NY, at cost ..         1,338          1,215
Loans receivable, net .......................................................       118,526        118,455
Accrued interest receivable .................................................           999          1,137
Premises and equipment, net .................................................         2,194          1,921
Real estate owned ...........................................................            89            178
Prepaid expenses and other asset ............................................           987            916
                                                                                  ---------      ---------
                     Total Assets ...........................................     $ 168,841        164,888
                                                                                  =========      =========

Liabilities and Stockholders' Equity

Liabilities:
    Due to depositors:
          Demand deposits ...................................................     $  10,167         10,496
          Savings accounts ..................................................        43,548         43,226
          Time deposit accounts .............................................        90,659         86,894
                                                                                  ---------      ---------
               Total Deposits ...............................................       144,374        140,616

     Advance payments by borrowers for property taxes and insurance .........           949          1,160
     Accrued expenses and other liabilities .................................         1,585          1,441
                                                                                  ---------      ---------
                              Total Liabilities .............................       146,908        143,217
                                                                                  ---------      ---------
<PAGE>
<CAPTION>
                                      SFS BANCORP, INC. AND SUBSIDIARY
                               Consolidated Statements of Financial Condition
                                           (Dollars in Thousands)

                                                                                   March 31,   December 31,
                                                                                     1997           1996
                                                                                  ---------      ---------
                                                                                 (Unaudited)
<S>                                                                               <C>            <C>
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; 1,270,997 shares outstanding at March 31, 1997 and
      December 31, 1996 .....................................................            15             15
   Additional paid-in capital ...............................................        14,260         14,260
   Retained earnings, substantially restricted ..............................        11,836         11,687
   Common stock acquired by :
   Employee stock ownership plan ("ESOP") (95,680 shares) ...................          (957)          (957)
   Recognition and retention plan ("RRP") (34,205 shares) ...................          (403)          (540)
   Treasury stock, at cost (224,003 shares at  March 31, 1997 and
            December 31, 1996) ..............................................        (2,840)        (2,840)

Net unrealized gain on securities available for sale, net of taxes...........            22             46
                                                                                  ---------      ---------
     Total Stockholders' Equity .............................................        21,933         21,671
                                                                                  ---------      ---------
     Total Liabilities and Stockholders' Equity .............................     $ 168,841        164,888
                                                                                  =========      =========

See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                  SFS BANCORP, INC. AND SUBSIDIARY
                                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                                     (In Thousands) (Unaudited)

                                                                           NET
                                                                       UNREALIZED
                                                                       GAIN (LOSS)
                                                                           ON          COMMON       COMMON  
                                             ADDITIONAL                 SECURITIES     STOCK         STOCK
                                  COMMON      PAID-IN      RETAINED     AVAILABLE     ACQUIRED      ACQUIRED    TREASURY
                                   STOCK      CAPITAL      EARNINGS     FOR SALE      BY ESOP       BY RRP       STOCK       TOTAL
                                   -----      -------      --------     --------      -------       ------       -----       -----
<S>                                <C>        <C>           <C>           <C>        <C>          <C>          <C>          <C>
Three Months Ended
March 31, 1997

Balance at December 31, 1996 ..    $  15      14,260        11,687         46          (957)        (540)      (2,840)      21,671

Net income ....................       --          --           225         --            --           --           --          225

Net unrealized loss on
  securities available for sale       --          --            --        (24)           --           --           --          (24)


RRP shares issued .............       --          --            --         --            --          137           --          137

Cash dividends  declared ......       --          --           (76)        --            --           --           --          (76)

Purchase of Treasury shares ...       --          --            --         --            --           --           --           --
                                   -----      ------        ------       ----         -----       ------       -------      ------ 

Balance at March 31, 1997 .....    $  15      14,260        11,836         22          (957)        (403)      (2,840)      21,933
                                   =====      ======        ======      =====         =====       ======       ======       ====== 

Three Months Ended
March 31, 1996

Balance at December 31, 1995 ..    $  15      14,221        11,013         88        (1,076)          --           --       24,261

Net income ....................       --          --           289         --            --           --           --          289

Net  unrealized gain on
securities available for sale .       --          --            --        (24)           --           --           --          (24)


Purchase of  Treasury shares ..       --          --            --         --            --           --       (1,252)      (1,252)
                                   -----      ------        ------       ----        ------       ------       ------       ------ 

Balance at March 31, 1996 .....    $  15      14,221        11,302         64        (1,076)          --       (1,252)      23,274
                                   =====      ======        ======       ====        ======       ======       ======       ====== 


See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                              SFS BANCORP, INC. AND SUBSIDIARY
                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (In Thousands)

                                                                         Three Months Ended
                                                                               March 31,
                                                                         ------------------
                                                                          1997         1996
                                                                       -------      -------
                                                                             (Unaudited)
<S>                                                                    <C>          <C>
Increase (decrease) in cash and cash equivalents:        
    Reconciliation of net income to net cash provided
         by operating activities:
         Net income ..............................................     $   225          289
         Adjustments to reconcile net income to
            net cash provided by operating activities:
              Depreciation and amortization ......................          42           36
              Net accretion on investment securities .............          (2)          (5)
              Amortization of award of RRP ...........................     137         --
              Provision for loan losses ..........................          30           30
              Decrease in accrued interest receivable ............         138          126
              Increase in prepaid expense and other assets .......         (71)        (144)
              Increase in accrued expense and other liabilities ..         159          321
                                                                       -------      -------
                   Total adjustments .............................         433          364
                                                                       -------      -------
                 Net cash provided by operating activities .......         658          653
                                                                       -------      -------
Cash flows from investing activities:
    Proceeds from maturity/paydown of investment securities ......       1,229        5,614
    Purchase of investment securities ............................        --         (6,000)
    Purchase of securities available for sale ....................      (3,000)        --
    Purchase of Federal Home Loan Bank stock .....................        (123)         (99)
    Principal repayments on mortgage-backed securities ...........         777          695
    Net (increase) decrease in loans receivable ..................         187       (2,149)
    Purchase of loans receivable .................................        (300)        (937)
    Capital expenditures, net of disposals .......................        (315)         (16)
    Proceeds from the sale of real estate owned ..................         101         --
                                                                       -------      -------
                  Net cash used by investing activities ..........      (1,444)      (2,892)
                                                                       -------      -------
Cash flows from financing activities:
    Net increase in deposits .....................................       3,758          105
    Net decrease in advance payments by borrowers for
         property taxes and insurance ............................        (211)        (399)
    Dividends paid ...............................................         (76)        --
    Purchase of treasury stock ...................................        --         (1,252)
                                                                       -------      -------
                  Net cash (used) provided in financing activities       3,471       (1,546)
                                                                       -------      -------
    Net (decrease) increase in cash and cash equivalents .........       2,685       (3,785)
    Cash and cash equivalents at beginning of period .............       2,896       10,453
                                                                       -------      -------
    Cash and cash equivalents at end of period ...................     $ 5,581        6,668
                                                                       =======      =======
<PAGE>
<CAPTION>
                              SFS BANCORP, INC. AND SUBSIDIARY
                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (In Thousands)
                                        (continued)

                                                                         Three Months Ended
                                                                               March 31,
                                                                         ------------------
                                                                          1997         1996
                                                                       -------      -------
                                                                             (Unaudited)
<S>                                                                    <C>          <C>
Supplemental  disclosures of cash flow information:
  Cash paid during the period for:
         Interest paid ...........................................     $ 1,549        1,569
                                                                       =======      =======
         Taxes paid ..............................................     $  --             14
                                                                       =======      =======
    Transfer of loans to other real estate owned .................     $    12         --
                                                                       =======      =======
    Net unrealized loss on securities available for sale,
       net of taxes .. ...........................................     $   (24)         (24)
                                                                       =======      =======
    Deferred tax benefit on unrealized loss on securities
       available for sale ........................................     $   (15)        --
                                                                       =======      =======


See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<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 1996 Form  10-KSB of SFS
Bancorp, Inc. and Subsidiary (the "Company"). In the opinion of management,  all
adjustments  (consisting only of normal recurring accruals) considered necessary
for the  fair  presentation  of the  unaudited  interim  consolidated  financial
statements as of and for the period ended March 31, 1997 have been included. The
results  of  operations  for the three  months  ended  March 31,  1997,  are not
necessarily  indicative  of results  that may be  expected  for the entire  year
ending December 31, 1997.

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

Earnings  per  share  are  based  on  the  weighted  average  number  of  shares
outstanding,  less unallocated employee stock ownership plan shares,  during the
period.

For purposes of calculating  earnings per share,  the weighted average number of
shares outstanding was 1,175,317 and 1,365,547 for the three month periods ended
March 31, 1997 and 1996, respectively.
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                                 MARCH 31, 1997



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  adjustable-rate  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.  The Bank's  operating  results
are also impacted by the provision for loan losses,  and to a lesser extent,  by
gains and losses on the sale of its securities  available for sale portfolio and
other 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.
<PAGE>
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 $2.9 million at December 31, 1996, increased $2.7 million to
$5.6  million at March 31, 1997  primarily  as a result of  increases in federal
funds sold.  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 5%. The Bank's  liquidity ratio
was 25.23% and 22.58% at March 31, 1997 and December 31, 1996, respectively.

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  $658,000  and $653,000 for the three months ended March 31, 1997
and  1996,  respectively.  Net cash  used by  investing  activities,  consisting
primarily of  disbursements  for the  origination  and purchase of loans and the
acquisition of securities partially offset by principal collections on loans and
mortgage-backed  securities  and by  proceeds  from  the sale  and  maturity  of
securities,  was $1.4  million and $2.9 million for the three months ended March
31, 1997 and 1996,  respectively.  Net cash  provided in  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 $3.5 million for the three months ended March 31, 1997. Net cash used
by  financing  activities  for the three  months  ended  March 31,  1996 of $1.5
million consisted primarily of the purchase of treasury stock and a net decrease
in advance  payments by borrowers for property  taxes and insurance  offset by a
net increase in deposits.

During the three month  period  ended  March 31,  1996 the  Company  repurchased
100,000  shares.  The average  price of  treasury  shares  purchased  was $12.52
totaling $1.3 million.  The average price paid of $12.52 was approximately 75.1%
of the  Company's  book value per share of $16.68 at March 31, 1996.  Management
believes that the repurchase of shares at less than book value is an appropriate
utilization of excess capital.  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.  The Company announced on October 9, 1996
its intention to repurchase up to an additional 5% of its outstanding shares. As
of March 31, 1997, the Company had not  repurchased  any shares relative to this
announcement.
<PAGE>
At March 31, 1997, the Bank's capital exceeded each of the capital  requirements
of the OTS. At March 31, 1997, the Bank's  tangible and core capital levels were
both $21.9 million (13.0% of total adjusted  assets) and its risk-based  capital
level was $22.6  million  (25.2% 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  increased $ 4.0 million (2.4%) to $168.8 million at March 31, 1997
from $164.9 million at December 31, 1996.  This increase  occurred as securities
available for sale grew $3.0 million  (148.8%) to $5.0 million and federal funds
sold  increased  $2.5  million  (156.3%)  to $4.1  million  at March  31,  1997.
Additionally,  premises and equipment,  net increased  $273,000  (14.2%) to $2.2
million at March 31,  1997 due  primarily  to the  opening of the Bank's  fourth
branch.  Offsetting  these increases was a decrease in investment  securities of
$2.0 million (5.5%) to $34.2 million at March 31, 1997.

At March 31,  1997,  total  liabilities  were  $146.9  million  representing  an
increase of $3.7 million (2.6%) from December 31, 1996. The increase was largely
attributable to a net increase in deposits  associated with the opening of a new
branch.  Stockholders'  equity increased  $262,000 to $21.9 million at March 31,
1997 as  compared to $21.7  million at  December  31,  1996.  Retained  earnings
increased by $149,000 primarily as a result of net income of the Company for the
three  month  period  ended March 31, 1997  offset by  dividends  paid  totaling
$76,000.  Net  unrealized  gain on securities  available for sale,  net of taxes
decreased $24,000 to $22,000 at March 31, 1997.

Nonperforming  assets increased  $129,000 (12.8%) totaling $1.1 million at March
31,  1997,  compared  with $1.0  million  at  December  31,  1996.  The ratio of
nonperforming  loans to total loans receivable,  net was .89% at March 31, 1997,
compared with .70% at December 31, 1996.  The ratio of  nonperforming  assets to
total  assets at March 31,  1997,  was .68%  compared  with .61% at December 31,
1996.
<PAGE>
Loan Receivable, Net

A summary of loans receivable, net at March 31, 1997 and December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
                                                        March 31,     December 31, 
                                                        ---------     ------------
                                                          1997            1996 
                                                        --------        --------
<S>                                                     <C>             <C>
Loans secured by real estate:
   Residential:
      Conventional .............................        $ 85,526          84,840
      Home Equity ..............................          22,654          22,904
      FHA Insured ..............................           3,366           3,511
      VA Guaranteed ............................           2,594           2,810
   Commercial and multi-family .................           4,668           4,532
                                                        --------        --------
                                                         118,808         118,597
Other loans ....................................             416             523
                                                        --------        --------
                                                         119,224         119,120
                                                        --------        --------
Less:
   Unearned discount and net deferred loan fees               22              23
   Allowance for loan losses ...................             676             642
                                                        --------        --------
                                                             698             665
                                                        --------        --------

Loans receivable, net ..........................        $118,526         118,455
                                                        ========        ========
</TABLE>
The  following  table sets forth the  information  with regard to  nonperforming
assets.
<TABLE>
<CAPTION>

                                                        March 31,     December 31, 
                                                           1997           1996
                                                          ------          ------
<S>                                                       <C>             <C>
Loans on a nonaccrual status ...................          $1,030             801
Loans contractually past due 90 days or
   more and still accruing interest ............              21              32
                                                          ------          ------
      Total nonperforming loans ................           1,051             833
Other real estate owned ........................              89             178
                                                          ------          ------
      Total nonperforming assets ...............          $1,140           1,011
                                                          ======          ======
</TABLE>
<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,
                                                           ---------------------
                                                            1997            1996
                                                           -----           -----
<S>                                                        <C>             <C>

Balance, beginning of period ....................          $ 642             572
Provision charged to operations .................             30              30
Loans charged off ...............................             (2)           --
Recoveries on loans previously charged off ......              6              17
                                                           -----           -----

Balance, end of period ..........................          $ 676             619
                                                           =====           =====

</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,  1997,   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.
<PAGE>
<TABLE>
<CAPTION>
                                          SFS BANCORP, INC. AND SUBSIDIARY
                           Average Balance Data, Interest Rates and Interest Differential
                                         (Dollars in Thousands) (Unaudited)


                                                                 THREE MONTHS ENDED MARCH  31,
                                       ----------------------------------------------------------------------------
                                                         1997                                    1996
                                       ------------------------------------     -----------------------------------
                                          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) .....    $118,970     $  2,309        7.87%     $103,342      $  2,092       8.14%
      Mortgage-backed securities ....      20,028          317        6.42        24,100           387       6.46
      Securities available for sale .       2,458           37        6.10         7,978           119       6.00
      Debt securities ...............      14,910          237        6.45        18,649           290       6.25
      Other interest-earning asset
           including cash equivalents       3,654           47        5.22         6,768            89       5.29
       FHLB stock ...................       1,271           20        6.38         1,167            19       6.55
                                         --------     --------                  --------      --------
Total interest-earning assets .......     161,291        2,967        7.46       162,004         2,996       7.44
                                         --------     --------                  --------      --------

      Savings accounts ..............      37,034          275        3.01        40,165           301       3.01
      Money market accounts .........       6,300           52        3.35         4,359            31       2.86
      Demand and NOW accounts (2) ...      10,549           38        1.46         9,232            33       1.44
      Certificate accounts ..........      88,250        1,179        5.42        84,754         1,196       5.68
      Escrow ........................         808            4        2.01           990             5       2.03
                                         --------     --------                  --------      --------
Total interest-bearing liabilities ..     142,941        1,548        4.39       139,500         1,566       4.51
                                         --------     --------                  --------      --------

Net interest income .................                 $  1,419                                $  1,430
                                                      ========                                ========
Net interest rate spread ............                                 3.07%                                  2.93%
                                                                      ====                                   ==== 

Net earning assets ..................    $ 18,350                               $ 22,504
                                         ========                               ========
Net yield on average
       interest-earning assets ......                                 3.57%                                  3.55%
                                                                      ====                                   ==== 

Average interest-earning
       assets to average
       interest-bearing liabilities .       1.13X                                  1.16X
                                            ====                                   ==== 



(1) Calculated net of deferred loan fees.
(2) Includes noninterest-bearing demand accounts.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                        SFS BANCORP, INC. AND SUBSIDIARY
                              RATE VOLUME ANALYSIS
                           (In Thousands) (Unaudited)

                        THREE MONTHS ENDED MARCH 31, 1997
                                  COMPARED WITH
                        THREE MONTHS ENDED MARCH 31, 1996

                                                       INCREASE  (DECREASE)
                                                             DUE TO
                                               ---------------------------------
                                               VOLUME         RATE          NET
                                               ------         ----          ---
<S>                                             <C>          <C>          <C>
Interest-earning assets:
  Loans receivable, net .................       $ 278          (61)         217
  Mortgage-backed securities ............         (68)          (2)         (70)
  Securities available for sale .........         (84)           2          (82)
  Debt securities .......................         (63)          10          (53)
  Other interest-earning assets .........         (41)          (1)         (42)
  FHLB stock ............................           2           (1)           1
                                                -----        -----        -----
Total interest-earning assets ...........       $  25          (54)        (29)
                                                =====        =====        =====

Interest-bearing liabilities:
  Savings deposits ......................       $ (26)           0          (26)
  Money market accounts .................          17            4           21
  Demand and NOW deposits ...............           4            1            5
  Certificate accounts ..................         170         (187)         (17)
  Escrow ................................          (1)           0           (1)
                                                -----        -----        -----
Total interest-bearing liabilities ......       $ 165         (183)         (18)
                                                =====        =====        =====

Change in net interest income ...........                                 $ (11)
                                                                          =====

</TABLE>
<PAGE>
COMPARISONS OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1997

Three months ended March 31, 1997 compared with 1996

Net income for the quarter ended March 31, 1997, was $225,000 or $.19 per share,
a decrease of $64,000 (22.1%) from the comparable quarter of the prior year. The
decrease in net income was primarily  attributable to a decrease in net interest
income,  an  increase  in  noninterest  expense  and an  increase  in income tax
expense.  The provision for loan losses and  noninterest  income was  consistent
with the same  quarter a year ago.  The  annualized  return  on  average  assets
("ROA") for the current  quarter  amounted  to .54%  compared  with .70% for the
comparable  quarter a year ago. The annualized  return on average equity ("ROE")
was 4.19% (on average equity of $21.5  million)  compared with 4.90% (on average
equity of $23.8 million) a year earlier.

Interest income for the three months ended March 31, 1997, totaled $3.0 million,
a decrease of $29,000  (0.1%) from 1996's first  quarter.  Average  loans,  as a
percentage total  interest-earning  assets increased from 63.8% during the first
quarter  1996 to 73.8% for the same  period  in 1997.  Meanwhile,  the  combined
average   balances  as  a  percentage  of  total   interest-earning   assets  of
mortgage-backed  securities,  securities  available for sale and debt securities
decreased from 31.3% in 1996 to 23.2% in 1997. The factors  contributing  to the
decrease in interest income was an increase in earnings on loans which increased
$217,000  (10.4%) as a result of a $15.6 million (15.1%) increase in the average
balance invested combined with a 27 basis point (3.3%) decrease in average rates
earned. Interest earned on mortgage-backed  securities decreased $70,000 (18.1%)
as a result of the  combined  effect of a $4.1 million  (16.9%)  decrease in the
average  balance  invested and a 4 basis point (0.6%)  decrease in average rates
earned.  Interest  income on  securities  available for sale  decreased  $82,000
(68.9%)  as a result  of a  decrease  of $5.5  million  (69.2%)  in the  average
invested  balance  offset by an  increase of 10 basis  points  (1.7%) in average
rates earned.  Interest income on debt securities decreased $53,000 (18.3%) as a
result of an increase in average  rates earned of 20 basis points  (3.2%) offset
by a decrease in average invested balances of $3.7 million (20.0%).  Earnings on
other interest earning assets,  primarily federal funds sold,  decreased $42,000
(47.2%) as a result of a $3.1 million (46.0%)  decrease in the average  invested
balance and a 7 basis point (1.3%) decrease in the average rate earned.

Interest expense for the quarter ended March 31, 1997, amounted to $1.5 million,
$18,000  (1.1%)  less than the  corresponding  quarter  of the prior  year.  The
decrease  occurred  as a result of a $3.4  million  (2.5%)  increase  in average
interest  bearing  liabilities to $142.9 million  combined with a 12 basis point
(2.7%)  decrease  in  average  rates paid to 4.39%.  The mix within the  deposit
structure  changed as the average balances grew in certificate  accounts by $3.5
million (4.1%), in money market accounts by $1.9 million (44.5%),  and in demand
and NOW  accounts by $1.3  million  (14.3%).  Average  savings  account  balance
declined $3.1 million (7.8%).  The decrease in average rates paid on certificate
accounts of 26 basis points (4.6%) to 5.42% was a reflection of general interest
rates and a competitive  environment  that prevailed during the first quarter of
1997  compared  with 1996.  The  increase in average  rates paid on money market
accounts of 49 basis  points  (17.1%) to 3.35% was due  primarily  to  increased
balances in the higher interest rate tiers of the product structure.

Net  interest  income for the three  months  ended March 31, 1997  totaled  $1.4
million,  $11,000  (0.8%)  less than the  comparable  quarter  a year  ago.  The
interest  rate spread  increased 14 basis points to 3.07% for the quarter  ended
March 31, 1997. The net interest margin for the most recent quarter of 3.57% was
2 basis points greater than the comparable quarter a year ago.
<PAGE>
Provision for Loan Losses

The provision for loan losses  amounted to $30,000 for the quarters  ended March
31, 1997 and 1996.  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, 1997, the Bank's allowance for
loan losses totaled  $676,000  (0.57% of total loans and 0.64% of  nonperforming
loans) compared with $642,000 (0.54% of loans and 0.77% of nonperforming  loans)
at December 31, 1996.

Noninterest Income

Noninterest income amounted to $91,000 for the three months ended March 31, 1997
and 1996.  Bank fees and service  charges  increased  $6,000  (18.7%) to $38,000
while other loan charges decreased $5,000 (11.6%) to $38,000.

Noninterest Expense

Noninterest  expense  increased  $47,000  (4.4%) to $1.1  million  for the three
months  ended  March  31,  1997,  as  compared  with  the same  period  in 1996.
Compensation  and  employee  benefits  increased  $80,000  (13.0%)  between  the
respective  quarters.  This increase was a result of an increase in retail staff
due to the  opening of a new  branch,  annual  merit  increases,  and  increased
employee  benefits  partially due to increases in the employee  stock  ownership
plan.  Advertising and business  promotion  increased  $6,000 (16.7%) to $42,000
resulting  primarily  from  increased  advertising in relation to the new branch
opening.  Office  occupancy  and equipment  expense  increased  $27,000  (20.8%)
compared  to  the  same  quarter  a  year  ago  as  a  result  of  increases  in
depreciation,  property taxes and utilities  associated  with the opening of the
new branch.  FDIC premiums  decreased  $76,000  (93.8%) to $5,000 as a result of
revised premium levels  associated with the Savings  Association  Insurance Fund
("SAIF").  Other insurance  premiums,  mortgage  servicing fees, data processing
fees,   professional  service  fees,  and  other  noninterest  expense  remained
relatively the same for the quarters ended March 31, 1997 and March 31, 1996.

Income Tax Expense

Income tax expense  totaled  $132,000  and  $126,000  for the three months ended
March 31,  1997 and 1996,  respectively.  The  effective  tax rate for the three
months  ended March 31,  1997 was 37.0%.  The  effective  tax rate for the three
months  ended March 31, 1996 was 30.4% and  reflects a reduction in the deferred
tax asset valuation reserve reducing the tax effect on pre-tax income.

Impact of New Accounting Standards

In February  1997,  the FASB issued SFAS No. 128,  "Earnings  per Share",  which
establishes  standards for computing  and  presenting  earnings per share (EPS).
This statement simplifies the standards for computing EPS making them comparable
to  international  EPS  standards and  supersedes  Accounting  Principals  Board
Opinion No. 15, "Earnings per Share" and related  interpretations.  SFAS No. 128
replaces the  presentation of primary EPS with the presentation of basic EPS. It
also  requires  dual  presentation  of basic and  diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation  of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation.
<PAGE>
Basic EPS  excludes  dilution  and is computed by dividing  income  available to
common stockholders by the weighted-average  number of common shares outstanding
for the period.  Diluted EPS reflects the potential dilution that could occur if
securities or other  contracts to issue common stock were exercised or converted
into common  stock or resulted in the  issuance of common stock that then shared
in the  earnings  of the entity  (such as the  Company's  stock  options).  This
Statement is effective for financial  statements issued for periods ending after
December  15,  1997,  including  interim  periods.  Earlier  application  is not
permitted.  SFAS No.  128  requires  restatement  of all prior  period  EPS data
presented. Management does not anticipate the effect of the adoption of SFAS No.
128 to be material.

Regulatory Developments

Federal  law  requires  that  the FDIC  maintain  reserves  at both the  Savings
Association  Insurance  Fund ("SAIF") and the Bank  Insurance Fund ("BIF") of at
least 1.25% of insured deposits.  The reserves are funded through the payment of
insurance  premiums by the  insured  institution  members of each fund.  The BIF
reached this level during 1995. Upon  attainment of the required  reserve level,
the FDIC may reduce insurance  premiums  applicable to BIF-insured  institutions
while  retaining the premiums  applicable to SAIF members,  such as the Bank, at
their current levels until the SAIF reaches its required reserve level.

In order to help eliminate this disparity and any competitive  disadvantage  due
to disparate deposit insurance  premium  schedules,  legislation to recapitalize
the SAIF was enacted in September 1996. The legislation  provided for a one-time
assessment to be imposed on all deposits assessed at the SAIF rates, as of March
31, 1995, in order to recapitalize  the SAIF. It also provided for the merger of
the BIF and SAIF on January 1, 1999 provided no savings associations then exist.
Management  recognized the one-time special  assessment in a tax affected charge
to earnings of  approximately  $558,000  during the quarter ended  September 30,
1996. The legislation was intended to fully  recapitalize the SAIF fund so that
commercial  banks and thrift  deposits will be charged FDIC premiums at the same
rate beginning October 1, 1996.
<PAGE>
Prior to the  enactment  of the  legislation  a portion  of the SAIF  assessment
imposed  on  savings  associations  was used to repay  obligations  issued  by a
federally  chartered  corporation to provide  financing for resolving the thrift
crisis in the  1980's.  Although  the SAIF  rates  are  expected  to be  reduced
significantly,  in the near future the minimum  assessment  paid by SAIF-insured
institutions  is not  anticipated to be equalized with the minimum BIF rate as a
result of this  continuing  obligation.  The FICO  assessment  for SAIF  insured
institutions will be $0.065 per $100 of deposits while BIF insured  institutions
will pay $0.013  per $100 of  deposits  until the year 2000 when the  assessment
will be imposed at the same rate on all FDIC insured institutions.
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
                                   FORM 10-QSB
                               SEPTEMBER 30, 1996


                           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
                  (3). Amendment to Bylaws

              (b) Reports on Form 8-K
                  None

<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 15, 1997                   BY:  /s/ Joseph H. Giaquinto
                                           -----------------------
                                           Joseph H. Giaquinto
                                           Chairman of the Board,
                                           President and Chief Executive Officer
                                           (Duly Authorized Officer)


DATE:  May 15, 1997                   BY:  /s/ David J. Jurczynski
                                           -----------------------
                                           David J. Jurczynski
                                           Vice President, Treasurer and
                                           Chief Financial Officer
                                           (Principal Financial Officer)