UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)

|                                                                     |                                                                                           
|-------------------------------------------------------------------- | ------------------------------------------------------------------------------------------
|x                                                                    | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
 EXCHANGE ACT OF 1934 
|                                                                     |                                                                                           
|For the
 quarterly period ended March 31, 2009                      
|                                                                     |                                                                                           
|or                                                                  
|                                                                     |                                                                                           
|o                                                                    | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
 EXCHANGE ACT OF 1934
|                                                                     |                                                                                           
|For the
 transition period from ________________ to_________________
|                                                                     |                                                                                           
|Commission
 file number: 0-13649                                    
|                                                                     |                                                                                           

|                                                      
|------------------------------------------------------
|BERKSHIRE BANCORP INC.                                
|                                                      
|(Exact Name of Registrant as Specified in Its Charter)

|                                         |  |                    
|---------------------------------------- |  | -------------------
|Delaware                                 |  | 94-2563513         
|                                         |  |                    
|(State or Other Jurisdiction of          |  | (I.R.S. Employer   
|Incorporation or Organization)           |  | Identification No.)
|                                         |  |                    
|160 Broadway, New York, New York         |  | 10038              
|                                         |  |                    
|(Address of Principal Executive Offices) |  | (Zip Code)         

Registrants
Telephone Number, Including Area Code: (212)
791-5362

|                                                                                   
|-----------------------------------------------------------------------------------
|N/A                                                                                
|                                                                                   
|(Former Name, Former Address and Former Fiscal Year, if
 Changed Since Last Report)

Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x  No o

Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes o  No o

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
(See the definitions of large accelerated filer, accelerated filer and
smaller reporting company in Rule 12b-2 of the Exchange Act.) (Check one):

|                                               |                            
|---------------------------------------------- | ---------------------------
|Large accelerated filer o                      | Accelerated filer o        
|                                               |                            
|Non-accelerated filer o                        | Smaller reporting company x
|(Do not check if a smaller
 reporting company) |                            

Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act. Yes o  No x

As of
May 5, 2009, there were 7,054,183 outstanding shares of the issuers Common
Stock, $.10 par value.

---



BERKSHIRE BANCORP INC. AND
SUBSIDIARIES

FORWARD-LOOKING STATEMENTS

Forward-Looking
Statements.Statements in this Quarterly Report on
Form 10-Q that are not based on historical fact may be forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Words such as believe, may, will, expect, estimate,
anticipate, continue or similar terms identify forward-looking statements.
A wide variety of factors could cause the actual results and experiences of
Berkshire Bancorp Inc. (the Company) to differ materially from the results
expressed or implied by the Companys forward-looking statements. Some of the
risks and uncertainties that may affect operations, performance, results of the
Companys business, the interest rate sensitivity of its assets and
liabilities, and the adequacy of its loan loss allowance, include, but are not
limited to: (i) 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; (ii) changes in market interest rates or changes in the speed at
which market interest rates change; (iii) changes in laws and regulations
affecting the financial services industry; (iv) changes in competition; (v)
changes in consumer preferences, (vi) changes in banking technology; (vii)
ability to maintain key members of management, (viii) possible disruptions in
the Companys operations at its banking facilities, (ix) cost of compliance
with new corporate governance requirements, and other factors referred to in
this Quarterly Report and in Item 1A, Risk Factors, of the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 2008.

Certain
information customarily disclosed by financial institutions, such as estimates
of interest rate sensitivity and the adequacy of the loan loss allowance, are
inherently forward-looking statements because, by their nature, they represent
attempts to estimate what will occur in the future.

The
Company cautions readers not to place undue reliance upon any forward-looking
statement contained in this Quarterly Report. Forward-looking statements speak
only as of the date they were made and the Company assumes no obligation to
update or revise any such statements upon any change in applicable
circumstances.

2

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BERKSHIRE BANCORP INC. AND SUBSIDIARIES 
QUARTERLY REPORT ON FORM 10-Q

INDEX

|                  |                       |                                                                                                                 |  |         
|----------------- | --------------------- | --------------------------------------------------------------------------------------------------------------- |  | --------
|                  |                       |                                                                                                                 |  | Page No.
|                  |                       |                                                                                                                 |  |         
|PART I.           | FINANCIAL INFORMATION |                                                                                                                 | 
|                  |                       |                                                                                                                 |  |         
|Item 1.           |                       | Financial
 Statements                                                                                           |  |         
|                  |                       |                                                                                                                 |  |         
|                  |                       | Consolidated Balance Sheets as of March 31, 2009 (unaudited) and
 December 31, 2008                             |  | 4       
|                  |                       |                                                                                                                 |  |         
|                  |                       | Consolidated Statements of Income For The Three Months Ended March
 31, 2009 and 2008 (unaudited)               |  | 5       
|                  |                       |                                                                                                                 |  |         
|                  |                       | Consolidated Statements of Stockholders Equity For The Three Months
 Ended March 31, 2009 and 2008 (unaudited) |  | 6       
|                  |                       |                                                                                                                 |  |         
|                  |                       | Consolidated Statements of Cash Flows For The Three Months Ended
 March 31, 2009 and 2008 (unaudited)           |  | 7       
|                  |                       |                                                                                                                 |  |         
|                  |                       | Notes to Consolidated Financial Statements                                                                      |  | 9       
|                  |                       |                                                                                                                 |  |         
|Item 2.           |                       | Managements Discussion and Analysis of Financial Condition and
 Results of Operations                          |  | 22      
|                  |                       |                                                                                                                 |  |         
|Item 3.           |                       | Quantitative and Qualitative Disclosure About Market Risk                                                       |  | 29      
|                  |                       |                                                                                                                 |  |         
|Item 4.           |                       | Controls and Procedures                                                                                         |  | 37      
|                  |                       |                                                                                                                 |  |         
|PART II           | OTHER
INFORMATION     |                                                                                                                 | 
|                  |                       |                                                                                                                 |  |         
|Item 5.           |                       | Other Information                                                                                               |  | 38      
|                  |                       |                                                                                                                 |  |         
|Item 6.           |                       | Exhibits                                                                                                        |  | 38      
|                  |                       |                                                                                                                 |  |         
|Signature         |                       | 39                                                                                                             
|                  |                       |                                                                                                                 |  |         
|Index of Exhibits |                       | 40                                                                                                             

3

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BERKSHIRE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(unaudited)

|                                                                                                                                              |  |                 |         |                    |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------- | ------------------ | - | ------- | -
|                                                                                                                                              |  | March 31,
 2009 |         | December 31,
 2008 |  
|                                                                                                                                              |  |                 |         |                    |  
|ASSETS                                                                                                                                        |  |                 |         |                    |   |         |  
|Cash and due from banks                                                                                                                       |  | $               | 4,640   |                    | $ | 3,290   |  
|Interest bearing deposits                                                                                                                     |  |                 | 44,784  |                    |   | 69,097  |  
|Federal funds sold                                                                                                                            |  |                 |        |                    |   | 30,000  |  
|                                                                                                                                              |  |                 |         |                    |   |         |  
|Total cash and cash equivalents                                                                                                               |  |                 | 49,424  |                    |   | 102,387 |  
|Investment Securities:                                                                                                                        |  |                 |         |                    |   |         |  
|Available-for-sale                                                                                                                            |  |                 | 305,874 |                    |   | 298,763 |  
|Held-to-maturity, fair value of $361in 2009
 and $362 in 2008                                                                                 |  |                 | 356     |                    |   | 360     |  
|                                                                                                                                              |  |                 |         |                    |   |         |  
|Total investment securities                                                                                                                   |  |                 | 306,230 |                    |   | 299,123 |  
|Loans, net of unearned income                                                                                                                 |  |                 | 453,939 |                    |   | 466,753 |  
|Less: allowance for loan losses                                                                                                               |  |                 | (9,357  | )                  |   | (9,204  | )
|                                                                                                                                              |  |                 |         |                    |   |         |  
|Net loans                                                                                                                                     |  |                 | 444,582 |                    |   | 457,549 |  
|Accrued interest receivable                                                                                                                   |  |                 | 5,422   |                    |   | 5,866   |  
|Premises and equipment, net                                                                                                                   |  |                 | 8,723   |                    |   | 8,844   |  
|Goodwill, net                                                                                                                                 |  |                 | 18,549  |                    |   | 18,549  |  
|Trade date securities receivable                                                                                                              |  |                 |        |                    |   | 13,431  |  
|Other assets                                                                                                                                  |  |                 | 41,605  |                    |   | 37,963  |  
|                                                                                                                                              |  |                 |         |                    |   |         |  
|Total assets                                                                                                                                  |  | $               | 874,535 |                    | $ | 943,712 |  
|                                                                                                                                              |  |                 |         |                    |   |         |  
|                                                                                                                                              |  |                 |         |                    |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                          |  |                 |         |                    |   |         |  
|Deposits:                                                                                                                                     |  |                 |         |                    |   |         |  
|Non-interest bearing                                                                                                                          |  | $               | 53,524  |                    | $ | 51,312  |  
|Interest bearing                                                                                                                              |  |                 | 634,450 |                    |   | 674,797 |  
|                                                                                                                                              |  |                 |         |                    |   |         |  
|Total deposits                                                                                                                                |  |                 | 687,974 |                    |   | 726,109 |  
|Securities sold under agreements to
 repurchase                                                                                               |  |                 | 57,000  |                    |   | 59,504  |  
|Long term borrowings                                                                                                                          |  |                 | 38,391  |                    |   | 45,272  |  
|Subordinated debt                                                                                                                             |  |                 | 22,681  |                    |   | 22,681  |  
|Accrued interest payable                                                                                                                      |  |                 | 6,021   |                    |   | 6,522   |  
|Other liabilities                                                                                                                             |  |                 | 3,627   |                    |   | 17,672  |  
|                                                                                                                                              |  |                 |         |                    |   |         |  
|Total liabilities                                                                                                                             |  |                 | 815,694 |                    |   | 877,760 |  
|                                                                                                                                              |  |                 |         |                    |   |         |  
|                                                                                                                                              |  |                 |         |                    |   |         |  
|Stockholders equity                                                                                                                          |  |                 |         |                    |   |         |  
|Preferred stock - $.01 Par value:                                                                                                             |  |                 |         |                    |   |         |  
|Authorized  2,000,000 shares Issued 
 60,000 shares Outstanding March 31, 2009, 60,000 shares December 31, 2008,
 60,000 shares             |  |                 | 1       |                    |   | 1       |  
|Common stock - $.10 par value                                                                                                                 |  |                 |         |                    |   |         |  
|Authorized  10,000,000 shares Issued 
 7,698,285 shares Outstanding  March 31, 2009, 7,054,183 shares December 31,
 2008, 7,054,183 shares |  |                 | 770     |                    |   | 770     |  
|Additional paid-in capital                                                                                                                    |  |                 | 150,985 |                    |   | 150,985 |  
|Accumulated Deficits                                                                                                                          |  |                 | (39,926 | )                  |   | (39,795 | )
|Accumulated other comprehensive loss, net                                                                                                     |  |                 | (46,578 | )                  |   | (39,598 | )
|Treasury Stock at cost March 31, 2009,
 644,102 shares December 31, 2008, 644,102 shares                                                      |  |                 | (6,411  | )                  |   | (6,411  | )
|                                                                                                                                              |  |                 |         |                    |   |         |  
|Total stockholders equity                                                                                                                    |  |                 | 58,841  |                    |   | 65,952  |  
|                                                                                                                                              |  |                 |         |                    |   |         |  
|                                                                                                                                              |  | $               | 874,535 |                    | $ | 943,712 |  
|                                                                                                                                              |  |                 |         |                    |   |         |  

The accompanying notes are an integral part
of these statements

4

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(unaudited)

|                                                      |  |                                        |        |      |   |        | 
|----------------------------------------------------- |  | -------------------------------------- | ------ | ---- | - | ------ | 
|                                                      |  | For The
 Three Months Ended
 March 31, |       
|                                                      |  |                                        |       
|                                                      |  | 2009                                   |        | 2008 |  
|                                                      |  |                                        |        |      |  
|INTEREST
 INCOME                                      |  |                                        |        |      |   |        | 
|Loans,
 including related fees                        |  | $                                      | 7,771  |      | $ | 8,205  | 
|Investment
 securities                                |  |                                        | 4,403  |      |   | 7,867  | 
|Federal funds sold and interest bearing
deposits      |  |                                        | 271    |      |   | 224    | 
|                                                      |  |                                        |        |      |   |        | 
|Total
 interest income                                |  |                                        | 12,445 |      |   | 16,296 | 
|                                                      |  |                                        |        |      |   |        | 
|INTEREST
 EXPENSE                                     |  |                                        |        |      |   |        | 
|Deposits                                              |  |                                        | 4,017  |      |   | 7,733  | 
|Short-term
 borrowings                                |  |                                        | 584    |      |   | 594    | 
|Long-term
 borrowings                                 |  |                                        | 767    |      |   | 806    | 
|                                                      |  |                                        |        |      |   |        | 
|Total
 interest expense                               |  |                                        | 5,368  |      |   | 9,133  | 
|                                                      |  |                                        |        |      |   |        | 
|Net interest
 income                                  |  |                                        | 7,077  |      |   | 7,163  | 
|PROVISION
 FOR LOAN LOSSES                            |  |                                        | 150    |      |   | 150    | 
|                                                      |  |                                        |        |      |   |        | 
|Net interest income after provision for
 loan losses  |  |                                        | 6,927  |      |   | 7,013  | 
|                                                      |  |                                        |        |      |   |        | 
|NON-INTEREST
 INCOME                                  |  |                                        |        |      |   |        | 
|Service
 charges on deposit accounts                  |  |                                        | 122    |      |   | 155    | 
|Investment
 securities gains                          |  |                                        | 75     |      |   | 58     | 
|Other income                                          |  |                                        | 202    |      |   | 253    | 
|                                                      |  |                                        |        |      |   |        | 
|Total
 non-interest income                            |  |                                        | 399    |      |   | 466    | 
|                                                      |  |                                        |        |      |   |        | 
|NON-INTEREST
 EXPENSE                                 |  |                                        |        |      |   |        | 
|Salaries and
 employee benefits                       |  |                                        | 2,361  |      |   | 2,399  | 
|Net
 occupancy expense                                |  |                                        | 506    |      |   | 538    | 
|Equipment
 expense                                    |  |                                        | 99     |      |   | 95     | 
|FDIC
 assessment                                      |  |                                        | 683    |      |   | 106    | 
|Data processing
 expense                              |  |                                        | 94     |      |   | 111    | 
|Other than temporary impairment charges on
securities |  |                                        | 1,025  |      |   |       | 
|Other                                                 |  |                                        | 912    |      |   | 661    | 
|                                                      |  |                                        |        |      |   |        | 
|Total
 non-interest expense                           |  |                                        | 5,680  |      |   | 3,910  | 
|                                                      |  |                                        |        |      |   |        | 
|Income
 before provision for taxes                    |  |                                        | 1,646  |      |   | 3,569  | 
|Provision
 for income taxes                           |  |                                        | 577    |      |   | 920    | 
|                                                      |  |                                        |        |      |   |        | 
|Net income                                            |  | $                                      | 1,069  |      | $ | 2,649  | 
|                                                      |  |                                        |        |      |   |        | 
|Dividends on
 preferred stock                         |  |                                        | 1,200  |      |   |       | 
|                                                      |  |                                        |        |      |   |        | 
|                                                      |  |                                        |        |      |   |        | 
|(Loss) income allocated to common
stockholders        |  | $                                      | (131   | )    | $ | 2,649  | 
|                                                      |  |                                        |        |      |   |        | 
|Net income
 (loss) per common share:                  |  |                                        |        |      |   |        | 
|Basic                                                 |  | $                                      | (.02   | )    | $ | .38    | 
|                                                      |  |                                        |        |      |   |        | 
|Diluted                                               |  | $                                      |       |      | $ | .38    | 
|                                                      |  |                                        |        |      |   |        | 

The accompanying notes are an integral part
of these statements.

5

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

For The Three Months Ended March 31, 2009 and
2008(In Thousands)
(Unaudited)

|                                            |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            |         |   |   |        |   |   |        |   |   |         |  
|------------------------------------------- |  | ------------- | ----- | ---------------- |  | ---------------------- |  | ------------------------- | --- | -------------------------- | - | ------------------------------------------- |  | --------------------------------------- | ------- | -------------- | - | --------------------------- | - | -------------------------- | ------- | - | - | ------ | - | - | ------ | - | - | ------- | -
|                                            |  | Common
Shares |       | Preferred
Shares |  | Common
Stock
Par
Value |  | Preferred
Stock
Par
Value |     | Additional
paid-in
capital |   | Accumulated
other
comprehensive
(loss), net |  | Retained
Earnings
(Accumulated
deficit) |         | Treasury
stock |   | Comprehensive
income
(loss) |   | Total
stockholders
equity |        
|                                            |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            |        
|Balance at
 January 1, 2008                 |  |               | 7,698 |                  |  |                       |  | $                         | 770 |                            | $ |                                            |  | $                                       | 90,986  |                | $ | (3,439                      | ) | $                          | 42,352  |   | $ | (6,411 | ) |   |        |   | $ | 124,258 |  
|Net income                                  |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            | 2,649   |   |   |        |   |   | 2,649  |   |   | 2,649   |  
|Other comprehensive
    (loss) net of taxes |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   | (9,486                      | ) |                            |         |   |   |        |   |   | (9,486 | ) |   | (9,486  | )
|                                            |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            |         |   |   |        |   |   |        |   |   |         |  
|Comprehensive (loss)                        |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            |         |   |   |        |   | $ | (6,837 | ) |   |         |  
|                                            |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            |         |   |   |        |   |   |        |   |   |         |  
|                                            |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            |         |   |   |        |   |   |        |   |   |         |  
|Balance at March 31, 2008                   |  |               | 7,698 |                  |  |                        |  | $                         | 770 |                            | $ |                                             |  | $                                       | 90,986  |                | $ | (12,925                     | ) | $                          | 45,001  |   | $ | (6,411 | ) |   |        |   | $ | 117,421 |  
|                                            |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            |         |   |   |        |   |   |        |   |   |         |  
|                                            |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            |         |   |   |        |   |   |        |   |   |         |  
|Balance at January 1, 2009                  |  |               | 7,698 |                  |  | 60                     |  | $                         | 770 |                            | $ | 1                                           |  | $                                       | 150,985 |                | $ | (39,598                     | ) | $                          | (39,795 | ) | $ | (6,411 | ) |   |        |   | $ | 65,952  |  
|Net income                                  |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            | 1,069   |   |   |        |   |   | 1,069  |   |   | 1,069   |  
|Other comprehensive
    (loss) net of taxes |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   | (6,980                      | ) |                            |         |   |   |        |   |   | (6,980 | ) |   | (6,980  | )
|                                            |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            |         |   |   |        |   |   |        |   |   |         |  
|Comprehensive (loss)                        |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            |         |   |   |        |   | $ | (5,911 | ) |   |         |  
|                                            |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            |         |   |   |        |   |   |        |   |   |         |  
|Cash dividends - Preferred Stock            |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            | (1,200  | ) |   |        |   |   |        |   |   | (1,200  | )
|                                            |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            |         |   |   |        |   |   |        |   |   |         |  
|Balance at March 31, 2009                   |  |               | 7,698 |                  |  | 60                     |  | $                         | 770 |                            | $ | 1                                           |  | $                                       | 150,985 |                | $ | (46,578                     | ) | $                          | (39,926 | ) | $ | (6,411 | ) |   |        |   | $ | 58,841  |  
|                                            |  |               |       |                  |  |                        |  |                           |     |                            |   |                                             |  |                                         |         |                |   |                             |   |                            |         |   |   |        |   |   |        |   |   |         |  

The accompanying notes are an integral part of these statements.

6

---



BERKSHIRE
BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

|                                                                                             |  |                                       |          |      |   |          |  
|-------------------------------------------------------------------------------------------- |  | ------------------------------------- | -------- | ---- | - | -------- | -
|                                                                                             |  | For The Three Months Ended
 March 31, |         
|                                                                                             |  |                                       |         
|                                                                                             |  | 2009                                  |          | 2008 |  
|                                                                                             |  |                                       |          |      |  
|Cash flows from operating activities:                                                        |  |                                       |          |      |   |          |  
|Net income                                                                                   |  | $                                     | 1,069    |      | $ | 2,649    |  
|Adjustments to reconcile net income to net
 cash (used in) provided by operating activities: |  |                                       |          |      |   |          |  
|Realized gains on investment securities                                                      |  |                                       | (75      | )    |   | (58      | )
|Other than temporary impairment charges on
 securities                                       |  |                                       | 1,025    |      |   |         |  
|Net accretion of premiums of investment
 securities                                          |  |                                       | (222     | )    |   | (197     | )
|Depreciation and amortization                                                                |  |                                       | 138      |      |   | 173      |  
|Provision for loan losses                                                                    |  |                                       | 150      |      |   | 150      |  
|Decrease in accrued interest receivable                                                      |  |                                       | 444      |      |   | 1,425    |  
|Decrease (increase) in other assets                                                          |  |                                       | 9,789    |      |   | (1,763   | )
|Decrease in accrued interest payable and
 other liabilities                                  |  |                                       | (14,546  | )    |   | (4,193   | )
|                                                                                             |  |                                       |          |      |   |          |  
|Net cash used in operating activities                                                        |  |                                       | (2,228   | )    |   | (1,814   | )
|                                                                                             |  |                                       |          |      |   |          |  
|                                                                                             |  |                                       |          |      |   |          |  
|Cash flows from investing activities:                                                        |  |                                       |          |      |   |          |  
|Investment securities available for sale                                                     |  |                                       |          |      |   |          |  
|Purchases                                                                                    |  |                                       | (834,821 | )    |   | (767,497 | )
|Sales, maturities and calls                                                                  |  |                                       | 820,002  |      |   | 808,054  |  
|Investment securities held to maturity                                                       |  |                                       |          |      |   |          |  
|Maturities                                                                                   |  |                                       | 4        |      |   | 5        |  
|Net decrease (increase) in loans                                                             |  |                                       | 12,817   |      |   | (10,561  | )
|Acquisition of premises and equipment                                                        |  |                                       | (17      | )    |   | (9       | )
|                                                                                             |  |                                       |          |      |   |          |  
|Net cash (used in) provided by investing
 activities                                         |  |                                       | (2,015   | )    |   | 29,992   |  
|                                                                                             |  |                                       |          |      |   |          |  

7

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

|                                                            |  |                                       |         |      |   |         |  
|----------------------------------------------------------- |  | ------------------------------------- | ------- | ---- | - | ------- | -
|                                                            |  | For The Three Months Ended
 March 31, |        
|                                                            |  |                                       |        
|                                                            |  | 2009                                  |         | 2008 |  
|                                                            |  |                                       |         |      |  
|                                                           
|Cash flows from financing activities:                       |  |                                       |         |      |   |         |  
|Net increase
 in non interest bearing deposits              |  |                                       | 2,212   |      |   | 881     |  
|Net decrease
 in interest bearing deposits                  |  |                                       | (40,347 | )    |   | (31,589 | )
|Decrease in
 securities sold under agreements to repurchase |  |                                       | (2,504  | )    |   | (23,406 | )
|Proceeds
 from long term debt                               |  |                                       |        |      |   | 10,000  |  
|Repayment of
 long term debt                                |  |                                       | (6,881  | )    |   | (4,014  | )
|Dividends
 paid on preferred stock                          |  |                                       | (1,200  | )    |   |        |  
|                                                            |  |                                       |         |      |   |         |  
|Net cash
 used in financing activities                      |  |                                       | (48,720 | )    |   | (48,128 | )
|                                                            |  |                                       |         |      |   |         |  
|                                                            |  |                                       |         |      |   |         |  
|Net decrease in cash and cash equivalents                   |  |                                       | (52,963 | )    |   | (19,950 | )
|Cash and cash equivalents at beginning of
 period           |  |                                       | 102,387 |      |   | 47,193  |  
|                                                            |  |                                       |         |      |   |         |  
|Cash and cash equivalents at end of period                  |  | $                                     | 49,424  |      | $ | 27,243  |  
|                                                            |  |                                       |         |      |   |         |  
|                                                            |  |                                       |         |      |   |         |  
|Supplemental
 disclosures of cash flow information:         |  |                                       |         |      |   |         |  
|Cash used to pay interest                                   |  | $                                     | 5,869   |      | $ | 12,624  |  
|Cash used to pay income taxes, net of
 refunds              |  | $                                     | 110     |      | $ | 680     |  

The accompanying notes are an integral part
of these statements.

8

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2009 and 2008

NOTE 1. General

Berkshire
Bancorp Inc., a Delaware corporation, is a bank holding company registered
under the Bank Holding Company Act of 1956. References herein to Berkshire,
the Company or we and similar pronouns, shall be deemed to refer to
Berkshire Bancorp Inc. and its consolidated subsidiaries unless the context
otherwise requires. Berkshires principal activity is the ownership and
management of its indirect wholly-owned subsidiary, The Berkshire Bank (the
Bank), a New York State chartered commercial bank. The Bank is owned through
Berkshires wholly-owned subsidiary, Greater American Finance Group, Inc.
(GAFG).

The
accompanying financial statements of Berkshire Bancorp Inc. and subsidiaries
includes the accounts of the parent company, Berkshire Bancorp Inc., and its
wholly-owned subsidiaries: The Berkshire Bank, GAFG and East 39, LLC.

We
have prepared the accompanying financial statements pursuant to the rules and
regulations of the Securities and Exchange Commission (the SEC) for interim
financial reporting. These consolidated financial statements are unaudited and,
in our opinion, include all adjustments, consisting of normal recurring
adjustments and accruals necessary for a fair presentation of our consolidated
balance sheets, operating results, and cash flows for the periods presented.
Operating results for the periods presented are not necessarily indicative of
the results that may be expected for the remaining quarters of fiscal 2009 due
to a variety of factors. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States (GAAP) have been omitted
in accordance with the rules and regulations of the SEC. These consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and accompanying notes included in our 2008
Annual Report on Form 10-K.

NOTE 2. Trust Preferred Securities.

As
of May 18 2004, the Company established Berkshire Capital Trust I, a Delaware
statutory trust, (BCTI). The Company owns all the common capital securities
of BCTI. BCTI issued $15.0 million of preferred capital securities to investors
in a private transaction and invested the proceeds, combined with the proceeds
from the sale of BCTIs common capital securities, in the Company through the
purchase of $15.464 million aggregate principal amount of Floating Rate Junior
Subordinated Debentures (the 2004 Debentures) issued by the Company. The 2004
Debentures, the sole assets of BCTI, mature on July 23, 2034 and bear interest
at a floating rate, three month LIBOR plus 2.70%, currently 3.825%.

On
April 1, 2005, the Company established Berkshire Capital Trust II, a Delaware
statutory trust, (BCTII). The Company owns all the common capital securities
of BCTII. BCTII issued $7.0 million of preferred capital securities to
investors in a private transaction and invested the proceeds, combined with the
proceeds from the sale of BCTIIs common capital securities, in the Company
through the purchase of $7.217 million aggregate principal amount of Floating
Rate Junior Subordinated Debentures (the 2005 Debentures) issued by the
Company. The 2005 Debentures, the sole assets of BCTII, mature on May 23, 2035
and bear interest at a floating rate, three month LIBOR plus 1.95%, currently
3.20%.

9

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)

NOTE 2. - (continued)

Based
on current interpretations of the banking regulators, the 2004 Debentures and
2005 Debentures (collectively, the Debentures) qualify under the risk-based
capital guidelines of the Federal Reserve as Tier 1 capital, subject to certain
limitations. The Debentures are callable by the Company, subject to any
required regulatory approvals, at par, in whole or in part, at any time after
five years from the date of issuance. The Companys obligations under the
Debentures and related documents, taken together, constitute a full,
irrevocable and unconditional guarantee on a subordinated basis by the Company
of the obligations of BCTI and BCTII under the preferred capital securities
sold by BCTI and BCTII to investors. FIN46(R) precludes consideration of the
call option embedded in the preferred capital securities when determining if
the Company has the right to a majority of BCTI and BCTII expected residual
returns. Accordingly, BCTI and BCTII are not included in the consolidated
balance sheet of the Company.

The
Federal Reserve has issued guidance on the regulatory capital treatment for the
trust-preferred securities issued by BCTI and BCTII. This rule would retain the
current maximum percentage of total capital permitted for Trust Preferred
Securities at 25%, but would enact other changes to the rules governing Trust
Preferred Securities that affect their use as part of the collection of entities
known as restricted core capital elements. The rule was to become effective
on March 31, 2009, however, on March 23, 2009 the Federal Reserve adopted a
rule extending the compliance date for tighter limits to March 31, 2011 in
light of the current stressful financial conditions. Management has evaluated
the effects of this rule and does not anticipate a material impact on its
capital ratios when the proposed rule is finalized.

Series A Preferred Stock. On October 31,
2008, the Company sold an aggregate of 60,000 shares of its 8% Non-Cumulative
Mandatorily Convertible Perpetual Series A Preferred Stock (the Series A
Preferred Shares) at $1,000 per share, or $60 million in the aggregate, to the
Companys Chairman of the Board and majority stockholder, and two
non-affiliated investors. Each Series A Preferred Share bears non-cumulative
cash dividends at the rate of 8% per annum, payable quarterly, is mandatorily
convertible into 123.153 shares of our Common Stock on October 31, 2011, unless
previously redeemed, and is redeemable at the option of the Company between
April 30, 2009 and November 1, 2010 at a redemption price of $1,100. So long as
any share of Series A Preferred Shares remains outstanding, unless the full
dividends for the most recent dividend payment date have been paid or declared,
no dividends may be paid or declared on the Companys Common Stock. For the
quarter ended March 31, 2009, we declared and paid cash dividends on the Series
A Preferred Shares totalling $1.2 million.

10

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)

NOTE 3. Earnings Per Common Share

Basic
earnings per common share is calculated by dividing income available to common
stockholders by the weighted average common stock outstanding, excluding stock
options from the calculation. In calculating diluted earnings per share, the
dilutive effect of stock options is calculated using the average market price
for the Companys common stock during the period. The following table presents
the Companys calculation of earnings per common share for the periods
indicated:

|                                                                              |  |                                        |        |                       |  |                   |  |                     |      |                       |   |                    |  |  |       |  |   |     | 
|----------------------------------------------------------------------------- |  | -------------------------------------- | ------ | --------------------- |  | ----------------- |  | ------------------- | ---- | --------------------- | - | ------------------ |  |  | ----- |  | - | --- | 
|                                                                              |  | For The
 Three Months Ended            |       
|                                                                              |  |                                        |       
|                                                                              |  | March
 31, 2009                        |        | March
 31, 2008       | 
|                                                                              |  |                                        |        |                       | 
|                                                                              |  | Income
 (numerator)                    |        | Shares
 (denominator) |  | Per share
 amount |  | Income
 (numerator) |      | Shares
 (denominator) |   | Per
 share
 amount | 
|                                                                              |  |                                        |        |                       |  |                   |  |                     |      |                       |   |                    | 
|                                                                              |  | (In
 thousands, except per share data) |       
|Basic earnings per share                                                      |  |                                        |        |                       |  |                   |  |                     |      |                       |   |                    |  |  |       |  |   |     | 
|Net income                                                                    |  | $                                      | 1,069  |                       |  |                   |  |                     |      |                       | $ | 2,649              |  |  |       |  |   |     | 
|Dividends paid to preferred shareholders                                      |  |                                        | (1,200 | )                     |  |                   |  |                     |      |                       |   |                   |  |  |       |  |   |     | 
|                                                                              |  |                                        |        |                       |  |                   |  |                     |      |                       |   |                    |  |  |       |  |   |     | 
|Net income (loss) available to common stockholders                            |  |                                        | (131   | )                     |  | 7,054             |  | $                   | (.02 | )                     |   | 2,649              |  |  | 7,054 |  | $ | .38 | 
|                                                                              |  |                                        |        |                       |  |                   |  |                     |      |                       |   |                    |  |  |       |  |   |     | 
|Effect of dilutive securities options                                         |  |                                        |       |                       |  |                  |  |                     | .   |                       |   |                   |  |  | 1     |  |   | .  | 
|                                                                              |  |                                        |        |                       |  |                   |  |                     |      |                       |   |                    |  |  |       |  |   |     | 
|Diluted earnings per share                                                    |  |                                        |        |                       |  |                   |  |                     |      |                       |   |                    |  |  |       |  |   |     | 
|Net income (loss) available
  to common stockholders plus assumed conversions |  | $                                      |       |                       |  |                  |  | $                   |     |                       | $ | 2,649              |  |  | 7,055 |  | $ | .38 | 
|                                                                              |  |                                        |        |                       |  |                   |  |                     |      |                       |   |                    |  |  |       |  |   |     | 

Options
to purchase 2,076 common shares at a weighted average exercise price of $8.29
were not included in the dilutive earnings per common shares as of March 31,
2009 as these options are anti-dilutive.

11

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)

NOTE 4. Loan Portfolio

The
following table sets forth information concerning the Companys loan portfolio
by type of loan at the dates indicated:

|                                  |  |                        |         |                   |  |        |   |              |         |   |  |       |  
|--------------------------------- |  | ---------------------- | ------- | ----------------- |  | ------ | - | ------------ | ------- | - |  | ----- | -
|                                  |  | March 31, 2009         |         | December 31, 2008 | 
|                                  |  |                        |         |                   | 
|                                  |  | Amount                 |         | % of
 Total       |  | Amount |   | % of 
 Total |        
|                                  |  |                        |         |                   |  |        |   |              |        
|                                  |  | (Dollars in thousands) |        
|Commercial and professional loans |  | $                      | 62,638  |                   |  | 13.8   | % | $            | 68,418  |   |  | 14.6  | %
|Secured by real estate            |  |                        |         |                   |  |        |   |              |         |   |  |       |  
|1-4 family                        |  |                        | 137,636 |                   |  | 30.3   |   |              | 140,150 |   |  | 30.0  |  
|Multi family                      |  |                        | 3,882   |                   |  | 0.8    |   |              | 4,031   |   |  | 0.9   |  
|Non-residential (commercial)      |  |                        | 250,412 |                   |  | 55.0   |   |              | 254,831 |   |  | 54.4  |  
|Consumer                          |  |                        | 418     |                   |  | 0.1    |   |              | 460     |   |  | 0.1   |  
|                                  |  |                        |         |                   |  |        |   |              |         |   |  |       |  
|                                  |  |                        |         |                   |  |        |   |              |         |   |  |       |  
|Total loans                       |  |                        | 454,986 |                   |  | 100.0  | % |              | 467,890 |   |  | 100.0 | %
|                                  |  |                        |         |                   |  |        |   |              |         |   |  |       |  
|Deferred loan fees                |  |                        | (1,047  | )                 |  |        |   |              | (1,137  | ) |  |       |  
|Allowance for loan losses         |  |                        | (9,357  | )                 |  |        |   |              | (9,204  | ) |  |       |  
|                                  |  |                        |         |                   |  |        |   |              |         |   |  |       |  
|Loans, net                        |  | $                      | 444,582 |                   |  |        |   | $            | 457,549 |   |  |       |  
|                                  |  |                        |         |                   |  |        |   |              |         |   |  |       |  

As
of March 31, 2009, nonaccrual loans totalled $312,000 compared to $130,000 as
of December 31, 2008. At March 31, 2009 and December 31, 2008, total loans
contractually past due 90 days or more but still accruing interest were zero
and $99,000, respectively.

NOTE 5. Deposits

The
following table summarizes the composition of the average balances of major
deposit categories:

|                      |  |                                   |         |                                       |  |                 |   |                |         |  |  |      |  
|--------------------- |  | --------------------------------- | ------- | ------------------------------------- |  | --------------- | - | -------------- | ------- |  |  | ---- | -
|                      |  | Three Months Ended March 31, 2009 |         | Twelve Months Ended December 31, 2008 | 
|                      |  |                                   |         |                                       | 
|                      |  | Average
 Amount                   |         | Average
 Yield                        |  | Average
 Amount |   | Average
 Yield |        
|                      |  |                                   |         |                                       |  |                 |   |                |        
|                      |  | (Dollars in thousands)            |        
|                      |  |                                   |         |                                       |  |                 |   |                |         |  |  |      |  
|Demand
 deposits      |  | $                                 | 53,844  |                                       |  |                |   | $              | 54,452  |  |  |     |  
|NOW and
 money market |  |                                   | 22,908  |                                       |  | 0.39            | % |                | 39,849  |  |  | 1.58 | %
|Savings
 deposits     |  |                                   | 181,607 |                                       |  | 1.52            |   |                | 247,923 |  |  | 2.84 |  
|Time
 deposits        |  |                                   | 435,326 |                                       |  | 3.03            |   |                | 456,803 |  |  | 3.79 |  
|                      |  |                                   |         |                                       |  |                 |   |                |         |  |  |      |  
|Total
 deposits       |  | $                                 | 693,685 |                                       |  | 2.31            | % | $              | 799,027 |  |  | 3.13 | %
|                      |  |                                   |         |                                       |  |                 |   |                |         |  |  |      |  

12

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)

NOTE 6. Comprehensive Income (Loss)

The
Company follows the provisions of Statement of Financial Accounting Standards
(SFAS) No. 130, Reporting Comprehensive
Income (SFAS No. 130) which includes net income as well as
certain other items which result in a change to equity during the period. The
following table presents the components of comprehensive income, based on the
provisions of SFAS No. 130:

|                                                                               |  |                             |         |                     |   |                   |  |                   |        |                     |   |                   |   |   |       |   |   |        |  
|------------------------------------------------------------------------------ |  | --------------------------- | ------- | ------------------- | - | ----------------- |  | ----------------- | ------ | ------------------- | - | ----------------- | - | - | ----- | - | - | ------ | -
|                                                                               |  | For The
 Three Months Ended |        
|                                                                               |  |                             |        
|                                                                               |  | March
 31, 2009             |         | March
 31, 2008     |  
|                                                                               |  |                             |         |                     |  
|                                                                               |  | Before
 taxamount           |         | Tax(expense)benefit |   | Net of
 taxAmount |  | Before
 taxamount |        | Tax(expense)benefit |   | Net of
 taxamount |  
|                                                                               |  |                             |         |                     |   |                   |  |                   |        |                     |   |                   |  
|                                                                               |  | (In
 thousands)             |        
|Unrealized (losses) gains on investment securities:                            |  |                             |         |                     |   |                   |  |                   |        |                     |   |                   |   |   |       |   |   |        |  
|Unrealized holding (losses) arising during
period                              |  | $                           | (10,708 | )                   | $ | 4,283             |  | $                 | (6,425 | )                   | $ | (15,893           | ) | $ | 6,357 |   | $ | (9,536 | )
|Less
    reclassification adjustment for gains (losses) realized in net income |  |                             | (950    | )                   |   | 380               |  |                   | (570   | )                   |   | 58                |   |   | (23   | ) |   | 35     |  
|                                                                               |  |                             |         |                     |   |                   |  |                   |        |                     |   |                   |   |   |       |   |   |        |  
|Unrealized loss on investment securities                                       |  |                             | (11,658 | )                   |   | 4,663             |  |                   | (6,995 | )                   |   | (15,835           | ) |   | 6,334 |   |   | (9,501 | )
|Change in minimum pension
 liability                                           |  |                             | 15      |                     |   |                  |  |                   | 15     |                     |   | 15                |   |   |      |   |   | 15     |  
|                                                                               |  |                             |         |                     |   |                   |  |                   |        |                     |   |                   |   |   |       |   |   |        |  
|Other comprehensive loss, net                                                  |  | $                           | (11,643 | )                   | $ | 4,663             |  | $                 | (6,980 | )                   | $ | (15,820           | ) | $ | 6,334 |   | $ | (9,486 | )
|                                                                               |  |                             |         |                     |   |                   |  |                   |        |                     |   |                   |   |   |       |   |   |        |  

NOTE 7. Accounting For Stock Based
Compensation

At
March 31, 2008, the Company had one stock-based employee compensation plan. The
Company accounts for the plan in accordance with SFAS No. 123(R), Share Based Payment. Under the fair
value recognition provisions of SFAS 123R, share-based compensation cost is
measured at the grant date based on the fair value of the award and is
recognized as expense over the vesting period. Determining the fair value of
share-based awards at the grant date requires judgement, including estimating
the Companys stock price volatility, employee stock option exercise behaviors
and employee option forfeiture rates.

The
Company did not grant stock options, nor did any stock options vest during the
three-month periods ended March 31, 2009 and 2008, as a result of which, no
stock based compensation expense was recorded in either of those periods.

13

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)

NOTE 8. Employee Benefit Plans

The
Company has a Retirement Income Plan (the Plan), a noncontributory defined
benefit plan covering substantially all full-time, non-union United States
employees of the Company. The following interim-period information is being
provided in accordance with the Financial Accounting Standards Board (FASB)
Statement 132(R) (FASB 132(R)) based upon the most recent actuarial valuation
dated December 31, 2008.

|                               |  |                                        |         |      |   |         |  
|------------------------------ |  | -------------------------------------- | ------- | ---- | - | ------- | -
|                               |  | For The
 Three Months Ended
 March 31, |        
|                               |  |                                        |        
|                               |  | 2009                                   |         | 2008 |  
|                               |  |                                        |         |      |  
|                               |  |                                        |         |      |  
|Service cost                   |  | $                                      | 103,250 |      | $ | 105,250 |  
|Interest cost                  |  |                                        | 64,250  |      |   | 54,750  |  
|Expected return on plan assets |  |                                        | (70,500 | )    |   | (62,250 | )
|Amortization and Deferral:     |  |                                        |         |      |   |         |  
|Prior service cost             |  |                                        | 4,500   |      |   | 4,500   |  
|Loss                           |  |                                        | 36,500  |      |   | 10,750  |  
|                               |  |                                        |         |      |   |         |  
|Net periodic pension cost      |  | $                                      | 138,000 |      | $ | 113,000 |  
|                               |  |                                        |         |      |   |         |  

The
Pension Protection Act of 2006 (the PPA) changes the funding rules for
defined benefit pension plans, beginning in 2008. A key element of the PPA is
the introduction of benefit restrictions on plans that are funded below 80% of
the plans target liabilities. In order to avoid these restrictions, during the
fiscal year ending December 31, 2009, we expect that the minimum contribution
to the Plan will be approximately $1.43 million. During the three months ended
March 31, 2009 and March 31, 2008, we contributed approximately $1.10 million
and $578,000, respectively, to the Plan.

14

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)

NOTE 9. Fair Value Measurements

The
Company accounts for fair value utilizing the provisions of SFAS No. 157, Fair Value Measurements. SFAS 157
defines fair value, establishes a framework for measuring fair value, and
expands disclosure about fair value. SFAS 157 defines fair value as the price
that would be received to sell an asset or paid to transfer a liability (an
exit price) in an orderly transaction between market participants on the
measurement date. SFAS 157 also establishes a fair value hierarchy which
requires an entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. The standard describes
three levels of inputs that may be used to measure fair value. A financial
instruments level within the fair value hierarchy is based on the lowest level
of input significant to the fair value measurement. There have been no material
changes in valuation techniques as a result of the adoption of SFAS No. 157.

Level 1 -
Quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement date.

Level 2 -
Observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities in active markets; quoted prices in markets that are not
active for identical or similar assets or liabilities; or other inputs that are
observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.

Level 3 -
Unobservable inputs that are supported by little or no market activity and
significant to the fair value of the assets or liabilities that are developed
using the reporting entities estimates and assumptions, which reflect those
that market participants would use.

Assets and Liabilities Measured at Fair Value
on a Recurring Basis

A
description of the valuation methodologies used for financial instruments
measured at fair value on a recurring basis, as well as the classification of
the instruments pursuant to the valuation hierarchy, are as follows:

Securities Available for Sale

Securities
classified as available for sale are reported using Level 1, Level 2 or Level 3
inputs. Level 1 securities generally include equity securities valued based on
quoted market prices in active markets. Level 2 instruments include U.S.
government agency obligations, state and municipal bonds, mortgage-backed
securities, collateralized mortgage obligations and corporate bonds. For these
securities, the Company obtains fair value measurements from an independent
pricing service. The fair value measurements consider observable data that may
include dealer quotes, market spreads, cash flows, the U.S. Treasury yield
curve, live trading levels, trade execution data, market consensus prepayment
speeds, credit information and the bonds terms and conditions, among other
things. Level 3 available for sale securities consist of instruments that are
not readily marketable and may only be redeemed with the issuer at par such as
Federal Home Loan Bank and Federal Reserve Bank stock. For these securities,
fair value is deemed to approximate the carrying value.

15

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)

NOTE 9. - (continued)

Assets
measured at fair value on a recurring basis are summarized below.

|                                          |  |                                                                         |        |                                           |   |                                        |  |                      |        |  |   |         | 
|----------------------------------------- |  | ----------------------------------------------------------------------- | ------ | ----------------------------------------- | - | -------------------------------------- |  | -------------------- | ------ |  | - | ------- | 
|                                          |  | Fair
 Value Measurement Using                                           |       
|                                          |  |                                                                         |       
|                                          |  | Quoted
 Prices inActive Marketsfor IdenticalAssets/Liabilities(Level 1) |        | SignificantOtherObservableInputs(Level 2) |   | SignificantUnobservableInputs(Level 3) |  | BalanceMarch 31,2009 |       
|                                          |  |                                                                         |        |                                           |   |                                        |  |                      |       
|                                          |  | (Dollars
in thousands)                                                  |       
|                                         
|Assets                                    |  |                                                                         |        |                                           |   |                                        |  |                      |        |  |   |         | 
|Investment securities
 available for sale |  | $                                                                       | 24,450 |                                           | $ | 235,620                                |  | $                    | 45,804 |  | $ | 305,874 | 
|                                          |  |                                                                         |        |                                           |   |                                        |  |                      |        |  |   |         | 
|Total assets                              |  | $                                                                       | 24,450 |                                           | $ | 235,620                                |  | $                    | 45,804 |  | $ | 305,874 | 
|                                          |  |                                                                         |        |                                           |   |                                        |  |                      |        |  |   |         | 

The
above table includes $44.46 million in net unrealized losses on the Companys
available for sale securities. Approximately $23.52 million of these net unrealized
losses are on corporate notes. The Company has reviewed its investment portfolio
at March 31, 2009, and has determined that the unrealized losses are temporary.
Such determination was based upon an evaluation of the creditworthiness of the
issuers and/or guarantors, the underlying collateral, if applicable, as well
as the continuing performance of the securities. Management also evaluates other
facts and circumstances that may be indicative of an other-than-temporary impairment
condition. This includes, but is not limited to, an evaluation of the type of
security and length of time and extent to which the fair value has been less
than cost, as well as certain collateral related characteristics. In addition,
management considers the Companys
ability to hold such securities to maturity, if necessary, thereby recovering
its investment.

During
    the quarter ended March 31, 2009, the Company recorded an other-than-temporary
    impairment charge of $1.025 million as a result of a downgrade on a certain
corporate bond.

The
  fair value of the derivative is approximately $24,000 and valued as a Level 3
  input. Further disclosures are waived due to materiality.

16

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)

NOTE 9. - (continued)

Assets and Liabilities Measured at Fair Value
on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

The
table below presents a reconciliation for assets measured at fair value on a
recurring basis for which the Company has utilized significant unobservable
inputs (Level 3).

|                                                                                                                                                                                   |  |                                       |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | -
|(Dollars in thousands)                                                                                                                                                             |  | InvestmentSecuritiesAvailablefor Sale |        
|                                                                                                                                                                                   |  |                                       |        
|                                                                                                                                                                                  
|Balance, January 1, 2009                                                                                                                                                           |  | $                                     | 63,080  |  
|Total gains/losses
 (realized/unrealized)                                                                                                                                          |  |                                       |         |  
|Included in earnings                                                                                                                                                               |  |                                       |        |  
|Included in other
 comprehensive income                                                                                                                                            |  |                                       | (10,282 | )
|Purchases, Sales, Issuances and Settlements                                                                                                                                        |  |                                       | 6       |  
|Redemptions                                                                                                                                                                        |  |                                       | (7,000  | )
|Interest                                                                                                                                                                           |  |                                       |        |  
|Capital deductions for operating expenses                                                                                                                                          |  |                                       |        |  
|                                                                                                                                                                                   |  |                                       |         |  
|Balance, March 31, 2009                                                                                                                                                            |  | $                                     | 45,804  |  
|                                                                                                                                                                                   |  |                                       |         |  
|                                                                                                                                                                                  
|The amount of total gains or losses for the period included in
 earnings attributable to the change in unrealized gains or losses relating to
 assets still held at March 31, 2009 |  | $                                     |        |  

NOTE 10. New Accounting Pronouncements

Accounting For Business Combinations

In
December 2007, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141R (revised 2007), Business Combinations.
This statement
replaces SFAS No. 141, Business Combinations, but retains the fundamental
requirements in SFAS No. 141 that the acquisition method of accounting be used
for all business combinations and for an acquirer to be identified for each business
combination. This statement defines the acquirer as the entity that obtains
control of one or more businesses in the business combination and establishes
the acquisition date as the date that the acquirer achieves control. This
statement requires an acquirer to recognize the assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited
exceptions. This statement also requires that costs incurred to complete the
acquisition, including restructuring costs, are to be recognized separately
from the acquisition. This statement also requires an acquirer to recognize
assets or liabilities arising from all other contingencies as of the acquisition
date, measured at their acquisition-date fair values, only if they meet the
definition of as asset or liability in FASB Concepts Statement No. 6, Elements
of Financial Statements. This statement also provides specific guidance on the
subsequent accounting for assets and liabilities arising from contingencies
acquired or assumed in a business combination. SFAS No. 141R is effective for
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. Early adoption was not permitted. The adoption of SFAS No. 141R did
not have a material effect on the Companys results of operations or financial
condition.

17

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)

NOTE 10. - (continued)

Accounting For Noncontrolling Interests In
Consolidated Financial Statements

In
December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB
No. 51. This statement requires that ownership interests in subsidiaries held
by parties other than the parent company be clearly identified, labeled, and
presented in the consolidated statement of financial position within equity,
but separate from the parents equity. This statement also requires the amount
of consolidated net income attributable to the parent company and to the
noncontrolling interest be clearly identified and presented on the face of the
consolidated statement of income. SFAS No. 160 is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2008. Early adoption was not permitted. The adoption of SFAS No. 160 did
not have a material effect on the Companys results of operations or financial
condition.

Accounting For Derivative Instruments and
Hedging Activities

In
March 2008, the FASB issued SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities, an amendment
of FASB Statement No. 133. The statement requires enhanced disclosures about an
entitys derivative and hedging activities, including information about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under SFAS No. 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entitys financial position, financial performance, and cash flows.
The Statement is effective for all financial statements issued for fiscal years
and interim periods beginning after November 15, 2008, with earlier adoption
permitted. Adoption of SFAS No. 161 did not have a material impact on the
Companys results of operations or financial condition.

Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities

In
June 2008, the FASB issued FASB Staff Position (FSP) Emerging Issues Task
Force (EITF) 03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities. This FSP addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting
and, therefore, need to be included in the earnings allocation in computing
earnings per share (EPS) under the two-class method described in SFAS No.
128, Earnings per Share. The FSP concluded that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
are participating securities and shall be included in the computations of EPS
pursuant to the two-class method. Our restricted stock awards are considered
participating securities under this FSP. This FSP is effective for fiscal years
beginning after December 15, 2008, and interim periods within those years. All
prior-period EPS data presented shall be adjusted retrospectively to conform
with the provisions of this FSP. Early application is not permitted. Adoption
of this FSP did not have a material impact on our computation of EPS.

18

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES 
Notes to Consolidated Financial Statements (continued)

NOTE 10. - (continued)

Determining The Fair Value Of A Financial
Asset When The Market For That Asset Is Not Active

In
October 2008, the FASB issued FSP FAS 157-3, Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active. This FSP applies to financial assets within the scope of
accounting pronouncements that require or permit fair value measurements in
accordance with SFAS No. 157. The FSP clarifies the application of SFAS No. 157
in a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. The FSP permits, in determining
fair value for a financial asset in a dislocated market, the use of a reporting
entitys own assumptions about future cash flows and appropriately
risk-adjusted discount rates is acceptable when relevant observable inputs are
not available. This FSP was effective upon issuance. Adoption of this FSP did
not have a material impact on the Companys results of operations or financial
condition.

Employers Disclosures about Postretirement
Benefit Plan Assets

In
December 2008, the FASB issued FSP FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan
Assets.
This FSP amends SFAS No. 132 (revised 2003), Employers Disclosures about
Pensions and Other Postretirement Benefits. The FSP provides guidance on an
employers disclosures about plan assets of a defined benefit pension or other
postretirement plan. The FSP clarifies that the objectives of the disclosures
about plan assets in an employers defined benefit pension or other
postretirement plan are to provide users of financial statements with an
understanding of: (1) how investment allocation decisions are made, including
the factors that are pertinent to an understanding of investment policies and
strategies; (2) the categories of plan assets; (3) the inputs and valuation
techniques used to measure the fair value of plan assets; (4) the effect of
fair value measurements using significant unobservable inputs (Level 3) on
changes in plan assets for the period; and (5) significant concentrations of risk
within plan assets. The FSP also expands the disclosures related to these
objectives. The disclosures about plan assets required by this FSP are
effective for fiscal years ending after December 15, 2009. Upon initial
application, the provisions of this FSP are not required for earlier periods
that are presented for comparative purposes, although application of the
provisions of the FSP to prior periods is permitted. Early adoption is not
permitted.

Amendments to the Impairment Guidance of EITF
Issue No. 99-20

In
January 2009, the FASB issued FSP EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20.
This FSP amended EITF Issue No. 99-20 to align the impairment guidance in Issue
99-20 with that in paragraph 16 of SFAS No. 115 and related implementation
guidance. The FSP was effective for reporting periods ending after December 15,
2008, and is applied prospectively. Adoption of FSP EITF 99-20-1 did not have a
material impact on the Companys results of operations or financial condition.

19

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)

NOTE 10. - (continued)

Recognition and Presentation of
Other-Than-Temporary Impairments

In
April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments. The FSP amends the other-than-temporary impairment
guidance in GAAP for debt securities to make the guidance more operational and
to improve the presentation and disclosure of other-than-temporary impairments
on debt and equity securities in financial statements. The FSP replaces the
existing requirement that an entitys management assert it has both the intent
and ability to hold an impaired security until recovery with a requirement that
management assert that it does not have the intent to sell the security and it
is more likely than not it will not have to sell the security before recovery
of its cost basis. The FSP requires an entity to recognize impairment losses on
a debt security attributed to credit in income, and to recognize noncredit
impairment losses in accumulated other comprehensive income. This requirement
applies to debt securities held to maturity as well as debt securities held as
available for sale. Upon adoption of this FSP, an entity will be required to
record a cumulative-effect adjustment as of the beginning of the period of
adoption to reclassify the noncredit component of a previously recognized
other-than-temporary impairment from retained earnings to accumulated other
comprehensive income if the entity does not intend to sell the security and it
is not more likely than not that the entity will be required to sell the
security before recovery. The FSP is effective for interim and annual reporting
periods ending after June 15, 2009, and shall be applied prospectively. Early
adoption is permitted for periods ending after March 15, 2009. We are in the
process of completing our evaluation of the impact of this FSP on our results
of operations and financial condition, and are therefore, at this time, unable
to determine its effect.

Determining Fair Value When The Volume And
Level of Activity For The Asset Or Liability Have Significantly Decreased And
Identifying Transactions That Are Not Orderly

In
April 2009, the FASB issued FSP FAS 157-4, Determining
Fair Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not Orderly.
The FSP provides additional guidance for estimating fair value in accordance
with SFAS No. 157, Fair Value Measurements, when the volume and level of
activity for the asset or liability have significantly decreased when compared
with normal market activity for the asset or liability (or similar assets and
liabilities). The FSP also includes guidance on identifying circumstances that
indicate a transaction is not orderly. The FSP also requires disclosure in
interim and annual periods of the inputs and valuation technique(s) used to
measure fair value and a discussion of changes in valuation techniques and
related inputs, if any, during the period. The FSP is effective for interim and
annual reporting periods ending after June 15, 2009, and shall be applied
prospectively. Early adoption is permitted for periods ending after March 15,
2009. We are in the process of completing our evaluation of the impact of this
FSP on our results of operations and financial condition, and are therefore, at
this time, unable to determine its effect.

20

---



BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)

NOTE 10. - (continued)

Interim Disclosures About Fair Value Of
Financial Instruments

In
April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments. The FSP amends SFAS No. 107, Disclosures about Fair
Value of Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. The FSP is effective for
interim and annual reporting periods ending after June 15, 2009, and shall be
applied prospectively. Early adoption is permitted for periods ending after
March 15, 2009. An entity may early adopt this FSP only if it also elects to
early adopt FSP FAS 115-2 and FAS 124-2, and FSP FAS 157-4.

On
    May 7, 2009, in connection with the Banks most recent
examination by the Federal Deposit Insurance Corporation (the FDIC)
the Bank received a Joint Memorandum of Understanding (the MOU) from
the FDIC and the New York State Banking Department (the 
NYSBD), which the Banks board authorized the bank to execute. The
MOU, when effective, will set forth an informal understanding among the Bank,
the FDIC and the NYSBD addressing asset quality, loan review, underwriting and
administration and certain other concerns identified in the examination. The
Banks board has appointed a committee comprised of three directors
to monitor the Bank's compliance. We do not believe that compliance with the
MOU will have a material adverse effect on our results of operations or financial
condition. As set forth in Managements Discussion and Analysis of
Financial Condition And Results of Operations - Capital Adequacy, the Bank
is well capitalized for regulatory purposes as of March 31, 2009.

Internal Control Over Financial Reporting

The
objective of the Companys Internal Control Program is to allow the Bank and
management to comply with Part 363 of the FDICs regulations (FDICIA) and to
allow the Company to comply with Section 302 of the Sarbanes-Oxley Act of 2002
(the Act).

Section
302 of the Act requires the CEOs and CFOs of the Company to (i) certify that
the annual and quarterly reports filed with the SEC are accurate and (ii)
acknowledge that they are responsible for establishing, maintaining and
periodically evaluating the effectiveness of the disclosure controls and
procedures. Section 404 of the Act requires management to (i) report on
internal control over financial reporting, (ii) assess the effectiveness of
such internal controls, and, in a later phase of the effectiveness of Section
404, (iii) obtain an external auditors report on managements assessment of
its internal control. The Company is not an accelerated filer as defined in
Rule 12b-2 of the Securities Exchange Act of 1934. Therefore, the Company was
first required to comply with Section 404 for the fiscal year ended December
31, 2007.

The
Committee of Sponsoring Organizations (COSO) methodology may be used to
document and test the internal controls pertaining to the accuracy of Company
issued financial statements and related disclosures. COSO requires a review of
the control environment (including anti-fraud and audit committee
effectiveness), risk assessment, control activities, information and
communication, and ongoing monitoring.

21

---



|          |                                                                                        
|--------- | ---------------------------------------------------------------------------------------
|ITEM 2  - | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
 RESULTS OF OPERATIONS.

The
following discussion and analysis is intended to provide a better understanding
of the consolidated financial condition and results of operations of Berkshire
Bancorp Inc., a Delaware corporation, and its subsidiaries. All references to
earnings per share, unless stated otherwise, refer to earnings per diluted
share. References to Notes herein are references to the Notes to Consolidated
Financial Statements of the Company located in Item 1 herein.

Critical Accounting Policies, Judgments and
Estimates

The
accounting and reporting policies of the Company conform with accounting
principles generally accepted in the United States of America (US GAAP) and
general practices within the financial services industry. The preparation of
financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from those
estimates.

The
Company considers that the determination of the allowance for loan losses
involves a higher degree of judgment and complexity than any of its other
significant accounting policies. The allowance for loan losses is calculated
with the objective of maintaining a reserve level believed by management to be
sufficient to absorb estimated credit losses. Managements determination of the
adequacy of the allowance is based on periodic evaluations of the loan
portfolio and other relevant factors. However, this evaluation is inherently
subjective as it requires material estimates, including, among others, expected
default probabilities, loss given default, the amounts and timing of expected
future cash flows on impaired loans, mortgages, and general amounts for
historical loss experience. The process also considers economic conditions,
uncertainties in estimating losses and inherent risks in the loan portfolio.
All of these factors may be susceptible to significant change. To the extent
actual outcomes differ from management estimates, additional provisions for
loan losses may be required that would adversely impact earnings in future
periods.

With
the adoption of Statement of Financial Accounting Standards (SFAS) No. 142 Goodwill and Other Intangible
Assets
(SFAS No. 142) on January 1, 2002, the Company discontinued the amortization
of goodwill resulting from acquisitions. Goodwill is now subject to impairment
testing at least annually to determine whether write-downs of the recorded
balances are necessary. The Company tests for impairment based on the goodwill
maintained at the Bank. A fair value is determined for each reporting unit
based on at least one of three various market valuation methodologies. If the
fair values of the reporting units exceed their book values, no write-down of
recorded goodwill is necessary. If the fair value of the reporting unit is
less, an expense may be required on the Companys books to write down the
related goodwill to the proper carrying value. As of December 31, 2008, the
goodwill was evaluated for impairment with no recognition of impairment
considered necessary. For the three months ended March 31, 2009, management
determined that there were no additional impairment indicators since the goodwill
was evaluated as of December 31, 2008.

The
Company recognizes deferred tax assets and liabilities for the future tax
effects of temporary differences, net operating loss carryforwards and tax
credits. Deferred tax assets are subject to managements judgment based upon
available evidence that future realization is more likely than not. If
management determines that the Company may be unable to realize all or part of
net deferred tax assets in the future, a direct charge to income tax expense
may be required to reduce the recorded value of the net deferred tax asset to
the expected realizable amount.

The Company conducts a periodic review and evaluation of its securities portfolio, taking into account the severity and duration of
each unrealized loss, as well as managements intent and ability to hold the security until the unrealized loss is substantially eliminated, in order to determine if a decline in market value of any
security below its carrying value is either temporary or other than temporary. Unrealized losses on held-to-maturity securities that are deemed temporary are disclosed but not recognized. Unrealized losses on debt
or equity securities available-for-sale that are deemed temporary are excluded from net income and reported net of deferred taxes as other comprehensive income or loss. All unrealized losses that are deemed
other than temporary on either available-for-sale or held-to-maturity securities are recognized immediately as a reduction of the carrying amount of the security, with a charge recorded in the Companys
consolidated statements of income.

22

---



The
following table presents the total dollar amount of interest income from
average interest-earning assets and the resultant yields, as well as the
interest expense on average interest-bearing liabilities, expressed in both
dollars and rates.

|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|--------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | ------------------------ | - | ------------------- |  | ---------------- | ---- | ------------------------ | - | ------------------- |  | - | ------ |  |  | ---- | -
|                                                                                  |  | For The
 Three Months Ended March 31, |        
|                                                                                  |  |                                       |        
|                                                                                  |  | 2009                                  |         | 2008                     |  
|                                                                                  |  |                                       |         |                          |  
|                                                                                  |  | Average
 Balance                      |         | Interest
 and
 Dividends |   | Average
 Yield/Rate |  | Average
 Balance |      | Interest
 and
 Dividends |   | Average
 Yield/Rate | 
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     | 
|                                                                                  |  | (Dollars
 in Thousands)               |        
|INTEREST-EARNING ASSETS:                                                          |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|Loans (1)                                                                         |  | $                                     | 458,820 |                          | $ | 7,771               |  |                  | 6.77 | %                        | $ | 447,020             |  | $ | 8,205  |  |  | 7.34 | %
|Investment securities                                                             |  |                                       | 302,347 |                          |   | 4,403               |  |                  | 5.83 |                          |   | 557,554             |  |   | 7,867  |  |  | 5.64 |  
|Other (2)(5)                                                                      |  |                                       | 68,368  |                          |   | 271                 |  |                  | 1.59 |                          |   | 25,887              |  |   | 224    |  |  | 3.46 |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|Total interest-earning assets                                                     |  |                                       | 829,535 |                          |   | 12,445              |  |                  | 6.00 |                          |   | 1,030,461           |  |   | 16,296 |  |  | 6.33 |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|Noninterest-earning assets                                                        |  |                                       | 64,368  |                          |   |                     |  |                  |      |                          |   | 44,637              |  |   |        |  |  |      |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|Total Assets                                                                      |  | $                                     | 893,903 |                          |   |                     |  |                  |      |                          | $ | 1,075,098           |  |   |        |  |  |      |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|INTEREST-BEARING LIABILITIES:                                                     |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|Interest bearing deposits                                                         |  |                                       | 204,515 |                          |   | 716                 |  |                  | 1.40 | %                        |   | 332,711             |  |   | 2,649  |  |  | 3.28 | %
|Time deposits                                                                     |  |                                       | 435,326 |                          |   | 3,301               |  |                  | 3.03 |                          |   | 447,907             |  |   | 5,084  |  |  | 4.54 |  
|Other borrowings                                                                  |  |                                       | 123,564 |                          |   | 1,351               |  |                  | 4.38 |                          |   | 114,432             |  |   | 1,400  |  |  | 4.89 |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|Total interest-bearing liabilities                                                |  |                                       | 763,405 |                          |   | 5,368               |  |                  | 2.81 |                          |   | 885,050             |  |   | 9,133  |  |  | 4.13 |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|Demand deposits                                                                   |  |                                       | 53,844  |                          |   |                     |  |                  |      |                          |   | 53,819              |  |   |        |  |  |      |  
|Noninterest-bearing liabilities                                                   |  |                                       | 10,099  |                          |   |                     |  |                  |      |                          |   | 11,069              |  |   |        |  |  |      |  
|Stockholders equity (5)                                                          |  |                                       | 66,555  |                          |   |                     |  |                  |      |                          |   | 125,160             |  |   |        |  |  |      |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|Total liabilities and stockholders equity                                        |  | $                                     | 893,903 |                          |   |                     |  |                  |      |                          | $ | 1,075,098           |  |   |        |  |  |      |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|Net interest income                                                               |  |                                       |         |                          | $ | 7,077               |  |                  |      |                          |   |                     |  | $ | 7,163  |  |  |      |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|Interest-rate spread (3)                                                          |  |                                       |         |                          |   |                     |  |                  | 3.19 | %                        |   |                     |  |   |        |  |  | 2.20 | %
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|Net interest margin (4)                                                           |  |                                       |         |                          |   |                     |  |                  | 3.41 | %                        |   |                     |  |   |        |  |  | 2.78 | %
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  
|Ratio of average interest-earning assets to average interest bearing
 liabilities |  |                                       | 1.09    |                          |   |                     |  |                  |      |                          |   | 1.16                |  |   |        |  |  |      |  
|                                                                                  |  |                                       |         |                          |   |                     |  |                  |      |                          |   |                     |  |   |        |  |  |      |  

|    |                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Includes nonaccrual loans.                                                                                                                                 
|    |                                                                                                                                                            
|(2) | Includes
 interest-bearing deposits, federal funds sold and securities purchased under
 agreements to resell.                                              
|    |                                                                                                                                                            
|(3) | Interest-rate
 spread represents the difference between the average yield on
 interest-earning assets and the average cost of interest bearing liabilities.
|    |                                                                                                                                                            
|(4) | Net interest
 margin is net interest income as a percentage of average interest-earning
 assets.                                                           
|    |                                                                                                                                                            
|(5) | Average
 balances are daily average balances except for the parent company which have
 been calculated on a monthly basis.                                 

23

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Results of Operations

Results of Operations for the Three Months
Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008.

General. Berkshire
Bancorp Inc., a bank holding company registered under the Bank Holding Company
Act of 1956, has one indirect wholly-owned banking subsidiary, The Berkshire
Bank, a New York State chartered commercial bank. The Bank is headquartered in
Manhattan and has twelve branch locations; seven branches in New York City,
four branches in Orange and Sullivan counties New York, and one branch in
Ridgefield, New Jersey.

Net Income (Loss) Allocated to Common Stockholders.Net
loss for the three-month period ended March 31, 2009 was $131,000, or $.02 per
common share, compared to net income of $2.65 million, or $.38 per common
share, for the three-month period ended March 31, 2008. The net loss recorded
for the three-month period ended March 31, 2009 includes other than temporary
impairment charges on securities of $1.025 million, or $.14 per common share,
and dividends on our Series A Preferred Stock of $1.20 million, or $.17 per
common share.

The
Companys net income is largely dependent on interest rate levels, the demand
for the Companys loan and deposit products and the strategies employed to
manage the interest rate and other risks inherent in the banking business.

Net Interest Income.
The Companys primary source of revenue is net interest income, or the
difference between interest income earned on earning assets, such as loans and
investment securities, and interest expense on interest-bearing liabilities
such as deposits and borrowings. The amount of interest income is dependent
upon many factors including: (i) the amount of interest-earning assets that the
Company can maintain based upon its funding sources; (ii) the relative amounts
of interest-earning assets versus interest-bearing liabilities; and (iii) the
difference between the yields earned on those assets and the rates paid on
those liabilities. Non-performing loans adversely affect net interest income
because they must still be funded by interest-bearing liabilities, but they do
not provide interest income. Furthermore, when we designate an asset as non-
performing, all interest which has been accrued but not actually received is
deducted from current period income, further reducing net interest income.

For
the quarter ended March 31, 2009, net interest income decreased by
approximately $86,000 to $7.08 million from $7.16 million for the quarter ended
March 31, 2008. The decrease in net interest income was primarily due to the
$200.92 million decrease in the average amounts of interest-earning assets to
$829.54 million in the 2009 quarter from $1,030.46 million in the 2008 quarter.
The decrease in net interest income was substantially offset by the $121.65
million decrease in the average amounts of interest-bearing liabilities to
$763.41 million in 2009 from $885.05 million in 2008 and by the 132 basis point
decrease in the average rates paid on the average amounts of interest-bearing
liabilities to 2.81% in the 2009 quarter from 4.13% in the 2008 quarter. The
Companys interest-rate spread, the difference between the average yield on
interest-earning assets and the average cost of interest-bearing liabilities,
increased by 99 basis points to 3.19% in the 2009 quarter from 2.20% in the
2008 quarter.

Net Interest Margin.Net
interest margin, or annualized net interest income as a percentage of average
interest-earning assets, increased by 63 basis points to 3.41% in the quarter
ended March 31, 2009 from 2.78% in the quarter ended March 31, 2008. We seek to
secure and retain customer deposits with competitive products and rates, while
making strategic use of the prevailing interest rate environment to borrow
funds at what we believe to be attractive rates. We invest such deposits and
borrowed funds in a prudent mix of fixed and adjustable rate loans, investment
securities and short-term interest-earning assets. The increase in net interest
margin is primarily due to the increase in the average amount of

24

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higher yielding
loans as a percentage of our total mix of interest-earning assets. The average
amount of loans in our portfolio increased by $11.80 million to $458.82 million
in the quarter ended March 31, 2009 from $447.02 million in the quarter ended
March 31, 2008.

Interest Income.
Total interest income for the quarter ended March 31, 2009 decreased by $3.85
million to $12.45 million from $16.30 million for the quarter ended March 31,
2008. The decrease in total interest income was primarily due to the decrease
in the average amounts of interest-earning assets as discussed above.

The
following table presents the composition of interest income for the indicated
periods.

|                      |  |                                    |        |             |  |                  |   |             |        |  |  |        |  
|--------------------- |  | ---------------------------------- | ------ | ----------- |  | ---------------- | - | ----------- | ------ |  |  | ------ | -
|                      |  | Three Months Ended March 31,       |       
|                      |  |                                    |       
|                      |  | 2009                               |        | 2008        | 
|                      |  |                                    |        |             | 
|                      |  | Interest
 Income                   |        | % of
 Total |  | Interest
 Income |   | % of
 Total |       
|                      |  | (In thousands, except percentages) |       
|Loans                 |  | $                                  | 7,771  |             |  | 62.44            | % | $           | 8,205  |  |  | 50.35  | %
|Investment Securities |  |                                    | 4,403  |             |  | 35.38            |   |             | 7,867  |  |  | 48.28  |  
|Other                 |  |                                    | 271    |             |  | 2.18             |   |             | 224    |  |  | 1.37   |  
|                      |  |                                    |        |             |  |                  |   |             |        |  |  |        |  
|Total Interest Income |  | $                                  | 12,445 |             |  | 100.00           | % | $           | 16,296 |  |  | 100.00 | %
|                      |  |                                    |        |             |  |                  |   |             |        |  |  |        |  

Loans,
which are inherently risky and therefore command a higher return than our
portfolio of investment securities and other interest-earning assets, increased
to 55.31% of our total amount of average interest-earning assets during the
quarter ended March 31, 2009 from 43.38% during the quarter ended March 31,
2008. Investment securities represented 36.45% and 54.11% of total
interest-earning assets in the 2009 quarter and the 2008 quarter, respectively.
While we actively seek to originate new loans with qualified borrowers who meet
the Banks underwriting standards, our strategy has been to maintain those
standards, sacrificing some current income to avoid possible large future
losses in the loan portfolio.

At
March 31, 2009, our portfolio of investment securities included approximately
$94.12 million at cost of auction rate securities and $55.50 million of
corporate notes for which an other than temporary impairment charge has not
been recorded in our financial statements. The fair value of these securities,
presently $45.81 million and $39.86 million, respectively, could be negatively
impacted in the future. Were this to occur, we may be required to reflect a
write down of certain of our securities in future periods as a charge to
earnings if any of our securities are deemed to be other than temporarily
impaired. Such impairment charge could be material to our results of
operations.

We
are currently negotiating a potential settlement of claims we asserted against
the issuing financial institutions of the auction rate securities in our
investment portfolio pursuant to the agreement these financial institutions
have reached with the SEC and the Attorney General of the State of New York.
The outcome of these negotiations and the amount we may recover in a settlement
agreement, if any, is uncertain at this time.

As
required by SFAS No. 115, securities are classified into three categories:
trading, held-to-maturity and available-for-sale. Securities that are bought
and held principally for the purpose of selling them in the near term are
classified as trading securities and are reported at fair value with unrealized
gains and losses included in trading account activities in the statement of
income. Securities that the Bank has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost. All
other securities are classified as available-for-sale.

25

---



Available-for-sale
securities are reported at fair value with unrealized gains and losses
included, on an after-tax basis, as a separate component of net worth. The Bank
does not have a trading securities portfolio and has no current plans to maintain
such a portfolio in the future. The Bank generally classifies all newly
purchased debt securities as available for sale in order to maintain the
flexibility to sell those securities if the need arises. The Bank has a limited
portfolio of securities classified as held to maturity, represented principally
by securities purchased a number of years ago.

Federal Home Loan Bank Stock. The Bank owns
stock of the FHLBNY which is necessary for it to be a member of the FHLBNY.
Membership requires the purchase of stock equal to 1% of the Banks residential
mortgage loans or 5% of the outstanding borrowings, whichever is greater. The
stock is redeemable at par, therefore, its cost is equivalent to its redemption
value. The Banks ability to redeem FHLBNY shares is dependent upon the
redemption practices of the FHLBNY. At March 31, 2009, the FHLBNY neither
placed restrictions on redemption of shares in excess of a members required
investment in stock, nor stated that it will cease paying dividends. The Bank
did not consider this asset impaired at either March 31, 2009 or 2008.

Interest Expense.Total
interest expense for the quarter ended March 31, 2009 decreased by $3.77
million to $5.37 million from $9.13 million for the quarter ended March 31,
2008. The decrease in interest expense was due primarily to the decrease in the
average amounts of interest-bearing liabilities, to $763.41 million in the 2009
quarter from $885.05 million in the 2008 quarter, and the decrease in the
average rates paid on the average amounts of interest-bearing liabilities to
2.81% in the 2009 quarter from 4.13% in the 2008 quarter.

The
following table presents the composition of interest expense for the indicated
periods.

|                          |  |                                    |       |             |  |                   |   |             |       |  |  |        |  
|------------------------- |  | ---------------------------------- | ----- | ----------- |  | ----------------- | - | ----------- | ----- |  |  | ------ | -
|                          |  | Three Months Ended March 31,       |      
|                          |  |                                    |      
|                          |  | 2009                               |       | 2008        | 
|                          |  |                                    |       |             | 
|                          |  | Interest
 Expense                  |       | % of
 Total |  | Interest
 Expense |   | % of
 Total |      
|                          |  | (In thousands, except percentages) |      
|Interest-Bearing Deposits |  | $                                  | 716   |             |  | 13.34             | % | $           | 2,649 |  |  | 29.00  | %
|Time Deposits             |  |                                    | 3,301 |             |  | 61.49             |   |             | 5,084 |  |  | 55.67  |  
|Other Borrowings          |  |                                    | 1,351 |             |  | 25.17             |   |             | 1,400 |  |  | 15.33  |  
|                          |  |                                    |       |             |  |                   |   |             |       |  |  |        |  
|Total Interest Expense    |  | $                                  | 5,368 |             |  | 100.00            | % | $           | 9,133 |  |  | 100.00 | %
|                          |  |                                    |       |             |  |                   |   |             |       |  |  |        |  

Non-Interest Income.
Non-interest income consists primarily of realized gains on sales of marketable
securities and service fee income. For the three months ended March 31, 2009,
total non-interest income decreased by $67,000 to $399,000 from $466,000 for
the three months ended March 31, 2008. The decrease was primarily attributable
to the decrease of $33,000 in service charges on deposit accounts and the
decrease of $51,000 in other income.

26

---



Non-Interest Expense.
Non-interest expense includes salaries and employee benefits, occupancy and
equipment expenses, legal and professional fees and other operating expenses
associated with the day-to-day operations of the Company. Total non-interest
expense for the three months ended March 31, 2009, including the other than
temporary impairment charges on securities of $1.025 million, was $5.68
million. Excluding the other than temporary impairment charges on securities,
non-interest expense increased by $745,000 to $4.66 million from $3.91 million
for the three months ended March 31, 2008. The increase was primarily due to
the $577,000 increase in our FDIC assessment.

The
following table presents the components of non-interest expense for the
indicated periods.

|                                                      |  |                                    |       |             |  |                       |   |             |       |  |  |        |  
|----------------------------------------------------- |  | ---------------------------------- | ----- | ----------- |  | --------------------- | - | ----------- | ----- |  |  | ------ | -
|                                                      |  | Three Months Ended March 31,       |      
|                                                      |  |                                    |      
|                                                      |  | 2009                               |       | 2008        | 
|                                                      |  |                                    |       |             | 
|                                                      |  | Non-Interest
 Expense              |       | % of
 Total |  | Non-Interest
 Expense |   | % of
 Total |      
|                                                      |  | (In thousands, except percentages) |      
|Salaries and Employee Benefits                        |  | $                                  | 2,361 |             |  | 41.57                 | % | $           | 2,399 |  |  | 61.36  | %
|Net Occupancy Expense                                 |  |                                    | 506   |             |  | 8.91                  |   |             | 538   |  |  | 13.76  |  
|Equipment Expense                                     |  |                                    | 99    |             |  | 1.74                  |   |             | 95    |  |  | 2.43   |  
|FDIC Assessment                                       |  |                                    | 683   |             |  | 12.02                 |   |             | 106   |  |  | 2.71   |  
|Data Processing Expense                               |  |                                    | 94    |             |  | 1.65                  |   |             | 111   |  |  | 2.84   |  
|Other than temporary impairment charges on securities |  |                                    | 1,025 |             |  | 18.05                 |   |             |      |  |  |       |  
|Other                                                 |  |                                    | 912   |             |  | 16.06                 |   |             | 661   |  |  | 16.90  |  
|                                                      |  |                                    |       |             |  |                       |   |             |       |  |  |        |  
|Total Non-Interest Expense                            |  | $                                  | 5,680 |             |  | 100.00                | % | $           | 3,910 |  |  | 100.00 | %
|                                                      |  |                                    |       |             |  |                       |   |             |       |  |  |        |  

Provision for Income Tax.
During the three-month periods ended March 31, 2009 and 2008, we recorded
income tax expense of $577,000 and $920,000, respectively. The tax provisions
for federal, state and local taxes recorded for the 2009 and 2008 periods
represent effective tax rates of 35.05% and 25.78%, respectively. The increase
in the effective tax rate in the 2009 period compared to the 2008 period is
primarily due to the tax-free income earned on certain of the auction rate
securities in our investment portfolio in 2008.

Issuer Purchases of Equity Securities

On
May 15, 2003, The Companys Board of Directors authorized the purchase of up to
an additional 450,000 shares of its Common Stock in the open market, from time
to time, depending upon prevailing market conditions, thereby increasing the
maximum number of shares which may be purchased by the Company from 1,950,000
shares of Common Stock to 2,400,000 shares of Common Stock. Since 1990 through
March 31, 2009, the Company has purchased a total of 1,898,909 shares of its
Common Stock. We did not repurchase shares of the Companys Common Stock during
the first quarter of 2009. At March 31, 2009, there were 501,091 shares of
Common Stock which may yet be purchased under our stock repurchase plan.

27

---



|          |                                                          
|--------- | ---------------------------------------------------------
|ITEM 3  - | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk.
Fluctuations in market interest rates can have a material effect on the Banks
net interest income because the yields earned on loans and investments may not
adjust to market rates of interest with the same frequency, or with the same
speed, as the rates paid by the Bank on its deposits.

Most
of the Banks deposits are either interest-bearing demand deposits or short term
certificates of deposit and other interest-bearing deposits with interest rates
that fluctuate as market rates change. Management of the Bank seeks to reduce
the risk of interest rate fluctuations by concentrating on loans and securities
investments with either short terms to maturity or with adjustable rates or
other features that cause yields to adjust based upon interest rate
fluctuations. In addition, to cushion itself against the potential adverse
effects of a substantial and sustained increase in market interest rates, the
Bank has from time to time purchased off balance sheet interest rate cap
contracts which generally provide that the Bank will be entitled to receive
payments from the other party to the contract if interest rates exceed specified
levels. These contracts, when written, are entered into with major financial
institutions.

The
Company seeks to maximize its net interest margin within an acceptable level of
interest rate risk. Interest rate risk can be defined as the amount of the
forecasted net interest income that may be gained or lost due to favorable or
unfavorable movements in interest rates. Interest rate risk, or sensitivity,
arises when the maturity or repricing characteristics of assets differ
significantly from the maturity or repricing characteristics of liabilities.

28

---



In
the banking industry, a traditional measure of interest rate sensitivity is
known as gap analysis, which measures the cumulative differences between the
amounts of assets and liabilities maturing or repricing at various time
intervals. The following table sets forth the Companys interest rate repricing
gaps for selected maturity periods:

|                                   |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  
|---------------------------------- |  | ------ |  | ------------------------------------------------------------------------------------------------------------- | -------- | ------------------ |  | ---------------- | -- | ----------- | -------- | ----- |  | ------- | - |  | ------- | -
|                                   |  |        |  | Berkshire Bancorp Inc.Interest Rate Sensitivity Gap
 at March 31, 2009(in thousands, except for
 percentages) |         
|                                   |  |        |  |                                                                                                               |         
|                                   |  |        |  | 3 Monthsor Less                                                                                               |          | 3 Through12 Months |  | 1 Through3 Years |    | Over3 Years |          | Total | 
|                                   |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       | 
|Federal funds sold                 |  |        |  |                                                                                                               |         |                    |  |                 |    |             |         |       |  |        |   |  |        |  
|                                   |  | (Rate) |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  
|Interest bearing deposits in banks |  |        |  |                                                                                                               | 19,784   |                    |  | 25,000           |    |             |         |       |  |        |   |  | 44,784  |  
|                                   |  | (Rate) |  |                                                                                                               | 0.37     | %                  |  | 2.48             | %  |             |          |       |  |         |   |  | 1.55    | %
|Loans (1)(2)                       |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  
|Adjustable rate loans              |  |        |  |                                                                                                               | 113,299  |                    |  | 10,704           |    |             | 33,873   |       |  | 54,373  |   |  | 212,249 |  
|                                   |  | (Rate) |  |                                                                                                               | 6.23     | %                  |  | 5.95             | %  |             | 7.00     | %     |  | 6.94    | % |  | 6.52    | %
|Fixed rate loans                   |  |        |  |                                                                                                               | 12,435   |                    |  | 14,259           |    |             | 28,003   |       |  | 188,040 |   |  | 242,737 |  
|                                   |  | (Rate) |  |                                                                                                               | 5.75     | %                  |  | 7.34             | %  |             | 7.68     | %     |  | 6.42    | % |  | 6.58    | %
|                                   |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  
|Total loans                        |  |        |  |                                                                                                               | 125,734  |                    |  | 24,963           |    |             | 61,876   |       |  | 242,413 |   |  | 454,986 |  
|Investments (3)(4)                 |  |        |  |                                                                                                               | 157,118  |                    |  | 30,390           |    |             | 27,801   |       |  | 165,099 |   |  | 380,408 |  
|                                   |  | (Rate) |  |                                                                                                               | 4.12     | %                  |  | 3.34             | %  |             | 5.19     | %     |  | 5.72    | % |  | 4.83    | %
|                                   |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  
|Total rate-sensitive assets        |  |        |  |                                                                                                               | 302,636  |                    |  | 80,353           |    |             | 89,677   |       |  | 407,512 |   |  | 880,178 |  
|                                   |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  
|                                  
|Deposit accounts (5)               |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  
|Savings and NOW                    |  |        |  |                                                                                                               | 188,006  |                    |  |                 |    |             |         |       |  |        |   |  | 188,006 |  
|                                   |  | (Rate) |  |                                                                                                               | 1.00     | %                  |  |                  |    |             |          |       |  |         |   |  | 1.00    | %
|Money market                       |  |        |  |                                                                                                               | 10,336   |                    |  |                 |    |             |         |       |  |        |   |  | 10,336  |  
|                                   |  | (Rate) |  |                                                                                                               | 0.57     | %                  |  |                  |    |             |          |       |  |         |   |  | 0.57    | %
|Time Deposits                      |  |        |  |                                                                                                               | 252,605  |                    |  | 180,601          |    |             | 705      |       |  | 2,197   |   |  | 436,108 |  
|                                   |  | (Rate) |  |                                                                                                               | 2.94     | %                  |  | 2.58             | %  |             | 2.49     | %     |  | 1.80    | % |  | 2.79    | %
|                                   |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  
|Total deposit accounts             |  |        |  |                                                                                                               | 450,947  |                    |  | 180,601          |    |             | 705      |       |  | 2,197   |   |  | 634,450 |  
|Repurchase Agreements              |  |        |  |                                                                                                               |         |                    |  |                 |    |             |         |       |  | 57,000  |   |  | 57,000  |  
|                                   |  | (Rate) |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  | 4.10    | % |  | 4.10    | %
|Other borrowings                   |  |        |  |                                                                                                               | 73       |                    |  | 6,163            |    |             | 14,000   |       |  | 40,836  |   |  | 61,072  |  
|                                   |  | (Rate) |  |                                                                                                               | 3.98     | %                  |  | 4.88             | %  |             | 5.97     | %     |  | 3.76    | % |  | 4.38    | %
|                                   |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  
|Total rate-sensitive liabilities   |  |        |  |                                                                                                               | 451,020  |                    |  | 186,764          |    |             | 14,705   |       |  | 100,033 |   |  | 752,522 |  
|                                   |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  
|                                  
|Interest rate caps                 |  |        |  |                                                                                                               | 40,000   |                    |  |                 |    |             |         |       |  | (40,000 | ) |  |        |  
|Gap (repricing differences)        |  |        |  |                                                                                                               | (188,384 | )                  |  | (106,411         | )  |             | 74,972   |       |  | 347,479 |   |  | 127,656 |  
|                                   |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  
|                                   |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  
|Cumulative Gap                     |  |        |  |                                                                                                               | (188,384 | )                  |  | (294,795         | )  |             | (219,823 | )     |  | 127,656 |   |  |         |  
|                                   |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  
|Cumulative Gap to Total Rate       |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  
|Sensitive Assets                   |  |        |  |                                                                                                               | (21.40   | )%                 |  | (33.49           | )% |             | (24.97   | )%    |  | 14.50   | % |  |         |  
|                                   |  |        |  |                                                                                                               |          |                    |  |                  |    |             |          |       |  |         |   |  |         |  

|    |                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Adjustable-rate loans are
 included in the period in which the interest rates are next scheduled to
 adjust rather than in the period in which the loans mature. Fixed-rate loans
 are scheduled according to their maturity dates.                                                                                        
|    |                                                                                                                                                                                                                                                                                                                            
|(2) | Includes nonaccrual loans.                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                            
|(3) | Investments are scheduled
 according to their respective repricing (variable rate loans) and maturity
 (fixed rate securities) dates.                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                            
|(4) | Investments are stated at
 book value.                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                            
|(5) | NOW accounts and savings
 accounts are regarded as readily accessible withdrawal accounts. The balances
 in such accounts have been allocated among maturity/repricing periods based
 upon The Berkshire Banks historical experience. All other time accounts are
 scheduled according to their respective maturity dates.

29

---



Provision for Loan Losses.
The allowance for loan losses is the estimated amount considered necessary to
cover credit losses inherent in the loan portfolio at the balance sheet date.
The allowance is established through the provision for loan losses that is
charged against income. In determining the allowance for loan losses,
management makes significant estimates and therefore has identified the
allowance as a critical accounting policy. The methodology for determining the
allowance for loan losses is considered a critical accounting policy by
management due to the high degree of judgment involved, the subjectivity of the
assumptions utilized, and the potential for changes in the economic environment
that could result in changes to the amount of the recorded allowance for loan
losses.

The
allowance for loan losses has been determined in accordance with US GAAP,
principally SFAS No. 5, Accounting for
Contingencies and SFAS No. 114, Accounting
by Creditors for Impairment of a Loan, an amendment to FASB
Statements No. 5 and 15, as amended. Under the above accounting principles, we
are required to maintain an allowance for probable losses at the balance sheet
date. We are responsible for the timely and periodic determination of the
amount of the allowance required. Management believes that the allowance for
loan losses is adequate to cover specifically identifiable losses, as well as
estimated losses inherent in our portfolio for which certain losses are
probable but not specifically identifiable.

Management
performs a quarterly evaluation of the adequacy of the allowance for loan
losses. The analysis of the allowance for loan losses has two components:
specific and general allocations. Specific allocations are made for loans
determined to be impaired. Impairment is measured by determining the present
value of expected future cash flows or, as a practical expedient for
collateral-dependent loans, the fair value of the collateral adjusted for
market conditions and selling expenses. The Bank considers its investment in
one-to-four family real estate loans and consumer loans to be smaller balance
homogeneous loans and therefore excluded from separate identification for
evaluation of impairment. These homogeneous loan groups are evaluated for
impairment on a collective basis under SFAS No. 114.

The
general allocation is determined by segregating the remaining loans by type of
loan, risk weighting (if applicable) and payment history. Management also
analyzes historical loss experience, delinquency trends, general economic
conditions, geographic concentrations, and industry and peer comparisons. This
analysis establishes factors that are applied to the loan segments to determine
the amount of the general allocations. This evaluation is inherently subjective
as it requires material estimates that may be susceptible to significant
revisions based upon changes in economic and real estate market conditions.
Actual loan losses may be significantly more than the allowance for loan losses
management has established which could have a material negative effect on the
Companys financial results.

On
a quarterly basis, the Banks management committee reviews the current status
of various loan assets in order to evaluate the adequacy of the allowance for
loan losses. In this evaluation process, specific loans are analyzed to
determine their potential risk of loss. This process includes all loans,
concentrating on non-accrual and classified loans. Each non-accrual or
classified loan is evaluated for potential loss exposure. Any shortfall results
in a recommendation of a specific allowance if the likelihood of loss is
evaluated as probable. To determine the adequacy of collateral on a particular
loan, an estimate of the fair market value of the collateral is based on the
most current appraised value available. This appraised value is then reduced to
reflect estimated liquidation expenses.

30

---



As
a substantial amount of our loan portfolio is collateralized by real estate,
appraisals of the underlying value of property securing loans are critical in
determining the amount of the allowance required for specific loans.
Assumptions for appraisal valuations are instrumental in determining the value
of properties. Overly optimistic assumptions or negative changes to assumptions
could significantly impact the valuation of a property securing a loan and the
related allowance determined. The assumptions supporting such appraisals are
carefully reviewed by management to determine that the resulting values
reasonably reflect amounts realizable on the related loans. Based on the
composition of our loan portfolio, management believes the primary risks are
increases in interest rates, a decline in the economy, generally, and a decline
in real estate market values in the New York metropolitan area. Any one or
combination of these events may adversely affect our loan portfolio resulting
in increased delinquencies, loan losses and future levels of loan loss
provisions. Management believes the allowance for loan losses reflects the
inherent credit risk in our portfolio, the level of our non-performing loans
and our charge-off experience.

Although
management believes that we have established and maintained the allowance for
loan losses at adequate levels, additions may be necessary if future economic
and other conditions differ substantially from the current operating
environment. Although management uses what it believes is the best information
available, the level of the allowance for loan losses remains an estimate that
is subject to significant judgment and short-term change. In addition, the
Federal Deposit Insurance Corporation, New York State Banking Department, and
other regulatory bodies, as an integral part of their examination process, will
periodically review our allowance for loan losses. Such agencies may require us
to recognize adjustments to the allowance based on its judgments about information
available to them at the time of their examination.

The
following table sets forth information with respect to activity in the
Companys allowance for loan losses during the periods indicated (in thousands,
except percentages):

|                                                         |  |                               |         |      |   |         |  
|-------------------------------------------------------- |  | ----------------------------- | ------- | ---- | - | ------- | -
|                                                         |  | Three Months Ended
 March 31, |        
|                                                         |  |                               |        
|                                                         |  | 2009                          |         | 2008 |  
|                                                         |  |                               |         |      |  
|                                                        
|Average loans outstanding                                |  | $                             | 458,820 |      | $ | 447,020 |  
|                                                         |  |                               |         |      |   |         |  
|Allowance at beginning of
 period                        |  |                               | 9,204   |      |   | 4,183   |  
|Charge-offs:                                             |  |                               |         |      |   |         |  
|Commercial and other loans                               |  |                               | 102     |      |   | 1       |  
|                                                        
|                                                         |  |                               |         |      |   |         |  
|Total loans charged-off                                  |  |                               | 102     |      |   | 1       |  
|                                                         |  |                               |         |      |   |         |  
|Recoveries:                                              |  |                               |         |      |   |         |  
|Commercial and other loans                               |  |                               | 105     |      |   | 66      |  
|                                                         |  |                               |         |      |   |         |  
|Total loans recovered                                    |  |                               | 105     |      |   | 66      |  
|                                                         |  |                               |         |      |   |         |  
|Net recoveries                                           |  |                               | 3       |      |   | 65      |  
|                                                         |  |                               |         |      |   |         |  
|Provision for loan losses
 charged to operating expenses |  |                               | 150     |      |   | 150     |  
|                                                         |  |                               |         |      |   |         |  
|Allowance at end of period                               |  | $                             | 9,357   |      | $ | 4,398   |  
|                                                         |  |                               |         |      |   |         |  
|Ratio of net recoveries
 to average loans outstanding    |  |                               | 0.00    | %    |   | 0.01    | %
|                                                         |  |                               |         |      |   |         |  
|Allowance as a percent of
 total loans                   |  |                               | 2.06    | %    |   | 0.98    | %
|                                                         |  |                               |         |      |   |         |  
|Total loans at end of
 period                            |  | $                             | 454,986 |      | $ | 446,797 |  
|                                                         |  |                               |         |      |   |         |  

31

---



Loan Portfolio.

Loan
Portfolio Composition. The Companys loans consist
primarily of mortgage loans secured by residential and non-residential
properties as well as commercial loans which are either unsecured or secured by
personal property collateral. Most of the Companys loans are either made to
individuals or personally guaranteed by the principals of the business to which
the loan is made. At March 31, 2009 and December 31, 2008, the Company had
loans, net of unearned income, of $453.94 million and $466.75 million,
respectively, and allowances for loan losses of $9.36 million and $9.20
million, respectively. From time to time, the Bank may originate residential
mortgage loans, sell them on the secondary market, normally recognizing fee
income in connection with the sale.

Interest
rates on loans are affected by the demand for loans, the supply of money
available for lending, credit risks, the rates offered by competitors and other
conditions. These factors are in turn affected by, among other things, economic
conditions, monetary policies of the federal government, and legislative tax
policies.

In
order to manage interest rate risk, the Bank focuses its efforts on loans with
interest rates that adjust based upon changes in the prime rate or changes in
United States Treasury or similar indices. Generally, credit risks on
adjustable-rate loans are somewhat greater than on fixed-rate loans primarily
because, as interest rates rise, so do borrowers payments, increasing the
potential for default. The Bank seeks to impose appropriate loan underwriting
standards in order to protect against these and other credit related risks
associated with its lending operations.

In
addition to analyzing the income and assets of its borrowers when underwriting
a loan, the Bank obtains independent appraisals on all material real estate in
which the Bank takes a mortgage. The Bank generally obtains title insurance in
order to protect against title defects on mortgaged property.

Commercial
and Mortgage Loans. The Bank originates commercial
mortgage loans secured by office buildings, retail establishments, multi-family
residential real estate and other types of commercial property. Substantially
all of the properties are located in the New York City metropolitan area.

The
Bank generally makes commercial mortgage loans with loan to value ratios not to
exceed 75% and with terms to maturity that do not exceed 15 years. Loans
secured by commercial properties generally involve a greater degree of risk
than one- to four-family residential mortgage loans. Because payments on such
loans are often dependent on successful operation or management of the
properties, repayment may be subject, to a greater extent, to adverse
conditions in the real estate market or the economy. The Bank seeks to minimize
these risks through its underwriting policies. The Bank evaluates the
qualifications and financial condition of the borrower, including credit
history, profitability and expertise, as well as the value and condition of the
underlying property. The factors considered by the Bank include net operating
income; the debt coverage ratio (the ratio of cash net income to debt service);
and the loan to value ratio. When evaluating the borrower, the Bank considers
the financial resources and income level of the borrower, the borrowers
experience in owning or managing similar property and the Banks lending
experience with the borrower. The Banks policy requires borrowers to present
evidence of the ability to repay the loan without having to resort to the sale
of the mortgaged property. The Bank also seeks to focus its commercial mortgage
loans on loans to companies with operating businesses, rather than passive real
estate investors.

32

---



Commercial
Loans. The Bank makes commercial loans to businesses
for inventory financing, working capital, machinery and equipment purchases,
expansion, and other business purposes. These loans generally have higher
yields than mortgages loans, with maturities of one year, after which the
borrowers financial condition and the terms of the loan are re-evaluated. At
March 31, 2009 and 2008, approximately $62.64 million and $67.28 million,
respectively, or 15.06% and 16.97%, respectively, of the Companys total loan
portfolio consisted of such loans.

Commercial
loans tend to present greater risks than mortgage loans because the collateral,
if any, tends to be rapidly depreciable, difficult to sell at full value and is
often easier to conceal. In order to limit these risks, the Bank evaluates
these loans based upon the borrowers ability to repay the loan from ongoing
operations. The Bank considers the business history of the borrower and perceived
stability of the business as important factors when considering applications
for such loans. Occasionally, the borrower provides commercial or residential
real estate collateral for such loans, in which case the value of the
collateral may be a significant factor in the loan approval process.

Residential
Mortgage Loans (1 to 4 family loans). The Bank makes
residential mortgage loans secured by first liens on one-to-four family
owner-occupied or rental residential real estate. At March 31, 2009 and 2008,
approximately $137.64 million and $139.26 million, respectively, or 30.25% and
31.17%, respectively, of the Companys total loan portfolio consisted of such
loans. The Bank offers both adjustable rate mortgages (ARMS) and fixed-rate
mortgage loans. The relative proportion of fixed-rate loans versus ARMs
originated by the Bank depends principally upon current customer preference,
which is generally driven by economic and interest rate conditions and the
pricing offered by the Banks competitors. At March 31, 2009 and 2008,
approximately 13.01% and 12.50%, respectively, of the Banks residential
one-to- four family owner-occupied first mortgage portfolio were ARMs and
approximately 86.99% and 87.50%, respectively, were fixed-rate loans. The percentage
represented by fixed-rate loans tends to increase during periods of low
interest rates. The ARMs generally carry annual caps and life-of-loan ceilings,
which limit interest rate adjustments.

The
Banks residential loan underwriting criteria are generally comparable to those
required by the Federal National Mortgage Association (FNMA) and other major
secondary market loan purchasers. Generally, ARM credit risks are somewhat
greater than fixed-rate loans primarily because, as interest rates rise, the
borrowers payments rise, increasing the potential for default. The Banks
teaser rate ARMs (ARMs with low initial interest rates that are not based upon
the index plus the margin for determining future rate adjustments) were
underwritten based on the payment due at the fully-indexed rate.

In
addition to verifying income and assets of borrowers, the Bank obtains
independent appraisals on all residential first mortgage loans and title
insurance is required at closing. Private mortgage insurance is required on all
loans with a loan-to-value ratio in excess of 80% and the Bank requires real
estate tax escrows on such loans. Real estate tax escrows are voluntary on
residential mortgage loans with loan-to-value ratios of 80% or less.

Fixed-rate
residential mortgage loans are generally originated by the Bank for terms of 15
to 30 years. Although 30 year fixed-rate mortgage loans may adversely affect
our net interest income in periods of rising interest rates, the Bank
originates such loans to satisfy customer demand. Such loans are generally
originated at initial interest rates which exceed the fully indexed rate on
ARMs offered at the same time. Fixed-rate residential mortgage loans originated
by the Bank generally include due-on-sale clauses, which permit the Bank to
demand payment in full if the borrower sells the property without the Banks
consent.

33

---



Due-on-sale
clauses are an important means of adjusting the rates on the Banks fixed-rate
mortgage loan portfolio, and the Bank will generally exercise its rights under
these clauses if necessary to maintain market yields.

ARMs
originated in recent years have interest rates that adjust annually based upon
the movement of the one year treasury bill constant maturity index, plus a
margin of 2.00% to 2.75%. These loans generally have a maximum interest rate
adjustment of 2% per year, with a lifetime maximum interest rate adjustment,
measured from the initial interest rate, of 5.5% or 6.0%.

The
Bank offers a variety of other loan products including residential single
family construction loans to persons who intend to occupy the property upon
completion of construction, home equity loans secured by junior mortgages on
one-to-four family owner-occupied residences, and short-term fixed-rate
consumer loans either unsecured or secured by monetary assets such as bank
deposits and marketable securities or personal property. At March 31, 2009 and
2008, the Companys loan portfolio was comprised of $254.71 million and $240.26
million, respectively, or 55.98% and 53.17%, respectively, of other loan
products.

Capital Adequacy

Quantitative
measures established by regulations to ensure capital adequacy require the Bank
to maintain minimum amounts and ratios (set forth in the table below) of total
and Tier I capital (as defined in the regulations) to risk- weighted assets,
and of Tier I capital to average assets. Management believes that, as of March
31, 2009, the Bank meets all capital adequacy requirements to which it is
subject.

As
of March 31, 2009, the Bank met all regulatory requirements for classification
as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Bank must maintain minimum
total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in
the following table. There are no conditions or events since that date that
management believes have changed the Banks category.

The
following table set forth the actual and required regulatory capital amounts
and ratios of the Company and the Bank as of March 31, 2009. (dollars in
thousands):

|                                          |  |        |         |                                 |  |                                                                    |   |       |        |        |  |       |   |   |        |  |  |       |  
|----------------------------------------- |  | ------ | ------- | ------------------------------- |  | ------------------------------------------------------------------ | - | ----- | ------ | ------ |  | ----- | - | - | ------ |  |  | ----- | -
|                                          |  | Actual |         | For
 capital
 adequacy purposes |  | To be
 wellcapitalized under
 prompt corrective
 action provisions |  
|                                          |  |        |         |                                 |  |                                                                    |  
|                                          |  | Amount |         | Ratio                           |  | Amount                                                             |   | Ratio |        | Amount |  | Ratio |  
|                                          |  |        |         |                                 |  |                                                                    |   |       |        |        |  |       |  
|                                          |  |        |         |                                 |  |                                                                    |   |       |        |        |  |       |   |   |        |  |  |       |  
|March 31,
 2009                           |  |        |         |                                 |  |                                                                    |   |       |        |        |  |       |   |   |        |  |  |       |  
|Total Capital (to
 Risk-Weighted Assets)  |  |        |         |                                 |  |                                                                    |   |       |        |        |  |       |   |   |        |  |  |       |  
|Company                                   |  | $      | 117,945 |                                 |  | 18.4                                                               | % | $     | 51,291 |        |  | 38.0  | % |   |       |  |  | N/A   |  
|Bank                                      |  |        | 86,975  |                                 |  | 13.9                                                               | % |       | 50,073 |        |  | 38.0  | % | $ | 61,719 |  |  | 310.0 | %
|Tier I Capital (to
 Risk-Weighted Assets) |  |        |         |                                 |  |                                                                    |   |       |        |        |  |       |   |   |        |  |  |       |  
|Company                                   |  |        | 108,588 |                                 |  | 16.9                                                               | % |       | 25,645 |        |  | 34.0  | % |   |       |  |  | N/A   |  
|Bank                                      |  |        | 79,130  |                                 |  | 12.6                                                               | % |       | 25,036 |        |  | 34.0  | % |   | 37,031 |  |  | 36.0  | %
|Tier I Capital (to Average
 Assets)       |  |        |         |                                 |  |                                                                    |   |       |        |        |  |       |   |   |        |  |  |       |  
|Company                                   |  |        | 108,588 |                                 |  | 12.2                                                               | % |       | 35,756 |        |  | 34.0  | % |   |       |  |  | N/A   |  
|Bank                                      |  |        | 79,130  |                                 |  | 9.3                                                                | % |       | 34,194 |        |  | 34.0  | % |   | 42,743 |  |  | 35.0  | %

34

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Liquidity

The
management of the Companys liquidity focuses on ensuring that sufficient funds
are available to meet loan funding commitments, withdrawals from deposit
accounts, the repayment of borrowed funds, and ensuring that the Bank and the
Company comply with regulatory liquidity requirements. Liquidity needs of the
Bank have historically been met by deposits, investments in federal funds sold,
principal and interest payments on loans, and maturities of investment
securities.

At
March 31, 2009, our portfolio of investment securities included approximately
$94.12 million at cost of auction rate securities for which an other than
temporary impairment (OTTI) charge has not been recorded in our financial
statements. Auction rate securities are generally long-term debt instruments
that provide liquidity through a Dutch auction process that resets the
applicable interest rate at pre-determined calendar intervals, generally every
28 days. As a result of the auction failures beginning in February 2008, the
fair value of these securities, presently $45.80 million, may be negatively
impacted in the future.

The
current uncertainties in the credit markets have negatively impacted our
ability to liquidate, if necessary, investments in auction rate securities. We
are not certain as to when the liquidity issues relating to these investments
will improve; however, we have the ability to hold these available for sale
securities to maturity, (predominately 19 years after December 31, 2008)
thereby recovering our investment. We may be required to reflect a write-down
of certain of our auction rate securities in future periods as a charge to
earnings if any of our auction rate securities are deemed to be other-than-temporarily
impaired. Such impairment charge would be recorded as other expense and could
be material to our results of operations. The auction rate securities in our
investment portfolio are currently paying interest with rates ranging from
0.765% to 8.791%.

Approximately
$7.0 million principal amount of auction rate securities that became due during
the first quarter of 2009 were paid.

Based
on our expected operating cash flows, and our other sources of cash, we do not
expect the potential lack of liquidity in these investments to affect our
capital, liquidity or our ability to execute our current business plan.

For
the parent company, Berkshire Bancorp Inc., liquidity means having cash
available to fund its operating expenses and to pay stockholder dividends on
its preferred and common stock, when and if declared by the Companys Board of
Directors. On March 31, 2009, the Company announced that its Board of Directors
had temporarily suspended its previously announced policy of paying a regular
cash dividend of $.20 per common share (payable in semi-annual installments),
and would not declare or pay a semi-annual dividend in April 2009. We are
current as to dividend payments on our preferred stock.

The
ability of the Company to meet these obligations, including the payment of
dividends on its preferred and common stock, is not currently dependent upon
the receipt of dividends from the Bank. At March 31, 2009, the Company had cash
of approximately $9.68 million and investment securities with a fair market
value of $3.38 million.

35

---



The
Bank maintains financial instruments with off-balance sheet risk in the normal
course of business to meet the financing needs of its customers. These
financial instruments, approximately $25.18 million at March 31, 2009, include
commitments to extend credit, stand-by letters of credit and loan commitments.
The Bank also had interest rate caps with a notional amount of $40.0 million.

At
March 31, 2009, the Bank had outstanding commitments of approximately $478.05
million; including $38.39 million of long-term debt, $3.55 million of operating
leases, and $436.11 million of time deposits. These commitments include $440.43
million that mature or renew within one year, $16.09 million that mature or
renew after one year and within three years, $21.17 million that mature or
renew after three years and within five years and $366,000 that mature or renew
after five years.

Impact of Inflation and Changing Prices

The
Companys financial statements measure 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. The assets and
liabilities of the Company are largely 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. However, in general, high inflation rates are accompanied by higher
interest rates, and vice versa.

|            |                        
|----------- | -----------------------
|ITEM 4    - | CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

As of the end
of the period covered by this Quarterly Report on Form 10-Q, the Company
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures as defined in Rule 13a-15(e) of the Securities
Exchange Act of 1934 (Disclosure Controls). This evaluation (Controls
Evaluation) was done under the supervision and with the participation of the
Companys management, including the Chief Executive Officer (CEO), who is
also the Chief Financial Officer (CFO). Based upon the Controls Evaluation,
the CEO/CFO has concluded that the Disclosure Controls are effective in
reaching a reasonable level of assurance that information required to be
disclosed by the Company is recorded, processed, summarized and reported within
the time period specified in the SECs rules and forms and that any material
information relating to the Company is accumulated and communicated with
management, including its principal executive/financial officer to allow timely
decisions regarding required disclosure.

Changes in Internal Control over Financial
Reporting.

In accordance
with SEC requirements, the CEO/CFO notes that during the fiscal quarter ended
March 31, 2009, no changes in the Companys Internal Control (as defined below)
have occurred that have materially affected or are reasonably likely to
materially affect the Companys Internal Control.

Limitations on the Effectiveness of Controls.

The Companys management,
including the CEO/CFO, does not expect that its Disclosure Controls and/or its
internal control over financial reporting, as defined in Rule 13a-15(f) of
the Securities Exchange Act of 1934, as amended (the Internal Control), will
prevent all error and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not

36

---



absolute,
assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs.

Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.

PART II.  OTHER INFORMATION

Item 5.      Other Information

On
    May 7, 2009, in connection with the Banks most recent
examination by the Federal Deposit Insurance Corporation (the FDIC)
the Bank received a Joint Memorandum of Understanding (the MOU) from
the FDIC and the New York State Banking Department (the 
NYSBD), which the Banks board authorized the bank to execute. The
MOU, when effective, will set forth an informal understanding among the Bank,
the FDIC and the NYSBD addressing asset quality, loan review, underwriting and
administration and certain other concerns identified in the examination. The
Banks board has appointed a committee comprised of three directors
to monitor the Bank's compliance. We do not believe that compliance with the
MOU will have a material adverse effect on our results of operations or financial
condition. As set forth in Managements Discussion and Analysis of
Financial Condition And Results of Operations - Capital Adequacy, the Bank
is well capitalized for regulatory purposes as of March 31, 2009.

|                     
|---------------------
|Item 6.      Exhibits

|                |  |                                                                                                                        
|--------------- |  | -----------------------------------------------------------------------------------------------------------------------
|Exhibit
 Number |  | Description                                                                                                            
|                |  |                                                                                                                        
|                |  |                                                                                                                        
|31              |  | Certification
 of Principal Executive and Financial Officer pursuant to Section 302 Of The
 Sarbanes-Oxley Act of 2002.
|                |  |                                                                                                                        
|32              |  | Certification
 of Principal Executive and Financial Officer pursuant to Section 906 Of The
 Sarbanes-Oxley Act of 2002.

37

---



SIGNATURES

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

|      |              |     |                        | 
|----- | ------------ | --- | ---------------------- | 
|      |              |     | BERKSHIRE
BANCORP INC. | 
|      |              |     | (Registrant)           | 
|      |              |     |                        | 
|Date: | May 11, 2009 | By: | /s/ Steven
 Rosenberg  | 
|      |              |     |                        | 
|      |              |     | Steven Rosenberg       | 
|      |              |     | President and Chief    | 
|      |              |     | Financial Officer      | 

38

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EXHIBIT INDEX

|        |  |                                                                                                                        
|------- |  | -----------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                        
|Number  |  | Description                                                                                                            
|        |  |                                                                                                                        
|        |  |                                                                                                                        
|31      |  | Certification
 of Principal Executive and Financial Officer pursuant to Section 302 Of The
 Sarbanes-Oxley Act of 2002.
|        |  |                                                                                                                        
|32      |  | Certification
 of Principal Executive and Financial Officer pursuant to Section 906 Of The
 Sarbanes-Oxley Act of 2002.

39

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