<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

For the fiscal year ended December 31, 2000

                                       OR

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

For the transition period from                  to
                               ----------------    -----------------

                         Commission File Number 0-13649

                             Berkshire Bancorp Inc.
             (Exact name of registrant as specified in its charter)

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

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

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 16, 2001: $26,203,320.

Number of shares of Common Stock outstanding as of March 16, 2001: 1,955,625.

                      DOCUMENTS INCORPORATED BY REFERENCE:

None



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

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

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

                                     PART I

ITEM 1. Business

      General. Berkshire Bancorp Inc., a Delaware corporation ("Berkshire", the
"Company" or "we" and similar pronouns), is a bank holding company under the
Bank Holding Company Act. As used in this Annual Report on Form 10-K, the term
"Berkshire", the "Company" or "we" and similar pronouns shall mean Berkshire
Bancorp Inc. and its consolidated subsidiaries unless the context otherwise
requires. The Company has one wholly-owned banking subsidiary, The Berkshire
Bank, a New York State chartered commercial bank (the "Bank").

      On August 16, 2000, Berkshire and its wholly-owned subsidiaries, The
Berkshire Bank and Greater American Finance Group, Inc., a Delaware corporation
that is the immediate parent of The Berkshire Bank, entered into an Agreement
and Plan of Reorganization (the "Agreement") with GSB Financial Corporation, a
Delaware corporation, a savings and loan holding company ("GSB Financial"), and
its wholly-owned subsidiary, Goshen Savings Bank, a federal savings bank,
chartered and existing under the laws of the United States ("Goshen Bank").
Under the terms and subject to the conditions set forth in the Agreement, GSB
Financial will be merged with and into Berkshire and Goshen Bank will be merged
with and into The Berkshire Bank. In connection with the merger, holders of
common stock of GSB Financial will receive, for each share of common stock of
GSB Financial held by them, $20.75, or, in the alternative, at their election,
0.6027 shares of Berkshire's common stock. The stock component of the
transaction will represent 50.1% of the total consideration, while the cash
component will represent 49.9%. The right of the GSB Financial stockholders to
elect to receive stock or cash is subject to allocation procedures.

      The completion of the transaction is subject to the satisfaction of
various conditions including the receipt of regulatory approval from the Board
of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation,
the


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Office of Thrift Supervision and the New York State Banking Department. Approval
by the stockholders of both GSB Financial and the Registrant will also be
required. All such regulatory approvals have been received and on March 8, 2001,
the stockholders of Berkshire and GSB Financial voted to approve the merger. The
Company anticipates that the transaction will close on or before March 30, 2001.

      On February 7, 2000, the Company acquired 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 through February 1, 2003. Madison
currently provides merchant credit card processing services for restaurants,
other retail establishments and a variety of other merchants.

      On December 10, 1999, the Board of Directors of the Company approved a
change in our fiscal year to December 31. This Annual Report on Form 10-K covers
the fiscal year ended December 31, 2000 and the two month transition period
ended December 31, 1999.

      On January 4, 1999, Berkshire purchased approximately 99% of the
outstanding shares of common stock of the Bank. (See Note A of Notes to
Consolidated Financial Statements). On March 31, 1999 and June 16, 2000, we
purchased all of the remaining shares of common stock of the Bank. The Company
was not engaged in any business operations in the year prior to the acquisition
of the Bank. At present, the Bank comprises the Company's only majority owned
business operations.

      As a result of the acquisition of the Bank, Berkshire became a bank
holding company under the Bank Holding Company Act. As a bank holding company,
Berkshire is subject to extensive regulation by the Federal Reserve and the Bank
remains subject to extensive regulation by the Federal Deposit Insurance
Corporation (the "FDIC") and the Superintendent of Banks of the State of New
York. See "Regulation" below.

      Business of the Bank - General. The Bank's principal business consists of
gathering deposits from the general public and investing those deposits
primarily in loans, debt obligations issued by the U.S. Government, its
agencies, and business corporations, and mortgage-backed securities. The Bank
operates from two deposit-taking offices in New York City. Its main office, in
Manhattan, is located on the upper floors of a high rise office building and
does not offer a customary retail banking presence. Instead, it provides
personal, face to face banking services for professionals and other normally
high-balance depositors. In 1995, the Bank opened a branch in Brooklyn and in
January 2001, the Bank opened a branch in downtown Manhattan. These branches
provide the Bank with customary retail banking offices.

      The Bank's principal loan types are residential and commercial mortgage
loans and commercial non-mortgage loans, both unsecured and secured by personal
property. The Bank's revenues come principally from interest on loans and
investment securities. The Bank's primary sources of funds are deposits and
proceeds from principal and interest payments on loans and investment
securities.

      Operating Plan. The Bank's operating plan concentrates on obtaining
deposits from businesses and professionals and investing those funds in
conservatively underwritten loans. Due to the Bank's underwriting criteria, its
deposits have significantly exceeded the level of satisfactory loans available
for investment in recent years. Hence, the Bank has, in recent years, invested a
majority of its available funds in investment and mortgage-backed securities.

      The Bank has sought to diversify its revenues and its customer base
through an active merchant credit card processing operation. The Bank, working
in conjunction with two separate credit card service companies, provides credit
card charge slip processing for merchants. This activity, which the Bank
undertook beginning in early 1997, results in fee income for the services
provided, allows the Bank to build deposit balances from the merchant customers,
and also allows the Bank to cross-sell other banking services to merchants as
appropriate. Back office processing is conducted by an independent service
company, while the Bank provides deposit and other traditional banking services
to the merchants.


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      Market Area. The Bank draws its customers principally from the New York
City metropolitan area. From time to time, the Bank may make loans or accept
deposits from outside the New York metropolitan area, but such transactions
generally represent outgrowths of existing local customer relationships. The
Bank's merchant credit card processing business, as discussed elsewhere in this
report, also includes processing of credit card transactions for merchants
outside the New York City metropolitan area.

      Competition. The Bank's principal competitors for deposits are other
commercial banks, savings banks, savings and loan associations and credit unions
in the Bank's market area, as well as money market mutual funds, insurance
companies and securities brokerage firms. The Bank's competition for loans comes
principally from commercial banks, savings banks, savings and loan associations,
mortgage bankers, finance companies and other institutional lenders. The New
York City metropolitan area includes offices of many of the largest financial
institutions in the world. Many of the institutions which compete with the Bank
have much greater financial and marketing resources than the Bank. The Bank's
principal methods of competition include the quality of the personal service it
provides, the types of business services it provides, and other marketing
programs.

      Operations of the Bank. Reference is made to the information set forth in
Item 7 herein ("Management's Discussion and Analysis of Financial Condition and
Results of Operations") for information as to various aspects of the Bank's
operations, activities and conditions.

      Subsidiary Activities. The Bank is permitted under New York State law and
federal law to own subsidiaries for certain limited purposes, generally to
engage in activities which are permissible for a subsidiary of a national bank.
The Bank has no subsidiaries.

      Regulation. On January 4, 1999, as a result of the acquisition of the
Bank, Berkshire became a bank holding company under federal law and registered
as such with the Federal Reserve. The Bank is a commercial bank chartered under
the laws of New York State. It is subject to regulation at the state level by
the New York Superintendent of Banks and the New York Banking Board, while at
the federal level its primary regulator is the FDIC.

      Both Berkshire and the Bank are subject to extensive state and federal
regulation of their activities. The following discussion summarizes certain
banking laws and regulations that affect Berkshire and the Bank. Proposals to
change these laws and regulations are frequently proposed in Congress, in the
New York State legislature, and before state and federal bank regulatory
agencies. The likelihood and timing of any changes and the impact such changes
might have on the Company are impossible to determine with any certainty. A
change in applicable laws or regulations, or a change in the way such laws or
regulations are interpreted by regulatory agencies or courts, may have a
material impact on the business, operations and earnings of the Company, the
nature and effect of which cannot now be predicted.

      Most recently, on November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act, which makes major changes to the statutory framework for
providing banking and other financial services in the United States. The Gramm-
Leach-Bliley Act, among other things, authorizes affiliations among commercial
banks, securities underwriting firms and insurance underwriting firms.

      Bank Holding Company Regulation. The Federal Reserve is authorized to make
regular examinations of the Company and its nonbank subsidiaries. Under federal
law and Federal Reserve regulations, the activities in which the Company and its
nonbank subsidiaries may engage are limited. The Company may not acquire direct
or indirect ownership or control of more than 5% of the voting shares of any
company, including a bank, without the prior approval of the Federal Reserve,
except as specifically authorized under federal law and Federal Reserve
regulations. The Company, subject to the approval of the Federal Reserve, may
acquire more than 5% of the voting shares of non-banking corporations if those
corporations engage in activities which the Federal Reserve deems to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. These limitations also apply to activities in which the
Company engages directly rather than through a subsidiary. However, pursuant to


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Section 103 of the Gramm-Leach-Bliley Act, the Company may elect, provided it
meets certain conditions, to engage in a significantly broader range of
activities or own shares of companies that engage in such broader activities,
those that are determined to be financial in nature or incidental to such
financial activity or complementary in certain situations, to a financial
activity. The Company has not so elected.

      The Federal Reserve has enforcement powers over the Company and its non-
bank subsidiaries. This allows the Federal Reserve, among other things, to stop
activities that represent unsafe or unsound practices or constitute violations
of law, rule, regulation, administrative orders or written agreements with a
federal bank regulator. These powers may be exercised through the issuance of
cease-and-desist orders, the imposition of civil money penalties or other
actions.

      Capital Requirements. The Federal Reserve requires that the Company, as a
bank holding company, must maintain certain minimum ratios of capital to assets.
The Federal Reserve's regulations divide capital into types. Primary capital
includes common equity, surplus, undivided profits, perpetual preferred stock,
mandatory convertible instruments, the allowance for loan and lease losses,
contingency and other capital reserves, and minority interests in equity
accounts of consolidated subsidiaries. Secondary capital includes limited-life
preferred stock, subordinated notes and debentures and certain unsecured long
term debt.

      The Federal Reserve requires that bank holding companies maintain a
minimum ratio of primary capital to total assets of 5.5% and a minimum level of
total capital (primary plus secondary capital) equal to 6% of total assets. In
calculating capital ratios, the allowance for loan losses, which is a component
of primary capital, is added back in determining total assets. Certain capital
components, such as debt and perpetual preferred stock, are includable as
capital only if they satisfy certain definitional tests.

      The Company must also meet a risk-based capital standard. Capital, for the
risk-based capital requirement, is divided into Tier I capital and Supplementary
capital, determined as discussed below in connection with the FDIC capital
requirements imposed on the Bank. The Federal Reserve requires that the Bank
maintain a ratio of total capital (defined as Tier I plus Supplementary capital)
to risk-weighted assets of at least 8%, of which at least 4% must be Tier I
capital. Risk weighted assets are also determined in a manner comparable to the
determination of risk-weighted assets under FDIC regulations as discussed below.

      At December 31, 2000, the Company satisfied all applicable Federal Reserve
minimum capital requirements.

      Source of Strength Doctrine. It is the Federal Reserve policy that bank
holding companies must serve as a source of financial strength to its subsidiary
depository institutions and must commit all available resources to support such
institutions even if it might not otherwise do so. Although this "source of
strength" policy has been challenged in litigation, the Federal Reserve
continues to take the position that it has authority to enforce it. The Federal
Reserve also has the authority to terminate any activity of the Company that
constitutes a serious risk to the financial soundness or stability of the Bank
or, in extreme cases, to terminate its control of any bank or nonbank
subsidiaries.

      Inter-state Banking. Bank holding companies may generally acquire banks in
any state. Federal law also permits a bank to merge with an out-of-state bank
and convert any offices into branches of the resulting bank if both states have
not opted out of interstate branching; permits a bank to acquire branches from
an out-of-state bank if the law of the state where the branches are located
permits the interstate branch acquisition; and permits banks to establish and
operate new interstate branches whenever the host state opts-in to that
authority. Bank holding companies and banks that want to engage in such
activities must be adequately capitalized and managed.

      The New York Banking Law generally authorizes interstate branching in New
York as a result of a merger, purchase of assets or similar transaction. An out
of state bank may not first enter New York by opening a new branch in New York,


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but once a branch is acquired as described in the preceding sentence, additional
new branches may be opened.

      Regulation of the Bank. In general, the powers of the Bank are limited to
the express powers described in the New York Banking Law and powers incidental
to the exercise of those express powers. The Bank is generally authorized to
accept deposits and make loans on terms and conditions determined to be
acceptable to the Bank. Loans may be unsecured, secured by real estate, or
secured by personal property. The Bank may also invest assets in bonds, notes or
other debt securities which are not in default and certain limited classes of
equity securities including certain publicly traded equity securities in an
amount aggregating not more than 2% of assets or 20% of capital. The Bank may
also engage in a variety of other traditional activities for commercial banks,
such as the issuance of letters of credit.

      The exercise of these state-authorized powers is limited by FDIC
regulations and other federal laws and regulations. In particular, FDIC
regulations limit the investment activities of state-chartered, FDIC-insured
banks such as the Bank.

      Under FDIC regulations, the Bank generally may not directly or indirectly
acquire or retain any equity investment that is not permissible for a national
bank. In addition, the Bank may not directly or indirectly through a subsidiary,
engage as "principal" in any activity that is not permissible for a national
bank unless the FDIC has determined that such activities would pose no risk to
the applicable FDIC insurance fund and the Bank is in compliance with applicable
regulatory capital requirements. FDIC regulations permit real estate investments
under certain circumstances. The Bank does not engage in real estate investing
activity.

      Loans to One Borrower. With certain exceptions, the Bank may not make
loans or other extensions of credit to a single borrower, or certain related
groups of borrowers, in an aggregate amount in excess of 15% of the Bank's net
worth, plus an additional 10% of the Bank's net worth if such amount is secured
by certain types of readily marketable collateral. In addition, the Bank is not
permitted to make a mortgage loan in excess of 15% of capital stock, surplus
fund and undivided profits.

      Capital Requirements. The FDIC requires that the Bank maintain certain
minimum ratios of capital to assets. The FDIC's regulations divide capital into
two tiers. The first tier ("Tier I") includes common equity, retained earnings,
certain non-cumulative perpetual preferred stock (excluding auction rate issues)
and minority interests in equity accounts of consolidated subsidiaries, minus
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier II") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses, subject to certain limitations, less
required deductions.

      The FDIC requires that the highest rated banks maintain a Tier I leverage
ratio (Tier I capital to adjusted total assets) of at least 3.0%. All other
banks subject to FDIC capital requirements must maintain a Tier I leverage
ration of 4.0% to 5.0% or more. As of December 31, 2000, the Bank's Tier I
leverage capital ratio was 8.47%.

      The Bank must also meet a risk-based capital standard. The risk-based
standard requires the Bank to maintain total capital (defined as Tier I and
Supplementary capital) to risk-weighted assets of at least 8%, of which at least
4% must be Tier I capital. In determining the amount of risk-weighted assets,
all assets, plus certain off-balance sheet assets, are multiplied by a risk-
weight of 0% to 100%, based on the risks the FDIC believes are inherent in the
type of asset. As of December 31, 2000, the Bank maintained a 12.89% Tier I
risk-based capital ratio and a 13.83% total risk-based capital ratio.

      In addition to the foregoing regulatory capital requirements, the FDIC
Improvements Act of 1991 created a "prompt corrective action" framework, under
which decreases in a depository institution's capital category trigger various


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supervisory actions. Pursuant to implementing regulations adopted by the FDIC,
for purposes of the prompt corrective action provisions, a state-chartered,
nonmember bank, such as the Bank, is deemed to be well capitalized if it has: a
total risk-based capital ratio of 10% or greater; a Tier I risk-based capital
ratio of 6% or greater; and a leverage ratio of 5% or greater. As of December
31, 2000, the Bank was well capitalized under all three of these standards.

      Community Reinvestment Act. The Bank must, under federal law, meet the
credit needs of its community, including low and moderate income segments of its
community. The FDIC is required, in connection with its examination of the Bank,
to assess whether the Bank has satisfied this requirement. Failure to satisfy
this requirement could adversely affect certain applications which the Bank may
make, such as branch applications, merger applications, and applications for
permission to purchase branches. In the case of Berkshire, the Federal Reserve
will assess the record of each subsidiary bank in considering certain
applications by Berkshire. The New York Banking Law contains similar provisions
applicable to the Bank. As of the most recent Community Reinvestment Act
examinations by the FDIC and the New York State Banking Department, the Bank
received satisfactory ratings.

      Dividends From the Bank to the Company. One source of funds for Berkshire
to pay dividends to its stockholders is dividends from the Bank to Berkshire.
Under the New York Banking Law, the Bank may pay dividends to Berkshire, without
regulatory approval, equal to its net profits for the year in which the payment
is made, plus retained net profits for the two previous years, subject to
certain limits not generally relevant. The Bank's retained net profits for the
1999 and 2000 calendar years totaled approximately $1.1 million. However, the
ability of Berkshire to pay dividends is not presently dependent upon the
receipt of dividends from the Bank.

      Under federal law, the Bank may not make any capital distribution to
Berkshire, including any dividend or repurchase of the Bank's stock, if, after
making such distribution, the Bank fails to meet the required minimum capital
ratio requirements discussed below. The FDIC may prohibit the Bank from paying
dividends if, in its opinion, the payment of dividends would constitute an
unsafe or unsound practice.

      Transactions With Related Parties. The Company, its direct non-banking
subsidiaries and other companies controlled by shareholders who control the
Company are affiliates, within the meaning of the Federal Reserve Act, of the
Bank and its subsidiaries. The Bank's authority to engage in transactions with
its "affiliates" is limited by Sections 23A and 23B of the Federal Reserve Act.
Section 23A limits the aggregate amount of transactions with any individual
affiliate to 10% of the capital and surplus of the Bank and also limits the
aggregate amount of transactions with all affiliates to 20% of the Bank's
capital and surplus. Extensions of credit to affiliates must be secured by
certain specified collateral, and the purchase of low quality assets from
affiliates is generally prohibited. Section 23B provides that certain
transactions with affiliates, including loans and asset purchases, must be on
terms and under circumstances, including credit standards, that are at least as
favorable to the Bank as those prevailing at the time for comparable
transactions with non-affiliated companies. In the absence of comparable
transactions, such transactions may only occur under terms and circumstances,
including credit standards, that in good faith would be offered to or would
apply to non-affiliated companies.

      The Bank may make loans to its directors, executive officers, and 10%
stockholders, as well as to entities controlled by them, subject to specific
federal and state limits. Among other things, these loans must (a) be made on
terms that are substantially the same as, and follow credit underwriting
procedures that are not less stringent than, those prevailing for comparable
transactions with unaffiliated persons and that do not involve more than the
normal risk of repayment or present other unfavorable features and (b) not
exceed certain limitations on the amount of credit extended to such persons,
individually and in the aggregate, which limits are based, in part, on the
amount of the Bank's capital. In addition, extensions of credit in excess of
certain limits must be approved by the Bank's Board of Directors. However, the
Bank may make loans to executive officers, directors and principal stockholders
on preferential terms, provided the extension of credit is made pursuant to a


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benefit or compensation program of the Bank that is widely available to
employees of the Bank or its affiliates and does not give preference to any
insider over other employees of the Bank or affiliate. The Bank has no such
benefit or compensation programs (see Item. 2 - Properties for additional
information).

      Enforcement. The FDIC and the Banking Department have enforcement
authority over the Bank. The Superintendent may order the Bank to appear and
explain an apparent violation of law, to discontinue unauthorized or unsafe
practices and to keep prescribed books and accounts. If any director or officer
of the Bank has violated any law, or has continued unauthorized or unsafe
practices in conducting the business of the Bank after having been notified by
the Superintendent to discontinue such practices, the New York Banking Board may
remove the individual from office after notice and an opportunity to be heard.
The Superintendent also may take over control of the Bank under specified
statutory criteria.

      The FDIC's enforcement authority includes, among other things, the ability
to assess civil money penalties, to issue cease and desist orders and to remove
directors and officers. As indicated above, the FDIC is required to take prompt
action to correct deficiencies in banks which do not satisfy specified FDIC
capital ratio requirements. Dividends, other capital distributions or the
payment of management fees to any controlling person are prohibited if,
following such distribution or payment, a bank would be undercapitalized. An
undercapitalized bank must file a plan to restore its capital within 45 days
after being notified that it is undercapitalized. Undercapitalized,
significantly undercapitalized and critically undercapitalized institutions are
subject to increasing prohibitions on permitted activities, and increasing
levels of regulatory supervision, based upon the severity of their capital
problems. The FDIC is required to monitor closely the condition of an
undercapitalized bank. Enforcement action taken by the FDIC can escalate to the
appointment of a conservator or receiver of a critically undercapitalized bank.

      Insurance of Accounts. Deposit insurance premiums payable to the FDIC are
based upon the perceived risk of the institution to the FDIC insurance fund. The
FDIC assigns an institution to one of three capital categories: (a) well
capitalized, (b) adequately capitalized or (c) undercapitalized. The FDIC also
assigns an institution to one of three supervisory categories based on an
evaluation by the institution's primary federal regulator and information that
the FDIC considers relevant to the institution's financial condition and the
risk posed to the deposit insurance funds. Deposit insurance premiums depend on
an institution's capital and supervisory categories. At present, the Bank pays
no deposit insurance premium based upon its risk-based categorization.

      However, the Bank must pay a share of the cost of the bonds issued in the
late 1980s to recapitalize the now defunct Federal Savings and Loan Insurance
Corporation. The Bank must pay an annual assessment for this purpose, which for
fiscal 2000 was equal to 0.02120% of its insured deposits and which
is recorded as a deposit insurance premium expense for financial statement
purposes. Beginning in 2001, the assessment decreased to 0.0196% of the Bank's
insured deposits.

      Reserve Requirements. The Bank must maintain non-interest-earning reserves
against its transaction accounts (primarily NOW and regular checking accounts).
The Bank is generally able to satisfy the reserve requirements with cash on hand
and other non-interest bearing deposits which it maintains for other purposes,
so the reserve requirements do not impose a material financial burden on the
Bank.

      Governmental Policies. Our earnings are significantly affected by the
monetary and fiscal policies of governmental authorities, including the Federal
Reserve. Among the instruments of monetary policy used by the Federal Reserve to
implement these objectives are open-market operations in U.S. Government
securities and Federal funds, changes in the discount rate on member bank
borrowings and changes in reserve requirements against member bank deposits.
These instruments of monetary policy are used in varying combinations to
influence the overall level of bank loans, investments and deposits, and the
interest rates charged on loans and paid for deposits. The Federal Reserve
frequently uses these instruments of monetary policy, especially its open-market
operations and the discount rate, to influence the level of interest rates and


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to affect the strength of the economy, the level of inflation or the price of
the dollar in foreign exchange markets. The monetary policies of the Federal
Reserve have had a significant effect on the operating results of banking
institutions in the past and are expected to continue to do so in the future. It
is not possible to predict the nature of future changes in monetary and fiscal
policies, or the effect which they may have on our business and earnings.

      Discontinued Operations. On December 19, 1995, as the result of a merger
transaction, the Company exchanged its equity interest in a development stage
company named Unistar Gaming Corp. for Common and Preferred Stock of Executone
Information Systems, Inc. (See Note C of Notes to Consolidated Financial
Statements.)

      Personal Holding Company Status. For the fiscal years ended December 31,
2000 and October 31, 1999, the Company has been deemed to be a Personal Holding
Company (a "PHC"), as defined in the Internal Revenue Code. As a PHC, we are
required to pay an additional income tax or issue a dividend to our shareholders
in an amount based upon the PHC Internal Revenue Code formulas, which is
primarily based upon net income. Accordingly, on November 17, 2000 and
September 14, 1999, the Board of Directors of the Company declared cash
dividends in the amounts of $.44, and $.12 per common share, respectively. (See
Dividends in Item 5).

      Employees. On March 16, 2001, Berkshire had one full time employee and the
Bank employed approximately 22 full time employees. The Bank's employees are not
represented by a collective bargaining unit, and the Bank considers its
relationship with its employees to be good.

ITEM 2. Properties.

      The following are Berkshire's and the Bank's principal facilities, all of
which are leased, as of March 16, 2001:

<TABLE>
<CAPTION>
                                      Approximate   Approximate
                                      Floor Area    Annual          Lease
Location       Operations             (Sq. Ft.)     Rent            Expiration
------------   -----------------      ---------     ---------       ----------
<S>            <C>                    <C>           <C>            <C>
New York, NY   Executive Offices      1,500         $  18,000           (1)(3)
New York, NY   Main Bank Office       5,100         $ 352,000       March 2006
Brooklyn, NY   Bank Branch            4,500         $ 114,000       June 2001
New York, NY   Bank Branch            5,500         $ 237,000       June 2005 (2)(3)
</TABLE>

----------
(1)   Rented on a month to month basis from a company affiliated with Mr. Marx,
      a director of the Company.
(2)   Leased from a company affiliated with Mr. Marx, a director of the Company.
(3)   Management believes the annual rent paid is comparable to the annual rent
      that would be paid to non-affiliated parties in a similar commercial
      transaction for similar commercial space.

      On February 23, 2001, the Company entered into a contract to purchase a
parcel of land and building located in mid-town Manhattan for a total purchase
price of $3.45 million in cash. The Company intends to utilize the property for
banking offices and a bank branch.

ITEM 3. Legal Proceedings.

      In the ordinary course of its operations, the Bank is a party to routine
litigation involving claims incidental to its banking business. Management of
the Bank believes that no current litigation, threatened or pending, to which
the Bank or its assets is or may become a party, poses a substantial likelihood
of potential loss or exposure which would have a material adverse effect on the
financial condition or results of operations of the Bank.

ITEM 4. Submission of Matters to a Vote of Security Holders.

      Not Applicable.


                                       9



<PAGE>

                                     PART II

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.

      The Company's Common Stock trades on the Nasdaq Stock Market under the
symbol ZAPS.

      The following table sets forth, for the periods indicated, the high and
low sales prices for the Company's Common Stock as reported by the National
Association of Securities Dealers, Inc.

<TABLE>
<CAPTION>
                                                          High          Low
                                                          ----          ---
Fiscal Year Ended December 31, 2000
-----------------------------------
<S>                                                       <C>           <C>
January 1, 2000 to March 31, 2000                         37.50         29.688
April 1, 2000 to June 30, 2000                            37.313        30.625
July 1, 2000 to September 30, 2000                        36.50         30.50
October 1, 2000 to December 31, 2000                      31.00         29.00
<CAPTION>
                                                          High          Low
                                                          ----          ---
Transition Period Ended December 31, 1999
-----------------------------------------
<S>                                                       <C>           <C>
November 1, 1999 to December 31, 1999                     37.00         33.00
<CAPTION>
                                                          High          Low
                                                          ----          ---
Fiscal Year Ended October 31, 1999
----------------------------------
<S>                                                       <C>           <C>
November 1, 1998 to January 31, 1999                      41.00         29.50
February 1, 1999 to April 30, 1999                        43.062        32.00
May 1, 1999 to July 31, 1999                              45.00         39.50
August 1, 1999 to October 31, 1999                        39.50         34.00
</TABLE>

      As of the close of business on March 16, 2001, there were approximately
2,119 holders of record of the Company's Common Stock.

Dividends

      On November 16, 1998, the Company paid a special dividend of $.72 per
Common Share to shareholders of record as of the close of business on October
29, 1998. On October 29, 1999, the Company paid a special dividend of $.12 per
Common Share to shareholders of record as of the close of business on October
25, 1999. On December 28, 2000, the Company paid a special dividend of $.44 per
Common Share to shareholders of record as of the close of business on December
12, 2000. The primary purpose for declaring these dividends was the probable
then current status of the Company as a "personal holding company" for federal
income tax purposes; and that, as a result thereof, if dividends were not
declared and paid to the Company's shareholders, the Company would have incurred
substantial additional federal income tax liability.

      On March 23, 1999, the Board of Directors adopted a policy of paying
regular cash dividends in respect of the Common Stock of the Company in the
amount of $.20 per share per annum, payable in equal semi-annual installments of
$.10 each. Pursuant to said policy, the Board of Directors declared and the
Company paid cash dividends as follows:

<TABLE>
<CAPTION>
                                                                          Per Share
Declaration Date          Record Date            Payment Date              Amount
------------------------  ---------------------  ----------------------  -----------
<S>                       <C>                    <C>                        <C>
March 23, 1999            April 15, 1999         April 30, 1999             $ .10

September 14, 1999        October 15, 1999       October 29, 1999           $ .10

March 30, 2000            April 14, 2000         April 28, 2000             $ .10

September 25, 2000        October 10, 2000       October 24, 2000           $ .10
</TABLE>

      The declaration, payment and amount of such dividends in the future is
within the discretion of the Board of Directors and will depend upon our
earnings, capital requirements, financial condition and other relevant factors.


                                       10



<PAGE>

ITEM 6. Selected Financial Data.

                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES

                       Five Year Financial Highlights (a)

      The following is a summary of certain financial information with respect
to the Company at and for the fiscal year ended December 31, 2000, at and for
the proforma twelve months ended December 31, 1999 and as of and for the fiscal
years ended October 31, 1999, 1998, and 1997. This information is derived from
and should be read in conjunction with the Company's financial statements and
notes thereto included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                    December 31,                    October 31,
                                --------------------    --------------------------------
                                  2000       1999(b)      1999        1998        1997
                                  ----       -------      ----        ----        ----
                                    (Dollars in thousands, except for per share data)
<S>                             <C>         <C>         <C>         <C>         <C>
Balance Sheet Data:
Total Assets                    $244,023    $192,130    $180,986    $ 66,830    $ 64,521
Loans, net                        74,515      64,668      59,652          --          --
Investment securities            117,060      89,497      82,876          --      38,067
Goodwill                          11,543      12,073      12,195          --          --
Deposits                         137,647     104,087     102,318          --          --
Stockholders' equity              79,107      78,070      73,306      65,466      61,729

Interest income                   14,019       9,852       8,525       3,313         669
Interest expense                   5,184       3,101       2,548          --          --
                                --------    --------    --------    --------    --------
Net interest income before
 provision for loan losses         8,835       6,751       5,977       3,313         669
Provision for loan losses             55          55          45          --          --
                                --------    --------    --------    --------    --------
Net interest income                8,780       6,696       5,932       3,313         669
Investment securities gains       13,288      10,731       7,622      38,909      16,845
Other income                       1,330         578         633          44         119
Other expenses                     3,829       3,489       2,948       1,066         823
Amortization of goodwill             635         730         608          --          --
                                --------    --------    --------    --------    --------
Income (loss) before
 income taxes                     18,934      13,786      10,631      41,200      16,810
Provision for income taxes         6,868       5,527       4,091       3,573         100
                                --------    --------    --------    --------    --------
Net income (loss)               $ 12,066    $  8,259    $  6,540    $ 37,627    $ 16,710
                                ========    ========    ========    ========    ========
Net income (loss) per share:
 Basic                          $   5.76    $   3.88    $   3.08    $  17.70    $   7.78
                                ========    ========    ========    ========    ========
 Diluted                        $   5.76    $   3.65    $   2.89    $  16.66    $   7.45
                                ========    ========    ========    ========    ========
Cash dividends per
 common share                   $    .64    $    .32    $    .32    $    .72    $     --
                                ========    ========    ========    ========    ========

Selected Operating Ratios
Return on average assets (c)         5.8%        7.0%        3.9%       55.0%       32.9%
Return on average equity (c)        14.9%       14.6%        6.2%       57.2%       33.8%
Net interest margin (c)              4.7%        4.9%        4.4%        4.8%        1.3%
Average equity/average assets       39.1%       47.9%       48.3%       96.2%       97.3%
Allowance for loan
losses/total loans                   1.5%        1.4%        1.5%         --          --
</TABLE>

(a)   The prior years' amounts have been reclassified to conform to the current
      years' presentation.
(b)   On December 10, 1999, the Company changed its fiscal year end from October
      31 to December 31st of each year. This change was effective December 31,
      1999. For presentation purposes, proforma operations data is shown for the
      twelve months ended December 31, 1999.
(c)   Selected amounts for the two months ended December 31, 1999 were
      annualized to calculate ratios.


                                       11



<PAGE>

ITEM 7. Managements' 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 ("Berkshire", the "Company" or "we"
and similar pronouns) for the fiscal year ended December 31, 2000, the two
months ended December 31, 1999 and for the fiscal year ended October 31, 1999.
The discussion should be read in conjunction with the consolidated financial
statements and related notes (Notes 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
provide comparability with prior year periods, the income statement data
discussed for the twelve months ended October 31, 1999 are based upon proforma
data for the Company after the acquisition of the Bank, and the Company during
fiscal 1999 prior to the acquisition. Proforma information as of and for the
fiscal years ended October 31, 1998 and 1997 has been provided for comparison
purposes.


                                       12



<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>


                                       13



<PAGE>

Discussion of Results of Operations

Overview

      Fiscal Year Ended December 31, 2000 Compared to Two Months Ended December
31, 1999. Net income was $12.07 million, or $5.76 per diluted share, for the
fiscal year ended December 31, 2000, compared to $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.

      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, compared to $6.54 million, or $2.89 per diluted share,
in fiscal 1999.

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: (i) 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.


                                       14



<PAGE>

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

<TABLE>
<CAPTION>
                                                  Twelve Months Ended
                                                   December 31, 2000
                                            ---------------------------------
                                                          Interest    Average
                                             Average        and       Yield/
                                             Balance      Dividends    Rate
                                             -------      ---------    ----
<S>                                         <C>           <C>          <C>
INTEREST-EARNING ASSETS:
Loans (1)                                   $ 70,357      $  6,397     9.09%
Investment securities                         90,918         6,381     7.01
Other (2)(5)                                  27,410         1,241     4.53
                                            --------      --------     ----
Total interest-earning assets                188,685        14,019     7.43
                                                                       ----
Noninterest-earning assets                    18,237
                                            --------
Total Assets                                $206,922
                                            ========

INTEREST-BEARING LIABILITIES:
Interest bearing deposits                     49,036         1,845     3.76
Time deposits                                 42,158         2,499     5.93
Other borrowings                              14,277           840     5.88
                                            --------      --------     ----
Total interest-bearing
 liabilities                                 105,471         5,184     4.92
                                                          --------     ----

Demand deposits                               14,848
Noninterest-bearing
liabilities                                    5,652
Stockholders' equity (5)                      80,951
                                            --------

Total liabilities and
 stockholders' equity                       $206,922
                                            ========

Net interest income                                       $  8,835
                                                          ========

Interest-rate spread (3)                                               2.51%
                                                                       ====

Net interest margin (4)                                                4.68%
                                                                       ====

Ratio of average interest-
earning assets to average
interest bearing liabilities                  178.90%
                                              ======
</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.


                                       15



<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 liabilities    86,416           553     3.84         76,464         2,964     3.88
                                                  --------     ----                     --------     ----

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.


                                       16



<PAGE>

      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):

<TABLE>
<CAPTION>
                                          Twelve Months Ended December 31, 2000
                                                         Versus
                                          Two Months Ended December 31, 1999(1)
                                               Increase (Decrease) Due To
                                         ---------------------------------------
                                          Rate           Volume           Total
                                         -------         -------         -------
<S>                                      <C>             <C>             <C>
Interest-earning assets:
 Loans                                   $   253         $   792         $ 1,045
 Investment securities                       471           1,308           1,779
 Other                                       120              17             137
                                         -------         -------         -------
Total                                        844           2,117           2,961
                                         -------         -------         -------

Interest-bearing
 liabilities:
Deposit accounts:
 Interest bearing deposits                   226            (133)             93
 Time deposits                               442             587           1,029
 Other borrowings                             (8)            752             744
                                         -------         -------         -------
Total                                        660           1,206           1,866
                                         -------         -------         -------

Net interest income                      $   184         $   911         $ 1,095
                                         =======         =======         =======
</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>
                                         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.


                                       17



<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, 2000 and 1999.

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


                                       18



<PAGE>

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

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 fiscal year ended
December 31, 2000 and for the two month period ended December 31, 1999 were
$13,267,000 and $3,110,000, respectively. 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 $13,288,000 and $3,109,000 for the year
ended December 31, 2000 and for the two months ended December 31, 1999,
respectively 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 2000 and 1999 were due to open market sales of
the common stock of Elot, Inc. (formerly 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, a Virginia corporation whose common stock trades on the NASDAQ
National Market System. The Company's investment in UGC was approximately $5.2
million.


                                       19



<PAGE>

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

      At December 31, 2000 and 1999 the Company owned 130,000 shares and
1,792,106 shares, respectively, of Executone Common Stock with a fair market
value of approximately $65,000 and $9,744,000, respectively.

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 $635,000, $122,000 and
$608,000 for the fiscal year ended December 31, 2000, 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 $6.87 million and $1.45 million
for the fiscal year ended December 31, 2000 and two months ended December 31,
1999, respectively, and $4.09 million for the fiscal year ended October 31,
1999.

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 debt
securities as available for sale in order to maintain the flexibility to sell
those securities if the need arises. The Bank has a limited portfolio of
securities classified as held to maturity, represented principally by securities
purchased a number of years ago.


                                       20



<PAGE>

      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.

      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
                                                        -------       ----------
<S>                                                     <C>             <C>
               December 31, 2000
  Available-For-Sale
U.S. Government Agencies                                $86,064         $85,952
Mortgage-backed securities                                4,208           4,199
Corporate notes                                           1,654           1,313
Marketable equity securities and other                    4,813           4,845
                                                        -------         -------
Total                                                   $96,739         $96,309
                                                        =======         =======

  Held-To-Maturity
U.S. Government Agencies                                $   296         $   294
Corporate notes                                          20,455          20,408
                                                        -------         -------
Total                                                   $20,751         $20,702
                                                        =======         =======
</TABLE>

<TABLE>
<CAPTION>
                                                         Cost         Fair Value
                                                        -------         -------
<S>                                                     <C>             <C>
               December 31, 1999
  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
                                                        -------       ----------
<S>                                                     <C>             <C>
                October 31, 1999
  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>


                                       21



<PAGE>

      The following table summarizes the Company's available-for-sale and
held-to-maturity securities at December 31, 2000 (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                    5.82%       $15,000      $14,987
Due after one year
 through five years                    5.76         37,492       37,448
Due after five years
 through ten years                     5.88         32,288       32,236
Due after ten years                    5.79          5,817        5,801
                                                   -------      -------
                                                    90,597       90,472
                                                   -------      -------
  Corporate Notes
Due within one year                   12.84            148           88
Due after one year
 through five years                   12.69            733          532
Due after five years
through ten years                     13.41            448          372
                                                   -------      -------
                                                     1,329          992
                                                   -------      -------

  Common Stocks                          --             91          157
  Preferred Stocks                     9.52          3,834        3,800
  Federal Home Loan
   Bank Stock                          6.53            888          888
                                                   -------      -------
                                                     4,813        4,845
                                                   -------      -------
                                                   $96,739      $96,309
                                                   =======      =======

Held-To-Maturity
  U.S. Government
   Agencies Obligations
Due within one year                    7.50              4            4
Due after five years
 through ten years                     7.67            211          210
Due after ten years                    7.42             81           81
                                                   -------      -------
                                                       296          295
                                                   -------      -------
  Corporate Notes
Due within one year                    6.42         20,455       20,407
                                                   -------      -------
                                                   $20,751      $20,702
                                                   =======      =======
</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, 2000 and 1999, the Company had total loans of $75.6
million and $65.6 million, respectively, and an allowance for loan losses of
approximately $1.11 million and $923,000, respectively. From time to time, the
Bank may originate residential mortgage loans and then sell them on the
secondary market, normally recognizing fee income in connection with the sale.


                                       22



<PAGE>

      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 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.


                                       23



<PAGE>

      At December 31, 2000, the Bank's total capital was approximately $26.44
million and thus it was generally not permitted to make loans to one borrower in
excess of approximately $3.97 million, with an additional approximately $2.64
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 $3.97 million. At December 31, 2000, 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.

      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,
                                       ----------------------------------------------------
                                                2000                       1999
                                       ----------------------        ----------------------
                                                       % of                          % of
                                        Amount         Total          Amount         Total
                                       --------       -------        --------       -------
<S>                                    <C>             <C>           <C>              <C>
Commercial and professional loans      $  8,920          11.8%        $ 5,358           8.2%
Secured by real estate                   65,409          86.5          57,652          87.9
Consumer                                    794           1.0           2,581           3.9
Other                                       500           0.7              --            --
                                       --------         -----         -------         -----

Total loans                              75,623         100.0%          65,591        100.0%
                                                        =====                         =====

Less: Allowance for loan losses          (1,108)                         (923)
                                       --------                       -------

Loans, net                             $ 74,515                       $64,668
                                       ========                       =======
</TABLE>


                                       24



<PAGE>

<TABLE>
<CAPTION>
                                                   October 31,
                       -------------------------------------------------------------------
                             1999 (1)                 1998 (1)                1997 (1)
                       -------------------     -------------------      ------------------
                                     % of                    % of                    % of
                        Amount       Total       Amount      Total       Amount      Total
                       --------      -----      --------     -----      --------     -----
<S>                    <C>           <C>       <C>            <C>      <C>           <C>
Commercial and
professional loans     $  6,824      11.3%     $  3,548       8.9%     $  7,011      18.6%
Secured by real
 estate                  51,300      84.7        33,015      82.9        27,164      72.0
Personal                  1,932       3.2         1,970       5.0         2,275       6.0
Other                       501       0.8         1,264       3.2         1,265       3.4
                       --------      ----      --------     -----      --------      ----

Total loans              60,557     100.0%       39,797     100.0%       37,715     100.0%
                                    =====                   =====                   =====

Less:
 Allowance for loan
 losses                    (905)                   (803)                   (723)
                       --------                --------                --------

Loans, net             $ 59,652                $ 38,994                $ 36,992
                       ========                ========                ========
</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).

<TABLE>
<CAPTION>
                                    December 31,                October 31,
                                  ----------------     -----------------------------
                                  2000       1999      1999(1)    1998(1)    1997(1)
                                  ----       ----      -------    -------    -------
<S>                               <C>        <C>        <C>        <C>        <C>
Nonaccrual loans:

Secured by real estate            $  --      $  --      $121       $ 30       $237
                                  -----      -----      ----       ----       ----

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

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

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


                                       25



<PAGE>

      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, 2000
                                    -----------------------------------------
                                    Allowance
                                    for Loan       Percent of     Percent of
                                     Losses        Allowance      Total Loans
                                     ------        ---------      -----------
<S>                                  <C>               <C>           <C>
Commercial and
 professional loans                  $   89            8.0%          0.12%
Secured by real estate                  654           59.0           0.86
Personal and other                       13            1.2           0.02
General allowance (1)                   352           31.8           0.47%
                                     ------         ------         ------
Total allowance
 for loan losses                     $1,108          100.0%          1.47%
                                     ======         ======         ======
</TABLE>

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

<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.

<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.


                                       26



<PAGE>

<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.

      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, 2000
                              ---------------------------------------
                              Within     1 to      After
                              1 Year    5 Years    5 Years      Total
                              ------    -------    -------      -----
<S>                           <C>       <C>       <C>          <C>
Commercial-fixed rate         $   --    $  792    $      --    $  792
                              ------    ------    ---------    ------

Commercial-adjustable rate     6,063     2,065           --     8,128
                              ------    ------    ---------    ------

Total                         $6,063    $2,857    $      --    $8,920
                              ======    ======    =========    ======
</TABLE>


                                       27



<PAGE>

      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):

<TABLE>
<CAPTION>
                                                     Two Months
                                       Year Ended      Ended
                                       December 31,  December 31,       Years Ended October 31,
                                       ------------  ------------  -----------------------------------
                                           2000          1999      1999(1)       1998(1)       1997(1)
                                         -------       -------     -------       -------       -------
<S>                                      <C>           <C>         <C>           <C>           <C>
Average loans outstanding                $70,357       $61,691     $48,387       $39,085       $31,081
                                         =======       =======     =======       =======       =======
Allowance at beginning of period             923           905         803           723           824
Charge-offs:
 Real estate loans                            --            --          31            --           196
                                         -------       -------     -------       -------       -------
  Total loans charged-off                     --            --          31            --           196
                                         -------       -------     -------       -------       -------
Recoveries:
 Commercial and other loans                  130             8          78            20            28
 Real estate loans                            --            --          --            --             7
                                         -------       -------     -------       -------       -------
  Total loans recovered                      130             8          78            20            35
                                         -------       -------     -------       -------       -------
  Net recoveries                             130             8          47            20           161
                                         -------       -------     -------       -------       -------
Provision for loan losses
 charged to operating expenses                55            10          55            60            60
                                         -------       -------     -------       -------       -------
Allowance at end of period                 1,108           923         905           803           723
                                         -------       -------     -------       -------       -------
Ratio of net recoveries to
 average loans outstanding (2)               .18%          .08%        .09%          .05%          .51%
                                         =======       =======     =======       =======       =======
Allowance as a percent of total loans       1.47%         1.41%       1.49%         2.02%         1.92%
                                         =======       =======     =======       =======       =======
Total loans at end of period             $75,623       $65,591     $60,557       $39,797       $37,715
                                         =======       =======     =======       =======       =======
</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 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.

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

<TABLE>
<CAPTION>
                           December 31,          December 31,           October 31,
                               2000               1999 (2)               1999 (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         $ 14,848      --      $ 15,953      --      $ 17,485      --
NOW and money market      44,582    3.85%       47,994    3.49%       48,515    3.19%
Savings deposits           4,454    2.93         4,665    2.66         4,721    2.58
Time deposits             42,158    5.93        32,257    4.56        21,714    5.55
                        --------    ----      --------    ----      --------    ----
Total deposits          $106,042    4.08%     $100,869    3.19%     $ 92,435    3.11%
                        ========    ====      ========    ====      ========    ====
</TABLE>


                                       28



<PAGE>

(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 $55.32 million at December 31, 2000.

      The following table summarizes the maturity distribution of time deposits
of $100,000 or more as of December 31, 2000:

<TABLE>
<CAPTION>
                                                      December 31,
                                                         2000
                                                       --------
                                                     (In thousands)
<S>                                                    <C>
3 months or less                                       $  38,475
Over 3 months but within 6 months                          8,143
Over 6 months but within 12 months                         6,915
Over 12 months                                             1,786
                                                       ---------
Total                                                  $  55,319
                                                       =========
</TABLE>

Short-Term Borrowings

      Securities sold under agreements to repurchase generally mature within 30
days from the date of the transactions. Short-term borrowings consist of
Treasury Tax and Loan Note Options and various other borrowings which generally
have maturities of less than one year. As of December 31, 1999 and October 31,
1999, the Company did not have any short term borrowings. The details of these
categories are presented below:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                                2000
                                                              --------
                                                        (Dollars in Thousands)
<S>                                                            <C>
Securities sold under repurchase
 agreements and federal funds purchased
    Balance at year-end                                        $23,127
    Average during the year                                    $12,367
    Maximum month-end balance                                  $24,495
    Weighted average rate during the year                         5.85%
    Rate at December 31                                           5.75%
</TABLE>


                                       29



<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., liquidity means having
cash available to fund operating expenses and to pay shareholder dividends, when
and if declared by our Board of Directors. We paid cash dividends of $.64 per
share, $.32 per share and $.72 per share in fiscal 2000, 1999 and 1998,
respectively. The ability to fund our operations and to pay dividends is not
dependent upon the receipt of dividends from The Berkshire Bank. At December 31,
2000, we had cash of $39.8 million and marketable securities of $4.0 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 P.

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.


                                       30



<PAGE>

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

<TABLE>
<CAPTION>
                                                                Berkshire Bancorp Inc.
                                                   Interest Rate Sensitivity Gap at December 31, 2000
                                                        (in thousands, except for percentages)
                                  ------------------------------------------------------------------------------

                                     3 Months        3 Through       1 Through          Over
                                      or Less        12 Months        3 Years          3 Years         Total
                                  --------------- -------------------------------- --------------- -------------
<S>                                <C>             <C>             <C>              <C>             <C>
Federal funds sold                 $  27,250       $      --       $      --        $      --       $   27,250
                          (Rate)        6.38%             --              --               --             6.38%
Interest bearing deposits              6,605              --              --               --            6,605
 in banks
                          (Rate)        5.79%             --              --               --             5.79%
Loans (1)(2)
Adjustable rate loans                 32,458           6,856          10,987            8,510           58,811
                          (Rate)        9.64%           8.61%           8.97%            8.97%
Fixed rate loans                         463             266           3,383           12,700           16,812
                          (Rate)        7.58%           8.75%           8.30%            7.69%            7.82%
                                   ---------       ---------       ---------        ---------       ----------
Total loans                           32,921           7,122          14,370           21,210           75,623
Investments (3)(4)                    41,698           1,208          20,309           53,204          116,419
                          (Rate)        6.59%           7.31%           6.21%            7.12%            6.77%
                                   ---------       ---------       ---------        ---------       ----------
Total rate-sensitive assets          108,474           8,330          34,679           74,414          225,897
                                   ---------       ---------       ---------        ---------       ----------

Deposit accounts (5)
Savings and NOW                       12,025              --              --               --           12,025
                          (Rate)        1.80%                                                             1.80%
Money market                          20,807              --              --               --           20,807
                          (Rate)        3.88%                                                             3.88%
Time Deposits                         52,806          37,500                                            90,306
                          (Rate)        6.18%           6.29%             --%              --%            6.22%
                                   ---------       ---------       ---------        ---------       ----------
Total deposit accounts                85,638          37,500              --               --          123,138
Other borrowings                      23,127              --             500            1,000           24,627
                          (Rate)        5.75%             --            5.96             5.96%            5.76%
                                   ---------       ---------       ---------        ---------       ----------
Total rate-sensitive liabilities     108,765          37,500             500            1,000          147,765
                                   ---------       ---------       ---------        ---------       ----------
Interest rate caps                    20,000              --              --          (20,000)
Gap (repricing differences)          (20,291)        (29,170)         34,179           93,414           78,132
                                   =========       =========       =========        =========       ==========

Cumulative Gap                       (20,291)        (49,461)        (15,282)          78,132
                                   =========       =========       =========        =========
Cumulative Gap to Total Rate
Sensitive Assets                      ( 8.98)%        (21.90)%         (6.77)%          34.59%
                                   =========       =========       =========        =========
</TABLE>

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


                                       31



<PAGE>

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

      SFAS No. 133, ("SFAS 133") "Accounting for Derivative Instruments and
Hedging Activities" was amended in June, 1999 by SFAS 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," and in June, 2000, by SFAS 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities," (collectively
SFAS 133). SFAS 133 requires that entities recognize all derivatives as either
assets or liabilities in the statement of financial condition and measure those
instruments at fair value. Under SFAS 133 an entity may designate a derivative
as a hedge of exposure to either changes in: (a) fair value of a recognized
asset or liability or firm commitment, (b) cash flows of a recognized or
forecasted transaction, or (c) foreign currencies of a net investment in foreign
operations, firm commitments, available-for-sale securities or a forecasted
transaction. Depending upon the effectiveness of the hedge and/or the
transaction being hedged, any changes in the fair value of the derivative
instrument is either recognized in earnings in the current year, deferred to
future periods, or recognized in other comprehensive income. Changes in the fair
value of all derivative instruments not recognized as hedge accounting are
recognized in current year earnings. SFAS 133 is required for all fiscal
quarters or fiscal years beginning after June 15, 2000. The Company adopted SFAS
133 effective January 1, 2001. No adjustment was required as a result of the
change in accounting principle.

Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities

      In September 2000, the Financial Accounting Standards Board issued SFAS
No. 140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," replacing SFAS No. 125. This new statement
revises the standard for accounting and reporting for transfers and servicing of
financial assets and extinguishments of liabilities. The new standard is based
on consistent application of a financial-components approach that recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered and derecognizes
liabilities when extinguished. The standard provides consistent guidelines for
distinguishing transfers of financial assets from transfers that are secured
borrowings. SFAS 140 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after March 31, 2001.
However, for recognition and reclassification of collateral and for disclosures
relating to securitizations transactions and collateral this statement is
effective for fiscal years ending after December 15, 2000 with earlier
application not allowed and is to be applied prospectively. Management does not
expect this new standard to have a material impact upon the Company's
consolidated financial statements.


                                       32



<PAGE>

ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk.

      See Item 7. Managements' Discussion and Analysis of Financial Condition
and Results of Operations.

ITEM 8. Financial Statements and Supplementary Data.

      Inasmuch as the acquisition of the Bank was consummated on January 4,
1999, 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, 2000.


                                       33



<PAGE>

               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, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year ended December 31, 2000 and two months ended December 31, 1999 and
the year 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the consolidated
results of their operations and their consolidated cash flows for the year ended
December 31, 2000 and two months ended December 31, 1999 and the year ended
October 31, 1999 in conformity with accounting principles generally accepted in
the United States of America.

GRANT THORNTON LLP

Philadelphia, Pennsylvania
January 19, 2001 (Except for Note S as to
which the date is March 8, 2001)


                                       34



<PAGE>

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

<TABLE>
<CAPTION>
                                                       December 31,   December 31,
                                                           2000          1999
                                                       ---------------------------
<S>                                                     <C>           <C>
ASSETS
Cash and due from banks                                 $   2,512     $   2,545
Interest bearing deposits                                   6,605         3,834
Federal funds sold                                         27,250        13,500
                                                        ---------     ---------
Total cash and cash equivalents                            36,367        19,879
Investment Securities:
 Available-for-sale                                        96,309        84,498
 Held-to-maturity, fair value of $20,702
  in 2000 and $4,998 in 1999                               20,751         4,999
                                                        ---------     ---------
Total investment securities                               117,060        89,497
Loans, net of unearned income                              75,623        65,591
 Less: allowance for loan losses                           (1,108)         (923)
                                                        ---------     ---------
Net loans                                                  74,515        64,668
Accrued interest receivable                                 1,355         1,614
Premises and equipment, net                                   359           370
Goodwill, net of accumulated amortization
 of $1,365 in 2000 and $730 in 1999                        11,543        12,073
Other assets                                                2,824         4,029
                                                        ---------     ---------
Total assets                                            $ 244,023     $ 192,130
                                                        =========     =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
 Non-interest bearing                                   $  14,509     $  15,549
 Interest bearing                                         123,138        88,538
                                                        ---------     ---------
Total deposits                                            137,647       104,087
Securities sold under agreements to repurchase             23,127            --
Long term borrowings                                        1,500         1,500
Accrued interest payable                                    1,333           161
Accrued other liabilities                                     789         1,569
Income taxes payable                                          520         2,741
Deferred tax liability                                         --         4,002
                                                        ---------     ---------
Total liabilities                                         164,916       114,060
                                                        ---------     ---------
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, 2000, 1,955,625 shares
   December 31, 1999, 2,127,265 shares                        256           256
Additional paid-in capital                                 78,549        78,570
Accumulated other comprehensive income (loss), net            (85)        4,425
Retained earnings (accumulated deficit)                     8,352        (2,421)
Less: Treasury Stock
 December 31, 2000, 610,470 shares
 December 31, 1999, 438,830 shares                         (7,965)       (2,760)
                                                        ---------     ---------
Total stockholders' equity                                 79,107        78,070
                                                        ---------     ---------
                                                        $ 244,023     $ 192,130
                                                        =========     =========
</TABLE>

          The accompanying notes are an integral part of this statement


                                       35



<PAGE>

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

<TABLE>
<CAPTION>
                                                             For The
                                               For The     Two Months      For The
                                             Year Ended       Ended       Year Ended
                                             December 31,  December 31,   October 31,
                                             ------------  ------------   -----------
                                                2000          1999           1999
                                               -------       -------        -------
<S>                                            <C>           <C>            <C>
INTEREST INCOME
Short-term interest-earning assets             $ 1,241       $   184        $   965
Securities and other investments                 6,381           767          4,415
Loans                                            6,397           892          3,145
                                               -------       -------        -------
Total interest income                           14,019         1,843          8,525
                                               -------       -------        -------
INTEREST EXPENSE
Deposits                                         4,344           537          2,473
Borrowings                                         840            16             75
                                               -------       -------        -------
Total interest expense                           5,184           553          2,548
                                               -------       -------        -------
Net interest income                              8,835         1,290          5,977
PROVISION FOR LOAN LOSSES                           55            10             45
                                               -------       -------        -------
Net interest income after
 provision for loan losses                       8,780         1,280          5,932
                                               -------       -------        -------
NON-INTEREST INCOME
Investment securities gains                     13,288         3,109          7,622
Other income                                     1,330            70            633
                                               -------       -------        -------
Total non-interest income                       14,618         3,179          8,255
                                               -------       -------        -------
NON-INTEREST EXPENSE
Salaries and employee benefits                   2,125           324          1,474
Net occupancy expense                              447            70            360
Equipment expense                                  101            22             99
FDIC assessment                                     27             3              8
Data processing expense                             21            --             17
Amortization of goodwill                           635           122            608
Other                                            1,108           188            990
                                               -------       -------        -------
Total non-interest expense                       4,464           729          3,556
                                               -------       -------        -------
Income before provision for taxes               18,934         3,730         10,631
Provision for income taxes                       6,868         1,448          4,091
                                               -------       -------        -------
Net income                                     $12,066       $ 2,282        $ 6,540
                                               =======       =======        =======
Net income per share:
 Basic                                         $  5.76       $  1.07        $  3.08
                                               =======       =======        =======
 Diluted                                       $  5.76       $  1.01        $  2.89
                                               =======       =======        =======

Dividends per share                            $   .64       $    --        $   .32
</TABLE>

          The accompanying notes are an integral part of this statement


                                       36



<PAGE>

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

                     For The Year Ended December 31, 2000,
                   For The Two Months Ended December 31, 1999
                    and For The Year Ended October 31, 1999
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                               Accumulated
                                    Common Stock  Additional      other      Accumulated                             Total
                                             Par    paid-in   comprehensive   earnings   Treasury  Comprehensive  stockholders'
                                    Shares  Value   capital    income, net   (deficit)    stock       income         equity
                                    ------  -----  ---------   -----------  ---------    -------     --------       -------
<S>                                  <C>    <C>     <C>         <C>         <C>        <C>          <C>            <C>
Balance at November 1, 1999          2,566  $256    $78,546     $     --    $(10,563)  $(2,773)                    $65,466

Net Income                                                                     6,540                  6,540          6,540
Treasury shares issued for
 options exercised                                       24                                 13                          37
Other comprehensive income (loss)
 net of reclassification adjustment
 and taxes                                                         1,943                              1,943          1,943
                                                                                                    -------
Comprehensive income                                                                                $ 8,483
                                                                                                    =======
Cash dividends                                                                  (680)                                 (680)
                                    ------  ----    -------      -------    --------   -------                     -------
Balance at October 31, 1999          2,566  $256    $78,570      $ 1,943    $ (4,703)  $(2,760)                    $73,306

Net income                                                                     2,282                  2,282          2,282
Other comprehensive income (loss)
 net of reclassification adjustment
 and taxes                                                         2,482                              2,482          2,482
                                                                                                    -------
Comprehensive income                                                                                $ 4,763
                                                                                                    =======

                                    ------  ----    -------      -------    --------   -------                     -------
Balance at December 31, 1999         2,566  $256    $78,570      $ 4,425    $ (2,421)  $(2,760)                    $78,070

Net income                                                                    12,066                 12,066         12,066
Treasury shares issued for                              (21)                                49                          28
 options exercised
Acquisition of treasury shares                                                          (5,254)                     (5,254)
Other comprehensive income (loss)
 net of reclassification adjustment
 and taxes                                                        (4,510)                            (4,510)        (4,510)
                                                                                                    -------
Comprehensive income                                                                                $ 7,556
                                                                                                    =======
Cash dividends                                                                (1,293)                               (1,293)
                                    ------  ----    -------      -------    --------   -------                     -------
Balance at December 31, 2000         2,566  $256    $78,549      $   (85)   $  8,352   $(7,965)                    $79,107
                                            ====    =======      =======    ========   =======                     =======
</TABLE>

          The accompanying notes are an integral part of this statement


                                       37



<PAGE>

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

<TABLE>
<CAPTION>
                                                             For The      For The Two     For The
                                                            Year Ended    Months Ended  Year Ended
                                                           December 31,   December 31,  October 31,
                                                           ------------   ------------  -----------
                                                               2000          1999          1999
                                                              ------        ------        -----
<S>                                                          <C>           <C>           <C>
  CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                   $ 12,066      $  2,282      $  6,540
Adjustments to reconcile net income to net
 cash provided by (used in) operating activities:
Realized gain on investment securities                        (13,288)       (3,109)       (7,622)
Depreciation and amortization                                     740           144           713
Provision for loan losses                                          55            10            45
Increase in deferred taxes                                         --            --        (1,402)
  CHANGES IN ASSETS AND LIABILITIES:
 Decrease (increase) in accrued interest receivable               259           (47)         (817)
 Decrease (increase) in other                                   1,441        (1,025)          115
 (Decrease) increase in accounts payable, other accrued
  expenses, liabilities and income taxes payable               (1,781)        2,806         4,542
                                                             --------      --------      --------
 Net cash (used in) provided by operating activities             (508)        1,061         2,114
                                                             --------      --------      --------

  CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Madison Merchant Services, Inc.                    (285)           --            --
Investment in The Berkshire Bank                                 (105)           --       (25,216)
Cash of entities acquired                                          --            --        22,439
Investment securities available for sale
 Purchases                                                    (84,247)       (4,856)      (23,138)
 Sales                                                         81,369         3,110         7,634
Investment securities held to maturity
 Purchases                                                    (19,909)           --            --
Net increase in loans                                          (9,902)       (5,034)      (18,744)
Net increase in loans held for sale                                --            --        (1,872)
Acquisition of premises and equipment                             (93)           --          (191)
                                                             --------      --------      --------
Net cash provided by (used in) investing activities           (33,172)       (6,780)      (39,088)
                                                             --------      --------      --------

  CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in non interest bearing deposits       (1,040)          873        (6,361)
Net increase in interest bearing deposits                      34,600           896         2,577
Increase in securities sold under agreements
 to repurchase                                                 23,127            --            --
Acquisition of treasury stock                                  (5,254)           --            --
Proceeds from exercise of common stock options                     28            --             9
Dividends paid                                                 (1,293)           --          (680)
                                                             --------      --------      --------
Net cash provided by (used in) financing activities            50,168         1,769        (4,455)
                                                             --------      --------      --------

  Net increase (decrease) in cash and cash equivalents         16,488        (3,950)      (41,429)
  Cash and cash equivalents at beginning of period             19,879        23,829        65,258
                                                             --------      --------      --------
  Cash and cash equivalents at end of period                 $ 36,367      $ 19,879      $ 23,829
                                                             ========      ========      ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash used to pay interest                                  $  4,012      $    682      $  2,258
  Cash used to pay income taxes                              $  7,163            --      $  2,602
</TABLE>

          The accompanying notes are an integral part of this statement


                                       38



<PAGE>

                     BERKSHIRE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2000

NOTE A - ORGANIZATION AND PLAN OF MERGER AND CAPITALIZATION

      Organization

      Berkshire Bancorp Inc. ("Berkshire" or the "Company"), a Delaware
corporation, is a bank holding company registered under the Bank Holding Company
Act of 1956. Berkshire's principal activity is the ownership and management of
its wholly owned subsidiary, The Berkshire Bank (the "Bank"). 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 mid-town Manhattan. It has one
branch in Brooklyn, NY and one branch in downtown Manhattan.

      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

      On January 4, 1999 Berkshire (through its wholly owned subsidiary GAFG)
completed its acquisition of Berkshire Bank. Berkshire acquired 100% of the
outstanding shares of the Bank's common stock for $10.50 per share in cash, 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.


                                       39



<PAGE>

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

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
                                              October 31, 1999
                                              ----------------
<S>                                              <C>
Interest income                                  $  9,515
Interest Expense                                    2,964
                                                 --------
Net interest income                                 6,551
Provision for loan losses                              45
Non-interest income                                 8,355
Non-interest expense                                4,156
                                                 --------
Net income                                       $  5,861
                                                 ========
</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. 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"). 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 accounting
principles generally accepted in the United States of America, 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.

      SFAS 131 establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in subsequent interim financial reports issued to shareholders. It also
establishes standards for related disclosure about products and services,
geographic areas, and major customers. The statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and assess performance. The statement also requires that


                                       40



<PAGE>

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

NOTE B - (continued)

public enterprises report a measure of segment profit or loss, certain specific
revenue and expense items and segment assets. It also requires that information
be reported about revenues derived from the enterprises' products or services,
or about the countries in which the enterprises earn revenues and holds assets,
and about major customers, regardless of whether that information is used in
making operating decisions.

      The Company has one reportable segment, "Community Banking." All of the
Company's activities are interrelated, and each activity is dependent and
assessed based on how each of the activities of the Company supports the others.
For example, commercial lending is dependent upon the ability of the Bank to
fund itself with retail deposits and other borrowings and to manage interest
rate and credit risk. This situation is also similar for consumer and
residential mortgage lending. Accordingly, all significant operating decisions
are based upon analysis of the Company as one operating segment or unit.

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.

      SFAS No. 133, ("SFAS 133") "Accounting for Derivative Instruments and
Hedging Activities" was amended in June, 1999 by SFAS 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," and in June, 2000, by SFAS 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities," (collectively
SFAS 133). SFAS 133 requires that entities recognize all derivatives as either
assets or liabilities in the statement of financial condition and measure those
instruments at fair value. Under SFAS 133 an entity may designate a derivative
as a hedge of exposure to either changes in: (a) fair value of a recognized
asset or liability or firm commitment, (b) cash flows of a recognized or
forecasted transaction, or (c) foreign currencies of a net investment in foreign
operations, firm commitments, available-for-sale securities or a forecasted
transaction. Depending upon the effectiveness of the hedge and/or the
transaction being hedged, any changes in the fair value of the derivative
instrument is either recognized in earnings in the current year, deferred to
future periods, or recognized in other comprehensive income. Changes in the fair
value of all derivative instruments not recognized as hedge accounting are
recognized in current year earnings. SFAS 133 is required for all fiscal
quarters or fiscal years beginning after June 15, 2000. The Company adopted SFAS
133 effective January 1, 2001. No adjustment was required as a result of the
change in accounting principle.

Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. In September 2000, the Financial Accounting Standards Board
issued SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," replacing SFAS No. 125. This new statement
revises the standard for accounting and reporting for transfers and servicing of
financial assets and extinguishments of liabilities. The new standard is based
on consistent application of a financial-components approach that recognizes the
financial and servicing assets it controls and the liabilities it has incurred,


                                       41



<PAGE>

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

NOTE B - (continued)

derecognizes financial assets when control has been surrendered and derecognizes
liabilities when extinguished. The standard provides consistent guidelines for
distinguishing transfers of financial assets from transfers that are secured
borrowings. SFAS 140 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after March 31, 2001.
However, for recognition and reclassification of collateral and for disclosures
relating to securitizations transactions and collateral this statement is
effective for fiscal years ending after December 15, 2000 with earlier
application not allowed and is to be applied prospectively. Management does not
expect this new standard to have a material impact upon the Company's
consolidated financial statements.

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.

      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.


                                       42



<PAGE>

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

NOTE B - (continued)

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 year ended December 31, 2000, the two months ended December 31,
1999 and the year ended October 31, 1999, was approximately $635,000, $122,000
and $608,000, respectively.

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.


                                       43



<PAGE>

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

NOTE B - (continued)

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 $805,000, $1,169,000 and $688,000 at December 31, 2000, 1999 and
October 31, 1999, respectively.

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>
                                                     Year Ended
                                                 December 31, 2000
                                      ------------------------------------------
                                                         Tax
                                      Before tax       (expense)      Net of tax
                                        amount          benefit         Amount
                                       --------        --------        --------
<S>                                    <C>             <C>             <C>
Unrealized gains (losses)
 on investment securities:
  Unrealized holding gains
   arising during period               $  4,898        $ (1,435)       $  3,463
  Less reclassification
   adjustment for gains
   realized in net income                13,288          (5,315)          7,973
                                       --------        --------        --------
Other comprehensive
 loss, net                             $ (8,390)       $  3,880        $ (4,510)
                                       ========        ========        ========
</TABLE>

<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>


                                       44



<PAGE>

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

NOTE B - (continued)

<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>

13. Reclassifications

      Certain amounts in the December 31, 1999 and October 31, 1999 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:

<TABLE>
<CAPTION>
                                                December 31, 2000
                                  -------------------------------------------------
                                                Gross         Gross
                                  Amortized   unrealized    unrealized      Fair
                                     Cost       gains         losses        value
                                   -------     --------       -------      -------
                                                       (In thousands)
<S>                                <C>         <C>            <C>          <C>
Investment securities
U.S. Government
Agencies                               296           --            (2)         294
Corporate notes                     20,455           --           (47)      20,408
                                   -------     --------       -------      -------
 Totals                            $20,751     $     --       $   (49)     $20,702
                                   =======     ========       =======      =======
</TABLE>

<TABLE>
<CAPTION>
                                                December 31, 1999
                                   ---------------------------------------------
                                                Gross         Gross
                                   Amortized  unrealized    unrealized     Fair
                                     Cost        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>


                                       45



<PAGE>

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

NOTE C - (continued)

      The following is a summary of available-for-sale investment securities:

<TABLE>
<CAPTION>
                                                December 31, 2000
                                ------------------------------------------------
                                               Gross        Gross
                                Amortized    unrealized   unrealized      Fair
                                   Cost        gains        losses        value
                                 -------      -------      -------       -------
                                                 (In thousands)
<S>                              <C>          <C>          <C>           <C>
Investment securities
U.S. Treasury and
 U.S. Government
 Agencies                        $86,064      $    76      $  (188)      $85,952
Mortgage-backed
 securities                        4,208           --           (9)        4,199
Corporate notes                    1,654            9         (350)        1,313
Marketable equity
 securities and other              4,813          150         (118)        4,845
                                 -------      -------      -------       -------
 Totals                          $96,739      $   235      $  (665)      $96,309
                                 =======      =======      =======       =======
</TABLE>

<TABLE>
<CAPTION>
                                                December 31, 1999
                                ------------------------------------------------
                                               Gross        Gross
                                Amortized    unrealized   unrealized      Fair
                                   Cost        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>

      The amortized cost and fair value of investment securities available for
sale and held to maturity, by contractual maturity, at December 31, 2000 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. (In thousands.)

<TABLE>
<CAPTION>
                                              December 31, 2000
                                 -----------------------------------------------
                                   Available for Sale        Held to Maturity
                                 ---------------------     ---------------------
                                 Amortized      Fair       Amortized      Fair
                                    Cost        Value         Cost        Value
                                  -------      -------      -------      -------
<S>                               <C>          <C>          <C>          <C>
Due in one year or less           $15,148      $15,075      $20,459      $20,411
Due after one through
five years                         38,225       37,980           --           --
Due after five through
ten years                          32,736       32,608          211          210
Due after ten years                 5,817        5,801           81           81
Marketable equity
securities and other                4,813        4,845           --           --
                                  -------      -------      -------      -------
 Totals                           $96,739      $96,309      $20,751      $20,702
                                  =======      =======      =======      =======
</TABLE>


                                       46



<PAGE>

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

NOTE C - (continued)

      Proceeds from the sales of investment securities for the year ended
December 31, 2000 and for the two month period ending December 31, 1999 were
$13,267,000 and $3,110,000, respectively. During the fiscal year ended October
31, 1999 such proceeds were $7,634,000. Gross gains realized on those sales were
$13,288,000 for the year ended December 31, 2000, $3,109,000 for the two months
ended December 31, 1999, and $7,622,000 in fiscal year 1999. Losses were not
material for the year ended December 31, 2000, two months ended December 31,
1999 and the year ended October 31, 1999.

      As of December 31, 2000 and 1999, investment securities with a book value
of approximately $23,428,000 and $300,000, respectively, were pledged to secure
public deposits and for other purposes as provided by law. As of December 31,
2000 and 1999, the Company did not have any investment securities of any one
issuer where the carrying value exceeded 10% of shareholders' equity.

      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, 2000 and 1999, the Company owned 130,000 shares and
1,792,106 shares, respectively, of Executone Common Stock which have been
classified as available-for-sale securities. At December 31, 2000 and 1999 and
October 31, 1999, the unrealized gain of approximately $39,000, $5.8 million and
$4.1 million, net of deferred taxes of approximately $26,000, $3.9 million and
$2.7 million, respectively, have been recorded as a component of other
accumulated comprehensive income.


                                       47



<PAGE>

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

NOTE D - LOANS

      Major classifications of loans are as follows:

<TABLE>
<CAPTION>
                                            December 31,        December 31,
                                                2000                1999
                                              --------            --------
                                                    (In thousands)
<S>                                           <C>                 <C>
Commercial                                    $  8,920            $  5,358
Commercial mortgage                             34,967              27,709
Residential mortgage                            30,442              29,943
Consumer                                           794               2,581
Other                                              500
                                              --------            --------
                                                75,623              65,591
Allowance for loan losses                       (1,108)               (923)
                                              --------            --------
                                              $ 74,515            $ 64,668
                                              ========            ========
</TABLE>

      Changes in the allowance for loan losses are as follows:

<TABLE>
<CAPTION>
                                                     For The Two
                                                     Months Ended
                            December 31, 1999       December 31, 1999        October 31, 1999
                            -----------------       -----------------        ----------------
                                                   (In thousands)
<S>                              <C>                      <C>                   <C>
Balance at
 beginning of year               $  923                   $  905                $   --
Provision charged
 to operations                       55                       10                    45
Loans charged off                    --                       --                    --
Recoveries                          130                        8                    69
Acquisition of The
 Berkshire Bank                      --                       --                   791
                                 ------                   ------                ------
Balance at end
 of year                         $1,108                   $  923                $  905
                                 ======                   ======                ======
</TABLE>

      The Company did not have any non accrual, impaired or loans past due more
than 90 days and still accruing interest as of December 31, 2000 and 1999. The
Bank has entered into lending transactions in the ordinary course of business
with directors, executive officers, principal stockholders and affiliates of
such persons on the same terms as those prevailing for comparable transactions
with other borrowers. At December 31, 2000, loans to these related parties
amounted to $6.5 million, were current as to principal and interest payments,
and do not involve more than normal risk of collectibility. An analysis of
activity in loans to related parties at December 31, 2000, resulted in new loans
of $4.0 million and repayments of approximately $15,000.


                                       48



<PAGE>

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

NOTE E - PREMISES AND EQUIPMENT

      Major classifications of premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                   Estimated         December 31,       December 31,
                                 useful lives            2000               1999
                                --------------      --------------     --------------
                                                             (In thousands)
<S>                              <C>                   <C>                <C>
Equipment                        3 to 10 years         $   969            $   889
Leasehold improvements           2 to 40 years             316                281
                                                       -------            -------
                                                         1,285              1,170
Accumulated depreciation
 and amortization                                         (904)              (800)
                                                       -------            -------
Total                                                  $   359            $   370
                                                       =======            =======
</TABLE>

NOTE F - DEPOSITS

      The aggregate amount of jumbo certificates of deposits greater than
$100,000 were $55,319,000 and $30,325,000 as of December 31, 2000 and 1999,
respectively.

The scheduled maturities of all certificates of deposit are as follows:

<TABLE>
<CAPTION>
                                        December 31,
                                        ------------
                                            2000
                                        (In thousands)
<S>                                       <C>
2001                                      $ 88,443
2002                                           227
2003                                         1,636
Thereafter                                      --
                                          --------
                                          $ 90,306
                                          ========
</TABLE>

NOTE G - SHORT-TERM BORROWINGS

      Securities sold under agreements to repurchase generally mature within 30
days from the date of the transactions. Short-term borrowings consist of various
borrowings which generally have maturities of less than one year. As of December
31, 1999 and October 31, 1999, the Company did not have any short term
borrowings. The details of these categories are presented below:

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                                  -----------------------
                                                         2000
                                                        ------
                                                  (Dollars in Thousands)
<S>                                                     <C>
Securities sold under repurchase
 agreements and federal funds purchased

    Balance at year-end                                 $ 23,127
    Average during the year                             $ 12,367
    Maximum month-end balance                           $ 24,495
    Weighted average rate during the year                   5.85%
    Rate at December 31                                     5.75%
</TABLE>


                                       49



<PAGE>

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

NOTE H - EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                Year Ended December 31, 2000
                                            (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                          $12,066        2,095      $5.76
Effect of dilutive securities
 Options                                            --            1        .--
                                               -------      -------      -----
Diluted earnings per share
 Net income available to
  common stockholders plus
  assumed conversions                          $12,066        2,094      $5.76
                                               =======      =======      =====
</TABLE>

      Options to purchase 48,875 shares of common stock for $31.75 to $38.00 per
share were outstanding during the year ended December 31, 2000. These options
were not included in the computation of diluted earnings per share because the
option exercise price was greater than the average market price for the
Company's common stock during this period.

<TABLE>
<CAPTION>
                                             For The 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.


                                       50



<PAGE>

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

NOTE H - (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>

NOTE I - INCOME TAXES

      The components of income tax expense are as follows:

<TABLE>
<CAPTION>
                                   Year Ended    Two Months Ended     Year Ended
                                  December 31,      December 31,      October 31,
                                  ------------      ------------      -----------
                                      2000              1999             1999
                                      ----              ----             ----
<S>                               <C>               <C>              <C>
Current                           $ 8,390,000       $    46,000      $ 2,689,000
Deferred Taxes (Benefit)           (1,522,000)        1,402,000        1,402,000
                                  -----------       -----------      -----------
                                  $ 6,868,000       $ 1,448,000      $ 4,091,000
                                  ===========       ===========      ===========
</TABLE>

      A reconciliation of the provision for income taxes for the year ended
December 31, 2000, for the two months ended December 31, 1999 and for the year
ended October 31, 1999 and the amount computed by applying the statutory Federal
income tax rate to income (loss) from continuing operations follows:

<TABLE>
<CAPTION>
                                      Year Ended    Two Months Ended   Year Ended
                                      December 31,    December 31,     October 31,
                                      ------------    ------------     -----------
                                         2000             1999            1999
                                         ----             ----            ----
<S>                                   <C>              <C>             <C>
Computed expected provision
 for income taxes                     $6,437,500       $1,306,000      $3,721,000
Nondeductible expenses,
 including goodwill                      216,125           49,000         243,000
Other                                    214,375           93,000         127,000
                                      ----------       ----------      ----------
Actual provision for
 income taxes                         $6,868,000       $1,448,000      $4,091,000
                                      ==========       ==========      ==========
</TABLE>


                                       51



<PAGE>

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

NOTE I - (continued)

      The tax effect of the principal temporary differences at December 31, 2000
and 1999 are as follows:

<TABLE>
<CAPTION>
                                                          December 31,
                                                --------------------------------
                                                   2000                1999
                                                -----------         -----------
<S>                                             <C>                 <C>
Deferred tax assets
 Net operating losses                           $   515,000         $   548,000
 Credit carryforwards                                    --             386,000
 Loan loss provision                                620,000             427,000
 Depreciation                                        66,000                  --
 Other                                              100,000              34,000
 Unrealized loss on investment
  securities                                        168,000                  --
                                                -----------         -----------
                                                  1,469,000           1,395,000
                                                ===========         ===========
Deferred tax liabilities
 Other                                             (246,000)         (1,862,000)
 Unrealized gain on investment
  securities                                             --          (3,535,000)
                                                -----------         -----------
                                                   (246,000)         (5,397,000)
                                                ===========         ===========
Net deferred tax asset (liability)              $ 1,223,000         $(4,002,000)
                                                ===========         ===========
</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 J - ESTIMATED TAX LIABILITIES

      The Company was a party to a tax sharing agreement, as amended, (the "Tax
Sharing Agreement") with The Cooper Companies, Inc. ("TCC") and Cooper
Development Company ("CDC") related to the Cooper Labs, Inc. ("CLI") liquidation
on June 27, 1985. The above companies 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. Since 1985, the
Company has adjusted its accrual for interest charges related to potential
assessments.

      On July 18, 2000, the Company was notified that all remaining issues
covered by the Tax Sharing Agreement had been resolved. Based upon the
information available and after consultation with its tax advisors, in 2000, the
Company reversed approximately $808,000 of reserves deemed no longer necessary.

NOTE K - 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.


                                       52



<PAGE>

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

NOTE K - (continued)

At December 31, 2000 and 1999 and October 31, 1999, 48,875 options, 44,875
options and 44,875 options, respectively, 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, 2000       December 31, 1999        October 31, 1999
                          -----------------------  ---------------------    --------------------
                                         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   212,375       $13.83    168,500       $ 7.37
Granted                       5,000        31.75        --                  44,875       $38.00
Cancelled                  (151,000)        7.21        --                      --
Exercised                   (16,000)       10.08        --                  (1,000)      $ 9.75
                           --------                -------                 -------
Outstanding at
end of year                  50,375       $36.67   212,375       $13.83    212,375       $13.83
                           ========                =======                 =======
Exercisable at
end of year                  45,375       $37.21   167,500       $ 7.36    167,500       $ 7.36
                           ========                =======                 =======
Weighted average
fair value of
options granted
during the year                           $11.14                 $  .--                  $16.04
                                          ======                 ======                  ======
</TABLE>

      The following table summarizes information about options outstanding at
December 31, 2000:

<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            2000        life (years)     price           2000         price
---------------           ------       ------------    -------         ------       ------
<S>                       <C>              <C>         <C>             <C>           <C>
$14.25                     1,500           0.33        $14.25           1,500        $14.25
 31.75 - 38.00            48,875           4.91         37.36          43,875         38.00
                        --------                                      -------
                          50,375                                       45,375
                        ========                                      =======
</TABLE>


                                       53



<PAGE>

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

NOTE K - (continued)

      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,
                                                ----------------    -----------
                                                 2000      1999        1999
                                                ------    ------      ------
                                                     (In thousands, except
                                                       per share amounts)
<S>                           <C>               <C>      <C>         <C>
Net income                    As Reported:      $12,066  $ 2,343     $ 6,540
                              Pro Forma:         11,448    2,333       6,480

Basic earnings per share      As Reported:         5.76     1.10        3.08
                              Pro Forma:           5.46     1.10        3.04

Diluted earnings per share    As Reported:         5.76     1.04        2.89
                              Pro Forma:           5.46     1.04        2.87
</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 December 31, 2000 and October 31, 1999,
expected volatility of 25% and 40% respectively, risk-free interest of 6.37% and
6.14% respectively, and expected lives of 5 years for both years.

NOTE L - 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 did not accrue
benefits for future services; however, the Company did continue to contribute as
necessary for any unfunded liabilities. In 2000, the Company reinstated the
Retirement Plan to cover substantially all full-time, non-union United States
employees of the Company.

      Assumptions used in the accounting were:

<TABLE>
<CAPTION>
                                                      December 31,
                                                  --------------------
                                                  2000            1999
                                                  ----            ----
<S>                                               <C>             <C>
Discount rates-liability                          7.50%           7.50%
Long-term rate of return-assets                   8.50%           8.50%
</TABLE>


                                       54



<PAGE>

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

NOTE L - (continued)

      A summary of the components of net periodic pension cost for the year
ended December 31, 2000, the two months ended December 31, 1999 and the year
ended October 31 1999 is as follows:

<TABLE>
<CAPTION>
                                              December 31,           October 31,
                                        ------------------------     -----------
                                           2000           1999           1999
                                        ---------      ---------      ---------
<S>                                     <C>            <C>            <C>
Service cost-benefits earned
 during the period                      $  50,075      $      --      $      --
Interest cost on projected
 benefit obligation                        98,525         14,284         85,706
Expected return on plan                  (184,740)       (20,784)      (124,703)
assets
Net amortization and deferral              (5,121)           478          2,870
                                        ---------      ---------      ---------
Net pension cost/(income) of
 defined benefit plan                   $ (41,261)     $  (6,022)     $ (36,127)
                                        =========      =========      =========
</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, 2000
and 1999:

<TABLE>
<CAPTION>
                                                          December 31,
                                                 -------------------------------
                                                     2000               1999
                                                 -----------        -----------
<S>                                              <C>                <C>
Actuarial present value of
 accumulated benefit obligations,
 all of which is vested                          $ 1,339,103        $ 1,182,046
                                                 ===========        ===========

Projected benefit obligations                    $(1,413,542)       $(1,182,046)
Fair value of plan assets                          2,141,792          2,222,134
                                                 -----------        -----------
Excess of projected benefit
 obligation over fair value
 of plan assets                                      728,250          1,040,088
Unrecognized prior service cost                      212,724                 --
Unrecognized net loss/(gain)                        (326,603)          (466,978)
Adjustment required to recognize
 minimum liability                                         0                  0
                                                 -----------        -----------
Prepaid pension cost, included
 in other assets                                 $   614,371        $   573,110
                                                 ===========        ===========
</TABLE>

NOTE M - COMMITMENTS AND CONTINGENCIES

1. Leases and Other Commitments

      The Company leases certain of its operating facilities under
non-cancelable operating leases expiring in 2001 through 2005. 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:

<TABLE>
<CAPTION>
Year Ending
December 31,                      (In thousands)
---------------
<S>                                 <C>
2001                                $   623
2002                                    647
2003                                    653
2004                                    667
2005                                    518
                                    -------
                                    $ 3,108
                                    =======
</TABLE>


                                       55



<PAGE>

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

NOTE M - (continued)

      Rental expense was approximately $335,000 for the fiscal year ended
December 31, 2000, $70,000 for the two months ended December 31, 1999 and
$278,000 for the fiscal year ended October 31, 1999. Included in rental expense
was approximately $18,000 for the fiscal year ended December 31, 2000, $3,000
for the two months ended December 31, 1999 and $18,000 for the fiscal year ended
October 31, 1999, which was paid to a company affiliated with a director of the
Company.

NOTE N - 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 December 31, 2000 and 1999 are outlined
below.

      For cash and cash equivalents, the recorded book values of $36.37 million
and $19.88 million at December 31, 2000 and 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.

<TABLE>
<CAPTION>
                                                    December 31,
                                 -------------------------------------------------
                                          2000                     1999
                                 ----------------------    -----------------------
                                 Carrying    Estimated     Carrying    Estimated
                                  amount     fair value     amount     fair value
                                  ------     ----------     ------     ----------
                                                   (In thousands)
<S>                              <C>          <C>          <C>          <C>
Investment securities            $117,060     $117,011     $ 89,497     $ 89,496
Loans, net                         75,623       75,623       65,591       65,591
</TABLE>

      The net loan portfolio at December 31, 2000 and 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.


                                       56



<PAGE>

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

NOTE N - (continued)

      The majority of all time deposits with stated maturities of approximately
$88.44 million and $33.90 million mature or reprice within one year of December
31, 2000 and 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 and
other long-term borrowings totaling $24.63 million and $1.5 million are
estimated to approximate their recorded book balances at December 31, 2000 and
1999, respectively.

      There was no material difference between the notional amount and the
estimated fair value of off-balance-sheet items which totalled approximately
$13.16 million and $5.06 million at December 31, 2000 and 1999, respectively,
and primarily comprise unfunded loan commitments which are generally priced at
market at the time of funding.

NOTE O - 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.

      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:

<TABLE>
<CAPTION>
                                                                December 31,
                                                          ----------------------
                                                           2000           1999
                                                          -------        -------
                                                             (In thousands)
<S>                                                       <C>            <C>
Commitments to extend credit                              $10,447        $ 3,433
Standby letters of credit and financial
 guarantees written                                         2,712          1,623
                                                          -------        -------
                                                          $13,159        $ 5,056
                                                          =======        =======
</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


                                       57



<PAGE>

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

NOTE O - (continued)

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,
2000 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, 2000       $20,000              $125                   $20
December 31, 1999        25,000               154                    --
</TABLE>

NOTE P - 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, 2000, the Bank meets all capital adequacy
requirements to which it is subject.

      As of December 31, 2000, 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.


                                       58



<PAGE>

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

NOTE P - (continued)

      The following table sets forth the actual and required regulatory capital
amounts and ratios of, the Company and the Bank as of December 31, 2000 and 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>
December 31, 2000
Total Capital (to Risk-Weighted Assets)
  Company                                    $68,848       53.4%      $10,302     >=8.0%       $    --        N/A
  Bank                                        16,249       13.8%        9,397     >=8.0%        11,746    >=10.0%
Tier I Capital (to Risk-Weighted Assets)
  Company                                     67,740       52.6%        5,155     >=4.0%            --        N/A
  Bank                                        15,141       12.9%        4,699     >=4.0%         7,048     >=6.0%
Tier I Capital (to Average Assets)
  Company                                     67,740       35.0%        7,751     >=4.0%            --        N/A
  Bank                                        15,141        8.5%        7,151     >=4.0%         8,938     >=5.0%
</TABLE>

<TABLE>
<CAPTION>
                                                                                                   To be well
                                                                                               capitalized under
                                                                         For capital           prompt corrective
                                                    Actual            adequacy purposes        action provisions
                                                    ------            -----------------        -----------------
                                             Amount        Ratio       Amount     Ratio        Amount       Ratio
                                             ------        -----       ------     -----        ------       -----
<S>                                          <C>           <C>        <C>           <C>        <C>
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>


                                        59



<PAGE>

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

NOTE Q - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

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

                                   CONDENSED BALANCE SHEETS
                                        (In Thousands)

<TABLE>
<CAPTION>
                                                              December 31,
                                                       -------------------------
                                                         2000            1999
                                                       --------        --------
ASSETS

<S>                                                    <C>             <C>
Cash                                                   $ 39,797        $ 35,413
Equity investment in subsidiaries                        27,849          27,021
Investment in securities available for sale               3,995          13,450
Loans                                                     7,943           9,870
Accrued interest receivable                                  66              78
Other assets                                                935           1,083
                                                       --------        --------
Total assets                                           $ 80,585        $ 86,915
                                                       ========        ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Other liabilities                                      $  1,478        $  8,845

Stockholders' equity
Common stock                                                256             256
Additional paid-in capital                               78,549          78,570
Retained earnings (accumulated deficit)                   8,352          (2,421)
Accumulated other comprehensive (loss)                      (85)          4,425
 income, net
Less: Common stock in treasury, at cost                  (7,965)         (2,760)
                                                       --------        --------
Total stockholders' equity                               79,107          78,070
                                                       --------        --------
                                                       $ 80,585        $ 86,915
                                                       ========        ========
</TABLE>


                                       60



<PAGE>

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

NOTE Q - (continued)

                         CONDENSED STATEMENTS OF INCOME
                                 (In Thousands)

<TABLE>
<CAPTION>
                                           For The Year   For The Two   For The Year
                                             Ended        Months Ended     Ended
                                           December 31,   December 31,  October 31,
                                           ------------   ------------  -----------
                                               2000         1999           1999
                                             -------       -------       -------
<S>                                          <C>           <C>           <C>
INCOME
Interest income from the Bank                $ 1,750       $   287       $ 1,153
Interest income                                2,011           190         1,138
Gain on sales of investment                   13,288         3,110         7,634
 securities
Other income                                     759            --           130
                                             -------       -------       -------
Total income                                  17,808         3,587        10,055

EXPENSES
Salaries and employee benefits                   111            25           143
Other expenses                                   648            35           440
                                             -------       -------       -------
Total expenses                                   759            60           583
                                             -------       -------       -------
Income before income taxes and
 equity in undistributed net                  17,049         3,527        10,472
 income of the Bank
Equity in undistributed net
 income of the Bank                              723           185         1,060
                                             -------       -------       -------
Income before taxes                           17,772         3,712        11,532
Provision for income taxes                     5,706         1,430         4,992
                                             -------       -------       -------
Net income                                   $12,066       $ 2,282       $ 6,540
                                             =======       =======       =======
</TABLE>


                                       61



<PAGE>

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

NOTE Q - (continued)

                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                         For The Year   For The Two   For The Year
                                                            Ended      Months Ended      Ended
                                                         December 31,  December 31,   October 31,
                                                         ------------  ------------   -----------
                                                             2000          1999          1999
                                                           --------      --------      --------
<S>                                                        <C>           <C>           <C>
  Operating activities:
Net income                                                 $ 12,066      $  2,282      $  6,540
Adjustments to reconcile net income to net
 cash provided by (used in) operating activities:
Gain on sales of investment securities                      (13,288)       (3,110)       (7,634)
Equity in undistributed net income of the Bank                 (723)         (185)       (1,060)
(Increase) in deferred taxes                                     --            --        (1,402)
Increase (decrease) in other liabilities                     (5,932)        2,328         6,583
(Increase) decrease in other assets                            (445)         (351)          920
                                                           --------      --------      --------
 Net cash provided by (used in) operating activities         (8,322)          964         3,947
                                                           --------      --------      --------

  Investing activities:
Investment in subsidiaries and affiliates                      (390)           --       (25,216)
Proceeds from sales of common stock                          13,267         3,110         7,634
Investment securities available for sale
 Purchases                                                       --        (2,435)      (17,178)
 Sales                                                        4,421            --            --
Net decrease in loans                                         1,927            --            --
                                                           --------      --------      --------
Net cash provided by (used in) investing activities          19,290           675       (34,760)
                                                           --------      --------      --------

  Financing activities:
Proceeds from exercise of common stock options                   28            --             9
Acquisition of treasury stock                                (5,254)           --            --
Dividends paid                                               (1,293)           --          (680)
                                                           --------      --------      --------
Net cash (used in) financing activities                      (6,519)           --          (671)
                                                           --------      --------      --------

  Net increase (decrease) in cash and cash equivalents        4,384         1,639       (31,484)
  Cash and cash equivalents at beginning of year             35,413        33,774        65,258
                                                           --------      --------      --------
  Cash and cash equivalents at end of year                 $ 39,797      $ 35,413      $ 33,774
                                                           ========      ========      ========

Supplemental disclosures of cash flow information:
  Cash used to pay income taxes                            $  6,418      $     --      $  2,602
</TABLE>


                                       62



<PAGE>

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

NOTE R - 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
                                             ---------------------------------------------------------
                                              March 31       June 30      September 30     December 31
                                             ----------     ----------    ------------     -----------
<S>                                           <C>            <C>            <C>              <C>
                    2000
                    ----
Interest income                               $  3,115       $  3,536       $  3,584         $  3,784
Interest expense                                 1,027          1,206          1,374            1,577
                                              --------       --------       --------         --------
Net interest income                              2,088          2,330          2,210            2,207
Provision for loan losses                           (5)            --            (10)             (40)
Gain (loss) on sale of securities               13,079             --            209               --
Other operating income                             139            116            934              141
Other operating expenses                        (1,137)        (1,456)        (1,103)            (768)
                                              --------       --------       --------         --------
Income before taxes                             14,164            990          2,240            1,540
Provision (benefit) for taxes                    5,123            468            638              639
                                              --------       --------       --------         --------
Net income                                    $  9,041       $    522       $  1,602         $    901
                                              ========       ========       ========         ========

Per share data
  Net income per common share
  Basic                                       $   4.25       $    .24       $    .75         $    .52
                                              ========       ========       ========         ========
  Diluted                                     $   4.25       $    .24       $    .75         $    .52
                                              ========       ========       ========         ========
</TABLE>

<TABLE>
<CAPTION>
                                                               Three Months Ended
                                             -------------------------------------------------------
                                             January 31      April 30       July 31       October 31
                                             ----------     ----------     ----------     ----------
<S>                                           <C>            <C>            <C>            <C>
                    1999
                    ----
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>


                                       63



<PAGE>

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

NOTE S - SUBSEQUENT EVENTS

      On August 16, 2000, Berkshire and its wholly-owned subsidiaries, The
Berkshire Bank and Greater American Finance Group, Inc., a Delaware corporation
that is the immediate parent of The Berkshire Bank, entered into an Agreement
and Plan of Reorganization (the "Agreement") with GSB Financial Corporation, a
Delaware corporation, a savings and loan holding company ("GSB Financial"), and
its wholly-owned subsidiary, Goshen Savings Bank, a federal savings bank,
chartered and existing under the laws of the United States ("Goshen Bank").
Under the terms and subject to the conditions set forth in the Agreement, GSB
Financial will be merged with and into Berkshire and Goshen Bank will be merged
with and into The Berkshire Bank. Under the terms of the merger, each share of
GSB Financial will be redeemed for $20.75, or, at their election, converted into
0.6027 shares of Berkshire's common stock.

      The completion of the transaction is subject to the satisfaction of
various conditions including the receipt of regulatory approval from the Board
of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation,
the Office of Thrift Supervision and the New York State Banking Department. All
such regulatory approvals have been received and on March 8, 2001, the
stockholders of the Company and GSB Financial voted to approve the transaction.
The Company anticipates that the transaction will close on or before March 30,
2001.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

      Not Applicable.


                                       64



<PAGE>

                                    PART III

ITEM 10. Directors and Executive Officers of the Registrant.

The following are the current directors and executive officers of the Company:

<TABLE>
<CAPTION>
Name                         Age    Position(s)
----                         ---    ----------------------------
<S>                          <C>    <C>
Steven Rosenberg             52     President, Director
William L. Cohen             59     Director
Moses Krausz                 60     President of The Berkshire Bank
David Lukens                 51     Senior Vice President, Chief Financial
                                     Officer of The Berkshire Bank
Moses Marx                   65     Director
Randolph B. Stockwell        54     Director
</TABLE>

      Mr. Rosenberg has served as President and Chief Executive Officer of the
Company since March 1999 and as Vice President and Chief Financial Officer since
1990. He also serves as chief administrative officer of the Company. Mr.
Rosenberg was elected a director in May 1995. From September 1987 through April
1990, he served as President and Director of Scomel Industries, Inc., a company
engaged in international marketing and consulting. Mr. Rosenberg is a director
of The Cooper Companies, Inc. (a developer and manufacturer of healthcare
products).

      Mr. Cohen was elected a director in July 1993. Mr. Cohen is President,
Chief Executive Officer and Chairman of the Board of The Andover Apparel Group,
Inc., an apparel manufacturing company, positions he has held for more than the
past five years.

      Mr. Krausz has held the position of President of The Berkshire Bank since
March 1992 and Chief Executive Officer since November 1993. Prior to joining The
Berkshire Bank, Mr. Krausz was Managing Director of SFS Management Co., L.P., a
mortgage banker, from 1987 to 1992 and was President of UMB Bank and Trust
Company, a New York State chartered bank, from 1978 to 1987.

      Mr. Lukens has held the position of Senior Vice President and Chief
Financial Officer of The Berkshire Bank since December 1999. Prior to joining
the Bank, Mr. Lukens was Senior Vice President and Chief Financial officer of
First Washington State Bank, a New Jersey commercial bank, from 1994 to 1999 and
was Vice President and Controller at the Philadelphia, PA branch of Bank Leumi
Le-Israel B.M., an international commercial bank, from 1978 to 1994.

      Mr. Marx was elected a director in May 1995. Mr. Marx has been a general
partner in United Equities Company (a securities brokerage firm) since 1954 and
a general partner in United Equities Commodities Company (a commodities
brokerage firm) since 1972. He is also President of Momar Corp. (a private
investment company). Mr. Marx is a director of The Cooper Companies, Inc.

      Mr. Stockwell was elected a director in July 1988. He has been a private
investor for over ten years. Since April 1999, Mr. Stockwell has served a
President of Yachting Systems of America, LLC, a small start-up company. In
addition, he served in various capacities with the Community Bank, a commercial
bank, from September 1972 to January 1987.

      There are no family relationships (whether by blood, marriage or adoption)
among any of the Company's current directors or executive officers.


                                       65



<PAGE>

ITEM 11. Executive Compensation

      The following table shows the compensation paid in or with respect to each
of the last three fiscal years to the individual who served as the Company's
Chief Executive Officer for fiscal 2000, and to each of the other executive
officers who were paid more than $100,000 during the fiscal year ended
December 31, 2000. Information regarding Mr. Krausz' compensation prior to
the acquisition of The Berkshire Bank by the Company on January 4, 1999 is
not included. Mr. Rosenberg was the only officer of the Company during
fiscal 1998.

                         Summary Compensation Table (1)

<TABLE>
<CAPTION>
                                                               Annual
Name and Principal Position                                    Compensation
---------------------------                                    ------------
                                                  Year         Salary ($)
                                                  ----         ----------
<S>                                               <C>          <C>
Steven Rosenberg                                  2000         125,000
 President, Chief Executive                       1999         125,000
 Officer and Chief Financial Officer              1998          90,000
Moses Krausz                                      2000         310,000
 President and Chief Executive                    1999         300,000
 Officer of The Berkshire Bank
David Lukens                                      2000         103,500
 Senior Vice President and Chief
 Financial Officer of The Berkshire Bank
</TABLE>

----------
(1)   Does not include one employee of The Berkshire Bank, not deemed to be an
      executive officer of the Company, who was paid $122,000 in fiscal 2000.

                        Option Grants in Last Fiscal Year

      On June 5, 2000, Mr. Lukens was granted options to purchase 5,000 shares
of the Company's common stock at $31.75 per share. These options will be
exerciseable on June 5, 2001 and expire June 5, 2006. No options were granted
in the fiscal year ended December 31, 2000 to Messrs. Rosenberg and Krausz.

          Aggregated Option Exercises and Fiscal Year-End Option Values

      The following table sets forth information concerning options exercised
during the fiscal year ended December 31, 2000, and the number of options owned
and the value of any in-the-money unexercised options as of December 31, 2000.

<TABLE>
<CAPTION>
                                         Number of
                                        Unexercised
                   Shares               Options at
                  Acquired            Fiscal Year-End   Value of Unexercised
                     on       Value          (#)        In-the-Money Options at
                  Exercise  Realized     Exercisable      Fiscal Year-End ($)
Name                (#)        ($)     /Unexercisable  Exercisable/Unexercisable
----               -----      -----    --------------  -------------------------
<S>               <C>        <C>              <C>                <C>
Steven Rosenberg  5,779      337,500          0/0                0/0
Moses Krausz        -0-         -0-      30,000/0                0/0
David Lukens        -0-         -0-       0/5,000                0/0
</TABLE>

----------
Year-end values for unexercised in-the-money options represent the positive
spread between the exercise price of such options and the fiscal year end market
value of the common stock. An Option is "in-the-money" if the fiscal year end
fair market value of the Common Stock exceeds the option exercise price.

Compensation of Directors

      Each director who is not an employee of the Company receives monthly fees
of $1,000 for serving as a director of the Company and $1,000 for each day
during which he participates in a meeting of the Board and, if on a separate
day, $500 for each day during which he participates in a meeting of a committee
of the Board of which is a member. In addition, see "1999 Stock Incentive Plan"
below.


                                       66



<PAGE>

1999 Stock Incentive Plan

      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
(subject to appropriate adjustment in the event of changes in the corporate
structure of the Company). 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 March
24, 2001, options to acquire 48,875 shares of common stock have been granted
under this plan and 151,125 options are available for future grants.

Retirement Income Plan

      In 2000, the Company reinstated its Retirement Income Plan to cover
substantially all full-time United States employees of the Company
(See Note L).

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth certain information as of March 16, 2001
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person who is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) each of the Company's directors and executive
officers, and (iii) all executive officers and directors as a group.

<TABLE>
<CAPTION>
                                                      Number of        Percent
                                                        Shares         of Class
                                                    ------------       --------
<S>                                                 <C>                 <C>
William Cohen                                           1,500(1)           *
Moses Krausz                                           41,000(2)         2.1%
David Lukens                                            5,200(3)           *
Moses Marx                                          1,053,120(4)        53.8%
160 Broadway
New York, NY 10038
Steven Rosenberg                                       10,861              *
Randolph B. Stockwell                                   7,000(5)           *
All executive officers and directors
as a group (6 persons)                              1,118,681(6)        56.2%
</TABLE>

----------
* Less than 1%

(1)   Includes 500 shares issuable upon the exercise of options which have been
      granted to Mr. Cohen under the Company's 1991 Stock Option Plan for
      Non-Employee Directors.
(2)   Includes 30,000 shares issuable upon the exercise of options which have
      been granted to Mr. Krausz under the Company's 1999 Stock Incentive Plan.
(3)   Includes 5,000 shares issuable upon the exercise of options which have
      been granted to Mr. Lukens under the Company's 1999 Stock Incentive Plan.
(4)   Includes 500 shares issuable upon the exercise of options which have been
      granted to Mr. Marx under the Company's 1991 Stock Option Plan for
      Non-Employee Directors. Does not include 53,500 shares owned by Eva and
      Esther, L.P. of which Mr. Marx has an 80.5% limited partnership interest.
      Mr. Marx's daughters and their husbands are the general partners of Eva
      and Esther, L.P.
(5)   Includes 500 shares issuable upon the exercise of options which have been
      granted to Mr. Stockwell under the Company's 1991 Stock Option Plan for
      Non-Employee Directors.
(6)   Includes 36,500 shares of Common Stock which are issuable upon the
      exercise of outstanding options.


                                       67



<PAGE>

ITEM 13. Certain Relationships and Related Transactions.

      In January 2000, the Bank entered into a lease agreement with Bowling
Green Associates, LP, the principal owner of which is Mr. Marx, a director of
the Company, for commercial space to open a bank branch. The Company obtained an
appraisal of the market rental value of the space from an independent appraisal
firm and management believes that the terms of the lease, including the annual
rent paid, is comparable to the terms and annual rent that would be paid to non-
affiliated parties in a similar commercial transaction for similar commercial
space.

      In December 1999, the Bank loaned $1,500,000 to Ecogen, Inc., a
corporation in which Mr. Marx may be deemed a principal stockholder. The loan
was guaranteed by Momar Corporation ("Momar Corporation"), the principal
stockholder and chief executive officer of which is Moses Marx, a director and
principal stockholder of the Company. Contemporaneously with the making of the
loan, Momar Corporation purchased a 100% interest in such loan on a
non-recourse basis for a purchase price equal to the outstanding balance of
the loan. The Bank services such loan on behalf of Momar Corporation for no
additional consideration. Such loan was made on substantially the same terms,
including interest rate and collateral, as those prevailing at that time for
comparable loans to unrelated parties and did 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. Such loan was made on
substantially the same terms, including interest rate, as those prevailing at
that time for comparable loans to unrelated parties and did not involve more
than normal risk of collectibility or present other unfavorable features.

      See Item 1. Business - Transactions With Related Parties and Item 2.
Properties for additional information.


                                       68



<PAGE>

                                     PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

      (a) Documents filed as part of this Report:

      (i) Financial Statements

      Report of Independent Certified Public Accountants

      Consolidated Balance Sheets as of December 31, 2000, and 1999

      Consolidated Statements of Income for the Year Ended December 31, 2000,
       and for the Two Months Ended December 31, 1999, and for the Year Ended
       October 31, 1999

      Consolidated Statements of Stockholders' Equity for the Year Ended
       December 31, 2000, and for the Two Months Ended December 31, 1999, and
       for the Year Ended October 31, 1999

      Consolidated Statements of Cash Flows for the Year Ended December 31,
       2000, and for the Two Months Ended December 31, 1999 and for the Year
       Ended October 31, 1999

      Notes to Consolidated Financial Statements

      (ii)  Financial Statement Schedules

      Schedule
      Number        Description
      ------        -----------

      None

      All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not applicable and, therefore, have been omitted.

      (iii) Exhibits

<TABLE>
<CAPTION>
Exhibit
Number     Description
------     -----------
<S>      <C>
 3.1     Amended and Restated Certificate of Incorporation of the Company
           (incorporated by reference to Exhibit 3.1 to the Company's Current
           Report on Form 8-K dated March 30, 1999).
 3.2     Amended and Restated By-laws of the Company (incorporated by reference
           to Exhibit 3.2 to the Company's Current Report on Form 8-K dated
           March 30, 1999).
10.1     Stock Incentive Plan for Non-Employee Directors of the Company
           (incorporated by reference to Exhibit 10.15 to the Company's Annual
           Report on Form 10-K for the Fiscal Year Ended October 31, 1991).
10.2     1999 Stock Incentive Plan of the Company (incorporated by reference
           to Exhibit 10.8 to the Company's Current Report on Form 8-K dated
           March 30, 1999).
10.3     Employment Agreement, dated May 1, 1999, between The Berkshire Bank and
           Moses Krausz.
10.4     Employment Agreement, dated January 1, 2001, between The Berkshire Bank
           and David Lukens.
21.      Subsidiaries of the Company.
23.      Consent of Independent Certified Public Accountant

      (b) Reports on Form 8-K.

      None.


                                       69



<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: March 22, 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>
<TABLE>
<CAPTION>
        Signature                           Title                          Date
        ---------                           -----                          ----
<S>                             <C>                                       <C>
/s/  Steven Rosenberg           President, (Chief Executive Officer,       March 22, 2001
-------------------------       Principal Financial Officer and
     Steven Rosenberg           Principal Accounting Officer); Director

/s/  William Cohen              Director                                   March 22, 2001
-------------------------
     William Cohen

/s/  Moses Marx                 Director                                   March 22, 2001
-------------------------
     Moses Marx

/s/ Randolph B. Stockwell       Director                                   March 22, 2001
--------------------------
    Randolph B. Stockwell
</TABLE>


                                       70




                           STATEMENT OF DIFFERENCES
                           ------------------------

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