UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF  THE  SECURITIES
     EXCHANGE ACT OF 1934

For the quarterly period ended     MARCH 31, 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 May 1,  2007,  there were  6,914,206  outstanding  shares of the  issuer's
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
               March 31, 2007 (unaudited) and
               December 31, 2006                                        4

               Consolidated Statements of Income
               For The Three Months Ended
               March 31, 2007 and 2006 (unaudited)                      5

               Consolidated Statement of Stockholders'
               Equity For The Three Months Ended
               March 31, 2007 (unaudited)                               6

               Consolidated Statements of Cash Flows
               For The Three Months Ended March 31,
               2007 and 2006 (unaudited)                                7

               Notes to Consolidated Financial Statements               9

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

Item 3.        Quantitative and Qualitative Disclosure
               About Market Risk                                        25

Item 4.        Controls and Procedures                                  32

       PART II OTHER INFORMATION

Item 6.        Exhibits                                                 32

Signature                                                               33

Index of Exhibits                                                       34

                                       3
<PAGE>


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

                                                       MARCH 31,    DECEMBER 31,
                                                          2007          2006
                                                       ---------    -----------
ASSETS
Cash and due from banks                                $   7,227     $   8,061
Interest bearing deposits                                  8,262         4,950
Federal funds sold                                        45,200        11,300
                                                       ---------     ---------
Total cash and cash equivalents                           60,689        24,311
Investment Securities:
 Available-for-sale                                      514,865       514,798
 Held-to-maturity, fair value of $430
  in 2007 and $436 in 2006                                   426           433
                                                       ---------     ---------
Total investment securities                              515,291       515,231
Loans, net of unearned income                            378,151       370,923
 Less: allowance for loan losses                          (3,848)       (3,771)
                                                       ---------     ---------
Net loans                                                374,303       367,152
Accrued interest receivable                                5,897         6,397
Premises and equipment, net                                9,181         9,338
Goodwill, net                                             18,549        18,549
Other assets                                               7,497         7,678
                                                       ---------     ---------
Total assets                                           $ 991,407     $ 948,656
                                                       =========     =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
 Non-interest bearing                                  $  49,648     $  49,418
 Interest bearing                                        722,638       632,071
                                                       ---------     ---------
Total deposits                                           772,286       681,489
Securities sold under agreements to repurchase            23,206        62,652
Long term borrowings                                      43,888        52,738
Subordinated debt                                         22,681        22,681
Accrued interest payable                                   7,356         8,110
Other liabilities                                          3,918         5,209
                                                       ---------     ---------
Total liabilities                                        873,335       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 --
   March 31, 2007,    6,905,706 shares
   December 31, 2006, 6,877,881 shares                       770           770
Additional paid-in capital                                90,635        90,659
Retained earnings                                         39,350        37,285
Accumulated other comprehensive loss, net                 (4,795)       (4,772)
 Treasury Stock
 March 31, 2007,      792,579 shares
 December 31, 2006,   820,404 shares                      (7,888)       (8,165)
                                                       ---------     ---------
Total stockholders' equity                               118,072       115,777
                                                       ---------     ---------
                                                       $ 991,407     $ 948,656
                                                       =========     =========


         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)

                                                                   FOR THE
                                                             THREE MONTHS ENDED
                                                                  MARCH 31,
                                                            --------------------
                                                              2007        2006
                                                            --------    --------
INTEREST INCOME
Loans                                                       $  7,238    $  5,504
Investment securities                                          5,835       6,255
Federal funds sold and
 interest bearing deposits                                       686          76
                                                            --------    --------
Total interest income                                         13,759      11,835
                                                            --------    --------
INTEREST EXPENSE
Deposits                                                       7,444       4,855
Short-term borrowings                                            433         541
Long-term borrowings                                             991       1,211
                                                            --------    --------
Total interest expense                                         8,868       6,607
                                                            --------    --------
Net interest income                                            4,891       5,228
PROVISION FOR LOAN LOSSES                                         75          45
                                                            --------    --------
Net interest income after
 provision for loan losses                                     4,816       5,183
                                                            --------    --------
NON-INTEREST INCOME
Service charges on deposit accounts                              181         140
Investment securities gains                                      125         741
Other income                                                     209         172
                                                            --------    --------
Total non-interest income                                        515       1,053
                                                            --------    --------
NON-INTEREST EXPENSE
Salaries and employee benefits                                 2,234       2,107
Net occupancy expense                                            476         475
Equipment expense                                                102          96
FDIC assessment                                                   20          21
Data processing expense                                           96          90
Other                                                            525         624
                                                            --------    --------
Total non-interest expense                                     3,453       3,413
                                                            --------    --------
Income before provision for taxes                              1,878       2,823
Provision for income taxes                                       778       1,327
                                                            --------    --------
Net income                                                  $  1,100    $  1,496
                                                            ========    ========
Net income per share:
 Basic                                                      $    .16    $    .22
                                                            ========    ========
 Diluted                                                    $    .16    $    .21
                                                            ========    ========
Number of shares used to compute net income per share:
 Basic                                                         6,896       6,891
                                                            ========    ========
 Diluted                                                       6,957       6,983
                                                            ========    ========


        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                       5
<PAGE>


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

               FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
                                 (In Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                   ACCUMULATED
                                                                      OTHER
                                               STOCK  ADDITIONAL  COMPREHENSIVE                                            TOTAL
                                       COMMON   PAR     PAID-IN       (LOSS)     RETAINED   TREASURY   COMPREHENSIVE   STOCKHOLDERS'
                                       SHARES  VALUE    CAPITAL        NET       EARNINGS     STOCK       INCOME          EQUITY
                                       ------  -----  ----------  -------------  --------   ---------  -------------   -------------
<S>                                     <C>     <C>      <C>         <C>         <C>        <C>            <C>            <C>
BALANCE AT JANUARY 1, 2007              7,698   $770     $90,659     $(4,772)    $ 37,285   $ (8,165)                     $115,777
Adoption of FIN 48                                                                    965                                      965
                                                                                 --------                                 --------
Adjusted balance at January 1, 2007                                                38,250                                  116,742
Net income                                                                          1,100                    1,100           1,100
Exercise of stock options                                   (24)                                  277                          253
Other comprehensive (loss) net
 of reclassification adjustment
 and taxes                                                               (23)                                  (23)            (23)
                                                                                                           -------
Comprehensive income                                                                                       $ 1,077
                                                                                                           =======

BALANCE AT MARCH 31, 2007               7,698   $770     $90,635     $(4,795)    $ 39,350   $ (7,888)                     $118,072
                                       ======   ====     =======     =======     ========   ========                      ========

BALANCE AT JANUARY 1, 2006              7,698   $770     $90,594     $(8,415)    $ 33,504   $ (7,743)                     $108,710
Net income                                                                          1,496                    1,496           1,496
Exercise of stock options                                      1                                   29                           30
Other comprehensive (loss) net
 of reclassification adjustment
 and taxes                                                              (969)                                 (969)           (969)
                                                                                                           -------
Comprehensive income                                                                                       $   527
                                                                                                           =======

BALANCE AT MARCH 31, 2006               7,698   $770     $90,595     $(9,384)    $ 35,000   $ (7,714)                     $109,267
                                       ======   ====     =======     =======     ========   ========                      ========
</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)

                                                      FOR THE THREE MONTHS ENDED
                                                               MARCH 31,
                                                      -------------------------
                                                         2007           2006
                                                      ----------     ----------
  Cash flows from operating activities:
Net income                                            $    1,100     $    1,496
Adjustments to reconcile net income to net
 cash provided by (used in) operating activities:
Realized gains on investment securities                     (125)          (741)
Net (accretion) amortization of premiums                    (361)            35
 of investment securities
Depreciation and amortization                                183            176
Provision for loan losses                                     75             45
Decrease in accrued interest receivable                      500            574
Decrease in other assets                                     181            761
(Decrease) increase in accrued interest
 payable and other liabilities                            (1,080)           635
                                                      ----------     ----------
Net cash provided by operating activities                    473          2,981
                                                      ----------     ----------

  Cash flows from investing activities:
Investment securities available for sale
 Purchases                                              (460,195)      (137,757)
 Sales, maturities and calls                             460,591        145,825
Investment securities held to maturity
 Maturities                                                    7             62
Net (increase) decrease in loans                          (7,226)         2,317
Acquisition of premises and equipment                        (26)          (473)
                                                      ----------     ----------
Net cash (used in) provided by investing activities       (6,849)         9,974
                                                      ----------     ----------

                                       7
<PAGE>


                                                      FOR THE THREE MONTHS ENDED
                                                               MARCH 31,
                                                      -------------------------
                                                         2007           2006
                                                      ----------     ----------
  Cash flows from financing activities:
Net increase (decrease) in non interest
 bearing deposits                                            230         (5,140)
Net increase in interest bearing deposits                 90,567          9,207
(Decrease) in securities sold under
 agreements to repurchase                                (39,446)       (22,203)
Repayment of long term debt                               (8,850)        (8,080)
Proceeds from exercise of common stock options               253             30
                                                      ----------     ----------
Net cash provided by (used in) financing activities       42,754        (26,186)
                                                      ----------     ----------

  Net increase in cash and cash equivalents               36,378        (13,231)
  Cash and cash equivalents - beginning of period         24,311         27,882
                                                      ----------     ----------
  Cash and cash equivalents - end of period           $   60,689     $   14,651
                                                      ==========     ==========

Supplemental disclosures of cash flow information:
  Cash used to pay interest                           $    9,622     $    5,927
  Cash used to pay taxes, net of refunds              $      505     $      775


        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                       8
<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 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%.

        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%.

                                       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
                                      ----------------------------------------------------------------------------------------------
                                                     MARCH 31, 2007                                   MARCH 31, 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                    $1,100           6,896           $.16             $1,496            6,891          $.22
Effect of dilutive securities
 Options                                     --             361            .--                 --               92          (.01)
                                         ------           -----           ----             ------            -----          ----
Diluted earnings per share
 Net income available to
  common stockholders plus
  assumed conversions                    $1,100           6,957           $.16             $1,496            6,983          $.21
                                         ======           =====           ====             ======            =====          ====

</TABLE>

                                       10
<PAGE>


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

NOTE 4. INVESTMENT SECURITIES

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

                                              MARCH 31, 2007
                            ----------------------------------------------------
                                             GROSS          GROSS
                             AMORTIZED     UNREALIZED     UNREALIZED       FAIR
                                COST          GAINS         LOSSES        VALUE
                            -----------   ------------   ------------   --------

                                               (In thousands)
HELD TO MATURITY
INVESTMENT SECURITIES
U.S. Government Agencies       $ 426           $ 4           $ --         $ 430
                               -----           ---           ----         -----
 Totals                        $ 426           $ 4           $ --         $ 430
                               =====           ===           ====         =====


                                             DECEMBER 31, 2006
                            ----------------------------------------------------
                                             GROSS          GROSS
                             AMORTIZED     UNREALIZED     UNREALIZED       FAIR
                                COST          GAINS         LOSSES        VALUE
                            -----------   ------------   ------------   --------
                                               (In thousands)
HELD TO MATURITY
INVESTMENT SECURITIES
U.S. Government Agencies       $ 433           $ 4           $ (1)        $ 436
                               -----           ---           ----         -----
 Totals                        $ 433           $ 4           $ (1)        $ 436
                               =====           ===           ====         =====


                                              MARCH 31, 2007
                            ----------------------------------------------------
                                             GROSS          GROSS
                             AMORTIZED     UNREALIZED     UNREALIZED       FAIR
                                COST          GAINS         LOSSES        VALUE
                            -----------   ------------   ------------   --------
                                               (In thousands)
AVAILABLE-FOR-SALE
INVESTMENT SECURITIES
U.S. Treasury and Notes       $  5,002       $   --        $    (5)     $  4,997
U.S. Government Agencies       303,995            1         (4,989)      299,007
Mortgage-backed securities      64,265          118         (1,579)       62,804
Corporate notes                 67,262          336           (612)       66,986
Municipal Securities             5,698        1,234           (859)        6,073
Marketable equity
 securities and other           74,874          207            (83)       74,998
                              --------       ------        -------      --------
 Totals                       $521,096       $1,896        $(8,127)     $514,865
                              ========       ======        =======      ========

                                      11
<PAGE>


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

NOTE 4. - (CONTINUED)

                                             DECEMBER 31, 2006
                            ----------------------------------------------------
                                             GROSS          GROSS
                             AMORTIZED     UNREALIZED     UNREALIZED      FAIR
                                COST          GAINS         LOSSES       VALUE
                            -----------   ------------   ------------   --------
                                               (In thousands)
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
                             ========        ======        ========     ========

        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:

                                       MARCH 31, 2007         DECEMBER 31, 2006
                                     -----------------      --------------------
                                                 % OF                    % OF
                                      AMOUNT     TOTAL      AMOUNT       TOTAL
                                     --------    -----      -------    --------
                                               (Dollars in thousands)
Commercial and professional loans    $ 64,377     17.0%    $ 63,331        17.0%
Secured by real estate
  1-4 family                          138,162     36.4      139,611        37.5
  Multi family                          3,883      1.0        4,013         1.1
  Non-residential (commercial)        168,031     44.3      160,417        43.1
Consumer                                4,860      1.3        4,763         1.6
                                     --------    -----      -------    --------
Total loans                           379,313    100.0%     372,135       100.0%
                                                 =====                 ========
Deferred loan fees                     (1,162)                           (1,212)
Allowance for loan losses              (3,848)                           (3,771)
                                     --------                          --------
Loans, net                           $374,303                          $367,152
                                     ========                          ========


NOTE 6. DEPOSITS

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

                                       MARCH 31, 2007         DECEMBER 31, 2006
                                     ------------------     --------------------
                                     AVERAGE    AVERAGE      AVERAGE    AVERAGE
                                      AMOUNT     YIELD        AMOUNT     YIELD
                                     --------   -------      -------    --------
                                               (Dollars in thousands)

Demand deposits                     $ 48,266       --        $ 47,890      --
NOW and money market                  28,870     0.56%         35,141    0.61%
Savings deposits                     244,262     3.73         171,604    2.95
Time deposits                        424,970     4.82         410,729    4.21
                                    --------     ----        --------    ----
Total deposits                      $746,368     3.99%       $665,364    3.39%
                                    ========     ====        ========    ====

                                       13
<PAGE>


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

NOTE 7. COMPREHENSIVE INCOME (LOSS)

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

<TABLE>
<CAPTION>
                                                              FOR THE THREE MONTHS ENDED
                                 -------------------------------------------------------------------------------------
                                                MARCH 31, 2007                            MARCH 31, 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 (losses)
gains on investment
securities:
 Unrealized holding                 $  39          $ (3)          $ 36         $  (835)        $ 311         $ (524)
 gains (losses) arising
 during period

 Less reclassification
 adjustment for gains
 realized in net income               125           (50)            75             741          (296)           445
                                    -----          ----          -----         -------         -----         ------
Unrealized gain (loss) on
investment securities                 (86)           47            (39)

Change in minimum
pension liability                      16            --             16              --            --             --
                                    -----          ----          -----         -------         -----         ------
Other comprehensive                 $ (70)         $ 47          $ (23)        $(1,576)        $ 607         $ (969)
 (loss) income, net                 =====          ====          =====         =======         =====         ======
</TABLE>


NOTE 8.  ACCOUNTING FOR STOCK BASED COMPENSATION

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

        The  Company  adopted  SFAS  123(R) in the first  quarter of fiscal year
2006.  The  adoption  of SFAS  123(R)  did not have an impact  on its  operating
results  and  financial  condition  because  the  Company  made  no  stock-based
compensation payments in fiscal 2006 or in the first quarter of fiscal 2007.

        At March 31, 2007, the Company has one stock-based employee compensation
plan. The Company  accounted for that plan under the recognition and measurement
principles  of  APB  25  and  related   interpretations.   Stock-based  employee
compensation  costs were not  reflected  in net income,  as all options  granted
under the plan had an exercise price equal to the market value of the underlying
common stock on the date of the grant.  The Company did not grant stock  options
during the quarter ended March 31, 2007 or during the fiscal year ended December
31, 2006. We have no plans to grant significant stock options,  if any, in 2007.
Therefore,  we do not  expect  the  implementation  of FAS  123(R) to affect our
financial position or results of operations in the near future.

                                       14
<PAGE>


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

NOTE 9. EMPLOYEE BENEFIT PLANS

        The Company has a Retirement Income Plan (the "Plan"), a noncontributory
plan covering substantially all full-time,  non-union United States employees of
the Company.  The  following  interim-period  information  is being  provided in
accordance with FASB Statement 132(R) as amended by FAS 158.


                                                             FOR THE
                                                       THREE MONTHS ENDED
                                                            MARCH 31,
                                                 -------------------------------
                                                      2007            2006
                                                 -------------   ---------------

Service cost                                       $ 90,750         $ 82,000
Interest cost                                        43,500           37,000
Expected return on plan assets                      (46,000)         (38,000)
Amortization and Deferral:
 Transition amount                                       --               --
 Prior service cost                                   4,500            5,000
 (Gain)/loss                                         11,750           14,000
                                                   --------         --------
Net periodic pension cost                          $104,500         $100,000
                                                   ========         ========

        During the fiscal year ending December 31, 2007, we expect to contribute
approximately $340,000 to the Plan. We did not make any contributions,  required
or otherwise, to the Plan in the three months ended March 31, 2007 and 2006.

NOTE 10.  NEW ACCOUNTING PRONOUNCEMENTS

FAIR VALUE OPTION FOR FINANCIAL ASSETS AND LIABILITIES

        In February 2007,  the FASB issued  Statement 159, The Fair Value Option
for Financial Assets and Financial Liabilities  ("Statement 159"). The objective
of  Statement  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.

        Statement  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, Statement 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)

        Statement  159 is  required  to be adopted by the  Company on January 1,
2008. Early adoption is permitted; however, the Company does not intend to adopt
Statement  159 prior to the  required  adoption  date of January  1,  2008.  The
Company  expects to adopt  Statement  159 along with  Statement  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
Statement 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 Statement
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. The Statement  defines fair
value as the price that would be received to sell an asset or paid to transfer a
liability  in  an  orderly   transaction  between  market  participants  at  the
measurement date,  establishes a framework for measuring fair value, and expands
disclosures  about  fair  value  measurements.  Adoption  of SFAS No. 157 is not
expected to have a material  impact on the  Company's  results of  operations or
financial condition.

ACCOUNTING FOR DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS

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

        Pensions  and  Other   Postretirement   Benefits",   and  SFAS  No.  88,
"Employers'  Accounting for  Settlements  and  Curtailments  of Defined  Benefit
Pension Plans for  Termination  Benefits".  An employer who has publicly  traded
equity securities,  such as the Company,  is required to initially recognize the
funded  status of a  defined  benefit  postretirement  plan and to  provide  the
required  disclosures  as of the  end of its  first  fiscal  year  ending  after
December 15,  2006.  For the  Company,  this is for the year ended  December 31,
2006. The  requirement to measure plan assets and benefit  obligations as of the
date of the  employer's  fiscal year end is  effective  for fiscal  years ending
after  December 15,  2008.  The  adoption of this  statement  for the year ended
December  31,  2006 did not have a  significant  effect  on Other  Comprehensive
Income and stockholders' equity.

                                       16
<PAGE>


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

NOTE 10. - (CONTINUED)

ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES

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

        As  of  March 31, 2007,  the  Company  does not have any  uncertain  tax
positions under  FIN 48. As a result, there  are  no unrecognized  tax  benefits
as  of March 31, 2007. The  Company's 2003  through  2006  federal  tax  returns
still  remain  subject to  examination  by  the Internal Revenue Service. If the
Company were to incur  any  interest and penalties  in  connection  with  income
tax deficiencies, the Company would classify interest in the "interest  expense"
category and classify penalties in the  "non-interest  expense" category  within
the consolidated statements of income.

ACCOUNTING FOR FINANCIAL ASSETS

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

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

        In October 2006, the FASB recommended a narrow scope exception for asset
backed securities,  including mortgage-backed securities,  created from pools of
loans  containing  embedded  call  features,  that (a) only  contain an embedded
derivative  that is tied to the  prepayment  risk of the  underlying  prepayable
financial assets,  and (b) the investor does not control the right to accelerate
the  settlement.  The  Statement  is  effective  for all  financial  instruments
acquired or issued  after the  beginning  of an entity's  first fiscal year that
begins after September 15, 2006.  Since the Statement is effective for purchases
made by the Company after December 31, 2006, management is unable, at this time,
to determine the impact of this statement.

                                       17
<PAGE>


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

NOTE 10. - (CONTINUED)

ACCOUNTING FOR PRIOR YEAR MISSTATEMENTS

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

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

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.

                                       18
<PAGE>


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

        The  following  discussion  and analysis is intended to provide a better
understanding of the consolidated  financial condition and results of operations
of Berkshire  Bancorp  Inc., a Delaware  corporation.  References  herein to 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.

        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.

                                       19
<PAGE>


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

<TABLE>
<CAPTION>
                                                                         FOR THE THREE MONTHS ENDED MARCH 31,
                                           -----------------------------------------------------------------------------------------
                                                               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)                                  $  376,914      $   7,238           7.68%     $  310,007       $  5,504         7.10%
Investment securities                         507,614          5,835            4.60        594,526          6,255          4.21
Other (2)(5)                                   54,382            686            5.05          8,496             76          3.53
                                           -----------     -----------   ------------    -----------      ---------      ---------
Total interest-earning assets                 938,910         13,759            5.86        913,029         11,835          5.18
                                                                         ------------                                    ---------
Noninterest-earning assets                     45,240                                        46,352
                                           -----------                                   -----------
Total Assets                               $  984,150                                    $  959,381
                                           ===========                                   ===========

INTEREST-BEARING LIABILITIES:
Interest bearing deposits                     273,132         2,321            3.40%        214,675          1,143         2.13%
Time deposits                                 424,970         5,123             4.82        412,963          3,711          3.59
Other borrowings                              106,668         1,424             5.34        164,405          1,753          4.27
                                           -----------     -----------   ------------    -----------      ---------      ---------
Total interest-bearing
 liabilities                                  804,770         8,868             4.41        792,043          6,607          3.34
                                                           -----------   ------------                     ---------      ---------

Demand deposits                                48,266                                        46,422
Noninterest-bearing liabilities                13,482                                        11,728
Stockholders' equity (5)                      117,632                                       109,188
                                           -----------                                   -----------

Total liabilities and
 stockholders' equity                      $  984,150                                    $  959,381
                                           ===========                                   ===========

Net interest income                                           4,891                                          5,228
                                                           ===========                                    =========

Interest-rate spread (3)                                                       1.45%                                       1.84%
                                                                         ============                                    =========

Net interest margin (4)                                                        2.08%                                       2.29%
                                                                         ============                                    =========

Ratio of average interest-earning assets
to average interest bearing liabilities
                                                 1.17                                          1.15
                                           ===========                                   ===========
</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 MONTHS ENDED MARCH 31, 2007 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 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 eleven branch locations,  six branches in New
York City and four  branches in Orange and Sullivan  counties New York,  and one
branch in Ridgefield, New Jersey which opened in May 2006.

NET INCOME. Net income for the three-month period ended March 31, 2007 was $1.10
million, or $.16 per share, as compared to $1.50 million, or $.21 per share, for
the three-month period ended March 31, 2006.

        The Company's  net income is largely  dependent on interest rate levels,
the  demand for the  Company's  loan and  deposit  products  and the  strategies
employed to manage the  interest  rate and other  risks  inherent in the banking
business. The difference between the yield on short-term,  3 month U.S. Treasury
Notes,  and long-term,  10 year U.S.  Treasury  bonds,  referred to as the yield
curve is at  historic  lows.  Inflation  fighting  actions  taken by the Federal
Reserve Board have moved short-term rates up while long-term rates have remained
relatively  flat. The Company's rising cost of funds, the rates paid on deposits
and  borrowings,  has not been  matched by the ability to increase the yields on
interest-earning assets.

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

        For the quarter ended March 31, 2007, net interest  income  decreased by
$337,000 to $4.89  million  from $5.23  million for the quarter  ended March 31,
2006. The quarter over quarter decrease in net interest income was the result of
the 107 basis point increase in the average rates paid on the average amounts of
interest-bearing liabilities to 4.41% in the 2007 quarter from 3.34% in the 2006
quarter. The decrease was partially offset by the 68 basis point increase in the
average yields earned on the average amounts of interest-earning assets to 5.86%
in 2007 from 5.18% in 2006. 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 39 basis points to 1.45% in the 2007
quarter from 1.84% in the 2006 quarter.

NET INTEREST MARGIN. Net interest margin, or annualized net interest income as a
percentage of average  interest-earning  assets,  declined by 21 basis points to
2.08% in the first  quarter of fiscal  2007 from  2.29% in the first  quarter of
fiscal 2006. We seek to secure and retain  customer  deposits  with  competitive
products and rates,  while making strategic use of the prevailing  interest rate
environment to borrow funds at what we believe to be attractive rates. We invest
such deposits and borrowed funds in a prudent mix of fixed and  adjustable  rate
loans,  investment  securities  and  short-term  interest-earning  assets  which
provided an aggregate average yield of 5.86% and 5.18% during the quarters ended
March 31, 2007 and 2006,  respectively.  The decrease in net interest  margin is
primarily due to the decrease in net interest  income,  partially  offset by the
increase in the average  amount of higher  yielding loans as a percentage of our
total mix of interest-earning assets.

        The average amount of loans in our portfolio increased by $66.91 million
to $376.91  million in the quarter ended March 31, 2007 from $310.01  million in
the quarter ended March 31, 2006,  and the average  yield on our loan  portfolio
increased  to 7.68% in the 2007  quarter  from  7.10% in the 2006  quarter.  The
average amount of investment  securities decreased by $86.91 million, to $507.61
million in the three  months  ended March 31, 2007 from  $594.53  million in the
three  months  ended  March  31,  2006,  and the  average  yield  on  investment
securities

                                       21
<PAGE>


improved by 39 basis  points,  to 4.60% in 2007 from 4.21% in 2006.  The average
amount  of  other  interest-earning   assets,   primarily  cash  and  short-term
investments,  increased by $45.89  million to $54.38 million in the 2007 quarter
from $8.50 million in the 2006  quarter,  and returned an average yield of 5.05%
and 3.53% in the quarter ended March 31, 2007 and 2006, respectively.

INTEREST  INCOME.  Total  interest  income for the quarter  ended March 31, 2007
increased by $1.92 million to $13.76 million from $11.84 million for the quarter
ended March 31, 2006. The increase in total interest income was primarily due to
the increase in the average yields earned on interest-earning  assets and by the
increase in the average amount of such assets.  Loans  contributed $7.24 million
of interest  income in the 2006  quarter,  an increase of $1.73 million from the
$5.50 million of interest  income  contributed  in the 2006 quarter.  Investment
securities  contributed $5.84 million of interest income in the first quarter of
2007, a decrease of $420,000 from the $6.26 million of interest income earned on
investment securities in the first quarter of 2006.

                                  ----------------------------------------------
                                           THREE MONTHS ENDED MARCH 31,
                                  ----------------------------------------------
                                          2007                      2006
                                  -------------------       -------------------
                                  INTEREST     % OF         INTEREST      % OF
                                   INCOME      TOTAL         INCOME      TOTAL
                                  --------     ------       --------     ------
                                       (In thousands, except percentages)
Loans                             $ 7,238       52.60%      $ 5,504       46.51%
Investment Securities               5,835       42.41         6,255       52.86
Other                                 686        4.99            76        0.63
                                  -------      ------       -------      ------
Total Interest Income             $13,759      100.00%      $11,835      100.00%

        Loans,  which are inherently risky and therefore command a higher return
than our  portfolio of investment  securities,  increased to 40.14% of our total
average  interest-earning  assets  during the three  months ended March 31, 2007
from 33.95% of total  average  interest-earning  assets  during the three months
ended March 31, 2006.  Investment  securities  declined to 54.07% from 65.12% of
total average interest-earning assets during the three-month periods ended March
31, 2007 and 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.

                                 -----------------------------------------------
                                          THREE MONTHS ENDED MARCH 31,
                                 -----------------------------------------------
                                          2007                      2006
                                 --------------------      --------------------
                                  AVERAGE       % OF        AVERAGE       % OF
                                  AMOUNT       TOTAL         AMOUNT      TOTAL
                                 --------      ------      --------      ------
                                        (In thousands, except percentages)
Loans                            $376,914       40.14%     $310,007       33.95%
Investment Securities             507,614       54.07       594,526       65.12
Other                              54,382        5.79         8,496        0.93
                                 --------      ------      --------      ------
Total Interest-Earning Assets    $938,910      100.00%     $913,029      100.00%

                                       22
<PAGE>


INTEREST EXPENSE.  Total interest expense for the quarter ended March 31, 2007
increased by $2.26  million to $8.87  million from $6.61 million for the quarter
ended March 31, 2006. The increase in interest  expense was due primarily to the
increase in the average  rates paid on the  average  amount of  interest-bearing
liabilities, 4.41% in the 2007 quarter compared to 3.34% in the 2006 quarter. In
May 2004 and April 2005, we sold an aggregate of $22.68 million of floating rate
junior  subordinated  debentures  which  mature in thirty years 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
$458,000  and  $424,000  during the three  months ended March 31, 2007 and 2006,
respectively.

                                    --------------------------------------------
                                            THREE MONTHS ENDED MARCH 31,
                                    --------------------------------------------
                                            2007                      2006
                                    ------------------       ------------------
                                    INTEREST    % OF         INTEREST     % OF
                                     INCOME     TOTAL         INCOME     TOTAL
                                    --------    ------       --------    ------
                                         (In thousands, except percentages)
Interest-Bearing Deposits           $  2,321     26.17%      $  1,143     17.30%
Time Deposits                          5,123     57.77          3,711     56.17
Other Borrowings                       1,424     16.06          1,753     26.53
                                    --------    ------       --------    ------
Total Interest Expense              $  8,868    100.00%      $  6,607    100.00%

                                   ---------------------------------------------
                                           THREE MONTHS ENDED MARCH 31,
                                   ---------------------------------------------
                                           2007                     2006
                                   -------------------      -------------------
                                    AVERAGE      % OF        AVERAGE      % OF
                                    AMOUNT      TOTAL         AMOUNT     TOTAL
                                   --------     ------      --------     ------
(In thousands, except percentages)
Interest-Bearing Deposits          $273,132      33.94%     $214,675      37.46%
Time Deposits                       424,970      52.81       412,963      34.53
Other Borrowings                    106,668      13.25       164,405      28.01
                                   --------     ------      --------     ------
Total Interest-Bearing Liabilities $804,770     100.00%     $792,043     100.00%


NON-INTEREST INCOME. Non-interest income consists primarily of realized gains on
sales of  marketable  securities  and service fee income.  For the three  months
ended March 31, 2007,  total  non-interest  income  decreased  by  $538,000,  to
$515,000  from $1.05  million for the three  months  ended March 31,  2006.  The
decrease  is  largely  due to the  $616,000  decrease  in gains on the  sales of
investment securities in the 2007 quarter.

                                   ---------------------------------------------
                                           THREE MONTHS ENDED MARCH 31,
                                   ---------------------------------------------
                                           2007                     2006
                                   -------------------      -------------------
                                     NON-                     NON-
                                   INTEREST     % OF        INTEREST     % OF
                                    INCOME      TOTAL        INCOME      TOTAL
                                   --------     ------      --------     ------
                                        (In thousands, except percentages)
Service Charges on Deposits        $    181      35.15%     $    140      13.30%
Investment Securities gains             125      24.27           741      70.37
Other                                   209      40.58           172      16.33
                                   --------     ------      --------     ------
Total Non-Interest Income          $    515     100.00%     $  1,053     100.00%

                                       23
<PAGE>


NON-INTEREST  EXPENSE.  Non-interest  expense  includes  salaries  and  employee
benefits,  occupancy and equipment  expenses,  legal and  professional  fees and
other  operating  expenses  associated  with the  day-to-day  operations  of the
Company.  Total  non-interest  expense for the three months ended March 31, 2007
increased by $40,000 to $3.45  million  from $3.41  million for the three months
ended March 31, 2006. The largest component of non-interest expense,  almost 65%
of the total, are salaries and employee  benefits which increased by $127,000 to
$2.23 million in the 2007 quarter from $2.11  million in the 2006  quarter.  The
increase  is due to the  addition  of  personnel  in our  internal  control  and
compliance departments.

                                   ---------------------------------------------
                                           THREE MONTHS ENDED MARCH 31,
                                   ---------------------------------------------
                                           2007                     2006
                                   -------------------      -------------------
                                     NON-                     NON-
                                   INTEREST     % OF        INTEREST     % OF
                                    EXPENSE     TOTAL        EXPENSE     TOTAL
                                   --------     ------      --------     ------
                                        (In thousands, except percentages)
Salaries and Employee Benefits     $  2,234      64.70%     $  2,107      61.72%
Net Occupancy Expense                   476      13.79           475      13.94
Equipment Expense                       102       2.95            96       2.81
FDIC Assessment                          20       0.58            21       0.61
Data Processing Expense                  96       2.78            90       2.64
Other                                   525      15.20           624      18.28
                                   --------     ------      --------     ------
Total Non-Interest Expense         $  3,453     100.00%     $  3,413     100.00%


PROVISION  FOR INCOME TAX. We recorded  income tax expense of $778,000 and $1.33
million for the three-month periods ended March 31, 2007 and 2006, respectively.
The tax provisions for federal,  state and local taxes  represent  effective tax
rates of 41.43% and 47.01% for the three  months  ended March 31, 2007 and 2006,
respectively.

ISSUER PURCHASES OF EQUITY SECURITIES

        On May 15,  2003,  The  Company's  Board  of  Directors  authorized  the
purchase of up to an additional  450,000  shares of its Common Stock in the open
market, from time to time, depending upon prevailing market conditions,  thereby
increasing  the maximum  number of shares  which may be purchased by the Company
from 1,950,000 shares of Common Stock to 2,400,000 shares of Common Stock. Since
1990 through  December 31, 2006,  the Company has purchased a total of 1,898,909
shares of its Common  Stock.  At March 31, 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 first quarter of
2007.

                                       24
<PAGE>


ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

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

        As an additional  interest rate  management  strategy,  the Bank borrows
funds from the Federal Home Loan Bank, approximately $43.89 million at March 31,
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.

                                       25
<PAGE>


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

<TABLE>
<CAPTION>
                                                                              BERKSHIRE BANCORP INC.
                                                                 INTEREST RATE SENSITIVITY GAP AT MARCH 31, 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>
Federal funds sold                              45,200               --                --               --             45,200
                                    (Rate)        5.30%                                                                  5.30%
Interest bearing deposits in banks               8,262               --                --               --              8,262
                                    (Rate)        4.30%                                                                  4.30%
Loans (1)(2)
Adjustable rate loans                           86,635           13,725            21,483           41,941            163,784
                                    (Rate)        8.94%            7.48%             6.62%            7.02%              8.02%
Fixed rate loans                                13,290           13,080            31,778          157,381            215,529
                                    (Rate)        7.99%            8.66%             7.69%            6.45%              6.86%
                                             ---------        ---------         ---------        ---------         ----------
Total loans                                     99,925           26,805            53,261          199,322            379,313
Investments (3)(4)                             154,922           88,003           120,332          158,264            521,521
                                    (Rate)        4.48%            4.41%             4.09%            5.06%              4.55%
                                             ---------        ---------         ---------        ---------         ----------
Total rate-sensitive assets                    263,109          114,808           173,593          357,586            909,096
                                             ---------        ---------         ---------        ---------         ----------

Deposit accounts (5)
Savings and NOW                                281,661               --                --               --            281,661
                                    (Rate)        3.63%                                                                  3.63%
Money market                                    14,688               --                --               --             14,688
                                    (Rate)        0.69%                                                                  0.69%
Time Deposits                                  270,881          149,946             5,459                3            426,289
                                    (Rate)        4.74%            4.94%             2.84%            1.74%              4.79%
                                             ---------        ---------         ---------        ---------         ----------
Total deposit accounts                         567,230          149,946             5,459                3            722,638
Repurchase Agreements                           15,199            8,007                --               --             23,206
                                    (Rate)        4.87%            4.58%             4.16%                               4.77%
Other borrowings                                 1,711           10,247            19,930           34,681             66,569
                                    (Rate)        3.58%            3.39%             3.92%            7.31%              5.60%
                                             ---------        ---------         ---------        ---------         ----------
Total rate-sensitive liabilities               584,140          168,200            25,389           34,684            812,413
                                             ---------        ---------         ---------        ---------         ----------

Interest rate caps                              20,000          (20,000)              --                --                 --
Gap (repricing differences)                   (341,031)         (33,392)          148,204          322,902             96,683
                                             =========        =========         =========        =========         ==========

Cumulative Gap                                (341,031)        (374,423)         (226,219)          96,683
                                             =========        =========         =========        =========
Cumulative Gap to Total Rate
Sensitive Assets                                (37.51)%         (41.19)%          (24.88)%          10.64%
                                             =========        =========         =========        =========
</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.

                                       26
<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
groups 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

                                       27
<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-month   periods  ended  March  31,  2007  and  2006,  we
charged-off loans of $0 and $1,000, respectively,  and recovered loans of $2,000
and $5,000,  respectively.  All amounts  recovered  in the 2007 and 2006 periods
were returned to the allowance for loan losses.

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


                                                          THREE MONTHS ENDED
                                                               MARCH 31,
                                                       ------------------------
                                                         2007            2006
                                                       --------        --------

Average loans outstanding                              $376,914        $310,007
                                                       ========        ========
Allowance at beginning of period                          3,771           3,266
Charge-offs:
 Commercial and other loans                                  --               1
                                                       --------        --------
  Total loans charged-off                                    --               1
                                                       --------        --------
Recoveries:
 Commercial and other loans                                   2               5
                                                       --------        --------
  Total loans recovered                                       2               5
                                                       --------        --------
  Net (charge-offs) recoveries                                2               4
                                                       --------        --------
Provision for loan losses
 charged to operating expenses                               75              45
                                                       --------        --------
Allowance at end of period                             $  3,848        $  3,315
                                                       --------        --------
Ratio of net recoveries (charge-offs)
 to average loans outstanding                              0.00%           0.00%
                                                       ========        ========
Allowance as a percent of total loans                      1.01%           1.08%
                                                       ========        ========
Total loans at end of period                           $379,313        $307,879
                                                       ========        ========

                                       28
<PAGE>


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 March
31, 2007,  we had total gross loans of $379.31  million,  deferred  loan fees of
$1.16  million and an allowance for loan losses of $3.85  million.  From time to
time,  the Bank may originate  residential  mortgage loans and then sell them on
the secondary  market,  normally  recognizing  fee income in connection with the
sale. During the three-month  period ended March 31, 2007, the Bank did not sell
any loans.

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

                                                   MARCH 31,        DECEMBER 31,
                                                      2007              2006
                                                   ---------        ------------
                                                     AMOUNT            AMOUNT
                                                   ---------          ---------
                                                          (in thousands)

Commercial and professional loans                  $  64,377          $  63,331
Secured by real estate
  1-4 family                                         138,162            139,611
  Multi family                                         3,883              4,013
  Non-residential (commercial)                       168,031            160,417
Consumer                                               4,860              4,763
                                                   ---------          ---------
Total loans                                          379,313            372,135
Less:
 Deferred loan fees                                   (1,162)            (1,212)
 Allowance for loan losses                            (3,848)            (3,771)
                                                   ---------          ---------
Loans, net                                         $ 374,303          $ 367,152
                                                   =========          =========


        It is the Bank's policy to discontinue  accruing interest on a loan when
it is 90  days  past  due or if  management  believes  that  continued  interest
accruals are unjustified.  The Bank may continue  interest accruals if a loan is
more  than 90 days  past  due if the Bank  determines  that  the  nature  of the
delinquency  and the  collateral  are such that  collection of the principal and
interest on the loan in full is reasonably assured. When the accrual of interest
is  discontinued,  all accrued but unpaid  interest is charged  against  current
period income.  Once the accrual of interest is  discontinued,  the Bank records
interest as and when received until the loan is restored to accruing status.  If
the Bank determines that collection of the loan in full is in reasonable  doubt,
then amounts received are recorded as a reduction of principal until the loan is
returned to  accruing  status.  At March 31, 2007 and 2006,  we did not have any
loans past due more than 90 days and still accruing interest.

                                       29
<PAGE>


CAPITAL ADEQUACY

        Quantitative  measures  established  by  regulation  to  ensure  capital
adequacy require the Company and the Bank to maintain minimum amounts and ratios
of total and Tier I capital (as  defined in the  regulations)  to  risk-weighted
assets (as  defined),  and Tier I capital  (as  defined)  to average  assets (as
defined).  As of March 31,  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 March 31, 2007 and
December 31, 2006 (dollars in thousands):

                                                                  TO BE WELL
                                                               CAPITALIZED UNDER
                                              FOR CAPITAL      PROMPT CORRECTIVE
                              ACTUAL       ADEQUACY PURPOSES   ACTION PROVISIONS
                          --------------   -----------------   -----------------
                          AMOUNT   RATIO     AMOUNT   RATIO     AMOUNT   RATIO
                          ------   -----     ------   -----     ------   -----

MARCH 31, 2007
Total Capital
(to Risk-Weighted Assets)
  Company                 130,852   22.9%    45,691   >8.0%         --      N/A
                                                      -
  Bank                    100,122   18.2%    44,029   >8.0%     55,036   >10.0%
                                                      -                  -
Tier I Capital
(to Risk-Weighted Assets)
  Company                 127,004   22.4%    22,845   >4.0%         --      N/A
                                                      -
  Bank                     96,274   17.5%    22,014   >4.0%     33,021    >6.0%
                                                      -                   -
Tier I Capital
(to Average Assets)
  Company                 127,004   12.9%    39,366   >4.0%         --      N/A
                                                      -
  Bank                     96,274   10.3%    37,532   >4.0%     46,915    >5.0%
                                                      -                   -


                                                                  TO BE WELL
                                                               CAPITALIZED UNDER
                                              FOR CAPITAL      PROMPT CORRECTIVE
                              ACTUAL       ADEQUACY PURPOSES   ACTION PROVISIONS
                          --------------   -----------------   -----------------
                          AMOUNT   RATIO     AMOUNT   RATIO     AMOUNT   RATIO
                          ------   -----     ------   -----     ------   -----

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%
                                                      -                   -

                                       30
<PAGE>


LIQUIDITY

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

        For the Company, liquidity means having cash available to fund operating
expenses and to pay stockholder dividends, when and if declared by the Company's
Board of Directors and to pay the interest on the Debentures  issued in May 2004
and April  2005.  The  ability of the  Company  to meet all of its  obligations,
including  the  payment  of  dividends,  is not  dependent  upon the  receipt of
dividends from the Bank. At March 31, 2007, the Company, excluding the Bank, had
cash and cash equivalents of $14.41 million and investment  securities available
for sale of $11.79 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  $45.45 million at March 31, 2007,
include commitments to extend credit and stand-by letters of credit.

        At  March  31,  2007,  the  Company  had   outstanding   commitments  of
approximately  $473.85  million;  including  $426.29  million of time  deposits,
$43.89  million of Federal Home Loan Bank debt,  and $3.67  million of operating
leases.  These  commitments  include $433.72 million that mature or renew within
one year,  $26.68  million  that mature or renew after one year and within three
years,  $13.03  million  that  mature or renew after three years and within five
years and $418,000 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.

                                       31
<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 March 31, 2007,  no changes in Internal  Control have
occurred that have  materially  affected or are reasonably  likely to materially
affect Internal Control.

PART II.  OTHER INFORMATION

ITEM 6.  EXHIBITS

        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.

                                       32
<PAGE>


                                   SIGNATURES



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


                                            BERKSHIRE BANCORP INC.
                                                  (REGISTRANT)



Date:    May 4, 2007                By:     /s/ Steven Rosenberg
       ------------------                   -----------------------
                                            STEVEN ROSENBERG
                                            PRESIDENT AND CHIEF
                                            FINANCIAL OFFICER

                                       33
<PAGE>


                                         EXHIBIT INDEX

Exhibit                                                          Sequential
Number         Description                                       Page Number
-------        -----------                                       -----------

31             Certification of Principal Executive                 35
               and Financial Officer pursuant to
               Section 302 Of The Sarbanes-Oxley Act
               of 2002.

32             Certification of Principal Executive                 36
               and Financial Officer pursuant to
               Section 906 Of The Sarbanes-Oxley Act
               of 2002.

                                       34