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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number: 0-13649
-------
BERKSHIRE BANCORP INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2563513
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160 Broadway, New York, New York 10038
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 791-5362
N/A
-------------------------------------------
(Former name if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No[_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [_] No [X]
As of May 12, 2003, there were 2,207,676 outstanding shares of the issuers
Common Stock, $.10 par value.
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q that are not based on
historical fact may be "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Words such as "believe",
"may", "will", "expect", "estimate", "anticipate", "continue" or similar terms
identify forward-looking statements. A wide variety of factors could cause the
Company's actual results and experiences to differ materially from the results
expressed or implied by the Company's forward-looking statements. Some of the
risks and uncertainties that may affect operations, performance, results of the
Company's business, the interest rate sensitivity of its assets and liabilities,
and the adequacy of its loan loss allowance, include, but are not limited to:
(i) deterioration in local, regional, national or global economic conditions
which could result, among other things, in an increase in loan delinquencies, a
decrease in property values, or a change in the housing turnover rate; (ii)
changes in market interest rates or changes in the speed at which market
interest rates change; (iii) changes in laws and regulations affecting the
financial services industry; (iv) changes in competition; (v) changes in
consumer preferences, (vi) changes in banking technology; (vii) ability to
maintain key members of management, (viii) possible disruptions in the Company's
operations at its banking facilities, and other factors referred to in the
sections of this Quarterly Report entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Certain information customarily disclosed by financial institutions, such
as estimates of interest rate sensitivity and the adequacy of the loan loss
allowance, are inherently forward-looking statements because, by their nature,
they represent attempts to estimate what will occur in the future.
The Company cautions readers not to place undue reliance upon any
forward-looking statement contained in this Quarterly Report. Forward-looking
statements speak only as of the date they were made and the Company assumes no
obligation to update or revise any such statements upon any change in applicable
circumstances.
2
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2003
(unaudited) and December 31, 2002 4
Consolidated Statements of Income
For The Three Months Ended
March 31, 2003 and 2002 (unaudited) 5
Consolidated Statement of Stockholders'
Equity For The Three Months Ended
March 31, 2003 (unaudited) 6
Consolidated Statements of Cash Flows
For The Three Months Ended
March 31, 2003 and 2002 (unaudited) 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 18
Item 4. Controls and Procedures 24
PART II OTHER INFORMATION
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
Signature 26
Certification of Principal Executive and Financial Officer 27
Index of Exhibits 28
3
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(unaudited)
March 31, December 31,
2003 2002
------------------------
ASSETS
Cash and due from banks $ 8,427 $ 6,183
Interest bearing deposits 3,647 127
Federal funds sold 5,000 --
-------- --------
Total cash and cash equivalents 17,074 6,310
Investment Securities:
Available-for-sale 398,101 370,625
Held-to-maturity 802 833
-------- --------
Total investment securities 398,903 371,458
Loans, net of unearned income 271,671 275,497
Less: allowance for loan losses (2,421) (2,315)
-------- --------
Net loans 269,250 273,182
Accrued interest receivable 3,947 4,106
Premises and equipment, net 8,836 8,976
Other assets 1,894 1,157
Goodwill, net 18,549 18,549
-------- --------
Total assets $718,453 $683,738
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 30,928 $ 31,320
Interest bearing 484,802 442,498
-------- --------
Total deposits 515,730 473,818
Securities sold under agreements to repurchase 36,153 46,673
Long term borrowings 60,179 57,699
Accrued interest payable 3,245 3,348
Other liabilities 4,408 3,675
-------- --------
Total liabilities 619,715 585,213
-------- --------
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 --
March 31, 2003, 2,207,676 shares
December 31, 2002, 2,237,976 shares 256 256
Additional paid-in capital 89,890 89,890
Retained earnings 17,887 16,145
Accumulated other comprehensive income, net 929 1,480
Common stock in treasury - at cost:
March 31, 2003, 358,419 shares
December 31, 2002, 328,119 shares (10,224) (9,246)
-------- --------
Total stockholders' equity 98,738 98,525
-------- --------
$718,453 $683,738
======== ========
The accompanying notes are an integral part of these statements.
4
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(unaudited)
For The
Three Months Ended
March 31,
------------------
2003 2002
------ ------
INTEREST INCOME
Loans $4,757 $4,543
Investment securities 3,610 2,750
Federal funds sold and interest bearing deposits 11 23
------ ------
Total interest income 8,378 7,316
------ ------
INTEREST EXPENSE
Deposits 2,582 2,378
Short-term borrowings 149 150
Long-term borrowings 657 522
------ ------
Total interest expense 3,388 3,050
------ ------
Net interest income 4,990 4,266
PROVISION FOR LOAN LOSSES 105 50
------ ------
Net interest income after provision for loan losses 4,885 4,216
------ ------
NON-INTEREST INCOME
Service charges on deposits 218 134
Investment securities gains 628 196
Other income 146 139
------ ------
Total non-interest income 992 469
------ ------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,331 1,305
Net occupancy expense 405 370
Equipment expense 109 59
FDIC assessment 19 15
Data processing expense 59 37
Other 789 613
------ ------
Total non-interest expense 2,712 2,399
------ ------
Income before provision for taxes 3,165 2,286
Provision for income taxes 1,423 980
------ ------
Net income $1,742 $1,306
====== ======
Net income per share:
Basic $ .78 $ .55
====== ======
Diluted $ .78 $ .55
====== ======
The accompanying notes are an integral part of these statements.
5
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For The Three Months Ended March 31, 2003
(In Thousands)
Accumulated
other
Stock Additional comprehensive Accum- Total
Common Par paid-in income lated Treasury Comprehensive stockholders'
Shares value capital (loss), net earnings stock income equity
------ ----- ---------- ------------- -------- -------- ------------- -------------
Balance at December 31, 2002 2,566 $256 $89,890 $1,480 $16,145 $ (9,246) $98,525
Net income 1,742 1,742 1,742
Acquisition of treasury shares (978) (978)
Other comprehensive loss net
of reclassification adjustment
and taxes (551) (551) (551)
------
Comprehensive income $1,191
======
----- ---- ------- ------ ------- -------- -------
Balance at March 31, 2003
(Unaudited) 2,566 $256 $89,890 $ 929 $17,887 $(10,224) $98,738
==== ======= ====== ======= ======== =======
The accompanying notes are an integral part of this statement
6
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For The Three Months Ended
March 31,
--------------------------
2003 2002
--------- ---------
Cash flows from operating activities:
Net income $ 1,742 $ 1,306
Adjustments to reconcile net income to net
cash provided by operating activities:
Realized gain on investment securities (628) (197)
Depreciation and amortization 163 79
Provision for loan losses 105 50
Decrease (increase) in accrued interest receivable 159 (188)
(Increase) decrease in other assets (889) 298
Increase in accrued interest
payable and other liabilities 231 1,838
--------- ---------
Net cash provided by operating activities 883 3,186
--------- ---------
Cash flows from investing activities:
Investment securities available for sale
Purchases (518,852) (164,854)
Sales 491,249 155,387
Investment securities held to maturity
Maturities 31 115
Net increase in loans 4,582 (8,334)
Acquisition of premises and equipment (23) (970)
--------- ---------
Net cash (used in) investing activities (23,013) (18,656)
--------- ---------
7
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For The Three Months Ended
March 31,
--------------------------
2003 2002
-------- --------
Cash flows from financing activities:
Net (decrease) increase in non interest bearing deposits $ (392) $ 3,360
Net increase in interest bearing deposits 42,304 44,531
Decrease in securities sold under agreements to repurchase (10,520) (29,923)
Proceeds from long term debt 5,000 10,000
Repayment of long term debt (2,520) (5,529)
Acquisition of treasury stock (978) (929)
-------- --------
Net cash provided by financing activities 32,894 21,510
-------- --------
Net increase in cash 10,764 6,040
Cash - beginning of period 6,310 10,383
-------- --------
Cash - end of period $ 17,074 $ 16,423
======== ========
Supplemental disclosures of cash flow information:
Cash used to pay interest $ 3,491 $ 2,061
Cash used to pay taxes $ 399 $ 564
The accompanying notes are an integral part of these statements.
8
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003 and 2002
NOTE 1. General
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"), a New York State
chartered commercial bank.
The accompanying financial statements of Berkshire Bancorp Inc. and
subsidiaries includes the accounts of the parent company, Berkshire Bancorp
Inc., and its wholly-owned subsidiaries: The Berkshire Bank, Greater American
Finance Group, Inc. and East 39, LLC.
During interim periods, the Company follows the accounting policies set
forth in its Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Readers are encouraged to refer to the Company's Form 10-K for the
fiscal year ended December 31, 2002 when reviewing this Form 10-Q. Quarterly
results reported herein are not necessarily indicative of results to be expected
for other quarters.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) considered necessary to present fairly the Company's consolidated
financial position as of March 31, 2003 and December 31, 2002 and the
consolidated results of its operations for the three month periods ended March
31, 2003 and 2002, and its consolidated stockholders' equity for the three month
period ended March 31, 2003, and its consolidated cash flows for the three month
periods ended March 31, 2003 and 2002.
NOTE 2. Earnings Per Share
Basic earnings per share is calculated by income available to common
stockholders by the weighted average common shares outstanding, excluding stock
options from the calculation. In calculating diluted earnings per share, the
dilutive effect of stock options is calculated using the average market price
for the Company's common stock during the period. The following table presents
the calculation of earnings per share for the periods indicated.
For The Three Months Ended
---------------------------------------------------------------------------
March 31, 2003 March 31, 2002
------------------------------------ ------------------------------------
Per Per
Income Shares share Income Shares share
(numerator) (denominator) amount (numerator) (denominator) amount
----------- ------------- ------ ----------- ------------- ------
(In thousands, except per share data)
Basic earnings per share
Net income available to
common stockholders $1,742 2,221 $.78 $1,306 2,361 $.55
Effect of dilutive securities
Options -- 21 .-- -- 8 .--
------ ----- ---- ------ ----- ----
Diluted earnings per share
Net income available to
common stockholders plus
assumed conversions $1,742 2,242 $.78 $1,306 2,369 $.55
====== ===== ==== ====== ===== ====
9
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 2. - (continued)
Options to purchase 40,375 and 115,375 shares of common stock for $30.00 to
$38.00 per share were outstanding during the three month periods ended March 31,
2003 and 2002, respectively. 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.
NOTE 3. Investment Securities
The following tables summarize held to maturity and available-for-sale
investment securities as of March 31, 2003 and December 31, 2002:
March 31, 2003
-------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
Cost gains losses value
--------- ---------- ---------- -----
(In thousands)
Held To Maturity
Investment Securities
U.S. Government Agencies $802 $6 $-- $808
---- --- --- ----
Totals $802 $6 $-- $808
==== === === ====
December 31, 2002
-------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
Cost gains losses value
--------- ---------- ---------- -----
(In thousands)
Held To Maturity
Investment Securities
U.S. Government Agencies $833 $3 $(1) $835
---- --- --- ----
Totals $833 $3 $(1) $835
==== === === ====
10
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 3. - (continued)
March 31, 2003
----------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
Cost gains losses value
--------- ---------- ---------- --------
(In thousands)
Available-For-Sale
Investment Securities
U.S. Treasury and Notes $ 40,037 $ 143 $ (17) $ 40,163
U.S. Government Agencies 298,031 1,861 (632) 299,260
Mortgage-backed securities 6,182 9 (3) 6,188
Corporate notes 22,572 3 (44) 22,531
Municipal Securities 1,008 61 -- 1,069
Marketable equity
securities and other 28,973 163 (246) 28,890
-------- ------ ----- --------
Totals $396,803 $2,240 $(942) $398,101
======== ====== ===== ========
December 31, 2002
----------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
Cost gains losses value
--------- ---------- ---------- --------
(In thousands)
Available-For-Sale
Investment securities
U.S. Treasury and Notes $ 20,110 $ 103 $ -- $ 20,213
U.S. Government Agencies 301,224 2,376 (3) 303,597
Mortgage-backed securities 6,256 6 -- 6,262
Corporate Notes 3,878 495 (297) 4,076
Marketable equity
securities and other 33,383 242 (148) 36,477
-------- ------ ----- --------
Totals $367,851 $3,222 $(448) $370,625
======== ====== ===== ========
11
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
NOTE 4. Loan Portfolio
The following table sets forth information concerning the Company's loan
portfolio by type of loan at the dates indicated:
March 31, 2003 December 31, 2002
---------------- -----------------
% of % of
Amount Total Amount Total
-------- ----- -------- ------
(Dollars in thousands)
Commercial and professional loans $ 10,853 4.0% $ 16,704 6.1%
Secured by real estate
1 - 4 family 169,018 62.1 180,730 65.4
Multi family 6,885 2.5 8,958 3.2
Non-residential (commercial) 82,551 30.3 65,809 23.8
Consumer 2,992 1.1 4,051 1.5
Other -- -- -- --
-------- ----- -------- -----
Total loans 272,299 100.0% 276,252 100.0%
===== =====
Deferred loan fees (628) (755)
Allowance for loan losses (2,421) (2,315)
-------- --------
Loans, net $269,250 $273,182
======== ========
NOTE 5. Deposits
The following table summarizes the composition of the average balances of
major deposit categories:
March 31, 2003 December 31, 2002
------------------ ------------------
Average Average Average Average
Amount Yield Amount Yield
-------- ------- -------- -------
(Dollars in thousands)
Demand deposits $ 30,493 -- $ 30,102 --
NOW and money market 58,656 0.97% 60,114 1.28%
Savings deposits 86,027 1.53 56,217 1.56
Time deposits 317,443 2.66 273,452 3.21
-------- ---- -------- ----
Total deposits $492,618 2.10% $419,885 2.48%
======== ==== ======== ====
12
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
NOTE 6. Comprehensive Income
The following table presents the components of comprehensive income, based
on the provisions of SFAS No. 130.:
For The Three Months Ended
-------------------------------------------------------------------------
March 31, 2003 March 31, 2002
----------------------------------- -----------------------------------
Tax Tax
Before tax (expense) Net of tax Before tax (expense) Net of tax
amount benefit Amount amount benefit amount
---------- --------- ---------- ---------- --------- ----------
(In thousands)
Unrealized gains
(losses) on investment
securities:
Unrealized holding
gains (losses) arising
during period $(291) $ 117 $(174) $(2,421) $1,946 $(1,475)
Less reclassification
adjustment for gains
realized in net income 628 (251) 377 197 (79) 118
----- ----- ----- ------- ------ -------
Unrealized gain (loss)
on investment securities
Other comprehensive
income (loss), net $(919) $ 368 $(551) $(2,618) $1,025 $(1,593)
===== ===== ===== ======= ====== =======
NOTE 7. Accounting For Stock Based Compensation
SFAS No. 148 "Accounting for Stock Based Compensation-Transition and
Disclosure", which amends the disclosure and certain provisions of SFAS No. 123,
was issued in December 2002. SFAS No. 148 requires all entities with stock based
employee compensation arrangements to provide additional disclosures in their
summary of significant accounting policies note. The Company has one stock-based
employee compensation plan. The Company accounts for that plan under the
recognition and measurement principles of APB No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Stock-based employee
compensation costs are not reflected in net income, as all options granted under
the plan had an exercise price equal to the market value of the underlying
common stock on the date of the grant. The following table illustrates the
effect on net income and earnings per share if the Company had applied the fair
value recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation.
13
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 7. - (continued)
For The
Three Months Ended
March 31,
---------------------
2003 2002
------ ------
(In thousands, except
per share amounts)
Net income As Reported: $1,742 $1,306
Less: Stock based compensation
costs determined under fair
value methods for all awards
(32) (170)
------ ------
Pro Forma: $1,710 $1,136
====== ======
Basic earnings per share As Reported: $ .78 $ .55
Pro Forma: .77 .48
Diluted earnings per share As Reported: .78 .55
Pro Forma: .76 .48
The Company did not grant options during the three months ended March 31,
2003 and 2002.
NOTE 8. New Accounting Pronouncements
Off Balance Sheet Guarantees
The Company adopted FASB Interpretation 45 (FIN 45) Guarantor's Accounting
and Disclosure Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others on January 1, 2003. FIN 45 requires a guarantor entity,
at the inception of a guarantee covered by the measurement provisions of the
interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. The Company has financial and performance
letters of credit. Financial letters of credit require the Company to make
payment if the customer's financial condition deteriorates, as defined in the
agreements. Performance letters of credit require the Company to make payments
if the customer fails to perform certain non-financial contractual obligations.
The Company previously did not record an initial liability, other than the fees
received for these letters of credit, when guaranteeing obligations unless it
became probable that the Company would have to perform under the guarantee. FIN
45 applies prospectively to letters of credit the Company issues or modifies
subsequent to December 31, 2002.
The Company defines the initial fair value of these letters of credit as
the fee received from the customer. The maximum potential undiscounted amount of
future payments of these letters of credit as of March 31, 2003 are $17.67
million and they expire through 2008. Amounts due under these letters of
credit would be reduced by any proceeds that the Company would be able to obtain
in liquidating the collateral for the loans, which varies depending on the
customer.
Variable Interest Entities
In January 2003, the FASB issued FASB Interpretation 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 clarifies the application of
Accounting Research Bulletin 51, Consolidated Financial Statements, for certain
entities that do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support from
14
BERKSHIRE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 8. - (continued)
other parties or in which equity investors do not have the characteristics of a
controlling financial interest ("variable interest entities"). Variable interest
entities within the scope of FIN 46 will be required to be consolidated by their
primary beneficiary. The primary beneficiary of a variable interest entity is
determined to be the party that absorbs a majority of the entity's expected
losses, receives a majority of its expected returns, or both. FIN 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company has not acquired
any variable interest entities after February 1, 2003 through March 31, 2003.
The Company is in process of determining what impact, if any, the adoption of
the provisions of FIN 46 will have on entities held prior to the issuance of FIN
46 0n its financial condition or results of operations. The Company does not
anticipate FIN 46 to have a material impact on the consolidated financial
position or results of operations.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis is intended to provide a better
understanding of the consolidated financial condition and results of operations
of Berkshire Bancorp Inc. and subsidiaries (the "Company"). References to the
Company herein shall be deemed to refer to the Company and its consolidated
subsidiaries unless the context otherwise requires. References to per share
amounts refer to diluted shares. References to Notes herein are references to
the "Notes to Consolidated Financial Statements" of the Company located in Item
1 herein.
15
The following table presents the total dollar amount of interest income
from average interest-earning assets and the resultant yields, as well as the
interest expense on average interest-bearing liabilities, expressed in both
dollars and rates
For The Three Months Ended March 31,
---------------------------------------------------------------------
2003 2002
--------------------------------- ---------------------------------
Interest Interest
Average and Average Average and Average
Balance Dividends Yield/Rate Balance Dividends Yield/Rate
-------- --------- ---------- -------- --------- ----------
(Dollars in Thousands)
INTEREST-EARNING ASSETS:
Loans (1) $274,929 $4,757 6.92% $256,354 $4,543 7.09%
Investment securities 389,726 3,610 3.71 239,397 2,750 4.59
Other (2)(5) 6,100 11 0.72 5,989 23 1.54
-------- ------ ---- -------- ------ ----
Total interest-earning assets 670,755 8,378 5.00 501,740 7,316 5.83
---- ----
Noninterest-earning assets 36,464 35,922
-------- --------
Total Assets $707,219 $537,662
======== ========
INTEREST-BEARING LIABILITIES:
Interest bearing deposits $144,683 472 1.30 $108,646 379 1.40
Time deposits 317,443 2,110 2.66 218,017 1,999 3.67
Other borrowings 106,232 806 3.03 80,243 672 3.35
-------- ------ ---- -------- ------ ----
Total interest-bearing
liabilities 568,357 3,388 2.38 406,906 3,050 3.00
------ ---- ------ ----
Demand deposits 30,911 28,492
Noninterest-bearing liabilities 8,366 6,459
Stockholders' equity 99,585 95,805
-------- --------
Total liabilities and
stockholders' equity $707,219 $537,662
======== ========
Net interest income $4,990 $4,266
====== ======
Interest-rate spread (3) 2.62% 2.83%
==== ====
Net interest margin (4) 2.98% 3.40%
==== ====
Ratio of average interest-earning
assets to average interest
bearing liabilities 1.18 1.23
======== ========
- ----------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits, federal funds sold and securities
purchased under agreements to resell.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest bearing
liabilities.
(4) Net interest margin is net interest income as a percentage of average
interest-earning assets.
(5) Average balances, are daily average balances except for the parent company
which have been calculated on a monthly basis.
16
Results of Operations
Results of Operations for the Three Months Ended March 31, 2003 Compared to the
Three Months Ended March 31, 2002.
General. Berkshire Bancorp Inc., a Delaware corporation ("Berkshire", the
"Company" or "we" and similar pronouns), is a bank holding company registered
under the Bank Holding Company Act of 1956. The Company has one wholly-owned
banking subsidiary, The Berkshire Bank, a New York State chartered commercial
bank (the "Bank").
References to per share amounts below, unless stated otherwise, refer to diluted
shares.
Net Income. Net income for the three-month period ended March 31, 2003 was $1.74
million, or $.78 per share, as compared to $1.31 million or $.55 per share, for
the three-month period ended March 31, 2002. Net income is largely dependent on
interest rate levels, demand for our loan and deposit products and the
strategies employed to manage the risks inherent in the banking business.
Net Interest Income. The Company's primary source of revenue is net interest
income, or the difference between interest income on earning assets and interest
expense on interest-bearing liabilities.
For the quarter ended March 31, 2003, net interest income increased by
$724,000, or 16.97%, to $4.99 million, from $4.27 million for the quarter ended
March 31, 2002. The increase in net interest income was the result of the growth
in average interest-earning assets of $169.02 million, partially offset by the
growth in average interest-bearing liabilities of $161.45 million and the
difference between the yield on assets compared to the cost of liabilities. The
average yield on interest-earning assets fell to 5.00% from 5.83%, a decline of
83 basis points, or 14.24%, while the cost of interest-bearing liabilities fell
to 2.38% from 3.00%, a decline of 62 basis points, or 20.67%. Interest-rate
spread, the difference between the average yield on interest-earning assets and
the average cost of interest-bearing liabilities, declined to 2.62% in 2003 from
2.83% in 2002.
With interest rates stabilized at historic lows, we expect to see continued
downward pressure on the Company's interest-rate spread as investment securities
in our portfolio mature, or are called by the issuer, and are replaced by
securities with lower yields. Rates paid on deposit accounts may continue to
decline as well, albeit at a slower pace due to competition for deposits in the
market place.
Net Interest Margin. Net interest margin, or annualized net interest income as a
percentage of average interest-earning assets, declined by 42 basis points to
2.98% for the first quarter of 2003 from 3.40% for the same period in 2002. The
decrease in net interest margin was due to the overall decline in the average
yields on interest-earning assets. During the first three months of 2003, the
average yields on loans, investment securities and other interest-earning assets
were 6.92%, 3.71% and 0.72%, respectively, compared to 7.09%, 4.59% and 1.54%,
respectively, in the comparable period of 2002.
Interest Income. Total interest income for the three-month period ended March
31, 2003 increased by $1.06 million, or 14.52%, to $8.38 million from $7.32
million for the three-month period ended March 31, 2002. The increase was the
result of a $169.02 million increase in average interest-earning assets to
$670.76 million for the quarter ended March 31, 2002, from $501.74 million for
the quarter ended March 31, 2002, partially offset by a decrease in average
yield to 5.00% in 2003 from 5.83% in 2002. Interest income on loans and
investment securities in the 2003 quarter increased to $4.76 million and $3.61
million, respectively, from $4.54 million and $2.75 million, respectively, in
the 2002 quarter.
17
Interest Expense. Total interest expense for the three-month period ended March
31, 2003 increased by $338,000, or 11.08%, to $3.39 million from $3.05 million
for the three-month period ended March 31, 2002. The increase was the result of
a $161.45 million increase in average interest-bearing liabilities to $568.36
million for the 2003 quarter, from $406.91 million for the 2002 quarter. The
average amounts of interest bearing deposits, time deposits and other borrowings
were $144.68 million, $317.44 million and $106.23 million, respectively, in the
2002 quarter, compared to $108.65 million, $218.02 million and $80.24 million,
respectively, in the 2002 quarter. Interest expense on interest-bearing
deposits, time deposits and other borrowings was $472,000, $2.11 million and
$806,000, respectively, in the 2003 quarter, compared to $379,000, $2.00 million
and $672,000, respectively, in the 2002 quarter.
Non-Interest Income. Non-interest income consists primarily of realized gains on
sales of marketable securities, loan sales and service fee income. For the three
months ended March 31, 2003, non-interest income was $992,000, or 16.58% of
total income, as compared to $469,000, or 9.90% of total income for the three
months ended March 31, 2002.
Non-Interest Expense. Non-interest expense includes salaries and employee
benefits, occupancy and equipment expenses, legal and professional fees and
other operating expenses associated with the day-to-day operations of the
Company. Total non-interest expense for the three-month period ended March 31,
2003 increased by $313,000, or 13.05%, to $2.71 million from $2.40 million for
the three-month period ended March 31, 2002. The increase was due primarily to
costs associated with the relocation of the Bank's head office and main bank
branch in January 2003.
Provision for Income Tax. During the first quarter of 2003, the Company recorded
income tax expense of $1.42 million compared to $980,000 for the first quarter
of 2002. The tax provisions for federal, state and local taxes recorded for 2003
and 2002 represent effective tax rates of 44.96% and 42.87%, respectively.
Effective tax rates are attributable to the level of income of income adjusted
for certain tax-preference items. The increase in the effective rate in 2003 is
due to changes in the amounts of such tax-preference items.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk. Fluctuations in market interest rates can have a material
effect on the Company's net interest income because the yields earned on loans
and investments may not adjust to market rates of interest with the same
frequency, or with the same speed, as the rates paid by the Bank on its
deposits.
Most of the Bank's deposits are either interest-bearing demand deposits or
short term certificates of deposit and other interest-bearing deposits with
interest rates that fluctuate as market rates change. Management of the Bank
seeks to reduce the risk of interest rate fluctuations by concentrating on loans
and securities investments with either short terms to maturity or with
adjustable rates or other features that cause yields to adjust based upon
interest rate fluctuations. In addition, to cushion itself against the potential
adverse effects of a substantial and sustained increase in market interest
rates, the Bank has purchased off balance sheet interest rate cap contracts
which generally provide that the Bank will be entitled to receive payments from
the other party to the contract if interest rates exceed specified levels. These
contracts are entered into with major financial institutions.
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.
18
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:
Berkshire Bancorp Inc.
Interest Rate Sensitivity Gap at March 31, 2003
(In thousands, except for percentages)
---------------------------------------------------------
3 Months 3 Through 1 Through Over
or Less 12 Months 3 Years 3 Years Total
--------- --------- --------- -------- --------
Federal funds sold $ 5,000 $ -- $ -- $ -- $ 5,000
(Rate) 1.25% -- -- -- 1.25%
--------- --------- --------- -------- --------
Interest bearing deposits in banks 3,647 -- -- -- 3,647
(Rate) 1.22% -- -- -- 1.22%
--------- --------- --------- -------- --------
Loans (1)(2)
Adjustable rate loans 43,088 13,964 2,951 11,522 71,525
(Rate) 6.04% 5.29% 6.58% 7.33% 6.12%
Fixed rate loans 548 3,878 9,580 186,767 200,773
(Rate) 7.18% 8.14% 7.47% 6.82% 6.88%
--------- --------- --------- -------- --------
Total loans 43,636 17,842 12,531 198,289 272,298
Investments (3)(4) 170,281 84,336 60,578 83,708 398,903
(Rate) 3.08% 5.53% 2.44% 5.43% 3.99%
--------- --------- --------- -------- --------
Total rate-sensitive assets 222,564 102,178 73,109 281,997 679,848
--------- --------- --------- -------- --------
Deposit accounts (5)
Savings and NOW 123,861 -- -- -- 123,861
(Rate) 1.51% -- -- -- 1.51%
Money market 38,492 -- -- -- 38,492
(Rate) 1.05% -- -- -- 1.05%
Time Deposits 129,563 186,808 5,988 90 322,449
(Rate) 2.56% 2.56% 2.47% 3.11% 2.56%
--------- --------- --------- -------- --------
Total deposit accounts 291,916 186,808 5,988 90 484,802
Repurchase agreements 26,153 10,000 -- -- 36,153
(Rate) 1.29% 1.32% -- -- 1.30%
Other borrowings -- -- 1,000 59,179 60,179
(Rate) 6.09% -- 5.90% 4.41% 4.43%
--------- --------- --------- -------- --------
Total rate-sensitive liabilities 318,069 196,808 6,988 59,269 581,134
--------- --------- --------- -------- --------
Interest rate caps 30,000 -- (10,000) (20,000) --
Gap (repricing differences) (125,505) (94,630) 76,121 242,728 98,714
========= ========= ========= ======== ========
Cumulative Gap (125,505) (220,135) (144,014) 98,714
========= ========= ========= ========
Cumulative Gap to Total Rate Sensitive Assets (18.46)% (32.38)% (21.18)% 14.52%
========= ========= ========= ========
- ----------
(1) Adjustable-rate loans are included in the period in which the interest
rates are next scheduled to adjust rather than in the period in which the
loans mature. Fixed-rate loans are scheduled according to their maturity
dates.
(2) Includes nonaccrual loans.
(3) Investments are scheduled according to their respective repricing (variable
rate loans) and maturity (fixed rate securities) dates.
(4) Investments are stated at book value.
(5) NOW accounts and savings accounts are regarded as readily accessible
withdrawal accounts. The balances in such accounts have been allocated
amongst maturity/repricing periods based upon The Berkshire Bank's
historical experience. All other time accounts are scheduled according to
their respective maturity dates.
19
Provision for Loan Losses. The Company maintains an allowance for loan losses at
a level deemed sufficient to absorb losses, which are inherent in the loan
portfolio at each balance sheet date. Management reviews the adequacy of the
allowance on at least a quarterly basis to ensure that the provision for loan
losses has been charged against earnings in an amount necessary to maintain the
allowance at a level that is appropriate based on management's assessment of
probable estimated losses. The Company's methodology for assessing the
appropriateness of the allowance for loan losses consists of several key
elements. These elements include a specific allowance for loan watch list
classified loans, an allowance based on historical trends, an additional
allowance for special circumstances, and an unallocated portion. The Company
consistently applies the following comprehensive methodology.
The allowance for loan watch list classified loans addresses those loans
maintained on the Company's loan watch list, which are assigned a rating of
substandard, doubtful, or loss. Substandard loans are those with a well-defined
weakness or a weakness, which jeopardizes the repayment of the debt. A loan may
be classified as substandard as a result of impairment of the borrower's
financial condition and repayment capacity. Loans for which repayment plans have
not been met or collateral equity margins do not protect the Company may also be
classified as substandard. Doubtful loans have the characteristics of
substandard loans with the added characteristic that collection or liquidation
in full, on the basis of presently existing facts and conditions, is highly
improbable. Although the possibility of loss is 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. For the three
month-periods ended March 31, 2003 and 2002, the Company charged-off loans
amounting to $1,000 and $24,000, respectively.
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 loans is based on analysis of the loan's performance, the related
collateral value, cash flow considerations and the financial capability of any
guarantor. The allowance for loan watch list classified loans is equal to the
total amount of potential unconfirmed losses for the individual classified loans
on the watch list. Loan watch list loans are managed and monitored by assigned
Senior Management.
The allowance based on historical trends uses charge-off experience of the
Company to estimate potential unconfirmed losses in the balances of the loan and
lease portfolios. The historical loss experience percentage is based on the
charge-off history. Historical loss experience percentages are applied to all
non-classified loans to obtain the portion of the allowance for loan losses
which is based on historical trends. Before applying the historical loss
experience percentages, loan balances are reduced by the portion of the loan
balances, which are subject to guarantee, by a government agency. Loan balances
are also adjusted for unearned discount on installment loans.
The Company also maintains an unallocated allowance. The unallocated
allowance is used to cover any factors or conditions, such as economic
conditions in one or more of the Bank's market areas, which may cause a
potential loan loss but are not specifically identifiable. It is prudent to
maintain an unallocated portion of the allowance because no matter how detailed
an analysis of potential loan losses is performed these estimates by definition
lack precision. Management must make estimates using assumptions and
information, which is often subjective and changing rapidly.
20
Since all identified losses are immediately charged off, no portion of the
allowance for loan losses is restricted to any individual loan or groups of
loans, and the entire allowance is available to absorb any and all loan losses.
A loan is placed in a nonaccrual status at the time when ultimate
collectibility of principal or interest, wholly or partially, is in doubt. Past
due loans are those loans which were contractually past due 90 days or more as
to interest or principal payments but are well secured and in the process of
collection. Renegotiated loans are those loans which terms have been
renegotiated to provide a reduction or deferral of principal or interest as a
result of the deteriorating financial position of the borrower.
At March 31, 2003, the Company had $79,000 of non-performing loans
consisting of $59,000 of non-accrual loans and $20,000 of accruing loans
delinquent more than 90 days. At March 31, 2002 the Company had $75,000 of loans
past due more than 90 days and still accruing interest. Based upon management's
evaluations of the overall analysis of the Bank's allowance for loan losses and
the year over year increase in total loans to $272.30 million from $260.55
million, the provision for possible loan losses was increased to $2.42 million
from $2.06 million in the year ago period.
Management believes that the allowance for loan losses and nonperforming
loans remained safely within acceptable levels.
The following table sets forth information with respect to activity in the
Company's allowance for loan losses during the periods indicated (dollars in
thousands, except percentages):
Three Months Ended
March 31,
-------------------
2003 2002
-------- --------
Average loans outstanding $274,929 $256,354
======== ========
Allowance at beginning of period 2,315 2,030
Charge-offs:
Commercial and other loans 1 24
-------- --------
Total loans charged-off 1 24
-------- --------
Recoveries:
Commercial and other loans 2 2
-------- --------
Total loans recovered 2 2
-------- --------
Net (charge-offs) recoveries 1 (22)
-------- --------
Provision for loan losses
charged to operating expenses 105 50
-------- --------
Allowance at end of period $ 2,421 $ 2,058
-------- --------
Ratio of net recoveries (charge-offs)
to average loans outstanding 0.00% (.01)%
======== ========
Allowance as a percent of total loans 0.89% 0.79%
======== ========
Total loans at end of period $272,298 $260,545
======== ========
21
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 March 31, 2003, the Company had total loans of $272.30 million and an
allowance for loan losses of $2.42 million. From time to time, the Bank may
originate residential mortgage loans and then sell them on the secondary market,
normally recognizing fee income in connection with the sale.
The following tables set forth information concerning the Company's loan
portfolio by type of loan at the dates indicated:
March 31, December 31,
2003 2002
--------- ------------
Amount Amount
--------- ------------
(in thousands)
Commercial and professional loans $ 10,853 $ 16,704
Secured by real estate
1-4 family 169,018 180,730
Multi family 6,885 8,958
Non-residential (commercial) 82,551 65,809
Consumer 2,992 4,051
Other -- --
-------- --------
Total loans 272,299 276,252
Less:
Deferred loan fees (628) (755)
Allowance for loan losses (2,421) (2,315)
-------- --------
Loans, net $269,250 $273,182
======== ========
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.
Capital Adequacy
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of total
and Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and Tier I capital (as defined) to average assets (as defined). As of
March 31, 2003, the most recent notification from the FDIC categorized the Bank
as well capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the Bank must maintain certain Total
risk-based, Tier I risk-based, and Tier I leverage ratios. There are no
conditions or events since the notification that management believes have
changed the Bank's category.
22
The following tables set forth the actual and required regulatory capital
amounts and ratios of the Company and the Bank as of March 31, 2003 and December
31, 2002 (dollars in thousands):
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
-------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ------ ------ -------
March 31, 2003
Total Capital (to Risk-Weighted Assets)
Company 81,507 25.9% 25,190 >=8.0% -- N/A
Bank 55,357 18.6% 23,782 >=8.0% 29,727 >=10.0%
Tier I Capital (to Risk-Weighted Assets)
Company 79,086 25.1% 12,595 >=4.0% -- N/A
Bank 52,936 17.8% 11,891 >=4.0% 17,836 >=6.0%
Tier I Capital (to Average Assets)
Company 79,086 11.5% 27,547 >=4.0% -- N/A
Bank 52,936 7.7% 27,438 >=4.0% 34,298 >=5.0%
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
--------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ------ ------ -------
December 31, 2002
Total Capital (to Risk-Weighted Assets)
Company $80,811 12.3% $23,801 >=8.0% -- N/A
Bank 53,687 19.4% 22,193 >=8.0% 27,741 >=10.0%
Tier I Capital (to Risk-Weighted Assets)
Company 78,496 26.4% 11,900 >=4.0% -- N/A
Bank 51,372 18.5% 11,096 >=4.0% 16,645 >=6.0%
Tier I Capital (to Average Assets)
Company 78,496 27.2% 25,468 >=4.0% -- N/A
Bank 51,372 7.8% 26,210 >=4.0% 32,763 >=5.0%
Liquidity
The management of the Company's liquidity focuses on ensuring that
sufficient funds are available to meet loan funding commitments, withdrawals
from deposit accounts, the repayment of borrowed funds, and ensuring that the
Bank and the Company comply with regulatory liquidity requirements. Liquidity
needs of the Bank have historically been met by deposits, investments in federal
funds sold, principal and interest payments on loans, and maturities of
investment securities.
23
For Berkshire, liquidity means having cash available to fund operating
expenses and to pay shareholder dividends, when and if declared by Berkshire's
Board of Directors. The ability of Berkshire to fund its operations and to pay
dividends is not dependent upon the receipt of dividends from the Bank. At March
31, 2003, Berkshire had cash of $10.60 million and investment securities of
$4.51 million.
The Company maintains financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and stand-by
letters of credit.
At March 31, 2003 the Company had outstanding commitments of approximately
$47.67 million. These commitments include $9.10 million that mature or renew
within one year, $15.61 million that mature or renew after one year and within
three years, $20.43 million that mature or renew after three years and within
five years and $2.53 million that matures or renews after five years.
The Company currently does not have any unconsolidated subsidiaries or
special purpose entities.
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.
ITEM 4 - CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation
was carried out under the supervision and with the participation of the
Company's management, including the Chief Executive Officer ("CEO"), who is also
the Chief Financial Officer ("CFO"), of the effectiveness of our disclosure
controls and procedures. Based on that evaluation, the CEO/CFO has concluded
that the Company's disclosure controls and procedures are effective to ensure
that information required to be disclosed by the Company in reports that it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. Subsequent to the date of
the evaluation, there were no significant changes in the Company's internal
controls or in other factors that could significantly affect the internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
24
PART II. OTHER INFORMATION
Item 5. Other Information
In accordance with Section 10A(i)(2) of the Securities Exchange Act of
1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002, the Company is
responsible for disclosing the non-audit services approved by the Company's
Audit Committee to be performed by Grant Thornton LLP, the Company's external
auditor. In April 2003, the Audit Committee's Chairman, pursuant to delegated
authority by the Audit Committee, approved the non-audit engagement of Grant
Thornton LLP to assist the Company in the preparation of its Federal, New York
State and New York City 2002 tax returns.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit
Number Description
- ------- -----------
99.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant
To Section 906 Of The Sarbanes-Oxley Act Of 2002.
b. There were no reports on Form 8-K filed by the Company during the quarter
for which this report on Form 10-Q is filed.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BERKSHIRE BANCORP INC.
----------------------
(Registrant)
Date: May 12, 2003 By: /s/ Steven Rosenberg
------------ ----------------------------------
Steven Rosenberg
Chief Executive Officer,
President and Chief
Financial Officer
26
Certification of Principal Executive and Financial Officer
I, Steven Rosenberg the Chief Executive Officer, President and Chief Financial
Officer of Berkshire Bancorp Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Berkshire Bancorp Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
/s/ Steven Rosenberg
----------------------------------
Steven Rosenberg,
Chief Executive Officer, President
and Chief Financial Officer
27
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
- ------- ----------- -----------
99.1 Certification Pursuant To 18 U.S.C. Section 1350, 29
As Adopted Pursuant To Section 906 Of The
Sarbanes-Oxley Act Of 2002
28
STATEMENT OF DIFFERENCES
The greater-than-or-equal-to sign shall be expressed as.................. >=