Exhibit 13

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|                                                                     |  |      |       | 
|-------------------------------------------------------------------- |  | ---- | ----- | 
|                                                                     |  | Page |      
|                                                                     | 
|Managements Letter to Shareholders                                  |  |      | 2     | 
|                                                                     | 
|Partners in Success . . . Partners in the Community                  |  |      | 4-7   | 
|                                                                     | 
|Managements Assessment of Internal Control Over Financial Reporting |  |      | 8     | 
|                                                                     | 
|Reports of Independent Registered Public Accounting Firms            |  |      | 9-10  | 
|                                                                     | 
|December 31, 2010 and 2009                                           |  |      | 11    | 
|Consolidated Balance Sheets:                                         |  |      |       | 
|                                                                     | 
|Years ended December 31, 2010 and 2009                               |  |      | 12    | 
|Consolidated Statements of Income:                                   |  |      |       | 
|                                                                     | 
|Years ended December 31, 2010 and 2009                               |  |      | 13    | 
|Consolidated Statements of Shareholders Equity:                     |  |      |       | 
|                                                                     | 
|Years ended December 31, 2010 and 2009                               |  |      | 14    | 
|Consolidated Statements of Cash Flows:                               |  |      |       | 
|                                                                     | 
|Notes to Consolidated Financial Statements                           |  |      | 15-47 | 
|                                                                     | 
|Managements Discussion and Analysis of                              |  |      |       | 
|Financial Condition and Results of Operations                        |  |      | 48-63 | 
|                                                                     | 
|Board of Directors:                                                  |  |      | 64    | 
|First Community Financial Corporation                                |  |      |       | 
|                                                                     | 
|Officers:                                                            |  |      | 65    | 
|First Community Financial Corporation                                |  |      |       | 
|                                                                     | 
|Officers:                                                            |  |      | 66    | 
|The First National Bank of Mifflintown                               |  |      |       | 
|                                                                     | 
|Directors Emeriti and Advisory Boards                                |  |      | 67    | 
|                                                                     | 
|Bank Locations in Juniata County                                     |  |      |       | 
|and Perry County                                                     |  |      | 68-69 | 
|                                                                     | 
|Stock and Dividend Information                                       |  |      | 70    | 



1



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MANAGEMENTS LETTER TO SHAREHOLDERS

Dear Shareholder:

Partners in success.
Partners in the community. These phrases truly summarize our vision of community banking. As shown on the following pages, our staff remains devoted to serving our customers to meet their needs while giving back to our communities.

While it may seem simple, treating others the way we like to be treated, while developing new products and services to meet todays customer needs,
has enabled us to achieve the results shown in the graphs on the opposite page. During 2010, the bank was designated as one of the top 200 community banks in the nation, according to U.S. Banker magazine. We are pleased to present these
results to you, especially during a time of continued economic and housing market challenges with unprecedented levels of government involvement in the economy, interest rates and regulations.

During the year, we continued to expand and diversify our business lines and loans, while adding online mortgage origination and processing, online
statement options, and an online E- account to reach another segment of customers. These services help us to target new and service existing customers in alternative ways, while we still maintain our overall emphasis on personal service and
flexibility. Efficiency and cost controls remain strengths as the bank grows.

Therefore, your company is reporting the following for 2010:



| |  |  | Net income gained $1,460,000, or 66%, to $3,686,000.
| | - |  | ----------------------------------------------------



| |  |  | Assets grew over $18 million, or 5%, to $374,155,000.
| | - |  | -----------------------------------------------------



| |  |  | Gross Loans expanded $19 million or 9%.
| | - |  | ---------------------------------------



| |  |  | Deposits added $21 million or 7% and surpassed $300 million.
| | - |  | ------------------------------------------------------------



| |  |  | Return on equity was 13.71%.
| | - |  | ----------------------------



| |  |  | Return on assets was 1.01%
| | - |  | --------------------------



| |  |  | Dividends increased 16%.
| | - |  | ------------------------

Going forward, we plan to continue to pursue new business and branching opportunities, including the offering of annuities and insurance in 2011 and a
branch site near Newport.

The contributions of our Board of Directors, Advisory Boards, Directors Emeriti, officers and employees, as well as
those in years past, are greatly appreciated in making us the bank we are today.

Your investment and support is greatly appreciated. For
additional information concerning our stock or other matters, please feel free to contact us by telephone at 717-436-2144, toll-free at 866-950-2144 or online at www.fnbmiffintown.com.



|                  |  |                                      
|----------------- |  | -------------------------------------
|John P. Henry III |  | Jody D. Graybill                     
|Chairman          |  | President and Chief Executive Officer



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REPORT OF MANAGEMENTS
ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING

First Community Financial Corporation is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this annual report. The consolidated
financial statements and notes included in this annual report have been prepared in conformity with United States generally accepted accounting principles and necessarily include some amounts that are based on managements best estimates and
judgments.

We, as management of First Community Financial Corporation, are responsible for establishing and maintaining effective internal
control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures
that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; provide reasonable assurance that the transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles; provide a reasonable assurance that receipts and expenditures of the Corporation are only being made in accordance with authorizations of
management and directors of the Corporation; and provide a reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporations assets that could have a material effect on the
financial statements. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken
to correct potential deficiencies as they are noted.

Any system of internal control, no matter how well designed, has inherent limitations,
including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly,
even an effective system of internal control will provide only a reasonable assurance with respect to financial statement preparation.

Management assessed the Corporations system of internal control over financial reporting as of December 31, 2010, in relation to the criteria
for effective control over financial reporting as described in Internal Control  Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concludes
that, as of December 31, 2010, its system of internal control over financial reporting is effective and meets the criteria of the Internal Control  Integrated Framework.

This Annual Report does not include an attestation report of the Corporations registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to attestation by the Corporations registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Corporation to provide only
managements report in this Annual Report.



|                                      |  |  |  |                                           
|------------------------------------- |  |  |  | ------------------------------------------
|/s/ Jody D. Graybill                  |  |  |  | /s/ Richard R. Leitzel                    
|Jody D. Graybill                      |  |  |  | Richard R. Leitzel                        
|President and Chief Executive Officer |  |  |  | Vice President and Chief Financial Officer
|(Principal Executive Officer)         |  |  |  | (Principal Financial Officer)             
|                                      |  | 
|March 8, 2011                         |  |  |  |                                           



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

First Community Financial Corporation

Mifflintown, Pennsylvania

We
have audited the accompanying consolidated balance sheet of First Community Financial Corporation and its subsidiaries as of December 31, 2010 and the related consolidated statements of income, changes in shareholders equity, and cash
flows for the year then ended. First Community Financial Corporations management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our
audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Corporation is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Corporations internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of First Community Financial Corporation and its subsidiaries as of December 31, 2010 and the results of their operations and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.

/s/ Smith Elliott Kearns & Company, LLC

Chambersburg, Pennsylvania

March 10, 2011



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LOGO

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

First Community Financial Corporation

Mifflintown, Pennsylvania

We
have audited the accompanying consolidated balance sheet of First Community Financial Corporation and subsidiaries as of December 31, 2009, and the related consolidated statements of income, shareholders equity, and cash flows for the
year then ended. First Community Financial Corporations management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Corporations internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of First Community Financial Corporation and subsidiaries as of December 31, 2009, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted
in the United States of America.

/s/ ParenteBeard LLC

Harrisburg, Pennsylvania

March 12, 2010



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FIRST COMMUNITY FINANCIAL CORPORATION



CONSOLIDATED
BALANCE SHEETS



|                                                                                                                                                                 |  |                                   |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                 |  | December 31,                      |        
|                                                                                                                                                                 |  | 2010                              |         |   | 2009 |  
|                                                                                                                                                                 |  | (In Thousands, Except Share Data) |        
|ASSETS                                                                                                                                                           |  |                                   |         |   |      |   |         |  
|Cash and due from banks                                                                                                                                          |  | $                                 | 10,280  |   |      | $ | 6,564   |  
|Interest-bearing demand deposits                                                                                                                                 |  |                                   | 264     |   |      |   | 351     |  
|Federal funds sold                                                                                                                                               |  |                                   | 10      |   |      |   | 1,718   |  
|                                                                                                                                                                 |  |                                   |         |   |      |   |         |  
|                                                                                                                                                                 |  |                                  
|Cash and Cash Equivalents                                                                                                                                        |  |                                   | 10,554  |   |      |   | 8,633   |  
|                                                                                                                                                                 |  |                                  
|Time certificates of deposit                                                                                                                                     |  |                                   | 198     |   |      |   | 396     |  
|Securities available for sale                                                                                                                                    |  |                                   | 75,627  |   |      |   | 81,437  |  
|Securities held to maturity, fair value 2010 $30,976; 2009 $29,715                                                                                               |  |                                   | 31,872  |   |      |   | 30,204  |  
|                                                                                                                                                                 |  |                                  
|Loans                                                                                                                                                            |  |                                   | 238,596 |   |      |   | 219,662 |  
|Less: Allowance for loan losses                                                                                                                                  |  |                                   | (2,154  | ) |      |   | (2,830  | )
|Less: Deferred loan fees and costs, net                                                                                                                          |  |                                   | (211    | ) |      |   | (232    | )
|                                                                                                                                                                 |  |                                   |         |   |      |   |         |  
|Net loans                                                                                                                                                        |  |                                   | 236,231 |   |      |   | 216,600 |  
|                                                                                                                                                                 |  |                                  
|Premises and equipment, net                                                                                                                                      |  |                                   | 5,802   |   |      |   | 6,175   |  
|Restricted investment in bank stocks                                                                                                                             |  |                                   | 2,541   |   |      |   | 2,661   |  
|Investment in life insurance                                                                                                                                     |  |                                   | 7,109   |   |      |   | 5,109   |  
|Other assets                                                                                                                                                     |  |                                   | 4,221   |   |      |   | 4,621   |  
|                                                                                                                                                                 |  |                                   |         |   |      |   |         |  
|                                                                                                                                                                 |  |                                  
|Total Assets                                                                                                                                                     |  | $                                 | 374,155 |   |      | $ | 355,836 |  
|                                                                                                                                                                 |  |                                   |         |   |      |   |         |  
|                                                                                                                                                                 |  |                                  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                             |  |                                   |         |   |      |   |         |  
|LIABILITIES                                                                                                                                                      |  |                                   |         |   |      |   |         |  
|                                                                                                                                                                 |  |                                  
|Deposits:                                                                                                                                                        |  |                                   |         |   |      |   |         |  
|Non-interest bearing                                                                                                                                             |  | $                                 | 31,910  |   |      | $ | 27,952  |  
|Interest-bearing                                                                                                                                                 |  |                                   | 285,939 |   |      |   | 268,507 |  
|                                                                                                                                                                 |  |                                   |         |   |      |   |         |  
|                                                                                                                                                                 |  |                                  
|Total Deposits                                                                                                                                                   |  |                                   | 317,849 |   |      |   | 296,459 |  
|                                                                                                                                                                 |  |                                  
|Short-term borrowings                                                                                                                                            |  |                                   | 4,030   |   |      |   | 4,512   |  
|Long-term debt                                                                                                                                                   |  |                                   | 16,000  |   |      |   | 22,000  |  
|Junior subordinated debt                                                                                                                                         |  |                                   | 5,155   |   |      |   | 5,155   |  
|Other liabilities                                                                                                                                                |  |                                   | 2,839   |   |      |   | 2,352   |  
|                                                                                                                                                                 |  |                                   |         |   |      |   |         |  
|                                                                                                                                                                 |  |                                  
|Total Liabilities                                                                                                                                                |  |                                   | 345,873 |   |      |   | 330,478 |  
|                                                                                                                                                                 |  |                                   |         |   |      |   |         |  
|                                                                                                                                                                 |  |                                  
|SHAREHOLDERS EQUITY                                                                                                                                             |  |                                   |         |   |      |   |         |  
|                                                                                                                                                                 |  |                                  
|Preferred stock, without par value; 10,000,000 shares authorized and unissued                                                                                    |  |                                   |        |   |      |   |        |  
|Common stock, $5 par value; 10,000,000 shares authorized;Shares issued, 2010  1,407,412; 2009 
1,404,348Shares outstanding, 2010  1,403,761; 2009  1,400,697 |  |                                   | 7,037   |   |      |   | 7,022   |  
|Capital in excess of par value                                                                                                                                   |  |                                   | 415     |   |      |   | 350     |  
|Retained earnings                                                                                                                                                |  |                                   | 19,560  |   |      |   | 16,820  |  
|Treasury stock, at cost 2010  3,651 shares; 2009  3,651 shares                                                                                                 |  |                                   | (110    | ) |      |   | (110    | )
|Accumulated other comprehensive income                                                                                                                           |  |                                   | 1,380   |   |      |   | 1,276   |  
|                                                                                                                                                                 |  |                                   |         |   |      |   |         |  
|                                                                                                                                                                 |  |                                  
|Total Shareholders Equity                                                                                                                                       |  |                                   | 28,282  |   |      |   | 25,358  |  
|                                                                                                                                                                 |  |                                   |         |   |      |   |         |  
|                                                                                                                                                                 |  |                                  
|Total Liabilities and Shareholders Equity                                                                                                                       |  | $                                 | 374,155 |   |      | $ | 355,836 |  
|                                                                                                                                                                 |  |                                   |         |   |      |   |         |  



|                                               |  |    |  | 
|---------------------------------------------- |  | -- |  | 
|See notes to consolidated financial statements |  | 11 |  | 





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FIRST COMMUNITY FINANCIAL CORPORATION



CONSOLIDATED
STATEMENTS OF INCOME



|                                                    |  |                                       |        |  |      |   |        | 
|--------------------------------------------------- |  | ------------------------------------- | ------ |  | ---- | - | ------ | 
|                                                    |  | Years Ended December, 31,             |       
|                                                    |  | 2010                                  |        |  | 2009 |  
|                                                    |  | (In Thousands, Except per Share Data) |       
|INTEREST INCOME                                     |  |                                       |        |  |      |   |        | 
|Loans, including fees                               |  | $                                     | 14,370 |  |      | $ | 14,143 | 
|Securities:                                         |  |                                       |        |  |      |   |        | 
|Taxable                                             |  |                                       | 2,481  |  |      |   | 3,149  | 
|Tax exempt                                          |  |                                       | 1,289  |  |      |   | 1,158  | 
|Other                                               |  |                                       | 41     |  |      |   | 54     | 
|                                                    |  |                                       |        |  |      |   |        | 
|                                                    |  |                                      
|Total Interest Income                               |  |                                       | 18,181 |  |      |   | 18,504 | 
|                                                    |  |                                       |        |  |      |   |        | 
|                                                    |  |                                      
|INTEREST EXPENSE                                    |  |                                       |        |  |      |   |        | 
|Deposits                                            |  |                                       | 5,828  |  |      |   | 7,494  | 
|Short-term borrowings                               |  |                                       | 52     |  |      |   | 50     | 
|Long-term debt                                      |  |                                       | 949    |  |      |   | 1,239  | 
|                                                    |  |                                       |        |  |      |   |        | 
|                                                    |  |                                      
|Total Interest Expense                              |  |                                       | 6,829  |  |      |   | 8,783  | 
|                                                    |  |                                       |        |  |      |   |        | 
|                                                    |  |                                      
|Net Interest Income                                 |  |                                       | 11,352 |  |      |   | 9,721  | 
|                                                    |  |                                      
|PROVISION FOR LOAN LOSSES                           |  |                                       | 336    |  |      |   | 1,237  | 
|                                                    |  |                                       |        |  |      |   |        | 
|                                                    |  |                                      
|Net Interest Income after Provision for Loan Losses |  |                                       | 11,016 |  |      |   | 8,484  | 
|                                                    |  |                                       |        |  |      |   |        | 
|                                                    |  |                                      
|OTHER INCOME                                        |  |                                       |        |  |      |   |        | 
|Service charges on deposits                         |  |                                       | 755    |  |      |   | 828    | 
|Fiduciary activities                                |  |                                       | 474    |  |      |   | 524    | 
|Earnings on investment in life insurance            |  |                                       | 240    |  |      |   | 223    | 
|ATM and debit card fees                             |  |                                       | 638    |  |      |   | 572    | 
|Investment securities gains from sales              |  |                                       | 182    |  |      |   | 459    | 
|Realized gains on sales of foreclosed real estate   |  |                                       | 67     |  |      |   | 33     | 
|Other                                               |  |                                       | 403    |  |      |   | 316    | 
|                                                    |  |                                       |        |  |      |   |        | 
|                                                    |  |                                      
|Total Other Income                                  |  |                                       | 2,759  |  |      |   | 2,955  | 
|                                                    |  |                                       |        |  |      |   |        | 
|                                                    |  |                                      
|OTHER EXPENSES                                      |  |                                       |        |  |      |   |        | 
|Employee compensation and benefits                  |  |                                       | 4,634  |  |      |   | 4,218  | 
|Net occupancy and equipment                         |  |                                       | 1,126  |  |      |   | 1,152  | 
|Professional fees                                   |  |                                       | 392    |  |      |   | 429    | 
|Director and advisory boards compensation           |  |                                       | 362    |  |      |   | 337    | 
|ATM expenses                                        |  |                                       | 364    |  |      |   | 406    | 
|Supplies and postage                                |  |                                       | 324    |  |      |   | 310    | 
|FDIC/OCC expense                                    |  |                                       | 546    |  |      |   | 756    | 
|Pennsylvania bank shares tax                        |  |                                       | 288    |  |      |   | 230    | 
|Other operating                                     |  |                                       | 1,000  |  |      |   | 959    | 
|                                                    |  |                                       |        |  |      |   |        | 
|                                                    |  |                                      
|Total Other Expenses                                |  |                                       | 9,036  |  |      |   | 8,797  | 
|                                                    |  |                                       |        |  |      |   |        | 
|                                                    |  |                                      
|Income before Income Taxes                          |  |                                       | 4,739  |  |      |   | 2,642  | 
|                                                    |  |                                      
|PROVISION FOR INCOME TAXES                          |  |                                       | 1,053  |  |      |   | 416    | 
|                                                    |  |                                       |        |  |      |   |        | 
|                                                    |  |                                      
|Net Income                                          |  | $                                     | 3,686  |  |      | $ | 2,226  | 
|                                                    |  |                                       |        |  |      |   |        | 
|                                                    |  |                                      
|BASIC EARNINGS PER SHARE                            |  | $                                     | 2.63   |  |      | $ | 1.59   | 
|                                                    |  |                                       |        |  |      |   |        | 
|                                                    |  |                                      
|DIVIDENDS PER SHARE                                 |  | $                                     | 0.675  |  |      | $ | 0.580  | 
|                                                    |  |                                       |        |  |      |   |        | 



|                                               |  |    |  | 
|---------------------------------------------- |  | -- |  | 
|See notes to consolidated financial statements |  | 12 |  | 





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FIRST COMMUNITY FINANCIAL CORPORATION



CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY



|                                                                                              |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |  |  |   |        |  
|--------------------------------------------------------------------------------------------- |  | ------------ | ----- |  | ------------------------------------- | - | --- | ---------------- |  | - | ------------- | - |  | ----------------------------------- | ---- | - | ----- | - | ----- |  |  | - | ------ | -
|                                                                                              |  | Common Stock |       |  | CapitalIn ExcessofPar 
Value          |   |     | RetainedEarnings |  |   | TreasuryStock |   |  | AccumulatedOtherComprehensiveIncome |      |   | Total |  
|                                                                                              |  |              |       |  | (In Thousands, Except per Share Data) |   |     |                  | 
|                                                                                              |  |              |       |  |                                       |  
|Balance - January 1, 2009                                                                     |  | $            | 7,010 |  |                                       | $ | 293 |                  |  | $ | 15,406        |   |  | $                                   | (62  | ) |       | $ | 766   |  |  | $ | 23,413 |  
|                                                                                              |  |              |       |  |                                       |  
|Comprehensive income:                                                                         |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |  |  |   |        |  
|Net income                                                                                    |  |              |       |  |                                       |   |     |                  |  |   | 2,226         |   |  |                                     |      |   |       |   |       |  |  |   | 2,226  |  
|Change in net unrealized gains on securities available for sale, net of deferred income taxes |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     |      |   |       |   | 510   |  |  |   | 510    |  
|                                                                                              |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |  |  |   |        |  
|Total comprehensive income                                                                    |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |  |  |   | 2,736  |  
|                                                                                              |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |  |  |   |        |  
|                                                                                              |  |              |       |  |                                       |  
|Issuance of stock in connection with dividend reinvestment plan 2,430 shares                  |  |              | 12    |  |                                       |   | 57  |                  |  |   |               |   |  |                                     |      |   |       |   |       |  |  |   | 69     |  
|Treasury stock acquired  1,601 shares                                                        |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     | (48  | ) |       |   |       |  |  |   | (48    | )
|                                                                                              |  |              |       |  |                                       |  
|Cash dividends, $0.58 per share                                                               |  |              |       |  |                                       |   |     |                  |  |   | (812          | ) |  |                                     |      |   |       |   |       |  |  |   | (812   | )
|                                                                                              |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |  |  |   |        |  
|                                                                                              |  |              |       |  |                                       |  
|Balance, December 31, 2009                                                                    |  | $            | 7,022 |  |                                       | $ | 350 |                  |  | $ | 16,820        |   |  | $                                   | (110 | ) |       | $ | 1,276 |  |  | $ | 25,358 |  
|                                                                                              |  |              |       |  |                                       |  
|Comprehensive income:                                                                         |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |  |  |   |        |  
|Net income                                                                                    |  |              |       |  |                                       |   |     |                  |  |   | 3,686         |   |  |                                     |      |   |       |   |       |  |  |   | 3,686  |  
|Change in net unrealized gains on securities available for sale, net of deferred income taxes |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     |      |   |       |   | 104   |  |  |   | 104    |  
|                                                                                              |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |  |  |   |        |  
|Total comprehensive income                                                                    |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |  |  |   | 3,790  |  
|                                                                                              |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |  |  |   |        |  
|                                                                                              |  |              |       |  |                                       |  
|Issuance of stock in connection with dividend reinvestment plan 3,065 shares                  |  |              | 15    |  |                                       |   | 65  |                  |  |   |               |   |  |                                     |      |   |       |   |       |  |  |   | 80     |  
|                                                                                              |  |              |       |  |                                       |  
|Cash dividends, $0.675 per share                                                              |  |              |       |  |                                       |   |     |                  |  |   | (946          | ) |  |                                     |      |   |       |   |       |  |  |   | (946   | )
|                                                                                              |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |  |  |   |        |  
|                                                                                              |  |              |       |  |                                       |  
|Balance, December 31, 2010                                                                    |  | $            | 7,037 |  |                                       | $ | 415 |                  |  | $ | 19,560        |   |  | $                                   | (110 | ) |       | $ | 1,380 |  |  | $ | 28,282 |  
|                                                                                              |  |              |       |  |                                       |   |     |                  |  |   |               |   |  |                                     |      |   |       |   |       |  |  |   |        |  



|                                               |  |    |  | 
|---------------------------------------------- |  | -- |  | 
|See notes to consolidated financial statements |  | 13 |  | 





---

FIRST COMMUNITY FINANCIAL CORPORATION



CONSOLIDATED
STATEMENTS OF CASH FLOWS



|                                                                                  |  |                          |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Years Ended December 31, |        
|                                                                                  |  | 2010                     |         |   | 2009 |  
|                                                                                  |  | (In Thousands)           |        
|CASH FLOWS FROM OPERATING
ACTIVITIES                                              |  |                          |         |   |      |   |         |  
|Net income                                                                        |  | $                        | 3,686   |   |      | $ | 2,226   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                          |         |   |      |   |         |  
|Depreciation of premises and equipment                                            |  |                          | 479     |   |      |   | 527     |  
|Amortization of intangible assets                                                 |  |                          | 17      |   |      |   | 17      |  
|Net amortization (accretion) of investment securities                             |  |                          | 335     |   |      |   | (113    | )
|Earnings on investment in life insurance                                          |  |                          | (240    | ) |      |   | (223    | )
|Realized gains on securities                                                      |  |                          | (182    | ) |      |   | (459    | )
|Realized gains on sales of foreclosed real estate                                 |  |                          | (67     | ) |      |   | (33     | )
|Provision for loan losses                                                         |  |                          | 336     |   |      |   | 1,237   |  
|Deferred income taxes                                                             |  |                          | 237     |   |      |   | (446    | )
|(Increase) decrease in accrued interest receivable and other assets               |  |                          | 146     |   |      |   | (1,867  | )
|Increase (decrease) in accrued interest payable and other liabilities             |  |                          | 487     |   |      |   | (405    | )
|                                                                                  |  |                          |         |   |      |   |         |  
|                                                                                  |  |                         
|Net Cash Provided by Operating Activities                                         |  |                          | 5,234   |   |      |   | 461     |  
|                                                                                  |  |                          |         |   |      |   |         |  
|                                                                                  |  |                         
|CASH FLOWS FROM INVESTING
ACTIVITIES                                              |  |                          |         |   |      |   |         |  
|Securities available for sale:                                                    |  |                          |         |   |      |   |         |  
|Proceeds from maturities, calls and principal repayments                          |  |                          | 31,619  |   |      |   | 23,005  |  
|Proceeds from sales                                                               |  |                          | 3,614   |   |      |   | 8,981   |  
|Purchases                                                                         |  |                          | (29,872 | ) |      |   | (46,101 | )
|Securities held to maturity:                                                      |  |                          |         |   |      |   |         |  
|Proceeds from maturities, calls and principal repayments                          |  |                          | 3,716   |   |      |   | 3,886   |  
|Purchases                                                                         |  |                          | (4,924  | ) |      |   | (9,570  | )
|Net increase in loans                                                             |  |                          | (19,991 | ) |      |   | (5,703  | )
|Decrease in time certificates of deposit                                          |  |                          | 198     |   |      |   |        |  
|Purchases of premises and equipment                                               |  |                          | (106    | ) |      |   | (305    | )
|Proceeds from sale of foreclosed real estate                                      |  |                          | 80      |   |      |   | 154     |  
|Purchase of life insurance                                                        |  |                          | (1,809  | ) |      |   |        |  
|Net (purchases) dispositions of restricted investment in bank stocks              |  |                          | 120     |   |      |   |        |  
|                                                                                  |  |                          |         |   |      |   |         |  
|                                                                                  |  |                         
|Net Cash Used in Investing Activities                                             |  |                          | (17,355 | ) |      |   | (25,653 | )
|                                                                                  |  |                          |         |   |      |   |         |  
|                                                                                  |  |                         
|CASH FLOWS FROM FINANCING
ACTIVITIES                                              |  |                          |         |   |      |   |         |  
|Net increase in deposits                                                          |  |                          | 21,390  |   |      |   | 33,853  |  
|Net decrease in short-term borrowings                                             |  |                          | (482    | ) |      |   | (6,101  | )
|Proceeds from long-term debt                                                      |  |                          |        |   |      |   |        |  
|Repayment of long-term debt                                                       |  |                          | (6,000  | ) |      |   |        |  
|Proceeds from issuance of common stock                                            |  |                          | 80      |   |      |   | 69      |  
|Acquisition of treasury stock                                                     |  |                          |        |   |      |   | (48     | )
|Cash dividends paid                                                               |  |                          | (946    | ) |      |   | (812    | )
|                                                                                  |  |                          |         |   |      |   |         |  
|                                                                                  |  |                         
|Net Cash Provided by Financing Activities                                         |  |                          | 14,042  |   |      |   | 26,961  |  
|                                                                                  |  |                          |         |   |      |   |         |  
|                                                                                  |  |                         
|Net Increase in Cash and Cash Equivalents                                         |  |                          | 1,921   |   |      |   | 1,769   |  
|                                                                                  |  |                         
|CASH AND CASH EQUIVALENTS -
BEGINNING                                             |  |                          | 8,633   |   |      |   | 6,864   |  
|                                                                                  |  |                          |         |   |      |   |         |  
|                                                                                  |  |                         
|CASH AND CASH EQUIVALENTS -
ENDING                                                |  | $                        | 10,554  |   |      | $ | 8,633   |  
|                                                                                  |  |                          |         |   |      |   |         |  
|                                                                                  |  |                         
|SUPPLEMENTARY CASH FLOWS
INFORMATION                                              |  |                          |         |   |      |   |         |  
|Interest paid                                                                     |  | $                        | 6,943   |   |      | $ | 8,910   |  
|                                                                                  |  |                          |         |   |      |   |         |  
|                                                                                  |  |                         
|Income taxes paid                                                                 |  | $                        | 809     |   |      | $ | 1,002   |  
|                                                                                  |  |                          |         |   |      |   |         |  
|Non-cash investing activities                                                     |  |                          |         |   |      |   |         |  
|Transfers from loans to foreclosed real estate                                    |  | $                        | 24      |   |      | $ | 243     |  
|                                                                                  |  |                          |         |   |      |   |         |  



|                                               |  |    |  | 
|---------------------------------------------- |  | -- |  | 
|See notes to consolidated financial statements |  | 14 |  | 





---

FIRST COMMUNITY FINANCIAL CORPORATION



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1
- SIGNIFICANT ACCOUNTING POLICIES

First Community Financial Corporation (the
Corporation) through its wholly-owned subsidiary, The First National Bank of Mifflintown (the Bank), provides loan, deposit, trust and other related financial services through eleven full service banking offices in Juniata and Perry Counties of
Pennsylvania. The Corporations other subsidiary, First Community Financial Capital Trust I (the Trust), was established during December 2003 for the purpose of issuing $5,000,000 of trust preferred securities. The Corporation is subject
to regulation and supervision by the Federal Reserve Board and the Bank is subject to regulation and supervision by the Office of the Comptroller of the Currency.

Principles of Consolidation

The consolidated financial statements include
the accounts of the Corporation, and its wholly-owned subsidiaries, the Bank and the Trust. In consolidation, significant intercompany accounts and transactions between the Bank and the Corporation have been eliminated. The Trust qualifies as a
variable interest entity and is accounted for under the provisions of GAAP. The subordinated debt of the Trust is reflected as a liability of the Corporation.

Subsequent Events

The Corporation has evaluated events and transactions
occurring subsequent to the balance sheet date of December 31, 2010, for items that should potentially be recognized or disclosed in these financial statements. The evaluation was conducted through the date these financial statements were
issued.

Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet dates, and the reported amounts of income and expenses for the years then ended. Actual results could differ from those
estimates. The material estimates that are particularly susceptible to significant change in the near term are the determination of the allowance for loan losses, the evaluation of other-than-temporary impairment of securities, foreclosed real
estate and deferred tax assets.

Trust Assets

Assets held by the Trust Department in an agency or fiduciary capacity for its customers are excluded from the consolidated financial statements since they do not constitute assets of the Corporation. The
market value of assets held by the Trust Department amounted to $108,223,000 and $112,767,000 at December 31, 2010 and 2009, respectively. Income from fiduciary activities is recognized on the accrual method.

Significant Group Concentrations of Credit Risk

Most of the Corporations activities are with customers located within the Central Pennsylvania region. Note 3 discusses the types of securities that the Corporation invests in. Note 4 discusses the
types of lending that the Corporation engages in. The Corporation does not have any significant concentrations in any one industry or customer.



15





---

FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)



Cash and Cash Equivalents

Cash and cash equivalents includes cash and due from banks, interest bearing demand deposits, federal funds sold and investments with an
original maturity of 90 days or less. Federal funds are typically purchased and sold for one day periods. At times, the Corporation may have due from bank balances with its correspondent banks that exceed the federally insured limits.

Securities

Management
determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Securities available for sale are those securities that the Corporation intends to hold for an
indefinite period of time, but not necessarily to maturity. Any decision to sell an available for sale security would be based on various factors. These securities are stated at fair value. Unrealized gains (losses) are reported as changes in other
comprehensive income, a component of shareholders equity, net of the related deferred tax effect. Premiums and discounts are recognized as interest income over the estimated lives of the securities, using the interest method. Securities held
to maturity are those securities that the Corporation has the intent and ability to hold to maturity. These securities are stated at cost adjusted for amortization of premiums and accretion of discounts, which is recognized as interest income over
their estimated lives, using the interest method. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Effective April 1, 2009, the Corporation adopted new accounting guidance related to recognition and presentation of
other-than-temporary impairment (FASB ASC 320-10). This recent accounting guidance amends the recognition guidance for other-than-temporary impairments of debt securities and expands the financial statement disclosures for other-than-temporary
impairment losses on debt and equity securities. The recent guidance replaced the intent and ability indication in current guidance by specifying that (a) if a company does not have the intent to sell a security prior to recovery
and (b) it is more likely than not that it will not have to sell the security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the
security, and it is more likely than not, the entity will not have to sell the security before the recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the
remaining portion in other comprehensive income. For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment
should be amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security. The adoption of this standard did not have a material impact on the Corporations consolidated
financial statements.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and
more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects
of the issuer, and (3) for equity securities, the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Time Certificates of Deposit

Time certificates of deposit are carried at cost, which approximates fair value.



16





---

FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)



Loans

The Bank grants commercial, residential and consumer loans to customers primarily within Juniata and Perry Counties of Pennsylvania and the surrounding area. A large portion of the loan portfolio is
secured by real estate. Although the Bank has a diversified loan portfolio, its debtors ability to honor their contracts is influenced by the regions economy.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan
losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of related costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The
Corporation is generally amortizing these amounts over the contractual life of the loan.

The accrual of interest is generally
discontinued when the contractual payment of principal or interest has become 90 to 120 days past due or management has serious doubts about further collectibility of principal or interest, even though the loan is currently performing. A loan may
remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in
prior years is charged against the allowance for loan losses. Interest received on non-accrual loans generally is either applied against principal or reported as interest income, according to managements judgment as to the collectibility of
principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual
principal and interest is no longer in doubt.

Allowance for Loan Losses

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible
are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The
allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Managements periodic evaluation of the adequacy of the allowance is based on the Corporations past loan loss
experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and
other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans.

Loans are risk rated by a universal bank grading system, (1-9), endorsed by federal agencies. Level 1 is a loan with minimal
risk, 2  moderate risk, 3  average risk, 4  acceptable risk, 5  marginally acceptable risk (grades 1  5 are considered pass loans), 6  Other Assets Especially Mentioned, (potential weaknesses identified), 7 
Substandard (well defined weaknesses), 8  Doubtful, (unlikely to be paid in full), 9  Loss, (will not be paid in full).

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash
flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value for that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative
factors. Individual portfolio segments are evaluated on a rolling quarterly basis that values internal and external qualitative factors including: historical losses; trends in loan volume and mix, past due loans, watch and criticized loans and
economic factors; and changes in lending personnel, underwriting processes, underlying collateral and loan policies.



17





---

FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)



Allowance for Loan Losses (Continued)



A commercial loan is considered impaired when, based on current information and events,
it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include
payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the
borrowers prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial, financial and agricultural loans by either the present value of
expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price or the fair value of the collateral if the loan is collateral dependent.

A Troubled Debt Restructuring, (TDR), identification process has been established to determine whether a debtor is experiencing financial
difficulty and, if so, whether the Bank has granted a concession to the borrower by modifying their loan. Then, mitigating factors are evaluated to determine a final conclusion as to whether the loan is a restructured troubled debt.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not
separately identify individual installment and residential loans for impairment disclosures unless such loans are the subject of a restructuring agreement.

Restricted Investment in Bank Stocks

Restricted investment in bank stocks
represents required investments in the common stock of correspondent banks, consisting of the Federal Reserve Bank of Philadelphia in the amount of $258,500, Atlantic Central Bankers Bank in the amount of $20,000, and the Federal Home Loan Bank
(FHLB) of Pittsburgh in the amount of $2,262,900. No readily available market exists for these stocks. These restricted investments are carried at cost. In December 2008, the FHLB of Pittsburgh notified member banks that it was suspending dividend
payments and the repurchase of capital stock. In 2010 the FHLB of Pittsburgh began repurchasing excess stock held at member institutions.

Management evaluates the restricted stock for impairment in accordance with FASB ASC Topic 942, Financial Services  Depository and Lending. Managements determination of whether these
investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is
influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make
payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the
FHLB.



18





---

FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)



Restricted Investment in Bank Stocks (Continued)



Management believes no impairment charge is necessary related to its restricted stock as
of December 31, 2010.

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation 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 or the lease terms. Maintenance and repairs are expensed when incurred and expenditures for significant improvements are capitalized.

Foreclosed Real Estate

Foreclosed real estate includes assets acquired through foreclosure and loans identified as in-substance foreclosures. A loan is
classified as in-substance foreclosure when the Corporation has taken possession of the collateral regardless of whether formal foreclosure proceedings have taken place. Foreclosed real estate is initially valued at its estimated fair market value,
net of selling costs, at the time of foreclosure, establishing the propertys new basis. Subsequent to foreclosure, valuations are periodically performed by management and the foreclosed assets are carried at the lower of carrying amount or
fair value less cost to sell. Gains and losses resulting from the sale or write-down of foreclosed real estate are recorded in other income, and revenues and expenses from operations and any changes in the valuation allowance are included in
noninterest expense. Foreclosed real estate, which is included in other assets, amounted to $133,000 at December 31, 2010 and $122,000 in 2009.

Transfers of Financial Assets

Transfers of financial assets are accounted
for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them
before their maturity.

Advertising Costs

The Corporation charges the costs of advertising to expense as incurred. Advertising expense was $107,000 and $99,000 for the years ended December 31, 2010 and 2009, respectively.

Income Taxes

Deferred
income taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance, when in the opinion of management, it is more likely than not that some portion or all the deferred tax
assets will not be realized. Deferred tax assets and liabilities are adjusted through the provision for income taxes for the effects of changes in tax laws and rates on the date of enactment.



19





---

FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)



Earnings per Share

The Corporation has a simple capital structure. Basic earnings per share represents net income divided by the weighted average number of common shares outstanding during the period. The weighted average
number of common shares outstanding was 1,401,885 and 1,399,459 for the years ended 2010 and 2009.

Segment Reporting

Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial, retail, trust and
other operations of the Corporation. As such, discrete financial information is not available and segment reporting would not be meaningful.

Comprehensive Income

Accounting principles generally accepted in the United States of America generally require that recognized revenue, expenses, gains and
losses be included in net income. Changes in certain assets and liabilities, such as unrealized gains (losses) on securities available for sale, are reported as a separate component of the equity section of the balance sheet. Such items, along with
net income, are components of comprehensive income.

The components of other comprehensive income and the related tax effects are as follows:



|                                                             |  |                          |      |   |      |   |       |  
|------------------------------------------------------------ |  | ------------------------ | ---- | - | ---- | - | ----- | -
|                                                             |  | Years Ended December 31, |     
|                                                             |  | 2010                     |      |   | 2009 |  
|                                                             |  | (In Thousands)           |     
|                                                             |  |                         
|Unrealized holding gains on available for sale securities    |  | $                        | 346  |   |      | $ | 1,226 |  
|Reclassification adjustment for gains realized in net income |  |                          | (182 | ) |      |   | (459  | )
|                                                             |  |                          |      |   |      |   |       |  
|                                                             |  |                         
|Net Unrealized Gains                                         |  |                          | 164  |   |      |   | 767   |  
|                                                             |  |                         
|Tax effect                                                   |  |                          | (60  | ) |      |   | (257  | )
|                                                             |  |                          |      |   |      |   |       |  
|                                                             |  |                         
|Net of Tax Amount                                            |  | $                        | 104  |   |      | $ | 510   |  
|                                                             |  |                          |      |   |      |   |       |  

Loans Serviced

The Bank administers secondary market mortgage programs available through the Federal Home Loan Bank of Pittsburgh and offers residential mortgage products and services to customers. The Bank originates
single-family residential mortgage loans for immediate sale in the secondary market, and retains the servicing of those loans. At December 31, 2010 and 2009 the balance of loans serviced for others was $22,353,000 and $13,199,000 respectively.

Off Balance Sheet Financial Instruments

In the ordinary course of business, the Corporation has entered into off balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when they become payable.



20





---

FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)



Fair Value Measurements

Fair values of financial instruments are estimated using relevant information and assumptions, as more fully disclosed in Note 13. Fair value estimates involve uncertainties and matters of significant
judgment. Changes in assumptions or in market conditions would significantly affect the estimates.

Reclassifications

Certain reclassifications have been made to prior period balances to conform to the current year presentation.

New and Recently Adopted Accounting Pronouncements

In June 2009, the FASB issued new guidance relating to the accounting for transfers of financial assets. The new guidance, which was issued as SFAS No. 166, Accounting for Transfers of Financial
Assets, an amendment to SFAS No. 140, was adopted into Codification in December 2009 through the issuance of Accounting Standards Updated (ASU) 2009-16. The new standard provides guidance to improve the relevance,
representational faithfulness, and comparability of the information that an entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows;
and a transferors continuing involvement, if any, in transferred financial assets. ASU 2009-16 was effective for periods after January 1, 2010. The Corporation adopted the new guidance in 2010 and it did not have a material impact on its
consolidated financial statements.

In June 2009, the FASB issued new guidance relating to the variable interest entities. The
new guidance, which was issued as SFAS No. 167, Amendments to FASB Interpretation No. 46(R), was adopted into Codification in December 2009. The objective of the guidance is to improve financial reporting by enterprises involved with
variable interest entities and to provide more relevant and reliable information to users of financial statements. SFAS No. 167 was effective as of January 1, 2010. The adoption of the new guidance did not have a material impact on the
Corporations consolidated financial statements.

In October 2009, the FASB issued ASU 2009-15, Accounting for Own-Share
Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. ASU 2009-15 amends Subtopic 470-20 to expand accounting and reporting guidance for own-share lending arrangements issued in contemplation of convertible debt
issuance. ASU 2009-15 is effective for fiscal years beginning on or after December 15, 2009 and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The adoption of ASU 2009-15 did
not have a material impact on the Corporations consolidated financial statements.

In January 2010, the FASB issued ASU
2010-04, Accounting for Various Topics  Technical Corrections to SEC Paragraphs. ASU 2010-04 makes technical corrections to existing SEC guidance including the following topics: accounting for subsequent investments, termination of an interest
rate swap, issuance of financial statements - subsequent events, use of residential method to value acquired assets other than goodwill, adjustments in assets and liabilities for holding gains and losses, and selections of discount rate used for
measuring defined benefit obligation. The adoption of ASU 2010-04 did not have a material impact on the Corporations consolidated financial statements.



21





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)



New and Recently Adopted Accounting Pronouncements (Continued)



In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures, and includes conforming amendments to guidance on employers disclosures
about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in
Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of ASU 2010-06 did not have a material impact on the
Corporations consolidated financial statements.

In February 2010, the FASB issued ASU 2010-09, Subsequent Events
(Topic 855): Amendments to Certain Recognition and Disclosure Requirements. ASU 2010-09 addresses both the interaction of the requirements of Topic 855 with the SECs reporting requirements and the intended breadth of the reissuance
disclosures provisions related to subsequent events. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. ASU 2010-09 is effective immediately. The adoption of the new guidance did
not have a material impact on the Corporations consolidated financial statements.

In July 2010, the FASB issued ASU
2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The new disclosure guidance will significantly expand the existing requirements and will lead to greater transparency into a
companys exposure to credit losses from lending arrangements. The extensive new disclosures of information as of the end of a reporting period will become effective for both interim and annual reporting periods ending after December 15,
2010. Specific items regarding activity that occurred before the issuance of the ASU, such as the allowance rollforward and modification disclosures, will be required for periods beginning after December 15, 2010. The Corporation has included
the required disclosures in its consolidated financial statements.

On September 15, 2010, the SEC issued Release
No. 33-9142, Internal Control Over Financial Reporting In Exchange Act Periodic Reports of Non-Accelerated Filers. This release issued a final rule adopting amendments to its rules and forms to conform them to Section 404(c) of
the Sarbanes-Oxley Act of 2002 (SOX), as added by Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act. SOX Section 404(c) provides that Section 404(b) shall not apply with respect to any audit report prepared
for an issuer that is neither an accelerated filer nor a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934. Release No. 33-9142 was effective September 21, 2010.

On September 17, 2010, the SEC issued Release No. 33-9144, Commission Guidance on Presentation of Liquidity and Capital
Resources Disclosures in Managements Discussion and Analysis. This interpretive release is intended to improve discussion of liquidity and capital resources in Managements Discussion and Analysis of Financial Condition and Results
of Operations in order to facilitate understanding by investors of the liquidity and funding risks facing the registrant. This release was issued in conjunction with a proposed rule, Short-Term Borrowings Disclosures, that would require
public companies to disclose additional information to investors about their short-term borrowing arrangements. Release No. 33-9144 was effective on September 28, 2010.



22





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)



New and Recently Adopted Accounting Pronouncements (Continued)



In January 2011, the FASB issued ASU 2011-01, Deferral of the Effective Date of
Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The amendments in this ASU temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU 2010-20 for public entities. The delay is
intended to allow the FASB time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what
constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011.

In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations.
The guidance requires pro forma disclosure for business combinations that occurred in the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual
reporting period. If comparative financial statements are presented, the pro forma information should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the
comparable prior annual reporting period. ASU 2010-29 is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early
adoption is permitted. The adoption of the new guidance is not expected to have a material impact on the Corporations consolidated financial statements.

In December 2010, the FASB issued ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this ASU
modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a
goodwill impairment exists. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of the new
guidance is not expected to have a material impact on the Corporations consolidated financial statements. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after
December 15, 2011. Nonpublic entities may early adopt the amendments using the effective date for public entities. The adoption of the new guidance is not expected to have a material impact on the Corporations consolidated financial
statements.

The SEC has issued Final Rule No. 33-9002, Interactive Data to Improve Financial Reporting, which requires
companies to submit financial statements in XBRL (extensible business reporting language) format with their SEC filings on a phased-in schedule. Large accelerated filers and foreign large accelerated filers using U.S. GAAP were required to provide
interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2010. All remaining filers are required to provide interactive data reports starting with their first quarterly report for fiscal
periods ending on or after June 15, 2011.

NOTE 2 - RESTRICTIONS ON CASH
AND DUE FROM BANKS

In return for services obtained through
correspondent banks, the Corporation is required to maintain non-interest bearing cash balances in those correspondent banks. At December 31, 2010 and 2009, compensating balances approximated $1,607,000 and $1,779,000, respectively. During 2010
average required balances totaled $1,605,000 and during 2009 totaled $1,833,000.



23





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3 - SECURITIES

Amortized cost and fair value of securities at December 31 were as follows:



|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|------------------------------ |  | -------------- | ------ |  | -------------------- | - | ----- | --------------------- |  | - | --------- | - |  | - | ------ | 
|                               |  | AmortizedCost  |        |  | GrossUnrealizedGains |   |       | GrossUnrealizedLosses |  |   | FairValue |  
|                               |  | (In Thousands) |       
|                               |  |                |        | 
|SECURITIES AVAILABLE FOR SALE: |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|December 31, 2010:             |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|U.S. Government agencies       |  | $              | 9,738  |  |                      | $ | 180   |                       |  | $ |          |   |  | $ | 9,918  | 
|Mortgage-backed securities     |  |                | 63,102 |  |                      |   | 1,599 |                       |  |   | (41       | ) |  |   | 64,660 | 
|Equity securities              |  |                | 661    |  |                      |   | 388   |                       |  |   |          |   |  |   | 1,049  | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|                               |  |                |        | 
|Total                          |  | $              | 73,501 |  |                      | $ | 2,167 |                       |  | $ | (41       | ) |  | $ | 75,627 | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|                               |  |                |        | 
|December 31, 2009:             |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|U.S. Government agencies       |  | $              | 12,195 |  |                      | $ | 74    |                       |  | $ | (38       | ) |  | $ | 12,231 | 
|Mortgage-backed securities     |  |                | 66,619 |  |                      |   | 1,687 |                       |  |   | (72       | ) |  |   | 68,234 | 
|Equity securities              |  |                | 661    |  |                      |   | 311   |                       |  |   |          |   |  |   | 972    | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|                               |  |                |        | 
|Total                          |  | $              | 79,475 |  |                      | $ | 2,072 |                       |  | $ | (110      | ) |  | $ | 81,437 | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|                               |  |                |        | 
|                               |  | AmortizedCost  |        |  | GrossUnrealizedGains |   |       | GrossUnrealizedLosses |  |   | FairValue |  
|                               |  | (In Thousands) |       
|                               |  |                |        | 
|SECURITIES HELD TO MATURITY:   |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|December 31, 2010:             |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|State and municipal securities |  | $              | 31,872 |  |                      | $ | 363   |                       |  | $ | (1,259    | ) |  | $ | 30,976 | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|                               |  |                |        | 
|Total                          |  | $              | 31,872 |  |                      | $ | 363   |                       |  | $ | (1,259    | ) |  | $ | 30,976 | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|                               |  |                |        | 
|                               |  | AmortizedCost  |        |  | GrossUnrealizedGains |   |       | GrossUnrealizedLosses |  |   | FairValue |  
|                               |  | (In Thousands) |       
|December 31, 2009:             |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|U.S. Government agencies       |  | $              | 250    |  |                      | $ | 11    |                       |  | $ |          |   |  | $ | 261    | 
|State and municipal securities |  |                | 29,954 |  |                      |   | 374   |                       |  |   | (874      | ) |  |   | 29,454 | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 
|                               |  |                |        | 
|Total                          |  | $              | 30,204 |  |                      | $ | 385   |                       |  | $ | (874      | ) |  | $ | 29,715 | 
|                               |  |                |        |  |                      |   |       |                       |  |   |           |   |  |   |        | 



24





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3 - SECURITIES (CONTINUED)



The following table shows the Corporations investments gross unrealized losses and fair
value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2010 and 2009:



|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|------------------------------ |  | ------------------- | ------ |  | ----------------- | - | --- | --------- |  | - | ---------------- |  |  | --------- | --- |  | ---------------- | - | ------ |  |  | - | ----- | 
|                               |  | Less than 12 Months |        |  | 12 Months or More |   |     | Total     | 
|                               |  | FairValue           |        |  | UnrealizedLosses  |   |     | FairValue |  |   | UnrealizedLosses |  |  | FairValue |     |  | UnrealizedLosses |  
|                               |  | (In Thousands)      |       
|DECEMBER 31, 2010              |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |        |  |                   |  
|SECURITIES AVAILABLE FOR SALE: |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |        |  |                   |  
|Mortgage-backed securities     |  | $                   | 8,744  |  |                   | $ | 41  |           |  | $ |                 |  |  | $         |    |  |                  | $ | 8,744  |  |  | $ | 41    | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |        |  |                   |  
|Total                          |  |                     | 8,744  |  |                   |   | 41  |           |  |   |                 |  |  |           |    |  |                  |   | 8,744  |  |  |   | 41    | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |        |  |                   |  
|SECURITIES HELD TO MATURITY:   |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|State and municipal securities |  |                     | 15,135 |  |                   |   | 530 |           |  |   | 2,280            |  |  |           | 729 |  |                  |   | 17,415 |  |  |   | 1,259 | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |        |  |                   |  
|Total                          |  | $                   | 23,879 |  |                   | $ | 571 |           |  | $ | 2,280            |  |  | $         | 729 |  |                  | $ | 26,159 |  |  | $ | 1,300 | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |       
|                               |  | Less than 12 Months |        |  | 12 Months or More |   |     | Total     | 
|                               |  | FairValue           |        |  | UnrealizedLosses  |   |     | FairValue |  |   | UnrealizedLosses |  |  | FairValue |     |  | UnrealizedLosses |  
|                               |  | (In Thousands)      |       
|DECEMBER 31, 2009              |  |                     |        | 
|                               |  |                     |        |  |                   |  
|SECURITIES AVAILABLE FOR SALE: |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |        |  |                   |  
|Mortgage-backed securities     |  | $                   | 7,797  |  |                   | $ | 71  |           |  | $ | 215              |  |  | $         | 1   |  |                  | $ | 8,012  |  |  | $ | 72    | 
|U.S. agency securities         |  |                     | 4,872  |  |                   |   | 38  |           |  |   |                 |  |  |           |    |  |                  |   | 4,872  |  |  |   | 38    | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |        |  |                   |  
|Total                          |  |                     | 12,669 |  |                   |   | 109 |           |  |   | 215              |  |  |           | 1   |  |                  |   | 12,884 |  |  |   | 110   | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |        |  |                   |  
|SECURITIES HELD TO MATURITY:   |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|State and municipal securities |  |                     | 7,479  |  |                   |   | 119 |           |  |   | 4,648            |  |  |           | 755 |  |                  |   | 12,127 |  |  |   | 874   | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 
|                               |  |                     |        |  |                   |  
|Total                          |  | $                   | 20,148 |  |                   | $ | 228 |           |  | $ | 4,863            |  |  | $         | 756 |  |                  | $ | 25,011 |  |  | $ | 984   | 
|                               |  |                     |        |  |                   |   |     |           |  |   |                  |  |  |           |     |  |                  |   |        |  |  |   |       | 



25





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3 - SECURITIES (CONTINUED)



At December 31, 2010, 9 mortgage-backed securities have unrealized losses. The aggregate
depreciation from the Corporations amortized cost basis on these securities is 0.5%. In managements opinion, these unrealized losses relate to changes in interest rates. The Corporations mortgage backed security portfolio consists
of only government sponsored agencies, and contains no private label securities.

At December 31, 2010, 59 state and municipal securities
have unrealized losses with aggregate depreciation of 6.7% from the Corporations amortized cost basis. In managements opinion, these unrealized losses relate to changes in interest rates. In analyzing the issuers financial
condition, management considers the issuers bond rating as well as the financial performance of the respective municipality.

Management
of the Corporation has determined none of the debt securities have declines that are deemed to be other-than-temporary.

Proceeds from sales
of securities available for sale for the years ended December 31, 2010 and 2009, were $ 3,614,000 and $8,981,000 respectively.

Gross
realized gains and losses for the twelve months ending December 31, 2010 and 2009 were as follows:



|                           |  |                    |     |  |                     |   |    |                   |  |   |     |  
|-------------------------- |  | ------------------ | --- |  | ------------------- | - | -- | ----------------- |  | - | --- | -
|                           |  | GrossRealizedGains |     |  | GrossRealizedLosses |   |    | Net Gains(Losses) | 
|                           | 
|                           |  | (In Thousands)     |    
|December 31, 2010:         |  |                    |     |  |                     |   |    |                   |  |   |     |  
|Mortgage-backed securities |  | $                  | 182 |  |                     | $ |   |                   |  | $ | 182 |  
|                           |  |                    |     |  |                     |   |    |                   |  |   |     |  
|                           |  |                    |    
|Total                      |  | $                  | 182 |  |                     | $ |   |                   |  | $ | 182 |  
|                           |  |                    |     |  |                     |   |    |                   |  |   |     |  
|                           |  |                    |    
|December 31, 2009:         |  |                    |     |  |                     |   |    |                   |  |   |     |  
|Mortgage-backed securities |  | $                  | 340 |  |                     | $ |   |                   |  | $ | 340 |  
|U. S. agency securities    |  |                    | 134 |  |                     |   |   |                   |  |   | 134 |  
|Equity securities          |  |                    |    |  |                     |   | 15 |                   |  |   | (15 | )
|                           |  |                    |     |  |                     |   |    |                   |  |   |     |  
|                           |  |                    |    
|Total                      |  | $                  | 474 |  |                     | $ | 15 |                   |  | $ | 459 |  
|                           |  |                    |     |  |                     |   |    |                   |  |   |     |  



26





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3 - SECURITIES (CONTINUED)



Amortized cost and fair value at December 31, 2010 by contractual maturity are shown below.
Municipal securities with prerefunded issues are included in the category in which payment is expected to occur. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay with or without
penalties.



|                              |  |                    |        |  |                  |   |        |               |  |   |           |  |  |   |        | 
|----------------------------- |  | ------------------ | ------ |  | ---------------- | - | ------ | ------------- |  | - | --------- |  |  | - | ------ | 
|                              |  | Available for Sale |        |  | Held to Maturity |  
|                              |  | AmortizedCost      |        |  | FairValue        |   |        | AmortizedCost |  |   | FairValue | 
|                              |  | (In Thousands)     |       
|1 year or less                |  | $                  | 2,506  |  |                  | $ | 2,520  |               |  | $ | 1,555     |  |  | $ | 1,559  | 
|Over 1 year through 5 years   |  |                    | 7,232  |  |                  |   | 7,398  |               |  |   | 6,207     |  |  |   | 6,131  | 
|Over 5 years through 10 years |  |                    |       |  |                  |   |       |               |  |   | 13,071    |  |  |   | 13,004 | 
|Over 10 years                 |  |                    |       |  |                  |   |       |               |  |   | 11,039    |  |  |   | 10,282 | 
|Mortgage-backed securities    |  |                    | 63,102 |  |                  |   | 64,660 |               |  |   |          |  |  |   |       | 
|Equity securities             |  |                    | 661    |  |                  |   | 1,049  |               |  |   |          |  |  |   |       | 
|                              |  |                    |        |  |                  |   |        |               |  |   |           |  |  |   |        | 
|                              |  |                    |        | 
|Total                         |  | $                  | 73,501 |  |                  | $ | 75,627 |               |  | $ | 31,872    |  |  | $ | 30,976 | 
|                              |  |                    |        |  |                  |   |        |               |  |   |           |  |  |   |        | 

At December 31, 2010 and 2009, securities with a carrying value of $46,840,000 and $34,700,000, respectively, were
pledged as collateral as required by law on public deposits and for other purposes.

NOTE 4 - LOANS

Allowance for loan losses and loans receivable at December 31, 2010 is as follows:

Allowance for Loan Losses:



|                                                    |  |                |     |  |                       |   |     |          |  |   |             |  |  |       |     |  |  |   |       | 
|--------------------------------------------------- |  | -------------- | --- |  | --------------------- | - | --- | -------- |  | - | ----------- |  |  | ----- | --- |  |  | - | ----- | 
|                                                    |  | Commercial     |     |  | CommercialReal Estate |   |     | Consumer |  |   | Residential |  |  | Total |    
|                                                    |  | (In Thousands) |    
|Allowance for individually evaluated for impairment |  | $              | 11  |  |                       | $ | 4   |          |  | $ |            |  |  | $     |    |  |  | $ | 15    | 
|                                                    |  |                |     |  |                      
|Allowance for collectively evaluated for impairment |  |                | 719 |  |                       |   | 626 |          |  |   | 92          |  |  |       | 702 |  |  |   | 2,139 | 
|                                                    |  |                |     |  |                       |   |     |          |  |   |             |  |  |       |     |  |  |   |       | 
|                                                    |  |                |     |  |                      
|Total allowance for loan losses                     |  | $              | 730 |  |                       | $ | 630 |          |  | $ | 92          |  |  | $     | 702 |  |  | $ | 2,154 | 
|                                                    |  |                |     |  |                       |   |     |          |  |   |             |  |  |       |     |  |  |   |       | 



27





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 4 - LOANS (CONTINUED)



Loans Receivable:



|                                      |  |                |        |  |                       |   |        |          |  |   |             |  |  |       |         |  |  |   |         | 
|------------------------------------- |  | -------------- | ------ |  | --------------------- | - | ------ | -------- |  | - | ----------- |  |  | ----- | ------- |  |  | - | ------- | 
|                                      |  | Commercial     |        |  | CommercialReal Estate |   |        | Consumer |  |   | Residential |  |  | Total |        
|                                      |  | (In Thousands) |       
|                                      |  |                |        |  |                      
|Individually evaluated for impairment |  | $              | 111    |  |                       | $ | 186    |          |  | $ |            |  |  | $     |        |  |  | $ | 297     | 
|                                      |  |                |        |  |                      
|Collectively evaluated for impairment |  |                | 74,166 |  |                       |   | 43,680 |          |  |   | 6,655       |  |  |       | 113,798 |  |  |   | 238,299 | 
|                                      |  |                |        |  |                       |   |        |          |  |   |             |  |  |       |         |  |  |   |         | 
|                                      |  |                |        |  |                      
|Total loans                           |  | $              | 74,277 |  |                       | $ | 43,866 |          |  | $ | 6,655       |  |  | $     | 113,798 |  |  | $ | 238,596 | 
|                                      |  |                |        |  |                       |   |        |          |  |   |             |  |  |       |         |  |  |   |         | 

Loans at December 31, 2009 were as follows (in thousands):



|                                       |  |      |         | 
|-------------------------------------- |  | ---- | ------- | 
|                                       |  | 2009 |        
|                                       | 
|Commercial, financial and agricultural |  | $    | 32,369  | 
|Real estate:                           |  |      |         | 
|Commercial                             |  |      | 37,842  | 
|Construction                           |  |      | 5,057   | 
|Residential                            |  |      | 139,055 | 
|Installment                            |  |      | 5,339   | 
|                                       |  |      |         | 
|                                       | 
|Total Loans                            |  | $    | 219,662 | 
|                                       |  |      |         | 

Changes in the allowance for loan losses were as follows:



|                                |  |                |        |   |      |   |       |  
|------------------------------- |  | -------------- | ------ | - | ---- | - | ----- | -
|                                |  | 2010           |        |   | 2009 |  
|                                |  | (In Thousands) |       
|                                |  |               
|Balance, beginning              |  | $              | 2,830  |   |      | $ | 1,633 |  
|Provision charged to operations |  |                | 336    |   |      |   | 1,237 |  
|Recoveries on charged off loans |  |                | 24     |   |      |   | 1     |  
|Loans charged off               |  |                | (1,036 | ) |      |   | (41   | )
|                                |  |                |        |   |      |   |       |  
|                                |  |               
|Balance, ending                 |  | $              | 2,154  |   |      | $ | 2,830 |  
|                                |  |                |        |   |      |   |       |  



28





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 4 - LOANS (CONTINUED)



Analysis of credit quality indicators at December 31, 2010 is as follows:



|                |  |                |        |  |                       |   |        |          |  |   |             |  |  |       |         |  |  |   |         | 
|--------------- |  | -------------- | ------ |  | --------------------- | - | ------ | -------- |  | - | ----------- |  |  | ----- | ------- |  |  | - | ------- | 
|                |  | Commercial     |        |  | CommercialReal Estate |   |        | Consumer |  |   | Residential |  |  | Total |        
|                |  | (In Thousands) |       
|Pass            |  | $              | 71,419 |  |                       | $ | 40,292 |          |  | $ | 6,644       |  |  | $     | 113,139 |  |  | $ | 231,494 | 
|Special Mention |  |                | 2,104  |  |                       |   | 1,169  |          |  |   |            |  |  |       |        |  |  |   | 3,273   | 
|Substandard     |  |                | 754    |  |                       |   | 2,405  |          |  |   | 11          |  |  |       | 659     |  |  |   | 3,829   | 
|Doubtful        |  |                |       |  |                       |   |       |          |  |   |            |  |  |       |        |  |  |   |        | 
|Loss            |  |                |       |  |                       |   |       |          |  |   |            |  |  |       |        |  |  |   |        | 
|                |  |                |        |  |                       |   |        |          |  |   |             |  |  |       |         |  |  |   |         | 
|                |  |                |        |  |                      
|Total loans     |  | $              | 74,277 |  |                       | $ | 43,866 |          |  | $ | 6,655       |  |  | $     | 113,798 |  |  | $ | 238,596 | 
|                |  |                |        |  |                       |   |        |          |  |   |             |  |  |       |         |  |  |   |         | 

The following is a summary of impaired loans as of December 31, 2010:



|                                  |  |                    |     |  |                        |   |     |                  |  |   |                           |  |  |                          |     |  |  |   |    | 
|--------------------------------- |  | ------------------ | --- |  | ---------------------- | - | --- | ---------------- |  | - | ------------------------- |  |  | ------------------------ | --- |  |  | - | -- | 
|                                  |  | RecordedInvestment |     |  | UnpaidPrincipalBalance |   |     | RelatedAllowance |  |   | AverageRecordedInvestment |  |  | InterestIncomeRecognized |    
|                                  |  | (In Thousands)     |    
|With no specific allowance needed |  |                    |     |  |                        |   |     |                  |  |   |                           |  |  |                          |     |  |  |   |    | 
|Commercial                        |  | $                  | 93  |  |                        | $ | 93  |                  |  | $ |                          |  |  | $                        | 109 |  |  | $ | 8  | 
|Commercial real estate            |  |                    | 105 |  |                        |   | 105 |                  |  |   |                          |  |  |                          | 110 |  |  |   | 6  | 
|                                  |  |                    |     |  |                       
|With an allowance recorded        |  |                    |     |  |                        |   |     |                  |  |   |                           |  |  |                          |     |  |  |   |    | 
|Commercial                        |  |                    | 18  |  |                        |   | 18  |                  |  |   | 11                        |  |  |                          | 19  |  |  |   | 1  | 
|Commercial real estate            |  |                    | 81  |  |                        |   | 81  |                  |  |   | 4                         |  |  |                          | 81  |  |  |   | 6  | 
|                                  |  |                    |     |  |                       
|Total                             |  |                    |     |  |                        |   |     |                  |  |   |                           |  |  |                          |     |  |  |   |    | 
|Commercial                        |  |                    | 111 |  |                        |   | 111 |                  |  |   | 11                        |  |  |                          | 128 |  |  |   | 9  | 
|Commercial real estate            |  |                    | 186 |  |                        |   | 186 |                  |  |   | 4                         |  |  |                          | 191 |  |  |   | 12 | 
|                                  |  |                    |     |  |                        |   |     |                  |  |   |                           |  |  |                          |     |  |  |   |    | 
|                                  |  |                    |     |  |                       
|Total                             |  | $                  | 297 |  |                        | $ | 297 |                  |  | $ | 15                        |  |  | $                        | 319 |  |  | $ | 21 | 
|                                  |  |                    |     |  |                        |   |     |                  |  |   |                           |  |  |                          |     |  |  |   |    | 

At December 31, 2010, one loan in the portfolio has been identified as a TDR. This loan, with a balance of $1,312,000,
is a commercial loan that is secured by real estate and other business assets. At this time, the loan is accruing interest and performing in accordance with its modified terms.



29





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 4 - LOANS (CONTINUED)



The following is a summary of information pertaining to impaired loans as of the year ended
December 31, 2009:



|                                              |  |   |       | 
|--------------------------------------------- |  | - | ----- | 
|Impaired loans without a valuation allowance  |  | $ | 243   | 
|                                              | 
|Impaired loans with a valuation allowance     |  |   | 2,410 | 
|                                              |  |   |       | 
|                                              | 
|Total Impaired Loans                          |  | $ | 2,653 | 
|                                              |  |   |       | 
|                                              | 
|Valuation allowance related to impaired loans |  | $ | 1,016 | 
|                                              |  |   |       | 
|                                              | 
|Average balance in impaired loans             |  | $ | 1,924 | 
|                                              |  |   |       | 
|                                              | 
|Interest income recognized on impaired loans  |  | $ | 115   | 
|                                              |  |   |       | 
|                                              | 
|Troubled debt restructuring                   |  | $ | 2,305 | 
|                                              |  |   |       | 

No additional funds are committed to be advanced in connection with impaired loans.

Age analysis of past-due loans at December 31, 2010 is as follows:



|                       |  |                |     |  |             |   |     |          |  |   |          |  |  |         |       |  |       |   |         |                 |  |   |             |  |  |             |   |  |  |   |   |  |  |   |       | 
|---------------------- |  | -------------- | --- |  | ----------- | - | --- | -------- |  | - | -------- |  |  | ------- | ----- |  | ----- | - | ------- | --------------- |  | - | ----------- |  |  | ----------- | - |  |  | - | - |  |  | - | ----- | 
|2010                   |  |                |     |  |             |   |     |          |  |   |          |  |  |         |       |  |       |   |         | Allowance       |  |   |             |  |  |             |  
|                       |  |                |     |  |             |   |     |          | 
|                       |  | 30 - 59Days    |     |  | 60 - 89Days |   |     | > 90Days |  |   | Total    |  |  |         |       |  | Total |   |         | ForCollectively |  |   | > 90Days    |  |  |             |  
|                       |  | Past Due       |     |  | Past Due    |   |     | Past Due |  |   | Past Due |  |  | Current |       |  | Loans |   |         | ImpairedLoans   |  |   | AndAccruing |  |  | Nonaccruals |  
|                       |  | (In Thousands) |    
|Commercial             |  | $              | 136 |  |             | $ |    |          |  | $ |         |  |  | $       | 136   |  |       | $ | 74,141  |                 |  | $ | 74,277      |  |  | $           |  |  |  | $ |  |  |  | $ | 111   | 
|Commercial Real Estate |  |                |    |  |             |   |    |          |  |   |         |  |  |         |      |  |       |   | 43,866  |                 |  |   | 43,866      |  |  |             |  |  |  |   |  |  |  |   | 239   | 
|Residential            |  |                | 539 |  |             |   | 109 |          |  |   | 208      |  |  |         | 856   |  |       |   | 112,942 |                 |  |   | 113,798     |  |  |             |  |  |  |   |  |  |  |   | 649   | 
|Consumer               |  |                | 99  |  |             |   | 29  |          |  |   | 17       |  |  |         | 145   |  |       |   | 6,510   |                 |  |   | 6,655       |  |  |             |  |  |  |   |  |  |  |   | 17    | 
|                       |  |                |     |  |             |   |     |          |  |   |          |  |  |         |       |  |       |   |         |                 |  |   |             |  |  |             |   |  |  |   |   |  |  |   |       | 
|                       |  |                |     |  |             |   |     |          | 
|Total                  |  | $              | 774 |  |             | $ | 138 |          |  | $ | 225      |  |  | $       | 1,137 |  |       | $ | 237,459 |                 |  | $ | 238,596     |  |  | $           |  |  |  | $ |  |  |  | $ | 1,016 | 
|                       |  |                |     |  |             |   |     |          |  |   |          |  |  |         |       |  |       |   |         |                 |  |   |             |  |  |             |   |  |  |   |   |  |  |   |       | 

Non performing loans at December 31, 2009 were as follows (in thousands):



|                                                  |  |   |       | 
|------------------------------------------------- |  | - | ----- | 
|Non accrual loans                                 |  | $ | 4,254 | 
|Loans 90 days or more past due and still accruing |  |   |      | 
|                                                  |  |   |       | 
|                                                  | 
|Total non performing loans                        |  | $ | 4,254 | 
|                                                  |  |   |       | 

Amounts of foregone interest on nonaccrual loans were $13,000 and $143,000 for the years ended December 31, 2010 and
2009, respectively. The Corporation collected $21,000 and $115,000 of interest payments on nonaccrual loans during the years ended December 31, 2010 and 2009, respectively.



30





---

FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 4 - LOANS (CONTINUED)



The Corporation, in the ordinary course of business, has loan, deposit and other routine transactions
with its officers, directors and principal shareholders and entities in which they have principal ownership. Loans are made to such customers at the same credit terms as other borrowers and do not represent more than the usual risk of collection.
Changes during 2010 and 2009 in these related party loans were as follows (in thousands):



|                   |  |      |        |   |      |   |        |  
|------------------ |  | ---- | ------ | - | ---- | - | ------ | -
|                   |  | 2010 |        |   | 2009 |  
|                   |  |     
|Balance, beginning |  | $    | 828    |   |      | $ | 962    |  
|Advances           |  |      | 1,027  |   |      |   | 1,323  |  
|Repayments         |  |      | (1,067 | ) |      |   | (1,457 | )
|                   |  |      |        |   |      |   |        |  
|                   |  |     
|Balance, ending    |  | $    | 788    |   |      | $ | 828    |  
|                   |  |      |        |   |      |   |        |  

NOTE 5 - PREMISES AND EQUIPMENT

Premises and equipment at December 31 were as follows:



|                                  |  |                      |        |  |                |   |        |      |  |   |        |  
|--------------------------------- |  | -------------------- | ------ |  | -------------- | - | ------ | ---- |  | - | ------ | -
|                                  |  | Range ofUseful Lives |        |  | 2010           |   |        | 2009 | 
|                                  |  | (in years)           |        |  | (In Thousands) |  
|                                  |  |                      |       
|Land                              |  |                      | -      |  |                | $ | 741    |      |  | $ | 741    |  
|Buildings and improvements        |  |                      | 7 - 39 |  |                |   | 7,631  |      |  |   | 7,631  |  
|Furniture, equipment and software |  |                      | 3 - 20 |  |                |   | 4,736  |      |  |   | 4,630  |  
|                                  |  |                      |        |  |                |   |        |      |  |   |        |  
|                                  |  |                      |       
|                                  |  |                      |        |  |                |   | 13,108 |      |  |   | 13,002 |  
|Accumulated depreciation          |  |                      |        |  |                |   | (7,306 | )    |  |   | (6,827 | )
|                                  |  |                      |        |  |                |   |        |      |  |   |        |  
|                                  |  |                      |       
|Premises and equipment, net       |  |                      |        |  |                | $ | 5,802  |      |  | $ | 6,175  |  
|                                  |  |                      |        |  |                |   |        |      |  |   |        |  

NOTE 6 - DEPOSITS

Deposits were comprised of the following as of December 31:



|                                    |  |                |         |  |      |   |         | 
|----------------------------------- |  | -------------- | ------- |  | ---- | - | ------- | 
|                                    |  | 2010           |         |  | 2009 |  
|                                    |  | (In Thousands) |        
|                                    |  |               
|Non-interest bearing demand         |  | $              | 31,910  |  |      | $ | 27,952  | 
|Interest bearing demand             |  |                | 27,205  |  |      |   | 24,452  | 
|Savings                             |  |                | 98,018  |  |      |   | 67,886  | 
|Time deposits less than $100,000    |  |                | 107,172 |  |      |   | 123,193 | 
|Time deposits greater than $100,000 |  |                | 53,544  |  |      |   | 52,976  | 
|                                    |  |                |         |  |      |   |         | 
|                                    |  |               
|Total                               |  | $              | 317,849 |  |      | $ | 296,459 | 
|                                    |  |                |         |  |      |   |         | 



31





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 6 - DEPOSITS (CONTINUED)



Scheduled maturities of time deposits at December 31, 2010 were as follows (in thousands):



|      |  |   |         | 
|----- |  | - | ------- | 
|2011  |  | $ | 74,475  | 
|2012  |  |   | 16,563  | 
|2013  |  |   | 30,034  | 
|2014  |  |   | 8,798   | 
|2015  |  |   | 30,846  | 
|      |  |   |         | 
|      | 
|Total |  | $ | 160,716 | 
|      |  |   |         | 

The following table sets forth maturity information on time deposits of $100,000 or more as of December 31, 2010 (in
thousands):



|                                   |  |   |        | 
|---------------------------------- |  | - | ------ | 
|Three months or less               |  | $ | 5,794  | 
|Over three and through six months  |  |   | 5,222  | 
|Over six and through twelve months |  |   | 10,716 | 
|Over twelve months                 |  |   | 31,812 | 
|                                   |  |   |        | 
|                                   | 
|Total                              |  | $ | 53,544 | 
|                                   |  |   |        | 

NOTE 7 - BORROWINGS

Short-term borrowings at December 31 were as follows:



|                                                        |  |                |       |   |      |   |       |  
|------------------------------------------------------- |  | -------------- | ----- | - | ---- | - | ----- | -
|                                                        |  | 2010           |       |   | 2009 |  
|                                                        |  | (In Thousands) |      
|                                                        |  |               
|Amount outstanding at end of year:                      |  |                |       |   |      |   |       |  
|Securities sold under agreements to repurchase          |  | $              | 3,930 |   |      | $ | 4,415 |  
|Federal funds purchased                                 |  |                |      |   |      |   |      |  
|Federal Home Loan Bank                                  |  |                |      |   |      |   |      |  
|Treasury tax and loan note                              |  |                | 100   |   |      |   | 97    |  
|                                                        |  |                |       |   |      |   |       |  
|                                                        |  |               
|Total                                                   |  | $              | 4,030 |   |      | $ | 4,512 |  
|                                                        |  |                |       |   |      |   |       |  
|                                                        |  |               
|Weighted average interest rate at end of year           |  |                | 1.17  | % |      |   | 1.14  | %
|Maximum amount outstanding at any end of month          |  | $              | 4,455 |   |      | $ | 6,440 |  
|Daily average amount outstanding                        |  |                | 4,521 |   |      |   | 4,612 |  
|Approximate weighted average interest rate for the year |  |                | 1.15  | % |      |   | 1.08  | %

Securities sold under agreements to
repurchase generally mature within one day from the transaction date. At December 31, 2010, securities with a carrying amount of $5,180,000 and a fair value of $5,198,000 were pledged as collateral for these agreements. At December 31,
2009, securities with a carrying amount of $6,633,000 and a fair value of $6,669,000 were pledged as collateral for these agreements. As of December 31, 2010, the interest rate on securities sold under agreements to repurchase was 1.18%. The
securities underlying the agreements were under the Corporations control.



32





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 7 - BORROWINGS (CONTINUED)



Long-term borrowings at December 31 were as follows:



|                                                                                                                                            |  |                |        |  |      |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                                                                                                                                            |  | 2010           |        |  | 2009 |  
|                                                                                                                                            |  | (In Thousands) |       
|Convertible advances:                                                                                                                       |  |                |        |  |      |   |        | 
|Maturing in 2010 with an initial fixed rates ranging from 5.91% to 6.54%, with a weighted average rate of 6.23% at December 31,
2009        |  | $              |       |  |      | $ | 6,000  | 
|Maturing in 2011 with an initial fixed rate of 4.98%                                                                                        |  |                | 1,000  |  |      |   | 1,000  | 
|Maturing in 2013 with an initial fixed rate of 3.11%                                                                                        |  |                | 5,000  |  |      |   | 5,000  | 
|Maturing in 2017 with initial fixed rates ranging from 4.30% to 4.60%, with a weighted average rate of 4.45% at December 31, 2010
and 2009. |  |                | 10,000 |  |      |   | 10,000 | 
|                                                                                                                                            |  |                |        |  |      |   |        | 
|                                                                                                                                            |  |               
|Total                                                                                                                                       |  | $              | 16,000 |  |      | $ | 22,000 | 
|                                                                                                                                            |  |                |        |  |      |   |        | 

Convertible advances allow the FHLB the periodic option to convert to a LIBOR adjustable-rate advance after the specified
fixed rate period has elapsed. At December 31, 2010, the FHLB has the option to convert advances to rates that range from three month LIBOR plus 0.07% to 0.13%, of which $11 million is eligible for the conversion option, but not exercised by
the FHLB, at December 31, 2010. The remaining $5 million is not eligible for conversion until 2011. Upon the FHLBs conversion option being exercised, the Bank has the option to repay the respective advance in full, without penalty.

The Corporation has a maximum borrowing capacity through the Federal Home Loan Bank of approximately $136,264,000, of which $120,264,000 was
available at December 31, 2010. The borrowing capacity is collateralized by security agreements in certain residential real estate backed assets of the Corporation, including loans and investments.

The Corporation has issued $5,155,000 of floating rate junior subordinated deferrable interest debentures to a non-consolidated subsidiary trust, First
Community Financial Capital Trust I (the Trust). The Corporation owns all of the common equity of the Trust. The debentures held by the trust are the sole assets of the trust.

The Trust issued $5,000,000 of mandatorily redeemable preferred securities to third-party investors. The Corporations obligations under the debentures and related documents, taken together,
constitute a full and unconditional guarantee by the Corporation of the Trusts obligations under the preferred securities. The junior subordinated debt securities pay interest quarterly at 3-month LIBOR plus 3.00%, (3.29% at December 31,
2010). Pursuant to the debenture agreement, the Corporation can elect to defer payments of interest for up to 20 consecutive quarterly periods, provided there is no event of default as defined in the indenture. The Corporation has not deferred any
quarterly interest payments through December 31, 2010. The preferred securities are redeemable quarterly by the Corporation at 100% of principal plus accrued interest on or after January 7, 2009. The preferred securities must be redeemed
upon maturity of the debentures on January 7, 2034. The terms of the junior subordinated deferrable interest debentures match those of the preferred securities.



33





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 8 - OPERATING LEASES

The Corporation leases its Delaware (Juniata County) and Shermans Dale offices and the land on which its East Waterford office was constructed. The
Corporation has an option through 2014 to purchase the land, for a predetermined price of $125,000. The Corporation also receives rental income for leasing of available space at its West Perry, Mifflintown and Loysville offices. Net lease expense
was $6,000 in 2010 and $7,000 in 2009 after deducting rental expense of $64,000 and $62,000 respectively.

The following table represents the
Corporations contractual lease obligations to make future payments as of December 31, 2010 (in thousands):



|                       |  |                  |    |  |            |   |    |            |  |   |             |  |  |       |   |  |  |   |     | 
|---------------------- |  | ---------------- | -- |  | ---------- | - | -- | ---------- |  | - | ----------- |  |  | ----- | - |  |  | - | --- | 
|                       |  | Less than 
1Year |    |  | 1 - 3Years |   |    | 4 - 5Years |  |   | Over 5Years |  |  | Total |  
|                       |  |                  |    |  |           
|Total Operating Leases |  | $                | 47 |  |            | $ | 60 |            |  | $ | 9           |  |  | $     |  |  |  | $ | 116 | 
|                       |  |                  |    |  |            |   |    |            |  |   |             |  |  |       |   |  |  |   |     | 

NOTE 9 - INCOME TAXES

The components of income tax expense for the years ended December 31, 2010 and 2009 are as follows:



|         |  |                |       |  |      |   |      |  
|-------- |  | -------------- | ----- |  | ---- | - | ---- | -
|         |  | 2010           |       |  | 2009 |  
|         |  | (In Thousands) |      
|Federal: |  |                |       |  |      |   |      |  
|Current  |  | $              | 816   |  |      | $ | 862  |  
|Deferred |  |                | 237   |  |      |   | (446 | )
|         |  |                |       |  |      |   |      |  
|         |  |               
|Total    |  | $              | 1,053 |  |      | $ | 416  |  
|         |  |                |       |  |      |   |      |  

Reconciliations of the statutory federal income tax at a rate of 34% to the income tax expense reported in the consolidated
statements of income for the years ended December 31, 2010 and 2009 are as follows:



|                                         |  |                                         |       |   |      |  |       |  
|---------------------------------------- |  | --------------------------------------- | ----- | - | ---- |  | ----- | -
|                                         |  | Percentage of Incomebefore Income Taxes |      
|                                         |  | 2010                                    |       |   | 2009 | 
|Federal income tax at statutory rate     |  |                                         | 34.0  | % |      |  | 34.0  | %
|Tax-exempt income                        |  |                                         | (10.6 | ) |      |  | (16.2 | )
|Earnings on investment in life insurance |  |                                         | (1.2  | ) |      |  | (2.1  | )
|                                         |  |                                         |       |   |      |  |       |  
|                                         |  |                                        
|Total                                    |  |                                         | 22.2  | % |      |  | 15.7  | %
|                                         |  |                                         |       |   |      |  |       |  



34





---

FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9 - INCOME TAXES (CONTINUED)



Components of deferred tax assets and liabilities at December 31 were as follows:



|                                      |  |                |       |   |      |   |       |  
|------------------------------------- |  | -------------- | ----- | - | ---- | - | ----- | -
|                                      |  | 2010           |       |   | 2009 |  
|                                      |  | (In Thousands) |      
|                                      |  |               
|Deferred tax assets:                  |  |                |       |   |      |   |       |  
|Allowance for loan losses             |  | $              | 694   |   |      | $ | 947   |  
|Nonaccrual loans interest             |  |                | 5     |   |      |   | 49    |  
|Intangible assets                     |  |                | 7     |   |      |   | 9     |  
|Retirement liabilities                |  |                | 537   |   |      |   | 506   |  
|State net operating loss carryforward |  |                | 195   |   |      |   | 119   |  
|                                      |  |                |       |   |      |   |       |  
|Gross deferred tax asset              |  |                | 1,438 |   |      |   | 1,630 |  
|                                      |  |               
|Valuation allowance                   |  |                | (195  | ) |      |   | (119  | )
|                                      |  |                |       |   |      |   |       |  
|                                      |  |               
|                                      |  |                | 1,243 |   |      |   | 1,511 |  
|                                      |  |                |       |   |      |   |       |  
|                                      |  |               
|Deferred tax liabilities:             |  |                |       |   |      |   |       |  
|Accumulated depreciation              |  |                | 253   |   |      |   | 279   |  
|Available for sale securities         |  |                | 746   |   |      |   | 686   |  
|Other                                 |  |                | 15    |   |      |   | 20    |  
|                                      |  |                |       |   |      |   |       |  
|                                      |  |               
|                                      |  |                | 1,014 |   |      |   | 985   |  
|                                      |  |                |       |   |      |   |       |  
|                                      |  |               
|Net Deferred Tax Assets               |  | $              | 229   |   |      | $ | 526   |  
|                                      |  |                |       |   |      |   |       |  

The Corporation accounts for Income Taxes in accordance with income tax accounting guidance (FASB ASC 740, Income
Taxes). On January 1, 2008, the Corporation adopted the recent accounting guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain
for uncertain tax positions.

The income tax accounting guidance results in two components of income tax expense: current and deferred.
Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenue. The Corporation determines deferred income taxes
using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and
laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and
liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

As of December 31, 2010, the Corporation has State net operating loss carryforwards of $1,953,000 that expire through the year 2030. Management does
not believe that these net operating loss carryforwards will be utilized prior to their expiration, as they were incurred by the holding company with little revenue opportunities to offset the losses, and as such, a valuation allowance has been
provided for them.



35





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9 - INCOME TAXES (CONTINUED)



Uncertain tax positions are recognized if it is more likely than not, based on the technical merits,
that the tax position will be sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals of litigation
processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being sustained upon settlement
with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at
the reporting date and is subject to managements judgment.

The Corporation recognizes interest and penalties on income taxes as a
component of income tax expense. Tax years subject to examination by tax authorities are the years ended December 31, 2009, 2008 and 2007.

NOTE 10 - RETIREMENT PLANS

The Corporation maintains a 401(k) plan for the benefit of eligible employees. Employer contributions include matching a portion of employee contributions and a discretionary contribution determined by
the Corporation. Corporation contributions to the Plan were $172,000 and $160,000 for 2010 and 2009.

The Corporation maintains non-qualified
compensation plans for selected employees (supplemental retirement) and directors (deferred fees). The estimated present value of future benefits is accrued over the period from the effective date of the agreements until the expected retirement
dates of the individuals. Expenses include the following amounts for these non-qualified plans:



|                      |  |                |    |  |      |   |    | 
|--------------------- |  | -------------- | -- |  | ---- | - | -- | 
|                      |  | 2010           |    |  | 2009 |  
|                      |  | (In Thousands) |   
|                      |  |               
|Employee compensation |  | $              | 62 |  |      | $ | 41 | 
|Director compensation |  |                | 74 |  |      |   | 70 | 

The balance accrued for these plans
included in other liabilities as of December 31, 2010 and 2009 totaled $1,578,000 and $1,489,000.

To fund the benefits under these
plans, the Corporation is the owner of single premium life insurance policies on participants in the non-qualified retirement plans. At December 31, 2010 and 2009, the cash value of these policies was $7,109,000 and $5,109,000.

NOTE 11 - REGULATORY MATTERS AND SHAREHOLDERS EQUITY

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



36





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 11 - REGULATORY MATTERS AND
SHAREHOLDERS EQUITY (CONTINUED)



Quantitative measures established by regulation to ensure capital adequacy require the Corporation and
the Bank to maintain minimum amounts and ratios (set forth below) of Tier 1 capital to average assets and of Tier 1 and total capital (as defined in the regulations) to risk weighted assets. Management believes, as of December 31, 2010, that
the Corporation and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2010, the most recent
notification from the regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the
Banks category.

The actual and required capital amounts and ratios were as follows:



|                                                          |  |                        |        |  |                              |  |      |                                                               |  |   |         |  |  |        |     |   |       |   |         |  |  |  |       |  
|--------------------------------------------------------- |  | ---------------------- | ------ |  | ---------------------------- |  | ---- | ------------------------------------------------------------- |  | - | ------- |  |  | ------ | --- | - | ----- | - | ------- |  |  |  | ----- | -
|                                                          |  | Actual                 |        |  | For Capital AdequacyPurposes |  |      | To be Well Capitalizedunder PromptCorrective ActionProvisions | 
|                                                          |  | Amount                 |        |  | Ratio                        |  |      | Amount                                                        |  |   | Ratio   |  |  | Amount |     |   | Ratio |  
|                                                          |  | (Dollars in Thousands) |       
|                                                          |  |                        |        |  |                              | 
|CORPORATION:                                              |  |                        |        |  |                              |  |      |                                                               |  |   |         |  |  |        |     |   |       |   |         |  |  |  |       |  
|As of December 31, 2010:                                  |  |                        |        |  |                              |  |      |                                                               |  |   |         |  |  |        |     |   |       |   |         |  |  |  |       |  
|Tier 1 leverage ratio (to average assets)                 |  | $                      | 31,888 |  |                              |  | 8.6  | %                                                             |  | $ | 314,852 |  |  | 3      | 4.0 | % |       |   | N/A     |  |  |  | N/A   |  
|Tier 1 risk-based capital ratio (to risk-weighted assets) |  |                        | 31,888 |  |                              |  | 15.9 |                                                               |  |   | 38,028  |  |  | 3      | 4.0 |   |       |   | N/A     |  |  |  | N/A   |  
|Total risk-based capital ratio (to risk-weighted assets)  |  |                        | 34,321 |  |                              |  | 17.1 |                                                               |  |   | 316,056 |  |  | 3      | 8.0 |   |       |   | N/A     |  |  |  | N/A   |  
|                                                          |  |                        |        |  |                              | 
|As of December 31, 2009:                                  |  |                        |        |  |                              |  |      |                                                               |  |   |         |  |  |        |     |   |       |   |         |  |  |  |       |  
|Tier 1 leverage ratio (to average assets)                 |  | $                      | 29,051 |  |                              |  | 8.1  | %                                                             |  | $ | 314,358 |  |  | 3      | 4.0 | % |       |   | N/A     |  |  |  | N/A   |  
|Tier 1 risk-based capital ratio (to risk-weighted assets) |  |                        | 29,051 |  |                              |  | 15.0 |                                                               |  |   | 37,741  |  |  | 3      | 4.0 |   |       |   | N/A     |  |  |  | N/A   |  
|Total risk-based capital ratio (to risk-weighted assets)  |  |                        | 31,616 |  |                              |  | 16.3 |                                                               |  |   | 315,481 |  |  | 3      | 8.0 |   |       |   | N/A     |  |  |  | N/A   |  
|                                                          |  |                        |        |  |                              | 
|BANK:                                                     |  |                        |        |  |                              |  |      |                                                               |  |   |         |  |  |        |     |   |       |   |         |  |  |  |       |  
|As of December 31, 2010:                                  |  |                        |        |  |                              |  |      |                                                               |  |   |         |  |  |        |     |   |       |   |         |  |  |  |       |  
|Tier 1 leverage ratio (to average assets)                 |  | $                      | 31,104 |  |                              |  | 8.4  | %                                                             |  | $ | 314,823 |  |  | 3      | 4.0 | % |       | $ | 318,529 |  |  |  | 35.0  | %
|Tier 1 risk-based capital ratio (to risk-weighted assets) |  |                        | 31,104 |  |                              |  | 15.6 |                                                               |  |   | 37,998  |  |  | 3      | 4.0 |   |       |   | 311,997 |  |  |  | 36.0  |  
|Total risk-based capital ratio (to risk-weighted assets)  |  |                        | 33,362 |  |                              |  | 16.7 |                                                               |  |   | 315,997 |  |  | 3      | 8.0 |   |       |   | 319,996 |  |  |  | 310.0 |  
|                                                          |  |                        |        |  |                              | 
|As of December 31, 2009:                                  |  |                        |        |  |                              |  |      |                                                               |  |   |         |  |  |        |     |   |       |   |         |  |  |  |       |  
|Tier 1 leverage ratio (to average assets)                 |  | $                      | 28,246 |  |                              |  | 7.9  | %                                                             |  | $ | 314,315 |  |  | 3      | 4.0 | % |       | $ | 317,894 |  |  |  | 35.0  | %
|Tier 1 risk-based capital ratio (to risk-weighted assets) |  |                        | 28,246 |  |                              |  | 14.7 |                                                               |  |   | 37,709  |  |  | 3      | 4.0 |   |       |   | 311,564 |  |  |  | 36.0  |  
|Total risk-based capital ratio (to risk-weighted assets)  |  |                        | 30,661 |  |                              |  | 15.9 |                                                               |  |   | 315,418 |  |  | 3      | 8.0 |   |       |   | 319,273 |  |  |  | 310.0 |  

Certain restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of cash dividends, loans or advances.
Regulatory approval is required if the total of all dividends declared by a national bank in any calendar year exceeds net profits (as defined) for that year combined with the retained net profits for the two preceding calendar years. At
December 31, 2010, approximately $5,665,000 of undistributed earnings of the Bank, included in consolidated shareholders equity, was available for distribution to the Corporation as dividends without prior regulatory approval.



37





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 11 - REGULATORY MATTERS AND
SHAREHOLDERS EQUITY (CONTINUED)



In 2008 the Corporation implemented a dividend reinvestment and stock purchase plan. Holders of common
stock may participate in the plan in which reinvested dividends and voluntary cash payments may be invested in additional common shares. The Corporation reserved 100,000 shares to be issued under this plan, of which 7,413 common shares have been
issued pursuant to this plan.

On January 8, 2008, the Board of Directors of the Corporation authorized a stock repurchase program
pursuant to which the Corporation is authorized to purchase up to 7.1% of its outstanding shares or 100,000 shares. Share repurchases will be made from time to time and may be effected through open market purchases, block trades, or in privately
negotiated transactions. As of December 31, 2010, the Corporation has purchased 3,651 shares under this repurchase program.

NOTE 12 - FINANCIAL INSTRUMENTS WITH OFF BALANCE
SHEET RISK

The Corporation is a party to financial instruments with off balance sheet risk in the normal
course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit (typically mortgages and commercial loans) and, to a lesser extent, standby letters of credit. These
instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet. The Corporations exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it
does for on balance sheet instruments. The Corporation does not anticipate any material losses from these commitments.

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 Corporation evaluates each customers creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Corporation upon extensions of credit, is based on managements credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property and equipment
and income-producing commercial properties. On loans secured by real estate, the Corporation generally requires loan to value ratios of no greater than 80%.

Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and
private borrowing arrangements and similar transactions. The terms of the letters of credit vary and may have renewal features. The credit risk involved in using letters of credit is essentially the same as that involved in extending loans to
customers. The Corporation holds collateral supporting those commitments for which collateral is deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum
potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of December 31, 2010 and 2009 for guarantees under standby letters of credit issued is not material.

The Corporation has not been required to perform on any financial guarantees, and has not incurred any losses on its commitments, during the past two
years.



38





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 12 - FINANCIAL INSTRUMENTS WITH
OFF BALANCE RISK (CONTINUED)



A summary of the Corporations commitments at December 31 were as follows:



|                             |  |                |        |  |      |   |        | 
|---------------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                             |  | 2010           |        |  | 2009 |  
|                             |  | (In Thousands) |       
|                             |  |               
|Commitments to extend credit |  | $              | 30,645 |  |      | $ | 33,787 | 
|Standby letters of credit    |  |                | 175    |  |      |   | 216    | 

NOTE 13 -
FAIR VALUE OF FINANCIAL INSTRUMENTS

Management uses its best
judgment in estimating the fair value of the Corporations consolidated financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates
herein are not necessarily indicative of the amounts the Bank could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period-ends and have not been re-evaluated or
updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at
each period-end.

ASC Topic 820, Fair Value Measurements and Disclosure, which defines fair value, establishes a framework for
measuring fair value under GAAP, expands disclosures about fair value measurements, and applies to other accounting pronouncements that require or permit fair value measurements. The Bank adopted Fair Value Measurements effective for its
fiscal year beginning January 1, 2008.

Fair value measurement and disclosure guidance, defines fair value as the price that would be
received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. Additional guidance is
provided on determining when the volume and level of activity for the asset or liability has significantly decreased. The Topic also includes guidance on identifying circumstances when a transaction may not be considered orderly.

Fair value measurement and disclosure provides a list of factors that a reporting entity should evaluate to determine whether there has been a
significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level
of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with fair value measurement and disclosure
guidance.

ASC Topic 820 clarifies that when there has been a significant decrease in the volume and level of activity for the asset or
liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. This Topic provides a list of circumstances that may indicate that a
transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.



39





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13 - FAIR VALUE OF FINANCIAL
INSTRUMENTS (CONTINUED)



Fair value measurement and disclosure establishes a fair value hierarchy that prioritizes the inputs to
valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs
(Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1: Unadjusted quoted prices in active
markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2:Quoted prices in
markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3:Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An assets or liabilitys level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value
measurement.

The following describes the valuation techniques used by the Corporation to measure certain financial assets and liabilities
recorded at fair value on a recurring basis in the financial statements:

Securities available for sale: Securities available for sale are
recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of
identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar
securities by using pricing models that consider observable market data (Level 2). For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or
transferability, and such adjustments are generally based on available market evidence (Level 3).

For financial assets measured at fair value
on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2010 and 2009 are as follows (in thousands):



|                              |  |                  |        |  |                                                            |   |     |                                             |  |   |                                         |  |  |   |     | 
|----------------------------- |  | ---------------- | ------ |  | ---------------------------------------------------------- | - | --- | ------------------------------------------- |  | - | --------------------------------------- |  |  | - | --- | 
|Description                   |  | December 31,2010 |        |  | (Level 1)Quoted Prices inActive
Marketsfor IdenticalAssets |   |     | (Level
2)Significant OtherObservable Inputs |  |   | (Level
3)SignificantUnobservable Inputs | 
|                              |  |                  |        | 
|U. S. agency securities       |  | $                | 9,918  |  |                                                            | $ |    |                                             |  |   | 9,918                                   |  |  | $ |    | 
|Mortgage-backed securities    |  |                  | 64,660 |  |                                                            |   |    |                                             |  |   | 64,660                                  |  |  |   |    | 
|Equity securities             |  |                  | 1,049  |  |                                                            |   | 460 |                                             |  |   |                                        |  |  |   | 589 | 
|                              |  |                  |        |  |                                                            |   |     |                                             |  |   |                                         |  |  |   |     | 
|                              |  |                  |        | 
|Securities available for sale |  | $                | 75,627 |  |                                                            | $ | 460 |                                             |  | $ | 74,578                                  |  |  | $ | 589 | 
|                              |  |                  |        |  |                                                            |   |     |                                             |  |   |                                         |  |  |   |     | 



40





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13 - FAIR VALUE OF FINANCIAL
INSTRUMENTS (CONTINUED)



|                              |  |                  |        |  |                                                            |   |     |                                             |  |   |                                         |  |  |   |     | 
|----------------------------- |  | ---------------- | ------ |  | ---------------------------------------------------------- | - | --- | ------------------------------------------- |  | - | --------------------------------------- |  |  | - | --- | 
|Description                   |  | December 31,2009 |        |  | (Level 1)Quoted Prices inActive
Marketsfor IdenticalAssets |   |     | (Level
2)Significant OtherObservable Inputs |  |   | (Level
3)SignificantUnobservable Inputs | 
|                              |  |                  |        | 
|U. S. agency securities       |  | $                | 12,231 |  |                                                            | $ |    |                                             |  | $ | 12,231                                  |  |  | $ |    | 
|Mortgage-backed securities    |  |                  | 68,234 |  |                                                            |   |    |                                             |  |   | 68,234                                  |  |  |   |    | 
|Equity securities             |  |                  | 972    |  |                                                            |   | 464 |                                             |  |   |                                        |  |  |   | 508 | 
|                              |  |                  |        |  |                                                            |   |     |                                             |  |   |                                         |  |  |   |     | 
|                              |  |                  |        | 
|Securities available for sale |  | $                | 81,437 |  |                                                            | $ | 464 |                                             |  | $ | 80,465                                  |  |  | $ | 508 | 
|                              |  |                  |        |  |                                                            |   |     |                                             |  |   |                                         |  |  |   |     | 

The table below presents a reconciliation and income statement of gains and losses for available for sale securities
measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods ending December 31, 2010 and December 31, 2009.



|                                                            |  |      |     |  |      |   |     |  
|----------------------------------------------------------- |  | ---- | --- |  | ---- | - | --- | -
|                                                            |  | 2010 |     |  | 2009 |  
|                                                            |  |     
|Fair Value, beginning of year                               |  | $    | 508 |  |      | $ | 425 |  
|Total gains (losses) included in other comprehensive income |  |      | 81  |  |      |   | (87 | )
|Purchases                                                   |  |      |    |  |      |   | 170 |  
|                                                            |  |      |     |  |      |   |     |  
|Fair Value, end of year                                     |  | $    | 589 |  |      | $ | 508 |  
|                                                            |  |      |     |  |      |   |     |  

The following describes the valuation techniques used by the Corporation to measure certain financial assets recorded at
fair value on a nonrecurring basis in the financial statements:

Impaired Loans: Loans are designated as impaired when, in the judgment of
management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the
observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory,
and accounts receivable. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Corporation using observable market data
(Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business equipment is based
upon an outside appraisal if deemed significant, or the net book value on the applicable business financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables
collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a non-recurring basis. Any fair value adjustments are recorded in the period
incurred as provision for loan losses on the Consolidated Statements of Income.

Certain assets such as real estate owned are measured at fair
value less the cost to sell. Management believes that the fair value component in its valuation follows the provisions of ASC 820.



41





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13 - FAIR VALUE OF FINANCIAL
INSTRUMENTS (CONTINUED)



Assets measured at fair value on a non-recurring basis at December 31, 2010 and 2009 are summarized
below:



|                       |  |                  |       |  |                                                             |   |   |                                             |  |   |                                        |  |  |   |       | 
|---------------------- |  | ---------------- | ----- |  | ----------------------------------------------------------- | - | - | ------------------------------------------- |  | - | -------------------------------------- |  |  | - | ----- | 
|Description            |  | December 31,2010 |       |  | (Level
1)Quoted Prices inActive Markets forIdentical Assets |   |   | (Level
2)Significant OtherObservable Inputs |  |   | (Level
3)SignificantUnobservableInputs | 
|                       |  |                  |       | 
|Impaired loans         |  | $                | 84    |  |                                                             | $ |  |                                             |  | $ |                                       |  |  | $ | 84    | 
|Foreclosed real estate |  |                  | 133   |  |                                                             |   |  |                                             |  |   |                                       |  |  |   | 133   | 
|                       |  |                  |       | 
|Description            |  | December 31,2009 |       |  | (Level
1)Quoted Prices inActive Markets forIdentical Assets |   |   | (Level
2)Significant OtherObservable Inputs |  |   | (Level
3)SignificantUnobservableInputs | 
|                       |  |                  |       | 
|Impaired loans         |  | $                | 1,394 |  |                                                             | $ |  |                                             |  | $ |                                       |  |  | $ | 1,394 | 

Total impaired loans, which are
measured for impairment using the fair value of the collateral for collateral-dependent loans, had a carrying amount of $99,000 and $2,410,000, net of the valuation allowances of $15,000 and $1,016,000 as of December 30, 2010 and
December 31, 2009, respectively. This resulted in additional provision for loan losses of $0 for the period ending December 31, 2010 and $1,000,000 for the period ending December 31, 2009.

ASC Topic 825, Financial Instruments, requires disclosures about fair value of financial instruments for interim reporting periods of publicly
traded companies as well as in annual financial statements.

The following information should not be interpreted as an estimate of the fair
value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporations assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the
estimates, comparisons between the Corporations disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Corporations financial instruments at
December 31, 2010 and December 31, 2009.

Cash and cash equivalents:

The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets fair values.

Time certificates of deposit:

The carrying amount of time certificates of deposit approximate their fair value.



42





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FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13 - FAIR VALUE OF FINANCIAL
INSTRUMENTS (CONTINUED)



Securities:

For securities and marketable equity securities held for investment purposes, fair values are based on quoted market prices or dealer quotes. For other securities held as investments, fair value equals
quoted market price, if available. If a quoted market price is not available, fair values are based on quoted market prices for similar securities. For securities which are not traded in active markets or are subject to transfer restrictions,
valuations are generally based on available market evidence.

Loans receivable:

For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values
of fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered in the market for loans with similar terms to borrowers of similar credit quality. Fair values for nonperforming loans are estimated
using discounted cash flow analyses or underlying collateral values, where applicable.

Restricted investment in bank stock:

The carrying amount of restricted investment in bank stock approximates fair value.

Accrued interest receivable and payable:

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit liabilities:

The fair values disclosed for demand deposits (e.g., interest
and non-interest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-term borrowings:

The
carrying amounts of short-term borrowings approximate their fair values.

Long-term debt:

Fair values of long-term debt are estimated using discounted cash flow analysis, based on rates currently available to the Corporation for advances from
the FHLB with similar terms and remaining maturities.

Junior Subordinated debt:

Fair values of junior subordinated debt are estimated using discounted cash flow analysis, based on rates currently offered on such debt, with similar
terms and remaining maturities. As the Corporation has the ability to redeem the junior subordinated debt at any time, the fair value approximates its carrying value.



43





---

FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13 - FAIR VALUE OF FINANCIAL
INSTRUMENTS (CONTINUED)



Off-balance sheet financial instruments:

Fair values for the Corporations off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently
charged to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties credit standing.

The estimated fair values of the Corporations financial instruments were as follows at December 31, 2010 and 2009.



|                                        |  |                |         |  |           |   |         |                |  |   |           |  |  |   |         | 
|--------------------------------------- |  | -------------- | ------- |  | --------- | - | ------- | -------------- |  | - | --------- |  |  | - | ------- | 
|                                        |  | 2010           |         |  | 2009      |  
|                                        |  | CarryingAmount |         |  | FairValue |   |         | CarryingAmount |  |   | FairValue | 
|                                        |  | (In Thousands) |        
|                                        |  |                |         | 
|Financial assets:                       |  |                |         |  |           |   |         |                |  |   |           |  |  |   |         | 
|Cash and cash equivalents               |  | $              | 10,554  |  |           | $ | 10,554  |                |  | $ | 8,633     |  |  | $ | 8,633   | 
|Time certificates of deposit            |  |                | 198     |  |           |   | 198     |                |  |   | 396       |  |  |   | 396     | 
|Investment securities:                  |  |                |         |  |           |   |         |                |  |   |           |  |  |   |         | 
|Available for sale                      |  |                | 75,627  |  |           |   | 75,627  |                |  |   | 81,437    |  |  |   | 81,437  | 
|Held to maturity                        |  |                | 31,872  |  |           |   | 30,976  |                |  |   | 30,204    |  |  |   | 29,715  | 
|Loans, less allowance for loan losses   |  |                | 236,231 |  |           |   | 237,323 |                |  |   | 216,600   |  |  |   | 217,481 | 
|Accrued interest receivable             |  |                | 1,337   |  |           |   | 1,337   |                |  |   | 1,452     |  |  |   | 1,452   | 
|Restricted investment in bank stocks    |  |                | 2,541   |  |           |   | 2,541   |                |  |   | 2,661     |  |  |   | 2,661   | 
|                                        |  |                |         | 
|Financial liabilities:                  |  |                |         |  |           |   |         |                |  |   |           |  |  |   |         | 
|Deposits                                |  |                | 317,849 |  |           |   | 322,934 |                |  |   | 296,459   |  |  |   | 301,750 | 
|Short-term borrowings                   |  |                | 4,030   |  |           |   | 4,030   |                |  |   | 4,512     |  |  |   | 4,512   | 
|Long-term debt                          |  |                | 16,000  |  |           |   | 17,561  |                |  |   | 22,000    |  |  |   | 23,519  | 
|Junior subordinated debt                |  |                | 5,155   |  |           |   | 5,155   |                |  |   | 5,155     |  |  |   | 5,155   | 
|Accrued interest payable                |  |                | 329     |  |           |   | 329     |                |  |   | 443       |  |  |   | 443     | 
|                                        |  |                |         | 
|Off-balance sheet financial instruments |  |                |        |  |           |   |        |                |  |   |          |  |  |   |        | 

NOTE 14 -
CONTINGENCIES

The Corporation is subject to claims and lawsuits which arise primarily in the ordinary course of business.
Based on information presently available and advice received from legal counsel representing the Corporation in connection with any such claims and lawsuits, it is the opinion of management that the disposition or ultimate determination of any such
claims and lawsuits will not have a material adverse effect on the consolidated financial position, consolidated results of operations or liquidity of the Corporation.



44





---

FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 15 - CONDENSED FINANCIAL INFORMATION
FOR PARENT COMPANY ONLY

BALANCE SHEETS



|                                              |  |                |        |  |      |   |        | 
|--------------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                                              |  | December 31,   |       
|                                              |  | 2010           |        |  | 2009 |  
|                                              |  | (In Thousands) |       
|                                              |  |               
|ASSETS                                        |  |                |        |  |      |   |        | 
|                                              |  |               
|Cash                                          |  | $              | 117    |  |      | $ | 122    | 
|Investment in bank subsidiary                 |  |                | 32,265 |  |      |   | 29,367 | 
|Investment in unconsolidated subsidiary trust |  |                | 155    |  |      |   | 155    | 
|Securities available for sale                 |  |                | 1,049  |  |      |   | 972    | 
|Other assets                                  |  |                | 46     |  |      |   | 61     | 
|                                              |  |                |        |  |      |   |        | 
|                                              |  |               
|Total Assets                                  |  | $              | 33,632 |  |      | $ | 30,677 | 
|                                              |  |                |        |  |      |   |        | 
|                                              |  |               
|LIABILITIES AND SHAREHOLDERS EQUITY          |  |                |        |  |      |   |        | 
|                                              |  |               
|Liabilities                                   |  | $              | 195    |  |      | $ | 164    | 
|Junior subordinated debt                      |  |                | 5,155  |  |      |   | 5,155  | 
|Shareholders equity                          |  |                | 28,282 |  |      |   | 25,358 | 
|                                              |  |                |        |  |      |   |        | 
|                                              |  |               
|Total Liabilities and Shareholders Equity    |  | $              | 33,632 |  |      | $ | 30,677 | 
|                                              |  |                |        |  |      |   |        | 

STATEMENTS OF INCOME



|                                                    |  |                          |       |  |      |   |       | 
|--------------------------------------------------- |  | ------------------------ | ----- |  | ---- | - | ----- | 
|                                                    |  | Years Ended December 31, |      
|                                                    |  | 2010                     |       |  | 2009 |  
|                                                    |  | (In Thousands)           |      
|                                                    |  |                         
|Dividends from bank subsidiary                      |  | $                        | 996   |  |      | $ | 992   | 
|Other dividends                                     |  |                          | 42    |  |      |   | 38    | 
|                                                    |  |                          |       |  |      |   |       | 
|                                                    |  |                         
|                                                    |  |                          | 1,038 |  |      |   | 1,030 | 
|Expenses                                            |  |                          | 193   |  |      |   | 248   | 
|                                                    |  |                          |       |  |      |   |       | 
|                                                    |  |                         
|                                                    |  |                          | 845   |  |      |   | 782   | 
|Equity in undistributed earnings in bank subsidiary |  |                          | 2,841 |  |      |   | 1,444 | 
|                                                    |  |                          |       |  |      |   |       | 
|                                                    |  |                         
|Net Income                                          |  | $                        | 3,686 |  |      | $ | 2,226 | 
|                                                    |  |                          |       |  |      |   |       | 



45





---

FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 15 - CONDENSED FINANCIAL INFORMATION
FOR PARENT COMPANY ONLY (CONTINUED)

STATEMENTS OF CASH FLOWS



|                                                    |  |                          |        |   |      |   |        |  
|--------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                    |  | Years Ended December 31, |       
|                                                    |  | 2010                     |        |   | 2009 |  
|                                                    |  | (In Thousands)           |       
|                                                    |  |                         
|CASH FLOWS FROM OPERATING
ACTIVITIES                |  |                          |        |   |      |   |        |  
|                                                    |  |                         
|Net income                                          |  | $                        | 3,686  |   |      | $ | 2,226  |  
|Equity in undistributed earnings of bank subsidiary |  |                          | (2,841 | ) |      |   | (1,444 | )
|OTTI impairment charge                              |  |                          |       |   |      |   | 15     |  
|Decrease in other assets                            |  |                          | 15     |   |      |   | 18     |  
|Increase (decrease) in other liabilities            |  |                          | 1      |   |      |   | (56    | )
|                                                    |  |                          |        |   |      |   |        |  
|                                                    |  |                         
|Net Cash Provided by Operating Activities           |  |                          | 861    |   |      |   | 759    |  
|                                                    |  |                          |        |   |      |   |        |  
|                                                    |  |                         
|CASH FLOWS FROM INVESTING
ACTIVITIES                |  |                          |        |   |      |   |        |  
|                                                    |  |                         
|Purchase of securities available for sale           |  |                          |       |   |      |   | (170   | )
|                                                    |  |                          |        |   |      |   |        |  
|                                                    |  |                         
|Net Cash Used in Investing Activities               |  |                          |       |   |      |   | (170   | )
|                                                    |  |                          |        |   |      |   |        |  
|                                                    |  |                         
|CASH FLOWS FROM FINANCING
ACTIVITIES                |  |                          |        |   |      |   |        |  
|                                                    |  |                         
|Proceeds from issuance of common stock              |  |                          | 80     |   |      |   | 69     |  
|Acquisition of treasury stock                       |  |                          |       |   |      |   | (48    | )
|Cash dividends paid                                 |  |                          | (946   | ) |      |   | (812   | )
|                                                    |  |                          |        |   |      |   |        |  
|                                                    |  |                         
|Net Cash Used in Financing Activities               |  |                          | (866   | ) |      |   | (791   | )
|                                                    |  |                          |        |   |      |   |        |  
|                                                    |  |                         
|Net Decrease in Cash                                |  |                          | (5     | ) |      |   | (202   | )
|                                                    |  |                         
|CASH - BEGINNING                                    |  |                          | 122    |   |      |   | 324    |  
|                                                    |  |                          |        |   |      |   |        |  
|                                                    |  |                         
|CASH - ENDING                                       |  | $                        | 117    |   |      | $ | 122    |  
|                                                    |  |                          |        |   |      |   |        |  



46





---

FIRST COMMUNITY FINANCIAL
CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 16 - QUARTERLY FINANCIAL DATA
(UNAUDITED)

The following represents summarized unaudited quarterly financial data of the Corporation which in the opinion
of management, reflects adjustments (comprising only normal recurring accruals) necessary for fair presentation:



|                            |  |                                          |       |   |              |   |       |         |  |   |          |  |  |   |       | 
|--------------------------- |  | ---------------------------------------- | ----- | - | ------------ | - | ----- | ------- |  | - | -------- |  |  | - | ----- | 
|                            |  | Three Months Ended                       |      
|                            |  | December 31                              |       |   | September 30 |   |       | June 30 |  |   | March 31 | 
|                            |  | (In Thousands, Except per Share Amounts) |      
|                            |  |                                          |       |  
|2010:                       |  |                                          |       |   |              |   |       |         |  |   |          |  |  |   |       | 
|Interest income             |  | $                                        | 4,638 |   |              | $ | 4,583 |         |  | $ | 4,555    |  |  | $ | 4,405 | 
|Interest expense            |  |                                          | 1,587 |   |              |   | 1,605 |         |  |   | 1,728    |  |  |   | 1,909 | 
|Net interest income         |  |                                          | 3,051 |   |              |   | 2,978 |         |  |   | 2,827    |  |  |   | 2,496 | 
|Provision for loan losses   |  |                                          | 133   |   |              |   | 89    |         |  |   | 94       |  |  |   | 20    | 
|Provision for income taxes  |  |                                          | 312   |   |              |   | 307   |         |  |   | 227      |  |  |   | 207   | 
|Net income                  |  |                                          | 1,054 |   |              |   | 1,000 |         |  |   | 840      |  |  |   | 792   | 
|Net income per share, basic |  |                                          | 0.75  |   |              |   | 0.71  |         |  |   | 0.60     |  |  |   | 0.57  | 
|                            |  |                                          |       |  
|2009:                       |  |                                          |       |   |              |   |       |         |  |   |          |  |  |   |       | 
|Interest income             |  | $                                        | 4,625 |   |              | $ | 4,614 |         |  | $ | 4,624    |  |  | $ | 4,641 | 
|Interest expense            |  |                                          | 2,176 |   |              |   | 2,202 |         |  |   | 2,215    |  |  |   | 2,190 | 
|Net interest income         |  |                                          | 2,449 |   |              |   | 2,412 |         |  |   | 2,409    |  |  |   | 2,451 | 
|Provision for loan losses   |  |                                          | 500   |   |              |   | 535   |         |  |   | 22       |  |  |   | 180   | 
|Provision for income taxes  |  |                                          | (20   | ) |              |   | 71    |         |  |   | 143      |  |  |   | 222   | 
|Net income                  |  |                                          | 351   |   |              |   | 519   |         |  |   | 615      |  |  |   | 741   | 
|Net income per share, basic |  |                                          | 0.25  |   |              |   | 0.37  |         |  |   | 0.44     |  |  |   | 0.53  | 



47





---

MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL

CONDITION
AND RESULTS OF OPERATIONS

The following discussion represents
managements analysis of the financial condition and results of operations of First Community Financial Corporation (the Corporation) and should be read in conjunction with the accompanying financial statements and other financial data included
elsewhere in this report.

FORWARD-LOOKING STATEMENTS

Except for historical information, this report may be deemed to contain forward-looking statements regarding the Corporation. Examples of
forward-looking statements include, but are not limited to, (a) projections or statements regarding future earnings, expenses, net interest income, other income, earnings or loss per share, asset mix and quality, growth prospects, capital
structure and other financial terms, (b) statements of plans and objectives of management or the board of directors, and (c) statements of assumptions, such as economic conditions in the Corporations market areas. Such
forward-looking statements can be identified by the use of forward-looking terminology such as believes, expects, may, intends, will, should, anticipates, or the
negative of any of the foregoing or other variations thereon or comparable terminology, or by discussion of strategy.

No assurance can be
given that the future results covered by forward-looking statements will be achieved. Such statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Important factors that could impact the Corporations operating results include, but are not limited to, (i) the effects of changing economic conditions in the Corporations market areas and
nationally, (ii) credit risks of commercial, real estate, consumer and other lending activities, (iii) significant changes in interest rates, (iv) changes in federal and state banking laws and regulations which could impact the
Corporations operations, (v) funding costs and (vi) other external developments which could materially affect the Corporations business and operations.



48





---

EXECUTIVE SUMMARY

The Corporations results are primarily determined by the results of operations of its principal subsidiary, The First National Bank of Mifflintown
(the Bank). The Bank is a traditional community bank which operates branches in two rural counties of central Pennsylvania. The Banks earnings are largely driven by its net interest income.

CRITICAL ACCOUNTING POLICIES

The consolidated financial statements include the Corporation and its wholly-owned subsidiaries, The First National Bank of Mifflintown and First Community Financial Capital Trust I. All significant
intercompany accounts and transactions have been eliminated.

The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which require the Corporation to make estimates and assumptions (see footnote 1 to the financial statements). The Corporation believes that of its significant accounting policies,
the allowance for loan losses and valuation of its securities may involve a higher degree of judgment and complexity.

The allowance for loan
losses is established through a charge to earnings for the provision for loan losses. In determining the balance in the allowance for loan losses, consideration is given to a variety of factors in establishing this estimate. In estimating the
allowance for loan losses, management considers current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, borrowers perceived financial and managerial strengths, the adequacy
of the underlying collateral, if collateral dependent, or present value of future cash flows and other relevant factors. The use of different estimates or assumptions could produce different provisions for loan losses. Additional information is
provided in the Provision for Loan Losses and Allowance for Loan Losses sections.

Declines in the fair value of
securities held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. Management evaluates securities for other-than-temporary impairment at least on a
quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer, and (3) for equity securities, the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. For debt
securities, management considers whether (1) it has the intent to sell the security and (2) it is more likely than not that it will be required to sell the security prior to its anticipated recovery.

OVERVIEW

In 2010, the
Corporation recorded net income of $3,686,000, an increase of $1,460,000 or 65.6%, from net income of $2,226,000 in 2009.

The increase in net
income during 2010 as compared to 2009 is primarily a result of the following:



| |  |  | Increase in net interest income, after provision for loan losses, of $2,532,000;
| | - |  | --------------------------------------------------------------------------------



| |  |  | Decrease in total other income of $196,000;
| | - |  | -------------------------------------------



| |  |  | Increase in total other expenses of $239,000; and
| | - |  | -------------------------------------------------



| |  |  | Increase in provision for income taxes of $637,000.
| | - |  | ---------------------------------------------------

Basic earnings per share were $2.63 in 2010 compared to $1.59 in 2009. Return on average equity for 2010 was 13.71% compared to 9.06% in 2009. Return on average assets was 1.01% for 2010 compared with
0.65% in 2009.

During 2010, the Corporation experienced $19,631,000 or 9.1% growth in loans and $21,390,000 or 7.2% growth in deposits. These
increases were offset by a $6,482,000 or 24.4% decrease in borrowings and a $4,142,000 or 3.7% decrease in securities. As a result of these trends total assets of the Corporation grew by $18,319,000 or 5.1%.



49





---

RESULTS OF OPERATIONS

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income is the difference between interest income earned on investments and loans, and interest expense incurred on deposits
and other liabilities. For analysis purposes, net interest income is evaluated on a fully tax equivalent (FTE) basis. The FTE basis is calculated by grossing up the yield on tax-exempt securities and loans by the Federal tax rate of 34%, in order
that the yield on tax-exempt assets may be comparable to interest earned on taxable assets. The factors that affect net interest income include changes in interest rates and changes in average balances of interest-earning assets and interest-bearing
liabilities. Net interest income on an FTE basis increased to $12,165,000 in 2010 from $10,434,000 in 2009 and $9,541,000 in 2008.



50





---

NET INTEREST INCOME AND
NET INTEREST MARGIN (CONTINUED)



The following table includes average balances, rates and interest income and expense adjusted to an FTE
basis, the interest rate spread and the net interest margin:

Average Balances, Rates and Interest Income and Expense

(Dollars in Thousands)



|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|------------------------------------------ |  | -------------- | ------- |  | -------- | - | ------ | ---------- |  |  | -------------- | - |  | -------- | ------- |  | ---------- | - | ------ | -------------- |  |  | -------- | - |  | ---------- | ------- |  |  | - | ------ |  |  |  | ---- | -
|                                           |  | 2010           |         |  | 2009     |   |        | 2008       | 
|                                           |  | AverageBalance |         |  | Interest |   |        | Yield/Rate |  |  | AverageBalance |   |  | Interest |         |  | Yield/Rate |   |        | AverageBalance |  |  | Interest |   |  | Yield/Rate |        
|ASSETS                                     |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|INTEREST EARNING ASSETS                    |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|Securities:                                |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|Taxable                                    |  | $              | 75,843  |  |          | $ | 2,481  |            |  |  | 3.27           | % |  | $        | 70,907  |  |            | $ | 3,149  |                |  |  | 4.44     | % |  | $          | 67,980  |  |  | $ | 3,414  |  |  |  | 5.02 | %
|Tax-exempt                                 |  |                | 29,392  |  |          |   | 1,953  |            |  |  | 6.64           | % |  |          | 27,062  |  |            |   | 1,755  |                |  |  | 6.49     | % |  |            | 21,185  |  |  |   | 1,312  |  |  |  | 6.19 | %
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|Total Securities                           |  |                | 105,235 |  |          |   | 4,434  |            |  |  | 4.21           | % |  |          | 97,969  |  |            |   | 4,904  |                |  |  | 5.01     | % |  |            | 89,165  |  |  |   | 4,726  |  |  |  | 5.30 | %
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|Other                                      |  |                | 7,693   |  |          |   | 41     |            |  |  | 0.53           | % |  |          | 9,251   |  |            |   | 54     |                |  |  | 0.58     | % |  |            | 5,065   |  |  |   | 186    |  |  |  | 3.67 | %
|Loans:                                     |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|Taxable                                    |  |                | 218,264 |  |          |   | 14,080 |            |  |  | 6.45           | % |  |          | 210,266 |  |            |   | 13,918 |                |  |  | 6.62     | % |  |            | 200,771 |  |  |   | 13,766 |  |  |  | 6.86 | %
|Tax-exempt                                 |  |                | 7,034   |  |          |   | 439    |            |  |  | 6.24           | % |  |          | 4,476   |  |            |   | 341    |                |  |  | 7.62     | % |  |            | 3,490   |  |  |   | 267    |  |  |  | 7.65 | %
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|Total Loans                                |  |                | 225,298 |  |          |   | 14,519 |            |  |  | 6.44           | % |  |          | 214,742 |  |            |   | 14,259 |                |  |  | 6.64     | % |  |            | 204,261 |  |  |   | 14,033 |  |  |  | 6.87 | %
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|Total Interest Earning Assets              |  |                | 338,226 |  |          |   | 18,994 |            |  |  | 5.62           | % |  |          | 321,962 |  |            |   | 19,217 |                |  |  | 5.97     | % |  |            | 298,491 |  |  |   | 18,945 |  |  |  | 6.35 | %
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|Non-interest earnings assets               |  |                | 25,416  |  |          |   |        |            |  |  |                |   |  |          | 22,563  |  |            |   |        |                |  |  |          |   |  |            | 20,799  |  |  |   |        |  |  |  |      |  
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|Total Assets                               |  | $              | 363,642 |  |          |   |        |            |  |  |                |   |  | $        | 344,525 |  |            |   |        |                |  |  |          |   |  | $          | 319,290 |  |  |   |        |  |  |  |      |  
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|LIABILITIES AND SHAREHOLDERS EQUITY       |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|INTEREST BEARING LIABILITIES               |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|Demand deposits, interest bearing          |  | $              | 25,635  |  |          | $ | 43     |            |  |  | 0.17           | % |  | $        | 24,124  |  |            | $ | 48     |                |  |  | 0.20     | % |  | $          | 22,876  |  |  | $ | 91     |  |  |  | 0.40 | %
|Savings deposits                           |  |                | 85,904  |  |          |   | 878    |            |  |  | 1.02           | % |  |          | 40,253  |  |            |   | 506    |                |  |  | 1.26     | % |  |            | 22,840  |  |  |   | 189    |  |  |  | 0.83 | %
|Time deposits                              |  |                | 166,458 |  |          |   | 4,907  |            |  |  | 2.95           | % |  |          | 192,597 |  |            |   | 6,940  |                |  |  | 3.60     | % |  |            | 185,808 |  |  |   | 7,571  |  |  |  | 4.07 | %
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|Total Interest Bearing Deposits            |  |                | 277,997 |  |          |   | 5,828  |            |  |  | 2.10           | % |  |          | 256,974 |  |            |   | 7,494  |                |  |  | 2.92     | % |  |            | 231,524 |  |  |   | 7,851  |  |  |  | 3.39 | %
|Short-term borrowings                      |  |                | 4,521   |  |          |   | 52     |            |  |  | 1.15           | % |  |          | 4,612   |  |            |   | 50     |                |  |  | 1.08     | % |  |            | 9,146   |  |  |   | 169    |  |  |  | 1.85 | %
|Long-term debt                             |  |                | 23,248  |  |          |   | 949    |            |  |  | 4.08           | % |  |          | 27,155  |  |            |   | 1,239  |                |  |  | 4.56     | % |  |            | 26,966  |  |  |   | 1,384  |  |  |  | 5.13 | %
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|Total Interest Bearing Liabilities         |  |                | 305,766 |  |          |   | 6,829  |            |  |  | 2.23           | % |  |          | 288,741 |  |            |   | 8,783  |                |  |  | 3.04     | % |  |            | 267,636 |  |  |   | 9,404  |  |  |  | 3.51 | %
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|Demand deposits, non-interest bearing      |  |                | 28,341  |  |          |   |        |            |  |  |                |   |  |          | 28,443  |  |            |   |        |                |  |  |          |   |  |            | 26,941  |  |  |   |        |  |  |  |      |  
|Other liabilities                          |  |                | 2,656   |  |          |   |        |            |  |  |                |   |  |          | 2,766   |  |            |   |        |                |  |  |          |   |  |            | 2,506   |  |  |   |        |  |  |  |      |  
|Shareholders equity                       |  |                | 26,879  |  |          |   |        |            |  |  |                |   |  |          | 24,575  |  |            |   |        |                |  |  |          |   |  |            | 22,207  |  |  |   |        |  |  |  |      |  
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|Total Liabilities and Shareholders Equity |  | $              | 363,642 |  |          |   |        |            |  |  |                |   |  | $        | 344,525 |  |            |   |        |                |  |  |          |   |  | $          | 319,290 |  |  |   |        |  |  |  |      |  
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|                                           |  |                |         |  |          |   |        |            | 
|NET INTEREST INCOME                        |  |                |         |  |          | $ | 12,165 |            |  |  |                |   |  |          |         |  |            | $ | 10,434 |                |  |  |          |   |  |            |         |  |  | $ | 9,541  |  |  |  |      |  
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|                                           |  |                |         |  |          |   |        |            | 
|INTEREST RATE SPREAD                       |  |                |         |  |          |   |        |            |  |  | 3.38           | % |  |          |         |  |            |   |        |                |  |  | 2.93     | % |  |            |         |  |  |   |        |  |  |  | 2.84 | %
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  
|                                           |  |                |         |  |          |   |        |            | 
|NET INTEREST MARGIN                        |  |                |         |  |          |   |        |            |  |  | 3.60           | % |  |          |         |  |            |   |        |                |  |  | 3.24     | % |  |            |         |  |  |   |        |  |  |  | 3.20 | %
|                                           |  |                |         |  |          |   |        |            |  |  |                |   |  |          |         |  |            |   |        |                |  |  |          |   |  |            |         |  |  |   |        |  |  |  |      |  

Yields on tax-exempt assets have been computed on a fully tax equivalent basis assuming a tax rate of 34%.

For yield calculation purposes, non-accruing loans are included in average loan balances.

Interest income on loans includes amortized fees and costs on loans totaling $(43,000) in 2010, $(13,000) in 2009, and $(24,000) in 2008.

Securities available for sale are carried at amortized cost for purposes of calculating the average yield on taxable securities.



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---

NET INTEREST INCOME AND
NET INTEREST MARGIN (CONTINUED)



The following table shows changes in net interest income attributed to changes in rates and changes in
average balances of interest-earning assets and interest-bearing liabilities:

Rate/Volume Analysis

(In Thousands)



|                                  |  |                  |        |   |                  |   |       |               |  |   |        |   |  |        |        |   |       |   |       |   |  |   |      |  
|--------------------------------- |  | ---------------- | ------ | - | ---------------- | - | ----- | ------------- |  | - | ------ | - |  | ------ | ------ | - | ----- | - | ----- | - |  | - | ---- | -
|                                  |  | 2010 versus 2009 |        |   | 2009 versus 2008 |  
|                                  |  | Change Due to    |        |   |                  |   |       | Change Due to |  |   |        |  
|                                  |  | Rate             |        |   | Volume           |   |       | Total         |  |   | Rate   |   |  | Volume |        |   | Total |  
|                                  |  |                  |        |   |                  |  
|INTEREST EARNING ASSETS           |  |                  |        |   |                  |   |       |               |  |   |        |   |  |        |        |   |       |   |       |   |  |   |      |  
|Securities:                       |  |                  |        |   |                  |   |       |               |  |   |        |   |  |        |        |   |       |   |       |   |  |   |      |  
|Taxable                           |  | $                | (829   | ) |                  | $ | 161   |               |  | $ | (668   | ) |  | $      | (395   | ) |       | $ | 130   |   |  | $ | (265 | )
|Tax-exempt                        |  |                  | 43     |   |                  |   | 155   |               |  |   | 198    |   |  |        | 62     |   |       |   | 381   |   |  |   | 443  |  
|Other                             |  |                  | (2     | ) |                  |   | (11   | )             |  |   | (13    | ) |  |        | (151   | ) |       |   | 19    |   |  |   | (132 | )
|Total loans                       |  |                  | (416   | ) |                  |   | 676   |               |  |   | 260    |   |  |        | (477   | ) |       |   | 703   |   |  |   | 226  |  
|                                  |  |                  |        |   |                  |   |       |               |  |   |        |   |  |        |        |   |       |   |       |   |  |   |      |  
|                                  |  |                  |        |   |                  |  
|Total                             |  |                  | (1,204 | ) |                  |   | 981   |               |  |   | (223   | ) |  |        | (961   | ) |       |   | 1,233 |   |  |   | 272  |  
|                                  |  |                  |        |   |                  |   |       |               |  |   |        |   |  |        |        |   |       |   |       |   |  |   |      |  
|                                  |  |                  |        |   |                  |  
|INTEREST BEARING LIABILITIES      |  |                  |        |   |                  |   |       |               |  |   |        |   |  |        |        |   |       |   |       |   |  |   |      |  
|Demand deposits, interest bearing |  |                  | (8     | ) |                  |   | 3     |               |  |   | (5     | ) |  |        | (46    | ) |       |   | 3     |   |  |   | (43  | )
|Savings deposits                  |  |                  | (95    | ) |                  |   | 467   |               |  |   | 372    |   |  |        | 98     |   |       |   | 219   |   |  |   | 317  |  
|Time deposits                     |  |                  | (1,262 | ) |                  |   | (771  | )             |  |   | (2,033 | ) |  |        | (876   | ) |       |   | 245   |   |  |   | (631 | )
|Short-term borrowings             |  |                  | 3      |   |                  |   | (1    | )             |  |   | 2      |   |  |        | (70    | ) |       |   | (49   | ) |  |   | (119 | )
|Long-term debt                    |  |                  | (131   | ) |                  |   | (159  | )             |  |   | (290   | ) |  |        | (154   | ) |       |   | 9     |   |  |   | (145 | )
|                                  |  |                  |        |   |                  |   |       |               |  |   |        |   |  |        |        |   |       |   |       |   |  |   |      |  
|                                  |  |                  |        |   |                  |  
|Total                             |  |                  | (1,493 | ) |                  |   | (461  | )             |  |   | (1,954 | ) |  |        | (1,048 | ) |       |   | 427   |   |  |   | (621 | )
|                                  |  |                  |        |   |                  |   |       |               |  |   |        |   |  |        |        |   |       |   |       |   |  |   |      |  
|                                  |  |                  |        |   |                  |  
|Net Interest Income               |  | $                | 289    |   |                  | $ | 1,442 |               |  | $ | 1,731  |   |  | $      | 87     |   |       | $ | 806   |   |  | $ | 893  |  
|                                  |  |                  |        |   |                  |   |       |               |  |   |        |   |  |        |        |   |       |   |       |   |  |   |      |  

Interest income is presented on a fully tax equivalent basis, assuming a tax rate of 34%.

The net change attributable to the combination of rate and volume has been allocated to the change due to volume.

2010 VERSUS 2009

During 2010,
tax equivalent interest income decreased by $223,000 as the result of a decrease in the yield on earning assets of 0.35% offset by an increase in earning assets. Average loans increased $10,556,000 impacting interest income by $676,000 and the yield
on loans decreased 0.20% reducing interest income by $416,000. Total average securities increased $7,266,000 increasing interest income $316,000 and the yield on securities decreased 0.79% decreasing interest income $786,000.

Total average interest-bearing liabilities grew by $17,025,000 between 2010 and 2009 but the average rate paid on interest-bearing liabilities decreased
0.81% decreasing interest expense by $1,954,000.

The net interest margin is the ratio of net interest income to interest-earning assets,
reflecting a net yield on earning assets. The 0.36% increase in net interest margin from 2009 to 2010 reflects the decrease in rates on interest-bearing liabilities out-pacing the decrease in rates on interest-earning assets.

2009 VERSUS 2008

During 2009, tax
equivalent interest income increased by $272,000 as the result of an increase in earning assets, offset by a decrease in the yield on earning assets of 0.38%. Average loans increased $10,481,000 impacting interest income by $703,000 and the yield on
loans decreased 0.23% reducing interest income by $477,000. Total average securities increased $8,804,000 increasing interest income $511,000 and the yield on securities decreased 0.29% decreasing interest income $333,000.



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NET INTEREST INCOME AND
NET INTEREST MARGIN (CONTINUED)



Total average interest-bearing liabilities grew by $21,105,000 between 2009 and 2008 increasing interest
expense by $427,000 for 2009, and the average rate paid on interest-bearing liabilities decreased 0.47% decreasing interest expense by $1,048,000.

The net interest margin is the ratio of net interest income to interest-earning assets, reflecting a net yield on earning assets. The 0.04% increase in net interest margin from 2008 to 2009 reflects the
decrease in rates on interest-bearing liabilities out-pacing the decrease in rates on interest-earning assets.

PROVISION
FOR LOAN LOSSES

The provision for loan losses and allowance for loan losses are based on
managements ongoing assessment of the Corporations credit exposure and consideration of other relevant factors. The allowance for loan losses is a valuation reserve, which is available to absorb future loan charge-offs. The provision for
loan losses is the amount charged to earnings on an annual basis.

The Corporation recorded a $336,000 provision for loan losses in 2010
compared to $1,237,000 in 2009. Provisions for loan losses are charged to income to bring the allowance for loan losses to a level deemed appropriate by management based on the factors discussed under the Allowance for Loan Losses
section. Based on that analysis, the level of the allowance for loan losses is appropriate at this time.

OTHER
INCOME

2010 VERSUS 2009

Other income of $2,759,000 during 2010 decreased by $196,000 compared to 2009, primarily as a result of the following:



| |  |  | A decrease in income from fiduciary activities of $50,000.
| | - |  | ----------------------------------------------------------



| |  |  | A decrease in investment securities gains of $277,000.
| | - |  | ------------------------------------------------------



| |  |  | An increase in ATM card fees of $66,000, reflecting the increasing use of our ATM locations.
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | An increase in gains on sales of foreclosed real estate of $34,000.
| | - |  | -------------------------------------------------------------------

OTHER EXPENSES

2010 VERSUS 2009

Other expenses increased $239,000 or 2.7% to $9,036,000 during 2010 compared to $8,797,000 during 2009, primarily as a result of the
following:



| |  |  | An increase in employee compensation and benefits of $416,000 as the result of increases in the number of staff and merit increases during the year.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease in professional fees of $37,000 or 8.6% as the result of lower legal and accounting fees.
| | - |  | ----------------------------------------------------------------------------------------------------



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---

OTHER EXPENSES (CONTINUED)



| |  |  | A decrease in FDIC/OCC expense of $210,000 as the result of the special industry assessment in 2009 and not assessed in 2010.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease in ATM expense of $42,000.
| | - |  | -------------------------------------

INCOME TAXES

Income tax expense was $1,053,000 for 2010
compared to $416,000 for 2009 and $621,000 for 2008. Income tax expense as a percentage of income before income taxes was 22.2% for 2010 and 15.7% for 2009. The actual effective rate deviates from the 34% statutory rate due to tax exempt interest
income and income earned on cash surrender value of life insurance. The Corporations lower effective tax rate in 2009 was a result of an increase in the percentage of pre-tax income being derived from tax-exempt investments and loans and
tax-exempt income earned on life insurance. Refer to footnote 9 to the consolidated financial statements for further analysis of income taxes.

FINANCIAL CONDITION

SECURITIES

The securities portfolio is a component of interest-earning assets and is second in size only to the Corporations loan portfolio. Investment
securities not only provide interest income, they provide a source of liquidity, diversify the earning asset portfolio and provide collateral for public funds and securities sold under agreements to repurchase.

The Corporations securities are classified as either held to maturity or available for sale. Securities in the held to maturity category are
accounted for at amortized cost. Available for sale securities are accounted for at fair value with unrealized gains and losses, net of taxes, reported as a separate component of comprehensive income.

The Corporation generally intends to hold its investment portfolio until maturity; however, about 70.4% or $75,627,000, of total securities at
December 31, 2010 were classified as available for sale. Net unrealized gains at year-end 2010 were $2,126,000 compared to $1,962,000 at year-end 2009. The net unrealized gain at December 31, 2010 is reflected as accumulated other
comprehensive income of $1,380,000 in shareholders equity, net of deferred income taxes compared to $1,276,000 at December 31, 2009. This increase reflects changes in interest rates during 2010. Management evaluates securities for
other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less
than cost, (2) the financial condition and near-term prospects of the issuer, and (3) for equity securities, the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value. For debt securities, management considers whether (1) it has the intent to sell the security and (2) it is more likely than not that it will be required to sell the security prior to its anticipated
recovery. For additional information on unrealized losses by investment type, see footnote 3 to the consolidated financial statements.

Held
to maturity securities totaled $31,872,000 at December 31, 2010 compared to $30,204,000 a year ago. The increase was a result of new purchases exceeding maturities of U.S. Government agency securities and state and municipal securities. This
portion of the portfolio is comprised of state and municipal securities that provide tax-exempt interest income to the Corporation.



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SECURITIES (CONTINUED)



The following tables set forth the composition of the securities portfolio and the securities maturity
schedule, including weighted average yield, as of the dates indicated:

Investment Securities

(In Thousands)



|                                              |  |      |         |  |      |   |         |      |  |   |        | 
|--------------------------------------------- |  | ---- | ------- |  | ---- | - | ------- | ---- |  | - | ------ | 
|                                              |  | 2010 |         |  | 2009 |   |         | 2008 | 
|                                              |  |      |        
|AVAILABLE FOR SALE SECURITIES AT
FAIR VALUE   |  |      |         |  |      |   |         |      |  |   |        | 
|                                              |  |      |        
|U.S. Government agencies                      |  | $    | 9,918   |  |      | $ | 12,231  |      |  | $ | 6,724  | 
|Mortgage-backed securities                    |  |      | 64,660  |  |      |   | 68,234  |      |  |   | 58,762 | 
|Stock in other banks                          |  |      | 1,049   |  |      |   | 972     |      |  |   | 890    | 
|                                              |  |      |         |  |      |   |         |      |  |   |        | 
|                                              |  |      |        
|Total                                         |  |      | 75,627  |  |      |   | 81,437  |      |  |   | 66,376 | 
|                                              |  |      |         |  |      |   |         |      |  |   |        | 
|HELD TO MATURITY SECURITIES AT
AMORTIZED COST |  |      |         |  |      |   |         |      |  |   |        | 
|                                              |  |      |        
|U.S. Government agencies                      |  |      |        |  |      |   | 250     |      |  |   | 250    | 
|State and municipal                           |  |      | 31,872  |  |      |   | 29,954  |      |  |   | 23,877 | 
|                                              |  |      |         |  |      |   |         |      |  |   |        | 
|                                              |  |      |        
|                                              |  |      | 31,872  |  |      |   | 30,204  |      |  |   | 24,127 | 
|                                              |  |      |         |  |      |   |         |      |  |   |        | 
|Total                                         |  | $    | 107,499 |  |      | $ | 111,641 |      |  | $ | 90,503 | 
|                                              |  |      |         |  |      |   |         |      |  |   |        | 

The scheduled maturities of the securities portfolio at December 31, 2010 is as follows:

Securities Maturity Schedule

(Dollars in Thousands)



|                           |  |                |       |  |                |  |      |                 |  |   |                             |  |  |        |      |   |       |   |        |        |  |  |       |   |  |        |        |  |       |  |      |   |  |   |         |  |  |  |      |  
|-------------------------- |  | -------------- | ----- |  | -------------- |  | ---- | --------------- |  | - | --------------------------- |  |  | ------ | ---- | - | ----- | - | ------ | ------ |  |  | ----- | - |  | ------ | ------ |  | ----- |  | ---- | - |  | - | ------- |  |  |  | ---- | -
|                           |  | 1 Year or Less |       |  | Over 1-5 Years |  |      | Over 5-10 Years |  |   | Over 10 Years orno Maturity |  |  | Total  |     
|                           |  | Amount         |       |  | Yield          |  |      | Amount          |  |   | Yield                       |  |  | Amount |      |   | Yield |   |        | Amount |  |  | Yield |   |  | Amount |        |  | Yield | 
|                           |  |                |       |  |                |  |      |                 |  |  
|U.S. Government agencies   |  | $              | 2,520 |  |                |  | 2.39 | %               |  | $ | 7,398                       |  |  |        | 3.63 | % |       | $ |       |        |  |  |      | % |  | $      |       |  |       |  |     | % |  | $ | 9,918   |  |  |  | 3.31 | %
|State and municipal        |  |                | 1,555 |  |                |  | 5.51 |                 |  |   | 6,207                       |  |  |        | 5.46 |   |       |   | 13,071 |        |  |  | 6.43  |   |  |        | 11,039 |  |       |  | 7.09 |   |  |   | 31,872  |  |  |  | 6.43 |  
|Mortgage-backed securities |  |                |      |  |                |  |     |                 |  |   |                            |  |  |        |     |   |       |   |       |        |  |  |      |   |  |        | 64,660 |  |       |  | 3.37 |   |  |   | 64,660  |  |  |  | 3.37 |  
|Equity securities          |  |                |      |  |                |  |     |                 |  |   |                            |  |  |        |     |   |       |   |       |        |  |  |      |   |  |        | 1,049  |  |       |  |     |   |  |   | 1,049   |  |  |  |     |  
|                           |  |                |       |  |                |  |      |                 |  |   |                             |  |  |        |      |   |       |   |        |        |  |  |       |   |  |        |        |  |       |  |      |   |  |   |         |  |  |  |      |  
|                           |  |                |       |  |                |  |      |                 |  |  
|Total                      |  | $              | 4,075 |  |                |  | 3.58 | %               |  | $ | 13,605                      |  |  |        | 4.47 | % |       | $ | 13,071 |        |  |  | 6.43  | % |  | $      | 76,748 |  |       |  | 3.86 | % |  | $ | 107,499 |  |  |  | 4.24 | %
|                           |  |                |       |  |                |  |      |                 |  |   |                             |  |  |        |      |   |       |   |        |        |  |  |       |   |  |        |        |  |       |  |      |   |  |   |         |  |  |  |      |  

Held to maturity securities are accounted for at amortized cost and available for sale securities are accounted for at fair
value.

Weighted average yields are calculated on a fully tax equivalent basis assuming a tax rate of 34%.

LOANS

Loans at
December 31 were as follows:



|                                       |  |                |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|-------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                       |  | 2010           |        |  | 2009 |   |        | 2008 |  |   | 2007   |  |  | 2006 |       
|                                       |  | (In Thousands) |       
|                                       |  |                |        |  |     
|Commercial, financial and agricultural |  | $              | 39,021 |  |      | $ | 32,369 |      |  | $ | 22,944 |  |  | $    | 17,523 |  |  | $ | 16,691 | 
|Real estate:                           |  |                |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Commercial                             |  |                | 46,090 |  |      |   | 37,842 |      |  |   | 41,227 |  |  |      | 38,327 |  |  |   | 36,021 | 
|Construction                           |  |                | 2,464  |  |      |   | 5,057  |      |  |   | 5,730  |  |  |      | 1,435  |  |  |   |       | 



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---

LOANS (CONTINUED)



|                                  |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                  |  | 2010           |         |   | 2009 |   |         | 2008 |  |   | 2007    |   |  | 2006 |        
|                                  |  | (In Thousands) |        
|                                  |  |                |         |   |     
|Residential                       |  |                | 145,950 |   |      |   | 139,055 |      |  |   | 138,209 |   |  |      | 129,563 |   |  |   | 121,419 |  
|Installment                       |  |                | 5,071   |   |      |   | 5,339   |      |  |   | 6,159   |   |  |      | 5,946   |   |  |   | 5,398   |  
|                                  |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                  |  |                |         |   |     
|Total                             |  |                | 238,596 |   |      |   | 219,662 |      |  |   | 214,269 |   |  |      | 192,794 |   |  |   | 179,529 |  
|                                  |  |                |         |   |     
|Allowance for loan losses         |  |                | (2,154  | ) |      |   | (2,830  | )    |  |   | (1,633  | ) |  |      | (1,249  | ) |  |   | (1,230  | )
|Deferred loan fees and costs, net |  |                | (211    | ) |      |   | (232    | )    |  |   | (259    | ) |  |      | (320    | ) |  |   | (369    | )
|                                  |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                  |  |                |         |   |     
|Net loans                         |  | $              | 236,231 |   |      | $ | 216,600 |      |  | $ | 212,377 |   |  | $    | 191,225 |   |  | $ | 177,930 |  
|                                  |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  

The loan portfolio comprises the major portion of the Corporations earning assets. The increase in loans of
$19,631,000, or 9.1%, during 2010 was attributable to the following: Residential real estate grew by $6,895,000, commercial real estate decreased by $8,248,000, construction loans decreased by $2,593,000, and commercial, financial, and agricultural
loans grew by $6,652,000.

The following table sets forth information on the contractual maturities for commercial and construction loans as
of the dates indicated:

Loan Maturities - Commercial and Construction Loans

(In Thousands)



|                                       |  |                 |        |  |          |   |        |             |  |   |        |  |  |   |        | 
|-------------------------------------- |  | --------------- | ------ |  | -------- | - | ------ | ----------- |  | - | ------ |  |  | - | ------ | 
|                                       |  | Less than 1Year |        |  | 1-5Years |   |        | Over 5Years |  |   | Total  | 
|                                       |  |                 |        | 
|Commercial, financial and agricultural |  | $               | 14,166 |  |          | $ | 6,559  |             |  | $ | 18,296 |  |  | $ | 39,021 | 
|Real estate:                           |  |                 |        |  |          |   |        |             |  |   |        |  |  |   |        | 
|Commercial                             |  |                 | 4,243  |  |          |   | 3,402  |             |  |   | 38,445 |  |  |   | 46,090 | 
|Construction                           |  |                 | 1,894  |  |          |   | 57     |             |  |   | 513    |  |  |   | 2,464  | 
|                                       |  |                 |        |  |          |   |        |             |  |   |        |  |  |   |        | 
|                                       |  |                 |        | 
|Total                                  |  | $               | 20,303 |  |          | $ | 10,018 |             |  | $ | 57,254 |  |  | $ | 87,575 | 
|                                       |  |                 |        |  |          |   |        |             |  |   |        |  |  |   |        | 
|                                       |  |                 |        | 
|Loans with a fixed interest rate       |  | $               | 9,235  |  |          | $ | 8,642  |             |  | $ | 12,859 |  |  | $ | 30,736 | 
|Loans with a variable interest rate    |  |                 | 11,068 |  |          |   | 1,376  |             |  |   | 44,395 |  |  |   | 56,839 | 
|                                       |  |                 |        |  |          |   |        |             |  |   |        |  |  |   |        | 
|                                       |  |                 |        | 
|Total                                  |  | $               | 20,303 |  |          | $ | 10,018 |             |  | $ | 57,254 |  |  | $ | 87,575 | 
|                                       |  |                 |        |  |          |   |        |             |  |   |        |  |  |   |        | 

The Corporation has a significant concentration of residential and commercial mortgage loans collateralized by properties
located in Juniata and Perry Counties of Pennsylvania and the surrounding area.

NON-PERFORMING
ASSETS

Non-performing assets include loans on a non-accrual basis, loans past due more than ninety days and still accruing,
troubled debt restructurings and foreclosed real estate. These groups of assets represent the asset categories posing the greatest risk of loss to the Corporation. Non-accruing loans are loans no longer accruing interest due to apparent financial
difficulties of the borrower. The Corporation generally discontinues accrual of interest when principal or interest becomes doubtful based on prevailing economic conditions and collection efforts. Loans are returned to accrual status only when all
factors indicating doubtful collectibility cease to exist. Troubled debt restructurings result when an economic concession has been made to a borrower taking the form of a reduction or deferral of interest and/or principal. As of December 31,
2010 and 2009, the Corporation had one troubled debt restructuring, which is now performing and not included in non-performing assets. Management will continue to monitor this credit and adjustments to the reserve may occur in the future. Potential
problem loans include impaired loans which, as of December 31, 2010, totaled $297,000. Foreclosed real estate is acquired through foreclosure or in lieu of foreclosure and is recorded at fair value at the date of foreclosure establishing a new
cost basis. Gains on the sale of foreclosed real estate are included in other income, while losses and writedowns resulting from periodic revaluations are included in other expenses.



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NON-PERFORMING ASSETS (CONTINUED)



The following table sets forth the Corporations non-performing assets as of the dates indicated:

Non-Performing Assets

(Dollars in Thousands)



|                                                                   |  |      |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|------------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                                   |  | 2010 |       |   | 2009 |   |        | 2008 |  |   | 2007   |   |  | 2006 |       
|                                                                   |  |      |       |   |     
|Non-accrual loans                                                  |  | $    | 1,016 |   |      | $ | 4,254  |      |  | $ | 2,623  |   |  | $    | 1,976  |   |  | $ | 2,532  |  
|                                                                   |  |      |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                   |  |      |       |   |     
|Total Non-Performing Loans                                         |  |      | 1,016 |   |      |   | 4,254  |      |  |   | 2,623  |   |  |      | 1,976  |   |  |   | 2,532  |  
|                                                                   |  |      |       |   |     
|Foreclosed real estate                                             |  |      | 133   |   |      |   | 122    |      |  |   |       |   |  |      |       |   |  |   | 255    |  
|                                                                   |  |      |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                   |  |      |       |   |     
|Total Non-Performing Assets                                        |  | $    | 1,149 |   |      | $ | 4,376  |      |  | $ | 2,623  |   |  | $    | 1,976  |   |  | $ | 2,787  |  
|                                                                   |  |      |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                   |  |      |       |   |     
|Troubled debt restructurings                                       |  | $    | 1,312 |   |      | $ | 2,305  |      |  | $ |       |   |  | $    |       |   |  | $ |       |  
|                                                                   |  |      |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                   |  |      |       |   |     
|Other impaired loans                                               |  | $    | 297   |   |      | $ | 348    |      |  | $ | 635    |   |  | $    | 1,812  |   |  | $ | 1,914  |  
|                                                                   |  |      |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                   |  |      |       |   |     
|Ratios:                                                            |  |      |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Non-performing loans to total loans                                |  |      | 0.43  | % |      |   | 1.96   | %    |  |   | 1.24   | % |  |      | 1.03   | % |  |   | 1.42   | %
|Non-performing assets to total loans and foreclosed real estate    |  |      | 0.49  | % |      |   | 2.02   | %    |  |   | 1.24   | % |  |      | 1.03   | % |  |   | 1.56   | %
|Non-performing loans to allowance for loan losses                  |  |      | 47.17 | % |      |   | 150.32 | %    |  |   | 160.62 | % |  |      | 158.21 | % |  |   | 205.85 | %
|                                                                   |  |      |       |   |     
|Non-accrual loans:                                                 |  |      |       |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Interest income that would have been recorded under original terms |  |      | 13    |   |      |   | 143    |      |  |   | 91     |   |  |      | 159    |   |  |   | 287    |  
|Interest income recorded during the year                           |  |      | 21    |   |      |   | 115    |      |  |   | 23     |   |  |      | 98     |   |  |   | 228    |  

Total non-performing assets at
year-end 2010 decreased $3,227,000 primarily as a result of the decrease in loans in non-accrual status and the partial charge-off of the troubled debt restructured loan to a manufacturer of inventory closely tied to the construction industry.



| |  |    |  | 
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ALLOWANCE FOR LOAN LOSSES

The Bank has established a systematic methodology for the determination of the allowance for loan losses. The methodology is set forth in a formal policy
and takes into consideration the need for an overall general valuation as well as specific allowances that are tied to individual loans.

In
originating loans, the Bank recognizes that losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic
conditions and, in the case of a secured loan, the quality of the collateral for the loan.

The Banks evaluation of the adequacy of the
allowance for loan losses includes a review of all loans on at least a quarterly basis. For residential mortgage loans and consumer loans, the primary factors used to determine the adequacy of the allowance are delinquency, collateral value, general
economic conditions and, where applicable, individual borrower information that is known to the Bank. For commercial loans and commercial real estate loans, the review includes financial performance of the borrower, payment history, collateral
value, general economic conditions and more specific economic conditions affecting specific industries or business activities of the borrowers within the portfolio agreements.

Management maintains an allowance for loan losses that it considers adequate based on the evaluation process that it performs on a quarterly basis. As part of this process, management considers it
appropriate to maintain a portion of the allowance that is based on credit quality trends, loan volume, current economic trends and other uncertainties. This portion of the allowance for loan losses is reflected as the unallocated portion in the
table below that indicates the distribution of the allowance.

The allowance for loan losses is based on estimates and ultimate losses may
vary from current estimates. These estimates are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known.

The following tables set forth information on the analysis of the allowance for loan losses and the allocation of the allowance for loan losses as of the dates indicated:

Analysis of Allowance for Loan Losses

(Dollars in Thousands)



|                                       |  |                          |       |  |      |   |       |      |  |   |       |   |  |      |       |  |  |   |       | 
|-------------------------------------- |  | ------------------------ | ----- |  | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- |  |  | - | ----- | 
|                                       |  | Years Ended December 31, |      
|                                       |  | 2010                     |       |  | 2009 |   |       | 2008 |  |   | 2007  |   |  | 2006 |      
|                                       |  |                          |       |  |     
|Beginning balance                      |  | $                        | 2,830 |  |      | $ | 1,633 |      |  | $ | 1,249 |   |  | $    | 1,230 |  |  | $ | 1,264 | 
|Provision for loan losses              |  |                          | 336   |  |      |   | 1,237 |      |  |   | 365   |   |  |      | 60    |  |  |   |      | 
|                                       |  |                          |       |  |     
|Loans charged off:                     |  |                          |       |  |      |   |       |      |  |   |       |   |  |      |       |  |  |   |       | 
|Commercial, financial and agricultural |  |                          | 1     |  |      |   | 7     |      |  |   |      |   |  |      |      |  |  |   |      | 
|Real estate                            |  |                          | 1,002 |  |      |   | 5     |      |  |   |      |   |  |      | 21    |  |  |   | 24    | 
|Installment                            |  |                          | 33    |  |      |   | 29    |      |  |   | 9     |   |  |      | 22    |  |  |   | 15    | 
|                                       |  |                          |       |  |      |   |       |      |  |   |       |   |  |      |       |  |  |   |       | 
|                                       |  |                          |       |  |     
|Total Charged-off                      |  |                          | 1,036 |  |      |   | 41    |      |  |   | 9     |   |  |      | 43    |  |  |   | 39    | 
|                                       |  |                          |       |  |      |   |       |      |  |   |       |   |  |      |       |  |  |   |       | 
|                                       |  |                          |       |  |     
|Recoveries:                            |  |                          |       |  |      |   |       |      |  |   |       |   |  |      |       |  |  |   |       | 
|Commercial, financial and agricultural |  |                          |      |  |      |   |      |      |  |   |      |   |  |      |      |  |  |   |      | 
|Real estate                            |  |                          | 18    |  |      |   |      |      |  |   | 24    |   |  |      |      |  |  |   |      | 
|Installment                            |  |                          | 6     |  |      |   | 1     |      |  |   | 4     |   |  |      | 2     |  |  |   | 5     | 
|                                       |  |                          |       |  |      |   |       |      |  |   |       |   |  |      |       |  |  |   |       | 
|                                       |  |                          |       |  |     
|Total Recoveries                       |  |                          | 24    |  |      |   | 1     |      |  |   | 28    |   |  |      | 2     |  |  |   | 5     | 
|                                       |  |                          |       |  |      |   |       |      |  |   |       |   |  |      |       |  |  |   |       | 
|                                       |  |                          |       |  |     
|Net charge-offs (recoveries)           |  |                          | 1,012 |  |      |   | 40    |      |  |   | (19   | ) |  |      | 41    |  |  |   | 34    | 
|                                       |  |                          |       |  |      |   |       |      |  |   |       |   |  |      |       |  |  |   |       | 
|                                       |  |                          |       |  |     
|Ending balance                         |  | $                        | 2,154 |  |      | $ | 2,830 |      |  | $ | 1,633 |   |  | $    | 1,249 |  |  | $ | 1,230 | 
|                                       |  |                          |       |  |      |   |       |      |  |   |       |   |  |      |       |  |  |   |       | 



58





---

ALLOWANCE FOR LOAN LOSSES
(CONTINUED)



|                                              |  |                          |      |   |      |  |      |      |  |  |       |    |  |      |      |   |  |  |      |  
|--------------------------------------------- |  | ------------------------ | ---- | - | ---- |  | ---- | ---- |  |  | ----- | -- |  | ---- | ---- | - |  |  | ---- | -
|                                              |  | Years Ended December 31, |     
|                                              |  | 2010                     |      |   | 2009 |  |      | 2008 |  |  | 2007  |    |  | 2006 |     
|Ratios:                                       |  |                          |      |   |      |  |      |      |  |  |       |    |  |      |      |   |  |  |      |  
|Net charge-offs (recoveries) to average loans |  |                          | 0.45 | % |      |  | 0.02 | %    |  |  | (0.01 | )% |  |      | 0.02 | % |  |  | 0.02 | %
|Allowance for loan losses to total loans      |  |                          | 0.90 | % |      |  | 1.29 | %    |  |  | 0.76  | %  |  |      | 0.65 | % |  |  | 0.69 | %

Allocation of the
Allowance for Loan Losses

(Dollars in Thousands)



|                                       |  |        |       |  |                                 |  |        |        |  |   |                                 |  |  |        |        |   |                                 |   |       |        |  |  |                                 |   |  |        |       |  |                                 |  |        |   |  |   |       |  |  |  |        |  
|-------------------------------------- |  | ------ | ----- |  | ------------------------------- |  | ------ | ------ |  | - | ------------------------------- |  |  | ------ | ------ | - | ------------------------------- | - | ----- | ------ |  |  | ------------------------------- | - |  | ------ | ----- |  | ------------------------------- |  | ------ | - |  | - | ----- |  |  |  | ------ | -
|                                       |  | 2010   |       |  | 2009                            |  |        | 2008   |  |   | 2007                            |  |  | 2006   |       
|                                       |  | Amount |       |  | Percent ofLoanType toTotalLoans |  |        | Amount |  |   | Percent ofLoanType toTotalLoans |  |  | Amount |        |   | Percent ofLoanType toTotalLoans |   |       | Amount |  |  | Percent ofLoanType toTotalLoans |   |  | Amount |       |  | Percent ofLoanType toTotalLoans | 
|                                       |  |        |       |  |                                 |  |        |        |  |  
|Commercial, financial and agricultural |  | $      | 730   |  |                                 |  | 16.35  | %      |  | $ | 575                             |  |  |        | 14.74  | % |                                 | $ | 403   |        |  |  | 10.71                           | % |  | $      | 357   |  |                                 |  | 9.09   | % |  | $ | 314   |  |  |  | 9.30   | %
|Real estate:                           |  |        |       |  |                                 |  |        |        |  |   |                                 |  |  |        |        |   |                                 |   |       |        |  |  |                                 |   |  |        |       |  |                                 |  |        |   |  |   |       |  |  |  |        |  
|Commercial                             |  |        | 630   |  |                                 |  | 19.32  |        |  |   | 1,333                           |  |  |        | 17.23  |   |                                 |   | 334   |        |  |  | 19.24                           |   |  |        | 449   |  |                                 |  | 19.88  |   |  |   | 448   |  |  |  | 19.85  |  
|Construction                           |  |        |      |  |                                 |  | 1.03   |        |  |   |                                |  |  |        | 2.30   |   |                                 |   |      |        |  |  | 2.67                            |   |  |        |      |  |                                 |  | 0.75   |   |  |   |      |  |  |  |       |  
|Residential                            |  |        | 702   |  |                                 |  | 61.17  |        |  |   | 697                             |  |  |        | 63.30  |   |                                 |   | 692   |        |  |  | 64.50                           |   |  |        | 262   |  |                                 |  | 67.20  |   |  |   | 235   |  |  |  | 67.84  |  
|Installment                            |  |        | 92    |  |                                 |  | 2.13   |        |  |   | 114                             |  |  |        | 2.43   |   |                                 |   | 126   |        |  |  | 2.88                            |   |  |        | 142   |  |                                 |  | 3.08   |   |  |   | 139   |  |  |  | 3.01   |  
|Unallocated                            |  |        |      |  |                                 |  | N/A    |        |  |   | 111                             |  |  |        | N/A    |   |                                 |   | 78    |        |  |  | N/A                             |   |  |        | 39    |  |                                 |  | N/A    |   |  |   | 94    |  |  |  | N/A    |  
|                                       |  |        |       |  |                                 |  |        |        |  |  
|Total                                  |  | $      | 2,154 |  |                                 |  | 100.00 | %      |  | $ | 2,830                           |  |  |        | 100.00 | % |                                 | $ | 1,633 |        |  |  | 100.00                          | % |  | $      | 1,249 |  |                                 |  | 100.00 | % |  | $ | 1,230 |  |  |  | 100.00 | %

Management believes the allowance for loan
losses at December 31, 2010 and 2009 is adequate to absorb losses inherent in the loan portfolio. Although management believes that it uses the best information available to make such determinations, future adjustments to the allowance for loan
losses may be necessary, and the results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while the Bank believes it has
established its existing allowance for loan losses in accordance with accounting principles generally accepted in the United States of America, there can be no assurance that the Office of the Comptroller of the Currency or the Federal Reserve
Board, in reviewing our loan portfolio, will not request us to increase our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the
existing allowance for loan losses is adequate or that material increases will not be necessary should the quality of loans deteriorate as a result of factors discussed above. Any material increase in the allowance for loan losses may adversely
affect the Banks financial condition and results of operations.

DEPOSITS

Management believes that the development and retention of deposits is the basis of sound growth and profitability. These deposits provide the primary
source of funding for loans and investments. The Corporations continued expansion and business development within its market area fueled the growth in deposits. As of December 31, 2010, deposits totaled $317,849,000 up $21,390,000 or
7.2%, from year-end 2009. Savings deposits contributed most of the growth with $30,132,000. Demand deposits increased $6,711,000 and time deposits decreased $15,453,000. The growth in deposits resulted from continuing bank-wide promotions of its
money market account.



| |  |    |  | 
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| |  | 59 |  | 





---

BORROWINGS

Short-term borrowings at December 31 were as follows:



|                                                        |  |                        |       |   |      |   |       |      |  |   |        |  
|------------------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                                        |  | 2010                   |       |   | 2009 |   |       | 2008 | 
|                                                        |  | (Dollars in Thousands) |      
|                                                        |  |                        |      
|Amount outstanding at end of year:                      |  |                        |       |   |      |   |       |      |  |   |        |  
|Federal funds purchased                                 |  | $                      |      |   |      | $ |      |      |  | $ | 324    |  
|Securities sold under agreements to repurchase          |  |                        | 3,930 |   |      |   | 4,415 |      |  |   | 4,189  |  
|Short-term FHLB advances                                |  |                        |      |   |      |   |      |      |  |   | 6,000  |  
|Treasury tax and loan note                              |  |                        | 100   |   |      |   | 97    |      |  |   | 100    |  
|                                                        |  |                        |       |   |      |   |       |      |  |   |        |  
|                                                        |  |                        |      
|Total                                                   |  | $                      | 4,030 |   |      | $ | 4,512 |      |  | $ | 10,613 |  
|                                                        |  |                        |       |   |      |   |       |      |  |   |        |  
|                                                        |  |                        |      
|Weighted average interest rate at end of year           |  |                        | 1.17  | % |      |   | 1.14  | %    |  |   | 0.78   | %
|Maximum amount outstanding at any end of month          |  | $                      | 4,455 |   |      | $ | 6,440 |      |  | $ | 15,865 |  
|Daily average amount outstanding                        |  |                        | 4,521 |   |      |   | 4,612 |      |  |   | 9,146  |  
|Approximate weighted average interest rate for the year |  |                        | 1.15  | % |      |   | 1.08  | %    |  |   | 1.85   | %

Long-term debt at December 31 was as
follows:



|                                                        |  |                        |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                        |  | 2010                   |        |   | 2009 |   |        | 2008 | 
|                                                        |  | (Dollars in Thousands) |       
|                                                        |  |                        |       
|Amount outstanding at end of year:                      |  |                        |        |   |      |   |        |      |  |   |        |  
|FHLB advances                                           |  | $                      | 16,000 |   |      | $ | 22,000 |      |  | $ | 22,000 |  
|Junior subordinated debt                                |  |                        | 5,155  |   |      |   | 5,155  |      |  |   | 5,155  |  
|                                                        |  |                        |        |   |      |   |        |      |  |   |        |  
|                                                        |  |                        |       
|Total                                                   |  | $                      | 21,155 |   |      | $ | 27,155 |      |  | $ | 27,155 |  
|                                                        |  |                        |        |   |      |   |        |      |  |   |        |  
|                                                        |  |                        |       
|Weighted average interest rate at end of year           |  |                        | 3.92   | % |      |   | 4.45   | %    |  |   | 5.32   | %
|Daily average amount outstanding                        |  |                        | 23,248 |   |      |   | 27,155 |      |  |   | 26,966 |  
|Approximate weighted average interest rate for the year |  |                        | 4.08   | % |      |   | 4.56   | %    |  |   | 5.13   | %

Additional information on borrowings is
located in footnote 7 to the consolidated financial statement.

OFF-BALANCE SHEET
ARRANGEMENTS

The Corporation is party to 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, to a lesser extent, standby letters of credit. At December 31, 2010, the Corporation had unfunded outstanding commitments to
extend credit of $30.6 million and outstanding standby letters of credit of $175,000. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily
represent future cash requirements. The current amount of liability as of December 31, 2010 and 2009 for guarantees under standby letters of credit is not material. Refer to footnote 12 of the consolidated financial statements for a
discussion of the nature, business purpose and importance of the Corporations off-balance sheet arrangements.



60





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LIQUIDITY AND CAPITAL RESOURCES

Liquidity represents the Corporations ability to efficiently manage cash flows to support customers loan demand, withdrawals
by depositors, the payment of operating expenses, as well as the ability to take advantage of business and investment opportunities as they arise. Liquidity is essential to compensate for fluctuations in the balance sheet and provide funds for
growth.

The primary sources of liquidity are the Corporations deposit base and a strong capital position. The stability of the deposits
is reflected in a comparison of year-end balances to yearly averages. Deposits at year-end 2010 totaled $317,849,000 and averaged $306,338,000 for the year. Likewise, year-end 2009 deposits totaled $296,459,000 and averaged $285,417,000 for the
year. Other sources of liquidity are available from investment securities maturing in one year or less, which totaled $4,075,000 at year-end 2010 and from investments in mortgage-backed securities, which supply income and principal cash flow streams
on an ongoing basis. Mortgage-backed securities represented 69.9% of the total amortized cost of securities as of December 31, 2010. These sources provide the Corporation with adequate resources to meet its short-term liquidity requirements.
Longer term liquidity needs may include selling securities available for sale, which had a fair value of $75,627,000 at December 31, 2010, selling loans or raising additional capital. In addition, the Corporation has established federal funds
lines of credit at the Federal Home Loan Bank of Pittsburgh and the Atlantic Central Bankers Bank, which are reliable sources for short and long-term funds. The maximum borrowing capacity through the Federal Home Loan Bank was approximately
$136,264,000 at December 31, 2010, of which $120,264,000 or 88.3% was available.

The Corporations average loan to deposit ratio
for 2010 was 73.5% and ended the year at 74.3% compared to an average of 75.2% in 2009 and 80.9% at the end of 2008.

The Corporations
financial statements do not reflect various commitments that are made in the normal course of business, which may involve some liquidity risk. These commitments consist mainly of unfunded loans and letters of credit made under the same standards as
on-balance sheet instruments. Commitments to extend credit, at December 31, 2010 totaled $30.6 million and standby letters of credit totaled $175,000.

The Corporation is not aware of any known trends or any known demands, commitments, events or uncertainties, which would result in the liquidity increasing or decreasing in a material way.

The greater the capital resources, the more likely the Corporation will be able to meet its cash obligations and unforeseen expenses. The
Corporations strong capital position is related to the Corporations earnings stability. The dividend payout ratio was 25.7% in 2010, compared to 36.5% in 2009. Shareholders equity at the end of 2010 totaled $28,282,000, an increase
of $2,924,000 or 11.5% over year-end 2009. The increase was a result of net income, an increase in the unrealized gain on securities available for sale, net of taxes of $104,000 and an increase in common stock and surplus of $80,000 as a result of
our dividend reinvestment plan, partially offset by the dividend payout of $946,000. Likewise, shareholders equity at the end of 2009 totaled $25,358,000, an increase of $1,945,000 or 8.3% over year-end 2008. The increase was a result of net
income, an increase in the unrealized gain on securities available for sale, net of taxes of $510,000, an increase in common stock and surplus of $69,000 as a result of our dividend reinvestment plan, partially offset by the dividend payout of
$812,000, and the purchase of treasury stock of $48,000.

The table in footnote 11 to the financial statements sets forth the
Corporations and Banks capital ratios as of December 31, 2010 and 2009. These ratios show that the Bank exceeds the federal regulatory minimum requirements for a well capitalized bank. The minimum regulatory requirements
of a well capitalized bank for the leverage ratio, Tier 1 and total risk-based capital ratios are 5.00%, 6.00% and 10.00%, respectively.

The Corporations ability to meet its expenses and pay dividends to its shareholders is dependent on the cash dividends it receives from the Bank. Certain restrictions exist regarding the ability of
the Bank to transfer funds to the Corporation in the form of cash dividends, loans or advances. Regulatory approval is required if the total of all dividends declared by a national bank in any calendar year exceeds net profits (as defined) for that
year combined with the retained net profits for the two preceding calendar years. At December 31, 2010, approximately $5,665,000 of undistributed earnings of the Bank, included in consolidated shareholders equity, was available for
distribution to the Corporation as dividends without prior regulatory approval.



61





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LIQUIDITY AND CAPITAL RESOURCES
(CONTINUED)



The Corporation is not under any agreement with the regulatory authorities nor is it aware of any
current recommendations by the regulatory authorities that, if implemented, would have a material effect on the Corporations capital, liquidity or its operations.

On January 8, 2008, the Board of Directors of the Corporation authorized a stock repurchase program pursuant to which the Corporation is authorized to purchase up to 7.1% of its outstanding shares or
100,000 shares. Share repurchases will be made from time to time and may be effected through open market purchases, block trades, or in privately negotiated transactions. As of December 31, 2010, the Corporation has purchased 3,651 shares under
this repurchase program.

INFLATION

The impact of inflation upon banks differs from the impact upon non-banks. The majority of assets and liabilities of a bank are monetary in nature and, therefore, change with movements in interest rates.
The exact impact of inflation on the Corporation is difficult to measure. Inflation may cause operating expenses to increase at a rate not matched by increased earnings. Inflation may also affect the borrowing needs of consumers, thereby affecting
growth of the Corporations assets. Inflation may also affect the general level of interest rates, which could have an effect on the Corporations profitability. However, as discussed previously, the Corporation strives to manage its
interest sensitive assets and liabilities offsetting the effects of inflation.



| |  |    |  | 
| |  | -- |  | 
| |  | 62 |  | 





---

Summary of Selected Financial Data

(Amounts in Thousands, Except Per Share Data)



|                                                          |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                          |  | 2010 |         |   | 2009 |   |         | 2008 |  |   | 2007    |   |  | 2006 |        
|                                                          |  |      |         |   |     
|Income Statement Data                                     |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                          |  |      |         |   |     
|Net interest income                                       |  | $    | 11,352  |   |      | $ | 9,721   |      |  | $ | 9,004   |   |  | $    | 7,308   |   |  | $ | 7,016   |  
|Provision for loan losses                                 |  |      | 336     |   |      |   | 1,237   |      |  |   | 365     |   |  |      | 60      |   |  |   |        |  
|Gains on sales of securities                              |  |      | 182     |   |      |   | 459     |      |  |   |        |   |  |      |        |   |  |   | 24      |  
|Other income                                              |  |      | 2,577   |   |      |   | 2,496   |      |  |   | 2,296   |   |  |      | 2,107   |   |  |   | 1,896   |  
|Other expenses                                            |  |      | 9,036   |   |      |   | 8,797   |      |  |   | 7,978   |   |  |      | 6,838   |   |  |   | 6,510   |  
|                                                          |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                          |  |      |         |   |     
|Income before Income Taxes                                |  |      | 4,739   |   |      |   | 2,642   |      |  |   | 2,957   |   |  |      | 2,517   |   |  |   | 2,426   |  
|                                                          |  |      |         |   |     
|Income tax expense                                        |  |      | 1,053   |   |      |   | 416     |      |  |   | 621     |   |  |      | 500     |   |  |   | 461     |  
|                                                          |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                          |  |      |         |   |     
|Net Income                                                |  | $    | 3,686   |   |      | $ | 2,226   |      |  | $ | 2,336   |   |  | $    | 2,017   |   |  | $ | 1,965   |  
|                                                          |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                          |  |      |         |   |     
|Balance Sheet Data (Period End)                           |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                          |  |      |         |   |     
|Total assets                                              |  | $    | 374,155 |   |      | $ | 355,836 |      |  | $ | 326,714 |   |  | $    | 302,295 |   |  | $ | 278,520 |  
|                                                          |  |      |         |   |     
|Loans, net                                                |  |      | 236,231 |   |      |   | 216,600 |      |  |   | 212,377 |   |  |      | 191,225 |   |  |   | 177,930 |  
|Investments:                                              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Held to maturity                                          |  |      | 31,872  |   |      |   | 30,204  |      |  |   | 24,127  |   |  |      | 21,229  |   |  |   | 21,073  |  
|Available for sale                                        |  |      | 75,627  |   |      |   | 81,437  |      |  |   | 66,376  |   |  |      | 63,340  |   |  |   | 48,955  |  
|Deposits                                                  |  |      | 317,849 |   |      |   | 296,459 |      |  |   | 262,606 |   |  |      | 245,046 |   |  |   | 222,374 |  
|Short-term borrowings                                     |  |      | 4,030   |   |      |   | 4,512   |      |  |   | 10,613  |   |  |      | 10,320  |   |  |   | 7,417   |  
|Long-term debt                                            |  |      | 21,155  |   |      |   | 27,155  |      |  |   | 27,155  |   |  |      | 23,155  |   |  |   | 27,155  |  
|Shareholders equity                                      |  |      | 28,282  |   |      |   | 25,358  |      |  |   | 23,413  |   |  |      | 21,533  |   |  |   | 19,674  |  
|                                                          |  |      |         |   |     
|Per Share Data                                            |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                          |  |      |         |   |     
|Basic earnings                                            |  | $    | 2.63    |   |      | $ | 1.59    |      |  | $ | 1.67    |   |  | $    | 1.44    |   |  | $ | 1.40    |  
|Cash dividends declared                                   |  |      | 0.675   |   |      |   | 0.58    |      |  |   | 0.52    |   |  |      | 0.47    |   |  |   | 0.43    |  
|Book value                                                |  |      | 20.15   |   |      |   | 18.10   |      |  |   | 16.73   |   |  |      | 15.38   |   |  |   | 14.05   |  
|Weighted average common shares outstanding                |  |      | 1,402   |   |      |   | 1,399   |      |  |   | 1,400   |   |  |      | 1,400   |   |  |   | 1,400   |  
|                                                          |  |      |         |   |     
|Selected Ratios                                           |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                          |  |      |         |   |     
|Return on average assets                                  |  |      | 1.01    | % |      |   | 0.65    | %    |  |   | 0.73    | % |  |      | 0.70    | % |  |   | 0.72    | %
|Return on average shareholders equity                    |  |      | 13.71   | % |      |   | 9.06    | %    |  |   | 10.52   | % |  |      | 9.91    | % |  |   | 10.50   | %
|Average equity to average assets                          |  |      | 7.39    | % |      |   | 7.13    | %    |  |   | 6.96    | % |  |      | 7.05    | % |  |   | 6.88    | %
|Allowance for loan losses to total loans at end of period |  |      | 0.90    | % |      |   | 1.29    | %    |  |   | 0.76    | % |  |      | 0.65    | % |  |   | 0.69    | %
|Dividend payout ratio                                     |  |      | 25.66   | % |      |   | 36.48   | %    |  |   | 31.14   | % |  |      | 32.62   | % |  |   | 30.64   | %



63





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DIRECTORS

FIRST COMMUNITY FINANCIAL CORPORATION

and

THE FIRST NATIONAL BANK OF MIFFLINTOWN

JOHN P. HENRY, III

Chairman of the Board of Directors of the Company and the Bank;

Vice President of JPH Enterprises, LLC, Port Royal, PA

ROGER SHALLENBERGER

Vice Chairman of the Board of Directors of the Company and the Bank;

President of KSM Enterprises

JODY D. GRAYBILL

President and Chief Executive Officer of the Company and the Bank

LOWELL M. SHEARER

Secretary of the Board of Directors of the Company and the

Bank; Self-employed

NANCY S. BRATTON

Owner of Bratton Insurance Inc., Millerstown and Mifflintown, PA

SAMUEL G. KINT

Retired businessman

DAVID M. McMILLEN

Owner of David McMillen Custom Contracting, Inc, Loysville, PA

CHARLES C. SANER

Retired Dairy Farmer

DAVID L. SWARTZ

County Extension Director and Senior Dairy Educator for Penn State Cooperative Extension in Perry

and Cumberland Counties

FRANK L. WRIGHT

Attorney-at-Law, Harrisburg, PA



64





---

Officers

FIRST COMMUNITY FINANCIAL CORPORATION

JOHN P. HENRY, III

Chairman

ROGER
SHALLENBERGER

Vice Chairman

JODY D. GRAYBILL

President and Chief Executive Officer

LOWELL M. SHEARER

Secretary

RICHARD R. LEITZEL

Treasurer

JENNIFER S. KAUFFMAN

Assistant Secretary

BOBBI J. LEISTER

Assistant Secretary



65





---

OFFICERS

THE FIRST NATIONAL BANK OF MIFFLINTOWN

JODY D. GRAYBILL

President and Chief Executive Officer

K. LEE HOPKINS

Senior Vice President and Chief Lending Officer

KIMBERLY A. BENNER

Vice President and Trust and Investment Services Division
Manager

RICHARD R. LEITZEL

Vice President and Chief Financial Officer

DAVID S. RUNK

Vice President and Chief Risk Officer

TIMOTHY P. STAYER

Vice President, Marketing and Community Banking Services
Division Manager

SCOTT E. FRITZ

Vice President and Commercial Loan Officer

NANETTE W. STAKE

Vice President, IT Manager and IT Security Officer

PATTI L. MCLAUGHLIN

Vice President and Commercial Loan Officer

FLORENCE E. DRESSLER

Assistant Vice President and Community Office Manager, Fermanagh Office

AUDRA L.
HUNTER

Assistant Vice President and Community Office Manager, New Bloomfield and

Bloomfield Borough Offices

CHRISTOPHER W. MEALS

Assistant Vice President and Community Office Manager,
Mifflintown Office

ROY A. LEISTER, JR.

Assistant Vice President and Community Office Manager, Delaware Office

BRADLEY D.
SHERMAN

Assistant Vice President and Community Office Manager, West Perry, Ickesburg and Loysville Offices

DIANE E. ZEIDERS

Assistant Vice President and Community Office Manager, Tuscarora Valley and East Waterford Offices

NANCI A. AUMILLER

Assistant Vice President and Operations Manager/BSA/AML and Security Officer

TINA J. SMITH

Assistant Vice President and Human Resources Manager

DIANE M. SYKES

Assistant Vice President and Trust Officer

J. NEAL SHAWVER

Credit Analyst

KIM W. MILLS

Community Office Manager, Shermans Dale Office

ADAM E. TRUITT

Trust Officer

BOBBI J. LEISTER

Assistant Secretary / Corporate Relations and Marketing Officer

JENNIFER S. KAUFFMAN

Assistant Secretary



66





---

DIRECTORS EMERITI AND
ADVISORY BOARDS

DIRECTORS EMERITI

DONALD Q. ADAMS

JOHN M. AUKER

JOSEPH E. BARNES, SR.

DALE BEASTON

HARRY E. CLARK

ELWOOD S. HENCH

C. ROBERT HOCKENBROCK

RAYMOND T. LONG

JANE B. MARHEFKA

JAMES L. McCLURE

CLAIR E. McMILLEN

PHYLLIS S. MOHLER

ROBERT E. SHEAFFER

JOHN A. TETWILER

H. SCOTT WEIBLEY

A. JACK WELLER

RICHARD L. WIBLE

ADVISORY BOARDS

DELAWARE OFFICE

DENNIS L. BASSLER

PETER E. BRUMMER

CHARLES C. SMITH

MERVIN J. STRAWSER

FERMANAGH OFFICE

DANIEL B. BROWN

RONALD H. MAST

RICHARD E. RHINE

SAMUEL RITZMAN

ALAN E. VARNER

TUSCARORA VALLEY AND EAST WATERFORD OFFICES

WILLIAM A. GILLILAND

KEVIN L. LONG

NORMAN F. LOVE

JAMES M. SHEAFFER

BARBARA G. WILSON

NEW BLOOMFIELD, SHERMANS DALE AND BLOOMFIELD BOROUGH OFFICES

WILLIAM R. BUNT

DARWIN L. KITNER

JOHN K. McCLELLAN

FRED E. MORROW

JAMES E. SWENSON

WEST PERRY, ICKESBURG AND LOYSVILLE OFFICES

AMOS S. ESH

CLEE L. McMILLEN

CHARLES C. NYCE

TERRY K. URICH



67





---

BANK LOCATIONS

First Community Financial Corporation

and Wholly Owned Subsidiary,

The First National Bank of Mifflintown

The First National Bank of Mifflintown is a full-service financial institution

serving customers from five locations in Juniata County and six locations in Perry County.

MAIN OFFICE & TRUST AND INVESTMENT SERVICES

Two North Main Street

Mifflintown, PA 17059

717-436-2144

BLOOMFIELD BOROUGH OFFICE

216 South Carlisle Street

New Bloomfield, PA 17068

717-582-3977

DELAWARE OFFICE

24021 Rt. 333

Thompsontown, PA 17094

717-535-5158

EAST WATERFORD OFFICE

9775 Rt. 75 South

East Waterford, PA 17021

717-734-2400

FERMANAGH OFFICE

50 Stop Plaza Dr.

Mifflintown, PA 17059

717-436-8968

ICKESBURG OFFICE

250 Tuscarora Path

Ickesburg, PA 17037

717-438-3050

LOYSVILLE OFFICE

3544 Shermans Valley Road

Loysville, PA 17047

717-789-2400

NEW BLOOMFIELD OFFICE & TRUST AND INVESTMENT OFFICE

550 Shermans Valley Road

New Bloomfield, PA 17068

717-582-7599

SHERMANS DALE OFFICE

5201 Spring Road, Suite 5

Shermans Dale, PA 17090

717-582-7424



68





---

TUSCARORA VALLEY OFFICE

5804 William Penn Hwy

Port Royal, PA 17082

717-436-8947

WEST PERRY OFFICE

22 Veterans Way

Elliottsburg, PA 17024

717-789-4500

TOLL FREE

1-866-950-2144



69





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Stock and Dividend Information

The Corporation has only one class of common stock authorized, issued and outstanding. Although shares of the Corporations common stock are traded from time to time in private transactions, and in
the over-the-counter market, there is no established public trading market for the stock. The Corporations common stock is not listed on any stock exchange or automated quotation system and there are no present plans to so list the stock.
There can be no assurance that, at any given time, any persons will be interested in acquiring shares of the Corporations common stock. Price quotations for the Corporations common stock do not appear regularly in any generally
recognized investment media.

The Corporation pays dividends on the outstanding shares of our common stock as determined by the Board of
Directors from time to time. It has been the practice of the Board of Directors to declare cash dividends on a quarterly basis. Future dividends will depend upon our earnings, financial position, cash requirements and such other factors as the Board
of Directors may deem relevant. The following table sets forth the cash dividends declared per share of the Corporations common stock and the highest and lowest per share prices at which the Corporations common stock has traded in
private transactions and in the over-the-counter market during the periods indicated. To the best of managements knowledge, such prices do not include any retail mark-up, mark-down or commission. Shares may have been sold in other
transactions, the price and terms of which are not known to the Corporation. Therefore, the per share prices at which the Corporations stock has previously traded may not necessarily be indicative of the true market value of the shares.



|            |  |                       |       |  |           |   |       |           |  |   |       | 
|----------- |  | --------------------- | ----- |  | --------- | - | ----- | --------- |  | - | ----- | 
|            |  | Per Share Sales Price |       |  | Dividends |  
|Quarter     |  | High                  |       |  | Low       |   |       | per Share | 
|First, 2010 |  | $                     | 29.00 |  |           | $ | 20.00 |           |  | $ | 0.160 | 
|            |  |                       |      
|Second      |  |                       | 32.00 |  |           |   | 22.00 |           |  |   | 0.170 | 
|            |  |                       |      
|Third       |  |                       | 29.24 |  |           |   | 25.00 |           |  |   | 0.170 | 
|            |  |                       |      
|Fourth      |  |                       | 28.00 |  |           |   | 25.56 |           |  |   | 0.175 | 
|            |  |                       |      
|First, 2009 |  | $                     | 31.00 |  |           | $ | 29.50 |           |  | $ | 0.140 | 
|            |  |                       |      
|Second      |  |                       | 30.00 |  |           |   | 28.00 |           |  |   | 0.140 | 
|            |  |                       |      
|Third       |  |                       | 30.00 |  |           |   | 20.00 |           |  |   | 0.150 | 
|            |  |                       |      
|Fourth      |  |                       | 29.00 |  |           |   | 20.00 |           |  |   | 0.150 | 

The authorized common stock of the
Corporation consists of 10,000,000 shares of common stock, par value $5.00 per share, of which 1,403,761 shares were outstanding at December 31, 2010. There were no shares of the Corporations common stock (i) that are subject to
outstanding options, warrants or securities convertible into common stock; (ii) that the Corporation has agreed to register under the Securities Act for sale by security holders; or (iii) that are or have been proposed to be publicly
offered by the Corporation. The Corporation had approximately 764 shareholders of record as of December 31, 2010.

Annual Report on
Form 10-K

The Corporations Annual Report on Form 10-K, which contains additional information about the Corporation, was filed
with the Securities & Exchange Commission and may be obtained without charge, by writing to:

Mr. Richard R. Leitzel

Vice President & Chief Financial Officer

First Community
Financial Corporation

P.O. Box 96

Mifflintown, PA 17059

The Form 10-K is also available on the Securities &
Exchange Commissions Internet site at http://www.sec.gov.

Notice of Annual Meeting

The Annual Meeting of Shareholders of the Corporation will be held on Tuesday, April 12, 2011, beginning at 10:00 a.m., at: Cedar Grove Brethren in
Christ Church, located near the PA Route 75 and U.S. Route 22/322 interchange in Mifflintown, Pennsylvania. A Notice of the Annual Meeting, Proxy Statement and Proxy are being delivered together with this Annual Report to shareholders entitled to
vote at the meeting.



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