<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, 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, 2005
                               --------------

                                       or

[ ]  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
    ---     ---

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).  Yes      No  X
                                                 ---     ---

As of May 6, 2005, there were 6,759,675 outstanding shares of the issuers Common
Stock, $.10 par value.






<PAGE>



                     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 Company's actual results and experiences 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 the sections of this Annual Report entitled "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

         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





<PAGE>


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

                                      INDEX

<TABLE>
<CAPTION>
                                                                        Page No.
                                                                        --------
<S>              <C>                                                     <C>
         PART I.      FINANCIAL INFORMATION

Item 1.           Financial Statements

                  Consolidated Balance Sheets as of
                  March 31, 2005 (unaudited) and
                  December 31, 2004                                        4

                  Consolidated Statements of Income
                  For The Three Months Ended
                  March 31, 2005 and 2004 (unaudited)                      5

                  Consolidated Statement of Stockholders'
                  Equity For The Three Months Ended
                  March 31, 2005 (unaudited)                               6

                  Consolidated Statements of Cash Flows
                  For The Three Months Ended March 31,
                  2005 and 2004 (unaudited)                                7

                  Notes to Consolidated Financial Statements               9

Item 2.           Management's Discussion and Analysis
                  of Financial Condition and Results
                  of Operations                                            16

Item 3.           Quantitative and Qualitative Disclosure
                  About Market Risk                                        23

Item 4.           Controls and Procedures                                  29

         PART II      OTHER INFORMATION

Item 6.           Exhibits                                                 30

Signature                                                                  31

Index of Exhibits                                                          32
</TABLE>


                                        3





<PAGE>


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

<TABLE>
<CAPTION>
                                                           March 31,        December 31,
                                                             2005               2004
                                                          ------------------------------
<S>                                                       <C>                 <C>
ASSETS
Cash and due from banks                                   $    6,455          $   9,511
Interest bearing deposits                                      1,267                372
Federal funds sold                                             9,000              7,500
                                                          ----------          ---------
Total cash and cash equivalents                               16,722             17,383
Investment Securities:
 Available-for-sale                                          675,221            630,968
 Held-to-maturity, fair value of $620
  in 2005 and $633 in 2004                                       607                624
                                                          ----------          ---------
Total investment securities                                  675,828            631,592
Loans, net of unearned income                                284,772            286,979
 Less: allowance for loan losses                              (3,022)            (2,927)
                                                          ----------          ---------
Net loans                                                    281,750            284,052
Accrued interest receivable                                    6,087              6,014
Premises and equipment, net                                    8,661              8,677
Goodwill, net                                                 18,549             18,549
Other assets                                                   8,732              6,382
                                                          ----------          ---------
Total assets                                              $1,016,329          $ 972,649
                                                          ==========          =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
 Non-interest bearing                                     $   43,073          $  42,191
 Interest bearing                                            606,392            577,697
                                                          ----------          ---------
Total deposits                                               649,465            619,888
Securities sold under agreements to repurchase               136,248            127,747
Long term borrowings                                         103,897             95,605
Subordinated debt                                             15,464             15,464
Accrued interest payable                                       2,896              2,516
Other liabilities                                              3,385              3,810
                                                          ----------          ---------
Total liabilities                                            911,355            865,030
                                                          ----------          ---------

Stockholders' equity
 Preferred stock -- $.10 Par value:                               --                 --
  2,000,000 shares authorized - none issued
 Common stock -- $.10 par value
  Authorized  -- 10,000,000 shares
  Issued      --  7,698,285 shares
  Outstanding --
   March 31, 2005,    6,759,675 shares
   December 31, 2004, 6,748,675 shares                           770                770
Additional paid-in capital                                    89,969             89,543
Retained earnings                                             30,681             28,983
Accumulated other comprehensive loss, net                     (7,448)            (2,602)
 Treasury Stock
 March 31, 2005,      938,610 shares
 December 31, 2004,   946,610 shares                          (8,998)            (9,075)
                                                          ----------          ---------
Total stockholders' equity                                   104,974            107,619
                                                          ----------          ---------
                                                          $1,016,329          $ 972,649
                                                          ==========          =========
</TABLE>


         The accompanying notes are an integral part of these statements


                                        4





<PAGE>


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

<TABLE>
<CAPTION>
                                                  For The
                                             Three Months Ended
                                                 March 31,
                                           -------------------------
                                             2005             2004
                                           --------         --------
<S>                                        <C>              <C>
INTEREST INCOME
Loans                                      $  4,694         $  4,849
Investment securities                         6,179            4,786
Federal funds sold and
 interest bearing deposits                       94                3
                                           --------         --------
Total interest income                        10,967            9,638
                                           --------         --------
INTEREST EXPENSE
Deposits                                      2,891            2,455
Short-term borrowings                           765              497
Long-term borrowings                          1,158              768
                                           --------         --------
Total interest expense                        4,814            3,720
                                           --------         --------
Net interest income                           6,153            5,918
PROVISION FOR LOAN LOSSES                        45               45
                                           --------         --------
Net interest income after
 provision for loan losses                    6,108            5,873
                                           --------         --------
NON-INTEREST INCOME
Service charges on deposit accounts             133              127
Investment securities gains                       6               93
Other income                                    130              198
                                           --------         --------
Total non-interest income                       269              418
                                           --------         --------
NON-INTEREST EXPENSE
Salaries and employee benefits                1,955            1,667
Net occupancy expense                           381              274
Equipment expense                                99               86
FDIC assessment                                  69               22
Data processing expense                          44               32
Other                                           645              881
                                           --------         --------
Total non-interest expense                    3,193            2,962
                                           --------         --------
Income before provision for taxes             3,184            3,329
Provision for income taxes                    1,486            1,378
                                           --------         --------
Net income                                 $  1,698         $  1,951
                                           ========         ========
Net income per share:
 Basic                                     $    .25         $    .29
                                           ========         ========
 Diluted                                   $    .25         $    .28
                                           ========         ========
</TABLE>


        The accompanying notes are an integral part of these statements.


                                       5




<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                    For The Three Months Ended March 31, 2005
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                Accumulated
                                                                   other
                                           Stock   Additional  comprehensive                                          Total
                                  Common    Par     paid-in        (loss)     Retained   Treasury  Comprehensive  stockholders'
                                  Shares   value    capital         net       earnings    stock        income         equity
                                  ------   -----   ---------       -----      --------   -------      --------       --------
<S>                                <C>      <C>     <C>          <C>          <C>        <C>           <C>           <C>
Balance at December 31, 2004       7,698    $770    $89,543      $(2,602)     $28,983    $(9,075)                    $107,619

Net income                                                                      1,698                   1,698           1,698
Exercise of stock options                               426                                   77                          503
Other comprehensive (loss) net
 of reclassification adjustment
 and taxes                                                        (4,846)                              (4,846)         (4,846)
                                                                                                      -------
Comprehensive income                                                                                  $(3,148)
                                                                                                      =======
                                   -----    ----    -------      -------      -------    -------                     --------
Balance at March 31, 2005          7,698    $770    $89,969      $(7,448)     $30,681    $(8,998)                    $104,974
                                   =====    ====    =======      =======      =======    =======                     ========
(Unaudited)
</TABLE>


         The accompanying notes are an integral part of this statement.


                                       6





<PAGE>


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

<TABLE>
<CAPTION>
                                                            For The Three Months Ended
                                                                     March 31,
                                                            --------------------------
                                                               2005             2004
                                                              ------           ------
<S>                                                        <C>               <C>
  Cash flows from operating activities:
Net income                                                 $   1,698         $   1,951
Adjustments to reconcile net income to net
 cash provided by operating activities:
Realized gains on investment securities                           (6)              (93)
Net amortization of premiums of investment securities             40               813
Depreciation and amortization                                    156               145
Provision for loan losses                                         45                45
(Increase) in accrued interest receivable                        (73)             (482)
(Increase) decrease in other assets                           (2,350)              845
Increase (decrease) in accrued interest payable
 and other liabilities                                           365              (599)
                                                           ---------         ---------
 Net cash (used in) provided by operating activities            (125)            2,625
                                                           ---------         ---------

  Cash flows from investing activities:
Investment securities available for sale
 Purchases                                                  (191,294)         (407,636)
 Sales, maturities and calls                                 142,161           366,836
Investment securities held to maturity
 Maturities                                                       17                21
Net decrease (increase) in loans                               2,257              (557)
Acquisition of premises and equipment                           (140)              (33)
                                                           ---------         ---------
Net cash (used in) investing activities                      (46,999)          (41,369)
                                                           ---------         ---------
</TABLE>


                                       7





<PAGE>


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

<TABLE>
<CAPTION>
                                                                 For The Three Months Ended
                                                                         March 31,
                                                                 --------------------------
                                                                    2005             2004
                                                                   ------           ------
<S>                                                             <C>               <C>
  Cash flows from financing activities:
Net increase (decrease) in non interest bearing deposits              882              (51)
Net increase in interest bearing deposits                           28,695           18,315
Increase in securities sold under agreements to repurchase           8,501           15,085
Proceeds from long term debt                                        15,000            1,947
Repayment of long term debt                                         (6,708)              --
Proceeds from exercise of common stock options                          93               65
Acquisition of treasury stock                                           --              (69)
                                                                   -------         --------
Net cash provided by financing activities                           46,463           35,292
                                                                   -------         --------

  Net (decrease) in cash                                              (661)          (3,452)
  Cash -- beginning of period                                       17,383            9,310
                                                                  --------         --------
  Cash -- end of period                                           $ 16,722         $  5,858
                                                                  ========         ========

Supplemental disclosures of cash flow information:
  Cash used to pay interest                                       $  4,434         $  3,774
  Cash used to pay taxes, net of refunds                          $  1,507         $    945
</TABLE>


        The accompanying notes are an integral part of these statements.


                                       8







<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                             March 31, 2005 and 2004

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 the Company and its consolidated subsidiaries unless the context
otherwise requires. Berkshire's principal activity is the ownership and
management of its wholly owned subsidiary, The Berkshire Bank (the "Bank"), a
New York State chartered commercial bank.

         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, Greater American
Finance Group, Inc. and East 39, LLC.

         During interim periods, the Company follows the accounting policies set
forth in its Annual Report on Form 10-K filed with the Securities and Exchange
Commission (the "SEC"). Readers are encouraged to refer to the Company's Form
10-K for the fiscal year ended December 31, 2004 when reviewing this Form 10-Q.
Quarterly results reported herein are not necessarily indicative of results to
be expected for other quarters or a full fiscal year.

         In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) considered necessary to present fairly the Company's consolidated
financial position as of March 31, 2005 and December 31, 2004 and the
consolidated results of its operations for the three month periods ended March
31, 2005 and 2004, and its consolidated stockholders' equity for the three month
period ended March 31, 2005, and its consolidated cash flows for the three month
periods ended March 31, 2005 and 2004. As discussed in Note 2 below, all
weighted share and per share information in 2004 has been retroactively restated
to reflect the stock split and stock dividend.

NOTE 2. Stock Split and Stock Dividend.

         At the Annual Meeting of Stockholders held on May 18, 2004, the
Company's stockholders approved an amendment to the Company's Certificate of
Incorporation effecting a one-for-ten reverse stock split of the Company's
issued and outstanding Common Stock (the "Reverse Split"). Following the
effectiveness of the Reverse Split, the Company's Board of Directors declared a
thirty-for-one forward stock split in the form of a stock dividend in Common
Stock (the "Stock Dividend) which became effective immediately. The Company paid
approximately $463,000 to purchase fractional shares from stockholders as part
of the Reverse Split. The Company's Common Stock began trading on May 19, 2004
giving effect to these transactions.

NOTE 3. 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%.


                                        9





<PAGE>




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

NOTE 3. - (continued)

         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%.

         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 is not and BCTII will not be 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
would take effect March 31, 2009; however, a five year transition period
starting March 31, 2004 and leading up to that date would allow bank holding
companies to continue to count Trust Preferred Securities as Tier 1 Capital
after applying FIN-46(R). 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.

NOTE 4. Earnings Per Share

         Basic earnings per share is calculated by dividing income available to
common stockholders by the weighted average common shares 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 calculation of earnings per share for the periods indicated:

<TABLE>
<CAPTION>

                                                                 For The Three Months Ended
                                      ----------------------------------------------------------------------------------
                                                   March 31, 2005                            March 31, 2004
                                      --------------------------------------     ---------------------------------------
                                                                        Per                                       Per
                                         Income         Shares         share       Income          Shares        share
                                      (numerator)   (denominator)     amount     (numerator)    (denominator)    amount
                                      -----------   -------------     ------     -----------    -------------    ------
                                                              (In thousands, except per share data)
<S>                                        <C>              <C>          <C>        <C>              <C>          <C>
Basic earnings per share

 Net income available to
  common stockholders                      $1,698           6,754        $.25       $1,951           6,624        $ .29

Effect of dilutive securities
 Options                                       --             175          --           --             219         (.01)
                                           ------           -----        ----       ------           -----        -----
Diluted earnings per share

 Net income available to
  common stockholders plus
  assumed conversions                      $1,698           6,929        $.25       $1,951           6,843        $ .28
                                           ======           =====        ====       ======           =====        =====

</TABLE>



                                       10





<PAGE>



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

NOTE 5. Investment Securities

         The following tables summarize held to maturity and available-for-sale
investment securities as of March 31, 2005 and December 31, 2004:

<TABLE>
<CAPTION>

                                                                March 31, 2005
                                          -------------------------------------------------------
                                                              Gross           Gross
                                          Amortized        unrealized      unrealized      Fair
                                             Cost             gains          losses        value
                                             ----             -----          ------        -----
                                                                   (In thousands)
<S>                                         <C>               <C>             <C>           <C>
Held To Maturity
Investment Securities

U.S. Government Agencies                    $607              $14             $(1)          $620
                                            ----              ---             ---           ----
 Totals                                     $607              $14             $(1)          $620
                                            ====              ===             ===           ====

</TABLE>

<TABLE>
<CAPTION>

                                                                December 31, 2004
                                          -------------------------------------------------------
                                                              Gross           Gross
                                          Amortized        unrealized      unrealized      Fair
                                             Cost             gains          losses        value
                                             ----             -----          ------        -----
                                                                   (In thousands)
<S>                                         <C>               <C>             <C>           <C>
Held To Maturity
Investment Securities

U.S. Government Agencies                      $ 624           $10              $(1)          $633
                                              -----           ---              ---           ----
 Totals                                       $ 624           $10              $(1)          $633
                                              =====           ===              ===           ====

</TABLE>


<TABLE>
<CAPTION>

                                                                       March 31, 2005
                                         --------------------------------------------------------------------------
                                                                  Gross              Gross
                                             Amortized         unrealized         unrealized            Fair
                                               Cost               gains             losses              value
                                         -----------------  -----------------  -----------------  -----------------
                                                                       (In thousands)
<S>                                              <C>              <C>               <C>                <C>
Available-For-Sale
Investment Securities

U.S. Treasury and Notes                          $ 24,921         $ --           $   (257)          $ 24,664
U.S. Government Agencies                          510,807           --             (8,991)           501,816
Mortgage-backed securities                        106,021          311             (1,410)           104,922
Corporate notes                                    35,975           13             (1,072)            34,916
Municipal Securities                                1,973          138                (63)             2,048
Marketable equity
 securities and other                               6,684          235                (64)             6,855
                                                 --------         ----           --------           --------
 Totals                                          $686,381         $697           $(11,857)          $675,221
                                                 ========         ====           =========          ========

</TABLE>


                                       11





<PAGE>





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

Note 5. - (continued)

<TABLE>
<CAPTION>

                                                                       December 31, 2004
                                         --------------------------------------------------------------------------
                                                                  Gross              Gross
                                             Amortized         unrealized         unrealized            Fair
                                               Cost               gains             losses              value
                                         -----------------  -----------------  -----------------  -----------------
                                                                       (In thousands)
<S>                                      <C>                 <C>               <C>                <C>
Available-For-Sale
Investment securities

U.S. Treasury and Notes                         $ 24,896          $   --              $  (174)         $ 24,722
U.S. Government Agencies                         471,018              97               (3,844)          467,271
Mortgage-backed securities                       109,822             504                 (996)          109,330
Corporate Notes                                   21,089             692                 (154)           21,627
Municipal securities                               1,307             134                   --             1,441
Marketable equity
 securities and other                              6,363             279                  (65)            6,577
                                                --------          ------              -------          --------
 Totals                                         $634,495          $1,706              $(5,233)         $630,968
                                                ========          ======              =======          ========

</TABLE>


NOTE 6. Loan Portfolio

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

<TABLE>
<CAPTION>

                                                       March 31, 2005                    December 31, 2004
                                                    ------------------------            ---------------------
                                                                      % of                            % of
                                                        Amount        Total                 Amount    Total
                                                        ------        -----                 ------    -----
                                                                   (Dollars in thousands)
<S>                                                   <C>            <C>                  <C>           <C>
Commercial and professional loans                     $ 18,201          6.4%              $ 16,498      5.7%
Secured by real estate
  1-4 family                                           152,687         53.5                155,079     53.9
  Multi family                                           3,807          1.3                  4,600      1.6
  Non-residential (commercial)                         108,974         38.2                109,597     38.1
Consumer                                                 1,859          0.6                  1,989      0.7
                                                      --------        -----               --------    -----
Total loans                                            285,528        100.0%               287,763    100.0%
                                                                      =====                           =====
Deferred loan fees                                        (756)                               (784)
Allowance for loan losses                               (3,022)                             (2,927)
                                                      --------                            --------
Loans, net                                            $281,750                            $284,052
                                                      ========                            ========

</TABLE>



                                       12





<PAGE>


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

NOTE 7. Deposits

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

<TABLE>
<CAPTION>

                                        March 31, 2005              December 31, 2004
                                    -----------------------      -----------------------
                                    Average        Average        Average       Average
                                     Amount        Yield          Amount        Yield
                                     ------        -----          ------        -----
                                                  (Dollars in thousands)
<S>                                      <C>        <C>               <C>       <C>
Demand deposits                         $ 43,708      --         $ 38,896        --
NOW and money market                      44,355    0.50%          47,677      0.65%
Savings deposits                         277,340    1.73          224,542      1.55
Time deposits                            296,497    2.21          309,968      1.96
                                        --------    ----         --------      ----
Total deposits                          $661,900    1.76%        $621,083      1.58%
                                        ========    ====         ========      ====

</TABLE>


NOTE 8. Comprehensive Income (Loss)

         The following table presents the components of comprehensive income,
based on the provisions of SFAS No. 130.:

<TABLE>
<CAPTION>

                                                              For The Three Months Ended
                              ----------------------------------------------------------------------------------
                                             March 31, 2005                           March 31, 2004
                              ----------------------------------------     -------------------------------------
                                                  Tax                                      Tax
                               Before tax      (expense)    Net of tax     Before tax   (expense)    Net of tax
                                 amount         benefit       Amount         amount      benefit       amount
                                 ------         -------       ------         ------      -------       ------
                                                                     (In thousands)
<S>                             <C>           <C>          <C>              <C>          <C>         <C>
Unrealized (losses)
gains on investment
securities:
 Unrealized holding             $ (7,627)     $2,785      $(4,842)        $4,440      $(1,739)         $2,589
 gains (losses) arising
 during period
 Less reclassification
 adjustment for gains
 realized in net income                6          (2)           4             93          (37)             56
                                --------      ------      -------         ------      -------          ------
Other comprehensive             $ (7,633)     $2,787      $(4,846)        $4,347      $(1,702)         $2,645
                                ========      ======      =======         ======      =======          ======
 (loss) income, net

</TABLE>

NOTE 9. Accounting For Stock Based Compensation

         In December 2004, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 123 (Revised), Share-based Payment, ("FAS 123(R)"). FAS
123(R) requires that the compensation cost relating to share-based payment
transactions be recognized in financial statements. That cost will be measured
based on the fair value of the equity or liability instruments issued. We will
be required to apply FAS 123(R) in the first quarter of 2006. The scope of FAS
123(R) includes a wide range of share-based compensation arrangements including
share options, restricted share plans, performance-based awards, share
appreciation rights and employee share purchase plans. FAS 123(R) revises FASB
Statement 123, Accounting for Stock-Based Compensation ("FAS 123"), and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.





                                       13





<PAGE>


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

Note 9. - (continued)

         At March 31, 2005, the Company has one stock-based employee
compensation plan. The Company accounts for that plan under the recognition and
measurement principles of APB No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Stock-based employee compensation costs
are not reflected in net income, as all options granted under the plan had an
exercise price equal to the market value of the underlying common stock on the
date of the grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to
stock-based employee compensation.

         The fair value of each option is estimated on the date of grant using
the Black-Scholes options-pricing model using weighted-average assumptions for
expected volatility, risk-free interest and expected life of the option. All
stock options outstanding are vested. The Company did not grant stock options
during the three months ended March 31, 2005 and 2004.

Note 10. Employee Benefit Plans

         The Company has a Retirement Income Plan (the "Plan"), a
noncontributory 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 FASB Statement 132(R).

<TABLE>
<CAPTION>

                                                          For The
                                                     Three Months Ended
                                                         March 31,
                                                 --------------------------
                                                    2005               2004
                                                    ----               ----
<S>                                               <C>                 <C>
Service cost                                      $ 66,000           $ 56,000
Interest cost                                       28,000             28,750
Expected return on plan assets                     (34,000)           (37,500)
Amortization and Deferral:
 Transition amount                                      --                 --
 Prior service cost                                  4,593              4,500
 (Gain)/loss                                         6,407              3,000
Net periodic pension cost                           71,000             54,750
</TABLE>

         During the fiscal year ending December 31, 2005, we expect to
contribute approximately $112,000 to the Plan. We did not make any
contributions, required or otherwise, to the Plan in the three months ended
March 31, 2005 and 2004.

NOTE 11.  New Accounting Pronouncements

Stock-Based Compensation

         In December 2004, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 123 (Revised), Share-based Payment, ("FAS 123(R)"). FAS
123(R) requires that the compensation cost relating to share-based payment
transactions be recognized in financial statements. That cost will be measured
based on the fair value of the equity or liability instruments issued. In
accordance with recent guidance from the Securities and Exchange Commission, the
Company will be required to apply FAS 123(R) on January 1, 2006.



                                       14





<PAGE>


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

Note 11. - (continued)

         The scope of FAS 123(R) includes a wide range of share-based
compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights and employee share purchase
plans. FAS 123(R) revises FASB Statement 123, Accounting for Stock-Based
Compensation ("FAS 123"), and supersedes the Accounting Principles Board (the
"APB") Opinion No. 25, Accounting for Stock Issued to Employees ("APB Opinion
No. 25").

         FAS 123(R) provides two methods for companies to transition to the new
standard requiring the expensing of options. Companies may elect to (i) restate
results for prior quarters in the fiscal year of adoption of FAS 123(R) to
reflect the FAS 123 proforma compensation costs, or (ii) restate results for
prior periods, whether annual or quarterly, to reflect the FAS 123 proforma
compensation costs. We are in the process of determining which transition
approach to use and the effect, if any, such transition approach will have on
our financial statements.

Internal Control Over Financial Reporting

         The current objective of the Bank's Internal Control Program is to
allow management to comply with FDICIA requirements and with Section 302 of the
Sarbanes-Oxley Act of 2002 (the "Act"). Section 302 of the Act requires the CEO
and CFO of the Company to (i) certify that the annual and quarterly reports
filed with the Securities and Exchange Commission 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 report on internal
control over financial reporting. The SEC requires us to comply with Section 404
by the year ending December 31, 2006.

         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.







                                       15








<PAGE>


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. References herein to
"Berkshire", the "Company" or "we" and similar pronouns, shall be deemed to
refer to the Company and its consolidated subsidiaries unless the context
otherwise requires. References herein to per share amounts refer to diluted
shares. References herein to per share amounts for the three months ended March
31, 2004 have been revised to reflect the one-for-ten reverse stock split and
thirty-for- one forward stock split in the form of a stock dividend which
occurred on May 18, 2004. 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 and
general practices within the financial services industry. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and the
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 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 each defined reporting unit. 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, 2004, the Company completed its transitional testing,
which determined that no impairment write-offs were necessary.

         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.

                                        16





<PAGE>


         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.

<TABLE>
<CAPTION>
                                                            For The Three Months Ended March 31,
                                           ------------------------------------  -----------------------------------
                                                          2005                                 2004
                                           ------------------------------------  -----------------------------------
                                                        Interest                             Interest
                                             Average       and       Average      Average       and        Average
                                             Balance    Dividends   Yield/Rate    Balance    Dividends    Yield/Rate
                                             -------    ---------   ----------    -------    ---------    ----------
                                                                     (Dollars in Thousands)
<S>                                       <C>           <C>          <C>        <C>          <C>           <C>
INTEREST-EARNING ASSETS:
Loans (1)                                  $  288,288    $ 4,694      6.51%      $293,441     $4,849         6.61%
Investment securities                         671,946      6,179      3.68        589,961      4,786         3.24
Other (2)(5)                                   16,683         94      2.25          2,081          3         0.58
                                           ----------    -------     -----       --------     ------        -----
Total interest-earning assets                 976,917     10,967      4.49        885,483      9,638         4.35
                                                                     -----                                  -----
Noninterest-earning assets                     42,516                              37,710
                                           ----------                            --------
Total Assets                               $1,019,433                            $923,193
                                           ==========                            ========

INTEREST-BEARING LIABILITIES:
Interest bearing deposits                     321,695      1,337      1.66%       259,195        898         1.39%
Time deposits                                 296,497      1,554      2.10        320,081      1,557         1.95
Other borrowings                              240,470      1,923      3.20        194,709      1,265         2.60
                                           ----------    -------     -----       --------     ------        -----
Total interest-bearing
 liabilities                                  858,662      4,814      2.24        773,985      3,720         1.92
                                                         -------     -----                    ------        -----

Demand deposits                                43,708                              37,199
Noninterest-bearing liabilities                 6,656                               7,348
Stockholders' equity (5)                      110,407                             104,661
                                           ----------                            --------

Total liabilities and
 stockholders' equity                      $1,019,433                            $923,193
                                           ==========                            ========

Net interest income                                        6,153                               5,918
                                                         =======                              ======

Interest-rate spread (3)                                              2.25%                                  2.43%
                                                                     =====                                  =====

Net interest margin (4)                                               2.52%                                  2.67%
                                                                     =====                                  =====

Ratio of average interest-earning
 assets to average interest
 bearing liabilities                             1.14                                1.14
                                           ==========                            ========
</TABLE>

----------------------
(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.


                                       17





<PAGE>


Results of Operations

Results of Operations for the Three Months Ended March 31, 2005 Compared to the
Three Months Ended March 31, 2004.

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

Net Income. Net income for the three-month period ended March 31, 2005 was $1.70
million, or $.25 per share, as compared to $1.95 million, or $.28 per share, for
the three-month period ended March 31, 2004.

         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. From June 2003 through June 30, 2004, interest rates, as measured by
the prime rate, remained constant at 4.00%. On July 1, 2004, inflation fighting
actions taken by the Federal Reserve Board resulted in a 25 basis point increase
in the prime rate to 4.25%, the first such increase in more than four years.
Similar 25 basis point moves taken by the Federal Reserve Board in August,
September, November and December of 2004, and February and March 2005 have moved
the prime rate to its present level of 5.75%.

Net Interest Income. The Company's primary source of revenue is net interest
income, or the difference between interest income on earning assets, such as
loans and investment securities, and interest expense on interest-bearing
liabilities such as deposits and borrowings.

         For the quarter ended March 31, 2005, net interest income increased by
$235,000, or 3.97%, to $6.15 million from $5.92 million for the quarter ended
March 31, 2004. The quarter over quarter increase in net interest income was the
result of the 10.33% growth in the average amount of interest-earning assets to
$976.92 million in 2005 from $885.48 million in 2004, partially offset by the
10.94% increase in the average amount of interest-bearing liabilities to $858.66
million in 2005 from $773.99 million in 2004, and further offset by the interest
rate spread, or the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities.

         During the first quarter of 2005, the average yield on interest-earning
assets increased by 3.22% to 4.49% from 4.35% during the first quarter of 2004,
while the average cost of interest-bearing liabilities increased by 16.67% to
2.24% in 2005 from 1.92% in 2004. If interest rates remain at current levels or
increase slowly over time, we expect to see only moderate pressure on the
Company's interest-rate spread and net interest income. Investment securities in
our portfolio that have been sold, matured or called by the issuer during fiscal
2004 have been replaced with securities carrying somewhat lower yields and, by
design, shorter maturities to hedge against a rising interest rate environment.
Rates paid on deposit accounts are likely to increase in a rising rate
environment due to competition for deposits in the market place. The cost of
borrowed funds with floating rather than fixed interest rates will increase as
well.

Net Interest Margin. Net interest margin, or annualized net interest income as a
percentage of average interest-earning assets, declined by 15 basis points, or
5.62%, to 2.52% in the first quarter of fiscal 2005 from 2.67% in the first
quarter of fiscal 2004. 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 which provided an aggregate average yield of 4.49% and 4.35% during the
quarter ended March 31, 2005 and 2004, respectively.


                                       18





<PAGE>


         The average amounts of loans decreased by $5.15 million, or 1.76%, to
$288.29 million in the three months ended March 31, 2005 from $293.44 million in
the three months ended March 31, 2004, as did the average yield on the loan
portfolio which declined to 6.51% from 6.61%. The principal amount of new loans
originated and principal repayments on existing loans during the first quarter
of 2005 was $12.32 million and $13.40 million, respectively.

         The average amount of investment securities increased by $81.99
million, or 13.90% in the three months ended March 31, 2005 to $671.95 million
from $589.96 million in the three months ended March 31, 2004. The average yield
on investment securities improved by 44 basis points, to 3.68% in 2005 from
3.24% in 2004.

Interest Income. Total interest income for the quarter ended March 31, 2005
increased by $1.33 million, or 13.79%, to $10.97 million from $9.64 million for
the quarter ended March 31, 2004. The increase in total interest income was
primarily due to the growth in the average amount of total interest-earning
assets. Loans contributed $4.69 million of interest income in 2005, a decline of
$155,000 from the $4.85 million of interest income contributed in 2004.
Investment securities contributed $6.18 million of interest income in the first
quarter of 2005, an increase of $1.39 million, or 29.11%, over the $4.79 million
of interest income earned on investment securities in the first quarter of 2004.

<TABLE>
<CAPTION>
                                      -----------------------------------------------
                                                Three Months Ended March 31,
                                      -----------------------------------------------
                                              2005                       2004
                                      ---------------------       -------------------
                                      Interest      % of          Interest     % of
                                       Income       Total          Income      Total
                                             (In thousands, except percentages)
<S>                                    <C>          <C>           <C>         <C>
Loans                                  $ 4,694      42.81%        $ 4,849     50.31%
Investment Securities                    6,179      56.35           4,786     49.66
Other                                       94       0.84               3      0.03
                                       -------     ------         -------    ------
Total Interest Income                  $10,967     100.00%        $ 9,638    100.00%
</TABLE>

         Loans, which are inherently risky and therefore command a higher return
than our conservative portfolio of invesment securities, declined to 29.51% of
our total average interest-earning assets during the three months ended March
31, 2005 from 33.14% of total average interest-earning assets during the three
months ended March 31, 2004. Investment securities increased to 68.78% from
66.63% of total average interest-earning assets during 2005 and 2004,
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.

<TABLE>
<CAPTION>
                                      -----------------------------------------------
                                                Three Months Ended March 31,
                                      -----------------------------------------------
                                              2005                       2004
                                      ---------------------       -------------------
                                      Average       % of           Average     % of
                                       Amount       Total          Amount      Total
                                             (In thousands, except percentages)
<S>                                    <C>          <C>           <C>         <C>
Loans                                 $288,288     29.51%          $293,441    33.14%
Investment Securities                  671,946     68.78            589,961    66.63
Other                                   16,683      1.71              2,081     0.23
                                      --------    ------           --------   ------
Total Interest-Earning Assets         $976,917    100.00%          $885,483   100.00%
</TABLE>


                                       19





<PAGE>


Interest Expense. Total interest expense for the quarter ended March 31, 2005
increased by $1.09 million, or 29.41%, to $4.81 million from $3.72 million for
the quarter ended March 31, 2004. The increase in interest expense was due
primarily to the growth in the average amount of interest-bearing liabilities
and the increase in the average rates paid on such liabilities, 2.24% and 1.92%
in 2005 and 2004, respectively. As interest rates move higher, interest expense
will increase as we price our deposit products to meet the competition and the
adjustable rates paid on other borrowings increase as well. In May 2004, we sold
$15.46 million of floating rate junior subordinated denbentures which mature in
2034 and used the net proceeds to augment the Bank's capital to allow for
business expansion. The additional interest expense on these debentures, which
is included in other borrowings, was $206,000 during the three months ended
March 31, 2005.

<TABLE>
<CAPTION>
                                      -----------------------------------------------
                                                Three Months Ended March 31,
                                      -----------------------------------------------
                                              2005                       2004
                                      ---------------------       -------------------
                                      Interest     % of           Interest     % of
                                       Income      Total           Income      Total
                                             (In thousands, except percentages)
<S>                                    <C>          <C>           <C>         <C>
Interest-Bearing Deposits              $1,337      27.77%          $  898      24.14%
Time Deposits                           1,554      32.28            1,557      41.85
Other Borrowings                        1,923      39.95            1,265      34.01
                                       ------     ------           ------     ------
Total Interest Expense                 $4,814     100.00%          $3,720     100.00%
</TABLE>

<TABLE>
<CAPTION>
                                      -----------------------------------------------
                                                Three Months Ended March 31,
                                      -----------------------------------------------
                                              2005                       2004
                                      ---------------------       -------------------
                                      Average      % of            Average     % of
                                       Amount      Total           Amount      Total
                                             (In thousands, except percentages)
<S>                                    <C>          <C>           <C>         <C>
Interest-Bearing Deposits             $321,695     37.46%          $259,195    33.49%
Time Deposits                          296,497     34.53            320,081    41.35
Other Borrowings                       240,470     28.01            194,709    25.16
                                      --------    ------           --------   ------
Total Interest-Bearing Liabilities    $858,662    100.00%          $773,985   100.00%
</TABLE>


                                       20





<PAGE>


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, 2005, total non-interest income decreased by $149,000, to
$269,000 from $418,000 for the three months ended March 31, 2004. The decrease
is largely due to the decrease in gains on sales of investment securities.

<TABLE>
<CAPTION>
                                    ------------------------------------------------
                                              Three Months Ended March 31,
                                    ------------------------------------------------
                                            2005                       2004
                                    ---------------------      ---------------------
                                    Non-Interest   % of         Non-Interest    % of
                                       Income      Total           Income      Total
                                             (In thousands, except percentages)
<S>                                    <C>          <C>           <C>         <C>
Service Charges on Deposits             $133       49.44%           $127       30.38%
Investment Securities gains                6        2.23              93       22.25
Other                                    130       48.33             198       47.37
                                        ----      ------            ----      ------
Total Non-Interest Income               $269      100.00%           $418      100.00%
</TABLE>

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, 2005
increased by $231,00 to $3.19 million from $2.96 million for the three months
ended March 31, 2004. The largest component of non-interest expense, 61% of the
total, are salaries and employee benefits which increased by $288,000 to $1.96
million in the 2005 quarter from $1.67 million in the 2004 quarter. The increase
is due to the addition of personnel in our internal control and compliance
departments.

<TABLE>
<CAPTION>
                                    ------------------------------------------------
                                              Three Months Ended March 31,
                                    ------------------------------------------------
                                            2005                       2004
                                    ---------------------      ---------------------
                                    Non-Interest   % of         Non-Interest    % of
                                       Income      Total           Income      Total
                                             (In thousands, except percentages)
<S>                                    <C>          <C>           <C>         <C>
Salaries and Employee Benefits         $1,955      61.23%          $1,667      56.29%
Net Occupancy Expense                     381      11.93              274       9.25
Equipment Expense                          99       3.10               86       2.90
FDIC Assessment                            69       2.16               22       0.74
Data Processing Expense                    44       1.38               32       1.08
Other                                     645      20.20              881      29.74
                                       ------     ------           ------     ------
Total Non-Interest Expense             $3,193     100.00%          $2,962     100.00%
</TABLE>

Provision for Income Tax. We recorded income tax expense of $1.49 million and
$1.38 million for the three-month periods ended March 31, 2005 and 2004,
respectively. The tax provisions for federal, state and local taxes represent
effective tax rates of 46.67% and 41.39%, respectively.


                                       21





<PAGE>


Common Stock Repurchases

         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 December 31, 2004, the Company has purchased a total of 1,848,909
shares of its Common Stock. At March 31, 2004, there were 551,091 shares of
Common Stock which may yet be purchased under our stock repurchase plan. The
following table sets forth information with respect to such purchases during the
periods indicated.


Fiscal Year 2005

<TABLE>
<CAPTION>
                                   Number of           Average Price
                                    Shares               Paid Per
                                   Purchased               Share
                                   ---------           -------------
<S>                                  <C>                  <C>
January - March                         --                      --
</TABLE>

Fiscal Year 2004

<TABLE>
<CAPTION>
                                   Number of           Average Price
                                    Shares               Paid Per
                                   Purchased               Share
                                   ---------           -------------
<S>                                  <C>                  <C>
January                              4,263                 $ 16.33
February                                --                      --
March                                   --                      --
</TABLE>



                                       22







<PAGE>


ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk. Fluctuations in market interest rates can have a material
effect on the Company'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 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 are entered into with major financial institutions.

         As an additional interest rate management strategy, the Bank borrows
funds from the Federal Home Loan Bank, approximately $103.90 million at March
31, 2005, at fixed rates for a period of one to five years.

         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.


                                       23




<PAGE>


         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:

<TABLE>
<CAPTION>

                                                                   Berkshire Bancorp Inc.
                                                      Interest Rate Sensitivity Gap at March 31, 2005
                                                           (in thousands, except for percentages)
                                           -------------------------------------------------------------
                                            3 Months  3 Through  1 Through        Over
                                            or Less   12 Months   3 Years       3 Years           Total
                                            -------   ---------   -------       -------           -----
<S>                               <C>       <C>         <C>          <C>          <C>           <C>
Federal funds sold                           9,000          --          --            --         9,000
                                  (Rate)      2.79%                                               2.79%
Interest bearing deposits in banks           1,267          --          --            --         1,267
                                  (Rate)      1.56%                                               1.56%
Loans (1)(2)
Adjustable rate loans                       43,502      16,757       8,088        17,256        85,603
                                  (Rate)      6.87%       4.90%       7.47%         6.51%         6.47%
Fixed rate loans                             4,913         918      15,619       178,475       199,925
                                  (Rate)      7.47%       6.80%       6.85%         6.29%         6.37%
                                          --------    --------   ---------     ---------    ----------
Total loans                                 48,415      17,675      23,707       195,731       285,528
Investments (3)(4)                          91,193     132,805     160,209       291,621       675,828
                                  (Rate)      2.81%       2.66%       3.34%         4.80%         3.77%
                                          --------    --------   ---------     ---------    ----------


Total rate-sensitive assets                140,875     150,480     183,916       487,352       962,623
                                          --------    --------   ---------     ---------    ----------


Deposit accounts (5)
Savings and NOW                            283,932          --          --            --       283,932
                                  (Rate)      1.61%                                               1.61%
Money market                                20,904          --          --            --        20,904
                                  (Rate)      0.55%                                               0.55%
Time Deposits                               82,738     147,913      68,825         2,080       301,556
                                  (Rate)      1.80%       2.52%       2.94%         1.97%         2.41%
                                          --------    --------   ---------     ---------    ----------

Total deposit accounts                     387,574     147,913      68,825         2,080       606,392
Repurchase Agreements                       68,509      34,739      33,000            --       136,248
                                  (Rate)      2.59%       3.08%       2.92%                       2.79%
Other borrowings                                --       2,263      61,620        55,478       119,361
                                  (Rate)          %       3.60%       3.55%         4.42%         3.96%
                                          --------    --------   ---------     ---------    ----------


Total rate-sensitive liabilities           456,083     184,915     163,445        57,558       862,001
                                          --------    --------   ---------     ---------    ----------


Interest rate caps                          20,000          --     (20,000)           --
Gap (repricing differences)               (335,208)    (34,435)     40,471       429,794       100,622
                                          ========    ========   =========     =========    ==========



Cumulative Gap                            (335,208)   (369,643)   (329,172)      100,622
                                          ========    ========   =========     =========
Cumulative Gap to Total Rate
Sensitive Assets                            (34.82)%    (38.40)%    (34.20)%       10.45%
                                          ========    ========   =========     =========

</TABLE>

------------------------------
(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.



                                       24





<PAGE>

Provision for Loan Losses. The Company maintains an allowance for loan losses at
a level deemed sufficient to absorb losses, which are inherent in the loan
portfolio at each balance sheet date. Management reviews the adequacy of the
allowance on at least a quarterly basis to ensure that the provision for loan
losses has been charged against earnings in an amount necessary to maintain the
allowance at a level that is appropriate based on management's assessment of
probable estimated losses. The Company's methodology for assessing the
appropriateness of the allowance for loan losses consists of several key
elements. These elements include a specific allowance for loan watch list
classified loans, an allowance based on historical trends, an additional
allowance for special circumstances, and an unallocated portion. The Company
consistently applies the following comprehensive methodology.

         The allowance for loan watch list classified loans addresses those
loans maintained on the Company's loan watch list, which are assigned a rating
of substandard, doubtful, or loss. Substandard loans are those with a
well-defined weakness or a weakness, which jeopardizes the repayment of the
debt. A loan may be classified as substandard as a result of impairment of the
borrower's financial condition and repayment capacity. Loans for which repayment
plans have not been met or collateral equity margins do not protect the Company
may also be classified as substandard. Doubtful loans have the characteristics
of substandard loans with the added characteristic that collection or
liquidation in full, on the basis of presently existing facts and conditions, is
highly improbable. Although the possibility of loss is extremely high for
doubtful loans, the classification of loss is deferred until pending factors,
which might improve the loan, have been determined. Loans rated as doubtful in
whole or in part are placed in nonaccrual status. Loans which are classified as
loss are considered uncollectible and are charged to the allowance for loan
losses. There were no loans classified as loss as of March 31, 2005.

          For the three month periods ended March 31, 2005 and 2004, we
recovered loans totaling $50,000 and $23,000, respectively, which amounts were
returned to the provision for loan losses. We did not charge-off any loans
during either of these two periods.

         Loans on the loan watch list may also be impaired loans, which are
defined as nonaccrual loans or troubled debt restructurings, which are not in
compliance with their restructured terms. Each of the classified loans on the
loan watch list is individually analyzed to determine the level of the potential
loss in the loan under the current circumstances. The specific reserve
established for these criticized and impaired loans is based on careful analysis
of the loan's performance, the related collateral value, cash flow
considerations and the financial capability of any guarantor. The allowance for
loan watch list classified loans is equal to the total amount of potential
unconfirmed losses for the individual classified loans on the watch list. Loan
watch list loans are managed and monitored by assigned Senior Management.

         The allowance based on historical trends uses charge-off experience of
the Company to estimate potential unconfirmed losses in the balances of the loan
and lease portfolios. The historical loss experience percentage is based on the
charge-off history. Historical loss experience percentages are applied to all
non-classified loans to obtain the portion of the allowance for loan losses
which is based on historical trends. Before applying the historical loss
experience percentages, loan balances are reduced by the portion of the loan
balances, which are subject to guarantees, by a government agency. Loan balances
are also adjusted for unearned discount on installment loans.

         The Company also maintains an unallocated allowance. The unallocated
allowance is used to cover any factors or conditions which may cause a potential
loan loss but are not specifically identifiable. It is prudent to maintain an
unallocated portion of the allowance because no matter how detailed an analysis
of potential loan losses is performed these estimates by definition lack
precision. Management must make estimates using assumptions and information,
which is often subjective and changing rapidly.




                                       25





<PAGE>



         Since all identified losses are immediately charged off, no portion of
the allowance for loan losses is restricted to any individual loan or groups of
loans, and the entire allowance is available to absorb any and all loan losses.

         A loan is placed in a nonaccrual status at the time when ultimate
collectibility of principal or interest, wholly or partially, is in doubt. Past
due loans are those loans which were contractually past due 90 days or more as
to interest or principal payments but are well secured and in the process of
collection. Renegotiated loans are those loans which terms have been
renegotiated to provide a reduction or deferral of principal or interest as a
result of the deteriorating financial position of the borrower.

         At March 31, 2005 and 2004, we had a total of $404,000 and $328,000,
respectively, of non-accrual loans, and no loans past due more than 90 days and
still accruing interest at either date. Based upon management's evaluations of
the overall analysis of the Bank's allowance for loan losses, the year over year
decrease in total loans to $285.53 million from $295.34 million and the economic
conditions in our market area, the provision for the three months ended March
31, 2005, including net recoveries which are added back to the provision,
increased to $3.02 million from $2.66 million in the year ago period.

         Management believes that the allowance for loan losses and
nonperforming loans remains safely within acceptable levels.

         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):

<TABLE>
<CAPTION>


                                                         Three Months Ended
                                                              March 31,
                                              -----------------------------------------
                                                    2005                    2004
                                                    ----                    ----
<S>                                            <C>                     <C>
Average loans outstanding                      $288,288                $293,441
                                               ========                ========
Allowance at beginning of period                  2,927                   2,593
Charge-offs:
 Commercial and other loans                          --                      --
                                               --------                --------
  Total loans charged-off                            --                      --
                                               --------                --------
Recoveries:
 Commercial and other loans                          50                      23
                                               --------                --------
  Total loans recovered                              50                      23
                                               --------                --------
  Net (charge-offs) recoveries                       50                      23
                                               --------                --------
Provision for loan losses
 charged to operating expenses                       45                      45
                                               --------                --------
Allowance at end of period                     $  3,022                $  2,661
                                               --------                --------
Ratio of net recoveries (charge-offs)
 to average loans outstanding                      0.02%                   0.01%
                                               ========                ========
Allowance as a percent of total loans              1.06%                   0.90%
                                               ========                ========
Total loans at end of period                   $285,528                $295,336
                                               ========                ========

</TABLE>



                                       26





<PAGE>



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 commercial loans are either made to
individuals or personally guaranteed by the principals of the business to which
the loan is made. At March 31, 2005, we had total gross loans of $285.53
million, deferred loan fees of $756,000 and an allowance for loan losses of
$3.02 million. From time to time, the Bank may originate residential mortgage
loans and then sell them on the secondary market, normally recognizing fee
income in connection with the sale. During the three-month period ended March
31, 2005, the Bank sold approximately $505,000 of such loans and recorded in
other income a gain of approximately $7,000 on such sales.

         The following tables set forth information concerning the Company's
loan portfolio by type of loan at the dates indicated:

<TABLE>
<CAPTION>

                                                            March 31,            December 31,
                                                              2005                   2004
                                                     ----------------------- ---------------------
                                                             Amount                Amount
                                                             ------                ------
                                                                    (in thousands)

<S>                                                        <C>                   <C>
Commercial and professional loans                          $ 18,201              $ 16,498
Secured by real estate
  1-4 family                                                152,687               155,079
  Multi family                                                3,807                 4,600
  Non-residential (commercial)                              108,974               109,597
Consumer                                                      1,859                 1,989
                                                           --------              --------
Total loans                                                 285,528               287,763
Less:
 Deferred loan fees                                            (756)                 (864)
 Allowance for loan losses                                   (3,022)               (2,927)
                                                           --------              --------
Loans, net                                                 $281,750              $284,052
                                                           ========              ========

</TABLE>

         It is the Bank's policy to discontinue accruing interest on a loan when
it is 90 days past due or if management believes that continued interest
accruals are unjustified. The Bank may continue interest accruals if a loan is
more than 90 days past due if the Bank determines that the nature of the
delinquency and the collateral are such that collection of the principal and
interest on the loan in full is reasonably assured. When the accrual of interest
is discontinued, all accrued but unpaid interest is charged against current
period income. Once the accrual of interest is discontinued, the Bank records
interest as and when received until the loan is restored to accruing status. If
the Bank determines that collection of the loan in full is in reasonable doubt,
then amounts received are recorded as a reduction of principal until the loan is
returned to accruing status. At March 31, 2005 and 2004, we did not have any
loans past due more than 90 days and still accruing interest.



                                       27





<PAGE>


Capital Adequacy

         Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts and ratios
of total and Tier I capital (as defined in the regulations) to risk-weighted
assets (as defined), and Tier I capital (as defined) to average assets (as
defined). As of March 31, 2005, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain certain Total risk-based, Tier I risk-based, and Tier I leverage
ratios. There are no conditions or events since the notification that management
believes have changed the Bank's category.


          The following tables set forth the actual and required regulatory
capital amounts and ratios of the Company and the Bank as of March 31, 2005 and
December 31, 2004 (dollars in thousands):

<TABLE>
<CAPTION>

                                                                                                       To be well
                                                                                                    capitalized under
                                                                                  For capital       prompt corrective
                                                               Actual          adequacy purposes    action provisions
                                                               ------          -----------------    -----------------

                                                          Amount     Ratio     Amount    Ratio      Amount     Ratio
                                                          ------     -----     ------    -----      ------     -----
<S>                                                       <C>        <C>       <C>        <C>       <C>         <C>
March 31, 2005
Total Capital (to Risk-Weighted Assets)
  Company                                                112,359     28.8%     31,220   >=8.0%          --    N/A
  Bank                                                    84,687     23.2%     29,173   >=8.0%      36,466   >=10.0%

Tier I Capital (to Risk-Weighted Assets)
  Company                                                109,337     28.0%     15,610   >=4.0%          --    N/A
  Bank                                                    81,665     22.4%     14,586   >=4.0%      21,879    >=6.0%

Tier I Capital (to Average Assets)
  Company                                                109,337     10.7%     40,777   >=4.0%          --    N/A
  Bank                                                    81,665      8.4%     39,044   >=4.0%      48,805    >=5.0%

</TABLE>

<TABLE>
<CAPTION>

                                                                                                       To be well
                                                                                                    capitalized under
                                                                                 For capital        prompt corrective
                                                              Actual          adequacy purposes     action provisions
                                                              ------          -----------------     -----------------

                                                          Amount     Ratio     Amount    Ratio      Amount     Ratio
                                                          ------     -----     ------    -----      ------     -----
<S>                                                       <C>        <C>       <C>        <C>       <C>         <C>
December 31, 2004
Total Capital (to Risk-Weighted Assets)
  Company                                               $110,063     30.1%    $29,234   >=8.0%          --    N/A
  Bank                                                    82,970     24.1%     27,533   >=8.0%      34,416   >=10.0%

Tier I Capital (to Risk-Weighted Assets)
  Company                                                107,136     29.3%     14,617   >=4.0%          --    N/A
  Bank                                                    80,042     23.3%     13,766   >=4.0%      20,649    >=6.0%

Tier I Capital (to Average Assets)
  Company                                                107,136     11.2%     38,250   >=4.0%          --    N/A
  Bank                                                    80,042      8.6%     37,240   >=4.0%      46,550    >=5.0%

</TABLE>


                                       28





<PAGE>


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.

         For the Company, liquidity means having cash available to fund
operating expenses and to pay shareholder dividends, when and if declared by the
Company's Board of Directors and to pay the interest on the Debentures issued in
May 2004 and April 2005. The ability of the Company to meet all of its
obligations, including the payment of dividends, is not dependent upon the
receipt of dividends from the Bank. At March 31, 2005, the Company, excluding
the Bank, had cash and cash equivalents of $2.34 million and investment
securities available for sale of $12.80 million.

         The Company 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 $20.32 million at March 31, 2005,
include commitments to extend credit and stand-by letters of credit.

         At March 31, 2005, the Company had outstanding commitments of
approximately $408.97 million. These commitments include $233.62 million that
mature or renew within one year, $131.89 million that mature or renew after one
year and within three years, $31.04 million that mature or renew after three
years and within five years and $12.41 million that mature or renew after five
years.

         At March 31, 2005, the Company had one unconsolidated subsidiary,
Berkshire Capital Trust I, which was established in May 2004.

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

Evaluation of the Company's Disclosure Controls and Internal Control. 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").

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 13(a)-15(f) of
the Securities Exchange Act of 1934 ("Internal Control") will prevent all error
and all fraud. A control system, no matter how well conceived and operated, can




                                       29





<PAGE>



provide only reasonable, not 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.

Conclusions. Based upon the Controls Evaluation, the CEO/CFO has concluded that,
subject to the limitations noted above, 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. In accordance with SEC
requirements, the CEO/CFO notes that during the fiscal quarter ended March 31,
2005, no changes in Internal Control have occurred that have materially affected
or are reasonably likely to materially affect Internal Control.

PART II.  OTHER INFORMATION

Item 6.  Exhibits

<TABLE>
<CAPTION>
         Exhibit
         Number            Description
         ------            -----------
<S>                        <C>
         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.


</TABLE>




                                       30





<PAGE>


                                   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 6, 2005                   By:      /s/ Steven Rosenberg
       ----------------                        -----------------------
                                               Steven Rosenberg
                                               President and Chief
                                               Financial Officer



                                       31





<PAGE>

                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit                                                             Sequential
Number            Description                                       Page Number
------            -----------                                       -----------
<S>               <C>                                               <C>
31                Certification of Principal Executive                 33
                  and Financial Officer pursuant to
                  Section 302 Of The Sarbanes-Oxley Act
                  of 2002.

32                Certification of Principal Executive                 34
                  and Financial Officer pursuant to
                  Section 906 Of The Sarbanes-Oxley Act
                  of 2002.

</TABLE>



                                       32