<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-K/A

                          AMENDMENT NO. 1 TO FORM 10-K

[ ]  ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
     THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

                                       OR

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

For the transition period from November 1, 1999 to December 31, 1999
                               ----------------    -----------------

                         Commission File Number 0-13649
                             BERKSHIRE BANCORP INC.

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                   <C>

              DELAWARE                                      94-2563513
  (State or other jurisdiction of                       (I.R.S. employer
   incorporation or organization)                       identification number)

   160 BROADWAY, NEW YORK, NEW YORK                          10038
(Address of principal executive offices)                   (Zip Code)
</TABLE>

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

        Securities registered pursuant to Section 12(b) of the Act: NONE

          Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $.10 PER SHARE
                                (Title of Class)

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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained,  to the
best of the Registrant's  knowledge,  in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]

Aggregate market value of voting (common) stock held by non-affiliates of the
Registrant as of March 23, 2000: $36,362,268.

Number of shares of Common Stock outstanding as of March 23, 2000: 2,127,265.

                      DOCUMENTS INCORPORATED BY REFERENCE:

None


<PAGE>


         The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Transition Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K for the
transition period from November 1, 1999 to December 31, 1999, as set forth in
the pages attached hereto:

ITEM 7. 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. and subsidiaries (the "Company") for the two months
ended December 31, 1999 and for the fiscal years ended October 31, 1999 and
1998. References to Notes herein are references to the "Notes to Consolidated
Financial Statements" of the Company located in Item 8 herein. Reference is also
made to Part I, Item 1 "Business" herein.

GENERAL

         On December 10, 1999, the Board of Directors of the Company approved a
change in fiscal year end from October 31 to December 31st of each year. This
change was effective December 31, 1999.

         The Company's historic financial statements included in this Form 10-K
for the twelve months ended October 31, 1999 do not include the operations of
the Bank for the period from November 1, 1998 through January 3, 1999. However,
to ensure comparability with prior year periods, the income statement data
discussed for the twelve months ended October 31, 1999 are based upon pro forma
data for the Company after the acquisition of the Bank, and the Company during
fiscal 1999 prior to the acquisition. Pro forma information as of and for the
fiscal years ended October 31, 1998 and 1997 has been provided for comparison
purposes.







<PAGE>

                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
                  PROFORMA SELECTED CONSOLIDATED FINANCIAL DATA

         The following sets forth a comparison of selected financial data which
reflects the balances and results of operations on an unaudited proforma
consolidated basis as if the acquisition of The Berkshire Bank had become
effective on October 31, 1999, 1998 and 1997, in the case of balance sheet
information presented, and at the beginning of the periods indicated, in the
case of operations information presented. Period end amounts have been utilized
to calculate performance ratios:

<TABLE>
<CAPTION>

                                                              TWELVE MONTHS ENDED
                                                                   OCTOBER 31,
                                                 --------------------------------------------
                                                      1999          1998          1997
                                                    -----------  -----------   ------------
                                                 (Dollars in thousands, except per share amounts)
<S>                                                  <C>          <C>          <C>
Earnings Summary:
Interest income                                      $   9,515    $   9,392    $   6,076
Interest expense                                         2,964        3,642        3,836
                                                     ---------    ---------    ---------
Net interest income                                      6,551        5,750        2,240
Provision for possible loan losses                          45           60           60
                                                     ---------    ---------    ---------
Net interest income after provision
 for possible loan losses                                6,506        5,690        2,180
Other income (loss)                                      8,355       39,311       17,336
Other expenses                                          (4,156)       4,474        4,214
                                                     ---------    ---------    ---------
Income (loss) before income taxes
 and extraordinary items                                10,705       40,527       15,302
Income taxes                                             4,844        3,258          145
                                                     ---------    ---------    ---------
Income (loss) before extraordinary items                 5,861       37,269       15,157
Extraordinary items                                       --            150         --
                                                     ---------    ---------    ---------
Net income (loss)                                    $   5,861    $  37,119    $  15,157
                                                     =========    =========    =========
Per Share Data:
Weighted average common shares outstanding-basic         2,126        2,126        2,147
Weighted average common shares outstanding-diluted       2,261        2,258        2,244
Net income per common share- basic                   $    2.76    $   17.46    $    7.06
Net income per common share- diluted                 $    2.59    $   16.44    $    6.75
Dividends paid per common share                      $     .32    $     .72    $    --

Balance Sheet Summary:
Investment securities                                $  82,876    $  50,785    $  75,696
Cash and cash equivalents                               23,829       47,472       18,816
Loans, net                                              59,652       38,994       36,992
Allowance for loan losses                                 (905)        (803)        (723)
Total assets                                           183,148      155,388      152,961
Deposits                                               102,318       86,232       89,469
Stockholder's equity                                 $  72,586    $  64,958    $  60,176

Performance Ratios:
Return on average assets                                 3.3 %       23.9 %        9.9 %
Return on average equity                                 8.4 %       57.4 %       25.2 %
Average equity to average assets                        39.6 %       41.1 %       39.3 %
Net Interest Margin                                      4.4 %        3.9 %        2.3 %
</TABLE>






<PAGE>



DISCUSSION OF RESULTS OF OPERATIONS

OVERVIEW

         TWO MONTHS ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED
OCTOBER 31, 1999. Net income was $2.28 million or $1.01 per diluted share for
the two months ended December 31, 1999 and $13.69 million or $6.06 per diluted
share on an annualized basis.

         1999 COMPARED TO 1998. Net income was $6.5 million or $2.89 per diluted
share for fiscal 1999, compared to $37.6 million or $16.66 per diluted share for
fiscal 1998. The decrease in net income is primarily due to the decrease in
investment securities gains from $38.9 million in fiscal 1998 to $7.6 million in
fiscal 1999.

         1998 COMPARED TO 1997. Net income was $37.6 million or $16.66 per
diluted share for fiscal 1998, compared to $16.7 million or $7.45 per diluted
share for fiscal 1997. The increase in net income was primarily due to the
increase in investment securities gains from $16.8 million in fiscal 1997 to
$38.9 million in fiscal 1998.

SEGMENTS

         Management has determined that the Company operates in one business
segment, community banking. The Bank's principal business activity consists of
gathering deposits from the general public and investing those deposits in
residential and commercial mortgage loans and commercial non-mortgage loans,
both unsecured and secured by personal property. In addition, the Bank invests
those deposits in debt obligations issued by the U.S. Government, its agencies,
business corporations and mortgage-backed securities.

NET INTEREST INCOME

         Net interest income represents the difference between total interest
income earned on earning assets and total interest expense paid on
interest-bearing liabilities. The amount of interest income is dependent upon
many factors including the amount of interest-earning assets that the Company
can maintain based upon its funding sources; (ii) the relative amounts of
interest-earning assets versus interest-bearing liabilities; and (iii) the
difference between the yields earned on those assets and the rates paid on those
liabilities. Non-performing loans adversely affect net interest income because
they must still be funded by interest-bearing liabilities, but they do not
provide interest income. Furthermore, when the Company designates an asset as
non-performing, all interest which has been accrued but not actually received is
deducted from current period income, further reducing net interest income.

         The Company's average balances, interest, and average yields are set
forth on the following tables (in thousands, except percentages):





<PAGE>



<TABLE>
<CAPTION>

                                              TWO MONTHS ENDED                     TWELVE MONTHS ENDED
                                            DECEMBER 31, 1999 (6)                  OCTOBER 31, 1999 (7)
                                       ----------------------------------      ---------------------------------
                                                      INTEREST    AVERAGE                    INTEREST    AVERAGE
                                        AVERAGE          AND       YIELD/        AVERAGE        AND       YIELD/
                                        BALANCE       DIVIDENDS    RATE          BALANCE     DIVIDENDS    RATE
                                        -------       ---------    -----         -------     ---------    -----
<S>                                     <C>           <C>             <C>       <C>         <C>             <C>
INTEREST-EARNING ASSETS:
Loans (1)                               $  61,691     $   892       8.68%     $  44,893   $  3,623         8.07%
Investment securities                      77,149         767       5.97         66,352      3,760         5.67
Other (2)(5)                               20,299         184       5.44         38,573      2,132         5.53
                                        ---------     -------       ----      ---------   --------         ----
Total interest-earning assets             159,139       1,843       6.95        149,818      9,515         6.35
                                                                    ----                                   ----
Noninterest-earning assets                 52,256                                45,340
                                        ---------                             ---------
Total Assets                            $ 211,395                             $ 195,158
                                        =========                             =========
INTEREST-BEARING LIABILITIES:
Interest bearing deposits                  52,659         292       3.33         53,236      1,669         3.14
Time deposits                              32,257         245       4.56         21,714      1,205         5.55
Other borrowings                            1,500          16       6.40          1,514         90         5.94
                                         ---------     ------       ----       --------    -------         ----
Total interest-bearing                     86,416         553       3.84         76,464      2,964         3.88
  liabilities                                          ------       ----                  -------          ----
Demand deposits                            15,953                                17,485
Noninterest-bearing liabilities             7,863                                 6,994
Stockholders' equity (5)                  101,163                                94,215
                                        ---------                             ---------
Total liabilities and
  stockholders' equity                   $211,395                              $195,158
                                        =========                              ========
Net interest income                                   $ 1,290                             $  6,551
                                                      =======                             ========
Interest-rate spread (3)                                            3.11%                                  2.47%
                                                                    ====                                   ====
Net interest margin (4)                                             4.86%                                  4.37%
                                                                    ====                                   ====
Ratio of average interest-earning
assets to average interest bearing
liabilities                                184.15%                               195.93%
                                           ======                                ======

</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 for Berkshire Bancorp Inc. (parent only) have been
     calculated on a monthly basis.
(6)  The yields and rates were calculated by annualizing the interest for the
     two months ended December 31, 1999.
(7)  Information is prepared on a proforma basis for comparability purposes.
     Balances stated are not reflected in the historical financial statements of
     the Company.






<PAGE>



<TABLE>
<CAPTION>

                                                      TWELVE MONTHS ENDED
                                                      OCTOBER 31, 1998 (6)
                                                      --------------------
                                                              INTEREST     AVERAGE
                                                AVERAGE          AND       YIELD/
                                                BALANCE       DIVIDENDS     RATE
                                                -------       ---------     ----
<S>                                            <C>              <C>           <C>
   INTEREST-EARNING ASSETS:
   Loans (1)                                   $ 39,085         $3,325        8.51%
   Investment securities                         45,569          2,713        5.95
   Other (2)(5)                                  61,051          3,354        5.49
                                               --------         ------        ----
   Total interest-earning assets                145,705          9,392        6.45
                                                                              ----
   Noninterest-earning assets                    18,222
                                               --------
   Total Assets                                $163,927
                                               ========
   INTEREST-BEARING LIABILITIES:
   Interest bearing deposits                     58,273          2,320        3.98
   Time deposits                                 25,203          1,299        5.15
   Other borrowings                                 382             23        6.02
                                               --------        -------       -----
   Total interest-bearing
     liabilities                                 83,858          3,642        4.34
                                                               -------
   Demand deposits                               13,144
   Noninterest-bearing liabilities                2,623
   Stockholders' equity (5)                      64,302
                                               --------
   Total liabilities and
     stockholders' equity                      $163,927
                                               ========
   Net interest income                                          $5,750
                                                                ======
   Interest-rate spread (3)                                                   2.11%
                                                                             =====
   Net interest margin (4)                                                    3.95%
                                                                             =====
   Ratio of average interest-earning
   assets to average interest bearing
   liabilities                                   173.75%
                                               ========

</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 liability.
(4)  Net interest margin is net interest income as a percentage of average
     interest-earning assets.
(5)  Average balances for Berkshire Bancorp Inc. (parent only) have been
     calculated on a monthly basis.
(6)  Information is prepared on a proforma basis for comparability purposes.
     Balances stated are not reflected in the historical financial statements of
     the Company.

         Changes in net interest income may also be analyzed by segregating the
volume and rate components of interest income and interest expense. The
following tables set forth certain information regarding changes in interest
income and interest expense of the Company for the years indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in rate (change
in rate multiplied by prior volume), (2) changes in volume (changes in volume
multiplied by prior rate) and (3) changes in rate-volume (change in rate
multiplied by change in volume) (in thousands):





<PAGE>


<TABLE>
<CAPTION>

                                                  TWO MONTHS ENDED DECEMBER 31, 1999(1)
                                                                 VERSUS
                                                  TWELVE MONTHS ENDED OCTOBER 31, 1999
                                                       INCREASE (DECREASE) DUE TO
                                           ------------------------------------------------

                                                RATE            VOLUME             TOTAL
                                           --------------  ---------------      -----------
<S>                                           <C>             <C>                 <C>
Interest-earning assets:
 Loans                                         $ 289           $ 1,440             $ 1,729
 Investment securities                           206               636                 842
 Other                                           (34)             (994)             (1,028)
                                               -----           -------             -------
Total                                            461             1,082               1,543
                                               -----           -------             -------

Interest-bearing liabilities:
Deposit accounts:

 Interest bearing deposits                       101               (18)                 83
 Time deposits                                  (154)              419                 265
 Other borrowings                                  7                (1)                  6
                                               -----           -------             -------
Total                                            (46)              400                 354
                                               -----           -------             -------

Net interest income                            $ 507           $   682             $ 1,189
                                               =====           =======             =======
</TABLE>

(1)  Interest income and expense for the two months ended December 31, 1999 were
     annualized to prepare the rate/volume analysis to properly reflect the
     changes in volume and rate that occurred during the period.

<TABLE>
<CAPTION>
                                                               PROFORMA
                                                    TWELVE MONTHS ENDED OCTOBER 31,
                                                           1999 VERSUS 1998
                                                      INCREASE (DECREASE) DUE TO
                                             ----------------------------------------------
                                               RATE             VOLUME             TOTAL
                                             -------------   ---------------      ---------
<S>                                           <C>                <C>                 <C>
Interest-earning assets:
 Loans                                        $  (34)          $   332             $   298
 Investment securities                           (15)            1,062               1,047
 Other                                             2            (1,224)             (1,222)
                                              ------           -------              ------
Total                                            (47)              170                 123
                                              ------           -------              ------
Interest-bearing liabilities:
Deposit accounts:
 Interest bearing deposits                      (128)             (523)               (651)
 Time deposits                                    (5)              (89)                (94)
 Other borrowings                                --                 67                  67
                                              ------           -------              ------
Total                                           (133)             (545)               (678)
                                              ------           -------              ------

Net interest income                           $   86           $   715             $   801
                                              ======           =======             =======
</TABLE>







<PAGE>


INTEREST RATE RISK

         Fluctuations in market interest rates can have a material effect on the
Bank'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.

         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.

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 determines 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 of December 31, 1999.

         Loans on the loan watch list may also be impaired loans, which are
defined as non-accrual loans or troubled debt restructurings, which are not in
compliance with their restructured terms. Each of the classified loans on the




<PAGE>


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.

         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 non-accrual 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.

         Management believes that the allowance for loan losses and
non-performing loans remained safely within acceptable levels.

         The following tables present information regarding the Company's total
allowance for loan losses as well as the allocation of such amounts to the
various categories of loans at the dates indicated (dollars in thousands):

<TABLE>
<CAPTION>
                                                   DECEMBER 31, 1999
                                  --------------------------------------------------
                                    ALLOWANCE
                                     FOR LOAN        PERCENT OF         PERCENT OF
                                      LOSSES          ALLOWANCE         TOTAL LOANS
                                 ----------------   ----------------   -------------
<S>                                   <C>               <C>               <C>
         Commercial and               $ 105             11.4%             0.16%
          professional loans
         Secured by real estate         620             67.2              0.94
         Personal and other              27              2.9              0.05
         General allowance (1)          171             18.5              0.26
                                      -----            -----             -----
         Total allowance
          for loan losses             $ 923            100.0%             1.41%
                                      =====            =====              ====
</TABLE>

--------------------
(1) The allowance for loan losses is allocated to specific loans as necessary.





<PAGE>


<TABLE>
<CAPTION>
                                                           OCTOBER 31, 1999(2)
                                             -----------------------------------------------------
                                                ALLOWANCE
                                                FOR LOAN        PERCENT OF         PERCENT OF
                                                 LOSSES         ALLOWANCE          TOTAL LOANS
                                             ----------------   ----------------   ---------------
<S>                                                <C>             <C>                <C>
      Commercial and
       professional loans                          $ 69            7.6%               0.11%
      Secured by real estate                        569           63.0                0.94
      Personal and other                             77            8.5                0.13
      General allowance (1)                         190           20.9                0.31
                                                   ----          -----                ----
      Total allowance
       for loan losses                             $905          100.0%               1.49%
                                                   ====          =====                ====
</TABLE>

----------------
(1) The allowance for loan losses is allocated to specific loans as necessary.
(2) Information is prepared on a proforma basis for comparability purposes.
    Balances stated are not reflected in the historical financial statements of
    the Company.


<TABLE>
<CAPTION>
                                                           OCTOBER 31, 1998(2)
                                           -----------------------------------------------------
                                                ALLOWANCE
                                                FOR LOAN        PERCENT OF         PERCENT OF
                                                 LOSSES         ALLOWANCE          TOTAL LOANS
                                           ----------------   ----------------   ---------------
<S>                                                <C>             <C>                <C>
      Commercial and
       professional loans                          $ 35            4.4%               0.09%
      Secured by real estate                        394           49.1                0.99
      Personal and other                             34            4.2                0.09
      General allowance (1)                         340           42.3                0.85
                                                   ----          -----                ----
      Total allowance
       for loan losses                             $803          100.0%               2.02%
                                                   ====          =====                ====
</TABLE>


----------------
(1) The allowance for loan losses is allocated to specific loans as necessary.
(2) Information is prepared on a proforma basis for comparability purposes.
    Balances stated are not reflected in the historical financial statements of
    the Company.

<TABLE>
<CAPTION>
                                                          OCTOBER 31, 1997(2)
                                             --------------------------------------------------
                                                ALLOWANCE
                                                FOR LOAN        PERCENT OF         PERCENT OF
                                                 LOSSES         ALLOWANCE          TOTAL LOANS
                                             ----------------   ----------------   ------------
<S>                                                <C>             <C>                <C>
      Commercial and
       professional loans                          $ 70            9.7%               0.19%
      Secured by real estate                        391           54.1                1.04
      Personal and other                             41            5.7                0.11
      General allowance (1)                         221           30.5                0.59
                                                   ----          -----                ----
      Total allowance
       for loan losses                             $723          100.0%               1.93%
                                                   ====          =====                ====
</TABLE>

---------------
(1) The allowance for loan losses is allocated to specific loans as necessary.
(2) Information is prepared on a proforma basis for comparability purposes.
    Balances stated are not reflected in the historical financial statements of
    the Company.




<PAGE>


<TABLE>
<CAPTION>
                                                          OCTOBER 31, 1996(2)
                                             ----------------------------------------------------
                                                ALLOWANCE
                                                FOR LOAN        PERCENT OF         PERCENT OF
                                                 LOSSES         ALLOWANCE          TOTAL LOANS
                                             ----------------   ----------------   --------------
<S>                                                <C>             <C>                <C>
      Commercial and
       professional loans                          $ 62            7.5%               0.25%
      Secured by real estate                        484           58.7                1.92
      Personal and other                             91           11.1                0.36
      General allowance (1)                         187           22.7                0.74
                                                   ----          -----                ----
      Total allowance
       for loan losses                             $824          100.0%               3.27%
                                                   ====          =====                ====
</TABLE>

------------------
(1) The allowance for loan losses is allocated to specific loans as necessary.
(2) Information is prepared on a proforma basis for comparability purposes.
    Balances stated are not reflected in the historical financial statements of
    the Company.


      NON-INTEREST INCOME

         Non-interest income consists primarily of service fee income and the
realized gains on sales of investment securities.

         Proceeds from the sales of investment securities for the two month
period ending December 31, 1999 were $3,110,000. During the fiscal years ended
October 31, 1999 and 1998, such proceeds were $7,634,000 and $42,916,000,
respectively. Gross gains realized on those sales were $3,110,000 for the two
months ended December 31, 1999, and $7,622,000 and $38,909,000 in fiscal years
1999 and 1998, respectively, and are not representative of the Company's ongoing
business. The gains of approximately $39,161,000 in fiscal 1998 were due to open
market sales of the common stock of The Cooper Companies, Inc. which were
acquired in 1993. The gains in 1999 were due to open market sales of the common
stock of Executone Information Systems, Inc. ("Executone"). The Company acquired
its shares of Executone Common Stock as described in the following paragraphs.

         In 1995, Unistar Gaming Corp. ("UGC") acquired Unistar Entertainment,
Inc., a privately held Colorado corporation ("Unistar"). As a result of the
acquisition, approximately 27.5% of the outstanding Common Stock of UGC (the
"UGC Common Stock") was owned by the Company, and approximately 72.5% of the UGC
Common Stock was owned by the former stockholders of Unistar. The shares of UGC
Common Stock which were owned by the Company were purchased for approximately $5
million comprised primarily of cash, portfolio securities and a note payable. In
December 1995, the Company increased its stake in UGC to approximately 31.5% by
purchasing an additional 400,000 shares of UGC Common Stock from a UGC
stockholder for a cash purchase price of $.50 per share.

         In December 1995, the Company sold its minority equity interest in
UGC to Executone Information Systems, Inc. ("Executone"), a Virginia corporation
whose common stock trades on the NASDAQ National Market System. The Company's
investment in UGC was approximately $5.2 million.

         In exchange for its interest in UGC, the Company received shares of
Executone Common Stock, all of which were sold in open market transactions
during 1998, and shares of Executone Series A and Series B Preferred Stock (the
"Executone Preferred Stock"). In 1997, the Company fully reserved the carrying
value, approximately $2.1 million, of its shares of Executone Preferred Stock
and recorded a deferred tax asset of $925,000.

         In March 1999, Executone exercised its right to redeem and convert the
Executone Preferred Stock into Executone Common Stock and on April 6, 1999, in
exchange for its shares of Executone Preferred Stock, the Company received
4,193,204 shares of Executone Common Stock with a market value of approximately
$17.7 million. For the period from April 1999 through December 1999, the






<PAGE>




Company recognized gross gains on sales of 2,401,098 shares of Executone common
Stock of approximately $10,744,000.

         At December 31, 1999 the Company owned 1,792,106 shares of Executone
Common Stock with a fair market value of approximately $9,744,000 which,
depending upon market conditions, it plans to sell during fiscal 2000.

NON-INTEREST EXPENSE

         The major categories of non-interest expense include 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. The amortization of intangible assets of $122,000 and $608,000 for the
two months ended December 31, 1999 and the fiscal year ended October 31 1999,
respectively, is a result of the goodwill recorded in the acquisition of the
Bank.

INCOME TAXES

         The provision for income taxes was $1.45 million for the two months
ended December 31, 1999, and $4.09 million and $3.57 million for the fiscal year
ended October 31 1999 and 1998, respectively. In 1998, the Company utilized its
remaining net operating loss carry forwards to offset taxes which would have
been due. The Company's income for the two months ended December 31, 1999 and
the year ended October 31, 1999 was fully taxable.

INVESTMENT ACTIVITIES

         GENERAL. The investment policy of the Bank is designed primarily to
provide satisfactory yields while maintaining adequate liquidity, a balance of
high quality, diversified investments, and minimal risk. The Bank does not
invest in equity securities. The largest component of the Bank's securities
investments, representing more than 50% of total securities investments, are
debt securities issued by the Federal Home Loan Mortgage Corporation (Freddy
Mac), the Federal National Mortgage Association (Fanny Mae) or the Government
National Mortgage Association (Ginny Mae). The remainder of the Bank's debt
securities investments are primarily short term debt securities issued by the
United States or its agencies. The Bank maintains a small portfolio of less than
$2 million of high-yield corporate debt securities. Recognizing the higher
credit risks of these securities, the Bank underwrites these securities in a
manner similar to its loan underwriting procedures.

         As required by the Statement of Financial Accounting Standard No. 115
("SFAS No. 115"), securities are classified into three categories: trading,
held-to-maturity and available-for-sale. Securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities and are reported at fair value with unrealized gains and
losses included in trading account activities in the statement of income.
Securities that the Bank has the positive intent and ability to hold to maturity
are classified as held-to-maturity and reported at amortized cost. All other
securities are classified as available-for-sale. Available-for-sale securities
are reported at fair value with unrealized gains and losses included, on an
after-tax basis, as a separate component of net worth. The Bank does not have a
trading securities portfolio and has no current plans to maintain such a
portfolio in the future. The Bank generally classifies all newly purchased debts
securities as available for sale in order to maintain the flexibility to sell
those securities if the needs arises. The Bank has a limited portfolio of
securities classified as held to maturity, represented principally by securities
purchased a number of years ago.

         FEDERAL HOME LOAN BANK STOCK. The Bank owns stock of the Federal Home
Loan Bank of New York (the "FHLBNY") which is necessary for it to be a member of
the FHLBNY. Membership requires the purchase of stock equal to 1% of the Bank's
residential mortgage loans. If the Bank borrows from the FHLBNY, the Bank must
own stock at least equal to 5% of its borrowings.




<PAGE>



         The following table sets forth the cost and fair value of
available-for-sale and held-to-maturity securities as of the dates indicated (in
thousands):

<TABLE>
<CAPTION>
                                                                        COST            FAIR VALUE
                                                                      --------        -------------
                              DECEMBER 31, 1999
<S>                                                                    <C>                <C>
           Available-For-Sale
         U.S. Government Agencies                                      $65,907            $64,746
         Mortgage-backed securities                                      4,571              4,496
         Marketable equity securities and other                          6,060             15,256
                                                                       -------            -------
         Total                                                         $76,538            $84,498
                                                                       =======            =======

           Held-To-Maturity
         U.S. Government Agencies                                      $   522            $   522
         Corporate notes                                                 4,477              4,476
                                                                       -------            -------
         Total                                                         $ 4,999            $ 4,998
                                                                       =======            =======
</TABLE>


<TABLE>
<CAPTION>
                                                                        COST            FAIR VALUE
                                                                      --------        --------------
                              OCTOBER 31, 1999
<S>                                                                    <C>                <C>
           Available-For-Sale
         U.S. Government Agencies                                      $65,934            $66,468
         Mortgage-backed securities                                      4,841              4,768
         Marketable equity securities and other                          4,572             11,143
                                                                       -------            -------
         Total                                                         $75,347            $80,775
                                                                       =======            =======

           Held-To-Maturity
         U.S. Government Agencies                                      $ 1,605            $ 1,603
         Corporate notes                                                   496                496
                                                                       -------            -------
         Total                                                         $ 2,101            $ 2,099
                                                                       =======            =======
</TABLE>



<TABLE>
<CAPTION>
                                                                    COST            FAIR VALUE
                                                                   ------          -------------
                            OCTOBER 31, 1998 (1)
<S>                                                                   <C>                 <C>
           Available-For-Sale
         U.S. Government Agencies                                      $33,586            $33,687
         Corporate notes                                                 1,893              1,815
         Federal Home Loan Bank Stock                                      535                535
                                                                       -------            -------
         Total                                                         $36,014            $36,037
                                                                       =======            =======

           Held-To-Maturity
         U.S. Government Agencies                                      $12,504            $12,468
         Corporate notes                                                 2,244              2,242
                                                                       -------            -------
         Total                                                         $14,748            $14,710
                                                                       =======            =======
</TABLE>

-----------------
(1) Information is prepared on a proforma basis for comparability purposes.
    Balances stated are not reflected in the historical financial statements of
    the Company.





<PAGE>


         The following table summarizes the Company's available-for-sale and
held-to-maturity securities at December 31, 1999 (dollars in thousands):

<TABLE>
<CAPTION>
                                    WEIGHTED
                                     AVERAGE
                                      YIELD            COST          FAIR VALUE
                                   -----------       -------        ------------
<S>                                <C>             <C>            <C>
         AVAILABLE-FOR-SALE
           U.S. Government
            Agencies Obligations
         Due within one year           5.46%         $13,002             $12,945
         Due after one year
          through five years           5.48           37,491              36,758
         Due after five years
          through ten years            5.59           12,647              12,345
         Due after ten years           5.93            7,295               7,150
                                                     -------             -------
                                                      70,435              69,198
                                                     -------             -------
           Corporate Notes
         Due within one year                              --                  --
         Due after one year
          through five years           6.46              957                 807
         Due after five years
          through ten years            8.07              568                 470
         Due after ten years           7.19              200                 192
                                                     -------             -------
                                                       1,725               1,469
                                                     -------             -------

          Executone Information
            Systems, Inc.
            Common Stock                 --               --               9,745
           Preferred Stocks            9.51            3,843               3,551
           Federal Home Loan
            Bank Stock                 6.70              535                 535
                                                     -------             -------
                                                       4,378              13,831
                                                     -------             -------
                                                     $76,538             $84,498
                                                     =======             =======

         HELD-TO-MATURITY
           U.S. Government
            Agencies Obligations
         Due within one year             --               --                  --
         Due after one year
          through five years           6.22              135                 135
         Due after five years
          through ten years            7.13              121                 121
         Due after ten years           6.35              266                 266
                                                     -------             -------
                                                         522                 522
                                                     -------             -------
           Corporate Notes
         Due within one year           6.33            3,980               3,979
         Due after one year
          through five years           6.06              497                 497
         Due after five years
          through ten years
         Due after ten years                              --                  --
                                                     -------             -------
                                                       4,477               4,476
                                                     -------             -------
                                                      $4,999              $4,998
                                                     =======             =======
</TABLE>


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 loans are either made to individuals or
personally guaranteed by the principals of the business to which the loan is
made. At December 31, 1999 and October 31, 1999, the Company had total loans of
$65.6 million and $60.5 million, respectively, and an allowance for loan losses
of approximately $923,000 and $905,000, respectively. From time to





<PAGE>


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.

         Interest rates on loans are affected by the demand for loans, the
supply of money available for lending, credit risks, the rates offered by
competitors and other conditions. These factors are in turn affected by, among
other things, economic conditions, monetary policies of the federal government,
and legislative tax policies.

         In order to manage interest rate risk, the Bank focuses its efforts on
loans with interest rates that adjust based upon changes in the prime rate or
changes in United States Treasury or similar indices. Generally, credit risks on
adjustable-rate loans are somewhat greater than on fixed-rate loans primarily
because, as interest rates rise, so do borrowers' payments, increasing the
potential for default. The Bank seeks to impose appropriate loan underwriting
standards in order to protect against these and other credit related risks
associated with its lending operations.

         In addition to analyzing the income and assets of its borrowers when
underwriting a loan, the Bank obtains independent appraisals on all material
real estate in which the Bank takes a mortgage. The Bank generally obtains title
insurance in order to protect against title defects on mortgaged property.

         COMMERCIAL MORTGAGE LOANS. The Bank originates commercial mortgage
loans secured by office buildings, retail establishments, multi-family
residential real estate and other types of commercial property. Substantially
all of the properties are located in the New York City metropolitan area.

         The Bank makes commercial mortgage loans with loan to value ratios not
to exceed 75% and with terms to maturity that do not exceed 15 years. Loans
secured by commercial properties generally involve a greater degree of risk than
one- to four-family residential mortgage loans. Because payments on such loans
are often dependent on successful operation or management of the properties,
repayment may be subject, to a greater extent, to adverse conditions in the real
estate market or the economy. The Bank seeks to minimize these risks through its
underwriting policies. The Bank evaluates the qualifications and financial
condition of the borrower, including credit history, profitability and
expertise, as well as the value and condition of the underlying property. The
factors considered by the Bank include net operating income; the debt coverage
ratio (the ratio of cash net income to debt service); and the loan to value
ratio. When evaluating the borrower, the Bank considers the financial resources
and income level of the borrower, the borrower's experience in owning or
managing similar property and the Bank's lending experience with the borrower.
The Bank's policy requires borrowers to present evidence of the ability to repay
the loan without having to resort to the sale of the mortgaged property. The
Bank also seeks to focus its commercial mortgage loans on loans to companies
with operating businesses, rather than passive real estate investors.

         COMMERCIAL LOANS. The Bank makes commercial loans to businesses for
inventory financing, working capital, machinery and equipment purchases,
expansion, and other business purposes. These loans generally have higher yields
than mortgages loans, with maturities of one year, after which the borrower's
financial condition and the terms of the loan are re-evaluated.

         Commercial loans tend to present greater risks than mortgage loans
because the collateral, if any, tends to be rapidly depreciable, difficult to
sell at full value and is often easier to conceal. In order to limit these
risks, the Bank evaluates these loans based upon the borrower's ability to repay
the loan from ongoing operations. The Bank considers the business history of the
borrower and perceived stability of the business as important factors when
considering applications for such loans. Occasionally, the borrower provides
commercial or residential real estate collateral for such





<PAGE>



loans, in which case the value of the collateral may be a significant factor in
the loan approval process.

         ORIGINATION OF LOANS. Loan originations can be attributed to
depositors, retail customers, telephone inquiries, advertising, the efforts of
the Bank's loan officers, and referrals from other borrowers and real estate
brokers and builders. The Bank originates loans primarily through its own
efforts. Occasionally, the Bank may obtain loan opportunities as a result of
referrals from loan brokers.

         At December 31, 1999, the Bank's total capital was approximately $25.3
million and thus it was generally not permitted to make loans to one borrower in
excess of approximately $3.8 million, with an additional approximately $2.5
million being permitted if secured by readily marketable collateral. The Bank
was also not permitted to make any single mortgage loan in an amount in excess
of approximately $3.8 million. At December 31, 1999, the Bank was in compliance
with these standards.

         DELINQUENCY PROCEDURES. When a borrower fails to make a required
payment on a loan, the Bank attempts to cause the deficiency to be cured by
contacting the borrower. The Bank reviews past due loans on a case by case
basis, taking the action it deems appropriate in order to collect the amount
owed. Litigation may be necessary if other procedures are not successful.
Judicial resolution of a past due loan can be delayed if the borrower files a
bankruptcy petition because collection action cannot be continued unless the
Bank first obtains relief from the automatic stay provided by the Bankruptcy
Code.

         If a non-mortgage loan becomes delinquent and satisfactory arrangements
for payment cannot be made, the Bank seeks to realize upon any personal property
collateral to the extent feasible and collect any remaining amount owed from the
borrower through legal proceedings, if necessary.

         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.





<PAGE>


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


<TABLE>
<CAPTION>
                                            DECEMBER 31,                                     OCTOBER 31,
                                      -----------------------          --------------------------------------------------
                                               1999                          1999 (1)                      1998 (1)
                                      -----------------------          ------------------------    ----------------------
                                                     % OF                           % OF                           % OF
                                           AMOUNT    TOTAL                AMOUNT    TOTAL                AMOUNT    TOTAL
                                          -------   ------               -------   -------              -------   -------
<S>                                    <C>         <C>                 <C>        <C>                 <C>       <C>
Commercial and
 professional loans                       $ 5,358      8.2%              $ 6,824     11.3%              $ 3,548      8.9%
Secured by real estate                     57,652     87.9                51,300     84.7                33,015     82.9
Personal                                    2,345      3.6                 1,932      3.2                 1,970      5.0
Other                                         236      0.3                   501      0.8                 1,264      3.2
                                          -------    -----                ------    -----                ------    -----
Total loans                                65,591    100.0%               60,557    100.0%               39,797    100.0%
                                                     =====                          =====                          =====
Less:
 Allowance for loan
 losses                                      (923)                          (905)                          (803)
                                          -------                        -------                        -------
Loans, net                                $64,668                        $59,652                        $38,994
                                          =======                        =======                        =======
</TABLE>


<TABLE>
<CAPTION>
                                                                   OCTOBER 31,
                                             -----------------------------------------------------
                                                      1997 (1)                        1996 (1)
                                             ----------------------          ---------------------
                                                            % OF                           % OF
                                               AMOUNT       TOTAL               AMOUNT     TOTAL
                                             ---------     --------          ----------   --------
        <S>                                  <C>               <C>           <C>           <C>
         Commercial and
          professional loans                   $ 7,011      18.6%               $ 5,646    22.4%
         Secured by real estate                 27,164      72.0                 16,152    64.1
         Personal                                2,275       6.0                  2,447     9.7
         Other                                   1,265       3.4                    959     3.8
                                               -------     -----                -------   -----

         Total loans                            37,715     100.0%                25,204   100.0%
                                                           =====                          =====

         Less:
          Allowance for loan
          losses                                  (723)                            (824)
                                               -------                          -------

         Loans, net                            $36,992                          $24,380
                                               =======                          =======
</TABLE>

----------------------
(1)  Information is prepared on a proforma basis for comparability purposes.
     Balances stated are not reflected in the historical financial statements of
     the Company.


IMPAIRED LOAN BALANCE, NONACCRUAL LOANS AND LOANS GREATER THAN 90 DAYS STILL
ACCRUING

     The following table sets forth certain information regarding nonaccrual
loans, including the ratio of such loans to total assets as of the dates
indicated, and certain other related information. The Bank had no foreclosed
real estate or loans past due more than 90 days still accruing during these
periods (dollars in thousands).




<PAGE>


<TABLE>
<CAPTION>


                                      DECEMBER 31                                OCTOBER 31,
                                   ------------------      -------------------------------------------------------
                                             1999           1999(1)           1998(1)        1997(1)         1996(1)
                                             ----           ----              ----           ----            ----
<S>                               <C>                    <C>                  <C>            <C>             <C>
Nonaccrual loans:

Commercial and other loans                   $--             $ --              $--            $ --            $114
Secured by real estate                        --              121               30             237             555
                                             ---             ----              ---            ----            ----

Total nonaccrual loans                        --              121               30             237             669
                                             ---             ----              ---            ----            ----

Total nonperforming loans                    $--             $121              $30            $237            $669
                                             ===             ====              ===            ====            ====

Total nonperforming loans
 to total assets                              --              .07%             .08%            .63%           2.65%
                                             ===             ====              ===            ====            ====
</TABLE>

--------------------
(1)  Information is prepared on a proforma basis for comparability purposes.
     Balances stated are not reflected in the historical financial statements of
     the Company.


     The following table sets forth information regarding the aggregate
maturities of the Company's loans in the specified categories and the amount of
such loans which have fixed and variable rates (dollars in thousands):


<TABLE>
<CAPTION>
                                                               DECEMBER 31, 1999
                                                               -----------------
                                                 WITHIN           1 TO            AFTER
                                                 1 YEAR          5 YEARS         5 YEARS        TOTAL
                                                -------          --------        --------       -----
         <S>                                    <C>               <C>            <C>           <C>
         Commercial-fixed rate                   $1,250           $ 2,208        $ 6,633       $10,091
                                                 ------           -------        -------       -------

         Commercial-adjustable rate               3,658            13,984          5,334        22,976
                                                 ------           -------        -------       -------
         Total                                   $4,908           $16,192        $11,967       $33,067
                                                 ======           =======        =======       =======
</TABLE>


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








<PAGE>


<TABLE>
<CAPTION>

                                                Two Months Ended
                                                December 31,                         Years Ended October 31,
                                                ----------------           ----------------------------------------
                                             1999           1999(1)         1998(1)         1997(1)         1996(1)
                                             ----           ----            ----            ----            ----

<S>                                          <C>            <C>             <C>             <C>             <C>
Average loans outstanding                    $ 61,691       $ 48,387        $ 39,085        $ 31,081        $ 24,199
                                             ========       ========        ========        ========        ========
Allowance at beginning of period                  905            803             723             824             893
Charge-offs:
 Commercial and other loans                        --             --              --              --             314
 Real estate loans                                 --             31              --             196             232
                                             --------       --------        --------        --------        --------
  Total loans charged-off                          --             31              --             196             546
                                             --------       --------        --------        --------        --------
Recoveries:
 Commercial and other loans                         8             78              20              28              22
 Real estate loans                                 --             --              --               7              --
                                             --------       --------        --------        --------        --------
  Total loans recovered                             8             78              20              35              22
                                             --------       --------        --------        --------        --------
  Net (charge-offs) recoveries                      8             47              20             161             524
                                             --------       --------        --------        --------        --------
Provision for loan losses
  charged to operating expenses                    10             55              60              60             455
                                             --------       --------        --------        --------        --------
Allowance at end of period                        923            905             803             723             824
                                             --------       --------        --------        --------        --------
Ratio of net recoveries (charge-offs)
  to average loans outstanding (2)                .08%           .09%            .05%            .51%           2.17%
                                             --------       --------        --------        --------        --------
Allowance as a percent of total loans            1.41%          1.49%           2.02%           1.92%           3.27%
                                             ========       ========        ========        ========        ========
Total loans at end of period                 $ 65,591       $ 60,557        $ 39,797        $ 37,715        $ 25,204
                                             ========       ========        ========        ========        ========

</TABLE>

--------------------
(1)      Information is prepared on a proforma basis for comparability purposes.
         Balances stated are not reflected in the historical financial
         statements of the Company.

(2)      Net (charge-offs) recoveries have been annualized to calculate ratios
         for comparability purposes.

DEPOSITS

         The Bank concentrates on obtaining deposits from businesses and
professionals. The Bank offers a number of different deposit programs, including
statement savings accounts, NOW accounts, money market deposits accounts,
checking accounts and certificates of deposits with terms from seven days to
five years. Deposit account terms vary according to the minimum balance
required, the time period the funds must remain on deposit and the interest
rate, among other factors. The Bank prices its deposit offerings competitively
within the market it serves. These products are designed to attract new
customers, retain existing customers and create opportunities to offer other
bank products or services. While the market and pricing for deposit funds are
very competitive, the Bank believes that personalized, quality service is also
an important element in retaining core deposit customers.








<PAGE>


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

<TABLE>
<CAPTION>

                                            DECEMBER 31,             OCTOBER 31,               OCTOBER 31,
                                              1999 (2)                 1999 (1)                 1998 (1)
                                       ------------------------ -----------------------   ----------------------
                                           AVERAGE   AVERAGE       AVERAGE    AVERAGE     AVERAGE    AVERAGE
                                            AMOUNT    YIELD         AMOUNT     YIELD       AMOUNT     YIELD
                                            ------    -----         ------     -----       ------     -----
                                                              (Dollars in thousands)

<S>                                           <C>       <C>          <C>       <C>           <C>       <C>
         Demand deposits                    $ 15,953      --       $ 17,485       --       $ 13,144      --
         NOW and money market                 47,994    3.49%        48,515    3.19%         56,589    4.01
         Savings deposits                      4,665    2.66          4,721     2.58          1,684    3.16
         Time deposits                        32,257    4.56         21,714     5.55         25,203    5.15
                                            -------- -------       -------- --------       -------- -------
         Total deposits                     $100,869    3.19%      $ 92,435    3.11%       $ 97,463   3.77%
                                            ======== =======       ======== =======        ======== ======

</TABLE>

--------------------

(1)      Information is prepared on a proforma basis for comparability purposes.
         Balances stated are not reflected in the historical financial
         statements of the Company.

(2)      Interest expense was annualized to calculate average yield for the two
         months ended December 31, 1999.


         The aggregate amount of jumbo certificates of deposit, each with a
minimum denomination of $100,000, was approximately $30,325,000 at December 31,
1999.

         The following table summarizes the maturity distribution of time
deposits of $100,000 or more as of December 31, 1999:

<TABLE>
<CAPTION>

                                                                      DECEMBER 31,
                                                                          1999
                                                                          ----
                                                                     (In thousands)
         <S>                                                         <C>
         3 months or less                                               $24,792
         Over 3 months but within 6 months                                2,054
         Over 6 months but within 12 months                               1,103
         Over 12 months                                                   2,376
                                                                        -------
         Total                                                          $30,325
                                                                        =======

</TABLE>






<PAGE>


CAPITAL RESOURCES AND LIQUIDITY

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 Berkshire 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 parent company, Berkshire Bancorp Inc. ("Berkshire"), liquidity
means having cash available to fund operating expenses and to pay shareholder
dividends, when and if declared by Berkshire's Board of Directors. Berkshire
paid cash dividends of $.32 per share and $.72 per share in fiscal 1999 and
1998, respectively. No dividends have been declared for the two months ended
December 31, 1999. The ability of Berkshire to fund its operations and to pay
dividends is not dependent upon the receipt of dividends from The Berkshire
Bank. At December 31, 1999, Berkshire had cash of $35.4 million and marketable
securities of $13.4 million.

CAPITAL

         The capital ratios of the Bank and Berkshire are presently in excess of
the requirements necessary to meet the "well capitalized" capital category
established by bank regulators. See Note O.

INTEREST RATE RISK

         Fluctuations in market interest rates can have a material effect on the
Bank'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.

         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:







<PAGE>

<TABLE>
<CAPTION>

                                                                   BERKSHIRE BANCORP INC.
                                                      INTEREST RATE SENSITIVITY GAP AT DECEMBER 31, 1999 (a)
                                                              (IN THOUSANDS, EXCEPT FOR PERCENTAGES)
                                     ---------------------------------------------------------------------------

                                         3 MONTHS           3 THROUGH          1 THROUGH            OVER
                                          OR LESS           12 MONTHS           3 YEARS            3 YEARS            TOTAL
                                      ----------------   ----------------   ----------------   ----------------   ------------

<S>                         <C>             <C>              <C>                <C>               <C>                 <C>
Federal funds sold                    $  13,500          $      --          $      --          $      --          $   13,500
                            (Rate)         5.93%                --                 --                 --                5.93%
                                      ---------          ---------          ---------          ---------          ----------
Interest bearing deposits                 3,834                 --                 --                 --               3,834
  in banks                  (Rate)         5.33%                --                 --                 --                5.33%
                                      ---------          ---------          ---------          ---------          ----------
Loans (1)(2)
Adjustable rate loans                    23,591              9,994              2,993              2,991              39,569
                            (Rate)         9.46%              8.34%              9.00%              8.47%
Fixed rate loans                            432              1,578              2,278             21,734              26,022
                            (Rate)         6.70%              7.08%              8.44%              8.06%               8.01%
                                      ---------          ---------          ---------          ---------          ----------
Total loan                               24,023             11,572              5,271             24,725              65,591
Investmens (3)(4)                         5,218             13,954             24,274             36,121              79,567
                            (Rate)         6.33%              5.24%              5.43%              6.20%               5.81%
                                      ---------          ---------          ---------          ---------          ----------
Total rate-sensitive
  assets                                 46,575             25,526             29,545             60,846             162,492
                                      ---------          ---------          ---------          ---------          ----------

Deposit accounts (5)
Savings and NOW                          10,406                 --                 --                 --              10,406
                            (Rate)         2.35%                                                                        2.35%
Money market                             44,228                 --                 --                 --              44,228
                            (Rate)         3.62%                                                                        3.62%
Time Deposits                            27,306              4,197                809              1,592              33,904
                            (Rate)         4.60%              5.02%              5.60%              5.68%               4.73%
                                      ---------          ---------          ---------          ---------          ----------
Total deposit accounts                   81,940              4,197                809              1,592              88,538
Other borrowings                             --                 --                 --              1,500               1,500
                            (Rate)           --                 --                 --               5.96%               5.96%
                                      ---------          ---------          ---------          ---------          ----------
Total rate-sensitive
  liabilities                            81,940              4,197                809              3,092              90,038
                                      ---------          ---------          ---------          ---------          ----------
Interest rate caps                       25,000             (5,000)                --            (20,000)                 --
Gap (repricing differences)             (60,365)            26,329             28,736             77,754              72,454
                                      =========          =========          =========          =========          ==========
Cumulative Gap                          (60,365)           (34,036)            (5,300)            72,454
                                      =========          =========          =========          =========
Cumulative Gap to Total
  Rate Sensitive Assets                  (37.15)%           (20.95)%            (3.26)%            44.59%
                                      =========          =========          =========          =========

</TABLE>

--------------------
(a) Interest income and expense have been annualized to calculate rates.
(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
    amongst maturity/repricing periods based upon The Berkshire Bank's
    historical experience. All other time accounts are scheduled according to
    their respective maturity dates.





<PAGE>


IMPACT OF THE YEAR 2000

         The Company, apart from its subsidiaries, reviewed its financial and
other systems and modified and/or replaced those systems which may have been
impacted by the arrival of the year 2000. The total cost of the Year 2000
preparedness program for the Company, apart from its subsidiaries, was not
material.

         The Bank had an ongoing program to ensure that its operational and
financial systems would not be adversely affected by Year 2000 software
failures. The Bank purchased, installed and converted to new hardware and
banking software, and successfully completed a series of tests to ensure Year
2000 compliance. The cost of such conversion and other Year 2000 preparations
was approximately $200,000. The Bank developed a contingency plan which would
allow it to continue operations while unforeseen software problems were
corrected. The contingency plan called for the creation of complete system
backups of critical data on critical dates, the creation of duplicate account
balances and transaction files, and the downloading of account balances and
transaction files to personal computer spreadsheets. In the event that any
software problems were encountered during processing at century roll over, or
are encountered at leap year, the Bank has expected that it would be able to
manage its operations by using the files noted above, along with manual reports.
Given the size of the Bank, the number of accounts, and the number of daily
transactions, management believes that the Bank could continue operations while
such software problems are corrected.

         While the Bank believes it has and is taking all appropriate steps to
assure Year 2000 compliance, it is dependent on vendor compliance to some
extent. The Bank required its systems and software vendors to represent that the
services and products provided were Year 2000 compliant.

         In addition to possible expenses related to the Bank's systems and
those of its service providers, the Bank could incur losses if Year 2000
problems adversely affected any of its depositors or borrowers. Such problems
could include, among other things, delayed loan payments. Due to the diversity
of the loan portfolio and the fact that the Bank's market area is not dependent
on one employer or industry, the Bank did not expect any such Year 2000 related
difficulties that may have affected its depositors and borrowers to
significantly affect net earnings or cash flow.

         As of March 24, 2000, the Company has not experienced any problems
related to Year 2000 issues.

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.

NEW ACCOUNTING PRONOUNCEMENTS

DERIVATIVES AND HEDGING

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133 ("SFAS No. 133"), "Accounting
for Derivative Instruments and Hedging Activities" which establishes
requirements for the proper accounting, reporting and financial statement
presentation of derivative instruments and hedging activities. Among






<PAGE>

other provisions, SFAS No. 133 requires that derivative instruments must be
reflected in a company's financial statements independent of any hedging or
similar transaction designed to reduce the risks of owning the derivative
instrument. The Company will reflect any investments in derivative instruments
or hedging activities in accordance with SFAS No. 133 and does not expect such
reporting to have a material effect on its financial condition or results of
operations. SFAS No. 133 also permits certain reclassifications of securities
among the trading, available for sale and held to maturity classifications. The
Company and the Bank have no current intention to reclassify any securities
pursuant to SFAS No. 133. Subsequent to SFAS No. 133, the FASB issued SFAS No.
137, which amended the effective date of SFAS No. 133 to be all fiscal quarters
of fiscal years beginning after June 15, 2000. Earlier application is permitted
only as of the beginning of any fiscal quarter. The Company is currently
reviewing the provisions of SFAS No. 133, as amended by SFAS No. 137.

ITEM 8. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         Inasmuch as the acquisition of the Bank was not consummated until
subsequent to October 31, 1998, the financial statements set forth below include
the results of operations of the Bank from the date of the acquisition, January
4, 1999, through December 31, 1999.

               Report of Independent Certified Public Accountants

Board of Directors and Stockholders
Berkshire Bancorp Inc.

We have audited the accompanying consolidated balance sheets of Berkshire
Bancorp Inc. and its subsidiaries as of December 31, 1999 and October 31, 1999
and the related consolidated statements of income, stockholders' equity, and
cash flows for the two months ended December 31, 1999 and the two years in the
period ended October 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Berkshire Bancorp
Inc. and its subsidiaries as of December 31, 1999 and October 31, 1999, and the
consolidated results of their operations and their consolidated cash flows for
the two months ended December 31, 1999 and the two years in the period ended
October 31, 1999 in conformity with generally accepted accounting principles.

GRANT THORNTON LLP

Philadelphia, Pennsylvania
March 20, 2000











<PAGE>

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

<TABLE>
<CAPTION>

                                                                                 DECEMBER 31,         OCTOBER 31,
                                                                                     1999                1999
                                                                                 --------------------------------

<S>                                                                                  <C>                 <C>
ASSETS
Cash and due from banks                                                            $   2,545           $   2,333
Interest bearing deposits                                                              3,834               3,496
Federal funds sold                                                                    13,500              18,000
                                                                                   ---------           ---------
Total cash and cash equivalents                                                       19,879              23,829
Investment Securities:
 Available-for-sale                                                                   84,498              80,775
 Held-to-maturity, fair value of $4,998
   in 1999 and $2,099 in 1998                                                          4,999               2,101
                                                                                   ---------           ---------
Total investment securities                                                           89,497              82,876
Loans, net of unearned income                                                         65,591              60,557
 Less: allowance for loan losses                                                        (923)               (905)
                                                                                   ---------           ---------
Net loans                                                                             64,668              59,652
Accrued interest receivable                                                            1,614               1,567
Premises and equipment, net                                                              370                 392
Goodwill, net of amortization of $730
  in 1999 and $608 in 1998                                                            12,073              12,195
                                                                                   ---------           ---------
Other assets                                                                           4,029                 475
                                                                                   ---------           ---------
Total assets                                                                       $ 192,130           $ 180,986
                                                                                   =========           =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
 Non-interest bearing                                                              $  15,549           $  14,676
 Interest bearing                                                                     88,538              87,642
                                                                                   ---------           ---------
Total deposits                                                                       104,087             102,318
Securities sold under agreements to repurchase                                         1,500               1,500
Accrued interest payable                                                                 161                 290
Accrued other liabilities                                                              1,569               1,671
Income taxes payable                                                                   2,741               1,424
Deferred tax liability                                                                 4,002                 477
                                                                                   ---------           ---------
Total liabilities                                                                    114,060             107,680
                                                                                   ---------           ---------
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 - 2,566,095 shares
   Outstanding -
    December 31, 1999, 2,127,265 shares
    October 31, 1999, 2,127,265 shares                                                   256                 256
Additional paid-in capital                                                            78,570              78,570
Accumulated other comprehensive income, net                                            4,425               1,943
Accumulated deficit                                                                   (2,421)             (4,703)
Less: Treasury Stock
  December 31, 1999, 438,830 shares
  October 31, 1999, 438,830 shares                                                    (2,760)             (2,760)
                                                                                   ---------           ---------
Total stockholders' equity                                                            78,070              73,306
                                                                                   ---------           ---------
                                                                                   $ 192,130           $ 180,986
                                                                                   =========           =========

</TABLE>

              SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                FOR THE                        FOR THE
                                                           TWO MONTHS ENDED             YEARS ENDED OCTOBER 31,
                                                              DECEMBER 31,
                                                    --------------------------      -----------------------------
                                                                   1999                 1999            1998
                                                                 --------             --------        ------

<S>                                                              <C>                  <C>             <C>
INTEREST INCOME
Short-term interest-earning assets                               $    184             $    965        $  3,313
Securities and other investments                                      767                4,415              --
Loans                                                                 892                3,145              --
                                                                 --------             --------        --------
Total interest income                                               1,843                8,525           3,313
                                                                 --------             --------        --------
INTEREST EXPENSE
Deposits                                                              537                2,473              --
Borrowings                                                             16                   75              --
                                                                 --------             --------        --------
Total interest expense                                                553                2,548              --
                                                                 --------             --------        --------
Net interest income                                                 1,290                5,977           3,313
PROVISION FOR LOAN LOSSES                                              10                   45              --
                                                                 --------             --------        --------
Net interest income after
 provision for loan losses                                          1,280                5,932           3,313
                                                                 --------             --------        --------
NON-INTEREST INCOME
Investment securities gains                                         3,109                7,622          38,909
Other income                                                           70                  633              44
                                                                 --------             --------        --------
Total non-interest income                                           3,179                8,255          38,953
                                                                 --------             --------        --------
NON-INTEREST EXPENSE
Salaries and employee benefits                                        324                1,474             103
Net occupancy expense                                                  70                  360              18
Equipment expense                                                      22                   99              --
FDIC assessment                                                         3                    8              --
Data processing expense                                                --                   17              --
Amortization of goodwill                                              122                  608              --
Other                                                                 188                  990             945
                                                                 --------             --------        --------
Total non-interest expense                                            729                3,556           1,066
                                                                 --------             --------        --------
Income before provision for taxes                                   3,730               10,631          41,200
Provision for income taxes                                          1,448                4,091           3,573
                                                                 --------             --------        --------
Net income                                                       $  2,282             $  6,540        $ 37,627
                                                                 ========             ========        ========
Net income per share:
 Basic                                                           $   1.07             $   3.08        $  17.70
                                                                 ========             ========        ========
 Diluted                                                         $   1.01             $   2.89        $  16.66
                                                                 ========             ========        ========

Dividends per share                                              $     --             $    .32        $    .72

</TABLE>

                   SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






<PAGE>


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

                   FOR THE TWO MONTHS ENDED DECEMBER 31, 1999 AND
                    FOR THE YEARS ENDED OCTOBER 31, 1999 AND 1998
                                 (In Thousands)


<TABLE>
<CAPTION>

                                                                                        ACCUMULATED
                                                            STOCK     ADDITIONAL           OTHER           (ACCUMU-
                                                 COMMON      PAR        PAID-IN        COMPREHENSIVE         LATED
                                                 SHARES     VALUE       CAPITAL         INCOME, NET        DEFICIT)
                                                 ------    ------       --------        ------------       --------
<S>                                          <C>         <C>          <C>             <C>               <C>
BALANCE AT NOVEMBER 1, 1997                     2,566       $256         $78,546            $32,359        $(46,659)

Net Income                                                                                                   37,627
Other comprehensive income (loss)
 net of reclassification adjustment
 and taxes                                                                                  (32,359)
Comprehensive income

Cash dividends                                                                                               (1,531)
                                               ------       ----         -------            -------         -------
BALANCE AT OCTOBER 31, 1998                     2,566        256          78,546                 --         (10,563)

Net Income                                                                                                    6,540
Treasury shares issued for
 options exercised                                                            24
Other comprehensive income (loss)
 net of reclassification adjustment
 and taxes                                                                                    1,943
Comprehensive income

Cash dividends                                                                                                 (680)
                                                -----       ----         -------            -------        --------
BALANCE AT OCTOBER 31, 1999                     2,566       $256         $78,570            $ 1,943        $ (4,703)

Net income                                                                                                     2,282
Other comprehensive income (loss)
 net of reclassification adjustment
 and taxes                                                                                    2,482
Comprehensive income

                                                -----       ----         -------            -------        --------
BALANCE AT DECEMBER 31, 1999                    2,566       $256         $78,570            $ 4,425        $ (2,421)
                                                =====       ====         =======            =======        ========


<CAPTION>

                                                                                             TOTAL
                                                  TREASURY           COMPREHENSIVE        STOCKHOLDERS'
                                                   STOCK                 INCOME              EQUITY
                                                 ----------              ------              ------

<S>                                              <C>             <C>                 <C>
BALANCE AT NOVEMBER 1, 1997                         $(2,773)                                  61,729

Net Income                                                                37,627              37,627
Other comprehensive income (loss)
 net of reclassification adjustment
 and taxes                                                               (32,359)            (32,359)
                                                                         -------             ------
Comprehensive income                                                     $ 5,268
                                                                         =======
Cash dividends                                                                                (1,531)
                                                    -------                                  ------
BALANCE AT OCTOBER 31, 1998                          (2,773)                                  65,466

Net Income                                                                 6,540               6,540
Treasury shares issued for
 options exercised                                       13                                       37
Other comprehensive income (loss)
 net of reclassification adjustment
 and taxes                                                                 1,943               1,943
                                                                         -------
Comprehensive income                                                     $ 8,483
                                                                         =======
Cash dividends                                                                                  (680)
                                                    -------                                   ------
BALANCE AT OCTOBER 31, 1999                         $(2,760)                                 $73,306

Net income                                                                 2,282               2,282
Other comprehensive income (loss)
 net of reclassification adjustment
 and taxes                                                                 2,482               2,482
                                                                         -------
Comprehensive income                                                     $ 4,763
                                                    -------              =======             -------
BALANCE AT DECEMBER 31, 1999                        $(2,760)                                 $78,070
                                                    =======                                  =======

</TABLE>

        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.








<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                   FOR THE TWO                 FOR THE
                                                                  MONTHS ENDED               YEARS ENDED
                                                                   DECEMBER 31,              OCTOBER 31,
                                                                  -------------         ----------------------
                                                                      1999              1999         1998
                                                                      ----              ----         ----
<S>                                                                  <C>               <C>        <C>
  Cash flows from operating activities:
Net income                                                             $  2,282            $6,540     $ 37,627
Adjustments to reconcile net income to net
 Cash provided by (used in) operating activities:
Realized gain on investment securities                                   (3,109)           (7,622)     (38,909)
(Increase) in deferred taxes                                                 --            (1,402)        (925)
Depreciation and amortization and other                                     144               713           --
Provision for loan losses                                                    10                45           --

  Changes in assets and liabilities:
 (Increase) in accrued interest receivable                                  (47)             (817)          --
 (Increase) decrease in prepaid expenses and other                       (1,025)              115          (80)
 Increase in accounts payable, other accrued
  expenses, liabilities and income taxes payable                          2,684             4,542          272
                                                                       --------          --------     --------
 Net cash provided by (used in) operating activities                      1,061             2,114       (2,015)
                                                                       --------          --------     --------

  Cash flows from investing activities:
Investment in The Berkshire Bank                                             --           (25,216)          --
Cash of entities acquired                                                    --            22,439           --
Proceeds from investment securities-available for sale                    3,110             7,634       42,916
Investment securities available for sale
 Purchases                                                               (4,856)          (23,138)          --
Net increase in loans                                                    (5,034)          (18,744)          --
Net increase in loans held for sale                                          --            (1,872)          --
Acquisition of premises and equipment                                        --              (191)          --
                                                                       --------          --------     --------
Net cash provided by (used in) investing activities                      (6,780)          (39,088)      42,916
                                                                       --------          --------     --------

  Cash flows from financing activities:
Net increase (decrease) in non interest bearing deposits                    873            (6,361)          --
Net increase in interest bearing deposits                                   896             2,577           --
Proceeds from exercise of common stock options                               --                 9           --
Dividends paid                                                               --              (680)      (1,531)
                                                                       --------          --------     --------
Net cash provided by (used in) financing activities                       1,769            (4,455)      (1,531)
                                                                       --------          --------     --------

  Net increase (decrease) in cash and cash equivalents                   (3,950)          (41,429)      39,371
  Cash and cash equivalents at beginning of period                       23,829            65,258       25,887
                                                                       --------          --------     --------
  Cash and cash equivalents at end of period                           $ 19,879          $ 23,829     $ 65,258
                                                                       ========          ========     ========
Supplemental disclosures of cash flow information:
  Cash used to pay interest                                            $    682          $  2,258     $     --
  Cash used to pay income taxes                                              --          $  2,602     $  4,419
</TABLE>


                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE A - ORGANIZATION AND PLAN OF MERGER AND CAPITALIZATION

         ORGANIZATION

         In December 1998, Berkshire Bancorp Inc. ("Berkshire"), a Delaware
corporation, received regulatory approval from the Federal Reserve Bank of New
York to become a Bank Holding Company registered under the Bank Holding Company
Act of 1956 and to acquire control of The Berkshire Bank. The consolidated
financial statements include the accounts of Berkshire Bancorp Inc. and its
wholly owned subsidiaries, Greater American Finance Group, Inc. ("GAFG") and The
Berkshire Bank (the "Bank"), (collectively, the "Company"). In fiscal 1999, the
Company changed its name to Berkshire Bancorp Inc. from Cooper Life Sciences,
Inc.

         The Bank, a New York State chartered commercial bank, was established
in 1989 to provide highly personalized services to high net worth individuals
and to small and mid-sized commercial businesses primarily from the New York
City metropolitan area. The Bank's main office is in Manhattan and it has one
branch in Brooklyn, NY.

         The Bank competes with other banking and financial institutions in its
markets. Commercial banks, savings banks, savings and loan associations,
mortgage bankers and brokers, and credit unions actively compete for deposits
and loans. Such institutions, as well as consumer finance, mutual funds,
insurance companies, and brokerage and investment banking firms may be
considered to be competitors of the Bank with respect to one or more of the
services provided by the Bank.

         The Company and the Bank are subject to the regulations of certain
state and federal agencies and, accordingly, are periodically examined by those
regulatory authorities. As a consequence of such regulation of banking
activities, the Bank's business may be affected by state and federal
legislation.

         Prior to the acquisition of the Bank on January 4, 1999, Berkshire has
not been engaged in any operating activities since October 1994 when it disposed
of its majority interest in a company engaged in mortgage banking.

         PLAN OF MERGER

         In August 1998, Berkshire, through its wholly owned subsidiary GAFG,
made a cash tender offer for any and all of the outstanding shares of common
stock of the Bank at $10.50 cash per share. The purchase was consummated on
January 4, 1999. Pursuant to the terms of the offer, Berkshire acquired 99% of
the outstanding shares of the Bank's common stock for a purchase price of
approximately $25.2 million. In connection with this transaction, the Bank
became a wholly owned subsidiary of Berkshire.

         This transaction was accounted for under the purchase method of
accounting and accordingly, the results of operations of the Company for the
year ended October 31, 1999, include only the results of operations of the Bank
from the date of acquisition, January 4, 1999, through October 31, 1999. The
acquisition resulted in the recording of approximately $14.6 million of
goodwill, which is being amortized on a straight-line basis over 20 years.




<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE A - (CONTINUED)

         The following represents the unaudited pro forma financial information
of the Company as if the acquisition occurred on the first date of the period
indicated. The pro forma information should be read in conjunction with the
related historical information and is not necessarily indicative of the results
that would have been attained had the transaction actually taken place (in
thousands).


<TABLE>
<CAPTION>
                                                FOR THE YEAR ENDED             FOR THE YEAR ENDED
                                                 OCTOBER 31, 1999               OCTOBER 31, 1998
                                            ----------------------------   ---------------------------
<S>                                        <C>                            <C>
Interest income                                      $9,515                        $ 9,392
Interest Expense                                      2,964                          3,642
                                                     ------                        -------
Net interest income                                   6,551                          5,750
Provision for loan losses                                45                             60
Non-interest income                                   8,355                         39,311
Non-interest expense                                  4,156                          4,474
                                                     ------                        -------
Net income                                           $5,861                        $37,119
                                                     ======                        =======
</TABLE>



NOTE B - SUMMARY OF ACCOUNTING POLICIES

1.       BASIS OF FINANCIAL STATEMENT PRESENTATION

         The consolidated financial statements include the accounts of Berkshire
Bancorp Inc. and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

         On December 10, 1999, the Board of Directors of the Company approved a
change in the Company's fiscal year from October 31 to December 31. This change
was effective December 31, 1999.

         In preparing the financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the balance
sheets, and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

         The principal estimate that is susceptible to significant change in the
near term relates to the allowance for loan losses. The evaluation of the
adequacy of the allowance for loan losses includes an analysis of the individual
loans and overall risk characteristics and size of the different loan
portfolios, and takes into consideration current economic and market conditions,
the capability of specific borrowers to pay specific loan obligations, as well
as current loan collateral values. However, actual losses on specific loans,
which also are encompassed in the analysis, may vary from estimated losses.




<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE B (CONTINUED)

         In 1998, the Company adopted Statement of Financial Accounting
Statements ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 redefines how operating segments are
determined and requires disclosures of certain financial and descriptive
information about the Company's operating segments. Management has determined
the Company operates in one business segment, community banking.

2.       INVESTMENT SECURITIES

         The Company accounts for its investment securities in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". This standard requires investments in securities to be classified
in one of three categories: held to maturity, trading or available for sale.
Investments for which management has both the ability and intent to hold to
maturity, are carried at cost, adjusted for the amortization of premiums and
accretion of discounts computed by the interest method. Investments which
management believes may be sold prior to maturity due to changes in interest
rates, prepayment risk and equity, liquidity requirements or other factors, are
classified as available for sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of tax, and reported as a
separate component of stockholders' equity and excluded from the determination
of net income. Gains or losses on disposition are based on the net proceeds and
cost of the securities sold, adjusted for amortization of premiums and accretion
of discounts, using the specific identification method.

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activity." SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments imbedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge. The accounting for
changes in the fair value of a derivative (gains and losses) depends on the
intended use of the derivative and resulting designation. Subsequent to SFAS No.
133, the FASB issued SFAS No. 137, which amended the effective date of SFAS No.
133 to be all fiscal quarters of fiscal years beginning after June 15, 2000.
Earlier application is permitted only as of the beginning of any fiscal quarter.
The Company is currently reviewing the provisions of SFAS No. 133, as amended by
SFAS No. 137.

3.       LOANS AND ALLOWANCE FOR LOAN LOSSES

         Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are stated at the amount of
unpaid principal and are net of unearned discount, unearned loan fees and an
allowance for credit losses. The allowance for loan losses is established
through a provision for loan losses charged to expense. Loan principal
considered to be uncollectible by management is charged against the allowance
for credit losses. The allowance is an amount that management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectible based upon an evaluation of known and inherent risks in the loan
portfolio. The evaluation takes into consideration such factors as changes in
the nature and size of the loan portfolio, overall portfolio quality, specific
problem loans, and current and future economic conditions which may affect the
borrowers' ability to pay. The evaluation details historical losses by loan
category, the resulting loss rates for which are projected at current loan total
amounts.




<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE B - (CONTINUED)

         Interest income is accrued as earned on a simple interest basis.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of interest is doubtful.
When a loan is placed on such non-accrual status, all accumulated accrued
interest receivable applicable to periods prior to the current year is charged
off to the allowance for loan losses. Interest which had accrued in the current
year is reversed out of current period income. Loans 90 days or more past due
and still accruing interest must have both principal and accruing interest
adequately secured and must be in the process of collection.

         The Company accounts for its impaired loans in accordance with SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." This standard requires that a creditor measure impairment based on
the present value of expected future cash flows discounted at the loan's
effective interest rate, except that as a practical expedient, a creditor may
measure impairment based on a loan's observable market price, or the fair value
of the collateral if the loan is collateral-dependent. Regardless of the
measurement method, a creditor must measure impairment based on the fair value
of the collateral when the creditor determines that foreclosure is probable.

4.       BANK PREMISES AND EQUIPMENT

         Bank premises and equipment, including leasehold improvements, are
stated at cost less accumulated depreciation. Depreciation expense is computed
on the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are depreciated over the shorter of the estimated useful
lives of the improvements or the terms of the related leases.

5.       OTHER REAL ESTATE OWNED

         Other real estate owned ("OREO"), representing property acquired
through foreclosure, is recorded at the lower of cost or estimated fair market
value, less costs of disposal. When property is acquired, the excess, if any, of
the loan balance over fair market value is charged to the allowance for loan
losses. Periodically thereafter, the asset is reviewed for subsequent declines
in the estimated fair market value. Subsequent declines, if any, and holding
costs, as well as gains and losses on subsequent sale, are included in the
consolidated statements of operations.

6.       GOODWILL

         Goodwill resulted from the acquisition of the Berkshire Bank and is
being amortized on a straight-line basis over approximately 20 years.
Amortization expense for the two months ended December 31, 1999 and the year
ended October 31, 1999, was approximately $122,000 and $608,000, respectively.




<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE B - (CONTINUED)

7.       INCOME TAXES

         The Company accounts for income taxes under the provisions of SFAS No.
109 - "Accounting for Income Taxes." Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities as measured by the enacted tax rates that will be in
effect when these differences reverse. Deferred tax expense is the result of
changes in deferred tax assets and liabilities. The principal types of
differences between assets and liabilities for financial statement and tax
return purposes are allowance for loan and lease losses, deferred loan fees,
deferred compensation and securities available for sale.

8.       NET INCOME PER SHARE

         The Company follows the provisions of SFAS No. 128, "Earnings Per
Share," which eliminated primary and fully dilutive earnings per share and
requires presentation of basic and dilutive earnings per share in conjunction
with the disclosure of the methodology used in computing such earnings per
share. Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average common shares
outstanding during the period. Diluted earnings per share takes into account the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised and converted into common stock.

9.       EMPLOYEE BENEFIT PLANS

         The Company follows SFAS No. 123 "Accounting for Stock Based
Compensation," This statement introduced a method of accounting for employee
stock-based compensation plans based upon the fair value of the awards on the
date they are granted. Under this fair value based method, public companies
estimate the fair value of stock options using a pricing model, such as the
Black-Scholes model, which requires inputs such as the expected volatility of
the stock price and an estimate of the dividend yield over the option's expected
life. The FASB, however, does not require the use of this method. Entities that
continue to account for stock option plans under the existing method (APB No.
25) are required to disclose proforma net income and earnings per share, as if
the fair value method had been used.

10.      CASH EQUIVALENTS

         The Company considers all highly liquid debt investments purchased with
an original maturity of three months or less, and amounts due from brokers to be
cash equivalents.

11.      RESTRICTIONS ON CASH AND DUE FROM BANKS

         The Bank is required to maintain reserves against customer demand
deposits by keeping cash on hand or balances with the Federal Reserve Bank in a
non-interest bearing account. The amounts of those reserve and cash balances was
approximately $1,169,000 and $688,000 at December 31, 1999 and October 31, 1999,
respectively.




<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE B - (CONTINUED)

12.      COMPREHENSIVE INCOME

         On January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income." This new standard establishes standards for
reporting comprehensive income, which includes net income as well as certain
other items, which results in a change to equity during the period. These
financial statements have been reclassified to reflect the provisions of SFAS
No. 130. (In thousands.)

<TABLE>
<CAPTION>
                                                              FOR THE TWO MONTHS ENDED
                                                                 DECEMBER 31, 1999
                                                -----------------------------------------------------
                                                                         Tax
                                                   Before tax         (expense)          Net of tax
                                                     amount            benefit             Amount
                                                ----------------   --------------     ---------------
<S>                                           <C>                 <C>               <C>
Unrealized gains
 on investment securities:

  Unrealized holding gains
   arising during period                              $6,986          $(2,640)            $4,346

  Less reclassification
   adjustment for gains
   realized in net income                              3,109           (1,244)             1,865
                                                      ------          -------             ------
Other comprehensive
 income, net                                          $3,877          $(1,396)            $2,481
                                                      ======          =======             ======
</TABLE>



<TABLE>
<CAPTION>
                                                             YEAR ENDED OCTOBER 31, 1999
                                                -----------------------------------------------------
                                                                         Tax
                                                   Before tax         (expense)          Net of tax
                                                     amount            benefit             Amount
                                                ----------------   --------------     ---------------
<S>                                           <C>                 <C>               <C>
Unrealized gains
 on investment securities:

  Unrealized holding gains
   arising during period                            $10,860            $(4,344)             $6,516

  Less reclassification
   adjustment for gains
   realized in net income                             7,622             (3,049)              4,573
                                                    -------            -------              ------
Other comprehensive
 income, net                                        $ 3,238            $(1,295)             $1,943
                                                    =======            =======              ======
</TABLE>




<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE B - (CONTINUED)

<TABLE>
<CAPTION>
                                                              YEAR ENDED OCTOBER 31, 1998
                                                -----------------------------------------------------
                                                                        Tax
                                                    Before tax        (expense)         Net of tax
                                                      amount           benefit            Amount
                                                ----------------   --------------     ---------------
<S>                                              <C>              <C>                 <C>
Unrealized gains (losses)
 on investment securities:

  Unrealized holding losses
   arising during period                            $(15,023)         $  6,009            $ (9,014)

  Less reclassification
   adjustment for gains
   realized in net income                             38,909           (15,564)              23,345
                                                    --------          --------             --------
Other comprehensive
 income (loss), net                                 $(53,932)         $ 21,573             $(32,359)
                                                    ========          ========             ========
</TABLE>


13.      RECLASSIFICATIONS

         Certain amounts in the October 31, 1999 and 1998 financial statements
have been reclassified to conform to the current period's presentation.

NOTE C - INVESTMENT SECURITIES

         The following is a summary of held to maturity investment securities as
of December 31, 1999 and October 31, 1999:


<TABLE>
<CAPTION>
                                                                 DECEMBER 31, 1999
                                       ----------------------------------------------------------------------
                                                              GROSS              GROSS
                                     AMORTIZED COST        UNREALIZED          UNREALIZED            FAIR
                                                              GAINS              LOSSES              VALUE
                                     --------------      --------------      --------------     --------------
                                                                   (In thousands)
<S>                                <C>                  <C>                <C>                <C>
Investment securities
U.S. Government Agencies                   522                  --                  --                522

Corporate notes                          4,477                  --                  (1)             4,476
                                        ------                 ---                 ---             ------
 Totals                                 $4,999                 $--                 $(1)            $4,998
                                        ======                 ===                 ===             ======
</TABLE>



<TABLE>
<CAPTION>
                                                                 OCTOBER 31, 1999
                                       ----------------------------------------------------------------------
                                                              GROSS              GROSS
                                     AMORTIZED COST        UNREALIZED          UNREALIZED            FAIR
                                                              GAINS              LOSSES              VALUE
                                     --------------      --------------      --------------     --------------
                                                                   (In thousands)
<S>                                <C>                  <C>                <C>                 <C>
Investment securities
U.S. Government Agencies                $1,605                 $--                 $(2)            $1,603

Corporate notes                            496                  --                  --                496
                                        ------                 ---                 ---             ------
 Totals                                 $2,101                 $--                 $(2)            $2,099
                                        ======                 ===                 ===             ======
</TABLE>




<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE C - (CONTINUED)

         The following is a summary of available-for-sale securities as of
December 31, 1999 and October 31, 1999:


<TABLE>
<CAPTION>
                                                               DECEMBER 31, 1999
                                       ----------------------------------------------------------------------
                                                              GROSS              GROSS
                                     AMORTIZED COST        UNREALIZED          UNREALIZED            FAIR
                                                              GAINS              LOSSES              VALUE
                                     --------------      --------------      --------------     --------------
                                                                   (In thousands)
<S>                                <C>                  <C>                <C>                <C>
Investment securities

U.S. Treasury and
 U.S.  Government
 Agencies                                $65,907           $   --               $(1,161)           $64,746

Mortgage-backed
 securities                                4,571               --                   (75)             4,496

Marketable equity
 securities and other                      6,060            9,745                  (549)            15,256
                                         -------           ------               -------            -------
 Totals                                  $76,538           $9,745               $(1,785)           $84,498
                                         =======           ======               =======            =======
</TABLE>



<TABLE>
<CAPTION>
                                                               OCTOBER 31, 1999
                                       ----------------------------------------------------------------------
                                                              GROSS              GROSS
                                     AMORTIZED COST        UNREALIZED          UNREALIZED            FAIR
                                                              GAINS              LOSSES              VALUE
                                     --------------      --------------      --------------     --------------
                                                                   (In thousands)
<S>                                <C>                  <C>                <C>                <C>
Investment securities

U.S. Treasury and
 U.S. Government
 Agencies                                $65,934           $   --               $(1.070)           $66,864

Mortgage-backed
 securities                                4,841               --                   (73)             4,768

Marketable equity
 securities and other                      4,572            6,837                  (266)            11,143
                                         -------           ------               -------            -------

 Totals                                  $75,347           $6,837               $(1,409)           $80,775
                                         =======           ======               =======            =======
</TABLE>




<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE C - (CONTINUED)

         The amortized cost and fair value of investment securities available
for sale, by contractual maturity, at December 31, 1999 are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.

<TABLE>
<CAPTION>
                                                                       DECEMBER 31, 1999
                                                              ------------------------------------
                                                               AMORTIZED COST          FAIR
                                                                                      VALUE
                                                              ---------------   ------------------
                                                                          (In thousands)
<S>                                                           <C>                <C>
Due in one year or less                                           $13,001            $12,944
Due after one through five years                                   38,449             37,565
Due after five through ten years                                   13,215             12,815
Due after ten years                                                 7,495              7,342
Marketable equity securities                                        4,378             13,832
                                                                  -------            -------
 Totals                                                           $76,538            $84,498
                                                                  =======            =======
</TABLE>


         The amortized cost and fair value of investment securities held to
maturity, by contractual maturity, at December 31, 1999 are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.

<TABLE>
<CAPTION>

                                                                         DECEMBER 31, 1999
                                                              -----------------------------------
                                                                                       FAIR
                                                               AMORTIZED COST         MARKET
                                                                                      VALUE
                                                              ---------------   ------------------
                                                                           (In thousands)
<S>                                                            <C>              <C>
Due in one year or less                                           $3,981             $3,979
Due after one through five years                                     631                632
Due after five through ten years                                     121                121
Due after ten years                                                  266                266
                                                                  ------             ------
 Totals                                                           $4,999             $4,998
                                                                  ======             ======
</TABLE>



         Proceeds from the sales of investment securities for the two month
period ending December 31, 1999 were $3,110,000. During the fiscal years ended
October 31, 1999 and 1998, such proceeds were $7,634,000 and $42,916,000,
respectively. Gross gains realized on those sales were $3,110,000 for the two
months ended December 31, 1999, and $7,622,000 and $38,909,000 in fiscal years
1999 and 1998, respectively. Losses were not material for the two months ended
December 31, 1999 and the years ended October 31, 1999 and 1998.

         As of December 31, 1999 and October 31, 1999, investment securities
with a book value of approximately $300,000 were pledged to secure public
deposits and for other purposes as provided by law. As of December 31, 1999 and
October 31, 1999, the Company did not have any investment securities of any one
issuer where the carrying value exceeded 10% of shareholders' equity.




<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE C - (CONTINUED)

         COMMON STOCK OF EXECUTONE INFORMATION SYSTEMS, INC.

         In 1995, Unistar Gaming Corp. ("UGC") acquired Unistar Entertainment,
Inc., a privately held Colorado corporation ("Unistar"). As a result of the
acquisition, approximately 27.5% of the outstanding Common Stock of UGC (the
"UGC Common Stock") was owned by the Company, and approximately 72.5% of the UGC
Common Stock was owned by the former stockholders of Unistar. Unistar held an
exclusive contract with the Coeur d'Alene Indian Tribe in Idaho to develop and
manage what would be the first national lottery in the United States. The shares
of UGC Common Stock which were owned by the Company were purchased for
approximately $5 million comprised primarily of cash, portfolio securities and a
note payable. In December 1995, the Company increased its stake in UGC to
approximately 31.5% by purchasing an additional 400,000 shares of UGC Common
Stock from a UGC stockholder for a cash purchase price of $.50 per share.

         In December 1995, the Company sold its minority equity interest in
Unistar Gaming Corp. ("UGC") to Executone, a Virginia corporation whose common
stock trades on the NASDAQ National Market System. The Company's investment in
UGC was approximately $5.2 million.

         In exchange for its interest in UGC, the Company received shares of
Executone Common Stock, all of which were sold in open market transactions
during 1998, and shares of Executone Series A and Series B Preferred Stock (the
"Executone Preferred Stock"). In 1997, the Company fully reserved the carrying
value, approximately $2.1 million, of its shares of Executone Preferred Stock
and recorded a deferred tax asset of $925,000.

         In March 1999, Executone exercised its right to redeem and convert the
Executone Preferred Stock into Executone Common Stock and on April 6, 1999, in
exchange for its shares of Executone Preferred Stock, the Company received
4,193,204 shares of Executone Common Stock with a market value of approximately
$17.7 million.

         At December 31, 1999 and October 31, 1999, the Company owned
1,792,106 shares and 2,514,651 shares, respectively, of Executone Common Stock
which have been classified as available-for-sale securities. At December 31,
1999 and October 31, 1999, the unrealized gain of approximately $5.8 million and
$4.1 million, net of deferred taxes of approximately $3.9 million and $2.7
million, respectively, have been recorded as a component of other accumulated
comprehensive income.




<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE D - LOANS

         Major classifications of loans are as follows:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,        OCTOBER 31,
                                                                   1999                1999
                                                              ---------------   ------------------
                                                                        (In thousands)
<S>                                                           <C>                  <C>
Commercial                                                       $ 5,358              $ 9,204
Commercial mortgage                                               27,709               26,431
Residential mortgage                                              29,943               22,844
Consumer                                                           2,581                2,078
                                                                 -------              -------
                                                                  65,591               60,557
Allowance for credit losses                                         (923)                (905)
                                                                 -------              -------
                                                                 $64,668              $59,652
                                                                 =======              =======
</TABLE>



         Changes in the allowance for credit losses are as follows:

<TABLE>
<CAPTION>
                                                              FOR THE TWO MONTHS
                                                              ENDED DECEMBER 31,      OCTOBER 31,
                                                                    1999                 1999
                                                              ------------------      -----------
                                                                         (In thousands)
<S>                                                           <C>                    <C>
Balance at beginning of year                                        $905                 $ --
Provision charged to operations                                       10                   45
Loans charged off                                                     --                   --
Recoveries                                                             8                   69
Acquisition of The Berkshire Bank                                     --                  791
                                                                    ----                 ----
Balance at end of year                                              $923                 $905
                                                                    ====                 ====
</TABLE>




<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE D (CONTINUED)

         At December 31, 1999, the Bank did not have any loans outstanding to
its directors and officers which were secured by real estate and/or deposit
accounts. Management of the Bank is of the opinion that such loans, when and if
made, are made in the ordinary course of business and on substantially the same
terms as those prevailing at the same time for comparable transactions with
unrelated parties and do not involve more than normal risk of collectibility or
present other unfavorable features. In June 1999, the Company made a term loan
in the principal amount of $2,000,000 to Pharmaceutical Holdings Corp., a
Delaware corporation, the principal stockholder of which is Momar Corporation,
the principal stockholder and chief executive officer of which is Moses Marx, a
director and principal stockholder of the Company.

         Included in loans receivable are non-accrual loans past due 90 days or
more in the amounts of $0 and $121,000 at December 31, 1999 and October 31,
1999, respectively. If interest income had been recorded on all non-accrual
loans had they been current in accordance with their original terms, income
would have increased for the two months ended December 31, 1999 and the year
ended October 31, 1999 by approximately $0 and $6,000, respectively.

         At December 31, 1999 and October 31, 1999, the Company did not have any
loans past due 90 days or more and accruing interest or any impaired loans.

NOTE E - PREMISES AND EQUIPMENT

         Major classifications of premises and equipment are summarized as
follows:

<TABLE>
<CAPTION>
                                           ESTIMATED             DECEMBER 31,          OCTOBER 31,
                                          USEFUL LIVES               1999                  1999
                                      ---------------------   ------------------     ----------------
                                                                          (In thousands)
<S>                                 <C>                      <C>                   <C>
Equipment                                3 to 10 years             $  889               $  889
Leasehold improvements                   2 to 40 years                281                  281
                                                                   ------               ------
                                                                    1,170                1,170
Accumulated depreciation and
  amortization                                                       (800)                (778)
                                                                   ------               ------
Total                                                              $  370               $  392
                                                                   ======               ======
</TABLE>







<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE F - DEPOSITS

         The aggregate amount of jumbo certificates of deposits greater than
$100,000 were $30,325,000 and $27,447,000 as of December 31, 1999 and October
31, 1999, respectively.

The scheduled maturities of certificates of deposit are as follows:

<TABLE>
<CAPTION>

                                              DECEMBER 31
                                                  1999
                                          -------------------
                                             (IN THOUSANDS)
                              <S>                <C>
                                 2000            $ 27,491
                                 2001               1,242
                                 2002                --
                                 2003               1,569
                                 2004                --
                              Thereafter               23
                                                 --------
                                                 $ 30,325
                                                 ========
</TABLE>


NOTE G - EARNINGS PER SHARE

         The Company's calculation of earnings per share in accordance with SFAS
No. 128 is as follows:

<TABLE>
<CAPTION>

                                                          FOR THE TWO MONTHS ENDED DECEMBER 31, 1999
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                ----------------------------------------------------------------
                                                       INCOME                 SHARES               PER SHARE
                                                     (NUMERATOR)          (DENOMINATOR)              AMOUNT
                                                 -------------------   --------------------    ----------------
<S>                                                    <C>                     <C>                    <C>
Basic earnings per share
 Net income available to
  common stockholders                                 $ 2,282                  2,127                  $ 1.07
Effect of dilutive securities
    Options                                                --                    132                    (.06)
                                                      -------                  -----                  ------
Diluted earnings per share
 Net income available to
  common stockholders plus
  assumed conversions                                 $ 2,282                  2,259                  $ 1.01
                                                      =======                  =====                  ======
</TABLE>


         Options to purchase 44,875 shares of common stock for $38.00 per share
were outstanding during the two months ended December 31, 1999. 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.




<PAGE>




                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE G - (continued)

<TABLE>
<CAPTION>

                                                                  YEAR ENDED OCTOBER 31, 1999
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                    ------------------------------------------------------
                                                       INCOME                SHARES              PER SHARE
                                                     (NUMERATOR)         (DENOMINATOR)             AMOUNT
                                                    --------------       -------------           ----------
<S>                                                    <C>                    <C>                 <C>
Basic earnings per share
 Net income available to
   common stockholders                                 $ 6,540                2,126               $ 3.08
Effect of dilutive securities
  options                                                   --                  135                 (.19)
                                                       -------                -----               ------
Diluted earnings per share
 Net income available to
  common stockholders plus
  assumed conversions                                  $ 6,540                2,261               $ 2.89
                                                       =======                =====               =======
</TABLE>


<TABLE>
<CAPTION>

                                                                  YEAR ENDED OCTOBER 31, 1998
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                    ------------------------------------------------------
                                                       INCOME                SHARES              PER SHARE
                                                     (NUMERATOR)         (DENOMINATOR)             AMOUNT
                                                    --------------       -------------           ----------
<S>                                                    <C>                    <C>                 <C>
Basic earnings per share
 Net income available to
  common stockholders                                  $37,627                2,126               $17.70
Effect of dilutive securities
 Options                                                    --                  132               $(1.04)
                                                       -------                -----               ------
Diluted earnings per share
 Net income available to
  common stockholders plus
  assumed conversions                                  $37,627                2,258               $16.66
                                                       =======                =====               ======
</TABLE>




<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE H - INCOME TAXES

         The components of income tax expense for the two months ended December
31, 1999 and the years ended October 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>

                                        DECEMBER 31,                         OCTOBER 31,
                                   --------------------              -------------------------------
                                           1999                          1999               1998
                                       -----------                   -----------        ------------
<S>                                    <C>                           <C>                <C>
Current                                $    46,000                   $ 2,689,000        $ 5,219,000
Deferred Taxes
 (Benefit)                               1,402,000                     1,402,000           (925,000)
Reversal of Valuation
Allowance                                       --                            --           (721,000)
                                       -----------                   -----------        -----------
                                       $ 1,448,000                   $ 4,091,000        $ 3,573,000
                                       ===========                   ===========        ===========

</TABLE>


         A reconciliation of the provision for income taxes for the two months
ended December 31, 1999 and for the years ended October 31, 1999 and 1998 and
the amount computed by applying the statutory Federal income tax rate to income
(loss) from continuing operations follows:

<TABLE>
<CAPTION>

                                                    DECEMBER 31,                     OCTOBER 31,
                                                    ------------            ------------------------------
                                                        1999                    1999              1998
                                                    -----------             -----------        -----------
<S>                                                 <C>                     <C>                <C>
Computed expected provision
 (benefit) for income taxes                         $ 1,306,000             $ 3,721,000        $14,420,000
Utilization of loss
 carryforwards and credits                                   --                      --         (9,132,000)
Changes in valuation allowance                               --                      --           (721,000)
Amortization of goodwill                                 49,000                 243,000                 --
Alternative minimum taxes
 and other                                               93,000                 127,000           (994,000)
                                                    -----------             -----------        -----------
Actual provision for
 income taxes                                       $ 1,448,000             $ 4,091,000        $ 3,573,000
                                                    ===========             ===========        ===========
</TABLE>





<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE H - (continued)

         The tax effect of the principal temporary differences at December 31,
1999 and October 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                                         December 31,                       October 31,
                                                     ---------------------                ------------------
                                                             1999                              1999
<S>                                                       <C>                               <C>
Deferred tax assets
 Net operating loss carryforwards                        $  548,000                        $   548,000
 Credit carryforwards                                       386,000                            386,000
 Other                                                      461,000                            461,000
                                                         ----------                          ---------
                                                          1,395,000                          1,395,000
Deferred tax liabilities
 Unrealized gain
  on investment securities                               (3,525,000)                                --
 Unrealized gain on Executone
  Preferred Stock                                        (1,872,000)                        (1,872,000)
                                                         ----------                         ----------
                                                         (5,397,000)                        (1,872,000)
Net deferred tax asset (liability)                      $(4,002,000)                       $  (477,000)
                                                        ===========                        ===========

</TABLE>


         As of the acquisition date of the Bank, deferred tax assets of
$2,162,000 were recorded, less a $1,812,000 valuation allowance. It was
determined that the deferred tax asset was more likely to be realized than not.
Accordingly, at October 31, 1999, the deferred tax valuation account and
goodwill was reduced by $1,812,000.

NOTE I - ESTIMATED TAX LIABILITIES

         The Company is a party to a tax sharing agreement, as amended, with TCC
and Cooper Development Company ("CDC") related to the Cooper Labs, Inc. ("CLI")
liquidation on June 27, 1985. The above companies have agreed that: (i) in the
event that the amount of tax liability, including interest and penalties, shall
be ultimately determined to be greater or less than $10,000,000, then such
excess or deficiency shall be shared 50%, 25%, and 25% by TCC, CDC, and the
Company, respectively, and (ii) they are jointly and severally liable. TCC is
coordinating the defenses for these tax examinations. In 1998, after reviewing
certain documents related to the tax examinations which were provided by TCC,
and after consulting with its tax advisors, the Company recorded a charge of
$150,000 in 1998 to increase the Company's accrual for interest charges related
to potential assessments. In 1999, after reviewing certain documents, management
determined that no such adjustment was necessary for the two months ended
December 31, 1999 and fiscal year ended October 31, 1999.





<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE J - STOCK PLANS

         In March 1999, the stockholder's of the Company approved the 1999 Stock
Incentive Plan (the "1999 Stock Incentive Plan"). The 1999 Stock Incentive Plan
replaces the 1991 Stock Option Plan For Non-Employee Directors and the 1991
Stock Incentive Plan For Employees (collectively the "1991 Plans"). No further
awards may be granted under the 1991 Plans.

         The 1999 Stock Incentive Plan permits the granting of awards in the
form of nonqualified stock options, incentive stock options, restricted stock,
deferred stock, and other stock-based incentives. Up to 200,000 shares of common
stock of the Company may be issued pursuant to the 1999 Stock Incentive Plan.
Officers, directors and other key employees of the Company or any subsidiary are
eligible to receive awards under the 1999 Stock Incentive Plan. The option
exercise price of all options which are granted under the 1999 Stock Incentive
Plan must be at least equal to 100% of the fair market value of a share of
common stock of the Company on the date of grant. At December 31, 1999 and
October 31, 1999, 44,875 options have been granted under the 1999 Stock
Incentive Plan.

         SFAS No. 123 "Accounting for Stock Based Compensation." This statement
introduced a method of accounting for employee stock-based compensation plans
based upon the fair value of the awards on the date they are granted. Under this
fair value based method, public companies estimate the fair value of stock
options using a pricing model, such as the Black-Scholes model, which requires
inputs such as the expected volatility of the stock price and an estimate of the
dividend yield over the option's expected life. The FASB, however, does not
require the use of this method. Entities that continue to account for stock
option plans under the existing method (APB No. 25) are required to disclose
proforma net income and earnings per share, as if the fair value method had been
used. Certain additional disclosures are also required, as follows:

         A summary of the activity with respect to the Plans is as follows:

<TABLE>
<CAPTION>

                                     DECEMBER 31,                    OCTOBER 31,                  OCTOBER 31,
                                         1999                           1999                           1998
                                   ----------------------         ---------------------         ------------------
                                            WEIGHTED                        WEIGHTED                     WEIGHTED
                                             AVERAGE                        AVERAGE                       AVERAGE
                                            EXERCISE                        EXERCISE                     EXERCISE
                                    SHARES    PRICE                SHARES    PRICE               SHARES    PRICE
                                   --------------------------------------------------------------------------------
<S>                                <C>          <C>              <C>             <C>            <C>           <C>

Outstanding at beginning
of year                            212,375      $13.83           168,500        $ 7.37          168,500       $7.28
Granted                                 --                        44,875        $38.00               --
Cancelled                               --                           --                              --
Exercised                               --                        (1,000)       $ 9.75               --
                                   -------                       -------                        -------
Outstanding at
end of year                        212,375      $13.83           212,375        $13.83          168,500       $7.37
                                   =======                       =======                        =======
Exercisable at
end of year                        167,500      $ 7.36           167,500        $ 7.36          168,500       $7.37
                                   =======                       =======                        =======

Weighted average fair
value of options granted
during the year                                 $  .--                          $16.04                        $ .--
                                                ======                          ======                        =====
</TABLE>




<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE J (CONTINUED)

         The following table summarizes information about options outstanding at
December 31, 1999:


<TABLE>
<CAPTION>

                            OPTIONS OUTSTANDING                                             OPTIONS EXERCISABLE
----------------------------------------------------------------------------          ----------------------------
                              NUMBER              WEIGHTED                               NUMBER
                            OUTSTANDING           AVERAGE           WEIGHTED          OUTSTANDING        WEIGHTED
                                AT               REMAINING          AVERAGE                AT            AVERAGE
   RANGE OF                DECEMBER 31,         CONTRACTUAL         EXERCISE          DECEMBER 31,       EXERCISE
EXERCISE PRICES                1999             LIFE (YEARS)          PRICE                1999            PRICE
---------------            ------------         ------------        --------          ------------       --------

<S>                          <C>                   <C>              <C>                <C>               <C>
$ 7.00 - $ 9.75               165,000               0.44             $ 7.25             165,000           $ 7.25
 14.25 -  15.00                 2,500               1.64              14.55               2,500            14.25
 38.00                         44,875               4.91              38.00                --               --
                              -------                                                   -------
                              212,375                                                   167,500
                              =======                                                   =======

</TABLE>


         The Company's stock option plan has been accounted for under APB
Opinion No. 25, and related interpretations. No compensation cost has been
recognized for the plan. Had compensation cost for the plan been determined
based upon fair value of the options at the grant dates consistent with the
requirements of SFAS No. 123, the Company's net income and earnings per share
would have been the pro forma amounts indicated below).

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,              OCTOBER 31,
                                                                   ------------         -------------------
                                                                       1999               1999         1998
                                                                            (IN THOUSANDS, EXCEPT
                                                                              PER SHARE AMOUNTS)

<S>                                            <C>                   <C>                <C>         <C>
Net income                                     As Reported:          $ 2,343            $ 6,540     $ 37,627
                                               Pro Forma:              2,333              6,480       37,627
Basic earnings per share                       As Reported:             1.10               3.08        17.70
                                               Pro Forma:               1.10               3.04        17.70
Diluted earnings per share                     As Reported:             1.04               2.89        16.66
                                               Pro Forma:               1.04               2.87        16.66

</TABLE>

         The fair value of each option is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants as of October 31, 1999, expected volatility of 40%,
risk-free interest of 6.14%, and expected lives of 5 years.




<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE K - EMPLOYEE BENEFIT PLANS

         In April 1985, the Company adopted its Retirement Income Plan (the
"Retirement Plan"), a noncontributory plan covering substantially all full-time,
non-union United States employees of the Company. Benefits were based upon a
combination of employee compensation and years of service. The Company paid the
entire cost of the plan for its employees and funded such costs as they accrued.
The Company's funding policy was to make annual contributions within minimum and
maximum levels required by applicable regulations. The Company's customary
contributions were designed to fund normal cost on a current basis and fund over
30 years the estimated prior service cost of benefit improvements (15 years of
annual gains and losses). The projected unit cost method was used to determine
the annual cost. Plan assets consist principally of equity and fixed income
mutual funds.

         Benefit accruals have been frozen as of September 15, 1988, resulting
in a plan curtailment. As a result of such curtailment, the Company will not
accrue benefits for future services; however, the Company will continue to
contribute as necessary for any unfunded liabilities.

         Assumptions used in the accounting were:

<TABLE>
<CAPTION>

                                                      DECEMBER 31,          OCTOBER 31,
                                                          1999                 1999
                                                      ------------          -----------
<S>                                                      <C>                   <C>
Discount rates-liability                                 7.50%                 7.50%
Long-term rate of return-assets                          8.50%                 8.50%

</TABLE>

         A summary of the components of net periodic pension cost for the two
months ended December 31, 1999 and the years ended October 31 1999 and 1998 is
as follows:

<TABLE>
<CAPTION>

                                            DECEMBER 31,               OCTOBER 31,      OCTOBER 31,
                                               1999                        1999             1998
                                               ----                        ----             ----
<S>                                         <C>                        <C>      <C>
Service cost - benefits earned
 during the period                          $   --                     $   --           $   --
Interest cost on projected
 benefit obligation                            14,284                    85,706           87,435
Actual return on plan assets                  (20,784)                 (124,703)        (125,061)
Net amortization and deferral                     478                     2,870            2,368
                                            ---------                  --------         --------
Net pension cost of defined
 benefit plans                              $  (6,022)                 $(36,127)        $(35,258)
                                            =========                  ========         ========

</TABLE>

         The following table sets forth the funded status and amounts recognized
in the Company's balance sheet for its defined benefit plan at December 31, 1999
and October 31, 1999:

<TABLE>
<CAPTION>

                                            DECEMBER 31,               OCTOBER 31,
                                               1999                        1999
                                            ------------               -----------
<S>                                          <C>                        <C>
  Actuarial present value of
    accumulated benefit obligations,
    all of which is vested                   $ 1,182,046                $ 1,175,354
                                             ===========                ===========
    Projected benefit obligations            $(1,182,046)               $(1,175,354)
    Fair value of plan assets                  2,222,134                  2,010,000
                                             -----------                -----------
    Lesser of projected benefit
     obligation over fair value
     of plan assets                            1,040,088                    834,646
    Unrecognized net loss/(gain)                (466,978)                  (267,558)
    Adjustment required to recognize
      minimum liability                                0                          0
                                             -----------                -----------
    Prepaid pension cost                     $   573,110                $   567,088
                                             ===========                ===========
</TABLE>





<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE L - COMMITMENTS AND CONTINGENCIES

1. Leases and Other Commitments

         The Company leases certain of its operating facilities under
non-cancelable operating leases expiring in 2000 through 2001. The leases
require payment by the Company of the real estate taxes and insurance on the
leased properties. Approximate future minimum annual rental payments are as
follows (in thousands):

<TABLE>
<CAPTION>

                          YEAR ENDING
                          DECEMBER,31
                          ------------
                          <S>                        <C>
                          2000                       $    257
                          2001                             50
                                                     --------
                                                     $    307
                                                     ========
</TABLE>


         Rental expense was approximately $70,000 for the two months ended
December 31, 1999 and $278,000 and $18,000 for the fiscal years ended October
31, 1999 and 1998, respectively. Included in rental expense was approximately
$3,000 for the two months ended December 31, 1999 and $18,000 for the fiscal
years ended October 31, 1999 and 1998, respectively, which was paid to a company
affiliated with a director of the Company.

NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS

         SFAS No. 107 requires disclosure of the estimated fair value of an
entity's assets and liabilities considered to be financial instruments. For the
Company, as for most financial institutions, the majority of its assets and
liabilities are considered financial instruments as defined in SFAS No. 107.
However, many such instruments lack an available trading market, as
characterized by a willing buyer and seller engaging in an exchange transaction.
Also, it is the Company's general practice and intent to hold its financial
instruments to maturity and not to engage in trading or sales activities, except
for certain loans. Therefore, the Company had to use significant estimations and
present value calculations to prepare this disclosure.

         Changes in the assumptions or methodologies used to estimate fair
values may materially affect the estimated amounts. Also, management is
concerned that there may not be reasonable comparability between institutions
due to the wide range of permitted assumptions and methodologies in the absence
of active markets. This lack of uniformity gives rise to a high degree of
subjectivity in estimating financial instrument fair values.

         Estimated fair values have been determined by the Company using the
best available data and an estimation methodology suitable for each category of
financial instruments. The estimation methodologies used, the estimated fair
values, and recorded book balances at October 31, 1999 and 1998 are outlined
below.

         For cash and cash equivalents, the recorded book values of $19,879,000
and $23,829,000 at December 31, 1999 and October 31, 1999, respectively,
approximate fair values. The estimated fair values of investment securities are
based on quoted market prices, if available. Estimated fair values are based on
quoted market prices of comparable instruments if quoted market prices are not
available (in thousands).




<PAGE>


<TABLE>
<CAPTION>

                                           DECEMBER 31, 1999                     OCTOBER 31, 1999
                                   ---------------------------------   ------------------------------------
                                     CARRYING           ESTIMATED           CARRYING          ESTIMATED
                                      AMOUNT           FAIR VALUE            AMOUNT           FAIR VALUE
                                  --------------- ------------------  -----------------  -----------------
<S>                                  <C>                <C>                <C>                <C>
Investment securities                $ 89,497           $ 89,496           $ 82,876           $ 82,874
Loans, net                             65,591             65,591             59,652             59,652

</TABLE>

         The net loan portfolio at December 31, and October 31, 1999 has been
valued using a present value discounted cash flow where market prices were not
available. The discount rate used in these calculations is the estimated current
market rate adjusted for credit risk. The carrying value of accrued interest
approximates fair value.

         The estimated fair values of demand deposits (i.e. interest (checking)
and non-interest bearing demand accounts, savings and certain types of money
market accounts) are, by definition, equal to the amount payable on demand at
the reporting date (i.e. their carrying amounts). The carrying amounts of
variable rate accounts and certificates of deposit approximate their fair values
at the reporting date. The carrying amount of accrued interest payable
approximates its fair value.

         The majority of all time deposits with stated maturities of
approximately $31,503,000 and $31,000,000 mature or reprice within one year of
December 31, 1999 and October 31, 1999, respectively; therefore, the recorded
book value of such deposits approximates its fair value.

         The fair values of the securities sold under agreements to repurchase
totaling $1,500,000 are estimated to approximate their recorded book balances at
December 31, 1999 and October 31, 1999.

         There was no material difference between the notional amount and the
estimated fair value of off-balance-sheet items which totalled approximately
$5,056,000 and $6,088,000 at December 31, 1999 and October 31, 1999,
respectively, and primarily comprise unfunded loan commitments which are
generally priced at market at the time of funding.

NOTE N - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS
         OF CREDIT RISK

         The Bank is party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of their customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Such financial instruments are recorded in the financial
statements when they become payable. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated balance sheets. The contract or notional amounts
of those instruments reflect the extent of involvement the Banks have in
particular classes of financial instruments.

         The Bank's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual or notional amount
of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as they do for on-balance-sheet
instruments.




<PAGE>


                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE N - (CONTINUED)

         Unless noted otherwise, the Bank does not require collateral or other
security to support financial instruments with credit risk. The approximate
contract amounts are as follows (in thousands):

<TABLE>
<CAPTION>

                                                                DECEMBER 31, 1999    OCTOBER 31, 1999
                                                               --------------------  -----------------
<S>                                                                  <C>                <C>
Commitments to extend credit                                         $ 3,433            $ 4,591
Standby letters of credit and financial
  guarantees written                                                   1,623              1,497
                                                                     -------            -------
                                                                     $ 5,056            $ 6,088
                                                                     =======            =======

</TABLE>

         Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation.

         Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Bank holds residential or commercial real estate, accounts receivable,
inventory and equipment as collateral supporting those commitments for which
collateral is deemed necessary. The extent of collateral held for those
commitments at December 31, 1999 varies up to 100%.

         The Bank grants loans primarily to customers in New York and its
immediately adjacent suburban. Although the Bank has a diversified loan
portfolio, a large portion of their loans are secured by commercial or
residential real property. The Bank does not generally engage in non-recourse
lending and typically will require the principals of any commercial borrower to
obligate themselves personally on the loan. Although the Bank has a diversified
loan portfolios, a substantial portion of their debtors' ability to honor their
contracts is dependent upon the economic sector. Commercial and standby letters
of credit were granted primarily to commercial borrowers.

         The Bank has entered into interest rate cap agreements in order to
hedge its exposure to interest rate fluctuations. The cost of the interest rate
caps is being amortized over the life of the agreements as an offset to interest
income. The unamortized cost of these agreements is included in the balance
sheet other assets. The following table lists the total notional amount,
carrying value, and fair value of the interest rate caps held by the Bank as of
December 31, 1999 (in thousands). The fair value of the interest rate caps is
based on estimated market prices from a financial market information service
provider:

<TABLE>
<CAPTION>

INTEREST RATE CAPS                 NOTIONAL           CARRYING VALUE              FAIR VALUE
------------------                 --------           --------------              ----------
<S>                                <C>                   <C>                      <C>
December 31, 1999                  $ 25,000              $   154                  $     --

</TABLE>








<PAGE>


                    BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE O - REGULATORY MATTERS

         The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possible additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Bank's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.

         Quantitative measures established by regulations to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets, and of Tier 1 capital to average assets. Management
believes that, as of December 31, 1999, the Bank meets all capital adequacy
requirements to which it is subject.

         As of December 31, 1999, the Bank met all regulatory requirements for
classification as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set
forth in the following table. There are no conditions or events since that date
that management believes have changed the institution's category.

         The following table sets forth the actual and required regulatory
capital amounts and ratios of, the Company and the Bank as of December 31, 1999
and October 31, 1999 (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>

DECEMBER 31, 1999
Total Capital (to Risk-Weighted Assets)
  Company                                                 60,336    59.8%      8,072    >=8.0%     --      N/A
  Bank                                                    13,745    16.5%      6,668    >=8.0%    8,335  >=10.0%

Tier I Capital (to Risk-Weighted Assets)
  Company                                                 59,413    58.9%      4,036    >=4.0%     --      N/A
  Bank                                                    12,822    15.4%      3,334    >=4.0%    5,001   >=6.0%

Tier I Capital (to Average Assets)
  Company                                                 59,413    33.7%      7,019    >=4.0%     --      N/A
  Bank                                                    12,822     8.8%      5,842    >=4.0%    7,302   >=5.0%

</TABLE>






<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE O (CONTINUED)

<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>
October 31, 1999
Total Capital (to Risk-Weighted Assets)
  Company                                               $57,541    68.4%     $ 6,729  >=8.0%     $   --      N/A
  Bank                                                   13,316    20.7%       5,140  >=8.0%       6,425   >=10.0%

Tier I Capital (to Risk-Weighted Assets)
  Company                                                56,636    67.3%       3,364  >=4.0%         --      N/A
  Bank                                                   12,512    19.5%       2,570  >=4.0%       3,855   >= 6.0%

Tier I Capital (to Average Assets)
  Company                                                56,636    26.9%       8,404  >=4.0%         --      N/A
  Bank                                                   12,512     7.8%       6,424  >=4.0%       8,030   >= 5.0%
</TABLE>

NOTE P - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

         The condensed financial information for Berkshire Bancorp, Inc. (parent
company only) is as follows (in thousands):

                            CONDENSED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,        OCTOBER 31,
                                                                                  1999                1999
                                                                              -------------------------------
<S>                                                                             <C>                 <C>
ASSETS

Cash                                                                            $ 35,413            $ 33,774
Equity investment in subsidiaries                                                 27,021              26,276
Investment in securities available for sale                                       13,450               9,226
Loans                                                                              9,870               9,895
Accrued interest receivable                                                           78                  58
Other assets                                                                       1,083                 594
                                                                                --------            --------
Total assets                                                                    $ 86,915            $ 79,823
                                                                                ========            ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Other liabilities                                                               $  8,845            $  6,517

Stockholders' equity
Common stock                                                                         256                 256
Additional paid-in capital                                                        78,570              78,570
Accumulated deficit                                                               (2,421)             (4,703)
Accumulated other comprehensive income, net                                        4,425               1,943
Less: Common stock in treasury, at cost                                           (2,760)             (2,760)
                                                                                --------            --------
Total stockholders' equity                                                        78,070              73,306
                                                                                --------            --------
                                                                                $ 86,915            $ 79,823
                                                                                ========            ========
</TABLE>






<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE P (CONTINUED)

                         CONDENSED STATEMENTS OF INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>


                                                             FOR THE TWO
                                                             MONTHS ENDED             FOR THE YEARS ENDED
                                                             DECEMBER 31,                 OCTOBER 31,
                                                          -------------------         --------------------
                                                                 1999                   1999         1998
                                                                 ----                   ----         ----
<S>                                                           <C>                    <C>          <C>
INCOME
Interest income from the Bank                                 $    287               $  1,153     $     --
Interest income                                                    190                  1,138        3,313
Gain on sales of investment securities                           3,110                  7,634       38,909
Other income                                                        --                    130           44
                                                              --------               --------     --------
Total income                                                     3,587                 10,055       42,266

EXPENSES
Salaries and employee benefits                                      25                    143          129
Other expenses                                                      35                    440          937
                                                              --------               --------     --------
Total expenses                                                      60                    583        1,066
                                                              --------               --------     --------
Income before income taxes and equity
   in undistributed net income of the Bank                       3,527                 10,472       41,200
Equity in undistributed net income
   of the Bank                                                     185                  1,060           --
                                                              --------               --------     --------
Income before taxes                                              3,712                 11,532       41,200
Provision for income taxes                                       1,430                  4,992        3,573
                                                              --------               --------     --------
Net income                                                    $  2,282               $  6,540     $ 37,627
                                                              ========               ========     ========

</TABLE>







<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE P - (CONTINUED)

                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                     FOR THE TWO MONTHS
                                                                            ENDED             FOR THE YEARS ENDED
                                                                        DECEMBER 31,               OCTOBER 31,
                                                                     ------------------      ----------------------
                                                                             1999              1999        1998
                                                                             -----             -----       ----

<S>                                                                      <C>                <C>           <C>
  Operating activities:
Net income                                                                 $ 2,282           $ 6,540      $ 37,627
Adjustments to reconcile net income to net
   cash provided by (used in) operating activities:
Gain on sales of investment securities                                      (3,110)           (7,634)      (38,909)
Equity in undistributed net income of the Bank                                (185)           (1,060)          --
(Increase) in deferred taxes                                                    --            (1,402)         (925)
Increase in other liabilities                                                2,328             6,583           727
Increase (decrease) in other assets                                           (351)              920           (80)
                                                                           -------           -------      --------
Net cash provided by (used in) operating activities                            964             3,947        (2,015)
                                                                           -------           -------      --------
  Investing activities:
Investment in subsidiaries                                                      --           (25,216)           --
Proceeds from sale of investment securities
   available for sale                                                        3,110             7,634        42,916
Purchases of investment securities
   available for sale                                                       (2,435)          (17,178)           --
                                                                           -------           -------      --------
Net cash provided by (used in) investing activities                            675           (34,760)       42,916
                                                                           -------           -------      --------

  Financing activities:
Proceeds from exercise of common stock options                                  --                 9           --
Dividends paid                                                                  --              (680)       (1,531)
                                                                           -------           -------      --------
Net cash (used in) financing activities                                         --              (671)       (1,531)
                                                                           -------           -------      --------

  Net increase (decrease) in cash and cash equivalents                       1,639           (31,484)       39,371
  Cash and cash equivalents at beginning of year                            33,774            65,258        25,887
                                                                           -------           -------      --------
  Cash and cash equivalents at end of year                                 $35,413           $33,774      $ 65,258
                                                                           =======           =======      ========

Supplemental disclosures of cash flow information:
  Cash used to pay income taxes                                            $    --           $ 2,602      $  4,419

</TABLE>







<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE Q - QUARTERLY FINANCIAL DATA (UNAUDITED)

         The following represents summarized quarterly financial data of the
Company which, in the opinion of management, reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's results of operations. Information for the two
months ended December 31, 1999 is not presented. (In thousands, except per share
data).

<TABLE>
<CAPTION>
                                                                                THREE MONTHS ENDED
                                                        -------------------------------------------------------------
                                                        JANUARY 31       APRIL 30         JULY 31          OCTOBER 31
                                                        ----------       ----------       ----------       ----------
                                                                                    1999
                                                                                    ----
<S>                                                     <C>              <C>              <C>              <C>
Interest income                                         $  1,296         $  2,312         $  2,406         $  2,511
Interest expense                                             262              794              731              761
                                                        --------         --------         --------         --------
Net interest income                                        1,034            1,518            1,675            1,750
Provision for loan losses                                     (5)             (15)             (10)             (15)
Gains (losses) on sale of securities                         (12)           1,653            2,973            3,008
Other operating income                                       235               98              138              162
Other operating expenses                                    (443)          (1,019)          (1,003)          (1,091)
                                                        --------         --------         --------         --------
Income before taxes                                          809            2,235            3,773            3,814
Provision for taxes                                          378            1,000            1,707            1,006
                                                        --------         --------         --------         --------
Net income                                              $    431         $  1,235         $  2,066         $  2,808
                                                        ========         ========         ========         ========

Per share data
  Net income per common share
  Basic                                                 $    .20         $    .58         $    .97         $   1.33
                                                        ========         ========         ========         ========
  Diluted                                               $    .19         $    .55         $    .91         $   1.24
                                                        ========         ========         ========         ========
</TABLE>





<PAGE>



                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 DECEMBER 31, 1999 AND OCTOBER 31, 1999 AND 1998

NOTE Q (CONTINUED)

<TABLE>
<CAPTION>

                                                                              THREE MONTHS ENDED
                                                        -------------------------------------------------------------
                                                        JANUARY 31       APRIL 30         JULY 31          OCTOBER 31
                                                        ----------       ----------       ----------       ----------
                                                                                    1998
                                                                                    ----
<S>                                                     <C>              <C>              <C>              <C>
Interest income                                         $    610         $    934         $    913         $    856
                                                        --------         --------         --------         --------
Net interest income                                          610              934              913              856
Gain (loss) on sale of securities                         38,926              (17)              --               --
Other operating expenses                                    (142)            (444)            (131)            (349)
                                                        --------         --------         --------         --------
Income before taxes                                       39,394              473              782              551
Provision (benefit) for taxes                              3,319              (90)             440              (96)
                                                        --------         --------         --------         --------
Net income                                              $ 36,075         $    563         $    342         $    647
                                                        ========         ========         ========         ========

Per share data
  Net income per common share
  Basic                                                 $  16.97         $    .26         $    .16         $    .30
                                                        ========         ========         ========         ========
  Diluted                                               $  16.01         $    .25         $    .15         $    .29
                                                        ========         ========         ========         ========
</TABLE>


NOTE R - SUBSEQUENT EVENTS

         On February 7, 2000, the Company completed the acquisition of 24.9% of
the issued and outstanding shares of the common stock of Madison Merchant
Services, Inc., a privately held New York State corporation ("Madison"), for a
cash purchase price of $285,000. In addition, the Company received an option to
purchase up to an additional 26.1% of the presently outstanding shares of
Madison common stock during the period from November 1, 2001 and February 1,
2003. Madison currently provides merchant credit card processing services for
restaurants, other retail establishments and a variety of other merchants.





<PAGE>



SIGNATURES

         PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

                                     BERKSHIRE BANCORP INC.

                                     BY:   /s/  Steven Rosenberg
                                           ------------------------------------
                                                STEVEN ROSENBERG
                                           President, (Chief Executive Officer)


                                     DATE: January 16, 2001
                                           ------------------------------------

         PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
COMPANY AND IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>

         SIGNATURE                        TITLE                     DATE
         ---------                        -----                     ----
<S>                                 <C>                       <C>
                                    President, (Chief
                                    Executive Officer,
                                    Principal Financial
                                    Officer and Principal
                                    Accounting Officer);
/s/  Steven Rosenberg               Director                  January 16, 2001
-------------------------
      STEVEN ROSENBERG

/s/  William Cohen                  Director                  January 16, 2001
-------------------------
      WILLIAM COHEN

/s/  Moses Marx                     Director                  January 16, 2001
-------------------------
      MOSES MARX

/s/ Randolph B. Stockwell           Director                  January 16, 2001
--------------------------
     RANDOLPH B. STOCKWELL

</TABLE>


                       STATEMENT OF DIFFERENCES

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