<PAGE>

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

                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2004

                                       or

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

For the transition period from ________________ to ________________

Commission file number: 0-13649

                             BERKSHIRE BANCORP INC.
             (Exact name of registrant as specified in its charter)

                Delaware                                          94-2563513
     (State or other jurisdiction of                           (I.R.S. Employer
     incorporation or organization)                          Identification No.)

    160 Broadway, New York, New York                                10038
(Address of principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code: (212) 791-5362

                                       N/A
              (Former name, former address and former fiscal year,
                          if changed since last report)

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

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

As of August 10, 2004, there were 6,681,743 outstanding shares of the issuers
Common Stock, $.10 par value.




<PAGE>

                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES

                           FORWARD-LOOKING STATEMENTS

     Statements in this Quarterly Report on Form 10-Q that are not based on
historical fact may be "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Words such as "believe",
"may", "will", "expect", "estimate", "anticipate", "continue" or similar terms
identify forward-looking statements. A wide variety of factors could cause the
Company's actual results and experiences to differ materially from the results
expressed or implied by the Company's forward-looking statements. Some of the
risks and uncertainties that may affect operations, performance, results of the
Company's business, the interest rate sensitivity of its assets and liabilities,
and the adequacy of its loan loss allowance, include, but are not limited to:
(i) deterioration in local, regional, national or global economic conditions
which could result, among other things, in an increase in loan delinquencies, a
decrease in property values, or a change in the housing turnover rate; (ii)
changes in market interest rates or changes in the speed at which market
interest rates change; (iii) changes in laws and regulations affecting the
financial services industry; (iv) changes in competition; (v) changes in
consumer preferences, (vi) changes in banking technology; (vii) ability to
maintain key members of management, (viii) possible disruptions in the Company's
operations at its banking facilities, and other factors referred to in the
sections of this Quarterly Report entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

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

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


                                       2




<PAGE>

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

                                      INDEX

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

Item 1.   Financial Statements

          Consolidated Balance Sheets as of June 30, 2004 (unaudited)
          and December 31, 2003                                             4

          Consolidated Statements of Income For The Three and
          Six Months Ended June 30, 2004 and 2003 (unaudited)               5

          Consolidated Statement of Stockholders' Equity For The
          Six Months Ended June 30, 2004 (unaudited)                        6

          Consolidated Statements of Cash Flows For The
          Six Months Ended June 30, 2004 (unaudited)                        7

          Notes to Consolidated Financial Statements                        9

Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                        18

Item 3.   Quantitative and Qualitative Disclosure About Market Risk        24

Item 4.   Controls and Procedures                                          31

     PART II OTHER INFORMATION

Item 4.   Submission of Matters to a Vote of Security Holders              31

Item 6.   Exhibits and Reports on Form 8-K                                 32

Signature                                                                  33

Index of Exhibits                                                          34
</TABLE>


                                       3




<PAGE>

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

<TABLE>
<CAPTION>
                                                 June 30,   December 31,
                                                   2004         2003
                                                 --------   ------------
<S>                                              <C>          <C>
ASSETS
Cash and due from banks                          $ 10,078     $  7,478
Interest bearing deposits                             273        1,832
Federal funds sold                                 10,000           --
                                                 --------     --------
Total cash and cash equivalents                    20,351        9,310
Investment Securities:
   Available-for-sale                             617,844      569,137
   Held-to-maturity                                   661          711
                                                 --------     --------
Total investment securities                       618,505      569,848
Loans, net of unearned income                     293,282      294,756
   Less: allowance for loan losses                 (2,709)      (2,593)
                                                 --------     --------
Net loans                                         290,573      292,163
Accrued interest receivable                         6,125        5,298
Premises and equipment, net                         8,572        8,665
Other assets                                        7,714        1,836
Goodwill, net                                      18,549       18,549
                                                 --------     --------
Total assets                                     $970,389     $905,669
                                                 ========     ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
   Non-interest bearing                          $ 38,451     $ 38,422
   Interest bearing                               579,291      565,833
                                                 --------     --------
Total deposits                                    617,742      604,255
Securities sold under agreements to repurchase    144,221      114,391
Long term borrowings                               86,245       77,745
Subordinated debt                                  15,464           --
Accrued interest payable                            2,516        2,208
Other liabilities                                   3,488        3,580
                                                 --------     --------
Total liabilities                                 869,676      802,179
                                                 --------     --------
Stockholders' equity
   Preferred stock - $.10 Par value:
      2,000,000 shares authorized - none issued        --           --
   Common stock - $.10 par value
      Authorized -- 10,000,000 shares
      Issued -- 7,698,285 shares
      Outstanding --
         June 30, 2004, 6,652,455 shares
         December 31, 2003, 6,614,094 shares          770          256
Additional paid-in capital                         89,640       89,866
Retained earnings                                  25,316       22,960
Accumulated other comprehensive
   income (loss), net                              (4,987)         775
   Common stock in treasury - at cost:
   June 30, 2004, 1,045,830 shares
   December 31, 2003, 1,084,191 shares            (10,026)     (10,367)
                                                 --------     --------
Total stockholders' equity                        100,713      103,490
                                                 --------     --------
                                                 $970,389     $905,669
                                                 ========     ========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       4




<PAGE>

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

<TABLE>
<CAPTION>
                                          For The             For The
                                    Three Months Ended    Six Months Ended
                                         June 30,             June 30,
                                    ------------------   -----------------
                                       2004     2003       2004      2003
                                      ------   ------    -------   -------
<S>                                   <C>      <C>       <C>       <C>
INTEREST INCOME
Loans                                 $4,596   $4,707    $ 9,445   $ 9,464
Investment securities                  5,021    3,758      9,807     7,368
Federal funds sold and
   interest bearing deposits               9       15         12        26
                                      ------   ------    -------   -------
Total interest income                  9,626    8,480     19,264    16,858
                                      ------   ------    -------   -------
INTEREST EXPENSE
Deposits                               2,391    2,613      4,846     5,195
Short-term borrowings                    582      127      1,079       276
Long-term borrowings                     823      655      1,591     1,312
                                      ------   ------    -------   -------
Total interest expense                 3,796    3,395      7,516     6,783
                                      ------   ------    -------   -------
Net interest income                    5,830    5,085     11,748    10,075
PROVISION FOR LOAN LOSSES                 45       45         90       150
                                      ------   ------    -------   -------
Net interest income after
   provision for loan losses           5,785    5,040     11,658     9,925
                                      ------   ------    -------   -------
NON-INTEREST INCOME
Service charges on deposits              114      137        241       355
Investment securities gains               49    1,491        142     2,119
Other income                              88      168        286       314
                                      ------   ------    -------   -------
Total non-interest income                251    1,796        669     2,788
                                      ------   ------    -------   -------
NON-INTEREST EXPENSE
Salaries and employee benefits         1,528    1,395      3,195     2,726
Net occupancy expense                    402      425        676       830
Equipment expense                         82      102        168       211
FDIC assessment                           24       19         46        38
Data processing expense                   46       54         78       113
Other                                  1,090      732      1,971     1,521
                                      ------   ------    -------   -------
Total non-interest expense             3,172    2,727      6,134     5,439
                                      ------   ------    -------   -------
Income before provision for taxes      2,864    4,109      6,193     7,274
Provision for income taxes             1,383    1,801      2,761     3,224
                                      ------   ------    -------   -------
Net income                            $1,481   $2,308    $ 3,432   $ 4,050
                                      ======   ======    =======   =======
Net income per share:
   Basic                              $  .22   $  .35    $   .52   $   .61
                                      ======   ======    =======   =======
   Diluted                            $  .22   $  .34    $   .50   $   .60
                                      ======   ======    =======   =======
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       5




<PAGE>

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

                     For The Six Months Ended June 30, 2004
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                               Accumulated
                                           Stock  Additional      other                                             Total
                                   Common   Par     paid-in   comprehensive  Retained  Treasury  Comprehensive  stockholders'
                                   Shares  value    capital    income, net   earnings    stock        loss         equity
                                   ------  -----  ----------  -------------  --------  --------  -------------  -------------
<S>                                <C>     <C>      <C>          <C>          <C>      <C>          <C>            <C>
Balance at December 31, 2003        2,566  $ 256    $89,866      $   775      $22,960  $(10,367)                   $103,490

Net income                                                                      3,432                 3,432           3,432
Exercise of stock options                                 7                                 410                         417
Acquisition of treasury shares                                                              (69)                        (69)
Effect of reverse one-for-ten
   stock split                     (2,309)  (230)      (233)                                                           (463)
Effect of thirty-for-one
   stock dividend                   7,441    744                                 (744)
Other comprehensive income net
   of reclassification adjustment
   and taxes                                                      (5,762)                            (5,762)         (5,762)
                                                                                                    -------
Comprehensive loss                                                                                  $(2,330)
                                                                                                    =======
Cash dividends                                                                   (332)                                 (332)

                                   ------  -----    -------      -------      -------  --------                    --------
Balance at June 30, 2004
   (Unaudited)                      7,698  $ 770    $89,640      $(4,987)     $25,316  $(10,026)                   $100,713
                                           =====    =======      =======      =======  ========                    ========
</TABLE>

         The accompanying notes are an integral part of this statement.


                                        6




<PAGE>

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

<TABLE>
<CAPTION>
                                                        For The Six Months Ended
                                                                June 30,
                                                        ------------------------
                                                           2004         2003
                                                        ---------   -----------
<S>                                                     <C>         <C>
   Cash flows from operating activities:
Net income                                              $   3,432   $     3,689
Adjustments to reconcile net income to net
   cash (used in) provided by operating activities:
Realized gain on investment securities                       (142)       (2,119)
Net amortization of premiums of investment securities       1,698           633
Depreciation and amortization                                 286           325
Provision for loan losses                                      90           150

(Increase) in accrued interest receivable                    (827)         (548)
(Increase) decrease in other assets                        (5,878)          149
Increase (decrease) in accrued interest payable
   and other liabilities                                      216          (498)
                                                        ---------   -----------
Net cash provided by (used in) operating activities        (1,125)        1,781
                                                        ---------   -----------

   Cash flows from investing activities:
Investment securities available for sale
   Purchases                                             (655,272)   (1,208,382)
   Sales, maturities and calls                            599,255     1,117,982
Investment securities held to maturity
   Maturities                                                  42            67
Net decrease in loans                                       1,500         4,135
Purchase of premises and equipment                           (193)         (238)
                                                        ---------   -----------
Net cash (used in) investing activities                   (54,668)      (86,436)
                                                        ---------   -----------
</TABLE>


                                        7




<PAGE>

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

<TABLE>
<CAPTION>
                                                        For The Six Months Ended
                                                                June 30,
                                                        ------------------------
                                                              2004      2003
                                                            -------   -------
<S>                                                         <C>       <C>
   Cash flows from financing activities:
Net increase in non interest bearing deposits                    29     1,378
Net increase in interest bearing deposits                    13,458    78,246
Increase in securities sold under
   agreements to repurchase                                  29,830     8,621
Proceeds from long term debt                                 17,673     5,000
Repayment of long term debt                                  (8,500)   (4,794)
Proceeds from issuance of subordinated debentures            14,791        --
Acquisition of treasury stock                                   (69)     (978)
Proceeds from exercise of common stock options                  417        13
Cash paid for fractional shares                                (463)       --
Dividends paid                                                 (332)     (265)
                                                            -------   -------
Net cash provided by financing activities                    66,834    87,221
                                                            -------   -------

   Net increase in cash                                      11,041     2,566
   Cash - beginning of period                                 9,310     6,310
                                                            -------   -------
   Cash - end of period                                     $20,351   $ 8,876
                                                            =======   =======

Supplemental disclosure of cash flow information:
   Cash used to pay interest                                $ 7,208   $ 6,980
   Cash used to pay taxes, net of refunds                   $ 7,397   $ 2,512
</TABLE>

        The accompanying notes are an integral part of these statements.


                                        8




<PAGE>

                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                             June 30, 2004 and 2003

NOTE 1. General

     Berkshire Bancorp Inc. ("Berkshire" or the "Company" or "we" and similar
pronouns), a Delaware corporation, is a bank holding company registered under
the Bank Holding Company Act of 1956. 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 and Greater American
Finance Group, Inc.

     During interim periods, the Company follows the accounting policies set
forth in its Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Readers are encouraged to refer to the Company's Form 10-K for the
fiscal year ended December 31, 2003 when reviewing this Form 10-Q. Quarterly
results reported herein are not necessarily indicative of results to be expected
for other quarters.

     In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) considered necessary to present fairly the Company's consolidated
financial position as of June 30, 2004 and December 31, 2003 and the
consolidated results of our operations for the three and six month periods ended
June 30, 2004 and 2003, and our consolidated stockholders' equity for the six
month period ended June 30, 2004, and our consolidated cash flows for the six
month periods ended June 30, 2004 and 2003. As discussed in Note 2 below, all
weighted average share and per share information in 2003 has been retroactively
restated.

NOTE 2. Stock Split and Stock Dividend

     At the Annual Meeting of Stockholders held on May 18, 2004, the Company's
stockholders approved an amendment to the Company's Certificate of Incorporation
effecting a one-for-ten reverse stock split of the Company's issued and
outstanding Common Stock (the "Reverse Split"). Following the effectiveness of
the Reverse Split, the Company's Board of Directors declared a thirty-for-one
forward stock split in the form of a 3,000% stock dividend in Common Stock (the
"Stock Dividend) which became effective immediately. The Company paid out
approximately $463,000 to purchase fractional shares from stockholders as part
of the Reverse Split. The Company's Common Stock began trading on May 19, 2004
giving effect to these transactions.

NOTE 3. Trust Preferred Securities

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


                                       9




<PAGE>

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

NOTE 3. - (continued)

     Based on current interpretations of the banking regulators, 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 under the preferred capital
securities sold by BCTI to investors.

     Management has determined that BCTI qualifies as a variable interest entity
under FASB Interpretation 46 (FIN 46) Consolidation of Variable Interest
Entities, as revised. BCTI issued mandatorily redeemable preferred stock to
investors and loaned the proceeds to the Company. Had the transaction occurred
in 2003, BCTI would have been included in the Company's consolidated balance
sheet and statements of income as of and for the fiscal year ended December 31,
2003. Subsequent to the issuance of FIN 46 in January 2003, the FASB issued a
revised interpretation, FIN 46(R) Consolidation of Variable Interest Entities,
the provisions of which were to be applied to certain variable interest entities
by March 31, 2004.

     The Company adopted the provisions under the revised interpretation in the
first quarter of 2004. Accordingly, the Company does not consolidate BCTI as of
June 30, 2004. FIN 46(R) precludes consideration of the call option embedded in
the preferred stock when determining if the Company has the right to a majority
of BCTI's expected residual returns. The deconsolidiation resulted in the
Company's investment in the common stock of BCTI to be included in other assets
as of June 30, 2004 and the corresponding increase in outstanding debt of $15.46
million. In addition, the income received on the Company's common stock
investment in BCTI is included in other income. The adoption of FIN 46(R)) did
not have a material impact on the financial position or results of operations of
the Company. The Federal Reserve has issued proposed guidance on the regulatory
capital treatment for the trust-preferred securities issued by BCTI as a result
of the adoption of FIN 46(R). The proposed 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, 2007; however, a three
year transition period starting now 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 the
proposed rule and does not anticipate a material impact on its capital ratios
when the proposed rule is finalized.


                                       10




<PAGE>

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

NOTE 4. Earnings Per Share

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

<TABLE>
<CAPTION>
                                                          For The Three Months Ended
                                 ---------------------------------------------------------------------------
                                             June 30, 2004                          June 30, 2003
                                 ------------------------------------   ------------------------------------
                                                                 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           $1,481         6,631        $.22       $2,308         6,624        $.35
Effect of dilutive securities
   Options                              --           201          --           --            84        (.01)
                                    ------         -----        ----       ------         -----        ----
Diluted earnings per share
   Net income available to
      common stockholders plus
      assumed conversions           $1,481         6,832        $.22       $2,308         6,708        $.34
                                    ======         =====        ====       ======         =====        ====
</TABLE>

Options to purchase 121,125 shares of common stock for $12.67 per share were
outstanding during the three month period ended June 30, 2003. These options
were not included in the computation of diluted earnings per share because the
option exercise price was greater than the average market price for the
Company's common stock during this period.

<TABLE>
<CAPTION>
                                                           For The Six Months Ended
                                 ---------------------------------------------------------------------------
                                             June 30, 2004                          June 30, 2003
                                 ------------------------------------   ------------------------------------
                                                                 Per                                    Per
                                    Income         Shares       share      Income        Shares        share
                                 (numerator)   (denominator)   amount   (numerator)   (denominator)   amount
                                 -----------   -------------   ------   -----------   -------------   ------
                                                       (In thousands, except per share data)
<S>                                 <C>            <C>          <C>        <C>            <C>          <C>
Basic earnings per share
   Net income available to
      common stockholders           $3,432         6,627        $.52       $4,050         6,645        $.61
Effect of dilutive securities
   Options                              --           210        (.02)          --            72        (.01)
                                    ------         -----        ----       ------         -----        ----
Diluted earnings per share
   Net income available to
      common stockholders plus
      assumed conversions           $3,432         6,837        $.50       $4,050         6,717        $.60
                                    ======         =====        ====       ======         =====        ====
</TABLE>

     Options to purchase 121,125 shares of common stock for $12.67 per share
were outstanding during the six month periods ended June 30, 2003. These options
were not included in the computation of diluted earnings per share because the
option exercise price was greater than the average market price for the
Company's common stock during this period.


                                       11




<PAGE>

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

NOTE 5. Investment Securities

     The following tables summarize held to maturity and available-for-sale
investment securities as of June 30, 2004 and December 31, 2003:

<TABLE>
<CAPTION>
                                          June 30, 2004
                           -------------------------------------------
                                          Gross        Gross
                           Amortized   unrealized   unrealized    Fair
                              Cost        gains       losses     value
                           ---------   ----------   ----------   -----
                                          (In thousands)
<S>                           <C>          <C>         <C>        <C>
Held To Maturity
Investment Securities
U.S. Government Agencies      $661         $13         $(1)       $673
                              ----         ---         ---        ----
   Totals                     $661         $13         $(1)       $673
                              ====         ===         ===        ====
</TABLE>

<TABLE>
<CAPTION>
                                        December 31, 2003
                           -------------------------------------------
                                          Gross        Gross
                           Amortized   unrealized   unrealized    Fair
                              Cost        gains       losses     value
                           ---------   ----------   ----------   -----
                                          (In thousands)
<S>                           <C>          <C>          <C>       <C>
Held To Maturity
Investment Securities
U.S. Government Agencies      $711         $4           $--       $715
                              ----         --           ---       ----
   Totals                     $711         $4           $--       $715
                              ====         ==           ===       ====
</TABLE>

<TABLE>
<CAPTION>
                                              June 30, 2004
                             ----------------------------------------------
                                            Gross        Gross
                             Amortized   unrealized   unrealized     Fair
                                Cost        gains       losses       value
                             ---------   ----------   ----------   --------
                                             (In thousands)
<S>                           <C>          <C>         <C>         <C>
Available-For-Sale
Investment Securities
U.S. Treasury and Notes       $ 34,820     $   --      $  (242)    $ 34,578
U.S. Government Agencies       465,480         42       (8,856)     456,666
Mortgage-backed securities     109,756        743         (480)     110,019
Corporate notes                  5,756        544         (123)       6,177
Municipal Securities             1,596        162           --        1,758
Marketable equity
   securities and other          8,590        159         (103)       8,646
                              --------     ------      -------     --------
   Totals                     $625,998     $1,650      $(9,804)    $617,844
                              ========     ======      =======     ========
</TABLE>


                                       12




<PAGE>

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

NOTE 5. - (continued)

<TABLE>
<CAPTION>
                                              December 31, 2003
                                ----------------------------------------------
                                               Gross        Gross
                                Amortized   unrealized   unrealized     Fair
                                   Cost        gains       losses       value
                                ---------   ----------   ----------   --------
                                                (In thousands)
<S>                              <C>          <C>         <C>         <C>
Available-For-Sale Investment
securities
U.S. Treasury and Notes          $ 39,941     $   --      $   (94)    $ 39,847
U.S. Government Agencies          419,175        637       (3,059)     416,753
Mortgage-backed securities         93,875      3,838         (265)      97,448
Corporate Notes                     1,570        214         (122)       1,662
Municipal securities                  991         70           --        1,061
Marketable equity
 securities and other              12,305        177         (116)      12,366
                                 --------     ------      -------     --------
 Totals                          $567,857     $4,936      $(3,656)    $569,137
                                 ========     ======      =======     ========
</TABLE>

NOTE 6. Loan Portfolio

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

<TABLE>
<CAPTION>
                                       June 30, 2004    December 31, 2003
                                     ----------------   -----------------
                                                 % of               % of
                                      Amount    Total    Amount     Total
                                     --------   -----   --------   ------
                                            (Dollars in thousands)
<S>                                  <C>        <C>     <C>        <C>
Commercial and professional loans    $ 17,320     5.9%  $ 22,228     7.5%
Secured by real estate
  1-4 family                          162,166    55.1    169,589    57.4
  Multi family                          9,714     3.3      6,608     2.2
  Non-residential (commercial)         99,402    33.8     94,956    32.1
Consumer                                5,484     1.9      2,239     0.8
                                     --------   -----   --------   -----
Total loans                           294,086   100.0%   295,620   100.0%
                                                =====              =====
Deferred loan fees                       (804)              (864)
Allowance for loan losses              (2,709)            (2,593)
                                     --------           --------
Loans, net                           $290,573           $292,163
                                     ========           ========
</TABLE>


                                       13




<PAGE>

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

NOTE 7. Deposits

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

<TABLE>
<CAPTION>
                          June 30, 2004      December 31, 2003
                       ------------------   ------------------
                        Average   Average    Average   Average
                        Amount     Yield     Amount     Yield
                       --------   -------   --------   -------
                                (Dollars in thousands)
<S>                    <C>         <C>      <C>         <C>
Demand deposits        $ 37,302      --     $ 32,592      --
NOW and money market     48,339    0.74%      58,723    1.02%
Savings deposits        213,066    1.49      143,094    1.95
Time deposits           320,533    1.93      333,112    2.26
                       --------    ----     --------    ----
Total deposits         $619,239    1.56%    $567,521    1.78%
                       ========    ====     ========    ====
</TABLE>

NOTE 8. Comprehensive Income

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

<TABLE>
<CAPTION>
                                                        For The Six Months Ended
                               --------------------------------------------------------------------------
                                          June 30, 2004                          June 30, 2003
                               -----------------------------------   ------------------------------------
                                               Tax                                    Tax
                               Before tax   (expense)   Net of tax    Before tax   (expense)   Net of tax
                                 amount      benefit      Amount        amount      benefit      amount
                               ----------   ---------   ----------   -----------   ----------------------
                                                              (In thousands)
<S>                             <C>          <C>         <C>            <C>          <C>         <C>
Unrealized gains (losses) on
   investment securities:
Unrealized holding gains
   (losses) arising during
   period                       $(9,745)     $3,898      $(5,847)       $2,420       $(968)      $1,452
Less reclassification
   adjustment for gains
   realized in net income           142         (57)          85         1,486        (594)         892
                                -------      ------      -------        ------       -----       ------
Other comprehensive
   income, net                  $(9,603)     $3,841      $(5,762)       $  934       $(374)      $  560
                                =======      ======      =======        ======       =====       ======
</TABLE>


                                       14




<PAGE>

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

NOTE 9. Accounting For Stock Based Compensation

     SFAS No. 148 "Accounting for Stock Based Compensation-Transition and
Disclosure", which amends the disclosure and certain provisions of SFAS No. 123,
was issued in December 2002. SFAS No. 148 requires all entities with stock based
employee compensation arrangements to provide additional disclosures in their
summary of significant accounting policies note. The Company has one stock-based
employee compensation plan. The Company accounts for that plan under the
recognition and measurement principles of APB No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Stock-based employee
compensation costs are not reflected in net income, as all options granted under
the plan had an exercise price equal to the market value of the underlying
common stock on the date of the grant. The following table illustrates the
effect on net income and earnings per share if the Company had applied the fair
value recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation.

<TABLE>
<CAPTION>
                                                                   For The
                                                              Three Months Ended
                                                                   June 30,
                                                            ---------------------
                                                                2004     2003
                                                               ------   ------
                                                            (In thousands, except
                                                              per share amounts)
<S>                                          <C>               <C>      <C>
Net income                                   As Reported:      $1,481   $2,308

Less: Stock based compensation costs
   determined under fair value methods for
   all awards                                                      --       --
                                                               ------   ------
                                             Pro Forma:        $1,481   $2,308
                                                               ======   ======

Basic earnings per share                     As Reported:      $  .22   $  .35
                                             Pro Forma:           .22      .35

Diluted earnings per share                   As Reported:      $  .22   $  .34
                                             Pro Forma:           .22      .34
</TABLE>

<TABLE>
<CAPTION>
                                                                   For The
                                                               Six Months Ended
                                                                   June 30,
                                                            ---------------------
                                                                2004     2003
                                                               ------   ------
                                                            (In thousands, except
                                                              per share amounts)
<S>                                          <C>               <C>      <C>
Net income                                   As Reported:      $3,432   $4,050

Less: Stock based compensation costs
   determined under fair value methods for
   all awards                                                      --       --
                                                               ------   ------
                                             Pro Forma:        $3,432   $4,050
                                                               ======   ======

Basic earnings per share                     As Reported:      $  .52   $  .61
                                             Pro Forma:           .50      .61

Diluted earnings per share                   As Reported:      $  .52   $  .60
                                             Pro Forma:           .50      .60
</TABLE>


                                       15




<PAGE>

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

NOTE 9. - (continued)

     The Company did not grant options during the three and six months ended
June 30, 2004 and 2003.

     On March 31, 2004, the Financial Accounting Standards Board (FASB) issued a
proposed Statement, Share-Based Payment an Amendment of FASB Statements No. 123
and APB No. 95, that addresses the accounting for share-based payment
transactions in which an enterprise receives employee services in exchange for
(a) equity instruments of the enterprise or (b) liabilities that are based on
the fair value of the enterprise's equity instruments or that may be settled by
the issuance of such equity instruments. Under the FASB's proposal, all forms of
share-based payments to employees, including employee stock options, would be
treated the same as other forms of compensation by recognizing the related cost
in the income statement. The expense of the award would generally be measured at
fair value at the grant date. Current accounting guidance requires that the
expense relating to so-called fixed plan employee stock options only be
disclosed in the footnotes to the financial statements. The proposed Statement
would eliminate the ability to account for share-based compensation transactions
using APB Opinion No. 25, Accounting for Stock Issued to Employees. The Company
is currently evaluating this proposed statement and its effects on its results
of operations.

NOTE 10. Employee Benefit Plans

     The Company has a Retirement Income Plan (the "Plan"), a noncontributory
plan covering substantially all full-time, non-union United States employees of
the Company. The following interim-period information is being provided in
accordance with FASB Statement 132(R). (The dollar amounts in the following
table are not in thousands.)

<TABLE>
<CAPTION>
                                       For The              For The
                                 Three Months Ended    Six Months Ended
                                      June 30,             June 30,
                                 ------------------   ------------------
                                   2004      2003       2004      2003
                                 --------  --------   --------  --------
<S>                              <C>       <C>        <C>       <C>
Service cost                     $ 62,640  $ 48,791   $118,640  $ 97,852
Interest cost                      30,750    26,803     59,500    53,606
Expected return on plan assets    (37,550)  (30,871)   (75,050)  (61,742)
Amortization and Deferral:
   Transition amount                   --        --         --        --
   Prior service cost               4,625     4,593      9,125     9,186
   (Gain)/loss                      5,350     6,210      8,350    12,420
Net periodic pension cost          65,815    55,526    120,565   111,052
</TABLE>

     During the fiscal year ending December 31, 2004, we expect to contribute
approximately $110,000 to the Plan. We are, however, evaluating the impact of
the Pension Funding Equity Act enacted in April 2004 on our projected funding.
We did not make any contributions, required or otherwise, to the Plan in the
three and six months ended June 30, 2004.


                                       16




<PAGE>

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

NOTE 11. New Accounting Pronouncements

Loan Commitments Accounted for as Derivative Instruments

     The Securities and Exchange Commission staff recently released Staff
Accounting Bulletin (SAB) 105, "Loan Commitments Accounted for as Derivative
Instruments." SAB 105 provides guidance about the measurement of loan
commitments recognized at fair value under FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities. SAB 105 also requires
companies to disclose their accounting policy for those loan commitments
including methods and assumptions used to estimate fair value and associated
hedging strategies. SAB 105 is effective for all loan commitments accounted for
as derivatives that are entered into after March 31, 2004. The adoption of SAB
105 is not expected to have a material effect on our consolidated financial
statements.

Other-Than-Temporary Impairment

     In November 2003, the Emerging Issues Task Force (EITF) of the FASB issued
EITF Abstract 03-1, The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments (EITF 03-1). The quantitative and qualitative
disclosure provisions of EITF 03-1 were effective for years ending after
December 15, 2003 and were included in the Company's 2003 Form 10-K. In March
2004, the EITF issued a Consensus on Issue 03-1 requiring that the provisions of
EITF 03-1 be applied for reporting periods beginning after June 15, 2004 to
investments accounted for under SFAS No. 115 and 124. EITF 03-1 establishes a
three-step approach for determining whether an investment is considered
impaired, whether that impairment is other-than-temporary, and the measurement
of an impairment loss. The Company is in the process of determining the impact
that this EITF will have on its financial statements.


                                       17




<PAGE>

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

     The following discussion and analysis is intended to provide a better
understanding of the consolidated financial condition and results of operations
of Berkshire Bancorp Inc., a Delaware corporation. References herein to
"Berkshire", the "Company" or "we" and similar pronouns, shall be deemed to
refer to the Company and its consolidated subsidiaries unless the context
otherwise requires. References to per share amounts refer to diluted shares.
References to per share amounts for the three and six months ended June 30, 2003
have been revised to reflect the one-for-ten reverse stock split and
thirty-for-one forward stock split in the form of a 3000% stock dividend which
occurred on May 18, 2004 (see Note 2). References to Notes herein are references
to the "Notes to Consolidated Financial Statements" of the Company located in
Item 1 herein.

Critical Accounting Policies, Judgments and Estimates

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

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

     With the adoption of SFAS No. 142 on January 1, 2002, the Company
discontinued the amortization of goodwill resulting from acquisitions. Goodwill
is now subject to impairment testing at least annually to determine whether
write-downs of the recorded balances are necessary. The Company tests for
impairment based on the goodwill maintained at each defined reporting unit. A
fair value is determined for each reporting unit based on at least one of three
various market valuation methodologies. If the fair values of the reporting
units exceed their book values, no write-down of recorded goodwill is necessary.
If the fair value of the reporting unit is less, an expense may be required on
the Company's books to write down the related goodwill to the proper carrying
value. As of December 31, 2003, the Company completed its transitional testing,
which determined that no impairment write-offs were necessary.

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


                                       18




<PAGE>

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

<TABLE>
<CAPTION>
                                                      For The Three Months Ended June 30,
                                     ---------------------------------------------------------------------
                                                    2004                                2003
                                     ---------------------------------   ---------------------------------
                                                 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)                            $293,528     $4,596       6.26%     $275,235     $4,707       6.84%
Investment securities                 625,862      5,021       3.21       422,479      3,758       3.56
Other (2)(5)                            3,151          9       1.14         4,670         15       1.28
                                     --------     ------       ----      --------     ------       ----
Total interest-earning assets         922,541      9,626       4.17       702,384      8,480       4.83
                                                               ----                                ----
Noninterest-earning assets             37,352                              37,508
                                     --------                            --------
Total Assets                          959,893                             739,892
                                     ========                            ========
INTEREST-BEARING LIABILITIES:
Interest bearing deposits             263,615        852       1.29%      180,669        636       1.41%
Time deposits                         320,985      1,539       1.92       321,928      1,977       2.46
Other borrowings                      225,964      1,405       2.49        99,295        782       3.15
                                     --------     ------       ----      --------     ------       ----
Total interest-bearing liabilities    810,654      3,796       1.87       601,892      3,395       2.26
                                                  ------       ----                   ------       ----
Demand deposits                        37,406                              29,826
Noninterest-bearing liabilities         7,078                               7,775
Stockholders' equity (5)              104,755                             100,399
                                     --------                            --------
Total liabilities and
   stockholders' equity               959,893                             739,892
                                     ========                            ========
Net interest income                                5,830                               5,085
                                                  ======                              ======
Interest-rate spread (3)                                       2.30%                               2.57%
                                                               ====                                ====
Net interest margin (4)                                        2.53%                               2.90%
                                                               ====                                ====
Ratio of average interest-earning
   assets to average interest
   bearing liabilities                   1.14                                1.17
                                     ========                            ========
</TABLE>

----------
(1)  Includes nonaccrual loans.

(2)  Includes interest-bearing deposits, federal funds sold and securities
     purchased under agreements to resell.

(3)  Interest-rate spread represents the difference between the average yield on
     interest-earning assets and the average cost of interest bearing
     liabilities.

(4)  Net interest margin is net interest income as a percentage of average
     interest-earning assets.

(5)  Average balances are daily average balances except for the parent company
     which have been calculated on a monthly basis.


                                       19




<PAGE>

<TABLE>
<CAPTION>
                                                       For The Six Months Ended June 30,
                                     ---------------------------------------------------------------------
                                                    2004                                2003
                                     ---------------------------------   ---------------------------------
                                                 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)                            $293,484    $ 9,445       6.44%     $275,090    $ 9,464       6.88%
Investment securities                 607,911      9,807       3.23       406,193      7,368       3.63
Other (2)(5)                            2,621         12       0.92         5,383         26       0.97
                                     --------    -------       ----      --------    -------       ----
Total interest-earning assets         904,016     19,264       4.26       686,666     16,858       4.91
                                                               ----                                ----
Noninterest-earning assets             37,527                              36,897
                                     --------                            --------
Total Assets                          941,543                             723,563
                                     ========                            ========
INTEREST-BEARING LIABILITIES:
Interest bearing deposits             261,404      1,749       1.34%      162,780      1,112       1.37%
Time deposits                         320,533      3,097       1.93       319,698      4,083       2.55
Other borrowings                      210,640      2,670       2.54       102,744      1,588       3.09
                                     --------    -------       ----      --------    -------       ----
Total interest-bearing liabilities    792,577      7,516       1.90       585,222      6,783       2.32
                                                 -------       ----                  -------       ----
Demand deposits                        37,302                              30,016
Noninterest-bearing liabilities         7,215                               8,454
Stockholders' equity (5)              104,449                              99,871
                                     --------                            --------

Total liabilities and
   stockholders' equity               941,543                             723,563
                                     ========                            ========
Net interest income                               11,748                              10,075
                                                 =======                             =======
Interest-rate spread (3)                                       2.36%                               2.59%
                                                               ====                                ====
Net interest margin (4)                                        2.60%                               2.93%
                                                               ====                                ====
Ratio of average interest-earning
   assets to average interest
   bearing liabilities                   1.14                                1.17
                                     ========                            ========
</TABLE>

----------
(1)  Includes nonaccrual loans.

(2)  Includes interest-bearing deposits, federal funds sold and securities
     purchased under agreements to resell.

(3)  Interest-rate spread represents the difference between the average yield on
     interest-earning assets and the average cost of interest bearing
     liabilities.

(4)  Net interest margin is net interest income as a percentage of average
     interest-earning assets.

(5)  Average balances are daily average balances except for the parent company
     which have been calculated on a monthly basis.


                                       20




<PAGE>

Results of Operations

Results of Operations for the Three and Six Months Ended June 30, 2004 Compared
to the Three and Six Months Ended June 30, 2003.

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"). The
Bank is headquartered in Manhattan and has nine branch locations, five branches
in New York City and four branches in New York State's Orange and Sullivan
counties.

Net Income. Net income for the three-month period ended June 30, 2004 was $1.48
million, or $.22 per share, as compared to $2.31 million, or $.34 per share, for
the three-month period ended June 30, 2003. Net income for the six-month period
ended June 30, 2004 was $3.43 million, or $.50 per share, as compared to $4.05
million, or $.60 per share, for the six-month period ended June 30, 2003. The
decline in net income in the three and six months of 2004 compared to the three
and six months of 2003 is primarily due to the atypically large realized gains
we recorded in our investment securities portfolio during the first six months
of 2003.

     Our net income is largely dependent on interest rate levels, the demand for
our loan and deposit products and the strategies we employ to manage the
interest rate risks inherent in the banking business. From June 2003 through
June 2004, interest rates, as measured by the prime rate, remained constant at
4.00%. In July 2004, inflation fighting action taken by the Federal Reserve
Board resulted in an increase in the prime rate to 4.25%, the first such
increase in four years. During the next six months, we believe that the cost of
attracting and retaining deposited funds will be an increasing expense in the
highly competitive banking industry.

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

     For the quarter ended June 30, 2004, net interest income increased by
$745,000, or 14.65%, to $5.83 million from $5.09 million for the quarter ended
June 30, 2003. The quarter over quarter increase in net interest income was the
result of the 31.34% growth in average interest-earning assets to $922.54
million from $702.38 million, the difference between the yield on assets
compared to the cost of liabilities, and the $7.58 million, or 25.41% increase
in non interest-bearing demand deposits to $37.41 million from $29.83 million.
Partially offsetting these factors was the 34.68% increase in average
interest-bearing liabilities to $810.64 million in the 2004 quarter from $601.89
million in the 2003 quarter.

     For the quarter ended June 30, 2004, the average yield on the average
balance of total interest-earning assets continued to trend lower, as it has for
the past several years. The yield eased to 4.17% in the 2004 quarter from 4.83%
in the 2003 quarter, a decline of 66 basis points or 13.66%. Following a similar
trend, the average cost of the average balance of interest-bearing liabilities
fell to 1.87% from 2.26%, a decline of 39 basis points, or 17.26%. The
interest-rate spread, the difference between the average yield on
interest-earning assets and the average cost of interest bearing liabilities,
which has a direct impact on net interest income, eased by 27 basis points to
2.30% from 2.57%.

     For the six-month period ended June 30, 2004, net interest income increased
by $1.67 million, or 16.61%, to $11.75 million from $10.08 million for the
six-month period ended June 30, 2003. The period over period increase in net
interest income was the result of the 31.65% growth in average interest-earning


                                       21




<PAGE>

assets to $904.02 million in the 2004 period from $686.67 million in the 2003
period and the difference between the yield on assets compared to the cost of
liabilities. In the first six months of 2004, the average yield on average
balances of total interest-earning assets declined by 65 basis points, or
13.24%, to 4.26% from 4.91% in the first six months of 2003. The average cost of
the average balance of interest-bearing liabilities declined by 42 basis points,
or 18.10%, to 1.90% in the 2004 period from 2.32% in the 2003 period. The
interest-rate spread eased by 23 basis points to 2.36% from 2.59%. The increase
in net interest income in 2004 compared to 2003 was partially offset by the
35.43% growth in average interest-bearing liabilities to $792.58 million from
$585.22 million.

Net Interest Margin. Net interest margin, or annualized net interest income as a
percentage of average interest-earning assets, declined by 37 basis points to
2.53% in the second quarter of 2004 from 2.90% in the second quarter of 2003,
and declined by 33 basis points to 2.60% in the six-month period of 2004 from
2.93% in the six-month period of 2003. We seek to secure and retain customer
deposits with competitive products and rates, and to make strategic use of the
prevailing interest rate environment to borrow funds at what we believe to be
attractive rates. We invest such deposits and borrowed funds in a prudent mix of
loans and investment securities which provided an average yield of 4.17% and
4.26%, respectively, in the three and six months ended June 30, 2004, compared
to 4.83% and 4.91%, respectively, in the three and six months ended June 30,
2003.

     For the three ended June 30, 2004, total average interest-earnings assets
were $922.54 million compared to $702.38 million for the three months ended June
30, 2003. The average amounts of loans and investment securities increased by
$18.29 million and $203.38 million, respectively, to $293.53 million and $625.86
million, respectively. The average yield on loans and investment securities
declined to 6.26% and 3.21%, respectively, in the 2004 quarter from 6.84% and
3.56%, respectively, in the 2003 quarter.

     For the six months ended June 30, 2004, total average interest-earning
assets were $904.02 million compared to $686.67 million for the six months ended
June 30, 2003. The average amounts of loans and investment securities increased
by $18.39 million and $201.72 million, respectively, to $293.48 million and
$607.91 million, respectively. The average yield on loans and investment
securities declined to 6.44% and 3.23%, respectively, during the first six
months of 2004 from 6.88% and 3.63%, respectively, during the first six months
of 2003.

Interest Income. Total interest income for the quarter ended June 30, 2004
increased by $1.15 million, or 13.51%, to $9.63 million from $8.48 million for
the quarter ended June 30, 2003. The increase was due to higher average balances
of loans and investments securities, offset by the declining yields on such
interest-earning assets. The loan portfolio yielded 6.26% and contributed $4.60
million, or 47.75% of total interest income in the 2004 quarter, compared to a
yield of 6.84% on loans in the year ago quarter and interest income of $4.71
million, or 55.51% of total interest income in the 2003 quarter. Investment
securities yielded 3.21% and contributed $5.02 million, or 52.16% of total
interest income in the 2004 quarter, compared to a yield of 3.56% on investment
securities and interest income of $3.76 million, or 44.32% of total interest
income in the 2003 quarter.

     Total interest income for the six-month period ended June 30, 2004
increased by $2.41 million, or 14.27%, to $19.26 million from $16.86 million for
the six-month period ended June 30, 2003. The increase was due to higher average
balances of loans and investments securities, offset by the declining yields on
such interest-earning assets. The loan portfolio yielded 6.44% and contributed
$9.45 million, or 49.03% of total interest income during the first six months of
2004, compared to a yield of 6.88% on loans in the year ago six months and
interest income of $9.46 million, or 56.14% of total interest income. Investment
securities yielded 3.23% and contributed $9.81 million, or 50.91% of total


                                       22




<PAGE>

interest income during the six-month period ended June 30, 2004, compared to a
yield of 3.63% on investment securities and interest income of $7.37 million, or
43.71% of total interest income during the six-month period ended June 30, 2003.

     Loans, which are inherently risky and therefore command a higher return
than our conservative portfolio of investment securities, have declined as a
percentage of total average interest-earning assets. During the first six months
of 2004, the average balances of the Company's loan portfolio and investment
securities represented 32.46% and 67.24%, respectively, of total average
interest-earning assets, compared to 40.06% and 59.15%, respectively, during the
first six months of 2003.

Interest Expense. Total interest expense in the quarter ended June 30, 2004
increased by $401,000 to $3.80 million from $3.40 million in the quarter ended
June 30, 2003. The increase is due to the increase in interest bearing deposits,
which increased to $263.62 million in the 2004 quarter from $180.67 in the 2003
quarter, and the $126.67 million increase in borrowings to $225.96 million in
the 2004 quarter from $99.30 million in the 2003 quarter. The average rate paid
on total interest bearing liabilities, including time deposits, declined by 39
basis points to 1.87% from 2.26%.

     Total interest expense for the six-month period ended June 30, 2004
increased by $733,000, or 10.81%, to $7.52 million in the 2004 period from $6.78
million in the 2003 period. Total average interest-bearing liabilities increased
by 35.43%, averaging $792.58 million and $585.22 million during the first six
months of 2004 and 2003, respectively. The average cost of interest-bearing
liabilities declined to 1.90% in 2004 from 2.32% in 2003. If interest rates
rise, as is widely expected, our cost to attract and retain deposits and our
cost of borrowed funds will increase as well.

Non-Interest Income. Non-interest income consists primarily of realized gains on
sales of marketable securities and service fee income. For the three and six
months ended June 30, 2004, non-interest income decreased to $251,000 and
$669,000, respectively, from $1.80 million and $2.79 million for the three and
six months ended June 30, 2003, respectively. In 2003, we recorded three and six
month gains of $1.49 million and $2.12 million, respectively, on the sales and
issuer redemptions of investment securities. Such gains amounted to $49,000 and
$142,000 in the three and six months ended June 30, 2004, respectively.

Non-Interest Expense. Non-interest expense includes salaries and employee
benefits, occupancy and equipment expenses, legal and professional fees and
other operating expenses associated with the day-to-day operations of the
Company. Total non-interest expense for the three and six-month periods ended
June 30, 2004 was $3.17 million and $6.13 million, respectively, compared to
$2.73 million and $5.44 million in the three and six month-periods ended June
30, 2003, respectively. In July 2004, we settled a cancelled lease for the
Bank's former headquarters in an amount which was less than the full amount
remaining on the lease. The Company recorded the remaining $175,000 to recognize
the full settlement amount which was paid in August 2004. This additional amount
was recorded in other non-interest expense for the three and six months ended
June 30, 2004.

Provision for Income Tax. During the three and six-month periods ended June 30,
2004, the Company recorded income tax expense of $1.38 million and $2.76
million, respectively, compared to income tax expense of $1.80 million and $3.22
million, respectively, for the three and six-month periods ended June 30, 2003.
The tax provisions for federal, state and local taxes recorded for the first six
month of 2004 and 2003 represent effective tax rates of 44.58% and 44.32%,
respectively.


                                       23




<PAGE>

Common Stock Repurchases

     On May 15, 2003, The Company's Board of Directors authorized the purchase
of up to an additional 450,000 shares of its Common Stock in the open market,
from time to time, depending upon prevailing market conditions, thereby
increasing the maximum number of shares which may be purchased by the Company
from 1,950,000 shares of Common Stock to 2,400,000 shares of Common Stock. Since
1990 through December 31, 2003, the Company has purchased a total of 1,844,646
shares of its Common Stock. At June 30, 2004, there were 551,091 shares of
Common Stock which may yet be purchased under our stock repurchase plan. The
following table sets forth information with respect to such purchases during the
periods indicated.

Fiscal Year 2004

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

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 additional interest rate management strategy, the Bank borrows funds
from the Federal Home Loan Bank, approximately $86.7 million at June 30, 2004,
at fixed rates for a period of one to five years.


                                       24




<PAGE>

     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.

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

<TABLE>
<CAPTION>
                                                       Berkshire Bancorp Inc.
                                          Interest Rate Sensitivity Gap at June 30, 2004
                                              (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                     10,000           --           --         --    10,000
                            (Rate)       1.31%                                          1.31
Interest bearing deposits in banks        273           --           --         --       273
                            (Rate)       0.28%                                          0.28%
Loans (1)(2)
Adjustable rate loans                  49,376       18,063        9,102     15,321    91,862
                            (Rate)       5.30%        4.52%        7.13%      6.90%     5.59%
Fixed rate loans                        3,804        5,933       13,053    179,434   202,224
                            (Rate)       8.54%        7.49%        6.61%      6.35%     6.44%
                                     --------     --------     --------    -------   -------
Total loans                            53,180       23,996       22,155    194,755   294,086
Investments (3)(4)                     90,522      101,044      156,478    270,461   618,505
                            (Rate)       4.39%        3.51%        2.85%      4.37%     3.85%
                                     --------     --------     --------    -------   -------
Total rate-sensitive assets           143,975      125,040      178,633    465,216   912,864
                                     --------     --------     --------    -------   -------
Deposit accounts (5)
Savings and NOW                       239,440           --           --         --   239,440
                            (Rate)       1.40%                                          1.40%
Money market                           25,532           --           --         --    25,532
                            (Rate)       0.65%                                          0.65%
Time Deposits                         127,363      155,794       29,095      2,067   314,319
                            (Rate)       1.79%        1.93%        2.46%      1.98%     1.92%
                                     --------     --------     --------    -------   -------
Total deposit accounts                392,335      155,794       29,095      2,067   579,291
Repurchase Agreements                  49,583       56,638       35,000      3,000   144,221
                            (Rate)       1.26%        1.50%        2.77%      3.52%     1.77%
Other borrowings                           --           --       38,193     63,516   101,709
                            (Rate)                                 3.65%      3.94%     3.83%
                                     --------     --------     --------    -------   -------
Total rate-sensitive liabilities      441,918      212,432      102,288     68,583   825,221
                                     --------     --------     --------    -------   -------
Interest rate caps                     25,000       (5,000)                (20,000)
Gap (repricing differences)          (322,943)     (82,392)      76,345    416,633    87,643
                                     ========     ========     ========    =======   =======

Cumulative Gap                       (322,943)    (405,335)    (328,990)    87,643
                                     ========     ========     ========    =======
Cumulative Gap to Total Rate
Sensitive Assets                       (35.38)%     (44.40)%     (36.04)%     9.60%
                                     ========     ========     ========    =======
</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.


                                       25




<PAGE>

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

     The allowance for loan watch list classified loans addresses those loans
maintained on the Company's loan watch list, which are assigned a rating of
substandard, doubtful, or loss. Substandard loans are those with a well-defined
weakness or a weakness, which jeopardizes the repayment of the debt. A loan may
be classified as substandard as a result of impairment of the borrower's
financial condition and repayment capacity. Loans for which repayment plans have
not been met or collateral equity margins do not protect the Company may also be
classified as substandard. Doubtful loans have the characteristics of
substandard loans with the added characteristic that collection or liquidation
in full, on the basis of presently existing facts and conditions, is highly
improbable. Although the possibility of loss is extremely high for doubtful
loans, the classification of loss is deferred until pending factors, which might
improve the loan, have been determined. Loans rated as doubtful in whole or in
part are placed in nonaccrual status. Loans, which are classified as loss, are
considered uncollectible and are charged to the allowance for loan losses. There
were no loans classified as loss as of June 30, 2004.

     For the three and six months ended June 30, 2004, we charged-off loans of
$1,000 and $1,000, respectively, and recovered loans of $4,000 and $27,000,
respectively, which amounts were returned to the provision for loan loss
reserves.

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

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

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


                                       26




<PAGE>

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

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

     At June 30, 2004 and 2003, we had a total of $450,000 and $277,000,
respectively, of non accrual or non performing loans, and no loans past due more
than 90 days and still accruing interest at either date. Based upon management's
evaluations of the overall analysis of the Bank's allowance for loan losses and
the year over year increase in total loans to $293.28 million from $272.12
million, the provision for the six months ended June 30, 2004 was increased to
$2.71 million from $2.47 million in the year ago period.

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

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

<TABLE>
<CAPTION>
                                         Three Months Ended     Six Months Ended
                                              June 30,              June 30,
                                        -------------------   -------------------
                                          2004       2003       2004       2003
                                        --------   --------   --------   --------
<S>                                     <C>        <C>        <C>        <C>
Average loans outstanding               $293,528   $275,235   $293,484   $275,090
                                        ========   ========   ========   ========
Allowance at beginning of period           2,661      2,421      2,593      2,315
Charge-offs:
   Commercial and other loans                  1          1          1          2
   Real estate loans                          --         --         --         --
                                        --------   --------   --------   --------
      Total loans charged-off                  1          1          1          2
                                        --------   --------   --------   --------
Recoveries:
   Commercial and other loans                  4          3         27          5
   Real estate loans                          --         --         --         --
                                        --------   --------   --------   --------
      Total loans recovered                    4          3         27          5
                                        --------   --------   --------   --------
      Net recoveries (charge-offs)             3          2         26          3
                                        --------   --------   --------   --------
Provision for loan losses
   charged to operating expenses              45         45         90        150
                                        --------   --------   --------   --------
Allowance at end of period                 2,709      2,468      2,709      2,468
                                        --------   --------   --------   --------
Ratio of net recoveries (charge-offs)
   to average loans outstanding             0.00%      0.00%      0.00%      0.00%
                                        ========   ========   ========   ========
Allowance as a percent of total loans       0.92%      0.91%      0.92%      0.91%
                                        ========   ========   ========   ========
Total loans at end of period            $293,282   $272,120   $293,282   $272,120
                                        ========   ========   ========   ========
</TABLE>


                                       27




<PAGE>

Loan Portfolio.

Loan Portfolio Composition. The Company's loans consist primarily of mortgage
loans secured by residential and non-residential properties as well as
commercial loans which are either unsecured or secured by personal property
collateral. Most of the Company's commercial loans are either made to
individuals or personally guaranteed by the principals of the business to which
the loan is made. At June 30, 2004, the Company had total gross loans of $294.09
million and an allowance for loan losses of $2.71 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.
For the three and six-month periods ended June 30, 2004, the Company sold
approximately $665,000 and $4.29 million, respectively, of such loans and
recorded in other income, gains of $7,000 and $69,000, respectively, on such
sales.

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

<TABLE>
<CAPTION>
                                     June 30,   December 31,
                                       2004         2003
                                     --------   ------------
                                      Amount       Amount
                                     --------   ------------
                                         (in thousands)
<S>                                  <C>          <C>
Commercial and professional loans    $ 17,320     $ 22,228
Secured by real estate
   1-4 family                         162,166      169,589
   Multi family                         9,714        6,608
   Non-residential (commercial)        99,402       94,956
Consumer                                5,484        2,239
                                     --------     --------
Total loans                           294,086      295,620
Less:
   Deferred loan fees                    (804)        (864)
   Allowance for loan losses           (2,709)      (2,593)
                                     --------     --------
Loans, net                           $290,573     $292,163
                                     ========     ========
</TABLE>

     It is the Bank's policy to discontinue accruing interest on a loan when it
is 90 days past due or if management believes that continued interest accruals
are unjustified. The Bank may continue interest accruals if a loan is more than
90 days past due if the Bank determines that the nature of the delinquency and
the collateral are such that collection of the principal and interest on the
loan in full is reasonably assured. When the accrual of interest is
discontinued, all accrued but unpaid interest is charged against current period
income. Once the accrual of interest is discontinued, the Bank records interest
as and when received until the loan is restored to accruing status. If the Bank
determines that collection of the loan in full is in reasonable doubt, then
amounts received are recorded as a reduction of principal until the loan is
returned to accruing status. At June 30, 2004 and 2003, the Company did not have
any loans past due more than 90 days and still accruing interest.


                                       28




<PAGE>


Capital Adequacy

     Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of total
and Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and Tier I capital (as defined) to average assets (as defined). As of
June 30, 2004, the most recent notification from the FDIC categorized the Bank
as well capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the Bank must maintain certain Total
risk-based, Tier I risk-based, and Tier I leverage ratios. There are no
conditions or events since the notification that management believes have
changed the Bank's category.

     The following tables set forth the actual and required regulatory capital
amounts and ratios of the Company and the Bank as of June 30, 2004 and December
31, 2003 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                    To be well
                                                                                capitalized under
                                                               For capital      prompt corrective
                                               Actual       adequacy purposes   action provisions
                                           --------------   -----------------   -----------------
                                           Amount   Ratio    Amount   Ratio      Amount    Ratio
                                           ------   -----    ------   -----      ------   ------
<S>                                        <C>      <C>      <C>      <C>        <C>      <C>
June 30, 2004
Total Capital (to Risk-Weighted Assets)
   Company                                 89,685   25.3%    28,357   >=8.0%         --      N/A
   Bank                                    79,075   23.7%    26,644   >=8.0%     33,305   >=10.0%
Tier I Capital (to Risk-Weighted Assets)
   Company                                 86,976   24.5%    14,179   >=4.0%         --      N/A
   Bank                                    76,366   22.9%    13,322   >=4.0%     19,983    >=6.0%
Tier I Capital (to Average Assets)
   Company                                 86,976    9.2%    36,920   >=4.0%         --      N/A
   Bank                                    76,366    8.3%    37,596   >=4.0%     46,995    >=5.0%
</TABLE>

<TABLE>
<CAPTION>
                                                                                     To be well
                                                                                 capitalized under
                                                                For capital      prompt corrective
                                               Actual        adequacy purposes   action provisions
                                           ---------------   -----------------   -----------------
                                            Amount   Ratio     Amount   Ratio     Amount    Ratio
                                           -------   -----    -------   -----     ------   ------
<S>                                        <C>       <C>      <C>       <C>       <C>      <C>
December 31, 2003
Total Capital (to Risk-Weighted Assets)
   Company                                 $86,759   26.1%    $26,630   >=8.0%        --      N/A
   Bank                                     60,675   19.1%     25,417   >=8.0%    31,772   >=10.0%
Tier I Capital (to Risk-Weighted Assets)
   Company                                  84,166   25.3%     13,315   >=4.0%        --      N/A
   Bank                                     58,082   18.3%     12,709   >=4.0%    19,063    >=6.0%
Tier I Capital (to Average Assets)
   Company                                  84,166   10.7%     31,410   >=4.0%        --      N/A
   Bank                                     58,082    7.0%     33,391   >=4.0%    41,739    >=5.0%
</TABLE>


                                       29




<PAGE>

          The recent issuance of trust preferred securities improved the
Company's capital ratios in the second quarter of 2004. The banking regulators
have not issued any guidance that would change the regulatory capital treatment
for the trust preferred securities that are now outstanding, based on the
adoption of FIN46(R). However, as additional interpretations from the banking
regulators become available, management will re-evaluate the potential impact to
its Tier 1 capital calculation of such interpretations.

          The Company is not under any agreement with regulatory authorities nor
is the Company aware of any current recommendations by the regulatory
authorities, which, if such recommendations were implemented, would have a
material effect on liquidity, capital resources or operations of the Company.

Liquidity

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

     For the Company, liquidity means having cash available to fund operating
expenses, to pay shareholder dividends, when and if declared by the Company's
Board of Directors and to pay the interest on the Debentures issued in May 2004.
The ability of the Company to meet all of its obligations, including the payment
of dividends, is not dependent upon the receipt of dividends from the Bank. At
June 30, 2004, the Company, excluding the Bank, had cash and cash equivalents of
$6.13 million and investment securities available for sale of $8.78 million.

     The Bank maintains financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and stand-by letters
of credit.

     At June 30, 2004, the Company had outstanding commitments of approximately
$19.62 million. These commitments include $13.31 million that mature or renew
within one year, $3.75 million that mature or renew after one year and within
three years, $482,000 that mature or renew after three years and within five
years and $2.08 million that mature or renew after five years.

     The Company currently has one unconsolidated subsidiaries, Berkshire
Capital Trust I, which was established in May 2004.

Impact of Inflation and Changing Prices

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


                                       30




<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 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,
subject to the limitations noted above, the Disclosure Controls are effective in
reaching a reasonable level of assurance that information required to be
disclosed by the Company is recorded, processed, summarized and reported within
the time period specified in the Securities and Exchange Commission's rules and
forms. In accordance with SEC requirements, the CEO/CFO notes that during the
fiscal quarter ended June 30, 2004, 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 4. Submission of Matters to a Vote of Security Holders

     The 2004 Annual Meeting of Stockholders was held on May 18, 2004. Each of
the five individuals nominated to serve as directors of the Company was elected:

<TABLE>
<CAPTION>
Director                Shares For   Shares Withheld
--------                ----------   ---------------
<S>                      <C>              <C>
William L. Cohen         1,466,093        3,196
Thomas V. Guarino        1,466,043        3,246
Moses Marx               1,467,161        2,128
Steven Rosenberg         1,467,271        2,018
Randolph B. Stockwell    1,466,103        3,186
</TABLE>


                                       31




<PAGE>

     At the Annual Meeting the stockholders also voted in favor of an amendment
to the Company's Certificate of Incorporation effecting a one-for-ten reverse
stock split of the Company's issued and outstanding shares of Common Stock. (See
Note 2 of Notes to Consolidated Financial Statements for further information on
the stock split and subsequent stock dividend).

The vote was as follows:

<TABLE>
<CAPTION>
            Shares
          ---------
<S>       <C>
For       1,461,729
Against       6,163
Abstain       1,397
Unvoted           0
</TABLE>

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

a.   Exhibits

b.   Reports on Form 8-K

     None

<TABLE>
<CAPTION>
Exhibit
Number    Description
-------   -----------
<S>       <C>
3.1       Amendment to Certificate of Incorporation dated May 18, 2004.

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

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


                                       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: August 11, 2004                       By: /s/ Steven Rosenberg
                                                --------------------------------
                                                Steven Rosenberg
                                                President and Chief
                                                Financial Officer


                                       33




<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit                                                                             Sequential
 Number   Description                                                              Page Number
-------   -----------                                                              -----------
<S>       <C>                                                                          <C>
3.1       Amendment to Certificate of Incorporation dated May 18, 2004                 35

31        Certification of Principal Executive and Financial Officer pursuant to
          Section 302 Of The Sarbanes-Oxley Act of 2002.                               36

32        Certification of Principal Executive and Financial Officer pursuant to
          Section 906 Of The Sarbanes-Oxley Act of 2002.                               37
</TABLE>


                                       34




                           STATEMENT OF DIFFERENCES

The greater-than-or-equal-to sign shall be expressed as....................  >=