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


                                    FORM 10-K

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
        EXCHANGE ACT OF 1934

                  For the  fiscal  year ended  March 31,  1998  containing  only
financial statements pursuant to Rule 15d-2

                                       OR

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

       Commission file number 000-24187

                           HUDSON RIVER BANCORP, INC.
             (Exact Name of Registrant as Specified in its Charter)

            Delaware                                          14-1803212
 (State or other jurisdiction of                           (I.R.S. Employer
 incorporation or organization)                            Identification No.)

 One Hudson City Centre, Hudson New York                         12534
 (Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code: (518) 828-4600

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                                (Title of Class)

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

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  Registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X]

         As of July 22,  1998,  there  were  issued and  outstanding  17,853,750
shares of the  Registrant's  Common  Stock.  The  aggregate  market value of the
voting stock held by non-affiliates of the Registrant,  computed by reference to
the  average  of the  closing  bid and asked  prices of such stock on the Nasdaq
National Market System as of July 22, 1998, was approximately $199.5 million.


                       DOCUMENTS INCORPORATED BY REFERENCE

None.
<PAGE>





        This  Report is being filed  pursuant  to Rule 15d-2 of the  Securities
Exchange  Act of 1934  as  amended.  Pursuant  to such  rule,  the  Registration
Statement of the  Registrant  filed under the  Securities  Act of 1933, SEC File
Number,  333-47605  did  not  contain  certified  financial  statements  for the
Registrant's  last  full  fiscal  year.  Therefore,  contained  herein  are  the
certified  financial  statements  of the  Registrant.  Since the initial  public
offering was completed on July 1, 1998, net income per share for the fiscal year
ended March 31, 1998 is not applicable and therefore is not presented.






<PAGE>
                          Independent Auditors' Report


The Board of Trustees
The Hudson City Savings Institution:

We have audited the accompanying  consolidated balance sheets of The Hudson City
Savings  Institution and subsidiaries  (the Bank) as of March 31, 1998 and 1997,
and the related consolidated income statements,  statements of changes in equity
and cash flows for each of the years in the  three-year  period  ended March 31,
1998. These  consolidated  financial  statements are the  responsibility  of the
Bank's  management.   Our  responsibility  is  to  express  an  opinion  on  the
consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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
consolidated  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 The Hudson City
Savings  Institution  and  subsidiaries  as of March 31, 1998 and 1997,  and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period ended March 31, 1998, in conformity  with generally  accepted
accounting principles.


                                                       /s/ KPMG Peat Marwick LLP
                                                       -------------------------
                                                           KPMG Peat Marwick LLP



Albany, New York
June 12, 1998


<PAGE>
<TABLE>
<CAPTION>
                        THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

                                    Consolidated Balance Sheets

                                      March 31, 1998 and 1997

Assets                                                                       1998           1997
------                                                                    ---------      ---------
                                                                              (In thousands)
<S>                                                                       <C>            <C>   
Cash and due from banks .............................................     $  12,423         10,457
Federal funds sold ..................................................        21,850           --
                                                                          ---------      ---------
     Cash and cash equivalents ......................................        34,273         10,457
                                                                          ---------      ---------

Loans held for sale .................................................         1,286             84
Securities available for sale .......................................        42,471         45,623
Investment securities ...............................................        65,194         79,068
Federal Home Loan Bank of New York stock ............................         3,035          2,812

Loans receivable ....................................................       506,978        493,019
     Less: Allowance for loan losses ................................        (8,227)        (5,872)
                                                                          ---------      ---------
         Net loans receivable .......................................       498,751        487,147
                                                                          ---------      ---------

Accrued interest receivable .........................................         4,402          4,880
Premises and equipment, net .........................................        15,331         14,965
Other real estate owned and repossessed property ....................         1,532          3,447
Other assets ........................................................         4,939          2,551
                                                                          ---------      ---------

              Total assets ..........................................     $ 671,214        651,034
                                                                          =========      =========
Liabilities and Equity
----------------------

Liabilities:
     Deposits .......................................................       588,314        564,599
     Short-term borrowings ..........................................         2,000         12,585
     Urban Development Action Grant payable .........................          --              835
     Mortgagors' escrow deposits ....................................         3,723          3,746
     Other liabilities ..............................................         8,873          4,140
                                                                          ---------      ---------
              Total liabilities .....................................       602,910        585,905
                                                                          ---------      ---------

Commitments and contingent liabilities (note 14)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                        THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

                                    Consolidated Balance Sheets

                                      March 31, 1998 and 1997

                                                                             1998           1997
                                                                          ---------      ---------
                                                                              (In thousands)
<S>                                                                       <C>               <C>   
Equity:
     Surplus ........................................................        13,839         13,839
     Undivided profits ..............................................        54,469         51,638
     Net unrealized loss on securities available for sale, net of tax            (4)          (348)
                                                                          ---------      ---------
              Total equity ..........................................        68,304         65,129
                                                                          ---------      ---------

              Total liabilities and equity ..........................     $ 671,214        651,034
                                                                          =========      =========
</TABLE>


See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                 THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

                            Consolidated Income Statements

                       Years Ended March 31, 1998, 1997 and 1996

                                                       1998       1997         1996
                                                     -------     -------     -------
                                                             (In thousands)
<S>                                                  <C>          <C>         <C>   
Interest and dividend income:
     Interest and fees on loans ................     $47,482      43,585      40,780
     Securities available for sale .............       2,568       3,658       1,782
     Investment securities .....................       4,727       5,385       6,062
     Federal funds sold ........................         402          89         271
     Federal Home Loan Bank of New York stock ..         208         164         187
                                                     -------     -------     -------
              Total interest and dividend income      55,387      52,881      49,082
                                                     -------     -------     -------

Interest expense:
     Deposits ..................................      25,772      25,187      24,044
     Short-term borrowings .....................         205         239          42
                                                     -------     -------     -------
              Total interest expense ...........      25,977      25,426      24,086
                                                     -------     -------     -------

              Net interest income ..............      29,410      27,455      24,996

Provision for loan losses ......................       8,491       3,826       1,090
                                                     -------     -------     -------
              Net interest income after
                  provision for loan losses ....      20,919      23,629      23,906
                                                     -------     -------     -------

Other operating income:
     Service charges on deposit accounts .......       1,103       1,063       1,026
     Loan servicing income .....................         398         480         272
     Net securities transactions ...............          15          28          28
     Net gain on sale of loans .................          96          17          92
     Other income ..............................       1,233         237         217
                                                     -------     -------     -------
              Total other operating income .....       2,845       1,825       1,635
                                                     -------     -------     -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                 THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

                            Consolidated Income Statements

                       Years Ended March 31, 1998, 1997 and 1996
                                     (continued)

                                                       1998       1997         1996
                                                     -------     -------     -------
                                                             (In thousands)
<S>                                                  <C>          <C>         <C>   

Other operating expenses:
     Compensation and benefits .................       9,394       8,592       7,471
     Occupancy .................................       1,395       1,285       1,184
     Equipment .................................       1,614       1,230       1,057
     FDIC assessment ...........................          74          27         299
     Other real estate owned and repossessed
         property expenses .....................         572         292         348
     Legal and other professional fees .........         950         397         330
     Postage and item transportation ...........         765         655         510
     Other expenses ............................       4,266       3,709       3,000
                                                     -------     -------     -------
              Total other operating expenses ...      19,030      16,187      14,199
                                                     -------     -------     -------

Income before income tax expense ...............       4,734       9,267      11,342

Income tax expense .............................       1,903       3,607       4,298
                                                     -------     -------     -------
              Net income .......................     $ 2,831       5,660       7,044
                                                     =======     =======     =======
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                       THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

                           Consolidated Statements of Changes in Equity

                             Years Ended March 31, 1998, 1997 and 1996


                                                                           Net Unrealized
                                                                               Loss on
                                                                              Securities
                                                                              Available
                                                               Undivided   for Sale, Net    Total
                                                  Surplus       Profits       of Tax       Equity
                                                  -------       -------       ------       ------
                                                                     (In thousands)
<S>                                                <C>          <C>           <C>         <C>   
Balance as of April 1, 1995 ..................     $13,019      39,193          (74)      52,138

Net income ...................................        --         7,044         --          7,044

Transfers to surplus .........................         670        (670)        --           --

Net increase in equity from acquisition ......        --           561         --            561

Adjustment of securities available for sale to
     fair value, net of tax ..................        --          --           (137)        (137)
                                                   -------     -------      -------      -------

Balance as of March 31, 1996 .................      13,689      46,128         (211)      59,606

Net income ...................................        --         5,660         --          5,660

Transfers to surplus .........................         150        (150)        --           --

Adjustment of securities available for sale to
     fair value, net of tax ..................        --          --           (137)        (137)
                                                   -------     -------      -------      -------

Balance as of March 31, 1997 .................      13,839      51,638         (348)      65,129

Net income ...................................        --         2,831         --          2,831

Adjustment of securities available for sale to
     fair value, net of tax ..................        --          --            344          344
                                                   -------     -------      -------      -------

Balance as of March 31, 1998 .................     $13,839      54,469           (4)      68,304
                                                   =======     =======      =======      =======

</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

                                        Consolidated Statements of Cash Flows

                                      Years Ended March 31, 1998, 1997 and 1996


                                                                                1998          1997          1996
                                                                              --------      --------      --------
                                                                                            (In thousands)
<S>                                                                            <C>              <C>           <C>  
Cash flows from operating activities:
     Net income ..........................................................     $  2,831         5,660         7,044
     Adjustments to reconcile net income to net cash provided
        by operating activities:
              Depreciation ...............................................        1,359         1,183         1,000
              Provision for loan losses ..................................        8,491         3,826         1,090
              Deferred tax benefit .......................................       (1,170)         (791)         (394)
              Net securities transactions ................................          (15)          (28)          (28)
              Net gain on sales of loans held for sale ...................          (96)          (17)          (92)
              Net loans originated for sale ..............................      (11,423)       (2,539)       (4,632)
              Proceeds from sales of loans held for sale .................       10,317         2,673         6,697
              Gain on sale of branch building ............................         (452)         --            --
              Adjustments of other real estate owned and repossessed
                  property to fair value .................................          401           169           336
              Net gain on sales of other real estate owned and repossessed
                  property ...............................................         (445)         (556)         (454)
              Decrease (increase) in accrued interest receivable .........          478           374          (863)
              (Increase) decrease in other assets ........................       (1,445)          763          (559)
              Increase in other liabilities ..............................        4,733         1,323         1,031
                                                                               --------      --------      --------
                      Total adjustments ..................................       10,733         6,380         3,132
                                                                               --------      --------      --------
                      Net cash provided by operating activities ..........       13,564        12,040        10,176
                                                                               --------      --------      --------

Cash flows from investing activities:
     Proceeds from sales of securities available for sale ................         --           7,025         3,982
     Proceeds from maturities, calls and paydowns of securities
       available for sale ................................................       37,996        21,564         5,024
     Purchases of securities available for sale ..........................      (34,258)      (22,975)      (38,998)
     Proceeds from sales of investment securities ........................         --           2,979          --
     Proceeds from maturities, calls and paydowns of investment securities       21,890         8,860        10,057
     Purchases of investment securities ..................................       (8,016)       (7,911)      (13,165)
     Purchase of FHLB of New York stock ..................................         (223)         (309)         --
     Redemption of FHLB of New York stock ................................         --              93          --
     Net loans made to customers .........................................      (24,555)      (49,875)      (13,952)
     Proceeds from sales of and payments received on other real estate
         owned and repossessed property ..................................        6,419         4,817         3,281
     Capital expenditures ................................................       (2,473)       (1,799)       (1,713)
     Proceeds from sale of branch building ...............................        1,200          --            --
     Net cash provided by acquisition activity ...........................         --            --             195
                                                                               --------      --------      --------
                      Net cash used in investing activities ..............       (2,020)      (37,531)      (45,289)
                                                                               --------      --------      --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

                                        Consolidated Statements of Cash Flows

                                      Years Ended March 31, 1998, 1997 and 1996
                                                    (continued)


                                                                                1998          1997          1996
                                                                              --------      --------      --------
                                                                                            (In thousands)
<S>                                                                            <C>           <C>          <C>  
Cash flows from financing activities:
     Net increase in deposits ............................................       23,715         9,411        37,181
     Net (decrease) increase in short-term borrowings ....................      (10,585)       12,585          --
     Repayment of UDAG payable ...........................................         (835)         --            --
     Decrease in mortgagors' escrow deposits .............................          (23)         (281)       (1,767)
                                                                               --------      --------      --------
                      Net cash provided by financing activities ..........       12,272        21,715        35,414
                                                                               --------      --------      --------

Net increase (decrease) in cash and cash equivalents .....................       23,816        (3,776)          301
Cash and cash equivalents at beginning of year ...........................       10,457        14,233        13,932
                                                                               --------      --------      --------
Cash and cash equivalents at end of year .................................     $ 34,273        10,457        14,233
                                                                               ========      ========      ========

Supplemental information:
     Interest paid .......................................................     $ 25,980        25,305        24,086
                                                                               ========      ========      ========

     Taxes paid ..........................................................     $  4,012         4,593         3,981
                                                                               ========      ========      ========
Non-cash investing and financing activities:

     Loans transferred to other real estate owned and repossessed property     $  4,460         6,027         3,557
                                                                               ========      ========      ========

     Loans transferred from loans held for sale to the loan portfolio ....     $   --            --             239
                                                                               ========      ========      ========

     Investment securities transferred to securities available for sale ..     $   --            --          13,775
                                                                               ========      ========      ========

     Securities available for sale transferred to investment securities ..     $   --            --           2,000
                                                                               ========      ========      ========

     Adjustment of securities available for sale to fair value, net of tax     $    344          (137)         (137)
                                                                               ========      ========      ========
     Acquisition activity (see note 2):
         Non-cash assets acquired ........................................     $   --            --           4,004
                                                                               ========      ========      ========

         Non-cash liabilities assumed ....................................     $   --            --           3,638
                                                                               ========      ========      ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements 

(1)    Summary of Significant Accounting Policies
       ------------------------------------------
       (a)Principles of Consolidation
          --------------------------- 
            The accompanying   consolidated  financial  statements  include  the
                accounts  of  The  Hudson  City  Savings   Institution  and  its
                subsidiaries (the "Bank").  All material  intercompany  accounts
                and transactions have been eliminated.

       (b)Basis of Presentation
          ---------------------
            The accompanying  consolidated  financial statements conform, in all
                material respects,  to generally accepted accounting  principles
                and to general  practice within the banking  industry.  The Bank
                utilizes  the  accrual   method  of  accounting   for  financial
                reporting purposes.

       (c)Use of Estimates
          ----------------             
            Management  of  the  Bank  has  made  a  number  of  estimates   and
                assumptions  relating to the reporting of assets and liabilities
                and the  disclosure  of  contingent  assets and  liabilities  to
                prepare these  consolidated  financial  statements in conformity
                with generally accepted  accounting  principles.  Actual results
                could differ from those estimates.

            Material estimates that are particularly  susceptible to significant
                change  in the near  term  relate  to the  determination  of the
                allowance for loan losses and the valuation of other real estate
                owned and  repossessed  property  acquired  in  connection  with
                foreclosures  or in-substance  foreclosures.  In connection with
                the  determination  of the  allowance  for loan  losses  and the
                valuation of other real estate owned and  repossessed  property,
                management obtains appraisals for significant properties.

            Management  believes  that the allowance for loan losses is adequate
                and that other real  estate  owned and  repossessed  property is
                recorded at its fair value less an estimate of the costs to sell
                the properties.  While management uses available  information to
                recognize   losses  on  loans,   other  real  estate  owned  and
                repossessed property, future additions to the allowance or write
                downs of other real estate owned and repossessed property may be
                necessary based on changes in economic conditions.  In addition,
                various  regulatory  agencies,  as an  integral  part  of  their
                examination  process,  periodically  review the Bank's allowance
                for loan  losses and other  real  estate  owned and  repossessed
                property.  Such  agencies  may  require  the  Bank to  recognize
                additions  to the  allowance or write downs of other real estate
                owned and  repossessed  property based on their  judgments about
                information  available to them at the time of their  examination
                which may not be currently available to management.

            A   substantial  portion  of the  Bank's  loans are  secured by real
                estate  located  in the New York  State  counties  of  Columbia,
                Albany,  Rensselaer,  Dutchess, and Schenectady.  In addition, a
                substantial   portion  of  the  other  real  estate   owned  and
                repossessed  property is located in those same markets,  as well
                as in the  states  contiguous  to  New  York.  Accordingly,  the
                ultimate  collectibility of a substantial  portion of the Bank's
                loan portfolio and the recovery of a substantial  portion of the
                carrying  amount of other  real  estate  owned  and  repossessed
                property is  dependent  upon market  conditions  in these market
                areas.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


       (d)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, and
                federal funds sold.

       (e)Securities  Available  for  Sale,  Investment  Securities  and Federal
          ----------------------------------------------------------------------
            Home Loan Bank of New York Stock
            --------------------------------
            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 stated
                at amortized  cost. 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,  as a separate  component  of equity.  As a member of the
                Federal Home Loan Bank of New York (FHLB),  the Bank is required
                to hold FHLB stock  which is  carried at cost since  there is no
                readily  available market value. At March 31, 1998 and 1997, the
                Bank  did not  hold  any  securities  considered  to be  trading
                securities.

            Gains or losses on  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  which reflect a decline in value which is
                other than  temporary  are  charged to income and  reported as a
                component of "net securities  transactions"  in the consolidated
                income statements. The carrying amount of securities is adjusted
                for amortization of premium and accretion of discount,  which is
                calculated on an effective interest method.

            In  November 1995, the staff of the Financial  Accounting  Standards
                Board released its Special Report, "A Guide to Implementation of
                Statement 115 on Accounting for Certain  Investments in Debt and
                Equity  Securities." The Special Report  contained,  among other
                things, a unique provision that allowed entities to,  concurrent
                with the initial  adoption of the Special  Report  (November 15,
                1995)  but not  later  than  December  31,  1995,  reassess  the
                appropriateness of the classifications of all securities held at
                that time. In  conjunction  with the  provisions of this Special
                Report, as of December 31, 1995, the Bank transferred securities
                with an amortized  cost of  $13,775,000  and an  estimated  fair
                value of $14,017,000  from  investment  securities to securities
                available for sale.

       (f)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.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            Non-performing  loans  include  non-accrual  loans,  loans which are
                contractually  past  due 90  days  or more  and  still  accruing
                interest and troubled debt restructurings.  Generally, loans are
                placed on  non-accrual  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 non-accrual  status when principal  and/or interest  payments
                are  contractually  past  due 90  days or  more.  When a loan is
                placed on non-accrual  status,  all interest  previously accrued
                but not  collected is reversed  against  current  year  interest
                income.  Interest income on non-accrual loans is recognized only
                if received, if considered appropriate by management.  Loans are
                removed from  non-accrual  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.

            The Bank   accounts  for  fees  and  costs   associated   with  loan
                originations   in   accordance   with   Statement  of  Financial
                Accounting    Standards   (SFAS)   No.   91,   "Accounting   for
                Nonrefundable  Fees and Costs  Associated  with  Originating and
                Acquiring Loans and Initial Direct Costs of Leases."

            In  accordance  with SFAS No.  114,  "Accounting  by  Creditors  for
                Impairment  of a Loan," as amended by SFAS No. 118,  "Accounting
                by Creditors for Impairment of a Loan - Income  Recognition  and
                Disclosures,"  a  loan  (generally   commercial-type  loans)  is
                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, or when a loan
                (of  any  loan  type)  is   restructured   in  a  troubled  debt
                restructuring  subsequent  to the adoption of these  Statements.
                These  Statements   prescribe   recognition  criteria  for  loan
                impairment,  generally  related to  commercial  type loans,  and
                measurement  methods  for  impaired  loans.  Impaired  loans are
                included  in  non-performing  loans,  generally  as  non-accrual
                commercial-type loans.

            The allowance for loan losses  related to impaired loans is based on
                the  discounted  cash flows using the loan's  initial  effective
                rate or the fair value of the collateral for certain loans where
                repayment  of the loan is expected to be provided  solely by the
                underlying  collateral  (collateral dependent loans). The Bank's
                impaired  loans are  generally  collateral  dependent.  The Bank
                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.
<PAGE>

              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       (g)Allowance for Loan Losses
          ------------------------- 
            The allowance for loan losses is replenished through a provision for
                loan losses charged to operations. Loans are charged against the
                allowance  for loan losses  when  management  believes  that the
                collectibility of the principal is unlikely. Recoveries on loans
                previously  charged-off  are credited to the  allowance for loan
                losses. The allowance is an amount that management believes will
                be adequate to absorb  losses on existing  loans that may become
                uncollectible.  Management's  evaluation  of the adequacy of the
                allowance  for loan losses is performed on a periodic  basis and
                takes into  consideration  such factors as the  historical  loan
                loss  experience,  changes  in the nature and volume of the loan
                portfolio, overall portfolio quality, review of specific problem
                loans and current economic conditions that may affect borrowers'
                ability to pay.

       (h)Loans Held for Sale
          ------------------- 
            Loans are  classified  as held for  investment  purposes or held for
                sale when the Bank 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.  Gains and losses
                on the  disposition of loans held for sale are determined on the
                specific identification method. Loans held for sale at March 31,
                1998 and 1997 was comprised of residental mortgage loans.

       (i)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  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.

       (j)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 fair value of the asset
                acquired,  less  estimated  costs to dispose of the property.  A
                loan is categorized as an in-substance foreclosure when the Bank
                has taken  possession of the  collateral,  regardless of whether
                formal foreclosure  proceedings have taken place. At the time of
                foreclosure,  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  such  property  and net
                operating  expenses of such  properties 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 Bank.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       (k)Income Taxes
          ------------ 
            The Bank accounts for income taxes in accordance  with SFAS No. 109,
                "Accounting  for Income  Taxes".  Under the asset and  liability
                method of SFAS No. 109,  deferred tax assets and liabilities are
                recognized  for the  future  tax  consequences  attributable  to
                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  income  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.

       (l)Statutory Transfer of Surplus
          ----------------------------- 
            A   required  quarterly  transfer  of 10% of net  income  is made to
                surplus in accordance  with New York State Banking  Regulations.
                No transfer is required if total equity as a percent of deposits
                exceeds 10% at the end of each quarter. In accordance with State
                of  New  York  Banking  Law,   surplus  is  subject  to  certain
                restrictions,  including a prohibition of its use for payment of
                dividends,  except with the  approval of the  Superintendent  of
                Banks.

       (m)Financial Instruments
          --------------------- 
            In  the normal  course of  business,  the Bank 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  Bank's  policy  is  to  record  such
                instruments when funded.

       (n)Trust Department Assets and Service Fees
          ---------------------------------------- 
            Assets held by the Bank 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 Bank. Trust service fees
                are reported on the accrual basis.

       (o)Reclassifications
          ----------------- 
             Amounts in the prior years' consolidated  financial  statements are
                reclassified  whenever  necessary  to conform  with the  current
                year's presentation.

(2)    Acquisition Activity
       --------------------
       On December 20, 1995, The Hudson City Savings Institution acquired all of
          the assets and assumed all of the  liabilities of Valatie  Savings and
          Loan   Association.   This   transaction   was   accounted  for  as  a
          pooling-of-interests   and  resulted  in  an  increase  in  equity  of
          $561,000. Amounts related to this transaction are not material.
<PAGE>    
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(3)    Securities Available for Sale
       -----------------------------
       The amortized cost and approximate fair value of securities available for
       sale at March 31 are as follows:
<TABLE>
<CAPTION>
                                                              1998
                                         -----------------------------------------------
                                                       Gross       Gross     Approximate
                                         Amortized  unrealized   unrealized     fair
                                           cost        gains       losses       value
                                          -------     -------     -------      -------
                                                         (In thousands)
<S>                                       <C>         <C>        <C>           <C>   
U.S. Government and Agency securities     $33,261          41        (115)      33,187
Corporate debt securities ...........       8,200          65         (12)       8,253
Mortgage backed securities ..........       1,018          13        --          1,031
                                          -------     -------     -------      -------
    Total securities available
         for sale ...................     $42,479         119        (127)      42,471
                                          =======     =======     =======      =======
<CAPTION>
                                                              1997
                                         -----------------------------------------------
                                                       Gross       Gross     Approximate
                                         Amortized  unrealized   unrealized     fair
                                           cost        gains       losses       value
                                          -------     -------     -------      -------
                                                         (In thousands)
<S>                                       <C>         <C>         <C>          <C>   
U.S. Government and Agency securities     $37,933           7        (611)      37,329
Corporate debt securities ...........       8,269          47         (22)       8,294
                                          -------     -------     -------      -------
    Total securities available
         for sale ...................     $46,202          54        (633)      45,623
                                          =======     =======     =======      =======
</TABLE>

       At   March 31, 1998,  mortgage backed  securities  consisted  entirely of
            Government National Mortgage Association (GNMA) securities.

       The  amortized cost and  approximate  fair value of securities  available
            for sale at March 31, 1998, by contractual maturity (mortgage backed
            securities  are  included  by final  contractual  maturity),  are as
            follows (actual  maturities may differ from  contractual  maturities
            because  borrowers may have the right to call or prepay  obligations
            with or without prepayment penalties):
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

<TABLE>
<CAPTION>
                               U.S. Government and             Corporate Debt
                                 Agency Securities                Securities
                             ------------------------    ------------------------
                                          Approximate                 Approximate
                             Amortized        fair       Amortized        fair
                               cost           value         cost          value
                              -------       -------       -------       -------
                                               (In thousands)
<S>                           <C>           <C>             <C>           <C>  
 Within one year ......       $  --            --           1,000         1,003
 One through five years        20,959        20,951         5,269         5,331
 Five through ten years        12,302        12,236          --            --
 After ten years ......          --            --           1,931         1,919
                              -------       -------       -------       -------
                              $33,261        33,187         8,200         8,253
                              =======       =======       =======       =======
<CAPTION>

                                   Mortgage Backed            Total Securities
                                     Securities              Available for Sale
                              ------------------------   ----------------------- 
                                           Approximate               Approximate
                               Amortized      fair       Amortized      fair
                                 cost         value         cost        value
                               -------       -------       -------       -------
                                               (In thousands)
<S>                             <C>         <C>           <C>         <C>  
   Within one year ......       $ --           --          1,000        1,003
   One through five years         --           --         26,228       26,282
   Five through ten years         --           --         12,302       12,236
   After ten years ......        1,018        1,031        2,949        2,950
                                ------       ------       ------       ------
                                $1,018        1,031       42,479       42,471
                                ======       ======       ======       ======
</TABLE>

       During the years ended March 31, 1998,  1997 and 1996,  the Bank received
          $0, $7,025,000 and $3,982,000, respectively, in proceeds from the sale
          of securities available for sale, realizing gross gains of $0, $36,000
          and $28,000,  respectively,  and no gross  losses.  The Bank  realized
          gross gains of $15,000 and no gross losses during the year ended March
          31, 1998, related to calls of securities available for sale.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(4)    Investment Securities
       ---------------------
       The amortized cost and approximate fair value of investment securities as
       of March 31 are as follows:
<TABLE>
<CAPTION>
                                                                             1998
                                                     ---------------------------------------------------
                                                                     Gross         Gross     Approximate
                                                     Amortized     unrealized    unrealized      fair
                                                       cost         gains         losses         value
                                                     --------       ------        -------      ---------
                                                                         (In thousands)
<S>                                                  <C>           <C>           <C>            <C>   
         U.S. Government and Agency securities       $18,977            71           (16)        19,032
         Corporate debt securities ...........        41,779           285            (7)        42,057
         Mortgage backed securities ..........         4,428            59          (104)         4,383
         State, county and municipal .........            10          --            --               10
                                                     -------       -------       -------        -------
              Total investment securities ....       $65,194           415          (127)        65,482
                                                     =======       =======       =======        =======
<CAPTION>
                                                                             1997
                                                     ---------------------------------------------------
                                                                     Gross         Gross     Approximate
                                                     Amortized     unrealized    unrealized      fair
                                                       cost          gains         losses        value
                                                     --------        ------        -------     ---------
                                                                        (In thousands)
<S>                                                  <C>                <C>           <C>           <C>   
         U.S. Government and Agency securities       $17,960            14          (135)        17,839
         Corporate debt securities ..........         57,648           110          (219)        57,539
         Mortgage backed securities .........          3,050            37          (123)         2,964
         State, county and municipal ........            410             1          --              411
                                                     -------       -------       -------        -------
              Total investment securities ...        $79,068           162          (477)        78,753
                                                     =======       =======       =======        =======
</TABLE>

                                                     
       At March 31, 1998 and 1997, mortgage backed securities consisted entirely
          of GNMA, Fannie Mae and Freddie Mac securities.

       The amortized cost and approximate fair value of investment securities at
          March 31, 1998, by contractual  maturity  (mortgage backed  securities
          are included by final  contractual  maturity),  are as follows (actual
          maturities may differ from contractual  maturities  because  borrowers
          may  have the  right to call or  prepay  obligations  with or  without
          prepayment penalties):
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
                                    U.S. Government
                                       and Agency             Corporate Debt
                                       Securities                Securities
                              -------------------------    -----------------------
                                            Approximate                Approximate
                               Amortized       fair        Amortized      fair
                                 cost          value         cost         value
                                 ----          -----         ----         -----
                                                (In thousands)
<S>                            <C>           <C>           <C>           <C>   
Within one year ........       $10,990        10,990        23,899        23,970
One through five years .         7,987         8,042        17,880        18,087
Five through ten years .          --            --            --            --
After ten years ........          --            --            --            --
                               -------       -------       -------       -------
                               $18,977        19,032        41,779        42,057
                               =======       =======       =======       =======

<CAPTION>
                                Mortgage Backed           State, County                Total
                                  Securities              and Municipal         Investment Securities
                            -----------------------   -----------------------   -----------------------
                                        Approximate               Approximate               Approximate
                            Amortized      fair       Amortized      fair       Amortized      fair
                              cost         value        cost         value        cost         value
                                                          (In thousands)
<S>                          <C>                                                 <C>          <C>   
Within one year ......       $ --           --           --           --         34,889       34,960
One through five years          269          267         --           --         26,136       26,396
Five through ten years        2,547        2,543           10           10        2,557        2,553
After ten years ......        1,612        1,573         --           --          1,612        1,573
                             ------       ------       ------       ------       ------       ------
                             $4,428        4,383           10           10       65,194       65,482
                             ======       ======       ======       ======       ======       ======
</TABLE>

       Investment securities with a carrying value of $5.0 million at both March
          31, 1998 and 1997,  were  pledged to secure  public  deposits  and for
          other purposes as required by law.

       During the year ended March 31, 1997,  the Bank  received  $2,979,000  in
          proceeds  from the sale of an investment  security,  realizing a gross
          loss  of  $8,000.   This   security   was  sold  due  to   significant
          deterioration   in  the  issuer's   creditworthiness.   No  investment
          securities were sold during the years ended March 31, 1998 and 1996.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(5)    Net Loans Receivable
       --------------------
       A summary of net loans receivable as of March 31 is as follows:
<TABLE>
<CAPTION>
                                                                  1998          1997
                                                              ---------      ---------
                                                                    (In thousands)
<S>                                                           <C>              <C>    
Loans secured by real estate:
     Residential one-to-four-family .....................     $ 242,117        246,462
     Home equity ........................................        27,318         27,630
     Commercial .........................................        76,570         67,697
     Construction .......................................         4,621          2,725
                                                              ---------      ---------
         Total loans secured by real estate .............       350,626        344,514
                                                              ---------      ---------

Other loans:
     Manufactured housing ...............................        97,426         92,651
     Commercial .........................................        18,484         19,713
     Financed insurance premiums ........................        27,976         23,535
     Consumer ...........................................        11,857         11,577
                                                              ---------      ---------
         Total other loans ..............................       155,743        147,476
                                                              ---------      ---------

Net deferred loan origination costs and unearned discount           609          1,029
Allowance for loan losses ...............................        (8,227)        (5,872)
                                                              ---------      ---------
         Net loans receivable ...........................     $ 498,751        487,147
                                                              =========      =========
</TABLE>
       Changes in the  allowance for loan losses during the years ended March 31
       were as follows:
<TABLE>
<CAPTION>
                                                             1998         1997         1996
                                                           -------      -------      -------
                                                                     (In thousands)

<S>                                                         <C>            <C>          <C>  
         Allowance for loan losses at beginning of year     $ 5,872        3,546        3,187
         Provision charged to operations ..............       8,491        3,826        1,090
         Loans charged-off ............................      (6,730)      (2,070)      (1,197)
         Recoveries on loans charged-off ..............         594          570          423
         Allowance acquired through merger ............        --           --             43
                                                            -------      -------      -------
         Allowance for loan losses at end of year .....     $ 8,227        5,872        3,546
                                                            =======      =======      =======
</TABLE>
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       The following table sets forth  information with regard to non-performing
loans at March 31:
<TABLE>
<CAPTION>
                                                              1998        1997        1996
                                                            -------     -------     -------
                                                                     (In thousands)

<S>                                                         <C>          <C>          <C>  
  Loans in non-accrual status ............................  $15,707      15,282       8,286
  Loans contractually past due 90 days or more and still
       accruing interest .................................       16       4,711       2,600
                                                            -------     -------     -------
                                                            $15,723      19,993      10,886
                                                            =======     =======     =======
</TABLE>
       At March 31, 1998,  1997 and 1996,  respectively,  there were no troubled
          debt  restructurings.  There  are no  material  commitments  to extend
          further credit to borrowers with non-performing loans.

       Accumulated   interest  on  non-accrual   loans,   as  shown  above,   of
          approximately  $599,000 and $586,000,  was not  recognized in interest
          income  during the years ended March 31, 1998 and 1997,  respectively.
          Approximately  $920,000 and $937,000 of interest on non-accrual loans,
          as shown above, was collected and recognized in interest income during
          the years  ended March 31,  1998 and 1997,  respectively.  Accumulated
          interest on  non-accrual  loans,  as shown above,  not  recognized  in
          interest  income and collected and  recognized in interest  income for
          the year ended March 31, 1996 was not significant.

       At March 31, 1998 and 1997,  the  recorded  investment  in loans that are
          considered to be impaired  under SFAS No. 114 totaled $5.3 million and
          $5.4 million,  respectively,  for which the related allowance for loan
          losses was $1.0 million and $2.0  million,  respectively.  As of March
          31, 1998 and 1997,  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, 1998,  1997 and 1996,  was $5.8 million,  $1.6 million
          and $569,000,  respectively.  The interest income  recognized on those
          impaired  loans and the interest  income  recognized on those impaired
          loans using the cash basis of income  recognition  was not significant
          for the years ended March 31, 1998, 1997 and 1996.

       Certain  executive  officers of the Bank were  customers of and had other
          transactions  with the Bank in the ordinary course of business.  Loans
          to these  parties were made in the ordinary  course of business at the
          Bank's   normal   credit   terms,    including   interest   rate   and
          collateralization. The aggregate of such loans totaled less than 5% of
          total equity at March 31, 1998 and 1997.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(6)    Accrued Interest Receivable
       ---------------------------
       Accrued interest receivable consists of the following at March 31:
<TABLE>
<CAPTION>
                                                          1998              1997
                                                         ------           ------
                                                             (In thousands)
<S>                                                      <C>               <C>  
Loans and loans held for sale ................           $3,075            3,115
Securities available for sale ................              430              664
Investment securities ........................              897            1,101
                                                         ------           ------
                                                         $4,402            4,880
                                                         ======            =====
</TABLE>
(7)    Premises and Equipment
       ----------------------
       A summary of premises and equipment at March 31 is as follows:
<TABLE>
<CAPTION>
                                                       1998               1997
                                                     --------          --------
                                                          (In thousands)

<S>                                                  <C>                 <C>   
Bank buildings and land ....................         $ 15,370            15,224
Furniture and equipment ....................            5,208             4,505
Leasehold improvements .....................              829               786
                                                     --------          --------
                                                       21,407            20,515
Less:  Accumulated depreciation ............           (6,076)           (5,550)
                                                     --------          --------
     Premises and equipment, net ...........         $ 15,331            14,965
                                                     ========          ========
</TABLE>

       Depreciation  was  approximately  $1.4  million,  $1.2  million  and $1.0
          million,   for  the  years  ended  March  31,  1998,  1997  and  1996,
          respectively.

(8)    Other Real Estate Owned and Repossessed Property
       ------------------------------------------------
       Other  real  estate  owned  and  repossessed  property  consisted  of the
          following at March 31:
<TABLE>
<CAPTION>
                                                         1998              1997
                                                        ------            ------
                                                              (In thousands)
<S>                                                     <C>                <C>  
Repossessed real estate:
  Commercial ...............................            $  299             2,860
  Residential ..............................               145                48
Repossessed property .......................             1,088               539
                                                        ------            ------
                                                        $1,532             3,447
                                                        ======            ======
</TABLE>
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(9)    Deposits
       --------
       Deposit account balances at March 31 are summarized as follows:
<TABLE>
<CAPTION>
                                                                 1998          1997
                                                               --------     --------
                                                                   (In thousands)

<S>                                                            <C>           <C>    
         Savings accounts (3.00% to 3.92%) ...............     $142,569      136,109
         N.O.W. and money market accounts (2.00% to 4.88%)       93,400       92,347
         Time deposit accounts:
           2.00 to 2.99% .................................          473         --
           3.00 to 3.99% .................................          820          824
           4.00 to 4.99% .................................        3,356       15,319
           5.00 to 5.99% .................................      264,149      228,732
           6.00 to 6.99% .................................       14,838       27,070
           7.00 to 7.99% .................................       35,663       35,441
                                                               --------     --------
              Total time deposit accounts ................      319,299      307,386
                                                               --------     --------

         Non-interest bearing accounts ...................       33,046       28,757
                                                               --------     --------
              Total deposits .............................     $588,314      564,599
                                                               ========     ========
</TABLE>

       The aggregate amount of time deposit  accounts with a balance of $100,000
          or greater was $42.1  million and $44.3  million at March 31, 1998 and
          1997, respectively.

       The approximate   amounts  of  contractual   maturities  of  time deposit
          accounts at March 31, 1998 are as follows:

                                                             (In thousands)
                Years ending March 31,
                         1999                                   $ 204,963
                         2000                                      85,420
                         2001                                      16,542
                         2002                                      10,152
                         2003                                       1,451
                     Thereafter                                       771
                                                                ---------
                                                                $ 319,299
                                                                =========
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       Interest  expense on deposits for the years ended March 31 is  summarized
          as follows:
<TABLE>
<CAPTION>
                                                1998         1997          1996
                                              --------     --------     ---------
                                                        (In thousands)
<S>                                         <C>              <C>           <C>   
         Time deposit accounts              $   18,085       17,727        16,713
         Savings accounts                        4,729        4,523         4,275
         N.O.W. and money market accounts        2,850        2,831         2,932
         Mortgagors' escrow deposits               108          106           124
                                              --------     --------     ---------
                                            $   25,772       25,187        24,044
                                              ========     ========     =========
</TABLE>

(10)   Urban Development Action Grant Payable
       --------------------------------------
       Hudson City  Center,  Inc.  (a  subsidiary  of the Bank) was  awarded  an
          $835,000 "Urban Development  Action Grant (UDAG) Equity  Participation
          in Cash Flow" by the Hudson Development Corporation for the purpose of
          constructing an office building in the City of Hudson,  New York. This
          loan was to be repaid in December  2000.  Since January 1991, the Bank
          had  expensed  approximately  $25,000  per year under the terms of the
          agreement. During September 1997, the loan was satisfied.

(11)   Income Taxes
       ------------
       The components of income tax  expense for the years ended March 31 are as
          follows:
<TABLE>
<CAPTION>
                                          1998           1997             1996
                                        -------         -------         -------
                                                    (In thousands)
<S>                                     <C>             <C>             <C>  
Current tax expense:
  Federal ......................        $ 2,759           3,702           3,951
  State ........................            314             696             741
Deferred tax benefit ...........         (1,170)           (791)           (394)
                                        -------         -------         -------
                                        $ 1,903           3,607           4,298
                                        =======         =======         =======
</TABLE>
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


       The following is a reconciliation  of the expected income tax expense and
          the  actual  income  tax  expense  for the years  ended  March 31. The
          expected  income  tax  expense  has  been  computed  by  applying  the
          statutory federal tax rate to income before income tax expense:
<TABLE>
<CAPTION>
                                                                 1998         1997        1996
                                                              -------      -------      -------
                                                                        (In thousands)
<S>                                                           <C>            <C>          <C>  
Income tax at applicable federal statutory rate .........     $ 1,610        3,151        3,856
Increase (decrease) in income tax expense resulting from:
      Tax exempt securities income ......................         (10)         (14)         (82)
      State income taxes, net of federal tax benefit ....         207          459          489
      Other .............................................          96           11           35
                                                              -------      -------      -------
           Income tax expense ...........................     $ 1,903        3,607        4,298
                                                              =======      =======      =======
</TABLE>
       The tax effects of  temporary  differences  that give rise to significant
          portions of the deferred tax assets and  deferred tax  liabilities  at
          March 31 are presented below:
<TABLE>
<CAPTION>
                                                                           1998         1997
                                                                         -------      -------
                                                                             (In thousands)
<S>                                                                      <C>            <C>  
Deferred tax assets:
  Differences in reporting the provision for loan losses and tax bad
      debt deduction ...............................................     $ 3,045        1,880
  Differences in reporting other real estate owned and repossessed
      property .....................................................         237          221
  Accrued postretirement benefits ..................................         289          203
  Deferred compensation ............................................         195          136
  Other ............................................................          77           49
                                                                         -------      -------
        Total gross deferred tax assets ............................       3,843        2,489
        Less valuation allowance ...................................        (141)        (141)
                                                                         -------      -------
        Net deferred tax assets ....................................       3,702        2,348
                                                                         -------      -------
Deferred tax liabilities:
  Differences in reporting depreciation ............................        (250)         (60)
  Differences in reporting bond discount accretion .................        (222)        (184)
  Differences in reporting pension costs ...........................        (449)        (493)
                                                                         -------      -------
        Total deferred tax liabilities .............................        (921)        (737)
                                                                         -------      -------
        Net deferred tax asset at end of year ......................       2,781        1,611
        Net deferred tax asset at beginning of year ................       1,611          820
                                                                         -------      -------
        Deferred tax benefit for the year ..........................     $(1,170)        (791)
                                                                         =======      =======
</TABLE>
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       In addition to the deferred tax assets and liabilities  described  above,
          the Bank had a deferred  tax asset of $3,000 and $232,000 at March 31,
          1998 and 1997,  respectively,  related to the net  unrealized  loss on
          securities available for sale.

       The  valuation allowance,  as  established  by the Bank at March 31, 1998
          and 1997,  takes  into  consideration  the  nature  and  timing of the
          deferred tax asset items,  as well as the amount of available open tax
          carrybacks.  The  valuation  allowance  relates to the Bank's New York
          State net  deferred  tax asset,  which is a component  of deferred tax
          assets,  due to the  lack of  carryback  and  carryforward  provisions
          available  in New  York  State,  as  well  as  uncertainty  about  the
          realization  of certain  Federal  deferred tax items.  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.

       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.  SFAS No.  109  requires
          recognition  of deferred tax  liabilities  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.

       Certain  amendments to the Federal and New York State tax laws  regarding
          bad debt  deductions were enacted in July and August 1996. The Federal
          amendments  include  elimination  of the  percentage of taxable income
          method for tax years beginning after December 31, 1995, and imposition
          of a requirement  to recapture  into taxable  income (over a period of
          approximately  six years) the tax bad debt  reserves  in excess of the
          base-year amounts. The Bank previously established,  and will continue
          to  maintain,  a deferred  tax  liability  with respect to such excess
          Federal reserves. The New York State amendments redesignate the Bank's
          state tax bad debt  reserves  at December  31,  1995 as the  base-year
          amount and also provide for future additions to the base-year  reserve
          using the percentage of taxable income method.

       In accordance with SFAS No. 109,  deferred tax liabilities  have not been
          recognized  with  respect  to the  Federal  base-year  reserve of $2.7
          million and  "supplemental"  reserve (as defined) of $10.3  million at
          both March 31 1998 and 1997, and the state base-year  reserve of $18.3
          million  at both  March  31,  1998 and  1997,  since the Bank does not
          expect  that these  amounts  will  become  taxable in the  foreseeable
          future.  Under New York State tax law, as  amended,  events that would
          result in taxation of these  reserves  include the failure of the Bank
          to maintain a specified  qualifying  assets ratio or meet other thrift
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

          definition  tests for tax  purposes.  The  unrecognized  deferred  tax
          liability  at both March 31, 1998 and 1997 with respect to the Federal
          base-year  reserve  and  supplemental  reserve was  $933,000  and $3.5
          million, respectively. The unrecognized deferred tax liability at both
          March 31, 1998 and 1997 with  respect to the state  base-year  reserve
          was $1.1 million (net of Federal benefit).

(12)   Employee Benefit Plans
       ----------------------
       The Bank maintains  a  non-contributory   pension  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.

       The following  table  sets forth the Plan's  funded  status  and  amounts
          recognized in the Bank's  consolidated  financial  statements at March
          31:
<TABLE>
<CAPTION>
                                                                                       1998          1997
                                                                                     --------      --------
                                                                                          (In thousands)
<S>                                                                                  <C>             <C>    
         Actuarial present value of benefit obligations:
           Accumulated benefit obligation, including vested benefits of
              $7,242,000 and $6,477,000 at March 31, 1998 and 1997, respectively     $ (7,475)       (6,659)
                                                                                     ========      ========

         Projected benefit obligation ..........................................     $ (9,028)       (8,183)
         Estimated fair value of Plan assets ...................................       10,453         9,272
                                                                                     --------      --------
         Plan assets in excess of projected benefit obligation .................        1,425         1,089
         Unrecognized net (gain) loss from past experience different from that
           assumed and effects of changes in assumptions .......................         (330)          149
         Unrecognized transition asset at January 1, 1988 being recognized over
           approximately 12 years ..............................................          (17)          (71)
         Unrecognized past service liability ...................................           55            64
                                                                                     --------      --------
              Prepaid pension cost included in other assets ....................     $  1,133         1,231
                                                                                     ========      ========
</TABLE>
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       Net periodic pension  cost  included  in the Bank's  consolidated  income
          statements  for the  years  ended  March  31  included  the  following
          components:
<TABLE>
<CAPTION>
                                            1998           1997            1996
                                          -------        -------        -------
                                                     (In thousands)

<S>                                       <C>                <C>            <C>
Service cost ......................       $   344            353            327
Interest cost .....................           619            573            536
Actual return on plan assets ......        (1,376)          (753)        (1,160)
Net amortization and deferral .....           600             40            543
                                          -------        -------        -------
    Net periodic pension cost .....       $   187            213            246
                                          =======        =======        =======
</TABLE>

       The actuarial assumptions used in determining the actuarial present value
          of the projected benefit obligation as of March 31 were as follows:
<TABLE>
<CAPTION>
                                                                 1998         1997       1996
                                                                 ----         ----       ---- 
<S>                                                              <C>          <C>        <C>  
              Weighted average discount rate                     7.00%        7.75%      7.50%
              Rate of increase in future compensation levels     5.00         5.50       5.50
              Expected long term rate of return                  8.00         8.00       8.00
</TABLE>
       In addition,  the Bank  provides a defined  benefit  postretirement  plan
          which provides  medical and life insurance  benefits to  substantially
          all  employees,  as well as  dental  benefits  to a  closed  group  of
          retirees.  The Bank accounts for  postretirement  benefits  other than
          pensions in accordance with SFAS No. 106,  "Employers'  Accounting for
          Postretirement  Benefits Other Than Pensions." Under SFAS No. 106, the
          cost of postretirement benefits other than pensions must be recognized
          on an  accrual  basis  as  employees  perform  services  to  earn  the
          benefits.

       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  Bank'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
          non-contributory,  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  non-contributory.  The  funding  policy of the
          plan is to pay claims and/or insurance premiums as they come due.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       The following table  presents  the  amounts   recognized  in  the  Bank's
          consolidated financial statements at March 31:
<TABLE>
<CAPTION>
                                                                  1998         1997
                                                                -------      -------
                                                                   (In thousands)
<S>                                                             <C>           <C>    
Accumulated postretirement benefit obligation:
  Retirees and eligible beneficiaries .....................     $(1,879)      (1,856)
  Active employees fully eligible for benefits ............        (207)        (190)
  Other active plan participants ..........................        (677)        (533)
                                                                -------      -------
                                                                 (2,763)      (2,579)
Unrecognized net loss from past experience different from
  that assumed and effects of changes in assumptions ......         164           32
Unrecognized transition obligation at April 1, 1995 being
  recognized over 20 years ................................       2,008        2,126
                                                                -------      -------
      Accrued postretirement benefit cost included in other
         liabilities ......................................     $  (591)        (421)
                                                                =======      =======
</TABLE>
       Net periodic   postretirement  benefit   cost   included  in  the  Bank's
          consolidated  income  statements for the years ended March 31 included
          the following components:
<TABLE>
<CAPTION>
                                                       1998       1997       1996
                                                       -----      -----     -----
                                                              (In thousands)
<S>                                                    <C>           <C>       <C>
Service cost .....................................     $  53         60        47
Interest cost ....................................       200        188       189
Amortization of unrecognized transition obligation       118        118       118
Amortization of unrecognized gain ................       (10)      --        --
                                                       -----      -----     -----
      Net periodic postretirement benefit cost ...     $ 361        366       354
                                                       =====      =====     =====
</TABLE>
       The discount rate  used in  determining  the  accumulated  postretirement
          benefit  obligation  was 7.00%  and 7.75% at March 31,  1998 and 1997,
          respectively.

       For measurement purposes,  a 7.00%  annual  rate of  increase  in the per
          capita  cost of  covered  health  benefits  was  assumed  for  medical
          coverage starting in 1998; the 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 medical and dental care
          cost trend rate assumptions  have a significant  effect on the amounts
          reported.  To illustrate,  increasing  the assumed  medical and dental
          care cost  trend  rates by one  percentage  point in each  year  would
          increase the accumulated postretirement benefit obligation as of March
          31, 1998 by $246,000  and the  aggregate  of the service and  interest
          cost for the year ended March 31, 1998 would increase by $21,000.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       The Bank also  sponsors  a  defined  contribution  401(k)  plan  covering
          substantially all employees meeting certain eligibility  requirements.
          The Bank matches 50% of employee pre-tax contributions up to a maximum
          contribution  by the Bank of 4% of the employee's  annual salary.  The
          amount of 401(k)  contribution  expense  was  $126,000,  $117,000  and
          $100,000  for  the  years  ended  March  31,  1998,   1997  and  1996,
          respectively.

(13)   Regulatory Capital
       ------------------
       Federal Deposit Insurance Corporation (FDIC) 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 its prompt corrective action  regulations,  the FDIC is required to
          take   certain   supervisory   actions   (and  may   take   additional
          discretionary  actions) with respect to an undercapitalized bank. Such
          actions  could  have a direct  material  effect on a bank'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, a bank
          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
          regulators  about  capital  components,  risk  weightings,  and  other
          factors.

       Management believes that, as of March 31, 1998 and 1997, 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.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


       The following is a summary  of actual  capital  amounts  and ratios as of
          March  31 for the  Bank,  compared  to the  requirements  for  minimum
          capital adequacy and for classification as well capitalized:
<TABLE>
<CAPTION>
                                                                              1998
                                            -------------------------------------------------------------------
                                                                                  Required Ratios
                                                                       ---------------------------------------
                                                  Actual Capital 
                                                ----------------       Minimum Capital       Classification as
                                                Amount    Ratio           Adequacy            Well Capitalized
                                                ------    -----           --------            ----------------
                                                                   (Dollars in thousands)

<S>                                        <C>             <C>               <C>                       <C> 
              Tier 1 (leverage) capital    $     67,741    10.2%             4.0%                      5.0%
              Risk-based capital:
                  Tier 1                         67,741    14.4              4.0                       6.0
                  Total                          73,638    15.7              8.0                      10.0


<CAPTION>
                                                                              1997
                                            -------------------------------------------------------------------
                                                                                  Required Ratios
                                                                       ---------------------------------------
                                                  Actual Capital      
                                                ----------------       Minimum Capital       Classification as
                                                Amount    Ratio           Adequacy            Well Capitalized
                                                ------    -----           --------            ----------------
                                                                   (Dollars in thousands)

<S>                                        <C>             <C>               <C>                       <C> 
              Tier 1 (leverage) capital    $     65,133    10.1%             4.0%                      5.0%
              Risk-based capital:
                  Tier 1                         65,133    13.8              4.0                       6.0
                  Total                          71,005    15.1              8.0                      10.0
</TABLE>

(14)   Commitments and Contingent Liabilities
       --------------------------------------
       (a)Off-Balance-Sheet Financing and Concentrations of Credit
          --------------------------------------------------------
            The Bank  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 Bank's  commitments  to extend  credit.
                Those  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 Bank has in
                particular classes of financial instruments.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            The Bank'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 Bank uses the same  credit  policies in making
                commitments as it does for on-balance-sheet instruments.

            Unless  otherwise  noted,  the Bank 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 at fixed  and  variable  interest  rates,  are as
                follows:
<TABLE>
<CAPTION>
                                                                1998
                                                   -------------------------------
                                                   Fixed      Variable       Total
                                                   -----      --------       -----
                                                           (In thousands)
<S>                                                <C>           <C>        <C>   
Financial instruments whose contract
  amounts represent credit risk:
     Commitments outstanding:
       Residential mortgages .................     $11,794       2,286      14,080
       Residential construction loans ........        --           402         402
       Commercial mortgage loans .............       2,856       6,450       9,306
       Commercial loans ......................          88         815         903
       Home equity loans .....................       1,011         102       1,113
       Manufactured home loans ...............       2,748        --         2,748
                                                   -------     -------     -------
                                                    18,497      10,055      28,552
                                                   -------     -------     -------
     Unused lines of credit on advanced funds:
       Construction loans ....................         220         654         874
       Home equity loans .....................       4,607       6,721      11,328
       Commercial lines of credit ............         976      14,031      15,007
       Personal lines of credit ..............       2,374        --         2,374
                                                   -------     -------     -------
                                                     8,177      21,406      29,583
                                                   -------     -------     -------

     Standby letters of credit ...............        --         3,298       3,298
                                                   -------     -------     -------
                                                   $26,674      34,759      61,433
                                                   =======     =======     =======
</TABLE>
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
                                                                 1997
                                                   -------------------------------
                                                    Fixed      Variable      Total
                                                            (In thousands)
<S>                                                <C>           <C>        <C>   
Financial instruments whose contract
   amounts represent credit risk:
     Commitments outstanding:
       Residential mortgages .................     $ 4,541       5,501      10,042
       Residential construction loans ........         285         427         712
       Commercial mortgage loans .............       1,400       1,099       2,499
       Commercial loans ......................         600         160         760
       Home equity loans .....................         808         130         938
       Manufactured home loans ...............       3,182         866       4,048
                                                   -------     -------     -------
                                                    10,816       8,183      18,999
                                                   -------     -------     -------
     Unused lines of credit on advanced funds:
       Construction loans ....................         753         369       1,122
       Home equity loans .....................       3,844       6,036       9,880
       Commercial lines of credit ............         226      15,356      15,582
       Personal lines of credit ..............       1,889        --         1,889
                                                   -------     -------     -------
                                                     6,712      21,761      28,473
                                                   -------     -------     -------

     Standby letters of credit ...............        --         2,523       2,523
                                                   -------     -------     -------
                                                   $17,528      32,467      49,995
                                                   =======     =======     =======
</TABLE>

            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  Bank
                evaluates  each  customer's  creditworthiness  on a case-by-case
                basis.  The amount of collateral,  if any,  required by the Bank
                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 Bank to interest  rate risk given the  possibility
                that  market  rates may  change  between  commitment  and actual
                extension of credit.
<PAGE>
               THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued
 
            Standby letters of credit are conditional  commitments issued by the
                Bank 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. Bank policies governing
                loan  collateral  apply to standby letters of credit at the time
                of credit extension.

            Certain  mortgage  loans  are  written  on an  adjustable  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  lifetime  rate  increase cap of 5% to 6%. These caps expose
                the Bank to interest  rate risk  should  market  rates  increase
                above these limits. As of March 31, 1998 and 1997, approximately
                $185.4  million and $202.2  million,  respectively,  of mortgage
                loans had interest rate caps.

            The Bank generally enters into rate lock agreements at the time that
                residential  mortgage loan  applications  are taken.  These rate
                lock  agreements  fix the  interest  rate at which the loan,  if
                ultimately  made, will be originated.  Such agreements may exist
                with borrowers  with whom  commitments to extend loans have been
                made,  as well as with  individuals  who have not yet received a
                commitment.  The Bank makes its  determination of whether or not
                to  identify  a loan as held  for  sale at the  time  rate  lock
                agreements are entered into. Accordingly, the Bank is exposed to
                interest  rate risk to the extent that a rate lock  agreement is
                associated with a loan application or a loan commitment which is
                intended to be held for sale,  as well as with  respect to loans
                held for sale.

            At  March  31,  1998 and  1997,  the Bank had rate  lock  agreements
                (certain  of which  relate  to loan  applications  for  which no
                formal commitment has been made) and conventional mortgage loans
                held  for sale  amounting  to  approximately  $1.4  million  and
                $300,000, respectively.

            In  order to  reduce  the  interest  rate risk  associated  with the
                portfolio of conventional  mortgage loans held for sale, as well
                as   outstanding   loan   commitments   and   uncommitted   loan
                applications  with rate lock agreements which are intended to be
                held for sale, the Bank enters into  agreements to sell loans in
                the  secondary  market to unrelated  investors on a loan by loan
                basis.  At, March 31, 1998 and 1997, the Bank had commitments to
                sell  conventional   fixed  rate  mortgage  loans  amounting  to
                approximately  $1.2  million  and  $216,000,  respectively.  The
                remaining  conventional mortgage loans held for sale, as well as
                the  outstanding   loan   commitments   and   uncommitted   loan
                applications  with rate lock agreements which are intended to be
                held for sale, exposed the Bank to interest rate risk.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       (b)Concentrations of Credit
          ------------------------
            The Bank  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  Bank  has  a  diversified   loan   portfolio,   a
                substantial  portion  of its  debtors'  ability  to honor  their
                contracts is dependent upon economic conditions in these areas.

       (c)Leases
          ------
            The Bank leases certain of its branches and equipment  under various
                noncancelable  operating leases.  The future minimum payments by
                year and in the aggregate  under all  significant  noncancelable
                operating  leases with initial or remaining terms of one year or
                more as of March 31, 1998 are as follows:

                                                                  (In thousands)
                Years ending March 31,
                             1999                                 $      225
                             2000                                        182
                             2001                                        143
                             2002                                        115
                             2003                                        101
                          Thereafter                                   1,094
                                                                  ----------
                                                                  $    1,860
                                                                  ==========

       (d)Serviced Loans
          --------------
            The total amount of loans  serviced by the Bank for unrelated  third
                parties was  approximately  $61.7  million and $67.7  million at
                March 31, 1998 and 1997, respectively.

       (e)Reserve Requirement
          -------------------
            The Bank 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  $388,000  and $3.8 million at March 31, 1998
                and 1997, respectively.

       (f)Contingent Liabilities
          ----------------------
            In  the  ordinary   course  of  business  there  are  various  legal
                proceedings pending against the Bank. Based on consultation with
                outside  counsel,   management   considers  that  the  aggregate
                exposure,  if any, arising from such litigation would not have a
                material  adverse  effect on the Bank's  consolidated  financial
                statements.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(15)   Borrowing Arrangements
       ----------------------
       The Bank has two lines of  credit,  expiring  in October  1998, which are
          available with the FHLB of New York. The first is an overnight line of
          credit for approximately $32.6 million with interest based on existing
          market conditions.  The second is a one-month overnight repricing line
          of credit for  approximately  $32.6  million  with  interest  based on
          existing market conditions. There were no amounts outstanding on these
          lines at  March  31,  1998.  There  was  approximately  $12.6  million
          outstanding  under the  overnight  line of  credit at March 31,  1997,
          which  carried  an  interest  rate of  6.88%.  There  were no  amounts
          outstanding under the one-month  overnight repricing line of credit at
          March  31,  1997.  At March 31,  1998,  the Bank had $2.0  million  in
          short-term  borrowings  from  the  FHLB of New  York in the form of an
          advance which comes due in August 1998 and carries an interest rate of
          5.88%.  Borrowings  from the FHLB of New York are secured by a blanket
          lien on all assets of the Bank, including FHLB stock.

(16)   Disclosures About the Fair Value of Financial Instruments
       ---------------------------------------------------------
       SFAS No. 107,  "Disclosures  about Fair Value of Financial  Instruments,"
          requires  that  the  Bank  disclose  estimated  fair  values  for  its
          financial  instruments.  The  definition  of  a  financial  instrument
          includes many of the assets and  liabilities  recognized in the Bank'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 Bank's entire
          holdings  of a  particular  financial  instrument.  Because  no market
          exists for a significant portion of the Bank'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.  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 Bank's
          branch network and other items generally referred to as "goodwill."
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       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,  short-term  borrowings and
          accrued interest payable.

       Loans Held for Sale
       -------------------
       The estimated fair value of loans held for sale is based on quoted market
          rates or, in the case  where a firm  commitment  has been made to sell
          the loan, the firm committed price.

       Securities Available for Sale and Investment Securities
       -------------------------------------------------------
       Securities  available for sale and  investment  securities  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.

       Federal Home Loan Bank of New York Stock
       ----------------------------------------
       The estimated fair  value of stock in the  Federal  Home Loan Bank of New
          York equals the carrying value since the stock is  non-marketable  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 non-performing  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.

       Management  has made  estimates  of fair  value  discount  rates  that it
          believes to be  reasonable.  However,  because  there is no market for
          many of  these  financial  instruments,  management  has no  basis  to
          determine  whether the estimated fair value would be indicative of the
          value negotiated in an actual sale.

       Deposit Liabilities
       -------------------
       The estimated fair value of  deposits  with no stated  maturity,  such as
          savings,  N.O.W.,  money  market,  non-interest  bearing  accounts and
          mortgagors'  escrow deposits,  is regarded to be the amount payable on
          demand.  The estimated fair value of time deposit accounts is based on
          the discounted  value of contractual  cash flows. The discount rate is
          estimated  using the rates  currently  offered for deposits of similar
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

          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 as compared to the cost of borrowing funds in
          the market.

       Urban Development Action Grant Payable
       --------------------------------------
       Based on the terms of the grant agreement and rates  currently  available
          under  similar  programs,  the  estimated  fair  value  of  the  Urban
          Development  Action Grant payable  approximated  its carrying value at
          March 31, 1997.

       The carrying values and  estimated  fair values of  financial  assets and
          liabilities as of March 31 were as follows:
<TABLE>
<CAPTION>
                                                                   1998                         1997
                                                        --------------------------    ------------------------
                                                                         Estimated                   Estimated
                                                         Carrying           Fair      Carrying          Fair
                                                           Value           Value        Value          Value
                                                        ---------      ---------     ---------      ---------
                                                                             (In thousands)
<S>                                                     <C>               <C>           <C>            <C>   
Financial assets:
  Cash and cash equivalents .......................     $  34,273         34,273        10,457         10,457
  Loans held for sale .............................         1,286          1,316            84             84
  Securities available for sale ...................        42,471         42,471        45,623         45,623
  Investment securities ...........................        65,194         65,482        79,068         78,753
  Federal Home Loan Bank of New York stock ........         3,035          3,035         2,812          2,812



  Loans receivable ................................       506,978        506,615       493,019        492,236
  Less: Allowance for loan losses .................        (8,227)          --          (5,872)          --
                                                        ---------      ---------     ---------      ---------
       Net loans receivable .......................     $ 498,751        506,615       487,147        492,236
                                                        =========      =========     =========      =========

  Accrued interest receivable .....................         4,402          4,402         4,880          4,880

Financial liabilities:
  Deposits:
    Savings, N.O.W., money market, and non-interest
       bearing accounts ...........................       269,015        269,015       257,213        257,213
    Time deposit accounts .........................       319,299        321,021       307,386        309,550
  Short-term borrowings ...........................         2,000          2,000        12,585         12,585
  Urban Development Action Grant payable ..........          --             --             835            835
  Mortgagors' escrow deposits .....................         3,723          3,723         3,746          3,746
  Accrued interest payable ........................           120            120           123            123
</TABLE>


       Note:   Loans  held  for  sale  represent  the  only  trading   financial
               instruments; all other financial instruments are considered to be
               held for purposes other than trading.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       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 credit worthiness 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.

(17)   Adoption of Plan of Conversion
       ------------------------------
       On November  20,  1997,  as amended on February  19,  1998,  the Board of
          Trustees of the Bank,  subject to regulatory  approval and approval by
          members of the Bank,  unanimously  adopted a Plan of  Conversion  (the
          Plan) to convert from a New York State  chartered  mutual savings bank
          to a New York State  chartered  stock savings bank with the concurrent
          formation  of a holding  company.  The  conversion  is  expected to be
          accomplished through amendment of the Bank charter and the sale of the
          holding  company's  common  stock in an amount  equal to the pro forma
          market  value of the Bank after  giving  effect to the  conversion.  A
          subscription  offering  of the sale of the  holding  company's  common
          stock will be offered  initially  to the  Bank's  depositors,  then to
          other  members and trustees,  officers and employees of the Bank.  Any
          shares  of  the  holding  company's  common  stock  not  sold  in  the
          subscription  offering will be offered for sale to the general  public
          in the Bank's market area.

       At the time of conversion,  the Bank will establish a liquidation account
          in an amount  equal to its total  equity as of the date of the  latest
          consolidated  balance  sheet  appearing in the final  prospectus.  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.   The  Bank  may  not  pay  dividends  that  would  reduce
          stockholders' equity below the required liquidation account balance.

       Conversion  costs will be deferred and deducted  from the proceeds of the
          shares sold in the conversion. If the conversion is not completed, all
          costs will be charged to expense. As of March 31, 1998,  approximately
          $614,000 of conversion costs had been deferred.

       Pursuant  to the  Plan,  the  holding  company  intends  to  establish  a
          Charitable   Foundation  (the   Foundation)  in  connection  with  the
          conversion.  The Plan provides  that the Bank and the holding  company
          will create the  Foundation  immediately  following the  conversion by
          contributing  holding  company common stock in an amount equal to 3.0%
          of the total  amount  of  common  stock  sold in the  conversion.  The
          Foundation  is being  formed as a  complement  to the Bank's  existing
          community activities and will be dedicated to community activities and
          the promotion of charitable causes.
<PAGE>
              THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

       The Foundation will submit a request to the Internal  Revenue  Service to
          be  recognized  as  a  tax-exempt  organization  and  will  likely  be
          classified as a private foundation.  A contribution of common stock to
          the Foundation by the holding company would be tax deductible, subject
          to an annual  limitation based on 10% of the holding  company's annual
          taxable income. The holding company,  however,  would be able to carry
          forward any unused  portion of the deduction for five years  following
          the  contribution.  Upon funding the  Foundation,  the holding company
          will  recognize  an  expense in the full  amount of the  contribution,
          offset in part by the corresponding tax benefit, during the quarter in
          which the contribution is made.

       In connection with the conversion,  the Bank has approved the adoption of
          an Employee Stock  Ownership Plan (ESOP).  It is anticipated  that the
          ESOP will be  initially  funded with a loan from the holding  company.
          The  proceeds  from this loan are  expected  to be used by the ESOP to
          purchase 8% of the common  stock issued in the  conversion,  including
          shares issued to the Foundation.
<PAGE>
The Board of Directors
Hudson River Bancorp, Inc.:


We consent to  incorporation  by reference in the  Registration  Statement  (No.
333-58615)  on Form S-8 of Hudson River  Bancorp,  Inc. of our report dated June
12, 1998, relating to the consolidated balance sheets of The Hudson City Savings
Institution  and  subsidiaries  as of March 31,  1998 and 1997,  and the related
consolidated  income statements,  statements of changes in equity and cash flows
for each of the years in the  three-year  period  ended  March 31,  1998,  which
report  appears in the March 31, 1998 annual report on Form 10-K of Hudson River
Bancorp, Inc.


                                                       /s/ KPMG Peat Marwick LLP
                                                       -------------------------
                                                           KPMG Peat Marwick LLP

Albany, New York
July 29, 1998
<PAGE>



                                   SIGNATURES

         Pursuant  to the  requirements  of  Section  15(d)  of  the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                HUDSON RIVER BANCORP, INC.


                                            By  /s/ Carl A. Florio
                                                ------------------
                                                Carl A. Florio, President and 
                                                Chief Executive Officer
                                                (Duly Authorized Representative)


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.


/s/ Carl A. Florio                           /s/ Earl Schram, Jr.  
------------------                           --------------------             
Carl A. Florio, Director, President and      Earl Schram, Jr., 
Chief Executive Officer (Principal           Chairman of the Board 
Executive and Operating Officer)                                                
                                                                                
Date:         July 29, 1998                  Date:         July 29, 1998  
                                        

/s/ Stanley Bardwell, M.D.                   /s/ Joseph W. Phelan 
--------------------------                   --------------------      
Stanley Bardwell, M.D.                       Joseph W. Phelan, Director 
                                                                        
Date:         July 29, 1998                  Date:         July 29, 1998
                                             

/s/ Willam E. Collins                        /s/ William H. Jones       
---------------------                        --------------------       
William E. Collins                           William H. Jones           
                                                                        
Date:         July 29, 1998                  Date:         July 29, 1998
                                             

/s/ John E. Kelly                            /s/ Marcia M. Race         
-----------------                            ------------------         
John E. Kelly, Director                      Marcia M. Race, Director   
                                                                        
Date:         July 29, 1998                  Date:         July 29, 1998
                                             

/s/ Marilyn A. Herrington                    /s/ Timothy E. Blow          
-------------------------                    -------------------          
Marilyn A. Herrington, Director              Timothy E. Blow, 
                                             Chief Financial Officer
                                             (Principal Financial and Accounting
                                             Officer) 
                                             
Date:         July 29, 1998                  Date:         July 29, 1998