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, 1999                  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, 1999
        ---------------------                       ----------------------------

        Common Stock, Par $.01                              1,207,755



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

                                   FORM 10-QSB

                                  JUNE 30, 1999


INDEX
-----

Part I    FINANCIAL INFORMATION
                                                                            Page

Item 1.   Interim Financial Statement.......................................   1

            Consolidated Statements of Income for the Three
            months ended June 30, 1999 and 1998  (Unaudited)................   2

            Consolidated Statements of Income for the Six
            months ended June 30, 1999 and 1998  (Unaudited)................   3

            Consolidated Statements of Financial Condition as
            of June 30, 1999 (Unaudited) and December 31, 1998..............   4

            Consolidated Statements of Changes in Stockholders' Equity for
            the six months ended June 30, 1999 and 1998   (Unaudited).......   5

            Consolidated Statements of Cash Flows for the six
            months ended June 30, 1999 and 1998  (Unaudited)................   6

            Notes to unaudited consolidated interim financial statements....   7

Item 2.  Management's Discussion and Analysis
            of Financial Condition and Results of Operations.................  9


Part II   OTHER INFORMATION

Item 1.   Legal Proceedings.................................................. 25

Item 2.   Changes in Securities and Use of Proceeds ........................  25

Item 3.   Defaults Upon Senior Securities...................................  25

Item 4.   Submission of Matters to a Vote of Security Holders...............  25

Item 5.   Other Information.................................................  25

Item 6.   Exhibits and Reports on Form 8-K..................................  25

Signatures................................................................... 26

<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                                  JUNE 30, 1999



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


                         PART I - FINANCIAL INFORMATION


Item 1. - Interim Financial Statements

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

         The interim financial  statements presented in this Form 10-QSB reflect
the  consolidated  financial  condition and results of operations of the Company
and its subsidiary.
<PAGE>
<TABLE>
<CAPTION>
                                  SFS BANCORP, INC. AND SUBSIDIARY
                                 Consolidated Statements of Income
                               (In Thousands, Except Per Share Data)


                                                                                THREE MONTHS ENDED
                                                                                     JUNE  30,
                                                                                ------------------
                                                                                  1999       1998
                                                                                 ------     ------
                                                                                    (Unaudited)
<S>                                                                              <C>        <C>
            Interest income:
                  Loans ....................................................     $2,597     $2,687
                  Investment securities ....................................        156        329
                  Securities available for sale ............................        257        127
                  Federal funds sold and cash deposits .....................         30         37
                  Stock in Federal Home Loan Bank ..........................         25         25
                                                                                 ------     ------
                         Total interest income .............................      3,065      3,205
                                                                                 ------     ------

            Interest expense:
                  Deposits
                                                                                  1,519      1,746
                  Borrowings ...............................................          9         --
                                                                                 ------     ------
                        Total interest expense .............................      1,528      1,746
                                                                                 ------     ------

                         Net interest income ...............................      1,537      1,459

            Provision for loan losses
                                                                                     15         30
                                                                                 ------     ------
                         Net interest income after provision for loan losses      1,522      1,429
                                                                                 ------     ------

            Noninterest income:
                  Other loan charges .......................................         27         43
                  Bank fees and service charges ............................         45         44
                  Other ....................................................          7         34
                                                                                 ------     ------
                         Total noninterest income ..........................         79        121
                                                                                 ------     ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                              <C>        <C>
            Noninterest expense:
                  Compensation and employee benefits .......................        661        629
                  Advertising and business promotion .......................         28          9
                  Office occupancy and equipment expense ...................        152        150
                  Federal deposit insurance premiums .......................         22         23
                  Other insurance premiums .................................         17         19
                  Data processing fees .....................................         47         47
                  Professional service fees ................................         63         79
                  Merger-related expenses ..................................        167         --
                  Other ....................................................         75         88
                                                                                 ------     ------
                         Total noninterest expense
                                                                                  1,232      1,044
                                                                                 ------     ------
                         Income before taxes ...............................        369        506

            Income tax expense
                                                                                    200        208
                                                                                 ------     ------
                         Net income ........................................     $  169     $  298
                                                                                 ======     ======

            Earnings per share:
                 Basic .....................................................     $  .15        .27
                                                                                 ======     ======
                 Diluted ...................................................     $  .15        .26
                                                                                 ======     ======
</TABLE>
             See accompanying notes to unaudited  consolidated interim financial
statements.

                                      - 2 -
<PAGE>
<TABLE>
<CAPTION>
                                  SFS BANCORP, INC. AND SUBSIDIARY
                                 Consolidated Statements of Income
                               (In Thousands, Except Per Share Data)

                                                                                  SIX MONTHS ENDED
                                                                                     JUNE  30,
                                                                                 -----------------
                                                                                  1999       1998
                                                                                 ------     ------
                                                                                   (Unaudited)
<S>                                                                              <C>        <C>
            Interest income:
                  Loans ....................................................     $5,210     $5,325
                  Investment securities ....................................        338        763
                  Securities available for sale ............................        512        198
                  Federal funds sold and cash deposits .....................         42         56
                  Stock in Federal Home Loan Bank ..........................         47         49
                                                                                 ------     ------
                         Total interest income .............................      6,149      6,391
                                                                                 ------     ------

            Interest expense:
                  Deposits
                                                                                  3,039      3,459
                  Borrowings ...............................................         19          1
                                                                                 ------     ------
                         Total interest expense ............................      3,058      3,460
                                                                                 ------     ------

                         Net interest income ...............................      3,091      2,931

            Provision for loan losses
                                                                                     30         60
                                                                                 ------     ------
                         Net interest income after provision for loan losses      3,061      2,871
                                                                                 ------     ------

            Noninterest income:
                  Other loan charges .......................................         55         84
                  Bank fees and service charges ............................         92         83
                  Other ....................................................         41         59
                                                                                 ------     ------
                         Total noninterest income ..........................        188        226
                                                                                 ------     ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                              <C>        <C>
            Noninterest expense:
                  Compensation and employee benefits .......................      1,337      1,328
                  Advertising and business promotion .......................         52         19
                  Office occupancy and equipment expense ...................        319        307
                  Federal deposit insurance premiums .......................         45         47
                  Other insurance premiums .................................         34         36
                  Data processing fees .....................................         98         94
                  Professional service fees ................................        125        138
                  Merger-related expenses ..................................        167         --
                  Other ....................................................        162        162
                                                                                 ------     ------
                         Total noninterest expense
                                                                                  2,339      2,131
                                                                                 ------     ------
                         Income before taxes ...............................        910        966

            Income tax expense .............................................        421        399
                                                                                 ------     ------
                         Net income ........................................     $  489        567
                                                                                 ======     ======

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

                 Diluted ...................................................     $  .42        .49
                                                                                 ======     ======

</TABLE>

             See accompanying notes to unaudited  consolidated interim financial
statements.

                                      - 3 -


<PAGE>
<TABLE>
<CAPTION>
                                        SFS BANCORP, INC. AND SUBSIDIARY
                                 Consolidated Statements of Financial Condition
                                             (Dollars in Thousands)
                                                                                      June 30,      December 31,
                                                                                        1999            1998
                                                                                      ---------      ---------
      Assets                                                                         (Unaudited)
      ------
 <S>                                                                                  <C>            <C>
      Cash and due from banks ...................................................     $   1,693          1,712
      Federal funds sold ........................................................         1,600          2,100
                                                                                      ---------      ---------
                  Total cash and cash equivalents ...............................         3,293          3,812

      Securities available for sale, at fair value ..............................        20,504         16,954
      Investment securities (estimated fair value of $8,978
                   at June 30, 1999 and $11,758 at December 31, 1998) ...........         8,947         11,661
      Stock in Federal Home Loan Bank of NY, at cost ............................         1,466          1,338
      Loans receivable, net .....................................................       140,965        140,210
      Accrued interest receivable ...............................................         1,105          1,133
      Premises and equipment, net ...............................................         2,109          2,191
      Real estate owned .........................................................           187            271
      Prepaid expenses and other asset ..........................................           555            597
                                                                                      ---------      ---------
                  Total Assets ..................................................     $ 179,131        178,167
                                                                                      =========      =========


      Liabilities and Stockholders' Equity
      Liabilities:
          Due to depositors:
                Non-interest bearing deposits ...................................     $   2,427          2,103
                Interest bearing deposits .......................................       149,208        148,475
                                                                                      ---------      ---------
                  Total Deposits ................................................       151,635        150,578

           Advance payments by borrowers for property taxes and insurance .......         1,863          1,425
         Borrowings .............................................................           700            700
           Accrued expenses and other liabilities ...............................         1,199          1,854
                                                                                      ---------      ---------
                  Total Liabilities .............................................       155,397        154,557
                                                                                      ---------      ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
 <S>                                                                                  <C>            <C>
      Stockholders' Equity:
         Preferred stock, $.01 par value.  Authorized 500,000 shares; none issued            --             --
           Common stock, $.01 par value. Authorized 2,500,000 shares; 1,495,000
         shares issued at June 30, 1999 and December 31, 1998 ...................            15             15
           Additional paid-in capital ...........................................        14,609         14,576
           Retained earnings, substantially restricted ..........................        14,422         14,150
         Common stock acquired by employee stock ownership plan ("ESOP") ........          (718)          (718)
           Unearned recognition and retention plan ..............................          (243)          (318)
           Treasury stock, at cost (287,245 shares at June 30, 1999 and
                    286,528 shares at December 31, 1998) ........................        (4,098)        (4,089)
         Accumulated other comprehensive income .................................          (253)            (6)
                                                                                      ---------      ---------
                        Total Stockholders' Equity ..............................        23,734         23,610
                                                                                      ---------      ---------
                          Total Liabilities and Stockholders' Equity ............     $ 179,131        178,167
                                                                                      =========      =========
</TABLE>
      See  accompanying  notes  to  unaudited   consolidated  interim  financial
statements.

                                      - 4 -


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

                                                                                             Common         Common     Accumulated
                                                  Additional                                  Stock          Stock         Other
                                       Common       Paid-in      Retained      Treasury      Acquired      Acquired   Comprehensive
                                        Stock       Capital      Earnings        Stock        By ESOP        By RRP       Income
                                        -----       -------      --------        -----        -------        ------       ------
<S>                                   <C>           <C>           <C>           <C>            <C>           <C>           <C>
Six Months Ended
June 30, 1999
Balance at December 31, 1998 ....     $     15       14,576       14,150        (4,089)         (718)         (318)           (6)

Comprehensive income
  Net income ....................           --           --          489            --            --            --            --
  Other comprehensive income,
  net of tax:
    Unrealized net holding losses
        arising during the year
        (pre-tax $410) ..........           --           --           --            --            --            --          (247)

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

Amortization of unearned RRP
   Compensation .................           --           --           --            --            --            66            --
Cash dividends declared .........           --           --         (217)           --            --            --            --
Forfeiture of RRP shares ........           --           --           --            (9)           --             9            --

Tax benefit related to
vested RRP shares ...............           --           33           --            --            --            --            --
                                      --------     --------     --------      --------      --------      --------      --------
Balance at June 30, 1999 ........     $     15       14,609       14,422        (4,098)         (718)         (243)         (253)
                                      ========     ========     ========      ========      ========      ========      ========

Six Months Ended
June 30, 1998
Balance at December 31, 1997 ....     $     15       14,365       12,422        (4,089)         (837)         (455)           10

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

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

Amortization of unearned RRP
   Compensation .................           --           --           --            --            --            69            --
Cash dividends  declared ........           --           --         (194)           --            --            --            --
Tax benefit related to
vested RRP shares ...............           --           46           --            --            --            --            --
                                      --------     --------     --------      --------      --------      --------      --------

Balance at June 30, 1998 ........     $     15       14,411       12,795        (4,089)         (837)         (386)            6
                                      ========     ========     ========      ========      ========      ========      ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                    Comprehensive
                                                        Income         Total
                                                        ------         -----
Six Months Ended
June 30, 1999
<S>                                                    <C>            <C>
Balance at December 31, 1998 ....                                      23,610

Comprehensive income
  Net income ....................                      $    489           489
  Other comprehensive income,
  net of tax:
    Unrealized net holding losses
        arising during the year
        (pre-tax $410) ..........                          (247)         (247)
                                                       --------
Comprehensive income ............                      $    242
                                                       ========

Amortization of unearned RRP
   Compensation .................                                          66
Cash dividends declared .........                                        (217)
Forfeiture of RRP shares ........                                          --
Tax benefit related to
vested RRP shares ...............                                          33
                                                                      -------

Balance at June 30, 1999 ........                                      23,734
                                                                      =======
Six Months Ended
June 30, 1998
Balance at December 31, 1997 ....                                      21,431

Comprehensive income:
  Net income ....................                      $    567           567
  Other comprehensive income,
  net of tax:
    Unrealized net holding losses
      arising during the period .
      (pre-tax $6) ..............                            (4)           (4)
                                                       --------
Comprehensive income ............                      $    563
                                                       ========
Amortization of unearned RRP
   Compensation .................                                          69

Cash dividends declared .........                                        (194)
Tax benefit related to
vested RRP shares ...............                                          46

                                                                     --------
Balance at June 30, 1998 ........                                      21,915
                                                                     ========
</TABLE>
 See accompanying notes to unaudited consolidated interim financial statements.

                                      - 5 -
<PAGE>
<TABLE>
<CAPTION>
                                  SFS BANCORP, INC. AND SUBSIDIARY
                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           (In Thousands)
                                                                                  Six Months Ended
                                                                                      June 30,
                                                                              ---------------------
                                                                                1999           1998
                                                                              -------       -------
<S>                                                                            <C>              <C>
Increase (decrease) in cash and cash equivalents:                                   (Unaudited)
    Reconciliation of net income to net cash provided
         by operating activities:
         Net income ......................................................     $   489          567
         Adjustments to reconcile net income to
         net cash provided by operating activities:
          Depreciation and amortization ..................................         117          100
          Net accretion on investment securities .........................          --          (74)
          Net amortization (accretion) on securities available for sale ..           9           (1)
          Amortization of unearned RRP compensation ......................          66           69
          Provision for loan losses ......................................          30           60
          Writedown of real estate owned .................................           8           --
          Decrease in accrued interest receivable ........................          28           69
          Decrease in prepaid expense and other assets ...................          42            1
          Increase (decrease) in accrued expense and other liabilities....        (459)         239
                                                                               -------      -------
                   Total adjustments .....................................        (159)         463
                                                                               -------      -------
                 Net cash provided by operating activities ...............         330        1,030
                                                                               -------      -------
Cash flows from investing activities:
    Proceeds from maturity/paydown of investment securities ..............          55        8,885
    Proceeds from maturity/paydown of securities available for sale ......       5,000           --
    Purchase of securities available for sale ............................      (8,969)      (4,000)
    Purchase of Federal Home Loan Bank Stock .............................        (128)          --
    Principal repayments on mortgage-backed securities ...................       2,659        3,258
    Net increase in loans receivable .....................................        (163)      (6,059)
    Purchase of loans receivable .........................................        (684)      (1,504)
    Capital expenditures, net of disposals ...............................         (35)         (29)
    Proceeds from the sale of real estate owned ..........................         138           27
                                                                               -------      -------
         Net cash provided (used) by investing activities ................      (2,127)         578
                                                                               -------      -------
Cash flows from financing activities:
    Net increase in deposits .............................................       1,057        2,410
    Net increase in advance payments by borrowers for
         property taxes and insurance ....................................         438          580
    Dividends paid .......................................................        (217)        (194)
                                                                               -------      -------
    Net cash provided by financing activities ............................       1,278        2,796
                                                                               -------      -------
         Net increase (decrease) in cash and cash equivalents ............        (519)       4,404
    Cash and cash equivalents at beginning of period .....................       3,812        2,176
                                                                               -------      -------
    Cash and cash equivalents at end of period ...........................     $ 3,293        6,580
                                                                               =======      =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                            <C>              <C>
Supplemental  disclosures of cash flow information:
    Cash paid during the period for:
         Interest paid ...................................................     $ 3,064        3,475
                                                                               =======      =======
         Taxes paid ......................................................     $ 1,157          405
                                                                               =======      =======
    Transfer of loans to other real estate owned .........................     $    62           67
                                                                               =======      =======
    Net unrealized loss on securities available for sale, net of taxes ...     $  (247)          (4)
                                                                               =======      =======
    Deferred tax benefit on unrealized gain/loss
         on securities available for sale ................................     $   163            2
                                                                               =======      =======
    Deferred tax benefit related to vested RRP shares ....................     $    33           46
                                                                               =======      =======
</TABLE>

See accompanying notes to unaudited consolidated interim financial statements.

                                      - 6 -


<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
          NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS


NOTE 1.  Presentation of Financial Information

The accompanying  unaudited  consolidated interim financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  The accompanying unaudited consolidated interim financial
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements  and the related  management's  discussion  and analysis of financial
condition  and  results of  operations  filed  with the 1998 Form  10-KSB of SFS
Bancorp,  Inc.  and  Subsidiary  (the  "Company").  Amounts  in  prior  periods'
unaudited  consolidated interim financial  statements are reclassified  whenever
necessary  to conform  to the  current  periods'  presentation.  The  results of
operations for the three and six months ended June 30, 1999, are not necessarily
indicative  of results that may be expected for the entire year ending  December
31, 1999.

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


NOTE 2.  Earnings Per Share

The following is a  reconciliation  of the numerators and  denominators  for the
basic and diluted  earnings per share (EPS)  calculations  for the three and six
month periods ended June 30, 1999 and 1998.

Three Months Ended June 30:
---------------------------
                           (in thousands except share and per share information)
<TABLE>
<CAPTION>
                                                                1999
                                               -------------------------------------
                                                              Weighted     Per Share
                                               Net Income  Average Shares    Amount
                                               ----------  --------------    ------
<S>                                            <C>           <C>            <C>
Basic EPS ................................     $     169     1,114,229      $   0.15
                                                                            ========
Dilutive effect of potential common shares
   related to stock based compensation ...            --        48,930
                                               ---------     ---------
Diluted EPS ..............................     $     169     1,163,159      $   0.15
                                               =========     =========      ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                1998
                                               -------------------------------------
                                                               Weighted    Per Share
                                               Net Income   Average Shares   Amount
                                               ----------   --------------   ------
<S>                                            <C>           <C>            <C>
Basic EPS .................................    $     298     1,092,222      $   0.27
                                                                            ========
Dilutive effect of potential common shares
   related to stock based compensation ....           --        55,590
                                               ---------     ---------
Diluted EPS ...............................    $     298     1,147,812      $   0.26
                                               =========     =========      ========
</TABLE>


                                      -7 -
<PAGE>
Six Months Ended June 30:
-------------------------

                           (in thousands except share and per share information)
<TABLE>
<CAPTION>
                                                               1999
                                               --------------------------------------
                                                             Weighted       Per Share
                                               Net Income  Average Shares     Amount
                                               ----------  --------------     ------
<S>                                            <C>           <C>            <C>
Basic EPS ................................     $     489     1,113,471      $   0.44
                                                                            ========
Dilutive effect of potential common shares
   related to stock based compensation ...            --        46,188
                                               ---------     ---------      --------
Diluted EPS ..............................     $     489     1,159,659      $   0.42
                                               =========     =========      ========
<CAPTION>
                                                               1998
                                               --------------------------------------
                                                             Weighted       Per Share
                                               Net Income  Average Shares     Amount
                                               ----------  --------------     ------
<S>                                            <C>           <C>            <C>
Basic EPS ................................     $     567     1,091,464      $   0.52
                                                                            ========
Dilutive effect of potential common shares
   related to stock based compensation ...            --        56,563
                                               ---------     ---------
Diluted EPS ..............................     $     567     1,148,027     $   0.49
                                               =========     =========     ========
</TABLE>
NOTE 3.  Proposed Merger

On May 17, 1999, SFS and Hudson River  Bancorp,  Inc.  ("Hudson")  announced the
execution of a  definitive  agreement by and between SFS and Hudson (the "Merger
Agreement").  Under the terms of the  Merger  Agreement,  SFS will  merge into a
to-be-formed  wholly owned  subsidiary of Hudson (the  "Merger").  Following the
Merger, SFS will then be merged into Hudson pursuant to an Agreement and Plan of
Merger and Schenectady  Federal Savings Bank will be merged with and into Hudson
River Bank & Trust Company, a wholly owned subsidiary of Hudson. Concurrent with
the execution and delivery of the Merger Agreement,  SFS and Hudson entered into
a Stock Option  Agreement (the "Stock Option  Agreement")  pursuant to which SFS
granted Hudson an option, exercisable under certain circumstances, to acquire up
to 240,485 shares of SFS common stock (subject to  adjustment).  Pursuant to the
Merger Agreement, each issued and outstanding share of SFS common stock shall be
converted into and represent the right to receive $25.10 in cash.  However,  any
shares of SFS  common  stock  owned  beneficially  or of record by either SFS or
Hudson or any of their subsidiaries shall be canceled. The Merger is intended to
qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as
amended.  The receipt of cash by the stockholders of SFS will be a taxable event
for  the  stockholders.  Consummation  of  the  Merger  is  subject  to  various
conditions,  including:  (1) receipt of approval by the stockholders of SFS; (2)
receipt of requisite regulatory approvals; and (3) satisfaction of certain other
conditions. The Merger is expected to close in the third quarter of this year.

                                      -8 -
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY

                                   FORM 10-QSB

                                  JUNE 30, 1999

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

General

SFS Bancorp,  Inc. (the "Holding  Company" or "SFS") is the holding  company for
Schenectady  Federal Savings Bank and its subsidiary  (the "Bank"),  a federally
chartered  stock  savings  bank.  Collectively,  these  entities are referred to
herein as the  "Company".  On June 29, 1995,  the Bank  completed its conversion
from a federal  mutual  savings and loan  association to a federal stock savings
bank. On that date, the Holding Company issued and sold 1,495,000  shares of its
common stock at $10.00 per share in connection with the conversion. Net proceeds
to the Holding Company were $14.2 million after reflecting  conversion  expenses
of  $750,000.  The  Holding  Company  used $7.1  million of the net  proceeds to
acquire all of the issued and outstanding stock of the Bank.

On May 17, 1999, SFS and Hudson River  Bancorp,  Inc.  ("Hudson")  announced the
execution of a  definitive  agreement by and between SFS and Hudson (the "Merger
Agreement").  Under the terms of the  Merger  Agreement,  SFS will  merge into a
to-be-formed  wholly owned  subsidiary of Hudson (the  "Merger").  Following the
Merger, SFS will then be merged into Hudson pursuant to an Agreement and Plan of
Merger and Schenectady  Federal Savings Bank will be merged with and into Hudson
River Bank & Trust Company, a wholly owned subsidiary of Hudson. Concurrent with
the execution and delivery of the Merger Agreement,  SFS and Hudson entered into
a Stock Option  Agreement (the "Stock Option  Agreement")  pursuant to which SFS
granted Hudson an option, exercisable under certain circumstances, to acquire up
to 240,485 shares of SFS common stock (subject to  adjustment).  Pursuant to the
Merger Agreement, each issued and outstanding share of SFS common stock shall be
converted into and represent the right to receive $25.10 in cash.  However,  any
shares of SFS  common  stock  owned  beneficially  or of record by either SFS or
Hudson or any of their subsidiaries shall be canceled. The Merger is intended to
qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as
amended.  The receipt of cash by the stockholders of SFS will be a taxable event
for  the  stockholders.  Consummation  of  the  Merger  is  subject  to  various
conditions,  including:  (1) receipt of approval by the stockholders of SFS; (2)
receipt of requisite regulatory approvals; and (3) satisfaction of certain other
conditions. The Merger is expected to close in the third quarter of this year.

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

                                      - 9 -
<PAGE>
four branch network  located in Schenectady  County  situated in eastern upstate
New York.  The Bank's  results of  operations  are  dependent  primarily  on net
interest income,  which is the difference  between the interest income earned on
its loan and mortgage-backed  securities  portfolios,  investment securities and
securities  available for sale portfolios and other earning assets, and its cost
of funds,  consisting of the interest paid on its deposits. The Bank's operating
results are also  impacted by the  provision  for loan  losses,  and to a lesser
extent,  by gains and losses on the sale of its  securities  available  for sale
portfolio  and  other  noninterest   income.   The  Bank's  operating   expenses
principally consist of employee compensation and benefits, occupancy expense and
other general and administrative  expenses. The Bank's results of operations are
also  significantly  affected by general  economic and  competitive  conditions,
particularly  changes in market interest rates,  government policies and actions
of the regulatory authorities.

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

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

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

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

     the effect of 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 $3.8 million at December 31, 1998,  decreased  $519,000 to
$3.3  million at June 30, 1999  primarily  as a result of  decreases  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.
<PAGE>
The Bank is required to maintain  minimum  levels of liquid assets as defined by
OTS Regulations.  This  requirement,  which may vary at the direction of the OTS
depending on economic  conditions and deposit flows,  is based upon a percentage
of deposits and  short-term  borrowings.  The required ratio of liquid assets to
deposits and short-term  borrowings is currently 4%. The Bank's  liquidity ratio
was 18.41% and 19.24% at June 30, 1999 and December 31, 1998, respectively.

                                     - 10 -
<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  $330,000  and $1.0 million for the six months
ended  June  30,  1999  and  1998,  respectively.  Net  cash  used by  investing
activities,  consisting  primarily of the purchase of  securities  available for
sale and  disbursements  for the  origination  and  purchase of loans  partially
offset by principal  collections on loans and mortgage-backed  securities and by
proceeds from the maturity and/or the call of securities available for sale, was
$2.1 million for the six months  ended June 30,  1999.  Net cash of $578,000 was
provided  by  investing  activities  for the six months  ended June 30, 1998 and
consisted  primarily  of  proceeds  from  the  maturity,  call  and  paydown  of
investment  securities and mortgage-backed  securities offset by the purchase of
securities available for sale and the net increase in loans receivable. Net cash
provided by financing activities for the six months ended June 30, 1999 and 1998
of $1.3  million and $2.8  million,  respectively,  consisted  primarily  of net
increases in deposit and borrowers'  escrow accounts during the period offset by
the payment of dividends.

During the six month periods  ended June 30, 1999 and 1998,  the Company did not
repurchase any of its shares.

At June 30, 1999, the Bank's capital  exceeded each of the capital  requirements
of the OTS. At June 30, 1999,  the Bank's  tangible and core capital levels were
both $21.0 million (11.6% of total adjusted  assets) and its risk-based  capital
level was $21.7  million  (22.9% 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  $964,000 (0.5%) to $179.1 million at June 30, 1999 from
$178.2  million at December  31,  1998.  This  increase  occurred as  securities
available for sale increased  $3.6 million  (20.9%) to $20.5 million at June 30,
1999 as all new  securities  purchased  were  classified  as available for sale.
Loans receivable,  net, grew $755,000 (0.5%) to $141.0 million at June 30, 1999.
The  net  growth  in the  loan  portfolio  continued  to  consist  primarily  of
residential  mortgage  loans.  Offsetting  these  increases  was a  decrease  in
investment securities of $2.7 million (23.3%) to $8.9 million.

At June 30,  1999,  total  liabilities  were  $155.4  million,  representing  an
increase of $840,000  (0.5%) from December 31, 1998.  The increase was primarily
attributable to an increase in retail deposits and advance payments by borrowers
for property taxes and insurance.  Stockholders'  equity  increased  $124,000 to
$23.7  million at June 30,  1999 as compared  to $23.6  million at December  31,
1998.  Retained earnings  increased by $272,000 as a result of net income of the
Company for the six month  period ended June 30, 1999  partially  offset by cash
dividends  declared.  The increase in retained  earnings was mostly  offset by a
$247,000 increase in net unrealized losses.

                                     - 11 -
<PAGE>
Loan Receivable, Net
--------------------

A summary of loans receivable,  net at June 30, 1999 and December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
                                                       June 30, 1999   December 31, 1998
                                                       -------------   -----------------
Loans secured by real estate:
   Residential:
<S>                                                       <C>                <C>
      Conventional .................................      $115,486           112,568
      Home Equity ..................................        18,054            19,570
      FHA Insured ..................................         1,784             2,107
      VA Guaranteed ................................         1,038             1,358
   Commercial and multi-family .....................         4,975             4,914
                                                          --------          --------
                                                           141,337           140,517
Other loans ........................................           749               776
                                                          --------          --------
                                                           142,086           141,293
                                                          --------          --------
Less:
   Unearned discount and net deferred loan fees ....           131               130
   Allowance for loan losses .......................           990               953
                                                          --------          --------

                                                             1,121             1,083
                                                          --------          --------

Loans receivable, net ..............................      $140,965           140,210
                                                          ========          ========
</TABLE>
The  following  table sets forth the  information  with regard to  nonperforming
assets.
<TABLE>
<CAPTION>
                                                       June 30, 1999   December 31, 1998
                                                       -------------   -----------------
<S>                                                       <C>                 <C>
Loans on a nonaccrual status .....................         $1,040                725
Loans contractually past due 90 days or
   more and still accruing interest ..............             --                135
                                                           ------             ------
      Total nonperforming loans ..................          1,040                860
Other real estate owned ..........................            187                271
                                                           ------             ------
      Total nonperforming assets .................         $1,227              1,131
                                                           ======             ======
</TABLE>
<PAGE>


Nonperforming  assets increased  $95,000 (8.4%) and totaled $1.2 million at June
30, 1999. The increase was primarily  attributable  to an increase in nonaccrual
residential   mortgage  loans.  The  historical  net  chargeoff   percentage  of
residential  mortgage  loans is lower  than any other  loan  type in the  Bank's
portfolio.  Management  of the Bank does not view this increase as a significant
adverse trend.  The ratio of  nonperforming  loans to total loans receivable was
 .73% at June 30, 1999,  compared  with .61% at December  31, 1998.  The ratio of
nonperforming  assets  to total  assets  was  .68% at June 30,  1999 and .64% at
December 31, 1998.

                                      - 12-
<PAGE>
The  following  table sets forth the  information  with regard to changes in the
allowance for loan losses.
<TABLE>
<CAPTION>


                                                      For the six months ended June 30,
                                                              1999         1998
                                                              ----         ----
<S>                                                           <C>           <C>
Balance, beginning of period ........................         $953          778
Provision charged to operations .....................           30           60
Loans charged off ...................................           --          (21)
Recoveries on loans previously charged off ..........            7           38
                                                              ----         ----

Balance, end of period ..............................         $990          855
                                                              ====         ====

</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, 1999,  compared  with
the corresponding periods of the prior year.

The average  balance data that follows  reflects the average yield on assets and
average cost of liabilities for the periods indicated.  All average balances are
daily average balances.  Such yields and costs are derived by dividing income or
expenses by the average balance of assets or liabilities,  respectively, for the
periods  shown.   The  yields  and  costs  include  fees  which  are  considered
adjustments to yields.

The rate/volume  analysis table presents the extent to which changes in interest
rates and changes in the volume of interest-earning  assets and interest-bearing
liabilities have affected the Bank's interest income and interest expense during
the periods indicated.  Information is provided in each category with respect to
(i) changes  attributable to changes in volume (changes in volume  multiplied by
prior  rate),  (ii)  changes  attributable  to changes in rate  (changes in rate
multiplied by prior volume),  and (iii) the net change. The changes attributable
to the combined impact of volume and rate have been allocated proportionately to
the changes due to volume and the changes due to rate.


                                     - 13 -


<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,
                                         -----------------------------------------------------------------------------------------
                                                               1999                                           1998
                                         ----------------------------------------        -----------------------------------------
                                            AVERAGE           INTEREST                     AVERAGE           INTEREST
                                         OUTSTANDING          EARNED/      YIELD/        OUTSTANDING          EARNED/       YIELD/
                                            BALANCE            PAID         RATE           BALANCE             PAID         RATE
                                            -------            ----         ----           -------             ----         ----
Interest-earning assets:
<S>                                         <C>               <C>          <C>            <C>                 <C>         <C>
      Loans receivable, net (1)             $142,262           $2,597       7.32%         $ 139,875           $ 2,687       7.71%
      Mortgage-backed securities               7,974              124       6.24             14,828               227       6.14
      Securities available for sale           17,364              257       5.94              7,904               127       6.44
      Debt securities                          1,797               32       7.14              5,674               102       7.21
      Federal funds sold
           and cash deposits                   2,554               30       4.71              2,736                37       5.42
       FHLB stock                              1,466               25       6.84              1,338                25       7.49
                                           ---------          -------                     ---------           -------
Total interest-earning assets                173,417            3,065       7.09            172,355             3,205      7.46
                                           ---------          -------                     --------            -------

      Savings accounts                        36,297              224       2.48            36,561                274      3.01
      Money market accounts                    8,973               72       3.22             7,428                 59      3.19
      Demand and NOW accounts (2)             10,497               33       1.26            11,550                 41      1.42
      Certificate accounts                    92,788            1,182       5.11            96,186              1,364      5.69
      Borrowings                                 700                9       5.16                --                 --        --
      Escrow                                   1,458                8       2.20             1,463                  8      2.19
                                           ---------          -------                     ---------           -------
Total interest-bearing liabilities           150,713            1,528       4.07           153,188              1,746      4.57
                                           ---------          -------                     ---------           -------

Net interest income                                           $ 1,537                                         $ 1,459
                                                              =======                                         =======
Net interest rate spread                                                    3.02%                                          2.89%
                                                                            =====                                          =====
Net earning assets                         $   22,704                                    $   19,167
                                           ==========                                    ==========

Net yield on average
       interest-earning assets                                              3.55%                                          3.40%
                                                                            =====                                          =====
Average interest-earning
       assets to average
       interest-bearing liabilities             1.15                                           1.13
                                                ====                                           ====
---------------------------
</TABLE>
(1) Calculated net of deferred loan fees.
(2) Includes noninterest-bearing demand accounts.


                                     - 14 -
<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,
                                         ----------------------------------------------------------------------------------------
                                                               1999                                            1998
                                           AVERAGE           INTEREST                      AVERAGE            INTEREST
                                         OUTSTANDING          EARNED/       YIELD/       OUTSTANDING           EARNED/     YIELD/
                                            BALANCE            PAID         RATE           BALANCE              PAID       RATE
                                            -------            ----         ----           -------              ----       ----
Interest-earning assets:
<S>                                         <C>               <C>           <C>           <C>                 <C>           <C>
      Loans receivable, net (1)             $141,816          $ 5,210       7.41%         $ 137,639           $ 5,325       7.80%
      Mortgage-backed securities               8,646              273       6.37             15,682               486       6.25
      Securities available for sale           17,206              512       6.00              6,116               198       6.53
      Debt securities                          1,802               65       7.27              8,033               277       6.95
      Federal funds sold
           and cash deposits                   1,784               42       4.75              2,102                56       5.37
      FHLB stock                               1,409               47       6.73              1,338                49       7.39
                                           ---------          -------                     ---------           -------
Total interest-earning assets                172,663            6,149       7.18            170,910             6,391       7.54
                                           ---------          -------                     ---------           -------

Interest-bearing liabilities:
      Savings accounts                        36,121              443       2.47             36,443               543       3.00
      Money market accounts                   8,791               140       3.21              7,492               122       3.28
      Demand and NOW accounts (2)             10,504               65       1.25             11,035                78       1.43
      Certificate accounts                    92,474            2,378       5.19             95,793             2,703       5.69
      Borrowings                                 749               19       5.12                 39                 1       5.17
      Escrow                                   1,181               13       2.22              1,209                13       2.17
                                           ---------          -------                      --------           -------
Total interest-bearing liabilities           149,820            3,058       4.12            152,011             3,460       4.59
                                           ---------          -------                      --------           -------

Net interest income                                           $ 3,091                                         $ 2,931
                                                              =======                                         =======
Net interest rate spread                                                    3.06%                                          2.95%
                                                                           ======                                          =====
Net earning assets                        $   22,843                                       $ 18,899
                                          ==========                                       ========
Net yield on average
       interest-earning assets                                              3.61%                                          3.46%
                                                                            =====                                          =====
Average interest-earning
       assets to average
       interest-bearing liabilities            1.13                                           1.12
                                               ====                                           ====
-------------------------
</TABLE>
(1) Calculated net of deferred loan fees.
(2) Includes noninterest-bearing demand accounts.


                                     - 15 -

<PAGE>
<TABLE>
<CAPTION>
                        SFS BANCORP, INC. AND SUBSIDIARY
                              RATE VOLUME ANALYSIS
                           (In Thousands) (Unaudited)

                        THREE MONTHS ENDED JUNE 30, 1999
                                  COMPARED WITH
                        THREE MONTHS ENDED JUNE 30, 1998
                        --------------------------------

                                               INCREASE  (DECREASE)
                                               --------------------------------
                                                       DUE TO
                                                ------------------
                                                VOLUME        RATE          NET
                                                ------        ----          ---
Interest-earning assets:
<S>                                             <C>           <C>           <C>
  Loans receivable, net .................       $  47         (137)         (90)
  Mortgage-backed securities ............        (107)           4         (103)
  Securities-available for sale .........         141          (11)         130
  Debt securities .......................         (69)          (1)         (70)
  Federal funds sold
       and cash deposits ................          (2)          (5)          (7)
  FHLB stock ............................           2           (2)          --
                                                -----        -----        -----
Total interest-earning assets ...........       $  12         (152)        (140)
                                                =====        =====        =====

Interest-bearing liabilities:
  Savings deposits ......................       $  (2)         (48)         (50)
  Money market accounts .................          12            1           13
  Demand and NOW deposits ...............          (5)          (3)          (8)
  Certificate accounts ..................         (47)        (135)        (182)
  Borrowings ............................           9           --            9
   Escrow ...............................          --           --           --
                                                -----        -----        -----
Total interest-bearing liabilities ......       $ (33)        (185)        (218)
                                                =====        =====        =====
Change in net interest income ...........                                 $  78
                                                                          =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                         SIX MONTHS ENDED JUNE 30, 1999
                                  COMPARED WITH
                         SIX MONTHS ENDED JUNE 30, 1998
                         ------------------------------

                                               INCREASE  (DECREASE)
                                               --------------------------------
                                                       DUE TO
                                                ------------------
                                                VOLUME        RATE          NET
                                                ------        ----          ---
Interest-earning assets:
<S>                                             <C>           <C>          <C>
  Loans receivable, net .................       $ 174         (289)        (115)
  Mortgage-backed securities ............        (222)           9         (213)
  Securities-available for sale .........         331          (17)         314
  Debt securities .......................        (225)          13         (212)
  Federal funds sold
       and cash deposits ................          (8)          (6)         (14)
  FHLB stock ............................           3           (5)          (2)
                                                -----        -----        -----
Total interest-earning assets ...........       $  53         (295)        (242)
                                                =====        =====        =====

Interest-bearing liabilities:
  Savings deposits ......................       $  (5)         (95)        (100)
  Money market accounts .................          21           (3)          18
  Demand and NOW deposits ...............          (4)          (9)         (13)
  Certificate accounts ..................         (91)        (234)        (325)
  Borrowings ............................          18           --           18
   Escrow ...............................          --           --           --
                                                -----        -----        -----
Total interest-bearing liabilities ......       $ (62)        (340)        (402)
                                                =====        =====        =====
Change in net interest income ...........                                 $ 160
                                                                          =====
</TABLE>
                                     - 16 -

<PAGE>
COMPARISONS OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999

Three months ended June 30, 1999 compared with three months ended June 30,1998

Net income for the quarter  ended June 30, 1999,  was $169,000 or $.15 basic and
diluted earnings per share.  This represents a decrease of $129,000 (43.3%) from
the  comparable  quarter  of the prior  year.  The  decrease  in net  income was
primarily  a result of an increase in  noninterest  expense due to  professional
fees  associated  with the merger  with  Hudson.  Other  factors  affecting  the
decrease in net income were an increase in net  interest  income,  a decrease in
the provision for loan losses and a decrease in noninterest  income.  Income tax
expense was consistent  with the same quarter a year ago. The annualized  return
on average assets ("ROA") for the current quarter amounted to .38% compared with
 .68% for the  comparable  quarter a year ago. The  annualized  return on average
equity  ("ROE") was 2.88% (on average  equity of $23.5  million)  compared  with
5.57% (on average equity of $21.4 million) a year earlier.

Interest income for the three months ended June 30, 1999,  totaled $3.1 million,
a decrease of $140,000 (4.4%) from 1998's second quarter. The primary reason for
the decrease was the fact that the yield on loans decreased 39 basis points from
7.71% in the second  quarter of 1998 to 7.32% in the second  quarter of 1999 due
to the rate environment affecting fixed and adjustable rate residential mortgage
loans.  Other factors affecting  interest income were an increase in the average
balance of  securities  available  for sale,  which  increased  on average  $9.5
million from the same period in 1998. The yield on these  securities  caused the
overall yield of this portfolio to fall from 6.44% in the quarter ended June 30,
1998  to  5.94%  in  the  quarter  ended  June  30,  1999.  Interest  earned  on
mortgage-backed securities decreased $103,000 (45.4%) primarily as a result of a
$6.9 million (46.2%)  decrease in the average balance  invested due to principal
payments. Interest income on debt securities decreased $70,000 (68.6%) primarily
as a result of a decrease in average  invested  balances of $3.9 million (68.3%)
as management classified new securities purchased as available for sale.

Interest  expense for the quarter  ended June 30, 1999 amounted to $1.5 million,
$218,000  (12.5%)  less than the  corresponding  quarter of the prior year.  The
decrease  occurred  as a result of a $2.5  million  (1.6%)  decrease  in average
interest-bearing  liabilities to $150.7  million  combined with a 50 basis point
decrease  in average  rates  paid to 4.07%.  The mix  within  the  structure  of
interest  bearing  liabilities  changed as the  average  balance in  certificate
accounts  decreased by $3.4 million  (3.5%) while the average  balances in money
market accounts and borrowings increased by a combined $2.2 million (30.2%). The
average  rates paid on  certificate  accounts  decreased  by 58 basis  points to
5.11%.  The average  rates paid on savings  accounts and demand and NOW accounts
decreased by 53 basis points and 16 basis points, respectively. The decreases in
rates paid on deposit accounts was a reflection of the general interest rate and
competitive  environment  that  prevailed  during  the  second  quarter  of 1999
compared with 1998.

Net  interest  income for the three  months  ended June 30,  1999  totaled  $1.5
million,  $78,000  (5.3%)  greater than the  comparable  quarter a year ago. The
interest  rate spread  increased 13 basis points to 3.02% for the quarter  ended
June 30, 1999. The net interest  margin for the most recent quarter of 3.55% was
15 basis points higher than the comparable quarter a year ago.





                                     - 17 -
<PAGE>
Provision for Loan Losses
-------------------------

The provision for loan losses amounted to $15,000 for the quarter ended June 30,
1999 and  $30,000 in the  quarter  ended June  30,1998.  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,
1999,  the Bank's  allowance for loan losses  totaled  $990,000  (0.70% of total
gross loans and 95.2% of  nonperforming  loans) compared with $953,000 (0.67% of
total gross loans and 110.8% of nonperforming loans) at December 31, 1998.

Noninterest Income
------------------

Noninterest  income amounted to $79,000 for the three months ended June 30, 1999
compared  to  $121,000  for the three  months  ended  June 30,  1998.  The 34.7%
decrease  was  primarily  attributable  to a reduction  in sales  production  in
non-deposit  insurance  products by the Bank's  subsidiary  which  resulted in a
decrease  of $25,000  (92.8%) in revenue  over the same  period a year ago and a
decrease in other loan charges of $16,000 (37.2%) to $27,000.

Noninterest Expense
-------------------

Noninterest  expense  increased  $188,000  (18.0%) to $1.2 million for the three
months  ended June 30,  1999,  as  compared  with the same  period in 1998.  The
increase  was  primarily  attributable  to merger  related  expenses of $167,000
associated with the merger with Hudson River Bancorp, Inc. There were no similar
expenses for the comparable quarter in 1998.  Compensation and employee benefits
increased  $32,000 (5.1%) between the respective  quarters.  This increase was a
result of annual merit increases,  and increased  employee  benefits  associated
with the Company's employee retirement plans and partially offset by a reduction
in staff.  Advertising  and business  promotion  increased  $19,000  (211.1%) to
$28,000  resulting  primarily  from  increased  advertising  in  relation to new
product  offerings and promotions.  Professional  service fees decreased $16,000
(20.3%) due in part to the  amendment of certain  incentive  benefit plans which
were presented to  shareholders at the Company's 1998 annual meeting held in the
second quarter.  Other noninterest  expense decreased $13,000 (14.8%) to $75,000
primarily  due to  expenses  associated  with  the  payment  of back  taxes  and
maintenance  of real  estate  owned  during the second  quarter of 1998.  Office
occupancy and equipment  expense,  federal  deposit  insurance  premiums,  other
insurance  premiums,  and data processing fees remained  relatively the same for
the quarters ended June 30, 1999 and 1998.

Income Tax Expense
------------------

Income tax expense totaled $200,000 and $208,000 for the three months ended June
30, 1999 and 1998,  respectively.  The  effective  tax rate for the three months
ended June 30, 1999 was 54.2%  compared to 41.1% for the same period a year ago.
The increase in effective tax rate was attributable to the nondeductible portion
of merger-related  expenses associated with the merger with Hudson as previously
mentioned.


                                      -18-
<PAGE>
COMPARISONS OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1999

Six months ended June 30, 1999, compared with six months ended June 30, 1998

Net income for the six months  ended June 30,  1999 was  $489,000  or $.44 basic
earnings  per share and $.42  diluted  earnings  per share.  This  represents  a
decrease of $78,000  (13.8%) from the  comparable  period of the prior year. The
decrease in net income was  primarily  a result of an  increase  in  noninterest
expense due to professional  fees associated with the merger with Hudson.  Other
factors  affecting  the  decrease in net income were an increase in net interest
income,  a decrease in the provision for loan losses,  a decrease in noninterest
income and an increase in income tax expense.  The annualized  return on average
assets  ("ROA") for the first half of 1999  amounted to .55%  compared with .65%
for the comparable  period a year ago. The  annualized  return on average equity
("ROE") was 4.17% (on average equity of $23.4  million)  compared with 5.34% (on
average equity of $21.4 million) a year earlier.

Interest income for the six months ended June 30, 1999,  totaled $6.1 million, a
decrease of $242,000  (3.8%) from 1998's first half.  The primary reason for the
decrease  was the fact that the yield on loans  decreased  39 basis  points from
7.80% in the first  half of 1998 to 7.41% in the  first  half of 1999 due to the
rate environment affecting fixed and adjustable rate residential mortgage loans.
Other factors affecting  interest income were an increase in the average balance
of securities  available for sale, which increased on average $11.1 million from
the same period in 1998. The yield on these securities  caused the overall yield
of this  portfolio  to fall from 6.53% in the six months  ended June 30, 1998 to
6.00% in the six months ended June 30, 1999.  Interest earned on mortgage-backed
securities  decreased  $213,000 (43.8%)  primarily as a result of a $7.0 million
(44.9%)  decrease in the average  balance  invested due to  principal  payments.
Interest income on debt securities  decreased  $212,000  (76.5%)  primarily as a
result of a decrease in average  invested  balances of $6.2  million  (77.6%) as
management classified new securities purchased as available for sale.

Interest  expense  for the six months  ended  June 30,  1999,  amounted  to $3.1
million,  $402,000 (11.6%) less than the corresponding period of the prior year.
The decrease  occurred as a result of a $2.2 million (1.4%)  decrease in average
interest-bearing  liabilities to $149.8  million  combined with a 47 basis point
decrease  in average  rates  paid to 4.12%.  The mix  within  the  structure  of
interest-bearing  liabilities  changed as the  average  balance  in  certificate
accounts  decreased by $3.3 million  (3.5%) while the average  balances in money
market accounts and borrowings increased by a combined $2.0 million (26.7%). The
average  rates paid on  certificate  accounts  decreased  by 50 basis  points to
5.19%.  The average  rates paid on savings  accounts and demand and NOW accounts
decreased by 53 basis points and 18 basis points, respectively. The decreases in
rates paid on deposit accounts was a reflection of the general interest rate and
competitive  environment  that prevailed during the second half of 1999 compared
with 1998.

Net interest income for the six months ended June 30, 1999 totaled $3.1 million,
$160,000 (5.5%) greater than the comparable period a year ago. The interest rate
spread  increased  11 basis  points to 3.06% for the six  months  ended June 30,
1999.  The net interest  margin for the six months ended June 30, 1999 was 3.61%
which was 15 basis points greater than the comparable period a year ago.




                                     - 19 -
<PAGE>
Provision for Loan Losses
-------------------------

The  provision  for loan  losses  totaled  $30,000 and $60,000 for the six month
periods  ended June 30, 1999 and 1998,  respectively.  See  "Provision  for Loan
Losses" at page 18.


Noninterest Income

Noninterest  income  amounted to $188,000 for the six months ended June 30, 1999
compared to $226,000 for the six months ended June 30, 1998.  The 16.8% decrease
was  primarily   attributable  to  decreased  sales  production  in  non-deposit
insurance  products by the Bank's  subsidiary,  which  resulted in a decrease of
$12,000  (32.3%) in revenue  over the same  period a year ago and a decrease  in
other loan charges of $29,000 (34.5%) to $55,000.

Noninterest Expense
-------------------

Noninterest expense increased $208,000 (9.8%) to $2.3 million for the six months
ended June 30, 1999, as compared with the same period in 1998.  The increase was
primarily  attributable to merger related  expenses of $167,000  associated with
the merger with Hudson River Bancorp,  Inc.  There were no similar  expenses for
the comparable  period in 1998.  Compensation  and employee  benefits  increased
$9,000 (0.7%)  between the  respective  six-month  periods.  This increase was a
result of annual merit increases,  and increased  employee  benefits  associated
with the Company's employee retirement plans and partially offset by a reduction
in staff.  Advertising  and business  promotion  increased  $33,000  (173.7%) to
$52,000  resulting  primarily  from  increased  advertising  in  relation to new
product  offerings and promotions.  Professional  service fees decreased $13,000
(9.4%) due in part to the  amendment of certain  incentive  benefit  plans which
were presented to  shareholders at the Company's 1998 annual meeting held in the
second  quarter.  Office  occupancy  and  equipment  expense,   federal  deposit
insurance  premiums,  other insurance  premiums,  data processing fees and other
noninterest expense remained relatively the same for the quarters ended June 30,
1999 and June 30, 1998.


Income Tax Expense
------------------

Income tax expense  totaled  $421,000 and $399,000 for the six months ended June
30, 1999 and 1998, respectively. The effective tax rate for the six months ended
June 30, 1999 was 46.3%  compared  to 41.3% for the same period a year ago.  The
increase in effective tax rate was attributable to the nondeductible  portion of
merger-related  expenses  associated  with the merger with Hudson as  previously
mentioned.



                                     - 20 -

<PAGE>
Impact of New Accounting Standards

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of  Financial   Accounting   Standards  No.  133,   "Accounting  for  Derivative
Instruments and Hedging Activities," which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other  contracts,  and for hedging  activities.  It requires that an
entity  recognize  all  derivatives  as  either  assets  or  liabilities  in the
statement of financial  condition and measure those  instruments  at fair value.
During the second quarter of 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging  Activities-Deferral of the Effective Date of
FASB  Statement No. 133." SFAS No. 137 deters the effective date of SFAS No. 133
by one year from fiscal  quarters of fiscal years  beginning after June 15, 1999
to fiscal quarters from fiscal years  beginning after June 15, 2000.  Management
is  currently   evaluating  the  impact  of  this  Statement  on  the  Company's
consolidated financial statements.


Impact of the Year 2000

General.  The Year 2000 ("Y2K") issue confronting the Company and its suppliers,
customers,  customers'  suppliers  and  competitors  centers on the inability of
computer systems to recognize the year 2000. Many existing computer programs and
systems  originally  were programmed with six digit dates that provided only two
digits to identify the calendar year in the date field. . With the impending new
millennium,  these  programs and computers  will recognize "00" as the year 1900
rather than the year 2000.

Financial institution  regulators have increased their focus upon Y2K compliance
issues  and have  issued  guidance  concerning  the  responsibilities  of senior
management and directors. The Federal Financial Institutions Examination Council
("FFIEC") has issued several  interagency  statements on Y2K Project  Management
Awareness.  These  statements  require  financial  institutions  to, among other
things,  examine  the Y2K  implications  of their  reliance  on vendors and with
respect  to data  exchange  and the  potential  impact of the Y2K issue on their
customers, suppliers and borrowers. These statements also require each federally
regulated  financial  institution  to survey its exposure,  measure its risk and
prepare a plan to address  the Y2K  issue.  In  addition,  the  federal  banking
regulators have issued safety and soundness guidelines to be followed by insured
depository  institutions,  such as the  Bank,  to assure  resolution  of any Y2K
problems.  The federal  banking  agencies have  determined  that Y2K testing and
certification is a key safety and soundness issue in conjunction with regulatory
exams and, thus, that an institution's  failure to address appropriately the Y2K
issue  could  result in  supervisory  action,  including  the  reduction  of the
institution's  supervisory  ratings,  the denial of applications for approval of
mergers or acquisitions or the imposition of civil money penalties.


                                     - 21 -
<PAGE>
Risks. Like most financial  services  providers,  the Company and its operations
may be  significantly  affected  by the  Y2K  issue  due  to its  dependence  on
technology and  date-sensitive  data.  Computer  software and hardware and other
equipment,  both within and  outside the  Company's  direct  control,  and third
parties  with  whom  the  Company  electronically  or  operationally  interfaces
(including  without limitation its customers and third party vendors) are likely
to be  affected.  If computer  systems  are not  modified in order to be able to
identify  the  year  2000,  many  computer  applications  could  fail or  create
erroneous  results.  As a result,  many  calculations  which  rely on date field
information,  such  as  interest,  payment  or due  dates  and  other  operating
functions,  could generate results which are  significantly  misstated,  and the
Company  could  experience  an  inability  to  process   transactions,   prepare
statements or engage in similar  normal  business  activities.  Likewise,  under
certain  circumstances,  a failure to  adequately  address  the Y2K issue  could
adversely affect the viability of the Company's  suppliers and creditors and the
creditworthiness of its borrowers.  Thus, if not adequately  addressed,  the Y2K
issue could result in a significant  adverse impact on the Company's  operations
and, in turn, its financial condition and results of operations.

State of Readiness.  During May 1998, the Company formally  approved its plan to
address  the Y2K issue.  Since  that time the  Company  has taken the  following
steps:

     Established senior management advisory and review responsibilities;

     Completed a Company-wide inventory of applications and system software;

     Implemented  a tracking  database  for  applications  and  vendor  software
     created by regulators;

     Developed compliance plans and schedules for all lines of business;

     Begun computer application testing;

     Initiated vendor compliance verification;

     Contacted  significant vendors with whom the Company interacts to determine
     their state of readiness;

     Begun  awareness and education  activities for employees  through  existing
     internal communication channels;

     Developed a process to respond to customer inquires as well as help educate
     customers on the Y2K issue; and

     Developed a contingency and business resumption plan.

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

1.  Awareness  Phase.  The Company  formally  established a Y2K plan headed by a
senior manager, and a Y2K committee was assembled for management of the project.
The project committee created a plan of action that includes milestones,  budget
estimates,  strategies,  and methodologies to track and report the status of the
project.  Members  of  the  project  committee  also  attended  conferences  and
information  sharing  sessions  to gain  more  insight  into the Y2K  issue  and
potential strategies for addressing it. This phase is complete.

                                     - 22 -
<PAGE>
2.  Assessment  Phase.  The Company's  strategies  were further  developed  with
respect  to how the  objectives  of the Y2K plan  would be  achieved,  and a Y2K
business  risk  assessment  was made to quantify the extent of the Company's Y2K
exposure. A corporate inventory (which is periodically updated as new technology
is acquired and as systems progress through  subsequent phases) was developed to
identify and monitor Y2K readiness for information systems (hardware,  software,
utilities,  and vendors) as well as  environmental  systems  (security  systems,
facilities,  etc.).  Systems  were  prioritized  based on  business  impact  and
available  alternatives.  Mission  critical  systems  supplied  by vendors  were
researched to determine Y2K readiness. If Y2K-ready versions were not available,
the  Company  began  identifying  functional   replacements  which  were  either
upgradeable to currently  Y2K-ready,  and a formal plan was developed to repair,
upgrade or replace all mission critical systems. This phase is complete.

Beginning in 1997 and  throughout  1998, the Company began Y2K evaluation of all
commercial  borrowers  at the time of the  annual  review  of their  loans.  All
commercial customers were evaluated for Y2K exposure by the Internal Loan Review
Committee using a questionnaire  developed by the Company's Y2K committee and an
assessment as to the borrower's  reliance on data processing and the risk to the
overall  viability  of the  business.  As part of the  current  credit  approval
process, all new and renewed loans are evaluated for Y2K risk. While the Company
will continue to monitor the progress being made by its commercial  customers in
addressing their own Y2K issues, to date the Company is generally satisfied with
customers'  responses  and their  progress  in  addressing  their Y2K risk.  The
Company's primary assets are residential mortgage loans which have been assessed
with minimal risk as it relates to Y2K and the impact on the creditworthiness of
these loans individually or as a whole.

3. Conversion/Renovation  Phase. The Company's corporate inventory revealed that
upgrades are available for all  vendor-supplied  mission critical  systems.  All
mission critical  applications and the majority of other  applications which are
deemed  Y2K-ready have been received and placed into production and have entered
the validation process. This phase is substantially complete.

4.  Validation/Implementation  Phase. This phase is designed to test the ability
of hardware and software to accurately  process date sensitive data. The Company
has substantially completed validation testing of mission critical applications.
The Company's Y2K test environment,  periodically supplied by its service bureau
data  center,   is  virtually   insulated  from   production   and   development
environments.  The Company has reassigned internal personnel responsibilities in
anticipation  of the increased  work efforts and has increased  staff to support
normal  business   activities.   During  the  validation  testing  process,   no
significant  Y2K problems were  identified  relating to any modified or upgraded
mission critical systems.


                                     - 23 -

<PAGE>
Company's Resources Invested.  The Company's Y2K committee has been assigned the
task of ensuring that all systems  across the Company are  identified,  analyzed
for Y2K  compliance,  corrected  if  necessary,  tested,  and  changes  put into
service.  The Y2K  committee  members  represent  all  functional  areas  of the
Company,  including  retail  banking,  data  processing,   loan  administration,
accounting,   operations,   compliance,  human  resources,  and  marketing.  The
committee  is headed by a senior  vice  president  who  reports  directly to the
Company's chief executive officer. The Company's Board of Directors oversees the
Y2K plan and provides guidance and resources to the project committee. The Board
is updated periodically as to the progress of the committee.

The Company is expensing all costs  associated  with required  system changes as
those projects are incurred,  and such costs are being funded through  operating
cash flow. Expenditures incurred for hardware upgrades are being capitalized and
depreciated in accordance with the Company's  policies.  The total  expenditures
associated with the Y2K conversion  project,  exclusive of internal  costs,  are
estimated  to be  approximately  $100,000.  As of June  30,  1999,  the  Company
incurred or was  contractually  committed for  services,  equipment and software
totaling  approximately $73,000 for the Y2K conversion project. The Company does
not expect significant  increases in future data processing costs related to Y2K
compliance above the aforementioned estimate.

Contingency  Plans.  Virtually all the Company's  mission  critical  systems are
dependent on third party vendors or service providers. The Company has developed
strategies to address possible  instances in which a system or resource fails to
be  compliant.  The  contingency  plans vary with the  affected  systems.  These
contingency  plans  include  details  for  performing  some  key  procedures  or
functions manually, utilizing alternative systems, identifying Company personnel
to be on standby to address  problems  if, and when they  arise,  and drawing on
additional  liquidity  sources  if the need for such funds  arise.  The Board of
Directors  approved  the formal  contingency  and  business  resumption  plan in
December 1998.




                                     - 24 -
<PAGE>
                        SFS BANCORP, INC. AND SUBSIDIARY
                                   FORM 10-QSB
                                  JUNE 30, 1999


                           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 and Use of Proceeds
              None

Item 3.       Defaults upon Senior Securities
              None

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

               (a) On April 14,  1999,  the Company  held its Annual  Meeting of
               Stockholders.

               (b) At the  meeting,  Richard D. Ammian was elected for a term to
               expire in 2002.

               (c) Stockholders voted on the following matter:

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

                                                                        Broker
                   Votes:                   For          Withheld      Non-Votes
                   ------                   ---          --------     ---------
                   Richard D. Ammian     1,114,4551        8,429          --

                   (ii)    The  ratification  of the  appointment of KPMG LLP as
                           independent  auditors  of the  Company for the fiscal
                           year ending December 31, 1999.

                                                                        Broker
                   Votes:           For          Against    Abstain   Non-Votes
                   ------           ---          -------    -------   ---------
                                 1,120,005        1,675      1,200        --

Item 5.      Other Information

              None

Item 6.       Exhibits and Reports on Form 8-K

              (a) Exhibits
                   None

              (b) Reports on Form 8-K

                  On May 26,  1999,  Form 8-K was filed in  connection  with the
                  announced  execution  of a  definitive  agreement  between SFS
                  Bancorp,  Inc. and Hudson River  Bancorp,  Inc. as  previously
                  described in Part I Item 2. of the Form 10-QSB for the quarter
                  ended June 30, 1999.

                                     - 25 -
<PAGE>


SIGNATURES
----------


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



                                         SFS BANCORP, INC.
                                         ------------------
                                             (Registrant)

DATE:  August16, 1999               BY:  /s/ Joseph H. Giaquinto
                                         -----------------------
                                          Joseph H. Giaquinto
                                          Chairman of the Board,
                                          President and Chief Executive Officer
                                          (Duly Authorized Officer)


DATE:  August 16, 1999              BY:  /s/ David J. Jurczynski
                                         -----------------------
                                          David J. Jurczynski
                                          Senior Vice President, Treasurer and
                                          Chief Financial Officer
                                          (Principal Financial Officer)




                                     - 26 -