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 June 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 July 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

                                  JUNE 30, 1998


INDEX

Part I    FINANCIAL INFORMATION

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

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

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

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

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

            Consolidated Statements of Cash Flows for the Six
            months ended June 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

                                  JUNE 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
                                                                         JUNE  30,
                                                                      1998        1997
                                                                     ------     ------
                                                                        (Unaudited)
<S>                                                                  <C>         <C>  
Interest income:
      Loans ....................................................     $2,687      2,386
      Investment securities ....................................        329        529
      Securities available for sale ............................        127         88
      Federal funds sold and cash deposits .....................         37         56
      Stock in Federal Home Loan Bank ..........................         25         21
                                                                     ------     ------
             Total interest income .............................      3,205      3,080

Interest expense:
      Deposits .................................................      1,746      1,640
                                                                     ------     ------
   
             Net interest income ...............................      1,459      1,440

Provision for loan losses ......................................         30         30
                                                                     ------     ------

             Net interest income after provision for loan losses      1,429      1,410
                                                                     ------     ------
Noninterest income:
      Other loan charges .......................................         43         23
      Bank fees and service charges ............................         44         45
      Other ....................................................         34         16
                                                                     ------     ------
             Total noninterest income ..........................        121         84
                                                                     ------     ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                            SFS BANCORP, INC. AND SUBSIDIARY
                            Consolidated Statements of Income
                          (In Thousands, Except Per Share Data)
                                      (continued)


                                                                     THREE MONTHS ENDED
                                                                         JUNE  30,
                                                                      1998        1997
                                                                     ------     ------
                                                                        (Unaudited)
<S>                                                                  <C>         <C>  
Noninterest expense:
      Compensation and employee benefits .......................        629        643
      Advertising and business promotion .......................          9         20
      Office occupancy and equipment expense ...................        150        151
      Federal deposit insurance premiums .......................         23         23
      Other insurance premiums .................................         19         22
      Mortgage servicing fees ..................................          5          8
      Data processing fees .....................................         47         43
      Professional service fees ................................         79         56
      Other ....................................................         83         69
                                                                     ------     ------
             Total noninterest expense .........................      1,044      1,035
                                                                     ------     ------

             Income before taxes ...............................        506        459

Income tax expense .............................................        208        191
                                                                     ------     ------

             Net income ........................................     $  298        268
                                                                     ======        ===

Earnings per share:
     Basic .....................................................     $  .27        .24
                                                                     ======     ======

     Diluted ...................................................     $  .26        .23
                                                                     ======     ======

</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)

                                                                       SIX MONTHS ENDED
                                                                            JUNE  30,
                                                                       -----------------
                                                                        1998       1997
                                                                       ------     ------
                                                                          (Unaudited)
<S>                                                                    <C>         <C>  
 Interest income:
       Loans .....................................................     $5,325      4,695
       Investment securities .....................................        763      1,083
       Securities available for sale .............................        198        125
       Federal funds sold and cash deposits ......................         56        103
       Stock in Federal Home Loan Bank ...........................         49         41
                                                                       ------     ------
               Total interest income .............................      6,391      6,047

 Interest expense:
       Deposits ..................................................      3,460      3,188
                                                                        ------     ------              
              Net interest income ................................      2,931      2,859

 Provision for loan losses .......................................         60         60
                                                                       ------     ------
 
              Net interest income after provision for loan losses       2,871      2,799
                                                                       ------     ------

 Noninterest income:
       Other loan charges ........................................         84         54
       Bank fees and service charges .............................         83         82
       Other .....................................................         59         32
                                                                       ------     ------
              Total noninterest income ...........................        226        168
                                                                       ------     ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                             SFS BANCORP, INC. AND SUBSIDIARY
                            Consolidated Statements of Income
                          (In Thousands, Except Per Share Data)
                                       (continued)

                                                                       SIX MONTHS ENDED
                                                                            JUNE  30,
                                                                       -----------------
                                                                        1998       1997
                                                                       ------     ------
                                                                          (Unaudited)
<S>                                                                    <C>         <C>  
 Noninterest expense:
       Compensation and employee benefits ........................      1,328      1,330
       Advertising and business promotion ........................         19         61
       Office occupancy and equipment expense ....................        307        309
       Federal deposit insurance premiums ........................         47         28
       Other insurance premiums ..................................         36         44
       Mortgage servicing fees ...................................         11         17
       Data processing fees ......................................         94         88
       Professional service fees .................................        138        121
       Other .....................................................        151        152
                                                                       ------     ------
              Total noninterest expense ..........................      2,131      2,150
                                                                       ------     ------
                                                                                  
              Income before taxes ................................        966        817

 Income tax expense ..............................................        399        324
                                                                       ------     ------
              Net income .........................................     $  567        493
                                                                       ======     ======

 Earnings per share:
      Basic ......................................................     $  .52        .44
                                                                       ======     ======

      Diluted ....................................................     $  .49        .43
                                                                       ======     ======
</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)


                                                                                       June 30,     December 31,
                                                                                         1998           1997
                                                                                      ---------      ---------
      Assets                                                                                  (Unaudited)
      ------
<S>                                                                                   <C>                <C>  
      Cash and due from banks ...................................................     $     980          1,876
      Federal funds sold ........................................................         5,600            300
                                                                                      ---------      ---------
                  Total cash and cash equivalents ...............................         6,580          2,176

      Securities available for sale, at fair value ..............................         8,062          4,067
      Investment securities (estimated fair value of $16,992
                   at June 30, 1998 and $29,095 at December 31, 1997) ...........        16,910         28,979
      Stock in Federal Home Loan Bank of NY, at cost ............................         1,338          1,338
      Loans receivable, net .....................................................       141,222        133,786
      Accrued interest receivable ...............................................         1,061          1,130
      Premises and equipment, net ...............................................         2,171          2,242
      Real estate owned .........................................................           151            111
      Prepaid expenses and other asset ..........................................           598            599
                                                                                      ---------      ---------
                  Total Assets ..................................................     $ 178,093        174,428
                                                                                      =========        =======

      Liabilities and Stockholders' Equity
      Liabilities:
          Due to depositors:
                Non-interest bearing deposits ...................................     $   1,407          2,265
                Savings and interest bearing demand deposits ....................        54,547         53,463
                Time deposit accounts ...........................................        96,925         94,741
                                                                                      ---------      ---------
                  Total Deposits ................................................       152,879        150,469

           Advance payments by borrowers for property taxes and insurance .......         1,861          1,281
           Accrued expenses and other liabilities ...............................         1,438          1,247
                                                                                      ---------      ---------
                  Total Liabilities .............................................       156,178        152,997
                                                                                     ---------      ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                         SFS BANCORP, INC. AND SUBSIDIARY
                                  Consolidated Statements of Financial Condition
                                              (Dollars in Thousands)


                                                                                       June 30,     December 31,
                                                                                         1998           1997
                                                                                      ---------      ---------
                                                                                             (Unaudited)
  <S>                                                                                   <C>                <C>  
      Stockholders' Equity:
         Preferred stock, $.01 par value.  Authorized 500,000 shares; none issued          --             --
         Common stock, $.01 par value. Authorized 2,500,000 shares; 1,495,000
         shares issued at June 30, 1998 and December 31, 1997 ...................            15             15
         Additional paid-in capital .............................................        14,411         14,365
         Retained earnings, substantially restricted ............................        12,795         12,422
         Common stock acquired by :
         Employee stock ownership plan ("ESOP") (83,720 shares) .................          (837)          (837)
         Recognition and retention plan ("RRP") (32,530 shares) .................          (386)          (455)
         Treasury stock, at cost (286,528 shares at June 30, 1998 and
                    December 31, 1997) ..........................................        (4,089)        (4,089)
         Accumulated other comprehensive income .................................             6             10
                                                                                      ---------      ---------
                        Total Stockholders' Equity ..............................        21,915         21,431
                                                                                      ---------      ---------
                          Total Liabilities and Stockholders' Equity ............     $ 178,093        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      Accumulated
                                                   Additional                                 Stock          Stock         Other
                                      Common       Paid-in       Retained      Treasury      Acquired       Acquired   Comprehensive
                                       Stock        Capital      Earnings       Stock         By ESOP        By RRP       Income 
                                       -----        -------      --------       -----         -------        ------       ------ 
Six Months Ended
June 30, 1998
<S>                                   <C>            <C>          <C>           <C>             <C>           <C>             <C>
Balance at December 31, 1997 ....     $     15       14,365       12,422        (4,089)         (837)         (455)           10

Comprehensive income:
  Net income ....................         --           --            567          --            --            --            --   
  Other comprehensive income,
  net of tax:
    Unrealized net holding losses
        arising during the year
        (pre-tax $6) ............         --           --           --            --            --            --              (4)

Comprehensive income ............     


Amortization of unearned RRP
   compensation .................         --           --           --            --            --              69          --   

Cash dividends  declared ........         --           --           (194)         --            --            --            --   

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

Balance at June 30, 1998 ........     $     15       14,411       12,795        (4,089)         (837)         (386)            6
                                      ========       ======       ======        ======          ====          ====          ==== 
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                  SFS BANCORP, INC. AND SUBSIDIARY
                                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                                     (In Thousands) (Unaudited)
                                                            (continued)

Six Months Ended
June 30, 1997
<S>                                   <C>            <C>          <C>           <C>             <C>           <C>             <C>
Balance at December 31, 1996.....     $     15       14,260       11,687        (2,840)         (957)         (540)           46

Comprehensive income:
  Net income ....................         --           --            493          --            --            --            --   
  Other comprehensive income,
  net of tax:
    Unrealized net holding losses
      arising during the period
      (pre-tax $5) ..............         --           --           --            --            --            --              (3)

Comprehensive income ............     


Amortization of unearned RRP
   compensation .................         --           --           --            --            --             166          --   

Cash dividends  declared ........         --           --           (163)         --            --            --            --   

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

Balance at June 30, 1997 ........     $     15       14,260       12,017        (3,450)         (957)         (374)           43
                                      ========       ======       ======        ======          ====          ====          ==== 

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

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

Comprehensive income:
  Net income ....................     $    567           567
  Other comprehensive income,
  net of tax:
    Unrealized net holding losses
        arising during the year
        (pre-tax $6) ............           (4)           (4)
                                      --------
Comprehensive income ............     $    563 
                                      ========

Amortization of unearned RRP
   compensation .................                         69

Cash dividends  declared ........                       (194)

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

Balance at June 30, 1998 ........                     21,915
                                                      ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                        SFS BANCORP, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                           (In Thousands) (Unaudited)
                                  (continued)

Six Months Ended
June 30, 1997
<S>                                   <C>           <C>     
Balance at December 31, 1996 ....                   $ 21,671

Comprehensive income:
  Net income ....................     $    493           493
  Other comprehensive income,
  net of tax:
    Unrealized net holding losses
      arising during the period
      (pre-tax $5) ..............           (3)           (3)
                                      --------
Comprehensive income ............     $    490
                                      ========

Amortization of unearned RRP
   compensation .................                        166

Cash dividends  declared ........                       (163)

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

Purchase of  Treasury shares ....                       (704)
                                                    --------

Balance at June 30, 1997 ........                     21,554
                                                    ========

</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)

                                                                             Six Months Ended
                                                                                  June 30,
                                                                           --------------------
                                                                            1998           1997
                                                                           -------        -----                        

Increase (decrease) in cash and cash equivalents: ....................           (Unaudited)
<S>                                                                        <C>              <C>
    Reconciliation of net income to net cash provided
         by operating activities:
         Net income ..................................................     $   567          493
         Adjustments to reconcile net income to
            net cash provided by operating activities:
              Depreciation and amortization ..........................         100           91
          Net accretion on investment securities .....................         (74)          (5)
          Net accretion on securities available for sale .............          (1)        --
          Amortization of unearned RRP compensation ..................          69          166
          Provision for loan losses ..................................          60           60
          Decrease (increase) in accrued interest receivable .........          69          (60)
          Decrease (increase) in prepaid expense and other assets ....           1          (20)
          Increase in accrued expense and other liabilities ..........         239          332
                                                                           -------        -----  
                   Total adjustments .................................         463          564
                                                                           -------        -----  
                 Net cash provided by operating activities ...........       1,030        1,057
                                                                           -------        -----  
Cash flows from investing activities:
    Proceeds from maturity/paydown of investment securities ..........       8,885        2,009
    Purchase of securities available for sale ........................      (4,000)      (4,050)
    Purchase of Federal Home Loan Bank Stock .........................        --           (123)
    Principal repayments on mortgage-backed securities ...............       3,258        1,629
    Net increase in loans receivable .................................      (6,059)      (3,932)
    Purchase of loans receivable .....................................      (1,504)      (1,852)
    Capital expenditures, net of disposals ...........................         (29)        (440)
    Proceeds from the sale of real estate owned ......................          27          100
                                                                           -------        ----- 
         Net cash provided (used) by investing activities ............         578       (6,659)
                                                                          -------        -----  
Cash flows from financing activities:
    Net increase in deposits .........................................       2,410        7,385  
    Net increase in advance payments by borrowers for
         property taxes and insurance ................................         580          367
    Proceeds upon exercise of common stock options ...................        --             94
    Dividends paid ...................................................        (194)        (163)
    Purchase of Treasury stock .......................................        --           (704)
                                                                           -------        ----- 
    Net cash provided by financing activities ........................       2,796        6,979
                                                                           -------        ----- 
         Net increase in cash and cash equivalents ...................       4,404        1,377
    Cash and cash equivalents at beginning of period .................       2,176        2,896
                                                                           -------        -----  
    Cash and cash equivalents at end of period .......................     $ 6,580        4,273
                                                                           =======        =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                SFS BANCORP, INC. AND SUBSIDIARY
                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                         (In Thousands)
                                           (continued)

                                                                             Six Months Ended
                                                                                  June 30,
                                                                           --------------------
                                                                            1998           1997
                                                                           -------        -----                        
<S>                                                                        <C>              <C>  
Supplemental  disclosures of cash flow information:
    Cash paid during the period for:
         Interest paid ...............................................     $ 3,475        3,188
                                                                           =======        =====  
         Taxes paid ..................................................     $   405          211
                                                                           =======        =====  
    Transfer of loans to other real estate owned .....................     $    67           11
                                                                           =======        =====  
    Net unrealized loss on securities available for sale, net of taxes     $    (4)          (3)
                                                                           =======        =====  
    Deferred tax  benefit  on unrealized gain/loss
         on securities available for sale ............................     $     2            2
                                                                           =======        =====  
    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 six months ended June 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 six
month periods ended June 30, 1998 and 1997.



<TABLE>
<CAPTION>
Three Months Ended June 30:
                                        (in thousands except share and per share information)

                                                               1998
                                              --------------------------------------
                                                             Weighted      Per Share
                                              Net Income   Average Shares    Amount
                                              ----------   --------------    ------
<S>                                            <C>           <C>           <C>     
Basic EPS ................................     $     298     1,092,222     $   0.27
                                                                           ========
Dilutive effect of potential common shares
   related to stock based compensation ...            --        55,590
                                               ---------               
Diluted EPS ..............................     $     298     1,147,812     $   0.26
                                               =========     =========     ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                               1997
                                              --------------------------------------
                                                             Weighted      Per Share
                                              Net Income   Average Shares    Amount
                                              ----------   --------------    ------
<S>                                            <C>           <C>           <C>     
Basic EPS .................................     $     268     1,112,210    $   0.24
                                                                           ========
Dilutive effect of potential common shares
   related to stock based compensation ....            --        29,616
                                                ---------     ---------      
Diluted EPS ................................    $     268     1,141,826     $   0.23
                                                =========     =========     ========
<CAPTION>

Six Months Ended June 30:
                                        (in thousands except share and per share information)


                                                               1998
                                              --------------------------------------
                                                             Weighted      Per Share
                                              Net Income   Average Shares    Amount
                                              ----------   --------------    ------
<S>                                            <C>           <C>           <C>     
Basic EPS ................................     $     567     1,091,464     $   0.52
                                                                           ========
Dilutive effect of potential common shares
   related to stock based compensation ...          --          56,563
                                               ---------     ---------     
Diluted EPS ..............................     $     567     1,148,027     $   0.49
                                               =========     =========     ========
<CAPTION>
                                                               1997
                                              --------------------------------------
                                                             Weighted      Per Share
                                              Net Income   Average Shares    Amount
                                              ----------   --------------    ------
<S>                                            <C>           <C>           <C>     
Basic EPS                                       $    493     1,125,872      $   0.44
                                                                            ========
Dilutive effect of potential common shares
   related to stock based compensation               --         27,887
                                                ---------    ---------       
Diluted EPS                                     $    493     1,153,759      $   0.43
                                                ========    ==========      ========
</TABLE>
<PAGE>
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
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.

NOTE 4.  Proposed Merger

On July 31, 1998, SFS Bancorp,  Inc. and Cohoes  Savings Bank (Cohoes),  Cohoes,
New York announced the execution of a definitive agreement pursuant to which the
Company will merge into a newly-formed holding company of Cohoes to be organized
in  connection  with  Cohoes'  conversion  from a mutual  to stock  institution.
Consummation of the merger is subject to the approval of the shareholders of the
Company,  the depositors of Cohoes, the conversion of Cohoes, and the receipt of
all required  regulatory  approvals.  The transaction is anticipated to close in
the fourth quarter of 1998.
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                                  JUNE 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 July 31, 1998, SFS Bancorp,  Inc. and Cohoes  Savings Bank (Cohoes),  Cohoes,
New York announced the execution of a definitive agreement pursuant to which the
Company will merge into a newly-formed holding company of Cohoes to be organized
in connection with Cohoes' conversion from a mutual to stock institution.  Under
the terms of the agreement,  each share of SFS Bancorp,  Inc. will be exchanged
for a number of shares of common stock of the newly-formed holding company equal
to the lesser of $26.50  divided by the  initial  public  offering  price of the
newly-formed  holding  company  common  stock or $35.00  divided by the  average
closing price of that stock for the first ten trading days.  The  transaction is
expected to  constitute a tax-free  reorganization  under the  Internal  Revenue
Code, so that  shareholders  of SFS Bancorp,  Inc. who receive the  newly-formed
holding  company common stock will not recognize gain or loss in connection with
the exchange. In connection with the execution of the definitive agreement,  the
outstanding Incentive Stock Option Agreements and Restricted Stock Agreements of
the directors and certain  officers of the Company were not amended as permitted
by the  approval  at the 1998  Annual  Stockholders'  Meeting of the Amended and
Restated   Stock  Option  and  Incentive  Plan  and  the  Amended  and  Restated
Recognition and Retention Plan to provide for acceleration of vesting of awards.
Consummation of the merger is subject to the approval of the shareholders of the
Company,  the depositors of Cohoes, the conversion of Cohoes, and the receipt of
all required  regulatory  approvals.  The transaction is anticipated to close in
the fourth quarter of 1998.

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
<PAGE>
branch network  located in Schenectady  County  situated in eastern  upstate New
York. The Bank's  results of operations are dependent  primarily on net interest
income,  which is the difference  between the interest income earned on its loan
and mortgage-backed securities portfolios,  investment securities and securities
available for sale portfolios and other earning  assets,  and its cost of funds,
consisting of the interest paid on its deposits.  The Bank's  operating  results
are also impacted by the provision for loan losses,  and to a lesser extent,  by
gains and losses on the sale of its securities  available for sale portfolio and
other noninterest  income. The Bank's operating expenses  principally consist of
employee  compensation  and  benefits,  occupancy  expense and other general and
administrative expenses. The Bank's results of operations are also significantly
affected by general economic and competitive conditions, particularly changes in
market  interest  rates,  government  policies  and  actions  of the  regulatory
authorities.

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 any of 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;

         the effect of changes in business  cycles and  downturns  in the local,
         regional, or national economies.
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's most liquid assets are cash and cash equivalents and available for
sale  securities.  The  level of these  assets  is  dependent  on the  Company's
operating,  financing and investing activities during any given period. Cash and
cash equivalents of $2.2 million at December 31, 1997, increased $4.4 million to
$6.6  million at June 30, 1998  primarily  as a result of  increases  in federal
funds sold.  The Company's  primary  sources of funds are deposits and principal
and interest  payments on its loan and securities  portfolios.  While maturities
and  scheduled   amortization  of  loans  and  securities  are,  in  general,  a
predictable  source of funds,  deposit  flows and loan  prepayments  are greatly
influenced by general interest rates, economic conditions and competition.

The Bank is required to maintain  minimum  levels of liquid assets as defined by
OTS Regulations.  This  requirement,  which may vary at the direction of the OTS
depending on economic  conditions and deposit flows,  is based upon a percentage
of deposits and  short-term  borrowings.  The required ratio of liquid assets to
deposits and short-term  borrowings is currently 4%. The Bank's  liquidity ratio
was 21.03% and 20.21% at June 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 interest and dividends  received on earning assets less
interest paid on deposits,  was $1.0 million and $1.1 million for the six months
ended  June  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 $6.7 million for the
six months ended June 30,  1997.  Net cash of $578,000 was provided by investing
activities  for the six months  ended June 30, 1998 and  consisted  primarily of
proceeds  from the  maturity,  call and  paydown of  investment  securities  and
mortgage-backed  securities  offset by the purchase of securities  available for
sale and the  increase  in loans  receivable.  Net cash  provided  by  financing
activities  for the six months  ended June 30,  1998 of $2.8  million  consisted
primarily of net increases in deposit  accounts  during the period offset by the
payment of  dividends.  Net cash  provided by financing  activities,  consisting
primarily of net increases in deposit  accounts  during the period offset by the
purchase of treasury  stock and payment of  dividends,  was $7.0 million for the
six months ended June 30, 1997.

During the six month period ended June 30, 1998,  the Company did not repurchase
any of its shares.  During the six month  period ended June 30, 1997 the Company
repurchased  42,475 shares.  The average price of treasury shares  purchased was
$16.58  totaling  $704,000.  The average price paid of $16.58 was  approximately
95.1% of the  Company's  book  value per share of $17.44 at June 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 of 5% annually based on extenuating facts and circumstances.
<PAGE>
At June 30, 1998, the Bank's capital  exceeded each of the capital  requirements
of the OTS. At June 30, 1998,  the Bank's  tangible and core capital levels were
both $19.6 million (11.0% of total adjusted  assets) and its risk-based  capital
level was $20.5  million  (20.3% 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  $3.7 million  (2.1%) to $178.1 million at June 30, 1998
from $174.4  million at  December  31,  1997.  This  increase  occurred as loans
receivable,  net, grew $7.4 million  (5.6%) to $141.2  million at June 30, 1998.
The growth in the loan portfolio  consisted  primarily of  residential  mortgage
loans.  Securities  available for sale  increased  $4.0 million  (98.2%) to $8.1
million at June 30, 1998.  Federal funds sold increased $5.3 million at June 30,
1998 from $300,000 at December 31, 1997 due in part to securities called late in
the second  quarter  of 1998.  Offsetting  these  increases  was a  decrease  in
investment securities of $12.1 million (41.6%) to $16.9 million.

At June 30, 1998, total liabilities were $156.2 million representing an increase
of $3.2  million  (2.1%) from  December 31,  1997.  The  increase was  primarily
attributable to an increase in retail deposits.  Stockholders'  equity increased
$484,000  to $21.9  million at June 30,  1998 as  compared  to $21.4  million at
December 31, 1997.  Retained  earnings  increased by $373,000 as a result of net
income of the Company  for the six month  period  ended June 30, 1998  partially
offset by cash dividends declared.
 
Nonperforming  assets increased $45,000 (3.1%) totaling $1.5 million at June 30,
1998.  Management  of the Bank  does not view  this  increase  as a  significant
adverse trend.  The ratio of  nonperforming  loans to total loans receivable was
 .95% at June 30, 1998,  compared  with 1.00% at December 31, 1997.  The ratio of
nonperforming  assets to total assets was .84% at June 30, 1998 and December 31,
1997.
<PAGE>
Loan Receivable, Net

A summary of loans receivable,  net at June 30, 1998 and December 31, 1997 is as
follows:
<TABLE>
<CAPTION>


                                                        June 30, 1998      December 31, 1997
                                                        -------------      -----------------
<S>                                                        <C>                  <C>    
Loans secured by real estate:
   Residential:
      Conventional ............................            $109,961             100,277
      Home Equity .............................              21,024              22,658
      FHA Insured .............................               2,470               2,772
      VA Guaranteed ...........................               1,662               2,028
   Commercial and multi-family ................               6,070               6,130
                                                           --------            --------
                                                            141,187             133,865
Other loans ...................................                 918                 721
                                                           --------            --------
                                                            142,105             134,586
                                                           --------            --------
Less:
   Unearned discount and net deferred loan fees                  28                  22
   Allowance for loan losses ..................                 855                 778
                                                           --------            --------
                                                                883                 800
                                                           --------            --------

Loans receivable, net .........................            $141,222             133,786
                                                           ========            ========

</TABLE>
The  following  table sets forth the  information  with regard to  nonperforming
assets.
<TABLE>
<CAPTION>
                                                     June 30, 1997   December 31, 1997
                                                     -------------   -----------------
<S>                                                     <C>                <C>  
Loans on a nonaccrual status ...............            $1,161             1,328
Loans contractually past due 90 days or
   more and still accruing interest ........               191                19
                                                        ------            ------
      Total nonperforming loans ............             1,352             1,347
Other real estate owned ....................               151               111
                                                        ------            ------
      Total nonperforming assets ...........            $1,503             1,458
                                                        ======            ======
</TABLE>
<PAGE>
The  following  table sets forth the  information  with regard to changes in the
allowance for loan losses.
<TABLE>
<CAPTION>
                                                 For the six months ended June 30,
                                                      1998            1997
                                                      ----            ----
<S>                                                   <C>              <C>
Balance, beginning of period .............            $778             642
Provision charged to operations ..........              60              60
Loans charged off ........................             (21)            (2)
Recoveries on loans previously charged off              38              18
                                                      ----             ---

Balance, end of period ...................            $855             718
                                                      ====             ===

</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 six months ended June 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) (Unaudited)


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

                                          AVERAGE       INTEREST                       AVERAGE      INTEREST
                                        OUTSTANDING      EARNED/        YIELD/       OUTSTANDING     EARNED/       YIELD/
                                          BALANCE         PAID           RATE          BALANCE         PAID         RATE
                                          -------         ----           ----          -------         ----         ----
Interest-earning assets:
<S>                                       <C>           <C>              <C>           <C>          <C>             <C>          
      Loans receivable, net (1) .....     $139,875      $  2,687         7.71%         $122,114     $  2,386        7.84%        
      Mortgage-backed securities ....       14,828           227         6.14            19,306          305        6.34         
      Securities available for sale .        7,904           127         6.44             5,265           88        6.70         
      Debt securities ...............        5,674           102         7.21            13,987          224        6.42         
      Other interest-earning asset                                                                                               
           including cash equivalents        2,736            37         5.42             4,136           56        5.43         
       FHLB stock ...................        1,338            25         7.49             1,338           21        6.30         
                                          --------      --------                        --------     -------- 
Total interest-earning assets .......      172,355         3,205         7.46           166,146        3,080        7.44         
                                          --------      --------                        --------     --------               
                                                                                                                                 
      Savings accounts ..............       36,561           274         3.01            37,285          280        3.01         
      Money market accounts .........        7,428            59         3.19             6,859           59        3.45         
      Demand and NOW accounts (2) ...       11,550            41         1.42            10,625           40        1.51         
      Certificate accounts ..........       96,186         1,364         5.69            91,552        1,254        5.49         
      Escrow ........................        1,463             8         2.19             1,212            7        2.32         
                                          --------      --------                        --------     -------- 
                                                                                                                          
Total interest-bearing liabilities ..      153,188         1,746         4.57           147,533        1,640        4.46  
                                          --------      --------                        --------     --------          
                                                                                       
Net interest income .................                   $  1,459                                    $  1,440
                                                        ========                                    ========
                                                                                            
Net interest rate spread ............                                    2.89%                                      2.98%
                                                                         ====                                       ==== 

Net earning assets ..................     $ 19,167                                     $ 18,613
                                          ========                                     ========
                                                                                             
Net yield on average
       interest-earning assets ......                                    3.40%                                      3.48%
                                                                         ====                                       ==== 
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) (Unaudited)


                                                                   SIX  MONTHS ENDED JUNE  30,
                                        ------------------------------------------------------------------------------

                                                          1998                                     1997
                                        ---------------------------------------    -----------------------------------

                                          AVERAGE        INTEREST                    AVERAGE      INTEREST
                                        OUTSTANDING      EARNED/        YIELD/     OUTSTANDING     EARNED/      YIELD/
                                          BALANCE          PAID          RATE        BALANCE        PAID         RATE
                                          -------          ----          ----        -------        ----         ----
Interest-earning assets:
<S>                                      <C>             <C>            <C>         <C>           <C>           <C>
      Loans receivable, net (1) .....     $137,639        $5,325         7.80%       $120,551      $ 4,695       7.85% 
      Mortgage-backed securities ....       15,682           486         6.25          19,665          622       6.38  
      Securities available for sale .        6,116           198         6.53           3,869          125       6.52  
      Debt securities ...............        8,033           277         6.95          14,446          461       6.44  
      Other interest-earning assets                                                                                  
           including cash equivalents        2,102            56         5.37           3,901          103       5.32  
      FHLB stock ....................        1,338            49         7.39           1,305           41       6.34  
                                          --------        ------                     --------      -------             
Total interest-earning assets .......      170,910         6,391         7.54         163,737        6,047       7.45  
                                          --------        ------                     --------      -------             
                                                                                       
Interest-bearing liabilities:                                                                                          
      Savings accounts ..............       36,443           544         3.01          37,160          555       3.01  
      Money market accounts .........        7,492           122         3.28           6,581          111       3.40  
      Demand and NOW accounts (2) ...       11,035            78         1.43          10,364           78       1.52  
      Certificate accounts ..........       95,793         2,703         5.69          89,910        2,433       5.46  
      Escrow ........................        1,209            13         2.17           1,011           11       2.19  
                                          --------        ------                     --------      -------   
Total interest-bearing liabilities ..      151,972         3,460         4.59         145,026        3,188       4.43  
                                          --------        ------                     --------      ------- 
                                                                                               
Net interest income .................                   $  2,931                                  $  2,859
                                                        ========                                  ========

Net interest rate spread ............                                    2.95%                                  3.02%
                                                                         ====                                   ====
Net earning assets ..................     $ 18,938                                   $ 18,711
                                          ========                                   ========

Net yield on average
       interest-earning assets ......                                    3.46%                                  3.52%
                                                                         ====                                   ==== 

Average interest-earning
       assets to average
       interest-bearing liabilities .         1.12                                       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) (Unaudited)

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


                                               INCREASE   (DECREASE)
                                             ----------------------------------- 
                                                       DUE TO
                                             --------------------- 
                                             VOLUME           RATE          NET
                                             ------           ----          ---
Interest-earning assets:
<S>                                          <C>             <C>          <C>
  Loans receivable, net .................       $ 340          (39)         301
  Mortgage-backed securities ............         (69)          (9)         (78)
  Securities-available for sale .........          43           (4)          39
  Debt securities .......................        (154)          32         (122)
  Other interest-earning assets .........         (19)           0          (19)
  FHLB stock ............................           0            4            4
                                                -----        -----        -----
Total interest-earning assets ...........       $ 141          (16)         125
                                                =====        =====        =====

Interest-bearing liabilities:
  Savings deposits ......................       $  (6)           0           (6)
  Money market accounts .................           5           (5)           0
  Demand and NOW deposits ...............           3           (2)           1
  Certificate accounts ..................          65           45          110
  Escrow ................................           1            0            1
                                                -----        -----        -----
Total interest-bearing liabilities ......       $  68           38          106
                                                =====        =====        =====

Change in net interest income ...........                                 $  19
                                                                          =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

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

                               SIX MONTHS ENDED JUNE 30, 1998
                                       COMPARED WITH
                               SIX MONTHS ENDED JUNE 30, 1997

                                               INCREASE   (DECREASE)
                                             ----------------------------------- 
                                                       DUE TO
                                             ------------------ 
                                             VOLUME       RATE          NET
                                             ------       ----          ---
Interest-earning assets:
<S>                                          <C>         <C>          <C>
  Loans receivable, net .................... $ 661         (31)        630
  Mortgage-backed securities ...............  (124)        (12)       (136)
  Securities-available for sale ............    73           0          73
  Debt securities ..........................  (225)         41        (184)
  Other interest-earning assets ............   (48)          1         (47)
  FHLB stock ...............................     1           7           8
                                             -----       -----       -----
Total interest-earning assets .............. $ 338           6         344
                                             =====       =====       =====

Interest-bearing liabilities:
  Savings deposits ......................... $ (11)          0         (11)
  Money market accounts ....................    15          (4)         11
  Demand and NOW deposits ..................     5          (5)          0
  Certificate accounts .....................   163         107         270
  Escrow ...................................     2           0           2
                                             -----       -----       -----
  Total interest-bearing liabilities ....... $ 174          98         272
                                             =====       =====       =====

Change in net interest income ..............                         $  72
                                                                     =====

</TABLE>
<PAGE>
COMPARISONS OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1998

Three months ended June 30, 1998 compared with three months ended June 30,1997

Net income for the  quarter  ended June 30,  1998,  was  $298,000  or $.27 basic
earnings  per share and $.26  diluted  earnings per share.  This  represents  an
increase of $30,000  (11.2%) from the comparable  quarter of the prior year. The
increase in net income was  primarily  a result of an  increase in net  interest
income and an increase in  noninterest  income.  These  increases were partially
offset by increases in noninterest expense and income tax expense. The provision
for loan losses was consistent  with the same quarter a year ago. The annualized
return on average  assets  ("ROA")  for the  current  quarter  amounted  to .68%
compared with .63% for the comparable  quarter a year ago. The annualized return
on  average  equity  ("ROE")  was 5.57%  (on  average  equity of $21.4  million)
compared with 4.19% (on average equity of $21.2 million) a year earlier.

Interest income for the three months ended June 30, 1998,  totaled $3.2 million,
an increase of $125,000  (4.1%) from 1997's second  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 73.5% during the second quarter 1997 to 81.2% for the same period in
1998.  Other factors  affecting  interest  income was an increase in earnings on
loans which  increased  $301,000  (12.6%) as a result of a $17.8 million (14.5%)
increase in the average balance  invested offset by a 13 basis point decrease in
average rates earned.  Interest earned on mortgage-backed  securities  decreased
$78,000  (25.6%) as a result of the combined  effect of a $4.5  million  (23.2%)
decrease  in the  average  balance  invested  and a 20 basis  point  decrease in
average rates earned. Interest income on securities available for sale increased
$39,000  (44.3%)  as a result of an  increase  of $2.6  million  (50.1%)  in the
average  invested  balance  offset by a decrease  of 26 basis  points in average
rates earned. Interest income on debt securities decreased $122,000 (54.5%) as a
result of a decrease in average invested balances of $8.3 million (59.4%) offset
by an increase in rates earned of 79 basis  points.  Earnings on other  interest
earning assets,  primarily  federal funds sold,  decreased  $19,000 (33.9%) as a
result of a $1.4  million  (33.8%)  decrease  in the  average  invested  balance
combined with a 1 basis point decrease in the average rate earned.

Interest expense for the quarter ended June 30, 1998,  amounted to $1.7 million,
$106,000  (6.5%) greater than the  corresponding  quarter of the prior year. The
increase  occurred  as a result of a $5.7  million  (3.8%)  increase  in average
interest  bearing  liabilities to $153.2 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 $4.6 million
(5.1%) and in money market  accounts and demand and NOW accounts by $1.5 million
(8.5%).  Average savings account balance declined $724,000 (1.9%).  The increase
in average rates paid on certificate  accounts of 20 basis points to 5.69% was a
reflection  of  general  interest  rates  and  a  competitive  environment  that
prevailed during the second quarter of 1998 compared with 1997.

Net  interest  income for the three  months  ended June 30,  1998  totaled  $1.5
million,  $19,000  (1.3%)  greater than the  comparable  quarter a year ago. The
interest  rate spread  decreased 9 basis  points to 2.89% for the quarter  ended
June 30, 1998. The net interest  margin for the most recent quarter of 3.40% was
8 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 June
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 June 30, 1998, the Bank's allowance for
loan  losses  totaled  $855,000  (0.60%  of  total  gross  loans  and  63.2%  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 $121,000 for the three months ended June 30, 1998
compared to $84,000 for the three months  ended June 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 $15,000
(246.2%)  in revenue  over the same  period a year ago and an  increase in other
loan charges of $20,000 (87.0%) to $43,000.

Noninterest Expense

Noninterest expense increased $9,000 (0.8%) to $1.0 million for the three months
ended June 30, 1998, as compared with the same period in 1997.  Compensation and
employee  benefits  decreased  $14,000 (2.2%)  between the respective  quarters.
Advertising and business promotion decreased $11,000 (55.0%) to $9,000 resulting
primarily  from  decreased  advertising in relation to the new branch opening in
the  latter  part of the  first  quarter  in  1997.  Professional  service  fees
increased  $23,000  (41.1%) 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. Other noninterest expense increased $14,000
(20.3%) to $83,000 primarily due to expenses associated with the payment of back
taxes and  maintenance  of real estate  owned.  Office  occupancy  and equipment
expense, federal deposit insurance premiums, other insurance premiums,  mortgage
servicing  fees and data  processing  fees remained  relatively the same for the
quarters ended June 30, 1998 and June 30, 1997.

Income Tax Expense

Income tax expense totaled $208,000 and $191,000 for the three months ended June
30,  1998 and 1997,  respectively.  The  increase  in  income  tax  expense  was
primarily attributable to the $47,000 (10.2%) increase in income before taxes to
$506,000 for the three months ended June 30, 1998.  The  effective  tax rate for
the three  months  ended June 30, 1998 was 41.1%  compared to 41.6% for the same
period a year ago.
<PAGE>
COMPARISONS OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998

Six months ended June 30, 1998, compared with six months ended June 30, 1997

Net income for the six months  ended June 30,  1998,  was $567,000 or $.52 basic
earnings  per share and $.49  diluted  earnings per share.  This  represents  an
increase of $74,000  (15.0%) 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  combined with a decrease in noninterest  expense
and offset by an increase in income tax expense.  The  provision for loan losses
was consistent with the same period a year ago. The annualized return on average
assets  ("ROA") for the first half of 1998  amounted to .65%  compared with .59%
for the comparable  period a year ago. The  annualized  return on average equity
("ROE") was 5.34% (on average equity of $21.4  million)  compared with 4.62% (on
average equity of $21.3 million) a year earlier.

Interest income for the six months ended June 30, 1998, totaled $6.4 million, an
increase of $344,000  (5.7%) from 1997's first half.  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
73.6%  during  the first half 1997 to 80.5% for the same  period in 1998.  Other
factors  affecting  contributing  to the  interest  income  was an  increase  in
earnings  on loans  which  increased  $630,000  (13.4%)  as a result  of a $17.1
million  (14.2%)  increase in the average  balance  invested offset by a 5 basis
point  decrease in average  rates  earned.  Interest  earned on  mortgage-backed
securities  decreased  $136,000  (21.9%) as a result of the combined effect of a
$4.0 million  (20.3%)  decrease in the average  balance  invested and a 13 basis
point decrease in average rates earned.  Interest income on securities available
for sale  increased  $73,000  (58.4%) as a result of an increase of $2.2 million
(58.1%) in the average  invested  balance  combined  with an increase of 1 basis
point in average  rates earned.  Interest  income on debt  securities  decreased
$184,000 (39.9%) as a result of a decrease in average invested  balances of $6.4
million  (44.4%)  offset by an  increase  in rates  earned  of 51 basis  points.
Earnings  on other  interest  earning  assets,  primarily  federal  funds  sold,
decreased  $47,000 (45.6%) as a result of a $1.8 million (46.1%) decrease in the
average  invested balance offset by a 5 basis point increase in the average rate
earned.

Interest  expense  for the six months  ended  June 30,  1998,  amounted  to $3.5
million,  $272,000  (8.5%)  greater than the  corresponding  period of the prior
year.  The increase  occurred as a result of a $6.9 million  (4.8%)  increase in
average interest bearing liabilities to $152.0 million combined with an 16 basis
point  increase  in  average  rates paid to 4.59%.  The mix  within the  deposit
structure  changed as the average balances grew in certificate  accounts by $5.9
million (6.5%) and in money market  accounts and demand and NOW accounts by $1.6
million (9.3%).  Average savings account balance declined  $717,000 (1.9%).  The
increase in average  rates paid on  certificate  accounts of 23 basis  points to
5.69% was a reflection of general  interest rates and a competitive  environment
that prevailed during the first six months of 1998 compared with 1997.

Net interest income for the six months ended June 30, 1998 totaled $2.9 million,
$72,000 (2.5%) greater than the comparable  period a year ago. The interest rate
spread decreased 7 basis points to 2.95% for the six months ended June 30, 1998.
The net interest margin for the six months ended June 30, 1998 was 3.46% which 6
basis points less than the comparable period a year ago.
<PAGE>
Provision for Loan Losses

For the six months ended June 30, 1998 and 1997,  the  provision for loan losses
totaled $60,000. See "Provision for Loan Losses" at page 18.

Noninterest Income

Noninterest  income  amounted to $226,000 for the six months ended June 30, 1998
compared to $168,000 for the six months  ended June 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 $25,000
(212.3%)  in revenue  over the same  period a year ago and an  increase in other
loan charges of $30,000 (55.6%) to $84,000.

Noninterest Expense

Noninterest  expense decreased $19,000 (0.9%) to $2.1 million for the six months
ended June 30, 1998, as compared with the same period in 1997.  Advertising  and
business promotion decreased $42,000 (68.9%) to $19,000 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 $19,000 (67.9%) to $47,000
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 $8,000 (18.2%) to
$36,000  as a  result  of  reduced  premiums  on  certain  policies  put  out to
competitive bid prior to renewal.  Professional  service fees increased  $17,000
(14.0%) 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.  Compensation  and  employee  benefits,  office  occupancy  and
equipment  expense,  mortgage  servicing  fees,  data  processing fees and other
noninterest  expense remained  relatively the same for the six months ended June
30, 1998 and June 30, 1997.

Income Tax Expense

Income tax expense  totaled  $399,000 and $324,000 for the six months ended June
30,  1998 and 1997,  respectively.  The  increase  in  income  tax  expense  was
primarily  attributable to the $149,000  (18.2%) increase in income before taxes
to $966,000 for the six months ended June 30, 1998.  The  effective tax rate for
the six  months  ended  June 30,  1998 ws 41.3%  compared  to 39.7% 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.

Impact of New Accounting Standards

In February 1998, the Financial  Accounting  Standards Board 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  Account  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.
<PAGE>
In June 1998, the FASB issued  Statement of Financial  Accounting  Standards No.
133,  "Accounting  for Derivative  Instruments  and Hedging  Activities,"  which
established  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.

Impact of the Year 2000

The  Company  is aware of the issues  associated  with the  programming  code in
existing computer systems as the millennium ("Year 2000")  approaches.  The Year
2000 problem is pervasive and complex as virtually every computer operation will
be affected  in some way by the  rollover of the two digit year value to 00. The
issue is  whether  computer  systems  will  properly  recognize  date  sensitive
information  when  the  year  changes  to  2000.  Systems  that do not  properly
recognize such  information  could generate  erroneous data or cause a system to
fail.

The Company is  utilizing  both  internal  and  external  resources to identify,
correct or  reprogram,  and test its  systems  for Year 2000  compliance.  It is
anticipated  that all  reprogramming  efforts  will be completed by December 31,
1998,  allowing  adequate  time for testing.  To date,  confirmations  have been
received  from the  Company's  primary  processing  vendors that plans are being
developed to address  processing of transactions  in the year 2000.  Incremental
expenses related to this issue are not, at this time, expected to be material to
the performance of the Company.

The risks of this issue go beyond the  Company's  own  ability to solve the Year
2000 issues.  Should  suppliers of critical  services  fail in their  efforts to
become Year 2000 compliant,  or if significant third party interfaces fail to be
compatible with SFS Bancorp,  Inc. or fail to be Year 2000  compliant,  it could
have significant  adverse affects on the operations and financial results of the
Company.  Accordingly,  the  Company  has  begun  a  process  of  assessing  and
monitoring  the progress of all vendors of services  and third party  interfaces
for  compatibility  and Year 2000  compliance.  Management  intends  to  develop
contingency  plans for all  vendors  and/or  interfaces  deemed to  inadequately
address the problems of the Year 2000.
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
                                   FORM 10-QSB
                                  JUNE 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

              (a) On April 22,  1998,  the  Company  held its Annual  Meeting of
              Stockholders.
              (b) At the meeting,  John F. Assini, M.D. and Robert A. Schlansker
              were elected for terms to expire in 2001. 
              (c) Stockholders voted on the following matters:
              

                   (i) The election of the following directors of the Company:

                                                                     Broker
  Votes:                       For              Withheld           Non-Votes
  ------                       ---              --------          ---------
  John F. Assini, M.D.       1,040,093            1,250                --
  Robert A. Schlansker       1,039,884            1,459                --

                   (ii) The approval of the adoption of the Amended and Restated
                   Stock Option and Incentive Plan.


                                                                      Broker
                   Votes:         For        Against    Abstain     Non-Votes
                   ------         ---        -------    -------    ---------
                                 997,483      36,810     7,050          --

                   (iii) The  approval  and adoption of the Amended and Restated
                   Recognition and Retention Plan.


                                                                      Broker
                   Votes:         For        Against    Abstain     Non-Votes
                   ------         ---        -------    -------    ---------
                                 949,214      85,079     7,050          --

                   (iv) The ratification of the appointment of KPMG Peat Marwick
                   LLP as  independent  auditors  of the  Company for the fiscal
                   year ending December 31, 1998.

                                                                      Broker
                   Votes:         For        Against    Abstain     Non-Votes
                   ------         ---        -------    -------    ---------
                               1,034,949       2,844     3,550          --
<PAGE>

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 lw.

Item 6.       Exhibits and Reports on Form 8-K

              (a) Exhibits
                   None

              (b) Reports on Form 8-K
                  
                  On August 5, 1998,  Form 8-K was filed in connection  with the
                  announced  execution  of a  definitive  agreement  between SFS
                  Bancorp,  Inc, and Cohoes Savings Bank as previously described
                  in Part I Item 2. of the 10-QSB for the quarter ended June 30,
                  1998.

<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:  August 14, 1998                BY:  /s/ Joseph H. Giaquinto
                                           -----------------------
                                           Joseph H. Giaquinto
                                           Chairman of the Board,
                                           President and Chief Executive Officer
                                           (Duly Authorized Officer)


DATE:  August 14, 1998                BY:  /s/ David J. Jurczynski
                                           -----------------------
                                           David J. Jurczynski
                                           Senior Vice President, Treasurer and
                                           Chief Financial Officer
                                           (Principal Financial Officer)