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   JUNE 30, 2007

                                       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 a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the  Exchange  Act.  Large
accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]

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

As of August 1, 2007,  there were  7,054,183  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 actual results and  experiences  of Berkshire  Bancorp Inc. (the
"Company")  to differ  materially  from the results  expressed or implied by the
Company's forward-looking  statements.  Some of the risks and uncertainties that
may affect  operations,  performance,  results of the  Company's  business,  the
interest rate sensitivity of its assets and liabilities, and the adequacy of its
loan loss  allowance,  include,  but are not  limited to: (i)  deterioration  in
local,  regional,  national or global  economic  conditions  which could result,
among other things, in an increase in loan delinquencies, a decrease in property
values,  or a change  in the  housing  turnover  rate;  (ii)  changes  in market
interest  rates or changes in the speed at which market  interest  rates change;
(iii) changes in laws and regulations affecting the financial services industry;
(iv) changes in competition;  (v) changes in consumer preferences,  (vi) changes
in banking  technology;  (vii)  ability to maintain  key members of  management,
(viii)  possible   disruptions  in  the  Company's  operations  at  its  banking
facilities,  (ix) cost of compliance with new corporate governance requirements,
and other  factors  referred to in this  Quarterly  Report and in Item 1A, "Risk
Factors",  of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2006.

         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


                                                                        Page No.
     PART I.  FINANCIAL INFORMATION

Item 1.   Financial Statements

          Consolidated Balance Sheets as of
          June 30, 2007 (unaudited) and
          December 31, 2006                                               4

          Consolidated Statements of Income
          For The Three and Six Months Ended
          June 30, 2007 and 2006 (unaudited)                              5

          Consolidated Statements of Stockholders'
          Equity For The Six Months Ended
          June 30, 2007 and 2006 (unaudited)                              6

          Consolidated Statements of Cash Flows
          For The Six Months Ended
          June 30, 2007 (unaudited)                                       7

          Notes to Consolidated Financial Statements                      9

Item 2.  Management's Discussion and Analysis
         of Financial Condition and Results
         of Operations                                                    19

Item 3.  Quantitative and Qualitative Disclosure
         About Market Risk                                                28

Item 4.  Controls and Procedures                                          36

     PART II  OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of
         Security Holders                                                 37

Item 6.  Exhibits                                                         37

Signature                                                                 38

Index of Exhibits                                                         39




                                       3
<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                     June 30,               December 31,
                                                                                       2007                     2006
                                                                                    ------------------------------------
<S>                                                                                 <C>                       <C>
ASSETS
Cash and due from banks                                                             $   6,827                 $   8,061
Interest bearing deposits                                                               9,899                     4,950
Federal funds sold                                                                      2,800                    11,300
                                                                                    ---------                 ---------
Total cash and cash equivalents                                                        19,526                    24,311
Investment Securities:
 Available-for-sale                                                                   552,258                   514,798
 Held-to-maturity, fair value of $416
  in 2007 and $436 in 2006                                                                418                       433
                                                                                    ---------                 ---------
Total investment securities                                                           552,676                   515,231
Loans, net of unearned income                                                         380,838                   370,923
 Less: allowance for loan losses                                                       (3,928)                   (3,771)
                                                                                    ---------                 ---------
Net loans                                                                             376,910                   367,152
Accrued interest receivable                                                             7,234                     6,397
Premises and equipment, net                                                             9,684                     9,338
Goodwill, net                                                                          18,549                    18,549
Other assets                                                                            8,420                     7,678
                                                                                    ---------                 ---------
Total assets                                                                        $ 992,999                 $ 948,656
                                                                                    =========                 =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
 Non-interest bearing                                                               $  50,145                 $  49,418
 Interest bearing                                                                     726,931                   632,071
                                                                                    ---------                 ---------
Total deposits                                                                        777,076                   681,489
Securities sold under agreements to repurchase                                         29,722                    62,652
Long term borrowings                                                                   38,283                    52,738
Subordinated debt                                                                      22,681                    22,681
Accrued interest payable                                                                5,667                     8,110
Other liabilities                                                                       2,804                     5,209
                                                                                    ---------                 ---------
Total liabilities                                                                     876,233                   832,879
                                                                                    ---------                 ---------

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 --
   June 30, 2007, 7,039,706 shares
   December 31, 2006, 6,877,881 shares                                                    770                       770
Additional paid-in capital                                                             90,642                    90,659
Retained earnings                                                                      39,750                    37,285
Accumulated other comprehensive loss, net                                              (7,841)                   (4,772)
 Treasury Stock at cost
 June 30, 2007, 658,579 shares
 December 31, 2006, 820,404 shares                                                     (6,555)                   (8,165)
                                                                                    ---------                 ---------
Total stockholders' equity                                                            116,766                   115,777
                                                                                    ---------                 ---------
                                                                                    $ 992,999                 $ 948,656
                                                                                    =========                 =========
</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                        For The
                                                                             Three Months Ended               Six Months Ended
                                                                                 June 30,                          June 30,
                                                                          -------------------------       -----------------------
                                                                            2007             2006           2007           2006
                                                                          --------         --------       --------       --------
<S>                                                                         <C>            <C>            <C>            <C>
INTEREST INCOME
Loans                                                                       $ 7,240        $ 5,585        $14,478        $11,089
Investment securities                                                         6,416          6,150         12,251         12,405
Federal funds sold and
 interest bearing deposits                                                      376             81          1,062            157
                                                                            -------        -------        -------        -------
Total interest income                                                        14,032         11,816         27,791         23,651
                                                                            -------        -------        -------        -------
INTEREST EXPENSE
Deposits                                                                      7,825          5,345         15,269         10,200
Short-term borrowings                                                           433            453            866            994
Long-term borrowings                                                            915          1,147          1,906          2,358
                                                                            -------        -------        -------        -------
Total interest expense                                                        9,173          6,945         18,041         13,552
                                                                            -------        -------        -------        -------
Net interest income                                                           4,859          4,871          9,750         10,099
PROVISION FOR LOAN LOSSES                                                        75             45            150             90
                                                                            -------        -------        -------        -------
Net interest income after
 provision for loan losses                                                    4,784          4,826          9,600         10,009
                                                                            -------        -------        -------        -------
NON-INTEREST INCOME
Service charges on deposits accounts                                            183            146            364            286
Investment securities gains                                                      --              2            125            743
Other income                                                                    208            158            417            330
                                                                            -------        -------        -------        -------
Total non-interest income                                                       391            306            906          1,359
                                                                            -------        -------        -------        -------
NON-INTEREST EXPENSE
Salaries and employee benefits                                                2,142          2,072          4,376          4,179
Net occupancy expense                                                           440            491            916            966
Equipment expense                                                                98            108            200            204
FDIC assessment                                                                  20             22             40             43
Data processing expense                                                          99             91            195            181
Other                                                                           727            594          1,252          1,218
                                                                            -------        -------        -------        -------
Total non-interest expense                                                    3,526          3,378          6,979          6,791
                                                                            -------        -------        -------        -------
Income before provision for taxes                                             1,649          1,754          3,527          4,577
Provision for income taxes                                                      629            834          1,407          2,161
                                                                            -------        -------        -------        -------
Net income                                                                  $ 1,020        $   920        $ 2,120        $ 2,416
                                                                            =======        =======        =======        =======
Net income per share:
 Basic                                                                      $   .15        $   .13        $   .31        $   .35
                                                                            =======        =======        =======        =======
 Diluted                                                                    $   .15        $   .13        $   .30        $   .35
                                                                            =======        =======        =======        =======
Number of shares used to compute net income per share:
 Basic                                                                        6,948          6,895          6,922          6,893
                                                                            =======        =======        =======        =======
 Diluted                                                                      6,958          6,983          6,957          6,983
                                                                            =======        =======        =======        =======
</TABLE>


        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                       5
<PAGE>



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

                 FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006
                                 (In Thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                               ACCUMULATED
                                          COMMON        STOCK      ADDITIONAL      OTHER
                                                         PAR        PAID-IN    COMPREHENSIVE    RETAINED    TREASURY   COMPREHENSIVE
                                          SHARES        VALUE       CAPITAL     (LOSS), NET     EARNINGS     STOCK     INCOME (LOSS)
                                          ------        -----       --------    ------------    --------     ------    -------------
<S>                                         <C>      <C>          <C>          <C>             <C>         <C>          <C>
BALANCE AT JANUARY 1, 2007                  7,698    $     770    $  90,659    $  (4,772)      $  37,285   $  (8,165)
Adoption of FIN 48                                                                                   965
                                                                                                --------
Adjusted balance at January 1, 2007                                                               38,250
Net income                                                                                         2,120                    2,120
Exercise of stock options                                               (17)                                   1,610
Other comprehensive (loss) net
 of reclassification adjustment
 and taxes                                                                        (3,069)                                  (3,069)
                                                                                                                        ---------
Comprehensive income (loss)                                                                                             $    (949)
                                                                                                                        =========
Cash dividends                                                                                      (620)
                                            -----    ---------    ---------    ---------       ---------   ---------
BALANCE AT JUNE 30, 2007                    7,698    $     770    $  90,642    $  (7,841)      $  39,750   $  (6,555)
                                            =====    =========    =========    =========       =========   =========

BALANCE AT JANUARY 1, 2006                  7,698    $     770    $  90,594    $  (8,415)      $  33,504   $  (7,743)
Net income                                                                                         2,416                    2,416
Exercise of stock options                                                 6                                       77
Other comprehensive (loss) net
 of reclassification adjustment
 and taxes                                                                        (2,692)                                  (2,692)
                                                                                                                        ---------
Comprehensive income                                                                                                    $    (276)
                                                                                                                        =========
Cash dividends                                                                                      (549)
                                            -----    ---------    ---------    ---------       ---------   ---------
BALANCE AT JUNE 30, 2006                    7,698    $     770    $  90,600    $ (11,107)      $  35,371   $  (7,666)
                                            =====    =========    =========    =========       =========   =========


<CAPTION>

                                              TOTAL
                                          STOCKHOLDERS'
                                             EQUITY
                                             ------
<S>                                         <C>
BALANCE AT JANUARY 1, 2007                  $ 115,777
Adoption of FIN 48                                965
                                            ---------
Adjusted balance at January 1, 2007           116,742
Net income                                      2,120
Exercise of stock options                       1,593
Other comprehensive (loss) net
 of reclassification adjustment
 and taxes                                     (3,069)
                                            ---------
Comprehensive income (loss)

Cash dividends                                   (620)
                                            ---------
BALANCE AT JUNE 30, 2007                    $ 116,766
                                            =========

BALANCE AT JANUARY 1, 2006                  $ 108,710
Net income                                      2,416
Exercise of stock options                          83
Other comprehensive (loss) net
 of reclassification adjustment
 and taxes                                     (2,692)

Comprehensive income

Cash dividends                                   (549)
                                            ---------
BALANCE AT JUNE 30, 2006                    $ 107,968
                                            =========

</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 SIX MONTHS ENDED
                                                                                              JUNE 30,
                                                                                  ---------------------------------
                                                                                     2007                     2006
                                                                                     -----                    -----
<S>                                                                               <C>                      <C>
  Cash flows from operating activities:
Net income                                                                        $   2,120                $   2,416
Adjustments to reconcile net income to net
 cash provided by (used in) operating activities:
Realized gains on investment securities                                                (125)                    (743)
Net (accretion) amortization of premiums of
 investment securities                                                                 (845)                    (368)
Depreciation and amortization                                                           360                      359
Provision for loan losses                                                               150                       90
Increase (decrease) in accrued interest receivable                                     (837)                      86
Increase in other assets                                                               (742)                  (1,327)
(Decrease) increase in accrued interest payable
  and other liabilities                                                              (3,883)                   1,966
                                                                                  ---------                ---------
 Net cash (used in) provided by operating activities                                 (3,802)                   2,479
                                                                                  ---------                ---------

  Cash flows from investing activities:
Investment securities available for sale
 Purchases                                                                         (819,862)                (187,912)
 Sales, maturities and calls                                                        780,248                  230,033
Investment securities held to maturity
 Maturities                                                                              70                       74
Net increase in loans                                                                (9,908)                  (6,657)
Acquisition of premises and equipment                                                  (706)                  (1,368)
                                                                                  ---------                ---------
Net cash (used in) provided by investing activities                                 (50,158)                  34,170
                                                                                  ---------                ---------
</TABLE>


                                       7
<PAGE>

                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                      FOR THE SIX MONTHS ENDED
                                                                                              JUNE 30,
                                                                                  ---------------------------------
                                                                                     2007                     2006
                                                                                     -----                    -----
<S>                                                                               <C>                      <C>
  Cash flows from financing activities:
Net increase in non interest bearing deposits                                           727                    7,292
Net increase (decrease) in interest bearing deposits                                 94,860                  (20,098)
Decrease in securities sold under agreements
 to repurchase                                                                      (32,930)                 (13,164)
Proceeds from long term debt                                                          1,000                       --
Repayment of long term debt                                                         (15,455)                 (16,231)
Proceeds from exercise of common stock options                                        1,593                       83
Dividends paid                                                                         (620)                    (549)
                                                                                  ---------                ---------
Net cash provided by (used in) financing activities                                  49,175                  (42,667)
                                                                                  ---------                ---------

  Net decrease in cash and cash equivalents                                          (4,785)                  (6,018)
  Cash and cash equivalents - beginning of period                                    24,311                   27,882
                                                                                  ---------                ---------
  Cash and cash equivalents - end of period                                       $  19,526                $  21,864
                                                                                  =========                =========

Supplemental disclosure of cash flow information:
  Cash used to pay interest                                                       $  20,484                $  11,685
  Cash used to pay taxes, net of refunds                                          $   1,785                $   2,825
</TABLE>



        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.




                                       8
<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2007 AND 2006

NOTE 1. GENERAL

         Berkshire  Bancorp  Inc.,  a Delaware  corporation,  is a bank  holding
company registered under the Bank Holding Company Act of 1956. References herein
to "Berkshire",  the "Company" or "we" and similar pronouns,  shall be deemed to
refer to Berkshire  Bancorp Inc. and its  consolidated  subsidiaries  unless the
context otherwise requires.  Berkshire's principal activity is the ownership and
management of its 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.

         We have prepared the accompanying  financial statements pursuant to the
rules and regulations of the Securities and Exchange  Commission (the "SEC") for
interim  financial  reporting.   These  consolidated  financial  statements  are
unaudited  and, in our opinion,  include all  adjustments,  consisting of normal
recurring  adjustments  and accruals  necessary for a fair  presentation  of our
consolidated  balance sheets,  operating results, and cash flows for the periods
presented.  Operating  results for the  periods  presented  are not  necessarily
indicative  of the  results  that may be  expected  for 2007 due to a variety of
factors.  Certain  information  and footnote  disclosures  normally  included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States  ("GAAP") have been omitted in accordance with the
rules and regulations of the SEC. These consolidated financial statements should
be read in conjunction with the audited  consolidated  financial  statements and
accompanying notes included in our 2006 Annual Report on Form 10-K.

NOTE 2.  TRUST PREFERRED SECURITIES.

         As of May 18 2004, the Company established Berkshire Capital Trust I, a
Delaware  statutory  trust,  ("BCTI").  The Company owns all the common  capital
securities of BCTI. BCTI issued $15.0 million of preferred capital securities to
investors in a private transaction and invested the proceeds,  combined with the
proceeds  from the sale of BCTI's  common  capital  securities,  in the  Company
through the purchase of $15.464 million  aggregate  principal amount of Floating
Rate  Junior  Subordinated  Debentures  (the  "2004  Debentures")  issued by the
Company.  The 2004 Debentures,  the sole assets of BCTI, mature on July 23, 2034
and bear interest at a floating  rate,  three month LIBOR plus 2.70%,  currently
8.06%.

         On April 1, 2005, the Company established Berkshire Capital Trust II, a
Delaware  statutory  trust,  ("BCTII").  The Company owns all the common capital
securities of BCTII.  BCTII issued $7.0 million of preferred capital  securities
to investors in a private  transaction and invested the proceeds,  combined with
the proceeds from the sale of BCTII's common capital securities,  in the Company
through the purchase of $7.217 million  aggregate  principal  amount of Floating
Rate  Junior  Subordinated  Debentures  (the  "2005  Debentures")  issued by the
Company.  The 2005 Debentures,  the sole assets of BCTII, mature on May 23, 2035
and bear interest at a floating  rate,  three month LIBOR plus 1.95%,  currently
7.31%.



                                       9
<PAGE>





                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2. - (CONTINUED)

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

         The Federal  Reserve  has issued  guidance  on the  regulatory  capital
treatment for the trust-preferred securities issued by BCTI and BCTII. This rule
would retain the current maximum percentage of total capital permitted for Trust
Preferred  Securities  at 25%,  but  would  enact  other  changes  to the  rules
governing  Trust  Preferred  Securities  that  affect  their  use as part of the
collection of entities  known as  "restricted  core capital  elements." The rule
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 3.  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
                                    ----------------------------------------------------------------------------------
                                                JUNE 30, 2007                               JUNE 30, 2006
                                    -------------------------------------       --------------------------------------
                                                                    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                 $1,020          6,948         $.15          $ 920            6,895         $.13
Effect of dilutive securities
 Options                                  --             10          .--             --               88          .--
                                      ------          -----         ----          -----            -----         ----
Diluted earnings per share
 Net income available to
  common stockholders plus
  assumed conversions                 $1,020          6,958         $.15          $ 920            6,983         $.13
                                      ======          =====         ====          =====            =====         ====
</TABLE>


                                       10
<PAGE>




                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3. - (CONTINUED)

<TABLE>
<CAPTION>
                                                              FOR THE SIX MONTHS ENDED
                                    ----------------------------------------------------------------------------------
                                                JUNE 30, 2007                               JUNE 30, 2006
                                    -------------------------------------       --------------------------------------
                                                                    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                 $2,120          6,922         $.31          $2,416           6,893         $.35
Effect of dilutive securities
 Options                                  --             35          .01              --              90          .--
                                      ------          -----         ----          -----            -----         ----
Diluted earnings per share
 Net income available to
  common stockholders plus
  assumed conversions                 $2,120          6,957         $.30          $2,416           6,983         $.35
                                      ======          =====         ====          =====            =====         ====
</TABLE>



NOTE 4. INVESTMENT SECURITIES

         The following tables summarize held to maturity and  available-for-sale
investment securities as of June 30, 2007 and December 31, 2006:

<TABLE>
<CAPTION>
                                                                                      JUNE 30, 2007
                                                      ------------------------------------------------------------------------------
                                                                               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                                    $418               $  --               $ (2)               $416
                                                            ----               -----               ----                ----

 Totals                                                     $418               $  --               $ (2)               $416
                                                            ====               =====               ====                ====

</TABLE>

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31, 2006
                                                      ------------------------------------------------------------------------------
                                                                               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                                    $ 433              $ 4                 $ (1)               $ 436
                                                            -----              ---                 ----                -----

 Totals                                                     $ 433              $ 4                 $ (1)               $ 436
                                                            =====              ===                 ====                =====
</TABLE>


                                       11
<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4. - (CONTINUED)

<TABLE>
<CAPTION>
                                                                                      JUNE 30, 2007
                                                      ------------------------------------------------------------------------------
                                                                               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                                    $  5,002          $     --             $    (22)            $  4,980
U.S. Government Agencies                                    345,470                --               (6,974)             338,496
Mortgage-backed securities                                   62,127                31               (2,173)              59,985
Corporate notes                                              47,123               194               (3,732)              43,585
Municipal Securities                                          1,973             1,222                   --                3,195
Marketable equity
 securities and other                                       101,838               284                 (105)             102,017
                                                           --------          --------             --------             --------
 Totals                                                    $563,533          $  1,731             $(13,006)            $552,258
                                                           ========          ========             ========             ========
</TABLE>




<TABLE>
<CAPTION>
                                                                                    DECEMBER 31, 2006
                                                      ------------------------------------------------------------------------------
                                                                               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                                     $  5,002         $     --             $    (12)            $  4,990
U.S. Government Agencies                                     322,986               --               (5,822)             317,164
Mortgage-backed securities                                    67,472               92               (1,711)              65,853
Corporate Notes                                               44,366              334                 (662)              44,038
Municipal securities                                           5,698            1,489                   --                7,187
Marketable equity
 securities and other                                         75,419              216                  (69)              75,566
                                                            --------         --------             --------             --------
 Totals                                                     $520,943         $  2,131             $ (8,276)            $514,798
                                                            ========         ========             ========             ========
</TABLE>

         Our  available-for-sale  portfolio is carried at estimated  fair value,
with any unrealized gains or losses, net of taxes, reported as accumulated other
comprehensive  income  or loss in  stockholders'  equity.  Our  held-to-maturity
portfolio, consisting of debt securities for which we have a positive intent and
ability to hold to maturity, is carried at amortized cost. We conduct a periodic
review and evaluation of the  securities  portfolio to determine if the value of
any  security has declined  below its cost or amortized  cost,  and whether such
decline is other-than-temporary.


                                       12
<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4. - (CONTINUED)

         The Company has  investments  in debt and equity  securities  that have
unrealized  losses,  but  an   other-than-temporary   impairment  has  not  been
recognized in its financial  statements.  Based upon management's  review of the
available information including the changes in interest rates during the period,
current market conditions,  applicable industry and company information specific
to each  investment,  the  creditworthiness  of the  issuer,  and the  Company's
ability to hold the  investment  to  maturity.  Such  unrealized  losses are not
considered to be other-than-temporary.

NOTE 5. LOAN PORTFOLIO

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

<TABLE>
<CAPTION>
                                                            JUNE 30, 2007                         DECEMBER 31, 2006
                                             ---------------------------------------     ------------------------------------
                                                                % OF                                          % OF
                                                     AMOUNT     TOTAL                              AMOUNT     TOTAL
                                                     ------     -----                              ------     -----
                                                                           (Dollars in thousands)
<S>                                                <C>           <C>                             <C>           <C>
Commercial and professional loans                  $ 59,345      15.5%                           $ 63,331      17.0%
Secured by real estate
  1-4 family                                        136,402      35.7                             139,611      37.5
  Multi family                                        3,772       1.0                               4,013       1.1
  Non-residential (commercial)                      181,496      47.5                             160,417      43.1
Consumer                                              1,069       0.3                               4,763       1.6
                                                   --------     -----                            --------     -----

Total loans                                         382,084     100.0%                            372,135     100.0%
                                                                =====                                         =====
Deferred loan fees                                  (1,246)                                       (1,212)
Allowance for loan losses                           (3,928)                                       (3,771)
                                                   --------                                      --------
Loans, net                                         $376,910                                      $367,152
                                                   ========                                      ========
</TABLE>

NOTE 6. DEPOSITS

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

<TABLE>
<CAPTION>
                                                   JUNE 30, 2007                  DECEMBER 31, 2006
                                                 -----------------                -----------------
                                                 AVERAGE   AVERAGE                AVERAGE   AVERAGE
                                                 AMOUNT     YIELD                 AMOUNT     YIELD
                                                               (Dollars in thousands)

<S>                                             <C>         <C>                    <C>         <C>
Demand deposits                                 $ 49,358      --                   $ 47,890      --
NOW and money market                              29,305    0.55%                    35,141    0.61%
Savings deposits                                 252,822    3.78                    171,604    2.95
Time deposits                                    432,463    4.81                    410,729    4.21
                                                --------    ----                   --------    ----
Total deposits                                  $763,948    4.00%                  $665,364    3.39%
                                                ========    ====                   ========    ====
</TABLE>


                                       13
<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7. COMPREHENSIVE INCOME

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

<TABLE>
<CAPTION>
                                                                         FOR THE SIX MONTHS ENDED
                                        --------------------------------------------------------------------------------------------
                                                          JUNE 30, 2007                              JUNE 30, 2006
                                        -----------------------------------------------  -------------------------------------------
                                                               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 gains (losses) on
investment securities:
Unrealized holding gains
(losses) arising during
period                                      $(5,005)          $ 2,011        $(2,994)       $(3,590)       $ 1,344        $(2,246)
Less reclassification
adjustment for gains
realized in net income                          125               (50)            75            743           (297)           446
                                            -------           -------        -------        -------        -------        -------
Other comprehensive                         $(5,130)          $ 2,061        $(3,069)       $(4,333)       $ 1,641        $(2,692)
                                            =======           =======        =======        =======        =======        =======
income (loss), net
</TABLE>


NOTE 8.  ACCOUNTING FOR STOCK BASED COMPENSATION

         In December 2004, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 123 (revised 2004),  "Share-Based  Payment" ("SFAS 123(R)")
which requires the measurement  and recognition of compensation  expense for all
stock-based   compensation   payments  and  supersedes  the  Company's  previous
accounting  under Accounting  Principals  Board Opinion No. 25,  "Accounting for
Stock Issued to  Employees"  (APB 25).  SFAS 123(R) is effective  for all annual
periods  beginning  after June 15, 2005, or our fiscal year 2006. In March 2005,
the  Securities  and Exchange  Commission  (the "SEC")  issued Staff  Accounting
Bulletin No. 107 ("SAB 107") relating to the adoption of SFAS 123(R).

         The Company  adopted  SFAS  123(R) in the first  quarter of fiscal year
2006.  The  adoption  of SFAS  123(R)  did not have an impact  on our  operating
results or financial  condition  because all options  outstanding under the plan
vested prior to the adoption of SFAS 123(R).

         At June 30, 2007, the Company has one stock-based employee compensation
plan, for which 24,053 options at a weighted average exercise price of $9.19 per
share were outstanding with an average remaining life of 1.8 years. Prior to the
adoption  of SFAS  123(R),  the  Company  accounted  for  that  plan  under  the
recognition  and measurement  principles of APB 25 and related  interpretations.
The Company did not grant stock options  during the six-month  period ended June
30, 2007 or during the fiscal year ended  December 31, 2006. The Company has  no
plans to grant significant stock options, if any, in 2007. Therefore,  we do not
expect the  implementation of FAS 123(R) to affect  our  financial  position  or
results of operations in the near future.


                                       14
<PAGE>





                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9. 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) as amended by FAS 158.

<TABLE>
<CAPTION>
                                                                      FOR THE                                FOR THE
                                                                 THREE MONTHS ENDED                      SIX MONTHS ENDED
                                                                      JUNE 30,                               JUNE 30,
                                                     ------------------------------------       ------------------------------------
                                                            2007                2006                 2007                2006
                                                     ----------------    ----------------       ----------------    ----------------

<S>                                                        <C>                  <C>                  <C>                  <C>
Service cost                                               $  90,750            $  90,357            $ 181,500            $ 172,357
Interest cost                                                 43,500               37,531               87,000               74,531
Expected return on plan assets                               (46,000)             (37,710)             (92,000)             (75,710)
Amortization and Deferral:
 Transition amount                                                --                   --                   --                   --
 Prior service cost                                            4,500                4,457                9,000                9,457
 Loss                                                         11,750               15,429               23,500               29,429
                                                           ---------            ---------            ---------            ---------
Net periodic pension cost                                  $ 104,500            $ 110,063            $ 209,000            $ 210,063
                                                           =========            =========            =========            =========
</TABLE>

         During  the  fiscal  year  ending  December  31,  2007,  we  expect  to
contribute  approximately $340,000 to the Plan. We contributed $119,600 in April
2007 and  $84,905 in July  2007,  and we  contributed  $56,000 in April 2006 and
$221,000 in July 2006.

NOTE 10.  NEW ACCOUNTING PRONOUNCEMENTS

FAIR VALUE OPTION FOR FINANCIAL ASSETS AND LIABILITIES

         In February 2007, the FASB issued Statement 159, "The Fair Value Option
for Financial Assets and Financial  Liabilities" ("SFAS No. 159"). The objective
of SFAS No.  159 is to  provide  companies  with the  option to  recognize  most
financial  assets  and  liabilities  and  certain  other  items  at fair  value.
Statement  159  will  allow  companies  the  opportunity  to  mitigate  earnings
volatility  caused by  measuring  related  assets  and  liabilities  differently
without having to apply complex hedge accounting. Unrealized gains and losses on
items for which the fair value  option has been  elected  should be  reported in
earnings.  The fair  value  option  election  is  applied  on an  instrument  by
instrument basis (with some  exceptions),  is irrevocable,  and is applied to an
entire  instrument.  The election may be made as of the date of initial adoption
for existing  eligible items.  Subsequent to initial  adoption,  the Company may
elect the fair  value  option at initial  recognition  of  eligible  items or on
entering into an eligible firm  commitment.  The Company can only elect the fair
value option after initial recognition in limited circumstances.

         SFAS No. 159  requires  similar  assets and  liabilities  for which the
Company  has elected the fair value  option to be  displayed  on the face of the
balance  sheet either (a) together with  financial  instruments  measured  using
other  measurement  attributes  with  parenthetical  disclosure  of  the  amount
measured at fair value or (b) in separate line items. In addition,  SFAS No. 159
requires  additional  disclosures to allow financial  statement users to compare
similar assets and liabilities  measured differently either within the financial
statements  of  the  Company  or  between  financial   statements  of  different
companies.




                                       15
<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10. - (CONTINUED)

         SFAS No. 159 is  required  to be  adopted by the  Company on January 1,
2008. Early adoption is permitted; however, the Company does not intend to adopt
SFAS No. 159 prior to the required adoption date of January 1, 2008. The Company
expects  to adopt  SFAS No.  159  concurrent  with  SFAS No.  157,  "Fair  Value
Measurements."   The   remeasurement   to  fair-value  will  be  reported  as  a
cumulative-effect  adjustment  in the  opening  balance  of  retained  earnings.
Additionally,  any changes in fair value due to the concurrent  adoption of SFAS
No. 157 will be included in the  cumulative-effect  adjustment if the fair value
option is also elected for that item.

         The Company is currently evaluating,  which, if any items it will elect
to  recognize  at fair value at the date of adoption.  The  financial  statement
impact will depend on which items the Company elects to recognize at fair value,
fair value at the date of adoption, and the concurrent adoption of SFAS No. 157.
If the Company elects to recognize  items at fair value as a result of Statement
159, this could result in increased earnings volatility.

ACCOUNTING FOR FAIR VALUE MEASUREMENT

         In  September   2006  the  FASB  issued  SFAS  No.  157,   "Fair  Value
Measurements."  The Statement is effective for all financial  statements  issued
for fiscal years beginning after November 15, 2007, or January 1, 2008 as to the
Company. The Statement defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly  transaction between
market  participants  at the  measurement  date,  establishes  a  framework  for
measuring fair value,  and expands  disclosures  about fair value  measurements.
Adoption  of SFAS No.  157 is not  expected  to have a  material  impact  on the
Company's results of operations or financial condition.

ACCOUNTING FOR DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS

         In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting
for Defined  Benefit  Pension  and Other  Postretirement  Plans." The  Statement
requires  an  employer  that  is a  business  entity  and  sponsors  one or more
single-employer  defined  benefit plans to: (1) recognize the funded status of a
benefit plan - measured as the difference  between plan assets at fair value and
the benefit  obligation  - in its  statement  of  financial  position,  with the
corresponding  credit or charge,  net of taxes,  upon initial  adoption to Other
Comprehensive  Income;  (2)  recognize  as a  component  of other  comprehensive
income,  net of tax, the gains or losses and prior service costs or credits that
arise during the period but are not  recognized  as  components  of net periodic
benefit cost pursuant to SFAS No. 87, "Employers'  Accounting for Pensions",  or
SFAS No. 106,  "Employers'  Accounting  for  Postretirement  Benefits Other Than
Pensions";  (3) measure  defined  benefit plan assets and  obligations as of the
date of the employer's fiscal year end; and (4) expand  disclosures in the notes
to the financial  statements about certain effects on net periodic benefit cost.
The Statement also amends SFAS No. 132 (revised 2003),  "Employers'  Disclosures
about Pensions and Other Postretirement  Benefits", and SFAS No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans for
Termination Benefits".

         An employer  who has publicly  traded  equity  securities,  such as the
Company,  is  required to  initially  recognize  the funded  status of a defined
benefit  postretirement  plan and to provide the required  disclosures as of the
end of its first  fiscal year ending after  December 15, 2006.  For the Company,
this was for the year ended December 31, 2006.  The  requirement to measure plan
assets and benefit  obligations as of the date of the employer's fiscal year end
is effective  for fiscal years ending after  December 15, 2008.  The adoption of
this  statement for the year ended  December 31, 2006 did not have a significant
effect on Other Comprehensive Income and stockholders' equity.


                                       16
<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10. - (CONTINUED)

         On  July  13,  2006,  the  FASB  issued  FASB  Interpretation  No.  48,
"Accounting  for  Uncertainty in Income Taxes ("FIN 48"): An  interpretation  of
FASB No. 109." FIN 48 clarifies the accounting for  uncertainty  involved in the
recognition and measurement of a tax position taken or expected to be taken in a
tax  return.  FIN 48  also  provides  guidance  on  derecognition,  measurement,
classification,   interest  and  penalties,   accounting  in  interim   periods,
disclosure,  and transition.  In accordance with FIN 48, the Company's financial
statements  must reflect only those tax positions that are  more-likely-than-not
to be sustained as of the adoption  date.  FIN 48 is effective  for fiscal years
beginning  after  December 15, 2006,  or January 1, 2007 as to the Company.  The
Company's  adoption  of FIN 48  resulted  in a decrease  in our tax  reserves of
$965,000 and a corresponding  increase to stockholders'  equity as of January 1,
2007.

         As of June 30,  2007,  the  Company  does not  have any  uncertain  tax
positions under FIN 48. As a result,  there are no unrecognized  tax benefits as
of June 30, 2007.  The  Company's  2003  through 2006 federal tax returns  still
remain subject to examination by the Internal  Revenue  Service.  If the Company
were to  incur  any  interest  and  penalties  in  connection  with  income  tax
deficiencies,  the Company would  classify  interest in the  "interest  expense"
category and classify  penalties in the  "non-interest  expense" category within
the consolidated statements of income.

ACCOUNTING FOR FINANCIAL ASSETS

         In March 2006, the FASB issued SFAS No. 156,  "Accounting for Servicing
of Financial  Assets-An  amendment of FASB  Statement  No. 140." This  statement
requires an entity to recognize a servicing  asset or servicing  liability  each
time it  undertakes an  obligation  to service a financial  asset,  and that the
servicing assets and servicing  liabilities be initially measured at fair value.
The statement also permits an entity to choose a subsequent  measurement  method
for  each  class  of  separately   recognized  servicing  assets  and  servicing
liabilities.  SFAS No. 156 is effective  as of the  beginning of the fiscal year
that begins after September 15, 2006, or January 1, 2007 as to the Company.  The
application  of SFAS No.  156 did not have a  material  impact on the  Company's
financial condition or results of operations.

         In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial  Instruments."  The Statement amends SFAS No. 133,  "Accounting
for Derivative Instruments and Hedging Activities" and SFAS No.140,  "Accounting
for  Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
Liabilities."  The  Statement  also  resolves  issues  addressed in SFAS No. 133
Implementation  Issue  No.  D1,  "Application  of  Statement  133 to  Beneficial
Interest in  Securitized  Financial  Assets."  SFAS No. 155  permits  fair value
remeasurement  for any hybrid  financial  instrument  that  contains an embedded
derivative   that  otherwise   would  require   bifurcation,   clarifies   which
interest-only   strips  and  principal-only   strips  are  not  subject  to  the
requirements of SFAS No. 133, establishes a requirement to evaluate interests in
securitized  financial  assets  to  identify  interests  that  are  freestanding
derivatives or that are hybrid  financial  instruments  that contain as embedded
derivative  requiring  bifurcation,  and clarifies that concentrations of credit
risk in the form of subordination  are not embedded  derivatives.  The Statement
eliminates  the interim  guidance in SFAS No. 133  Implementation  Issue No. D1,
which provided that beneficial interests in securitized financial assets are not
subject to the provisions of SFAS No. 133.


                                       17
<PAGE>

                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10. - (CONTINUED)

         In October  2006,  the FASB  recommended  a narrow scope  exception for
asset backed  securities,  including  mortgage-backed  securities,  created from
pools of loans  containing  embedded  call  features,  that (a) only  contain an
embedded  derivative  that  is  tied to the  prepayment  risk of the  underlying
prepayable  financial assets, and (b) the investor does not control the right to
accelerate  the  settlement.  The  Statement  is  effective  for  all  financial
instruments  acquired or issued after the beginning of an entity's  first fiscal
year that begins after September 15, 2006, or January 1, 2007 as to the Company.
The Company  adopted SFAS No. 155 without  material  effect on the  consolidated
statement of financial condition or results of operations.  However, as SFAS No.
155 applies to purchases  made by the Company  subsequent  to December 31, 2006,
there  could be future  undetermined  impact on the  results of  operations  and
financial condition.

ACCOUNTING FOR PRIOR YEAR MISSTATEMENTS

         In September 2006, the SEC staff issued Staff  Accounting  Bulletin No.
108,  "Considering  the  Effects of Prior Year  Misstatements  when  Quantifying
Misstatements  in  Current  Year  Financial  Statements."  SAB 108 was issued to
provide  consistency  between  how  registrants   quantify  financial  statement
misstatements.  Historically,  there  have  been  two  widely-used  methods  for
quantifying the effects of financial statement misstatements.  These methods are
referred to as the "roll-over" and "iron curtain"  method.  The roll-over method
quantifies  the amount by which the current year income  statement is misstated.
Exclusive   reliance  on  an  income  statement   approach  can  result  in  the
accumulation  of errors on the balance  sheet that may not have been material to
any  individual  income  statement,  but which may  misstate one or more balance
sheet accounts.  The iron curtain method  quantifies the error as the cumulative
amount by which the current year balance sheet is misstated.  Exclusive reliance
on a balance sheet approach can result in disregarding  the effects of errors in
the current year income  statement  that results from the correction of an error
existing in previously issued financial statements.

         SAB  108  established  an  approach  that  requires  quantification  of
financial  statement  misstatements  based on the effects of the misstatement on
each of the Company's  financial  statements and the related financial statement
disclosures.  This  approach  is  commonly  referred  to as the "dual  approach"
because it requires  quantification  of errors under both the roll-over and iron
curtain methods. SAB 108 allows registrants to initially apply the dual approach
either by (1) retroactively  adjusting prior financial statements as if the dual
approach  had always  been used or by (2)  recording  the  cumulative  effect of
initially  applying the dual approach as adjustments  to the carrying  values of
assets  and  liabilities  as of January  1, 2006 with an  offsetting  adjustment
recorded to the opening balance of retained  earnings.  Use of this  "cumulative
effect" transition method requires detailed  disclosure of the nature and amount
of each individual error being corrected  through the cumulative  adjustment and
how and when it arose.  SAB 108 is  effective  for  fiscal  years  ending  after
November 15, 2006. The adoption of SAB 108 did not have a material effect on the
Company's results of operations or financial condition.



                                       18
<PAGE>

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.  Presently,  the SEC requires the Company to
first comply with Section 404 by the year ending December 31, 2007.

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

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 per
share amounts refer to diluted shares. References to Notes herein are references
to the "Notes to  Consolidated  Financial  Statements" of the Company located in
Item 1 herein.

         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.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

         The Company's accounting and reporting policies conform with accounting
principles  generally  accepted  in the  United  States of America  and  general
practices within the banking 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 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.


                                       19
<PAGE>

         With the  adoption  of  Statement  of  Financial  Accounting  Standards
("SFAS") No. 142 ("SFAS No. 142") on January 1, 2002,  the Company  discontinued
the  amortization  of  goodwill  resulting  from  acquisitions.  Goodwill is now
subject to impairment testing at least annually to determine whether write-downs
of the recorded  balances are necessary.  The Company tests for impairment based
on the  goodwill  maintained  at the Bank. A fair value is  determined  for each
reporting  unit  based  on at  least  one  of  three  various  market  valuation
methodologies.  If the fair  values of the  reporting  units  exceed  their book
values,  no write-down of recorded  goodwill is necessary.  If the fair value of
the reporting unit is less, an expense may be required on the Company's books to
write down the related goodwill to the proper carrying value. As of December 31,
2006,  the  Company  completed  its annual  testing,  which  determined  that no
impairment charges 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.  The quarterly evaluation of 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.





                                       20
<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 JUNE 30,
                                        --------------------------------------------------------------------------------------
                                                        2007                                            2006
                                        ----------------------------------------     -----------------------------------------

                                                       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)                               $  379,449     $  7,240          7.63%       $  312,490        $  5,585       7.15%
Investment securities                      553,461        6,416          4.64           569,760           6,150       4.32
Other (2)(5)                                30,087          376          5.00             8,237              81       3.93
                                        ----------     --------          ----        ----------        --------       ----
Total interest-earning assets              962,997       14,032          5.83           890,487          11,816       5.31
                                                                         ----                                         ----
Noninterest-earning assets                  45,394                                       46,747
                                        ----------                                   ----------
Total Assets                             1,008,391                                      937,234
                                        ==========                                   ==========

INTEREST-BEARING LIABILITIES:
Interest bearing deposits                  291,027        2,541          3.49%          208,559           1,223       2.35%
Time deposits                              439,936        5,284          4.80           411,614           4,122       4.01
Other borrowings                            96,849        1,348          5.57           146,017           1,600       4.38
                                        ----------     --------          ----        ----------        --------       ----
Total interest-bearing
 liabilities                               827,812        9,173          4.43           766,190           6,945       3.63
                                                       --------          ----                          --------       ----

Demand deposits                             50,438                                       49,097
Noninterest-bearing liabilities             11,010                                       12,610
Stockholders' equity (5)                   119,131                                      109,337
                                        ----------                                   ----------

Total liabilities and
 stockholders' equity                    1,008,391                                      937,234
                                        ==========                                   ==========

Net interest income                                       4,859                                           4,871
                                                       ========                                        ========

Interest-rate spread (3)                                                 1.40%                                        1.68%
                                                                         ====                                         ====

Net interest margin (4)                                                  2.02%                                        2.19%
                                                                         ====                                         ====

Ratio of average interest-
earning assets to average
interest bearing liabilities                  1.16                                         1.16
                                        ==========                                   ==========
</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.


                                       21
<PAGE>


<TABLE>
<CAPTION>
                                                                    FOR THE SIX MONTHS ENDED JUNE 30,
                                        --------------------------------------------------------------------------------------
                                                        2007                                            2006
                                        ----------------------------------------     -----------------------------------------

                                                       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)                               $ 378,189      $ 14,478          7.66%       $  311,256        $ 11,089       7.13%
Investment securities                     530,669        12,251          4.62           582,073          12,405       4.26
Other (2)(5)                               42,165         1,062          5.04             8,366             157       3.75
                                        ---------      --------          ----        ----------        --------       ----
Total interest-earning assets             951,023        27,791          5.84           901,695          23,651       5.25
                                                                          ----                                        ----
Noninterest-earning assets                 45,314                                        46,551
                                        ---------                                    ----------
Total Assets                              996,337                                       948,246
                                        =========                                    ==========
INTEREST-BEARING LIABILITIES:
Interest bearing deposits                 282,127         4,861          3.45%          211,600           2,367       2.24%
Time deposits                             432,463        10,408          4.81           412,285           7,833       3.80
Other borrowings                          101,732         2,772          5.45           155,160           3,352       4.32
                                        ---------      --------          ----        ----------        --------       ----
Total interest-bearing
 liabilities                              816,322        18,041          4.42           779,045          13,552       3.48
                                                       --------          ----                          --------       ----

Demand deposits                            49,358                                        47,767
Noninterest-bearing liabilities            12,273                                        11,477
Stockholders' equity (5)                  118,384                                       109,957
                                        ---------                                    ----------
Total liabilities and
 stockholders' equity                     996,337                                       948,246
                                        =========                                    ==========
Net interest income                                       9,750                                          10,099
                                                       ========                                        ========
Interest-rate spread (3)                                                 1.42%                                        1.77%
                                                                         ====                                         ====

Net interest margin (4)                                                  2.05%                                        2.24%
                                                                         ====                                         ====
Ratio of average interest-
earning assets to average
interest bearing liabilities
                                             1.17                                          1.16
                                        =========                                    ==========

</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.


                                       22
<PAGE>

RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 COMPARED
TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2006.

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,  after the opening of our newest branch on the
upper west side of Manhattan in May 2007, has twelve branch  locations.  We have
seven branches in New York City,  four branches in Orange and Sullivan  counties
New York, and one branch in Ridgefield, New Jersey which opened in May 2006.

NET INCOME.  Net income for the three-month period ended June 30, 2007 was $1.02
million, or $.15 per share, as compared to $920,000,  or $.13 per share, for the
three-month  period ended June 30,  2006.  Net income for the  six-month  period
ended June 30, 2007 was $2.12 million,  or $.30 per share,  as compared to $2.42
million, or $.35 per share, for the six-month period ended June 30, 2006.

         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. The difference between the yield on short-term,  3 month U.S. Treasury
Notes,  and long-term,  10 year U.S.  Treasury  Bonds,  referred to as the yield
curve is at  historic  lows.  Inflation  fighting  actions  taken by the Federal
Reserve Board have moved short-term rates up while long-term rates have remained
relatively  flat. The Company's rising cost of funds, the rates paid on deposits
and  borrowings,  has not been  matched by the ability to increase the yields on
interest-earning assets.

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 June 30, 2007, net interest  income  decreased by
$12,000 to $4.86 million from $4.87 million for the quarter ended June 30, 2006.
The quarter over quarter decrease in net interest income was due to the 80 basis
point   increase   in  the  average   rates  paid  on  the  average   amount  of
interest-bearing liabilities to 4.43% in the 2007 quarter from 3.63% in the 2006
quarter. The decrease was partially offset by the 52 basis point increase in the
average  yields earned on  interest-earning  assets to 5.83% in the 2007 quarter
from  5.31%  in the  2006  quarter.  The  Company's  interest-rate  spread,  the
difference between the average yield on interest-earning  assets and the average
cost of  interest-bearing  liabilities,  narrowed by 28 basis points to 1.40% in
the 2007 quarter from 1.68% in the 2006 quarter.

         For the  six-month  period  ended June 30, 2007,  net  interest  income
decreased  by $349,000 to $9.75  million from $10.10  million for the  six-month
period  ended June 30,  2006.  The period over period  decrease in net  interest
income was due to the 94 basis point  increase in the average  rates paid on the
average amount of interest-bearing  liabilities to 4.42% in the 2007 period from
3.48% in the 2006 period.  Partially  offsetting  such rate  increase was the 59
basis point increase in the average yields earned on interest-earning  assets to
5.84% in the 2007 period from 5.25% in the 2006 period. The interest-rate spread
narrowed  by 35 basis  points to 1.42% in the 2007 period from 1.77% in the 2006
period.

NET INTEREST MARGIN. Net interest margin, or annualized net interest income as a
percentage of average  interest-earning  assets,  declined by 17 basis points to
2.02% in the second  quarter of fiscal 2007 from 2.19% in the second  quarter of
fiscal 2006,  and declined by 19 basis points to 2.05% in the  six-month  period
ended June 30, 2007 from 2.24% in the  six-month  period ended June 30, 2006. We


                                       23
<PAGE>

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 5.83% and 5.84% in the three  and six  months  ended  June 30,
2007,  respectively,  compared  to 5.31% and  5.25% in the three and six  months
ended June 30,  2006,  respectively.  The  decrease  in net  interest  margin is
primarily due to the decrease in net interest  income,  partially  offset by the
increase in the average amount of higher yielding loans as a percentage of total
mix of interest-earning assets.

         The average amount of loans in our loan  portfolio  increased by $66.96
million  to $379.45  million in the  quarter  ended June 30,  2007 from  $312.49
million in the quarter  ended June 30, 2006,  and the average  yield on our loan
portfolio increased to 7.63% in the 2007 quarter from 7.15% in the 2006 quarter.
The average  amount of investment  securities  decreased by $16.30  million,  to
$553.46  million in the three months ended June 30, 2007 from $569.76 million in
the three  months  ended June 30,  2006,  and the  average  yield on  investment
securities  improved by 32 basis points, to 4.64% in the 2007 quarter from 4.32%
in the 2006  quarter.  The  average  amount  of other  interest-earning  assets,
primarily cash and short-term investments, increased by $21.85 million to $30.09
million in the 2007 quarter from $8.24 million in the 2006 quarter, and returned
an average yield of 5.00% and 3.93% in the quarter ended June 30, 2007 and 2006,
respectively.

         During the six-month  period ended June 30, 2007, the average amount of
loans in our loan portfolio  increased by $66.93 million to $378.19 million from
$311.26  million in the  six-month  period ended June 30, 2006,  and the average
yield on our loan portfolio  increased to 7.66% in the 2007 period from 7.13% in
the 2006 period. The average amount of investment securities decreased by $51.41
million,  to $530.67  million in the six-month  period month ended June 30, 2007
from  $582.07  million in the six- month  period  ended June 30,  2006,  and the
average yield on investment  securities improved by 36 basis points, to 4.62% in
the 2007 period from 4.26% in the 2006 period.

INTEREST  INCOME.  Total  interest  income for the  quarter  ended June 30, 2007
increased by $2.22 million to $14.03 million from $11.82 million for the quarter
ended June 30, 2006,  and increased by $4.14  million to $27.79  million for the
six months ended June 30, 2007 from $23.65 million for the six months ended June
30, 2006. The increases in total interest income during the three and six months
ended  June  30,  2007  was  due  to  the  higher   average   yields  earned  on
interest-earning assets and the higher average amounts of such assets.

         Loans  contributed  $7.24 million and $14.48 million of interest income
during the three and six months ended June 30, 2007,  respectively,  compared to
$5.59  million and $11.09  million of interest  income  during the three and six
months ended June 30, 2006. Investment securities  contributed $6.42 million and
$12.25 million of interest income during the three and six months ended June 30,
2007,  respectively,  compared to $6.15  million and $12.41  million of interest
income during the three and six months ended June 30, 2006.

<TABLE>
<CAPTION>
                                        -------------------------------------------------------------------------
                                                              THREE MONTHS ENDED JUNE 30,
                                        -------------------------------------------------------------------------
                                                      2007                                    2006
                                        ----------------------------------      ------------------------------
                                           INTEREST             % OF               INTEREST         % OF
                                            INCOME             TOTAL                INCOME          TOTAL
                                                           (In thousands, except percentages)
<S>                                         <C>              <C>                  <C>               <C>
Loans                                       $ 7,240          51.60%               $ 5,585           47.27%
Investment Securities                         6,416          45.72                  6,150           52.04
Other                                           376           2.68                     81            0.69
                                            -------         ------                -------          ------
Total Interest Income                       $14,032         100.00%               $11,816          100.00%
</TABLE>




                                       24
<PAGE>


<TABLE>
<CAPTION>
                                        ---------------------------------------------------------------------------
                                                                SIX MONTHS ENDED JUNE 30,
                                        ---------------------------------------------------------------------------
                                                      2007                                     2006
                                        ----------------------------------      -----------------------------------
                                           INTEREST             % OF                INTEREST             % OF
                                            INCOME             TOTAL                 INCOME              TOTAL
                                                            (In thousands, except percentages)
<S>                                         <C>              <C>                  <C>               <C>
Loans                                       $14,478          52.10%               $11,089           46.89%
Investment Securities                        12,251          44.08                 12,405           52.45
Other                                         1,062           3.82                    157            0.66
                                            -------         ------                -------          ------
Total Interest Income                       $27,791         100.00%               $23,651          100.00%
</TABLE>


         Loans, which are inherently risky and therefore command a higher return
than our  portfolio  of  investment  securities,  have  increased  slightly as a
percentage of total average  interest-earning  assets.  During the three and six
months  ended  June  30,  2007,  the  average  amounts  of  our  loan  portfolio
represented 39.40% and 39.77%,  respectively,  of total interest-earning  assets
compared to 35.09% and 34.52%, respectively,  for the three and six months ended
June 30, 2006.  The average  amount of investment  securities  have decreased to
57.48% and 55.80% of interest-earning  assets during the three and six months of
2007,  respectively,  compared  to 63.99% and 64.55%,  respectively,  during the
three and six months  ended June 30, 2006.  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 JUNE 30,
                                        ---------------------------------------------------------------------------
                                                      2007                                     2006
                                        ----------------------------------      -----------------------------------
                                            AVERAGE                % OF                   AVERAGE              % OF
                                             AMOUNT                TOTAL                  AMOUNT              TOTAL
                                                              (In thousands, except percentages)
<S>                                           <C>                <C>                      <C>                <C>
Loans                                         $379,449            39.40%                  $312,490            35.09%
Investment Securities                          553,461            57.48                    569,760            63.99
Other                                           30,087             3.12                      8,237             0.92
                                              --------           ------                   --------           ------
Total Interest-Earning Assets                 $962,997           100.00%                  $890,487           100.00%
</TABLE>

<TABLE>
<CAPTION>
                                        ---------------------------------------------------------------------------
                                                                   SIX MONTHS ENDED JUNE 30,
                                        ---------------------------------------------------------------------------
                                                      2007                                     2006
                                        ----------------------------------      -----------------------------------
                                            AVERAGE                % OF                   AVERAGE              % OF
                                             AMOUNT                TOTAL                  AMOUNT              TOTAL
                                                              (In thousands, except percentages)
<S>                                           <C>                <C>                      <C>                <C>
Loans                                         $378,189            39.77%                  $311,256            34.52%
Investment Securities                          530,669            55.80                    582,073            64.55
Other                                           42,165             4.43                      8,366             0.93
                                              --------           ------                   --------           ------
Total Interest-Earning Assets                 $951,023           100.00%                  $901,695           100.00%
</TABLE>

INTEREST  EXPENSE.  Total  interest  expense for the quarter ended June 30, 2007
increased by $2.23  million to $9.17  million from $6.95 million for the quarter
ended June 30, 2006. The increase in interest expense was due to the increase in
the average rates paid on interest-bearing  liabilities,  4.43% and 3.63% in the
2007 and 2006 quarters,  respectively, and the increase in the average amount of
interest-bearing  liabilities.  In 2004 and  2005,  we sold  $22.68  million  of
floating rate junior subordinated debentures (the "Debentures") and used the net


                                       25
<PAGE>

proceeds  to augment the Bank's  capital to allow for  business  expansion.  The
interest expense on these Debentures, which is included in other borrowings, was
approximately  $458,000 and $428,000 during the three months ended June 30, 2007
and 2006, respectively.


<TABLE>
<CAPTION>
                                        ---------------------------------------------------------------------------
                                                              THREE MONTHS ENDED JUNE 30,
                                        ---------------------------------------------------------------------------
                                                      2007                                    2006
                                        ----------------------------------      -----------------------------------
                                            INTEREST               % OF                  INTEREST             % OF
                                             EXPENSE               TOTAL                 EXPENSE              TOTAL
                                                            (In thousands, except percentages)
<S>                                          <C>                  <C>                    <C>                 <C>
Interest-Bearing Deposits                    $2,541                27.70%                $1,223               17.61%
Time Deposits                                 5,284                57.60                  4,122               59.35
Other Borrowings                              1,348                14.70                  1,600               23.04
                                             ------               ------                 ------              ------
Total Interest Expense                       $9,173               100.00%                $6,945              100.00%
</TABLE>

         Total  interest  expense for the  six-month  period ended June 30, 2007
increased  by $4.49  million  to $18.04  million  from  $13.55  million  for the
six-month  period ended June 30, 2006. The increase in interest  expense was due
primarily  to the  increase  in  the  average  rates  paid  on  interest-bearing
liabilities, 4.42% and 3.48% in the 2007 and 2006 periods, respectively, and the
increase in the average amounts of such liabilities. The interest expense on the
Debentures  was  approximately  $913,000 and  $852,000  during the 2007 and 2006
six-month periods, respectively.


<TABLE>
<CAPTION>
                                        ----------------------------------------------------------------------------
                                                                    SIX MONTHS ENDED JUNE 30,
                                        ----------------------------------------------------------------------------
                                                      2007                                         2006
                                        ----------------------------------      ------------------------------------
                                            INTEREST               % OF                   INTEREST            % OF
                                             EXPENSE               TOTAL                  EXPENSE             TOTAL
                                                                (In thousands, except percentages)
<S>                                          <C>                  <C>                    <C>                 <C>
Interest-Bearing Deposits                      $4,861              26.94%                 $2,367              17.47%
Time Deposits                                  10,408              57.69                   7,833              57.80
Other Borrowings                                2,772              15.37                   3,352              24.73
                                             --------             ------                 -------             ------
Total Interest Expense                       $ 18,041             100.00%                $13,552             100.00%
</TABLE>


NON-INTEREST INCOME. Non-interest income consists primarily of realized gains on
sales of  marketable  securities  and service fee income.  For the three and six
months  ended June 30,  2007,  non-interest  income  amounted  to  $391,000  and
$906,000,  respectively,  compared to non-interest  income of $306,000 and $1.36
million for the three and six months ended June 30, 2006, respectively.


<TABLE>
<CAPTION>
                                        ----------------------------------------------------------------------------
                                                                  THREE MONTHS ENDED JUNE 30,
                                        ----------------------------------------------------------------------------
                                                      2007                                         2006
                                        ----------------------------------      ------------------------------------
                                           NON-INTEREST              % OF               NON-INTEREST           % OF
                                              INCOME                TOTAL                  INCOME             TOTAL
                                                               (In thousands, except percentages)
<S>                                          <C>                  <C>                    <C>                 <C>
Service Charges on Deposits                  $ 183                 46.80%                $ 146                47.72%
Investment Securities gains                     --                  0.00                     2                 0.65
Other                                          208                 53.20                   158                51.63
                                             -----                ------                 -----               ------
Total Non-Interest Income                    $ 391                100.00%                $ 306               100.00%
</TABLE>


                                       26
<PAGE>

<TABLE>
<CAPTION>
                                        ----------------------------------------------------------------------------
                                                                   SIX MONTHS ENDED JUNE 30,
                                        ----------------------------------------------------------------------------
                                                      2007                                         2006
                                        ----------------------------------      ------------------------------------
                                           NON-INTEREST              % OF               NON-INTEREST           % OF
                                              INCOME                TOTAL                  INCOME             TOTAL
                                                                  (In thousands, except percentages)
<S>                                          <C>                  <C>                    <C>                 <C>
Service Charges on Deposits                  $ 364                 40.18%                  $ 286              21.04%
Investment Securities gains                    125                 13.80                     743              54.68
Other                                          417                 46.02                     330              24.28
                                             -----                ------                 -------             ------
Total Non-Interest Income                    $ 906                100.00%                $ 1,359             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 and six-month periods ended
June 30, 2007 was $3.53  million and $6.98  million,  respectively,  compared to
$3.38 million and $6.79 million for the three and six  month-periods  ended June
30, 2006, respectively.  The increase in the 2007 three and six month periods is
primarily  due to the  expansion  of our  business.  We have added  personnel to
maintain and enhance  customer  service levels and to insure our compliance with
various regulatory matters.


<TABLE>
<CAPTION>
                                        ----------------------------------------------------------------------------
                                                                      THREE MONTHS ENDED JUNE 30,
                                        ----------------------------------------------------------------------------
                                                      2007                                         2006
                                        ----------------------------------           -------------------------------
                                             NON-INTEREST           % OF                NON-INTEREST          % OF
                                               EXPENSE              TOTAL                 EXPENSE             TOTAL
                                                                  (In thousands, except percentages)
<S>                                             <C>                <C>                     <C>               <C>
Salaries and Employee Benefits                  $2,142              60.74%                 $2,072             61.34%
Net Occupancy Expense                              440              12.48                     491             14.54
Equipment Expense                                   98               2.78                     108              3.20
FDIC Assessment                                     20               0.57                      22              0.65
Data Processing Expense                             99               2.81                      91              2.69
Other                                              727              20.62                     594             17.58
                                                ------             ------                  ------            ------
Total Non-Interest Expense                      $3,526             100.00%                 $3,378            100.00%
</TABLE>


<TABLE>
<CAPTION>
                                        ----------------------------------------------------------------------------
                                                                       SIX MONTHS ENDED JUNE 30,
                                        ----------------------------------------------------------------------------
                                                      2007                                         2006
                                        ----------------------------------           -------------------------------
                                             NON-INTEREST           % OF                NON-INTEREST          % OF
                                               EXPENSE              TOTAL                 EXPENSE             TOTAL
                                                                (In thousands, except percentages)
<S>                                              <C>               <C>                     <C>               <C>
Salaries and Employee Benefits                  $ 4,376             62.70%                 $ 4,179            61.54%
Net Occupancy Expense                               916             13.13                      966            14.22
Equipment Expense                                   200              2.87                      204             3.00
FDIC Assessment                                      40              0.57                       43             0.63
Data Processing Expense                             195              2.79                      181             2.67
Other                                             1,252             17.94                    1,218            17.94
                                                 ------            ------                  -------           ------
Total Non-Interest Expense                       $6,979            100.00%                 $ 6,791           100.00%
</TABLE>


                                       27
<PAGE>



PROVISION FOR INCOME TAX. During the three and six-month  periods ended June 30,
2007,  the Company  recorded  income tax expense of $629,000 and $1.41  million,
respectively,  compared  to income tax expense of  $834,000  and $2.16  million,
respectively,  for the three and six-month  periods ended June 30, 2006. The tax
provisions for federal,  state and local taxes recorded for the first six months
of  2007  and  2006  represent   effective  tax  rates  of  39.89%  and  47.21%,
respectively.  The  effective  tax rate for the three months ended June 30, 2007
and 2006 were 38.14% and 47.55%, respectively.

ISSUER PURCHASES OF EQUITY SECURITIES

         On May 15,  2003,  The  Company's  Board of  Directors  authorized  the
purchase of up to an additional  450,000  shares of its Common Stock in the open
market, from time to time, depending upon prevailing market conditions,  thereby
increasing  the maximum  number of shares  which may be purchased by the Company
from 1,950,000 shares of Common Stock to 2,400,000 shares of Common Stock. Since
1990 through  December 31, 2006,  the Company has purchased a total of 1,898,909
shares of its Common  Stock.  At June 30,  2007,  there were  501,091  shares of
Common Stock which may yet be purchased under our stock  repurchase plan. We did
not repurchase  shares of the Company's Common Stock during the six months ended
June 30, 2007.



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 $38.28 million at June 30,
2007, 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.



                                       28
<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 JUNE 30, 2007
                                                                   (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                                2,800              --               --               --            2,800
                                   (Rate)          5.25%                                                               5.25
Interest bearing deposits in banks                9,899              --               --               --             9,899
                                   (Rate)          4.27%                                                               4.27%
Loans (1)(2)
Adjustable rate loans                            91,446          11,588           20,931           49,801           173,766
                                   (Rate)          9.01%           7.47%            6.71%            7.15%             8.10%
Fixed rate loans                                      6          18,075           32,513          157,724           208,318
                                   (Rate)          8.23%           7.97%            7.72%            6.43%             6.77%
                                              ---------       ---------        ---------        ---------        ----------
Total loans                                      91,452          29,663           53,444          207,525           382,084
Investments (3)(4)                              201,754          84,838          159,107          118,252           563,951
                                   (Rate)          4.46%           4.66%            4.09%            5.06%             4.51%
                                              ---------       ---------        ---------        ---------        ----------
Total rate-sensitive assets                     305,905         114,501          212,551          325,777           958,734
                                              ---------       ---------        ---------        ---------        ----------
Deposit accounts (5)
Savings and NOW                                 264,910              --               --               --           264,910
                                   (Rate)          3.62%                                                               3.62%
Money market                                     14,874              --               --               --            14,874
                                   (Rate)          0.70%                                                               0.70%
Time Deposits                                   186,695         258,183            2,266                2           447,146
                                   (Rate)          4.57%           4.98%            3.09%            1.74%             4.80%
                                              ---------       ---------        ---------        ---------        ----------
Total deposit accounts                          466,479         258,183            2,266                2           726,930
Repurchase Agreements                            29,722              --               --               --            29,722
                                   (Rate)          4.97%           2.82%            3.52%                              4.97%
Other borrowings                                    183           8,760           28,340           23,681            60,964
                                   (Rate)          3.89%           3.52%            4.95%            7.73%             5.82%
                                              ---------       ---------        ---------        ---------        ----------
Total rate-sensitive liabilities                496,384         266,943           30,606           23,683           817,616
                                              ---------       ---------         --------        ---------        ----------
Interest rate caps                               10,000         (10,000)              --               --                --
Gap (repricing differences)                    (200,479)       (142,442)         181,945          302,094           141,118
                                              =========       =========        =========        =========        ==========

Cumulative Gap                                 (200,479)       (342,921)        (160,976)         141,118
                                              =========       =========        =========        =========
Cumulative Gap to Total Rate
Sensitive Assets                                 (20.91)%        (35.77)%         (16.79)%          14.72%
                                              =========       =========        =========        =========
</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 investments) and maturity (fixed rate securities) dates.
(4)  Investments are stated at book value.
(5)  NOW  accounts  and savings  accounts  are  regarded  as readily  accessible
     withdrawal  accounts.  The balances in such  accounts  have been  allocated
     among maturity/repricing periods based upon The Berkshire Bank's historical
     experience.  All other  time  accounts  are  scheduled  according  to their
     respective maturity dates.


                                       29
<PAGE>


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

         The  allowance for loan losses has been  determined in accordance  with
accounting principles generally accepted in the United States of America,  under
which we are  required to  maintain  an  allowance  for  probable  losses at the
balance sheet date. We are responsible for the timely and periodic determination
of the amount of the allowance required.  Management believes that the allowance
for loan losses is adequate to cover specifically  identifiable  losses, as well
as estimated  losses  inherent in our  portfolio  for which  certain  losses are
probable but not specifically identifiable.

         Management  performs a  quarterly  evaluation  of the  adequacy  of the
allowance for loan losses. The analysis of the allowance for loan losses has two
components: specific and general allocations.  Specific allocations are made for
loans  determined  to be impaired.  Impairment  is measured by  determining  the
present value of expected future cash flows or, for collateral-dependent  loans,
the fair value of the  collateral  adjusted  for market  conditions  and selling
expenses.  The general  allocation is determined  by  segregating  the remaining
loans by type of loan,  risk  weighting  (if  applicable)  and payment  history.
Management also analyzes historical loss experience, delinquency trends, general
economic   conditions,   geographic   concentrations,   and  industry  and  peer
comparisons.  This  analysis  establishes  factors  that are applied to the loan
segments to determine the amount of the general allocations.  This evaluation is
inherently  subjective as it requires material estimates that may be susceptible
to significant  revisions  based upon changes in economic and real estate market
conditions.  Actual loan losses may be significantly more than the allowance for
loan losses  management  has  established  which could have a material  negative
effect on the Company's financial results.

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

         The Company's  primary  lending  emphasis has been the  origination  of
commercial and residential mortgages and commercial and consumer loans and lines
of credit.  The Bank also  originates home equity loans and home equity lines of
credit.  These  activities  resulted in a loan  concentration  in commercial and
residential  mortgages.  As a  substantial  amount  of  our  loan  portfolio  is
collateralized  by real estate,  appraisals of the underlying  value of property
securing loans are critical in determining the amount of the allowance  required
for specific  loans.  Assumptions for appraisal  valuations are  instrumental in
determining the value of properties.  Overly optimistic  assumptions or negative
changes to assumptions  could  significantly  impact the valuation of a property
securing a loan and the related allowance determined. The assumptions supporting


                                       30
<PAGE>

such  appraisals  are carefully  reviewed by  management  to determine  that the
resulting  values  reasonably  reflect amounts  realizable on the related loans.
Based on the composition of our loan portfolio,  management believes the primary
risks are increases in interest rates, a decline in the economy,  generally, and
a decline in real estate market values in the New York  metropolitan  area.  Any
one or  combination  of these  events may  adversely  affect our loan  portfolio
resulting in increased delinquencies, loan losses and future levels of loan loss
provisions.  Management  considers  it  important  to maintain  the ratio of our
allowance  for loan  losses to total loans at an  adequate  level given  current
economic  conditions,  interest  rates,  and the  composition  of the portfolio.
Management  believes the allowance for loan losses  reflects the inherent credit
risk in our portfolio,  the level of our non-performing loans and our charge-off
experience.

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

         For the three and six months ended June 30, 2007, we did not charge-off
any loans,  and we recovered loans of $5,000 and $7,000,  respectively.  For the
three and six month ended June 30, 2006, we charged-off  loans of $0 and $1,000,
respectively,  and recovered loans of $0 and $5,000, respectively. All recovered
amounts in 2007 and 2006 were returned to the provision for loan loss reserves.










                                       31
<PAGE>


         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                   Six Months Ended
                                                             June 30,                            June 30,
                                                   ---------------------------          ----------------------------
                                                     2007               2006               2007               2006
                                                     ----               ----               ----               ----

<S>                                                <C>                <C>                <C>                <C>
Average loans outstanding                          $379,449           $312,490           $378,189           $311,256
                                                   ========           ========           ========           ========
Allowance at beginning of period                      3,848              3,315              3,771              3,266
Charge-offs:
 Commercial and other loans                              --                 --                 --                  1
 Real estate loans                                       --                 --                 --                 --
                                                   --------           --------           --------           --------
  Total loans charged-off                                --                 --                 --                  1
                                                   --------           --------           --------           --------
Recoveries:
 Commercial and other loans                               5                 --                  7                  5
 Real estate loans                                       --                 --                 --                 --
                                                   --------           --------           --------           --------
  Total loans recovered                                   5                 --                  7                  5
                                                   --------           --------           --------           --------
  Net recoveries (charge-offs)                            5                 --                  7                  4
                                                   --------           --------           --------           --------
Provision for loan losses
 charged to operating expenses                           75                 45                150                 90
                                                   --------           --------           --------           --------
Allowance at end of period                            3,928              3,360              3,928              3,360
                                                   --------           --------           --------           --------
Ratio of net recoveries (charge-offs)
 to average loans outstanding                          0.00%              0.00%              0.00%              0.00%
                                                   ========           ========           ========           ========
Allowance as a percent of total loans                  1.03%              1.06%              1.03%              1.06%
                                                   ========           ========           ========           ========
Total loans at end of period                       $382,084           $316,889           $382,084           $316,889
                                                   ========           ========           ========           ========
</TABLE>


LOAN PORTFOLIO.

         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 June
30, 2007, we had total gross loans of $382.08  million,  deferred  loan  fees of
$1.25  million and an allowance for loan losses of $3.98  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 and six-month periods ended June 30, 2007, the Bank sold
approximately $265,000 and $265,000, respectively, of such loans and recorded in
other income, gains of $3,000 and $3,000, respectively, on such sales.

         The Bank's policy is 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 June 30,  2007 and 2006,  we did not have any
loans past due more than 90 days and still accruing interest.



                                       32
<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 June 30,  2007,  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 June 30, 2007 and
December 31, 2006 (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>
June 30, 2007
Total Capital (to Risk-Weighted Assets)
  Company                                      $132,667    22.8%       $46,957    (is greater               --       N/A
                                                                                   than or
                                                                                   equal to) 8.0%

  Bank                                          101,171    18.0%        45,004    (is greater            56,256     (is greater
                                                                                   than or                           than or
                                                                                   equal to) 8.0%                    equal to) 10.0%
Tier I Capital (to Risk-Weighted Assets)
  Company                                       128,739    22.1%        23,299    (is greater               --       N/A
                                                                                   than or
                                                                                   equal to) 4.0%
  Bank                                           97,244    17.3%        22,502    (is greater            33,753     (is greater
                                                                                   than or                           than or
                                                                                   equal to) 4.0%                    equal to) 6.0%
Tier I Capital (to Average Assets)
  Company                                       128,739    12.9%        39,853    (is greater               --       N/A
                                                                                   than or
                                                                                   equal to) 4.0%
  Bank                                           97,244    10.1%        38,498    (is greater            48,123     (is greater
                                                                                   than or                           than or
                                                                                   equal to) 4.0%                    equal to) 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, 2006
Total Capital (to Risk-Weighted Assets)
  Company                                    $128,452      23.9%       $43,031    (is greater               --       N/A
                                                                                   than or
                                                                                   equal to) 8.0%
  Bank                                         99,170      19.3%        41,120    (is greater            51,400     (is greater
                                                                                   than or                           than or
                                                                                   equal to) 8.0%                    equal to) 10.0%
Tier I Capital (to Risk-Weighted Assets)
  Company                                     124,681      23.2%        21,516    (is greater               --       N/A
                                                                                   than or
                                                                                   equal to) 4.0%
  Bank                                         95,400      18.6%        20,560    (is greater            30,840     (is greater
                                                                                   than or                           than or
                                                                                   equal to) 4.0%                    equal to) 6.0%
Tier I Capital (to Average Assets)
  Company                                     124,681      13.4%        37,322    (is greater               --       N/A
                                                                                   than or
                                                                                   equal to) 4.0%
  Bank                                         95,400      10.9%        35,022    (is greater            43,778      (is greater
                                                                                   than or                           than or
                                                                                   equal to) 4.0%                    equal to) 5.0%

</TABLE>


                                       33
<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,  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 June 30, 2007, the Company, excluding the
Bank, had cash and cash equivalents of $15.36 million and investment  securities
available for sale of $10.33 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  $50.37  million at June 30, 2007,
include commitments to extend credit and stand-by letters of credit.

         At  June  30,  2007,  the  Company  had   outstanding   commitments  of
approximately  $489.45  million;  including  $447.15  million of time  deposits,
$38.28  million of Federal  Home Loan Bank debt and $4.02  million of  operating
leases.  These  commitments  include $457.50 million that mature or renew within
one year,  $29.08  million  that mature or renew after one year and within three
years,  $2.12  million  that  mature or renew  after three years and within five
years and $741,000 that mature or renew after five years.

IMPACT OF INFLATION AND CHANGING PRICES

         The  Company's  financial  statements  measure  financial  position and
operating results in terms of historical dollars without considering the changes
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the  increasing  cost of the Company's  operations.
The assets and  liabilities  of the Company are largely  monetary.  As a result,
interest  rates have a greater impact on the Company's  performance  than do the
effects of general  levels of  inflation.  In  addition,  interest  rates do not
necessarily  move in the direction,  or to the same extent as the price of goods
and services.  However,  in general,  high  inflation  rates are  accompanied by
higher interest rates, and vice versa.





                                       34
<PAGE>


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
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
the  Disclosure  Controls  are  effective  in  reaching  a  reasonable  level of
assurance that information  required to be disclosed by the Company is recorded,
processed, summarized and reported within the time period specified in the SEC's
rules and forms and that any  material  information  relating  to the Company is
accumulated  and   communicated   with   management,   including  its  principal
executive/financial   officer  to  allow  timely  decisions  regarding  required
disclosure.  In accordance with SEC requirements,  the CEO/CFO notes that during
the fiscal  quarter  ended June 30,  2007,  no changes in Internal  Control have
occurred that have  materially  affected or are reasonably  likely to materially
affect Internal Control.



                                       35
<PAGE>

PART II.  OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         The 2007 Annual Meeting of Stockholders  was held on May 17, 2007. Each
of the six  individuals  nominated  to serve as  directors  of the  Company  was
elected by the following votes:

Director                      Shares For               Shares Withheld
--------                      ----------               ---------------
William L. Cohen               6,617,359                   13,942
Martin A. Fischer              6,618,294                   13,007
Moses Krausz                   6,458,509                  172,792
Moses Marx                     6,488,294                  143,007
Steven Rosenberg               6,488,839                  142,462
Randolph B. Stockwell          6,615,339                   15,962


ITEM 5.  OTHER INFORMATION

AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT OF MOSES KRAUSZ.

         On July 23, 2007, the Bank and Moses Krausz,  the Bank's  President and
Chief  Executive  Officer,  entered  into  Amendment  No.  3 to  the  Employment
Agreement  between the Bank and Mr. Krausz dated May 1, 1999,  pursuant to which
the term of Mr.  Krausz  employment  with the Bank was extended  until April 30,
2010,  subject to automatic  renewal for up to three  additional  periods of one
year each unless one of the parties otherwise  notifies the other between 60 and
90 days prior to the expiration of the then current employment.


ITEM 6.  EXHIBITS

         Exhibit
         Number            Description
         -------           -----------
         10.1              Amendment No. 3, dated July 31, 2007, to Employment
                           Agreement, dated May 1, 1999, by and between The
                           Berkshire Bank and Moses Krausz. +


         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.

----------------
+ Denotes a management compensation plan or arrangement.



                                       36
<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:   August 6, 2007              By:  /s/ Steven Rosenberg
       ------------------                -----------------------
                                         STEVEN ROSENBERG
                                         PRESIDENT AND CHIEF
                                         FINANCIAL OFFICER


                                       37
<PAGE>


                                  EXHIBIT INDEX

Exhibit
Number       Description
------       -----------

10.1         Amendment No. 3, dated July 31, 2007, to
             Employment Agreement, dated May 1, 1999, by
             and between The Berkshire Bank and Moses Krausz.


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.




                                       38