EXHIBIT 13

                       2001 ANNUAL REPORT TO SHAREHOLDERS

[On the cover]
     We have  increased  our  value  to our  shareholders,  our  customers,  our
employees and the communities in which we  operate...all  because our people are
doing the right things in the right way.




<PAGE>


Financial Highlights

(In thousands, except per share data)    March 31,      2001               2000
--------------------------------------------------------------------------------

For the Year Ended
Net income                                     $      11,668      $       9,526
Basic earnings per share                                0.86               0.65
Diluted earnings per share                              0.85               0.65
--------------------------------------------------------------------------------

At Year End
Total assets                                   $   1,208,973      $   1,149,547
Loans                                                881,412            823,855
Deposits                                             750,152            748,563
Shareholders' equity                                 216,133            200,723
Book value at year end                                 15.78              14.50
Tangible book value at year end                        14.95              13.66
--------------------------------------------------------------------------------

Significant Ratios
Return on average assets                                1.00%              0.96%
Return on average equity                                5.68               4.58
Return on average tangible equity                       6.01               4.77
Dividend payout ratio                                  26.66              19.36
Net interest margin                                     4.58               4.83
Net interest spread                                     3.68               3.85
Efficiency ratio                                       51.94              52.61
--------------------------------------------------------------------------------

Asset Quality Ratios
Nonperforming loans to total loans                      0.97%              1.25%
Nonperforming assets to total assets                    0.77               1.04
Allowance for loan losses to:
     Total loans                                        2.53               2.38
     Nonperforming loans                              259.96             190.50
--------------------------------------------------------------------------------

[GRAPHIC-PHOTO]
     Hudson River Bank & Trust Company  provides  competitively  priced loan and
deposit  products  to our  retail  customers  backed by  personalized  attentive
service.  These  services are designed to meet the basic needs of our customers.
From  certificate  of deposit and club accounts,  to checking,  money market and
savings  accounts,  to  auto  loans,  lines-of-credit,   FHA  and  conventional
mortgages, our traditional banking products are our "bread and butter."

[CAPTION]
     More than  ever,  our  desire  to build a  complete  financial  services
relationship  with our customers,  is supported by the diversity of products and
services,  and our  willingness  to  develop  creative  solutions  to meet their
changing needs.

To our shareholders:

     Once again it is with great pleasure that we can look back at a year filled
with growth,  increased  profitability,  and more  importantly,  promise for the
future.  Last  year  provided  several  challenges,  and  with  each  challenge,
additional opportunities. The proposed merger of equals we discussed in the 2000
Annual Report was not approved by Cohoes  shareholders in August 2000.  However,
we reached a second agreement to acquire Cohoes Bancorp, Inc. outright for cash.
The acquisition closed in April 2001. In addition,  we successfully  defeated an
unsolicited and hostile takeover attempt of your Company.

2001 Financial Results
----------------------

     We ended the year 2001 with  historic  highs for your Company in net income
($11.7 million),  assets ($1.2 billion) and deposits ($750.2  million).  Diluted
earnings  per share were $0.85 for 2001,  up 31% over the previous  year,  while
cash dividends  increased 83% to $0.22 per common share.  With the completion of
the Cohoes  acquisition,  we fully  expect to continue our trend of double digit
growth in earnings per share in 2002.  Our return on average equity for 2001 was
5.68%,  up from 4.58% in 2000 and 2.05% in 1999. Our return on average  tangible
equity was 6.01% in 2001,  an increase  from 4.77% in 2000 and 2.06% in 1999. We
are very  pleased  with the  progress we have made,  however we  recognize  that
continued  improvement  in these ratios is imperative  for  continued  growth in
shareholder  value. We believe that the foundation  we've laid over the last two
years will provide us with the basis for even better results next year.

[CAPTION]
     We  believe  that  our  local   presence,   with  local  decision   making,
differentiates  us from our competitors  who are based outside our  communities.
From our tellers and branch managers,  to the Bank's senior management and Board
of Directors,  we live in the communities we serve. It is this fact that enables
us to identify and respond to the needs of our customers  and to genuinely  care
about delivering high-quality customer service.

Progress on Strategic Initiatives
---------------------------------

     In the 2000 letter to our shareholders,  four of our strategic  initiatives
were outlined.  These  initiatives  included:  evaluation and  implementation of
profitable  expansion  alternatives;  penetration of our markets  through branch
openings;   increased  focus  on  expense   discipline  and  efficiencies;   and
maintenance of asset quality levels.  During 2001, we made significant  progress
on each of these  initiatives.  First,  the  acquisition of Cohoes will grow the
Company  to  approximately  $1.9  billion  in assets  with over $1.2  billion in
deposits. Our market presence now includes 38 branches in 8 counties. Second, we
opened one branch  during  2001 and intend on  evaluating  up to two  additional
branches in 2002.  Third, even when considering the expansion  initiatives,  our
efficiency ratio improved from 52.6% to 51.9%.  Finally,  asset quality not only
was  maintained,  but  improved.  Nonperforming  assets  declined by 22% and the
allowance  coverage of  nonperforming  loans  improved to 260% from 191%.  These
successes demonstrate the commitment that the Company's Board,  management team,
and employees have in delivering value to our shareholders.

Wide Array of Products and Services
-----------------------------------

     To  compete  in the  current  financial  services  market,  and to meet the
changing  needs of our  customers,  a full  breadth of products  and services is
critical for success. Over the last two years, we have taken the necessary steps
to provide  quality  products to address the needs of our  customer  base,  both
today and into the  future.  On  January  1, 2001,  we  exercised  our option to
acquire an increased  ownership  percentage in The Bostwick  Group.  We've taken
steps during 2001 to place  Bostwick  representatives  within our branch network
for immediate and convenient access for our customers. Bostwick brings more than
25 major  carriers  of  personal,  group  and  commercial  insurance  who  offer
insurance  for  life,  home,  property,  personal  liability,   long-term  care,
disability and annuities for retirement to our customer base.

[GRAPHIC-PHOTO]
     Hudson  River Bank & Trust  Company  is pleased to offer the most  valuable
checking  account in the  country...Generations  Gold(R)  provides  money saving
discounts on travel,  entertainment,  insurance,  groceries, and much more! With
the added value of our local  restaurant and merchant  discount partner program,
Generations Gold(R) checking helps our customers live better for less.

[GRAPHIC-PHOTO]
     The traditional banking services we offer throughout our branch network are
complemented by convenient alternatives such as banking via the Internet, Simple
Easy Access of account  information  over the phone or through our extensive ATM
network. 24-hour banking is available at over 50 convenient ATM locations.

[CAPTION]
     Our  commitment  to  customer  service is  evidenced  by our  comprehensive
delivery  channels.  The traditional  banking  services we offer  throughout our
extensive  branch network are further  enhanced by  state-of-the-art  technology
that  allows  customers  the  choice  and the  convenience  of  banking  via the
Internet, over the phone or through our ATM network.

     With  the  Cohoes  acquisition,   we've  added  a  wholly-owned   brokerage
subsidiary to our Company.  When added to our existing Investment Management and
Trust Services  division,  our customers can now trade stocks,  bonds and mutual
funds within their brokerage accounts at the Company.  These services compliment
our investment management, trust administration and estate settlement services.

     During 2000,  internet banking was implemented which provides our customers
the ability to check balances,  print  statements,  perform  account  transfers,
execute wire transfers and pay bills. Our investment during the fiscal year 2000
in Homestead Funding Corp., the largest  residential  mortgage originator in the
Capital  District,  enables  us  to  have  access  to  another  source  of  loan
originations  as  well  as the  profitability  which  can be  associated  with a
successful mortgage bank.

[CAPTION]
     Our Large capital base provides  management with exciting  opportunities to
explore new markets for expansion in their  primary  effort to enhance the value
of our franchise.

     Our  technology  advances  during 2000 and 2001 have provided our employees
with  state-of-the-art  capabilities  to serve  our  customers  efficiently  and
effectively.  A new teller platform system, a check imaging sorter,  an upgraded
computer  mainframe,  and an internal wide area network are some examples of the
commitment we've made to bring high-quality service to our customers.


<PAGE>

     Commercial services have continued to flourish during 2001.  Commercial and
commercial real estate lending grew from $176.1  million,  or 21% of total loans
at March 31, 2000, to $227.7  million,  or 26% of total loans at March 31, 2001.
We believe the quality of our lending staff, our credit administration,  and the
array of products we offer can compete  effectively  with the large money center
and regional banks in our market area.

     With the Cohoes  acquisition,  we service  over  188,000  deposit  accounts
throughout our 38 branch network.  Our school banking program has over 133 local
schools  enrolled,  with over  30,000  accounts  totaling  over $17  million  in
deposits. We believe that our school banking program is the largest such program
in the  country.  Our  acquisition  of  Cohoes,  the  conversion  of their  data
processing  system,  and the transition of the Cohoes  employees into the Hudson
family went  extraordinarily  well. The changes were  virtually  seamless to the
customers  and  reflect  the hard work,  dedication  and skills  your  Company's
management team and employees possess.

[GRAPHIC-PHOTO]
     Personalized  attention combined with professional and competent advice are
our guiding  principles for which  investment  management  and brokerage,  trust
administration and estate settlement  services are provided to our clients.  Our
full-service  insurance agency provided the bank's customer convenient access to
a full line of personal, group and commercial insurance products.

[GRAPHIC-PHOTO-CHART]
     As  can  be  seen  by  the  illustration  above,  HRBT's  cumulative  stock
performance  since our initial public offering on July 1, 1998 has exceeded both
that of our peers in the Nasdaq bank index as well as the S&P 500.  HRBT's stock
price was $13.94 at March 31, 2001.

[CAPTION]
     Our  commitment  to our  communities  and  responding  to the  needs of our
customers has been our strength throughout our long and successful history.


Outlook for the Future
----------------------

     The year  2001 has been a very  successful  year for your  Company  and its
shareholders.  Our stock price has increased more than 50% since March 31, 2000.
We truly feel that the quality of our  employees and the service they provide to
our  customers,  combined with the wide array of products we have made available
to them,  will result in continued  improvements  in financial  performance  and
opportunities for growing the value of our franchise.

     As we realize the  earnings  accretion we expect from  assimilating  Cohoes
into our Company,  we will continue looking at additional growth  opportunities,
market expansion  opportunities as well as ways to control expenses and maintain
asset quality.  These strategic initiatives have served us well. In addition, we
will continue the  integration  of our trust,  brokerage and insurance  services
into our retail branch network.

     Once  again I would  like to extend my  thanks to our  employees  for their
continued  commitment,  and to our shareholders for their continued  loyalty and
support for the future direction we've set for ourselves.


Carl A. Florio
President and CEO

May 5, 2001


<PAGE>

Five Year Selected Financial Data
---------------------------------

<TABLE>
<CAPTION>
(In thousands, except for share and per share data)
At or for the Years Ended March 31,                     2001           2000           1999        1998        1997
==================================================================================================================
<S>                                              <C>            <C>            <C>            <C>         <C>
Earnings
Interest  income                                 $    91,499    $    76,423    $    63,526    $ 55,387    $ 52,881
Interest expense                                      40,842         30,509         26,000      25,977      25,426
------------------------------------------------------------------------------------------------------------------
Net interest income                                   50,657         45,914         37,526      29,410      27,455
------------------------------------------------------------------------------------------------------------------
Provision for loan losses                              5,100          6,200          7,341       8,491       3,826
Other operating income                                 4,790          2,588          2,418       2,845       1,825
Other operating expense                               31,709         27,788         26,612      19,030      16,187
------------------------------------------------------------------------------------------------------------------
Income before tax expense                             18,638         14,514          5,991       4,734       9,267
Tax expense                                            6,970          4,988          2,184       1,903       3,607
------------------------------------------------------------------------------------------------------------------
Net income                                       $    11,668    $     9,526    $     3,807    $  2,831    $  5,660
==================================================================================================================
Per Share Data
Basic earnings per share (1)                     $      0.86    $      0.65    $      0.17          --          --
Diluted earnings per share (1)                          0.85           0.65           0.17          --          --
Book value at year end                                 15.78          14.50          14.02          --          --
Book value at year end, including
  unallocated ESOP shares and
  unvested RRP shares                                  14.15          12.85          12.39          --          --
Tangible book value per share at year end              14.95          13.66          13.81          --          --
Tangible book value per share, including
  unallocated ESOP shares and
  unvested RRP shares                                  13.40          12.11          12.21          --          --
Closing market price                                   13.94          10.00          10.94          --          --
==================================================================================================================
Average Balances and Shares
Total assets                                     $ 1,167,944    $   996,448    $   809,385    $659,984    $640,867
Earning assets                                     1,105,473        950,380        778,691     628,747     612,296
Loans                                                849,283        698,403        522,974     507,293     471,295
Securities available for sale                        230,736        231,931        156,405      39,357      53,445
Securities held to maturity                            5,570         14,899         47,738      71,966      83,343
Deposits                                             737,509        682,029        608,936     577,721     562,922
Short-term FHLB advances                             146,391         65,542          2,916       3,699       4,459
Long-term FHLB borrowings                             49,990         18,386             --          --          --
Shareholders' equity                                 205,336        207,953        185,770      67,780      63,322
Shares outstanding:
  Basic                                           13,572,814     14,556,648     16,302,268          --          --
  Diluted                                         13,699,741     14,577,742     16,302,268          --          --
==================================================================================================================
Financial Ratios
Return on average assets                                1.00%          0.96%          0.47%       0.43%       0.88%
Return on average equity                                5.68           4.58           2.05        4.18        8.94
Return on average tangible equity                       6.01           4.77           2.06        4.21        8.99
Dividend payout ratio                                  26.66          19.36             --          --          --
Net interest margin                                     4.58           4.83           4.82        4.68        4.48
Efficiency ratio (2)                                   51.94          52.61          50.48       56.78       54.18
Expense ratio (2)                                       2.44           2.56           2.49        2.77        2.47
Equity to assets at year end                           17.88          17.46          24.89       10.18       10.00
Tangible equity to tangible assets at year end         17.10          16.62          24.62       10.10        9.96
Allowance to nonperforming loans                      259.96         190.50         143.77       52.32       29.37
Allowance to total loans                                2.53           2.38           2.47        1.62        1.19
==================================================================================================================
</TABLE>

(1)  Earnings per share data only applies to periods since the Company's initial
     public offering on July 1, 1998.
(2)  Ratio does not include  other real estate  owned and  repossessed  property
     expenses,  net securities  transactions and goodwill and other  intangibles
     amortization for each period. The 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.


<PAGE>

                           Hudson River Bancorp, Inc.

   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS

GENERAL
-------

     The  financial  review which follows  focuses on the factors  affecting the
consolidated  financial  condition  and results of  operations  of Hudson  River
Bancorp,  Inc.  and its  subsidiaries,  Hudson  River Bank & Trust  Company (the
"Bank") and C.W. Bostwick  ("Bostwick")  (combined,  the "Company"),  during the
year  ended  March  31,  2001 and the  preceding  two  years.  The  consolidated
financial  statements  and related notes as of March 31, 2001 and 2000,  and for
the three years ended  March 31,  2001 should be read in  conjunction  with this
review.

     On July 1, 1998, the Bank  completed its  conversion  from a mutual savings
bank to a New York chartered stock savings bank (the  "Conversion").  Concurrent
with the  Conversion,  Hudson River Bancorp,  Inc.  completed its initial public
offering  of common  stock,  receiving  approximately  $173.3  million  in gross
proceeds  ($170.0  million net of offering  expenses),  and purchased all of the
common stock of the Bank.  Prior to the initial  public  offering,  Hudson River
Bancorp,  Inc. had no results of  operations;  therefore,  results of operations
prior to July 1, 1998 reflect the operations of the Bank.

     The Company's  primary  market area,  with 18  full-service  branches as of
March 31,  2001,  consists  of the New York  counties of  Columbia,  Rensselaer,
Albany, Schenectady, Dutchess and Saratoga. 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 loan servicing  income and fees on
deposit related services; it is also impacted by other operating expenses,  such
as compensation and benefits,  occupancy and equipment expenses, and federal and
state income taxes.

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

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

     On 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 its  acquisition of Cohoes paying
$19.50 in cash for each  share of Cohoes  common  stock  outstanding.  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 is expected to approximate $31 million and will
be amortized  straight-line over twenty years. Cohoes had total assets of $684.1
million  and total  deposits  of $500.2  million  as of April 20,  2001.  Its 20
branches  located in Albany,  Schenectady,  Rensselaer,  Greene,  Saratoga,  and
Warren counties were added to the Bank's branch network.


<PAGE>

     In June 2000, the Company  received an unsolicited  offer from TrustCo Bank
Corp NY ("TrustCo")  to acquire the Company for TrustCo common stock  equivalent
to $14 per share of Company stock.  This  unsolicited  offer was declined by the
Board of  Directors on June 23, 2000  because,  among other  reasons,  the Board
determined that TrustCo's offer was inadequate as to the price,  the Company was
not for sale,  and the proposal was subject to a number of  conditions,  some of
which were out of TrustCo's  and the Company's  control,  and some of which were
not likely to be met. TrustCo subsequently  announced its intentions to increase
its offer to $17 per share.  On October  31,  2000,  TrustCo  commenced a tender
offer for the Company's stock offering $10.80 in cash and $6.20 in TrustCo stock
for each share of  Company  stock  outstanding.  The tender  offer  proposed  by
TrustCo  contained  many of the same  conditions  which  were  contained  in its
original offer. The Board of Directors  unanimously  voted to decline  TrustCo's
tender offer and made a formal  recommendation to the Company's  shareholders in
regard to the offer.  On November 27, 2000,  TrustCo  rescinded its tender offer
for the Company's stock.

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

     Effective  January 1, 2001,  the  Company  acquired  an  additional  equity
interest 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 Bostwick  exceeded 50% with this additional  investment,  and as a
result, the results of Bostwick's  operations are consolidated with those of the
Company as of the effective date of the additional equity investment.

OVERVIEW

     The Company earned net income for the year ended March 31, 2001,  amounting
to $11.7 million,  or $0.85 diluted  earnings per share,  compared with the $9.5
million  earned  during the year ended March 31,  2000 and $3.8  million for the
year ended March 31, 1999. 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 Bancorp, Inc.
Net income for 2000 as compared to the year ended March 31, 1999 was enhanced by
the  Company's  SFS  Acquisition  in  September  1999.  Net  income  in 1999 was
negatively  impacted by a $5.2 million  ($3.1  million  after-tax)  nonrecurring
expense taken during July 1998 associated with the  contribution of stock to the
Hudson River Bank & Trust  Company  Foundation.  The increase in 2001 net income
over the prior year  results  was a result of higher net  interest  income and a
lower  provision  for loan losses,  partially  offset by higher other  operating
expenses  and  higher  tax  expense.  For the year  ended  March 31,  2001,  the
Company's  return  on  average  assets  was  1.00%,  up from  .96% in 2000.  The
Company's  return on average equity for the year ended March 31, 2001 was 5.68%,
up from 4.58% in 2000. The Company's  return on average  tangible equity for the
year ended March 31, 2001 was 6.01%, up from 4.77% in 2000.


<PAGE>

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,                                     2001                        2000                            1999
==============================================================================================================================
                                                         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                  $      136   $     7   5.15%   $    218   $    12   5.50%   $ 18,805   $ 1,054      5.60%
Loans held for sale                      9,627       648   6.73          --        --     --          --        --        --
Securities purchased under
  agreements to resell                      --        --     --          --        --     --      29,727     1,662      5.59
Securities available for sale (1)      230,736    15,802   6.85     231,931    15,432   6.65     156,405     9,997      6.39
Securities held to maturity              5,570       380   6.82      14,899       982   6.59      47,738     3,095      6.48
Federal Home Loan Bank
  of New York stock                     10,121       732   7.23       4,929       337   6.84       3,042       215      7.07
Loans (2)                              849,283    73,930   8.70     698,403    59,660   8.54     522,974    47,503      9.08
------------------------------------------------------------------------------------------------------------------------------
Total earning assets                 1,105,473    91,499   8.28     950,380    76,423   8.04     778,691    63,526      8.16
------------------------------------------------------------------------------------------------------------------------------

Cash and due from banks                 15,973                       13,612                       12,774
Allowance for loan losses              (20,871)                     (17,052)                     (10,916)
Other nonearning assets                 67,369                       49,508                       28,836
----------------------------------------------                   ----------                     --------
Total assets                        $1,167,944                     $996,448                     $809,385
==============================================                   ==========                     ========


Interest-bearing liabilities
Savings accounts                    $  174,022   $ 4,422   2.54%   $167,145   $ 4,507   2.70%   $155,885   $ 5,039      3.23%
N.O.W. and money
  market accounts                      127,319     3,169   2.49     115,037     2,968   2.58      97,006     2,762      2.85
Time deposit accounts                  379,281    20,501   5.41     353,723    18,007   5.09     313,269    17,930      5.72
Mortgagors' escrow deposits              7,228       154   2.13       5,990       131   2.19       4,986       113      2.27
Securities sold under
  agreements to repurchase               4,157       206   4.96       1,896        84   4.43          77         3      3.90
Short-term FHLB advances               146,391     9,470   6.47      65,542     3,700   5.65       2,916       153      5.25
Long-term FHLB borrowings               49,990     2,920   5.84      18,386     1,112   6.05          --        --        --
------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities     888,388    40,842   4.60     727,719    30,509   4.19     574,139    26,000      4.53
------------------------------------------------------------------------------------------------------------------------------

Noninterest-bearing deposits            56,887                       46,124                       42,776
Other noninterest-bearing               17,333                       14,652                        6,700
Shareholders' equity                   205,336                      207,953                      185,770
----------------------------------------------                  -----------                     --------
Total liabilities and
  shareholders' equity              $1,167,944                     $996,448                     $809,385
==============================================                  ===========                     ========
Net interest income                              $50,657                     $ 45,914                      $37,526
========================================================        =====================           ==================
Net interest spread                                       3.68%                         3.85%                          3.63%
==============================================================================================================================
Net interest margin                                       4.58%                         4.83%                          4.82%
==============================================================================================================================
</TABLE>

(1)  Average balances include fair value adjustment.

(2)  Average balances include nonaccrual loans.


<PAGE>

Earning Assets

     Total average  earning assets  increased to $1.1 billion for the year ended
March 31, 2001,  up from $950.4  million in 2000.  This increase was primarily a
result of the  completion of the SFS  Acquisition  in September  1999.  Interest
income for the year ended March 31,  2001 was $91.5  million,  up $15.1  million
from 2000.  The  increase in average  balances  was the  primary  reason for the
higher income,  as well as slightly higher yields on those assets.  The yield on
earning  assets rose from 8.04% for the year ended March 31,  2000,  to 8.28% in
2001. The change in the Company's  asset mix from lower yielding  investments to
higher yielding loans has reduced the impact of a lower rate  environment on its
earning assets.

     Average  earning  assets  for the year  ended  March 31,  2000 were  $171.7
million higher than the average for the previous year.  This increase was due to
the growth in loans,  primarily  from the SFS  Acquisition.  As a result of this
increase in average earning assets,  interest income  increased $12.9 million in
2000 from 1999. The increase in interest income as a result of volume  increases
during 2000 was  partially  offset by declines in yields on earning  assets from
8.16%  in 1999 to  8.04%  in  2000,  resulting  primarily  from  changes  in the
composition of the loan portfolio.

Volume and Rate Analysis

<TABLE>
<CAPTION>
                                                                            2001 vs 2000                               2000 vs 1999
====================================================================================================================================
                                                   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                                $     (4)      $    (1)      $     (5)      $ (1,023)      $   (19)      $ (1,042)
Loans held for sale                                    648            --            648             --            --             --
Securities purchased under
   agreements to resell                                 --            --             --         (1,662)           --         (1,662)
Securities available for sale                          (80)          450            370          5,010           425          5,435
Securities held to maturity                           (635)           33           (602)        (2,164)           51         (2,113)
Federal Home Loan Bank
   of New York stock                                   374            21            395            129            (7)           122
Loans                                               13,114         1,156         14,270         15,129        (2,972)        12,157
-----------------------------------------------------------------------------------------------------------------------------------
Total interest income                             $ 13,417       $ 1,659       $ 15,076       $ 15,419       $(2,522)      $ 12,897
-----------------------------------------------------------------------------------------------------------------------------------

Interest expense
Savings accounts                                  $    181       $  (266)      $    (85)      $    346       $  (878)      $   (532)
N.O.W. and money market accounts                       308          (107)           201            481          (275)           206
Time deposit accounts                                1,344         1,150          2,494          2,177        (2,100)            77
Mortgagors' escrow deposits                             26            (3)            23             22            (4)            18
Securities sold under agreements
   to repurchase                                       111            11            122             81            --             81
Short-term FHLB advances                             5,160           610          5,770          3,535            12          3,547
Long-term FHLB borrowings                            1,847           (39)         1,808          1,112            --          1,112
-----------------------------------------------------------------------------------------------------------------------------------
Total interest expense                            $  8,977       $ 1,356       $ 10,333       $  7,754       $(3,245)      $  4,509
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income                               $  4,440       $   303       $  4,743       $  7,665       $   723       $  8,388
===================================================================================================================================
</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.


<PAGE>

Loans
-----

     The average balance of loans increased to $849.3 million for the year ended
March 31, 2001, up $150.9 million from the $698.4 million  average for 2000. The
yield on loans for the year  increased  16 basis  points,  from 8.54% in 2000 to
8.70% in 2001.  Interest  income on loans  for the year  ended  March  31,  2001
increased to $73.9 million from $59.7  million in 2000.  The increase in average
balances for the year  resulted in a $13.1 million  increase in interest  income
and a $1.2  million  increase  was due to higher  rates.  An  increase of $175.4
million in the average  balance of loans in 2000 from 1999 was partially  offset
by a decline in rates from 9.08% in 1999 to 8.54% in 2000.

     On December 31, 2000, the Company  transferred $40.4 million ($39.8 million
net of mark-to-market  adjustment) of fixed rate performing residential mortgage
loans from loans into the loans held for sale  category.  As of March 31,  2001,
the  balance  of  these  loans  was  $15.1  million.  This  transfer  is 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. These loans are carried at the lower of cost or
fair value.

     After the  transfer  of the loans held for sale,  total  loans were  $881.4
million at March 31, 2001,  up $57.6  million  from $823.9  million at March 31,
2000. Loans secured by residential real estate increased from $491.8 million, or
59.7% of total loans at March 31,  2000,  to $515.6  million,  or 58.4% of total
loans at  March  31,  2001.  This  increase  was  primarily  the  result  of new
originations  during the current year.  Commercial  real estate loans  increased
$28.5 million to $167.3 million at March 31, 2001,  from $138.9 million at March
31, 2000.  Commercial  loans  increased to $60.3 million at March 31, 2001, from
$37.2  million  at March 31,  2000.  These  increases  were  offset in part by a
decrease of $6.3 million in manufactured  housing loans.  Management  intends to
continue to reduce the portfolio of manufactured housing loans gradually through
normal paydown  activity while it continues its focus on commercial  real estate
and commercial lending, as well as residential lending.

Loan Portfolio Analysis

<TABLE>
<CAPTION>
March 31,                                       2001               2000               1999               1998                 1997
====================================================================================================================================
(In thousands)                          Amount    %       Amount     %       Amount     %       Amount     %       Amount       %
====================================================================================================================================
<S>                                   <C>        <C>     <C>        <C>     <C>        <C>     <C>        <C>     <C>         <C>
Loans secured by
 real estate:
  Residential                         $515,584   58.4%   $491,811   59.7%   $295,466   51.1%   $269,435   53.2%   $274,092     55.6%
  Commercial                           167,344   19.0     138,891   16.9      91,480   15.8      76,570   15.1      67,697     13.7
  Construction                           9,306    1.1       9,144    1.1       3,401    0.6       4,621    0.9       2,725      0.6
------------------------------------------------------------------------------------------------------------------------------------
Total loans secured
     by real estate                    692,234   78.5     639,846   77.7     390,347   67.5     350,626   69.2     344,514     69.9
------------------------------------------------------------------------------------------------------------------------------------

Other loans:
  Manufactured housing                  75,287    8.6      81,542    9.9      90,354   15.6      97,426   19.2      92,651     18.8
  Commercial                            60,311    6.9      37,167    4.5      29,024    5.0      18,484    3.7      19,713      4.0
  Financed insurance
     premiums                           38,216    4.3      51,796    6.3      57,901   10.0      27,976    5.5      23,535      4.8
  Consumer                              17,943    2.0      15,536    1.9      12,440    2.2      11,857    2.3      11,577      2.3
------------------------------------------------------------------------------------------------------------------------------------
Total other loans                      191,757   21.8     186,041   22.6     189,719   32.8     155,743   30.7     147,476     29.9
------------------------------------------------------------------------------------------------------------------------------------

Unearned discount and
 net deferred loan
  origination fees and costs            (2,579)  (0.3)     (2,032)  (0.3)     (1,967)  (0.3)        609    0.1       1,029      0.2
------------------------------------------------------------------------------------------------------------------------------------
Total loans                           $881,412  100.0%   $823,855  100.0%    $578,099 100.0%   $506,978  100.0%   $493,019    100.0%
Allowance for loan losses              (22,325)           (19,608)            (14,296)           (8,227)            (5,872)
------------------------------------------------------------------------------------------------------------------------------------
Net loans                             $859,087           $804,247            $563,803          $498,751           $487,147
====================================================================================================================================
</TABLE>

Securities


<PAGE>

     The average balance of securities available for sale and securities held to
maturity (collectively  "securities")  decreased $10.5 million to $236.3 million
for the year ended March 31, 2001,  down from $246.8  million for the year ended
March 31, 2000. This decrease was the result of the Company's  continued efforts
to change  the asset mix from  lower  yielding  investments  to higher  yielding
loans.  Interest income earned on securities of $16.2 million for the year ended
March 31,  2001 was down $232  thousand  from the $16.4  million  earned in 2000
primarily as a result of lower average  balances,  partially offset by increases
in average  rates.  Average  securities  for the year ended  March 31, 2000 were
$42.7  million  higher  than the average  balance of  securities  in 1999.  This
increase  was  primarily  attributed  to the  SFS  Acquisition  as  well  as the
reinvestment of the Company's federal funds sold and securities  purchased under
agreements  to resell in the  securities  available  for sale  portfolio.  These
higher  average  balances  were the  primary  contributor  in the growth of $3.3
million in interest on securities in 2000 from 1999.

     Securities at March 31, 2001 were $217.5  million,  down $30.6 million from
the $248.1 million held as of March 31, 2000.  The decrease was almost  entirely
due to  calls,  maturities  and  paydowns  of  securities.  Reinvestment  of the
proceeds was primarily  directed to the loan portfolio to accommodate the growth
experienced  in that  asset  category.  Management  is  continuing  to allow the
balance of  securities  held to  maturity  to  decrease  with new  purchases  of
securities directed to the securities available for sale classification.

Federal Funds Sold and Securities Purchased Under Agreements to Resell

     The average  balance of federal funds sold and securities  purchased  under
agreements  to resell  of $48.5  million  for the year  ended  March  31,  1999,
generated $2.7 million in interest income for that year. The Company had limited
federal funds sold and no securities purchased under agreements to resell 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.  For the immediate  future,  the
Company does not anticipate  utilizing  these asset  categories for  significant
investments other than on a temporary basis as market conditions warrant.

Funding Sources

     The Company utilizes traditional deposit products such as time, savings and
N.O.W.  and money  market  deposits as its  primary  source for  funding.  Other
sources such as short-term FHLB advances and long-term FHLB borrowings, however,
are  utilized  as  necessary  to support the  Company's  growth in assets and to
achieve   interest  rate   sensitivity   objectives.   The  average  balance  of
interest-bearing  liabilities  increased  to $888.4  million  for the year ended
March 31, 2001, from $727.7 million for the year ended March 31, 2000.  Interest
expense for the year ended March 31, 2001 was $40.8  million,  up $10.3  million
from the previous year. The increase in volume accompanied by an increase in the
average  rate paid from  4.19% to 4.60%  resulted  in the  overall  increase  in
interest expense for the year. Average interest-bearing liabilities for the year
ended March 31,  2000 were $153.6  million  higher than 1999.  This  increase in
volume,  primarily  attributed to the SFS Acquisition,  was somewhat offset by a
decline in rates paid,  resulting  in an  increase  of $4.5  million in interest
expense between the two years.

     Interest-bearing liabilities at March 31, 2001 were $898.6 million, up from
$857.1 million at March 31, 2000. This increase was a result of the necessity to
fund the growth in assets of the Company,  primarily in the loan portfolio,  and
in preparation for the Cohoes Acquisition.

Deposits

     The average  balance of savings  accounts  increased $6.9 million to $174.0
million  for the year ended  March 31,  2001,  up from  $167.1  million  for the
previous  year.  These  fluctuations  are the  result  of the  impact of the SFS
Acquisition  during the year  ended  March 31,  2000,  and the  addition  of our
Clifton Park branch at the beginning of the year ended March 31, 2001.  Interest
expense on savings  accounts  declined  slightly  from $4.5 million for the year
ended March 31, 2000 to $4.4  million in 2001 as the  decrease in average  rates
paid,  from 2.70% to 2.54%,  more than offset the increase in average  balances.
Rates paid on savings accounts  declined due to market  conditions from 3.23% in
1999 to the 2.70% in 2000.  This  decline in rates more than offset the increase
in the average balance of savings accounts from $155.9 million in 1999 to $167.1
million in 2000,  resulting in an overall  decrease in interest  expense  during
2000 of $532 thousand.


<PAGE>

     The average balance of N.O.W. and money market accounts increased to $127.3
million for the year ended March 31, 2001, up from $115.0 million in 2000.  This
increase was  primarily the result of the impact of the SFS  Acquisition  during
the year ended  March 31,  2000.  Interest  expense on N.O.W.  and money  market
accounts  increased  from $3.0 million in 2000 to $3.2 million in the year ended
March 31, 2001, as a decrease in average rates paid from 2.58% to 2.49% somewhat
offset the effect of the higher average balances. Rates paid on N.O.W. and money
market accounts declined due to market conditions from 2.85% in 1999 to 2.58% in
2000.  This decline in rates  partially  offset the  increase in higher  average
balances resulting in an increase of interest expense of $206 thousand from 1999
to 2000.

     Interest expense on time deposits increased during the year ended March 31,
2001 to $20.5 million,  compared with $18.0 million in 2000. The average balance
of time deposits increased from $353.7 million for the year ended March 31, 2000
to $379.3  million for the year ended March 31, 2001,  primarily  due to the SFS
Acquisition.  Higher  average  rates paid on time deposits of 5.41% for the year
ended March 31, 2001 up from 5.09% in 2000 along with the higher average balance
in 2001 resulted in the increase in interest  expense on time deposits.  For the
year ended March 31, 2000,  the decline in average rates paid from 5.72% in 1999
to 5.09% in 2000  almost  entirely  offset a $40.5  million  increase in average
balances during 2000.

     Total deposits,  including $62.5 million of  noninterest-bearing  deposits,
were $750.2  million at March 31, 2001, up from $748.6 million ($48.2 million of
noninterest-bearing   deposits)   at   March   31,   2000.   The   increase   in
noninterest-bearing   deposits   reflects  the  Company's   continued  focus  on
commercial  services,  including  commercial  deposits,  and the  opening of our
eighteenth branch in the beginning of June 2000.

Short-term FHLB Advances and Long-term FHLB Borrowings

     The average balance of short-term FHLB advances increased to $146.4 million
for the year ended March 31, 2001,  from $65.5  million in 2000 and $2.9 million
in 1999.  Interest  expense on these  borrowings  increased $5.8 million for the
year ended  March 31,  2001 when  compared  with 2000.  This  increase is almost
entirely attributed to the increase in volume.

     The average  balance of long-term FHLB borrowings was $50.0 million for the
year ended March 31, 2001,  an increase of $31.6  million from the $18.4 million
for the year ended March 31, 2000.  The Company did not have any long-term  FHLB
borrowings  during the year ended March 31, 1999.  Short-term FHLB advances were
$82.0  million at March 31,  2001,  down from $116.5  million at March 31, 2000.
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 $112.9  million at March 31, 2001,  from $30.6 million at March 31,
2000. 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 continued growth in loans, and management's  continued monitoring of
the Company's  interest rate risk profile.  The interest  rates on the long-term
FHLB borrowings are fixed with maturities  ranging from one-to-ten  years,  with
call options ranging from one-to-five years.

Net Interest Income

     Net interest income for the year ended March 31, 2001 was $50.7 million, up
from $45.9 million in 2000 and $37.5 million in 1999.  These  increases were the
result of  increases  in average  earning  assets in each year,  higher rates on
earning  assets  during 2001,  and lower rates paid on average  interest-bearing
liabilities  in 2000.  The impact of these  factors was offset in part by higher
rates paid on  average  interest-bearing  liabilities  during  2001,  and higher
balances of average  interest-bearing  liabilities  in each year. As a result of
these volume and rate  fluctuations,  the Company's net interest  margin for the
year ended March 31, 2001 was 4.58%, down from 4.83% in 2000 and 4.82% in 1999.


<PAGE>

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 $19.1
million at March 31, 2001, up from $18.7 million at March 31, 2000. The increase
was primarily  attributed to the opening of a branch during the year ended March
31, 2001. Goodwill and other intangibles declined slightly from $11.6 million at
March 31, 2000 to $11.3 million at March 31, 2001. The  amortization of goodwill
and other intangibles during 2001 was offset by the additional goodwill recorded
as a result of the Company's  additional  investment  in Bostwick.  Other assets
were $28.7 million at March 31, 2001, down from $34.7 million at March 31, 2000.
The decrease was primarily associated with the accrual of estimated income taxes
and the tax impact of the mark-to-market  adjustment of the Company's securities
available for sale portfolio.

     Noninterest  sensitive  liabilities  include  noninterest-bearing  deposits
(primarily   checking  accounts)  and  other  liabilities.   Noninterest-bearing
deposits  increased  from $48.2  million at March 31,  2000 to $62.5  million at
March 31, 2001.  This increase is associated  with a new branch  opening in June
2000 and  growth in the  Company's  commercial  accounts,  which  are  generally
noninterest-bearing. Other liabilities decreased from $43.5 million at March 31,
2000 to $31.7  million at March 31,  2001.  The balance in both years is largely
composed  of  amounts  due to  insurance  companies  in April  of each  year for
financed  insurance premium loans. The decrease in 2001 is related to the timing
of  various  payments  to be made and the  lower  levels of  financed  insurance
premium loans at March 31, 2001.

RISK MANAGEMENT

Credit Risk

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

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

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

     Total nonperforming  assets at March 31, 2001 were $9.4 million or 0.77% of
total assets,  compared with $11.9 million or 1.04% at March 31, 2000.  The $2.6
million decrease in total  nonperforming  assets is the result of a $1.7 million
decrease in  nonaccrual  loans and an $865 thousand  decrease in foreclosed  and
repossessed  property.  Nonaccrual  residential  real estate loans declined $1.1
million from March 31, 2000 with commercial real estate decreasing an additional
$1.7 million.  These decreases were partially  offset by a $1.3 million increase
in manufactured housing nonaccrual loans.

     The $865 thousand decrease in foreclosed and repossessed  property was made
up of a $564  thousand  reduction  of  repossessed  manufactured  homes with the
remainder made up of reductions in foreclosed commercial properties and slightly
higher foreclosed residential properties.


<PAGE>

Nonperforming Assets

<TABLE>
<CAPTION>
(In thousands)               March 31,         2001       2000       1999       1998       1997
===============================================================================================
<S>                                         <C>        <C>        <C>        <C>        <C>
Nonaccruing loans
Residential real estate                     $ 2,050    $ 3,199    $ 2,253    $ 4,512    $ 4,553
Commercial real estate                          849      2,536      2,669      5,253      3,239
Commercial loans                                 --        137         --         --      2,318
Manufactured housing                          3,169      1,911      2,315      3,060      2,260
Financed insurance premiums                   2,439      2,453      2,549      2,768      2,867
Consumer                                         81         57        158        114         45
-----------------------------------------------------------------------------------------------
Total nonaccruing loans                       8,588     10,293      9,944     15,707     15,282
-----------------------------------------------------------------------------------------------

Loans past due 90 days or more
   and still accruing interest                   --         --         --         16      4,711
-----------------------------------------------------------------------------------------------
Total nonperforming loans                   $ 8,588    $10,293    $ 9,944    $15,723    $19,993
===============================================================================================

Foreclosed and repossessed property
Residential real estate                     $   161    $    85    $   258    $   145    $    48
Commercial real estate                           --        377        474        299      2,860
Repossessed property                            615      1,179      1,776      1,088        539
-----------------------------------------------------------------------------------------------
Total foreclosed and repossessed property   $   776    $ 1,641    $ 2,508    $ 1,532    $ 3,447
===============================================================================================
Total nonperforming assets                  $ 9,364    $11,934    $12,452    $17,255    $23,440
===============================================================================================
Allowance for loan losses                   $22,325    $19,608    $14,296    $ 8,227    $ 5,872
===============================================================================================

Allowance to nonperforming loans             259.96%    190.50%    143.77%     52.32%     29.37%
Nonperforming assets to total assets           0.77       1.04       1.41       2.57       3.60
Nonperforming loans to total loans             0.97       1.25       1.72       3.10       4.06
===============================================================================================
</TABLE>


Allowance and Provision for Loan Losses
---------------------------------------

     The allowance for loan losses at March 31, 2001 was $22.3 million,  up from
$19.6 million at March 31, 2000. The allowance as a percentage of  nonperforming
loans  increased  from 190.5% at March 31, 2000 to 260.0% at March 31, 2001. 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,  2001 were $2.4  million,  up from $1.9  million  in 2000.  The
increase in net  charge-offs  in 2001 is primarily  the result of an increase in
commercial real estate  charge-offs of $629 thousand.  Gross charge-offs of $3.5
million for 2001 were up from $2.5 million for the year ended March 31, 2000.

     As a result of  management's  analysis of the risk  characteristics  of the
loan  portfolio,  as well as the trends and  levels of  nonperforming  and other
delinquent  loans,  a provision for loan losses of $5.1 million was recorded for
the year ended March 31, 2001.  The $5.1 million  provision is down $1.1 million
from the $6.2 million provision  recorded in 2000. The provision as a percentage
of average loans  declined from 0.89% in 2000 to 0.60% in 2001.  This decline is
primarily a result of the decline in nonperforming loans during 2001 as compared
to  2000  and  1999,  offset  somewhat  by the  growth  in the  loan  portfolio,
particularly commercial loans, as well as the increase in charge-offs.

     The Company  continues to maintain certain  portfolios of loans with higher
credit risk, such as manufactured  housing loans,  commercial loans and financed
insurance  premium loans. Net  charge-offs,  risk elements of the Company's loan
portfolio,  economic  conditions in the Company's market area and  nonperforming
loan balances are the primary  factors which are considered in  determining  the
levels of the Company's provision for loan losses.




<PAGE>


Loan Loss Experience

<TABLE>
<CAPTION>
(In thousands)         Years Ended March 31,       2001           2000          1999          1998          1997
================================================================================================================
<S>                                            <C>           <C>           <C>           <C>           <C>
Loans at end of year                           $ 881,412     $ 823,855     $ 578,099     $ 506,978     $ 493,019
================================================================================================================
Average loans during year                      $ 849,283     $ 698,403     $ 522,974     $ 507,293     $ 471,295
================================================================================================================

Allowance for loan loss at beginning of year   $  19,608     $  14,296     $   8,227     $   5,872     $   3,546
Loan charge-offs:
      Residential real estate                       (312)         (282)         (251)         (440)         (162)
      Commercial real estate                        (643)          (14)          (95)       (1,298)         (454)
      Commercial loans                                --          (150)         (136)       (2,309)         (127)
      Manufactured housing                        (1,494)       (1,283)       (1,331)         (480)         (216)
      Consumer                                      (166)         (228)         (139)         (112)          (41)
      Financed insurance premiums                   (865)         (586)       (1,239)       (2,091)       (1,070)
----------------------------------------------------------------------------------------------------------------
Total charge-offs                                 (3,480)       (2,543)       (3,191)       (6,730)       (2,070)
----------------------------------------------------------------------------------------------------------------

Loan recoveries:
      Residential real estate                        188            54           341             8             3
      Commercial real estate                         187           184           777            17            11
      Commercial loans                                10             4            17            10            74
      Manufactured housing                           125            86            73           105            45
      Consumer                                        59            38            25            38            51
      Financed insurance premiums                    528           281           686           416           386
----------------------------------------------------------------------------------------------------------------
Total recoveries                                   1,097           647         1,919           594           570
----------------------------------------------------------------------------------------------------------------
Loan charge-offs, net of recoveries               (2,383)       (1,896)       (1,272)       (6,136)       (1,500)
Provision charged to operations                    5,100         6,200         7,341         8,491         3,826
Allowance acquired                                    --         1,008            --            --            --
----------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of year       $  22,325     $  19,608     $  14,296     $   8,227     $   5,872
================================================================================================================
Ratio of net charge-offs to
      average loans during year                     0.28%         0.27%         0.24%         1.21%         0.32%
================================================================================================================
Provision to average loans during year              0.60%         0.89%         1.40%         1.67%         0.81%
================================================================================================================
Allowance to loans at end of year                   2.53%         2.38%         2.47%         1.62%         1.19%
================================================================================================================
</TABLE>


Market Risk

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

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

     In an  attempt  to manage  its  exposure  to  changes  in  interest  rates,
management   monitors   the   Company's   interest   rate   risk.   Management's
asset/liability  committee  meets monthly to review the Company's  interest rate
risk position and profitability,  and to recommend  strategies for consideration
by the Board of Directors. Management also reviews loan and deposit pricing, 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 margin.  The Company's  results of operations and net portfolio
values remain vulnerable to changes in interest rates and to fluctuations in the
difference between long- and short-term interest rates.


<PAGE>

     Interest  rate risk  analyses  performed by the Company  indicate  that the
Company is asset  sensitive as of March 31, 2001. 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 would 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,   and   emphasis  on  lower   cost,   more  stable
non-certificate  deposit accounts are methods the Company has utilized to manage
its interest rate risk. Management  continuously  evaluates various alternatives
to address  interest  rate risk  including,  but not limited to, the purchase of
interest rate swaps,  caps,  and floors,  leveraging  scenarios,  and changes in
asset or funding mix.

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

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

     The following table summarizes the percentage change in interest income and
interest  expense  by  major  earning  asset  and   interest-bearing   liability
categories as of March 31, 2001 in the rising and declining  rate scenarios from
the  forecasted  interest  income and  interest  expense  amounts in a flat rate
scenario. Under the declining rate scenario, net interest income is projected to
fall  slightly from the flat rate  scenario,  declining by 1.48% over a 12 month
period.  Under the rising rate  scenario,  net  interest  income is projected to
increase by 2.04% from the flat rate scenario over a 12 month period. This level
of  variability  places the  Company's  interest  rate risk  profile well within
acceptable Company guidelines.

<TABLE>
<CAPTION>
                                                               Percentage Change in Net Interest Income
                                                                       From Flat Rate Scenario
                                                               -----------------------------------------
                                                                Declining Rate            Rising Rate
                                                                   Scenario                Scenario
                                                               -----------------        ----------------
<S>                                                                <C>                        <C>
Investment securities (includes all held to maturity,
    available for sale and money market investments)               (4.61)%                    3.61%
Total loans                                                        (1.98)                     2.55
-----------------------------------------------------------------------------------------------------
Total interest income                                              (2.45)                     2.74
-----------------------------------------------------------------------------------------------------
Core deposits                                                     (10.07)                    10.07
Time deposits                                                      (2.26)                     2.08
-----------------------------------------------------------------------------------------------------
Total deposits                                                     (4.64)                     4.51
Borrowings                                                         (1.79)                     1.79
-----------------------------------------------------------------------------------------------------
Total interest expense                                             (3.85)                     3.76
-----------------------------------------------------------------------------------------------------
Net interest income                                                (1.48)%                    2.04%
-----------------------------------------------------------------------------------------------------
</TABLE>

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.


<PAGE>

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

CAPITAL RESOURCES

     Consistent  with its  goal to  operate  a sound  and  profitable  financial
organization,  the  Company  actively  seeks to  maintain  a  "well-capitalized"
institution in accordance  with  regulatory  standards.  Total equity was $216.1
million at March 31, 2001,  or 17.88% of total assets on that date.  As of March
31, 2000, total equity was $200.7 million, or 17.46% of total assets.  Ratios of
tangible  equity to tangible  assets were 17.10% and 16.62% as of March 31, 2001
and 2000, respectively.  Management continues to attempt to leverage its capital
through asset  growth,  mergers and  acquisitions,  and share  repurchases.  The
acquisition  of  Cohoes,  which  was  completed  in  April  2001,  will  have  a
significant  impact on the Company's  tangible  equity to tangible  asset ratio,
although  the Company and the Bank will  continue to be  well-capitalized  under
regulatory standards.  The Company is currently executing a 10% share repurchase
program as market conditions  warrant.  As of March 31, 2001, the Company had an
additional 85 thousand shares to acquire under its current  repurchase  program.
As of March 31, 2001, the Company and the Bank exceeded all of their  regulatory
capital requirements.

OTHER OPERATING INCOME AND EXPENSES

     Total other operating  income was $4.8 million for the year ended March 31,
2001,  up from the $2.6  million  earned  in 2000.  Other  operating  income  is
composed  primarily  of  service  charges on deposit  accounts,  net  securities
transactions  and other income.  Income from service charges on deposit accounts
increased  from $1.5  million in 2000 to $2.0  million in 2001,  primarily  as a
result of the growth in transaction accounts from the SFS Acquisition and branch
openings.  Net securities  transactions  resulted in a gain of $771 thousand for
the year ended March 31, 2001, up from $83 thousand for the year ended March 31,
2000. This gain was primarily a result of the Company's  equity  investment in a
financial  institution  that was acquired for cash during the year. Other income
increased  $1.1 million to $2.0 million for the year ended March 31, 2001,  from
$844 thousand in 2000. These increases are primarily the result of earnings from
the Company's  investment made during December 1999 in bank-owned life insurance
and the recognition of commissions and other income from a new insurance  agency
subsidiary  of the  Company.  Total  other  operating  income  in 2000  was $170
thousand more than the $2.4 million in 1999.

     Total other operating  expenses were $31.7 million for the year ended March
31, 2001, up $3.9 million from 2000. This increase was due to higher expenses in
compensation and benefits, occupancy,  equipment,  advertising,  legal and other
professional  fees, postage and item  transportation,  directors'  expense,  and
other expenses, partially offset by a reduction in expenses on other real estate
owned and repossessed  property.  Total other operating  expenses increased $1.2
million in 2000 from 1999.  Total other  operating  expenses in 1999  included a
$5.2 million nonrecurring expense associated with a contribution of stock to the
Hudson  River  Bank  &  Trust  Company  Foundation.  After  adjusting  for  this
nonrecurring  expense,  other operating  expenses in 2000 increased $6.4 million
from 1999.  This  increase was due to increases in  compensation  and  benefits,
occupancy, equipment,  advertising, goodwill and other intangibles amortization,
and other expenses.

     Compensation and benefits  increased $500 thousand to $14.3 million for the
year  ended  March 31,  2001 from  $13.8  million  in 2000.  The  opening of the
Company's  eighteenth branch just after the beginning of the current fiscal year
as well  as a full  year's  impact  of the SFS  Acquisition  contributed  to the
increase in compensation and benefits during 2001.  Larger expenses in 2001 were
also related to the Company's  insurance  agency  subsidiary  and Employee Stock
Ownership Plan  ("ESOP").  Compensation  and benefits  increased $2.8 million in
2000 from  1999,  primarily  as a result of the cost  associated  with the ESOP,
stock awarded under the Company's Recognition and Retention Plan ("RRP") and the
SFS Acquisition.


<PAGE>

     Occupancy  expenses were $2.1 million for the year ended March 31, 2001, up
$327  thousand from 2000.  Equipment  expenses for the year ended March 31, 2001
were $3.0 million, up from $2.5 million in 2000. Postage and item transportation
expenses  increased  from $709 thousand in 2000 to $953 thousand in 2001.  These
increases are attributed to the growth in the Company's branch network resulting
from the SFS Acquisition and a branch opening as noted above.

     Expenses  on other real estate  owned and  repossessed  property  were $723
thousand in 2001, $1.2 million in 2000, and $1.0 million in 1999. These expenses
are the result of management's  continued efforts to reduce the level of problem
assets.  The decrease  during the year 2001 was a result of gains  recognized by
the Company relating to several properties that were sold during the year. Lower
levels of other real estate owned and  repossessed  property  during this period
also resulted in decreased  maintenance  expenses  associated  with these assets
during 2001 as compared with 2000 and 1999.

     Advertising  during the year ended March 31, 2001 amounted to $1.2 million,
up from $922  thousand in 2000.  This  increase is primarily  related to product
promotions,  the Bank's  150th  Anniversary  celebrated  in October 2000 and the
opening of the Company's eighteenth branch.

     Legal and other  professional  fees  increased to $2.0 million for the year
ended  March 31,  2001,  up from $791  thousand  in 2000.  These  increases  are
attributed to expenses  associated with Company's  defense of a hostile takeover
attempt discussed previously and the Company's terminated merger with Cohoes.

     Goodwill and other  intangibles  amortization  was $1.1 million in 2001 and
2000, and $252 thousand in 1999. The increase from 1999 to 2000 is attributed to
the SFS  Acquisition  and other equity  investments  made by the Company  during
1999.

     Directors'  expense for the year ended March 31, 2001 was $1.1 million,  up
$344 thousand from 2000. This increase is attributed to expenses associated with
incentives offered to Directors who will retire during fiscal 2002.

     Other  expenses were $5.3 million for the year ended March 31, 2001 up from
$4.3  million  during  2000.  The  increase  is the result of general  increases
associated  with the continued  growth of the Company  through branch  openings,
acquisitions  and loan growth.  The Company also  recorded a $396  thousand loss
during 2001 related to the disposition of equipment as a result of an upgrade of
its teller software.

TAX EXPENSE

     Tax expense  increased  from $5.0 million for the year ended March 31, 2000
to $7.0 million for 2001.  The increase is primarily the result of higher income
before tax expense. The Company's effective tax rate has increased in the period
ended March 31,  2001 as  compared to prior year as a result of the  increase in
nondeductible  goodwill amortization from the SFS Acquisition,  partially offset
by the impact of the  Company's  investment in bank-owned  life  insurance.  The
Company's  effective tax rate is expected to increase in 2002 as a result of the
Cohoes  Acquisition,  which will  result in  additional  nondeductible  goodwill
amortization.

Quarterly Financial Results

<TABLE>
<CAPTION>
                                                         June 30,    September 30,     December 31,        March 31,
(In thousands, except per share data) Three Months Ended    2000             2000             2000             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>

<PAGE>

<TABLE>
<CAPTION>
                                                         June 30,    September 30,     December 31,        March 31,
(In thousands, except per share data) Three Months Ended    1999             1999             1999             2000         YTD 2000
====================================================================================================================================
<S>                                                      <C>              <C>              <C>              <C>              <C>
Interest income                                          $16,824          $18,122          $20,468          $21,009          $76,423
Interest expense                                           6,239            6,780            8,521            8,969           30,509
------------------------------------------------------------------------------------------------------------------------------------
Net interest income                                       10,585           11,342           11,947           12,040           45,914
------------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses                                  1,700            1,500            1,500            1,500            6,200
Other operating income                                       592              653              614              729            2,588
Other operating expenses                                   6,301            6,876            7,158            7,453           27,788
------------------------------------------------------------------------------------------------------------------------------------
Income before tax expense                                  3,176            3,619            3,903            3,816           14,514
Tax expense                                                1,115            1,240            1,335            1,298            4,988
------------------------------------------------------------------------------------------------------------------------------------
Net income                                               $ 2,061          $ 2,379          $ 2,568          $ 2,518          $ 9,526
====================================================================================================================================
Basic earnings per share                                 $  0.13          $  0.16          $  0.18          $  0.18          $  0.65
Diluted earnings per share                                  0.13             0.16             0.18             0.18             0.65
Cash dividends per share                                    0.03             0.03             0.03             0.03             0.12
====================================================================================================================================
</TABLE>

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.



<PAGE>


IMPACT OF NEW ACCOUNTING STANDARDS

     In June 1998, the Financial  Accounting Standards Board 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.  As  amended,  this  Statement  is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
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  currently  does not have any  derivative
instruments, and has not identified any derivative instruments embedded in other
contracts.

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

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

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

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


<PAGE>

                           Hudson River Bancorp, Inc.
                    Management's Statement of Responsibility

The management of Hudson River Bancorp, Inc. is responsible for the preparation,
content and integrity of the consolidated  financial statements included in this
annual report. The consolidated financial statements and related notes have been
prepared in conformity  with  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, 2001 and 2000, 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, 2001.  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, 2001 and 2000, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended March 31, 2001, in conformity with accounting  principles generally
accepted in the United States of America.

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

KPMG LLP

Albany, New York
May 4, 2001


<PAGE>

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
(In thousands, except share and per share data)   March 31,            2001            2000
----------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>
Assets
Cash and due from banks                                             $    23,938    $    16,612
Federal funds sold                                                       14,700             --
----------------------------------------------------------------------------------------------
Cash and cash equivalents                                                38,638         16,612
----------------------------------------------------------------------------------------------

Loans held for sale                                                      15,108             --
Securities available for sale, at fair value                            213,886        236,980
Securities held to maturity (fair value of $3,659 and $11,065)            3,602         11,144
Federal Home Loan Bank of New York (FHLB) stock, at cost                 12,070          7,425

Loans                                                                   881,412        823,855
Allowance for loan losses                                               (22,325)       (19,608)
----------------------------------------------------------------------------------------------
Net loans                                                               859,087        804,247
----------------------------------------------------------------------------------------------
Accrued interest receivable                                               6,614          6,470
Premises and equipment, net                                              19,125         18,719
Other real estate owned (OREO) and repossessed property                     776          1,641
Goodwill and other intangibles, net                                      11,346         11,618
Other assets                                                             28,721         34,691
----------------------------------------------------------------------------------------------
Total assets                                                        $ 1,208,973    $ 1,149,547
==============================================================================================

Liabilities and Shareholders' Equity
Liabilities:

     Deposits                                                       $   750,152    $   748,563

     Securities sold under agreements to repurchase                      10,201          4,214
     Short-term FHLB advances                                            82,000        116,450
----------------------------------------------------------------------------------------------
     Total short-term borrowings                                         92,201        120,664
----------------------------------------------------------------------------------------------

     Long-term FHLB borrowings                                          112,900         30,600
     Mortgagors' escrow deposits                                          5,889          5,500
     Other liabilities                                                   31,698         43,497
----------------------------------------------------------------------------------------------
Total liabilities                                                       992,840        948,824
----------------------------------------------------------------------------------------------

Shareholders' Equity:
     Preferred stock, $.01 par value, Authorized 5,000,000 shares            --             --
     Common stock, $.01 par value, Authorized 40,000,000 shares;
         Issued 17,853,750 shares                                           179            179
     Additional paid-in capital                                         174,732        174,733
     Unallocated common stock held by ESOP                              (14,037)       (15,583)
     Unvested restricted stock awards                                    (5,447)        (6,289)
     Treasury stock, at cost (2,575,545 and 2,235,190 shares)           (27,591)       (24,248)
     Retained earnings, substantially restricted                         88,112         79,555
     Accumulated other comprehensive income (loss)                          185         (7,624)
----------------------------------------------------------------------------------------------
Total shareholders' equity                                              216,133        200,723
----------------------------------------------------------------------------------------------

Total liabilities and shareholders' equity                          $ 1,208,973    $ 1,149,547
==============================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>

                         Consolidated Income Statements

<TABLE>
<CAPTION>
(In thousands, except per share data) Years Ended March 31,        2001               2000                1999
-----------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                  <C>                <C>
Interest income
Loans, including fees                                            $ 73,930             $59,660            $47,503
Securities available for sale                                      15,802              15,432              9,997
Securities held to maturity                                           380                 982              3,095
Federal funds sold                                                      7                  12              1,054
Loans held for sale                                                   648                  --                 --
Securities purchased under agreements to resell                        --                  --              1,662
Federal Home Loan Bank of New York stock                              732                 337                215
-----------------------------------------------------------------------------------------------------------------
Total interest income                                              91,499              76,423             63,526
-----------------------------------------------------------------------------------------------------------------
Interest expense
Deposits                                                           28,246              25,613             25,844
Securities sold under agreements to repurchase                        206                  84                  3
Short-term FHLB advances                                            9,470               3,700                153
Long-term FHLB borrowings                                           2,920               1,112                 --
-----------------------------------------------------------------------------------------------------------------
Total interest expense                                             40,842              30,509             26,000
-----------------------------------------------------------------------------------------------------------------
Net interest income                                                50,657              45,914             37,526
Provision for loan losses                                           5,100               6,200              7,341
-----------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses                45,557              39,714             30,185
-----------------------------------------------------------------------------------------------------------------

Other operating income
Service charges on deposit accounts                                 1,987               1,519              1,274
Loan servicing income                                                 123                 142                199
Net securities transactions                                           771                  83                 36
Net (loss) gain on sales of loans held for sale                       (84)                 --                 65
Other income                                                        1,993                 844                844
-----------------------------------------------------------------------------------------------------------------
Total other operating income                                        4,790               2,588              2,418
-----------------------------------------------------------------------------------------------------------------

Other operating expenses
Compensation and benefits                                          14,263              13,763             10,982
Occupancy                                                           2,132               1,805              1,498
Equipment                                                           2,951               2,453              1,647
OREO and repossessed property                                         723               1,228              1,013
Advertising                                                         1,196                 922                529
Legal and other professional fees                                   2,031                 791                600
Postage and item transportation                                       953                 709                718
Charitable foundation contribution                                     --                  --              5,200
Goodwill and other intangibles amortization                         1,137               1,087                252
Directors' expense                                                  1,072                 728                418
Other expenses                                                      5,251               4,302              3,755
-----------------------------------------------------------------------------------------------------------------
Total other operating expenses                                     31,709              27,788             26,612
-----------------------------------------------------------------------------------------------------------------

Income before tax expense                                          18,638              14,514              5,991
Tax expense                                                         6,970               4,988              2,184
-----------------------------------------------------------------------------------------------------------------
Net income                                                       $ 11,668             $ 9,526            $ 3,807
=================================================================================================================

Basic earnings per share                                         $   0.86             $  0.65            $  0.17
=================================================================================================================
Diluted earnings per share                                       $   0.85             $  0.65            $  0.17
=================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>

           Consolidated Statements of Changes in Shareholders' Equity

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share and per share data)                              2001               2000                1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                 <C>                 <C>
Common stock
Balance at beginning of year                                              $     179           $     179           $      --
Issuance of 17,333,738 shares of $.01 par value common
  stock in initial public offering                                               --                  --                 174
Issuance of 520,012 shares of $.01 par value common stock to
  the Hudson River Bank & Trust Company Foundation                               --                  --                   5
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                    $     179           $     179           $     179
-----------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital
Balance at beginning of year                                              $ 174,733           $ 174,894           $      --
Issuance of 17,333,738 shares of common stock in initial
  public offering, net of offering costs of $3,370                               --                  --             169,793
Issuance of 520,012 shares of common stock to the Hudson
  River Bank & Trust Company Foundation                                          --                  --               5,195
Tax effect of restricted stock award vesting                                     41                  --                  --
Adjustment for ESOP shares released for allocation                              (42)               (161)                (94)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                    $ 174,732           $ 174,733           $ 174,894
-----------------------------------------------------------------------------------------------------------------------------------
Unallocated common stock held by ESOP
Balance at beginning of year                                              $ (15,583)          $ (17,200)          $      --
Acquisition of 1,428,300 shares of common stock by ESOP                          --                  --             (18,428)
Shares of ESOP stock released for allocation (119,808,
  124,718 and 95,843 shares)                                                  1,546               1,617               1,228
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                    $ (14,037)          $ (15,583)          $ (17,200)
-----------------------------------------------------------------------------------------------------------------------------------
Unvested restricted stock awards
Balance at beginning of year                                              $  (6,289)          $  (7,996)          $      --
Grant of restricted stock awards (0, 19,071 and 714,150 shares)                  --                (188)             (8,213)
Amortization of restricted stock awards                                         757                 943                 217
Forfeiture of restricted stock awards (7,855 and 82,765 shares)                  85                 952                  --
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                    $  (5,447)          $  (6,289)          $  (7,996)
-----------------------------------------------------------------------------------------------------------------------------------
Treasury stock
Balance at beginning of year                                              $ (24,248)          $  (1,663)          $      --
Purchase of common stock (332,500, 2,013,996 and 871,650 shares)             (3,258)            (21,841)            (10,098)
Grant of restricted stock awards                                                 --                 208               8,435
Forfeiture of restricted stock awards                                           (85)               (952)                 --
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                    $ (27,591)          $ (24,248)          $  (1,663)
-----------------------------------------------------------------------------------------------------------------------------------
Retained earnings
Balance at beginning of year                                              $  79,555           $  71,893           $  68,308
Net income                                                                   11,668  $11,668      9,526   $9,526      3,807  $3,807
Cash dividends declared ($0.22 and $0.12 per share)                          (3,111)             (1,844)                 --
Adjustment for grant of restricted stock awards                                  --                 (20)               (222)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                    $  88,112           $  79,555           $  71,893
-----------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income (loss)
Balance at beginning of year                                              $  (7,624)          $    (766)          $      (4)
  Unrealized net holding gains (losses) on securities
    available for sale arising during the year (pre-tax
    $13,787, ($11,432), and ($1,153))                                                  8,272              (6,811)              (739)
  Reclassification adjustment for net gains on securities
    available for sale realized in net income (pre-tax
    ($771), ($79) and ($36))                                                            (463)                (47)               (23)
                                                                                     -------             -------             ------
Other comprehensive income (loss)                                             7,809    7,809     (6,858)  (6,858)      (762)   (762)
-----------------------------------------------------------------------------------------------------------------------------------
  Comprehensive income                                                               $19,477             $ 2,668             $3,045
                                                                                     =======             =======             ======
Balance at end of year                                                    $     185           $  (7,624)          $    (766)
-----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity at March 31                                    $ 216,133           $ 200,723           $ 219,341
===================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
(In thousands)                Years Ended March 31,                                 2001         2000           1999
--------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>          <C>          <C>
Cash flows from operating activities
Net income                                                                      $  11,668    $   9,526    $   3,807
Adjustments to reconcile net income to net cash provided by operating
  activities:
     Depreciation and amortization                                                  2,213        2,002        1,519
     Goodwill and other intangibles amortization                                    1,137        1,087          252
     Provision for loan losses                                                      5,100        6,200        7,341
     Deferred tax benefit                                                            (727)      (1,844)      (3,358)
     Charitable foundation contribution                                                --           --        5,200
     Amortization of restricted stock awards                                          757          943          217
     ESOP stock released for allocation                                             1,504        1,456        1,134
     Net securities transactions                                                     (771)         (83)         (36)
     Net loss (gain) on sales of loans held for sale                                   84           --          (65)
     Net loans originated for sale                                                     --           --       (7,730)
     Proceeds from sales of loans held for sale                                    25,226           --        9,081
     Net loss (gain) on disposal of premises and equipment                            573          262          (71)
     Adjustments of OREO and repossessed property to fair value                       797        1,057          213
     Net gain on sales of OREO and repossessed property                            (1,511)        (986)        (522)
     Net (increase) decrease in accrued interest receivable                          (144)         315       (1,299)
     Net decrease (increase) in other assets                                          665       (3,336)      (2,173)
     Net (decrease) increase in other liabilities                                 (11,799)       2,439       28,797
--------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                          34,772       19,038       42,307
--------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities
Net cash used in acquisition activity                                                  --      (27,975)          --
Proceeds from sales of securities available for sale                                5,356        3,009           --
Proceeds from maturities, calls and paydowns of securities available for sale      35,150       35,176       39,867
Purchases of securities available for sale                                         (3,624)     (16,708)    (241,162)
Proceeds from maturities, calls and paydowns of securities held to maturity         7,542       11,901       42,153
Purchase of FHLB stock                                                             (4,645)      (2,660)        (264)
Net loans made to customers                                                      (103,502)    (108,404)     (78,694)
Proceeds from sales of and payments received on OREO and repossessed property       4,723        3,979        5,634
Proceeds from sale of premises and equipment                                           --           --          471
Purchase of bank-owned life insurance                                                  --      (15,000)          --
Purchases of premises and equipment                                                (3,192)      (2,320)      (3,395)
--------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                             (62,192)    (119,002)    (235,390)
--------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities
Net increase in deposits                                                            1,589        6,126        3,500
Net (decrease) increase in short-term borrowings                                  (28,463)      92,119       26,445
Issuance of long-term FHLB borrowings                                              92,500       30,000           --
Repayments of long-term FHLB borrowings                                           (10,200)          --           --
Net increase (decrease) in mortgagors' escrow deposits                                389         (706)         146
Net proceeds from stock offering                                                       --           --      169,967
Purchases of treasury stock                                                        (3,258)     (21,841)     (10,098)
Dividends paid                                                                     (3,111)      (1,844)          --
Acquisition of common stock by ESOP                                                    --           --      (18,428)
--------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                          49,446      103,854      171,532
--------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                               22,026        3,890      (21,551)
Cash and cash equivalents at beginning of year                                     16,612       12,722       34,273
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                        $  38,638    $  16,612    $  12,722
====================================================================================================================

Supplemental cash flow information
  Interest paid                                                                 $  39,714    $  29,973    $  25,998
  Taxes paid                                                                    $   6,512    $   8,188    $   3,563
===================================================================================================================

Supplemental disclosures of noncash investing and financing
  activities
    Loans transferred to OREO and repossessed property                          $   3,144    $   3,085    $   6,301
    Adjustment of securities available for sale to fair value, net of tax       $   7,809    $  (6,858)   $    (762)
    Loans transferred to loans held for sale                                    $  40,418    $      --    $      --
    Acquisition activity:
        Fair value of noncash assets acquired                                   $      --    $ 175,959    $      --
        Fair value of liabilities assumed                                       $      --    $ 157,048    $      --
===================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.



<PAGE>


                           HUDSON RIVER BANCORP, INC.

                   Notes to Consolidated Financial Statements

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

     The  accounting  and  reporting  policies  of Hudson  River  Bancorp,  Inc.
     ("Parent  Company")  and its  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 and other
     financial  services to corporate,  individual and  institutional  customers
     through its branch offices and subsidiary companies.  The Parent Company is
     regulated by the Office of Thrift Supervision as a unitary savings and loan
     ("thrift")  holding  company.  The Bank is regulated by the Federal Deposit
     Insurance Corporation ("FDIC") and the New York State Banking Department.

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

     Basis of Presentation
     ---------------------

     The consolidated  financial statements include the accounts of Hudson River
     Bancorp, Inc. and its 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
     require  management  to make  estimates  and  assumptions  relating  to the
     reporting of assets and liabilities and the disclosure of contingent assets
     and liabilities as of the date of the financial statements and the reported
     amounts of revenue and expenses during the reporting period. Actual results
     could differ from those estimates.

     Cash and Cash Equivalents
     -------------------------

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

     Securities Financing Arrangements
     ---------------------------------

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


<PAGE>

     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, 2001 and 2000, 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.

     Net 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  and/or  interest  payments,  or a judgment by  management  that,
     although payments of principal and/or interest are current,  such action is
     prudent.  Loans are generally  placed on nonaccrual  status when  principal
     and/or interest payments are contractually past due 90 days or more. When a
     loan is placed on nonaccrual  status,  all interest  previously accrued but
     not collected is reversed  against current year interest  income.  Interest
     income on nonaccrual loans is recognized only when received,  if considered
     appropriate by management.  Loans are removed from  nonaccrual  status when
     they become current as to principal and interest or when, in the opinion of
     management,  the loans are expected to be fully collectible as to principal
     and interest.

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

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

     Allowance for Loan Losses
     -------------------------

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


<PAGE>

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

     Loans Held for Sale
     -------------------

     Loans are classified as held for investment  purposes or held for sale when
     the Company  enters into interest rate lock  agreements  with the potential
     borrowers.  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.  There were $15.1 million in loans
     classified as held for sale at March 31, 2001 and none at March 31, 2000.

     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 "cost"  (defined  as the fair  value at  initial
     foreclosure or repossession) or the fair value of the asset acquired,  less
     estimated  disposal  costs.  A  loan  is  categorized  as  an  in-substance
     foreclosure  when the  Company  has  taken  possession  of the  collateral,
     regardless of whether formal  foreclosure  proceedings have taken place. At
     the  time  of  foreclosure  or  repossession,  or when  foreclosure  occurs
     in-substance,  the excess,  if any, of the 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.

     Goodwill and Other Intangibles
     ------------------------------

     Goodwill and other intangibles  represent the excess of purchase price over
     the fair value of net assets acquired for transactions  accounted for using
     purchase  accounting.  The  goodwill is amortized  using the  straight-line
     method over the  estimated  period of benefit,  not to exceed twenty 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.

     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.



<PAGE>


     Employee Benefit Costs
     ----------------------

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

     Stock-Based Compensation
     ------------------------

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

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

     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.



<PAGE>


     Comprehensive Income
     --------------------

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

     Segment Reporting
     -----------------

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

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

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

     Subsequent Event (unaudited)

     On April 20, 2001, the Company completed its acquisition of Cohoes Bancorp,
     Inc. ("Cohoes") paying $19.50 in cash for each share of Cohoes common stock
     outstanding.  The total  consideration of approximately  $151.0 million was
     funded  through  the sale of  securities  and loans  held for sale,  and by
     long-term borrowings. Goodwill associated with this transaction is expected
     to approximate $31 million and will be amortized  straight-line over twenty
     years.  Cohoes had total  assets of $684.1  million  and total  deposits of
     $500.2  million  as of April  20,  2001.  Its 20  branches  within  Albany,
     Schenectady, Rensselaer, Greene, Saratoga and Warren counties were added to
     the Bank's branch network.

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

     The amortized cost,  gross unrealized gains and losses and approximate fair
     value of securities at March 31, 2001 and 2000 are as follows:


<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>


<PAGE>

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

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

     During the years ended March 31, 2001, 2000, and 1999, the Company realized
     gross gains of $0, $19 thousand, and $36 thousand, respectively, related to
     calls of securities,  with no gross losses  realized.  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
     and no gross  losses  during  the  years  ended  March  31,  2001 and 2000,
     respectively. No securities were sold during the year ended March 31, 1999.

     Securities   available  for  sale  (exclusive  of  equity  securities)  and
     securities held to maturity by remaining  contractual  maturity as of March
     31,  2001  are  presented  below.  Expected  maturities  will  differ  from
     contractual maturities as a result of prepayments and calls.

<TABLE>
<CAPTION>
                                                      Securities                     Securities
                                                  Available for Sale               Held to Maturity
     -----------------------------------------------------------------------------------------------------
                                                               Approximate                    Approximate
                                              Amortized           Fair        Amortized          Fair
     (In thousands)                            Cost              Value          Cost             Value
     -----------------------------------------------------------------------------------------------------
<S>                                          <C>              <C>            <C>              <C>
     Due in one year or less                 $    5,582       $    5,604     $    1,058       $      1,061
     Due after one through five years            28,728           29,388          1,839              1,873
     Due after five through ten years             7,624            7,717            197                206
     Due after ten years                        171,083          170,449            508                519
     -----------------------------------------------------------------------------------------------------
     Total                                   $  213,017       $  213,158     $    3,602       $      3,659
     =====================================================================================================
</TABLE>

     The carrying  value of securities  pledged as required by law and for other
     purposes  amounted to $57.9 million and $48.7 million at March 31, 2001 and
     2000,  respectively.  Included in these  amounts are $20.4 million and $7.7
     million  at March 31,  2001 and 2000,  respectively,  representing  amounts
     pledged to secure securities sold under agreements to repurchase.

(4)  Net Loans

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


<PAGE>

<TABLE>
<CAPTION>
      (In thousands)                                                                       2001         2000
      ----------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>              <C>
      Loans secured by real estate

      Residential one-to-four family                                                  $    515,584     $ 491,811
      Commercial                                                                           167,344       138,891
      Construction                                                                           9,306         9,144
      ----------------------------------------------------------------------------------------------------------
      Total loans secured by real estate                                                   692,234       639,846
      ----------------------------------------------------------------------------------------------------------

      Other loans

      Manufactured housing                                                                  75,287        81,542
      Commercial                                                                            60,311        37,167
      Financed insurance premiums                                                           38,216        51,796
      Consumer                                                                              17,943        15,536
      ----------------------------------------------------------------------------------------------------------
      Total other loans                                                                    191,757       186,041
      ----------------------------------------------------------------------------------------------------------

      Unearned discount and net deferred loan origination fees and costs                    (2,579)       (2,032)
      ----------------------------------------------------------------------------------------------------------
      Total loans                                                                          881,412       823,855
      Allowance for loan losses                                                            (22,325)      (19,608)
      ----------------------------------------------------------------------------------------------------------
      Net loans                                                                       $    859,087     $ 804,247
      ==========================================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
      (In thousands)                                                               2001         2000          1999
      --------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>            <C>          <C>
      Allowance for loan losses at beginning of year                          $   19,608     $  14,296    $    8,227
      Provision charged to operations                                              5,100         6,200         7,341
      Loans charged-off                                                           (3,480)       (2,543)       (3,191)
      Recoveries on loans charged-off                                              1,097           647         1,919
      Allowance acquired                                                              --         1,008            --
      --------------------------------------------------------------------------------------------------------------
      Allowance for loan losses at end of year                                $   22,325     $  19,608    $   14,296
      ==============================================================================================================
</TABLE>

     Total nonperforming loans at March 31, 2001, 2000 and 1999 consisted solely
     of loans in nonaccrual  status and amounted to $8.6 million,  $10.3 million
     and $9.9 million,  respectively.  At March 31, 2001,  2000 and 1999,  there
     were no troubled  debt  restructurings  or material  commitments  to extend
     further credit to borrowers with nonperforming loans.

     Accumulated  interest on nonaccrual loans, as shown above, of approximately
     $349  thousand,  $517  thousand and $411  thousand,  was not  recognized in
     interest  income  during the years  ended  March 31,  2001,  2000 and 1999,
     respectively.  Approximately $491 thousand, $466 thousand and $572 thousand
     of  interest  on  nonaccrual  loans,  as shown  above,  was  collected  and
     recognized in interest income during the years ended March 31, 2001,  2000,
     and 1999, respectively.

     At March 31,  2001 and 2000,  the  recorded  investment  in loans  that are
     considered to be impaired under SFAS No. 114 totaled $849 thousand and $2.7
     million,  respectively, for which the related allowance for loan losses was
     $198  thousand at March 31, 2001 and $1.1 million at March 31, 2000.  As of
     March 31, 2001 and 2000, 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, 2001,  2000 and 1999 was $1.0  million,  $2.4 million and $3.7 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, 2001, 2000 and 1999.

     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, 2001 and 2000.

<PAGE>

     The Company has an  unconsolidated  equity  investment in Homestead Funding
     Corp., a mortgage-banking  company. The Company has a $20 million warehouse
     line of credit  relationship  with Homestead which was made in the ordinary
     course of business at the Company's normal credit terms, including interest
     rate and  collateralization.  There  was  $8.0  million  and  $4.6  million
     outstanding on this line as of March 31, 2001 and 2000, respectively.

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

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

<TABLE>
<CAPTION>
     (In thousands)                                                                     2001               2000
     ----------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                  <C>
     Buildings and land                                                            $    18,154          $ 16,952
     Furniture and equipment                                                            10,531             9,773
     Leasehold improvements                                                              1,378             1,051
     -----------------------------------------------------------------------------------------------------------
     Total                                                                              30,063            27,776
     Accumulated depreciation and amortization                                         (10,938)           (9,057)
     -----------------------------------------------------------------------------------------------------------
     Premises and equipment, net                                                   $    19,125          $ 18,719
     ===========================================================================================================
</TABLE>

     Depreciation and amortization expense was approximately $2.2 million,  $2.0
     million and $1.5  million,  for the years ended  March 31,  2001,  2000 and
     1999, respectively.

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

     Deposit account balances at March 31 are summarized as follows:

<TABLE>
<CAPTION>
     (In thousands)                                                                     2001              2000
     ---------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                 <C>
     Savings                                                                       $   173,301         $ 180,932
     N.O.W. and money market                                                           132,697           126,429
     Time deposits                                                                     381,635           392,962
     Noninterest-bearing                                                                62,519            48,240
     -----------------------------------------------------------------------------------------------------------
     Total deposits                                                                $   750,152         $ 748,563
     ===========================================================================================================
</TABLE>

     The  aggregate  amount of time  deposit  accounts  with a  balance  of $100
     thousand or greater was $55.1  million and $49.1  million at March 31, 2001
     and 2000, respectively.

     The approximate amounts of contractual maturities of time deposits at March
     31, 2001 are as follows:

                    (In thousands)
                    --------------------------------------------------------
                    Years ending March 31,
                      2002                                        $  262,476
                      2003                                            97,255
                      2004                                            10,295
                      2005                                             7,843
                      2006                                             2,215
                      Thereafter                                       1,551
                    --------------------------------------------------------
                      Total time deposits                         $  381,635
                    ========================================================


<PAGE>


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

     SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

     The Company  enters into  repurchase  agreements  with  certain  commercial
     banking clients.  The agreements to repurchase  assets  correspond with the
     sale of the  Company's  securities,  which are  treated as  financings  for
     financial  statement   purposes.   The  securities  subject  to  repurchase
     agreements are segregated from the portfolio of securities  maintained by a
     third  party until  maturity  of the  agreements.  At March 31,  2001,  the
     balance of securities sold under agreements to repurchase was $10.2 million
     with a  weighted-average  rate of 3.50%.  At March 31, 2000, the balance of
     securities  sold under  agreements  to  repurchase  was $4.2 million with a
     weighted-average rate of 5.15%. The balance as of both dates was due within
     30 days.

     SHORT-TERM FHLB ADVANCES

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

         (In thousands)               As of March 31,      2001        2000
         --------------------------------------------------------------------

         Amount outstanding:
         Line of credit advances                      $       --    $  79,450
         Short-term advances                              82,000       37,000
         --------------------------------------------------------------------
         Total short-term FHLB advances               $   82,000     $116,450
         ====================================================================

         Weighted-average interest rate                     5.47%        6.28%


<TABLE>
<CAPTION>
         For the year ended March 31,                       2001           2000        1999
         -----------------------------------------------------------------------------------
<S>                                                   <C>             <C>         <C>
         Highest amount at month-end                  $  171,600      $ 119,589   $  28,445
         Average amount outstanding                      146,391         65,542       2,916
         Weighted-average interest rate                     6.47%          5.65%       5.25%
</TABLE>

     The maturities of line of credit  advances do not exceed thirty days. As of
     March 31,  2001,  the  maturities  of the  short-term  advances  range from
     one-to-twelve  months.  Short-term FHLB advances are collateralized by FHLB
     stock and a blanket lien on residential real estate mortgages.

     LONG-TERM FHLB BORROWINGS

     Scheduled  repayments of long-term FHLB borrowings as of March 31, 2001 are
     as follows:

                                                                     Weighted-
         (In thousands)                                  Amount    Average Rate
         ----------------------------------------------------------------------
         Maturing in year ending March 31,
                  2002                                 $  10,300           5.41%
                  2003                                    10,000           6.09
                  2004                                       100           5.16
                  2005                                    10,000           6.16
                  2006                                    45,000           5.11
                  2007 and years after                    37,500           4.87
         ----------------------------------------------------------------------
         Total long-term FHLB borrowings              $  112,900           5.24%
         ======================================================================

     Of the total long-term FHLB  borrowings,  $10.0 million is callable in each
     of August 2001 and 2002,  $20.0 million is callable in October 2001,  $25.0
     million is  callable  in each of March  2002 and  January  2003,  and $12.5
     million  is  callable  in  January  2004.  Long-term  FHLB  borrowings  are
     collateralized  by  securities  available  for  sale or a  blanket  lien on
     residential real estate loans.

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

<PAGE>

     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,  2001  and  2000,  the  Bank  met  all  capital  adequacy
     requirements  to which  it was  subject.  Further,  the  most  recent  FDIC
     notification  categorized the Bank as a well-capitalized  institution under
     the prompt corrective action regulations.  There have been no conditions or
     events since the  notification  that  management  believes have changed the
     Bank's capital classification.

     The following is a summary of actual capital amounts and ratios as of March
     31, 2001 and 2000 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, 2001 and 2000 are also presented.

<TABLE>
<CAPTION>
       2001                                                                  Required Amounts and Ratios
       ------------------------------------------------------------------------------------------------------------
                                                                        Minimum Capital         Classification as
                                                Actual Capital              Adequacy            Well-Capitalized
       ------------------------------------------------------------------------------------------------------------
           (Dollars in thousands)             Amount      Ratio       Amount         Ratio      Amount      Ratio
       ------------------------------------------------------------------------------------------------------------
<S>                                        <C>           <C>         <C>             <C>       <C>          <C>
       Tier 1 (Leverage) Capital
       Hudson River Bank & Trust Company   $ 154,937     13.28%      $ 46,685        4.00%     $  58,356    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         31,541        4.00         47,312    6.00
       Hudson River Bancorp, Inc.
                (consolidated)               205,467     25.42

       Total Risk-Based Capital
       Hudson River Bank & Trust Company     164,917     20.91         63,082        8.00         78,853   10.00
       Hudson River Bancorp, Inc.
                (consolidated)               215,726     26.69
</TABLE>



<PAGE>

<TABLE>
<CAPTION>
       2000                                                                    Required Amounts and Ratios
       ------------------------------------------------------------------------------------------------------------
                                                                     Minimum Capital          Classification as
                                                Actual Capital            Adequacy            Well-Capitalized
       ------------------------------------------------------------------------------------------------------------
       (Dollars in thousands)                   Amount    Ratio      Amount        Ratio      Amount      Ratio
       ------------------------------------------------------------------------------------------------------------
<S>                                        <C>           <C>         <C>           <C>         <C>         <C>
       Tier 1 (Leverage) Capital
       Hudson River Bank & Trust Company   $ 141,867     13.03%      $ 43,541      4.00%       $ 54,426     5.00%
       Hudson River Bancorp, Inc.
                (consolidated)               196,805     17.98

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

       Total Risk-Based Capital
       Hudson River Bank & Trust Company     151,615     19.69         61,596      8.00          76,994    10.00
       Hudson River Bancorp, Inc.
                (consolidated)               206,808     26.16
</TABLE>


(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,  2001,  the loan had an  outstanding  balance of $15.1  million  and an
     interest rate of 8.00%. Shares purchased with the loan proceeds are held in
     a suspense account for allocation among participants as the loan is repaid.
     Shares are released for allocation  among  participants  based on the total
     principal  and  interest  payments  made as a percentage  of all  remaining
     principal  and  interest  payments.  Contributions  to the ESOP and  shares
     released from the suspense account are allocated among  participants on the
     basis of compensation in the year of allocation.

     Unallocated  ESOP  shares are  pledged as  collateral  for the loan and are
     reported 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
     $1.5 million,  $1.4 million and $1.1 million of compensation  expense under
     the ESOP in the years ended March 31, 2001, 2000 and 1999, respectively.

     Shares held by the ESOP as of March 31, 2001 were as follows:

<TABLE>
<CAPTION>
       <S>                                                                                             <C>
       Allocated shares                                                                                    211,329
       Shares released for allocation                                                                      119,808
       Unallocated shares                                                                                1,087,931
       -----------------------------------------------------------------------------------------------------------
       Total shares held by the ESOP                                                                     1,419,068
       ===========================================================================================================

       Market value of unallocated shares at March 31, 2001    (In thousands)                          $    15,163
       ===========================================================================================================
</TABLE>



<PAGE>


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

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

     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes  option-pricing model with the following weighted-average
     assumptions  used for grants in the years  ended  March 31,  2000 and 1999:
     dividend  yield of 1.22% and  1.10%;  expected  volatility  of  16.86%  and
     24.12%;  risk-free interest rates of 6.42% and 4.73%; and expected lives of
     5 years. The weighted-average  fair value at the grant date for the options
     granted during 2000 and 1999 was $2.37 and $2.98, 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, 2001,
     2000 and 1999 utilizing the estimated fair value of the options granted and
     an assumed 5% forfeiture rate are as follows:

<TABLE>
<CAPTION>
                                                                      For the Years Ended March 31,
                                                                      -----------------------------

            (In thousands, except per share data)              2001          2000          1999
            ---------------------------------------------------------------------------------------
            <S>                                               <C>           <C>           <C>
            Net income:
                 As reported                                  $11,668       $9,526        $3,807
                 Pro forma                                     11,149        9,029         3,685
            Basic earnings per share:
                 As reported                                     0.86         0.65          0.17
                 Pro forma                                       0.82         0.62          0.17
            Diluted earnings per share:
                 As reported                                     0.85         0.65          0.17
                 Pro forma                                       0.81         0.62          0.17
            =======================================================================================
</TABLE>

     Because the  Company's  stock  options have  characteristics  significantly
     different  from those of traded options for which the  Black-Scholes  model
     was developed,  and because changes in the subjective input assumptions can
     materially  affect  the  fair  value  estimate,   the  existing  model,  in
     management's  opinion,  does not  necessarily  provide  a  reliable  single
     measure of the fair value of its stock options. In addition,  the pro forma
     effect on reported  net income and  earnings  per share for the years ended
     March 31, 2001,  2000 and 1999 may not be  representative  of the pro forma
     effects on reported net income or earnings per share for future years.



<PAGE>


     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.  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 shares
     are  reserved  for  issuance  under  the  plan.  The  Company  also has the
     alternative to fund the RRP with treasury stock.

     Employees  who were awarded  shares  (restricted  stock) under this plan in
     2000 and 1999 vest in those shares over  periods of two,  five or ten equal
     installments  commencing  one year from the date of grant.  The fair market
     value of the  shares  awarded  under  the plan at the  grant  date is being
     amortized to compensation expense on a straight-line basis over the vesting
     periods of the underlying  shares.  Compensation  expense of $757 thousand,
     $943  thousand and $217  thousand was recorded in the years ended March 31,
     2001, 2000 and 1999, respectively. The remaining unearned compensation cost
     of $5.4 million and $6.3 million was a reduction of shareholders' equity at
     March 31, 2001 and 2000, respectively.

     The  following  is a  summary  of  the  Company's  Stock  Option  Plan  and
     Recognition  and Retention Plan and changes since their approval on January
     5, 1999:

<TABLE>
<CAPTION>
                                                                 2001                   2000                 1999
                                                 --------------------  ----------------------  -------------------
                                                             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    1,301,437    $11.42    1,248,383    $11.50           --    $   --
       Granted                                          --        --       64,686      9.88    1,249,772     11.50
       Exercised                                        --        --           --        --           --        --
       Forfeited or expired                       (205,180)    11.27      (11,632)    11.50       (1,389)    11.50
       -----------------------------------------------------------------------------------------------------------
       Options outstanding, end of year          1,096,257    $11.45    1,301,437    $11.42    1,248,383    $11.50
       ===========================================================================================================

       RECOGNITION AND RETENTION PLAN
       Unvested shares, beginning of year          566,145    $11.45      714,150    $11.50           --    $   --
       Granted                                          --        --       19,071      9.88      714,150     11.50
       Vested                                      (66,279)    11.46      (84,311)    11.50           --        --
       Forfeited                                    (7,855)    10.76      (82,765)    11.50           --        --
       -----------------------------------------------------------------------------------------------------------
       Unvested shares, end of year                492,011    $11.45      566,145    $11.45      714,150    $11.50
       ===========================================================================================================
</TABLE>

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

     The following table summarizes information about stock options at March 31,
     2001:

<TABLE>
<CAPTION>
                                                   Options Outstanding                     Options Exercisable
                                 ---------------------------------------------------- -----------------------------
                                                       Weighted-    Weighted-Average                   Weighted-
               Range of             Options          Average Price     Remaining        Options       Average Price
            Exercise Prices       Outstanding         Per Option       Life (Years)    Exercisable     Per Option
            ---------------      ------------       --------------     ------------   ------------     ----------
             <S>                  <C>                  <C>               <C>            <C>            <C>
             $    9.88               36,000            $  9.88             7.33           18,002       $    9.88
                 11.50            1,060,257              11.50             7.75          425,805           11.50
            ------------------------------------------------------------------------- -----------------------------
             $ 9.88-11.50         1,096,257            $ 11.45             7.74          443,807       $   11.43
            ========================================================================= =============================
</TABLE>


<PAGE>


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

     Pension Plan

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

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

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

<TABLE>
<CAPTION>
         (In thousands)                                                                       2001         2000
         ------------------------------------------------------------------------------------------------------
         <S>                                                                             <C>            <C>
         Reconciliation of projected benefit obligation
         Obligation at beginning of year                                                 $   11,289     $ 10,038
         Service cost                                                                           404          472
         Interest cost                                                                          882          663
         Actuarial loss (gain)                                                                  887       (1,306)
         Business combination                                                                    --        1,902
         Benefits paid                                                                         (541)        (480)
         -------------------------------------------------------------------------------------------------------
         Obligation at end of year                                                       $    12,921    $ 11,289
         =======================================================================================================

         Reconciliation of fair value of plan assets
         Fair value of plan assets at beginning of year                                  $   14,462     $ 11,220
         Actual return on plan assets                                                           643        1,428
         Business combination                                                                    --        2,294
         Benefits paid                                                                         (541)        (480)
         -------------------------------------------------------------------------------------------------------
         Fair value of plan assets at end of year                                        $   14,564     $ 14,462
         =======================================================================================================

         Reconciliation of funded status
         Funded status at end of year                                                    $    1,643     $  3,173
         Unrecognized net actuarial gain                                                       (693)      (2,140)
         Unrecognized prior service cost                                                         29           37
         -------------------------------------------------------------------------------------------------------
         Prepaid pension cost at end of year                                             $      979     $  1,070
         =======================================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
         (In thousands)                                                           2001         2000         1999
         --------------------------------------------------------------------------------------------------------
         <S>                                                               <C>            <C>           <C>
         Service cost                                                      $       404    $     472     $    431
         Interest cost                                                             882          663          619
         Expected return on plan assets                                         (1,136)        (880)        (819)
         Amortization of net transition asset                                       --           --          (17)
         Net amortization and deferral                                             (59)           9            9
         -------------------------------------------------------------------------------------------------------
         Net periodic pension cost                                         $        91    $     264     $    223
         =======================================================================================================
</TABLE>

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


<PAGE>

<TABLE>
<CAPTION>
                                                                                 2001         2000       1999
         -----------------------------------------------------------------------------------------------------
         <S>                                                                     <C>          <C>        <C>
         Weighted-average assumptions:
           Discount rate                                                         7.25%        8.00%      6.75%
           Rate of compensation increase                                         4.75         5.50       5.00
           Expected return on plan assets                                        8.50         8.00       8.00
</TABLE>

     Postretirement Benefits

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

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

<TABLE>
<CAPTION>
         (In thousands)                                                        2001           2000
         ------------------------------------------------------------------------------------------
         <S>                                                              <C>              <C>
         Reconciliation of accumulated postretirement
           benefit obligation
         Obligation at beginning of year                                  $    2,270     $    2,817
         Service cost                                                             77             87
         Interest cost                                                           179            185
         Actuarial loss (gain)                                                    50           (899)
         Benefits paid                                                           (75)           (57)
         Business combination                                                     --            137
         ------------------------------------------------------------------------------------------
         Obligation at end of year                                        $    2,501     $    2,270
         ==========================================================================================

         Reconciliation of funded status
         Unfunded postretirement benefit obligation at end of year        $   (2,501)    $   (2,270)
         Unrecognized net actuarial gain                                        (489)          (563)
         Unrecognized transition obligation                                    1,654          1,772
         Unrecognized prior service credit                                      (181)          (206)
         ------------------------------------------------------------------------------------------
         Accrued postretirement benefit liability                         $   (1,517)    $   (1,267)
         ==========================================================================================
</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)                                                        2001          2000          1999
           -------------------------------------------------------------------------------------------------------
<S>                                                                          <C>            <C>            <C>
           Service cost                                                      $     77       $    87        $    69
           Interest cost                                                          179           185            191
           Amortization of transition obligation                                  118           118            118
           Amortization of prior service credit                                   (25)          (25)            --
           Amortization of unrecognized (loss) gain                               (23)            4             --
           -------------------------------------------------------------------------------------------------------
           Net periodic postretirement benefit cost                          $    326       $   369        $   378
           =======================================================================================================
</TABLE>

     The  discount  rate  used in  determining  the  accumulated  postretirement
     benefit  obligation was 7.25%,  8.00% and 6.75% at March 31, 2001, 2000 and
     1999, respectively.


<PAGE>

     For measurement purposes, a 6.50% annual rate of increase in the per capita
     cost of covered  health  benefits was assumed for medical  coverage for the
     year ended March 31, 2001.  This rate was assumed to decrease  uniformly to
     5.00% by 2004 and to 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, 2001 by $317  thousand  (12.7%) and the
     aggregate  of the service and  interest  cost  components  of net  periodic
     postretirement  benefit  cost  for the year  ended  March  31,  2001 by $35
     thousand  (13.7%).  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, 2001 by $222  thousand  (8.9%) and the
     aggregate  of the service and  interest  cost  components  of net  periodic
     postretirement  benefit  cost  for the year  ended  March  31,  2001 by $28
     thousand (10.9%).

     401(k) Savings Plan

     The  Company  also  sponsors a defined  contribution  401(k)  Savings  Plan
     covering   substantially   all  employees   meeting   certain   eligibility
     requirements.  At March 31,  2001,  the  Company  matched  50% of  employee
     pre-tax  contributions up to a maximum contribution by the Company of 3% of
     the employee's annual salary. The amount of 401(k) contribution expense was
     $127  thousand,  $145  thousand and $152 thousand for the years ended March
     31, 2001, 2000 and 1999, respectively.

     Benefit Restoration Plan

     The Company has a Benefit  Restoration Plan for certain executive  officers
     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, 2001 and 2000, the projected benefit  obligation
     of benefits cutback in the Company's defined benefit plan was $113 thousand
     and $85 thousand, respectively. Accrued benefits under this plan related to
     the Company's defined  contribution plans amounted to $249 thousand and $62
     thousand at March 31, 2001 and 2000, respectively.  The Company recorded an
     expense of $188  thousand,  $41 thousand and $21 thousand  relating to this
     plan during the years ended March 31, 2001, 2000 and 1999 respectively.

     Supplemental Retirement Plan

     As part of the SFS  Acquisition,  the Company  assumed the  obligation of a
     Supplemental Retirement Plan, which had been established for key management
     personnel  of SFS. As of March 31,  2001 and 2000,  the  projected  benefit
     obligation   under  this  plan  was  $746   thousand  and  $706   thousand,
     respectively.  The  Company  recorded  an expense of $54  thousand  and $14
     thousand  during the years ended  March 31, 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, 2001, 2000 and 1999.  Earnings of the Company for the three-month
     period  prior  to its  initial  public  offering  on July 1,  1998  are not
     included in the  calculation of earnings per share for the year ended March
     31, 1999.

<TABLE>
<CAPTION>
                                                                                          Years Ended March 31,
           -------------------------------------------------------------------------------------------------------------
           (In thousands, except for share and per share data)                    2001          2000           1999
           -------------------------------------------------------------------------------------------------------------
          <S>                                                                 <C>           <C>           <C>
           Net income                                                         $    11,668   $     9,526   $        2,821
                                                                              ===========   ===========   ==============

           Weighted average common shares outstanding                          13,572,814    14,556,648       16,302,268
           Dilutive effect of potential common shares outstanding:
               Stock options                                                       75,866         1,865               --
               Restricted stock awards                                             51,061        19,229               --
           -------------------------------------------------------------------------------------------------------------
           Weighted average common shares and potential
               common shares outstanding                                       13,699,741    14,577,742       16,302,268
                                                                              ===========   ===========   ==============
           Earnings per share amounts:
               Basic earnings per share                                       $      0.86   $      0.65   $         0.17
           =============================================================================================================
               Diluted earnings per share                                     $      0.85   $      0.65   $         0.17
           =============================================================================================================
</TABLE>


<PAGE>

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

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

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

       (In thousands)                       2001           2000           1999
       -----------------------------------------------------------------------

       Current tax expense:
         Federal                         $ 6,684        $ 6,137        $ 5,035
         State                               934            695            507
       Deferred tax benefit                 (648)        (1,844)        (3,358)
       -----------------------------------------------------------------------
       Tax expense                       $ 6,970        $ 4,988        $ 2,184
       =======================================================================

     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)                                         2001      2000        1999
       ----------------------------------------------------------------------------------
       <S>                                                  <C>        <C>        <C>
       Income tax at applicable federal statutory rate      $ 6,523    $ 4,935    $ 2,037
       Increase (decrease) in tax expense resulting from:
         Tax-exempt income                                     (505)      (312)      (157)
         State income taxes, net of Federal tax benefit         595        229        232
         Goodwill amortization                                  381        313         27
         Decrease in deferred tax asset valuation allowance      --       (141)        --
         Other                                                  (24)       (36)        45
       ----------------------------------------------------------------------------------
       Tax expense                                          $ 6,970    $ 4,988    $ 2,184
       ==================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
         (In thousands)                                                                       2001          2000
         -------------------------------------------------------------------------------------------------------
         <S>                                                                              <C>           <C>
         Deferred tax assets:
           Allowance for loan losses                                                      $   9,092     $  7,968
           Other real estate owned and repossessed property                                     542          492
           Accrued postretirement benefits                                                      697          574
           Deferred compensation                                                              1,182        1,029
           Charitable contribution carryforward for tax purposes                                 --          750
           Net unrealized loss on securities available for sale                                  --        5,083
           Other                                                                                322          436
           -----------------------------------------------------------------------------------------------------
           Total deferred tax assets                                                         11,835       16,332
           -----------------------------------------------------------------------------------------------------

         Deferred tax liabilities:
           Depreciation                                                                        (214)        (219)
           Bond discount accretion                                                              (76)         (82)
           Prepaid pension                                                                     (256)        (419)
           Net unrealized gain on securities available for sale                                (124)          --
           Other                                                                               (757)        (645)
           -----------------------------------------------------------------------------------------------------
           Total deferred tax liabilities                                                    (1,427)      (1,365)
           -----------------------------------------------------------------------------------------------------
           Net deferred tax asset at end of year                                          $  10,408     $ 14,967
           =====================================================================================================
</TABLE>


<PAGE>

     The  valuation  allowance,  when  established  by the  Company,  takes into
     consideration  the nature and timing of the  deferred  tax items as well as
     the amount of available  open tax  carrybacks.  The 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 $7.3 million
     and "supplemental" reserve (as defined) of $14.8 million at March 31, 2001,
     and the New York  State  base-year  reserve  of $30.2  million at March 31,
     2001, since the Bank does not expect that these amounts will become taxable
     in the foreseeable  future. The unrecognized  deferred tax liabilities with
     respect to the Federal base-year reserve and supplemental reserve were $2.6
     million and $5.2 million, respectively, at March 31, 2001. The unrecognized
     deferred tax liability with respect to the New York State base-year reserve
     was $1.8 million (net of Federal benefit) at March 31, 2001.

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

     OFF-BALANCE SHEET FINANCING AND CONCENTRATIONS OF CREDIT

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

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

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

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

<TABLE>
<CAPTION>
                 (In thousands)                                 2001                2000
                 ------------------------------------------------------------------------
                 <S>                                      <C>                   <C>
                 Commitments to extend credit             $      39,621         $  36,813
                 Unused lines of credit                          79,091            70,880
                 Standby letters of credit                        6,666             6,987
                 ------------------------------------------------------------------------
                  Total                                   $     125,378         $ 114,680
                 ========================================================================
</TABLE>

     Commitments  to extend credit are  agreements to lend to a customer as long
     as there is no  violation of any  condition  established  in the  contract.
     Commitments  generally  have fixed  expiration  dates or other  termination
     clauses and may require  payment of a fee.  Since certain  commitments  are
     expected to expire  without  being fully drawn upon,  the total  commitment
     amounts do not necessarily represent future cash requirements.  The 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.


<PAGE>

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

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

     Certain mortgage loans are written on an adjustable-rate  basis and include
     interest  rate caps,  which  limit  annual and  lifetime  increases  in the
     interest rates on such loans. Generally,  adjustable-rate mortgages have an
     annual rate  increase cap of 2% and a lifetime  rate  increase cap of 5% to
     6%. These caps expose the Company to interest rate risk should market rates
     increase above these limits.  As of March 31, 2001 and 2000,  approximately
     $183.5 million and $188.0 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 New York State  counties of  Columbia,  Albany,  Rensselaer,
     Dutchess and Schenectady.  Manufactured home loans are originated primarily
     in New York State and in states contiguous to New York.  Financed insurance
     premiums are originated primarily in New York, New Jersey and Pennsylvania.
     Although  the Company  has a  diversified  loan  portfolio,  a  substantial
     portion of its debtors'  ability to honor their contracts is dependent upon
     economic conditions in these areas.

     LEASES

     The Company  leases  certain of its branches and  equipment  under  various
     noncancelable  operating leases.  Rental expense for premises and equipment
     was $357  thousand,  $345  thousand,  and $243 thousand for the years ended
     March 31, 2001, 2000 and 1999, 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,
     2001 are as follows:

                    (In thousands)
                    ---------------------------------------------------------
                    Years ending March 31,
                    2002                                               $  405
                    2003                                                  390
                    2004                                                  345
                    2005                                                  299
                    2006                                                  268
                    Thereafter                                          3,112
                    ---------------------------------------------------------
                    Total                                              $4,819
                    =========================================================


     SERVICED LOANS

     The total  amount of loans  serviced  by the Company  for  unrelated  third
     parties was approximately $58.1 million and $41.4 million at March 31, 2001
     and 2000, respectively.

     RESERVE REQUIREMENT

     The Company is required to maintain  certain  reserves of vault cash and/or
     deposits  with  the  Federal  Reserve  Bank.  The  amount  of this  reserve
     requirement,  included in cash and due from banks, was  approximately  $324
     thousand and $263 thousand at March 31, 2001 and 2000, respectively.


<PAGE>

     LIQUIDATION ACCOUNT

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

     CONTINGENT LIABILITIES

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

(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.

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

     Short-Term Financial Instruments
     --------------------------------

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

<PAGE>

     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.

     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>
                                                                            2001                      2000
       --------------------------------------------------------------------------------------------------------------
                                                                                 Estimated                 Estimated
                                                                    Carrying       Fair        Carrying      Fair
                                                                     Value         Value        Value        Value
       --------------------------------------------------------------------------------------------------------------
       <S>                                                      <C>             <C>          <C>           <C>
       (In thousands)
       Financial assets:
       Cash and cash equivalents                                $     38,638    $  38,638    $    16,612   $   16,612
       Loans held for sale                                            15,108       15,236             --           --
       Securities available for sale                                 213,886      213,886        236,980      236,980
       Securities held to maturity                                     3,602        3,659         11,144       11,065
       Federal Home Loan Bank of New York stock                       12,070       12,070          7,425        7,425

       Loans                                                         881,412      881,842        823,855      809,750
       Allowance for loan losses                                     (22,325)          --        (19,608)          --
       --------------------------------------------------------------------------------------------------------------
       Net loans                                                $    859,087    $ 881,842    $   804,247   $  809,750
       --------------------------------------------------------------------------------------------------------------

       Accrued interest receivable                                     6,614        6,614          6,470        6,470

       Financial liabilities:
       Deposits:
          Savings, N.O.W., money market and noninterest-
             bearing accounts                                        368,517      368,517        355,601      355,601
          Time deposit accounts                                      381,635      384,577        392,962      394,503
       Securities sold under agreements to repurchase                 10,201       10,201          4,214        4,214
       Short-term FHLB advances                                       82,000       82,081        116,450      116,450
       Long-term FHLB borrowings                                     112,900      116,173         30,600       30,065
       Mortgagors' escrow deposits                                     5,889        5,889          5,500        5,500
       Accrued interest payable                                        1,786        1,786            658          658
</TABLE>


<PAGE>

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


<PAGE>

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

     The Parent Company began  operations on July 1, 1998, in  conjunction  with
     the Bank's  mutual-to-stock  conversion  and the Company's  initial  public
     offering of its common stock. The following represents the Parent Company's
     balance sheets as of March 31, 2001 and 2000, and its income statements and
     statements  of cash flows for the years  ended  March 31, 2001 and 2000 and
     the period July 1, 1998 through March 31, 1999.

<TABLE>
<CAPTION>
           Balance Sheets                                                                 March 31,
                                                                           -------------------------------------
           (In thousands)                                                        2001                   2000
           -----------------------------------------------------------------------------------------------------
<S>                                                                         <C>                    <C>
           Assets
           Interest-bearing deposit with subsidiary bank                    $         255          $         603
           Securities purchased under agreements
              to resell to subsidiary bank                                         16,605                 18,517
           -----------------------------------------------------------------------------------------------------
           Cash and cash equivalents                                               16,860                 19,120
           -----------------------------------------------------------------------------------------------------
           Securities available for sale                                              720                  1,457
           Loan to ESOP                                                            15,050                 16,278
           Other assets                                                            21,793                 21,678
           Investment in equity of subsidiary bank                                162,955                143,082
           -----------------------------------------------------------------------------------------------------
           Total assets                                                     $     217,378          $     201,615
           =====================================================================================================

           Liabilities and Shareholders' Equity
           Other liabilities                                                $       1,245          $         892
           Total shareholders' equity                                             216,133                200,723
           -----------------------------------------------------------------------------------------------------
           Total liabilities and shareholders' equity                       $     217,378          $     201,615
           =====================================================================================================

<CAPTION>
                                                             For the Year      For the Year          For the Period
           Income Statements                                    Ended             Ended           July 1, 1998 through
           (In thousands)                                   March 31, 2001    March 31, 2000         March 31, 1999
           ---------------------------------------------------------------------------------------------------------
          <S>                                                <C>               <C>                    <C>
           Interest income
           Interest-bearing deposit with subsidiary bank     $           12    $           11         $           4
           Securities purchased under agreements
              to resell to subsidiary bank                              942             2,052                 2,577
           Securities available for sale                                 40                38                    12
           Loan to ESOP                                               1,320             1,399                 1,118
           --------------------------------------------------------------------------------------------------------
           Total interest income                                      2,314             3,500                 3,711
           --------------------------------------------------------------------------------------------------------

           Other operating income                                     1,603               312                   111
           --------------------------------------------------------------------------------------------------------

           Other operating expenses
           Compensation and benefits                                    486               549                   143
           Legal and other professional fees                            954               174                   106
           Postage and item transportation                               63                32                    15
           Charitable foundation contribution                            --                --                 5,200
           Goodwill and other intangibles amortization                  480               542                    80
           Other expenses                                               743               683                   261
           --------------------------------------------------------------------------------------------------------
           Total other operating expenses                             2,726             1,980                 5,805
           --------------------------------------------------------------------------------------------------------

           Income (loss) before tax expense (benefit)
              and equity in undistributed earnings of
              subsidiary bank                                         1,191             1,832                (1,983)
           Tax expense (benefit)                                        337               621                  (812)
           Equity in undistributed earnings of
              subsidiary bank                                        10,814             8,315                 3,992
           --------------------------------------------------------------------------------------------------------
           Net income                                        $       11,668    $        9,526         $       2,821
           ========================================================================================================
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                        For the Year       For the Year       For the Period
Statements of Cash Flows                                  Ended               Ended        July 1, 1998 through
(In thousands)                                         March 31, 2001      March 31, 2000      March 31, 1999
------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>                 <C>
Cash flows from operating activities:
Net income                                                $ 11,668           $   9,526           $   2,821
Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
      Charitable foundation contribution                        --                  --               5,200
      Goodwill and other intangibles amortization              480                 542                  80
      Amortization of restricted stock awards                  757                 943                 217
      ESOP stock released for allocation                     1,504               1,456               1,134
      Net securities transactions                             (771)                 --                  --
      Net increase in other assets                            (705)             (1,218)             (6,000)
      Net increase in other liabilities                        353                 802                  90
      Equity in undistributed earnings of subsidiary bank  (10,814)             (8,315)             (3,992)
----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities          2,472               3,736                (450)
----------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
Increase in investment in equity of subsidiary bank         (1,474)             (1,355)            (67,626)
Purchases of securities available for sale                    (115)               (503)             (1,160)
Proceeds from sales of securities available for sale         1,998                  --                  --
Net decrease (increase) in loan to ESOP                      1,228                 922             (17,200)
Purchase of bank-owned life insurance                           --             (15,000)                 --
----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities          1,637             (15,936)            (85,986)
----------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
Net proceeds from stock offering                                --                  --             169,967
Dividends paid                                              (3,111)             (1,844)                 --
Purchases of treasury stock                                 (3,258)            (21,841)            (10,098)
Acquisition of common stock by ESOP                             --                  --             (18,428)
----------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities         (6,369)            (23,685)            141,441
----------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents        (2,260)            (35,885)             55,005
Cash and cash equivalents at beginning of period            19,120              55,005                  --
----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                $ 16,860           $  19,120           $  55,005
==========================================================================================================

Supplemental disclosures of non-cash investing
  and financing activities
Recognition of subsidiary bank's total equity on date
   of Parent Company's investment in equity of
   subsidiary bank                                        $     --           $      --           $  69,365
Adjustment of securities available for sale to fair
   value, net of tax                                      $    224           $    (147)          $      23
Adjustment of subsidiary bank's securities available
   for sale to fair value, net of tax                     $  7,585           $  (6,711)          $    (860)
==========================================================================================================
</TABLE>


<PAGE>

       Hudson River Bancorp, Inc.
=================================
CORPORATE INFORMATION

HUDSON RIVER BANCORP, INC. AND
HUDSON RIVER BANK & TRUST COMPANY

BOARD OF DIRECTORS

Carl A. Florio, CPA                 President and
                                    Chief Executive Officer

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

Stanley Bardwell, M.D.              Retired Physician

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

Marilyn A. Herrington               Real Estate Developer

Joseph W. Phelan                    President,
                                    Taconic Farms, Inc.

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

M. Bruce Cohen                      Retired Managing Partner,
                                    PricewaterhouseCoopers LLP

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

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

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

John E. Kelly                       Retired President,
                                    Berkshire Telephone Company

EXECUTIVE OFFICERS

Carl A. Florio, CPA                 President and
                                    Chief Executive Officer

Sidney D. Richter                   Executive Vice President, Senior Lending
                                    Officer

Timothy E. Blow, CPA                Chief Financial Officer

Carol J. Dube                       Senior Vice President, Operations

James F. Mackerer                   Senior Vice President, Retail Banking


HUDSON RIVER BANK & TRUST COMPANY


<PAGE>

VICE PRESIDENTS

Daniel F. Cheeseman                  Commercial Lending
Susan M. Hollister                   Human Resources
Lawrence J. Longo, Jr.               Mortgage Originations
Michael J. Mackay                    Loan Servicing
Richard J. Warren                    Information Technology
Paul Sherman                         Commercial Lending


<PAGE>

ANNUAL MEETING OF SHAREHOLDERS

The annual  meeting of Hudson  River  Bancorp,  Inc.  will be held at 3:00 pm on
August 16,  2001,  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 2001 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. Rapplayea
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 14, 2001, there were 5,072 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 during the years ended
March 31, 2001 and 2000.

Quarter Ending              High     Low     Close
--------------------------------------------------
June 30, 1999             $11.75  $ 9.88    $11.13
September 30, 1999         12.13   10.75     11.06
December 31, 1999          11.25    9.75     10.06
March 31, 2000             10.56    9.50     10.00

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>

HUDSON RIVER BANCORP, INC.
ONE HUDSON CITY CENTRE
HUDSON, NY 12534
(800) 724-2476
(518) 828-4600 (local)

www.hudsonriverbank.com

[Graphic of map showing branch location]