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


                                   FORM 10-QSB

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


         For the Quarter ended September 30, 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 October 31, 1997
  ---------------------                         ----------------------------

  Common Stock, Par $.01                                  1,200,997


Transitional Small Business Disclosure Format (Check One):  Yes [   ]  No [ X ]
<PAGE>


                        SFS BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                               SEPTEMBER 30, 1997


INDEX

Part I    FINANCIAL INFORMATION

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

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

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

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

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

            Consolidated Statements of Cash Flows for the Nine
            months ended September 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

                               SEPTEMBER 30, 1997



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


                         PART I - FINANCIAL INFORMATION 


Item 1. - Consolidated Interim Financial Statements

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

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

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


                                                                       THREE MONTHS ENDED
                                                                         SEPTEMBER  30,
                                                                     --------------------
                                                                       1997         1996
                                                                     -------      -------
                                                                          (Unaudited)
<S>                                                                  <C>          <C>
Interest income:
      Real estate loans ........................................     $ 2,482        2,233
      Other loans ..............................................          11           12
      Mortgage-backed securities ...............................         292          345
      Debt securities ..........................................         220          255
      Federal funds sold and cash deposits .....................          37           67
      Securities available for sale ............................          99           47
      Stock in Federal Home Loan Bank ..........................          23           20
                                                                     -------      -------
             Total interest income .............................       3,164        2,979

Interest expense:
      Deposits .................................................       1,705        1,546
                                                                     -------      -------
             Net interest income ...............................       1,459        1,433

Provision for loan losses ......................................          30           30
                                                                     -------      -------
             Net interest income after provision for loan losses       1,429        1,403
                                                                     -------      -------

Noninterest income:
      Gain on sale of securities ...............................        --             44
      Service fee income .......................................           4            5
      Other loan charges .......................................          49           35
      Bank fees and service charges ............................          38           35
      Other ....................................................          29           27
                                                                     -------      -------
             Total noninterest income ..........................         120          146
                                                                     -------      -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                             SFS BANCORP, INC. AND SUBSIDIARY
                             Consolidated Statements of Income
                           (In Thousands, Except Per Share Data)
                                       (continued)


                                                                       THREE MONTHS ENDED    
                                                                         SEPTEMBER  30,
                                                                     --------------------
                                                                       1997         1996
                                                                     -------      -------
                                                                          (Unaudited)
<S>                                                                  <C>          <C>
Noninterest expense:
      Compensation and employee benefits .......................         673          634
      Advertising and business promotion .......................          12           28
      Office occupancy and equipment expense ...................         156          124
      Federal deposit insurance premiums .......................          23        1,010
      Other insurance premiums .................................          27           28
      Mortgage servicing fees ..................................           8           10
      Data processing fees .....................................          43           41
      Professional service fees ................................          59           49
      Other ....................................................          68           63
                                                                     -------      -------
             Total noninterest expense .........................       1,069        1,987
                                                                     -------      -------                   
             Income (loss) before taxes ........................         480         (438)

Income tax expense (benefit) ...................................         184         (313)
                                                                     -------      -------                      
             Net income (loss) .................................     $   296         (125)
                                                                     =======      =======

Primary earnings (loss) per share ..............................     $   .25         (.10)
                                                                     =======      =======
Fully diluted earnings (loss) per share ........................     $   .25         (.10)
                                                                     =======      =======

</TABLE>

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

                                                                        NINE MONTHS ENDED
                                                                           SEPTEMBER  30,
                                                                        -----------------
                                                                          1997      1996
                                                                        ------     ------
                                                                            (Unaudited)
<S>                                                                     <C>        <C>
Interest income:
      Real estate loans ...........................................     $7,157      6,436
      Other loans .................................................         31         34
      Mortgage-backed securities ..................................        913      1,087
      Debt securities .............................................        681        806
      Federal funds sold and cash deposits ........................        140        224
      Securities available for sale ...............................        224        278
      Stock in Federal Home Loan Bank .............................         64         58
                                                                        ------     ------
             Total interest income ................................      9,210      8,923

Interest expense:
      Deposits ....................................................      4,892      4,639 
                                                                        ------     ------  
             Net interest income ..................................      4,318      4,284

Provision for loan losses .........................................         90         90
                                                                        ------     ------  
             Net interest income after provision for loan losses ..      4,228      4,194
                                                                        ------     ------

Noninterest income:
      Gain on sale of securities ..................................       --            8
      Service fee income ..........................................         12         14
      Other loan charges ..........................................        132        120
      Bank fees and service charges ...............................        120        101
      Other .......................................................         53         67
                                                                        ------     ------
             Total noninterest income .............................        317        310
                                                                        ------     ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                             SFS BANCORP, INC. AND SUBSIDIARY
                             Consolidated Statements of Income
                           (In Thousands, Except Per Share Data)
                                       (continued)

                                                                        NINE MONTHS ENDED
                                                                           SEPTEMBER  30,
                                                                        -----------------
                                                                          1997      1996
                                                                        ------     ------
                                                                            (Unaudited)
<S>                                                                     <C>        <C>
Noninterest expense:
      Compensation and employee benefits ..........................      2,032      1,893
      Advertising and business promotion ..........................         74         87
      Office occupancy and equipment expense ......................        465        388
      Federal deposit insurance premiums ..........................         51      1,172
      Other insurance premiums ....................................         70         73
      Mortgage servicing fees .....................................         25         31
      Data processing fees ........................................        131        124
      Other real estate writedown .................................       --            7
      Professional service fees ...................................        180        189
      Other .......................................................        220        219
                                                                        ------     ------
             Total noninterest expense ............................      3,248      4,183

             Income before taxes ..................................      1,297        321

Income tax expense (benefit) ......................................        508       (136)
                                                                        ------     ------
             Net income ...........................................     $  789        457
                                                                        ======     ======

Primary earnings per share ........................................     $  .67        .36
                                                                        ======     ======
Fully diluted earnings per share ..................................     $  .66        .35
                                                                        ======     ====== 

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

                                                                                     September 30,   December 31,   
                                                                                         1997           1996
                                                                                      ---------      ---------
      Assets                                                                         (Unaudited)
<S>                                                                                   <C>            <C>      
Cash and due from banks .........................................................     $   1,177          1,296
Federal funds sold ..............................................................         3,400          1,600
                                                                                      ---------      ---------
            Total cash and cash equivalents .....................................         4,577          2,896

Securities available for sale, at fair value ....................................         4,050          1,990
Investment securities:
     Debt securities (approximate fair value of $12,975
             at September 30, 1997 and $15,642 at December 31, 1996) ............        12,983         15,746
   Mortgage-backed securities (approximate fair value of
            $18,091 at September 30, 1997 and $20,322 at December 31, 1996) .....        18,018         20,434
Investment required by law, stock in Federal Home Loan Bank of NY, at cost ......         1,338          1,215
Loans receivable, net ...........................................................       128,777        118,455
Accrued interest receivable .....................................................         1,060          1,137
Premises and equipment, net .....................................................         2,243          1,921
Real estate owned ...............................................................           111            178
Prepaid expenses and other asset ................................................           936            916
                                                                                      ---------      ---------
            Total Assets ........................................................     $ 174,093        164,888


Liabilities and Stockholders' Equity
Liabilities:
    Due to depositors:
          Demand deposits .......................................................     $  11,752         10,496
          Savings accounts ......................................................        44,991         43,226
          Time deposit accounts .................................................        93,111         86,894
                                                                                      ---------      ---------
            Total Deposits ......................................................       149,854        140,616

     Advance payments by borrowers for property taxes and insurance .............           851          1,160
     Accrued expenses and other liabilities .....................................         1,672          1,441
                                                                                      ---------      ---------
            Total Liabilities ...................................................       152,377        143,217

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

                                                                                     September 30,   December 31,
                                                                                         1997           1996
                                                                                      ---------      ---------
                                                                                      (Unaudited)
<S>                                                                                   <C>            <C>      
Stockholders' Equity:
   Preferred stock, $.01 par value.  Authorized 500,000 shares; none issued .....          --             --
     Common stock, $.01 par value. Authorized 2,500,000 shares; 1,495,000
            shares issued; 1,230,997 shares outstanding at September 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 ..................................        12,227         11,687
   Common stock acquired by :
   Employee stock ownership plan ("ESOP") (95,680 shares) .......................          (957)          (957)
   Recognition and retention plan ("RRP") (34,205 shares) .......................          (345)          (540)
   Treasury stock, at cost (264,003 shares at September 30, 1997
            and 224,003 at December 31, 1996) ...................................        (3,540)        (2,840)
Net unrealized gain on securities available for sale, net of tax ................            56             46
                                                                                      ---------      ---------

     Total Stockholders' Equity .................................................        21,716         21,671
                                                                                      ---------      ---------
     Total Liabilities and Stockholders' Equity .................................     $ 174,093        164,888
                                                                                      =========      =========


</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)

                                                                                                       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>
Nine Months Ended
September 30, 1997

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

Net income                          --             --          789          --           --             --          --         789

Net change in unrealized
gain on securities available        --             --           --          --           --             10                      10
for sale                                                                                                            --

Amortization of  RRP award          --             --            --        --           195             --           --        195

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

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

Purchase of treasury shares         --             --           --         --            --             --        (794)       (794)
                                 -----         ------       ------       ----         -----             --       -----       ------

Balance at September 30, 1997    $  15         14,260       12,227       (957)         (345)            56      (3,540)     21,716
                                 =====         ======       ======      ======         ====             ==       ======     ======

Nine Months Ended
September 30, 1996

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

Net income                          --            --           457         --           --              --          --         457

Net change in unrealized
gain on  securities                 --             --           --         --           --             (46)         --         (46)
available for sale

RRP shares issued                   --             --           --         --          (672)            --          672         --

Cash dividends  declared            --             --          (80)        --           --              --          --         (80)

Purchase of  Treasury shares        --             --           --         --           --              --       (3,418)    (3,418)
                                 -----         ------       ------      ------         ----             --       ------     ------
Balance at September 30, 1996   $   15         14,221       11,390      (1,076)        (672)            42       (2,746)    21,174
                                 =====         ======       ======      ======         ====             ==       ======     ======
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                               SFS BANCORP, INC. AND SUBSIDIARY
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        (In Thousands)

                                                                                             Nine Months Ended
                                                                                                September 30,
                                                                                           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 .............................................................         $   789              457
         Adjustments to reconcile net income to
            net cash provided by operating activities:
              Depreciation and amortization .....................................             140              103
              Net accretion on investment securities ............................             (38)             (10)
          Amortization of award of RRP ..........................................             195             --
              Provision for loan losses .........................................              90               90
          Loss on sale of real estate owned .....................................               3             --
              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 .....................            --                 (8)
              Decrease in accrued interest receivable ...........................              77              158
          Increase in prepaid expense and other assets ..........................             (20)            (580)
              Increase in accrued expense and other liabilities .................             231            1,119
                                                                                          -------          -------
                   Total adjustments ............................................             678              887
                                                                                          -------          -------
                 Net cash provided by operating activities ......................           1,467            1,344
                                                                                          -------          -------
Cash flows from investing activities:
    Proceeds from maturity/paydown of investment securities .....................           4,501            8,792
    Proceeds from maturity/paydown of securities available for sale .............           2,000             --
    Purchase of investment securities ...........................................          (1,700)          (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 ..........................           2,416            3,196
    Net increase in loans receivable ............................................          (7,340)         (11,272)
    Purchase of loans receivable ................................................          (3,110)          (5,185)
    Capital expenditures, net of disposals ......................................            (462)            (525)
    Proceeds from sale of available for sale securities .........................            --              5,952
    Proceeds from the sale of real estate owned .................................             102              193
                                                                                          -------          -------
         Net cash used by investing activities ..................................          (7,766)          (4,948)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                SFS BANCORP, INC. AND SUBSIDIARY
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        (In Thousands)

                                                                                             Nine Months Ended
                                                                                                September 30,
                                                                                           1997              1996
                                                                                          -------          -------
                                                                                                 (Unaudited)
<S>                                                                                       <C>              <C>    
Cash flows from financing activities:
    Net increase in deposits ....................................................           9,238            2,195
    Net decrease in advance payments by borrowers for
         property taxes and insurance ...........................................            (309)            (726)
    Proceeds upon exercise of common stock options ..............................              94             --
    Dividends paid ..............................................................            (249)             (80)
    Purchase of Treasury stock ..................................................            (794)          (3,418)
                                                                                          -------          -------

    Net cash provided (used) in financing activities ............................           7,980           (2,029)
                                                                                          -------          -------
         Net increase (decrease) in cash and cash equivalents ...................           1,681           (5,633)
    Cash and cash equivalents at beginning of period ............................           2,896           10,453
                                                                                          -------          -------
    Cash and cash equivalents at end of period ..................................         $ 4,577            4,820
                                                                                          =======          =======
Supplemental  disclosures of cash flow information:
    Cash paid during the period for:
         Interest paid                                                                   $  4,892            4,622
         Taxes paid                                                                           371              509
    Transfer of loans to other real estate owned                                               38               88
    Net change in unrealized gain on securities available for sale, net of  tax                10              (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 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 conform to
the current periods'  presentation.  The results of operations for the three and
nine months ended September 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 was  computed by dividing  net income  applicable  to common
stock by the weighted  average  number of shares  outstanding  less  unallocated
employee stock  ownership plan shares,  and the dilutive effect of stock options
outstanding during the respective periods.  The dilutive effect of stock options
are considered in both primary and fully diluted computations using the treasury
stock method. Earnings per share has been computed based on the following:
<TABLE>
<CAPTION>

                                                      Three Months Ended                    Nine Months Ended
                                                         September 30                          September 30
                                                 ----------------------------           -------------------------
                                                    1997               1996                1997            1996
                                                    ----               ----                -----           ----
<S>                                              <C>                <C>                 <C>             <C>
Weighted average number of
     common shares outstanding                   1,135,697          1,202,824           1,152,331       1,276,410
Weighted average number of
     common shares and common
     equivalent shares outstanding               1,173,915          1,205,196           1,183,595       1,276,410
Weighted average number of
     common shares and common
     equivalent shares outstanding,
     assuming full dilution                      1,184,456          1,214,811           1,202,724       1,287,741

</TABLE>
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

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

     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.


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 $1.7 million to
$4.6 million at September 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 September 30, 1997, was 21.80%.
<PAGE>
The Company's cash flows are comprised of three classifications: cash flows from
operating activities;  cash flows from investing activities; and cash flows from
financing   activities.   Net  cash  flows  provided  by  operating  activities,
consisting  primarily of interest and dividends  received on earning assets less
interest paid on deposits, was $1.5 million and $1.3 million for the nine months
ended  September  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, and the
proceeds from the maturity and paydowns of investment  securities and securities
available for sale,  was $7.8 million and $4.9 million for the nine months ended
September  30,  1997 and 1996,  respectively.  Net cash  provided  by  financing
activities  for the  nine  months  ended  September  30,  1997  of $8.0  million
consisted  primarily  of net  increases  in deposit  accounts  during the period
offset by the  purchase of treasury  stock,  the  payment of  dividends  and the
decrease in advance payments by borrowers for property taxes and insurance.  Net
cash used in financing  activities for the nine months ended  September 30, 1996
of $2.0  million  consisted  primarily of the  purchase of treasury  stock,  the
payment of  dividends  and the  decrease in advance  payments by  borrowers  for
property taxes and insurance offset by a net increase in deposit accounts.

During the nine month period ended  September  30, 1997 the Company  repurchased
47,475  shares.  The  average  price of  treasury  shares  purchased  was $16.73
totaling $794,000.  The average price paid of $16.73 was approximately  94.8% of
the  Company's  book  value  per  share of $17.64 at  September  30,  1997.  The
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  September  30,  1997,  the  Bank's  capital  exceeded  each  of the  capital
requirements  of the OTS. At September  30, 1997,  the Bank's  tangible and core
capital levels were both $18.5 million (10.6% of total adjusted  assets) and its
risk-based  capital  level  was  $19.2  million  (20.8%  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  $9.2 million  (5.6%) to $174.1 million at September 30,
1997 from $164.9 million at December 31, 1996.  This increase  occurred as loans
receivable,  net, grew $10.3 million  (8.7%) to $128.8  million at September 30,
1997.  The  growth in the loan  portfolio  consisted  primarily  of  residential
mortgage loans. Securities available for sale increased $2.1 million (103.5%) to
$4.1 million at September 30, 1997. Federal funds sold increased $1.8 million to
$3.4 million as of September  30, 1997 due  primarily to the receipt of proceeds
from the call of securities available for sale totaling $2.0 million late in the
quarter.  Offsetting these increases was a decrease in investment  securities of
$5.2 million  (14.3%) to $31.0 million  resulting  primarily from maturities and
principal payments.
<PAGE>
At September 30, 1997,  total  liabilities  were $152.4 million  representing an
increase of $9.2  million  (6.4%) 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
increased  $45,000 to $21.7  million at  September  30,  1997 due in part to the
change in retained earnings and treasury stock.  Retained earnings  increased by
$540,000  primarily  as a result of net income of the Company for the nine month
period ended  September 30, 1997 offset by cash  dividends  declared  during the
same period.  Treasury  stock  increased  $700,000 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  $301,000  (29.8%)  totaling  $1.3  million  at
September 30, 1997,  compared with $1.0 million at December 31, 1996 as a result
of  two residential  mortgages placed in nonaccrual status which are believed to
possess adequate levels of collateral. 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 .93% at September 30, 1997,  compared with .70%
at December  31,  1996.  The ratio of  nonperforming  assets to total  assets at
September 30, 1997, was .75% compared with .61% at December 31, 1996.

Loan Receivable, Net

A summary of loans  receivable,  net at September 30, 1997 and December 31, 1996
is as follows:
<TABLE>
<CAPTION>
                                                      September 30,      December 31,  
                                                           1997             1996
                                                         --------          --------
<S>                                                      <C>               <C>
Loans secured by real estate:
   Residential:
      Conventional ............................          $ 95,605            84,840
      Home Equity .............................            22,899            22,904
      FHA Insured .............................             2,935             3,511
      VA Guaranteed ...........................             2,196             2,810
   Commercial and multi-family ................             5,381             4,532
                                                         --------          --------
                                                          129,016           118,597
Other loans ...................................               536               523
                                                         --------          --------
                                                          129,552           119,120
                                                         --------          --------
Less:
   Unearned discount and net deferred loan fees                23                23
   Allowance for loan losses ..................               752               642
                                                         --------          --------

                                                              775               665
                                                         --------          --------

Loans receivable, net .........................          $128,777           118,455
                                                         ========          ========
</TABLE>
<PAGE>
The  following  table sets forth the  information  with regard to  nonperforming
assets.
<TABLE>
<CAPTION>
                                                      September 30,    December 31, 
                                                         1997             1996
                                                        ------          ------
<S>                                                     <C>             <C>
Loans on a nonaccrual status ..................         $1,133             801
Loans contractually past due 90 days or
   more and still accruing interest ...........             68              32
                                                        ------          ------
      Total nonperforming loans ...............          1,201             833
Other real estate owned .......................            111             178
                                                        ------          ------
      Total nonperforming assets ..............         $1,312           1,011
                                                        ======          ======
</TABLE>
The  following  table sets forth the  information  with regard to changes in the
allowance for loan losses.
<TABLE>
<CAPTION>
                                                       For the nine months ended 
                                                              September 30,
                                                       -------------------------
                                                           1997           1996
                                                         -------         -----
<S>                                                      <C>             <C>

Balance, beginning of period                             $   642           572
Provision charged to operations                               90            90
Loans charged off                                             (9)          (45)
Recoveries on loans previously charged off                    29            29
                                                         -------         -----

Balance, end of period                                   $   752           646
                                                         =======         =====
</TABLE>
Average Balance Data,  Interest Rates and Interest  Differential and Rate/Volume
Analysis

The following  information  regarding average balances and rates earned/paid and
the rate/volume analysis is an integral component of the discussion of operating
results for the three months and nine months ended September 30, 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.
<PAGE>
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 SEPTEMBER  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) .....    $  126,834     $   2,493         7.80%      $ 114,978      $  2,245         7.77%  
      Mortgage-backed securities ....        18,408           292         6.29          21,807           345         6.29   
      Securities available for sale .         5,864            99         6.70           3,105            47         6.02   
      Debt securities ...............        13,428           220         6.50          15,902           255         6.38   
      Other interest-earning asset                                                                                          
           including cash equivalents         2,671            37         5.50           5,136            67         5.19   
       FHLB stock ...................         1,338            23         6.82           1,216            20         6.54   
                                         ----------     ---------                     --------       -------   
Total interest-earning assets .......       168,543         3,164         7.45         162,144         2,979         7.31   
                                         ----------     ---------                     --------       -------   
                                                                                                                            
      Savings accounts ..............        37,306           283         3.01          38,507           292         3.02   
      Money market accounts .........         7,712            70         3.60           5,641            46         3.24   
      Demand and NOW accounts (2) ...        11,137            42         1.50          10,489            39         1.48   
      Certificate accounts ..........        91,843         1,301         5.62          85,918         1,161         5.38   
      Escrow ........................         1,736             9         2.06           1,570             8         2.03   
                                         ----------     ---------                     --------       -------  
Total interest-bearing liabilities ..       149,734         1,705         4.52         142,125         1,546         4.33   
                                         ----------     ---------                     --------       -------                
Net interest income                                     $   1,459                                    $ 1,433
                                                        =========                                    =======

Net interest rate spread                                                  2.93%                                      2.98%
                                                                          ====                                       ==== 

Net earning assets                       $   18,809                                  $  20,019
                                         ==========                                  ========= 

Net yield on average
       interest-earning assets                                            3.43%                                      3.52%
                                                                          ====                                       ==== 

Average interest-earning
       assets to average
       interest-bearing liabilities            1.13                                        1.14
                                               ====                                        ====


</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)


                                                                    NINE  MONTHS ENDED SEPTEMBER  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) ..........   $122,668        $ 7,18          7.83%      $108,902      $  6,470          7.94% 
      Mortgage-backed securities .........     19,241           913          6.34         22,929         1,087          6.33  
      Securities available for sale ......      4,560           224          6.57          6,236           278          5.95  
      Debt securities ....................     14,085           681          6.46         17,010           806          6.33  
      Other interest-earning assets                                                                                         
           including cash equivalents ....      3,486           140          5.37          5,693           224          5.26  
      FHLB stock .........................      1,316            64          6.50          1,199            58          6.46  
                                           ----------     ---------                     --------       -------                
Total interest-earning assets ............    165,356         9,210          7.45        161,969         8,923          7.36  
                                           ----------     ---------                     --------       -------  
                                                                                                                            
Interest-bearing liabilities:                                                                                               
      Savings accounts ...................     37,209           837          3.01         39,377           889          3.02  
      Money market accounts ..............      6,962           181          3.48          5,004           114          3.04  
      Demand and NOW accounts (2) ........     10,626           120          1.51          9,866           108          1.46  
      Certificate accounts ...............     90,561         3,734          5.51         85,229         3,507          5.50  
      Escrow .............................      1,255            20          2.13          1,257            21          2.23  
                                           ----------     ---------                     --------       -------  
Total interest-bearing liabilities .......    146,613         4,892          4.46        140,733         4,639          4.40  
                                           ----------     ---------                     --------       ------- 

Net interest income                                          $4,318                                    $ 4,284
                                                             ======                                    =======

Net interest rate spread                                                     2.99%                                      2.96%
                                                                             ====                                       ==== 

Net earning assets                           $ 18,743                                   $ 21,236
                                             ========                                   ======== 

Net yield on average
       interest-earning assets                                               3.49%                                      3.53% 
                                                                             =====                                      =====
Average interest-earning
       assets to average
       interest-bearing liabilities              1.13                                       1.15
                                                 ====                                       ====


</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 SEPTEMBER 30, 1997
                                  COMPARED WITH
                      THREE MONTHS ENDED SEPTEMBER 30, 1996

                                                      INCREASE   (DECREASE)
                                                --------------------------------
                                                              DUE TO
                                                VOLUME        RATE          NET
                                                ------        ----          ---
<S>                                             <C>          <C>          <C>
Interest-earning assets:
  Loans receivable, net .................       $ 239            9          248
  Mortgage-backed securities ............         (53)           0          (53)
  Securities-available for sale .........          47            5           52
  Debt securities .......................         (40)           5          (35)
  Other interest-earning assets .........         (34)           4          (30)
  FHLB stock ............................           2            1            3
                                                -----        -----        -----
Total interest-earning assets ...........       $ 161           24          185
                                                =====        =====        =====

Interest-bearing liabilities:
  Savings deposits ......................       $  (8)          (1)          (9)
  Money market accounts .................          20            4           24
  Demand and NOW deposits ...............           3            0            3
  Certificate accounts ..................          84           56          140
  Escrow ................................           1            0            1
                                                -----        -----        -----

Total interest-bearing liabilities ......       $ 100           59          159
                                                =====        =====        =====

Change in net interest income ...........                                 $  26
                                                                          =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                      NINE MONTHS ENDED SEPTEMBER 30, 1997
                                  COMPARED WITH
                      NINE MONTHS ENDED SEPTEMBER 30, 1996

                                                      INCREASE   (DECREASE)
                                                --------------------------------
                                                              DUE TO
                                                VOLUME        RATE          NET
                                                ------        ----          ---
<S>                                             <C>          <C>          <C> 
Interest-earning assets:
  Loans receivable, net .................       $ 799          (81)         718
  Mortgage-backed securities ............        (176)           2         (174)
  Securities-available for sale .........         (80)          26          (54)
  Debt securities .......................        (143)          18         (125)
  Other interest-earning assets .........         (89)           5          (84)
  FHLB stock ............................           6            0            6
                                                -----        -----        -----

Total interest-earning assets ...........       $ 317          (30)         287
                                                =====        =====        =====

Interest-bearing liabilities:
  Savings deposits ......................       $ (50)          (2)         (52)
  Money market accounts .................          54           13           67
  Demand and NOW deposits ...............           9            3           12
  Certificate accounts ..................         217           10          227
  Escrow ................................           0           (1)          (1)
                                                -----        -----        -----

Total interest-bearing liabilities ......       $ 230           23          253
                                                =====        =====        =====

Change in net interest income ...........                                 $  34
                                                                          =====
</TABLE>

COMPARISONS OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997

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

Net income for the quarter ended  September  30, 1997,  was $296,000 or $.25 per
share on both a primary and fully diluted basis which  represents an increase of
$421,000 (336.8%) from the comparable quarter of the prior year. The increase in
net income was primarily a result of a decrease in noninterest  expense combined
with an increase in net  interest  income  after  provision  for loan losses and
income tax expense and a decrease in noninterest  income.  The annualized return
on average assets ("ROA") for the current quarter amounted to .68% compared with
-.30% for the comparable  quarter a year ago. The  annualized  return on average
equity  ("ROE") was 5.59% (on average  equity of $21.2  million)  compared  with
-2.31% (on average equity of $21.7 million) a year earlier.
<PAGE>
Interest  income for the three months  ended  September  30, 1997,  totaled $3.2
million,  an increase of $185,000  (6.2%) from 1996's third quarter,  as average
interest-earning  assets  increased by $6.4 million (3.9%) to $168.5 million and
average  rates earned  increased by 14 basis  points  (1.9%) to 7.45%.  The most
significant  factor  contributing  to the increased level of interest income was
the  increase in  earnings on loans  receivable,  net which  increased  $248,000
(11.0%)  as a  result  of a  $11.9  million  (10.3%)  increase  in  the  average
outstanding balance combined with a 3 basis point (0.4%) increase in the average
rate  earned.  Earnings on  mortgage-backed  securities  decreased  $53,000 as a
result of a decrease in the average  invested  balance of $3.4 million  (15.6%).
Earnings on securities available for sale increased $52,000 (110.6%) as a result
of an increase in average invested balance of $2.8 million (88.9%) combined with
an increase in average rates earned of 68 basis points (11.3%).

Interest  expense for the quarter  ended  September  30, 1997,  amounted to $1.7
million, $159,000 (10.3%) more than the prior year's third quarter. The increase
occurred  as a result of a $7.6  million  (5.4%)  increase  in average  interest
bearing  liabilities  to $149.7  million  combined  with a 19 basis point (4.4%)
increase in average  rates paid to 4.52%.  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 $5.9 million (6.9%) and $2.1 million
(36.7%),  respectively.  The  average  balance of savings  accounts,  meanwhile,
declined $1.2 million (3.1%).  The increase in average rates paid on certificate
accounts of 24 basis points (4.5%) to 5.62% was a reflection of general interest
rates and a competitive  environment  that prevailed during the third quarter of
1997 compared with the third quarter of 1996.  The increase in average rate paid
on money  market  accounts  of 36 basis  points  (11.1%) to 3.60%  reflects  the
increased balances in the higher interest rate tiers of the product structure.

Net interest  income for the three months ended  September 30, 1997 totaled $1.5
million,  $26,000  (1.8%)  more than the  comparable  quarter  a year  ago.  The
interest  rate spread  decreased 5 basis  points to 2.93% for the quarter  ended
September 30, 1997 as compared to the quarter ended  September 30, 1996; the net
interest  margin for the most  recent  quarter of 3.43% was 9 basis  points less
than the comparable quarter a year ago.

Provision for Loan Losses

The  provision  for loan  losses  amounted  to $30,000  for the  quarters  ended
September 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 September 30, 1997, the
Bank's allowance for loan losses totaled $752,000 (.58% of total loans and 62.6%
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  decreased to $120,000 for the three months ended  September
30, 1997,  compared with $146,000 for the  corresponding  period in the previous
year.  The decrease in the three month period ended  September 30, 1997 compared
with 1996 was  primarily  the result of gains taken on the sale of available for
sale  securities  in 1996 totaling  $44,000  offset by an increase in other loan
charges.
<PAGE>
Noninterest Expense

Noninterest  expense  decreased  $918,000  (46.2%) to $1.1 million for the three
months  ended  September  30,  1997,  as compared  with the same period in 1996.
Federal deposit insurance  premiums  decreased  $987,000 (97.7%) to $23,000 from
the same period a year ago. The decrease was  attributable to a special one-time
assessment of the Savings  Association  Insurance Fund ("SAIF") insured deposits
totaling  $930,000 in the third quarter of 1996 and an ongoing  reduction in the
FDIC insurance premiums subsequent to the special  assessment.  Compensation and
employee benefits increased $39,000 (6.2%) between the respective quarters. This
increase was a result of annual merit increases and increased  employee benefits
partially  due to  increases  in  the  employee  stock  ownership  plan.  Office
occupancy and equipment  expense  increased $32,000 (25.8%) compared to the same
quarter a year ago as a result of increases in depreciation,  property taxes and
utilities  associated  with  the  opening  of the new  branch.  Advertising  and
business promotion  decreased $16,000 (57.1%) between the respective quarters as
a result of reduced  television  advertising and more focused print advertising.
Other  insurance  premiums,  mortgage  servicing  fees,  data  processing  fees,
professional service fees, and other noninterest expense remained relatively the
same for the quarter  ended  September 30, 1997 as compared to the quarter ended
September 30, 1996.

Income Tax Expense

Income tax expense  totaled  $184,000 for the three months ended  September  30,
1997 while an income tax benefit of $313,000 was  recognized in the three months
ended  September  30, 1996.  The  effective  tax rate for the three months ended
September 30, 1997 was 38.3%. The income tax benefit recognized in 1996 reflects
the  reduction  in pre-tax  income  resulting  from the  special  one-time  SAIF
assessment combined with a reduction of the deferred tax asset valuation reserve
which  reduced the tax effect on pre-tax  income.  There have been no comparable
reductions in the deferred tax asset valuation  reserve during the quarter ended
September 30, 1997.

COMPARISONS OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

Nine months ended September 30, 1997,  compared with nine months ended September
30, 1996

Net income for the nine months ended  September 30, 1997,  increased by $332,000
(72.6%) and totaled  $789,000  compared  with  $457,000  recognized in the first
three  quarters of 1996.  Primary and fully  diluted  earnings per share for the
nine  months  ended  September  30,  1997 was $.67 per share and $.66 per share,
respectively compared to $.36 per share and $.35 per share, respectively for the
same  period in 1996.  The  increase  in net income was  primarily a result of a
decrease in noninterest  expense  combined with increases in net interest income
after provision for loan losses and noninterest  income offset by an increase in
income  tax  expense.  Return on  average  assets  ("ROA")  for the first  three
quarters of 1997 amounted to .62% compared with .37% for the comparable period a
year ago. Return on average equity ("ROE") was 4.95% (on average equity of $21.3
million)  compared  with  2.68%  (on  average  equity of $22.7  million)  a year
earlier.

Interest  income for the nine months  ended  September  30,  1997,  totaled $9.2
million,  an increase of $287,000 (3.2%) from 1996's first three quarters.  This
increase was a result of an increase in average  interest-earning assets of $3.4
million  (2.1%) to $165.4  million and an increase in the average rate earned of
nine basis  points  (1.2%) to 7.45%.  The  largest  factor  contributing  to the
<PAGE>
increase in  interest  income was the  increase in earnings on loans  receivable
which increased $718,000 (11.1%) as a result of a $13.8 million (12.6%) increase
in the average  balance  invested  offset by a 9 basis point (1.4%)  decrease in
average rates earned. Earnings on mortgage-backed  securities decreased $174,000
(16.1%) as a result of a decrease in average  invested  balance of $3.7  million
(16.1%) offset by an increase in average rates earned of one basis point (0.2%).
Earnings on debt securities decreased $125,000 (15.5%) as a result of a decrease
in average  invested  balance of $2.9 million  (17.2%)  offset by an increase in
average rates earned of 13 basis points  (2.1%).  Interest  earned on securities
available  for sale  decreased  $54,000  (19.4%)  as a result of a $1.7  million
(26.9%)  decrease in the average  balance  invested offset by an increase in the
average  rate earned of 62 basis  points  (10.4%).  Earnings  on other  interest
earning assets,  essentially federal funds sold,  decreased $84,000 (37.5%) as a
result of the combined effect of a $2.2 million (38.8%)  decrease in the average
balance invested and an 11 basis point (2.1%) increase in average rates earned.

Interest expense for the nine months ended September 30, 1997,  amounted to $4.9
million,  $253,000 (5.5%) more than the corresponding  period of the prior year.
The increase  occurred as a result of a $5.9 million (4.2%)  increase in average
interest  bearing  liabilities to $146.6  million  combined with a 6 basis point
(1.4%)  increase in average  rates paid to 4.46%.  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 $5.3  million  (6.3%)  and $2.0  million  (39.1%),
respectively.  The average balance of savings accounts, meanwhile, declined $2.2
million  (5.5%).  The increase in average rates paid on certificate  accounts of
one basis point (0.2%) to 5.51% was a reflection of general interest rates and a
competitive  environment  that prevailed during the first three quarters of 1997
compared with 1996.  The increase in average rate paid on money market  accounts
of 44 basis  points  (14.5%) to 3.48%  reflects  the  increased  balances in the
higher interest rate tiers of the products structure.

Net interest  income for the nine months ended  September  30, 1997 totaled $4.3
million, $34,000 (0.8%) more than the comparable period a year ago. The interest
rate  spread  increased  three basis  points to 2.99% for the nine months  ended
September 30, 1997; the net interest margin for the first three quarters of 1997
of 3.49% was four basis points less than the comparable period a year ago.

Provision for Loan Losses

For the nine months ended  September  30, 1997 and 1996,  the provision for loan
losses totaled $90,000. See "Provision for Loan Losses" at page 18.

Noninterest Income

Noninterest  income increased for the nine month period ended September 30, 1997
to $317,000 compared with $310,000 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. Net gain on the sale of
securities  available for sale totaling $8,000 were realized in 1996 while there
were no comparable net gains or losses in 1997.
<PAGE>
Noninterest Expense

Noninterest  expense  decreased  $935,000  (22.4%) to $3.2  million for the nine
months  ended  September  30,  1997,  as compared  with the same period in 1996.
Federal  deposit  insurance  premiums  decreased $1.1 million (95.6%) to $51,000
from the same period a year ago.  The  decrease  was  attributable  to a special
one-time  assessment of insured  deposits to replenish  the Savings  Association
Insurance  Fund ("SAIF")  totaling  $930,000 in the third quarter of 1996 and an
ongoing  reduction  in the FDIC  insurance  premiums  subsequent  to the special
assessment.  Compensation  and  employee  benefits,  the  largest  component  of
noninterest  expense,  increased $139,000 (7.3%) 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 $77,000 (19.8%) 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.  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 nine months ended  September  30, 1997 as
compared  to the nine  months  ended  September  30,  1996.  Other  real  estate
writedowns  totaled $7,000 for the first three  quarters of 1996.  There were no
writedowns for the comparable period in 1997.

Income Tax Expense

Income tax expense totaled $508,000 for the nine months ended September 30, 1997
while an income tax benefit of $136,000 was  recognized in the nine months ended
September 30, 1996.  The effective tax rate for the nine months ended  September
30, 1997 was 39.2%. See "Income Tax Expense" at page 18.

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. 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.
<PAGE>
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.
<PAGE>

                        SFS BANCORP, INC. AND SUBSIDIARY
                                   FORM 10-QSB
                               SEPTEMBER 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
              None

Item 5.       Other Information
              None

Item 6.       Exhibits and Reports on Form 8-K

              (a) Exhibits
                  None

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


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



                                           SFS BANCORP, INC.
                                           (Registrant)

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


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