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   SEPTEMBER 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 November 12, 2007, there were 7,039,706  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
             September 30, 2007 (unaudited) and
             December 31, 2006                                             4

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

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

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

             Notes to Consolidated Financial Statements                    9

Item 2.      Management's Discussion and Analysis
             of Financial Condition and Results
             of Operations                                                17

Item 3.      Quantitative and Qualitative Disclosure
             About Market Risk                                            26

Item 4.      Controls and Procedures                                      34

         PART II  OTHER INFORMATION


Item 6.      Exhibits                                                     35

Signature                                                                 36

Index of Exhibits                                                         37


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                            SEPTEMBER 30,              DECEMBER 31,
                                                                                 2007                      2006
                                                                         ------------------         ------------------
<S>                                                                           <C>                        <C>
ASSETS
Cash and due from banks                                                       $     4,221                $     8,061
Interest bearing deposits                                                          10,035                      4,950
Federal funds sold                                                                 19,200                     11,300
                                                                              -----------                -----------
Total cash and cash equivalents                                                    33,456                     24,311
Investment Securities:
 Available-for-sale                                                               595,607                    514,798
 Held-to-maturity, fair value of $405
  in 2007 and $436 in 2006                                                            400                        433
                                                                              -----------                -----------
Total investment securities                                                       596,007                    515,231
Loans, net of unearned income                                                     396,776                    370,923
 Less: allowance for loan losses                                                   (4,006)                    (3,771)
                                                                              -----------                -----------

Net loans                                                                         392,770                    367,152
Accrued interest receivable                                                         7,135                      6,397
Premises and equipment, net                                                         9,534                      9,338
Goodwill, net                                                                      18,549                     18,549
Other assets                                                                        8,647                      7,678
                                                                              -----------                -----------
Total assets                                                                  $ 1,066,098                $   948,656
                                                                              ===========                ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
 Non-interest bearing                                                         $    50,544                $    49,418
 Interest bearing                                                                 770,971                    632,071
                                                                              -----------                -----------
Total deposits                                                                    821,515                    681,489
Securities sold under agreements to repurchase                                     41,911                     62,652
Long term borrowings                                                               48,410                     52,738
Subordinated debt                                                                  22,681                     22,681
Accrued interest payable                                                            7,286                      8,110
Other liabilities                                                                   3,068                      5,209
                                                                              -----------                -----------
Total liabilities                                                                 944,871                    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 --
   September 30, 2007, 7,054,183 shares
   December 31, 2006,  6,877,881 shares                                               770                        770
Additional paid-in capital                                                         90,965                     90,659
Retained earnings                                                                  41,025                     37,285
Accumulated other comprehensive loss, net                                          (5,122)                    (4,772)
 Treasury Stock at cost
 September 30, 2007, 644,102 shares
 December 31, 2006, 820,404 shares                                                 (6,411)                    (8,165)
                                                                              -----------                -----------
Total stockholders' equity                                                        121,227                    115,777
                                                                              -----------                -----------
                                                                              $ 1,066,098                $   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                NINE MONTHS ENDED
                                                                SEPTEMBER 30,                    SEPTEMBER 30,
                                                        ------------------------------    -----------------------------
                                                          2007           2006               2007          2006
                                                        --------       --------           --------      --------
<S>                                                     <C>            <C>                <C>           <C>
INTEREST INCOME
Loans                                                   $  7,363       $  6,059           $ 21,841      $ 17,148
Investment securities                                      7,086          5,989             19,337        18,393
Federal funds sold and
 interest bearing deposits                                   208             93              1,270           251
                                                        --------       --------           --------      --------
Total interest income                                     14,657         12,141             42,448        35,792
                                                        --------       --------           --------      --------
INTEREST EXPENSE
Deposits                                                   8,281          5,831             23,550        16,031
Short-term borrowings                                        462            583              1,328         1,577
Long-term borrowings                                         939          1,095              2,845         3,453
                                                        --------       --------           --------      --------
Total interest expense                                     9,682          7,509             27,723        21,061
                                                        --------       --------           --------      --------
Net interest income                                        4,975          4,632             14,725        14,731
PROVISION FOR LOAN LOSSES                                     75             45                225           135
                                                        --------       --------           --------      --------
Net interest income after
 provision for loan losses                                 4,900          4,587             14,500        14,596
                                                        --------       --------           --------      --------
NON-INTEREST INCOME
Service charges on deposits                                  148            148                512           434
Investment securities gains (losses)                         (39)            --                 86           743
Other income                                                 236            211                653           540
                                                        --------       --------           --------      --------
Total non-interest income                                    345            359              1,251         1,717
                                                        --------       --------           --------      --------
NON-INTEREST EXPENSE
Salaries and employee benefits                             2,211          2,149              6,587         6,326
Net occupancy expense                                        603            489              1,519         1,455
Equipment expense                                             97            112                297           316
FDIC assessment                                               23             22                 63            65
Data processing expense                                      111             90                306           271
Other                                                        519            538              1,771         1,757
                                                        --------       --------           --------      --------
Total non-interest expense                                 3,564          3,400             10,543        10,190
                                                        --------       --------           --------      --------
Income before provision for taxes                          1,681          1,546              5,208         6,123
Provision for income taxes                                   406            689              1,813         2,850
                                                        --------       --------           --------      --------
Net income                                              $  1,275       $    857           $  3,395      $  3,273
                                                        ========       ========           ========      ========
Net income per share:
 Basic                                                  $    .18       $    .12           $    .49      $    .47
                                                        ========       ========           ========      ========
 Diluted                                                $    .18       $    .12           $    .49      $    .47
                                                        ========       ========           ========      ========
Number of shares used to compute
 net income per share:
 Basic                                                     7,051          6,899              6,965         6,895
                                                        ========       ========           ========      ========
 Diluted                                                   7,052          6,984              6,989         6,983
                                                        ========       ========           ========      ========
Dividends declared per share                            $     --       $     --           $    .09      $    .08
                                                        ========       ========           ========      ========
</TABLE>


        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                       5
<PAGE>


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

              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
                                 (In Thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                        ACCUMULATED
                                                             STOCK    ADDITIONAL           OTHER
                                                 COMMON       PAR       PAID-IN        COMPREHENSIVE      RETAINED      TREASURY
                                                 SHARES      VALUE      CAPITAL         (LOSS), NET       EARNINGS        STOCK
                                                 ------      -----      --------        ------------      --------        ------
<S>                                              <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                                                                                                  3,395
Exercise of stock options                                                   306                                           1,754
Other comprehensive (loss) net
 of reclassification adjustment
 and taxes                                                                                    (350)

Comprehensive income (loss)

Cash dividends                                                                                              (620)
                                                 ------       ----      -------           --------       -------       --------
BALANCE AT SEPTEMBER 30, 2007
(UNAUDITED)                                       7,698       $770      $90,965           $ (5,122)     $ 41,025       $ (6,411)
                                                 ======       ====      =======           ========      ========       ========
BALANCE AT JANUARY 1, 2006                        7,698       $770      $90,594           $ (8,415)     $ 33,504       $ (7,743)
Net income                                                                                                 3,273
Exercise of stock options                                                     6                                              77
Other comprehensive income net
 of reclassification adjustment
 and taxes                                                                                   2,065

Comprehensive income

Cash dividends                                                                                              (549)
                                                 ------       ----      -------            -------       -------       --------
BALANCE AT SEPTEMBER 30, 2006
(UNAUDITED)                                       7,698       $770      $90,600            $(6,350)     $ 36,228       $( 7,666)
                                                 ======       ====      =======            =======      ========       ========


<CAPTION>

                                                                            TOTAL
                                                    COMPREHENSIVE       STOCKHOLDERS'
                                                    INCOME (LOSS)           EQUITY
                                                    --------------          ------
<S>                                                       <C>              <C>
BALANCE AT JANUARY 1, 2007                                                 $115,777
Adoption of FIN 48                                                              965
                                                                           --------
Adjusted balance at January 1, 2007                                         116,742
Net income                                                  3,395             3,395
Exercise of stock options                                                     2,060
Other comprehensive (loss) net
 of reclassification adjustment
 and taxes                                                  (350)              (350)
                                                          -------
Comprehensive income (loss)                               $ 3,045
                                                          =======
Cash dividends                                                                 (620)
                                                                           --------
BALANCE AT SEPTEMBER 30, 2007
(UNAUDITED)                                                                $121,227
                                                                           ========
BALANCE AT JANUARY 1, 2006                                                 $108,710
Net income                                                  3,273             3,273
Exercise of stock options                                                        83
Other comprehensive income net
 of reclassification adjustment
 and taxes                                                  2,065             2,065
                                                          -------
Comprehensive income                                      $ 5,338
                                                          =======
Cash dividends                                                                 (549)
                                                                           --------
BALANCE AT SEPTEMBER 30, 2006
(UNAUDITED)                                                                $113,582
                                                                           ========
</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 NINE MONTHS ENDED
                                                                                                   SEPTEMBER 30,
                                                                                         --------------------------------------
                                                                                              2007                     2006
                                                                                           -----------              -----------
<S>                                                                                        <C>                      <C>
  Cash flows from operating activities:
Net income                                                                                 $     3,395              $     3,273
Adjustments to reconcile net income to net
 cash provided by operating activities:
Realized gains on investment securities                                                            (86)                    (743)
Net (accretion) of premiums of investment securities                                            (1,195)                    (482)
Depreciation and amortization                                                                      551                      543
Provision for loan losses                                                                          225                      135
(Increase) decrease in accrued interest receivable                                                (738)                     641
(Increase) decrease in other assets                                                               (969)                   1,597
(Decrease) increase in accrued interest payable
 and other liabilities                                                                          (2,000)                   2,140
                                                                                           -----------              -----------
 Net cash (used in) provided by operating activities                                              (817)                   7,104
                                                                                           -----------              -----------

  Cash flows from investing activities:
Investment securities available for sale
 Purchases                                                                                  (1,175,702)                (306,995)
 Sales, maturities and calls                                                                 1,095,769                  401,155
Investment securities held to maturity
 Maturities                                                                                         88                      122
Net increase in loans                                                                          (25,843)                 (43,965)
Acquisition of premises and equipment                                                             (747)                  (1,461)
                                                                                           -----------              -----------
Net cash (used in) provided by investing activities                                           (106,435)                  48,856
                                                                                           -----------              -----------
</TABLE>


                                       7
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                             FOR THE NINE MONTHS ENDED
                                                                                                   SEPTEMBER 30,
                                                                                         --------------------------------------
                                                                                              2007                     2006
                                                                                           -----------              -----------
<S>                                                                                         <C>                    <C>
  Cash flows from financing activities:
Net increase (decrease) in non interest bearing deposits                                        1,126                 (1,716)
Net increase (decrease) in interest bearing deposits                                          138,900                (20,842)
(Decrease) in securities sold under agreements
 to repurchase                                                                                (20,741)               (22,687)
Proceeds from long term debt                                                                   16,000                     --
Repayment of long term debt                                                                   (20,328)               (24,453)
Proceeds from exercise of common stock options                                                  2,060                     83
Dividends paid                                                                                   (620)                  (549)
                                                                                            ---------              ---------
Net cash provided by (used in) financing activities                                           116,397                (70,164)
                                                                                            ---------              ---------

  Net (decrease) increase in cash and cash equivalents                                          9,145                (14,204)
  Cash and cash equivalents - beginning of period                                              24,311                 27,882
                                                                                            ---------              ---------
  Cash and cash equivalents - end of period                                                 $  33,456              $  13,678
                                                                                            =========              =========

Supplemental disclosure of cash flow information:
  Cash used to pay interest                                                                 $  27,547              $  19,410
  Cash used to pay taxes, net of refunds                                                    $   2,945              $   3,871
</TABLE>


        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                       8
<PAGE>

                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 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
7.44%.


                                       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
                                       ----------------------------------------------------------------------------------
                                                SEPTEMBER 30, 2007                         SEPTEMBER 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                         $1,275          7,051     $.18             $ 857           6,899      $.12
Effect of dilutive securities
 options                                          --              1      .--                --              85       .--
                                              ------         ------     ----             -----           -----      ----
Diluted earnings per share
 Net income available to
  common stockholders plus
  assumed conversions                         $1,275          7,052     $.18             $ 857           6,984      $.12
                                              ======          =====     ====             =====           =====      ====
</TABLE>


                                       10
<PAGE>

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

NOTE 3. - (CONTINUED)

<TABLE>
<CAPTION>
                                                                    FOR THE NINE MONTHS ENDED
                                       ------------------------------------------------------------------------------------
                                                 SEPTEMBER 30, 2007                          SEPTEMBER 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                         $3,395          6,965       $.49            $3,273           6,895      $.47
Effect of dilutive securities
 options                                          --             24        .--                --              88       .--
                                              ------          -----       ----            ------           -----      ----
Diluted earnings per share
 Net income available to
  common stockholders plus
  assumed conversions                         $3,395          6,989       $.49            $3,273           6,983      $.47
                                              ======          =====       ====            ======           =====      ====
</TABLE>


NOTE 4. INVESTMENT SECURITIES

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

<TABLE>
<CAPTION>
                                                                   SEPTEMBER 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                          $ 400               $ 6               $ (1)             $ 405
                                                  -----               ---               ----              -----

 Totals                                           $ 400               $ 6               $ (1)             $ 405
                                                  =====               ===               ====              =====
</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>
                                                                   SEPTEMBER 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                        $     --           $    --           $     --           $     --
U.S. Government Agencies                        288,616                19             (2,768)           285,867
Mortgage-backed securities                       58,186                84             (1,490)            56,780
Corporate notes                                  60,493               242             (4,180)            56,555
Municipal Securities                              1,973             1,226                  --             3,199
Marketable equity
 securities and other                           193,186               184               (164)           193,206
                                               --------           -------           --------           --------
 Totals                                        $602,454           $ 1,755           $ (8,602)          $595,607
                                               ========           =======           ========           ========
</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.

         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.

                                       12
<PAGE>


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

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>
                                                     SEPTEMBER 30, 2007                 DECEMBER 31, 2006
                                              ----------------------------------   ----------------------------
                                                                 % OF                                % OF
                                                       AMOUNT    TOTAL                    AMOUNT     TOTAL
                                                       ------    -----                    ------     -----
                                                                      (Dollars in thousands)
<S>                                                  <C>          <C>                     <C>          <C>
Commercial and professional loans                    $ 66,408     16.7%                   $ 63,331     17.0%
Secured by real estate
  1-4 family                                          134,042     33.7                     139,611     37.5
  Multi family                                          3,639      0.9                       4,013      1.1
  Non-residential                                     192,901     48.4                     160,417     43.1
Consumer                                                1,141      0.3                       4,763      1.6
                                                     --------     ----                    --------     ----
Total loans                                           398,131    100.0%                    372,135    100.0%
                                                                 =====                                =====
Deferred loan fees                                    (1,355)                              (1,212)
Allowance for loan losses                             (4,006)                              (3,771)
                                                     --------                             --------
Loans, net                                           $392,770                             $367,152
                                                     ========                             ========
</TABLE>

         Management  does  not  believe  that the  Company  has  engaged  in any
subprime lending activities.

NOTE 6. DEPOSITS

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

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

<S>                                  <C>          <C>               <C>           <C>
Demand deposits                      $ 50,089       --              $ 47,890        --
NOW and money market                   34,245     0.63%               35,141      0.61%
Savings deposits                      256,512     3.83               171,604      2.95
Time deposits                         442,395     4.84               410,729      4.21
                                     --------     ----              --------      ----
Total deposits                       $783,241     4.02%             $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 NINE MONTHS ENDED
                              ----------------------------------------------------------------------------------------------------
                                           SEPTEMBER 30, 2007                                  SEPTEMBER 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                $ (702)           $ 300         $ (402)             $4,165         $ (1,654)        $ (2,511)
  gains (losses) arising
  during period

  Less reclassification
  adjustment for gains
  realized in net income                86             (34)             52                 743             (297)             446
                                    ------            -----         ------              ------         --------            ------
Other comprehensive
income (loss), net                  $ (616)           $ 266         $ (350)             $3,422         $ (1,357)           $2,065
                                    ======            =====         ======              ======         ========            ======
</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  September  30,  2007,  the  Company  has one  stock-based  employee
compensation  plan, for which 2,076 options at a weighted average exercise price
of $8.30 per share  were  outstanding  with an  average  remaining  life of 1.75
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 nine-month
period  ended  September  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).

<TABLE>
<CAPTION>
                                                    FOR THE                              FOR THE
                                              THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                 SEPTEMBER 30,                        SEPTEMBER 30,
                                        --------------------------------   ------------------------------------
                                             2007              2006              2007                2006
                                        ---------------   --------------   ----------------   -----------------

<S>                                           <C>              <C>               <C>                 <C>
Service cost                                  $ 90,750         $ 90,357          $ 272,250           $ 262,714
Interest cost                                   43,500           37,531            130,500             112,062
Expected return on plan assets                (46,000)         (37,710)          (138,000)           (113,420)
Amortization and Deferral:
 Transition amount                                  --               --                 --                  --
 Prior service cost                              4,500            4,457             13,500              13,914
 Loss                                           11,750           15,429             35,250              44,858
                                              --------         --------          ---------           ---------
Net periodic pension cost                     $104,500         $110,063          $ 313,500           $ 320,126
                                              ========         ========          =========           =========
</TABLE>

         During  the  fiscal  year  ending  December  31,  2007,  we  expect  to
contribute  approximately $390,000 to the Plan. We contributed $119,600 in April
2007,  $84,905 in July 2007 and  $185,000  in  September  2007.  We  contributed
$56,000, $221,000 and $56,000 in April, July and October 2006, respectively.


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 did not adopt SFAS No.
159 prior to the  required  adoption  date of January 1,  2008.  The  Company is
required  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, as to the Company,
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>

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.


                                       17
<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 write-offs were necessary.

         The Company  recognizes  deferred  tax assets and  liabilities  for the
future tax effects of temporary  differences,  net operating loss  carryforwards
and tax credits.  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.


                                       18
<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 SEPTEMBER 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)                                   $  385,425      $   7,363             7.64%   $330,117     $  6,059          7.34%
Investment securities                          581,577          7,086             4.87     528,760        5,989          4.53
Other (2)(5)                                    18,386            208             4.53       8,484           93          4.38
                                            ----------      ---------            -----    --------     --------          ----
Total interest-earning assets                  985,388         14,657             5.95     867,361       12,141          5.60
                                                                                 -----                                   ----
Noninterest-earning assets                      47,250                                      49,339
                                            ----------                                    --------
Total Assets                                $1,032,638                                    $916,700
                                            ==========                                    ========

INTEREST-BEARING LIABILITIES:
Interest bearing deposits                      291,919          2,631             3.61%    200,264        1,406          2.81%
Time deposits                                  461,936          5,650             4.89     400,173        4,425          4.42
Other borrowings                                98,123          1,401             5.71     144,697        1,678          4.64
                                            ----------      ---------            -----    --------     --------          ----
Total interest-bearing
 liabilities                                   851,978          9,682             4.55     745,134        7,509          4.03
                                                            ---------            -----                 --------          ----

Demand deposits                                 51,525                                      47,176
Noninterest-bearing liabilities                  9,979                                      15,570
Stockholders' equity (5)                       119,156                                     108,820
                                            ----------                                    --------

Total liabilities and
 stockholders' equity                       $1,032,638                                    $916,700
                                            ==========                                    ========

Net interest income                                          $  4,975                                   $  4,632
                                                             ========                                   ========

Interest-rate spread (3)                                                         1.40%                                   1.57%
                                                                                 ====                                    ====

Net interest margin (4)                                                          2.02%                                   2.14%
                                                                                 ====                                    ====

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.


                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                                  FOR THE NINE MONTHS ENDED SEPTEMBER 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)                                 $  380,628      $  21,841            7.65%   $  317,612      $ 17,148          7.20%
Investment securities                        547,809         19,337            4.71       564,102        18,393          4.35
Other (2)(5)                                  34,146          1,270            4.96         8,404           251          3.98
                                          ----------      ---------            ----    ----------      --------          ----
Total interest-earning assets                962,583         42,448            5.88       890,118        35,792          5.36
                                                                               ----                                      ----
Noninterest-earning assets                    45,988                                       47,491
                                          ----------                                   ----------
Total Assets                              $1,008,571                                   $  937,609
                                          ==========                                   ==========

INTEREST-BEARING LIABILITIES:
Interest bearing deposits                    285,232          7,492            3.50%      208,545         3,772          2.41%
Time deposits                                442,395         16,058            4.84       408,203        12,259          4.00
Other borrowings                             100,516          4,173            5.54       151,635         5,030          4.42
                                          ----------      ---------            ----    ----------      --------          ----
Total interest-bearing
 liabilities                                 828,143         27,723            4.46       768,383        21,061          3.65
                                                          ---------            ----                    --------          ----

Demand deposits                               50,088                                       47,535
Noninterest-bearing liabilities               11,892                                       12,120
Stockholders' equity (5)                     118,448                                      109,571
                                          ----------                                   ----------

Total liabilities and
 stockholders' equity                     $1,008,571                                   $  937,609
                                          ==========                                   ==========

Net interest income                                       $  14,725                                    $ 14,731
                                                         ==========                                    ========

Interest-rate spread (3)                                                       1.42%                                     1.71%
                                                                               ====                                      ====

Net interest margin (4)                                                        2.04%                                     2.21%
                                                                               ====                                      ====

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.


                                       20
<PAGE>

RESULTS OF OPERATIONS

RESULTS OF  OPERATIONS  FOR THE THREE AND NINE MONTHS ENDED  SEPTEMBER  30, 2007
COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 has twelve branch  locations;  seven branches in
New York City,  four branches in Orange and Sullivan  counties New York, and one
branch in Ridgefield, New Jersey.

NET INCOME. Net income for the three-month period ended September 30, 2007 was
$1.28 million, or $.18 per share, as compared to $857,000, or $.12 per share,
for the three-month period ended September 30, 2006. Net income for the
nine-month period ended September 30, 2007 was $3.40 million, or $.49 per share,
as compared to $3.27 million, or $.47 per share, for the nine-month period ended
September 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. The Company's  rising cost of funds,  the rates paid
on  deposits  and  borrowings,  has not been  matched  by the  ability to safely
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  interest-earning  assets,
such  as  loans   and   investment   securities,   and   interest   expense   on
interest-bearing liabilities such as deposits and borrowings.

         For the quarter ended September 30, 2007, net interest income increased
by $343,000 to $4.98 million from $4.63 million for the quarter ended  September
30, 2006.  The quarter over quarter  increase in net interest  income was due to
the $118.03 million  increase in the average amount of  interest-earning  assets
and the 35 basis  point  increase in the average  yield  earned on such  assets,
partially  offset by the  $106.84  million  increase  in the  average  amount of
interest-bearing liabilities and the 52 basis point increase in the average rate
paid on such liabilities.  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 17 basis points to 1.40% in the 2007
quarter from 1.57% in the 2006 quarter.

         For the nine-month period ended September 30, 2007, net interest income
was flat,  decreasing by $6,000 to $14.73  million for both  nine-month  periods
ended September 30, 2007 and 2006. The average amount of interest-earning assets
increased by $72.47  million to $962.58  million in the 2007 period from $890.12
million in the 2006 period and the average yield earned on such assets increased
by 52  basis  points  to  5.88%  in 2007  from  5.36%  in  2006.  The  Company's
interest-rate  spread narrowed by 29 basis points to 1.42% during the nine-month
period ended  September 30, 2007 from 1.71% during the  nine-month  period ended
September 30, 2006.

NET INTEREST MARGIN. Net interest margin, or annualized net interest income as a
percentage of average  interest-earning  assets,  declined by 12 basis points to
2.02% in the third quarter of 2007 from 2.14% in the third quarter of 2006,  and
declined by 17 basis points to 2.04% in the  nine-month  period ended  September
30, 2007 from 2.21% in the nine-month  period ended  September 30, 2006. We seek
to secure and retain customer deposits with competitive  products and rates, and
to make  strategic use of the  prevailing  interest rate  environment  to borrow
funds



                                       21
<PAGE>


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 5.95% and  5.88% in the  three and nine  months  ended  September  30,  2007,
respectively,  compared to an aggregate  average yield of 5.60% and 5.36% in the
three and nine months ended September 30, 2006, respectively.

         The increased yield on interest-earning  assets is primarily the result
of  the  increase  in  our  loan   portfolio  as  a  percentage   of  our  total
interest-earning  assets.  For the three months ended  September  30, 2007,  the
average  amount of loans  increased  by $55.31  million to $385.43  million from
$330.12 million for the three months ended September 30, 2006. The average yield
on such loans  increased  by 30 basis  points to 7.64% in the 2007  quarter from
7.34% in the 2006 quarter. The average amount of investment securities increased
by $52.82  million,  to $581.58  million during the quarter ended  September 30,
2007 from $528.76  million  during the quarter ended  September 30, 2006 and the
average  yield on  investment  securities  increased  to 4.87%  during  the 2007
quarter  from  4.53%  during  the 2006  quarter.  The  average  amount  of other
interest-earning assets, primarily cash and short-term investments, increased by
$9.90  million to $18.39  million  from $8.48  million in the three months ended
September 30, 2007 and 2006, respectively.

         During the  nine-month  period ended  September  30, 2007,  the average
amount of loans in our loan  portfolio  increased  by $63.02  million to $380.63
million from $317.61 million for the nine-month period ended September 30, 2006.
The average  yield on such loans  increased  by 45 basis  points to 7.65% in the
2007 period from 7.20% in the 2006  period.  The  average  amount of  investment
securities  decreased  by $16.29  million to $547.81  million in the 2007 period
from  $564.10  million  in the  2006  period,  and  the  average  yield  on such
securities  increased by 36 basis  points to 4.71% from 4.35% in the  nine-month
period ended September 30, 2007 and 2006,  respectively.  Other interest-earning
assets  increased  by $25.74  million to $34.14  million in the 2007 period from
$8.40   million  in  the  2006   period,   and  the   average   yield  on  other
interest-earning  assets increased by 98 basis points to 4.96% in the nine-month
period  ended  September  30,  2007 from 3.98% in the  nine-month  period  ended
September 30, 2006.

INTEREST INCOME.  Total interest income for the quarter ended September 30, 2007
increased by $2.52 million to $14.66 million from $12.14 million for the quarter
ended  September 30, 2006,  and increased by $6.66 million to $42.45 million for
the nine months ended September 30, 2007 from $35.79 million for the nine months
ended September 30, 2006. The increase in total interest income during the three
and nine months of fiscal year 2007 was due to the higher  average yields earned
and the higher average amounts of interest-earning assets.

Loans contributed $7.36 million and $21.84 million of interest income during the
three and nine months ended September 30, 2007, respectively,  compared to $6.06
million and $17.15  million of interest  income during the three and nine months
ended September 30, 2006, respectively.  Investment securities contributed $7.09
million and $19.34  million of interest  income during the three and nine months
ended  September  30, 2007,  respectively,  compared to $5.99 million and $18.39
million of interest  income during the three and nine months ended September 30,
2006, respectively.

<TABLE>
<CAPTION>

                                      --------------------------------------------------------
                                                  THREE MONTHS ENDED SEPTEMBER 30,
                                      --------------------------------------------------------
                                                2007                          2006
                                      -------------------------     --------------------------
                                       INTEREST        % OF           INTEREST        % OF
                                        INCOME        TOTAL            INCOME        TOTAL
                                               (In thousands, except percentages)
<S>                                      <C>        <C>                  <C>        <C>
Loans                                    $ 7,363     50.23%              $ 6,059     49.91%
Investment Securities                      7,086     48.35                 5,989     49.33
Other                                        208      1.42                    93      0.76
                                         -------    ------               -------    ------
Total Interest Income                    $14,657    100.00%              $12,141    100.00%
                                         =======    ======               =======    ======

</TABLE>


                                       22
<PAGE>

<TABLE>
<CAPTION>

                                      --------------------------------------------------------
                                                NINE MONTHS ENDED SEPTEMBER 30,
                                      --------------------------------------------------------
                                                2007                          2006
                                      -------------------------     --------------------------
                                       INTEREST        % OF           INTEREST        % OF
                                        INCOME        TOTAL            INCOME        TOTAL
                                              (In thousands, except percentages)
<S>                                      <C>        <C>                  <C>        <C>
Loans                                    $21,841     51.46%              $17,148     47.91%
Investment Securities                     19,337     45.55                18,393     51.39
Other                                      1,270      2.99                   251      0.70
                                         -------    ------               -------    ------
Total Interest Income                    $42,448    100.00%              $35,792    100.00%
                                         =======    ======               =======    ======

</TABLE>

         Loans, which are inherently risky and therefore command a higher return
than our portfolio of investment  securities,  have increased as a percentage of
total average  interest-earning  assets.  During the three and nine months ended
September 30, 2007, the average amount of our loan portfolio  represented 39.11%
and 39.54%,  respectively,  of total interest-earning  assets compared to 38.06%
and 35.68%,  respectively,  for the three and nine months  ended  September  30,
2006. The average amount of investment  securities  have decreased to 59.02% and
56.91% of total interest-earning  assets during the three and nine-month periods
of fiscal  year 2007,  respectively,  compared  to 60.96% and 63.37%  during the
three  and  nine-month  periods  of fiscal  year  2006,  respectively.  While we
actively  seek to  originate  new loans with  qualified  borrowers  who meet the
Bank's  underwriting  standards,   our  strategy  has  been  to  maintain  those
standards, sacrificing some current income to avoid possible large future losses
in the loan portfolio.

<TABLE>
<CAPTION>

                                              ------------------------------------------------------------
                                                             THREE MONTHS ENDED SEPTEMBER 30,
                                              ------------------------------------------------------------
                                                          2007                            2006
                                              ------------------------------    --------------------------
                                                AVERAGE           % OF            AVERAGE         % OF
                                                 AMOUNT           TOTAL            AMOUNT         TOTAL
                                                          (In thousands, except percentages)
<S>                                               <C>         <C>                   <C>         <C>
Loans                                             $385,425     39.11%               $330,117     38.06%
Investment Securities                              581,577     59.02                 528,760     60.96
Other                                               18,386      1.87                   8,484      0.98
                                                  --------    ------                --------    ------
Total Interest-Earning Assets                     $985,388    100.00%               $867,361    100.00%
                                                  ========    ======                ========    ======

</TABLE>

<TABLE>
<CAPTION>

                                              ------------------------------------------------------------
                                                            NINE MONTHS ENDED SEPTEMBER 30,
                                              ------------------------------------------------------------
                                                          2007                            2006
                                              ------------------------------    --------------------------
                                                AVERAGE           % OF            AVERAGE         % OF
                                                 AMOUNT           TOTAL            AMOUNT         TOTAL
                                                          (In thousands, except percentages)
<S>                                               <C>         <C>                   <C>         <C>
Loans                                             $380,628     39.54%               $317,612     35.68%
Investment Securities                              547,809     56.91                 564,102     63.37
Other                                               34,146      3.55                   8,404      0.95
                                                  --------    ------                --------    ------
Total Interest-Earning Assets                     $962,583    100.00%               $890,118    100.00%
                                                  ========    ======                ========    ======

</TABLE>


                                       23
<PAGE>


INTEREST  EXPENSE.  Total interest  expense for the quarter ended  September 30,
2007  increased by $2.17  million to $9.68  million  from $7.51  million for the
quarter ended  September 30, 2006.  The increase in interest  expense was due to
the increase in the average rates paid on such  liabilities,  4.55% and 4.03% in
the 2007 and 2006 quarters, respectively, and the increase in the average amount
of  interest-bearing  liabilities.  In May 2004 and April  2005,  we sold $15.46
million and $7.22 million,  respectively,  of floating rate junior  subordinated
debentures  (the  "Debentures")  and used the net 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  $444,000  during  the  three  months  ended  September  30,  2007 and 2006,
respectively.

<TABLE>
<CAPTION>

                                        -------------------------------------------------------------
                                                     THREE MONTHS ENDED SEPTEMBER 30,
                                        -------------------------------------------------------------
                                                    2007                             2006
                                        ------------------------------     --------------------------
                                            INTEREST      % OF                INTEREST      % OF
                                             EXPENSE     TOTAL                 EXPENSE     TOTAL
                                                      (In thousands, except percentages)
<S>                                           <C>       <C>                     <C>        <C>
Interest-Bearing Deposits                     $2,631     27.17%                 $1,406      18.72%
Time Deposits                                  5,650     58.36                   4,425      58.93
Other Borrowings                               1,401     14.47                   1,678      22.35
                                              ------    ------                  ------     ------
Total Interest Expense                        $9,682    100.00%                 $7,509     100.00%
                                              ======    ======                  ======     ======

</TABLE>

         Total interest  expense for the nine-month  period ended  September 30,
2007  increased by $6.66 million to $27.72  million from $21.06  million for the
nine-month period ended September 30, 2006. The increase in interest expense was
due to the  increase in the average  rates paid on such  liabilities,  4.46% and
3.65% in the  2007  and 2006  periods,  respectively,  and the  increase  in the
average  amount of  interest-bearing  liabilities.  The interest  expense on the
Debentures was approximately $1.37 million and $1.30 million during the 2007 and
2006 nine-month periods, respectively.

<TABLE>
<CAPTION>

                                        --------------------------------------------------------------
                                                       NINE MONTHS ENDED SEPTEMBER 30,
                                        --------------------------------------------------------------
                                                    2007                              2006
                                        ------------------------------     ---------------------------
                                            INTEREST      % OF                  INTEREST       % OF
                                             EXPENSE     TOTAL                   EXPENSE      TOTAL
                                                      (In thousands, except percentages)
<S>                                         <C>         <C>                     <C>         <C>
Interest-Bearing Deposits                     $7,492     27.02%                   $3,772     17.91%
Time Deposits                                 16,058     57.93                    12,259     58.21
Other Borrowings                               4,173     15.05                     5,030     23.88
                                            --------    ------                  --------    ------
Total Interest Expense                      $ 27,723    100.00%                 $ 21,061    100.00%
                                            ========    ======                  ========    ======

</TABLE>



                                       24
<PAGE>


NON-INTEREST INCOME. Non-interest income consists primarily of realized gains on
sales of marketable  securities  and service fee income.  For the three and nine
months ended  September 30, 2007,  non-interest  income amounted to $345,000 and
$1.25 million,  respectively,  compared to  non-interest  income of $359,000 and
$1.72  million  for  the  three  and  nine  months  ended  September  30,  2006,
respectively.

<TABLE>
<CAPTION>

                                        ------------------------------------------------------------------
                                                        THREE MONTHS ENDED SEPTEMBER 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                        $ 148      42.90%                   $ 148     41.23%
Investment Securities Losses                        (39)     (11.30)                      --        --
Other                                                236      68.40                      211     58.77
                                                   -----     ------                    -----    ------
Total Non-Interest Income                          $ 345     100.00%                   $ 359    100.00%
                                                   =====     ======                    =====    ======

</TABLE>

<TABLE>
<CAPTION>

                                        ------------------------------------------------------------------
                                                         NINE MONTHS ENDED SEPTEMBER 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                        $ 512      40.93                    $ 434     25.28%
Investment Securities gains                           86       6.87                      743     43.27
Other                                                653      52.20                      540     31.45
                                                 -------     ------                  -------    ------
Total Non-Interest Income                        $ 1,251     100.00%                 $ 1,717    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 nine-month periods ended
September 30, 2007 was $3.56 million and $10.54 million, respectively,  compared
to $3.40 million and $10.19 million for the three and nine  month-periods  ended
September 30, 2006, respectively.  The increase in the 2007 three and nine-month
periods are primarily due to the expansion of our business.  We have added space
and staff and have invested in new technologies to maintain and enhance customer
service levels, and to insure our compliance with various regulatory matters.

<TABLE>
<CAPTION>

                                             ------------------------------------------------------------------
                                                             THREE MONTHS ENDED SEPTEMBER 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                        $ 2,211     62.04%                 $ 2,149     63.21%
Net Occupancy Expense                                     603     16.92                      489     14.38
Equipment Expense                                          97      2.72                      112      3.29
FDIC Assessment                                            23      0.65                       22      0.65
Data Processing Expense                                   111      3.11                       90      2.65
Other                                                     519     14.56                      538     15.82
                                                      -------    ------                  -------    ------
Total Non-Interest Expense                            $ 3,564    100.00%                 $ 3,400    100.00%
                                                      =======    ======                  =======    ======

</TABLE>




                                       25
<PAGE>

<TABLE>
<CAPTION>

                                             ------------------------------------------------------------------
                                                              NINE MONTHS ENDED SEPTEMBER 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                        $ 6,587     62.47%                 $ 6,326     62.08%
Net Occupancy Expense                                   1,519     14.41                    1,455     14.28
Equipment Expense                                         297      2.82                      316      3.10
FDIC Assessment                                            63      0.60                       65      0.64
Data Processing Expense                                   306      2.90                      271      2.66
Other                                                   1,771     16.80                    1,757     17.24
                                                      -------    ------                  -------    ------
Total Non-Interest Expense                            $10,543    100.00%                 $10,190    100.00%
                                                      =======    ======                  =======    ======
</TABLE>

PROVISION  FOR  INCOME  TAX.  During  the three  and  nine-month  periods  ended
September  30,  2007,  the Company  recorded  income tax expense of $406,000 and
$1.81  million,  respectively,  compared to income tax  expense of $689,000  and
$2.85  million,  respectively,  for  the  three  and  nine-month  periods  ended
September  30,  2006.  The tax  provisions  for  federal,  state and local taxes
recorded  for the first nine  months of 2007 and 2006  represent  effective  tax
rates of 34.81% and 46.55%,  respectively.  The effective tax rate for the three
months ended  September 30, 2007 and 2006 were 24.15% and 44.56%,  respectively.
The decline in the  effective tax rate in 2007 compared to 2006 is primarily due
the Bank's  investment  in certain  securities  which carry a larger tax benefit
because of their dividend payments.

COMMON STOCK REPURCHASES

         On May 15,  2003,  The  Company's  Board of  Directors  authorized  the
purchase of up to an additional  450,000  shares of its Common Stock in the open
market, from time to time, depending upon prevailing market conditions,  thereby
increasing  the maximum  number of shares  which may be purchased by the Company
from 1,950,000 shares of Common Stock to 2,400,000 shares of Common Stock. Since
1990 through  September 30, 2007, the Company has purchased a total of 1,898,909
shares of its Common Stock. At September 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 nine months ended
September 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.



                                       26
<PAGE>

         As an additional  interest rate management  strategy,  the Bank borrows
funds from the Federal Home Loan Bank, approximately $48.41 million at September
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.








                                       27
<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 SEPTEMBER 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                             19,200                 --                 --                 --              19,200
                                  (Rate)         5.35%
                                                                                                                              5.35%
Interest bearing deposits in banks             10,035                 --                 --                 --              10,035
                                  (Rate)         4.17%                                                                        4.17%
Loans (1)(2)
Adjustable rate loans                         114,552             10,431             19,351             51,542             195,876
                                  (Rate)         8.56%              6.68%              6.83%              7.16%               7.92%
Fixed rate loans                                  324             23,534             36,230            142,167             202,255
                                  (Rate)         7.59%              7.63%              8.21%              6.30%               6.80%
                                            ---------          ---------          ---------          ---------          ----------
Total loans                                   114,876             33,965             55,581            193,709             398,131
Investments (3)(4)                            254,672             93,319            139,436            115,516             602,943
                                  (Rate)         5.16%              4.53%              4.25%              5.16%               4.85%
                                            ---------          ---------          ---------          ---------          ----------
Total rate-sensitive assets                   398,783            127,284            195,017            309,225           1,030,309
                                            ---------          ---------          ---------          ---------          ----------
Deposit accounts (5)
Savings and NOW                               280,793                 --                 --                 --             280,793
                                  (Rate)         3.71%                                                                        3.71%
Money market                                   13,350                 --                 --                 --              13,350
                                  (Rate)         0.68%                                                                        0.68%
Time Deposits                                 181,338            294,298              1,192                 --             476,828
                                  (Rate)         4.46%              5.04%              3.19%                                  4.81%
                                            ---------          ---------          ---------          ---------          ----------
Total deposit accounts                        475,481            294,298              1,192                 --             770,971
Repurchase Agreements                          41,911                 --                 --                 --              41,911
                                  (Rate)         4.86%                                                                        4.86%
Other borrowings                               15,769              8,441             23,229             23,652              71,091
                                  (Rate)         5.10%              3.34%              5.36%              7.77%               5.86%
                                            ---------          ---------          ---------          ---------          ----------
Total rate-sensitive liabilities              533,161            302,739             24,421             23,652             883,973
                                            ---------          ---------          ---------          ---------          ----------
Interest rate caps                             10,000            (10,000)
Gap (repricing differences)                  (144,378)          (165,455)           170,596            285,573             146,336
                                            =========          =========          =========          =========          ==========

Cumulative Gap                               (144,378)          (309,833)          (139,237)           146,336
                                            =========          =========          =========          =========
Cumulative Gap to Total Rate
Sensitive Assets                               (14.01)%           (30.01)%           (13.51)%            14.20%
                                            =========          =========          =========          =========

</TABLE>

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



                                       28
<PAGE>


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

         The  allowance for loan losses has been  determined in accordance  with
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



                                       29
<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 nine months  ended  September  30,  2007,  we did not
charge-off   any  loans,   and  we  recovered   loans  of  $3,000  and  $10,000,
respectively.  For the  three and nine  months  ended  September  30,  2006,  we
charged-off loans of $41,000 and $42,000,  respectively,  and recovered loans of
$9,000 and $14,000,  respectively.  All recovered  amounts in 2007 and 2006 were
returned to the provision for loan loss reserves.

         The  provision  for loan losses  totaled  $75,000 and  $225,000 for the
three and nine-month periods ended September 30, 2007, respectively, as compared
to $45,000 and $135,000 for the three and nine-month periods ended September 30,
2006,  respectively.  The increases in the provision for loan losses in the 2007
periods is predicated upon the growth in the loan portfolio.














                                       30
<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               NINE MONTHS ENDED
                                                       SEPTEMBER 30,                  SEPTEMBER 30,
                                              ------------------------------   ---------------------------
                                                  2007            2006             2007            2006
                                                  ----            ----             ----            ----
<S>                                           <C>             <C>              <C>             <C>
Average loans outstanding                     $385,425        $330,117         $380,628        $317,612
                                              ========        ========         ========        ========
Allowance at beginning of period                 3,928           3,360            3,771           3,266
Charge-offs:
 Commercial and other loans                         --              41               --              42
 Real estate loans                                  --              --               --              --
                                              --------        --------         --------        --------
  Total loans charged-off                           --              41               --              42
                                              --------        --------         --------        --------
Recoveries:
 Commercial and other loans                          3               9               10              14
 Real estate loans                                  --              --               --              --
                                              --------        --------         --------        --------
  Total loans recovered                              3               9               10              14
                                              --------        --------         --------        --------
  Net recoveries (charge-offs)                       3             (32)              10             (28)
                                              --------        --------         --------        --------
Provision for loan losses
 charged to operating expenses                      75              45              225             135
                                              --------        --------         --------        --------
Allowance at end of period                       4,006           3,373            4,006           3,373
                                              --------        --------         --------        --------
Ratio of net recoveries (charge-offs)
 to average loans outstanding                     0.00%          (0.01)%           0.00%          (0.01)%
                                              ========        ========         ========        ========
Allowance as a percent of total loans             1.01%           0.95%            1.01%           0.95%
                                              ========        ========         ========        ========
Total loans at end of period                  $398,131        $354,344         $398,131        $354,344
                                              ========        ========         ========        ========

</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
September 30, 2007, we had total gross loans of $398.13 million,  deferred loans
fees of $1.36  million and an allowance for loan losses of $4.01  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 nine-month  periods ended September 30, 2007, the
Bank sold  approximately  $1.40  million,  with no recognized  gain or loss, and
$5.07 million, with a gain of $3,000, recorded in other income, 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 September 30, 2007 and 2006, we did not have any
loans past due more than 90 days and still accruing interest.





                                       31
<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
September 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  September  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>
SEPTEMBER 30, 2007
Total Capital (to Risk-Weighted Assets)
  Company                                       $134,487  19.6%     $55,028   >8.0%           --      N/A
                                                                              -
  Bank                                           102,437  15.3%      53,445   >8.0%       66,807   >10.0%
                                                                              -                    -
Tier I Capital (to Risk-Weighted Assets)
  Company                                        130,481  19.0%      27,514   >4.0%           --      N/A
                                                                              -
  Bank                                            98,431  14.7%      26,723   >4.0%       40,084    >6.0%
                                                                              -                     -
Tier I Capital (to Average Assets)
  Company                                        130,481  12.9%      40,343   >4.0%           --      N/A
                                                                              -
  Bank                                            98,431  10.0%      39,478   >4.0%       49,347    >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   >8.0%           --      N/A
                                                                             -
  Bank                                            99,170  19.3%     41,120   >8.0%       51,400   >10.0%
                                                                             -                    -

Tier I Capital (to Risk-Weighted Assets)
  Company                                        124,681  23.2%     21,516   >4.0%           --      N/A
                                                                             -
  Bank                                            95,400  18.6%     20,560   >4.0%       30,840    >6.0%
                                                                             -                     -
Tier I Capital (to Average Assets)
  Company                                        124,681  13.4%     37,322   >4.0%           --      N/A
                                                                             -
  Bank                                            95,400  10.9%     35,022   >4.0%       43,778    >5.0%
                                                                             -                     -

</TABLE>


                                       32
<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  September  30,  2007,  the  Company,
excluding  the  Bank,  had cash and cash  equivalents  of  approximately  $15.45
million and investment securities available for sale of $10.02 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 $55.39 million at September 30, 2007,
include commitments to extend credit and stand-by letters of credit.

         At  September  30, 2007,  the Company had  outstanding  commitments  of
approximately  $528.49  million;  including  $476.83  million of time  deposits,
$48.41  million of Federal  Home Loan Bank debt and $3.25  million of  operating
leases.  These  commitments  include $499.41 million that mature or renew within
one year,  $26.86  million  that mature or renew after one year and within three
years,  $1.61  million  that  mature or renew  after three years and within five
years and $617,000 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.





                                       33
<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 September 30, 2007, no changes in Internal Control have
occurred that have  materially  affected or are reasonably  likely to materially
affect Internal Control.








                                       34
<PAGE>

PART II. OTHER INFORMATION

ITEM 6.  EXHIBITS

         Exhibit
         NUMBER      DESCRIPTION
         ------      -----------
         31          Certification of Principal  Executive and Financial Officer
                     pursuant to Section 302 Of The Sarbanes-Oxley Act of 2002.

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
























                                       35
<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: NOVEMBER 12, 2007                 By: /S/ STEVEN ROSENBERG
      -----------------                     ------------------------------
                                            STEVEN ROSENBERG
                                            PRESIDENT AND CHIEF
                                            FINANCIAL OFFICER










                                       36
<PAGE>


                                  EXHIBIT INDEX

         Exhibit
         NUMBER      DESCRIPTION
         ------      -----------
         31          Certification of Principal  Executive and Financial Officer
                     pursuant to Section 302 Of The Sarbanes-Oxley Act of 2002.

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









                                       37