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, 1997 Commission File No. 0-25994


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



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


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

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


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

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

                                               Number of shares outstanding
 Class of Common Stock                              as of July 31, 1997
 ---------------------                       ---------------------------
 Common Stock, Par Value $.01                            1,230,997


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

                                   FORM 10-QSB

                                  JUNE 30, 1997


INDEX

Part I    FINANCIAL
INFORMATION
Page

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

            Consolidated Statements of Income for the Three
            months ended June 30, 1997 and 1996, (Unaudited)....................

            Consolidated Statements of Income for the Six
            months ended June 30, 1997 and 1996, (Unaudited)....................

            Consolidated Statements of Financial Condition as
            of June 30, 1997, (Unaudited) and December 31, 1996.................

            Consolidated Statements of Changes in Stockholders' Equity for
            the Six months ended June 30, 1997 and 1996,  (Unaudited)...........

            Consolidated Statements of Cash Flows for the Six
            months ended June 30, 1997 and 1996  (Unaudited)....................

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

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


Part II   OTHER INFORMATION

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

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

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

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

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

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

Signatures......................................................................
<PAGE>


                        SFS BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                                  JUNE 30, 1997



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

                         PART I - FINANCIAL INFORMATION


Item 1. - 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,
                                                                ---------------------
                                                                    1997       1996
                                                                    ------    ------
                                                                (Unaudited)
<S>                                                                 <C>       <C>
Interest income:
      Real estate loans ........................................    $2,375     2,123
      Other loans ..............................................        11         8
      Mortgage-backed securities ...............................       305       356
      Debt securities ..........................................       224       261
      Federal funds sold and cash deposits .....................        56        68
      Securities available for sale ............................        88       112
      Stock in Federal Home Loan Bank ..........................        21        19
                                                                    ------    ------
             Total interest income .............................     3,080     2,947

Interest expense:
      Deposits .................................................     1,640     1,527
                                                                    ------    ------
             Net interest income ...............................     1,440     1,420

Provision for loan losses ......................................        30        30
                                                                    ------    ------
             Net interest income after provision for loan losses     1,410     1,390
                                                                    ------    ------

Noninterest income:
      Gain on (loss) sale of securities ........................        --       (36)
      Service fee income .......................................         4         5
      Other loan charges .......................................        45        41
      Bank fees and service charges ............................        45        33
      Other ....................................................        12        30
                                                                    ------    ------
             Total noninterest income ..........................       106        73
                                                                    ------    ------
</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,
                                                                ---------------------
                                                                    1997       1996
                                                                    ------    ------
                                                                (Unaudited)
<S>                                                                 <C>       <C>
Noninterest expense:
      Compensation and employee benefits .......................       665       644
      Advertising and business promotion .......................        20        23
      Office occupancy and equipment expense ...................       151       135
      Federal deposit insurance premiums .......................        23        80
      Other insurance premiums .................................        22        22
      Mortgage servicing fees ..................................         8        10
      Data processing fees .....................................        43        41
      Other real estate writedown ..............................        --         7
      Professional service fees ................................        56        73
      Other ....................................................        69        84
                                                                    ------    ------
             Total noninterest expense .........................     1,057     1,119
                                                                    ------    ------
             Income before taxes ...............................       459       344

Income tax expense .............................................       191        51
                                                                    ------    ------
             Net income ........................................    $  268       293
                                                                    ======    ======

Earnings  per share ............................................    $  .23       .23
                                                                    ======    ======

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

                                                                   SIX MONTHS ENDED
                                                                       JUNE  30,
                                                                ---------------------
                                                                     1997      1996
                                                                    ------    ------
                                                                (Unaudited)
<S>                                                                 <C>       <C>
Interest income:
      Real estate loans ........................................    $4,675     4,203
      Other loans ..............................................        20        21
      Mortgage-backed securities ...............................       622       742
      Debt securities ..........................................       461       552
      Federal funds sold and cash deposits .....................       103       157
      Securities available for sale ............................       125       231
      Stock in Federal Home Loan Bank ..........................        41        38
                                                                    ------    ------
             Total interest income .............................     6,047     5,944

Interest expense:
      Deposits .................................................     3,188     3,093
                                                                    ------    ------
             Net interest income ...............................     2,859     2,851

Provision for loan losses ......................................        60        60
                                                                    ------    ------
             Net interest income after provision for loan losses     2,799     2,791
                                                                    ------    ------

Noninterest income:
      Gain (loss) on sale of securities ........................        --       (36)
      Service fee income .......................................         8        10
      Other loan charges .......................................        83        84
      Bank fees and service charges ............................        82        66
      Other ....................................................        24        40
                                                                    ------    ------
             Total noninterest income ..........................       197       164
                                                                    ------    ------
</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,
                                                                ---------------------
                                                                     1997      1996
                                                                    ------    ------
                                                                (Unaudited)
<S>                                                                 <C>       <C>
Noninterest expense:
      Compensation and employee benefits .......................     1,359     1,259
      Advertising and business promotion .......................        61        59
      Office occupancy and equipment expense ...................       309       264
      Federal deposit insurance premiums .......................        28       162
      Other insurance premiums .................................        44        46
      Mortgage servicing fees ..................................        17        21
      Data processing fees .....................................        88        83
      Other real estate writedown ..............................        --         7
      Professional service fees ................................       121       140
      Other ....................................................       152       155
                                                                    ------    ------
             Total noninterest expense .........................     2,179     2,196
                                                                    ------    ------
             Income before taxes ...............................       817       759

Income tax expense .............................................       324       176
                                                                    ------    ------
             Net income ........................................    $  493       583
                                                                    ======    ======

Earnings per share .............................................    $  .42       .44
                                                                    ======    ======

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

                                                                                  June 30,     December 31,
                                                                                    1997           1996
                                                                                 ---------      ---------
                                                                                (Unaudited)
<S>                                                                              <C>            <C>
Assets                                                                              
       
Cash and due from banks ....................................................     $   1,273          1,296
Federal funds sold .........................................................         3,000          1,600
                                                                                 ---------      ---------
            Total cash and cash equivalents ................................         4,273          2,896

Securities available for sale, at fair value ...............................         6,031          1,990
Investment securities:
     Debt securities (approximate fair value of $13,661
             at June 30, 1997 and $15,642 at December 31, 1996) ............        13,741         15,746
   Mortgage-backed securities (approximate fair value of
            $18,774 at June 30, 1997 and $20,322 at December 31, 1996) .....        18,806         20,434
Investment required by law, stock in Federal Home Loan Bank of NY, at cost .         1,338          1,215
Loans receivable, net ......................................................       124,168        118,455
Accrued interest receivable ................................................         1,197          1,137
Premises and equipment, net ................................................         2,270          1,921
Real estate owned ..........................................................            89            178
Prepaid expenses and other asset ...........................................           936            916
                                                                                 ---------      ---------
               Total Assets ................................................     $ 172,849        164,888
                                                                                 =========        =======

Liabilities and Stockholders' Equity
Liabilities:
    Due to depositors:
          Demand deposits ..................................................     $  11,119         10,496
          Savings accounts .................................................        44,837         43,226
          Time deposit accounts ............................................        92,045         86,894
                                                                                 ---------      ---------
               Total Deposits ..............................................       148,001        140,616

     Advance payments by borrowers for property taxes and insurance ........         1,527          1,160
     Accrued expenses and other liabilities ................................         1,767          1,441
                                                                                 ---------      ---------
               Total Liabilities ...........................................       151,295        143,217
                                                                                 ---------      ---------

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                      SFS BANCORP, INC. AND SUBSIDIARY
                               Consolidated Statements of Financial Condition
                                           (Dollars in Thousands)
                                                (continued)

                                                                                  June 30,     December 31,
                                                                                    1996           1996
                                                                                 ---------      ---------
                                                                                (Unaudited)
<S>                                                                              <C>            <C>
Stockholders' Equity:
   Preferred stock, $.01 par value.  Authorized 500,000 shares; none issued           --             --
     Common stock, $.01 par value. Authorized 2,500,000 shares; 1,495,000
            shares issued; 1,235,997 shares outstanding at June 30, 1997 and
            1,270,997 shares at December 31, 1996 ..........................            15             15
   Additional paid-in capital ..............................................        14,260         14,260
   Retained earnings, substantially restricted .............................        12,017         11,687
   Common stock acquired by :
   Employee stock ownership plan ("ESOP") (95,680 shares) ..................          (957)          (957)
   Recognition and retention plan ("RRP") (34,205 shares) ..................          (374)          (540)
   Treasury stock, at cost (259,003 shares at June 30, 1997 and 224,003 at
            December 31, 1996) .............................................        (3,450)        (2,840)
Net unrealized gain on securities available for sale, net of tax ...........            43             46
                                                                                 ---------      ---------
     Total Stockholders' Equity ............................................        21,554         21,671
                                                                                 ---------      ---------
     Total Liabilities and Stockholders' Equity ............................     $ 172,849        164,888
                                                                                 =========      =========

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

                                                                                                      NET
                                                                                                  UNREALIZED
                                                                                                  GAIN (LOSS)
                                                                            COMMON      COMMON        ON
                                                   ADDITIONAL                STOCK       STOCK     SECURITIES
                                           COMMON    PAID-IN    RETAINED    ACQUIRED    ACQUIRED   AVAILABLE    TREASURY
                                           STOCK     CAPITAL    EARNINGS    BY ESOP      BY RRP     FOR SALE      STOCK      TOTAL
                                          -------    -------    -------     -------     -------     -------     -------     -------
<S>                                       <C>        <C>        <C>         <C>         <C>         <C>         <C>         <C>
Six Months Ended  June 30, 1997

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

Net income ...........................       --         --          493        --          --          --          --           493

Net change in unrealized gain on 
      securities available for sale ..       --         --         --          --          --            (3)       --            (3)

RRP shares issued and
amortization of award ................       --         --         --          --           166        --          --           166

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

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

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

Balance at June 30, 1997 .............    $    15     14,260     12,017        (957)       (374)         43      (3,450)     21,554
                                          =======    =======    =======     =======     =======     =======     =======     =======

Six Months Ended  June 30, 1996

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

Net income ...........................       --         --          583        --          --          --          --           583

Net change in unrealized gain on 
   securities available for sale......       --         --         --          --          --            (8)       --            (8)

Purchase of  Treasury shares .........       --         --         --          --          --          --        (2,549)     (2,549)
                                          -------    -------    -------     -------     -------     -------     -------     -------

Balance at June 30, 1996 .............    $    15     14,221     11,596      (1,076)       --            80      (2,549)     22,287
                                          =======    =======    =======     =======     =======     =======     =======     =======



                           See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                     SFS BANCORP, INC. AND SUBSIDIARY
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                              (In Thousands)
                                                                                     Six Months Ended
                                                                                          June 30,
                                                                                   ---------------------
                                                                                      1997        1996
                                                                                    -------     ------- 
                                                                                        (Unaudited)
<S>                                                                                 <C>         <C>
Increase (decrease) in cash and cash equivalents: ..............................                            
    Reconciliation of net income to net cash provided
         by operating activities:
         Net income ............................................................    $   493         583
         Adjustments to reconcile net income to
            net cash provided by operating activities:
              Depreciation and amortization ....................................         91          70
              Net accretion on investment securities ...........................         (5)         (8)
              Amortization of award of RRP .....................................        166        --
              Provision for loan losses ........................................         60          60
              Writedown of real estate owned ...................................       --             7
              Gain on disposition of fixed assets ..............................       --           (11)
              Proceeds from disposition of fixed assets ........................       --            19
              Gain on sale of available for sale securities ....................       --            36
              Increase in accrued interest receivable ..........................        (60)        (13)
              Increase in prepaid expense and other assets .....................        (20)        (79)
              Increase in accrued expense and other liabilities ................        332          61
                                                                                    -------     ------- 
                   Total adjustments ...........................................        564         142
                                                                                    -------     ------- 
                 Net cash provided by operating activities .....................      1,057         725
                                                                                    -------     -------
 
Cash flows from investing activities:
    Proceeds from maturity/paydown of investment securities ....................      2,009       8,678
    Purchase of investment securities ..........................................       --        (6,000)
    Purchase of securities available for sale ..................................     (4,050)       --
    Purchase of Federal Home Loan Bank Stock ...................................       (123)        (99)
    Principal repayments on mortgage-backed securities .........................      1,629       2,172
    Net increase in loans receivable ...........................................     (3,932)     (7,188)
    Purchase of loans receivable ...............................................     (1,852)     (2,671)
    Capital expenditures, net of disposals .....................................       (440)       (320)
    Proceeds from sale of available for sale securities ........................       --         3,964
    Proceeds from the sale of real estate owned ................................        100           8
                                                                                    -------     ------- 
         Net cash used by investing activities .................................     (6,659)     (1,456)
                                                                                    -------     ------- 

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                     SFS BANCORP, INC. AND SUBSIDIARY
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                              (In Thousands)
                                               (continued)
                                                                                     Six Months Ended
                                                                                          June 30,
                                                                                   ---------------------
                                                                                      1997        1996
                                                                                    -------     ------- 
                                                                                        (Unaudited)
<S>                                                                                 <C>         <C>
Cash flows from financing activities:
    Net increase (decrease) in deposits ........................................      7,385        (284)
    Net increase in advance payments by borrowers for
         property taxes and insurance ..........................................        367          34
    Proceeds upon exercise of common stock options .............................         94        --
    Dividends paid .............................................................       (163)       --
    Purchase of Treasury stock .................................................       (704)     (2,549)
                                                                                    -------     ------- 
    Net cash provided (used) in financing activities ...........................      6,979      (2,799)
                                                                                    -------     ------- 
         Net increase (decrease) in cash and cash equivalents ..................      1,377      (3,530)
    Cash and cash equivalents at beginning of period ...........................      2,896      10,453
                                                                                    -------     ------- 
    Cash and cash equivalents at end of period .................................    $ 4,273       6,923
                                                                                    =======     ======= 
Supplemental  disclosures of cash flow information: 
    Cash paid during the period for:
         Interest paid .........................................................    $ 3,188       3,096
         Taxes paid ............................................................        211         342
    Transfer of loans to other real estate owned ...............................         11        --
    Net change in unrealized gain on securities available for sale, net of
         deferred tax benefit of $6 for the six months ended
         June 30, 1997..........................................................         (3)         (8)


             See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
          NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS


NOTE 1.  Presentation of Financial Information

The accompanying  unaudited  consolidated interim financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  The accompanying unaudited consolidated interim financial
statements  should be read in conjunction with the financial  statements and the
related management's  discussion and analysis of financial condition and results
of  operations  filed  with  the 1996  Form  10-KSB  of SFS  Bancorp,  Inc.  and
Subsidiary (the  "Company").  Amounts in prior periods'  unaudited  consolidated
interim financial  statements are reclassified  whenever necessary to confirm to
the current periods'  presentation.  The results of operations for the three and
six months ended June 30, 1997, are not  necessarily  indicative of results that
may be expected for the entire year ending December 31, 1997.

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


NOTE 2.  Earnings Per Share

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

For purposes of calculating  earnings per share,  the weighted average number of
shares  outstanding  was 1,146,415 and 1,261,669 for the three months ended June
30, 1997 and 1996, respectively,  and 1,160,688 and 1,313,608 for the six months
ended June 30, 1997 and 1996, respectively.
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                                  JUNE 30, 1997



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

General

SFS Bancorp, Inc. (the "Holding Company") is the holding company for Schenectady
Federal  Savings Bank and its  subsidiary  (the "Bank"),  a federally  chartered
stock savings bank.  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.

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

o  the effect of changes in laws and  regulations,  including  federal and state
   banking  laws  and  regulations,  with  which  the  Company  and its  banking
   subsidiary  must  comply,  the  cost of  such  compliance  and the  potential
   material adverse effect if the Company or any of its banking  subsidiary were
   not  in  substantial   compliance  either  currently  or  in  the  future  as
   applicable;

o  the effect of changes in accounting policies and practices, as may be adopted
   by the regulatory agencies as well as by the Financial  Accounting  Standards
   Board,  or changes in the Company's  organization,  compensation  and benefit
   plans;

o  the effect on the Company's  competitive  position  within its market area of
   increasing   consolidation   within  the  banking   industry  and  increasing
   competition from "larger regional" and out-of-state banking  organizations as
   well as non-bank providers of various financial services;

o  the effect of unforeseen changes in interest rates;

o  the  effect of  changes  in  business  cycles  and  downturns  in the  local,
   regional, or national economies.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

The Company's most liquid assets are cash and cash equivalents and available for
sale  securities.  The  level of these  assets  is  dependent  on the  Company's
operating,  financing and investing activities during any given period. Cash and
cash equivalents of $2.9 million at December 31, 1996, increased $1.4 million to
$4.3  million at June 30, 1997  primarily  as a result of  increases  in federal
funds sold.  The Company's  primary  sources of funds are deposits and principal
and interest  payments on its loan and securities  portfolios.  While maturities
and  scheduled   amortization  of  loans  and  securities  are,  in  general,  a
predictable  source of funds,  deposit  flows and loan  prepayments  are greatly
influenced by general interest rates, economic conditions and competition.

The Bank is required to maintain  minimum  levels of liquid assets as defined by
OTS Regulations.  This  requirement,  which may vary at the direction of the OTS
depending on economic  conditions and deposit flows,  is based upon a percentage
of deposits and  short-term  borrowings.  The required ratio of liquid assets to
deposits and short-term  borrowings is currently 5%. The Bank's  liquidity ratio
at June 30, 1997, was 23.25%.

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 $1.1  million and  $725,000 for the six months
ended  June  30,  1997  and  1996,  respectively.  Net  cash  used by  investing
activities,  consisting  primarily  of  disbursements  for the  origination  and
purchase of loans and the acquisition of securities available for sale partially
offset by principal  collections on loans and  mortgage-backed  securities,  was
$6.7  million and $1.5  million for the six months ended June 30, 1997 and 1996,
respectively. Net cash provided by financing activities for the six months ended
June 30, 1997 of $7.0 million  consisted  primarily of net  increases in deposit
accounts  during the period  offset by the  purchase of  treasury  stock and the
payment  of  dividends.  Net  cash  used  in  financing  activities,  consisting
primarily  of the  purchase of treasury  stock and by a net  decrease in deposit
accounts, was $2.8 million for the six months ended June 30, 1996.

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 Company's  book
value per share as of December 31, 1996 was $17.05. Management believes that the
repurchase of shares at less than book value is an  appropriate  utilization  of
excess capital.  The Office of Thrift  Supervision (OTS) restricts the number of
shares  which  may  be  repurchased  during  the  three  year  period  following
conversion. Generally, only 5% of shares outstanding may be repurchased annually
during the first three years following conversion.  However, the OTS has allowed
additional  share  repurchases  of 5% annually  based on  extenuating  facts and
circumstances.

At June 30, 1997, the Bank's capital  exceeded each of the capital  requirements
of the OTS. At June 30, 1997,  the Bank's  tangible and core capital levels were
both $18.3 million (10.5% of total adjusted  assets) and its risk-based  capital
level was $18.9  million  (20.6% 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.
<PAGE>
FINANCIAL CONDITION

Total assets  increased  $8.0 million  (4.8%) to $172.8 million at June 30, 1997
from $164.9  million at  December  31,  1996.  This  increase  occurred as loans
receivable,  net, grew $5.7 million  (4.8%) to $124.2  million at June 30, 1997.
The growth in the loan portfolio  consisted  primarily of  residential  mortgage
loans.  Securities  available for sale increased  $4.0 million  (203.1%) to $6.0
million  at  June  30,  1997.  Offsetting  these  increases  was a  decrease  in
investment securities of $3.6 million (10.0%) to $32.6 million.

At June 30, 1997, total liabilities were $151.3 million representing an increase
of $8.1  million  (5.6%) from  December 31,  1996.  The  increase was  primarily
attributable  to an increase in retail  deposits much of which resulted from the
opening  of the  Bank's  fourth  branch  in  March  1997.  Stockholders'  equity
decreased  $117,000  to $21.6  million  at June 30,  1997 as  compared  to $21.7
million  at  December  31,  1996  largely  as a result  of the  Company's  stock
repurchase program which utilized $704,000 during the period.  Retained earnings
increased by $330,000 primarily as a result of net income of the Company for the
six month period ended June 30, 1997 offset by cash dividends declared. Treasury
stock increased $610,000 as a result of the Company's repurchase of common stock
less common stock issued in satisfaction of the exercise of stock options.

Nonperforming  assets  increased  $165,000 (16.3%) totaling $1.2 million at June
30,  1997,  compared  with $1.0  million at December  31, 1996 as a result of an
increase in residential mortgage non-accrual loans.  Management of the Bank does
not  view  this  increase  as  a  significant   adverse  trend.   The  ratio  of
nonperforming  loans to total loans  receivable,  net was .88% at June 30, 1997,
compared with .70% at December 31, 1996.  The ratio of  nonperforming  assets to
total assets at June 30, 1997, was .68% compared with .61% at December 31, 1996.

Loan Receivable, Net

A summary of loans receivable,  net at June 30, 1997 and December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
                                                        June 30,      December 31,
                                                         1997              1996 
                                                        --------        --------
<S>                                                     <C>             <C>
Loans secured by real estate:
   Residential:
      Conventional .............................        $ 90,937          84,840
      Home Equity ..............................          22,645          22,904
      FHA Insured ..............................           3,156           3,511
      VA Guaranteed ............................           2,407           2,810
   Commercial and multi-family .................           5,175           4,532
                                                        --------        --------
                                                         124,320         118,597
Other loans ....................................             587             523
                                                        --------        --------
                                                         124,907         119,120
                                                        --------        --------
Less:
   Unearned discount and net deferred loan fees               21              23
   Allowance for loan losses ...................             718             642
                                                        --------        --------
                                                             739             665
                                                        --------        --------
Loans receivable, net ..........................        $124,168         118,455
                                                        ========        ========
</TABLE>
<PAGE>
The  following  table sets forth the  information  with regard to  nonperforming
assets.
<TABLE>
<CAPTION>
                                                         June 30,      December 31, 
                                                           1997            1996 
                                                          ------          ------
<S>                                                       <C>             <C>
Loans on a nonaccrual status ...................          $1,004             801
Loans contractually past due 90 days or
   more and still accruing interest ............              83              32
                                                          ------          ------
      Total nonperforming loans ................           1,087             833
Other real estate owned ........................              89             178
                                                          ------          ------
      Total nonperforming assets ...............          $1,176           1,011
                                                          ======          ======

</TABLE>
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,
                                                           1997           1996
                                                          -----           -----
<S>                                                       <C>             <C>

Balance, beginning of period ...................          $ 642             572
Provision charged to operations ................             60              60
Loans charged off ..............................             (2)            (28)
Recoveries on loans previously charged off .....             18              22
                                                          -----           -----
Balance, end of period .........................          $ 718             626
                                                          =====           =====
</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, 1997,  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. Securities available for sale are shown at fair value.

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,
                                        ---------------------------------------------------------------------------
                                                         1997                                   1996
                                        -------------------------------------  ------------------------------------
                                          AVERAGE      INTEREST                  AVERAGE      INTEREST
                                        OUTSTANDING     EARNED/       YIELD/   OUTSTANDING     EARNED/       YIELD/
                                           BALANCE       PAID         RATE       BALANCE        PAID         RATE
                                          --------     --------       -----      --------     --------       -----
<S>                                       <C>          <C>             <C>       <C>          <C>             <C>
Interest-earning assets:
      Loans receivable, net (1) .....     $122,114     $  2,386        7.84%     $108,319     $  2,131        7.91%
      Mortgage-backed securities ....       19,306          305        6.34        22,891          356        6.25
      Securities available for sale .        5,265           88        6.70         7,660          112        5.88
      Debt securities ...............       13,987          224        6.42        16,492          261        6.37
      Other interest-earning asset
           including cash equivalents        4,136           56        5.43         5,164           68        5.30
       FHLB stock ...................        1,338           21        6.30         1,216           19        6.28
                                          --------     --------                  --------     --------
Total interest-earning assets .......      166,146        3,080        7.44       161,742        2,947        7.33
                                          --------     --------                  --------     --------

      Savings accounts ..............       37,285          280        3.01        39,468          296        3.02

      Money market accounts .........        6,859           59        3.45         5,004           38        3.05
      Demand and NOW accounts (2) ...       10,625           40        1.51         9,871           35        1.43
      Certificate accounts ..........       91,552        1,254        5.49        85,008        1,151        5.45
      Escrow ........................        1,212            7        2.32         1,207            7        2.33
                                          --------     --------                  --------     --------
Total interest-bearing liabilities ..      147,533        1,640        4.46       140,558        1,527        4.37
                                          --------     --------                  --------     --------

Net interest income .................                  $  1,440                               $  1,420
                                                       ========                               ========
                                                                                      
Net interest rate spread ............                                  2.98%                                  2.96%
                                                                       ====                                   ==== 

Net earning assets ..................    $ 18,613                                $ 21,184
                                         ========                                ========
                                                                                         
Net yield on average
       interest-earning assets ......                                  3.48%                                  3.53%
                                                                       ====                                   ==== 
Average interest-earning
       assets to average
       interest-bearing liabilities .        1.13                                    1.15
                                             ====                                    ====
                                                                                        
(1) Calculated net of deferred loan fees.
(2) Includes noninterest-bearing demand accounts.
</TABLE>
<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,
                                        ---------------------------------------------------------------------------
                                                         1997                                   1996
                                        -------------------------------------  ------------------------------------
                                          AVERAGE      INTEREST                  AVERAGE      INTEREST
                                        OUTSTANDING     EARNED/       YIELD/   OUTSTANDING     EARNED/       YIELD/
                                           BALANCE       PAID         RATE       BALANCE        PAID         RATE
                                          --------     --------       -----      --------     --------       -----
<S>                                       <C>          <C>             <C>      <C>           <C>            <C>  
Interest-earning assets:
      Loans receivable, net (1) .....     $120,551     $  4,695        7.85%    $105,831      $ 4,224        8.03%
      Mortgage-backed securities ....       19,665          622        6.38       23,496          742        6.35
      Securities available for sale .        3,869          125        6.52        7,819          231        5.94
      Debt securities ...............       14,446          461        6.44       17,570          552        6.32
      Other interest-earning assets
           including cash equivalents        3,901          103        5.32        5,974          157        5.28
      FHLB stock ....................        1,305           41        6.34        1,191           38        6.42

Total interest-earning assets .......      163,737        6,047        7.45      161,881        5,944        7.38

Interest-bearing liabilities:
      Savings accounts ..............       37,160          555        3.01       39,816          598        3.02
      Money market accounts .........        6,581          111        3.40        4,681           68        2.92
      Demand and NOW accounts (2) ...       10,364           78        1.52        9,552           69        1.45
      Certificate accounts ..........       89,910        2,433        5.46       84,881        2,346        5.56
      Escrow ........................        1,011           11        2.19        1,099           12        2.20

Total interest-bearing liabilities ..      145,026        3,188        4.43      140,029        3,093        4.44

Net interest income                                      $2,859                               $ 2,851
                                                         ======                               =======

Net interest rate spread                                               3.02%                                 2.94%
                                                                       ====                                  ==== 

Net earning assets                        $ 18,711                              $ 21,852
                                          ========                              ======== 
Net yield on average
       interest-earning assets                                         3.52%                                 3.54%
                                                                       =====                                 =====
Average interest-earning
       assets to average
       interest-bearing liabilities           1.13                                  1.16
                                              ====                                  ====


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

                        THREE MONTHS ENDED JUNE 30, 1997
                                  COMPARED WITH
                        THREE MONTHS ENDED JUNE 30, 1996

                                                  INCREASE (DECREASE)
                                              ----------------------------
                                                   DUE TO
                                              ----------------
                                              VOLUME      RATE        NET
                                              -----      -----      -----
<S>                                           <C>       <C>         <C>
Interest-earning assets:
  Loans receivable, net .................     $ 252          3        255
  Mortgage-backed securities ............       (60)         9        (51)
  Securities-available for sale .........       (39)        15        (24)
  Debt securities .......................       (43)         6        (37)
  Other interest-earning assets .........       (15)         3        (12)
  FHLB stock ............................         2          0          2
                                              -----      -----      -----
Total interest-earning assets ...........     $  97         36        133
                                              =====      =====      =====

Interest-bearing liabilities:
  Savings deposits ......................     $ (19)         3        (16)
  Money market accounts .................        16          5         21
  Demand and NOW deposits ...............         1          4          5
  Certificate accounts ..................        82         21        103
  Escrow ................................         5         (5)         0
                                              -----      -----      -----

Total interest-bearing liabilities ......     $  85         28        113
                                              =====      =====      =====

Change in net interest income ...........                           $  20
                                                                    =====    

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                         SIX MONTHS ENDED JUNE 30, 1997
                                  COMPARED WITH
                         SIX MONTHS ENDED JUNE 30, 1996


                                                  INCREASE (DECREASE)
                                              ----------------------------
                                                   DUE TO
                                              ----------------
                                              VOLUME      RATE        NET
                                              -----      -----      -----
<S>                                           <C>       <C>         <C>
Interest-earning assets:
  Loans receivable, net .................       $ 533     (62)         471
  Mortgage-backed securities ............        (128)      8         (120)
  Securities-available for sale .........        (127)     21         (106)
  Debt securities .......................        (105)     14          (91)
  Other interest-earning assets .........         (56)      2          (54)
  FHLB stock ............................           3       0            3
                                                -----   -----        -----

Total interest-earning assets ...........       $ 120     (17)         103
                                                =====   =====        =====

Interest-bearing liabilities:
  Savings deposits ......................       $ (45)      2          (43)
  Money market accounts .................          34       9           43
  Demand and NOW deposits ...............           5       4            9
  Certificate accounts ..................         111     (24)          87
  Escrow ................................          (1)      0           (1)
                                                -----   -----        -----

Total interest-bearing liabilities ......       $ 104      (9)          95
                                                =====   =====        =====

Change in net interest income ...........                            $   8
                                                                     =====

</TABLE>
<PAGE>
COMPARISONS OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997

Three months ended June 30, 1997 compared with three months ended
June 30, 1996

Net income for the quarter ended June 30, 1997,  was $268,000 or $.23 per share,
a decrease of $25,000 (8.5%) from the comparable  quarter of the prior year. The
decrease  in net  income was  primarily  a result of an  increase  in income tax
expense  offset by  increases in net interest  income after  provision  for loan
losses and  noninterest  income  and a  decrease  in  noninterest  expense.  The
annualized  return on average assets ("ROA") for the current quarter amounted to
 .63% compared with .72% for the  comparable  quarter a year ago. The  annualized
return on average  equity ("ROE") was 5.06% (on average equity of $21.2 million)
compared with 5.19% (on average equity of $22.7 million) a year earlier.

Interest income for the three months ended June 30, 1997,  totaled $3.1 million,
an  increase  of  $133,000  (4.5%)  from  1996's  second  quarter,   as  average
interest-earning  assets  increased by $4.4 million (2.7%) to $166.1 million and
average  rates earned  increased by 11 basis  points  (1.5%) to 7.44%.  The most
significant  factor  contributing  to the increased level of interest income was
the  increase in  earnings on loans  receivable,  net which  increased  $255,000
(12.0%)  as a  result  of a  $13.8  million  (12.7%)  increase  in  the  average
outstanding  balance  offset by a 7 basis point  (0.9%)  decrease in the average
rate  earned.  Earnings on  mortgage-backed  securities  decreased  $51,000 as a
result of a decrease in the average  invested  balance of $3.6  million  (15.7%)
offset by an increase in average rates earned of 9 basis points (1.4%). Earnings
on debt  securities  decreased  $37,000  (14.2%)  as a result of a  decrease  in
average  invested  balance of $2.5  million  (15.2%)  offset by an  increase  in
average rates earned of 5 basis points (0.8%).

Interest expense for the quarter ended June 30, 1997,  amounted to $1.6 million,
$113,000  (7.4%)  more than the year ago  quarter.  The  increase  occurred as a
result of a $7.0 million (5.0%) increase in average interest bearing liabilities
to $147.5 million combined with a 9 basis point (2.1%) increase in average rates
paid  to  4.46%.  The  Bank  opened  a  new  branch  in  March  1997  which  has
significantly  contributed to the increase in average  deposits.  The mix within
the deposit  structure  changed as the average  balance of certificate and money
market accounts grew $6.5 million (7.7%) and $1.9 million (37.1%), respectively.
The  average  balance of savings  accounts,  meanwhile,  declined  $2.2  million
(5.5%).  The increase in average rates paid on  certificate  accounts of 4 basis
points  (0.7%)  to 5.49%  was a  reflection  of  general  interest  rates  and a
competitive  environment  that  prevailed  during  the  second  quarter  of 1997
compared with 1996.  The increase in average rate paid on money market  accounts
of 40 basis  points  (13.1%) to 3.45%  reflects  the  increased  balances in the
higher interest rate tiers of the products structure.

Net  interest  income for the three  months  ended June 30,  1997  totaled  $1.4
million,  $20,000  (1.4%)  more than the  comparable  quarter  a year  ago.  The
interest  rate spread  increased 2 basis  points to 2.98% for the quarter  ended
June 30, 1997 as compared to the quarter  ended June 30, 1996;  the net interest
margin for the most  recent  quarter of 3.48% was 5 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, 1997 and 1996, respectively. 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, 1997,  the
Bank's allowance for loan losses totaled $718,000 (.57% of total loans and 66.1%
of nonperforming loans) compared with $642,000 (.54% of total loans and 77.1% of
nonperforming loans) at December 31, 1996.

Noninterest Income

Noninterest  income  increased  to $106,000  for the three months ended June 30,
1997,  compared with $73,000 for the corresponding  period in the previous year.
Increases in the three month period ended June 30, 1997  compared with 1996 were
primarily  the  result  of  losses  taken  on the  sale of  available  for  sale
securities in 1996.

Noninterest Expense

Noninterest  expense  decreased  $62,000  (5.5%) to $1.1  million  for the three
months  ended  June  30,  1997,  as  compared  with  the  same  period  in 1996.
Compensation  and  employee  benefits   increased  $21,000  (3.3%)  between  the
respective  quarters.  This increase was a result of an increase in retail staff
due to the opening of a new branch in March 1997,  annual merit  increases,  and
increased  employee  benefits  partially due to increases in the employee  stock
ownership plan. Office occupancy and equipment expense increased $16,000 (11.9%)
compared  to  the  same  quarter  a  year  ago  as  a  result  of  increases  in
depreciation,  property taxes and utilities  associated  with the opening of the
new branch.  FDIC premiums  decreased  $57,000 (71.3%) to $23,000 as a result of
revised premium levels  associated with the Savings  Association  Insurance Fund
("SAIF"). Advertising and business promotion, other insurance premiums, mortgage
servicing  fees,  data  processing  fees,  professional  service fees, and other
noninterest expense remained relatively the same for the quarters ended June 30,
1997 as  compared  to the  quarter  ended  June  30,  1996.  Other  real  estate
writedowns  totaled  $7,000 during the second  quarter last year.  There were no
writedowns in the comparable period in 1997.

Income Tax Expense

Income tax expense totaled  $191,000 and $51,000 for the three months ended June
30, 1997 and 1996,  respectively.  The  effective  tax rate for the three months
ended June 30, 1997 was 41.6%. The effective tax rate for the three months ended
June 30,  1996 was 14.8% and  reflects a  reduction  in the  deferred  tax asset
valuation  reserve reducing income tax expense.  There were no reductions in the
deferred tax asset valuation reserve during the quarter ended June 30, 1997.
<PAGE>
COMPARISONS OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997

Six months ended June 30, 1997, compared with six months ended June 30, 1996

Net income for the six months ended June 30, 1997,  decreased by $90,000 (15.4%)
and totaled $493,000  compared with $583,000 realized in the first half of 1996.
Earnings  per share for the six months  ended  June 30,  1997 was $.42 per share
compared  to $.44 per share for the same  period in 1996.  The  decrease  in net
income was primarily attributable to an increase in income tax expense offset by
increases in net interest income after provision for loan losses and noninterest
income and a reduction in noninterest expense.  Return on average assets ("ROA")
for  the  first  half of  1997  amounted  to .59%  compared  with  .71%  for the
comparable  period a year ago.  Return on average  equity  ("ROE") was 4.62% (on
average equity of $21.3 million) compared with 5.04% (on average equity of $23.3
million) a year earlier.

Interest income for the six months ended June 30, 1997, totaled $6.0 million, an
increase of $103,000  (1.7%) from 1996's first half.  This increase was a result
of an  increase in average  interest-earning  assets of $1.9  million  (1.1%) to
$163.7  million and an increase  in the  average  rate earned of 7 basis  points
(0.9%) to 7.45%.  The largest  factor  contributing  to the increase in interest
income was the increase in earnings on loans which increased $471,000 (11.2%) as
a result of a $14.7 million  (13.9%)  increase in the average  balance  invested
offset by an 18 basis point (2.2%) decrease in average rates earned. Earnings on
mortgage-backed  securities  decreased  $120,000  as a result of a  decrease  in
average  invested  balance of $3.8  million  (16.3%)  offset by an  increase  in
average rates earned of three basis points (0.5%).  Earnings on debt  securities
decreased  $91,000 (16.5%) as a result of a decrease in average invested balance
of $3.1  million  (17.8%)  offset by an increase in average  rates  earned of 12
basis points (1.9%).  Interest earned on securities available for sale decreased
$106,000  (45.9%) as a result of a $3.9 million (50.5%)  decrease in the average
balance  invested  combined  with an increase in the average  rates earned of 58
basis points (9.8%).  Earnings on other  interest  earning  assets,  essentially
federal funds sold, decreased $54,000 (34.4%) as a result of the combined effect
of a $2.1 million (34.7%) decrease in the average balance invested and a 4 basis
point (0.8%) increase in average rates earned.

Interest  expense  for the six months  ended  June 30,  1997,  amounted  to $3.2
million,  $95,000 (3.1%) more than the  corresponding  period of the prior year.
The increase  occurred as a result of a $5.0 million (3.6%)  increase in average
interest  bearing  liabilities  to $145.0  million  offset by a one basis  point
(0.2%)  decrease in average  rates paid to 4.43%.  The opening of the new branch
has  significantly  contributed  to the  increase in average  deposits.  The mix
within the deposit  structure  changed as the average balance of certificate and
money  market  accounts  grew $5.0  million  (5.9%)  and $1.9  million  (40.6%),
respectively.  The average balance of savings accounts, meanwhile, declined $2.7
million (6.7%). The decrease in average rates paid on certificate accounts of 10
basis points  (1.8%) to 5.46% was a reflection of general  interest  rates and a
competitive  environment  that prevailed  during the first half of 1997 compared
with 1996.  The  increase in average  rate paid on money  market  accounts of 48
basis  points  (16.4%) to 3.40%  reflects the  increased  balances in the higher
interest rate tiers of the products structure.

Net interest income for the six months ended June 30, 1997 totaled $2.9 million,
$8,000  (0.3%) more than the  comparable  period a year ago. The  interest  rate
spread increased 8 basis points to 3.02% for the six months ended June 30, 1997;
the net interest margin for the first half of 1997 of 3.52% was two basis points
less than the comparable period a year ago.
<PAGE>
Provision for Loan Losses

For the six months ended June 30, 1997 and 1996,  the  provision for loan losses
totaled $60,000. See "Provision for Loan Losses" at page 16.

Noninterest Income

Noninterest  income  increased  for the six month  period ended June 30, 1997 to
$197,000  compared  with $164,000 for the  corresponding  period in the previous
year. Increases in other loan charges and other noninterest income comprised the
majority of the increase  from the same period last year.  Losses on the sale of
securities available for sale totaling $36,000 were incurred in 1996 while there
were no comparable losses in 1997.

Noninterest Expense

Noninterest  expense decreased $17,000 (0.8%) to $2.2 million for the six months
ended June 30, 1997, as compared with the same period in 1996.  Compensation and
employee  benefits,  the largest  component of  noninterest  expense,  increased
$100,000 (7.9%) between the respective periods. This increase was a result of an
increase  in retail  staff due to the  opening  of a new  branch in March  1997,
annual  merit  increases,  and  increased  employee  benefits  partially  due to
increases in the employee stock ownership plan.  Office  occupancy and equipment
expense  increased  $45,000 (17.0%)  compared to the same period a year ago as a
result of increases in  depreciation,  property  taxes and utilities  associated
with the opening of the new branch.  FDIC premiums decreased $134,000 (82.7%) to
$28,000  as a result of  revised  premium  levels  associated  with the  Savings
Association Insurance Fund ("SAIF").  Advertising and business promotion,  other
insurance premiums,  mortgage servicing fees, data processing fees, professional
service fees, and other noninterest expense remained relatively the same for the
six months  ended June 30,  1997 as  compared  to the six months  ended June 30,
1996.  Other real estate  writedowns  totaled $7,000 for the first half of 1996.
There were no writedowns for the comparable period in 1997.

Income Tax Expense

Income tax expense  totaled  $324,000 and $176,000 for the six months ended June
30, 1997 and 1996, respectively. The effective tax rate for the six months ended
June 30, 1997 was 39.7%.  The  effective  tax rate for the six months ended June
30, 1996 was 23.2% and reflects a reduction in the deferred tax asset  valuation
reserve  reducing  income tax expense.  There were no reductions in the deferred
tax asset valuation reserve during the six months ended June 30, 1997.

Impact of New Accounting Standards

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

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting Standard No. 130, "Reporting  Comprehensive  Income" (SFAS
No. 130).  SFAS No. 130  establishes  standards for reporting and  displaying of
comprehensive income. SFAS No. 130 states that 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.  This statement is effective for fiscal years  beginning
after  December  15,  1997.  Management   anticipates  developing  the  required
information for inclusion in the 1998 annual consolidated financial statements.

Regulatory Developments

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

In order to help eliminate this disparity and any competitive  disadvantage  due
to disparate deposit insurance  premium  schedules,  legislation to recapitalize
the SAIF was enacted in September 1996. The legislation  provided for a one-time
assessment to be imposed on all deposits assessed at the SAIF rates, as of March
31, 1995, in order to recapitalize  the SAIF. It also provided for the merger of
the BIF and SAIF on January 1, 1999 provided no savings associations then exist.
Management  recognized the one-time special  assessment in a tax affected charge
to earnings of  approximately  $558,000  during the quarter ended  September 30,
1996. The legislation was intended to fully  recapitalize  the SAIF fund so that
commercial  banks and thrift  deposits will be charged FDIC premiums at the same
rate beginning October 1, 1996.

Prior to the  enactment  of the  legislation  a portion  of the SAIF  assessment
imposed  on  savings  associations  was used to repay  obligations  issued  by a
federally  chartered  corporation to provide  financing for resolving the thrift
crisis in the  1980's.  Although  the SAIF  rates  are  expected  to be  reduced
significantly,  in the near future the minimum  assessment  paid by SAIF-insured
institutions  is not  anticipated to be equalized with the minimum BIF rate as a
result of this  continuing  obligation.  The FICO  assessment  for SAIF  insured
institutions will be $0.065 per $100 of deposits while BIF insured  institutions
will pay $0.013  per $100 of  deposits  until the year 2000 when the  assessment
will be imposed at the same rate on all FDIC insured institutions.
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
                                   FORM 10-QSB
                                  JUNE 30, 1997


                           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 16,  1997,  the  Company  held its Annual  Meeting of
                  Stockholders.

              (b) At the meeting,  Joseph H.  Giaquinto and Gerald I. Klein were
                  elected for terms to expire in 2000.

              (c) Stockholders voted on the following matters:

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

                                                                       Broker
                   Votes:                    For       Withheld       Non-Votes
                   ------                    ---       --------       ---------

                   Joseph H. Giaquinto     1,007,938      50             --
                   Gerald I. Klein         1,007,933      55             --

                   (ii) The ratification of the appointment of KPMG Peat Marwick
                        LLP as  independent  auditors  of the  Company  for  the
                        fiscal year ending December 31, 1997.

                                                                       Broker
                   Votes:        For       Withheld    Abstain        Non-Votes
                   ------        ---       --------    -------        ---------

                             1,006,010       240        1,738            --

  
Item 5.       Other Information
                  None

Item 6.       Exhibits and Reports on Form 8-K

              (a) Exhibits
                   None

              (b) Reports on Form 8-K
                  None
<PAGE>
                                   SIGNATURES


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



                                           SFS BANCORP, INC.
                                           (Registrant)

DATE:  August 14, 1997                BY:  /s/ Joseph H. Giaquinto
                                           -----------------------
                                           Joseph H. Giaquinto
                                           Chairman of the Board,
                                           President and Chief Executive Officer
                                           (Duly Authorized Officer)


DATE:  August 14, 1997                BY:  /s/ David J. Jurczynski
                                           -----------------------
                                           David J. Jurczynski
                                           Vice President, Treasurer and
                                           Chief Financial Officer
                                           (Principal Financial Officer)