EXHIBIT 13
                       2000 Annual Report to Shareholder



<PAGE>
On the Cover
------------

A recognized symbol of the bank today is its logo. Encased in a medallion, the
ship, is symbolic of the Bank's eloquent past while it sets sail into a
promising future.

Hudson River Bank & Trust Company celebrates its 150th anniversary during 2000.
Established in 1850, the Bank primarily served the community of Hudson, New York
for its first 120 years. Starting in 1970, branches were opened in other
locations throughout Columbia County and the neighboring counties of Albany,
Rensselaer, Schenectady, Dutchess and Saratoga.  Over the past 150 years, the
Bank's products and services have seen remarkable changes to meet the demands of
its customers. In 1999, the Bank added personal and commercial insurance to its
list if available products through its affiliation with the Bostwick Group.

As the new millenium unfolds, Hudson River Bank & Trust Company is poised to
compete in a dynamic marketplace as a full service provider of financial
products.
<PAGE>
     [GRAPHIC - 2 PAGE PULLOUT OF TIMELINE WITH PHOTOS AND ILLUSTRATIONS- TEXT
PORTION LISTED BELOW]

1850 - 1870

In 1850 the Hudson City Savings Institution is incorporated and opens for
business with the first deposit of $80. [GRAPHIC - ILLUSTRATION]

[GRAPHIC - PHOTO] During 1876 Alexander Graham Bell invents the telephone with
the help of Thomas A. Watson, a young repair mechanic.

Under the exigencies of the Civil War in 1862, the U.S. Government first issued
legal tender notes called "Greenbacks" which resemble our present day currency.
[GRAPHIC - ILLUSTRATION]

The first college football game in 1859 concluded with Rutgers victorious over
Princeton. [GRAPHIC - ILLUSTRATION]

Addressing a crowd of 15,000 on Cemetery Hill in Gettsburg, PA, in 1863 Abraham
Lincoln's infamous remarks began "Fourscore and seven years ago."
[GRAPHIC - ILLUSTRATION]

1880 - 1910

[GRAPHIC - ILLUSTRATION]  In 1891 basketball started as a simple game at a YMCA
in Springfield, MA with thirteen rules carefully written by the game's inventor
Dr. James Naismith.

Henry Ford invents the Model T automobile and places it into mass assembly in
1908. The Model T can travel 25 miles per hour and sold for $850. [GRAPHIC -
PHOTO]

[GRAPHIC - ILLUSTRATION] The United States declare war on Germany as it enters
World War I in 1917.

[GRAPHIC - ILLUSTRATION] In 1910 a new main office was opened in Hudson to
accommodate the Bank's expanding customer base.

[GRAPHIC - ILLUSTRATION] Journalist, Charles H. Dow, in 1896 devised his 12
stock industrial average to help make sense of the daily jumble up and down of
the stocks.

1920 - 1940

The Bank's deposit numbers grew from $7 million in 1920 to $25 million in 1949,
typical of the growth the bank was experiencing. [GRAPHIC - ILLUSTRATION]

The New York Yankees won their first of 25 World Series in 1923 against the New
York Giants. [GRAPHIC - ILLUSTRATION]

[GRAPHIC - ILLUSTRATION] BLACK TUESDAY saw the stock market crash of 1929
sending Wall Street into chaos.

Japan attacks Pearl Harbor in 1941 forcing the United States to declare war and
officially enter into World War II. [GRAPHIC - ILLUSTRATION]

Weighing 30 tons, the first electronic computer was introduced in 1946.
[GRAPHIC - ILLUSTRATION]
<PAGE>
1950 - 1970

[GRAPHIC - ILLUSTRATION] In 1970 Hudson City Savings Institution begins its
expansion by opening its second branch in Chatham, NY.

[GRAPHIC - ILLUSTRATION] The Green Bay Packers won Super Bowl I in 1967 by
defeating the Kansas City Chiefs, 35-10.

[GRAPHIC - PHOTO] "I have a dream," Dr Martin Luther King Jr. told 200,000
non-violent protesters in Washington, D.C. in 1963.

The world listened in 1969 as Neil Armstrong spoke: "One small step for man, one
giant leap for mankind." [GRAPHIC - PHOTO]

During 1965 the U.S. Government sent the first combat troops to Vietnam in an
effort to surppress the spread of Communism. [GRAPHIC - PHOTO]

[GRAPHIC - PHOTO]  [GRAPHIC - PHOTO]  Secretariat wins the Belmont completing
the Triple Crown run in 1973.

In 1976 the trade name "Microsoft" was registered by 20-year old Bill Gates.
[GRAPHIC - PHOTO]

1980 - 2000

In 1980 on its way to winning the gold, the U.S. Olympic Hockey team defeated
the heavily favored Soviet Union. [GRAPHIC - PHOTO]

[GRAPHIC - PHOTO] The New York Stock exchange tumbles 508 points in 1987 marking
the largest single drop since the market crash in 1929.

In 1989 the Berlin Wall, separating East, and West Berlin, is demolished and
solidifies the unification movement of East and West Germany.

[GRAPHIC - ILLUSTRATION] Tiger Woods breaks the Masters Tournament record in
1997.

The term "internet" is used for the first time in 1982. Corporations begin to
use the internet to communicate with each other and with their customers.
[GRAPHIC - PHOTO]

During 1998 Hudson City Savings institution changed its name to Hudson River
Bank & Trust Company and converts from a mutual to a stock savings bank.
[GRAPHIC - PHOTO]
<PAGE>
Financial Highlights

<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)           March 31,            2000                  1999
--------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                   <C>
For the Year Ended
Net income                                                               $  9,526               $ 3,807
Basic earnings per share                                                     0.65                  0.17
Diluted earnings per share                                                   0.65                  0.17
--------------------------------------------------------------------------------------------------------

At Year End
Total assets                                                          $ 1,149,547             $ 881,139
Loans receivable                                                          823,855               578,099
Deposits                                                                  748,563               591,814
Shareholders' equity                                                      200,723               219,341
Book value at year end                                                      14.50                 14.02
--------------------------------------------------------------------------------------------------------

Significant Ratios
Return on average assets                                                     0.96%                 0.47%
Return on average equity                                                     4.58                  2.05
Net interest margin                                                          4.83                  4.82
Net interest spread                                                          3.85                  3.63
Efficiency ratio                                                            52.61                 50.48
--------------------------------------------------------------------------------------------------------

Asset Quality Ratios
Nonperforming loans to total loans                                           1.25%                 1.72%
Nonperforming assets to total assets                                         1.04                  1.41
Allowance for loan losses to:
     Loans                                                                   2.38                  2.47
     Nonperforming loans                                                   190.50                143.77
--------------------------------------------------------------------------------------------------------
</TABLE>
                   [Graphic of map showing branch locations]

                    Husdon River Bancorp has 18 full service
                    branches located in Columbia, Rensselaer
              Albany, Schenectady, Dutchess and Saratoga counties.
<PAGE>
HUDSON RIVER BANCORP, INC.
TO OUR SHAREHOLDERS:

It is with great pride that we present to you our 2000 Annual  Report for Hudson
River  Bancorp,  Inc.  This,  the  first  year  of a  new  millennium,  marks  a
significant year in the history of our institution. Not only did we complete our
first full year as a publicly held  institution on March 31, but we also will be
celebrating  the Bank's 150th  anniversary.  Hudson River Bank & Trust  Company,
formerly the Hudson City Savings  Institution,  has been an integral part of our
local  market for a century and a half.  On April 4, 1850,  New York's  Governor
signed into law a special act of the legislature  incorporating  the Hudson City
Savings  Institution.  Since the first account opened with an initial deposit of
$80 in October 1850, we have seen our institution  grow to $1.1 billion in total
assets and $749 million in deposits with over 100,000 accounts throughout our 18
full-service  branches  located in Columbia,  Rensselaer,  Albany,  Schenectady,
Dutchess, and Saratoga counties.

Expansion into New Markets and Services

Hudson River Bancorp,  Inc.  completed its first acquisition as a public company
in  September  1999  increasing  its market  presence in the  immediate  Capital
District of New York.  The Company  acquired  SFS Bancorp,  Inc.,  the parent of
Schenectady  Federal  Savings Bank, in a cash deal valued at  approximately  $32
million (the SFS Acquisition).  Schenectady Federal Savings had four branches in
Schenectady  County with  approximately  17,000 accounts,  $177 million in total
assets and $150 million of deposits.  The  expansion in this market will provide
significant opportunities for developing commercial relationships and increasing
our market share.

Also in September 1999, the Company  acquired an equity interest in The Bostwick
Group. Bostwick is a full-service insurance agency with a history as long as our
own serving the  personal and  business  needs of the Hudson  Valley and Capital
District region. This acquisition  provides the Company the opportunity to add a
full array of insurance  products to its already  extensive  list of diversified
financial products and services, while teaming with a company that shares in our
philosophy of high-quality and personalized customer service.

Finally,  we are  excited  about our recent  announcement  to merge with  Cohoes
Bancorp,  Inc.,  parent  company of Cohoes  Savings Bank located in Cohoes,  New
York. Through this union, we will form the largest savings bank based locally in
the Capital District.  The merger is expected to be completed near year-end,  at
which time our name will change to  Cohoes-Hudson  Bancorp,  Inc.  The two banks
will be  merged  and do  business  as Hudson  River  Bank & Trust  Company.  The
transaction is expected to be accretive to the combined  company's  earnings per
share in the first full year of operations.

2000 Financial Results

To evidence the ongoing  success of Hudson River  Bancorp,  Inc.,  one must only
turn to our  financial  results for the fiscal year ended  March 31,  2000.  Net
income for the current year increased $5.7 million from 1999 to $9.5 million, an
increase of 150%.  Factoring in a $5.2  million  contribution  to the  Company's
charitable  foundation in 1999, the Company's  profits still rose 34%.  Earnings
per  share  rose  from  $0.17  in 1999 to  $0.65  this  year.  The  increase  in
profitability  is due in part to the increase in net interest  income  generated
primarily  by the SFS  Acquisition.  The  Company  has been  able to  sustain  a
relatively  high net interest margin over the past several years by managing the
growth of the balance sheet and utilizing appropriate funding strategies.

Total assets grew over $268 million from 1999 to $1.1 billion at year-end  2000.
The dramatic growth of 30% was primarily attributable to the SFS Acquisition. In
addition,   strategic  emphasis  was  placed  on  our  commercial  relationships
resulting in a net increase in commercial-related loans of over $55 million from
1999.  Contrasting  the  growth  in loans  was the  decrease  in the  amount  of
nonperforming  loans to total loans  which  ended the year at 1.25%,  the lowest
year-end level in the past five years. The continued expansion of our commercial
lending portfolio will facilitate the growth of commercial deposit relationships
and enhance fee income for the Company.

Technological Accomplishments

Our  Company  can  proudly  report  that we  processed  information  through all
critical   dates  in  relation  to  the  Y2K  issue   without  any  instance  of
noncompliance or interruption of information  processing.  We would be remiss if
the efforts and hard work of our staff and vendors  were not  recognized.  Their
diligence as we approached the new  millennium  was critical and  appreciated in
ensuring that our commitment to customer service was maintained.

During  2000,  we also  added  internet  banking  to our  list of  products  and
services.  With the  explosion  of the  information  highway  and our efforts to
provide customers with convenience, the introduction of internet banking has not
only  provided  our  current  customers  with yet another  means of  transacting
business  with us, but it will also provide the Bank with the potential to offer
our  products  and  services  to clients  that  normally  would be  outside  our
geographic  market.  We are  excited  about  this  service  and the  significant
opportunity it provides.

Outlook for the Future

Although we are extremely proud of our distinguished  150 year history,  we must
look to the future, energized with a strategic vision to carry on our pattern of
success.  The future of the financial  services  industry  will remain  fiercely
competitive.  We believe that Hudson River Bancorp,  Inc. is uniquely positioned
to sustain our stature in the  community  as a strong,  well-capitalized  leader
among the financial  institutions in our market. Our strategic  initiatives will
include:

     o   evaluation and implementation of profitable expansion  alternatives for
         the Company;
     o   penetration  of current and future  markets  through the opening of new
         branches;
     o   focus  on  an  expense   discipline   that  will   result  in  improved
         efficiencies of operations; and
     o   maintenance of asset quality levels through sound underwriting and risk
         management.

Our large  capital base  provides  management  and our Board of  Directors  with
exciting  opportunities  to explore new markets for  expansion in their  primary
effort to enhance the value of our franchise.

We would like to extend our sincerest  appreciation to our shareholders for your
continued support,  loyalty and confidence;  to our customers for your business;
and to our employees for their hard work and for a job well done.


Carl A. Florio                                       Earl Schram, Jr.
President & Chief Executive Officer                  Chairman of the Board

June 5, 2000
<PAGE>
                       [Graphic of building relationships]

Commercial Services
-------------------

Hudson River Bank & Trust Company's  Commercial  Services Division has played an
important role in the commercial  development of the Greater Capital District in
recent  years.  As local  businesses  expand,  many  have  turned to the Bank to
provide them with the advice,  guidance,  products  and service  which they have
grown accustomed to over the years.

Through  the  experience   and   relationships   of  our  commercial   officers,
commercial-related  loans grew  $55.6  million  during the year ended  March 31,
2000, a 46% increase. The Bank had the privilege of providing financing for such
high profile local projects as:

     o   FujiColor Processing photo lab, East Greenbush;
     o   SuperPower   LLC,  a  subsidiary  of   Intermagnetics   General  Corp.,
         Schenectady;
     o   The Hilton Garden Inn, Saratoga Springs; and
     o   New York State Healthcare Association headquarters, East Greenbush.

In addition,  the Commercial  Services  Division  offered  several new products.
"Cash Flow Manager",  an accounts  receivable  financing program, is designed to
assist  businesses in managing their liquidity and working capital.  Our leasing
program,  kicked  off late in the year,  offers  businesses  an  alternative  to
traditional financing for their capital expenditures.

Commercial  deposit accounts also increased in the past year as businesses moved
toward relationship  banking. The growth has resulted in the introduction of new
products  and  services  geared  toward  accommodating  business  relationships.
Internet cash management,  sweep investment accounts and commercial money market
accounts  are just a few of the many  products  offered to our  customers.  This
along with our many convenient  branch locations makes Hudson River Bank & Trust
Company  a  superior   alternative  for  the  banking   relationships  of  local
businesses.

Insurance Services
------------------

Recent  legislation  was  passed  that  expanded  the  powers  of banks to offer
insurance products to their customers.  Accordingly,  Hudson River Bancorp, Inc.
acquired  an  equity  interest  in The  Bostwick  Group.  Our  affiliation  with
Bostwick,  a  full-service  insurance  agency,  will provide the  Company's  and
Bostwick's  customers  with a  convenient  means of  accessing  a  multitude  of
financial  products and services ranging from traditional  banking products to a
full array of insurance products.

The Bostwick Group has been in existence for 150 years, meeting the personal and
business  insurance  needs of the Hudson  Valley and  Capital  District  region.
Bostwick has worked  diligently over the years in creating strong  relationships
with more than 25 major carriers of personal,  group, and commercial  insurance.
Bostwick is also committed to the use of the internet -  www.bostwickgroup.com -
and a variety of modern  technologies  in providing a  high-speed  communication
link between their customers and the insurance carrier.

Bostwick  offers a wide range of personal  insurance  to protect our  customers'
lifestyles.  Insurance  for life,  home and property is perhaps the most obvious
and important insurance. But equally important is the consideration of insurance
needs such as personal liability,  long-term care,  individual  disability,  and
annuities for retirement.

The  Bostwick  Group  is also an  experienced  business  insurer  that  delivers
superior asset coverage and exceptional value. Commercial lines include property
and casualty,  commercial umbrella,  professional  liability,  and directors and
officers  to name a few.  Bostwick  also  offers a full range of  cost-effective
employee benefit insurance  programs for commercial  clients including  employee
health and dental benefits, group life, 401(k), and other retirement benefits.

The longevity  and success of Bostwick can be  attributed to their  personalized
service coupled with cost-effective insurance products that address the specific
needs of the client.  The  partnering  of Hudson  River  Bancorp,  Inc.  and The
Bostwick  Group,  with  our  shared  philosophies  and  the  integration  of our
products, will provide exciting opportunities for our combined customers.
<PAGE>
Investment Management & Trust
-----------------------------

Bringing  professional  investment  advice to our clients,  combined with a wide
breadth of products and services,  has been  instrumental in the dramatic growth
of the Investment Management & Trust Services Division of the Bank. Our staff of
professional advisors provides investment  management,  trust administration and
estate settlement services.

The primary goal of our investment management services is to provide our clients
with maximum investment return while employing prudent,  time-tested  investment
strategies.  All  investment  decisions  are made  within the  framework  of our
clients'  financial  objectives,  their  tolerance  toward risk, and appropriate
fiduciary  standards.  We believe  investment  return is best achieved through a
diversified  portfolio  of high  quality  securities.  Assets  are  invested  in
companies  that are leaders in their  industry and  historically  have generated
consistent earnings growth and have provided regular dividend  appreciation.  In
short,  we are sensitive to our clients' income  requirements,  need for capital
appreciation,  and level of comfort with the financial  assets needed to achieve
their goals.

We provide  administration  and professional  asset management through our trust
administration  services.  As trustee  for our  clients,  we  execute  the legal
guidelines our clients set forth in their trust and respect their intentions. To
this end, we diligently attend to the personal needs of those for whom the trust
is intended to benefit.

Through our estate settlement  services,  we administer our clients' estates and
take them  through the  complexities  of probate.  Our  resources  let us settle
estates without  unnecessary delays and with minimum disruption for their heirs.
We are  experienced,  professional  executors  with the  skills  to  handle  our
clients' entire estates settlement.

We believe that quality  personalized  attention  combined with professional and
competent advice equates to a winning formula for our clients.

Technology & Internet Banking
-----------------------------

The  importance of technology  touches all our lives - both as businesses and as
individuals.  The magnitude of  information  available over the internet and the
speed at which information is processed is commonly accepted in today's society.
Over the  years,  Hudson  River  Bancorp,  Inc.  has been a leader in  effective
utilization   of   technology   to  benefit  our   customers   and   operational
functionality.

In 1999,  the Bank was the first  local  community  bank to  introduce  internet
banking to its  customers.  Through the  internet  banking icon at our website -
www.hudsonriverbank.com  -  customers  can  enjoy  the  convenience  and ease of
banking 24 hours a day/7 days a week. As an individual account holder,  internet
banking permits viewing accounts with up-to-the-minute information, transferring
money between accounts and paying bills.  Business  accounts are offered all the
services of personal  accounts  plus the  enhanced  features of our cash manager
module such as  payroll/direct  deposits,  wire  transfers  and more.  All these
services are offered within a state-of-the-art,  secure on-line environment. For
those customers without a computer or access to the internet, the Bank continues
to offer a convenient means of conducting certain banking  transactions  through
our automated telephone banking service.

During the last several years,  the Y2K data  processing  issue consumed much of
our attention. Defensive preparation occurred worldwide for the possibility that
the Y2K bug would somehow affect everyone's lives. Hudson River Bancorp, Inc. is
proud of its  accomplishments  in tackling the issues surrounding the Y2K issue.
Not  only  were  all  systems  reviewed  and  modified  to  accurately   process
information  through  critical date changes,  but the Company took  advantage of
this  opportunity to upgrade certain  applications  in our continued  efforts to
increase the efficiency of our systems.

With our commitment to keep pace with  technology  changes in the future and the
current foundation of a state-of-the-art  system,  Hudson River Bancorp, Inc. is
positioned to satisfy the ever-changing demands of our customers,  challenge and
surpass local competitors, and improve operational efficiencies.
<PAGE>
Traditional Banking
-------------------

As we  celebrate  our 150th  anniversary,  it is  important  to  understand  and
appreciate what led to the longevity and success of our Bank.  Hudson River Bank
& Trust Company has always provided  competitively  priced loans and deposits to
our retail customers backed by personalized and attentive  service.  This "basic
formula" is the  foundation  supporting  all other  ventures  and  opportunities
explored by the Bank for the benefit of our customers.

Residential  mortgage lending has historically  been a principal  product in the
full line of loans offered to our customers.  Hudson River Bank & Trust Company,
with its  affiliates,  Hudson  River  Mortgage  Company  and  Homestead  Funding
Corporation, ranked as one of the premier lending groups in the Capital District
both in volume and in breadth of products.  We take pride in the  experience  of
our residential mortgage lenders in advising prospective  homeowners on, what is
to be for most, the largest financing decision of their lives.

The Bank has grown from one branch in 1850 to 17 full- service  branches located
throughout  the Greater  Capital  District of New York.  This branch network has
amassed  total  deposits  of  $749  million  as of  March  31,  2000.  From  our
certificate  of deposit  account to the school savings  account,  each is priced
competitively and serviced by friendly,  well-trained  employees. We are excited
about the opening of our newest  location in Clifton  Park in 2000,  our initial
entrance into Saratoga County.

Hudson River Bancorp,  Inc. will enter the new millennium  with a renewed vision
to provide our customers with traditional products and services,  as well as the
commitment to offer  creative  solutions to satisfy  today's  dynamic  financial
services needs.

Community Responsiveness
------------------------

In addition to all the products and  services  the Bank  provides,  Hudson River
Bancorp,  Inc. and the Bank take  seriously our  responsibility  of being a good
neighbor in the many communities in which we operate. Of course, we are proud of
the fact that we have been  meeting the banking  needs of our local  communities
for 150 years. But we are equally proud of the responsiveness of the Company and
its employees in meeting the civic  responsibilities  that  ultimately  define a
good neighbor.

The Company established the Hudson River Bank & Trust Company Foundation in 1998
as part of the Bank's  conversion to a New York State  chartered stock bank. The
purpose of the Foundation is to provide funding to support charitable causes and
community   development   activities  in  the  counties  of  Columbia,   Albany,
Rensselaer,  Schenectady and Dutchess and their neighboring communities.  During
the past year, the Foundation  made grants in the areas of health care and human
services,  community and economic  development,  education,  the arts,  historic
preservation,  environmental protection,  and youth development.  The Foundation
continues the Bank's long-standing history of philanthropic  efforts, to improve
the quality of life in our local communities.

Our  desire  to be a good  neighbor  in our local  communities  is rooted in the
efforts of the  employees of the Company.  The pride,  spirit and  dedication of
these individuals benefit many charitable  organizations  throughout the Capital
Region.  Their  involvement  ranges from  participation  in fund raising events,
board seats, volunteer work for religious  organizations,  chambers of commerce,
boards of education for local school districts,  Special  Olympics,  Girl Scouts
and many more. These many  volunteered  hours underscore their desire to improve
our local  communities.  It is with pride that these  individuals are associated
with Hudson River Bancorp, Inc.

As we go  beyond  our  150th  anniversary,  we  will  remain  committed  to  our
principals to prudently respond to and support our local communities.
<PAGE>
FIVE YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
At or for the Years Ended March 31,                             2000              1999          1998          1997           1996
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>            <C>           <C>            <C>
Earnings
Interest income                                             $ 76,423          $ 63,526       $55,387       $52,881        $49,082
Interest expense                                              30,509            26,000        25,977        25,426         24,086
----------------------------------------------------------------------------------------------------------------------------------
Net interest income                                           45,914            37,526        29,410        27,455         24,996
----------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses                                      6,200             7,341         8,491         3,826          1,090
Other operating income                                         2,588             2,418         2,845         1,825          1,635
Other operating expenses                                      27,788            26,612        19,030        16,187         14,199
----------------------------------------------------------------------------------------------------------------------------------
Income before  tax expense                                    14,514             5,991         4,734         9,267         11,342
Tax expense                                                    4,988             2,184         1,903         3,607          4,298
----------------------------------------------------------------------------------------------------------------------------------
Net income                                                  $  9,526          $  3,807       $ 2,831       $ 5,660        $ 7,044
----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Basic earnings per share (1)                                $   0.65          $   0.17             -             -              -
Diluted earnings per share (1)                                  0.65              0.17             -             -              -
Book value at year end                                         14.50             14.02             -             -              -
Book value at year end, including
  unallocated ESOP shares and
  unvested RRP shares                                          12.85             12.39             -             -              -
Tangible book value per share at year end                      13.66             13.81             -             -              -
Tangible book value per share, including
  unallocated ESOP shares and
  unvested RRP shares                                          12.11             12.21             -             -              -
Closing market price                                           10.00             10.94             -             -              -
----------------------------------------------------------------------------------------------------------------------------------
Average Balances and Shares
Total assets                                                $996,448          $809,385      $659,984      $640,867       $597,435
Earning assets                                               950,380           778,691       628,747       612,296        571,263
Loans                                                        698,403           522,974       507,293       471,295        444,645
Securities available for sale                                231,931           156,405        39,357        53,445         26,889
Securities held to maturity                                   14,899            47,738        71,966        83,343         92,243
Deposits                                                     682,029           608,936       577,721       562,922        530,339
Short-term FHLB advances                                      65,542             2,916         3,699         4,459            745
Long-term FHLB borrowings                                     18,386                 -             -             -              -
Shareholders' equity                                         207,953           185,770        67,780        63,322         56,261
Shares outstanding:
     Basic                                                14,556,648        16,302,268             -             -              -
     Diluted                                              14,577,742        16,302,268             -             -              -
----------------------------------------------------------------------------------------------------------------------------------
Financial Ratios
Return on average assets                                        0.96 %            0.47 %        0.43 %        0.88 %         1.18%
Return on average equity                                        4.58              2.05          4.18          8.94          12.52
Net interest margin                                             4.83              4.82          4.68          4.48           4.38
Efficiency ratio (2)                                           52.61             50.48         56.78         54.18          51.89
Expense ratio (2)                                               2.56              2.49          2.77          2.47           2.31
Equity to assets at year end                                   17.46             24.89         10.18         10.00           9.56
Tangible equity to tangible assets at year end                 16.62             24.62         10.10          9.96           9.50
Allowance to nonperforming loans                              190.50            143.77         52.32         29.37          32.57
Allowance to loans                                              2.38              2.47          1.62          1.19           0.79
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Earnings per share data only applies to periods since the Company's  initial
    public offering on July 1, 1998.

(2) Ratio does not include  other real  estate  owned and  repossessed  property
    expenses,  net securities  transactions,  and goodwill and other intangibles
    amortization  for each period.  The 1999 ratio does not include a charitable
    contribution to the Hudson River Bank & Trust Company Foundation.
<PAGE>
                           Hudson River Bancorp, Inc.
   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS

GENERAL
-------

The  financial  review  which  follows  focuses  on the  factors  affecting  the
consolidated  financial  condition  and results of  operations  of Hudson  River
Bancorp,  Inc. and its subsidiary Hudson River Bank & Trust Company (the "Bank")
(combined, the "Company") during the year ended March 31, 2000 and the preceding
two years. The consolidated  financial  statements and related notes as of March
31,  2000 and 1999,  and for the three years ended March 31, 2000 should be read
in conjunction with this review.

On July 1, 1998,  the Bank  completed its  conversion  from a New York chartered
mutual  savings  bank  to  a  New  York   chartered   stock  savings  bank  (the
"Conversion").  Concurrent  with the  Conversion,  Hudson  River  Bancorp,  Inc.
completed its initial public offering of common stock,  receiving  approximately
$173.3 million in gross proceeds  ($170.0  million net of offering  expenses) in
exchange for 17,333,738 shares of its common stock. An additional 520,012 common
shares were  contributed  to Hudson River Bank & Trust Company  Foundation.  The
Company  used a portion of the  proceeds to purchase  all of the common stock of
the Bank. Prior to the initial public offering,  Hudson River Bancorp,  Inc. had
no results of operations; therefore, results of operations prior to July 1, 1998
reflect the operations of the Bank.

The Company's  primary market area, with 17 full-service  branches,  consists of
the  New  York  counties  of  Columbia,  Rensselaer,  Albany,  Schenectady,  and
Dutchess.   The   Company   has  been,   and   intends  to  continue  to  be,  a
community-oriented   financial  institution  offering  a  variety  of  financial
services. The Company's principal business is attracting deposits from customers
within its market area and investing those funds  primarily in loans,  and, to a
lesser extent, in marketable  securities.  The financial condition and operating
results of the Company are  dependent  on its net  interest  income which is the
difference  between the  interest  income  earned on its assets and the interest
expense  paid  on  its  liabilities,   primarily   consisting  of  deposits  and
borrowings.  Net income is also affected by provisions for loan losses and other
operating  income,  such as loan  servicing  income and fees on deposit  related
services; it is also impacted by other operating expenses,  such as compensation
and benefits,  occupancy and  equipment  expenses,  and federal and state income
taxes.

The  Company's  results of  operations  are  significantly  affected  by general
economic and  competitive  conditions  (particularly  changes in market interest
rates),  government  policies,  changes in  accounting  standards and actions of
regulatory  agencies.  Future  changes  in  applicable  laws,  regulations,   or
government  policies  may  have  a  material  impact  on  the  Company.  Lending
activities are substantially influenced by the demand for and supply of housing,
competition among lenders,  the level of interest rates, and the availability of
funds.  The ability to gather  deposits and the cost of funds are  influenced by
prevailing market interest rates, fees and terms on deposit products, as well as
the availability of alternative investments including mutual funds and stocks.

MERGER AND ACQUISITION ACTIVITY
-------------------------------

On September 3, 1999, the Company completed its acquisition of SFS Bancorp, Inc.
("SFS")  paying  $25.10 in cash for each share of SFS common  stock  outstanding
(the "SFS  Acquisition").  The total  consideration of approximately $32 million
was funded primarily by long-term borrowings.  The transaction was accounted for
under the  purchase  method of  accounting  and  goodwill  associated  with this
transaction totaling $9.1 million was recorded.  The goodwill is being amortized
straight  line over fifteen  years.  SFS had total assets of $176.9  million and
total  deposits of $150.4  million as of  September 3, 1999.  Its four  branches
within Schenectady County were added to the Bank's branch network.

On April 25, 2000, the Company  announced  that a definitive  agreement had been
reached with Cohoes Bancorp, Inc. ("Cohoes") to provide for a merger between the
Company and Cohoes.  Cohoes is a $700 million  institution with 21 branches in 6
counties  headquartered in Cohoes, New York. The Company will issue 1.185 shares
of Company  common stock in exchange for each share of Cohoes common stock.  The
total deal is valued at  approximately  $87 million based on the Company's stock
price immediately preceding the announcement.  The transaction will be accounted
for  under the  purchase  method  of  accounting,  and  pending  regulatory  and
shareholder approvals,  is expected to close before year-end 2000. All 21 Cohoes
branches  will be renamed as Hudson  River Bank & Trust  Company  branches  upon
completion of the merger, and the Company will be renamed Cohoes-Hudson Bancorp,
Inc. The  combined  company will have over $1.8 billion in total assets and $1.2
billion in deposits.
<PAGE>
OVERVIEW
--------

The  Company  earned  net  income for the year  ended  March 31,  2000,  of $9.5
million,  or $0.65 per share,  compared with the $3.8 million  earned during the
year ended  March 31, 1999 and $2.8  million for the year ended March 31,  1998.
Net income for 2000 was enhanced by the Company's SFS  Acquisition  in September
1999.  Net income in the 1999 period was  negatively  impacted by a $5.2 million
($3.1 million after tax) nonrecurring  expense taken during July 1998 associated
with  the  contribution  of  stock  to the  Hudson  River  Bank & Trust  Company
Foundation.  Excluding  this  contribution,  the increase  over the prior year's
performance was a result of higher net interest income and a lower provision for
loan losses,  partially offset by higher other operating expenses and higher tax
expense.  For the year ended March 31,  2000,  the  Company's  return on average
assets was 0.96%, up from 0.47% in 1999. The Company's  return on average equity
for the year ended March 31, 2000 was 4.58%, up from 2.05% in 1999.

ASSET/LIABILITY MANAGEMENT
--------------------------

The Company  attempts to maximize net  interest  income,  and net income,  while
actively managing its liquidity and interest rate sensitivity through the mix of
various  core  deposits  and  other  sources  of funds,  which in turn,  fund an
appropriate  mix of earning  assets.  The changes in the Company's asset mix and
sources of funds,  and the resultant impact on net interest income are discussed
below.

AVERAGE BALANCES, INTEREST, AND YIELDS
<TABLE>
<CAPTION>
Years Ended March 31,                                                        2000                                      1999
------------------------------------------------------------------------------------------------------------------------------------
                                                                              Average                                     Average
                                                    Average                   Yield/         Average                      Yield/
(In thousands)                                      Balance     Interest       Rate          Balance       Interest        Rate
                                               -------------------------------------------------------------------------------------
<S>                                                 <C>          <C>          <C>           <C>           <C>              <C>
Earning assets
Federal funds sold                                  $   218      $   12       5.50%         $ 18,805      $  1,054         5.60%
Securities purchased under
  agreements to resell                                    -           -          -            29,727         1,662         5.59
Securities available for sale (1)                   231,931      15,432       6.65           156,405         9,997         6.39
Securities held to maturity                          14,899         982       6.59            47,738         3,095         6.48
Federal Home Loan Bank
  of New York stock                                   4,929         337       6.84             3,042           215         7.07
Loans receivable (2)                                698,403      59,660       8.54           522,974        47,503         9.08
------------------------------------------------------------------------------------------------------------------------------------
Total earning assets                                950,380      76,423       8.04           778,691        63,526         8.16
------------------------------------------------------------------------------------------------------------------------------------

Cash and due from banks                              13,612                                   12,774
Allowance for loan losses                           (17,052)                                 (10,916)
Other non-earning assets                             49,508                                   28,836
------------------------------------------------------------                          ---------------
Total assets                                       $996,448                                 $809,385
============================================================                          ===============

Interest-bearing liabilities
Savings accounts                                   $167,145    $  4,507       2.70%         $155,885      $  5,039         3.23%
N.O.W. and money
  market accounts                                   115,037       2,968       2.58            97,006         2,762         2.85
Time deposit accounts                               353,723      18,007       5.09           313,269        17,930         5.72
Mortgagors' escrow deposits                           5,990         131       2.19             4,986           113         2.27
Securities sold under
  agreements to repurchase                            1,896          84       4.43                77             3         3.90
Short-term FHLB advances                             65,542       3,700       5.65             2,916           153         5.25
Long-term FHLB borrowings                            18,386       1,112       6.05                 -             -            -
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities                  727,719      30,509       4.19           574,139        26,000         4.53
------------------------------------------------------------------------------------------------------------------------------------

Noninterest-bearing deposits                         46,124                                   42,776
Other noninterest-bearing liabilities                14,652                                    6,700
Shareholders' equity                                207,953                                  185,770
------------------------------------------------------------                          ---------------
Total liabilities and shareholders' equity         $996,448                                 $809,385
============================================================                          ===============
Net interest income                                            $ 45,914                                   $ 37,526
========================================================================                                ==========
Net interest spread                                                           3.85%                                        3.63%
====================================================================================================================================
Net interest margin                                                           4.83%                                        4.82%
====================================================================================================================================
<CAPTION>
AVERAGE BALANCES, INTEREST, AND YIELDS

Years Ended March 31,                                                       1998
--------------------------------------------------------------------------------------
                                                                           Average
                                               Average                     Yield/
(In thousands)                                 Balance       Interest       Rate
--------------------------------------------------------------------------------------
<S>                                               <C>           <C>             <C>
Earning assets
Federal funds sold                                $  7,298      $   416         5.70%
Securities purchased under
  agreements to resell                                   -            -            -
Securities available for sale (1)                   39,357        2,568         6.52
Securities held to maturity                         71,966        4,727         6.57
Federal Home Loan Bank
  of New York stock                                  2,833          194         6.85
Loans receivable (2)                               507,293       47,482         9.36
--------------------------------------------------------------------------------------
Total earning assets                               628,747       55,387         8.81
--------------------------------------------------------------------------------------

Cash and due from banks                             11,669
Allowance for loan losses                           (6,768)
Other non-earning assets                            26,336
-----------------------------------------------------------
Total assets                                      $659,984
===========================================================

Interest-bearing liabilities
Savings accounts                                  $138,074     $  4,729         3.42%
N.O.W. and money
  market accounts                                   94,904        2,850         3.00
Time deposit accounts                              311,014       18,085         5.81
Mortgagors' escrow deposits                          4,850          108         2.23
Securities sold under
  agreements to repurchase                               -            -            -
Short-term FHLB advances                             3,699          205         5.54
Long-term FHLB borrowings                                -            -            -
--------------------------------------------------------------------------------------
Total interest-bearing liabilities                 552,541       25,977         4.70
--------------------------------------------------------------------------------------

Noninterest-bearing deposits                        33,729
Other noninterest-bearing liabilities                5,934
Shareholders' equity                                67,780
-----------------------------------------------------------
Total liabilities and shareholders' equity        $659,984
===========================================================
Net interest income                                            $ 29,410
=======================================================================
Net interest spread                                                             4.11%
======================================================================================
Net interest margin                                                             4.68%
======================================================================================
</TABLE>

(1) Average balances include fair value adjustment.
(2) Average balances include nonaccrual loans.
<PAGE>
Earning Assets

Total  average  earning  assets  increased to $950.4  million for the year ended
March 31, 2000,  up from $778.7  million in 1999.  This increase was primarily a
result of the completion of the SFS  Acquisition  in September  1999, as well as
the impact of the Company's  initial public  offering on July 1, 1998.  Interest
income for the year ended March 31,  2000 was $76.4  million,  up $12.9  million
from 1999.  The  increase in average  balances  was the  primary  reason for the
higher  income,  offset  somewhat by lower yields on those assets.  The yield on
earning  assets fell from 8.16% for the year ended March 31,  1999,  to 8.04% in
2000. The change in the Company's  asset mix from lower yielding  investments to
higher yielding loans has reduced the impact of a lower rate  environment on its
earning  assets.  Earning  assets at March 31, 2000 were $1.1  billion,  up from
$847.1 million at March 31, 1999, primarily as a result of the SFS Acquisition.

Average  earning  assets for the year ended March 31,  1999 were $149.9  million
higher  than the average  for the  previous  year.  This  increase is  primarily
attributed  to the  proceeds  received  by the  Company  in its  initial  public
offering.  As a result of this  increase  in average  earning  assets,  interest
income increased $8.1 million in 1999 from 1998. The increase in interest income
as a result of volume  increases during 1999 was partially offset by declines in
yields on earning assets from 8.81% in 1998 to 8.16% in 1999.

Loans

The  average  balance of loans  increased  to $698.4  million for the year ended
March 31, 2000, up $175.4 million from the $523.0 million  average for 1999. The
yield on loans for the year  decreased  54 basis  points,  from 9.08% in 1999 to
8.54% in 2000.  Interest  income on loans  for the year  ended  March  31,  2000
increased to $59.7 million from $47.5  million in 1999.  The increase in average
balances for the year resulted in a $15.1 million increase in interest income on
loans that was partially  offset by a $3.0 million  decrease due to lower rates.
Interest  income on loans in 1999 was flat with 1998.  Increases  in the average
balance of loans in 1999 of $15.7  million were offset by declines in rates from
9.36% in 1998 to 9.08% in 1999.

Total loans were $823.9  million at March 31, 2000,  up $245.8  million from the
$578.1  million at March 31,  1999.  Loans  secured by  residential  real estate
increased  from $295.5  million,  or 51.1% of total loans at March 31, 1999,  to
$491.8  million,  or 59.7% of total loans at March 31, 2000.  This  increase was
primarily  the result of the SFS  Acquisition  and new  originations  during the
current year.  Commercial  real estate loans  increased  $47.4 million to $138.9
million at March 31, 2000 from $91.5  million at March 31,  1999.  Approximately
$4.8  million of the increase  was a result of the SFS  Acquisition.  Commercial
loans  increased to $37.2  million at March 31, 2000 from $29.0 million at March
31, 1999.  These  increases were offset in part by a decrease of $8.8 million in
manufactured  housing  loans.  Management  intends  to  continue  to reduce  the
portfolio  of  manufactured  housing  loans  gradually  through  normal  paydown
activity  while it continues its focus on commercial  real estate and commercial
lending, as well as residential lending.

LOAN PORTFOLIO ANALYSIS
<TABLE>
<CAPTION>
March 31,                                             2000                    1999                  1998
-----------------------------------------------------------------------------------------------------------------
(In thousands)                                Amount         %         Amount        %        Amount        %
-----------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>      <C>            <C>      <C>          <C>
Loans secured by real estate:
   Residential                               $491,811      59.7%    $ 295,466      51.1%    $269,435       53.2%
   Commercial                                 138,891      16.9        91,480      15.8       76,570       15.1
   Construction                                 9,144       1.1         3,401       0.6        4,621        0.9
-----------------------------------------------------------------------------------------------------------------
Total loans secured by real estate            639,846      77.7       390,347      67.5      350,626       69.2
-----------------------------------------------------------------------------------------------------------------
Other loans:
   Manufactured housing                        81,542       9.9        90,354      15.6       97,426       19.2
   Commercial                                  37,167       4.5        29,024       5.0       18,484        3.7
   Financed insurance premiums                 51,796       6.3        57,901      10.0       27,976        5.5
   Consumer                                    15,536       1.9        12,440       2.2       11,857        2.3
-----------------------------------------------------------------------------------------------------------------
Total other loans                             186,041      22.6       189,719      32.8      155,743       30.7
-----------------------------------------------------------------------------------------------------------------
Unearned discount and net deferred
   loan origination fees and costs            (2,032)      (0.3)       (1,967)     (0.3)         609        0.1
-----------------------------------------------------------------------------------------------------------------
Total loans receivable                       $823,855     100.0%    $ 578,099     100.0%    $506,978      100.0%
Allowance for loan losses                    (19,608)                 (14,296)                (8,227)
-----------------------------------------------------------------------------------------------------------------
Net loans receivable                         $804,247               $ 563,803               $498,751
=================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
March 31,                                                  1997                    1996
------------------------------------------------------------------------------------------------
(In thousands)                                     Amount         %        Amount         %
------------------------------------------------------------------------------------------------
<S>                                              <C>           <C>        <C>           <C>
Loans secured by real estate:
   Residential                                   $ 274,092     55.6%      $241,162      53.5%
   Commercial                                       67,697     13.7         70,854      15.7
   Construction                                      2,725      0.6          4,317       1.0
------------------------------------------------------------------------------------------------
Total loans secured by real estate                 344,514     69.9        316,333      70.2
------------------------------------------------------------------------------------------------
Other loans:
   Manufactured housing                             92,651     18.8         80,399      17.8
   Commercial                                       19,713      4.0         29,190       6.5
   Financed insurance premiums                      23,535      4.8         13,503       3.0
   Consumer                                         11,577      2.3         10,155       2.3
------------------------------------------------------------------------------------------------
Total other loans                                  147,476     29.9        133,247      29.6
------------------------------------------------------------------------------------------------
Unearned discount and net deferred
   loan origination fees and costs                   1,029      0.2          1,091       0.2
------------------------------------------------------------------------------------------------
Total loans receivable                           $ 493,019    100.0%      $450,671     100.0%
Allowance for loan losses                           (5,872)                 (3,546)
------------------------------------------------------------------------------------------------
Net loans receivable                             $ 487,147                $447,125
================================================================================================
</TABLE>
<PAGE>
VOLUME AND RATE ANALYSIS
<TABLE>
<CAPTION>
                                                                         2000 vs 1999                                  1999 vs 1998
-----------------------------------------------------------------------------------------------------------------------------------
                                             Due To         Due To            Net            Due To           Due To         Net
(In thousands)                               Volume          Rate           Change           Volume            Rate         Change
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>             <C>              <C>            <C>              <C>
Interest income
Federal funds sold                         $(1,023)       $    (19)       $ (1,042)        $   645         $     (7)       $   638
Securities purchased under
     agreements to resell                   (1,662)              -          (1,662)          1,662                -          1,662
Securities available for sale                 5,010            425           5,435           7,482              (53)         7,429
Securities held to maturity                 (2,164)             51          (2,113)         (1,572)             (60)        (1,632)
Federal Home Loan Bank
     of New York stock                          129             (7)            122              15                6             21
Loans receivable                             15,129         (2,972)         12,157           1,446           (1,425)            21
-----------------------------------------------------------------------------------------------------------------------------------
Total interest income                      $ 15,419       $ (2,522)       $ 12,897         $ 9,678         $ (1,539)       $ 8,139
-----------------------------------------------------------------------------------------------------------------------------------

Interest expense
Savings accounts                              $ 346       $   (878)       $   (532)        $   586         $   (276)       $   310
N.O.W. and money market accounts                481           (275)            206              62             (150)           (88)
Time deposit accounts                         2,177         (2,100)             77             130             (285)          (155)
Mortgagors' escrow deposits                      22             (4)             18               3                2              5
Securities sold under agreements
     to repurchase                               81              -              81               3                -              3
Short-term FHLB advances                      3,535             12           3,547             (42)             (10)           (52)
Long-term FHLB borrowings                     1,112              -           1,112               -                -              -
-----------------------------------------------------------------------------------------------------------------------------------
Total interest expense                     $  7,754       $ (3,245)       $  4,509         $   742         $   (719)       $    23
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income                        $  7,665       $    723        $  8,388         $ 8,936         $   (820)       $ 8,116
===================================================================================================================================
</TABLE>

Note: Changes  attributable  to both rate and volume which cannot be  segregated
      have been  allocated  proportionately  to the change due to volume and the
      change due to rate.

Securities

The average  balance of  securities  available for sale and  securities  held to
maturity (collectively  "securities")  increased $42.7 million to $246.8 million
for the year ended March 31,  2000,  up from  $204.1  million for the year ended
March 31, 1999.  This increase is the result of the SFS  Acquisition  as well as
the  reinvestment of the Company's  federal funds sold and securities  purchased
under agreements to resell into the securities available for sale portfolio that
took place  towards the end of 1999.  Interest  income  earned on  securities of
$16.4  million for the year ended March 31,  2000,  was up $3.3 million from the
$13.1  million  earned  in 1999  primarily  as a result  of the  higher  average
balances.  The average  balance of securities  for the year ended March 31, 1999
were $92.8 million higher than the average  balance of securities in 1998.  This
increase was  attributed  to the  investment  of the proceeds  received from the
Company's  initial  public  offering and resulted in a growth of $5.8 million in
interest on securities in 1999 from 1998.

Securities  at March 31, 2000 were $248.1  million,  down $17.5 million from the
$265.7  million the Company held as of March 31,  1999.  The decrease was almost
entirely due to calls,  maturities and paydowns of securities  (offset primarily
by the  impact  of the  SFS  Acquisition)  as well  as the  increase  in the net
unrealized loss on the securities available for sale portfolio.  Reinvestment of
the proceeds were primarily  directed to the loan  portfolio to accommodate  the
growth experienced in that asset category. Management is continuing to allow the
balance of  securities  held to  maturity  to  decrease  with new  purchases  of
securities directed to the securities available for sale classification.

Federal Funds Sold and Securities Purchased Under Agreements to Resell

The Company had limited  federal  funds sold and no securities  purchased  under
agreements  to  resell  during  the year  ended  March 31,  2000 as these  asset
categories were reinvested in the higher yielding loan and securities portfolios
during the latter  stages of the year ended March 31,  1999.  For the  immediate
future,  the Company does not anticipate  utilizing  these asset  categories for
significant  investments  other than on a temporary  basis as market  conditions
warrant.  The average  balance of federal  funds sold and  securities  purchased
under  agreements  to resell of $48.5 million for the year ended March 31, 1999,
generated  $2.7 million in interest  income for that year and was $41.2  million
higher than the average  balance in 1998. This increase was due to the temporary
investment of the proceeds from the Company's initial public offering.
<PAGE>
Funding Sources

The Company  utilizes  traditional  deposit  products such as time,  savings and
N.O.W.  and money  market  deposits as its  primary  source for  funding.  Other
sources such as short-term FHLB advances and long-term FHLB borrowings, however,
are  utilized  as  necessary  to support the  Company's  growth in assets and to
achieve   interest  rate   sensitivity   objectives.   The  average  balance  of
interest-bearing  liabilities  increased  to $727.7  million  for the year ended
March 31, 2000 from  $574.1  million  for the year ended  March 31,  1999.  This
increase in average  balance is  attributed  primarily  to the SFS  Acquisition.
Interest  expense for the year ended March 31, 2000 was $30.5  million,  up $4.5
million from the previous  year. The increase in volume,  partially  offset by a
decrease in the average  rate paid from 4.53% to 4.19%,  resulted in the overall
increase in interest expense for the year. Average interest-bearing  liabilities
for the year ended March 31,  1999 were $21.6  million  higher  than 1998.  This
increase  in volume  was  almost  entirely  offset by a decline  in rates  paid,
resulting in no significant changes in interest expense between the two years.

Interest-bearing  liabilities  at March 31,  2000 were $857.1  million,  up from
$580.2  million  at March  31,  1999.  This  increase  was a  result  of the SFS
Acquisition  as well as the  necessity  to fund  the  growth  in  assets  of the
Company, primarily in the loan portfolio.

Deposits

The  average  balance  of savings  accounts  increased  $11.3  million to $167.1
million  for the year ended  March 31,  2000,  up from  $155.9  million  for the
previous  year.  These  fluctuations  are the  result  of the  impact of the SFS
Acquisition  during the year ended March 31, 2000,  offset in part by the impact
of the stock subscriptions  received in the prior year relating to the Company's
initial public  offering,  which  temporarily  increased  deposits  during 1999.
Interest  expense on savings  accounts  declined  from $5.0 million for the year
ended March 31, 1999 to $4.5  million in 2000 as the  decrease in average  rates
paid from 3.23% to 2.70%  more than  offset the  increase  in average  balances.
Rates paid on savings accounts declined from 3.42% in 1998 to the 3.23% in 1999.
This  decline  in rates was more  than  offset by the  increase  in the  average
balance of savings  accounts  from $138.1  million in 1998 to $155.9  million in
1999,  resulting in an overall  increase in interest expense during 1999 of $310
thousand.

The average  balance of N.O.W.  and money  market  accounts  increased to $115.0
million for the year ended March 31, 2000, up from $97.0 million in 1999.  These
fluctuations  are  primarily  the  result of the  impact of the SFS  Acquisition
during the year  ended  March 31,  2000.  Interest  expense on N.O.W.  and money
market accounts  increased from $2.8 million in 1999 to $3.0 million in the year
ended March 31,  2000,  as a decrease in average  rates paid from 2.85% to 2.58%
somewhat offset the effect of the higher average balances.  Rates paid on N.O.W.
and money market accounts declined from 3.00% in 1998 to the 2.85% in 1999. This
decline in rates was the primary  reason for the  decrease  in interest  expense
during 1999 from 1998.

Interest  expense on time deposits was  virtually  flat for the year ended March
31, 2000 at $18.0  million,  compared  with $17.9  million in 1999.  The average
balance of time deposits  increased from $313.3 million for the year ended March
31, 1999 to $353.7  million for the year ended March 31, 2000,  primarily due to
the SFS Acquisition.  Lower average rates paid on time deposits of 5.09% for the
year ended March 31, 2000, down from 5.72% in 1999, almost completely offset the
effect of the higher  average  balances  in 2000.  For the year ended  March 31,
1999,  the  decline in  average  rates paid from 5.81% in 1998 to 5.72% in 1999,
partially  offset by a $2.3 million  increase in average  balances  during 1999,
resulted in a decrease of $155  thousand  in interest  expense  during 1999 from
1998.

Total deposits,  including $48.2 million of noninterest-bearing  deposits,  were
$748.6  million at March 31,  2000,  up from $591.8  million  ($44.0  million of
noninterest-bearing  deposits) at March 31, 1999.  These increases were a result
of the SFS Acquisition,  as well as the Company's  continued focus on commercial
services,  including  commercial  deposits,  and the opening of the Bank's North
Greenbush branch at the end of March 1999.

Short-term FHLB Advances and Long-term FHLB Borrowings

The average balance of short-term  FHLB advances  increased to $65.5 million for
the year ended March 31,  2000,  from $2.9  million in 1999 and $3.7  million in
1998.  Interest expense on these borrowings  increased $3.5 million for the year
ended March 31, 2000 when compared with 1999.  This increase is almost  entirely
attributed  to the  increase in volume  with little  impact of a change in rates
paid on the advances. The average balance of long-term FHLB borrowings was $18.4
million  for the  year  ended  March  31,  2000.  The  Company  did not have any
long-term FHLB borrowings during the years ended March 31, 1999 or 1998.
<PAGE>
Short-term  FHLB advances  were $116.5  million at March 31, 2000, up from $27.6
million  at March  31,  1999.  This  increase  is  primarily  the  result of the
Company's use of such  borrowings to fund its growth in loans and the repurchase
of Company  stock.  Long-term  FHLB  borrowings  were $30.6 million at March 31,
2000.  The increase in this category is primarily  attributed to the use of such
funds for the SFS  Acquisition as well as management's  continued  monitoring of
the Company's  interest rate risk profile.  The interest  rates on the long-term
FHLB borrowings are fixed with maturities  ranging from one-to-five  years, with
call options ranging from one-to-three years.

Net Interest Income

Net interest income for the year ended March 31, 2000 was $45.9 million, up from
$37.5 million in 1999 and $29.4 million in 1998.  The increase was the result of
the increase in average earning assets and lower rates paid on  interest-bearing
liabilities.  The  impact of these  factors  was  offset in part by lower  rates
earned on  average  earning  assets  and  higher  balances  of  interest-bearing
liabilities.  As a result of these volume and rate  fluctuations,  the Company's
net interest  margin for the year ended March 31, 2000 was 4.83%,  up from 4.82%
in 1999 and 4.68% in 1998.

Noninterest Sensitive Assets and Liabilities

Noninterest  sensitive assets include accrued interest receivable,  premises and
equipment, other real estate owned and repossessed property,  goodwill and other
intangibles,  and other assets. Premises and equipment amounted to $18.7 million
at March 31,  2000,  up from $16.8  million at March 31,  1999.  The increase is
primarily  attributed  to assets  acquired  as part of the SFS  Acquisition  and
upgrades  of our  computer  mainframe  during  the year  ended  March 31,  2000.
Goodwill and other intangibles  increased from $3.2 million at March 31, 1999 to
$11.6 million at March 31, 2000, essentially as a result of the SFS Acquisition.
Other assets were $34.7 million at March 31, 2000, up from $7.4 million at March
31, 1999.  The increase is attributed  to the  Company's  purchase of bank owned
life insurance on substantially all employees ($15 million), as well as deferred
taxes  associated  with  the  SFS  Acquisition  and  the  mark-to-market  of the
Company's securities available for sale portfolio.

Noninterest   sensitive   liabilities   include   noninterest-bearing   deposits
(primarily   checking  accounts)  and  other  liabilities.   Noninterest-bearing
deposits  increased  from $44.0  million at March 31,  1999 to $48.2  million at
March 31, 2000.  This increase is associated  with accounts  acquired as part of
the  SFS  Acquisition,  a new  branch  in  1999,  and  growth  of the  Company's
commercial accounts, which are generally noninterest-bearing.  Other liabilities
increased  from $37.7  million at March 31,  1999 to $43.5  million at March 31,
2000. The balance in both years is largely  composed of amounts due to insurance
companies  in April of each  year for  financed  insurance  premium  loans.  The
increase  in 2000 is related to the timing of various  payments  to be made,  as
well as the SFS Acquisition.

RISK MANAGEMENT
---------------

Credit Risk

Credit risk is managed  through the  interrelationship  of loan officer  lending
authorities, Board of Director oversight, loan policies, a credit administration
department,  an internal  loan review  function,  and a problem loan  committee.
These  components of the Company's  underwriting  and  monitoring  functions are
critical to the timely identification,  classification and resolution of problem
credits.

Nonperforming Assets
--------------------

Nonperforming assets include  nonperforming loans (loans in a nonaccrual status,
loans that have been restructured,  and loans past due 90 days or more and still
accruing  interest)  and  assets  which  have been  foreclosed  or  repossessed.
Foreclosed assets typically represent residential or commercial properties while
repossessed  property is primarily  manufactured homes abandoned by their owners
or repossessed by the Company.

Total  nonperforming  assets at March 31,  2000 were  $11.9  million or 1.04% of
total assets,  compared with $12.5 million or 1.41% at March 31, 1999.  The $518
thousand  decrease  in  total  nonperforming  assets  is due to a $867  thousand
decrease in  foreclosed  and  repossessed  property  partially  offset by a $349
thousand  increase in nonperforming  loans. The increase in nonperforming  loans
was  primarily  a result  of  nonperforming  loans  acquired  as part of the SFS
Acquisition.  SFS had $937 thousand in nonperforming  loans immediately prior to
the acquisition date.

The $867 thousand decrease in foreclosed and repossessed property was made up of
a $597 thousand  reduction of repossessed  manufactured homes with the remainder
made up of reductions  in  foreclosed  residential  and  commercial  properties,
partially  offset  by  foreclosed   properties  acquired  as  part  of  the  SFS
Acquisition.
<PAGE>
<TABLE>
<CAPTION>
NONPERFORMING ASSETS

(In thousands)                          March 31,        2000             1999             1998            1997             1996
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>             <C>              <C>
Nonaccruing loans
Residential real estate                               $  3,199         $  2,253         $  4,512        $  4,553         $  3,496
Commercial real estate                                   2,536            2,669            5,253           3,239            1,587
Commercial loans                                           137                -              -             2,318               75
Manufactured housing                                     1,911            2,315            3,060           2,260            1,597
Financed insurance premiums                              2,453            2,549            2,768           2,867            1,527
Consumer                                                    57              158             114              45                 4
----------------------------------------------------------------------------------------------------------------------------------
Total                                                   10,293            9,944           15,707          15,282            8,286
----------------------------------------------------------------------------------------------------------------------------------

Loans past due 90-days or more
      and still accruing interest
Residential real estate                                      -                -                -             570            1,262
Commercial real estate                                       -                -                -           3,874            1,316
Commercial loans                                             -                -                -             244                -
Manufactured housing                                         -                -               16               -               22
Financed insurance premiums                                  -                -                -               -                -
Consumer                                                     -                -                -              23                -
----------------------------------------------------------------------------------------------------------------------------------
Total                                                        -                -               16           4,711            2,600
----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans                             $ 10,293         $  9,944         $ 15,723        $ 19,993         $ 10,886
==================================================================================================================================

Foreclosed and repossessed property
Residential real estate                                 $   85          $   258          $   145          $   48          $   160
Commercial real estate                                     377              474              299           2,860              921
Repossessed property                                     1,179            1,776            1,088             539              635
----------------------------------------------------------------------------------------------------------------------------------
Total foreclosed and repossessed property             $  1,641         $  2,508         $  1,532        $  3,447         $  1,716
==================================================================================================================================
Total nonperforming assets                            $ 11,934         $ 12,452         $ 17,255        $ 23,440         $ 12,602
==================================================================================================================================
Allowance for loan losses                             $ 19,608         $ 14,296         $  8,227        $  5,872         $  3,546
==================================================================================================================================

Allowance to nonperforming loans                        190.50%          143.77%           52.32%          29.37%           32.57%
Nonperforming assets to total assets                      1.04             1.41             2.57            3.60             2.02
Nonperforming loans to total loans                        1.25             1.72             3.10            4.06             2.42
==================================================================================================================================
</TABLE>

Allowance and Provision For Loan Losses
---------------------------------------

The allowance for loan losses at March 31, 2000 was $19.6 million, up from $14.3
million at March 31, 1999. The allowance as a percentage of nonperforming  loans
increased  from  143.8% at March 31,  1999 to  190.5%  at March  31,  2000.  The
adequacy of the allowance  for loan losses is evaluated  quarterly by management
based  upon  a  review  of  significant  loans,  with  particular   emphasis  on
nonperforming  and delinquent  loans that  management  believes  warrant special
attention,  as well as an analysis of the higher risk  elements of the Company's
loan portfolio and growth in the loan  portfolio.  Net  charge-offs for the year
ended  March 31,  2000 were $1.9  million,  up from $1.3  million  in 1999.  The
increase  in net  charge-offs  in 2000 is  primarily a result of the impact of a
recovery of a larger  commercial real estate loan during 1999. Gross charge-offs
of $2.5  million  for 2000 were down from $3.2  million for the year ended March
31, 1999.

As a result of  management's  analysis of the risk  characteristics  of the loan
portfolio,  as  well  as the  trends  and  levels  of  nonperforming  and  other
delinquent  loans,  a provision for loan losses of $6.2 million was recorded for
the year ended March 31, 2000.  The $6.2 million  provision is down $1.1 million
from the $7.3 million provision  recorded in 1999. The provision as a percentage
of average loans  declined from 1.40% in 1999 to 0.89% in 2000.  This decline is
primarily a result of the  reduction in gross loan  charge-offs  experienced  in
2000 as compared to 1999 and 1998. The provision was, however, maintained at its
current level as a result of the significant  growth in the loan  portfolio,  in
particular the growth in commercial-type  loans. An additional allowance of $1.0
million  was  acquired  during the year ended  March 31, 2000 as part of the SFS
Acquisition.

The Company continues to maintain certain portfolios of loans with higher credit
risk,  such  as  manufactured  housing  loans,  commercial  loans  and  financed
insurance  premium loans. Net  charge-offs,  risk elements of the Company's loan
portfolio,  economic  conditions in the Company's market area and  nonperforming
loan balances are the primary  factors which are considered in  determining  the
level of the Company's provision for loan losses. The growth in loan balances is
also a factor in  determining  the  level of the  Company's  provision  for loan
losses.
<PAGE>
LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>

(In thousands)                  Years Ended March 31,           2000           1999           1998            1997           1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>             <C>             <C>            <C>
Loans outstanding (end of year)                             $  823,855     $  578,099      $ 506,978       $  493,019     $ 450,671
====================================================================================================================================
Average loans outstanding                                   $  698,403     $  522,974      $ 507,293       $  471,295     $ 444,645
====================================================================================================================================

Allowance for loan loss at beginning of year                $   14,296     $    8,227      $   5,872       $    3,546     $   3,187
Loan charge-offs:
       Residential real estate                                    (282)          (251)          (440)            (162)         (111)
       Commercial real estate                                      (14)           (95)        (1,298)            (454)          (95)
       Commercial loans                                           (150)          (136)        (2,309)            (127)            -
       Manufactured housing                                     (1,283)        (1,331)          (480)            (216)         (372)
       Consumer                                                   (228)          (139)          (112)             (41)          (46)
       Financed insurance premiums                                (586)        (1,239)        (2,091)          (1,070)         (573)
------------------------------------------------------------------------------------------------------------------------------------
Total charge-offs                                               (2,543)        (3,191)        (6,730)          (2,070)       (1,197)
------------------------------------------------------------------------------------------------------------------------------------

Loan recoveries:
       Residential real estate                                      54            341              8                3            21
       Commercial real estate                                      184            777             17               11            16
       Commercial loans                                              4             17             10               74             6
       Manufactured housing                                         86             73            105               45            70
       Consumer                                                     38             25             38               51            49
       Financed insurance premiums                                 281            686            416              386           261
------------------------------------------------------------------------------------------------------------------------------------
Total recoveries                                                   647          1,919            594              570           423
------------------------------------------------------------------------------------------------------------------------------------
Loan charge-offs, net of recoveries                             (1,896)        (1,272)        (6,136)          (1,500)         (774)
Provision charged to operations                                  6,200          7,341          8,491            3,826         1,090
Allowance acquired                                               1,008              -              -               -             43
------------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of year                    $   19,608     $   14,296      $   8,227       $    5,872      $  3,546
====================================================================================================================================
Ratio of net charge-offs to average loans outstanding             0.27%          0.24%          1.21%            0.32%         0.17%
====================================================================================================================================
Provision to average loans outstanding                            0.89%          1.40%          1.67%            0.81%         0.25%
====================================================================================================================================
Allowance to loans outstanding (end of year)                      2.38%          2.47%          1.62%            1.19%         0.79%
====================================================================================================================================
</TABLE>

Market Risk

Interest rate risk is the most  significant  market risk  affecting the Company.
Other types of market  risk,  such as foreign  currency  exchange  rate risk and
commodity  price  risk,  do not  arise in the  normal  course  of the  Company's
business activities.

Interest  rate risk is defined as an exposure  to a movement  in interest  rates
that could have an adverse  effect on the  Company's  net interest  income.  Net
interest  income  is  susceptible  to  interest  rate  risk to the  degree  that
interest-bearing liabilities mature or reprice on a different basis than earning
assets.  When  interest-bearing  liabilities mature or reprice more quickly than
earning  assets in a given  period,  a  significant  increase in market rates of
interest could adversely  affect net interest  income.  Similarly,  when earning
assets mature or reprice more quickly than interest-bearing liabilities, falling
interest rates could result in a decrease in net interest income.

In an attempt to manage its  exposure to changes in interest  rates,  management
monitors  the  Company's  interest  rate  risk.   Management's   asset/liability
committee meets monthly to review the Company's  interest rate risk position and
profitability,  and to recommend  strategies for  consideration  by the Board of
Directors.  Management also reviews loan and deposit pricing,  and the Company's
securities portfolio, formulates investment and funding strategies, and oversees
the  timing and  implementation  of  transactions  to assure  attainment  of the
Board's objectives in the most effective manner.  Notwithstanding  the Company's
interest rate risk management  activities,  the potential for changing  interest
rates is an uncertainty that can have an adverse effect on net income.

In adjusting the Company's  asset/liability  position,  the Board and management
attempt to manage the Company's  interest rate risk while enhancing net interest
margin.  At  times,  depending  on the  level of  general  interest  rates,  the
relationship  between long- and short-term interest rates, market conditions and
competitive  factors,  the Board and  management  may  determine to increase the
Company's  interest  rate risk  position  somewhat in order to increase  its net
interest  margin.  The Company's  results of operations and net portfolio values
remain  vulnerable  to  changes in  interest  rates and to  fluctuations  in the
difference between long- and short-term interest rates.
<PAGE>
Interest rate risk analyses  performed by the Company  indicate that the Company
is virtually  neutral to changes in interest  rates as of March 31,  2000.  As a
result, rising or falling interest rates projected over a 12-month horizon would
not have a  significant  impact  on net  interest  income.  Consistent  with the
asset/liability  management  philosophy  described  above, the Company has taken
steps to manage its  interest  rate risk by  attempting  to match the  repricing
periods of its earning assets to its interest-bearing  liabilities,  while still
allowing for  maximization of net interest  income.  The Company's  purchases of
securities,  retention of fixed rate loan products,  and emphasis on lower cost,
more  stable  non-certificate  deposit  accounts  are  methods  the  Company has
utilized to manage its interest  rate risk.  Management  continuously  evaluates
various  alternatives to address  interest rate risk including,  but not limited
to, the purchase of interest rate swaps, caps, and floors, leveraging scenarios,
and changes in asset or funding mix.

The primary  tool  utilized by  management  to measure  interest  rate risk is a
balance  sheet/income  statement  simulation model. The model is used to execute
simulations  of  the  Company's  net  interest  income  performance  based  upon
potential  changes in interest rates over a selected period of time. The model's
input data  includes  earning  assets and  interest-bearing  liabilities,  their
associated cash flow characteristics,  repricing  opportunities,  maturities and
current rates. In addition,  management makes certain assumptions in relation to
prepayment  speeds for all  assets and  liabilities  that  possess  optionality,
including  loans,   mortgage-backed   securities  and  collateralized   mortgage
obligations. These assumptions are based on industry standards for prepayments.

The model is first run under an  assumption  of a flat rate  scenario  (i.e.  no
change in current  interest  rates) over a 12-month  period.  A second and third
model are run in which a gradual  increase and  decrease,  respectively,  of 200
basis points takes place over a 12-month period.  Under these scenarios,  assets
subject to repricing or prepayment  are adjusted to account for faster or slower
prepayment  assumptions.  The resultant  changes in net interest income are then
measured against the flat rate scenario.

The following  table  summarizes  the percentage  change in interest  income and
interest  expense  by  major  earning  asset  and   interest-bearing   liability
categories as of March 31, 2000 in the rising and declining  rate scenarios from
the  forecasted  interest  income and  interest  expense  amounts in a flat rate
scenario. Under the declining rate scenario, net interest income is projected to
remain  virtually  level with the flat rate scenario,  declining by 0.01% over a
12-month  period.  Under  the  rising  rate  scenario,  net  interest  income is
projected  to  decrease  by 0.25%  from the flat rate  scenario  over a 12-month
period.  This level of  variability  places  the  Company's  interest  rate risk
profile well within acceptable Company guidelines.
<TABLE>
<CAPTION>
                                   Percentage Change in Net Interest Income From Flat Rate Scenario
---------------------------------------------------------------------------------------------------
                                      Declining Rate Scenario            Rising Rate Scenario
---------------------------------------------------------------------------------------------------
<S>                                         <C>                                 <C>
Investment securities (1)                  (1.89)%                              1.77%
Total loans                                (2.05)                               2.16
---------------------------------------------------------------------------------------------------
Total interest income                      (2.12)                               2.18
---------------------------------------------------------------------------------------------------
Core deposits                              (8.61)                              10.62
Time deposits                              (2.04)                               1.93
---------------------------------------------------------------------------------------------------
Total deposits                             (3.98)                               4.62
Borrowings                                 (8.22)                               8.34
---------------------------------------------------------------------------------------------------
Total interest expense                     (5.05)                               5.56
---------------------------------------------------------------------------------------------------
Net interest income                        (0.01)%                             (0.25)%
===================================================================================================
</TABLE>

(1) Includes all securities held to maturity, securities available for sale, and
money market investments.
<PAGE>
Liquidity Risk

Liquidity is defined as the ability to generate sufficient cash flow to meet all
present and future  funding  commitments,  depositor  withdrawals  and operating
expenses.  Management monitors the Company's liquidity position on a daily basis
and evaluates  its ability to meet  depositor  withdrawals  or make new loans or
investments.

The Company's cash inflows result  primarily from loan  repayments;  maturities,
principal  payments,  and calls of  securities  held to maturity and  securities
available for sale; new deposits; and borrowings from the Federal Home Loan Bank
of New York.  The  Company's  cash  outflows  consist of new loan  originations;
security purchases; deposit withdrawals;  operating expenses; and treasury stock
purchases.  The timing of cash  inflows  and  outflows is closely  monitored  by
management  although  changes  in  interest  rates,  economic  conditions,   and
competitive  forces strongly impact the  predictability of these cash flows. The
Company  attempts to provide stable and flexible  sources of funding through the
management of its  liabilities,  including core deposit products offered through
its branch network, and through the use of borrowings.  Management believes that
the level of the Company's  liquid assets combined with daily monitoring of cash
inflows  and  outflows  provide  adequate  liquidity  to fund  outstanding  loan
commitments,  meet daily  withdrawal  requirements  of depositors,  and meet all
other daily obligations of the Company.

CAPITAL RESOURCES
-----------------

Consistent   with  its  goal  to  operate  a  sound  and  profitable   financial
organization,  the  Company  actively  seeks to  maintain  a  "well-capitalized"
institution in accordance  with  regulatory  standards.  Total equity was $200.7
million at March 31, 2000,  or 17.46% of total assets on that date.  As of March
31, 1999, total equity was $219.3 million, or 24.89% of total assets.  Ratios of
tangible  equity to tangible  assets were 16.62% and 24.62% as of March 31, 2000
and 1999,  respectively.  These  reductions  in the equity to assets  ratios are
reflective of management's  objectives to leverage capital through asset growth,
mergers and  acquisitions,  and share  repurchases.  The Company  completed a 5%
share repurchase program during July 1999 and is currently executing a 10% share
repurchase  program.  As of March 31, 2000,  the Company had an  additional  417
thousand shares to acquire under its current repurchase program. As of March 31,
2000,  the  Company  and the  Bank  exceeded  all of  their  regulatory  capital
requirements and the Bank was classified as a well-capitalized institution.

OTHER OPERATING INCOME AND EXPENSES
-----------------------------------

Total other operating income was $2.6 million for the year ended March 31, 2000,
up slightly  from the $2.4 million  earned in 1999.  Other  operating  income is
composed  primarily of service charges on deposit accounts.  Income from service
charges on deposit accounts  increased from $1.3 million in 1999 to $1.5 million
in 2000, primarily as a result of the SFS Acquisition and its resultant increase
in deposit accounts. Total other operating income in 1999 was $427 thousand less
than the $2.8 million in 1998,  primarily  the result of a gain on the sale of a
former branch building that was recorded in 1998.

Total other  operating  expenses were $27.8 million for the year ended March 31,
2000, up $1.2 million from 1999. Total other operating expenses in 1999 included
a $5.2 million  nonrecurring  expense associated with a contribution of stock to
the Hudson  River Bank & Trust  Company  Foundation.  After  adjusting  for this
nonrecurring  expense,  other operating  expenses in 2000 increased $6.4 million
from 1999.  This increase was due primarily to higher  expenses in  compensation
and benefits, occupancy, equipment,  advertising, goodwill and other intangibles
amortization and other expenses.  Total other operating  expenses increased $7.6
million  in  1999  from  1998.  Most  of  this  increase  was a  result  of  the
nonrecurring  expense  recorded in 1999 noted above.  The  remainder  was due to
increases  in  compensation  and  benefits  and  other  real  estate  owned  and
repossessed property expenses during 1999.

Compensation  and benefits  increased $2.8 million to $13.8 million for the year
ended March 31, 2000 up from $11.0 million in 1999.  This increase is the result
of costs  associated  with the Company's  Employee Stock Ownership Plan ("ESOP")
and stock awarded under the Company's  Recognition  and Retention  Plan ("RRP").
Costs  associated  with these plans  totaled  $1.4  million  and $943  thousand,
respectively,  during the year ended March 31,  2000,  while in 1999,  the costs
totaled  $1.1  million  and $217  thousand,  respectively.  The SFS  Acquisition
resulted in increased  expenses as four  additional  branches  were added to the
Company's  branch  network in  September  1999.  The  opening  of the  Company's
thirteenth  branch just prior to the  beginning of the current  fiscal year also
contributed  to  the  increase  in   compensation   and  benefits  during  2000.
Compensation and benefits increased $1.6 million in 1999 from 1998, primarily as
a result of the  implementation  of the ESOP and RRP plans during the year ended
March 31, 1999.

Occupancy  expenses were $1.8 million for the year ended March 31, 2000, up $307
thousand  from 1999.  The increase is  attributed to the growth in the Company's
branch network  resulting from the SFS Acquisition and a branch opening as noted
above.
<PAGE>
Equipment expenses for the year ended March 31, 2000 were $2.5 million,  up from
$1.6 million in 1999.  These expenses,  primarily  depreciation  and maintenance
charges,  were higher due to the equipment purchases made during the second half
of 1999. These equipment  purchases  included a new teller system,  new personal
computers,  an  upgraded  network  and  new  image-technology  for  back  office
operations. The opening of our thirteenth branch as mentioned previously and the
SFS Acquisition also contributed to this increase.

Expenses on other real estate owned and  repossessed  property were $1.2 million
in 2000,  $1.0 million in 1999, and $572 thousand in 1998.  These  increases are
the  result of  management's  continued  efforts  to reduce the level of problem
assets. Higher levels of other real estate owned and repossessed property during
this period  resulted in increased  maintenance  expenses  associated with these
assets during 2000 and 1999 as compared with 1998.

Advertising  during the year ended March 31, 2000 amounted to $922 thousand,  up
from  $529  thousand  in  1999.  This  increase  is  primarily  related  to  the
development of new products,  including internet banking,  branch openings,  and
the SFS Acquisition and the resultant name change of the four SFS branches.

Goodwill and other  intangibles  amortization  for the year ended March 31, 2000
was $1.1 million,  up from $252 thousand for 1999.  The increase  relates to the
goodwill  associated with the SFS Acquisition,  equity  investments in Homestead
Funding Corp., a mortgage company, in November 1998, and an equity investment in
The Bostwick Group, an insurance brokerage agency, in September 1999.

Other expenses were $5.0 million for the year ended March 31, 2000, up from $4.2
million during 1999. The increase is the result of general increases  associated
with being a public company and the SFS Acquisition. The Company also recorded a
$253 thousand loss on the  disposition of equipment as a result of an upgrade to
its existing mainframe that was necessitated by the SFS Acquisition.

TAX EXPENSE
-----------

Tax  expense  increased  from $2.2  million for the year ended March 31, 1999 to
$5.0 million for 2000.  The increase is  primarily  the result of higher  income
before tax expense partially offset by an increase in tax exempt income realized
by the Company and the reduction of the deferred tax asset valuation  allowance.
The valuation  allowance was reduced when circumstances  creating  uncertainties
about the  realization  of certain  Federal and state  deferred  tax assets were
resolved.

QUARTERLY FINANCIAL RESULTS

<TABLE>
<CAPTION>
Three Months Ended                                  March 31,     December 31,      September 30,        June 30,             YTD
(In thousands, except per share data)                    2000             1999               1999            1999            2000
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>              <C>                <C>             <C>             <C>
Interest income                                      $ 21,009         $ 20,468           $ 18,122        $ 16,824        $ 76,423
Interest expense                                        8,969            8,521              6,780           6,239          30,509
----------------------------------------------------------------------------------------------------------------------------------
Net interest income                                    12,040           11,947             11,342          10,585          45,914
----------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses                               1,500            1,500              1,500           1,700           6,200
Other operating income                                    729              614                653             592           2,588
Other operating expenses                                7,453            7,158              6,876           6,301          27,788
----------------------------------------------------------------------------------------------------------------------------------
Income before tax expense                               3,816            3,903              3,619           3,176          14,514
Tax expense                                             1,298            1,335              1,240           1,115           4,988
----------------------------------------------------------------------------------------------------------------------------------
Net income                                            $ 2,518          $ 2,568            $ 2,379         $ 2,061         $ 9,526
==================================================================================================================================
Basic earnings per share                              $  0.18          $  0.18            $  0.16         $  0.13         $  0.65
Diluted earnings per share                               0.18             0.18               0.16            0.13            0.65
==================================================================================================================================
<CAPTION>

Three Months Ended                                  March 31,     December 31,      September 30,        June 30,             YTD
(In thousands, except per share data)                    1999             1998               1998            1998            1999
----------------------------------------------------------------------------------------------------------------------------------

<S>                                                  <C>              <C>                <C>             <C>             <C>
Interest income                                      $ 15,785         $ 16,012           $ 16,675        $ 15,054        $ 63,526
Interest expense                                        6,018            6,339              6,480           7,163          26,000
----------------------------------------------------------------------------------------------------------------------------------
Net interest income                                     9,767            9,673             10,195           7,891          37,526
----------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses                               1,500            1,681              1,944           2,216           7,341
Other operating income                                    536              583                675             624           2,418
Other operating expenses                                5,895            5,597             10,452           4,668          26,612
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before tax expense (benefit)              2,908            2,978            (1,526)           1,631           5,991
Tax expense (benefit)                                   1,045            1,098              (604)             645           2,184
----------------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                     $ 1,863          $ 1,880            $ (922)          $  986         $ 3,807
==================================================================================================================================
Basic earnings (loss) per share(1)                    $  0.12          $  0.11           $ (0.06)          $    -         $  0.17
Diluted earnings (loss) per share (1)                    0.12             0.11             (0.06)               -            0.17
==================================================================================================================================
</TABLE>

(1) Earnings per share data only applies to periods since the Company's initial
    public offering on July 1, 1998.
<PAGE>
THE YEAR 2000 ISSUE
-------------------

During the past several  quarters,  the Company  reported on potential  concerns
relating to the Year 2000 issue  which  centered on the  possible  inability  of
computer  systems to  recognize  the century  date  change.  The Company did not
experience any interruptions in any computer operations related to the Year 2000
issue.  Additionally,  the Company did not note any delays in loan payments from
its  borrowers  that may have been a result of problems  encountered  by them in
relation  to the Year 2000  issue.  The total  costs  incurred by the Company in
relation to the Year 2000 issue were not  significant,  and no further costs are
anticipated.

IMPACT OF INFLATION AND CHANGING PRICES
---------------------------------------

The Company's  consolidated financial statements are prepared in accordance with
generally  accepted  accounting  principles  which  require the  measurement  of
financial  position and operating results in terms of historical dollars without
considering the changes in the relative  purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increasing cost of the
Company's operations.  Unlike most industrial  companies,  nearly all assets and
liabilities  of the Company are  monetary.  As a result,  interest  rates have a
greater  impact on the  Company's  performance  than do the  effects  of general
levels of inflation. In addition,  interest rates do not necessarily move in the
direction, or to the same extent as the price of goods and services.

IMPACT OF NEW ACCOUNTING STANDARDS
----------------------------------

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting  Standards  (SFAS) 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 balance
sheet and measure those instruments at fair value. The accounting for changes in
the fair value of a derivative depends on the intended use of the derivative and
the resulting designation. As amended, this Statement is currently effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. Management is
currently  evaluating  what  impact,  if any,  this  Statement  will have on the
Company's consolidated financial statements.

FORWARD-LOOKING STATEMENTS
--------------------------

When used in this filing or future  filings by the Company  with the  Securities
and Exchange  Commission,  in the  Company's  press  releases or other public or
shareholder  communications,  or in oral statements made with the approval of an
authorized  executive officer,  the words or phrases "will likely result",  "are
expected  to",  "should  continue",  "is  anticipated",  "estimate",  "project",
"believe",  or similar  expressions  are  intended to identify  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995. In addition,  certain disclosures and information  customarily provided
by financial institutions are inherently based upon predictions of future events
and circumstances. Furthermore, from time to time, the Company may publish other
forward-looking  statements  relating to such matters as  anticipated  financial
performance, business prospects, and similar matters.

The Private Securities  Litigation Reform Act of 1995 provides a safe harbor for
forward-looking  statements.  In order  to  comply  with  the  terms of the safe
harbor,  the Company  notes that a variety of factors  could cause the Company's
actual  results  to differ  materially  from the  anticipated  results  or other
expectations expressed in the Company's forward-looking  statements. Some of the
risks and uncertainties that may affect the operations, performance, development
and results of the  Company's  business,  the interest rate  sensitivity  of its
assets and  liabilities,  and the  adequacy of its  allowance  for loan  losses,
include but are not limited to the following:

     a.  Deterioration   in  local,   regional,   national  or  global  economic
         conditions  which could result,  among other things,  in an increase in
         loan  delinquencies,  a decrease in property values, or a change in the
         housing turnover rate;
     b.  Changes  in  market  interest  rates or  changes  in the speed at which
         market interest rates change;
     c.  Changes  in laws  and  regulations  affecting  the  financial  services
         industry;
     d.  Changes in competition; and
     e.  Changes in consumer preferences.

The  Company  wishes to  caution  readers  not to place  undue  reliance  on any
forward-looking statements,  which speak only as of the date made, and to advise
readers that various factors,  including those described above, could affect the
Company's financial  performance and could cause the Company's actual results or
circumstances  for future periods to differ materially from those anticipated or
projected.

The Company does not undertake,  and specifically disclaims any obligations,  to
publicly  release  the  result  of  any  revisions  that  may  be  made  to  any
forward-looking   statements  to  reflect  the   occurrence  of  anticipated  or
unanticipated events or circumstances after the date of such statements.
<PAGE>
                           Hudson River Bancorp, Inc.
                    Management's Statement of Responsibility

The management of Hudson River Bancorp, Inc. is responsible for the preparation,
content and integrity of the consolidated  financial statements included in this
annual report. The consolidated financial statements and related notes have been
prepared in conformity with generally accepted accounting principles and, in the
judgment of management,  present fairly Hudson River Bancorp,  Inc.'s  financial
position,  results of operations and cash flows.  Management  also believes that
financial  information  presented  elsewhere in this annual report is consistent
with that in the consolidated financial statements.

Management  is  also  responsible  for  establishing  and  maintaining  internal
controls  designed to provide  reasonable  assurance of the  accountability  and
safeguarding  of the  Company's  assets and,  therefore,  the  integrity  of the
consolidated  financial  statements.   These  corporate-wide   controls  include
self-monitoring mechanisms,  written policies and procedures,  proper delegation
of authority  and  organizational  division of  responsibility,  and the careful
selection and training of qualified personnel. There are inherent limitations in
the effectiveness of any internal  controls,  including the possibility of human
error and the circumvention or overriding of controls.  Management believes that
the Company's  internal  controls provide  reasonable  assurances that financial
transactions  are  recorded  properly  to permit  the  preparation  of  reliable
financial statements.

The  Board  of  Directors   discharges  its  responsibility  for  the  Company's
consolidated  financial  statements  through its Audit Committee.  The Company's
Audit  Committee,   composed   exclusively  of  outside   directors,   also  has
responsibility  for recommending the independent  auditors.  The Audit Committee
meets regularly with both the independent  auditors and the internal auditors to
review the scope of their audits and audit  reports and to discuss  action to be
taken.

/s/ Carl A Florio                                   /s/ Timothy E. Blow
-----------------                                   -------------------
Carl A. Florio                                      Timothy E. Blow
President and Chief Executive Officer               Chief Financial Officer


                          Independent Auditors' Report

To the Shareholders and Board of Directors
Hudson River Bancorp, Inc.

We have audited the  accompanying  consolidated  balance  sheets of Hudson River
Bancorp,  Inc. and  subsidiary  (the Company) as of March 31, 2000 and 1999, and
the  related   consolidated   income   statements,   statements  of  changes  in
shareholders'  equity,  and cash  flows for each of the years in the  three-year
period ended March 31, 2000.  These  consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain reasonable  assurance about whether the consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  consolidated  financial  statements.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of Hudson  River
Bancorp,  Inc. and  subsidiary as of March 31, 2000 and 1999, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended March 31, 2000, in conformity with accounting  principles generally
accepted in the United States of America.

/s/ KPMG LLP
-------------------
KPMG LLP

Albany, New York
May 5, 2000
<PAGE>
<TABLE>
<CAPTION>
                                          Consolidated Balance Sheets


(In thousands, except share and per share data)                        March 31,                  2000             1999
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>                 <C>
Assets
Cash and due from banks                                                                       $   16,612         $  12,722
Securities available for sale, at fair value                                                     236,980           242,611
Securities held to maturity (fair value of $11,065 and $23,235)                                   11,144            23,041
Federal Home Loan Bank of New York (FHLB) stock, at cost                                           7,425             3,299

Loans receivable                                                                                 823,855           578,099
Allowance for loan losses                                                                        (19,608)          (14,296)
----------------------------------------------------------------------------------------------------------------------------
Net loans receivable                                                                             804,247           563,803
----------------------------------------------------------------------------------------------------------------------------

Accrued interest receivable                                                                        6,470             5,701
Premises and equipment, net                                                                       18,719            16,807
Other real estate owned (OREO) and repossessed property                                            1,641             2,508
Goodwill and other intangibles                                                                    11,618             3,215
Other assets                                                                                      34,691             7,432
----------------------------------------------------------------------------------------------------------------------------
Total assets                                                                                  $1,149,547         $ 881,139
============================================================================================================================

Liabilities and Shareholders' Equity
Liabilities:
      Deposits                                                                                $  748,563         $ 591,814

      Securities sold under agreements to repurchase                                               4,214               845
      Short-term FHLB advances                                                                   116,450            27,600
----------------------------------------------------------------------------------------------------------------------------
      Total short-term borrowings                                                                120,664            28,445
----------------------------------------------------------------------------------------------------------------------------


      Long-term FHLB borrowings                                                                   30,600                 -
      Mortgagors' escrow deposits                                                                  5,500             3,869
      Other liabilities                                                                           43,497            37,670
----------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                                948,824           661,798
----------------------------------------------------------------------------------------------------------------------------

Shareholders' Equity:
      Preferred stock, $.01 par value, Authorized 5,000,000 shares                                     -                 -
      Common stock, $.01 par value, Authorized 40,000,000 shares;
            Issued 17,853,750 shares                                                                 179               179
      Additional paid-in capital                                                                 174,733           174,894
      Unallocated common stock held by ESOP                                                      (15,583)          (17,200)
      Unvested restricted stock awards                                                            (6,289)           (7,996)
      Treasury stock, at cost (2,235,190 and 157,500 shares)                                     (24,248)           (1,663)
      Retained earnings, substantially restricted                                                 79,555            71,893
      Accumulated other comprehensive loss                                                        (7,624)             (766)
----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                                       200,723           219,341
----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                                    $1,149,547         $ 881,139
============================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>

                                               Consolidated Income Statements

 (In thousands, except per share data)     Years ended March 31,           2000               1999              1998
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                <C>                <C>
Interest income
Interest and fees on loans                                               $59,660            $47,503            $47,482
Securities available for sale                                             15,432              9,997              2,568
Securities held to maturity                                                  982              3,095              4,727
Federal funds sold                                                            12              1,054                416
Securities purchased under agreements to resell                                -              1,662                  -
Federal Home Loan Bank of New York stock                                     337                215                194
-------------------------------------------------------------------------------------------------------------------------
Total interest income                                                     76,423             63,526             55,387
-------------------------------------------------------------------------------------------------------------------------
Interest expense
Deposits                                                                  25,613             25,844             25,772
Securities sold under agreements to repurchase                                84                  3                  -
Short-term FHLB advances                                                   3,700                153                205
Long-term FHLB borrowings                                                  1,112                  -                  -
-------------------------------------------------------------------------------------------------------------------------
Total interest expense                                                    30,509             26,000             25,977
-------------------------------------------------------------------------------------------------------------------------
Net interest income                                                       45,914             37,526             29,410
Provision for loan losses                                                  6,200              7,341              8,491
-------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses                       39,714             30,185             20,919
-------------------------------------------------------------------------------------------------------------------------

Other operating income
Service charges on deposit accounts                                        1,519              1,274              1,103
Loan servicing income                                                        142                199                398
Net securities transactions                                                   83                 36                 15
Net gain on sales of loans held for sale                                       -                 65                 96
Other income                                                                 844                844              1,233
-------------------------------------------------------------------------------------------------------------------------
Total other operating income                                               2,588              2,418              2,845
-------------------------------------------------------------------------------------------------------------------------

Other operating expenses
Compensation and benefits                                                 13,763             10,982              9,394
Occupancy                                                                  1,805              1,498              1,395
Equipment                                                                  2,453              1,647              1,614
Other real estate owned and repossessed property                           1,228              1,013                572
Advertising                                                                  922                529                445
Legal and other professional fees                                            791                600                950
Postage and item transportation                                              709                718                765
Charitable foundation contribution                                             -              5,200                  -
Goodwill and other intangibles amortization                                1,087                252                151
Other expenses                                                             5,030              4,173              3,744
-------------------------------------------------------------------------------------------------------------------------
Total other operating expenses                                            27,788             26,612             19,030
-------------------------------------------------------------------------------------------------------------------------

Income before tax expense                                                 14,514              5,991              4,734
Tax expense                                                                4,988              2,184              1,903
-------------------------------------------------------------------------------------------------------------------------
Net income                                                               $ 9,526            $ 3,807            $ 2,831
=========================================================================================================================

Basic earnings per share                                                 $  0.65            $  0.17                  -
=========================================================================================================================

Diluted earnings per share                                               $  0.65            $  0.17                  -
=========================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>
<TABLE>
<CAPTION>
                                   Consolidated Statements of Changes in Shareholders' Equity

                                                                                            Years Ended March 31,
----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share and per share data)                              2000                   1999                 1998
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>           <C>         <C>   <C>      <C>
Common stock
Balance at beginning of year                                       $     179                   $      --       $      --
Issuance of 17,333,738 shares of $.01 par value common stock
 in initial public offering                                               --                         174              --
Issuance of 520,012 shares of $.01 par value common stock to
 the Hudson River Bank & Trust Company Foundation                         --                           5              --
----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                             $     179                   $     179              --
----------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital
Balance at beginning of year                                       $ 174,894                          --              --
Issuance of 17,333,738 shares of common stock in initial public
 offering, net of offering costs of $3,370                                --                     169,793
----------------------------------------------------------------------------------------------------------------------------------
Issuance of 520,012 shares of common stock to the Hudson
 River Bank & Trust Company Foundation                                    --                       5,195
Adjustment for ESOP shares released for allocation                      (161)                        (94)             --
----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                             $ 174,733                   $ 174,894              --
----------------------------------------------------------------------------------------------------------------------------------
Unallocated common stock held by ESOP
Balance at beginning of year                                       $ (17,200)                         --              --
Acquisition of 1,428,300 shares of common stock by ESOP                   --                     (18,428)             --
Shares of ESOP stock released for allocation (124,718 and
  95,843 shares)                                                       1,617                       1,228              --
----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                             $ (15,583)                  $ (17,200)             --
----------------------------------------------------------------------------------------------------------------------------------
Unvested restricted stock awards
Balance at beginning of year                                       $  (7,996)                         --              --
Grant of restricted stock awards (19,071 and 714,150 shares)            (188)                     (8,213)             --
Amortization of restricted stock awards                                  943                         217              --
Forfeiture of restricted stock awards (82,765 shares)                    952                          --              --
----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                             $  (6,289)                  $  (7,996)             --
----------------------------------------------------------------------------------------------------------------------------------
Treasury stock
Balance at beginning of year                                       $  (1,663)                         --              --
Purchase of common stock (2,013,996 and 871,650 shares)              (21,841)                    (10,098)             --
Grant of restricted stock awards                                         208                       8,435              --
Forfeiture of restricted stock awards                                   (952)                         --              --
----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                             $ (24,248)                  $  (1,663)             --
----------------------------------------------------------------------------------------------------------------------------------
Retained earnings
Balance at beginning of year                                       $  71,893                   $  68,308         $65,477
Net income                                                             9,526     $   9,526         3,807  $3,807   2,831  $  2,831
Cash dividends declared ($0.12 per share)                             (1,844)                         --              --
Adjustment for grant of restricted stock awards                          (20)                       (222)             --
----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                             $  79,555                   $  71,893         $68,308
----------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income (loss)
Balance at beginning of year                                       $    (766)                  $      (4)        $  (348)
Unrealized net holding gains (losses) on securities available for
  sale arising during the year (pre-tax ($11,432), ($1,153), and $586)              (6,811)                 (739)              353


Reclassification adjustment for net gains realized in net income
  (pre-tax ($79), ($36) and ($15))                                                     (47)                  (23)               (9)
                                                                                       ---                   ---               ---
Other comprehensive income (loss)                                     (6,858)       (6,858)         (762)   (762)    344       344
----------------------------------------------------------------------------------------------------------------------------------
            Comprehensive income                                                 $   2,668             $   3,045         $   3,175
---------------------------------------------------------------------------------=========-------------=========---------=========
Balance at end of year                                                (7,624)                       (766)             (4)
----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity at March 31                             $ 200,723                   $ 219,341       $  68,304
==================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                                 Consolidated Statements of Cash Flows

(In thousands)                           Years Ended March 31,                         2000            1999             1998
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>             <C>             <C>
Cash flows from operating activities
Net income                                                                         $   9,526       $   3,807       $   2,831
  Adjustments  to  reconcile  net  income  to net  cash  provided  by
     operating activities:
        Depreciation                                                                   2,002           1,519           1,359
        Goodwill and other intangibles amortization                                    1,087             252             151
        Provision for loan losses                                                      6,200           7,341           8,491
        Deferred tax benefit                                                          (1,844)         (3,358)         (2,004)
        Charitable foundation contribution                                                --           5,200              --
        Amortization of restricted stock awards                                          943             217              --
        ESOP stock released for allocation                                             1,456           1,134              --
        Net securities transactions                                                      (83)            (36)            (15)
        Net gain on sales of loans held for sale                                          --             (65)            (96)
        Net loans originated for sale                                                     --          (7,730)        (11,423)
        Proceeds from sales of loans held for sale                                        --           9,081          10,317
        Net loss (gain) on sale of premises and equipment                                262             (71)           (452)
        Adjustments of OREO and repossessed property to fair value                     1,057             213             401
        Net gain on sales of OREO and repossessed property                              (986)           (522)           (445)
        Net decrease (increase) in accrued interest receivable                           315          (1,299)            478
        Net increase in other assets                                                  (3,336)         (2,173)           (762)
        Net increase in other liabilities                                              2,439          28,797           3,898
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                             19,038          42,307          12,729
----------------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities
Net cash used in acquisition activity                                                (27,975)             --              --
Proceeds from sales of securities available for sale                                   3,009              --              --
Proceeds from maturities, calls and paydowns of securities available for sale         35,176          39,867          37,996
Purchases of securities available for sale                                           (16,708)       (241,162)        (34,258)
Proceeds from maturities, calls and paydowns of securities held to maturity           11,901          42,153          21,890
Purchases of securities held to maturity                                                  --              --          (8,016)
Purchases of FHLB stock                                                               (2,660)           (264)           (223)
Net loans made to customers                                                         (108,404)        (78,694)        (24,555)
Proceeds from sales of and payments received on OREO and repossessed property          3,979           5,634           6,419
Proceeds from sale of premises and equipment                                              --             471           1,200
Purchase of bank owned life insurance                                                (15,000)             --              --
Purchases of premises and equipment                                                   (2,320)         (3,395)         (2,473)
----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                               (119,002)       (235,390)         (2,020)
----------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities
Net increase in deposits                                                               6,126           3,500          23,715
Net increase (decrease) in short-term borrowings                                      92,119          26,445         (10,585)
Issuance of long-term FHLB borrowings                                                 30,000              --              --
Net (decrease) increase in mortgagors' escrow deposits                                  (706)            146             (23)
Net proceeds from stock offering                                                          --         169,967              --
Purchases of treasury stock                                                          (21,841)        (10,098)             --
Dividends paid                                                                        (1,844)             --              --
Acquisition of common stock by ESOP                                                       --         (18,428)             --
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                            103,854         171,532          13,107
----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                   3,890         (21,551)         23,816
Cash and cash equivalents at beginning of year                                        12,722          34,273          10,457
----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                           $  16,612       $  12,722       $  34,273
==================================================================================================================================

Supplemental cash flow information
      Interest paid                                                                $  29,973       $  25,998       $  25,980
      Taxes paid                                                                   $   8,188       $   3,563       $   4,012
==================================================================================================================================

Supplemental disclosures of noncash investing and financing activities:
Loans transferred to OREO and repossessed property                                 $   3,085       $   6,301       $   4,460
Adjustment of securities available for sale to fair value, net of tax              $  (6,858)      $    (762)      $     344
Acquisition activity:
      Fair value of noncash assets acquired                                        $ 175,959       $      --       $      --
      Fair value of liabilities assumed                                            $ 157,048       $      --       $      --
==================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
                           HUDSON RIVER BANCORP, INC.

                   Notes to Consolidated Financial Statements


(1)  Summary of Significant Accounting Policies
     ------------------------------------------

The accounting and reporting  policies of Hudson River  Bancorp,  Inc.  ("Parent
Company") and its subsidiary  (referred to together as the "Company") conform to
generally accepted accounting principles and reporting practices followed by the
banking industry. The more significant policies are described below.

Organization
------------
The Company is a bank-based  financial  services  company.  The Parent Company's
subsidiary,  Hudson  River Bank & Trust  Company (the  "Bank"),  provides a wide
range  of  banking,  financing,   fiduciary  and  other  financial  services  to
corporate, individual and institutional customers through its branch offices and
subsidiary  companies.  The Parent  Company is regulated by the Office of Thrift
Supervision as a unitary savings and loan ("thrift")  holding company.  The Bank
is regulated by the Federal Deposit Insurance  Corporation  ("FDIC") and the New
York State Banking Department.

The Bank completed its conversion  from a mutual savings bank to a stock savings
bank on July 1, 1998. Concurrent with the Bank's conversion,  the Parent Company
completed its initial  public  offering of common stock and purchased all of the
outstanding common stock of the Bank. Prior to its initial public offering,  the
Parent Company had no results of operations;  therefore,  financial  information
prior to July 1, 1998 reflects the operations of the Bank.

Basis of Presentation
---------------------
The  consolidated  financial  statements  include the  accounts of Hudson  River
Bancorp,  Inc.  and its  subsidiary.  All  material  intercompany  accounts  and
transactions  have been  eliminated.  The Company utilizes the accrual method of
accounting  for  financial  reporting  purposes.  Amounts  in the  prior  years'
consolidated  financial statements have been reclassified  whenever necessary to
conform with the current year's presentation.

Use of Estimates
----------------
The  preparation of the  consolidated  financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and  assumptions  relating to the  reporting of assets and  liabilities  and the
disclosure of contingent  assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Cash and Cash Equivalents
-------------------------
For  purposes  of the  consolidated  statements  of cash  flows,  cash  and cash
equivalents consists of cash on hand, due from banks, securities purchased under
agreements to resell, and federal funds sold.

Securities Financing Arrangements
---------------------------------
Securities   purchased  under  agreements  to  resell  (resale  agreements)  and
securities  sold under  agreements to  repurchase  (repurchase  agreements)  are
generally carried as short-term  investments and borrowings,  respectively,  and
are carried at the amounts at which the securities  were  initially  acquired or
sold. These  transactions  are usually  overnight,  fixed-coupon  agreements and
require  collateral to be delivered to the Company's  custodial  account (resale
agreements)  or segregated at the Company's  third party  custodian  (repurchase
agreements).  In the case of resale  agreements,  the Company  requires that the
fair  value of the  underlying  securities  received  exceed  the  amount of the
agreement at all times. At March 31, 2000 and 1999, the Company did not have any
resale agreements.

Securities
----------
Management  determines the appropriate  classification of securities at the time
of purchase.  If  management  has the  positive  intent and ability to hold debt
securities to maturity,  they are classified as securities  held to maturity and
carried  at cost,  adjusted  for  amortization  of  premiums  and  accretion  of
discounts using an effective  interest  method.  If securities are purchased for
the purpose of selling  them in the near term,  they are  classified  as trading
securities  and are  reported at fair value with  unrealized  holding  gains and
losses  reflected  in current  earnings.  All other debt and  marketable  equity
securities are  classified as securities  available for sale and are reported at
fair value,  with net unrealized gains or losses reported,  net of income taxes,
in accumulated  other  comprehensive  income or loss. As a member of the Federal
Home Loan Bank of New York (the  "FHLB"),  the  Company is required to hold FHLB
stock which is carried at cost since there is no readily available market value.
At March 31, 2000 and 1999, the Company did not hold any  securities  considered
to be trading securities.
<PAGE>
Gains or losses on the  disposition  of securities are based on the net proceeds
and the adjusted  carrying  amount of the  securities  sold,  using the specific
identification  method.  Unrealized losses on securities reflecting a decline in
value which is other than temporary,  if any, are charged to income and reported
as a component  of "net  securities  transactions"  in the  consolidated  income
statements.

Net Loans Receivable
--------------------
Loans are carried at the principal amount  outstanding net of unearned discount,
net deferred loan origination fees and costs, and the allowance for loan losses.
Certain  nonrefundable  loan fees and direct loan origination costs are deferred
and amortized over the estimated life of the loan as an adjustment to the yield.
Nonperforming loans include nonaccrual loans, loans which are contractually past
due  90  days  or  more  and  still   accruing   interest,   and  troubled  debt
restructurings.  Generally, loans are placed on nonaccrual status, either due to
the delinquency status of principal and/or interest  payments,  or a judgment by
management  that,  although  payments of principal  and/or interest are current,
such action is prudent.  Loans are generally  placed on  nonaccrual  status when
principal and/or interest payments are  contractually  past due 90 days or more.
When a loan is placed on nonaccrual status, all interest  previously accrued but
not collected is reversed against current year interest income.  Interest income
on nonaccrual loans is recognized only when received, if considered  appropriate
by management. Loans are removed from nonaccrual status when they become current
as to principal  and interest or when, in the opinion of  management,  the loans
are expected to be fully collectible as to principal and interest.

Loans are  considered  impaired  when it is probable  that the borrower will not
make principal and interest payments according to the original contractual terms
of the loan agreement. Smaller balance, homogeneous loans which are collectively
evaluated for impairment,  such as consumer and residential  mortgage loans, are
specifically  excluded  from the  classification  of impaired  loans unless such
loans are  restructured  in a troubled debt  restructuring.  Impaired  loans are
included in nonperforming loans, generally as nonaccrual commercial-type loans.

The impairment of a nonperforming loan is measured based on the present value of
the expected  future cash flows,  discounted  at the loan's  effective  interest
rate, or on the underlying  value of collateral for collateral  dependent loans.
The  impaired  loan's  carrying  value  in  excess  of  expected  cash  flows or
collateral value is specifically reserved for or is charged to the allowance for
loan losses.  The Company's impaired loans are generally  collateral  dependent.
The Company  considers  estimated  costs to sell,  on a discounted  basis,  when
determining  the fair value of  collateral in the  measurement  of impairment if
those  costs  are  expected  to  reduce  the cash  flows  available  to repay or
otherwise satisfy the loans.

Allowance for Loan Losses
-------------------------
The  allowance  for loan  losses  is a reserve  available  for  probable  losses
inherent in the loan  portfolio.  Additions  are made to the  allowance  through
periodic  provisions,  which are charged to expense. All losses of principal are
charged to the allowance  when incurred or when a  determination  is made that a
loss is expected. Subsequent recoveries, if any, are credited to the allowance.

The adequacy of the allowance for loan losses is determined  through a quarterly
review  of  outstanding  loans.  The  impact  of  economic   conditions  on  the
creditworthiness  of  the  borrowers  is  considered,   as  well  as  loan  loss
experience,  changes in the composition  and volume of the loan  portfolio,  and
management's assessment of the risks inherent in the loan portfolio.

Loans Held for Sale
-------------------
Loans are classified as held for  investment  purposes or held for sale when the
Company enters into interest rate lock agreements with the potential  borrowers.
Loans held for sale are recorded at the lower of  aggregate  cost or fair value,
with unrealized losses, if any, recorded in a valuation allowance by a charge to
income.  Fair value is  determined  based on quoted market rates or, in the case
where a firm  commitment  has been  made to sell the  loan,  the firm  committed
price. Gains and losses on the disposition of loans held for sale are determined
on the  specific  identification  method.  There  were no loans held for sale at
March 31, 2000 and 1999.

Premises and Equipment
----------------------
Premises  and  equipment  are carried at cost,  less  accumulated  depreciation.
Depreciation  is computed on a  straight-line  basis over the  estimated  useful
lives of the assets (up to fifty years for buildings and generally three-to-five
years for furniture and equipment).  Leasehold improvements are depreciated over
the shorter of the term of the related  leases or the estimated  useful lives of
the assets.
<PAGE>
Other Real Estate Owned and Repossessed Property
------------------------------------------------
Other real estate owned,  comprised of real estate acquired through  foreclosure
and  in-substance  foreclosures,  and  repossessed  property are recorded at the
lower  of  "cost"  (defined  as  the  fair  value  at  initial   foreclosure  or
repossession) or the fair value of the asset acquired,  less estimated  disposal
costs. A loan is categorized as an in-substance foreclosure when the Company has
taken  possession of the  collateral,  regardless of whether formal  foreclosure
proceedings  have taken place.  At the time of foreclosure or  repossession,  or
when foreclosure occurs in-substance, the excess, if any, of the loan value over
the fair value of the  property  received is charged to the  allowance  for loan
losses.  Subsequent declines in the value of foreclosed and repossessed property
and net operating  expenses are charged  directly to other  operating  expenses.
Properties are reappraised,  as considered necessary by management,  and written
down to the  fair  value  less  the  estimated  cost to sell  the  property,  if
necessary.   Repossessed  property  consists  primarily  of  manufactured  homes
abandoned by their owners or repossessed by the Company.

Goodwill and Other Intangibles
------------------------------
Goodwill and other intangibles  represents the excess of the purchase price over
the fair value of net assets acquired for  transactions  accounted for using the
purchase  method of  accounting.  Goodwill and other  intangibles  are amortized
using the  straight-line  method over the  estimated  period of benefit,  not to
exceed fifteen years.  Goodwill and other intangibles are periodically  reviewed
by management for recoverability and any impairment is recognized by a charge to
income if a permanent loss in value is indicated.

Income Taxes
------------
Deferred tax assets and  liabilities  are recognized for the expected future tax
consequences   attributable  to  temporary  differences  between  the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective tax bases. Deferred tax assets are recognized subject to management's
judgment  that those assets will more likely than not be  realized.  A valuation
allowance  is  recognized  if,  based  on an  analysis  of  available  evidence,
management believes that all or a portion of the deferred tax assets will not be
realized.  Adjustments  to increase  or decrease  the  valuation  allowance  are
charged or  credited,  respectively,  to tax  expense.  Deferred  tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

Employee Benefit Costs
----------------------
The  Company  maintains  a  noncontributory  retirement  pension  plan  covering
substantially  all  employees  as well as a benefit  restoration  plan  covering
certain executives. The costs of these plans, based on actuarial computations of
current and future  benefits  for  employees,  are charged to current  operating
expenses.  The Company also  provides  certain  postretirement  medical and life
insurance  benefits to  substantially  all employees  and  retirees,  as well as
dental  benefits  to a closed  group  of  retirees.  The cost of  postretirement
benefits  other than  pensions is  recognized  on an accrual  basis as employees
perform services to earn the benefits.

Stock-Based Compensation
------------------------
The Company accounts for its stock option plan in accordance with the provisions
of Accounting  Principles  Board ("APB")  Opinion No. 25,  "Accounting for Stock
Issued to Employees."  Accordingly,  compensation  expense is recognized only if
the exercise  price of the option is less than the fair value of the  underlying
stock at the grant date.  Statement of Financial  Accounting  Standards ("SFAS")
No. 123,  "Accounting  for  Stock-Based  Compensation",  encourages  entities to
recognize the fair value of all  stock-based  awards on the date of the grant as
compensation expense over the vesting period. Alternatively, SFAS No. 123 allows
entities to continue to apply the  provisions  of APB Opinion No. 25 and provide
pro  forma  disclosures  of  net  income  and  earnings  per  share  as  if  the
fair-value-based method defined in SFAS No. 123 had been applied.

The Company's  Recognition  and Retention  Plan ("RRP") is also accounted for in
accordance  with APB  Opinion  No. 25.  The fair  value of the  shares  awarded,
measured  as of the grant  date,  is  recognized  as  unearned  compensation  (a
component of shareholders'  equity) and amortized to compensation expense as the
shares become vested.

Compensation  expense is recognized for the Company's  Employee Stock  Ownership
Plan ("ESOP") equal to the average fair value of shares committed to be released
for allocation to participant accounts.  Any difference between the average fair
value of the shares  committed  to be  released  for  allocation  and the ESOP's
original  acquisition  cost is  charged  or  credited  to  shareholders'  equity
(additional  paid-in  capital).  The cost of unallocated ESOP shares (shares not
yet  committed to be  released)  is  reflected  as a reduction of  shareholders'
equity.
<PAGE>
Earnings Per Share
------------------
Basic   earnings  per  share  is  calculated  by  dividing  net  income  by  the
weighted-average  number of common shares outstanding during the period.  Shares
of restricted stock are not considered  outstanding for the calculation of basic
earnings per share until they become fully vested. Diluted earnings per share is
computed in a manner similar to that of basic earnings per share except that the
weighted-average number of common shares outstanding is increased to include the
number of  additional  common  shares  that would have been  outstanding  if all
potentially   dilutive  common  shares  (such  as  stock  options  and  unvested
restricted  stock) were issued or became  vested  during the  reporting  period.
Unallocated   common   shares  held  by  the  ESOP  are  not   included  in  the
weighted-average  number of common  shares  outstanding  for either the basic or
diluted earnings per share calculations.

Financial Instruments
---------------------
In the normal  course of business,  the Company is a party to certain  financial
instruments  with  off-balance  sheet risk such as commitments to extend credit,
unused lines of credit and standby letters of credit. The Company's policy is to
record such instruments when funded.

Trust Assets
------------
Assets held by the Company in a fiduciary or agency  capacity for its  customers
are not included in the  consolidated  balance  sheets since these items are not
assets of the Company.

Comprehensive Income
--------------------
Comprehensive  income  represents  the sum of net  income  and  items  of  other
comprehensive  income or loss,  which are  reported  directly  in  shareholders'
equity,  net of tax,  such as the change in the net  unrealized  gain or loss on
securities  available for sale.  Accumulated other comprehensive income or loss,
which is a component of shareholders' equity, represents the net unrealized gain
or loss on securities available for sale, net of tax.

Segment Reporting
-----------------
The Company's  operations are primarily in the financial  services  industry and
include providing to its customers  traditional  banking  services.  The Company
operates primarily in the geographical regions of Columbia,  Rensselaer, Albany,
Schenectady  and  Dutchess  counties  of New York.  Management  makes  operating
decisions and assesses performance based on an ongoing review of its traditional
banking operations, which constitute the Company's only reportable segment.

(2)  Business Combinations
     ---------------------

The Company completed its acquisition of SFS Bancorp,  Inc. ("SFS") on September
3, 1999,  paying $25.10 in cash for each share of SFS common stock  outstanding.
Total  assets of  $176.9  million  and total  deposits  of $150.4  million  were
acquired.  The total  consideration  of  approximately  $32  million  was funded
primarily by  long-term  borrowings  with  maturities  ranging from  one-to-five
years.  In  accordance  with the  purchase  method of  accounting  for  business
combinations,  the assets acquired and the liabilities  assumed were adjusted to
estimated fair value.  Goodwill  amounting to $9.1 million was recorded relating
to this transaction and is being amortized on a straight-line basis over fifteen
years. The results of SFS are included in the consolidated  financial statements
only since the date of acquisition.

A summary of unaudited pro forma combined financial  information for the Company
and SFS for the year ended March 31, 2000 as if the  transaction had occurred on
April 1, 1999, and for the year ended March 31, 1999 as if the  transaction  had
occurred on April 1, 1998 is as follows:

                           Years ended March 31,          2000           1999
--------------------------------------------------------------------------------

  Net interest income                                  $ 47,780       $ 41,692
  Other operating income                                  2,778          4,883
  Net income                                              9,360          4,449
  Basic and diluted earnings per share                 $   0.64       $   0.21
--------------------------------------------------------------------------------

The pro forma combined financial information does not reflect any potential cost
savings or revenue enhancements that are expected to result from the combination
of the operations of the Company and SFS other than the  elimination of expenses
related to SFS's Employee Stock  Ownership  Plan and  Recognition  and Retention
Plan and,  accordingly,  may not be indicative of the results of operations that
would have been  achieved  had the  acquisition  in fact  occurred  on the dates
indicated,  nor do they purport to be  indicative  of the results of  operations
that may be achieved in the future by the combined company.
<PAGE>
Subsequent  Event  (unaudited)

On April 25, 2000, the Company  entered into a definitive  agreement with Cohoes
Bancorp, Inc. ("Cohoes") to provide for a merger between the Company and Cohoes.
Under the terms of the agreement, the Company will issue 1.185 shares of Company
common stock in exchange for each share of Cohoes  common  stock.  Cohoes has 21
branches   located  in  6  counties  of  New  York.  The  total  deal  value  is
approximately  $87  million  based  on the  Company's  stock  price  immediately
preceding  the  announcement.  The  transaction  will be accounted for under the
purchase  method  of  accounting  and the resultant  negative  goodwill  will be
allocated to reduce noncurrent, nonmonetary assets of Cohoes, with any remaining
amount classified as other liabilities upon the closing of the transaction.  The
remaining  negative  goodwill,  if  any,  will  be  accreted  into  income  on a
straight-line  method over the estimated period of benefit.  Pending  regulatory
and  shareholder  approvals,  the  transaction  is  expected  to close  prior to
year-end 2000.

(3)  Securities
     ----------

The amortized cost, gross unrealized gains and losses and approximate fair value
of securities at March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
                                                                                                              2000
------------------------------------------------------------------------------------------------------------------
                                                                      Gross            Gross         Approximate
                                                Amortized           Unrealized       Unrealized          Fair
  (In thousands)                                   Cost               Gains            Losses            Value
------------------------------------------------------------------------------------------------------------------
<S>                                              <C>               <C>               <C>                <C>
Securities Available for Sale
U.S. Government and agency securities          $ 58,221          $     --          $ (3,627)          $ 54,594
Corporate debt securities                        62,404               285            (2,119)            60,570
Tax-exempt securities                            15,239                --            (1,407)            13,832
Collateralized mortgage obligations              80,636                11            (4,435)            76,212
Mortgage-backed securities                       30,243                 1            (1,209)            29,035
Equity securities                                 1,664                40              (247)             1,457
Other securities                                  1,280                --                --              1,280
------------------------------------------------------------------------------------------------------------------
Total securities available for sale            $249,687          $    337          $(13,044)          $236,980
==================================================================================================================

Securities Held to Maturity
Corporate debt securities                      $  8,977          $      1          $    (34)          $  8,944
Tax-exempt securities                                10                --                --                 10
Collateralized mortgage obligations                 546                 2               (25)               523
Mortgage-backed securities                        1,611                18               (41)             1,588
------------------------------------------------------------------------------------------------------------------
Total securities held to maturity              $ 11,144          $     21          $   (100)          $ 11,065
==================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                                                              1999
------------------------------------------------------------------------------------------------------------------
                                                                      Gross            Gross         Approximate
                                                Amortized           Unrealized       Unrealized          Fair
  (In thousands)                                   Cost               Gains            Losses            Value
------------------------------------------------------------------------------------------------------------------
<S>                                              <C>               <C>               <C>                <C>
Securities Available for Sale
U.S. Government and agency securities          $ 66,976          $     47          $   (576)          $ 66,447
Corporate debt securities                        55,428               228              (644)            55,012
Tax-exempt securities                            15,131                12               (90)            15,053
Collateralized mortgage obligations              85,434               314              (343)            85,405
Mortgage-backed securities                       19,678                --              (180)            19,498
Equity securities                                 1,160                74               (38)             1,196
------------------------------------------------------------------------------------------------------------------
Total securities available for sale            $243,807          $    675          $ (1,871)          $242,611
==================================================================================================================

Securities Held to Maturity
U.S. Government and agency securities          $  1,995          $     17          $     --           $  2,012
Corporate debt securities                        17,931               158                --             18,089
Tax-exempt securities                                10                --                --                 10
Collateralized mortgage obligations                 968                 3               (31)               940
Mortgage-backed securities                        2,137                50                (3)             2,184
------------------------------------------------------------------------------------------------------------------
Total securities held to maturity              $ 23,041          $    228          $    (34)          $ 23,235
==================================================================================================================
</TABLE>


During the years ended March 31,  2000,  1999,  and 1998,  the Company  realized
gross gains of $19  thousand,  $36  thousand,  and $15  thousand,  respectively,
related to calls of  securities,  with no gross  losses  realized.  The  Company
received  $3.0 million in proceeds  from the sale of  securities  available  for
sale,  realizing gross gains of $64 thousand and no gross losses during the year
ended March 31, 2000. No  securities  were sold during the years ended March 31,
1999 and 1998.

Securities  available for sale  (exclusive of equity  securities) and securities
held to  maturity  by  remaining  contractual  maturity as of March 31, 2000 are
presented below. Expected maturities will differ from contractual  maturities as
a result of prepayments and calls.

<TABLE>
<CAPTION>

                                        Securities                            Securities
                                      Available for Sale                  Held to Maturity
--------------------------------------------------------------------------------------------------
                                                  Approximate                         Approximate
                                 Amortized           Fair            Amortized           Fair
(In thousands)                     Cost             Value               Cost             Value
--------------------------------------------------------------------------------------------------
<S>                             <C>               <C>               <C>               <C>
Within one year                 $  5,479          $  5,368          $  6,986          $  6,983
One through five years            34,948            34,385             3,050             2,986
Six through ten years             28,751            27,531               402               404
After ten years                  178,845           168,239               706               692
--------------------------------------------------------------------------------------------------
Total                           $248,023          $235,523          $ 11,144          $ 11,065
--------------------------------------------------------------------------------------------------
</TABLE>

The  carrying  value of  securities  pledged as  required by law and for other
purposes  amounted to $52.2 million and $9.5 million at March 31, 2000 and 1999,
respectively.
<PAGE>
(4)  Net Loans Receivable
     --------------------
A summary of net loans receivable as of March 31 is as follows:

<TABLE>
<CAPTION>

(In thousands)                                                            2000             1999
---------------------------------------------------------------------------------------------------
<S>                                                                       <C>              <C>
Loans secured by real estate
Residential one-to-four family                                          $ 491,811       $ 295,466
Commercial                                                                138,891          91,480
Construction                                                                9,144           3,401
---------------------------------------------------------------------------------------------------
Total loans secured by real estate                                        639,846         390,347
---------------------------------------------------------------------------------------------------

Other loans
Manufactured housing                                                       81,542          90,354
Commercial                                                                 37,167          29,024
Financed insurance premiums                                                51,796          57,901
Consumer                                                                   15,536          12,440
---------------------------------------------------------------------------------------------------
Total other loans                                                         186,041         189,719
---------------------------------------------------------------------------------------------------
Unearned discount and net deferred loan origination fees and costs         (2,032)         (1,967)
---------------------------------------------------------------------------------------------------
Total loans receivable                                                    823,855         578,099
Allowance for loan losses                                                 (19,608)        (14,296)
---------------------------------------------------------------------------------------------------
Net loans receivable                                                    $ 804,247       $ 563,803
---------------------------------------------------------------------------------------------------
</TABLE>

Changes in the allowance for loan losses during the years ended March 31 were as
follows:

<TABLE>
<CAPTION>

(In thousands)                                             2000               1999               1998
-------------------------------------------------------------------------------------------------------
<S>                                                     <C>                <C>                <C>
Allowance for loan losses at beginning of year          $ 14,296           $  8,227           $  5,872
Provision charged to operations                            6,200              7,341              8,491
Loans charged-off                                         (2,543)            (3,191)            (6,730)
Recoveries on loans charged-off                              647              1,919                594
Allowance acquired                                         1,008                 --                 --
-------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of year                $ 19,608           $ 14,296           $  8,227
=======================================================================================================

The following table sets forth information with regard to nonperforming loans at March 31:

(In thousands)                                                         2000        1999         1998
----------------------------------------------------------------------------------------------------
Loans in nonaccrual status                                           $10,293     $ 9,944     $15,707
Loans contractually past due 90 days or more and still accruing
   interest                                                               --          --          16
----------------------------------------------------------------------------------------------------
Total nonperforming loans                                            $10,293     $ 9,944     $15,723
=======================================================================================================
</TABLE>

At March 31, 2000, 1999 and 1998, there were no troubled debt  restructurings or
material  commitments to extend  further credit to borrowers with  nonperforming
loans.

Accumulated  interest on nonaccrual loans, as shown above, of approximately $517
thousand,  $411  thousand,  and $599  thousand,  was not  recognized in interest
income  during the years ended March 31,  2000,  1999,  and 1998,  respectively.
Approximately  $466 thousand,  $572  thousand,  and $920 thousand of interest on
nonaccrual  loans,  as shown above,  was  collected  and  recognized in interest
income during the years ended March 31, 2000, 1999, and 1998, respectively.

At both  March 31,  2000 and 1999,  the  recorded  investment  in loans that are
considered to be impaired under SFAS No. 114 totaled $2.7 million, for which the
related  allowance  for loan losses was $1.1  million at March 31, 2000 and $842
thousand  at March 31,  1999.  As of March  31,  2000 and  1999,  there  were no
impaired  loans which did not have an allowance  for loan losses  determined  in
accordance with SFAS No. 114. The average recorded  investment in impaired loans
during the years ended March 31, 2000,  1999,  and 1998 was $2.4  million,  $3.7
million,  and $5.8 million,  respectively.  The interest income accrued on those
impaired loans or recognized using the cash basis of income  recognition was not
significant for the years ended March 31, 2000, 1999, and 1998.
<PAGE>
Certain  executive  officers  of the  Company  were  customers  of and had other
transactions with the Company in the ordinary course of business. Loans to these
parties were made in the  ordinary  course of business at the  Company's  normal
credit terms,  including interest rate and  collateralization.  The aggregate of
such loans totaled less than 1% of total shareholders'  equity at both March 31,
2000 and 1999.

The Company has an unconsolidated  equity investment in Homestead Funding Corp.,
a  mortgage-banking  company.  The Company has a $20 million  warehouse  line of
credit  relationship  with  Homestead  which was made in the ordinary  course of
business at the  Company's  normal  credit  terms,  including  interest rate and
collateralization.  There was $4.6 million and $9.6 million  outstanding on this
line as of March 31, 2000 and 1999, respectively.


(5)  Premises and Equipment
     ----------------------

 A summary of premises and equipment at March 31 is as follows:

 (In thousands)                                   2000               1999
-------------------------------------------------------------------------

 Buildings and land                           $ 16,952           $ 15,143
 Furniture and equipment                         9,773              7,969
 Leasehold improvements                          1,051                817
-------------------------------------------------------------------------
 Total                                          27,776             23,929
 Accumulated depreciation                       (9,057)            (7,122)
-------------------------------------------------------------------------
 Premises and equipment, net                  $ 18,719           $ 16,807
=========================================================================

Depreciation  expense was  approximately  $2.0  million,  $1.5 million and $1.4
million, for the years ended March 31, 2000, 1999, and 1998, respectively.

(6) Deposits
    --------
Deposit account balances at March 31 are summarized as follows:

(In thousands)                                   2000               1999
------------------------------------------------------------------------
Savings                                       $180,932          $145,985
N.O.W. and money market                        126,429            99,390
Time deposits                                  392,962           302,479
Noninterest-bearing                             48,240            43,960
------------------------------------------------------------------------
Total deposits                                $748,563          $591,814
=========================================================================


The aggregate amount of time deposit accounts with a balance of $100 thousand or
greater  was  $49.1  million  and  $39.9  million  at March  31,  2000 and 1999,
respectively.

The approximate amounts of contractual  maturities of time deposits at March 31,
2000 are as follows:

(In thousands)
--------------------------------------------------------------------------------
Years ending March 31,
2001                                                                $289,541
2002                                                                  66,938
2003                                                                  23,326
2004                                                                   8,960
2005                                                                   3,489
Thereafter                                                               708
--------------------------------------------------------------------------------
Total time deposits                                                 $392,962
================================================================================
<PAGE>
 (7) Borrowings
     ----------

Securities Sold Under Agreements to Repurchase
The Company enters into repurchase  agreements with certain  commercial  banking
clients.  The agreements to repurchase  assets  correspond  with the sale of the
Company's  securities  which are treated as financings  for financial  statement
purposes.  The securities  subject to repurchase  agreements are segregated from
the  portfolio of securities  maintained by a third party until  maturity of the
agreements.  At March 31, 2000, the balance of securities sold under  agreements
to repurchase was $4.2 million with a  weighted-average  rate of 5.15%. At March
31, 1999, the balance of securities sold under agreements to repurchase was $845
thousand with a weighted-average rate of 3.75%. The balance as of both dates was
due within 30 days.

Short-term FHLB Advances
The  Bank  has a line of  credit  with  the FHLB  totaling  $100  million.  This
short-term  borrowing  program is based upon either an overnight  or  thirty-day
borrowing  period with interest based  generally upon a spread above the current
Federal  funds rate.  In addition,  short-term  advances with a maturity of less
than one year are classified in this category. The rates on these borrowings can
be either fixed or floating.

(In thousands)                   As of March 31,        2000           1999
--------------------------------------------------------------------------------
Amount outstanding:
     Line of credit advances                    $    79,450          $ 27,600
     Short-term advances                             37,000                --
--------------------------------------------------------------------------------
Total short-term FHLB advances                  $   116,450          $ 27,600
================================================================================

Weighted-average interest rate                         6.28%             5.35%
================================================================================


For the years ended March 31,           2000            1999           1998
--------------------------------------------------------------------------------
Highest amount at month-end          $ 119,589      $  28,445        $ 15,460
Average amount outstanding              65,542          2,916           3,699
Weighted-average interest rate            5.65%          5.25%           5.54%
================================================================================

The maturities of line of credit advances do not exceed thirty days. As of March
31, 2000,  the  maturities  of the  short-term  advances  range from four-to-ten
months.  Short-term FHLB advances are collateralized by FHLB stock and a blanket
lien on residential real estate mortgages.

Long-term FHLB Borrowings
Scheduled  repayments of long-term  FHLB  borrowings as of March 31, 2000 are as
follows:

                                                              Weighted-Average
(In thousands)                                 Amount           Interest Rate
--------------------------------------------------------------------------------
Maturing in:
                2000                        $    200                4.90%
                2001                          10,300                5.72
                2002                          10,000                6.09
                2003                             100                5.16
                2004                          10,000                6.16
--------------------------------------------------------------------------------
Total long-term FHLB borrowings             $ 30,600                5.98%
================================================================================

Of the total  long-term  FHLB  borrowings,  $10.0 million is callable in each of
August 2000,  2001, and 2002.  Long-term FHLB borrowings are  collateralized  by
securities available for sale.
<PAGE>
(8) Regulatory Capital
    ------------------

Regulations require banks to maintain a minimum leverage ratio of Tier 1 capital
to total adjusted quarterly average assets of 4.0%, and minimum ratios of Tier 1
capital  and  total   capital  to   risk-weighted   assets  of  4.0%  and  8.0%,
respectively.

Under their prompt corrective  action  regulations,  regulatory  authorities are
required  to  take  certain   supervisory   actions  (and  may  take  additional
discretionary  actions) with respect to an  undercapitalized  institution.  Such
actions  could  have a direct  material  effect  on an  institution's  financial
statements.  The  regulations  establish a framework for the  classification  of
banks   into  five   categories:   well-capitalized,   adequately   capitalized,
undercapitalized,     significantly     undercapitalized,     and     critically
undercapitalized. Generally, an institution is considered well-capitalized if it
has a Tier 1 capital ratio of at least 5.0% (based on total  adjusted  quarterly
average assets); a Tier 1 risk-based capital ratio of at least 6.0%; and a total
risk-based capital ratio of at least 10.0%.

The foregoing capital ratios are based in part on specific quantitative measures
of assets,  liabilities and certain  off-balance sheet items as calculated under
regulatory  accounting  practices.  Capital amounts and classifications are also
subject to  qualitative  judgments by the regulatory  authorities  about capital
components, risk weightings, and other factors.

As of March 31, 2000 and 1999, the Bank met all capital adequacy requirements to
which it was subject. Further, the most recent FDIC notification categorized the
Bank as a  well-capitalized  institution  under  the  prompt  corrective  action
regulations. There have been no conditions or events since the notification that
management believes have changed the Bank's capital classification.

The following is a summary of actual capital  amounts and ratios as of March 31,
2000 and 1999 for the Bank,  compared to the  requirements  for minimum  capital
adequacy  and for  classification  as  well-capitalized.  Although the Office of
Thrift  Supervision  does not  impose  minimum  capital  requirements  on thrift
holding  companies,  the Company's  consolidated  regulatory capital amounts and
ratios as of March 31, 2000 and 1999 are also presented.
<TABLE>
<CAPTION>
March 31, 2000                                                                     Required Amounts and Ratios
--------------------------------------------------------------------------------------------------------------------------
                                                                             Minimum Capital           Classification as
                                                   Actual Capital               Adequacy               Well-Capitalized
--------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)                         Amount          Ratio       Amount        Ratio        Amount       Ratio
--------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>        <C>             <C>       <C>              <C>
Tier 1 (Leverage) Capital
Hudson River Bank & Trust Company             $141,867        13.03%     $ 43,541        4.00%     $ 54,426         5.00%
Hudson River Bancorp, Inc. (consolidated)      196,805        17.98

Tier 1 Risk-Based Capital
Hudson River Bank & Trust Company              141,867        18.43        30,798        4.00        46,197         6.00
Hudson River Bancorp, Inc. (consolidated)      196,805        24.89

Total Risk-Based Capital
Hudson River Bank & Trust Company              151,615        19.69        61,596        8.00        76,994        10.00
Hudson River Bancorp, Inc. (consolidated)      206,808        26.16
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999                                                                    Required Amounts and Ratios
--------------------------------------------------------------------------------------------------------------------------
                                                                             Minimum Capital           Classification as
                                                   Actual Capital               Adequacy               Well-Capitalized
--------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)                         Amount          Ratio       Amount        Ratio        Amount       Ratio
--------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>         <C>            <C>        <C>              <C>
Tier 1 (Leverage) Capital
Hudson River Bank & Trust Company             $140,517        17.04%      $ 32,978       4.00%      $ 41,222         5.00%
Hudson River Bancorp, Inc. (consolidated)      216,892        26.18

Tier 1 Risk-Based Capital
Hudson River Bank & Trust Company              140,517        23.18         24,244       4.00         36,367         6.00
Hudson River Bancorp, Inc. (consolidated)      216,892        35.53

Total Risk-Based Capital
Hudson River Bank & Trust Company              148,176        24.45         48,489       8.00         60,611        10.00
Hudson River Bancorp, Inc. (consolidated)      224,621        36.80
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(9)  Stock-Based Compensation Plans
     ------------------------------

Employee Stock Ownership Plan
The Company  established  an ESOP on July 1, 1998 to provide  substantially  all
employees of the Company the opportunity to also become  shareholders.  The ESOP
borrowed $18.4 million from the Company and used the funds to purchase 1,428,300
shares of the common stock of the Company in the open  market.  The loan will be
repaid principally from the Bank's discretionary  contributions to the ESOP with
annual  principal  payments  due  through  March  31,  2014.  Dividends  on  the
unallocated  shares in the ESOP are utilized to reduce the  Company's  principal
payments.  At March  31,  2000,  the loan had an  outstanding  balance  of $16.3
million and an interest rate of 8.00%.  Shares  purchased with the loan proceeds
are held in a suspense account for allocation among  participants as the loan is
repaid. Shares are released for allocation among participants based on the total
principal and interest payments made as a percentage of all remaining  principal
and interest  payments.  Contributions  to the ESOP and shares released from the
suspense  account are allocated among  participants on the basis of compensation
in the year of allocation.

Unallocated  ESOP shares are pledged as collateral for the loan and are reported
in shareholders'  equity.  The Company reports  compensation  expense during the
year based on the average market price of the shares to be released at year end.
The shares  become  outstanding  for  earnings per share  computations  when the
shares are released from collateral. Unallocated ESOP shares are not included in
the earnings per share  computations.  The Company recorded  approximately  $1.4
million and $1.1 million of  compensation  expense  under the ESOP for the years
ended March 31, 2000 and 1999, respectively.

The ESOP shares as of March 31, 2000 were as follows:

--------------------------------------------------------------------------------
Allocated shares                                                          95,843
Shares released for allocation                                           124,718
Unallocated shares                                                     1,207,739
--------------------------------------------------------------------------------
Total ESOP shares                                                      1,428,300
================================================================================
Market value of unallocated shares at March 31, 2000 (In thousands)   $   12,077
================================================================================

Stock Option Plan
On  January  5, 1999,  the  Company's  shareholders  approved  the Hudson  River
Bancorp,  Inc. 1998 Stock Option and Incentive Plan ("Stock  Option Plan").  The
primary  objective of the Stock Option Plan is to provide officers and directors
with a  proprietary  interest in the Company and an incentive to encourage  such
persons to remain with the Company.

Under the Stock Option Plan,  1,785,375 shares of authorized but unissued common
stock are reserved for issuance upon option exercises.  The Company also has the
alternative to fund the Stock Option Plan with treasury stock. Options under the
plan may be either  nonqualified stock options or incentive stock options.  Each
option  entitles the holder to purchase one share of common stock at an exercise
price equal to the fair market  value on the date of grant.  Options  expire ten
years following the date of grant.  The options granted in 2000 and 1999 vest at
a rate of 20% per year from the grant date.

The Company applies APB Opinion No. 25 and related Interpretations in accounting
for its Stock Option Plan. Accordingly, no compensation cost has been recognized
for its Stock Option  Plan.  SFAS No. 123  requires  companies  not using a fair
value based method of accounting for stock options or similar plans,  to provide
pro forma  disclosure  of net income and earnings per share as if that method of
accounting had been applied.

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions used for grants in the years ended March 31, 2000 and 1999: dividend
yield of 1.22% and 1.10%;  expected  volatility of 16.86% and 24.12%;  risk-free
interest  rate  of  6.42%  and  4.73%;  and  expected  lives  of  5  years.  The
weighted-average  fair value of the  options  granted  during  2000 and 1999 was
$2.37 and $2.98, respectively.

Pro forma  disclosures for the years ended March 31, 2000 and 1999 utilizing the
estimated  fair value of the options  granted and an assumed 5% forfeiture  rate
are as follows:
<PAGE>
<TABLE>
<CAPTION>
 (In thousands, except per share data)     For the Years Ended March 31,        2000             1999
-----------------------------------------------------------------------------------------------------
<S>                                                                      <C>             <C>
 Net income:
   As reported                                                           $      9,526    $      3,807
   Pro forma                                                                    9,029           3,685
Basic earnings per share:
   As reported                                                                   0.65            0.17
   Pro forma                                                                     0.62            0.17
Diluted earnings per share:
   As reported                                                                   0.65            0.17
   Pro forma                                                                     0.62            0.17
=====================================================================================================
</TABLE>

Because the Company's stock options have characteristics significantly different
from those of traded  options for which the  Black-Scholes  model was developed,
and because changes in the subjective  input  assumptions can materially  affect
the fair value estimate,  the existing model, in management's  opinion, does not
necessarily  provide a  reliable  single  measure of the fair value of its stock
options.  In addition,  the pro forma effect on reported net income and earnings
per share for the years ended March 31, 2000 and 1999 may not be  representative
of the pro forma effects on reported net income or earnings per share for future
years.

Recognition and Retention Plan
The Company's  shareholders  approved the Hudson River Bancorp, Inc. Recognition
and  Retention  Plan  ("RRP") on January 5, 1999.  The purpose of the plan is to
promote the long-term interests of the Company and its shareholders by providing
a stock-based compensation program to attract and retain officers and directors.
Under the RRP, 714,150 shares of authorized but unissued shares are reserved for
issuance  under the plan.  The Company also has the  alternative to fund the RRP
with treasury stock.

Employees who were awarded shares (restricted stock) under this plan in 2000 and
1999 vest in those  shares over periods of two,  five or ten equal  installments
commencing one year from the date of grant.  The fair market value of the shares
awarded  under the plan at the grant  date is being  amortized  to  compensation
expense on a  straight-line  basis over the  vesting  periods of the  underlying
shares.  Compensation expense of $943 thousand and $217 thousand was recorded in
the years ended March 31, 2000 and 1999,  respectively.  The remaining  unearned
compensation  cost of $6.3  million and $8.0 million was reported as a reduction
of shareholders' equity at March 31, 2000 and 1999, respectively. Shares awarded
under the RRP are  transferred  from treasury  stock at cost with the difference
between  the fair  market  value on the  grant  date and the cost of the  shares
recorded as a reduction of retained earnings.

The  following is a summary of the Company's  Stock Option Plan and  Recognition
and Retention Plan and changes since their approval on January 5, 1999.
<TABLE>
<CAPTION>
                                                                     2000                               1999
---------------------------------------------------------------------------------------------------------------
                                                                   Weighted-                         Weighted-
                                                                   Average                            Average
                                                 Shares            Price(1)         Shares           Price(1)
---------------------------------------------------------------------------------------------------------------
<S>                                            <C>               <C>              <C>               <C>
STOCK OPTION PLAN
Options outstanding, beginning of year         1,248,383         $   11.50               --         $      --
Granted                                           64,686              9.88        1,249,772             11.50
Exercised                                             --                --               --                --
Forfeited and expired                            (11,632)            11.50           (1,389)            11.50
---------------------------------------------------------------------------------------------------------------
Options outstanding, end of year               1,301,437         $   11.42        1,248,383         $   11.50
===============================================================================================================

RECOGNITION AND RETENTION PLAN
Unvested shares, beginning of year               714,150         $   11.50               --         $      --
Granted                                           19,071              9.88          714,150             11.50
Vested                                           (84,311)            11.50               --                --
Forfeited                                        (82,765)            11.50               --                --
---------------------------------------------------------------------------------------------------------------
Unvested shares, end of year                     566,145         $   11.45          714,150         $   11.50
===============================================================================================================
</TABLE>

(1)The  weighted-average   price  for  stock  options  is  the  weighted-average
   exercise price of the options,  and for RRP shares  (restricted  stock),  the
   weighted-average fair value of the stock at the date of grant.
<PAGE>
The following table summarizes information about stock options at March 31,2000:
<TABLE>
<CAPTION>
                                       Options Outstanding                              Options Exercisable
                         ------------------------------------------------------  ----------------------------------
                                              Weighted-                           Weighted-Average      Weighted-
        Range of            Options         Average Price       Remaining             Options         Average Price
    Exercise Prices       Outstanding        Per Option        Life (Years)         Exercisable        Per Option
-------------------------------------------------------------------------------  ----------------------------------
<S> <C>                  <C>                <C>                    <C>              <C>                <C>
    $    9.88               64,686          $    9.88              9.78                  --            $      --
        11.50            1,236,751              11.50              7.57             262,980                11.50
-------------------------------------------------------------------------------  ----------------------------------
    $ 9.88-11.50         1,301,437          $   11.42              7.68             262,980            $   11.50
-------------------------------------------------------------------------------  ----------------------------------
</TABLE>
<PAGE>
(10) Employee Benefit Plans
     ----------------------

Pension Plan
The  Company  maintains  a  noncontributory   pension  plan  ("the  Plan")  with
Retirement Systems Incorporated ("RSI") Retirement Trust, covering substantially
all of its employees meeting certain eligibility requirements.  The benefits are
computed as a percentage of the highest three-year  average annual earnings,  as
defined by the Plan,  multiplied by years of credited  service.  The Plan limits
credited  service for benefit  calculations  to a maximum of thirty  years.  The
amounts  contributed to the plan are determined annually on the basis of (a) the
maximum  amount that can be deducted for federal  income tax purposes or (b) the
amount  certified by a consulting  actuary as necessary to avoid an  accumulated
funding deficiency as defined by the Employee  Retirement Income Security Act of
1974.  Contributions are intended to provide not only for benefits attributed to
service to date but also those expected to be earned in the future.  Plan assets
consist   primarily  of  investments  in  RSI  Retirement   Trust   administered
fixed-income and equity funds.

Effective October 1, 1999, the Company merged the  noncontributory  pension plan
of SFS (the "SFS Plan")  into the Plan.  The terms of the  acquisition  provided
that the benefits  vested in the SFS Plan  immediately  prior to the acquisition
remained  unchanged.  Employees  of  SFS  retained  by  the  Company  after  the
acquisition  received  credit  for  their  years of  service  as it  related  to
eligibility  and vesting,  but not for the accrual of retirement  benefits under
the Plan.

The following  table sets forth the Plan's funded status and amounts  recognized
in the Company's consolidated financial statements at March 31:


(In thousands)                                          2000             1999
--------------------------------------------------------------------------------
Reconciliation of projected benefit obligation
Obligation at beginning of year                      $ 10,038         $  9,028
Service cost                                              472              431
Interest cost                                             663              619
Actuarial (gain) loss                                  (1,306)             381
Business combination                                    1,902               --
Benefits paid                                            (480)            (421)
--------------------------------------------------------------------------------
Obligation at end of year                            $ 11,289         $ 10,038
================================================================================

Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year       $ 11,220         $ 10,422
Actual return on plan assets                            1,428            1,157
Employer contributions                                     --               62
Business combination                                    2,294               --
Benefits paid                                            (480)            (421)
--------------------------------------------------------------------------------
Fair value of plan assets at end of year             $ 14,462         $ 11,220
================================================================================

Reconciliation of funded status
Funded status at end of year                         $  3,173         $  1,182
Unrecognized net actuarial gain                        (2,140)            (287)
Unrecognized prior service cost                            37               46
--------------------------------------------------------------------------------
Prepaid pension cost at end of year                  $  1,070         $    941
================================================================================

Net  periodic  pension  cost  included  in  the  Company's  consolidated  income
statements for the years ended March 31 included the following components:

(In thousands)                                2000          1999          1998
--------------------------------------------------------------------------------
Components of net periodic pension cost
Service cost                                 $ 472         $ 431         $ 344
Interest cost                                  663           619           619
Expected return on plan assets                (880)         (819)         (731)
Amortization of net transition asset            --           (17)          (54)
Net amortization and deferral                    9             9             9
--------------------------------------------------------------------------------
Net periodic pension cost                    $ 264         $ 223         $ 187
================================================================================
<PAGE>
The actuarial assumptions used in determining the actuarial present value of the
projected benefit obligation as of March 31 were as follows:

                                              2000           1999          1998
--------------------------------------------------------------------------------

 Weighted-average assumptions:
   Discount rate                              8.00%          6.75%         7.00%
   Rate of compensation increase              5.50           5.00          5.00
   Expected return on plan assets             8.00           8.00          8.00
--------------------------------------------------------------------------------

Postretirement Benefits
The  Company  provides  certain  postretirement  benefits to  substantially  all
employees and retirees.  Active  employees are eligible for retiree  medical and
life  insurance  coverage  upon  reaching  age 55 with 10 years of service.  The
medical portion of the plan is contributory, with retiree contributions based on
years of service and their  retirement  date.  The Company's  contributions  for
employees  retiring  on or after  September  1, 1995 are  limited to 150% of the
premium rates in effect at the time of retirement. The life insurance portion of
the plan is noncontributory,  with the preretirement  benefit equal to two times
annual earnings.  The postretirement  life insurance benefit is reduced based on
the  retiree's  age and the  length  of time  since  retirement,  with a maximum
retiree  benefit of $50,000.  Postretirement  dental coverage is in effect for a
closed group of retirees. The dental portion of the plan is noncontributory. The
funding  policy of the plan is to pay claims and/or  insurance  premiums as they
come due.

The  following   table   presents  the  amounts   recognized  in  the  Company's
consolidated financial statements at March 31:
<TABLE>
<CAPTION>

(In thousands)                                                              2000              1999
-----------------------------------------------------------------------------------------------------
<S>                                                                        <C>               <C>
Reconciliation of accumulated postretirement benefit obligation
Obligation at beginning of year                                            $ 2,817           $ 2,764
Service cost                                                                    87                69
Interest cost                                                                  185               191
Actuarial (gain) loss                                                         (899)              176
Benefits paid                                                                  (57)             (152)
Business combination                                                           137                --
Plan amendments                                                                 --              (231)
-----------------------------------------------------------------------------------------------------
Obligation at end of year                                                  $ 2,270           $ 2,817
=====================================================================================================

Reconciliation of funded status
Unfunded postretirement benefit obligation at end of year                  $(2,270)          $(2,817)
Unrecognized net actuarial (gain) loss                                        (563)              341
Unrecognized transition obligation                                           1,772             1,890
Unrecognized prior service cost                                               (206)             (231)
-----------------------------------------------------------------------------------------------------
Accrued postretirement benefit liability                                   $(1,267)          $  (817)
=====================================================================================================
</TABLE>


Net periodic  postretirement benefit cost included in the Company's consolidated
income   statements  for  the  years  ended  March  31  included  the  following
components:
<TABLE>
<CAPTION>

(In thousands)                                                   2000            1999           1998
-----------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>            <C>
Components of net periodic postretirement benefit cost
Service cost                                                    $  87           $  69          $  53
Interest cost                                                     185             191            200
Amortization of transition obligation                             118             118            118
Amortization of prior service cost                                (25)             --             --
Amortization of unrecognized loss (gain)                            4              --            (10)
-----------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost                        $ 369           $ 378          $ 361
=====================================================================================================
</TABLE>
<PAGE>
The discount rate used in determining  the  accumulated  postretirement  benefit
obligation  was  8.00%,  6.75%,  and 7.00% at March 31,  2000,  1999,  and 1998,
respectively.

For measurement purposes, a 6.50% annual rate of increase in the per capita cost
of covered health  benefits was assumed for medical  coverage for the year ended
March 31, 2000. This rate was assumed to decrease uniformly to 5.00% by 2002 and
to remain at that level  thereafter.  A 3.00% annual rate of increase in the per
capita cost of covered  dental  benefits  was assumed for dental  coverage.  The
health care cost trend rate assumptions have a significant effect on the amounts
reported. To illustrate,  increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated  postretirement
benefit  obligation  as of  March  31,  2000 by $252  thousand  (11.1%)  and the
aggregate  of  the  service  and  interest  cost   components  of  net  periodic
postretirement  benefit  cost for the year ended March 31, 2000 by $36  thousand
(13.2%). Decreasing the assumed health care cost trend rate one percentage point
in each year would decrease the accumulated postretirement benefit obligation as
of March 31, 2000 by $205  thousand  (9.0%) and the aggregate of the service and
interest  cost  components of net periodic  postretirement  benefit cost for the
year ended March 31, 2000 by $30 thousand (11.0%).

401(k) Savings Plan
The Company also sponsors a defined  contribution  401(k)  Savings Plan covering
substantially  all  employees  meeting  certain  eligibility  requirements.  The
Company  matched  50%  of  employee  pre-tax   contributions  up  to  a  maximum
contribution  by the Company of 3% of the employee's  annual salary at March 31,
2000.  The  amount  of  401(k)  contribution  expense  was $145  thousand,  $152
thousand,  and $126 thousand for the years ended March 31, 2000, 1999, and 1998,
respectively.

Benefit Restoration Plan
During the year ended March 31, 1999, the Company adopted a Benefit  Restoration
Plan for  certain  executive  officers to restore  benefits  cut back in certain
employee benefit plans due to Internal Revenue Service regulations. The benefits
under this plan are unfunded,  and, as of March 31, 2000 and 1999, the projected
benefit obligation was $85 thousand and $72 thousand,  respectively. The Company
recorded  an expense of $23  thousand  and $21  thousand  relating  to this plan
during the years ended March 31, 2000 and 1999, respectively.

Supplemental Retirement Plan
During the year ended March 31,  2000,  and as a result of the SFS  Acquisition,
the Company  assumed the obligation of a Supplemental  Retirement Plan which had
been established for key management  personnel of SFS. As of March 31, 2000, the
projected  benefit  obligation  under this plan was $706  thousand.  The Company
recorded  an  expense of $14  thousand  during  the year  ended  March 31,  2000
relating to this plan.

(11) Earnings Per Share
     ------------------

The following table sets forth certain information  regarding the calculation of
basic and  diluted  earnings  per share for the years  ended  March 31, 2000 and
1999.  Earnings of the Company for the  three-month  period prior to its initial
public  offering on July 1, 1998 are not included in the calculation of earnings
per share for the year ended March 31, 1999.
<TABLE>
<CAPTION>
                                                                             For the Years Ended March 31,
                                                       ------------------------------------------------------------------------
                                                                       2000                                  1999
                                                       -----------------------------------    ---------------------------------
                                                                     Weighted-                             Weighted-
(In thousands, except                                    Net          Average     Per Share      Net        Average    Per Share
              share and per share amounts)             Income         Shares        Amount     Income       Shares       Amount
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>         <C>             <C>         <C>        <C>           <C>
Basic earnings per share                               $ 9,526     14,556,648      $ 0.65      $2,821     16,302,268    $ 0.17

Dilutive effect of potential common shares
   outstanding:
      Stock options                                                     1,865                                     --
      Restricted stock awards                                          19,229                                     --
-------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share                             $ 9,526     14,577,742     $  0.65     $ 2,821     16,302,268    $ 0.17
===============================================================================================================================
</TABLE>


At March  31,  2000 and 1999,  there  were 1.1  million  and 1.2  million  stock
options,  respectively,  not  included  in the above table as  potential  common
shares outstanding  because the effect was anti-dilutive.  At March 31, 2000 and
1999, there were 547 thousand and 714 thousand unvested restricted stock awards,
respectively,  not  included  in the  above  table as  potential  common  shares
outstanding because the effect was anti-dilutive.
<PAGE>
(12) Income Taxes
     ------------

The components of tax expense for the years ended March 31 are as follows:

(In thousands)                        2000             1999               1998
--------------------------------------------------------------------------------
Current tax expense:
   Federal                          $ 6,137           $ 5,035           $ 3,030
   State                                695               507               877
Deferred tax benefit                 (1,844)           (3,358)           (2,004)
--------------------------------------------------------------------------------
Tax expense                         $ 4,988           $ 2,184           $ 1,903
================================================================================


The following is a reconciliation of the expected tax expense and the actual tax
expense for the years ended March 31. The expected tax expense has been computed
by applying the statutory Federal tax rate to income before tax expense:
<TABLE>
<CAPTION>
(In thousands)                                                   2000            1999            1998
-------------------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>             <C>
Income tax at applicable Federal statutory rate                $ 4,935         $ 2,037         $ 1,610
Increase (decrease) in tax expense resulting from:
   Tax-exempt income                                              (312)           (157)            (10)
   State income taxes, net of Federal tax benefit                  229             232             207
   Goodwill amortization                                           313              27              --
   Decrease in deferred tax asset valuation allowance             (141)             --              --
   Other                                                           (36)             45              96
-------------------------------------------------------------------------------------------------------
Tax expense                                                    $ 4,988         $ 2,184         $ 1,903
=======================================================================================================
</TABLE>

The tax effects of temporary  differences  and  carryforwards  that give rise to
significant  portions of the deferred tax assets and deferred tax liabilities at
March 31 are presented below:
<TABLE>
<CAPTION>

(In thousands)                                                                2000                 1999
-------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                <C>
Deferred tax assets:
   Allowance for loan losses                                               $  7,968           $  5,553
   Other real estate owned and repossessed property                             492                235
   Accrued post-retirement benefits                                             574                393
   Deferred compensation                                                      1,029                245
   Charitable contribution carryforward for tax purposes                        750              1,499
   Net unrealized loss on securities available for sale                       5,083                431
   Other                                                                        436                471
-------------------------------------------------------------------------------------------------------
Total gross deferred tax assets                                              16,332              8,827
Valuation allowance                                                              --               (141)
-------------------------------------------------------------------------------------------------------
Net deferred tax assets                                                      16,332              8,686
-------------------------------------------------------------------------------------------------------

Deferred tax liabilities:
   Depreciation                                                                (219)              (235)
   Bond discount accretion                                                      (82)              (316)
   Prepaid pension                                                             (419)              (388)
   Other                                                                       (645)              (343)
-------------------------------------------------------------------------------------------------------
Total deferred tax liabilities                                               (1,365)            (1,282)
-------------------------------------------------------------------------------------------------------
Net deferred tax asset at end of year                                      $ 14,967           $  7,404
=======================================================================================================
</TABLE>

A corporation's annual tax deduction for charitable  contributions is subject to
a limitation based on a percentage of taxable income. Contributions in excess of
this  limitation  are carried  forward and may be deducted in one or more of the
succeeding  five tax  years.  As a result of the  contribution  of shares to the
Hudson River Bank & Trust Company Foundation, at March 31, 2000, the Company had
an unused  charitable  contribution  carryforward of approximately  $1.8 million
($750  thousand  deferred tax asset),  which is available for deduction  through
March 31, 2004.
<PAGE>
The deferred tax asset  valuation  allowance,  when  established by the Company,
takes into consideration the nature and timing of the deferred tax items as well
as the amount of available open tax carrybacks. The valuation allowance at March
31, 1999 related to uncertainty about the realization of certain Federal and New
York State  deferred  tax  assets.  During the year ended  March 31,  2000,  the
circumstances  creating  the  uncertainties  were  resolved,  and the  valuation
allowance  was  reversed.  Based on recent  historical  and  anticipated  future
taxable income,  management believes it is more likely than not that the Company
will realize its net deferred tax assets.

Deferred  tax  assets  were  increased  in the amount of $4.7  million  and $428
thousand  with a  corresponding  increase to  shareholders'  equity in the years
ended March 31, 2000 and 1999,  respectively,  relating to unrealized  losses on
securities available for sale. Deferred tax assets were reduced by $229 thousand
with a corresponding  change to shareholders' equity in the year ended March 31,
1998 relating to unrealized  gains on securities  available for sale. A deferred
tax asset of $1.1 million was recorded with an offsetting  reduction of goodwill
in the year ended March 31, 2000 in connection with the purchase  accounting for
the SFS Acquisition.

As a thrift  institution,  the Bank is  subject  to  special  provisions  in the
Federal  and New  York  State  tax laws  regarding  its  allowable  tax bad debt
deductions and related tax bad debt reserves. These deductions historically have
been  determined  using  methods  based on loss  experience  or a percentage  of
taxable  income.  Tax bad debt  reserves are  maintained  equal to the excess of
allowable  deductions over actual bad debt losses and other reserve  reductions.
These reserves consist of a defined  base-year amount,  plus additional  amounts
("excess  reserves")  accumulated after the base year.  Deferred tax liabilities
are recognized with respect to such excess  reserves,  as well as any portion of
the base-year  amount which is expected to become taxable (or  "recaptured")  in
the foreseeable future.

In  accordance  with  SFAS  No.  109,  deferred  tax  liabilities  have not been
recognized  with  respect to the Federal  base-year  reserve of $7.3 million and
$2.7 million and "supplemental"  reserve (as defined) of $14.8 million and $10.5
million  at  March  31,  2000 and  1999,  respectively,  and the New York  State
base-year reserve of $29.7 million and $22.2 million at March 31, 2000 and 1999,
respectively,  since the Bank does not expect  that these  amounts  will  become
taxable in the foreseeable future. The unrecognized  deferred tax liability with
respect to the  Federal  base-year  reserve  and  supplemental  reserve was $2.6
million and $5.2 million,  respectively, at March 31, 2000 and $945 thousand and
$3.5 million,  respectively,  at March 31, 1999. The  unrecognized  deferred tax
liability with respect to the New York State base-year  reserve was $1.7 million
and  $1.3  million  (net of  Federal  benefit)  at  March  31,  2000  and  1999,
respectively.

(13) Commitments and Contingent Liabilities
     --------------------------------------

Off-Balance Sheet Financing and Concentrations of Credit
The Company is a party to certain  financial  instruments with off-balance sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
customers.  These  financial  instruments  include the Company's  commitments to
extend credit. These instruments involve, to varying degrees, elements of credit
risk  in  excess  of  the  amount  recognized  in  the  consolidated   financial
statements.  The  contract  amounts of those  instruments  reflect the extent of
involvement the Company has in particular classes of financial instruments.

The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other  party  to  the  commitments  to  extend  credit  is  represented  by  the
contractual  notional  amount of those  instruments.  The Company  uses the same
credit  policies  in  making   commitments  as  it  does  for  on-balance  sheet
instruments.

Unless  otherwise  noted,  the  Company  does not  require  collateral  or other
security to support financial instruments with credit risk.

Contract amounts of financial instruments that represent credit risk as of March
31 are as follows:

(In thousands)                                      2000                1999
-----------------------------------------------------------------------------

Commitments to extend credit                      $ 36,813         $   49,681
Unused lines of credit                              70,880             35,183
Standby letters of credit                            6,987              6,935
-----------------------------------------------------------------------------
Total                                             $114,680           $ 91,799
=============================================================================
<PAGE>
Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee.  Since  certain  commitments  are  expected to expire
without being fully drawn upon, the total commitment  amounts do not necessarily
represent  future cash  requirements.  The  Company  evaluates  each  customer's
creditworthiness  on a case-by-case  basis.  The amount of  collateral,  if any,
required by the Company upon the  extension  of credit is based on  management's
credit evaluation of the customer.

Commitments  to extend credit may be written on a fixed-rate  basis exposing the
Company to interest rate risk given the possibility that market rates may change
between commitment and actual extension of credit.

Standby letters of credit are conditional  commitments  issued by the Company to
guarantee  payment on behalf of a customer and  guarantee the  performance  of a
customer to a third party. The credit risk involved in issuing these instruments
is essentially the same as that involved in extending loans to customers.  Since
a portion of these  instruments  will expire  unused,  the total  amounts do not
necessarily  represent  future cash  requirements.  Each  customer is  evaluated
individually for creditworthiness under the same underwriting standards used for
commitments to extend credit and on-balance sheet instruments.  Company policies
governing  loan  collateral  apply to  standby  letters of credit at the time of
credit extension.

Certain  mortgage  loans are  written on an  adjustable-rate  basis and  include
interest  rate caps,  which limit annual and lifetime  increases in the interest
rates on such loans.  Generally,  adjustable-rate  mortgages have an annual rate
increase  cap of 2% and a lifetime  rate  increase  cap of 5% to 6%.  These caps
expose the Company to interest  rate risk should  market  rates  increase  above
these limits.  As of March 31, 2000 and 1999,  residential  real estate loans of
approximately $188.0 million and $135.4 million, respectively, had interest rate
caps.

Concentrations Of Credit
The Company originates residential loans (including home equity and construction
loans) and  commercial-related  loans primarily to customers  located in the New
York State counties of Columbia, Albany,  Rensselaer,  Dutchess and Schenectady.
Manufactured home loans are originated primarily in New York State and in states
contiguous to New York. Financed insurance premiums are originated  primarily in
New York,  New Jersey and  Pennsylvania.  Although the Company has a diversified
loan  portfolio,  a substantial  portion of its debtors'  ability to honor their
contracts is dependent upon economic conditions in these areas.

Leases
The  Company  leases  certain  of  its  branches  and  equipment  under  various
noncancelable  operating  leases.  Rental expense for premises and equipment was
$345 thousand,  $243  thousand,  and $236 thousand for the years ended March 31,
2000, 1999, and 1998, respectively.  Aggregate future minimum payments under all
significant  noncancelable  operating  leases with initial or remaining terms of
one year or more as of March 31, 2000 are as follows:

(In thousands)
-------------------------------------------------------------------------------
Years ending March 31,
2001                                                             $          311
2002                                                                        312
2003                                                                        295
2004                                                                        250
2005                                                                        195
Thereafter                                                                1,911
-------------------------------------------------------------------------------
Total                                                            $        3,274
-------------------------------------------------------------------------------

Serviced Loans
The total amount of loans  serviced by the Company for  unrelated  third parties
was  approximately  $41.4  million and $46.6 million at March 31, 2000 and 1999,
respectively.

Reserve Requirement
The  Company is  required  to  maintain  certain  reserves  of vault cash and/or
deposits with the Federal Reserve Bank. The amount of this reserve  requirement,
included in cash and due from banks,  was  approximately  $263 thousand and $279
thousand at March 31, 2000 and 1999, respectively.

Liquidation Account
As part of the Bank's  conversion  from a mutual savings bank to a stock savings
bank, the Bank established a liquidation account in an amount equal to its total
equity as of December 31, 1997. The  liquidation  account will be maintained for
the benefit of eligible  depositors  who continue to maintain  their accounts at
the Bank after the conversion.  The liquidation account will be reduced annually
to the extent that eligible  depositors have reduced their qualifying  deposits.
Subsequent  increases will not restore an eligible account holder's  interest in
the liquidation account. In the event of a complete  liquidation,  each eligible
depositor  will be  entitled  to  receive a  distribution  from the  liquidation
account in an amount  proportionate to the current adjusted  qualifying balances
for accounts then held.  Neither the Company nor the Bank may pay dividends that
would  reduce  shareholders'  equity  below  the  required  liquidation  account
balance.

Contingent Liabilities
In the ordinary course of business,  there are various legal proceedings pending
against the Company.  Based on  consultation  with outside  counsel,  management
believes that the aggregate exposure, if any, arising from such litigation would
not have a  material  adverse  effect on the  Company's  consolidated  financial
statements.
<PAGE>
(14) Fair Value of Financial Instruments
     -----------------------------------

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",  requires
that the Company disclose  estimated fair values for its financial  instruments.
The  definition  of a  financial  instrument  includes  many of the  assets  and
liabilities  recognized in the Company's consolidated balance sheets, as well as
certain off-balance sheet items.

Fair value  estimates  are made at a specific  point in time,  based on relevant
market  information  and  information  about  the  financial  instrument.  These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the  Company's  entire  holdings of a particular  financial
instrument.  Because no market exists for a significant portion of the Company's
financial  instruments,  fair value  estimates are based on judgments  regarding
future   expected   net  cash   flows,   current   economic   conditions,   risk
characteristics of various financial instruments and other factors and would not
be indicative of the value  negotiated  in an actual sale.  These  estimates are
subjective  in nature and  involve  uncertainties  and  matters  of  significant
judgment  and  therefore  cannot  be  determined  with  precision.   Changes  in
assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and  off-balance  sheet financial
instruments  without  attempting  to estimate  the value of  anticipated  future
business  and the  value of  assets  and  liabilities  that  are not  considered
financial  instruments.  In  addition,  the  tax  ramifications  related  to the
realization of the unrealized gains and losses can have a significant  effect on
fair value estimates and have not been considered in the estimates of fair value
under SFAS No. 107.

In addition,  there are significant intangible assets that SFAS No. 107 does not
recognize,  such as the value of "core  deposits," the Company's  branch network
and other items generally referred to as "goodwill."

Short-term Financial Instruments
--------------------------------
The fair value of certain  financial  instruments  is estimated  to  approximate
their  carrying  value  because  the  remaining  term to  maturity  or period to
repricing  of the  financial  instrument  is less than 90 days.  Such  financial
instruments  include cash and cash  equivalents,  accrued  interest  receivable,
securities  sold under  agreements to repurchase,  short-term  FHLB advances and
accrued interest payable.

Securities
----------
Securities  available  for sale and  securities  held to maturity are  financial
instruments which are usually traded in broad markets. Fair values are generally
based upon  market  prices.  If a quoted  market  price is not  available  for a
particular security,  the fair value is determined by reference to quoted market
prices for securities with similar characteristics.  The estimated fair value of
stock in the Federal Home Loan Bank of New York equals the carrying  value since
the stock is nonmarketable but redeemable at its par value.

Loans
-----
Fair  values  are  estimated  for  portfolios  of loans with  similar  financial
characteristics. Loans are segregated by type including residential real estate,
commercial real estate, other commercial loans and consumer loans. The estimated
fair value of performing loans is calculated by discounting scheduled cash flows
through the  estimated  maturity  using  estimated  market  discount  rates that
reflect  the credit and  interest  rate risk  inherent  in the  respective  loan
portfolio.

Estimated  fair value for  nonperforming  loans is based on estimated cash flows
discounted using a rate commensurate with the risk associated with the estimated
cash flows. Assumptions regarding credit risk, cash flows and discount rates are
judgmentally determined using available market information and specific borrower
information.

Deposit Liabilities and Long-term Borrowings
--------------------------------------------
The estimated fair value of deposits with no stated  maturity,  such as savings,
N.O.W.,  money  market,  noninterest-bearing  accounts  and  mortgagors'  escrow
deposits,  is regarded to be the amount  payable on demand.  The estimated  fair
value of time deposit  accounts and  long-term  FHLB  borrowings is based on the
discounted value of contractual cash flows. The discount rate is estimated using
the rates  currently  offered for  deposits or  available  for  borrowings  with
similar  remaining  maturities.  The fair value  estimates  for  deposits do not
include the benefit  that  results  from the  low-cost  funding  provided by the
deposit liabilities compared with the cost of borrowing funds in the market.
<PAGE>
The  carrying  values  and  estimated  fair  values  of  financial   assets  and
liabilities  (none of which were held for trading  purposes) as of March 31 were
as follows:

<TABLE>
<CAPTION>
                                                                    2000                        1999
---------------------------------------------------------------------------------------------------------------
                                                                         Estimated                   Estimated
                                                          Carrying         Fair        Carrying        Fair
(In thousands)                                              Value          Value        Value          Value
---------------------------------------------------------------------------------------------------------------
<S>                                                       <C>           <C>           <C>           <C>
Financial assets
Cash and cash equivalents                                 $  16,612     $  16,612     $  12,722     $  12,722
Securities available for sale                               236,980       236,980       242,611       242,611
Securities held to maturity                                  11,144        11,065        23,041        23,235
Federal Home Loan Bank of New York stock                      7,425         7,425         3,299         3,299

Loans receivable                                            823,855       809,750       578,099       582,692
Allowance for loan losses                                   (19,608)           --       (14,296)           --
---------------------------------------------------------------------------------------------------------------
Net loans receivable                                        804,247       809,750       563,803       582,692
---------------------------------------------------------------------------------------------------------------

Accrued interest receivable                                   6,470         6,470         5,701         5,701

Financial liabilities
Deposits:
   Savings, N.O.W., money market and noninterest-
     bearing accounts                                     $ 355,601     $ 355,601     $ 289,335     $ 289,335
   Time deposit accounts                                    392,962       394,503       302,479       304,961
Securities sold under agreements to repurchase                4,214         4,214           845           845
Short-term FHLB advances                                    116,450       116,450        27,600        27,600
Long-term FHLB borrowings                                    30,600        30,065            --            --
Mortgagors' escrow deposits                                   5,500         5,500         3,869         3,869
Accrued interest payable                                        658           658           122           122
===============================================================================================================
</TABLE>

The fair  value of  commitments  to extend  credit,  unused  lines of credit and
standby letters of credit is estimated using the fees currently charged to enter
into  similar  agreements,  taking  into  account  the  remaining  terms  of the
agreements  and  the  present   creditworthiness  of  the  counterparties.   For
fixed-rate  commitments to extend credit and unused lines of credit,  fair value
also considers the difference  between  current levels of interest rates and the
committed  rates.  Based upon the estimated  fair value of commitments to extend
credit,  unused  lines of credit and  standby  letters  of credit,  there are no
significant   unrealized  gains  or  losses   associated  with  these  financial
instruments.
<PAGE>
(15) Condensed Financial Information of the Parent Company
     -----------------------------------------------------

The Parent  Company began  operations on July 1, 1998, in  conjunction  with the
Bank's  mutual-to-stock  conversion and the Company's initial public offering of
its common stock. The following  represents the Parent Company's  balance sheets
as of March 31, 2000 and 1999, and its income  statements and statements of cash
flows for the year  ended  March 31,  2000 and the period  July 1, 1998  through
March 31, 1999.

<TABLE>
<CAPTION>

                                                                                     March 31,
Balance Sheets                                                             ---------------------------
(In thousands)                                                                 2000          1999
------------------------------------------------------------------------------------------------------
<S>                                                                           <C>           <C>
Assets
Interest-bearing deposit with subsidiary bank                               $    603      $    122
Securities purchased under agreements to resell to subsidiary bank            18,517        54,883
------------------------------------------------------------------------------------------------------
Cash and cash equivalents                                                     19,120        55,005
------------------------------------------------------------------------------------------------------
Securities available for sale                                                  1,457         1,196
Loan to ESOP                                                                  16,278        17,200
Other assets                                                                  21,678         5,907
Investment in equity of subsidiary bank                                      143,082       140,123
------------------------------------------------------------------------------------------------------
Total assets                                                                $201,615      $219,431
======================================================================================================

Liabilities and Shareholders' Equity
Other liabilities                                                           $    892      $     90
Total shareholders' equity                                                   200,723       219,341
------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                  $201,615      $219,431
======================================================================================================

<CAPTION>

                                                                          For the Year            For the Period
Income Statements                                                            Ended             July 1, 1998 through
(In thousands)                                                           March 31, 2000           March 31, 1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                      <C>
Interest income
Interest-bearing deposit with subsidiary bank                               $    11                  $     4
Securities purchased under agreements to resell to subsidiary bank            2,052                    2,577
Securities available for sale                                                    38                       12
Loan to ESOP                                                                  1,399                    1,118
-------------------------------------------------------------------------------------------------------------------
Total interest income                                                         3,500                    3,711
-------------------------------------------------------------------------------------------------------------------

Other operating income                                                          312                      111
-------------------------------------------------------------------------------------------------------------------

Other operating expenses
Compensation and benefits                                                       549                      143
Legal and other professional fees                                               174                      106
Postage and item transportation                                                  32                       15
Charitable foundation contribution                                               --                    5,200
Goodwill and other intangibles amortization                                     542                       80
Other expenses                                                                  683                      261
-------------------------------------------------------------------------------------------------------------------
Total other operating expenses                                                1,980                    5,805
-------------------------------------------------------------------------------------------------------------------

Income (loss) before tax expense (benefit) and
   equity in undistributed earnings of subsidiary bank                        1,832                   (1,983)
Tax expense (benefit)                                                           621                     (812)
Equity in undistributed earnings of subsidiary bank                           8,315                    3,992
-------------------------------------------------------------------------------------------------------------------
Net income                                                                  $ 9,526                  $ 2,821
===================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                                        For the Year           For the Period
Statements of Cash Flows                                                                   Ended            July 1, 1998 through
(In thousands)                                                                         March 31, 2000          March 31, 1999
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                     <C>
Cash flows from operating activities
Net income                                                                                $   9,526              $   2,821
  Adjustments to reconcile net income to net cash provided by operating activities:
  Charitable foundation contribution                                                             --                  5,200
  Goodwill and other intangibles amortization                                                   542                     80
  Amortization of restricted stock awards                                                       943                    217
  ESOP stock released for allocation                                                          1,456                  1,134
  Net increase in other assets                                                               (1,218)                (6,000)
  Net increase in other liabilities                                                             802                     90
  Equity in undistributed earnings of subsidiary bank                                        (8,315)                (3,992)
--------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities                                           3,736                   (450)
--------------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities
  Increase in investment in equity of subsidiary bank                                        (1,355)               (67,626)
  Purchases of securities available for sale                                                   (503)                (1,160)
  Net decrease (increase) in loan to ESOP                                                       922                (17,200)
  Purchase of bank owned life insurance                                                     (15,000)                    --
--------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                       (15,936)               (85,986)
--------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities
Net proceeds from stock offering                                                                 --                169,967
Dividends paid                                                                               (1,844)                    --
Purchases of treasury stock                                                                 (21,841)               (10,098)
Acquisition of common stock by ESOP                                                              --                (18,428)
--------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities                                         (23,685)               141,441
--------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents                                        (35,885)                55,005
Cash and cash equivalents at beginning of period                                             55,005                     --
--------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                                $  19,120              $  55,005
================================================================================================================================

Supplemental disclosures of noncash investing and financing
  activities
Recognition of subsidiary bank's total equity on date of Parent
   Company's investment in equity of subsidiary bank                                      $      --              $  69,365
Adjustment of securities available for sale to fair value, net of tax                     $    (147)             $      23
Adjustment of subsidiary bank's securities available for
  sale to fair value, net of tax                                                          $  (6,711)             $    (860)
================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HUDSON RIVER BANCORP, INC. AND
HUDSON RIVER BANK & TRUST COMPANY                               HUDSON RIVER BANK & TRUST COMPANY

BOARD OF DIRECTORS                                              VICE PRESIDENTS
<S>                          <C>                                <C>                       <C>
Carl A. Florio, CPA          President and
                             Chief Executive Officer            Daniel F. Cheeseman       Commercial Lending
                             Hudson River Bancorp, Inc.         Susan M. Hollister        Human Resources
                                                                David J. Jurczynski       Finance and Risk Management
Earl Schram, Jr.             Chairman of the Board              Lawrence J. Longo, Jr.    Mortgage Originations
                             Hudson River Bancorp,  Inc.        Michael J. Mackay         Loan Servicing
                             Attorney and President             James F. Mackerer         Commercial Lending and Facilities
                             Connor, Curran & Schram, P.C.      Ellen G. Miller           Retail Banking
                                                                Paul Sherman              Commercial Lending
Stanley Bardwell, M.D.       Retired Physician

William E. Collins           Retired President and
                             Chief Executive Officer
                             Hudson City Savings Institution

Marilyn A. Herrington        Real Estate Developer


Joseph W. Phelan             President
                             Taconic Farms, Inc.

William H. (Tony) Jones      President and Publisher
                             Roe Jan Independent Publishing Co., Inc.

Marcia M. Race               Retired
                             Assistant to the President
                             Hudson City Savings Institution

Joseph H. Giaquinto          Retired President and
                             Chief Executive Officer,
                             SFS Bancorp, Inc.

DIRECTORS EMERTI

Morton A. Ginsberg           Chairman of the Board
                             Ginsberg's Foods, Inc.

John E. Kelly                Retired President
                             Berkshire Telephone Company

EXECUTIVE OFFICERS

Carl A. Florio, CPA          President and
                             Chief Executive Officer

Sidney D. Richter            Executive Vice President, Senior Lending Officer

Timothy E. Blow, CPA         Chief Financial Officer

Carol J. Dube                Senior Vice President, Operations

Richard J. Malena            Senior Vice President, Retail Banking
</TABLE>
<PAGE>
Hudson River Bancorp, Inc.
--------------------------
CORPORATE INFORMATION

ANNUAL MEETING OF SHAREHOLDERS
The annual  meeting of Hudson  River  Bancorp,  Inc.  will be held at 3:00 pm on
August   , 2000, at the St. Charles Hotel & Restaurant, Hudson, NY.

STOCK TRANSFER AGENT & REGISTRAR
Shareholders  wishing to change name,  address,  or  ownership  of stock,  or to
report lost certificates  and/or  consolidate  accounts are asked to contact the
Company's stock registrar and transfer agent directly at:

Registrar & Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
(800) 368-5948

ANNUAL REPORT ON FORM 10-K
For the 2000 fiscal year, Hudson River Bancorp,  Inc. will file an Annual Report
on Form  10-K.  Shareholders  wishing  a copy may  obtain  one free of charge by
writing:

Holly E. Rappleyea
Corporate Secretary
Hudson River Bancorp, Inc.
One Hudson City Centre
Hudson, NY 12534

STOCK LISTING
The common stock of Hudson River Bancorp, Inc. trades on the Nasdaq Stock Market
under the symbol HRBT. As of June   , 2000,  there were        holders of record
of Hudson River Bancorp, Inc. common stock.

STOCK PRICE
The table below shows the reported closing prices of Hudson River Bancorp,  Inc.
common stock during the periods  indicated during the years ended March 31, 2000
and 1999.

Quarter Ending                   High            Low        Dividend
--------------------------------------------------------------------
September 31, 1998          $   13.75       $    9.38            --
December 31, 1998               11.75            8.75            --
March 31, 1999                  12.00           10.06            --

--------------------------------------------------------------------
June 30, 1999               $   11.75       $    9.88       $   .03
September 30, 1999              12.13           10.75           .03
December 31, 1999               11.25            9.75           .03
March 31, 2000                  10.56            9.50           .03
--------------------------------------------------------------------
<PAGE>
HUDSON RIVER BANCORP, INC.
ONE HUDSON CITY CENTRE
HUDSON, NY 12534
(518) 828-4600

www.hudsonriverbank.com