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 September 30, 1998 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 October 31, 1998
     ---------------------                       -------------------------------

     Common Stock, Par $.01                                   1,208,472


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

                                   FORM 10-QSB

                               SEPTEMBER 30, 1998


INDEX

Part I    FINANCIAL INFORMATION
 
Item 1.   Interim Financial Statement ..........................................

            Consolidated Statements of Income for the three
            months ended September 30, 1998 and 1997, (Unaudited)...............

            Consolidated Statements of Income for the nine
            months ended September 30, 1998 and 1997, (Unaudited)...............

            Consolidated Statements of Financial Condition as
            of September 30, 1998, (Unaudited) and December 31, 1997............

            Consolidated Statements of Changes in Stockholders' Equity for
            the nine months ended September 30, 1998 and 1997,  (Unaudited).....

            Consolidated Statements of Cash Flows for the nine
            months ended September 30, 1998 and 1997  (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......................................................................
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                               SEPTEMBER 30, 1998



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


                         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
                                                                         SEPTEMBER 30,
                                                                        1998       1997
                                                                        (Unaudited)
<S>                                                                  <C>         <C>  
Interest income:
      Loans ....................................................     $2,717      2,493
      Investment securities ....................................        223        512
      Securities available for sale ............................        160         99
      Federal funds sold and cash deposits .....................         96         37
      Stock in Federal Home Loan Bank ..........................         24         23
                                                                     ------     ------
             Total interest income .............................      3,220      3,164

Interest expense:
      Deposits .................................................      1,767      1,705
                                                                     ------     ------ 
             Net interest income ...............................      1,453      1,459

Provision for loan losses ......................................         30         30
                                                                     ------     ------
             Net interest income after provision for loan losses      1,423      1,429
                                                                     ------     ------
Noninterest income:
      Other loan charges .......................................         35         28
      Bank fees and service charges ............................         49         38
      Other ....................................................         27         33
                                                                     ------     ------
             Total noninterest income ..........................        111         99
                                                                     ------     ------
Noninterest expense:
      Compensation and employee benefits .......................        669        653
      Advertising and business promotion .......................          6         12
      Office occupancy and equipment expense ...................        154        156
      Federal deposit insurance premiums .......................         23         23
      Other insurance premiums .................................         19         27
      Mortgage servicing fees ..................................          4          8
      Data processing fees .....................................         50         43
      Professional service fees ................................        105         58
      Other ....................................................         68         68
                                                                     ------     ------
             Total noninterest expense .........................      1,098      1,048
                                                                     ------     ------

             Income before taxes ...............................        436        480

Income tax expense .............................................        184        184
                                                                     ------     ------
             Net income ........................................     $  252        296
                                                                     ======     ======
Earnings per share:
     Basic .....................................................     $  .23        .27
                                                                     ======     ======
     Diluted ...................................................     $  .22        .26
                                                                     ======     ======
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
<PAGE>
<TABLE>
<CAPTION>
                             SFS BANCORP, INC. AND SUBSIDIARY
                             Consolidated Statements of Income
                           (In Thousands, Except Per Share Data)


                                                                        NINE MONTHS ENDED
                                                                           SEPTEMBER  30,
                                                                         1998       1997
                                                                        ------     ------
                                                                           (Unaudited)
<S>                                                                     <C>         <C>  
Interest income:
      Loans .......................................................     $8,042      7,188
      Investment securities .......................................        987      1,594
      Securities available for sale ...............................        358        224
      Federal funds sold and cash deposits ........................        151        140
      Stock in Federal Home Loan Bank .............................         73         64
                                                                        ------     ------
             Total interest income ................................      9,611      9,210

Interest expense:
      Deposits ....................................................      5,227      4,892
                                                                        ------     ------ 
             Net interest income ..................................      4,384      4,318

Provision for loan losses .........................................         90         90 
                                                                        ------     ------               
             Net interest income after provision for loan losses ..      4,294      4,228
                                                                        ------     ------

Noninterest income:
      Other loan charges ..........................................        116         82
      Bank fees and service charges ...............................        133        120
      Other .......................................................         86         65
                                                                        ------     ------
             Total noninterest income .............................        335        267
                                                                        ------     ------
Noninterest expense:
      Compensation and employee benefits ..........................      1,995      1,983
      Advertising and business promotion ..........................         24         74
      Office occupancy and equipment expense ......................        461        465
      Federal deposit insurance premiums ..........................         69         51
      Other insurance premiums ....................................         55         70
      Mortgage servicing fees .....................................         15         25
      Data processing fees ........................................        144        131
      Professional service fees ...................................        244        179
      Other .......................................................        220        220
                                                                        ------     ------
             Total noninterest expense ............................      3,227      3,198
                                                                        ------     ------
             Income before taxes ..................................      1,402      1,297

Income tax expense ................................................        583        508
                                                                        ------     ------
             Net income ...........................................     $  819        789
                                                                        ======     ======
Earnings per share:
     Basic ........................................................     $  .75        .71
                                                                        ======     ======
     Diluted ......................................................     $  .71        .68
                                                                        ======     ======
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                      SFS BANCORP, INC. AND SUBSIDIARY
                               Consolidated Statements of Financial Condition
                                           (Dollars in Thousands)

                                                                              September 30,   December 31,
                                                                                  1998            1997
                                                                              -------------   ------------             
Assets                                                                         (Unaudited)
<S>                                                                             <C>                <C>  
Cash and due from banks ...................................................     $   1,259          1,876
Federal funds sold ........................................................         6,100            300
                                                                                ---------      ---------
            Total cash and cash equivalents ...............................         7,359          2,176

Securities available for sale, at fair value ..............................        10,126          4,067
Investment securities (estimated fair value of $12,928
    at September 30, 1998 and $29,095 at December 31, 1997) ...............        12,821         28,979
Stock in Federal Home Loan Bank of NY, at cost ............................         1,338          1,338
Loans receivable, net .....................................................       140,482        133,786
Accrued interest receivable ...............................................         1,064          1,130
Premises and equipment, net ...............................................         2,133          2,242
Real estate owned .........................................................           151            111
Prepaid expenses and other asset ..........................................           770            599
                                                                                ---------      ---------
    Total Assets ..........................................................     $ 176,244        174,428
                                                                                =========        =======

Liabilities and Stockholders' Equity
Liabilities:
    Due to depositors:
          Non-interest bearing deposits ...................................     $   2,739          2,265
          Savings and interest bearing demand deposits ....................        53,716         53,463
          Time deposit accounts ...........................................        95,358         94,741
                                                                                ---------      ---------
                   Total Deposits .........................................       151,813        150,469

     Advance payments by borrowers for property taxes and insurance .......           818          1,281
     Accrued expenses and other liabilities ...............................         1,469          1,247
                                                                                ---------      ---------
                   Total Liabilities ......................................       154,100        152,997
                                                                                ---------      ---------
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 September 30, 1998 and December 31, 1997 ............            15             15
     Additional paid-in capital ...........................................        14,411         14,365
     Retained earnings, substantially restricted ..........................        12,950         12,422
   Common stock acquired by :
     Employee stock ownership plan ("ESOP") (83,720 shares) ...............          (837)          (837)
     Recognition and retention plan  ("RRP") (32,530 shares) ..............          (352)          (455)
      Treasury stock, at cost (286,528 shares at September 30, 1998 and
              December 31, 1997) ..........................................        (4,089)        (4,089)
   Accumulated other comprehensive income .................................            46             10
                                                                                ---------      ---------
                  Total Stockholders' Equity ..............................        22,144         21,431
                                                                                ---------      ---------
                    Total Liabilities and Stockholders' Equity ............     $ 176,244        174,428
                                                                                =========      =========
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                             SFS BANCORP, INC. AND SUBSIDIARY
                                CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                                (In Thousands) (Unaudited)
                                                                                                    Common        Common    
                                                    Additional                                       Stock         Stock    
                                       Common        Paid-in        Retained       Treasury        Acquired      Acquired   
                                        Stock        Capital        Earnings         Stock          By ESOP        By RRP   
                                      -------        ------         ------         ------           ----           ---- 
<S>                                    <C>            <C>            <C>            <C>              <C>            <C>   
Nine Months Ended
September 30, 1998
Balance at December 31, 1997 ...       $    15        14,365         12,422         (4,089)          (837)          (455)

Comprehensive income:
  Net income ...................            --            --            819             --             --             --  
  Other comprehensive income,
  net of tax:
    Unrealized net holding gains
        arising during the year
        (pre-tax $60) ..........            --            --             --             --             --             --  
Comprehensive income ...........     

Amortization of unearned RRP
   compensation ................            --            --             --             --             --            103

Cash dividends  declared .......            --            --           (291)            --             --             --  

Tax benefit related to vested
      RRP shares ...............            --            46            --             --             --              --
                                       -------        ------         ------         ------           ----           ---- 
Balance at September 30, 1998 ..       $    15        14,411         12,950         (4,089)          (837)          (352)
                                       =======        ======         ======         ======           ====           ==== 
Nine Months Ended
September 30, 1997
Balance at December 31, 1996....       $    15        14,260         11,687         (2,840)          (957)          (540)

Comprehensive income:
  Net income ...................            --            --            789             --             --             --  
  Other comprehensive income,
  net of tax:
    Unrealized net holding gains
    arising during the period    
    (pre-tax $17) ..............            --            --             --             --             --             --
Comprehensive income ...........                                    

Amortization of unearned RRP
   compensation ................            --            --             --             --             --            195

Cash dividends  declared .......            --            --           (249)            --             --             --  

Exercise of stock options ......            --            --             --             94             --             --  

Purchase of  Treasury shares ...            --            --             --           (794)            --             --
                                       -------        ------         ------         ------           ----           ---- 
Balance at September 30, 1997 ..       $    15        14,260         12,227         (3,540)          (957)          (345) 
                                       =======        ======         ======         ======           ====           ====  
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                        SFS BANCORP, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                           (In Thousands) (Unaudited)

                                     Accumulated                              
                                        Other                                  
                                     Comprehensive   Comprehensive                
                                        Income           Income           Total       
                                     -------------   --------------    --------
<S>                                     <C>            <C>             <C>
Balance at December 31, 1997 ....             10                         21,431

Comprehensive income:
  Net income ....................             --       $    819             819
  Other comprehensive income,
  net of tax:
    Unrealized net holding gains
        arising during the year
        (pre-tax $60) ...........             36             36              36
                                                       --------        
Comprehensive income ............                      $    855
                                                       ========

Amortization of unearned RRP
   compensation .................             --                            103

Cash dividends  declared ........             --                           (291)

Tax benefit related to vested
      RRP shares ................             --                             46
                                        --------                       --------
Balance at September 30, 1998 ...             46                         22,144
                                        ========                       ========
Nine Months Ended
September 30, 1997
Balance at December 31, 1996 .....            46                         21,671

Comprehensive income:
  Net income ....................             --       $    789             789
  Other comprehensive income,
  net of tax:
    Unrealized net holding gains
    arising during the period        
    (pre-tax $17) ...............             10             10              10
                                                       --------
Comprehensive income ............                      $    799
                                                       ========
Amortization of unearned RRP
   compensation .................             --                            195

Cash dividends  declared ........             --                           (249)

Exercise of stock options .......             --                             94

Purchase of  Treasury shares ....             --                           (794)
                                        --------                       --------
Balance at September 30, 1997.....            56                         21,716
                                        ========                       ========
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                       SFS BANCORP, INC. AND SUBSIDIARY
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                (In Thousands)
                                                                                        Nine Months Ended
                                                                                          September 30,
                                                                                    ------------------------
                                                                                      1998            1997
                                                                                    --------        --------
                                                                                           (Unaudited)
<S>                                                                                  <C>             <C>
Increase (decrease) in cash and cash equivalents:                                                          
    Reconciliation of net income to net cash provided
         by operating activities:
         Net income ..........................................................       $    819             789
         Adjustments to reconcile net income to
            net cash provided by operating activities:
            Depreciation and amortization ....................................            152             140
            Net accretion on investment securities ...........................            (74)            (38)
            Net accretion on securities available for sale ...................             (1)             --
            Amortization of unearned RRP compensation ........................            103             195
            Provision for loan losses ........................................             90              90
            Loss on sale of real estate owned ................................             --               3
            Decrease in accrued interest receivable ..........................             66              77
            Increase in prepaid expense and other assets .....................           (171)            (20)
            Increase in accrued expense and other liabilities ................            244             231
                                                                                     --------        --------
                   Total adjustments .........................................            409             678
                                                                                     --------        --------
                 Net cash provided by operating activities ...................          1,228           1,467
                                                                                     --------        --------
Cash flows from investing activities:
    Proceeds from maturity/paydown of investment securities ..................         10,927           4,501
    Proceeds from maturity/paydown of securities available for sale ..........          2,000           2,000
    Purchase of investment securities ........................................           --            (1,700)
    Purchase of securities available for sale ................................         (7,998)         (4,050)
    Purchase of Federal Home Loan Bank Stock .................................           --              (123)
    Principal repayments on mortgage-backed securities .......................          5,305           2,416
    Net increase in loans receivable .........................................         (4,839)         (7,340)
    Purchase of loans receivable .............................................         (2,014)         (3,110)
    Capital expenditures, net of disposals ...................................            (43)           (462)
    Proceeds from the sale of real estate owned ..............................             27             102
                                                                                     --------        --------
         Net cash provided (used) by investing activities ....................          3,365          (7,766)
                                                                                     --------        --------
Cash flows from financing activities:
    Net increase in deposits .................................................          1,344           9,238
    Net decrease in advance payments by borrowers for
         property taxes and insurance ........................................           (463)           (309)
    Proceeds upon exercise of common stock options ...........................           --                94
    Dividends paid ...........................................................           (291)           (249)
    Purchase of Treasury stock ...............................................           --              (794)
                                                                                     --------        --------
         Net cash provided by financing activities ...........................            590           7,980
                                                                                     --------        --------
         Net increase in cash and cash equivalents ...........................          5,183           1,681
    Cash and cash equivalents at beginning of period .........................          2,176           2,896
                                                                                     --------        --------
    Cash and cash equivalents at end of period ...............................       $  7,359           4,577
                                                                                     ========        ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                       SFS BANCORP, INC. AND SUBSIDIARY
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                (In Thousands)
                                                 (continued)

                                                                                        Nine Months Ended
                                                                                          September 30,
                                                                                    ------------------------
                                                                                      1998            1997
                                                                                    --------        --------
                                                                                           (Unaudited)
<S>                                                                                  <C>             <C>
Supplemental  disclosures of cash flow information:
Cash paid during the period for:
         Interest paid .......................................................       $  5,241           4,892
                                                                                     ========        ========
         Taxes paid ..........................................................       $    624             371
                                                                                     ========        ========
    Transfer of loans to other real estate owned .............................       $     67              38
                                                                                     ========        ========
    Net unrealized gain on securities available for sale, net of taxes .......       $     36              10
                                                                                     ========        ========

    Deferred tax expense on unrealized gain
         on securities available for sale ....................................       $    (24)             (7)
                                                                                     ========        ========
    Deferred tax benefit related to vested RRP shares ........................       $     46            --
                                                                                     ========        ========
</TABLE>

See accompanying notes to unaudited consolidated interim financial statements 
<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 1997 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 and nine months  ended  September  30,  1998   are not
necessarily  indicative  of results  that may be  expected  for the entire  year
ending December 31, 1998.

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 and nine
month periods ended September 30, 1998 and 1997.


<TABLE>
<CAPTION>
Three Months Ended September 30:
(in thousands except share and per share information)
 
                                                                     1998
                                                  ------------------------------------------
                                                                   Weighted        Per Share
                                                  Net Income    Average Shares       Amount
                                                  ----------    --------------      --------
<S>                                               <C>              <C>              <C>     
Basic EPS ................................        $     252        1,092,222        $   0.23
                                                                                    ========
Dilutive effect of potential common shares
   related to stock based compensation ...             --             65,698
                                                  ---------        ---------
Diluted EPS ..............................        $     252        1,157,920        $   0.22
                                                  =========        =========        ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                     1997
                                                  ------------------------------------------
                                                                   Weighted        Per Share
                                                  Net Income    Average Shares       Amount
                                                  ----------    --------------      --------
<S>                                               <C>              <C>              <C>     
Basic EPS                                         $     296        1,101,492        $   0.27
                                                                                    ========
Dilutive effect of potential common shares
   related to stock based compensation                   --           50,227
                                                  ---------        ---------
Diluted EPS                                       $     296        1,151,719        $   0.26
                                                  =========        =========        ========
<CAPTION>
Nine Months Ended September 30:
(in thousands except share and per share information)
 
                                                                     1998
                                                  ------------------------------------------
                                                                   Weighted        Per Share
                                                  Net Income    Average Shares       Amount
                                                  ----------    --------------      --------
<S>                                               <C>              <C>              <C>     
Basic EPS                                         $     819        1,091,719        $   0.75
                                                                                    ========
Dilutive effect of potential common shares
   related to stock based compensation                   --           62,691
                                                  ---------        ---------                                            
Diluted EPS                                       $     819        1,154,410        $    0.71
                                                  ==========      ==========        =========
<CAPTION>

                                                                     1997
                                                  ------------------------------------------
                                                                   Weighted        Per Share
                                                  Net Income    Average Shares       Amount
                                                  ----------    --------------      --------
<S>                                               <C>              <C>              <C>     
Basic EPS                                         $     789        1,117,656        $    0.71
                                                                                    =========
Dilutive effect of potential common shares
   related to stock based compensation                   --           37,482
                                                  ---------        ---------                                            
Diluted EPS                                       $     789        1,155,139        $    0.68
                                                  =========        =========        =========
</TABLE>

NOTE 3.  Comprehensive Income

On January 1, 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting  Comprehensive  Income." This Statement
establishes  standards for reporting and display of comprehensive income and its
components.  Comprehensive  income includes the reported net income of a company
adjusted for items that are currently accounted for as direct entries to equity,
such as the mark to market adjustment on securities  available for sale, foreign
<PAGE>
currency  items and  minimum  pension  liability  adjustments.  At the  Company,
comprehensive  income  represents  net income plus other  comprehensive  income,
which  consists of the net change in  unrealized  gains or losses on  securities
available  for sale  for the  period.  Accumulated  other  comprehensive  income
represents the net unrealized  gains or losses on securities  available for sale
as of the balance sheet dates.  Comprehensive income for the three month periods
ended September 30, 1998 and 1997 was $292,000 and $309,000, respectively.


NOTE 4.  Proposed Merger

On October  23,  1998,  SFS  Bancorp,  Inc.  and Cohoes  Savings  Bank  (Cohoes)
announced the mutual  termination  of the definitive  agreement  entered into on
July 31,  1998,  pursuant to which the Company was to merge into a  newly-formed
holding company of Cohoes to be organized in connection with Cohoes'  conversion
from a mutual to a stock institution. Cohoes had advised the Company that due to
the recent  significant  decline in the market  values of  publicly  held thrift
institutions  and  institutions  undertaking  mutual-to-stock  conversions,  and
regulatory  concerns  regarding the pricing of the transaction,  the transaction
was no longer feasible.  Despite the best efforts of both parties, revised terms
acceptable  to everyone  could not be agreed  upon.  Pursuant to the  definitive
agreement, Cohoes has paid SFS Bancorp, Inc. a termination fee of $2 million.
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                               SEPTEMBER 30, 1998

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.  Collectively,  these entities are referred to herein as the
"Company".  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.

On October 23, 1998,  SFS  Bancorp,  Inc.  and Cohoes  Savings  Bank  ("Cohoes")
jointly  announced the execution of a  Termination  Agreement  dated October 23,
1998 (the "Termination  Agreement"),  which terminated the definitive  agreement
dated as of July 31, 1998 by and  between  the  Company and Cohoes (the  "Merger
Agreement").  Under the terms of the Merger  Agreement,  the Company was to have
merged  into a  newly-formed  holding  company  of  Cohoes  to be  organized  in
connection  with Cohoes'  conversion from a mutual to a stock  institution  (the
"Merger").  The Merger was terminated  after Cohoes  determined  that due to the
recent  significant  decline  in the  market  values  of  publicly  held  thrift
institutions,  including institutions undertaking  mutual-to-stock  conversions,
and  regulatory  concerns  regarding the amount of stock that SFS Bancorp,  Inc.
shareholders would receive in the Merger, that the Merger was no longer feasible
and could adversely  affect the Cohoes  conversion.  Pursuant to the Termination
Agreement, Cohoes has paid the Company a termination fee of $2 million.

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 to a lesser  extent by the  provision  for loan losses and by
gains and losses on the sale of its securities  available for sale portfolio and
<PAGE>
other noninterest  income. The Bank's operating expenses  principally consist of
compensation  and employee  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.

Except for historical  information  contained  herein,  the matters contained in
this   review  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:

          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 its  banking
          subsidiary were not in substantial  compliance  either currently or in
          the future as applicable;

          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;

          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;

          the effect of unforeseen changes in interest rates; and

          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 $2.2 million at December 31, 1997, increased $5.2 million to
$7.4 million at September  30, 1998 as a result of an increase in federal  funds
sold.  Securities  available for sale  increased  $6.1 million from December 31,
1997  to  $10.1  million  at  September  30,  1998  primarily  as  a  result  of
management's  intention to provide greater  flexibility in the overll management
of the investment securities  portfolio.  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.
<PAGE>
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 20.84% and 20.21% at September 30, 1998 and December 31, 1997, 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 net income was $1.2  million and $1.5  million for the
nine months ended  September 30, 1998 and 1997,  respectively.  Net cash used by
investing activities,  consisting primarily of disbursements for the origination
and  purchase of loans and the  acquisition  of  securities  available  for sale
partially  offset  by  principal   collections  on  loans  and   mortgage-backed
securities and by proceeds from the maturity of investment securities,  was $7.8
million for the nine months ended  September 30, 1997.  Net cash of $3.4 million
was provided by investing  activities  for the nine months ended  September  30,
1998 primarily due to proceeds from the maturity, call and paydown of investment
securities and mortgage-backed securities partially offset by an increase in the
purchase of  securities  available  for sale.  Net cash  provided  by  financing
activities  for the nine months ended  September 30, 1998 of $590,000  consisted
primarily of a $1.3 million net increase in deposit  accounts  during the period
offset by the payment of dividends.  Net cash provided by financing  activities,
consisting  primarily of a $9.2 million net increase in deposit  accounts during
the period  offset by the purchase of treasury  stock and payment of  dividends,
was $8.0 million for the nine months ended September 30, 1997.

During the nine month  period  ended  September  30,  1998,  the Company did not
repurchase any of its shares.  During the nine month period ended  September 30,
1997 the Company  repurchased  47,475  shares.  The  weighted  average  price of
treasury shares purchased was $16.73 totaling  $794,000.  The average price paid
of $16.73  was  approximately  94.8% of the  Company's  book  value per share of
$17.64 at September 30, 1997. 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 based on extenuating facts and
circumstances.  As of June 29, 1998,  the OTS no longer  restricts the amount of
shares the Company may elect to repurchase.

At  September  30,  1998,  the  Bank's  capital  exceeded  each  of the  capital
requirements  of the OTS. At September  30, 1998,  the Bank's  tangible and core
capital levels were both $20.0 million (11.4% of total adjusted  assets) and its
risk-based  capital  level  was  $20.9  million  (22.0%  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  increased  $1.8 million  (1.0%) to $176.2 million at September 30,
1998 from $174.4 million at December 31, 1997.  This increase  occurred as loans
receivable,  net,  grew $6.7 million  (5.0%) to $140.5  million at September 30,
1998. The growth in the loan portfolio was due to  residential  mortgage  loans.
Securities  available for sale increased $6.1 million  (149.0%) to $10.1 million
at September 30, 1998.  Federal funds sold  increased  $5.8 million at September
30, 1998 from $300,000 at December 31, 1997.  Offsetting  these  increases was a
decrease in investment securities of $16.2 million (55.8%) to $12.8 million.
<PAGE>
At September 30, 1998,  total  liabilities  were $154.1 million  representing an
increase of $1.1  million  (0.7%) from  December  31,  1997.  The  increase  was
primarily  attributable  to  an  increase  in  deposits.   Stockholders'  equity
increased  $713,000 to $22.1  million at September 30, 1998 as compared to $21.4
million at December  31,  1997.  Retained  earnings  increased  by $528,000 as a
result of net income of the Company for the nine month  period  ended  September
30, 1998, which was partially offset by cash dividends declared.

Nonperforming  assets decreased  $16,000 (1.1%) to $1.4 million at September 30,
1998.  The ratio of  nonperforming  loans to total loans  receivable was .91% at
September  30, 1998,  compared  with 1.00% at December  31,  1997.  The ratio of
nonperforming  assets to total  assets was .82% at September  30, 1998  compared
with .84% at December 31, 1997.

Loan Receivable, Net

A summary of loans  receivable,  net at September 30, 1998 and December 31, 1997
is as follows:




<TABLE>
<CAPTION>
                                                     September 30,     December 31,  
                                                          1998            1997
                                                        --------        --------
                                                             (In thousands)
<S>                                                     <C>              <C>  
Loans secured by real estate:
   Residential:
      Conventional .............................        $110,735         100,277
      Home Equity ..............................          20,498          22,658
      FHA Insured ..............................           2,264           2,772
      VA Guaranteed ............................           1,512           2,028
   Commercial and multi-family .................           5,761           6,130
                                                        --------        --------
                                                         140,770         133,865
Other loans ....................................             709             721
                                                        --------        --------
                                                         141,479         134,586
                                                        --------        --------
Less:
   Unearned discount and net deferred loan fees              105              22
   Allowance for loan losses ...................             891             778
                                                        --------        --------
                                                             996             800
                                                        --------        --------

Loans receivable, net ..........................        $140,482         133,786
                                                        ========        ========
</TABLE>
<PAGE>
The following table sets forth information with regard to nonperforming assets.
<TABLE>
<CAPTION>
                                                      September 30,      December 31, 
                                                            1998             1997 
                                                          ------          ------
                                                              (In thousands)

<S>                                                       <C>              <C>  
Loans on a nonaccrual status ...................          $1,284           1,328
Loans contractually past due 90 days or
   more and still accruing interest ............               7              19
                                                          ------          ------
      Total nonperforming loans ................           1,291           1,347
Other real estate owned ........................             151             111
                                                          ------          ------
      Total nonperforming assets ...............          $1,442           1,458
                                                          ======          ======
</TABLE>
The  following  table  sets  forth  information  with  regard to  changes in the
allowance for loan losses.
<TABLE>
<CAPTION>
                                                           For the nine months
                                                            ended September 30,
                                                           1998            1997
                                                          -----           -----
                                                              (In thousands)
<S>                                                       <C>               <C>
Balance, beginning of period ...................          $ 778             642
Provision charged to operations ................             90              90
Loans charged off ..............................            (21)             (2)
Recoveries on loans previously charged off .....             44              29
                                                          -----           -----

Balance, end of period .........................          $ 891             752
                                                          =====           =====
</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 and nine months ended September 30, 1998,  compared
with the corresponding periods 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.  All average balances are
daily average balances.  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)  


                                                                  THREE MONTHS ENDED SEPTEMBER  30,
                                        --------------------------------------------------------------------------------
                                                           1998                                      1997
                                        -------------------------------------      -------------------------------------

                                           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) .....      $141,788       $  2,717      7.60%         $126,834      $  2,493       7.80%     
      Mortgage-backed securities ....        12,604            196      6.17            18,408           292       6.29      
      Securities available for sale .        10,134            160      6.26             5,864            99       6.70      
      Debt securities ...............         1,435             27      7.46            13,428           220       6.50      
      Other interest-earning assets                                                                                           
           including cash equivalents         7,066             96      5.39             2,671            37       5.50      
       FHLB stock ...................         1,338             24      7.12             1,338            23       6.82      
                                           --------       --------                    --------      --------            
Total interest-earning assets .......       174,365          3,220      7.33           168,543         3,164       7.44      
                                           --------       --------                    --------      --------            
                                                                                                                             
      Savings accounts ..............        36,951            280      3.01            37,306           283       3.01      
      Money market accounts .........         7,534             63      3.32             7,712            70       3.60      
      Demand and NOW accounts (2) ...        12,194             44      1.43            11,137            42       1.50      
      Certificate accounts ..........        96,096          1,369      5.65            91,843         1,301       5.62      
      Escrow ........................         2,040             11      2.14             1,736             9       2.06      
                                           --------       --------                    --------      --------          
Total interest-bearing liabilities ..       154,815          1,767      4.53           149,734         1,705       4.52      
                                           --------       --------                    --------      --------  
                                                                                                                             
Net interest income .................                     $  1,453                                  $  1,459                 
                                                          ========                                  ======== 
Net interest rate spread ............                                   2.80%                                     2.93%      
                                                                        ====                                      ====    
Net earning assets ..................      $ 19,550                                   $ 18,809                               
                                           ========                                   ========                               
Net yield on average                                                                                                         
       interest-earning assets ......                                   3.31%                                     3.43% 
                                                                        ====                                      ====
Average interest-earning                                                                                                     
       assets to average                                                                                                     
       interest-bearing liabilities .          1.13                                       1.13                               
                                               ====                                       ==== 
                                                                                                                             
</TABLE>                                                                     
(1) Calculated net of deferred loan fees.
(2) Includes noninterest-bearing demand accounts.
<PAGE>
<TABLE>
<CAPTION>
                                                 SFS BANCORP, INC. AND SUBSIDIARY
                                  Average Balance Data, Interest Rates and Interest Differential
                                                       (Dollars in Thousands)  


                                                                      NINE  MONTHS ENDED SEPTEMBER  30,
                                          --------------------------------------------------------------------------------------
                                                              1998                                         1997
                                          -----------------------------------------      ---------------------------------------
                                              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) .......      $139,037        $ 8,042          7.73%        $122,668      $  7,188          7.83% 
      Mortgage-backed securities ......        14,644            682          6.23           19,241           913          6.34  
      Securities available for sale ...         7,470            358          6.41            4,560           224          6.57  
      Debt securities .................         5,810            305          7.02           14,085           681          6.46  
      Other interest-earning assets                                                                                              
           including cash equivalents .         3,775            151          5.35            3,486           140          5.37  
      FHLB stock ......................         1,338             73          7.29            1,316            64          6.50  
                                             --------       --------                       --------      --------                
Total interest-earning assets .........       172,074          9,611          7.47          165,356         9,210          7.45  
                                             --------       --------                       --------      --------        
                                                                                                                                 
Interest-bearing liabilities:                                                                                                    
      Savings accounts ................        36,614            824          3.01           37,209           837          3.01  
      Money market accounts ...........         7,507            185          3.29            6,962           181          3.48  
      Demand and NOW accounts (2) .....        11,425            122          1.43           10,626           120          1.51  
      Certificate accounts ............        95,895          4,073          5.68           90,561         3,734          5.51  
      Escrow ..........................         1,489             23          2.07            1,255            20          2.13  
                                             --------       --------                       --------      --------  
Total interest-bearing liabilities ....       152,930          5,227          4.57          146,613         4,892          4.46 
                                             --------       --------                       --------      -------- 
                                                                             
Net interest income ...................                     $  4,384                                     $  4,318 
                                                            ========                                     ========  
Net interest rate spread ..............                                       2.90%                                        2.99% 
                                                                              ====                                         ==== 
                                                         
Net earning assets ....................      $ 19,144                                      $ 18,743
                                             ========                                      ======== 
Net yield on average                                                                                                             
       interest-earning assets ........                                       3.41%                                        3.49% 
                                                                              ====                                         ====  
Average interest-earning                                                                                                         
       assets to average                                                                                                         
       interest-bearing liabilities ...          1.13                                          1.13                              
                                                 ====                                          ====   
</TABLE>                                               
(1) Calculated net of deferred loan fees.
(2) Includes noninterest-bearing demand accounts.
<PAGE>
<TABLE>
<CAPTION>


                           SFS BANCORP, INC. AND SUBSIDIARY
                                 RATE VOLUME ANALYSIS
                                   (In Thousands)  

                        THREE MONTHS ENDED SEPTEMBER 30, 1998
                                    COMPARED WITH
                        THREE MONTHS ENDED SEPTEMBER 30, 1997




                                                  INCREASE (DECREASE)
                                                         DUE TO
                                                 ----------------------             
                                                 VOLUME           RATE          NET    
                                                 ------           ----          ---    
<S>                                              <C>               <C>          <C>                       
Interest-earning assets:                                                                     
  Loans receivable, net .............            $ 285             (61)         224          
  Mortgage-backed securities ........              (90)             (6)         (96)         
  Securities-available for sale .....               68              (7)          61          
  Debt securities ...................             (231)             38         (193)         
  Other interest-earning assets .....               60              (1)          59          
  FHLB stock ........................                0               1            1          
                                                 -----           -----        -----          
Total interest-earning assets .......               92             (36)          56          
                                                 -----           -----        -----          
                                                                                             
Interest-bearing liabilities:                                                                
  Savings deposits ..................               (3)              0           (3)         
  Money market accounts .............               (2)             (5)          (7)         
  Demand and NOW deposits ...........                4              (2)           2          
  Certificate accounts ..............               61               7           68          
  Escrow ............................                2               0            2          
                                                 -----           -----        -----          
Total interest-bearing liabilities ..            $  62               0           62          
                                                 -----           -----        -----         
                                                                                             
Change in net interest income .......            $  30           $ (36)       $  (6)         
                                                 =====           =====        =====   
</TABLE>
<PAGE>
<TABLE>       
<CAPTION>


                         NINE MONTHS ENDED SEPTEMBER 30, 1998
                                    COMPARED WITH
                         NINE MONTHS ENDED SEPTEMBER 30, 1997




                                                  INCREASE (DECREASE)
                                                         DUE TO
                                                 ----------------------             
                                                 VOLUME           RATE          NET    
                                                 ------           ----          ---    
<S>                                              <C>               <C>          <C>                       
Interest-earning assets:
  Loans receivable, net ...................        $ 945           (91)          854
  Mortgage-backed securities ..............         (214)          (17)         (231)
  Securities-available for sale ...........          140            (6)          134
  Debt securities .........................         (440)           64          (376)
  Other interest-earning assets ...........           12            (1)           11
  FHLB stock ..............................            1             8             9
                                                   -----         -----         -----
Total interest-earning assets .............          444           (43)          401
                                                   -----         -----         -----

Interest-bearing liabilities:
  Savings deposits ........................          (13)            0           (13)
  Money market accounts ...................           14            10)            4
  Demand and NOW deposits .................            9            (7)            2
  Certificate accounts ....................          224           115           339
  Escrow ..................................            4            (1)            3  
                                                   -----         -----         -----
Total interest-bearing liabilities ........          238            97           335
                                                   =====         =====         =====

Change in net interest income .............        $ 206         $(140)        $  66
                                                   =====         ======        =====
</TABLE>
<PAGE>
COMPARISONS OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
WITH THREE MONTHS ENDED SEPTEMBER 30, 1997

Net income for the quarter ended  September 30, 1998, was $252,000 or $.23 basic
earnings  per share and $.22  diluted  earnings  per share.  This  represents  a
decrease of $44,000  (14.9%) from the comparable  quarter of the prior year. The
decrease  in net income was  primarily  a result of a decrease  in net  interest
income and an increase in noninterest  expense.  These  decreases were partially
offset by an increase in noninterest  income.  The provision for loan losses and
income  tax  expense  was  consistent  with the same  quarter  a year  ago.  The
annualized  return on average assets ("ROA") for the current quarter amounted to
 .57% compared with .68% for the  comparable  quarter a year ago. The  annualized
return on average  equity ("ROE") was 4.66% (on average equity of $21.6 million)
compared with 5.59% (on average equity of $21.2 million) a year earlier.

Interest  income for the three months  ended  September  30, 1998,  totaled $3.2
million,  an increase of $56,000 (1.8%) from 1997's third  quarter.  The primary
reason for the increase was the fact that average loans, which are the Company's
highest  yielding  assets,  increased as a percentage of total  interest-earning
assets from 75.3% during the third  quarter 1997 to 81.3% for the same period in
1998. The interest  income on loans  increased  $224,000 (9.0%) as a result of a
$15.0 million (11.8%)  increase in the average  balance  invested offset by a 20
basis point decrease in average rates earned.  Other factors affecting  interest
income  were a  decrease  in  interest  earned on  investment  securities  which
decreased $289,000 (56.4%) as a result of the combined effect of a $17.8 million
(55.9%)  decrease in the average balance  invested and an 8 basis point decrease
in average  rates  earned.  Interest  income on  securities  available  for sale
increased  $61,000 (61.6%) as a result of an increase of $4.3 million (72.8%) in
the average  invested balance offset by a decrease of 44 basis points in average
rates earned.  The Company has classified recent security purchases as available
for sale in an effort to provide management with the opportunity to maximize the
return of the securities  portfolio.  Earnings on other interest earning assets,
primarily  federal funds sold,  increased $59,000 (159.5%) as a result of a $4.4
million (164.6%)  increase in the average invested balance offset by an 11 basis
point decrease in the average rate earned.

Interest  expense for the quarter  ended  September  30, 1998,  amounted to $1.8
million,  $62,000  (3.6%)  greater than the  corresponding  quarter of the prior
year.  The increase  occurred as a result of a $5.1 million  (3.4%)  increase in
average interest bearing liabilities to $154.8 million combined with a one basis
point  increase  in  average  rates paid to 4.53%.  The mix  within the  deposit
structure  changed as the average balances grew in certificate  accounts by $4.3
million  (4.6%) and in money  market  accounts  and demand and NOW  accounts  by
$879,000 (4.7%).  Average savings account balance declined $355,000 (1.0%).  The
increase in average  rates paid on  certificate  accounts  of 3 basis  points to
5.65% was a reflection of general  interest rates and a competitive  environment
that prevailed during the third quarter of 1998 compared with 1997.

Net interest  income for the three months ended  September 30, 1998 totaled $1.5
million, $6,000 (0.4%) less than the comparable quarter a year ago. The interest
rate spread  decreased 13 basis points to 2.80% for the quarter ended  September
30, 1998.  The net interest  margin for the most recent  quarter of 3.31% was 12
basis points less 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
September 30, 1998 and 1997.  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  September  30,  1998,  the Bank's
allowance for loan losses totaled $891,000 (0.63% of total gross loans and 69.0%
of  nonperforming  loans) compared with $778,000 (0.58% of total gross loans and
57.8% of nonperforming loans) at December 31, 1997.

Noninterest Income

Noninterest income amounted to $111,000 for the three months ended September 30,
1998  compared to $99,000 for the three months  ended  September  30, 1997.  The
increase  was  primarily  attributable  to  increased  penalties  on  the  early
withdrawal of  certificate  of deposit  accounts  totalling  $9,000  (430.7%) to
$11,000  combined  with an increase in other loan  charges of $7,000  (25.0%) to
$35,000.

Noninterest Expense

Noninterest  expense  increased  $50,000  (4.8%) to $1.1  million  for the three
months  ended  September  30,  1998,  as compared  with the same period in 1997.
Compensation  and  employee  benefits   increased  $16,000  (2.5%)  between  the
respective quarters. The increase was due in part to annual merit increases, and
increased  employee  benefits  partially due to increases in the employee  stock
ownership  plan  partially  offset  by a  reduction  in the  average  number  of
employees.  Professional  service  fees  increased  $47,000  (81.0%) to $105,000
primarily  attributable to expenses associated with recent merger  negotiations.
Other  insurance  premiums  decreased  $8,000  (29.6%) to $19,000 as a result of
reduced  premiums  on  certain  policies  put out to  competitive  bid  prior to
renewal.   Data  processing  fees  increased  $7,000  (16.3%)  due  in  part  to
incremental  expenses related to the Bank's efforts to comply with the Year 2000
data processing issue. Advertising and business promotion,  office occupancy and
equipment expense,  federal deposit insurance premiums,  mortgage servicing fees
and other  noninterest  expense  remained  relatively  the same for the quarters
ended September 30, 1998 and September 30, 1997.

Income Tax Expense

Income tax expense  totaled  $184,000 for the three months ended  September  30,
1998 and 1997.  The effective tax rate for the three months ended  September 30,
1998 was 42.2% compared to 38.3% for the same period a year ago. The increase in
effective   tax  rate  was  primarily   attributable   to  an  increase  in  the
nondeductible  portion of the  compensation  expense of the  Company's  Employee
Stock Ownership Plan.
<PAGE>
COMPARISONS  OF OPERATING  RESULTS FOR THE NINE MONTHS ENDED  SEPTMEBER 30, 1998
WITH NINE MONTHS ENDED SEPTEMBER 30, 1997

Net income for the nine months ended  September  30, 1998,  was $819,000 or $.75
basic earnings per share and $.71 diluted earnings per share. This represents an
increase of $30,000  (3.8%) from the  comparable  period of the prior year.  The
increase  in net income was  primarily  a result of  increases  in net  interest
income and  noninterest  income,  partially  offset by increases in  noninterest
expense and income tax expense. The provision for loan losses and income tax was
consistent  with the same period a year ago.  The  annualized  return on average
assets  ("ROA") for the first nine months of 1998 and 1997 amounted to .62%. The
annualized  return on average  equity  ("ROE") was 5.11% (on  average  equity of
$21.4  million)  compared with 4.94% (on average equity of $21.3 million) a year
earlier.

Interest  income for the nine months  ended  September  30,  1998,  totaled $9.6
million,  an increase of $401,000  (4.4%)  from 1997's  first nine  months.  The
primary reason for the increase was the fact that average  loans,  which are the
Company's   highest  yielding  assets,   increased  as  a  percentage  of  total
interest-earning assets from 74.2% during the first nine months of 1997 to 80.8%
for the same period in 1998.  Interest on loans increased  $854,000 (11.9%) as a
result of a $16.4  million  (13.3%)  increase  in the average  balance  invested
offset by a 10 basis point decrease in average rates earned.  Interest earned on
mortgage-backed  securities  decreased  $231,000  (25.3%)  as a  result  of  the
combined  effect of a $4.6  million  (23.9%)  decrease  in the  average  balance
invested and an 11 basis point decrease in average rates earned. Interest income
on securities  available for sale increased  $134,000  (59.8%) as a result of an
increase of $2.9 million  (63.8%) in the average  invested  balance  offset by a
decrease of 9 basis  points in average  rates  earned.  Interest  income on debt
securities  decreased  $376,000  (55.2%)  as a result of a  decrease  in average
invested  balances of $8.3 million (58.7%) offset by an increase in rates earned
of 56 basis points. Earnings on other interest earning assets, primarily federal
funds sold,  increased  $11,000 (7.9%) as a result of a $286,000 (8.3%) increase
in the  average  invested  balance  offset by a 2 basis  point  decrease  in the
average rate earned.

Interest expense for the nine months ended September 30, 1998,  amounted to $5.2
million,  $335,000  (6.8%)  greater than the  corresponding  period of the prior
year.  The increase  occurred as a result of a $6.3 million  (4.3%)  increase in
average interest bearing liabilities to $152.9 million combined with an 11 basis
point  increase  in  average  rates paid to 4.57%.  The mix  within the  deposit
structure  changed as the average balances grew in certificate  accounts by $5.3
million (5.9%) and in money market  accounts and demand and NOW accounts by $1.3
million (7.6%).  Average savings account balance declined  $595,000 (1.6%).  The
increase in average  rates paid on  certificate  accounts of 17 basis  points to
5.68% was a reflection of general  interest rates and a competitive  environment
that prevailed during the first nine months of 1998 compared with 1997.

Net interest  income for the nine months ended  September  30, 1998 totaled $4.4
million,  $66,000  (1.5%)  greater  than the  comparable  period a year  ago.Net
earning assets  increased  $401,000  (2.1%) during the first nine months of 1998
from the  comparagle  1997 period.  The interest  rate spread  decreased 9 basis
points to 2.90% for the nine months ended  September 30, 1998.  The net interest
margin for the nine months ended  September 30, 1998 was 3.41% which was 8 basis
points less than the comparable period a year ago.
<PAGE>
Provision for Loan Losses

For the nine months ended  September  30, 1998 and 1997,  the provision for loan
losses totaled $90,000. See "Provision for Loan Losses" at page 18.

Noninterest Income

Noninterest  income amounted to $335,000 for the nine months ended September 30,
1998  compared to $267,000 for the nine months  ended  September  30, 1997.  The
increase was primarily attributable to increased sales production in non-deposit
insurance  products by the Bank's  subsidiary  which  resulted in an increase of
$26,000  (95.4%)  in  revenue  over the same  period a year  ago,  as well as an
increase in other loan charges of $34,000 (41.5%) to $116,000. Bank service fees
increased  $13,000  (10.8%) to  $133,000  due in part to an increase in the fees
associated   with  an   increase   in   volume  of  ATM   transactions   and  in
transaction-related deposit accounts.

Noninterest Expense

Noninterest expense increased $29,000 (0.9%) to $3.2 million for the nine months
ended September 30, 1998, as compared with the same period in 1997.  Advertising
and business promotion  decreased $50,000 (67.6%) to $24,000 resulting primarily
from  decreased  advertising in relation to the new branch opening in the latter
part of the first quarter in 1997.  FDIC premiums  increased  $18,000 (35.3%) to
$69,000 as a result of the SAIF insurance premium refunded the Bank in the first
quarter of 1997 which had been paid in the fourth quarter of 1996  subsequent to
the  capitalization of SAIF. Other insurance  premiums decreased $15,000 (21.4%)
to $55,000  as a result of  reduced  premiums  on  certain  policies  put out to
competitive bid prior to renewal.  Professional  service fees increased  $65,000
(36.3%) due in part to the  amendment of certain  incentive  benefit plans which
were presented to  shareholders in the Company's 1998 annual meeting held in the
second quarter and to expenses associated with recent merger negotiations.  Data
processing  fees increased  $13,000  (9.9%) due in part to incremental  expenses
related  to the  Bank's  efforts  to comply  with the Year 2000 data  processing
issue.  Compensation  and employee  benefits,  office  occupancy  and  equipment
expense,   mortgage  servicing  fees  and  other  noninterest  expense  remained
relatively  the same for the nine months ended  September 30, 1998 and September
30, 1997.

Income Tax Expense

Income tax expense  totaled  $583,000  and  $508,000  for the nine months  ended
September  30, 1998 and 1997,  respectively.  The increase in income tax expense
was  primarily  attributable  to the $105,000  (8.1%)  increase in income before
taxes  to $1.4  million  for the nine  months  ended  September  30,  1998.  The
effective  tax rate for the nine  months  ended  September  30,  1998 was  41.6%
compared to 39.2% for the same period a year ago.  The  increase  was  primarily
attributable  to an increase in the  nondeductible  portion of the  compensation
expense of the Company's Employee Stock Ownership Plan.
<PAGE>
Impact of New Accounting Standards

In February  1998,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement of Financial  Accounting  Standards  No. 132,  "Employers'  Disclosure
about Pensions and Other Postretirement Benefits," (Statement 132), which amends
the disclosure  requirements for Statement of Financial Accounting Standards No.
87, "Employers' Accounting for Pensions," (Statement 87), Statement of Financial
Accounting   Standards  No.  88,  "Employers'   Accounting  for  Settlement  and
Curtailments  of Defined Benefit Pension Plans and for Termination of Benefits,"
(Statement  88),  and  Statement  of  Financial  Accounting  Standards  No. 106,
"Employers'  Accounting  for  Postretirement   Benefits  Other  Than  Pensions,"
(Statement  106).  Statement 132  standardizes  the disclosure  requirements  of
Statement  87 and  Statement  106 to the extent  practicable  and  recommends  a
parallel   format  for   presenting   information   about   pensions  and  other
postretirement  benefits.  This  Statement  is  applicable  to all  entities and
addresses  disclosure only. The Statement does not change any of the measurement
or  recognition  provisions  provided  for in  Statements  87,  88, or 106.  The
Statement  is  effective  for fiscal years  beginning  after  December 15, 1997.
Management  anticipates  providing the required  disclosures in the December 31,
1998 consolidated financial statements.

In June 1998, the 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.  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.

Year 2000 Issue

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  recently 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.
<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:

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

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

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 substantially complete.

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,
<PAGE>
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 substantially 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.

Conversion/Renovation  Phase. The Company's  corporate  inventory  revealed that
upgrades are available for all vendor supplied  mission  critical systems except
for the  Company's  accounting  general  ledger  system.  The  majority of these
Y2K-ready  versions  have been  delivered  and placed into  production  and have
entered the validation  process.  The accounting  general ledger system has been
identified as the only mission  critical system whereby a Y2K-ready  upgrade has
not yet been received. The vendor has projected December 31, 1998 as the release
date for the Y2K-ready version of the accounting general ledger application.

Validation/Implementation  Phase.  This phase is designed to test the ability of
hardware and software to accurately  process date  sensitive  data.  The Company
currently  is in the  process of  validation  testing of each  mission  critical
system (except for the accounting general ledger system). 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.  The  Company's  validation  phase is  expected to be  completed  by
December 31, 1998 for all mission  critical  systems  except for the  accounting
general ledger system which will undergo validation testing in the first quarter
of 1999.  During the  validation  testing  process to date, no  significant  Y2K
problems  have been  identified  relating to any  modified  or upgraded  mission
critical systems.

The Company's plan calls for completing  Y2K-ready systems and placing them into
production by March 31, 1999.  Y2K-ready modified or upgraded versions have been
installed  and placed  into  production  with  respect to all  mission  critical
systems with the exception of the Company's  accounting general ledger system to
which software upgrades are expected to be completed by December 31, 1998.

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,  internal  audit,  human  resources,  and
<PAGE>
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. The cost of the Y2K conversion project,  exclusive of internal costs,
is estimated to be approximately $100,000. Expenses of approximately $9,000 were
incurred and expensed by the Company  through  September  30, 1998.  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.  A formal  contingency  plan  will be
presented to the Board of Directors by December 31, 1998 for approval. 
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
                                   FORM 10-QSB
                               SEPTEMBER 30, 1998


                           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
              In order to be  eligible  for  inclusion  in the  Company's  proxy
              materials  for next year's  Annual  Meeting of  Stockholders,  any
              stockholder  proposal  to  take  action  at such  meeting  must be
              received at the Company's main office,  at 251 - 263 State Street,
              Schenectady,  New York 12305, no later than November 17, 1998. Any
              such proposal  shall be subject to the  requirements  of the proxy
              rules  adopted  under  the  Securities  Exchange  Act of 1934,  as
              amended.  Otherwise,  any  stockholder  proposal to take action at
              such  meeting  must be  received at the  Company's  main office by
              February 23, 1999; provided,  however,  that in the event that the
              date of the annual  meeting is before  April 2, 1999 or after June
              21, 1999, the shareholder proposal must be received not later than
              the close of  business  on the later of the 60th day prior to such
              annual  meeting or the tenth day following the day on which notice
              of  the  date  of  the  annual   meeting   was  mailed  or  public
              announcement  of the date of such  meeting  was  first  made.  All
              shareholder  proposals must also comply with the Company's  bylaws
              and Delaware law.

Item 6.       Exhibits and Reports on Form 8-K

              (a) Exhibits
                   None

              (b) Reports on Form 8-K
                  On October 29,  1998,  Form 8-K was filed  pursuant to Item 5,
                  Other Events in connection  with the announced  execution of a
                  termination  agreement  between SFS  Bancorp,  Inc. and Cohoes
                  Savings Bank as previously  described in Part I Item 2. of the
                  Form 10-QSB for the  quarter  ended  September  30,  1998.  No
                  financial  statements  were required to be filed with the Form
                  8-K.

<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:  November 16, 1998              BY:  /s/ Joseph H. Giaquinto
                                           -----------------------
                                           Joseph H. Giaquinto
                                           Chairman of the Board,
                                           President and Chief Executive Officer
                                           (Duly Authorized Officer)


DATE:  November 16, 1998              BY:  /s/ David J. Jurczynski
                                           -----------------------
                                           David J. Jurczynski
                                           Senior Vice President, Treasurer and
                                           Chief Financial Officer
                                           (Principal Financial Officer)