EXHIBIT 13

                       2002 ANNUAL REPORT TO SHAREHOLDERS

                                     [LOGO]

                           Hudson River Bancorp, Inc.
                               Annual Report 2002
<PAGE>

                           Branch Locations by County

                                 [MAP OMITTED]

                                     Fulton
                                    Saratoga
                                   Montgomery
                                   Schenectady
                                   Rensselaer
                                    Schoharie
                                     Albany
                                     Greene
                                    Columbia
                                    Dutchess

Contents

Letter to Shareholders                                                         1

Five Year Selected Financial Data                                              6

Management's Discussion
& Analysis of Financial Condition
and Results of Operations                                                      7

Management's Statement
of Responsibility                                                             22

Independent Auditors' Report                                                  22

Consolidated Balance Sheets                                                   23

Consolidated Income Statements                                                24

Consolidated Statements of
Changes in Shareholders' Equity                                               25

Consolidated Statements of
Cash Flows                                                                    26

Notes to Consolidated
Financial Statements                                                          27

Board of Directors,
Executive Officers &
Corporate Information                                                        IBC
<PAGE>

                                                          [GRAPHIC-PHOTO]
                                                          One Hudson City Centre
                                                          Hudson, NY

[CAPTION]
Headquartered in Hudson, New York, HRBT maintains the #1 market share in
Columbia County with 58% of total deposits.

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                              Financial Highlights
--------------------------------------------------------------------------------

(Dollars in thousands, except per share data)          3/31/2002      3/31/2001
--------------------------------------------------------------------------------

For the Year Ended
Net income                                            $   19,529     $   11,668
Basic earnings per share                                    1.42           0.86
Diluted earnings per share                                  1.38           0.85
--------------------------------------------------------------------------------

At Year End
Total assets                                          $2,508,807     $1,208,973
Loans                                                  1,904,204        881,412
Deposits                                               1,768,363        750,152
Shareholders' equity                                     230,917        216,133
Book value at year end                                     16.66          15.78
Tangible book value at year end                            11.64          14.95
--------------------------------------------------------------------------------

Significant Ratios
Return on average assets                                    1.03%          1.00%
Return on average equity                                    8.68           5.68
Return on average tangible equity                          10.62           6.01
Dividend payout ratio                                      25.38          26.66
Net interest margin                                         4.29           4.58
Net interest spread                                         3.74           3.68
Efficiency ratio                                           51.81          51.94
--------------------------------------------------------------------------------

Asset Quality Ratios
Nonperforming loans to total loans                          0.94%          0.97%
Nonperforming assets to total assets                        0.77           0.77
Allowance for loans losses to:
   Total loans                                              1.92           2.53
   Nonperforming loans                                    203.51         259.96
--------------------------------------------------------------------------------

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                              To Our Shareholders
--------------------------------------------------------------------------------

As we look back at the year ended March 31, 2002, we could quote Charles
Dickens and state that last year was "the best of times"; it was also "the worst
of times". Despite the tumultuous events which created significant uncertainties
in the financial world, the Company enjoyed record earnings for 2002. Net income
of $19.5 million in 2002 was up 67% from 2001. Diluted earnings per share of
$1.38 in 2002 was up 62% over the prior year. Our return on average tangible
equity of 10.62% in 2002 was up 77% over 2001. These improved financial results
were not an accident. Since our initial public offering in fiscal 1999, net
income has increased an average of over 72% annually. Return on average tangible
equity has improved more than 5 times the 2.06% realized in fiscal 1999. While
we don't expect this rate of earnings growth to continue at these levels, we
believe that the Ambanc acquisition will again make 2003 a record year for the
Company. Not surprisingly, our earnings growth has been reflected in the growth
in the market price of the Company's stock. Since our initial public offering on
July 1, 1998, the total return on our stock has exceeded that of both the S&P
500 and the NASDAQ Bank Index. Our stock price at March 31, 2002 was $24.13, up
73% from $13.94 at March 31, 2001.


                                        1
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                           Hudson River Bancorp, Inc.
<PAGE>

[CAPTION]
HRBT ranks 5th in deposit market share of Albany County, the largest market we
serve, improving from a rank of 14th.

[GRAPHIC-PHOTO]
State Capitol Building
Albany, NY

[CAPTION]
      The capital of New York State, Albany is 153 miles north of New York City
and lies along the Hudson River. With a vast history dating back to the American
Revolution, Albany County continues to prosper serving as upstate New York's
government, educational, medical, cultural and financial center. As a port of
entry on the Hudson River for ocean-going vessels, the area is also serviced by
truck and rail as well, as the Albany International Airport which is located 10
miles from the City of Albany.

[GRAPHIC-PHOTO]
Charter Day Celebration
Albany, NY

Total Assets and Total Loans (in thousands)

[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]

--------------------------------------------------------------------------------
                                          2000            2001          2002
--------------------------------------------------------------------------------
Total Assets                           $1,149,547      $1,208,973     $2,508,807
--------------------------------------------------------------------------------
Total Loans                            $  823,855      $  881,412     $1,904,204
--------------------------------------------------------------------------------

Other Income as a Percentage of Total Revenues

[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]

--------------------------------------------------------------------------------
2000                    3.28%
--------------------------------------------------------------------------------
2001                    4.97%
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2002                    7.84%
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The Company's financial success since 1999 has been built upon the Board's and
management's commitment to growing the Company through accretive acquisitions,
the introduction of new products and services, and the expansion of our market
presence. During fiscal 2002, we completed two significant acquisitions, our
second and third in less than 31 months. These transactions have not only been
accretive to earnings, they enabled the Company to expand its "footprint"
throughout the Capital District of New York, expanding its branch network from
13 branches in 1999 to 51 branches today. We enjoy the #1 deposit market share
in two counties we serve, and are in the top 5 in four additional counties. Our
strategic acquisition of C.W. Bostwick, Inc., and its separate acquisitions of
several small insurance agencies, has seen our revenue from insurance
commissions grow from nothing in 2000 to $3.1 million in 2002. This has been a
significant contributor to our bottom line by more than doubling noninterest
income as a percentage of total revenues from 3.3% in 2000, to 7.8% in 2002.

The Company's success in the last year was achieved during the "worst of times"
around the world; in our nation;


                                        2
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                           Hudson River Bancorp, Inc.
<PAGE>

[CAPTION]
With the largest increase in market share in Montgomery County, HRBT ranks 1st
with 43.6% of total deposits.

in our own backyard. The horrific events of September 11 took away several
friends of the Company - friends that are dearly missed and who will not be
forgotten. The recession prior to 9/11, as well as the economic retraction after
that date, affected the Company and its customers in many ways. Rate reductions
by the Federal Reserve, combined with the impact of our acquisition of Cohoes
Bancorp, Inc. in April 2001, served to squeeze our interest rate margin, down to
4.29% in 2002 from 4.58% in 2001. We anticipate our margin will further decline
as the impact of our acquisition of Ambanc Holding Co., Inc. in March 2002 is
fully realized in 2003. Our success in 2002 was achieved in spite of these
challenges.

As we move into 2003, our goals for the Company are to continue along the path
we have set for ourselves. We will continue integrating Ambanc into the Company
and look forward to achieving additional cost savings from this transaction by
mid-year. We will continue to focus on expanding noninterest revenue sources,
particularly in insurance, brokerage and trust services. We will look to expand
our presence both inside and outside our market area, either through de novo
branches or through

Diluted Earnings and Dividends Per Share

[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]

--------------------------------------------------------------------------------
                                          2000            2001          2002
--------------------------------------------------------------------------------
Diluted Earnings Per Share               $0.65           $0.85          $1.38
--------------------------------------------------------------------------------
Dividends                                $0.12           $0.22          $0.35
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Nonperforming Loans as a Percentage of Total Loans

[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]

--------------------------------------------------------------------------------
1998                    3.10%
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1999                    1.72%
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2000                    1.25%
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2001                    0.97%
--------------------------------------------------------------------------------
2002                    0.94%
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[GRAPHIC-PHOTO]
Fort Johnson
Amsterdam, NY

[CAPTION]
Montgomery County is located approximately 40 miles west of Albany in the Mohawk
Valley region, between the Catskill and Adirondack Mountain ranges. Montgomery
County's largest single industry is farming, although healthcare, manufacturing,
printing and the public sectors are the largest employers in the county.

[GRAPHIC-PHOTO]
Great Sacandaga Lake
Amsterdam, NY


                                        3
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                           Hudson River Bancorp, Inc.
<PAGE>

[CAPTION]
HRBT had the largest increase in deposit market share in Saratoga County, the
fastest growing and most attractive market in the Capital District region.

[GRAPHIC-PHOTO]
Saratoga Race Course
Saratoga Springs, NY

[CAPTION]
      Saratoga County is considered one of the most popular counties in upstate
New York. The rich tradition of the Thoroughbred Track and cultural events held
at Saratoga Performing Arts Center enables Saratoga to enjoy a positive economic
climate that is well balanced between residents and tourists. Saratoga has been
voted the inaugural recipient of the "Great American Place" award by American
Heritage Magazine and was selected as one of Sports Illustrated's Top 10 Sports
Venues in the World. A progressive community with a growing population, the area
is served by several major retail, healthcare and recreational centers.

[GRAPHIC-PHOTO]
Saratoga Spa State Park
Saratoga Springs, NY

Comparative Stock Performance

[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]

--------------------------------------------------------------------------------
                                                  Value of that
                           $100 investment         investment
                              on 7/1/98            on 3/31/02

                                 7/98                3/02
--------------------------------------------------------------------------------
HRBT                             100.00              241.30
S&P 500                          100.00               99.90
NASDAQ Bank Index                100.00              109.49
--------------------------------------------------------------------------------

Return on Equity and Tangible Equity

[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]

--------------------------------------------------------------------------------
                                        1998     1999    2000     2001    2002
--------------------------------------------------------------------------------
Return on Equity                        4.18%    2.05%   4.58%   5.68%    8.68%
--------------------------------------------------------------------------------
Return on Tangible Equity               4.21%    2.06%   4.77%   6.01%   10.62%
--------------------------------------------------------------------------------

acquisition if appropriate opportunities present themselves. Any transaction we
undertake going forward will probably not have the same accretive effect that
our past transactions have demonstrated, but should have a positive impact on
both long- and short-term shareholder value. We will also focus on continuing to
deliver high quality service to our customers. Finally, as the Ambanc
transaction is fully integrated, we will continue on a program of expense
control and improved efficiency, keeping conscious of our goals to provide high
quality customer service and allow for future expansion.

Before concluding, I would like to note the retirement of several long-time
Board members during 2002. Directors William Collins, Stanley Bardwell, and
Marcia Race, as well as Directors Emeriti Morton Ginsberg and John Kelly,
retired during 2002. These individuals served the Company and Hudson River Bank
& Trust Company for over 135 years, collectively. The commitment they
demonstrated in leading the Company through the years and the critical decisions
they took part in were invaluable in making this Company what it is today. It is
with heartfelt appreciation that I bid them farewell and wish them continued
success in the future. As we say goodbye, we must also


                                        4
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                           Hudson River Bancorp, Inc.
<PAGE>

[CAPTION]
HRBT improved its deposit market share in Schenectady County by 25%, maintaining
its #3 rank.

welcome Directors Bruce Cohen, Harry Robinson and Ronald Tecler. These
individuals were elected to the Board during 2002 and will no doubt be
instrumental in leading the Company into the future.

I would also like to personally thank each of the Company's employees for all of
their commitment and hard work during 2002. The success of the Company is due in
large part to the efforts and diligence that our employees have continuously
demonstrated, and I'm sure, will continue to demonstrate in 2003 and beyond.
Finally, I would like to thank you, our shareholders, for your continuing
support of Hudson River Bancorp, Inc. I look forward to the challenges of 2003.

/s/ Carl A. Florio
Carl A. Florio
President & Chief Executive Officer
June 7, 2002

[GRAPHIC-PHOTO]
Carl A. Florio
President & Chief Executive Officer

[GRAPHIC-PHOTO]
Proctor's Theatre
Schenectady, NY

[CAPTION]
Hudson River Bank & Trust Company's deposit base continues to grow in
Schenectady County. Schenectady is one of the oldest cities in the United
States. An industrial leader of the past, new technologies and innovations
continue to enable Schenectady County to prosper. With $190 million in new
commercial construction projects, Schenectady County's home values are equally
as strong.

[GRAPHIC-PHOTO]
City Hall Tower
Schenectady, NY


                                        5
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                           Hudson River Bancorp, Inc.
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                              Five Year Selected Financial Data
---------------------------------------------------------------------------------------------------------------------------------

(In thousands, except for share and per share data)
At or for the Years Ended March 31,                            2002            2001            2000            1999          1998
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>             <C>             <C>             <C>             <C>
Earnings
Interest income                                         $   134,128     $    91,499     $    76,423     $    63,526     $  55,387
Interest expense                                             57,361          40,842          30,509          26,000        25,977
---------------------------------------------------------------------------------------------------------------------------------
Net interest income                                          76,767          50,657          45,914          37,526        29,410
---------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses                                     5,675           5,100           6,200           7,341         8,491
Other operating income                                       11,406           4,790           2,588           2,418         2,845
Other operating expense                                      49,179          31,709          27,788          26,612        19,030
---------------------------------------------------------------------------------------------------------------------------------
Income before tax expense                                    33,319          18,638          14,514           5,991         4,734
Tax expense                                                  13,790           6,970           4,988           2,184         1,903
---------------------------------------------------------------------------------------------------------------------------------
Net income                                              $    19,529     $    11,668     $     9,526     $     3,807     $   2,831
=================================================================================================================================

Per Share Data
Basic earnings per share                                $      1.42     $      0.86     $      0.65     $      0.17            (1)
Diluted earnings per share                                     1.38            0.85            0.65            0.17            (1)
Book value at year end                                        16.66           15.78           14.50           14.02            (1)
Book value at year end, including
  unallocated ESOP shares and
  unvested RRP shares                                         15.20           14.15           12.85           12.39            (1)
Tangible book value at year end                               11.64           14.95           13.66           13.81            (1)
Tangible book value, including
  unallocated ESOP shares and
  unvested RRP shares                                         10.61           13.40           12.11           12.21            (1)
Closing market price                                          24.13           13.94           10.00           10.94            (1)
=================================================================================================================================

Average Balances and Shares
Total assets                                            $ 1,901,888     $ 1,167,944     $   996,448     $   809,385     $ 659,984
Earning assets                                            1,790,232       1,105,473         950,380         778,691       628,747
Loans                                                     1,490,547         849,283         698,403         522,974       507,293
Securities available for sale                               181,549         230,736         231,931         156,405        39,357
Securities held to maturity                                      --           5,570          14,899          47,738        71,966
Deposits                                                  1,275,763         737,509         682,029         608,936       577,721
Borrowings                                                  359,865         200,538          85,824           2,993         3,699
Shareholders' equity                                        225,002         205,336         207,953         185,770        67,780
Shares outstanding:
  Basic                                                  13,708,024      13,572,814      14,556,648      16,302,268            (1)
  Diluted                                                14,110,792      13,699,741      14,577,742      16,302,268            (1)
=================================================================================================================================

Financial Ratios
Return on average assets                                       1.03%           1.00%           0.96%           0.47%         0.43%
Return on average equity                                       8.68            5.68            4.58            2.05          4.18
Return on average tangible equity                             10.62            6.01            4.77            2.06          4.21
Dividend payout ratio                                         25.38           26.66           19.36              --            --
Net interest margin                                            4.29            4.58            4.83            4.82          4.68
Efficiency ratio(2)                                           51.81           51.94           52.61           50.48         56.78
Expense ratio(2)                                               2.40            2.44            2.56            2.49          2.77
Equity to assets at year end                                   9.20           17.88           17.46           24.89         10.18
Tangible equity to tangible assets at year end                 6.61           17.10           16.62           24.62         10.10
Allowance to nonperforming loans                             203.51          259.96          190.50          143.77         52.32
Allowance to total loans                                       1.92            2.53            2.38            2.47          1.62
=================================================================================================================================
</TABLE>

(1)   Per share and share data only applies to periods since the Company's
      initial public offering on July 1, 1998.
(2)   Ratio does not include other real estate owned and repossessed property
      expenses, net securities transactions, net loan sale transactions, and
      goodwill and other intangibles amortization for each period. The 2001
      ratio excludes pre-tax nonrecurring merger expenses and other nonrecurring
      expenses. The 1999 ratio does not include a charitable contribution to the
      Hudson River Bank & Trust Company Foundation.


                                        6
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                           Hudson River Bancorp, Inc.
<PAGE>


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                      Management's Discussion & Analysis of
                  Financial Condition & Results of Operations
--------------------------------------------------------------------------------

General
--------------------------------------------------------------------------------

The financial review which follows focuses on the factors affecting the
consolidated financial condition and results of operations of Hudson River
Bancorp, Inc. and its subsidiaries, Hudson River Bank & Trust Company (the
"Bank") and C.W. Bostwick, Inc. ("Bostwick") (combined, the "Company"), during
the year ended March 31, 2002 and the preceding two years. The consolidated
financial statements and related notes as of March 31, 2002 and 2001, and for
each of the years in the three year period ended March 31, 2002 should be read
in conjunction with this review.

The Company's primary market area, with 51 full-service branches as of March 31,
2002, is the Capital District region of New York state. The Company has been,
and intends to continue to be, a community-oriented financial institution
offering a variety of financial services. The Company's principal business is
attracting deposits from customers within its market area and investing those
funds in primarily loans, and to a lesser extent, in marketable securities. The
financial condition and operating results of the Company are dependent on its
net interest income, which is the difference between the interest income earned
on its assets, and the interest expense paid on its liabilities, primarily
consisting of deposits and borrowings. Net income of the Company is also
affected by provisions for loan losses and other operating income, such as fees
on deposit related services and insurance commissions; it is also impacted by
other operating expenses, such as compensation and benefits, occupancy and
equipment expenses, and federal and state income taxes.

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

Critical Accounting Policies
--------------------------------------------------------------------------------

Being a profitable and successful company within the financial services industry
requires the ability to respond to changes quickly, understand complicated
issues and deal with a variety of external factors including legal, regulatory
and economic influences. To afford users of the Company's consolidated financial
statements assurance that the financial results included are appropriate and can
be relied upon, management must select and apply the accounting policies and
methodologies that are the most appropriate choices for the Company's
circumstances. The choices management makes are very important to users of the
Company's consolidated financial statements, but some of these choices are more
significant than others. Of particular importance, and considered critical, are
those accounting policies or methodologies which apply to areas of greater
importance, or which involve a greater degree of subjectivity in the
decision-making process on the part of management.

Management of the Company considers the accounting policy relating to the
allowance for loan losses to be a critical accounting policy given the inherent
subjectivity and uncertainty in estimating the levels of the allowance required
to cover probable credit losses inherent in the loan portfolio and the material
effect that such judgments can have on the results of operations. The Company's
policy relating to the allowance for loan losses is disclosed in note 1 to the
consolidated financial statements which begins on page 27. All accounting
policies are important, and as such, the Company encourages the reader to review
each of its policies included in note 1 to obtain a greater understanding of how
the Company's financial performance is recorded and reported.


                                        7
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                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                      Management's Discussion & Analysis of
                  Financial Condition & Results of Operations
--------------------------------------------------------------------------------

Merger and Acquisition Activity
--------------------------------------------------------------------------------

On March 8, 2002, the Company completed its acquisition of Ambanc Holding Co.,
Inc. ("Ambanc") paying $21.50 per share in cash for each share of Ambanc common
stock outstanding (the "Ambanc Acquisition"). The total consideration of
approximately $100.5 million was funded primarily through the usage of the
Company's Federal funds sold. Goodwill associated with this transaction
approximated $23.2 million. In accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 142, goodwill acquired after June
30, 2001 is not amortized but will instead be evaluated at least annually for
impairment. The Company also recorded a core deposit intangible associated with
the transaction of $6.8 million. The core deposit intangible is being amortized
over its estimated useful life of approximately ten years on an accelerated
basis. Ambanc had total assets of $654.1 million and total deposits of $480.9
million as of March 8, 2002. Its 14 branches located in the Capital District
area of New York state were added to the Bank's branch network.

On April 25, 2000, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Cohoes Bancorp, Inc. ("Cohoes") to provide for a merger
of equals between the Company and Cohoes. At a special meeting of shareholders
held by Cohoes on August 17, 2000, the merger was not approved by the requisite
vote of Cohoes shareholders. On September 28, 2000, the Company terminated the
Merger Agreement with Cohoes. On November 24, 2000, the Company entered into a
new agreement to acquire Cohoes for $19.50 in cash for each share of Cohoes
common stock outstanding (the "Cohoes Acquisition"). On April 20, 2001, the
Company completed the Cohoes Acquisition. The total consideration of
approximately $151.0 million was funded through the sale of securities and loans
held for sale, and by long-term FHLB borrowings. Goodwill associated with this
transaction approximated $31.0 million and was being amortized over twenty years
on a straight line basis through March 31, 2002. Upon the Company's adoption of
SFAS No. 142 as of April 1, 2002, this goodwill is no longer being amortized but
will instead be evaluated at least annually for impairment. Cohoes had total
assets of $705.4 million and total deposits of $502.1 million as of April 20,
2001. Its 20 branches located in the Capital District area of New York state
were added to the Bank's branch network.

During January 2002 and 2001, the Company acquired additional equity interests
in Bostwick, an insurance agency in which the Company had originally made an
equity investment during September 1999. The Company's total investment in the
equity of Bostwick exceeded 50% with the January 2001 investment, and as a
result, the results of Bostwick's operations have been consolidated with those
of the Company since January 1, 2001.

On September 3, 1999, the Company completed its acquisition of SFS Bancorp, Inc.
("SFS") paying $25.10 in cash for each share of SFS common stock outstanding
(the "SFS Acquisition"). The total consideration of approximately $32 million
was funded primarily by long-term borrowings. The transaction was accounted for
under the purchase method of accounting and goodwill associated with this
transaction totaling $9.1 million was recorded and was being amortized over
fifteen years on a straight line basis through March 31, 2002. Upon the
Company's adoption of SFAS No. 142 as of April 1, 2002, this goodwill is no
longer being amortized but will instead be evaluated at least annually for
impairment. SFS had total assets of $176.9 million and total deposits of $150.4
million as of September 3, 1999. Its four branches located in Schenectady County
were added to the Bank's branch network.

Overview
--------------------------------------------------------------------------------

The Company earned net income for the year ended March 31, 2002, amounting to
$19.5 million, or $1.38 diluted earnings per share, compared with the $11.7
million earned during the year ended March 31, 2001 and $9.5 million for the
year ended March 31, 2000. Net income for 2002 as compared to the year ended
March 31, 2001 was enhanced primarily by the Cohoes Acquisition in April 2001
and partly by the Ambanc Acquisition in March 2002. The acquired companies'
results of operations were included in the Company's results from the date of
acquisition forward. Net income for 2001 was negatively impacted by $959
thousand ($566 thousand, net of tax) in non-recurring merger related expenses
associated with the Company's initial attempt to merge with Cohoes. The increase
in 2002 net income over the prior year results was a result of higher net
interest income and other operating income, partially offset by a higher
provision for loan losses, higher other operating expenses and higher tax
expense. For the year ended March 31, 2002, the Company's return on average
assets was 1.03%, up from 1.00% in 2001. The Company's return on average equity
for the year ended March 31, 2002 was 8.68%, up from 5.68% in 2001. The
Company's return on average tangible equity for the year ended March 31, 2002
was 10.62%, up from 6.01% in 2001.


                                        8
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                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                      Management's Discussion & Analysis of
                  Financial Condition & Results of Operations
--------------------------------------------------------------------------------

Asset/Liability Management
--------------------------------------------------------------------------------

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

Average Balances, Interest and Yields

<TABLE>
<CAPTION>
Years Ended March 31,                                        2002                             2001                           2000
----------------------------------------------------------------------------------------------------------------------------------
                                                            Average                          Average                        Average
                                        Average              Yield/      Average              Yield/    Average              Yield/
(Dollars in thousands)                  Balance    Interest   Rate       Balance    Interest   Rate     Balance   Interest   Rate
----------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>          <C>         <C>     <C>           <C>        <C>     <C>        <C>        <C>
Earning assets
Federal funds sold                    $   98,377   $  2,347    2.39%   $      136    $     7    5.15%   $    218   $    12    5.50%
Loans held for sale                        1,321         89    6.74         9,627        648    6.73          --        --      --
Securities available for sale(1)         181,549     11,368    6.26       230,736     15,802    6.85     231,931    15,432    6.65
Securities held to maturity                   --         --      --         5,570        380    6.82      14,899       982    6.59
Federal Home Loan Bank
  of New York stock                       18,438        926    5.02        10,121        732    7.23       4,929       337    6.84
Loans(2)                               1,490,547    119,398    8.01       849,283     73,930    8.70     698,403    59,660    8.54
----------------------------------------------------------------------------------------------------------------------------------
Total earning assets                   1,790,232    134,128    7.49     1,105,473     91,499    8.28     950,380    76,423    8.04
----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks                   28,171                           15,973                         13,612
Allowance for loan losses                (29,732)                         (20,871)                       (17,052)
Other nonearning assets                  113,217                           67,369                         49,508
------------------------------------------------                       ----------                       --------
Total assets                          $1,901,888                       $1,167,944                       $996,448
================================================                       ==========                       ========

Interest-bearing liabilities
Savings accounts                      $  337,999   $  7,986    2.36%   $  174,022    $ 4,422    2.54%   $167,145   $ 4,507    2.70%
N.O.W. and money
  market accounts                        201,755      3,775    1.87       127,319      3,169    2.49     115,037     2,968    2.58
Time deposit accounts                    617,509     28,604    4.63       379,281     20,501    5.41     353,723    18,007    5.09
Mortgagors' escrow deposits               11,203        280    2.50         7,228        154    2.13       5,990       131    2.19
Securities sold under
  agreements to repurchase                17,088        477    2.79         4,157        206    4.96       1,896        84    4.43
Short-term FHLB advances                  23,234        991    4.27       146,391      9,470    6.47      65,542     3,700    5.65
Long-term FHLB borrowings                319,543     15,248    4.77        49,990      2,920    5.84      18,386     1,112    6.05
----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities     1,528,331     57,361    3.75       888,388     40,842    4.60     727,719    30,509    4.19
----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits             118,500                           56,887                         46,124
Other noninterest-bearing
  liabilities                             30,055                           17,333                         14,652
Shareholders' equity                     225,002                          205,336                        207,953
------------------------------------------------                       ----------                       --------
Total liabilities and
  shareholders' equity                $1,901,888                       $1,167,944                       $996,448
================================================                       ==========                       ========
Net interest income                                $ 76,767                          $50,657                       $45,914
===========================================================                          =======                       =======
Net interest spread                                            3.74%                            3.68%                         3.85%
==================================================================================================================================
Net interest margin                                            4.29%                            4.58%                         4.83%
==================================================================================================================================
</TABLE>

(1)   Average balances include fair value adjustment.
(2)   Average balances include nonaccrual loans.


                                        9
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                      Management's Discussion & Analysis of
                  Financial Condition & Results of Operations
--------------------------------------------------------------------------------

Earning Assets

Total average earning assets increased to $1.8 billion for the year ended March
31, 2002, up from $1.1 billion in 2001. This increase was primarily a result of
the completion of the Cohoes Acquisition in April 2001 and to a lesser extent a
result of the Ambanc Acquisition in March 2002. Interest income for the year
ended March 31, 2002 was $134.1 million, up $42.6 million from 2001. The
increase in average balances was the primary reason for the higher income,
slightly offset by lower yields on those assets. The yield on earning assets
declined from 8.28% for the year ended March 31, 2001, to 7.49% in 2002. The
decline in the yield on earning assets was primarily due to the declining rate
environment in the marketplace and the larger amount of lower yielding Federal
funds sold held during 2002.

Average earning assets for the year ended March 31, 2001 were $155.1 million
higher than the average for the previous year. This increase was due to the
growth in loans, substantially from the acquisition of SFS Bancorp, Inc. in
September 1999. Primarily as a result of this increase in average earning
assets, interest income increased $15.1 million in 2001 from 2000. The yield on
earning assets rose from 8.04% in 2000 to 8.28% in 2001, resulting from changes
in the composition of the Company's asset mix.

Volume and Rate Analysis

<TABLE>
<CAPTION>
                                                                                 2002 vs 2001                          2001 vs 2000
-----------------------------------------------------------------------------------------------------------------------------------
                                                              Due To      Due To          Net       Due To      Due To          Net
(In thousands)                                                Volume        Rate       Change       Volume        Rate       Change
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>          <C>         <C>          <C>          <C>         <C>
Interest income
Federal funds sold                                          $  2,346     $    (6)    $  2,340     $     (4)    $    (1)    $     (5)
Loans held for sale                                             (560)          1         (559)         648          --          648
Securities available for sale                                 (3,163)     (1,271)      (4,434)         (80)        450          370
Securities held to maturity                                     (380)         --         (380)        (635)         33         (602)
Federal Home Loan Bank of New York stock                         468        (274)         194          374          21          395
Loans                                                         51,793      (6,325)      45,468       13,114       1,156       14,270
-----------------------------------------------------------------------------------------------------------------------------------
Total interest income                                       $ 50,504     $(7,875)    $ 42,629     $ 13,417     $ 1,659     $ 15,076
-----------------------------------------------------------------------------------------------------------------------------------

Interest expense
Savings accounts                                            $  3,895     $  (331)    $  3,564     $    181     $  (266)    $    (85)
N.O.W. and money market accounts                               1,530        (924)         606          308        (107)         201
Time deposit accounts                                         11,377      (3,274)       8,103        1,344       1,150        2,494
Mortgagors' escrow deposits                                       96          30          126           26          (3)          23
Securities sold under agreements to repurchase                   395        (124)         271          111          11          122
Short-term FHLB advances                                      (6,035)     (2,444)      (8,479)       5,160         610        5,770
Long-term FHLB borrowings                                     12,957        (629)      12,328        1,847         (39)       1,808
-----------------------------------------------------------------------------------------------------------------------------------
Total interest expense                                      $ 24,215     $(7,696)    $ 16,519     $  8,977     $ 1,356     $ 10,333
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income                                         $ 26,289     $  (179)    $ 26,110     $  4,440     $   303     $  4,743
====================================================================================================================================
</TABLE>

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


                                       10
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                      Management's Discussion & Analysis of
                   Financial Condition & Results of Operations
--------------------------------------------------------------------------------

Loans

The average balance of loans increased to $1.5 billion for the year ended March
31, 2002, up $641.3 million from the $849.3 million average for 2001. The yield
on loans for the year decreased 69 basis points, from 8.70% in 2001 to 8.01% in
2002. The decrease in yield is attributed to lower yielding loans acquired in
the Cohoes Acquisition and decreases in market interest rates during the current
year. Interest income on loans for the year ended March 31, 2002 increased to
$119.4 million from $73.9 million in 2001. The increase in average balances for
the year resulted in a $51.8 million increase in interest income, which was
offset slightly by a $6.3 million decrease in interest income due to lower
rates. An increase of $150.9 million in the average balance of loans in 2001
from 2000 and an increase in rates from 8.54% in 2000 to 8.70% in 2001 resulted
in an increase of $14.3 million in interest earned on loans for the year ended
March 31, 2001 as compared to 2000.

Total loans were $1.9 billion at March 31, 2002, up $1.0 billion from $881.4
million at March 31, 2001. Loans secured by residential real estate increased
from $515.6 million, or 58.4% of total loans at March 31, 2001, to $1.2 billion,
or 63.2% of total loans at March 31, 2002. Commercial real estate loans
increased $262.3 million to $429.7 million at March 31, 2002, from $167.3
million at March 31, 2001. Commercial loans increased to $109.1 million at March
31, 2002, from $60.3 million at March 31, 2001. These increases, which are
largely attributable to the Cohoes and Ambanc Acquisitions, were partially
offset by a decrease of $7.6 million in manufactured housing loans and a
decrease of $7.5 million in financed insurance premium loans. Management intends
to continue to reduce the portfolio of manufactured housing loans gradually
through normal paydown activity while it continues its focus on commercial real
estate and commercial lending, as well as residential lending. Prepayments as a
result of the lower rate environment of other loan types, particularly in
residential loans, also reduced loans during the year ended March 31, 2002.

During the years ended March 31, 2002 and 2001, the Company transferred $6.9
million and $40.4 million, respectively, of fixed rate performing residential
mortgage loans from loans into the loans held for sale category. These transfers
were part of management's continuing efforts to manage interest rate risk and
liquidity thresholds, and to partially fund a portion of the purchase price for
the Company's acquisition of Cohoes.

Loan Portfolio Analysis

<TABLE>
<CAPTION>
March 31,                                       2002                2001               2000               1999               1998
----------------------------------------------------------------------------------------------------------------------------------
(In thousands)                       Amount        %      Amount       %     Amount       %      Amount       %     Amount       %
----------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>           <C>      <C>        <C>     <C>        <C>      <C>        <C>     <C>        <C>
Loans secured by real estate:
    Residential                  $1,203,866     63.2%   $515,584    58.4%  $491,811    59.7%   $295,466    51.1%  $269,435    53.2%
    Commercial                      429,692     22.6     167,344    19.0    138,891    16.9      91,480    15.8     76,570    15.1
    Construction                     18,378      1.0       9,306     1.1      9,144     1.1       3,401     0.6      4,621     0.9
----------------------------------------------------------------------------------------------------------------------------------
Total loans secured
  by real estate                  1,651,936     86.8     692,234    78.5    639,846    77.7     390,347    67.5    350,626    69.2
----------------------------------------------------------------------------------------------------------------------------------
Other loans:
    Manufactured housing             67,660      3.6      75,287     8.6     81,542     9.9      90,354    15.6     97,426    19.2
    Commercial                      109,083      5.7      60,311     6.9     37,167     4.5      29,024     5.0     18,484     3.7
    Financed insurance
      premiums                       30,727      1.6      38,216     4.3     51,796     6.3      57,901    10.0     27,976     5.5
    Consumer                         38,416      2.0      17,943     2.0     15,536     1.9      12,440     2.2     11,857     2.3
----------------------------------------------------------------------------------------------------------------------------------
Total other loans                   245,886     12.9     191,757    21.8    186,041    22.6     189,719    32.8    155,743    30.7
----------------------------------------------------------------------------------------------------------------------------------
Unearned discount, net
  deferred loan origination
  fees and costs, and
  purchase accounting
  adjustments                         6,382      0.3      (2,579)   (0.3)    (2,032)   (0.3)     (1,967)   (0.3)       609     0.1
----------------------------------------------------------------------------------------------------------------------------------
Total loans                      $1,904,204    100.0%   $881,412   100.0%  $823,855   100.0%   $578,099   100.0%  $506,978   100.0%
Allowance for loan losses           (36,572)             (22,325)           (19,608)            (14,296)            (8,227)
----------------------------------------------------------------------------------------------------------------------------------
Net loans                        $1,867,632             $859,087           $804,247            $563,803           $498,751
====================================================================================================================================
</TABLE>

Securities

The average balance of securities available for sale and securities held to
maturity (collectively "securities") decreased $54.8 million to $181.5 million
for the year ended March 31, 2002, down from $236.3 million for the year ended
March 31, 2001. This decrease is primarily the result of sales of securities
used to partially fund the Cohoes Acquisition, as well as the Company's
continued efforts to change the asset mix from lower yielding securities to
higher yielding loans. Interest income earned on securities of $11.4 million for
the year ended March 31, 2002 was down $4.8 million from the $16.2 million
earned in 2001 primarily as a result of lower average balances, as well as
decreases in average rates.


                                       11
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                      Management's Discussion & Analysis of
                  Financial Condition & Results of Operations
--------------------------------------------------------------------------------

Average securities for the year ended March 31, 2001 were $10.5 million lower
than the average balance of securities in 2000. This decrease was also
attributed to the Company's continued efforts to change the asset mix from lower
yielding securities to higher yielding loans. Lower average balances partially
offset by an increase in average rates earned resulted in a reduction of $232
thousand in interest on securities in 2001 from 2000.

Securities at March 31, 2002 were $223.5 million, up $6.0 million from the
$217.5 million held as of March 31, 2001. The increase was due to the Cohoes and
Ambanc Acquisitions, offset by sales, maturities, calls and paydowns of
securities during the year ended March 31, 2002. The Company adopted the
provisions of SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities," on April 1, 2001. As allowed by SFAS No. 133, the Company elected
to reclassify its securities held to maturity as securities available for sale.
Management anticipates that any new purchases of securities will be directed to
the securities available for sale classification.

Federal Funds Sold

The average balance of Federal funds sold of $98.4 million for the year ended
March 31, 2002 generated $2.3 million in interest income for the year. The
Company had limited Federal funds sold during the years ended March 31, 2001 and
2000, as these asset categories were reinvested in the higher yielding loan and
securities portfolios during the latter stages of the year ended March 31, 1999.
At March 31, 2002, the Company had $176.8 million in Federal funds, up $162.1
million from the $14.7 million at March 31, 2001. The Company is currently
utilizing Federal funds for short-term liquidity and for asset/liability
management purposes. The balance of Federal funds may decrease in the future as
management responds to any changes in the current interest rate environment and
as loan demand increases.

Funding Sources

The Company utilizes traditional deposit products such as time, savings, N.O.W.
and money market deposits as its primary source for funding. Other sources such
as short-term FHLB advances and long-term FHLB borrowings, however, are utilized
as necessary to support the Company's growth in assets and to achieve interest
rate sensitivity objectives. The average balance of interest-bearing liabilities
increased to $1.5 billion for the year ended March 31, 2002, from $888.4 million
for the year ended March 31, 2001. This increase in average balances is
attributed primarily to the completion of the Cohoes Acquisition and to a lesser
extent the completion of the Ambanc Acquisition. Interest expense for the year
ended March 31, 2002 was $57.4 million, up $16.5 million from the previous year.
The increase in volume, offset somewhat by a decrease in the average rate paid
from 4.60% to 3.75%, resulted in the overall increase in interest expense for
the year. Average interest-bearing liabilities for the year ended March 31, 2001
were $160.7 million higher than 2000. This increase in volume, primarily
attributed to the SFS Acquisition, was accompanied by an increase in the average
rates paid, resulting in an increase of $10.3 million in interest expense
between the two years.

Interest-bearing liabilities at March 31, 2002 were $2.1 billion, up from $898.6
million at March 31, 2001. This increase was primarily the result of the Cohoes
and Ambanc Acquisitions completed during the year.

Deposits

The average balance of savings accounts increased $164.0 million to $338.0
million for the year ended March 31, 2002, up from $174.0 million for the
previous year. This increase is primarily due to the impact of the Cohoes and
Ambanc Acquisitions during the year ended March 31, 2002. Interest expense on
savings accounts increased from $4.4 million for the year ended March 31, 2001
to $8.0 million in 2002 as the increase in average balances more than offset the
decrease in rates paid, from 2.54% to 2.36%. Rates paid on savings accounts
declined due to market competition from 2.70% in 2000 to 2.54% in 2001. This
decline in rates more than offset the increase in the average balance of savings
accounts from $167.1 million in 2000 to $174.0 million in 2001, resulting in an
overall decrease in interest expense during 2001 of $85 thousand.

The average balance of N.O.W. and money market accounts increased to $201.8
million for the year ended March 31, 2002, up from $127.3 million in 2001. This
increase was primarily the result of the impact of the Cohoes Acquisition, and
to a lesser extent the Ambanc Acquisition, during the year ended March 31, 2002.
Interest expense on N.O.W. and money market accounts increased from $3.2 million
in 2001 to $3.8 million in the year ended March 31, 2002, as a decrease in
average rates paid from 2.49% to 1.87% somewhat offset the effect of the higher
average balances. Rates paid on N.O.W. and money market accounts declined due to
market competition from 2.58% in 2000 to 2.49% in 2001. This decline in rates
partially offset the increase in higher average balances resulting in an
increase of interest expense of $201 thousand from 2000 to 2001.

Interest expense on time deposits increased during the year ended March 31, 2002
to $28.6 million, compared with $20.5 million in 2001. The average balance of
time deposits increased from $379.3 million for the year ended March 31, 2001 to
$617.5 million for the year ended March 31, 2002, primarily due to the Cohoes
and Ambanc Acquisitions.


                                       12
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                      Management's Discussion & Analysis of
                  Financial Condition & Results of Operations
--------------------------------------------------------------------------------

The higher average balance in 2002 resulted in the increase in interest expense
on time deposits, somewhat offset by lower average rates paid on time deposits
of 4.63% for the year ended March 31, 2002 down from 5.41% in 2001. For the year
ended March 31, 2001, the increase in average rates paid from 5.09% in 2000 to
5.41% in 2001, along with a $25.6 million increase in average balances during
2001 resulted in an increase of interest expense of $2.5 million from 2000 to
2001.

Total deposits, including $175.0 million of noninterest-bearing deposits, were
$1.8 billion at March 31, 2002, up from $750.2 million ($62.5 million of
noninterest-bearing deposits) at March 31, 2001. The increase in
noninterest-bearing deposits reflects the Company's continued focus on
commercial services, including commercial deposits, and the completion of the
Cohoes and Ambanc Acquisitions.

Short-term FHLB Advances and Long-term FHLB Borrowings

The average balance of short-term FHLB advances decreased to $23.2 million for
the year ended March 31, 2002, from $146.4 million in 2001 and $65.5 million in
2000. Interest expense on these borrowings decreased $8.5 million for the year
ended March 31, 2002 when compared with 2001. This decrease is primarily
attributed to the decrease in volume coupled with lower average rates paid on
borrowings.

The average balance of long-term FHLB borrowings was $319.5 million for the year
ended March 31, 2002, an increase of $269.6 million from the $50.0 million for
the year ended March 31, 2001. The Company had an average balance of $18.4
million in long-term FHLB borrowings during the year ended March 31, 2000. The
Company had no short-term FHLB advances at March 31, 2002, down from $82.0
million at March 31, 2001. This decrease is primarily the result of the Company
taking advantage of opportunities to enhance its interest rate risk profile by
shifting some shorter-term FHLB advances into long-term funding, at generally
lower rates than were available in the local time deposit market. Long-term FHLB
borrowings increased to $450.7 million at March 31, 2002, from $112.9 million at
March 31, 2001. The increase in this category was primarily attributed to the
movement of short-term advances into long-term borrowings at generally lower
rates, the need to fund the Cohoes Acquisition, and management's continued
monitoring of the Company's interest rate risk profile. Additionally, the
Company acquired $63.8 million of long-term borrowings from the Cohoes
Acquisition and $101.0 million from the Ambanc Acquisition. The interest rates
on the long-term FHLB borrowings are generally fixed with remaining maturities
ranging from five months to ten years, with call options ranging from one month
to three years. See further information on borrowings in note 7 to the
consolidated financial statements.

Net Interest Income

Net interest income for the year ended March 31, 2002 was $76.8 million, up from
$50.7 million in 2001 and $45.9 million in 2000. These increases were the result
of increases in average earning assets in each year, lower rates paid on
interest-bearing liabilities during 2002, offset in part by higher average
balances of interest-bearing liabilities in each year and lower rates earned on
earning assets in 2002. As a result of these volume and rate fluctuations, the
Company's net interest margin for the year ended March 31, 2002 was 4.29%, down
from 4.58% in 2001 and 4.83% in 2000. The Company expects that its interest rate
margins will continue to decline in the near future due to recent reductions in
short-term interest rates, as well as the impact of the Ambanc Acquisition.

Noninterest Sensitive Assets and Liabilities

Noninterest sensitive assets include accrued interest receivable, premises and
equipment, other real estate owned and repossessed property, goodwill and other
intangibles, and other assets. Premises and equipment amounted to $29.2 million
at March 31, 2002, up from $19.1 million at March 31, 2001. Goodwill and other
intangibles increased from $11.3 million at March 31, 2001 to $69.6 million at
March 31, 2002. Accrued interest receivable increased $4.9 million from $6.6
million at March 31, 2001 to $11.5 million in 2002. Other assets were $62.8
million at March 31, 2002, up from $28.7 million at March 31, 2001. These
increases are all primarily attributed to the Cohoes and Ambanc Acquisitions in
April 2001 and March 2002, respectively. In addition, $10.0 million of the
increase in other assets is a result of an additional investment in bank-owned
life insurance.

Noninterest sensitive liabilities include noninterest-bearing deposits
(primarily checking accounts) and other liabilities. Noninterest-bearing
deposits increased from $62.5 million at March 31, 2001 to $175.0 million at
March 31, 2002. This increase is associated with the Cohoes and Ambanc
Acquisitions as well as the growth in the Company's commercial accounts, which
are generally noninterest-bearing. Other liabilities increased slightly from
$31.7 million at March 31, 2001 to $32.1 million at March 31, 2002. Other
liabilities at March 31, 2002 included $2.0 million of amounts due to insurance
companies in relation to finance insurance premium loans, down $19.0 million
from 2001 as a result of the lower volume of these loans originated in 2002.
This decline was more than offset by an increase in other liabilities in 2002 as
a result of the Cohoes and Ambanc Acquisitions.


                                       13
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                      Management's Discussion & Analysis of
                  Financial Condition & Results of Operations
--------------------------------------------------------------------------------

Risk Management
--------------------------------------------------------------------------------

Credit Risk

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

Nonperforming Assets

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

Total nonperforming assets at March 31, 2002 were $19.2 million or 0.77% of
total assets, compared with $9.4 million or 0.77% at March 31, 2001. The $9.9
million increase in total nonperforming assets is the result of a $9.4 million
increase in nonaccrual loans and a $476 thousand increase in foreclosed and
repossessed property. Nonaccrual residential real estate loans increased $5.4
million from March 31, 2001, with commercial real estate increasing an
additional $3.1 million. These increases were primarily a result of the
completion of the acquisitions of Cohoes and Ambanc in April 2001 and March
2002, respectively.

The $476 thousand increase in foreclosed and repossessed property was made up of
a $406 thousand increase in repossessed manufactured homes, with the remainder
attributable to slightly higher foreclosed commercial properties.

As of March 31, 2002, there were $36.2 million of other loans not included in
the category of nonperforming loans where known information about the possible
credit or other problems of borrowers caused management to have doubts as to the
ability of the borrower to comply with present loan repayment terms. These loans
have been considered by management in conjunction with the analysis of the
adequacy of the allowance for loan losses.

Nonperforming Assets

<TABLE>
<CAPTION>
(In thousands)                               March 31,         2002            2001            2000            1999            1998
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>             <C>             <C>             <C>
Nonaccruing loans
Residential real estate                                     $ 7,431         $ 2,050         $ 3,199         $ 2,253         $ 4,512
Commercial real estate                                        3,905             849           2,536           2,669           5,253
Commercial loans                                                751              --             137              --              --
Manufactured housing                                          2,880           3,169           1,911           2,315           3,060
Financed insurance premiums                                   2,445           2,439           2,453           2,549           2,768
Consumer                                                        559              81              57             158             114
------------------------------------------------------------------------------------------------------------------------------------
Total nonaccruing loans                                      17,971           8,588          10,293           9,944          15,707
------------------------------------------------------------------------------------------------------------------------------------
Loans past due 90 days or more
  and still accruing interest                                    --              --              --              --              16
------------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans                                   $17,971         $ 8,588         $10,293         $ 9,944         $15,723
====================================================================================================================================

Foreclosed and repossessed property
Residential real estate                                     $    96         $   161         $    85         $   258         $   145
Commercial real estate                                          135              --             377             474             299
Repossessed property                                          1,021             615           1,179           1,776           1,088
------------------------------------------------------------------------------------------------------------------------------------
Total foreclosed and repossessed property                   $ 1,252         $   776         $ 1,641         $ 2,508         $ 1,532
====================================================================================================================================
Total nonperforming assets                                  $19,223         $ 9,364         $11,934         $12,452         $17,255
====================================================================================================================================
Allowance for loan losses                                   $36,572         $22,325         $19,608         $14,296         $ 8,227
====================================================================================================================================

Allowance to nonperforming loans                             203.51%         259.96%         190.50%         143.77%          52.32%
Nonperforming assets to total assets                           0.77            0.77            1.04            1.41            2.57
Nonperforming loans to total loans                             0.94            0.97            1.25            1.72            3.10
====================================================================================================================================
</TABLE>


                                       14
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                      Management's Discussion & Analysis of
                   Financial Condition & Results of Operations
--------------------------------------------------------------------------------

Allowance and Provision for Loan Losses

The allowance for loan losses at March 31, 2002 was $36.6 million, up from $22.3
million at March 31, 2001. The allowance as a percentage of nonperforming loans
decreased from 260.0% at March 31, 2001 to 203.5% at March 31, 2002. The
adequacy of the allowance for loan losses is evaluated quarterly by management
based upon a review of significant loans, with particular emphasis on
nonperforming and delinquent loans that management believes warrant special
attention, as well as an analysis of the higher risk elements of the Company's
loan portfolio and growth in the loan portfolio. Net charge-offs for the year
ended March 31, 2002 were $3.1 million, up from $2.4 million in 2001. The
increase in net charge-offs in 2002 is primarily the result of an increase in
financed insurance premium charge-offs of $701 thousand largely attributed to
one large broker relationship. Gross charge-offs of $4.4 million for 2002 were
up from $3.5 million for the year ended March 31, 2001.

As a result of management's analysis of the risk characteristics of the loan
portfolio, as well as the trends and levels of nonperforming and other
delinquent loans and loan charge-offs, a provision for loan losses of $5.7
million was recorded for the year ended March 31, 2002. The $5.7 million
provision is up $575 thousand from the $5.1 million provision recorded in 2001.
In addition, a $5.8 million and $5.9 million allowance was acquired from the
Cohoes and Ambanc Acquisitions, respectively. The provision as a percentage of
average loans declined from 0.60% in 2001 to 0.38% in 2002. This decline is
primarily a result of the increase in average balances of loans outstanding from
$849.3 million for the year ended March 31, 2001 to $1.5 billion for 2002, as
well as continued declines in the level of nonperforming loans to total loans
and net charge-offs to average loans. The increase in loans was a result of the
Cohoes and Ambanc acquisitions.

The Company continues to maintain certain portfolios of loans with higher credit
risk, such as manufactured housing loans, commercial loans and financed
insurance premium loans. The growth in loan balances, net charge-offs, risk
elements of the Company's loan portfolio, economic conditions in the Company's
market area and nonperforming loan balances are the primary factors which are
considered in determining the levels of the Company's provision for loan losses.
Management currently anticipates that the level of provision will continue at
approximately the same levels for 2003 as experienced in 2002.

Loan Loss Experience

<TABLE>
<CAPTION>
(In thousands)                  Years Ended March 31,             2002           2001           2000           1999           1998
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>            <C>            <C>            <C>
Loans at end of year                                       $ 1,904,204      $ 881,412      $ 823,855      $ 578,099      $ 506,978
==================================================================================================================================
Average loans during year                                  $ 1,490,547      $ 849,283      $ 698,403      $ 522,974      $ 507,293
==================================================================================================================================

Allowance for loan loss at beginning of year               $    22,325      $  19,608      $  14,296      $   8,227      $   5,872
Loan charge-offs:
   Residential real estate                                        (457)          (312)          (282)          (251)          (440)
   Commercial real estate                                         (395)          (643)           (14)           (95)        (1,298)
   Commercial loans                                                (34)            --           (150)          (136)        (2,309)
   Manufactured housing                                         (1,553)        (1,494)        (1,283)        (1,331)          (480)
   Consumer                                                       (383)          (166)          (228)          (139)          (112)
   Financed insurance premiums                                  (1,566)          (865)          (586)        (1,239)        (2,091)
----------------------------------------------------------------------------------------------------------------------------------
Total charge-offs                                               (4,388)        (3,480)        (2,543)        (3,191)        (6,730)
----------------------------------------------------------------------------------------------------------------------------------

Loan recoveries:
   Residential real estate                                         198            188             54            341              8
   Commercial real estate                                           85            187            184            777             17
   Commercial loans                                                 --             10              4             17             10
   Manufactured housing                                            113            125             86             73            105
   Consumer                                                         75             59             38             25             38
   Financed insurance premiums                                     804            528            281            686            416
----------------------------------------------------------------------------------------------------------------------------------
Total recoveries                                                 1,275          1,097            647          1,919            594
----------------------------------------------------------------------------------------------------------------------------------
Loan charge-offs, net of recoveries                             (3,113)        (2,383)        (1,896)        (1,272)        (6,136)
Provision charged to operations                                  5,675          5,100          6,200          7,341          8,491
Allowance acquired                                              11,685             --          1,008             --             --
----------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of year                   $    36,572      $  22,325      $  19,608      $  14,296      $   8,227
==================================================================================================================================
Ratio of net charge-offs to average loans during year             0.21%          0.28%          0.27%          0.24%          1.21%
==================================================================================================================================
Provision to average loans during year                            0.38%          0.60%          0.89%          1.40%          1.67%
==================================================================================================================================
Allowance to loans at end of year                                 1.92%          2.53%          2.38%          2.47%          1.62%
==================================================================================================================================
</TABLE>


                                       15
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                      Management's Discussion & Analysis of
                   Financial Condition & Results of Operations
--------------------------------------------------------------------------------

Market Risk

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

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

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

In adjusting the Company's asset/liability position, the Board and management
attempt to manage the Company's interest rate risk while enhancing net interest
margins. At times, depending on the level of general interest rates, the
relationship between long- and short-term interest rates, market conditions and
competitive factors, the Board and management may determine to increase the
Company's interest rate risk position somewhat in order to increase its net
interest income. The Company's results of operations and net portfolio values
remain vulnerable to changes in interest rates and to fluctuations in the
difference between long- and short-term interest rates.

Interest rate risk analyses performed by the Company indicate that the Company
is asset sensitive as of March 31, 2002. As a result, rising interest rates
projected over a 12 month horizon would have a positive impact on net interest
income; conversely, falling interest rates projected over the same 12 month
horizon are estimated to have a negative impact on net interest income.
Consistent with the asset/liability management philosophy described above, the
Company has taken steps to manage its interest rate risk by attempting to match
the repricing periods of its earning assets to its interest-bearing liabilities,
while still allowing for maximization of net interest income. The Company's
purchases of securities, retention or sale of fixed rate loan products,
utilization of longer term borrowings, and emphasis on lower cost, more stable
non-certificate deposit accounts are methods the Company has utilized to manage
its interest rate risk. Management continuously evaluates various alternatives
to address interest rate risk including, but not limited to, the purchase of
interest rate swaps, caps, and floors, leveraging scenarios, and changes in
asset or funding mix.

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

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


                                       16
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                      Management's Discussion & Analysis of
                  Financial Condition & Results of Operations
--------------------------------------------------------------------------------

The following table summarizes the percentage change in interest income and
interest expense by major earning asset and interest-bearing liability
categories as of March 31, 2002 in the rising and declining rate scenarios
described above, compared to the forecasted interest income and interest expense
amounts in a flat rate scenario. Under the declining rate scenario, net interest
income is projected to fall slightly from the flat rate scenario, declining by
0.63% over a 12 month period. Under the rising rate scenario, net interest
income is projected to increase by 2.55% from the flat rate scenario over a 12
month period. This level of variability places the Company's interest rate risk
profile well within acceptable Company guidelines.

<TABLE>
<CAPTION>
Percentage Change in Net Interest Income Compared to Flat Rate Scenario               Declining Rate Scenario  Rising Rate Scenario
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                    <C>                    <C>
Investment securities (includes securities available for sale and Federal funds sold)                   (6.55)%               13.58%
Total loans                                                                                             (2.18)                 2.60
-----------------------------------------------------------------------------------------------------------------------------------
Total interest income                                                                                   (2.64)                 3.78
-----------------------------------------------------------------------------------------------------------------------------------
Core deposits                                                                                          (14.30)                14.30
Time deposits                                                                                           (3.63)                 3.63
-----------------------------------------------------------------------------------------------------------------------------------
Total deposits                                                                                          (7.32)                 7.32
Borrowings                                                                                              (2.40)                 2.32
-----------------------------------------------------------------------------------------------------------------------------------
Total interest expense                                                                                  (5.60)                 5.57
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income                                                                                     (0.63)%                2.55%
===================================================================================================================================
</TABLE>

The preceding sensitivity analysis does not represent a Company forecast and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including: the
nature and timing of interest rate levels including yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, and reinvestment/replacement of asset and liability cash
flows. While assumptions are developed based upon current economic and local
market conditions, the Company cannot make assurances as to the predicative
nature of these assumptions including how customer preferences or competitor
influences might change. Also, as market conditions vary from those assumed in
the sensitivity analysis, actual results will differ due to: prepayment/
refinancing levels likely deviating from those assumed, the varying impact of
interest rate changes on caps and floors on adjustable rate assets, the
potential effect of changing debt service levels on customers with adjustable
rate loans, depositor early withdrawals and product preference changes, and
other internal/external variables. Furthermore, the sensitivity analysis does
not reflect actions that management might take in responding to or anticipating
changes in interest rates.

Liquidity Risk

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

The Company's cash inflows result primarily from loan repayments; sales,
maturities, principal payments and calls of securities; new deposits; and
borrowings from the Federal Home Loan Bank of New York. The Company's cash
outflows consist of new loan originations; security purchases; deposit
withdrawals; operating expenses and treasury stock purchases. The Cohoes and
Ambanc Acquisitions also resulted in a significant cash outflow during the year
ended March 31, 2002. The timing of cash inflows and outflows are closely
monitored by management although changes in interest rates, economic conditions,
and competitive forces strongly impact the predictability of these cash flows.
The Company attempts to provide stable and flexible sources of funding through
the management of its liabilities, including core deposit products offered
through its branch network, and through the use of borrowings. Management
believes that the level of the Company's liquid assets and available credit
lines combined with daily monitoring of cash inflows and outflows provide
adequate liquidity to fund outstanding loan commitments, meet daily withdrawal
requirements of depositors, and meet all other daily obligations of the Company.

Capital Resources
--------------------------------------------------------------------------------

Consistent with its goal to operate a sound and profitable financial
organization, the Company actively seeks to maintain a "well-capitalized"
institution in accordance with regulatory standards. Total equity was $230.9
million at March 31, 2002, or 9.20% of total assets on that date. As of March
31, 2001, total equity was $216.1 million, or 17.88% of total assets. Ratios of
tangible equity to tangible assets were 6.61% and 17.10% as of March 31, 2002
and 2001, respectively. These reductions in the equity to assets ratios are a
result of the Cohoes and Ambanc Acquisitions and are reflective of management's
objectives to leverage its capital through asset growth, mergers and
acquisitions, and share repurchases. As of March 31, 2002, the Company and the
Bank exceeded all of their regulatory capital requirements, however, as a result
of the impact of the Ambanc Acquisition, the Bank's total risk-based capital
ratio declined to 8.87%, less than the 10.0% required to be categorized as
well-capitalized, but exceeding the minimum capital requirements. Management
expects that the Bank will return to the well-capitalized category within twelve
months.


                                       17
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                      Management's Discussion & Analysis of
                  Financial Condition & Results of Operations
--------------------------------------------------------------------------------

Other Operating Income and Expenses
--------------------------------------------------------------------------------

Total other operating income was $11.4 million for the year ended March 31,
2002, up from the $4.8 million earned in 2001. Other operating income is
composed primarily of service charges on deposit accounts, net securities
transactions, insurance commissions, trust and investment services income, and
other income. Income from service charges on deposit accounts increased from
$2.0 million in 2001 to $4.6 million in 2002, primarily as a result of the
growth in transaction accounts from the Cohoes Acquisition. Net securities
transactions resulted in a gain of $30 thousand for the year ended March 31,
2002, down from $771 thousand for the year ended March 31, 2001. This decrease
from the previous year was primarily a result of a gain on the Company's equity
investment in a financial institution that was acquired for cash during the year
ended March 31, 2001. Income from insurance commissions from the Company's
insurance agency subsidiary (Bostwick) increased $2.5 million to $3.1 million
for the year ended March 31, 2002 from the $599 thousand earned in 2001.
Bostwick results have only been consolidated with the Company's since January
2001, which is the primary reason for the increase in insurance commissions.
Income from trust and investment services increased from $181 thousand in 2001
to $534 thousand in 2002, primarily as a result of the Company's brokerage
subsidiary acquired as part of the Cohoes Acquisition. Other income increased
$1.6 million to $2.8 million for the year ended March 31, 2002, from $1.2
million in 2001. These increases are primarily the result of earnings from the
Company's investment in Homestead Funding, a mortgage banking company, as well
as higher broker fees realized from the Company's own mortgage brokerage
subsidiary. Total other operating income in 2001 was $2.2 million more than the
$2.6 million in 2000. This increase was due primarily to increases in service
charges on deposit accounts, higher earnings on bank-owned life insurance, and
the net securities transactions and insurance commissions discussed previously.

Total other operating expenses were $49.2 million for the year ended March 31,
2002, up $17.5 million from 2001. This increase was due to higher expenses in
compensation and benefits, occupancy, equipment, goodwill and other intangibles
amortization, and other expenses, partially offset by a reduction in expenses on
other real estate owned and repossessed property, legal and other professional
fees, and directors' expense. Total other operating expenses increased $3.9
million in 2001 from 2000. This increase was due substantially to increases in
compensation and benefits, occupancy, equipment, legal and other professional
fees, director's expense, and other expenses, partially offset by a reduction in
other real estate owned and repossessed property. Additionally, the Company
incurred $959 thousand in nonrecurring expenses during the year ended March 31,
2001 associated with the Company's terminated merger with Cohoes.

Compensation and benefits increased $9.2 million to $23.4 million for the year
ended March 31, 2002 from $14.3 million in 2001. This increase is substantially
the result of the Cohoes Acquisition with the addition of 20 branches in April
2001. The Ambanc Acquisition in March 2002 did not have a significant impact on
2002 expenses. In addition, expenses relating to the Company's ESOP increased
$871 thousand from the year ended March 31, 2001, due to the Company's higher
stock price. Management believes that compensation and benefits may fluctuate in
future periods, as costs related to the Company's ESOP are dependent on the
Company's average stock price. Compensation and benefits increased $500 thousand
in 2001 from 2000, primarily as a result of a branch opening just after the
beginning of the fiscal year ending March 31, 2001, a full year's impact of the
SFS Acquisition, as well as larger expenses in 2001 related to the Company's
insurance agency subsidiary and ESOP.

Occupancy expenses were $3.9 million for the year ended March 31, 2002, up $1.8
million from 2001. Equipment expenses for the year ended March 31, 2002 were
$4.9 million, up from $3.0 million in 2001. These increases are attributed to
the growth in the Company's branch network resulting from the Cohoes
Acquisition, and to a lesser degree, the Ambanc Acquisition.

Expenses on other real estate owned and repossessed property were $434 thousand
in 2002, $723 thousand in 2001, and $1.2 million in 2000. These expenses are the
result of management's continued efforts to reduce the level of problem assets.
The decrease during the year 2002 was a result of gains recognized by the
Company relating to several properties that were sold during the year. A lower
average level of other real estate owned and repossessed property held during
this period also resulted in decreased maintenance expenses associated with
these assets during 2002 as compared with 2001 and 2000.

Legal and other professional fees decreased to $1.4 million for the year ended
March 31, 2002, down from $2.0 million in 2001. This decrease is attributed to
expenses incurred in the year ended March 31, 2001 associated with the Company's
defense of a hostile takeover attempt and the Company's terminated merger with
Cohoes.


                                       18
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                      Management's Discussion & Analysis of
                  Financial Condition & Results of Operations
--------------------------------------------------------------------------------

Goodwill and other intangibles amortization was $3.2 million in 2002 and $1.1
million in 2001 and 2000. The increase from 2001 to 2002 is primarily attributed
to goodwill from the Cohoes Acquisition, as well as the core deposit intangible
from the Ambanc Acquisition and the Company's additional equity investments in
Bostwick, an insurance agency. See further discussion of goodwill and other
intangibles amortization within the discussion of the "Impact of New Accounting
Standards" on page 20.

Directors' expense for the year ended March 31, 2002 was $671 thousand, down
from $1.1 million in 2001. This decrease is attributed to a reduction in
expenses associated with the retirement of directors during the year.

Other expenses were $9.9 million for the year ended March 31, 2002 up from $6.2
million during 2001 and $5.0 million in 2000. The increase is the result of
general increases associated with the continued growth of the Company through
branch openings, acquisitions and loan growth.

Tax Expense
--------------------------------------------------------------------------------

Tax expense increased from $5.0 million for 2000 and $7.0 million for 2001 to
$13.8 million for 2002. The increase in 2002 and 2001 is primarily the result of
higher income before tax expense. The Company's effective tax rate has increased
during 2002 primarily as a result of the increase in nondeductible goodwill
amortization from the Cohoes Acquisition. The Company's effective tax rate is
expected to decrease in 2003 as a result of the Company's adoption of SFAS No.
142 which requires that the Company's goodwill no longer be amortized but
instead be evaluated annually for impairment.

Quarterly Financial Results

<TABLE>
<CAPTION>
(In thousands, except per share data)
Three Months Ended                        June 30, 2001   September 30, 2001   December 31, 2001    March 31, 2002      YTD 2002
--------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                  <C>                 <C>               <C>          <C>
Interest income                                 $32,221              $34,657             $33,287           $33,963      $134,128
Interest expense                                 13,701               15,374              14,424            13,862        57,361
--------------------------------------------------------------------------------------------------------------------------------
Net interest income                              18,520               19,283              18,863            20,101        76,767
--------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses                         1,400                1,425               1,425             1,425         5,675
Other operating income                            2,597                2,668               2,945             3,196        11,406
Other operating expenses                         11,668               12,310              11,946            13,255        49,179
--------------------------------------------------------------------------------------------------------------------------------
Income before tax expense                         8,049                8,216               8,437             8,617        33,319
Tax expense                                       3,345                3,419               3,492             3,534        13,790
--------------------------------------------------------------------------------------------------------------------------------
Net income                                      $ 4,704              $ 4,797             $ 4,945           $ 5,083      $ 19,529
================================================================================================================================
Basic earnings per share                        $  0.34              $  0.35             $  0.36           $  0.37      $   1.42
Diluted earnings per share                         0.33                 0.34                0.35              0.36          1.38
Cash dividends per share                           0.07                 0.09                0.09              0.10          0.35
================================================================================================================================

<CAPTION>
(In thousands, except per share data)
Three Months Ended                        June 30, 2000   September 30, 2000   December 31, 2000    March 31, 2001      YTD 2001
--------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                  <C>                 <C>               <C>           <C>
Interest income                                 $22,142              $22,773             $23,333           $23,251       $91,499
Interest expense                                  9,673               10,257              10,678            10,234        40,842
--------------------------------------------------------------------------------------------------------------------------------
Net interest income                              12,469               12,516              12,655            13,017        50,657
--------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses                         1,425                1,275               1,200             1,200         5,100
Other operating income                              694                  834               1,025             2,237         4,790
Other operating expenses                          7,580                7,706               7,597             8,826        31,709
--------------------------------------------------------------------------------------------------------------------------------
Income before tax expense                         4,158                4,369               4,883             5,228        18,638
Tax expense                                       1,515                1,624               1,818             2,013         6,970
--------------------------------------------------------------------------------------------------------------------------------
Net income                                      $ 2,643              $ 2,745             $ 3,065           $ 3,215       $11,668
================================================================================================================================
Basic earnings per share                        $  0.19              $  0.20             $  0.23           $  0.24       $  0.86
Diluted earnings per share                         0.19                 0.20                0.22              0.23          0.85
Cash dividends per share                           0.05                 0.05                0.05              0.07          0.22
================================================================================================================================
</TABLE>


                                       19
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                      Management's Discussion & Analysis of
                  Financial Condition & Results of Operations
--------------------------------------------------------------------------------

Impact of Inflation and Changing Prices
--------------------------------------------------------------------------------

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

Impact of New Accounting Standards
--------------------------------------------------------------------------------

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that
entities recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Company adopted SFAS No. 133, as
amended, as of April 1, 2001. The adoption of this Statement did not have a
material impact on the Company's consolidated financial statements, as the
Company did not have any derivative instruments at the time of adoption or
subsequently, and has not identified any derivative instruments embedded in
other contracts. As allowed under the provisions of SFAS No. 133, as of April 1,
2001, the Company transferred securities with an amortized cost of $3.6 million
(fair value of $3.7 million) from held to maturity to available for sale.

In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. SFAS No. 141 also specifies criteria that intangible assets
acquired in a purchase method business combination must meet to be recognized
and reported apart from goodwill. SFAS No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. Acquired intangible assets (other than goodwill)
with definite useful lives are amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment.

The Company adopted the provisions of SFAS No. 141 immediately and SFAS No. 142
effective April 1, 2002. SFAS No. 142 required that goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 (such as
SFS and Cohoes) continued to be amortized through the date of adoption. For
business combinations completed subsequent to June 30, 2001, such as the
Company's Ambanc Acquisition, goodwill would not be amortized, although
intangibles with definite useful lives (such as the core deposit intangible)
would be amortized.

In connection with the transitional goodwill impairment evaluation, SFAS No. 142
requires the Company to perform an assessment of whether there is an indication
that goodwill was impaired as of the date of adoption. Any transitional
impairment loss will be recognized as the cumulative effect of a change in
accounting principle in the Company's consolidated income statement for the year
ending March 31, 2003.

As of March 31, 2002, the Company had unamortized goodwill in the amount of
$62.4 million, which will be subject to the transition provisions of SFAS No.
142, and approximately $7.2 million in unamortized core deposit and other
intangibles. Amortization expense related to goodwill and other intangibles was
$3.2 million for the year ended March 31, 2002. The Company will not amortize
goodwill in fiscal 2003. Amortization expense relating to core deposit and other
intangible assets is expected to approximate $1.3 million for the year ended
March 31, 2003. Because of the extensive effort needed to comply with adopting
SFAS No. 142, it is not practicable to reasonably estimate the impact of
adopting this Statement on the Company's consolidated financial statements at
the date of this report, including whether any transitional impairment losses
will be required to be recognized as the cumulative effect of a change in
accounting principle.


                                       20
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                      Management's Discussion & Analysis of
                  Financial Condition & Results of Operations
--------------------------------------------------------------------------------

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." The new standard takes effect for fiscal years beginning after
June 15, 2002. SFAS No. 143 addresses the accounting for obligations associated
with the retirement of tangible long-lived assets and requires a liability to be
recognized for the fair value of these obligations in the period they are
incurred. Related costs are capitalized as part of the carrying amounts of the
assets to be retired and amortized over the assets' useful lives. The Company
will adopt SFAS No. 143 as of April 1, 2003. The Company does not expect that
SFAS No. 143 will have a material impact on its consolidated financial
statements.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The new standard maintains the previous
accounting for the impairment or disposal of long-lived assets, but also
establishes more restrictive criteria that have to be met to classify such an
asset as "held for sale." SFAS No. 144 also increases the range of dispositions
that qualify for reporting as discontinued operations, and changes the manner in
which expected future operating losses from such operations are to be reported.
The Company adopted SFAS No. 144 as of April 1, 2002. There was no material
impact on the Company's consolidated financial statements from adopting this
statement.

Forward-Looking Statements
--------------------------------------------------------------------------------

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

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

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

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

The Company does not undertake, and specifically disclaims any obligations, to
publicly release the result of any revisions that may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.


                                       21
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                    Management's Statement of Responsibility
--------------------------------------------------------------------------------

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

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

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


/s/ Carl A. Florio                               /s/ Timothy E. Blow

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

--------------------------------------------------------------------------------
                          Independent Auditors' Report
--------------------------------------------------------------------------------

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

We have audited the accompanying consolidated balance sheets of Hudson River
Bancorp, Inc. and subsidiaries (the Company) as of March 31, 2002 and 2001, and
the related consolidated income statements, statements of changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended March 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hudson River
Bancorp, Inc. and subsidiaries as of March 31, 2002 and 2001, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.


/s/ KPMG LLP

Albany, New York
May 3, 2002


                                       22
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                    Consolidated Balance Statements
----------------------------------------------------------------------------------------------------------
(In thousands, except share and per share data)                 March 31,           2002              2001
----------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>
Assets
Cash and due from banks                                                      $    43,738       $    23,938
Federal funds sold                                                               176,759            14,700
----------------------------------------------------------------------------------------------------------
Cash and cash equivalents                                                        220,497            38,638
----------------------------------------------------------------------------------------------------------

Loans held for sale                                                                   --            15,108
Securities available for sale, at fair value                                     223,450           213,886
Securities held to maturity (fair value of $0 and $3,659)                             --             3,602
Federal Home Loan Bank of New York (FHLB) stock, at cost                          22,788            12,070

Loans                                                                          1,904,204           881,412
Allowance for loan losses                                                        (36,572)          (22,325)
----------------------------------------------------------------------------------------------------------
Net loans                                                                      1,867,632           859,087
----------------------------------------------------------------------------------------------------------

Accrued interest receivable                                                       11,537             6,614
Premises and equipment, net                                                       29,215            19,125
Other real estate owned (OREO) and repossessed property                            1,252               776
Goodwill and other intangibles, net                                               69,647            11,346
Other assets                                                                      62,789            28,721
----------------------------------------------------------------------------------------------------------
Total assets                                                                 $ 2,508,807       $ 1,208,973
==========================================================================================================

Liabilities and Shareholders' Equity
Liabilities:
   Deposits                                                                  $ 1,768,363       $   750,152

   Securities sold under agreements to repurchase                                 16,972            10,201
   Short-term FHLB advances                                                           --            82,000
----------------------------------------------------------------------------------------------------------
   Total short-term borrowings                                                    16,972            92,201
----------------------------------------------------------------------------------------------------------

   Long-term FHLB borrowings                                                     450,656           112,900
   Mortgagors' escrow deposits                                                     9,787             5,889
   Other liabilities                                                              32,112            31,698
----------------------------------------------------------------------------------------------------------
Total liabilities                                                              2,277,890           992,840
----------------------------------------------------------------------------------------------------------

Shareholders' Equity:
   Preferred stock, $.01 par value, Authorized 5,000,000 shares                       --                --
   Common stock, $.01 par value, Authorized 40,000,000 shares;
    Issued 17,853,750 shares                                                         179               179
   Additional paid-in capital                                                    175,828           174,732
   Unallocated common stock held by ESOP                                         (12,552)          (14,037)
   Unvested restricted stock awards                                               (3,999)           (5,447)
   Treasury stock, at cost (2,661,091 and 2,575,545 shares)                      (28,751)          (27,591)
   Retained earnings, substantially restricted                                   101,713            88,112
   Accumulated other comprehensive (loss) income                                  (1,501)              185
----------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                       230,917           216,133
----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                   $ 2,508,807       $ 1,208,973
==========================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       23
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                            Consolidated Income Statements
-----------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)              Years Ended March 31,         2002          2001          2000
-----------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>           <C>            <C>
Interest income
Loans, including fees                                                        $119,398      $ 73,930       $59,660
Securities available for sale                                                  11,368        15,802        15,432
Securities held to maturity                                                        --           380           982
Federal funds sold                                                              2,347             7            12
Loans held for sale                                                                89           648            --
Federal Home Loan Bank of New York stock                                          926           732           337
-----------------------------------------------------------------------------------------------------------------
Total interest income                                                         134,128        91,499        76,423
-----------------------------------------------------------------------------------------------------------------

Interest expense
Deposits                                                                       40,645        28,246        25,613
Securities sold under agreements to repurchase                                    477           206            84
Short-term FHLB advances                                                          991         9,470         3,700
Long-term FHLB borrowings                                                      15,248         2,920         1,112
-----------------------------------------------------------------------------------------------------------------
Total interest expense                                                         57,361        40,842        30,509
-----------------------------------------------------------------------------------------------------------------
Net interest income                                                            76,767        50,657        45,914
Provision for loan losses                                                       5,675         5,100         6,200
-----------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses                            71,092        45,557        39,714
-----------------------------------------------------------------------------------------------------------------

Other operating income
Service charges on deposit accounts                                             4,576         1,987         1,519
Loan servicing income                                                             199           123           142
Net securities transactions                                                        30           771            83
Net gain (loss) on sales of loans held for sale                                   141           (84)           --
Insurance commissions                                                           3,144           599            --
Trust and investment services income                                              534           181            91
Other income                                                                    2,782         1,213           753
-----------------------------------------------------------------------------------------------------------------
Total other operating income                                                   11,406         4,790         2,588
-----------------------------------------------------------------------------------------------------------------

Other operating expenses
Compensation and benefits                                                      23,424        14,263        13,763
Occupancy                                                                       3,898         2,132         1,805
Equipment                                                                       4,928         2,951         2,453
OREO and repossessed property                                                     434           723         1,228
Advertising                                                                     1,341         1,196           922
Legal and other professional fees                                               1,416         2,031           791
Goodwill and other intangibles amortization                                     3,153         1,137         1,087
Directors' expense                                                                671         1,072           728
Other expenses                                                                  9,914         6,204         5,011
-----------------------------------------------------------------------------------------------------------------
Total other operating expenses                                                 49,179        31,709        27,788
-----------------------------------------------------------------------------------------------------------------

Income before tax expense                                                      33,319        18,638        14,514
Tax expense                                                                    13,790         6,970         4,988
-----------------------------------------------------------------------------------------------------------------
Net income                                                                   $ 19,529      $ 11,668       $ 9,526
=================================================================================================================
Basic earnings per share                                                     $   1.42      $   0.86       $  0.65
=================================================================================================================
Diluted earnings per share                                                   $   1.38      $   0.85       $  0.65
=================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       24
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

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

(In thousands, except share and per share data)
Years Ended March 31,                                                   2002                 2001                  2000
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>          <C>       <C>         <C>       <C>         <C>
Common stock
Balance at beginning and end of year                           $    179               $    179              $    179
-------------------------------------------------------------------------------------------------------------------------------

Additional paid-in capital
Balance at beginning of year                                   $174,732               $174,733              $174,894
Tax effect of restricted stock award vesting                        236                     41                    --
Adjustment for ESOP shares released for allocation                  860                    (42)                 (161)
-------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                         $175,828               $174,732              $174,733
-------------------------------------------------------------------------------------------------------------------------------

Unallocated common stock held by ESOP
Balance at beginning of year                                   $(14,037)              $(15,583)             $(17,200)
Shares of ESOP stock released for allocation
  (115,103; 119,808; and 124,718 shares)                          1,485                  1,546                 1,617
-------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                         $(12,552)              $(14,037)             $(15,583)
-------------------------------------------------------------------------------------------------------------------------------

Unvested restricted stock awards
Balance at beginning of year                                   $ (5,447)              $ (6,289)             $ (7,996)
Grant of restricted stock awards
  (3,925; 0; and 19,071 shares)                                     (59)                    --                  (188)
Amortization of restricted stock awards                             714                    757                   943
Forfeiture of restricted stock awards
  (68,922; 7,855; and 82,765 shares)                                793                     85                   952
-------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                         $ (3,999)              $ (5,447)             $ (6,289)
-------------------------------------------------------------------------------------------------------------------------------

Treasury stock
Balance at beginning of year                                   $(27,591)              $(24,248)             $ (1,663)
Purchase of common stock
  (147,749; 332,500; and 2,013,996 shares)                       (3,005)                (3,258)              (21,841)
Exercise of stock options (127,200 shares)                        2,579                     --                    --
Grant of restricted stock awards                                     59                     --                   208
Forfeiture of restricted stock awards                              (793)                   (85)                 (952)
-------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                         $(28,751)              $(27,591)             $(24,248)
-------------------------------------------------------------------------------------------------------------------------------

Retained earnings
Balance at beginning of year                                   $ 88,112               $ 79,555              $ 71,893
Net income                                                       19,529     $19,529     11,668    $11,668      9,526    $ 9,526
Cash dividends declared
  ($0.35; $0.22; and $0.12 per share)                            (4,957)                (3,111)               (1,844)
Adjustment for grant of restricted stock awards                      --                     --                   (20)
Exercise of stock options                                          (971)                    --                    --
-------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                         $101,713               $ 88,112              $ 79,555
-------------------------------------------------------------------------------------------------------------------------------

Accumulated other comprehensive income (loss)
Balance at beginning of year                                   $    185               $ (7,624)             $   (766)
  Unrealized net holding (losses) gains on
    securities available for sale arising during the
    year (pre-tax ($2,781); $13,787; and ($11,432))                          (1,668)                8,272                (6,811)
  Reclassification adjustment for net gains on
    securities available for sale realized in net
    income (pre-tax ($30); ($771); and ($79))                                   (18)                 (463)                  (47)
                                                                            -------                ------               -------
Other comprehensive (loss) income                                (1,686)     (1,686)     7,809      7,809     (6,858)    (6,858)
-------------------------------------------------------------------------------------------------------------------------------
  Comprehensive income                                                      $17,843               $19,477               $ 2,668
                                                                            =======               =======               =======
-------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                         $ (1,501)              $    185              $ (7,624)
-------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity at March 31                         $230,917               $216,133              $200,723
===============================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       25
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                              Consolidated Statements of Cash Flows
----------------------------------------------------------------------------------------------------------------------------------

(In thousands)                                             Years Ended March 31,              2002            2001            2000
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>             <C>
Cash flows from operating activities
Net income                                                                             $    19,529       $  11,668       $   9,526
Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation                                                                             3,825           2,213           2,002
    Goodwill and other intangibles amortization                                              3,153           1,137           1,087
    Provision for loan losses                                                                5,675           5,100           6,200
    Deferred tax expense (benefit)                                                             115            (648)         (1,844)
    Amortization of restricted stock awards                                                    714             757             943
    ESOP stock released for allocation                                                       2,345           1,504           1,456
    Net securities transactions                                                                (30)           (771)            (83)
    Net (gain) loss on sales of loans held for sale                                           (141)             84              --
    Proceeds from sales of loans held for sale                                              22,168          25,226              --
    Net loss on sales and disposals of premises and equipment                                  233             573             262
    Adjustments of OREO and repossessed property to fair value                               1,371             797           1,057
    Net gain on sales of OREO and repossessed property                                      (1,654)         (1,511)           (986)
    Net decrease (increase) in accrued interest receivable                                     918            (144)            315
    Net decrease (increase) in other assets                                                 10,028             586          (3,336)
    Net (decrease) increase in other liabilities                                           (13,340)        (11,799)          2,439
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                                   54,909          34,772          19,038
----------------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities
Net cash used in acquisition activities                                                   (125,741)             --         (27,975)
Proceeds from sales of securities available for sale                                        56,934           5,356           3,009
Proceeds from maturities, calls and paydowns of securities available for sale               59,583          35,150          35,176
Purchases of securities available for sale                                                 (17,674)         (3,624)        (16,708)
Proceeds from maturities, calls and paydowns of securities held to maturity                     --           7,542          11,901
Purchase of FHLB of New York stock                                                          (3,483)         (4,645)         (2,660)
Redemption of FHLB of New York stock                                                         4,034              --              --
Net loans repaid by (made to) customers                                                     54,260        (103,502)       (108,404)
Proceeds from sales of and payments received on OREO and repossessed property                4,221           4,723           3,979
Proceeds from sales of premises and equipment                                                  333              --              --
Purchase of bank-owned life insurance                                                      (10,000)             --         (15,000)
Purchases of premises and equipment                                                         (3,781)         (3,192)         (2,320)
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                                         18,686         (62,192)       (119,002)
----------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities
Net increase in deposits                                                                    32,805           1,589           6,126
Net (decrease) increase in short-term borrowings                                           (94,734)        (28,463)         92,119
Issuance of long-term FHLB borrowings                                                      220,000          92,500          30,000
Repayments of long-term FHLB borrowings                                                    (41,294)        (10,200)             --
Net (decrease) increase in mortgagors' escrow deposits                                      (2,159)            389            (706)
Net proceeds from exercises of stock options                                                 1,608              --              --
Purchases of treasury stock                                                                 (3,005)         (3,258)        (21,841)
Dividends paid                                                                              (4,957)         (3,111)         (1,844)
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                                  108,264          49,446         103,854
----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                                                  181,859          22,026           3,890
Cash and cash equivalents at beginning of year                                              38,638          16,612          12,722
----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                               $   220,497       $  38,638       $  16,612
==================================================================================================================================

Supplemental cash flow information
Interest paid                                                                          $    56,009       $  39,714       $  29,973
Income taxes paid                                                                      $    13,505       $   6,512       $   8,188
==================================================================================================================================

Supplemental disclosures of noncash investing and financing activities
Loans transferred to OREO and repossessed property                                     $     3,495       $   3,144       $   3,085
Adjustment of securities available for sale to fair value, net of tax                  $    (1,686)      $   7,809       $  (6,858)
Loans transferred to loans held for sale                                               $     6,919       $  40,418       $      --
Securities held to maturity transferred to securities available for sale               $     3,602       $      --       $      --
Acquisition activity:
    Fair value of noncash assets acquired                                              $ 1,248,538       $      --       $ 175,959
    Fair value of liabilities assumed                                                  $ 1,183,772       $      --       $ 157,048
==================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       26
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

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

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

Organization

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

Basis of Presentation

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

Use of Estimates

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

Cash and Cash Equivalents

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

Securities Financing Arrangements

Securities purchased under agreements to resell ("resale agreements") and
securities sold under agreements to repurchase ("repurchase agreements") are
carried as short-term investments and borrowings, respectively, at the amounts
at which the securities were initially acquired or sold. These transactions are
usually overnight, fixed-coupon agreements and require collateral to be
delivered to the Company's custodial account (resale agreements) or segregated
at the Company's third party custodian (repurchase agreements). In the case of
resale agreements, the Company requires that the fair value of the underlying
securities received exceed the amount of the agreement at all times.

Securities

Management determines the appropriate classification of securities at the time
of purchase. If management has the positive intent and ability to hold debt
securities to maturity, they are classified as securities held to maturity and
carried at cost, adjusted for amortization of premiums and accretion of
discounts using an effective interest method. If securities are purchased for
the purpose of selling them in the near term, they are classified as trading
securities and are reported at fair value with unrealized holding gains and
losses reflected in current earnings. All other debt and marketable equity
securities are classified as securities available for sale and are reported at
fair value, with net unrealized gains or losses reported, net of income taxes,
in accumulated other comprehensive income or loss. As a member of the Federal
Home Loan Bank of New York (the "FHLB"), the Company is required to hold FHLB
stock which is carried at cost since there is no readily available market value.
At March 31, 2002 and 2001, the Company did not hold any securities considered
to be trading securities.

Gains or losses on the disposition of securities are based on the net proceeds
and the adjusted carrying amount of the securities sold, using the specific
identification method. Unrealized losses on securities reflecting a decline in
value which is other than temporary, if any, are charged to income and reported
as a component of "net securities transactions" in the consolidated income
statements.

Loans

Loans are carried at the principal amount outstanding net of unearned discount,
net deferred loan origination fees and costs, and the allowance for loan losses.
Certain nonrefundable loan fees and direct loan origination costs are deferred
and amortized over the estimated life of the loan as an adjustment to the yield.
Nonperforming loans include nonaccrual loans, loans which are contractually past
due 90 days or more and still accruing interest and troubled debt
restructurings. Generally, loans are placed on nonaccrual status either due to
the delinquency status of principal


                                       27
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

and/or interest payments, or a judgment by management that, although payments of
principal and/or interest are current, such action is prudent. When a loan is
placed on nonaccrual status, all interest previously accrued but not collected
is reversed against current year interest income. Interest income on nonaccrual
loans is recognized only when received, if considered appropriate by management.
Loans are removed from nonaccrual status when they become current as to
principal and interest or when, in the opinion of management, the loans are
expected to be fully collectible as to principal and interest.

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

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

Allowance for Loan Losses

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

The adequacy of the allowance for loan losses is determined through a quarterly
review of outstanding loans. Historical loss rates are applied to existing loans
with similar characteristics. The loss rates used to establish the allowance may
be adjusted to reflect management's current assessment of various factors. The
impact of economic conditions on the creditworthiness of the borrowers is
considered, as well as loan loss experience, changes in experience, ability and
depth of lending management and staff, changes in the composition and volume of
the loan portfolio, trends in the volume of past due, nonaccrual and other
loans, and management's assessment of the risks inherent in the loan portfolio,
as well as other external factors, such as competition, legal developments and
regulatory guidelines.

Loans Held for Sale

Loans are classified as held for investment purposes or held for sale when the
Company enters into interest rate lock agreements with the potential borrowers.
In addition, from time to time the Company may transfer loans from the loan
portfolio to held for sale for asset/liability management purposes or to provide
additional liquidity. Loans held for sale are recorded at the lower of aggregate
cost or fair value, with unrealized losses, if any, recorded in a valuation
allowance by a charge to income. Fair value is determined based on quoted market
rates or, in the case where a firm commitment has been made to sell the loan,
the firm committed price. Gains and losses on the disposition of loans held for
sale are determined on the specific identification method.

Premises and Equipment

Premises and equipment are carried at cost, less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets (up to fifty years for buildings and generally three to five
years for furniture and equipment). Leasehold improvements are amortized on a
straight-line basis over the shorter of the term of the related leases or the
estimated useful lives of the assets.

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 the recorded investment in the loan or the fair value of the asset
acquired, less estimated disposal costs. A loan is categorized as an
in-substance foreclosure when the Company has taken possession of the
collateral, regardless of whether formal foreclosure proceedings have taken
place. At the time of foreclosure or repossession, or when foreclosure occurs
in-substance, the excess, if any, of the recorded investment in the loan over
the fair value of the property received is charged to the allowance for loan
losses. Subsequent declines in the value of foreclosed and repossessed property
and net operating expenses are charged directly to other operating expenses.
Properties are reappraised, as considered necessary by management, and written
down to the fair value less the estimated cost to sell the property, if
necessary. Repossessed property consists primarily of manufactured homes
abandoned by their owners or repossessed by the Company.


                                       28
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Goodwill and Other Intangibles

Goodwill represents the excess of the purchase price over the fair value of net
assets acquired for transactions accounted for using purchase accounting. Other
intangibles represent primarily the net present value of the future economic
benefits to be derived from the purchase of core deposits ("core deposit
intangible"). For purchase transactions completed before July 1, 2001, goodwill
was amortized using the straight-line method over the estimated period of
benefit, not to exceed twenty years. For purchase transactions completed after
June 30, 2001, goodwill is not amortized. Core deposit intangibles are amortized
on an accelerated basis over approximately ten years. The Company periodically
assesses whether events or changes in circumstances indicate that the carrying
amounts of goodwill and other intangibles may be impaired. Impairment is
measured using estimates of future cash flows or earnings potential of the
operations acquired.

Bank-Owned Life Insurance

Bank-owned life insurance is carried at the cash surrender value of the
underlying insurance polices. Income (loss) is recorded based on increases
(decreases) in the cash surrender value.

Income Taxes

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

Insurance Commissions

Insurance commissions income is recognized when billed to the customer, net of
commissions paid to the producing agent. In addition, certain contingent
commissions may be received by the Company, from underwriting companies, based
on its ability to meet sales goals and loss experience targets. These contingent
commissions are recognized as income when received.

Employee Benefit Costs

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

Stock-Based Compensation

For fixed stock option awards, compensation expense is not recognized for awards
to employees and directors under the Company's stock option plan since the
exercise price of the option is equal to the fair value of the underlying stock
at the grant date. The pro forma effects of stock-based compensation
arrangements are based on the estimated grant date fair value of stock options
that are expected to vest calculated pursuant to the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Pro forma compensation expense, net of applicable income tax
effect, is recognized over the vesting period.

The fair value of the shares awarded under the Company's Recognition and
Retention Plan ("RRP"), measured as of the grant date, is recognized as unearned
compensation (a component of shareholders' equity) and amortized to compensation
expense as the shares become vested. Shares awarded under the RRP are
transferred from treasury stock at cost with any excess of the cost basis of the
treasury shares over the fair market value of the shares on the grant date
recorded as a reduction of retained earnings.

Compensation expense is recognized for the Company's Employee Stock Ownership
Plan ("ESOP") equal to the average fair value of shares committed to be released
for allocation to participant accounts. Any difference between the average fair
value of the shares committed to be released for allocation and the ESOP's
original acquisition cost is charged or credited to shareholders' equity
(additional paid-in capital). The cost of unallocated ESOP shares (shares not
yet committed to be released) is reflected as a reduction of shareholders'
equity.


                                       29
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Earnings Per Share

Basic earnings per share is calculated by dividing net income by the
weighted-average number of common shares outstanding during the period. Shares
of restricted stock are not considered outstanding for the calculation of basic
earnings per share until they become fully vested. Diluted earnings per share is
computed in a manner similar to that of basic earnings per share except that the
weighted-average number of common shares outstanding is increased to include the
number of incremental common shares that would have been outstanding under the
treasury stock method if all potentially dilutive common shares (such as stock
options and unvested restricted stock) were issued or became vested during the
reporting period. Unallocated common shares held by the ESOP are not included in
the weighted-average number of common shares outstanding for either the basic or
diluted earnings per share calculations.

Financial Instruments

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

Trust Assets

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

Comprehensive Income

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

Segment Reporting

The Company's operations are primarily in the financial services industry and
include providing to its customers traditional banking services. The Company
operates primarily in the Capital District region of New York. Management makes
operating decisions and assesses performance based on an ongoing review of its
traditional banking operations, which constitute the Company's only reportable
segment.

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

On April 20, 2001, the Company completed the merger of Cohoes Bancorp, Inc.
("Cohoes"), a bank holding company headquartered in Cohoes, New York, with and
into Hudson River Bank & Trust Company, the Company's principal bank subsidiary.
Cohoes operated 20 branches in the Capital District region of New York State.
The Company paid $140.0 million in cash in exchange for the Cohoes shares
outstanding at the time of acquisition. In addition, based on the terms of the
merger agreement, the Company paid $11.0 million in cash for the outstanding
restricted stock and unexercised stock options granted by Cohoes.

Acquired assets, loans and deposits of Cohoes on April 20, 2001 totaled
approximately $705.4 million, $623.4 million and $502.1 million, respectively.
The transaction has been accounted for using the purchase method of accounting
and, accordingly, operations acquired from Cohoes have been included in the
Company's financial results since the acquisition date. In connection with the
acquisition, the Company recorded approximately $31.0 million of goodwill.
Through March 31, 2002, the goodwill was being amortized over twenty years using
the straight-line method. Subsequent to March 31, 2002, the goodwill will not be
amortized, but will instead be evaluated at least annually for impairment.

On March 8, 2002, the Company completed the merger of Ambanc Holding Co, Inc.
("Ambanc"), a bank holding company headquartered in Amsterdam, New York, with
and into Hudson River Bank & Trust Company. Ambanc operated 14 branches in the
Capital District region of New York State. The Company paid $96.7 million in
cash in exchange for the Ambanc shares outstanding at the time of acquisition.
In addition, based on the terms of the merger agreement, the Company paid $3.8
million in cash for the outstanding and unexercised stock options granted by
Ambanc.

The transaction has been accounted for using the purchase method of accounting
and, accordingly, operations acquired from Ambanc have been included in the
Company's financial results since the acquisition date. In connection with the
acquisition, the Company recorded approximately $23.2 million of nondeductible
goodwill, and $6.8 million of core deposit intangible. The goodwill was not and
will not be amortized, but will instead be evaluated at least annually for
impairment. The core deposit intangible is being amortized over approximately
ten years using an accelerated method and is not deductible for taxes.


                                       30
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of the Ambanc acquisition.

At March 8, 2002 (dollars in thousands)
--------------------------------------------------------------------------------
Loans                                                                   $455,459
Other financial assets                                                   175,462
Goodwill                                                                  23,161
Core deposit intangible                                                    6,781
Other nonfinancial assets                                                 23,202
--------------------------------------------------------------------------------
Total assets acquired                                                    684,065
--------------------------------------------------------------------------------
Deposits                                                                 480,871
Long-term FHLB borrowings                                                102,088
Other liabilities                                                          4,438
--------------------------------------------------------------------------------
Total liabilities assumed                                                587,397
--------------------------------------------------------------------------------
Net assets acquired                                                     $ 96,668
================================================================================

Presented herein is certain unaudited pro forma information for the year ended
March 31, 2002, as if Ambanc had been acquired on April 1, 2001. Pro forma
information as if Cohoes had been acquired on April 1, 2001 is not presented
since such pro forma results would not have been materially different from the
Company's actual results. In addition, unaudited pro forma information for the
year ended March 31, 2001, as if Ambanc and Cohoes had been acquired on April 1,
2000 is also presented. These results combine the historical results of Ambanc
(for both 2002 and 2001) and Cohoes (for 2001) into the Company's consolidated
income statements; and, while certain adjustments were made for the estimated
impact of purchase accounting adjustments and other acquisition-related
activity, they are not necessarily indicative of what would have occurred had
the acquisitions actually taken place at that time. In particular, the Company
expects to achieve operating cost savings as a result of the mergers, which are
not reflected in the pro forma amounts presented.

<TABLE>
<CAPTION>
(Pro forma amounts in thousands, except per share data)       For the Years Ended March 31,       2002         2001
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>          <C>
Net interest income                                                                            $92,576      $89,870
Other operating income                                                                          14,760       11,003
Net income                                                                                      20,430       14,473
Basic earnings per share                                                                       $  1.49      $  1.07
Diluted earnings per share                                                                        1.45         1.06
===================================================================================================================
</TABLE>

During the years ended March 31, 2002 and 2001, the Company made additional
equity investments in C.W. Bostwick, Inc. ("Bostwick"), an insurance brokerage
agency. Since January 2001, the financial results of Bostwick have been
consolidated with those of the Company. Goodwill and other intangibles recorded
as a result of these additional investments were not significant.

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

The amortized cost, gross unrealized gains and losses and approximate fair value
of securities at March 31, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                                                             2002
-------------------------------------------------------------------------------------------------
                                                             Gross           Gross    Approximate
                                          Amortized     Unrealized      Unrealized           Fair
(In thousands)                                 Cost          Gains          Losses          Value
-------------------------------------------------------------------------------------------------
<S>                                        <C>              <C>            <C>           <C>
Securities Available for Sale
U.S. Government and Agency securities      $ 28,038         $   15         $(1,018)      $ 27,035
Corporate debt securities                    58,043            529          (2,439)        56,133
Tax-exempt securities                        16,022             15            (314)        15,723
Collateralized mortgage obligations          57,304            670            (345)        57,629
Mortgage-backed securities                   60,758            490            (415)        60,833
Equity securities                             5,287            340             (30)         5,597
Other securities                                500             --              --            500
-------------------------------------------------------------------------------------------------
Total securities available for sale        $225,952         $2,059         $(4,561)      $223,450
=================================================================================================
</TABLE>


                                       31
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                               2001
---------------------------------------------------------------------------------------------------
                                                            Gross           Gross       Approximate
                                          Amortized    Unrealized      Unrealized              Fair
(In thousands)                                 Cost         Gains          Losses             Value
---------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>            <C>              <C>
Securities Available for Sale
U.S. Government and Agency securities      $ 37,388        $  222         $  (142)         $ 37,468
Corporate debt securities                    60,720           570          (1,321)           59,969
Tax-exempt securities                        15,285            34             (39)           15,280
Collateralized mortgage obligations          74,314           668            (106)           74,876
Mortgage-backed securities                   24,624           313             (58)           24,879
Equity securities                               560           179             (11)              728
Other securities                                686            --              --               686
---------------------------------------------------------------------------------------------------
Total securities available for sale        $213,577        $1,986         $(1,677)         $213,886
===================================================================================================

Securities Held to Maturity
Corporate debt securities                  $  1,995        $   22         $    --          $  2,017
Tax-exempt securities                            10            --              --                10
Collateralized mortgage obligations             376            --              --               376
Mortgage-backed securities                    1,221            36              (1)            1,256
---------------------------------------------------------------------------------------------------
Total securities held to maturity          $  3,602        $   58         $    (1)         $  3,659
===================================================================================================
</TABLE>

As allowed under the provisions of SFAS No. 133, as of April 1, 2001, the
Company transferred securities with an amortized cost of $3.6 million (fair
value of $3.7 million) from held to maturity to available for sale.

During the years ended March 31, 2002 and 2001, the Company realized no gross
gains or losses related to the calls of securities. During the year ended March
31, 2000, the Company realized gross gains of $19 thousand, related to calls of
securities, and realized no gross losses. The Company received $56.9 million in
proceeds from the sale of securities available for sale during the year ended
March 31, 2002, realizing gross gains of $194 thousand and gross losses of $164
thousand. During the years ended March 31, 2001 and 2000, the Company received
$5.4 million and $3.0 million in proceeds from the sale of securities available
for sale, realizing gross gains of $771 thousand and $64 thousand, respectively,
and no gross losses.

Securities available for sale (exclusive of equity securities) by remaining
contractual maturity as of March 31, 2002 are presented below. Expected
maturities will differ from contractual maturities as a result of prepayments
and calls.

Securities Available for Sale                          Amortized     Approximate
(In thousands)                                              Cost      Fair Value
--------------------------------------------------------------------------------
Due in one year or less                                 $ 11,369        $ 11,463
Due after one through five years                          11,769          12,137
Due after five through ten years                           5,809           5,674
Due after ten years                                      191,718         188,579
--------------------------------------------------------------------------------
Total                                                   $220,665        $217,853
================================================================================

The carrying value of securities pledged as required by law and for other
purposes amounted to $142.1 million and $57.9 million at March 31, 2002 and
2001, respectively. Included in these amounts are $33.7 million and $20.4
million at March 31, 2002 and 2001, respectively, representing amounts pledged
to secure securities sold under agreements to repurchase.


                                       32
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

(4) Net Loans
--------------------------------------------------------------------------------

A summary of net loans as of March 31 is as follows:

<TABLE>
<CAPTION>
(In thousands)                                                              2002            2001
------------------------------------------------------------------------------------------------
<S>                                                                  <C>               <C>
Loans secured by real estate
Residential one-to-four family                                       $ 1,203,866       $ 515,584
Commercial                                                               429,692         167,344
Construction                                                              18,378           9,306
------------------------------------------------------------------------------------------------
Total loans secured by real estate                                     1,651,936         692,234
------------------------------------------------------------------------------------------------

Other loans
Manufactured housing                                                      67,660          75,287
Commercial                                                               109,083          60,311
Financed insurance premiums                                               30,727          38,216
Consumer                                                                  38,416          17,943
------------------------------------------------------------------------------------------------
Total other loans                                                        245,886         191,757
------------------------------------------------------------------------------------------------
Unearned discount, net deferred loan origination fees and costs
  and purchase accounting adjustments                                      6,382          (2,579)
------------------------------------------------------------------------------------------------
Total loans                                                            1,904,204         881,412
Allowance for loan losses                                                (36,572)        (22,325)
------------------------------------------------------------------------------------------------
Net loans                                                            $ 1,867,632       $ 859,087
================================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
(In thousands)                                                2002           2001           2000
------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>
Allowance for loan losses at beginning of year            $ 22,325       $ 19,608       $ 14,296
Provision charged to operations                              5,675          5,100          6,200
Loans charged-off                                           (4,388)        (3,480)        (2,543)
Recoveries on loans charged-off                              1,275          1,097            647
Allowance acquired                                          11,685             --          1,008
------------------------------------------------------------------------------------------------
Allowance for loan losses at end of year                  $ 36,572       $ 22,325       $ 19,608
================================================================================================
</TABLE>

Total nonperforming loans at March 31, 2002, 2001 and 2000 consisted solely of
loans in nonaccrual status and amounted to $18.0 million, $8.6 million and $10.3
million, respectively. At March 31, 2002, 2001 and 2000, there were no loans
past due 90 days or more and still accruing interest, troubled debt
restructurings or material commitments to extend further credit to borrowers
with nonperforming loans.

Accumulated interest on nonaccrual loans, as shown above, of approximately $634
thousand, $349 thousand and $517 thousand, was not recognized in interest income
during the years ended March 31, 2002, 2001 and 2000, respectively.
Approximately $652 thousand, $491 thousand and $466 thousand of interest on
nonaccrual loans, as shown above, was collected and recognized in interest
income during the years ended March 31, 2002, 2001, and 2000, respectively.

At March 31, 2002 and 2001, the recorded investment in loans that are considered
to be impaired under SFAS No. 114 totaled $4.7 million and $849 thousand,
respectively, for which the related allowance for loan losses was $1.4 million
at March 31, 2002 and $198 thousand at March 31, 2001. As of March 31, 2002 and
2001, 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, 2002, 2001 and
2000 was $3.7 million, $1.0 million and $2.4 million, respectively. The interest
income accrued on those impaired loans or recognized using the cash basis of
income recognition was not significant for the years ended March 31, 2002, 2001
and 2000.

Certain executive officers of the Company were customers of and had other
transactions with the Company in the ordinary course of business. Loans to these
parties were made in the ordinary course of business at the Company's normal
credit terms, including interest rate and collateralization. The aggregate of
such loans totaled less than 1% of total shareholders' equity at both March 31,
2002 and 2001.

The Company has an unconsolidated equity investment in Homestead Funding Corp.,
a mortgage-banking company. The Company has a $20.0 million warehouse line of
credit relationship with Homestead which was made in the ordinary course of
business at the Company's normal credit terms, including interest rate and
collateralization. There was $7.3 million and $8.0 million outstanding on this
line as of March 31, 2002 and 2001, respectively.


                                       33
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

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

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

(In thousands)                                            2002             2001
-------------------------------------------------------------------------------
Buildings and land                                    $ 29,514         $ 18,154
Furniture and equipment                                 18,807           10,531
Leasehold improvements                                   3,942            1,378
-------------------------------------------------------------------------------
Total                                                   52,263           30,063
Accumulated depreciation and amortization              (23,048)         (10,938)
-------------------------------------------------------------------------------
Premises and equipment, net                           $ 29,215         $ 19,125
===============================================================================

Depreciation and amortization expense was approximately $3.8 million, $2.2
million and $2.0 million, for the years ended March 31, 2002, 2001 and 2000,
respectively.

(6) Deposits
--------------------------------------------------------------------------------

Deposit account balances at March 31 are summarized as follows:

(In thousands)                                          2002                2001
--------------------------------------------------------------------------------
Savings                                           $  505,252            $173,301
N.O.W. and money market                              284,851             132,697
Time deposits                                        803,283             381,635
Noninterest-bearing                                  174,977              62,519
--------------------------------------------------------------------------------
Total deposits                                    $1,768,363            $750,152
================================================================================

The aggregate amount of time deposit accounts with a balance of $100 thousand or
greater was $123.7 million and $55.1 million at March 31, 2002 and 2001,
respectively.

The approximate amounts of contractual maturities of time deposits at March 31,
2002 are as follows:

(In thousands)
--------------------------------------------------------------------------------
Years ending March 31,
2003                                                                    $625,123
2004                                                                     111,125
2005                                                                      29,202
2006                                                                      24,918
2007                                                                      11,610
Thereafter                                                                 1,305
--------------------------------------------------------------------------------
Total time deposits                                                     $803,283
================================================================================

(7) Borrowings
--------------------------------------------------------------------------------

Securities Sold Under Agreements to Repurchase

The Company enters into repurchase agreements with certain commercial banking
clients. The agreements to repurchase assets correspond with the sale of the
Company's securities, which are treated as financings for financial statement
purposes. The securities subject to repurchase agreements are segregated from
the portfolio of securities maintained by a third party until maturity of the
agreements. At March 31, 2002, the balance of securities sold under agreements
to repurchase was $17.0 million with a weighted-average rate of 1.85%. At March
31, 2001, the balance of securities sold under agreements to repurchase was
$10.2 million with a weighted-average rate of 3.50%. The balance as of both
dates was due within 30 days.


                                       34
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Short-term FHLB Advances

The Bank has a line of credit with the FHLB totaling $100.0 million. This
short-term borrowing program is based upon either an overnight or thirty-day
borrowing period with interest based generally upon a spread above the current
Federal funds rate. In addition, short-term advances with an original maturity
of less than one year are classified in this category. The rates on these
borrowings can be either fixed or floating.

(In thousands)                      As of March 31,         2002           2001
--------------------------------------------------------------------------------
Amount outstanding:
  Line of credit advances                               $     --       $     --
  Short-term advances                                         --         82,000
--------------------------------------------------------------------------------
Total short-term FHLB advances                          $     --       $ 82,000
================================================================================
Weighted-average interest rate                                --%          5.47%
================================================================================

For the Year Ended March 31,                 2002           2001           2000
--------------------------------------------------------------------------------
Highest amount at month-end              $123,600       $171,600       $119,589
Average amount outstanding                 23,234        146,391         65,542
Weighted-average interest rate               4.27%          6.47%          5.65%
================================================================================

Short-term FHLB advances are collateralized by FHLB stock and a blanket lien on
residential real estate loans.

Long-term FHLB Borrowings

Certain long-term FHLB borrowings are callable by the FHLB at pre-determined
dates. Scheduled repayments of long-term FHLB borrowings and a schedule of
callable borrowings by the first call date as of March 31, 2002 are as follows:

<TABLE>
<CAPTION>
                                                            Scheduled    Weighted-Average     Callable   Weighted-Average
(In thousands)                                               Payments       Interest Rate      Amounts      Interest Rate
-------------------------------------------------------------------------------------------------------------------------
Maturing or callable in the year ending March 31,
<S>                                                          <C>                     <C>      <C>                    <C>
2003                                                         $ 30,768                3.43%    $165,000               4.38%
2004                                                           25,100                3.52       47,500               5.36
2005                                                           55,137                4.28        5,000               4.49
2006                                                           78,531                4.88           --                 --
2007                                                          114,634                4.20           --                 --
2008 and years after                                          146,486                5.48           --                 --
-------------------------------------------------------------------------------------------------------------------------
Total long-term FHLB borrowings                              $450,656                4.65%    $217,500               4.60%
=========================================================================================================================
</TABLE>

Long-term FHLB borrowings are collateralized by $96.0 million in securities
available for sale and a blanket lien on residential real estate loans.

(8) Regulatory Capital
--------------------------------------------------------------------------------

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

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

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

As of March 31, 2002 and 2001, 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. As a result of the Company's acquisition of Ambanc Holding Co.,
Inc. in March 2002, the Bank's total risk-based capital ratio declined to 8.87%,
which is less than the 10.0% required to be categorized as well-capitalized, but
which exceeds the minimum capital requirements. Management expects that the Bank
will return to the well-capitalized category within twelve months.


                                       35
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

The following is a summary of actual capital amounts and ratios as of March 31,
2002 and 2001 for the Bank, compared to the requirements for minimum capital
adequacy and for classification as well-capitalized. Although the Office of
Thrift Supervision does not impose minimum capital requirements on thrift
holding companies, the Company's consolidated regulatory capital amounts and
ratios as of March 31, 2002 and 2001 are also presented.

<TABLE>
<CAPTION>
                                                                                                                 2002
---------------------------------------------------------------------------------------------------------------------
                                                          Actual Capital                    Required Ratios
---------------------------------------------------------------------------------------------------------------------
                                                                                Minimum Capital     Classification as
(Dollars in thousands)                                Amount           Ratio          Adequacy       Well-Capitalized
---------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                <C>               <C>                    <C>
Tier 1 (Leverage) Capital
Hudson River Bank & Trust Company                   $116,097            5.88%            4.00%                   5.00%
Hudson River Bancorp, Inc. (consolidated)            163,483            8.17

Tier 1 Risk-Based Capital
Hudson River Bank & Trust Company                    116,097            7.60             4.00                    6.00
Hudson River Bancorp, Inc. (consolidated)            163,483           10.57

Total Risk-Based Capital
Hudson River Bank & Trust Company                    135,395            8.87             8.00                   10.00
Hudson River Bancorp, Inc. (consolidated)            183,038           11.83
=====================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                                                 2001
---------------------------------------------------------------------------------------------------------------------
                                                          Actual Capital                    Required Ratios
---------------------------------------------------------------------------------------------------------------------
                                                                                Minimum Capital     Classification as
(Dollars in thousands)                                Amount           Ratio          Adequacy       Well-Capitalized
---------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                <C>               <C>                    <C>
Tier 1 (Leverage) Capital
Hudson River Bank & Trust Company                   $154,937           13.28%            4.00%                   5.00%
Hudson River Bancorp, Inc. (consolidated)            205,467           17.33

Tier 1 Risk-Based Capital
Hudson River Bank & Trust Company                    154,937           19.65             4.00                    6.00
Hudson River Bancorp, Inc. (consolidated)            205,467           25.42

Total Risk-Based Capital
Hudson River Bank & Trust Company                    164,917           20.91             8.00                   10.00
Hudson River Bancorp, Inc. (consolidated)            215,726           26.69
=====================================================================================================================
</TABLE>

(9) Stock-Based Compensation Plans
--------------------------------------------------------------------------------

Employee Stock Ownership Plan

The Company established an ESOP on July 1, 1998 to provide substantially all
employees of the Company the opportunity to also become shareholders. The ESOP
borrowed $18.4 million from the Company and used the funds to purchase 1,428,300
shares of the common stock of the Company in the open market. The loan has been
and will continue to be repaid principally from the Bank's discretionary
contributions to the ESOP with annual principal payments due through March 31,
2014. Dividends on the unallocated shares in the ESOP are utilized to reduce the
Company's principal payments. At March 31, 2002, the loan had an outstanding
balance of $13.8 million and an interest rate of 8.00%. Shares purchased with
the loan proceeds are held in a suspense account for allocation among
participants as the loan is repaid. Shares are released for allocation among
participants based on the total principal and interest payments made during the
year as a percentage of all remaining principal and interest payments, including
the current year payments. Contributions to the ESOP and shares released from
the suspense account are allocated among participants on the basis of
compensation in the year of allocation.

Unallocated ESOP shares are pledged as collateral for the loan and are reported
as a reduction of shareholders' equity. The Company reports compensation expense
during the year based on the average market price of the shares to be released
at year end. The Company recorded approximately $2.3 million, $1.5 million and
$1.4 million of compensation expense under the ESOP in the years ended March 31,
2002, 2001 and 2000, respectively.


                                       36
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Shares held by the ESOP as of March 31, 2002 were as follows:

--------------------------------------------------------------------------------
Allocated shares                                                         317,976
Shares released for allocation                                           115,103
Unallocated shares                                                       972,828
--------------------------------------------------------------------------------
Total shares held by the ESOP                                          1,405,907
--------------------------------------------------------------------------------
Market value of unallocated shares at March 31, 2002 (In thousands)   $   23,474
================================================================================

Stock Option Plan

On January 5, 1999, the Company's shareholders approved the Hudson River
Bancorp, Inc. 1998 Stock Option and Incentive Plan ("Stock Option Plan"), which
was subsequently amended on August 17, 2000 to increase the number of shares in
the plan. The primary objective of the Stock Option Plan is to provide officers
and directors with a proprietary interest in the Company and an incentive to
encourage such persons to remain with the Company.

Under the Stock Option Plan, 1,930,241 shares of authorized but unissued common
stock are reserved for issuance upon option exercises. At March 31, 2002, the
Company had 914,711 shares available for future grant. The Company also has the
alternative to fund the Stock Option Plan with treasury stock. Options under the
plan may be either nonqualified stock options or incentive stock options. Each
option entitles the holder to purchase one share of common stock at an exercise
price equal to the fair market value on the date of grant. Options expire ten
years following the date of grant. The options granted vest over a period of one
to five years from the grant date.

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

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in the years ended March 31, 2002 and 2000: dividend
yield of 1.85% and 1.22%; expected volatility of 31.88% and 16.86%; risk-free
interest rates of 4.92% and 6.42%; and expected lives of 5 years. The
weighted-average fair value at the grant date for the options granted during
2002 and 2000 was $4.62 and $2.37, respectively. There were no options granted
during the year ended March 31, 2001.

Pro forma disclosures for the Company for the years ended March 31, 2002, 2001
and 2000 utilizing the estimated fair value of all options granted since plan
inception and an assumed 5% forfeiture rate (adjusted for actual forfeitures)
are as follows:

<TABLE>
<CAPTION>
(In thousands, except per share data)   For the Years Ended March 31,      2002         2001        2000
--------------------------------------------------------------------------------------------------------
<S>                                                                     <C>          <C>          <C>
Net income:
   As reported                                                          $19,529      $11,668      $9,526
   Pro forma                                                             19,204       11,149       9,029
Basic earnings per share:
   As reported                                                             1.42         0.86        0.65
   Pro forma                                                               1.40         0.82        0.62
Diluted earnings per share:
   As reported                                                             1.38         0.85        0.65
   Pro forma                                                               1.36         0.81        0.62
========================================================================================================
</TABLE>

Because the Company's stock options have characteristics significantly different
from those of traded options for which the Black-Scholes model was developed,
and because changes in the subjective input assumptions can materially affect
the fair value estimate, the existing model, in management's opinion, does not
necessarily provide a reliable single measure of the fair value of its stock
options. In addition, the pro forma effect on reported net income and earnings
per share for the years ended March 31, 2002, 2001 and 2000 may not be
representative of the pro forma effects on reported net income or earnings per
share for future years.

Recognition and Retention Plan

The Company's shareholders approved the Hudson River Bancorp, Inc. Recognition
and Retention Plan on January 5, 1999, which was subsequently amended on August
17, 2000 to increase the number of shares in the plan. The purpose of the plan
is to promote the long-term interests of the Company and its shareholders by
providing a stock-based compensation program to attract and retain officers and
directors. Under the RRP, 918,324 shares of authorized but unissued common stock
are reserved for issuance under the plan. As of March 31, 2002, the Company had
340,720 shares available for future grant. The Company also has the alternative
to fund the RRP with treasury stock.


                                       37
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Employees who were awarded shares (restricted stock) under the RRP vest in those
shares over periods of one to ten years commencing one year from the date of
grant. The fair market value of the shares awarded under the plan at the grant
date is amortized to compensation expense on a straight-line basis over the
vesting periods of the underlying shares. Compensation expense of $714 thousand,
$757 thousand and $943 thousand was recorded in the years ended March 31, 2002,
2001 and 2000, respectively. The remaining unearned compensation cost of $4.0
million and $5.4 million was a reduction of shareholders' equity at March 31,
2002 and 2001, respectively.

The following is a summary of the Company's Stock Option Plan and Recognition
and Retention Plan activity for the years ended March 31:

<TABLE>
<CAPTION>
                                                               2002                         2001                         2000
-----------------------------------------------------------------------------------------------------------------------------
                                                          Weighted-                    Weighted-                    Weighted-
                                                            Average                      Average                      Average
                                                Shares     Price(1)          Shares     Price(1)          Shares     Price(1)
-----------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>          <C>             <C>          <C>             <C>
Stock Option Plan
Options outstanding, beginning of year       1,096,257       $11.45       1,301,437       $11.42       1,248,383       $11.50
Granted                                          9,200        15.16              --           --          64,686         9.88
Exercised                                     (127,200)       11.41              --           --              --           --
Forfeited or expired                           (89,927)       11.50        (205,180)       11.27         (11,632)       11.50
-----------------------------------------------------------------------------------------------------------------------------
Options outstanding, end of year               888,330       $11.48       1,096,257       $11.45       1,301,437       $11.42
=============================================================================================================================

Recognition and Retention Plan
Unvested shares, beginning of year             492,011       $11.45         566,145       $11.45         714,150       $11.50
Granted                                          3,925        15.16              --           --          19,071         9.88
Vested                                         (64,586)       11.68         (66,279)       11.46         (84,311)       11.50
Forfeited                                      (68,922)       11.50          (7,855)       10.76         (82,765)       11.50
-----------------------------------------------------------------------------------------------------------------------------
Unvested shares, end of year                   362,428       $11.45         492,011       $11.45         566,145       $11.45
=============================================================================================================================
</TABLE>

(1)   The weighted-average price for stock options is the weighted-average
      exercise price of the options, and for RRP shares (restricted stock), the
      weighted-average fair value of the stock at the date of grant.

The following table summarizes information about stock options at March 31,
2002:

<TABLE>
<CAPTION>
                                                             Options Outstanding                Options Exercisable
--------------------------------------------------------------------------------       ----------------------------
                                                Weighted-       Weighted-Average                          Weighted-
                                  Options   Average Price              Remaining           Options    Average Price
Range of Exercise Prices      Outstanding      Per Option           Life (Years)       Exercisable       Per Option
--------------------------------------------------------------------------------       ----------------------------
<S>                               <C>              <C>                      <C>            <C>               <C>
$ 9.88                             29,062          $ 9.88                   7.78            11,064           $ 9.88
 11.50                            850,068           11.50                   6.77           500,392            11.50
 15.16                              9,200           15.16                   9.06             9,200            15.16
--------------------------------------------------------------------------------       ----------------------------
$ 9.88-15.16                      888,330          $11.48                   6.83           520,656           $11.53
================================================================================       ============================
</TABLE>

(10) Employee Benefit Plans
--------------------------------------------------------------------------------

Pension Plan

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

During the year ended March 31, 2002, the Company completed the Cohoes and
Ambanc Acquisitions. The terms of these acquisitions provided that employees of
Cohoes and Ambanc retained by the Company after the acquisitions will not be
entered into the Plan as participants until April 1, 2002 for Cohoes employees,
and until April 1, 2003 for Ambanc employees. Employees of both Cohoes and
Ambanc will receive credit for their years of service as it relates to
eligibility and vesting, but not for the accrual of retirement benefits under
the Plan. Prior to the acquisition, Ambanc maintained a noncontributory pension
plan ("the Ambanc Plan") which had been frozen as of November 30, 2000, with no
further benefit accruals or participants entered into the plan after that date.


                                       38
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

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

(In thousands)                                              2002           2001
-------------------------------------------------------------------------------

Reconciliation of projected benefit obligation
Obligation at beginning of year                         $ 12,921       $ 11,289
Service cost                                                 500            404
Interest cost                                                946            882
Actuarial loss                                               350            887
Business combination                                       4,906             --
Benefits paid                                               (610)          (541)
-------------------------------------------------------------------------------
Obligation at end of year                               $ 19,013       $ 12,921
===============================================================================

Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year          $ 14,564       $ 14,462
Actual (loss) return on plan assets                         (526)           643
Business combination                                       6,938             --
Benefits paid                                               (610)          (541)
-------------------------------------------------------------------------------
Fair value of plan assets at end of year                $ 20,366       $ 14,564
===============================================================================

Reconciliation of funded status
Funded status at end of year                            $  1,353       $  1,643
Unrecognized net actuarial loss (gain)                       728           (693)
Unrecognized prior service cost                               20             29
-------------------------------------------------------------------------------
Prepaid pension cost at end of year                     $  2,101       $    979
===============================================================================

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

(In thousands)                                 2002           2001         2000
--------------------------------------------------------------------------------
Service cost                                $   500        $   404        $ 472
Interest cost                                   946            882          663
Expected return on plan assets               (1,267)        (1,136)        (880)
Net amortization and deferral                     8            (59)           9
--------------------------------------------------------------------------------
Net periodic pension cost                   $   187        $    91        $ 264
================================================================================

The actuarial assumptions used in determining the actuarial present value of the
projected benefit obligation as of March 31 were as follows:

                                               2002          2001          2000
--------------------------------------------------------------------------------
Weighted-average assumptions:
  Discount rate                                7.00%         7.25%         8.00%
  Rate of compensation increase                4.25          4.75          5.50
  Expected return on plan assets               8.50          8.50          8.00
================================================================================

Postretirement Benefits

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


                                       39
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
(In thousands)                                                          2002          2001
------------------------------------------------------------------------------------------
<S>                                                                  <C>           <C>
Reconciliation of accumulated postretirement benefit obligation
Obligation at beginning of year                                      $ 2,501       $ 2,270
Service cost                                                             109            77
Interest cost                                                            246           179
Actuarial loss                                                           114            50
Benefits paid                                                           (114)          (75)
Business combinations                                                  1,954            --
------------------------------------------------------------------------------------------
Obligation at end of year                                            $ 4,810       $ 2,501
==========================================================================================

Reconciliation of funded status
Unfunded postretirement benefit obligation at end of year            $(4,810)      $(2,501)
Unrecognized net actuarial gain                                         (366)         (489)
Unrecognized transition obligation                                     1,536         1,654
Unrecognized prior service cost (credit)                                 466          (181)
------------------------------------------------------------------------------------------
Accrued postretirement benefit liability                             $(3,174)      $(1,517)
==========================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
(In thousands)                                                2002        2001        2000
------------------------------------------------------------------------------------------
<S>                                                          <C>         <C>         <C>
Service cost                                                 $ 109       $  77       $  87
Interest cost                                                  246         179         185
Amortization of transition obligation                          118         118         118
Amortization of prior service credit                           (25)        (25)        (25)
Amortization of unrecognized (gain) loss                        (8)        (23)          4
------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost                     $ 440       $ 326       $ 369
==========================================================================================
</TABLE>

The discount rate used in determining the accumulated postretirement benefit
obligation was 7.00%, 7.25% and 8.00% at March 31, 2002, 2001 and 2000,
respectively.

For measurement purposes, a 9.00% annual rate of increase in the per capita cost
of covered health benefits was assumed for medical coverage for the year ended
March 31, 2002. This rate was assumed to decrease uniformly to 4.50% by 2007 and
remain at that level thereafter. The health care cost trend rate assumptions
have a significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of March 31, 2002
by $569 thousand (11.8%) and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended March
31, 2002 by $41 thousand (11.5%). Decreasing the assumed health care cost trend
rate one percentage point in each year would decrease the accumulated
postretirement benefit obligation as of March 31, 2002 by $464 thousand (9.6%)
and the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended March 31, 2002 by $32 thousand
(9.0%).

401(k) Savings Plan

The Company also sponsors a defined contribution 401(k) Savings Plan covering
substantially all employees meeting certain eligibility requirements. The
Company matches 50% of employee pre-tax contributions up to a maximum
contribution by the Company of 3% of the employee's annual salary. The amount of
401(k) contribution expense was $185 thousand, $127 thousand and $145 thousand
for the years ended March 31, 2002, 2001 and 2000, respectively.

Benefit Restoration Plan

The Company has a Benefit Restoration Plan for certain executive officers
primarily to restore benefits cutback in certain employee benefit plans due to
Internal Revenue Service regulations. The benefits under this plan are unfunded.
As of March 31, 2002 and 2001, the projected benefit obligation for benefits
cutback in the Company's defined benefit plan was $670 thousand and $113
thousand, respectively. The accrued benefits under this plan related to the
defined benefit plan amounted to $221 thousand and $69 thousand at March 31,
2002 and 2001, respectively. Accrued benefits under this plan related to the
Company's defined contribution plans amounted to $653 thousand and $251 thousand
at March 31, 2002 and 2001, respectively. The Company recorded an expense of
$554 thousand, $200 thousand and $41 thousand relating to this plan during the
years ended March 31, 2002, 2001 and 2000 respectively.


                                       40
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.

<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Supplemental Retirement Plan

The Company maintains a Supplemental Retirement Plan for one individual. As of
March 31, 2002 and 2001, the projected benefit obligation under this plan was
$737 thousand and $746 thousand, respectively. The Company recorded an expense
of $52 thousand, $54 thousand and $14 thousand during the years ended March 31,
2002, 2001 and 2000 relating to this plan.

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

The following table sets forth certain information regarding the calculation of
basic and diluted earnings per share for the years ended March 31, 2002, 2001
and 2000.

<TABLE>
<CAPTION>
(In thousands, except for share and per share data)        Years Ended March 31,           2002             2001             2000
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>              <C>              <C>
Net income                                                                          $    19,529      $    11,668      $     9,526
=================================================================================================================================

Weighted average common shares outstanding                                           13,708,024       13,572,814       14,556,648
Dilutive effect of potential common shares outstanding:
   Stock options                                                                        280,529           75,866            1,865
   Restricted stock awards                                                              122,239           51,061           19,229
---------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares and potential common shares outstanding               14,110,792       13,699,741       14,577,742
=================================================================================================================================

Earnings per share amounts:
   Basic earnings per share                                                         $      1.42      $      0.86      $      0.65
=================================================================================================================================
   Diluted earnings per share                                                       $      1.38      $      0.85      $      0.65
=================================================================================================================================
</TABLE>

(12) Income Taxes
--------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
(In thousands)                                                                             2002             2001             2000
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>              <C>              <C>
Current tax expense:
   Federal                                                                          $    12,426      $     6,684      $     6,137
   State                                                                                  1,249              934              695
Deferred tax expense (benefit)                                                              115             (648)          (1,844)
---------------------------------------------------------------------------------------------------------------------------------
Tax expense                                                                         $    13,790      $     6,970      $     4,988
=================================================================================================================================
</TABLE>

The following is a reconciliation of the expected tax expense and the actual tax
expense for the years ended March 31. The expected tax expense has been computed
by applying the statutory Federal tax rate to income before tax expense:

<TABLE>
<CAPTION>
(In thousands)                                                                             2002             2001             2000
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>              <C>              <C>
Income tax at applicable federal statutory rate                                     $    11,662      $     6,523      $     4,935
Increase (decrease) in tax expense resulting from:
   Tax-exempt income                                                                       (678)            (505)            (312)
   State income taxes, net of Federal tax benefit                                         1,065              595              229
   Nondeductible goodwill and other intangibles amortization                                971              381              313
   Nondeductible portion of ESOP compensation expense                                       301               --               --
   Decrease in deferred tax asset valuation allowance                                        --               --             (141)
   Other                                                                                    469              (24)             (36)
---------------------------------------------------------------------------------------------------------------------------------
Tax expense                                                                         $    13,790      $     6,970      $     4,988
=================================================================================================================================
</TABLE>


                                       41
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

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:

(In thousands)                                                  2002       2001
-------------------------------------------------------------------------------
Deferred tax assets:
   Allowance for loan losses                                 $15,101    $ 9,092
   Other real estate owned and repossessed property              646        542
   Accrued postretirement benefits                             1,410        697
   Deferred compensation                                       1,759      1,182
   Net unrealized loss on securities available for sale        1,001         --
   Other                                                         416        322
-------------------------------------------------------------------------------
Total deferred tax assets                                     20,333     11,835
-------------------------------------------------------------------------------

Deferred tax liabilities:
   Depreciation                                                 (209)      (214)
   Purchase accounting adjustments, net                         (696)        --
   Prepaid pension                                              (745)      (256)
   Net unrealized gain on securities available for sale           --       (124)
   State income taxes                                         (1,121)      (689)
   Other                                                        (221)      (144)
-------------------------------------------------------------------------------
Total deferred tax liabilities                                (2,992)    (1,427)
-------------------------------------------------------------------------------
Net deferred tax asset at end of year                        $17,341    $10,408
===============================================================================

During the year ended March 31, 2002, the Company recorded net deferred tax
assets amounting to $5.9 million as a result of the Cohoes and Ambanc
Acquisitions.

The Company had a valuation allowance of $141 thousand at March 31, 1999 related
to uncertainty about the realization of certain Federal and New York State
deferred tax assets. During the year ended March 31, 2000, the circumstances
creating the uncertainties were resolved, and the valuation allowance was
reversed. Based on recent historical and anticipated future taxable income,
management believes it is more likely than not that the Company will realize its
net deferred tax assets.

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

In accordance with SFAS No. 109, deferred tax liabilities have not been
recognized with respect to the Federal base-year reserve of $16.5 million and
"supplemental" reserve (as defined) of $15.4 million at March 31, 2002, and the
New York State base-year reserve of $77.6 million at March 31, 2002, since the
Bank does not expect that these amounts will become taxable in the foreseeable
future. Under the tax laws, events that would result in taxation of certain of
these reserves include (i) redemption of the Bank's stock or certain excess
distributions by the Bank to the Parent Company, and (ii) failure of the Bank to
maintain a specified qualifying assets ratio or meet other thrift definition
tests for New York State tax purposes. The unrecognized deferred tax liabilities
with respect to the Federal base-year reserve and supplemental reserve were $5.8
million and $5.4 million, respectively, at March 31, 2002. The unrecognized
deferred tax liability with respect to the New York State base-year reserve was
$4.0 million (net of Federal benefit) at March 31, 2002.

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

Off-Balance Sheet Financing and Concentrations of Credit

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

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


                                       42
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

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

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

(In thousands)                                           2002               2001
--------------------------------------------------------------------------------
Commitments to extend credit                         $ 65,060           $ 39,621
Unused lines of credit                                143,938             79,091
Standby letters of credit                              11,036              6,666
--------------------------------------------------------------------------------
Total                                                $220,034           $125,378
================================================================================

Commitments to extend credit and unused lines of credit are agreements to lend
to a customer as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since certain commitments
are expected to expire without being fully drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral, if any, required by the Company upon the extension of credit is
based on management's credit evaluation of the customer.

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

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

Certain mortgage loans are written on an adjustable-rate basis and include
interest rate caps, which limit annual and lifetime increases in the interest
rates on such loans. Generally, adjustable-rate mortgages have an annual rate
increase cap of 2% and a lifetime rate increase cap of 5% to 6%. These caps
expose the Company to interest rate risk should market rates increase above
these limits. As of March 31, 2002 and 2001, approximately $301.2 million and
$183.5 million, respectively, of residential real estate loans had interest rate
caps.

Concentrations of Credit

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

Leases

The Company leases certain of its branches and equipment under various
noncancelable operating leases. Rental expense for premises and equipment was
$1.0 million, $357 thousand and $345 thousand for the years ended March 31,
2002, 2001 and 2000, respectively. 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, 2002 are as follows:

(In thousands)
--------------------------------------------------------------------------------
Years ending March 31,
2003                                                                     $ 1,318
2004                                                                       1,232
2005                                                                       1,043
2006                                                                         843
2007                                                                         658
Thereafter                                                                 6,300
--------------------------------------------------------------------------------
Total                                                                    $11,394
================================================================================

Serviced Loans

The total amount of loans serviced by the Company for unrelated third parties
was approximately $184.2 million and $58.1 million at March 31, 2002 and 2001,
respectively.


                                       43
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Reserve Requirement

The Company is required to maintain certain reserves of vault cash and/or
deposits with the Federal Reserve Bank. The amount of this reserve requirement,
included in cash and due from banks, was approximately $7.4 million and $324
thousand at March 31, 2002 and 2001, respectively.

Contingent Liabilities

In the ordinary course of business, there are various legal proceedings pending
against the Company. Based on consultation with outside counsel, management
believes that the aggregate exposure, if any, arising from such litigation would
not have a material adverse effect on the Company's consolidated financial
statements.

(14) Fair Value of Financial Instruments
--------------------------------------------------------------------------------

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

Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected net cash flows, current economic conditions, risk
characteristics of various financial instruments and other factors. 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.

Short-Term Financial Instruments

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

Securities

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

Loans and Loans Held for Sale

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. The estimated fair value of loans held for sale is determined based
on quoted market prices, or, in the case where a firm commitment has been made
to sell the loans, the firm committed price.

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

Deposit Liabilities and Borrowings

The estimated fair value of deposits with no stated maturity, such as savings,
N.O.W., money market, noninterest-bearing accounts and mortgagors' escrow
deposits, is regarded to be the amount payable on demand. The estimated fair
value of time deposit accounts, short-term FHLB advances maturing in more than
90 days and long-term FHLB borrowings is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates currently
offered for deposits or available for borrowings with similar remaining
maturities. The fair value estimates for deposits do not include the benefit
that results from the low-cost funding provided by the deposit liabilities
compared with the cost of borrowing funds in the market.


                                       44
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Management has made estimates of fair value using 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.

The carrying values and estimated fair values of financial assets and
liabilities as of March 31 were as follows:

<TABLE>
<CAPTION>
                                                                            2002                          2001
--------------------------------------------------------------------------------------------------------------
                                                       Carrying        Estimated       Carrying      Estimated
(In thousands)                                            Value       Fair Value          Value     Fair Value
--------------------------------------------------------------------------------------------------------------
<S>                                                 <C>               <C>             <C>             <C>
Financial assets:
Cash and cash equivalents                           $   220,497       $  220,497      $  38,638       $ 38,638
Loans held for sale                                          --               --         15,108         15,236
Securities available for sale                           223,450          223,450        213,886        213,886
Securities held to maturity                                  --               --          3,602          3,659
Federal Home Loan Bank of New York stock                 22,788           22,788         12,070         12,070

Loans                                                 1,904,204        1,907,847        881,412        881,842
Allowance for loan losses                               (36,572)              --        (22,325)            --
--------------------------------------------------------------------------------------------------------------
Net loans                                           $ 1,867,632       $1,907,847      $ 859,087       $881,842
--------------------------------------------------------------------------------------------------------------

Accrued interest receivable                              11,537           11,537          6,614          6,614

Financial liabilities:
Deposits:
   Savings, N.O.W., money market and
      noninterest-bearing accounts                      965,080          965,080        368,517        368,517
   Time deposit accounts                                803,283          810,183        381,635        384,577
Securities sold under agreements to repurchase           16,972           16,972         10,201         10,201
Short-term FHLB advances                                     --               --         82,000         82,081
Long-term FHLB borrowings                               450,656          435,572        112,900        116,173
Mortgagors' escrow deposits                               9,787            9,787          5,889          5,889
Accrued interest payable                                  3,138            3,138          1,786          1,786
==============================================================================================================
</TABLE>

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

(15) Condensed Financial Information of the Parent Company
--------------------------------------------------------------------------------

The following represents the Parent Company's balance sheets as of March 31,
2002 and 2001, and its income statements and statements of cash flows for the
years ended March 31, 2002, 2001 and 2000. These statements should be read in
conjunction with the Company's consolidated financial statements and notes
thereto.

Balance Sheets

<TABLE>
<CAPTION>
(In thousands)                                                       March 31,              2002          2001
--------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>           <C>
Assets
Interest-bearing deposit with subsidiary bank                                           $    187      $    255
Securities purchased under agreements to resell to subsidiary bank                         6,832        16,605
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents                                                                  7,019        16,860
--------------------------------------------------------------------------------------------------------------
Securities available for sale, at fair value                                                 846           720
Loan to ESOP                                                                              13,821        15,050
Other assets                                                                              31,384        21,793
Investment in equity of subsidiary bank                                                  179,540       162,955
--------------------------------------------------------------------------------------------------------------
Total assets                                                                            $232,610      $217,378
==============================================================================================================

Liabilities and Shareholders' Equity
Other liabilities                                                                       $  1,693      $  1,245
Total shareholders' equity                                                               230,917       216,133
--------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                              $232,610      $217,378
==============================================================================================================
</TABLE>


                                       45
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Income Statements

<TABLE>
<CAPTION>
(In thousands)                               For the Year Ended March 31,             2002           2001           2000
------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>            <C>            <C>
Interest and dividend income
Dividends from subsidiary bank                                                    $  2,502       $     --       $     --
Interest-bearing deposit with subsidiary bank                                            9             12             11
Securities purchased under agreements to resell to subsidiary bank                     340            942          2,052
Securities available for sale                                                           25             40             38
Loan to ESOP                                                                         1,221          1,320          1,399
------------------------------------------------------------------------------------------------------------------------
Total interest income                                                                4,097          2,314          3,500
------------------------------------------------------------------------------------------------------------------------

Other operating income                                                               1,696          1,679            312
------------------------------------------------------------------------------------------------------------------------

Other operating expenses
Compensation and benefits                                                              545            486            549
Legal and other professional fees                                                      168            954            174
Goodwill and other intangibles amortization                                            495            480            542
Other expenses                                                                         540            882            715
------------------------------------------------------------------------------------------------------------------------
Total other operating expenses                                                       1,748          2,802          1,980
------------------------------------------------------------------------------------------------------------------------

Income before tax expense and equity in undistributed earnings
  of subsidiary bank                                                                 4,045          1,191          1,832
Tax expense                                                                           (501)          (337)          (621)
Equity in undistributed earnings of subsidiary bank                                 15,985         10,814          8,315
------------------------------------------------------------------------------------------------------------------------
Net income                                                                        $ 19,529       $ 11,668       $  9,526
========================================================================================================================
</TABLE>

Statements of Cash Flows

<TABLE>
<CAPTION>
(In thousands)                               For the Year Ended March 31,             2002           2001           2000
------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>            <C>            <C>
Cash flows from operating activities:
Net income                                                                        $ 19,529       $ 11,668       $  9,526
Adjustments to reconcile net income to net cash
  provided by operating activities:
    Goodwill and other intangibles amortization                                        495            480            542
    Amortization of restricted stock awards                                            714            757            943
    ESOP stock released for allocation                                               2,345          1,504          1,456
    Net securities transactions                                                        (87)          (771)            --
    Net decrease (increase) in other assets                                            111           (705)        (1,218)
    Net increase in other liabilities                                                  448            353            802
    Equity in undistributed earnings of subsidiary bank                            (15,985)       (10,814)        (8,315)
------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                            7,570          2,472          3,736
------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
Increase in investment in equity of subsidiary bank                                 (2,345)        (1,474)        (1,355)
Purchases of securities available for sale                                            (592)          (115)          (503)
Proceeds from sales of securities available for sale                                   651          1,998             --
Net decrease in loan to ESOP                                                         1,229          1,228            922
Purchase of bank-owned life insurance                                              (10,000)            --        (15,000)
------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities                                (11,057)         1,637        (15,936)
------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
Dividends paid                                                                      (4,957)        (3,111)        (1,844)
Purchases of treasury stock                                                         (3,005)        (3,258)       (21,841)
Net proceeds from exercise of stock options                                          1,608             --             --
------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities                                               (6,354)        (6,369)       (23,685)
------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                                           (9,841)        (2,260)       (35,885)
Cash and cash equivalents at beginning of year                                      16,860         19,120         55,005
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                          $  7,019       $ 16,860       $ 19,120
========================================================================================================================

Supplemental disclosures of non-cash investing and financing activities
Adjustment of securities available for sale to fair value, net of tax             $     59       $    224       $   (147)
Adjustment of subsidiary bank's securities available for sale to fair value,
  net of tax                                                                      $ (1,745)      $  7,585       $ (6,711)
========================================================================================================================
</TABLE>


                                       46
--------------------------------------------------------------------------------
                           Hudson River Bancorp, Inc.
<PAGE>

--------------------------------------------------------------------------------
                              Corporate Information
        Hudson River Bancorp, Inc. and Hudson River Bank & Trust Company
--------------------------------------------------------------------------------

Board of Directors

Carl A. Florio, CPA
President & Chief Executive Officer

Earl Schram, Jr.
Chairman of the Board
Attorney & President, Connor, Curran & Schram, P.C.

Ronald S. Tecler, DMD
Dentist

Marilyn A. Herrington
Real Estate Developer

Joseph W. Phelan
President, Taconic Farms, Inc.

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

M. Bruce Cohen, CPA
Retired Managing Partner, PricewaterhouseCoopers LLP

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

Harry L. Robinson
Retired President & Chief Executive Officer, Cohoes Bancorp, Inc.

Executive Officers

Carl A. Florio, CPA
President & Chief Executive Officer

Sidney D. Richter
Executive Vice President, Senior Lending Officer

Timothy E. Blow, CPA
Chief Financial Officer

Carol J. Dube
Senior Vice President, Operations

James F. Mackerer
Senior Vice President, Retail Banking

Hudson River Bank & Trust Company

Vice Presidents

James J. Alescio, CPA         Finance
Daniel F. Cheeseman           Commercial Lending
Susan M. Hollister            Human Resources
Robert Kelly                  General Counsel
Lawrence J. Longo, Jr.        Mortgage Originations
Michael J. Mackay             Loan Servicing
Paul Sherman                  Commercial Lending
Benjamin W. Ziskin            Commercial Lending

Annual Meeting of Shareholders

The annual meeting of Hudson River Bancorp, Inc. will be held at 2:00 p.m. on
August 15, 2002, in the theatre arts building of Columbia-Greene Community
College, Hudson, NY.

Stock Transfer Agent & Registrar

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

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

Annual Report on Form 10-K

For the 2002 fiscal year, Hudson River Bancorp, Inc. will file an Annual Report
on Form 10-K. Shareholders wishing a copy may obtain one free of charge by
writing:

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

Stock Listing

The common stock of Hudson River Bancorp, Inc. trades on the Nasdaq Stock
Market under the symbol HRBT. As of June 19, 2002, there were 4,714 registered
holders of Hudson River Bancorp, Inc. common stock.

Stock Price

The table below shows the reported high, low and closing prices of Hudson River
Bancorp, Inc. common stock during the periods indicated for the years ended
March 31, 2002 and 2001.

Quarter Ending                                      High        Low        Close
--------------------------------------------------------------------------------
June 30, 2001                                     $20.50      $13.63      $18.10
September 30, 2001                                 24.95       16.60       20.01
December 31, 2001                                  24.05       18.91       21.90
March 31, 2002                                     24.95       21.40       24.13

Quarter Ending                                     High        Low         Close
--------------------------------------------------------------------------------
June 30, 2000                                     $12.50      $ 8.75      $11.88
September 30, 2000                                 13.38       10.63       13.06
December 31, 2000                                  15.38       11.56       12.69
March 31, 2001                                     14.81       12.63       13.94
<PAGE>

[LOGO]

Hudson River Bancorp, Inc.
One Hudson City Centre
Hudson, NY 12534
800.724.2476
518.828.4600 (local)

www.hudsonriverbank.com

[LOGO]
Equal Housing Lender

Member FDIC