| x | ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|--------------------------------------------------------------------------------|

|  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|------------------------------------------------------------------------------------------|

| Pennsylvania                                   |   | 23-2249083                              |
|------------------------------------------------|--------|-----------------------------------------|
| (State or other jurisdiction of incorporation) |   | (I.R.S. Employer Identification Number) |
|                                           |   |                                    |
| 111 West Front Street Berwick, Pennsylvania    |   | 18603                                   |
| (Address of principal executive offices)       |   | (Zip Code)                              |

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|     |                                                                                                            |   | Page          |
|----------|-----------------------------------------------------------------------------------------------------------------|--------|---------------|
| Part I   |                                                                                                            |   |          |
|     |                                                                                                            |   |          |
| Item 1.  | Business                                                                                                        |   |   1 |
| Item 1A. | Risk Factors                                                                                                    |   |   9 |
| Item 1B. | Unresolved Staff Comments                                                                                       |   | 12            |
| Item 2.  | Properties                                                                                                      |   | 13            |
| Item 3.  | Legal Proceedings                                                                                               |   | 13            |
| Item 4.  | Removed and Reserved                                                                                            |   | 13            |
|     |                                                                                                            |   |          |
| Part II  |                                                                                                            |   |          |
|     |                                                                                                            |   |          |
| Item 5.  | Market for Registrant's Common Equity and Related Shareholder Matters and Issuer Purchases of Equity Securities |   | 14            |
| Item 6.  | Selected Financial Data                                                                                         |   | 17            |
| Item 7.  | Management's Discussion and Analysis of Financial Condition and Results of Operations                           |   | 18            |
| Item 7A. | Quantitative and Qualitative Disclosure About Market Risk                                                       |   | 36            |
| Item 8.  | Financial Statements and Supplementary Data                                                                     |   | 37            |
| Item 9.  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |   | 78            |
| Item 9A. | Controls and Procedures                                                                                         |   | 78            |
| Item 9B. | Other Information                                                                                               |   | 79            |
|     |                                                                                                            |   |          |
| Part III |                                                                                                            |   |          |
|     |                                                                                                            |   |          |
| Item 10. | Directors, Executive Officers and Corporate Governance                                                          |   | 79            |
| Item 11. | Executive Compensation                                                                                          |   | 79            |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters                  |   | 80            |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence                                       |   | 80            |
| Item 14. | Principal Accountant Fees and Services                                                                          |   | 80            |
|     |                                                                                                            |   |          |
| Part IV  |                                                                                                            |   |          |
|     |                                                                                                            |   |          |
| Item 15. | Exhibits and Financial Statement Schedules                                                                      |   | 80            |
|     | Signatures                                                                                                      |   | 82            |
|     | Exhibit 10.2                                                                                                    |   |          |
|     | Exhibit 21                                                                                                      |   |          |
|     | Exhibit 23                                                                                                      |   |          |
|     | Exhibit 31.1                                                                                                    |   |          |
|     | Exhibit 31.2                                                                                                    |   |          |
|     | Exhibit 32.1                                                                                                    |   |          |
|     | Exhibit 32.2                                                                                                    |   |          |

----

| ITEM 1. | BUSINESS |
|---------|----------|

----

----

----

|                                     |   | (In Thousands) |    |
|------------------------------------------|--------|----------------|---------|
| Tier I Capital                           |   | $              | 60,281  |   |
| Tier II Capital                          |   |           | 5,701   |   |
| Total Capital                            |   | $              | 65,982  |   |
|                                     |   |           |    |   |
| Adjusted Total Average Assets            |   |           | 810,120 |   |
| Total Adjusted Risk-Weighted Assets1     |   |           | 555,815 |   |
|                                     |   |           |    |   |
| Tier I Risk-Based Capital Ratio2         |   |           | 10.85   | % |
| Required Tier I Risk-Based Capital Ratio |   |           | 4.00    | % |
| Excess Tier I Risk-Based Capital Ratio   |   |           | 6.85    | % |
| Total Risk-Based Capital Ratio3          |   |           | 11.87   | % |
| Required Total Risk-Based Capital Ratio  |   |           | 8.00    | % |
| Excess Total Risk-Based Capital Ratio    |   |           | 3.87    | % |
| Tier I Leverage Ratio4                   |   |           | 7.44    | % |
| Required Tier I Leverage Ratio           |   |           | 4.00    | % |
| Excess Tier I Leverage Ratio             |   |           | 3.44    | % |

----

----

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|   | · | to increase corporate responsibility; |
|--------|--------|---------------------------------------|

|   | · | to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies; and |
|--------|--------|---------------------------------------------------------------------------------------------------------------|

|   | · | to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | · | governing the services that can be provided by a public company’s independent auditors and the procedures for approving such services; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | requiring the chief executive officer and chief financial officer to certify certain matters relating to the company’s periodic filings under the Exchange Act; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | requiring expedited filings of reports by insiders of their securities transactions and containing other provisions relating to insider conflicts of interest; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | increasing disclosure requirements relating to critical financial accounting policies and their application; |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | · | increasing penalties for securities law violations; and |
|--------|--------|---------------------------------------------------------|

|   | · | creating a public accounting oversight board, a regulatory body subject to SEC jurisdiction with broad powers to set auditing, quality control and ethics standards for accounting firms. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

| ITEM 1A. | RISK FACTORS |
|----------|--------------|

----

|   | · | The ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards and safe, sound assets. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The ability to expand the Corporation’s market position. |
|--------|--------|----------------------------------------------------------------|

|   | · | The scope, relevance and pricing of products and services offered to meet customer needs and demands. |
|--------|--------|-------------------------------------------------------------------------------------------------------|

|   | · | The rate at which the Corporation introduces new products and services relative to its competitors. |
|--------|--------|-----------------------------------------------------------------------------------------------------|

|   | · | Customer satisfaction with the Corporation’s level of service. |
|--------|--------|----------------------------------------------------------------------|

|   | · | Industry and general economic trends. |
|--------|--------|---------------------------------------|

----

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| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
|----------|---------------------------|

----

| ITEM 2. | PROPERTIES |
|---------|------------|

|   | · | Main Office located at 111 West Front Street, Berwick, Pennsylvania 18603; |
|--------|--------|----------------------------------------------------------------------------|

|   | · | Salem Office located at 400 Fowler Avenue, Berwick, Pennsylvania 18603; |
|--------|--------|-------------------------------------------------------------------------|

|   | · | Freas Avenue Office located at 701 Freas Avenue, Berwick, Pennsylvania 18603; |
|--------|--------|-------------------------------------------------------------------------------|

|   | · | Scott Township Office located at Central Road and Route 11, Bloomsburg, Pennsylvania 17815; |
|--------|--------|---------------------------------------------------------------------------------------------|

|   | · | Mifflinville Office located at Third and Race Streets, Mifflinville, Pennsylvania 18631; |
|--------|--------|------------------------------------------------------------------------------------------|

|   | · | Hanover Township Office located at 1540 Sans Souci Highway, Wilkes-Barre, Pennsylvania 18706; |
|--------|--------|-----------------------------------------------------------------------------------------------|

|   | · | Danville Office located at 1519 Bloom Road, Danville, Pennsylvania 17821; |
|--------|--------|---------------------------------------------------------------------------|

|   | · | Mountainhome Office located at Route 390 & Price’s Drive, Mountainhome, Pennsylvania 18342; |
|--------|--------|-------------------------------------------------------------------------------------------------------|

|   | · | Brodheadsville Office located at Route 209, Brodheadsville, Pennsylvania 18322; |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | Swiftwater Office located at Route 611, Swiftwater, Pennsylvania 18370; |
|--------|--------|-------------------------------------------------------------------------|

|   | · | Vacant lot held for expansion located at 117-119 West Front Street, Berwick, Pennsylvania 18603; |
|--------|--------|--------------------------------------------------------------------------------------------------|

|   | · | Parking lot located at Second and Market Streets, Berwick, Pennsylvania 18603; and |
|--------|--------|------------------------------------------------------------------------------------|

|   | · | 17 ATM’s located in Columbia, Luzerne, Montour, and Monroe counties. |
|--------|--------|----------------------------------------------------------------------------|

|   | · | Briar Creek Office located inside the Giant Market at 50 Briar Creek Plaza, Berwick, Pennsylvania 18603; |
|--------|--------|----------------------------------------------------------------------------------------------------------|

|   | · | Nescopeck Office located at 437 West Third Street, Nescopeck, Pennsylvania 18635; |
|--------|--------|-----------------------------------------------------------------------------------|

|   | · | Kingston Office located at 179 South Wyoming Avenue, Kingston, Pennsylvania 18704; |
|--------|--------|------------------------------------------------------------------------------------|

|   | · | Stroudsburg Office located at 559 Main Street, Stroudsburg, Pennsylvania 18360; |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | Operations Center located at 105 Market Street, Berwick, Pennsylvania 18603; and |
|--------|--------|----------------------------------------------------------------------------------|

|   | · | Mountain Top Office located at 18 North Mountain Boulevard, Mountain Top, Pennsylvania 18707 (land only). |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

| ITEM 3. | LEGAL PROCEEDINGS |
|---------|-------------------|

| ITEM 4. | REMOVED AND RESERVED |
|---------|----------------------|

----

| ITEM 5. | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
|---------|--------------------------------------------------------------------------------------------------------------|

|   | · | The quarterly high and low prices for a share of the Corporation's Common Stock during the periods indicated as reported to the management of the Corporation and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Quarterly dividends on a share of the Common Stock with respect to each quarter since January 1, 2009. |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|           |   | MARKET VALUE OF COMMON STOCK |   |
|----------------|--------|------------------------------|--------|
|           |   |                         |   |   |   |   |   | Per Share |   |
|           |   | High                         |   |   | Low |   |   | Dividend |   |
| 2010:          |   |                         |   |   |   |   |   |   |   |
|           |   |                         |   |   |   |   |   |   |   |
| First quarter  |   | $                            | 17.25  |   |   | $ | 15.77 |   |   | $ | .23 |   |
| Second quarter |   | $                            | 17.49  |   |   | $ | 15.50 |   |   | $ | .23 |   |
| Third quarter  |   | $                            | 16.75  |   |   | $ | 15.50 |   |   | $ | .23 |   |
| Fourth quarter |   | $                            | 17.50  |   |   | $ | 15.90 |   |   | $ | .24 |   |
|           |   |                         |   |   |   |   |   |   |   |   |   |   |
| 2009:          |   |                         |   |   |   |   |   |   |   |   |   |   |
|           |   |                         |   |   |   |   |   |   |   |   |   |   |
| First quarter  |   | $                            | 17.50  |   |   | $ | 14.01 |   |   | $ | .23 |   |
| Second quarter |   | $                            | 16.55  |   |   | $ | 15.25 |   |   | $ | .23 |   |
| Third quarter  |   | $                            | 16.55  |   |   | $ | 15.00 |   |   | $ | .23 |   |
| Fourth quarter |   | $                            | 17.95  |   |   | $ | 14.55 |   |   | $ | .23 |   |

----

|   | Registrar and Transfer Company | (800) 368-5948 |
|--------|--------------------------------|----------------|

|   | RBC Dain Rauscher | (800) 223-4207 |
|--------|-------------------|----------------|

|   | Janney Montgomery Scott LLC | (800) 526-6397 |
|--------|-----------------------------|----------------|

|   | Stifel Nicolaus & Co. Inc. | (800) 223-6807 |
|--------|--------------------------------|----------------|

|   | Boenning & Scattergood, Inc. | (800) 883-8383 |
|--------|----------------------------------|----------------|

|   | · | The Corporation would be unable to pay its debts as they become due in the usual course of business, or |
|--------|--------|---------------------------------------------------------------------------------------------------------|

|   | · | The Corporation's total assets would be less than its total liabilities. |
|--------|--------|--------------------------------------------------------------------------|

|   | · | Financial statements prepared on the basis of generally accepted accounting principles, |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | · | Financial statements that are prepared on the basis of other accounting practices and principles that are reasonable under the circumstances, or |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A fair valuation or other method that is reasonable under the circumstances. |
|--------|--------|------------------------------------------------------------------------------|

----

|   | · | the cumulative total return on the SNL Securities Corporate Performance Index1 for banks $500 million to $1 billion in total assets in the Middle Atlantic area2, and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the cumulative total return for all United States stocks traded on the NASDAQ Stock Market. |
|--------|--------|---------------------------------------------------------------------------------------------|

|                       |   | Period Ending |   |
|----------------------------|--------|---------------|--------|
|                       |   | 12/31/05      |   |   | 12/31/06 |   |   | 12/31/07 |   |   | 12/31/08 |   |   | 12/31/09 |   |   | 12/31/10 |   |
| First Keystone Corporation |   |          | 100.00 |   |   |   | 97.75 |   |   |   | 90.03 |   |   |   | 87.33 |   |   |   | 108.48 |   |   |   | 118.10 |   |
| NASDAQ - Total US          |   |          | 100.00 |   |   |   | 110.39 |   |   |   | 122.15 |   |   |   | 73.32 |   |   |   | 106.57 |   |   |   | 125.91 |   |
| SNL $500M- $1B Bank Index  |   |          | 100.00 |   |   |   | 113.73 |   |   |   | 91.14 |   |   |   | 58.40 |   |   |   | 55.62 |   |   |   | 60.72 |   |

----

| ITEM 6. | SELECTED FINANCIAL DATA |
|---------|-------------------------|

|                                                          |   | Year Ended December 31, |    |
|---------------------------------------------------------------|--------|-------------------------|---------|
|                                                          |   | 2010                    |    |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                                          |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |
| SELECTED FINANCIAL  DATA:                           |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Assets                                                  |   | $                       | 796,601 |   |   | $ | 758,330 |   |   | $ | 714,898 |   |   | $ | 681,207 |   |   | $ | 525,920 |   |
| Total Investment securities                                   |   |                    | 316,531 |   |   |   | 282,798 |   |   |   | 243,165 |   |   |   | 246,059 |   |   |   | 243,938 |   |
| Net loans                                                     |   |                    | 403,950 |   |   |   | 401,375 |   |   |   | 403,172 |   |   |   | 371,557 |   |   |   | 248,086 |   |
| Total Deposits                                                |   |                    | 626,895 |   |   |   | 580,569 |   |   |   | 504,633 |   |   |   | 493,041 |   |   |   | 384,020 |   |
| Stockholders' equity                                          |   |                    | 79,060  |   |   |   | 74,167 |   |   |   | 69,147 |   |   |   | 70,924 |   |   |   | 53,387 |   |
|                                                          |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SELECTED OPERATING DATA:                                      |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                                               |   | $                       | 38,154  |   |   | $ | 37,726 |   |   | $ | 37,638 |   |   | $ | 31,899 |   |   | $ | 28,577 |   |
| Interest expense                                              |   |                    | 12,742  |   |   |   | 15,565 |   |   |   | 18,116 |   |   |   | 17,785 |   |   |   | 14,972 |   |
| Net interest income                                           |   | $                       | 25,412  |   |   | $ | 22,161 |   |   | $ | 19,522 |   |   | $ | 14,114 |   |   | $ | 13,605 |   |
| Provision for loan losses                                     |   |                    | 2,575   |   |   |   | 800 |   |   |   | 700 |   |   |   | 150 |   |   |   | 500 |   |
| Net interest income after provision for loan and lease losses |   | $                       | 22,837  |   |   | $ | 21,361 |   |   | $ | 18,822 |   |   | $ | 13,964 |   |   | $ | 13,105 |   |
| Other income                                                  |   |                    | 5,758   |   |   |   | 4,299 |   |   |   | 4,046 |   |   |   | 4,199 |   |   |   | 3,788 |   |
| Other expense                                                 |   |                    | 17,272  |   |   |   | 16,444 |   |   |   | 13,923 |   |   |   | 10,645 |   |   |   | 9,515 |   |
| Income before income taxes                                    |   | $                       | 11,323  |   |   | $ | 9,216 |   |   | $ | 8,945 |   |   | $ | 7,518 |   |   | $ | 7,378 |   |
| Income tax expense                                            |   |                    | 2,362   |   |   |   | 1,279 |   |   |   | 1,394 |   |   |   | 1,391 |   |   |   | 1,188 |   |
| Net income                                                    |   | $                       | 8,961   |   |   | $ | 7,937 |   |   | $ | 7,551 |   |   | $ | 6,127 |   |   | $ | 6,190 |   |
|                                                          |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| PER COMMON SHARE DATA:                                        |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                    |   | $                       | 1.65    |   |   | $ | 1.46 |   |   | $ | 1.39 |   |   | $ | 1.31 |   |   | $ | 1.35 |   |
| Cash dividends                                                |   |                    | .93     |   |   |   | .92 |   |   |   | .89 |   |   |   | .88 |   |   |   | .85 |   |
|                                                          |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| PERFORMANCE RATIOS:                                           |   |                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Return on average assets                                      |   |                    | 1.09    | % |   |   | 1.06 | % |   |   | 1.08 | % |   |   | 1.09 | % |   |   | 1.20 | % |
| Return on average equity                                      |   |                    | 10.98   | % |   |   | 10.88 | % |   |   | 10.72 | % |   |   | 10.48 | % |   |   | 11.76 | % |
| Dividend payout ratio                                         |   |                    | 56.47   | % |   |   | 63.06 | % |   |   | 64.12 | % |   |   | 68.25 | % |   |   | 62.63 | % |
| Average equity to average assets ratio                        |   |                    | 9.95    | % |   |   | 9.73 | % |   |   | 10.00 | % |   |   | 10.37 | % |   |   | 10.19 | % |

----

| ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|---------|---------------------------------------------------------------------------------------|

| (Amounts in thousands)                     |   | 2010/2009           |   |   | 2009/2008           |   |
|--------------------------------------------|--------|---------------------|--------|--------|---------------------|--------|
|                                       |   | Increase/(Decrease) |   |   | Increase/(Decrease) |   |
|                                       |   | 2010                |   |   | Amount              |   |   | % |   |   | 2009 |   |   | Amount |   |   | % |   |   | 2008 |   |
| Interest Income                            |   | $                   | 38,154 |   |                | $      | 428 |   |   |   | 1.1 |   |   | $ | 37,726 |   |   | $ | 88 |   |   |   | 0.2 |   |   | $ | 37,638 |   |
| Interest Expense                           |   |                | 12,742 |   |                |   | (2,823 | ) |   |   | (18.1 | ) |   |   | 15,565 |   |   |   | (2,551 | ) |   |   | (14.1 | ) |   |   | 18,116 |   |
| Net Interest Income                        |   |                | 25,412 |   |                |   | 3,251 |   |   |   | 14.7 |   |   |   | 22,161 |   |   |   | 2,639 |   |   |   | 13.5 |   |   |   | 19,522 |   |
| Tax Equivalent Adjustment                  |   |                | 1,822  |   |                |   | (190 | ) |   |   | (9.4 | ) |   |   | 2,012 |   |   |   | 124 |   |   |   | 6.6 |   |   |   | 1,888 |   |
| Net Interest Income (fully tax equivalent) |   | $                   | 27,234 |   |                | $      | 3,061 |   |   |   | 12.7 |   |   | $ | 24,173 |   |   | $ | 2,763 |   |   |   | 12.9 |   |   | $ | 21,410 |   |

----

|                                |   | 2010    |    |   | 2009     |   |    | 2008   |   |
|------------------------------------------|--------|---------|---------|--------|----------|--------|---------|--------|--------|
|                                     |   | Average |    |   | Revenue/ |   |    | Yield/ |   |   | Average |   |   | Revenue/ |   |   | Yield/ |   |   | Average |   |   | Revenue/ |   |   | Yield/ |   |
|                                     |   | Balance |    |   | Expense  |   |    | Rate   |   |   | Balance |   |   | Expense |   |   | Rate |   |   | Balance |   |   | Expense |   |   | Rate |   |
| Interest Earning Assets:                 |   |    |    |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans:                                   |   |    |    |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial, net1,2                       |   | $       | 47,027  |   |     | $      | 2,307   |   |   |   | 4.91 | % |   | $ | 48,286 |   |   | $ | 2,664 |   |   |   | 5.52 | % |   | $ | 33,029 |   |   | $ | 2,822 |   |   |   | 8.54 | % |
| Real Estate1                             |   |    | 354,700 |   |     |   | 21,163  |   |   |   | 5.97 | % |   |   | 347,992 |   |   |   | 21,420 |   |   |   | 6.16 | % |   |   | 333,336 |   |   |   | 21,663 |   |   |   | 6.50 | % |
| Consumer, Net1,2                         |   |    | 8,700   |   |     |   | 717     |   |   |   | 8.24 | % |   |   | 12,170 |   |   |   | 922 |   |   |   | 7.58 | % |   |   | 25,498 |   |   |   | 1,136 |   |   |   | 4.46 | % |
| Fees on Loans                            |   |    | — |   |     |   | 478     |   |   |   | — | % |   |   | — |   |   |   | 149 |   |   |   | — | % |   |   | — |   |   |   | 62 |   |   |   | — | % |
| Total Loans (Including Fees)3            |   | $       | 410,427 |   |     | $      | 24,666  |   |   |   | 6.01 | % |   | $ | 408,448 |   |   | $ | 25,155 |   |   |   | 6.16 | % |   | $ | 391,863 |   |   | $ | 25,683 |   |   |   | 6.55 | % |
|                                     |   |    |    |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment Securities:                   |   |    |    |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                  |   | $       | 225,670 |   |     | $      | 10,502  |   |   |   | 4.65 | % |   | $ | 175,042 |   |   | $ | 9,347 |   |   |   | 5.34 | % |   | $ | 156,011 |   |   | $ | 8,623 |   |   |   | 5.53 | % |
| Tax Exempt1                              |   |    | 72,477  |   |     |   | 4,780   |   |   |   | 6.59 | % |   |   | 78,277 |   |   |   | 5,227 |   |   |   | 6.68 | % |   |   | 78,902 |   |   |   | 5,128 |   |   |   | 6.50 | % |
| Total Investment Securities              |   | $       | 298,147 |   |     | $      | 15,281  |   |   |   | 5.13 | % |   | $ | 253,319 |   |   | $ | 14,574 |   |   |   | 5.75 | % |   | $ | 234,913 |   |   | $ | 13,751 |   |   |   | 5.85 | % |
| Interest Bearing Deposits in Banks       |   |    | 39,638  |   |     |   | 24      |   |   |   | 0.06 | % |   |   | 18,457 |   |   |   | 9 |   |   |   | 0.05 | % |   |   | 3,515 |   |   |   | 79 |   |   |   | 2.25 | % |
| Federal Funds Sold                       |   |    | 1,521   |   |     |   | 4       |   |   |   | 0.30 | % |   |   | — |   |   |   | — |   |   |   | — | % |   |   | 436 |   |   |   | 13 |   |   |   | 2.98 | % |
| Total Other Interest Earning Assets      |   |    | 41,159  |   |     |   | 28      |   |   |   | 0.07 | % |   |   | 18,457 |   |   |   | 9 |   |   |   | 0.05 | % |   |   | 3,951 |   |   |   | 92 |   |   |   | 2.33 | % |
| Total Interest Earning Assets            |   | $       | 749,733 |   |     | $      | 39,976  |   |   |   | 5.33 | % |   | $ | 680,224 |   |   | $ | 39,738 |   |   |   | 5.84 | % |   | $ | 630,727 |   |   | $ | 39,526 |   |   |   | 6.27 | % |
|                                     |   |    |    |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest Earning Assets:             |   |    |    |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and Due From Banks                  |   | $       | 3,980   |   |     |   |    |   |   |   |   |   |   | $ | 6,943 |   |   |   |   |   |   |   |   |   |   | $ | 9,876 |   |   |   |   |   |   |   |   |   |
| Allowance for Loan Losses                |   |    | (5,286  | )      |     |   |    |   |   |   |   |   |   |   | (5,221 | ) |   |   |   |   |   |   |   |   |   |   | (5,163 | ) |   |   |   |   |   |   |   |   |
| Premises and Equipment                   |   |    | 11,816  |   |     |   |    |   |   |   |   |   |   |   | 10,515 |   |   |   |   |   |   |   |   |   |   |   | 8,427 |   |   |   |   |   |   |   |   |   |
| Foreclosed Assets Held for Sale          |   |    | 466     |   |     |   |    |   |   |   |   |   |   |   | 78 |   |   |   |   |   |   |   |   |   |   |   | 109 |   |   |   |   |   |   |   |   |   |
| Other Assets                             |   |    | 58,916  |   |     |   |    |   |   |   |   |   |   |   | 57,259 |   |   |   |   |   |   |   |   |   |   |   | 56,635 |   |   |   |   |   |   |   |   |   |
| Total Non-Interest Earning Assets        |   |    | 69,892  |   |     |   |    |   |   |   |   |   |   |   | 69,574 |   |   |   |   |   |   |   |   |   |   |   | 69,884 |   |   |   |   |   |   |   |   |   |
| Total Assets                             |   | $       | 819,625 |   |     |   |    |   |   |   |   |   |   | $ | 749,798 |   |   |   |   |   |   |   |   |   |   | $ | 700,611 |   |   |   |   |   |   |   |   |   |
|                                     |   |    |    |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Bearing Liabilities:            |   |    |    |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings, NOW Accounts, and Money Markets |   | $       | 288,431 |   |     | $      | 2,717   |   |   |   | 0.94 | % |   | $ | 220,845 |   |   | $ | 2,491 |   |   |   | 1.13 | % |   | $ | 198,916 |   |   | $ | 3,113 |   |   |   | 1.56 | % |
| Time Deposits                            |   |    | 269,075 |   |     |   | 6,394   |   |   |   | 2.38 | % |   |   | 280,005 |   |   |   | 8,873 |   |   |   | 3.17 | % |   |   | 259,480 |   |   |   | 10,795 |   |   |   | 4.16 | % |
| Short-Term Borrowings                    |   |    | 1,189   |   |     |   | 189     |   |   |   | 0.02 | % |   |   | 4,918 |   |   |   | 31 |   |   |   | 0.63 | % |   |   | 11,883 |   |   |   | 191 |   |   |   | 1.61 | % |
| Long-Term Borrowings                     |   |    | 80,735  |   |     |   | 3,401   |   |   |   | 4.21 | % |   |   | 79,899 |   |   |   | 3,830 |   |   |   | 4.79 | % |   |   | 71,221 |   |   |   | 3,539 |   |   |   | 4.97 | % |
| Fed Funds Purchased                      |   |    | — |   |     |   | — |   |   |   | — | % |   |   | 118 |   |   |   | 2 |   |   |   | 1.55 | % |   |   | 351 |   |   |   | 15 |   |   |   | 4.27 | % |
| Securities Sold U/A to Repurchase        |   |    | 19,442  |   |     |   | 229     |   |   |   | 1.18 | % |   |   | 19,268 |   |   |   | 338 |   |   |   | 1.75 | % |   |   | 17,894 |   |   |   | 463 |   |   |   | 2.59 | % |
| Total Interest Bearing Liabilities       |   | $       | 658,872 |   |     | $      | 12,742  |   |   |   | 1.93 | % |   | $ | 605,053 |   |   | $ | 15,565 |   |   |   | 2.57 | % |   | $ | 559,745 |   |   | $ | 18,116 |   |   |   | 3.24 | % |
|                                     |   |    |    |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest Bearing Liabilities:        |   |    |    |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand Deposits                          |   | $       | 65,831  |   |     |   |    |   |   |   |   |   |   | $ | 58,860 |   |   |   |   |   |   |   |   |   |   | $ | 57,102 |   |   |   |   |   |   |   |   |   |
| Other Liabilities                        |   |    | 13,337  |   |     |   |    |   |   |   |   |   |   |   | 12,959 |   |   |   |   |   |   |   |   |   |   |   | 13,315 |   |   |   |   |   |   |   |   |   |
| Stockholders’ Equity               |   |    | 81,585  |   |     |   |    |   |   |   |   |   |   |   | 72,926 |   |   |   |   |   |   |   |   |   |   |   | 70,449 |   |   |   |   |   |   |   |   |   |
| Total Liabilities/Stockholders' Equity   |   | $       | 819,625 |   |     |   |    |   |   |   |   |   |   | $ | 749,798 |   |   |   |   |   |   |   |   |   |   | $ | 700,611 |   |   |   |   |   |   |   |   |   |
|                                     |   |    |    |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Interest Income Tax Equivalent       |   |    |    |   |     | $      | 27,234  |   |   |   |   |   |   |   |   |   |   | $ | 24,173 |   |   |   |   |   |   |   |   |   |   | $ | 21,410 |   |   |   |   |   |
|                                     |   |    |    |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Interest Spread                      |   |    |    |   |     |   |    |   |   |   | 3.40 | % |   |   |   |   |   |   |   |   |   |   | 3.27 | % |   |   |   |   |   |   |   |   |   |   | 3.03 | % |
|                                     |   |    |    |   |     |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Interest Margin                      |   |    |    |   |     |   |    |   |   |   | 3.63 | % |   |   |   |   |   |   |   |   |   |   | 3.55 | % |   |   |   |   |   |   |   |   |   |   | 3.39 | % |

----

----

----

| (Amounts in thousands)            |   | 2010 COMPARED TO 2009 |   |   | 2009 COMPARED TO 2008 |   |
|-----------------------------------|--------|-----------------------|--------|--------|-----------------------|--------|
|                              |   | VOLUME                |   |   | RATE                  |   |   | NET |   |   | VOLUME |   |   | RATE |   |   | NET |   |
| Interest Income:                  |   |                  |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans, Net                        |   | $                     | 122    |   |                  | $      | (611 | ) |   | $ | (489 | ) |   | $ | 1,087 |   |   | $ | (1,615 | ) |   | $ | (528 | ) |
| Taxable Investment Securities     |   |                  | 2,703  |   |                  |   | (1,548 | ) |   |   | 1,155 |   |   |   | 1,052 |   |   |   | (328 | ) |   |   | 724 |   |
| Tax-Exempt Investment Securities  |   |                  | (387   | )      |                  |   | (60 | ) |   |   | (447 | ) |   |   | (41 | ) |   |   | 140 |   |   |   | 99 |   |
| Other Short-Term Investments      |   |                  | 11     |   |                  |   | 8 |   |   |   | 19 |   |   |   | 338 |   |   |   | (421 | ) |   |   | (83 | ) |
| Total Interest Income             |   | $                     | 2,449  |   |                  | $      | (2,211 | ) |   | $ | 238 |   |   | $ | 2,436 |   |   | $ | (2,224 | ) |   | $ | 212 |   |
|                              |   |                  |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Expense:                 |   |                  |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings, Now, and Money Markets   |   | $                     | 762    |   |                  | $      | (536 | ) |   | $ | 226 |   |   | $ | 343 |   |   | $ | (965 | ) |   | $ | (622 | ) |
| Time Deposits                     |   |                  | (346   | )      |                  |   | (2,133 | ) |   |   | (2,479 | ) |   |   | 854 |   |   |   | (2,776 | ) |   |   | (1,922 | ) |
| Short-Term Borrowings             |   |                  | (26    | )      |                  |   | (7 | ) |   |   | (33 | ) |   |   | (122 | ) |   |   | (51 | ) |   |   | (173 | ) |
| Long-Term Borrowings              |   |                  | 40     |   |                  |   | (469 | ) |   |   | (429 | ) |   |   | 431 |   |   |   | (140 | ) |   |   | 291 |   |
| Securities Sold U/A to Repurchase |   |                  | 3      |   |                  |   | (111 | ) |   |   | (108 | ) |   |   | 36 |   |   |   | (161 | ) |   |   | (125 | ) |
| Total Interest Expense            |   | $                     | 433    |   |                  | $      | (3,256 | ) |   | $ | (2,823 | ) |   | $ | 1,542 |   |   | $ | (4,093 | ) |   | $ | (2,551 | ) |
| Net Interest Income               |   | $                     | 2,016  |   |                  | $      | 1,045 |   |   | $ | 3,061 |   |   | $ | 894 |   |   | $ | 1,869 |   |   | $ | 2,763 |   |

----

----

----

| (Amounts in thousands)               |   | 2010/2009           |   |   | 2009/2008           |   |
|--------------------------------------|--------|---------------------|--------|--------|---------------------|--------|
|                                 |   | Increase/(Decrease) |   |   | Increase/(Decrease) |   |
|                                 |   | 2010                |   |   | Amount              |   |   | % |   |   | 2009 |   |   | Amount |   |   | % |   |   | 2008 |   |
| Trust Department                     |   | $                   | 641    |   |                | $      | 166 |   |   |   | 34.9 |   |   | $ | 475 |   |   | $ | (55 | ) |   |   | (10.4 | ) |   | $ | 530 |   |
| Service Charges and Fees             |   |                | 2,298  |   |                |   | (53 | ) |   |   | (2.3 | ) |   |   | 2,351 |   |   |   | (104 | ) |   |   | (4.2 | ) |   |   | 2,455 |   |
| Income on Bank Owned Life Insurance  |   |                | 766    |   |                |   | 18 |   |   |   | 2.4 |   |   |   | 748 |   |   |   | 41 |   |   |   | 5.8 |   |   |   | 707 |   |
| Gain on Sale of Mortgages            |   |                | 825    |   |                |   | 525 |   |   |   | 175.0 |   |   |   | 300 |   |   |   | 164 |   |   |   | 120.6 |   |   |   | 136 |   |
| Other                                |   |                | 265    |   |                |   | (298 | ) |   |   | (52.9 | ) |   |   | 563 |   |   |   | 197 |   |   |   | 53.8 |   |   |   | 366 |   |
| Recovery on Loss Due to Defalcation  |   |                | 800    |   |                |   | 800 |   |   |   | N/A |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Subtotal                             |   | $                   | 5,595  |   |                | $      | 1,158 |   |   |   | 26.1 |   |   | $ | 4,437 |   |   | $ | 243 |   |   |   | 5.8 |   |   | $ | 4,194 |   |
| Investment Securities Gains (Losses) |   |                | 163    |   |                |   | 301 |   |   |   | 218.1 |   |   |   | (138 | ) |   |   | 10 |   |   |   | 6.8 |   |   |   | (148 | ) |
| Total                                |   | $                   | 5,758  |   |                | $      | 1,459 |   |   |   | 33.9 |   |   | $ | 4,299 |   |   | $ | 253 |   |   |   | 6.3 |   |   | $ | 4,046 |   |

----

|                                                |   | For the Year Ended December 31, |    |
|-----------------------------------------------------|--------|---------------------------------|---------|
|                                                |   | 2010                            |    |   | 2009 |   |
|                                                |   |                            |    |   |   |   |
| Net interest income after provision for loan losses |   | $                               | 22,837  |   |   | $ | 21,361 |   |
| Non-interest income                                 |   |                            | 5,758   |   |   |   | 4,299 |   |
| Non-interest expense                                |   |                            | (17,272 | ) |   |   | (16,444 | ) |
| Income tax expense                                  |   |                            | (2,362  | ) |   |   | (1,279 | ) |
| Net Income                                          |   |                            | 8,961   |   |   |   | 7,937 |   |
|                                                |   |                            |    |   |   |   |   |   |
| Adjustments                                         |   |                            |    |   |   |   |   |   |
| Other income                                        |   |                            |    |   |   |   |   |   |
| Recovery on loss due to defalcation                 |   |                            | (800    | ) |   |   | 850 |   |
| Income tax expense                                  |   |                            | 272     |   |   |   | (289 | ) |
| After tax adjustment to GAAP                        |   |                            | (528    | ) |   |   | 561 |   |
| Adjusted net income                                 |   | $                               | 8,433   |   |   | $ | 8,498 |   |

| (Amounts in thousands)                      |   | 2010/2009           |    |   | 2009/2008           |   |
|---------------------------------------------|--------|---------------------|---------|--------|---------------------|--------|
|                                        |   | Increase/(Decrease) |    |   | Increase/(Decrease) |   |
|                                        |   | 2010                |    |   | Amount              |   |   | % |   |   | 2009 |   |   | Amount |   |   | % |   |   | 2008 |   |
| Salaries and Employee Benefits              |   | $                   | 9,049   |   |                | $      | 993 |   |   |   | 12.3 |   |   | $ | 8,056 |   |   | $ | 706 |   |   |   | 9.6 |   |   | $ | 7,350 |   |
| Occupancy, Net                              |   |                | 1,300   |   |                |   | 130 |   |   |   | 11.1 |   |   |   | 1,170 |   |   |   | 106 |   |   |   | 10.0 |   |   |   | 1,064 |   |
| Furniture and Equipment                     |   |                | 1,363   |   |                |   | 217 |   |   |   | 18.9 |   |   |   | 1,146 |   |   |   | 210 |   |   |   | 22.4 |   |   |   | 936 |   |
| FDIC Insurance                              |   |                | 876     |   |                |   | (308 | ) |   |   | (26.0 | ) |   |   | 1,184 |   |   |   | 965 |   |   |   | 440.6 |   |   |   | 219 |   |
| Loss due to defalcation                     |   |                | — |   |                |   | (850 | ) |   |   | N/A |   |   |   | 850 |   |   |   | 850 |   |   |   | N/A |   |   |   | 0 |   |
| Other, shares tax and professional services |   |                | 4,684   |   |                |   | 646 |   |   |   | 16.0 |   |   |   | 4,038 |   |   |   | (316 | ) |   |   | (7.3 | ) |   |   | 4,354 |   |
| Total                                       |   | $                   | 17,272  |   |                | $      | 828 |   |   |   | 5.0 |   |   | $ | 16,444 |   |   | $ | 2,521 |   |   |   | 18.1 |   |   | $ | 13,923 |   |

----

----

| (Amounts in thousands)                                       |   | December 31, |    |
|--------------------------------------------------------------|--------|--------------|---------|
|                                                         |   | 2010         |    |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Commercial, financial and agricultural:                      |   |         |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial secured by real estate                            |   | $            | 227,147 |   |   | $ | 203,413 |   |   | $ | 206,095 |   |   | $ | 190,803 |   |   | $ | 123,673 |   |
| Commercial - other                                           |   |         | 29,693  |   |   |   | 42,815 |   |   |   | 33,104 |   |   |   | 29,129 |   |   |   | 22,169 |   |
| Tax exempt - real estate and other                           |   |         | 12,450  |   |   |   | 12,525 |   |   |   | 18,920 |   |   |   | 10,899 |   |   |   | 3,264 |   |
| Real estate (primarily residential mortgage loans)           |   |         | 131,981 |   |   |   | 138,092 |   |   |   | 136,288 |   |   |   | 130,865 |   |   |   | 86,208 |   |
| Consumer loans                                               |   |         | 8,781   |   |   |   | 10,802 |   |   |   | 15,291 |   |   |   | 16,712 |   |   |   | 18,728 |   |
| Total Gross Loans                                            |   | $            | 410,052 |   |   | $ | 407,647 |   |   | $ | 409,698 |   |   | $ | 378,408 |   |   | $ | 254,042 |   |
| Less: Unearned income and unamortized loan fees net of costs |   |         | 401     |   |   |   | 950 |   |   |   | 1,331 |   |   |   | 1,805 |   |   |   | 2,285 |   |
| Total Loans, net of unearned income                          |   | $            | 409,651 |   |   | $ | 406,697 |   |   | $ | 408,367 |   |   | $ | 376,603 |   |   | $ | 251,757 |   |

----

| (Amounts in thousands)                     |   |         |    |   |     |   |    |      |   |   |     |   |   |      |    |   |     |   |
|--------------------------------------------|--------|--------------|---------|--------|----------|--------|---------|-----------|--------|--------|----------|--------|--------|-----------|---------|--------|----------|--------|
|                                       |   | December 31, |    |
|                                       |   | 2010         |    |   | 2009     |   |    | 2008      |   |
|                                       |   | Available    |    |   | Held to  |   |    | Available |   |   | Held to  |   |   | Available |    |   | Held to  |   |
|                                       |   | for Sale     |    |   | Maturity |   |    | for Sale  |   |   | Maturity |   |   | for Sale  |    |   | Maturity |   |
| U. S. Government Corporations and Agencies |   | $            | 51,873  |   |     | $      | 5,169   |      |   | $      | 59,422   |   |   | $         | 3,159   |   |     | $      | 78,344 |   |   | $ | 176 |   |
| State and Municipal                        |   |         | 177,252 |   |     |   | 1,097   |      |   |   | 162,600  |   |   |      | 1,815   |   |     |   | 133,461 |   |   |   | 2,814 |   |
| Corporate                                  |   |         | 72,952  |   |     |   | — |      |   |   | 45,904   |   |   |      | — |   |     |   | 19,781 |   |   |   | — |   |
| Marketable Equity Securities               |   |         | 1,825   |   |     |   | — |      |   |   | 1,759    |   |   |      | — |   |     |   | 1,911 |   |   |   | — |   |
| Restricted Equity Securities               |   |         | 6,363   |   |     |   | — |      |   |   | 8,139    |   |   |      | — |   |     |   | 6,678 |   |   |   | — |   |
| Total Investment Securities                |   | $            | 310,265 |   |     | $      | 6,266   |      |   | $      | 277,824  |   |   | $         | 4,974   |   |     | $      | 240,175 |   |   | $ | 2,990 |   |

----

----

| (Amounts in thousands)                                                                    |   | Years Ended December 31, |    |
|-------------------------------------------------------------------------------------------|--------|--------------------------|---------|
|                                                                                      |   | 2010                     |    |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Balance at beginning of period                                                            |   | $                        | 5,322   |   |   | $ | 5,195 |   |   | $ | 5,046 |   |   | $ | 3,671 |   |   | $ | 3,676 |   |
| Charge-offs:                                                                              |   |                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial, financial, and agricultural                                                   |   |                     | 389     |   |   |   | 211 |   |   |   | 44 |   |   |   | 12 |   |   |   | 493 |   |
| Real estate                                                                               |   |                     | 1,778   |   |   |   | 354 |   |   |   | 633 |   |   |   | 138 |   |   |   | 183 |   |
| Consumer                                                                                  |   |                     | 95      |   |   |   | 169 |   |   |   | 62 |   |   |   | 86 |   |   |   | 110 |   |
|                                                                                      |   |                     | 2,262   |   |   |   | 734 |   |   |   | 739 |   |   |   | 236 |   |   |   | 786 |   |
| Recoveries:                                                                               |   |                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial, financial, and agricultural                                                   |   |                     | 39      |   |   |   | 13 |   |   |   | 154 |   |   |   | 135 |   |   |   | 228 |   |
| Real estate                                                                               |   |                     | 13      |   |   |   | 25 |   |   |   | 6 |   |   |   | 11 |   |   |   | 4 |   |
| Consumer                                                                                  |   |                     | 14      |   |   |   | 23 |   |   |   | 28 |   |   |   | 33 |   |   |   | 49 |   |
|                                                                                      |   |                     | 66      |   |   |   | 61 |   |   |   | 188 |   |   |   | 179 |   |   |   | 281 |   |
|                                                                                      |   |                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net charge-offs                                                                           |   |                     | 2,196   |   |   |   | 673 |   |   |   | 551 |   |   |   | 57 |   |   |   | 505 |   |
| Additions charged to operations                                                           |   |                     | 2,575   |   |   |   | 800 |   |   |   | 700 |   |   |   | 150 |   |   |   | 500 |   |
| Allowance purchased                                                                       |   |                     | — |   |   |   | — |   |   |   | — |   |   |   | 1,282 |   |   |   | — |   |
| Balance at end of period                                                                  |   | $                        | 5,701   |   |   | $ | 5,322 |   |   | $ | 5,195 |   |   | $ | 5,046 |   |   | $ | 3,671 |   |
|                                                                                      |   |                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio of net charge-offs during the period to average loans outstanding during the period |   |                     | 0.5     | % |   |   | 0.2 | % |   |   | 0.1 | % |   |   | .02 | % |   |   | 0.2 | % |
| Allowance for loan losses to average loans outstanding during the period                  |   |                     | 1.39    | % |   |   | 1.30 | % |   |   | 1.33 | % |   |   | 1.82 | % |   |   | 1.50 | % |

| (Amounts in thousands)                  |   | December 31, |   |
|-----------------------------------------|--------|--------------|--------|
|                                    |   | 2010         |   |   | %* |   |   | 2009 |   |   | %* |   |   | 2008 |   |   | %* |   |   | 2007 |   |   | %* |   |   | 2006 |   |   | %* |   |
| Commercial, financial, and agricultural |   | $            | 565    |   |   |   | 11.4 |   |   | $ | 970 |   |   |   | 14.5 |   |   | $ | 721 |   |   |   | 12.7 |   |   | $ | 1,116 |   |   |   | 22.8 |   |   | $ | 674 |   |   |   | 19.7 |   |
| Real estate – mortgage            |   |         | 4,270  |   |   |   | 86.1 |   |   |   | 3,948 |   |   |   | 81.6 |   |   |   | 3,641 |   |   |   | 84.1 |   |   |   | 3,680 |   |   |   | 75.1 |   |   |   | 2,613 |   |   |   | 76.1 |   |
| Consumer and other loans                |   |         | 123    |   |   |   | 2.5 |   |   |   | 99 |   |   |   | 3.9 |   |   |   | 207 |   |   |   | 3.2 |   |   |   | 103 |   |   |   | 2.1 |   |   |   | 145 |   |   |   | 4.2 |   |
| Unallocated                             |   |         | 743    |   |   |   | N/A |   |   |   | 306 |   |   |   | N/A |   |   |   | 626 |   |   |   | N/A |   |   |   | 147 |   |   |   | N/A |   |   |   | 239 |   |   |   | N/A |   |
|                                    |   | $            | 5,701  |   |   |   | 100.0 |   |   | $ | 5,323 |   |   |   | 100.0 |   |   | $ | 5,195 |   |   |   | 100.0 |   |   | $ | 5,046 |   |   |   | 100.0 |   |   | $ | 3,671 |   |   |   | 100.0 |   |

----

----

----

| (Amounts in thousands)                                          |   |   |    |   |   |   |   |   |   |
|-----------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|
|                                                            |   | 2010   |    |   | 2009   |   |   | 2008   |   |
| Non-performing assets                                           |   |   |    |   |   |   |   |   |   |
| Impaired loans                                                  |   | $      | 4,276   |   |   | $      | 2,948  |   |   | $ | 1,718 |   |
| Foreclosed assets held for resale                               |   |   | 1,149   |   |   |   | 330    |   |   |   | 28 |   |
| Loans past-due 90 days or more and still accruing interest      |   |   | — |   |   |   | 140    |   |   |   | 15 |   |
| Total non-performing assets                                     |   | $      | 5,425   |   |   | $      | 3,418  |   |   | $ | 1,761 |   |
|                                                            |   |   |    |   |   |   |   |   |   |   |   |   |
| Impaired loans                                                  |   |   |    |   |   |   |   |   |   |   |   |   |
| Non-performing loans                                            |   | $      | 4,276   |   |   | $      | 2,948  |   |   | $ | 1,718 |   |
| Allocated allowance for loan losses                             |   |   | (605    | )      |   |   | (834   | )      |   |   | (417 | ) |
| Net investment in impaired loans                                |   | $      | 3,671   |   |   | $      | 2,114  |   |   | $ | 1,301 |   |
|                                                            |   |   |    |   |   |   |   |   |   |   |   |   |
| Impaired loans with a valuation allowance                       |   | $      | 2,553   |   |   | $      | 1,055  |   |   | $ | 567 |   |
| Impaired loans without a valuation allowance                    |   |   | 1,723   |   |   |   | 1,893  |   |   |   | 1,151 |   |
| Total impaired loans                                            |   | $      | 4,276   |   |   | $      | 2,948  |   |   | $ | 1,718 |   |
|                                                            |   |   |    |   |   |   |   |   |   |   |   |   |
| Valuation allowance related to impaired loans                   |   | $      | 605     |   |   | $      | 834    |   |   | $ | 417 |   |
|                                                            |   |   |    |   |   |   |   |   |   |   |   |   |
| Valuation allowance as a percent of impaired loans              |   |   | 14.2    | %      |   |   | 28.3   | %      |   |   | 24.3 | % |
| Impaired loans to loans net of unearned discount                |   |   | 1.0     | %      |   |   | 0.7    | %      |   |   | 0.4 | % |
| Non-performing assets to period-end loans and foreclosed assets |   |   | 1.3     | %      |   |   | 0.8    | %      |   |   | 0.4 | % |
| Total non-performing assets to total assets                     |   |   | 0.7     | %      |   |   | 0.5    | %      |   |   | 0.3 | % |
| Allowance for loan losses to impaired loans                     |   |   | 133.3   | %      |   |   | 180.5  | %      |   |   | 302.4 | % |
| Allowance for loan losses to total non-performing assets        |   |   | 105.1   | %      |   |   | 155.7  | %      |   |   | 295.0 | % |

----

|                                               |   | December 31, 2010 |   |   | December 31, 2009 |   |
|----------------------------------------------------|--------|-------------------|--------|--------|-------------------|--------|
|                                               |   | Corporation       |   |   | Bank              |   |   | Corporation |   |   | Bank |   |
| Risk-Based Capital:                                |   |              |   |   |              |   |   |   |   |   |   |   |
| Tier I risk-based capital ratio                    |   |              | 10.85  | %      |              |   | 11.52 | % |   |   | 10.86 | % |   |   | 11.85 | % |
| Total risk-based capital ratio (Tier 1 and Tier 2) |   |              | 11.87  | %      |              |   | 12.53 | % |   |   | 11.90 | % |   |   | 12.88 | % |
| Leverage Ratio:                                    |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Tier I capital to average assets                   |   |              | 7.44   | %      |              |   | 8.02 | % |   |   | 7.44 | % |   |   | 8.21 | % |

----

----

| (Amounts in thousands) |   |                        |    |   |            |   |    |    |   |   |          |   |   |   |    |
|----------------------------------|--------|-----------------------------|---------|--------|-----------------|--------|---------|---------|--------|--------|---------------|--------|--------|--------|---------|
|                             |   | December 31, 2010 |    |   |            |   |
|                             |   | One                         |    |   | 1 - 5 |   |    | Beyond  |   |   | Not Rate |   |   |   |    |
|                             |   | Year                        |    |   | Years           |   |    | 5 Years |   |   | Sensitive     |   |   | Total  |    |
|                             |   |                        |    |   |            |   |    |    |   |   |          |   |   |   |    |   |
| Assets                           |   | $                           | 149,893 |   |            | $      | 341,104 |    |   | $      | 265,861       |   |   | $      | 39,743  |   |   | $ | 796,601 |   |
|                             |   |                        |    |   |            |   |    |    |   |   |          |   |   |   |    |   |   |   |   |   |
| Liabilities/Stockholders Equity  |   |                        | 221,694 |   |            |   | 318,912 |    |   |   | 176,438       |   |   |   | 79,557  |   |   |   | 796,601 |   |
|                             |   |                        |    |   |            |   |    |    |   |   |          |   |   |   |    |   |   |   |   |   |
| Interest Rate Sensitivity Gap    |   | $                           | (71,801 | )      |            | $      | 22,192  |    |   | $      | 89,423        |   |   | $      | (39,814 | ) |   |   |   |   |
|                             |   |                        |    |   |            |   |    |    |   |   |          |   |   |   |    |   |   |   |   |   |
| Cumulative Gap                   |   | $                           | (71,801 | )      |            | $      | (49,609 | )       |   | $      | 39,814        |   |   |   |    |   |   |   |   |   |

----

|                                         |   | Projected Change |   |
|----------------------------------------------|--------|-----------------------|--------|
| Effect on Net Interest Income                |   |                  |   |
| 1-year Net Income simulation Projection      |   |                  |   |
| –200 bp Shock vs Stable Rate           |   |                  | (5.8   | )% |
| +200 bp Shock vs Stable Rate                 |   |                  | (4.7   | )% |
|                                         |   |                  |   |   |
| Effect on Net Present Value of Balance Sheet |   |                  |   |   |
| Static Net Present Value Change              |   |                  |   |   |
| –200 bp Shock vs Stable Rate           |   |                  | 4.00   | % |
| +200 bp Shock vs Stable Rate                 |   |                  | (18.00 | )% |

|           |   | 2010         |         |   | 2009      |   |   | 2008         |   |
|----------------|--------|--------------|--------------|--------|-----------|--------|--------|--------------|--------|
|           |   | Common Stock |         |   | Dividends |   |   | Common Stock |   |   | Dividends |   |   | Common Stock |   |   | Dividends |   |
|           |   | High/Low     |         |   | Paid      |   |   | High/Low     |   |   | Paid |   |   | High/Low |   |   | Paid |   |
| First Quarter  |   | $            | 17.25/$15.77 |   |      | $      | .23    |         |   | $ | 17.50/$14.01 |   |   | $ | .23 |   |   | $ | 18.00/$15.25 |   |   | $ | .22 |   |
| Second Quarter |   | $            | 17.49/$15.50 |   |      |   | .23    |         |   | $ | 16.55/$15.25 |   |   |   | .23 |   |   | $ | 18.00/$14.25 |   |   |   | .22 |   |
| Third Quarter  |   | $            | 16.75/$15.50 |   |      |   | .23    |         |   | $ | 16.55/$15.00 |   |   |   | .23 |   |   | $ | 18.00/$15.50 |   |   |   | .22 |   |
| Fourth Quarter |   | $            | 17.50/$15.90 |   |      |   | .24    |         |   | $ | 17.95/$14.55 |   |   |   | .23 |   |   | $ | 16.00/$13.50 |   |   |   | .23 |   |

----

| (Amounts in thousands, except per share) |   |               |   |   |    |   |   |         |   |   |        |   |
|------------------------------------------|--------|--------------------|--------|--------|---------|--------|--------|--------------|--------|--------|-------------|--------|
|                                     |   |               |   |   |    |   |   |         |   |   |        |   |
|                                     |   | Three Months Ended |   |
| 2010                                     |   | March 31           |   |   | June 30 |   |   | September 30 |   |   | December 31 |   |
|                                     |   |               |   |   |    |   |   |         |   |   |        |   |
| Interest income                          |   | $                  | 9,433  |   |    | $      | 9,528  |         |   | $      | 9,585       |   |   | $ | 9,608 |   |
| Interest expense                         |   |               | 3,469  |   |    |   | 3,324  |         |   |   | 3,092       |   |   |   | 2,857 |   |
| Net interest income                      |   | $                  | 5,964  |   |    | $      | 6,204  |         |   | $      | 6,493       |   |   | $ | 6,751 |   |
| Provision for loan losses                |   |               | 200    |   |    |   | 400    |         |   |   | 1,075       |   |   |   | 900 |   |
| Other non-interest income                |   |               | 1,096  |   |    |   | 1,395  |         |   |   | 2,073       |   |   |   | 1,194 |   |
| Non-interest expense                     |   |               | 4,121  |   |    |   | 4,278  |         |   |   | 4,288       |   |   |   | 4,585 |   |
| Income before income taxes               |   | $                  | 2,739  |   |    | $      | 2,921  |         |   | $      | 3,203       |   |   | $ | 2,460 |   |
| Income taxes                             |   |               | 552    |   |    |   | 608    |         |   |   | 713         |   |   |   | 489 |   |
| Net income                               |   | $                  | 2,187  |   |    | $      | 2,313  |         |   | $      | 2,490       |   |   | $ | 1,971 |   |
|                                     |   |               |   |   |    |   |   |         |   |   |        |   |   |   |   |   |
| Per share                                |   | $                  | .40    |   |    | $      | .43    |         |   | $      | .45         |   |   | $ | .37 |   |
|                                     |   |               |   |   |    |   |   |         |   |   |        |   |   |   |   |   |
| 2009                                     |   | March 31           |   |   | June 30 |   |   | September 30 |   |   | December 31 |   |
|                                     |   |               |   |   |    |   |   |         |   |   |        |   |   |   |   |   |
| Interest income                          |   | $                  | 9,363  |   |    | $      | 9,406  |         |   | $      | 9,253       |   |   | $ | 9,524 |   |
| Interest expense                         |   |               | 4,035  |   |    |   | 3,950  |         |   |   | 3,898       |   |   |   | 3,682 |   |
| Net interest income                      |   | $                  | 5,328  |   |    | $      | 5,456  |         |   | $      | 5,355       |   |   | $ | 5,842 |   |
| Provision for loan losses                |   |               | 275    |   |    |   | 175    |         |   |   | 150         |   |   |   | 200 |   |
| Other non-interest income                |   |               | 1,036  |   |    |   | 1,310  |         |   |   | 1,073       |   |   |   | 880 |   |
| Non-interest expense                     |   |               | 3,516  |   |    |   | 4,160  |         |   |   | 3,708       |   |   |   | 4,880 |   |
| Income before income taxes               |   | $                  | 2,573  |   |    | $      | 2,431  |         |   | $      | 2,570       |   |   | $ | 1,642 |   |
| Income taxes                             |   |               | 471    |   |    |   | 268    |         |   |   | 484         |   |   |   | 56 |   |
| Net income                               |   | $                  | 2,102  |   |    | $      | 2,163  |         |   | $      | 2,086       |   |   | $ | 1,586 |   |
|                                     |   |               |   |   |    |   |   |         |   |   |        |   |   |   |   |   |
| Per share                                |   | $                  | .39    |   |    | $      | .39    |         |   | $      | .39         |   |   | $ | .29 |   |

----

|   | /s/ J. H. Williams & Co., LLP |
|--------|-----------------------------------|
|   | J. H. Williams & Co., LLP     |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY |
|-------------------------------------------|
| CONSOLIDATED BALANCE SHEETS               |

| (Amounts in thousands)                                                                         |   | December 31, |    |
|----------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                     |   | 2010              |    |   | 2009 |   |
| ASSETS                                                                                                   |   |              |    |   |   |   |
| Cash and due from banks                                                                                  |   | $                 | 4,346   |   |   | $ | 4,199 |   |
| Interest-bearing deposits in other banks                                                                 |   |              | 4,559   |   |   |   | 7,227 |   |
| Federal funds sold                                                                                       |   |              | 3,000   |   |   |   | — |   |
| Total cash and cash equivalents                                                                          |   |              | 11,905  |   |   |   | 11,426 |   |
| Investment securities available-for-sale                                                                 |   |              | 303,902 |   |   |   | 269,685 |   |
| Investment securities held-to-maturity (estimated fair value 2010 - $6,191; 2009 - $4,936)               |   |              | 6,266   |   |   |   | 4,974 |   |
| Restricted securities at cost - available-for-sale                                                       |   |              | 6,363   |   |   |   | 8,139 |   |
| Loans, net of unearned income                                                                            |   |              | 409,651 |   |   |   | 406,697 |   |
| Allowance for loan losses                                                                                |   |              | (5,701  | ) |   |   | (5,322 | ) |
| Net loans                                                                                                |   | $                 | 403,950 |   |   | $ | 401,375 |   |
| Premises and equipment, net                                                                              |   |              | 11,842  |   |   |   | 11,465 |   |
| Accrued interest receivable                                                                              |   |              | 4,589   |   |   |   | 4,213 |   |
| Cash surrender value of bank owned life insurance                                                        |   |              | 18,388  |   |   |   | 17,622 |   |
| Investment in limited partnerships                                                                       |   |              | 1,600   |   |   |   | 690 |   |
| Goodwill                                                                                                 |   |              | 19,133  |   |   |   | 19,133 |   |
| Core deposit intangible                                                                                  |   |              | 1,240   |   |   |   | 1,530 |   |
| Prepaid FDIC insurance                                                                                   |   |              | 2,005   |   |   |   | 2,780 |   |
| Foreclosed assets held for resale                                                                        |   |              | 1,149   |   |   |   | 330 |   |
| Deferred income taxes                                                                                    |   |              | 2,742   |   |   |   | 3,513 |   |
| Other assets                                                                                             |   |              | 1,527   |   |   |   | 1,455 |   |
| TOTAL ASSETS                                                                                             |   | $                 | 796,601 |   |   | $ | 758,330 |   |
|                                                                                                     |   |              |    |   |   |   |   |   |
| LIABILITIES                                                                                              |   |              |    |   |   |   |   |   |
| Deposits:                                                                                                |   |              |    |   |   |   |   |   |
| Non-interest bearing                                                                                     |   | $                 | 69,080  |   |   | $ | 61,779 |   |
| Interest bearing                                                                                         |   |              | 557,815 |   |   |   | 518,790 |   |
| Total Deposits                                                                                           |   |              | 626,895 |   |   |   | 580,569 |   |
| Short-term borrowings                                                                                    |   |              | 20,977  |   |   |   | 17,462 |   |
| Long-term borrowings                                                                                     |   |              | 66,400  |   |   |   | 82,976 |   |
| Accrued interest and other expenses                                                                      |   |              | 2,976   |   |   |   | 3,101 |   |
| Other liabilities                                                                                        |   |              | 293     |   |   |   | 55 |   |
| TOTAL LIABILITIES                                                                                        |   | $                 | 717,541 |   |   | $ | 684,163 |   |
|                                                                                                     |   |              |    |   |   |   |   |   |
| STOCKHOLDERS' EQUITY                                                                                     |   |              |    |   |   |   |   |   |
| Preferred stock, par value $10.00 per share; authorized and unissued 500,000 shares                      |   | $                 | — |   |   | $ | — |   |
| Common stock, par value $2.00 per share; authorized 10,000,000 shares; issued 5,687,767 in 2010 and 2009 |   |              | 11,375  |   |   |   | 11,375 |   |
| Surplus                                                                                                  |   |              | 30,175  |   |   |   | 30,269 |   |
| Retained earnings                                                                                        |   |              | 45,246  |   |   |   | 41,346 |   |
| Accumulated other comprehensive (loss)                                                                   |   |              | (1,633  | ) |   |   | (2,583 | ) |
| Treasury stock, at cost, 243,540 shares in 2010 and 247,641 shares in 2009                               |   |              | (6,103  | ) |   |   | (6,240 | ) |
|                                                                                                     |   |              |    |   |   |   |   |   |
| TOTAL STOCKHOLDERS' EQUITY                                                                               |   | $                 | 79,060  |   |   | $ | 74,167 |   |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                               |   | $                 | 796,601 |   |   | $ | 758,330 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY |
|-------------------------------------------|
| CONSOLIDATED STATEMENTS OF INCOME         |

| (Amounts in thousands, except per share data) |   | Year Ended December 31, |    |
|-----------------------------------------------------------------------------|--------|----------------------------------------|---------|
|                                                                        |   |                                   |    |   |   |   |   |   |   |
|                                                                        |   | 2010                                   |    |   | 2009 |   |   | 2008 |   |
| INTEREST INCOME                                                             |   |                                   |    |   |   |   |   |   |   |
| Interest and fees on loans                                                  |   | $                                      | 24,401  |   |   | $ | 24,819 |   |   | $ | 25,408 |   |
| Interest and dividends on investment securities:                            |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Taxable                                                                     |   |                                   | 10,386  |   |   |   | 9,218 |   |   |   | 8,367 |   |
| Tax-exempt                                                                  |   |                                   | 3,223   |   |   |   | 3,550 |   |   |   | 3,514 |   |
| Dividends                                                                   |   |                                   | 116     |   |   |   | 130 |   |   |   | 256 |   |
| Deposits in banks                                                           |   |                                   | 23      |   |   |   | 9 |   |   |   | 79 |   |
| Federal funds sold                                                          |   |                                   | 5       |   |   |   | — |   |   |   | 14 |   |
| Total interest income                                                       |   | $                                      | 38,154  |   |   | $ | 37,726 |   |   | $ | 37,638 |   |
|                                                                        |   |                                   |    |   |   |   |   |   |   |   |   |   |
| INTEREST EXPENSE                                                            |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Deposits                                                                    |   | $                                      | 9,111   |   |   | $ | 11,364 |   |   | $ | 13,908 |   |
| Short-term borrowings                                                       |   |                                   | 230     |   |   |   | 371 |   |   |   | 669 |   |
| Long-term borrowings                                                        |   |                                   | 3,401   |   |   |   | 3,830 |   |   |   | 3,539 |   |
| Total interest expense                                                      |   | $                                      | 12,742  |   |   | $ | 15,565 |   |   | $ | 18,116 |   |
| Net interest income                                                         |   | $                                      | 25,412  |   |   | $ | 22,161 |   |   | $ | 19,522 |   |
| Provision for loan losses                                                   |   |                                   | 2,575   |   |   |   | 800 |   |   |   | 700 |   |
| Net interest income after provision for loan losses                         |   | $                                      | 22,837  |   |   | $ | 21,361 |   |   | $ | 18,822 |   |
|                                                                        |   |                                   |    |   |   |   |   |   |   |   |   |   |
| NON-INTEREST INCOME                                                         |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Trust department                                                            |   | $                                      | 641     |   |   | $ | 475 |   |   | $ | 530 |   |
| Service charges and fees                                                    |   |                                   | 1,494   |   |   |   | 1,662 |   |   |   | 1,828 |   |
| Bank owned life insurance income                                            |   |                                   | 766     |   |   |   | 748 |   |   |   | 707 |   |
| ATM fees and debit card income                                              |   |                                   | 804     |   |   |   | 689 |   |   |   | 627 |   |
| Gain on sale of loans                                                       |   |                                   | 825     |   |   |   | 300 |   |   |   | 136 |   |
| Investment securities gains (losses) - net                                  |   |                                   | 163     |   |   |   | (138 | ) |   |   | (148 | ) |
| Recovery on loss due to defalcation                                         |   |                                   | 800     |   |   |   | — |   |   |   | — |   |
| Other                                                                       |   |                                   | 265     |   |   |   | 563 |   |   |   | 366 |   |
| Total non-interest income                                                   |   | $                                      | 5,758   |   |   | $ | 4,299 |   |   | $ | 4,046 |   |
|                                                                        |   |                                   |    |   |   |   |   |   |   |   |   |   |
| NON-INTEREST EXPENSE                                                        |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                                              |   | $                                      | 9,049   |   |   | $ | 8,056 |   |   | $ | 7,350 |   |
| Occupancy, net                                                              |   |                                   | 1,300   |   |   |   | 1,170 |   |   |   | 1,064 |   |
| Furniture and equipment                                                     |   |                                   | 567     |   |   |   | 504 |   |   |   | 529 |   |
| Computer expense                                                            |   |                                   | 796     |   |   |   | 642 |   |   |   | 407 |   |
| Professional services                                                       |   |                                   | 905     |   |   |   | 608 |   |   |   | 534 |   |
| State shares tax                                                            |   |                                   | 708     |   |   |   | 697 |   |   |   | 683 |   |
| FDIC insurance                                                              |   |                                   | 876     |   |   |   | 1,184 |   |   |   | 219 |   |
| ATM and debit card fees                                                     |   |                                   | 351     |   |   |   | 277 |   |   |   | 346 |   |
| Loss due to defalcation                                                     |   |                                   | — |   |   |   | 850 |   |   |   | — |   |
| Other                                                                       |   |                                   | 2,720   |   |   |   | 2,456 |   |   |   | 2,791 |   |
| Total non-interest expense                                                  |   | $                                      | 17,272  |   |   | $ | 16,444 |   |   | $ | 13,923 |   |
|                                                                        |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Income before income taxes                                                  |   | $                                      | 11,323  |   |   | $ | 9,216 |   |   | $ | 8,945 |   |
| Income tax expense                                                          |   |                                   | 2,362   |   |   |   | 1,279 |   |   |   | 1,394 |   |
| NET INCOME                                                                  |   | $                                      | 8,961   |   |   | $ | 7,937 |   |   | $ | 7,551 |   |
|                                                                        |   |                                   |    |   |   |   |   |   |   |   |   |   |
| PER SHARE DATA                                                              |   |                                   |    |   |   |   |   |   |   |   |   |   |
|  Net income per share:                                                 |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Basic                                                                       |   | $                                      | 1.65    |   |   | $ | 1.46 |   |   | $ | 1.39 |   |
| Diluted                                                                     |   | $                                      | 1.65    |   |   | $ | 1.46 |   |   | $ | 1.39 |   |
| Cash dividends per share                                                    |   | $                                      | .93     |   |   | $ | .92 |   |   | $ | .89 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                  |
|------------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY |

| (Amounts in thousands, except per share data)                                                      |   |   |   |   |    |   |   |          |   |   |     |   |   |          |   |   |     |   |   |   |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|---------|--------|--------|---------------|--------|--------|----------|--------|--------|---------------|--------|--------|----------|--------|--------|--------|--------|
|                                                                                                                             |   |   |   |   |    |   |   |          |   |   |     |   |   | Accumulated   |   |   |     |   |   |   |   |
|                                                                                                                             |   |   |   |   |    |   |   |          |   |   |     |   |   | Other         |   |   |     |   |   |   |   |
|                                                                                                                             |   | Common |   |   |    |   |   | Comprehensive |   |   | Retained |   |   | Comprehensive |   |   | Treasury |   |   |   |   |
|                                                                                                                             |   | Stock  |   |   | Surplus |   |   | Income        |   |   | Earnings |   |   | Income (Loss) |   |   | Stock    |   |   | Total  |   |
| Balance at December 31, 2007                                                                                                     |   | $      | 11,375 |   |    | $      | 30,252 |          |   |   |     |   | $      | 35,705        |   |   | $        | (166   | )      |   | $      | (6,242 | ) |   | $ | 70,924 |   |
|                                                                                                                             |   |   |   |   |    |   |   |          |   |   |     |   |   |          |   |   |     |   |   |   |   |   |   |   |   |   |   |
| Comprehensive Income:                                                                                                            |   |   |   |   |    |   |   |          |   |   |     |   |   |          |   |   |     |   |   |   |   |   |   |   |   |   |   |
| Net Income                                                                                                                       |   |   |   |   |    |   |   |          |   | $      | 7,551    |   |   |          | 7,551  |   |     |   |   |   |   |   |   |   |   |   | 7,551 |   |
| Change in net unrealized (loss) on investment securities available-for- sale, net of reclassification adjustment and tax effects |   |   |   |   |    |   |   |          |   |   | (4,505   | )      |   |          |   |   |     |   | (4,505 | )      |   |   |   |   |   |   | (4,505 | ) |
| Total comprehensive income                                                                                                       |   |   |   |   |    |   |   |          |   | $      | 3,046    |   |   |          |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 50 shares of treasury stock upon exercise of  employee stock options                                       |   |   |   |   |    |   | (1     | )             |   |   |     |   |   |          |   |   |     |   |   |   |   |   | 2 |   |   |   | 1 |   |
| Recognition of stock option expense                                                                                              |   |   |   |   |    |   |   |          |   |   | 18       |   |   |          |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                             |   |   |   |   |    |   |   |          |   |   |     |   |   |          |   |   |     |   |   |   |   |   |   |   |   |   | 18 |   |
| Cash dividends - $.89 per share                                                                                                  |   |   |   |   |    |   |   |          |   |   |     |   |   |          | (4,842 | )      |     |   |   |   |   |   |   |   |   |   | (4,842 | ) |
|                                                                                                                             |   |   |   |   |    |   |   |          |   |   |     |   |   |          |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2008                                                                                                     |   | $      | 11,375 |   |    | $      | 30,269 |          |   |   |     |   |   | $             | 38,414 |   |     | $      | (4,671 | )      |   | $ | (6,240 | ) |   | $ | 69,147 |   |
|                                                                                                                             |   |   |   |   |    |   |   |          |   |   |     |   |   |          |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive Income:                                                                                                            |   |   |   |   |    |   |   |          |   |   |     |   |   |          |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Net Income                                                                                                                       |   |   |   |   |    |   |   |          |   | $      | 7,937    |   |   |          | 7,937  |   |     |   |   |   |   |   |   |   |   |   | 7,937 |   |
| Change in net unrealized (loss) on investment securities available-for- sale, net of reclassification adjustment and tax effects |   |   |   |   |    |   |   |          |   |   | 2,088    |   |   |          |   |   |     |   | 2,088  |   |   |   |   |   |   |   | 2,088 |   |
| Total comprehensive income                                                                                                       |   |   |   |   |    |   |   |          |   | $      | 10,025   |   |   |          |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Cash dividends - $.92 per share                                                                                                  |   |   |   |   |    |   |   |          |   |   |     |   |   |          | (5,005 | )      |     |   |   |   |   |   |   |   |   |   | (5,005 | ) |
|                                                                                                                             |   |   |   |   |    |   |   |          |   |   |     |   |   |          |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2009                                                                                                     |   | $      | 11,375 |   |    | $      | 30,269 |          |   |   |     |   |   | $             | 41,346 |   |     | $      | (2,583 | )      |   | $ | (6,240 | ) |   | $ | 74,167 |   |
|                                                                                                                             |   |   |   |   |    |   |   |          |   |   |     |   |   |          |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive Income:                                                                                                            |   |   |   |   |    |   |   |          |   |   |     |   |   |          |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Net Income                                                                                                                       |   |   |   |   |    |   |   |          |   | $      | 8,961    |   |   |          | 8,961  |   |     |   |   |   |   |   |   |   |   |   | 8,961 |   |
| Change in net unrealized (loss) on investment securities available-for- sale, net of reclassification adjustment and tax effects |   |   |   |   |    |   |   |          |   |   | 950      |   |   |          |   |   |     |   | 950    |   |   |   |   |   |   |   | 950 |   |
| Total comprehensive income                                                                                                       |   |   |   |   |    |   |   |          |   | $      | 9,911    |   |   |          |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of 4,101 shares of treasury stock upon exercise of employee stock options                                               |   |   |   |   |    |   | (94    | )             |   |   |     |   |   |          |   |   |     |   |   |   |   |   | 137 |   |   |   | 43 |   |
| Cash dividends - $.93 per share                                                                                                  |   |   |   |   |    |   |   |          |   |   |     |   |   |          | (5,061 | )      |     |   |   |   |   |   |   |   |   |   | (5,061 | ) |
|                                                                                                                             |   |   |   |   |    |   |   |          |   |   |     |   |   |          |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2010                                                                                                     |   | $      | 11,375 |   |    | $      | 30,175 |          |   |   |     |   |   | $             | 45,246 |   |     | $      | (1,633 | )      |   | $ | (6,103 | ) |   | $ | 79,060 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY |
|-------------------------------------------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS     |

| (Amounts in thousands)                                                            |   | Year Ended December 31, |    |
|---------------------------------------------------------------------------------------------|--------|----------------------------------------|---------|
|                                                                                        |   |                                   |    |   |   |   |   |   |   |
|                                                                                        |   | 2010                                   |    |   | 2009 |   |   | 2008 |   |
| OPERATING ACTIVITIES                                                                        |   |                                   |    |   |   |   |   |   |   |
| Net income                                                                                  |   | $                                      | 8,961   |   |   | $ | 7,937 |   |   | $ | 7,551 |   |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Provision for loan losses                                                                   |   |                                   | 2,575   |   |   |   | 800 |   |   |   | 700 |   |
| Depreciation and amortization                                                               |   |                                   | 1,049   |   |   |   | 762 |   |   |   | 710 |   |
| Stock option expense                                                                        |   |                                   | — |   |   |   | — |   |   |   | 18 |   |
| Premium amortization on investment securities                                               |   |                                   | 825     |   |   |   | 322 |   |   |   | 95 |   |
| Discount accretion on investment securities                                                 |   |                                   | (1,344  | ) |   |   | (1,228 | ) |   |   | (677 | ) |
| Impairment loss on investment securities                                                    |   |                                   | — |   |   |   | — |   |   |   | 437 |   |
| Core deposit discount amortization net of accretion                                         |   |                                   | 288     |   |   |   | 269 |   |   |   | 181 |   |
| Deferred income tax provision (benefit)                                                     |   |                                   | 244     |   |   |   | (166 | ) |   |   | (471 | ) |
| Gain on sale of mortgage loans originated for resale                                        |   |                                   | (825    | ) |   |   | (300 | ) |   |   | (136 | ) |
| Proceeds from sale of mortgage loans originated for resale                                  |   |                                   | 25,433  |   |   |   | 20,130 |   |   |   | 8,992 |   |
| Originations of mortgage loans originated for resale                                        |   |                                   | (20,515 | ) |   |   | (27,402 | ) |   |   | (12,218 | ) |
| (Gain) loss on sales of investment securities                                               |   |                                   | (163    | ) |   |   | 138 |   |   |   | (289 | ) |
| Gain on sale of foreclosed real estate                                                      |   |                                   | (20     | ) |   |   | (9 | ) |   |   | (31 | ) |
| (Increase) decrease in accrued interest receivable                                          |   |                                   | (376    | ) |   |   | 15 |   |   |   | (987 | ) |
| Increase in cash surrender value of bank owned life insurance                               |   |                                   | (766    | ) |   |   | (748 | ) |   |   | (707 | ) |
| (Increase) decrease in other assets - net                                                   |   |                                   | (72     | ) |   |   | 107 |   |   |   | (104 | ) |
| (Increase) decrease in prepaid FDIC insurance                                               |   |                                   | 775     |   |   |   | (2,780 | ) |   |   | — |   |
| Increase (decrease) in accrued interest and other expenses                                  |   |                                   | (125    | ) |   |   | (387 | ) |   |   | 32 |   |
| Increase (decrease) in other liabilities - net                                              |   |                                   | 238     |   |   |   | (181 | ) |   |   | 85 |   |
| NET CASH PROVIDED (USED IN) BY OPERATING ACTIVITIES                                         |   | $                                      | 16,182  |   |   | $ | (2,721 | ) |   | $ | 3,181 |   |
|                                                                                        |   |                                   |    |   |   |   |   |   |   |   |   |   |
| INVESTING ACTIVITIES                                                                        |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Proceeds from sales of investment securities available-for-sale                             |   | $                                      | 32,691  |   |   | $ | 82,407 |   |   | $ | 80,025 |   |
| Proceeds from maturities and redemption of investment securities available-for-sale         |   |                                   | 26,381  |   |   |   | 19,672 |   |   |   | 36,148 |   |
|                                                                                        |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Purchases of investment securities available-for-sale                                       |   |                                   | (90,123 | ) |   |   | (134,338 | ) |   |   | (120,676 | ) |
| Proceeds from maturities and redemption of investment securities held-to-maturity           |   |                                   | 2,737   |   |   |   | 2,017 |   |   |   | 2,015 |   |
|                                                                                        |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Purchases of investment securities held-to-maturity                                         |   |                                   | (5,036  | ) |   |   | (4,000 | ) |   |   | (467 | ) |
| Proceeds from sales of restricted securities                                                |   |                                   | 1,776   |   |   |   | — |   |   |   | 3,601 |   |
| Purchases of restricted securities                                                          |   |                                   | — |   |   |   | (1,461 | ) |   |   | (4,171 | ) |
| Proceeds from bank owned life insurance                                                     |   |                                   | — |   |   |   | 530 |   |   |   | — |   |
| Net (increase) decrease  in loans                                                 |   |                                   | (10,337 | ) |   |   | 7,920 |   |   |   | (29,184 | ) |
| Purchases of premises and equipment                                                         |   |                                   | (1,357  | ) |   |   | (3,023 | ) |   |   | (1,476 | ) |
| Purchase of investment in real estate venture                                               |   |                                   | (1,084  | ) |   |   | — |   |   |   | (18 | ) |
| Proceeds from sale of foreclosed assets held for resale                                     |   |                                   | 380     |   |   |   | 441 |   |   |   | 384 |   |
| Decrease in other liabilities related to acquisition                                        |   |                                   | — |   |   |   | — |   |   |   | (152 | ) |
| NET CASH (USED IN) INVESTING ACTIVITIES                                                     |   | $                                      | (43,972 | ) |   | $ | (29,835 | ) |   | $ | (33,971 | ) |
|                                                                                        |   |                                   |    |   |   |   |   |   |   |   |   |   |
| FINANCING ACTIVITIES                                                                        |   |                                   |    |   |   |   |   |   |   |   |   |   |
| Net increase in deposits                                                                    |   | $                                      | 46,328  |   |   | $ | 75,957 |   |   | $ | 11,701 |   |
| Net increase (decrease) in short-term borrowings                                            |   |                                   | 3,515   |   |   |   | (37,870 | ) |   |   | 7,983 |   |
| Proceeds from long-term borrowings                                                          |   |                                   | 7,000   |   |   |   | 13,000 |   |   |   | 25,000 |   |
| Repayment of long-term borrowings                                                           |   |                                   | (23,556 | ) |   |   | (12,051 | ) |   |   | (9,077 | ) |
| Proceeds from issuance of treasury stock                                                    |   |                                   | 43      |   |   |   | — |   |   |   | 1 |   |
| Cash dividends paid                                                                         |   |                                   | (5,061  | ) |   |   | (5,005 | ) |   |   | (4,842 | ) |
| NET CASH PROVIDED BY FINANCING ACTIVITIES                                                   |   | $                                      | 28,269  |   |   | $ | 34,031 |   |   | $ | 30,766 |   |
|                                                                                        |   |                                   |    |   |   |   |   |   |   |   |   |   |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                            |   | $                                      | 479     |   |   | $ | 1,475 |   |   | $ | (24 | ) |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                              |   |                                   | 11,426  |   |   |   | 9,951 |   |   |   | 9,975 |   |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                                                    |   | $                                      | 11,905  |   |   | $ | 11,426 |   |   | $ | 9,951 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

|                                    |   | Year Ended December 31, 2010 |   |
|-----------------------------------------|--------|--------------------------------------------------|--------|
|                                    |   |                                             |   |   | Weighted Average |   |   |   |   |
|                                    |   | Net Income                                  |   |   | Number of Shares |   |   | Per Share |   |
|                                    |   | Numerators                                       |   |   | Denominators |   |   | Amount |   |
|                                    |   |                                             |   |   |   |   |   |   |   |
| Net income                              |   | $                                                | 8,961  |   |   |   |   |   |   |   |
| Basic earnings per share:               |   |                                             |   |   |   |   |   |   |   |   |
| Income available to common stockholders |   | $                                                | 8,961  |   |   |   | 5,442 |   |   | $ | 1.65 |   |
| Effect of dilutive securities:          |   |                                             |   |   |   |   |   |   |   |   |   |   |
| Stock options                           |   |                                             |   |   |   |   | 2 |   |   |   |   |   |
| Diluted earnings per share:             |   |                                             |   |   |   |   |   |   |   |   |   |   |
| Income available to common stockholders |   | $                                                | 8,961  |   |   |   | 5,444 |   |   | $ | 1.65 |   |

|                                    |   | Year Ended December 31, 2009 |   |
|-----------------------------------------|--------|--------------------------------------------------|--------|
|                                    |   |                                             |   |   | Weighted Average |   |   |   |   |
|                                    |   | Net Income                                  |   |   | Number of Shares |   |   | Per Share |   |
|                                    |   | Numerators                                       |   |   | Denominators |   |   | Amount |   |
|                                    |   |                                             |   |   |   |   |   |   |   |
| Net income                              |   | $                                                | 7,937  |   |   |   |   |   |   |   |
| Basic earnings per share:               |   |                                             |   |   |   |   |   |   |   |   |
| Income available to common stockholders |   | $                                                | 7,937  |   |   |   | 5,440 |   |   | $ | 1.46 |   |
| Effect of dilutive securities:          |   |                                             |   |   |   |   |   |   |   |   |   |   |
| Stock options                           |   |                                             |   |   |   |   | 2 |   |   |   |   |   |
| Diluted earnings per share:             |   |                                             |   |   |   |   |   |   |   |   |   |   |
| Income available to common stockholders |   | $                                                | 7,937  |   |   |   | 5,442 |   |   | $ | 1.46 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

|                                    |   | Year Ended December 31, 2008 |   |
|-----------------------------------------|--------|--------------------------------------------------|--------|
|                                    |   |                                             |   |   | Weighted Average |   |   |   |   |
|                                    |   | Net Income                                  |   |   | Number of Shares |   |   | Per Share |   |
|                                    |   | Numerators                                       |   |   | Denominators |   |   | Amount |   |
|                                    |   |                                             |   |   |   |   |   |   |   |
| Net income                              |   | $                                                | 7,551  |   |   |   |   |   |   |   |
| Basic earnings per share:               |   |                                             |   |   |   |   |   |   |   |   |
| Income available to common stockholders |   | $                                                | 7,551  |   |   |   | 5,440 |   |   | $ | 1.39 |   |
| Effect of dilutive securities:          |   |                                             |   |   |   |   |   |   |   |   |   |   |
| Stock options                           |   |                                             |   |   |   |   | 2 |   |   |   |   |   |
| Diluted earnings per share:             |   |                                             |   |   |   |   |   |   |   |   |   |   |
| Income available to common stockholders |   | $                                                | 7,551  |   |   |   | 5,442 |   |   | $ | 1.39 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

|                                                      |   | Available-for-Sale Securities |    |
|-----------------------------------------------------------|--------|------------------------------------|---------|
| (Amounts in thousands)                          |   |                               |    |   | Gross |   |   | Gross |   |   | Estimated |   |
|                                                      |   | Amortized                          |    |   | Unrealized |   |   | Unrealized |   |   | Fair |   |
| December 31, 2010:                              |   | Cost                               |    |   | Gains |   |   | Losses |   |   | Value |   |
| Obligations of U.S. Government Corporations and Agencies: |   |                               |    |   |   |   |   |   |   |   |   |   |
| Mortgage-backed                                           |   | $                                  | 43,673  |   |   | $ | 1,250 |   |   | $ | (146 | ) |   | $ | 44,777 |   |
| Other                                                     |   |                               | 7,079   |   |   |   | 47 |   |   |   | (30 | ) |   |   | 7,096 |   |
| Obligations of state and political subdivisions           |   |                               | 182,181 |   |   |   | 2,617 |   |   |   | (7,546 | ) |   |   | 177,252 |   |
| Corporate securities                                      |   |                               | 71,708  |   |   |   | 1,497 |   |   |   | (253 | ) |   |   | 72,952 |   |
| Marketable equity securities                              |   |                               | 1,725   |   |   |   | 256 |   |   |   | (156 | ) |   |   | 1,825 |   |
| Restricted equity securities                              |   |                               | 6,363   |   |   |   | — |   |   |   | — |   |   |   | 6,363 |   |
| Total                                                     |   | $                                  | 312,729 |   |   | $ | 5,667 |   |   | $ | (8,131 | ) |   | $ | 310,265 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

|                                                      |   | Held-to-Maturity Securities |    |
|-----------------------------------------------------------|--------|----------------------------------|---------|
| (Amounts in thousands)                          |   |                             |    |   | Gross |   |   | Gross |   |   | Estimated |   |
|                                                      |   | Amortized                        |    |   | Unrealized |   |   | Unrealized |   |   | Fair |   |
| December 31, 2010:                                        |   | Cost                             |    |   | Gains |   |   | Losses |   |   | Value |   |
| Obligations of U.S. Government Corporations and Agencies: |   |                             |    |   |   |   |   |   |   |   |   |   |
| Mortgage-backed                                           |   | $                                | 142     |   |   | $ | 3 |   |   | $ | — |   |   | $ | 145 |   |
| Other                                                     |   |                             | 5,027   |   |   |   | 19 |   |   |   | (81 | ) |   |   | 4,965 |   |
| Obligations of state and political subdivisions           |   |                             | 1,097   |   |   |   | — |   |   |   | (16 | ) |   |   | 1,081 |   |
| Total                                                     |   | $                                | 6,266   |   |   | $ | 22 |   |   | $ | (97 | ) |   | $ | 6,191 |   |
|                                                      |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                      |   | Available-for-Sale Securities    |    |
| (Amounts in thousands)                                    |   |                             |    |   | Gross |   |   | Gross |   |   | Estimated |   |
|                                                      |   | Amortized                        |    |   | Unrealized |   |   | Unrealized |   |   | Fair |   |
| December 31, 2009:                                        |   | Cost                             |    |   | Gains |   |   | Losses |   |   | Value |   |
| Obligations of U.S. Government Corporations and Agencies: |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed                                           |   | $                                | 52,730  |   |   | $ | 1,074 |   |   | $ | (575 | ) |   | $ | 53,229 |   |
| Other                                                     |   |                             | 6,044   |   |   |   | 155 |   |   |   | (6 | ) |   |   | 6,193 |   |
| Obligations of state and political subdivisions           |   |                             | 168,563 |   |   |   | 1,650 |   |   |   | (7,613 | ) |   |   | 162,600 |   |
| Corporate securities                                      |   |                             | 44,262  |   |   |   | 1,651 |   |   |   | (9 | ) |   |   | 45,904 |   |
| Marketable equity securities                              |   |                             | 2,027   |   |   |   | 187 |   |   |   | (455 | ) |   |   | 1,759 |   |
| Restricted equity securities                              |   |                             | 8,139   |   |   |   | — |   |   |   | — |   |   |   | 8,139 |   |
| Total                                                     |   | $                                | 281,765 |   |   | $ | 4,717 |   |   | $ | (8,658 | ) |   | $ | 277,824 |   |
|                                                      |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                      |   | Held-to-Maturity Securities      |    |
| (Amounts in thousands)                                    |   |                             |    |   | Gross |   |   | Gross |   |   | Estimated |   |
|                                                      |   | Amortized                        |    |   | Unrealized |   |   | Unrealized |   |   | Fair |   |
| December 31, 2009:                                        |   | Cost                             |    |   | Gains |   |   | Losses |   |   | Value |   |
| Obligations of U.S. Government Corporations and Agencies: |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed                                           |   | $                                | 159     |   |   | $ | 2 |   |   | $ | — |   |   | $ | 161 |   |
| Other                                                     |   |                             | 3,000   |   |   |   | 11 |   |   |   | (34 | ) |   |   | 2,977 |   |
| Obligations of state and political subdivisions           |   |                             | 1,815   |   |   |   | 2 |   |   |   | (19 | ) |   |   | 1,798 |   |
| Total                                                     |   | $                                | 4,974   |   |   | $ | 15 |   |   | $ | (53 | ) |   | $ | 4,936 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| (Amounts in thousands) |   |                        |    |   |                 |   |    |        |   |   |        |   |   |       |    |
|----------------------------------|--------|-----------------------------|---------|--------|----------------------|--------|---------|-------------|--------|--------|-------------|--------|--------|------------|---------|
|                             |   | December 31, 2010 |    |   |                 |   |
|                             |   | U.S. Government        |    |   | Obligations          |   |    |        |   |   |        |   |   |       |    |
|                             |   | Agency &           |    |   | of State        |   |    | Marketable  |   |   | Restricted  |   |   |       |    |
|                             |   | Corporation                 |    |   | & Political |   |    | Equity      |   |   | Equity      |   |   | Corporate  |    |
|                             |   | Obligations1                |    |   | Subdivisions2        |   |    | Securities3 |   |   | Securities3 |   |   | Securities |    |
| Available-For-Sale:              |   |                        |    |   |                 |   |    |        |   |   |        |   |   |       |    |
| Within 1 Year:                   |   |                        |    |   |                 |   |    |        |   |   |        |   |   |       |    |
| Amortized cost                   |   | $                           | — |   |                 | $      | — |        |   | $      | —     |   |   | $          | — |   |   | $ | 10,746 |   |
| Estimated fair value             |   |                        | — |   |                 |   | — |        |   |   | —     |   |   |       | — |   |   |   | 10,845 |   |
| Weighted average yield           |   |                        | — |   |                 |   | — |        |   |   | —     |   |   |       | — |   |   |   | 4.32 | % |
| 1 - 5 Years:                     |   |                        |    |   |                 |   |    |        |   |   |        |   |   |       |    |   |   |   |   |   |
| Amortized cost                   |   |                        | 4,056   |   |                 |   | 452     |        |   |   | —     |   |   |       | — |   |   |   | 57,902 |   |
| Estimated fair value             |   |                        | 4,064   |   |                 |   | 467     |        |   |   | —     |   |   |       | — |   |   |   | 59,069 |   |
| Weighted average yield           |   |                        | 1.25    | %      |                 |   | 5.78    | %           |   |   | —     |   |   |       | — |   |   |   | 3.22 | % |
| 5 - 10 Years:                    |   |                        |    |   |                 |   |    |        |   |   |        |   |   |       |    |   |   |   |   |   |
| Amortized cost                   |   |                        | 10,682  |   |                 |   | 1,734   |        |   |   | —     |   |   |       | — |   |   |   | 3,060 |   |
| Estimated fair value             |   |                        | 11,149  |   |                 |   | 1,823   |        |   |   | —     |   |   |       | — |   |   |   | 3,040 |   |
| Weighted average yield           |   |                        | 4.08    | %      |                 |   | 6.05    | %           |   |   | —     |   |   |       | — |   |   |   | 3.19 | % |
| After 10                         |   |                        |    |   |                 |   |    |        |   |   |        |   |   |       |    |   |   |   |   |   |
| Amortized cost                   |   |                        | 36,014  |   |                 |   | 179,995 |        |   |   | 1,725       |   |   |       | 6,363   |   |   |   | — |   |
| Estimated fair value             |   |                        | 36,660  |   |                 |   | 174,962 |        |   |   | 1,825       |   |   |       | 6,363   |   |   |   | — |   |
| Weighted average yield           |   |                        | 4.03    | %      |                 |   | 6.14    | %           |   |   | 2.54        | %      |   |       | .95     | % |   |   | — |   |
| Total:                           |   |                        |    |   |                 |   |    |        |   |   |        |   |   |       |    |   |   |   |   |   |
| Amortized cost                   |   | $                           | 50,752  |   |                 | $      | 182,181 |        |   | $      | 1,725       |   |   | $          | 6,363   |   |   | $ | 71,708 |   |
| Estimated fair value             |   |                        | 51,873  |   |                 |   | 177,252 |        |   |   | 1,825       |   |   |       | 6,363   |   |   |   | 72,952 |   |
| Weighted average yield           |   |                        | 3.82    | %      |                 |   | 6.14    | %           |   |   | 2.54        | %      |   |       | .95     | % |   |   | 3.38 | % |

----

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| (Amounts in thousands)  |   |                        |    |   |            |   |    |        |   |   |        |   |   |       |    |
|----------------------------------------|--------|-----------------------------|---------|--------|-----------------|--------|---------|-------------|--------|--------|-------------|--------|--------|------------|---------|
|                                   |   | December 31, 2010 |    |   |            |   |
|                                   |   | U.S. Government        |    |   | Obligations     |   |    |        |   |   |        |   |   |       |    |
|                                   |   | Agency &           |    |   | of State   |   |    | Marketable  |   |   | Restricted  |   |   |       |    |
|                                   |   | Corporation                 |    |   | & Political |   |    | Equity      |   |   | Equity      |   |   | Corporate  |    |
|                                   |   | Obligations1                |    |   | Subdivisions2   |   |    | Securities3 |   |   | Securities3 |   |   | Securities |    |
| Held-To-Maturity:                      |   |                        |    |   |            |   |    |        |   |   |        |   |   |       |    |
| Within 1 Year:                         |   |                        |    |   |            |   |    |        |   |   |        |   |   |       |    |
| Amortized cost                         |   | $                           | — |   |            | $      | 630     |        |   | $      | —     |   |   | $          | — |   |   | $ | — |   |
| Estimated fair value                   |   |                        | — |   |            |   | 628     |        |   |   | —     |   |   |       | — |   |   |   | — |   |
| Weighted average yield                 |   |                        | — |   |            |   | 4.49    | %           |   |   | —     |   |   |       | — |   |   |   | — |   |
| 1 - 5 Years:                           |   |                        |    |   |            |   |    |        |   |   |        |   |   |       |    |   |   |   |   |   |
| Amortized cost                         |   |                        | 3,027   |   |            |   | — |        |   |   | —     |   |   |       | — |   |   |   | — |   |
| Estimated fair value                   |   |                        | 3,030   |   |            |   | — |        |   |   | —     |   |   |       | — |   |   |   | — |   |
| Weighted average yield                 |   |                        | 3.83    | %      |            |   | — |        |   |   | —     |   |   |       | — |   |   |   | — |   |
| 5 - 10 Years:                          |   |                        |    |   |            |   |    |        |   |   |        |   |   |       |    |   |   |   |   |   |
| Amortized cost                         |   |                        | 2,142   |   |            |   | — |        |   |   | —     |   |   |       | — |   |   |   | — |   |
| Estimated fair value                   |   |                        | 2,080   |   |            |   | — |        |   |   | —     |   |   |       | — |   |   |   | — |   |
| Weighted average yield                 |   |                        | 2.37    | %      |            |   | — |        |   |   | —     |   |   |       | — |   |   |   | — |   |
| After 10 Years:                        |   |                        |    |   |            |   |    |        |   |   |        |   |   |       |    |   |   |   |   |   |
| Amortized cost                         |   |                        | — |   |            |   | 467     |        |   |   | —     |   |   |       | — |   |   |   | — |   |
| Estimated fair value                   |   |                        | — |   |            |   | 453     |        |   |   | —     |   |   |       | — |   |   |   | — |   |
| Weighted average yield                 |   |                        | — |   |            |   | 7.04    | %           |   |   | —     |   |   |       | — |   |   |   | — |   |
| Total:                                 |   |                        |    |   |            |   |    |        |   |   |        |   |   |       |    |   |   |   |   |   |
| Amortized cost                         |   | $                           | 5,169   |   |            | $      | 1,097   |        |   | $      | —     |   |   | $          | — |   |   | $ | — |   |
| Estimated fair value                   |   |                        | 5,110   |   |            |   | 1,081   |        |   |   | —     |   |   |       | — |   |   |   | — |   |
| Weighted average yield                 |   |                        | 3.22    | %      |            |   | 5.58    | %           |   |   | —     |   |   |       | — |   |   |   | — |   |

----

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| December 31, 2010               |   |                               |    |   |                             |   |   |   |   |   |       |   |   |   |    |   |       |   |
|-------------------------------------------|--------|------------------------------------|---------|--------|----------------------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------|---------|--------|------------|--------|
|                                      |   | Less Than 12 Months |    |   | 12 Months or More |   |   | Total  |   |
|                                      |   | Fair                               |    |   | Unrealized                       |   |   | Fair   |   |   | Unrealized |   |   | Fair   |    |   | Unrealized |   |
| (Amounts in thousands)                    |   | Value                              |    |   | Loss                             |   |   | Value  |   |   | Loss       |   |   | Value  |    |   | Loss       |   |
|                                      |   |                               |    |   |                             |   |   |   |   |   |       |   |   |   |    |   |       |   |
| Direct obligations of the U.S. Government |   | $                                  | 7,925   |   |                             | $      | 111    |   |   | $      | —    |   |   | $      | — |   |       | $      | 7,925 |   |   | $ | 111 |   |
| Federal Agency                            |   |                               |    |   |                             |   |   |   |   |   |       |   |   |   |    |   |       |   |   |   |   |   |   |   |
| Backed Securities                         |   |                               | 4,859   |   |                             |   | 146    |   |   |   | —    |   |   |   | — |   |       |   | 4,859 |   |   |   | 146 |   |
| Municipal Bonds                           |   |                               | 90,995  |   |                             |   | 3,239  |   |   |   | 13,160     |   |   |   | 4,323   |   |       |   | 104,155 |   |   |   | 7,562 |   |
| Corporate Securities                      |   |                               | 18,414  |   |                             |   | 253    |   |   |   | —    |   |   |   | — |   |       |   | 18,414 |   |   |   | 253 |   |
| Equities                                  |   |                               | 98      |   |                             |   | 27     |   |   |   | 645        |   |   |   | 129     |   |       |   | 743 |   |   |   | 156 |   |
|                                      |   | $                                  | 122,291 |   |                             | $      | 3,776  |   |   | $      | 13,805     |   |   | $      | 4,452   |   |       | $      | 136,096 |   |   | $ | 8,228 |   |

| December 31, 2009               |   |                               |   |   |                             |   |   |   |   |   |       |   |   |   |    |   |       |   |
|-------------------------------------------|--------|------------------------------------|--------|--------|----------------------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------|---------|--------|------------|--------|
|                                      |   | Less Than 12 Months |   |   | 12 Months or More |   |   | Total  |   |
|                                      |   | Fair                               |   |   | Unrealized                       |   |   | Fair   |   |   | Unrealized |   |   | Fair   |    |   | Unrealized |   |
| (Amounts in thousands)          |   | Value                              |   |   | Loss                             |   |   | Value  |   |   | Loss       |   |   | Value  |    |   | Loss       |   |
|                                      |   |                               |   |   |                             |   |   |   |   |   |       |   |   |   |    |   |       |   |
| Direct obligations of the U.S. Government |   | $                                  | 2,961  |   |                             | $      | 39     |   |   | $      | —    |   |   | $      | — |   |       | $      | 2,961 |   |   | $ | 39 |   |
| Federal Agency                            |   |                               |   |   |                             |   |   |   |   |   |       |   |   |   |    |   |       |   |   |   |   |   |   |   |
| Backed Securities                         |   |                               | 31,545 |   |                             |   | 575    |   |   |   | —    |   |   |   | — |   |       |   | 31,545 |   |   |   | 575 |   |
| Municipal Bonds                           |   |                               | 48,858 |   |                             |   | 1,483  |   |   |   | 37,530     |   |   |   | 6,150   |   |       |   | 86,388 |   |   |   | 7,633 |   |
| Corporate Securities                      |   |                               | 1,062  |   |                             |   | 9      |   |   |   | —    |   |   |   | — |   |       |   | 1,062 |   |   |   | 9 |   |
| Equities                                  |   |                               | 148    |   |                             |   | 19     |   |   |   | 1,111      |   |   |   | 436     |   |       |   | 1,259 |   |   |   | 455 |   |
|                                      |   | $                                  | 84,574 |   |                             | $      | 2,125  |   |   | $      | 38,641     |   |   | $      | 6,586   |   |       | $      | 123,215 |   |   | $ | 8,711 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

|   | A. | Level 1: Fair value is based on unadjusted quoted prices in active markets that are accessible to the Bank for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Level 2: Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices that are not active for identical or similar assets and other observable inputs. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Level 3: Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows and other similar techniques. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                            |   | Level 1 |    |   | Level 2 |   |    | Level 3 |   |   | Total   |   |
|-------------------------------------------------|--------|--------------|---------|--------|--------------|--------|---------|--------------|--------|--------|---------|--------|
| Available for Sale Securities                   |   |         |    |   |         |   |    |         |   |   |    |   |
| Obligations of US Government Agencies           |   |         |    |   |         |   |    |         |   |   |    |   |
| Mortgaged-backed                                |   | $            | — |   |         | $      | 44,777  |         |   | $      | — |   |   | $ | 44,777 |   |
| Other                                           |   |         | — |   |         |   | 7,096   |         |   |   | — |   |   |   | 7,096 |   |
| Obligations of state and political subdivisions |   |         | — |   |         |   | 177,252 |         |   |   | — |   |   |   | 177,252 |   |
| Corporate securities                            |   |         | — |   |         |   | 72,952  |         |   |   | — |   |   |   | 72,952 |   |
| Equity securities                               |   |         | 1,825   |   |         |   | — |         |   |   | — |   |   |   | 1,825 |   |
| Restricted equity securities                    |   |         | — |   |         |   | 6,363   |         |   |   | — |   |   |   | 6,363 |   |
|                                            |   | $            | 1,825   |   |         | $      | 308,440 |         |   | $      | — |   |   | $ | 310,265 |   |

| (Amounts in thousands)                  |   |   |    |   |   |   |
|-----------------------------------------|--------|--------|---------|--------|--------|--------|
|                                    |   | 2010   |    |   | 2009   |   |
| Commercial, Financial, and Agricultural |   | $      | 29,693  |   |   | $      | 42,815 |   |
| Tax-exempt                              |   |   | 12,450  |   |   |   | 12,525 |   |
| Real estate mortgages - Held-for-sale   |   |   | 4,950   |   |   |   | 10,429 |   |
| Real estate mortgages - Consumer        |   |   | 127,031 |   |   |   | 127,663 |   |
| Real estate mortgages - Commercial      |   |   | 227,147 |   |   |   | 203,413 |   |
| Consumer                                |   |   | 8,781   |   |   |   | 10,802 |   |
| Gross loans                             |   | $      | 410,052 |   |   | $      | 407,647 |   |
| Add (deduct): Unearned discount         |   |   | (675    | )      |   |   | (1,273 | ) |
|  Net deferred loan fees and costs  |   |   | 274     |   |   |   | 323 |   |
| Loans, net of unearned income           |   | $      | 409,651 |   |   | $      | 406,697 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| (Amounts in thousands)          |   |   |   |   |   |   |   |   |   |
|---------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                            |   | 2010   |   |   | 2009   |   |   | 2008   |   |
| Balance, January 1              |   | $      | 5,322  |   |   | $      | 5,195  |   |   | $ | 5,046 |   |
| Provision charged to operations |   |   | 2,575  |   |   |   | 800    |   |   |   | 700 |   |
| Loans charged off               |   |   | (2,262 | )      |   |   | (734   | )      |   |   | (739 | ) |
| Recoveries                      |   |   | 66     |   |   |   | 61     |   |   |   | 188 |   |
| Balance, December 31            |   | $      | 5,701  |   |   | $      | 5,322  |   |   | $ | 5,195 |   |

|                                     |   | Commercial & |    |   | Commercial Real Estate |   |    | Commercial Real Estate |   |
|------------------------------------------|--------|-----------------------|---------|--------|----------------------------------|--------|---------|----------------------------------|--------|
|                                     |   | Industrial            |    |   | Construction                     |   |    | Other                            |   |
|                                     |   | 2010                  |    |   | 2009                             |   |    | 2010                             |   |   | 2009 |   |   | 2010 |   |   | 2009 |   |
| Grade:                                   |   |                  |    |   |                             |   |    |                             |   |   |   |   |   |   |   |   |   |   |
| 1-6 Pass                                 |   | $                     | 37,991  |   |                             | $      | 39,449  |                             |   | $ | 5,111 |   |   | $ | 5,011 |   |   | $ | 205,941 |   |   | $ | 195,417 |   |
| 7    Special Mention      |   |                  | 1,330   |   |                             |   | 1,994   |                             |   |   | — |   |   |   | — |   |   |   | 8,308 |   |   |   | 9,231 |   |
| 8    Substandard          |   |                  | 991     |   |                             |   | 392     |                             |   |   | 433 |   |   |   | — |   |   |   | 8,958 |   |   |   | 5,366 |   |
| 9    Doubtful             |   |                  | 227     |   |                             |   | — |                             |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Add (deduct): Unearned discount          |   |                  | — |   |                             |   | — |                             |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
|  Net deferred loan fees & costs |   |                  | 74      |   |                             |   | 79      |                             |   |   | (13 | ) |   |   | (12 | ) |   |   | 35 |   |   |   | 75 |   |
| Loans, net of unearned income            |   | $                     | 40,603  |   |                             | $      | 41,914  |                             |   | $ | 5,531 |   |   | $ | 4,999 |   |   | $ | 223,252 |   |   | $ | 210,089 |   |

|                                     |   | Residential Real Estate |    |   |                |   |    |   |   |
|------------------------------------------|--------|-----------------------------------|---------|--------|---------------------|--------|---------|--------|--------|
|                                     |   | Including Home Equity   |    |   | Consumer Loans |   |
|                                     |   | 2010                              |    |   | 2009                |   |    | 2010   |   |   | 2009 |   |
| Grade:                                   |   |                              |    |   |                |   |    |   |   |   |   |   |
| 1-6 Pass                                 |   | $                                 | 130,477 |   |                | $      | 139,394 |   |   | $ | 8,781 |   |   | $ | 11,392 |   |
| 7    Special Mention |   |                              | 191     |   |                |   | — |   |   |   | — |   |   |   | — |   |
| 8    Substandard     |   |                              | 1,313   |   |                |   | — |   |   |   | — |   |   |   | — |   |
| 9    Doubtful        |   |                              | — |   |                |   | — |   |   |   | — |   |   |   | — |   |
| Add (deduct): Unearned discount          |   |                              | — |   |                |   | — |   |   |   | (675 | ) |   |   | (1,273 | ) |
|  Net deferred loan fees & costs |   |                              | 82      |   |                |   | 57      |   |   |   | 96 |   |   |   | 125 |   |
| Loans, net of unearned income            |   | $                                 | 132,063 |   |                | $      | 139,451 |   |   | $ | 8,202 |   |   | $ | 10,244 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| (Amounts in thousands)                                           |   |       |   |   | Commercial  |   |    |     |   |   |        |   |   |        |    |   |   |   |
|------------------------------------------------------------------|--------|------------|--------|--------|-------------|--------|---------|----------|--------|--------|-------------|--------|--------|-------------|---------|--------|--------|--------|
|                                                             |   | Commercial |   |   | Real Estate |   |    | Consumer |   |   | Residential |   |   | Unallocated |    |   | Total  |   |
| 2010                                                             |   |       |   |   |        |   |    |     |   |   |        |   |   |        |    |   |   |   |
| Allowance for Credit Losses:                                     |   |       |   |   |        |   |    |     |   |   |        |   |   |        |    |   |   |   |
| Beginning balance                                                |   | $          | 970    |   |        | $      | 2,213   |     |   | $      | 99          |   |   | $           | 1,734   |   |   | $      | 306 |   |   | $ | 5,322 |   |
| Charge-offs                                                      |   |       | (389   | )      |        |   | (1,585  | )        |   |   | (95         | )      |   |        | (193    | )      |   |   | — |   |   |   | (2,262 | ) |
| Recoveries                                                       |   |       | 38     |   |        |   | 13      |     |   |   | 14          |   |   |        | 1       |   |   |   | — |   |   |   | 66 |   |
| Provision                                                        |   |       | (54    | )      |        |   | 2,128   |     |   |   | 105         |   |   |        | (41     | )      |   |   | 437 |   |   |   | 2,575 |   |
| Ending Balance                                                   |   | $          | 565    |   |        | $      | 2,769   |     |   | $      | 123         |   |   | $           | 1,501   |   |   | $      | 743 |   |   | $ | 5,701 |   |
| Ending balance: individually evaluated  for impairment |   |       | 296    |   |        |   | 309     |     |   |   | —     |   |   |        | — |   |   |   | — |   |   |   | 605 |   |
| Ending balance: collectively evaluated for impairment            |   | $          | 269    |   |        | $      | 2,460   |     |   | $      | 123         |   |   | $           | 1,501   |   |   | $      | 743 |   |   | $ | 5,096 |   |
|                                                             |   |       |   |   |        |   |    |     |   |   |        |   |   |        |    |   |   |   |   |   |   |   |   |   |
| Financing Receivables:                                           |   |       |   |   |        |   |    |     |   |   |        |   |   |        |    |   |   |   |   |   |   |   |   |   |
| Ending Balance                                                   |   | $          | 20,969 |   |        | $      | 199,878 |     |   | $      | 7,357       |   |   | $           | 181,447 |   |   | $      |   |   |   | $ | 409,651 |   |
| Ending balance: individually evaluated for impairment            |   |       | 381    |   |        |   | 3,109   |     |   |   | —     |   |   |        | 787     |   |   |   | — |   |   |   | 4,276 |   |
| Ending balance: collectively evaluated for impairment            |   | $          | 20,588 |   |        | $      | 196,769 |     |   | $      | 7,357       |   |   | $           | 180,660 |   |   | $      | — |   |   | $ | 405,375 |   |

| (Amounts in thousands)                                           |   |       |   |   | Commercial  |   |    |     |   |   |        |   |   |        |    |   |   |   |
|------------------------------------------------------------------|--------|------------|--------|--------|-------------|--------|---------|----------|--------|--------|-------------|--------|--------|-------------|---------|--------|--------|--------|
|                                                             |   | Commercial |   |   | Real Estate |   |    | Consumer |   |   | Residential |   |   | Unallocated |    |   | Total  |   |
| 2009                                                             |   |       |   |   |        |   |    |     |   |   |        |   |   |        |    |   |   |   |
| Allowance for Credit Losses:                                     |   |       |   |   |        |   |    |     |   |   |        |   |   |        |    |   |   |   |
| Beginning balance                                                |   | $          | 381    |   |        | $      | 2,297   |     |   | $      | 159         |   |   | $           | 1,732   |   |   | $      | 626 |   |   | $ | 5,195 |   |
| Charge-offs                                                      |   |       | (211   | )      |        |   | (230    | )        |   |   | (169        | )      |   |        | (124    | )      |   |   | — |   |   |   | (734 | ) |
| Recoveries                                                       |   |       | 12     |   |        |   | 5       |     |   |   | 24          |   |   |        | 21      |   |   |   | — |   |   |   | 62 |   |
| Provision                                                        |   |       | 788    |   |        |   | 142     |     |   |   | 85          |   |   |        | 105     |   |   |   | (320 | ) |   |   | 800 |   |
| Ending Balance                                                   |   | $          | 970    |   |        | $      | 2,214   |     |   | $      | 99          |   |   | $           | 1,734   |   |   | $      | 306 |   |   | $ | 5,323 |   |
| Ending balance: individually evaluated  for impairment |   |       | 460    |   |        |   | 364     |     |   |   | —     |   |   |        | 10      |   |   |   | — |   |   |   | 834 |   |
| Ending balance: collectively evaluated for impairment            |   | $          | 510    |   |        | $      | 1,849   |     |   | $      | 99          |   |   | $           | 1,724   |   |   | $      | 306 |   |   | $ | 4,489 |   |
|                                                             |   |       |   |   |        |   |    |     |   |   |        |   |   |        |    |   |   |   |   |   |   |   |   |   |
| Financing Receivables:                                           |   |       |   |   |        |   |    |     |   |   |        |   |   |        |    |   |   |   |   |   |   |   |   |   |
| Ending Balance                                                   |   | $          | 50,423 |   |        | $      | 160,671 |     |   | $      | 9,465       |   |   | $           | 186,138 |   |   | $      | — |   |   | $ | 406,697 |   |
| Ending balance: individually evaluated for impairment            |   |       | 672    |   |        |   | 2,058   |     |   |   | —     |   |   |        | 218     |   |   |   | — |   |   |   | 2,948 |   |
| Ending balance: collectively evaluated for impairment            |   | $          | 49,751 |   |        | $      | 158,613 |     |   | $      | 9,465       |   |   | $           | 185,920 |   |   | $      | — |   |   | $ | 403,749 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| (Amounts in thousands)         |   |   |   |   |   |   |   |   |   |
|--------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                           |   | 2010   |   |   | 2009   |   |   | 2008   |   |
| Gross interest due under terms |   | $      | 316    |   |   | $      | 242    |   |   | $ | 145 |   |
| Amount included in income      |   |   | (63    | )      |   |   | (61    | )      |   |   | (94 | ) |
| Interest income not recognized |   | $      | 253    |   |   | $      | 181    |   |   | $ | 51 |   |

| (Amounts in thousands)              |   |       |    |   | Unpaid    |   |    |      |   |   | Average    |   |   | Interest   |    |
|-------------------------------------|--------|------------|---------|--------|-----------|--------|---------|-----------|--------|--------|------------|--------|--------|------------|---------|
|                                |   | Recorded   |    |   | Principal |   |    | Related   |   |   | Recorded   |   |   | Income     |    |
|                                |   | Investment |    |   | Balance   |   |    | Allowance |   |   | Investment |   |   | Recognized |    |
| 2010:                               |   |       |    |   |      |   |    |      |   |   |       |   |   |       |    |
| With no related allowance recorded: |   |       |    |   |      |   |    |      |   |   |       |   |   |       |    |
| Commercial                          |   | $          | 29      |   |      | $      | 29      |      |   | $      | —    |   |   | $          | 29      |   |   | $ | — |   |
| Commercial real estate              |   |       | 907     |   |      |   | 942     |      |   |   | —    |   |   |       | 937     |   |   |   | 14 |   |
| Residential                         |   |       | 787     |   |      |   | 866     |      |   |   | —    |   |   |       | 785     |   |   |   | 19 |   |
|                                |   |       |    |   |      |   |    |      |   |   |       |   |   |       |    |   |   |   |   |   |
| With an allowance recorded:         |   |       |    |   |      |   |    |      |   |   |       |   |   |       |    |   |   |   |   |   |
| Commercial                          |   |       | 352     |   |      |   | 352     |      |   |   | 296        |   |   |       | 356     |   |   |   | 7 |   |
| Commercial real estate              |   |       | 2,201   |   |      |   | 2,641   |      |   |   | 309        |   |   |       | 2,398   |   |   |   | 23 |   |
| Residential                         |   |       | — |   |      |   | — |      |   |   | —    |   |   |       | — |   |   |   | — |   |
| Total                               |   | $          | 4,276   |   |      | $      | 4,830   |      |   | $      | 605        |   |   | $          | 4,505   |   |   | $ | 63 |   |
|                                |   |       |    |   |      |   |    |      |   |   |       |   |   |       |    |   |   |   |   |   |
| Total consists of:                  |   |       |    |   |      |   |    |      |   |   |       |   |   |       |    |   |   |   |   |   |
| Commercial                          |   | $          | 381     |   |      | $      | 381     |      |   | $      | 296        |   |   | $          | 385     |   |   | $ | 7 |   |
| Commercial real estate              |   | $          | 3,108   |   |      | $      | 3,583   |      |   | $      | 309        |   |   | $          | 3,335   |   |   | $ | 37 |   |
| Residential                         |   | $          | 787     |   |      | $      | 866     |      |   | $      | —    |   |   | $          | 785     |   |   | $ | 19 |   |

| (Amounts in thousands)              |   |       |    |   | Unpaid    |   |    |      |   |   | Average    |   |   | Interest   |    |
|-------------------------------------|--------|------------|---------|--------|-----------|--------|---------|-----------|--------|--------|------------|--------|--------|------------|---------|
|                                |   | Recorded   |    |   | Principal |   |    | Related   |   |   | Recorded   |   |   | Income     |    |
|                                |   | Investment |    |   | Balance   |   |    | Allowance |   |   | Investment |   |   | Recognized |    |
| 2009:                          |   |       |    |   |      |   |    |      |   |   |       |   |   |       |    |
| With no related allowance recorded: |   |       |    |   |      |   |    |      |   |   |       |   |   |       |    |
| Commercial                          |   | $          | — |   |      | $      | — |      |   | $      | —    |   |   | $          | — |   |   | $ | — |   |
| Commercial real estate              |   |       | 1,752   |   |      |   | 1,752   |      |   |   | —    |   |   |       | 1,788   |   |   |   | 44 |   |
| Residential                         |   |       | 141     |   |      |   | 141     |      |   |   | —    |   |   |       | 120     |   |   |   | 7 |   |
|                                |   |       |    |   |      |   |    |      |   |   |       |   |   |       |    |   |   |   |   |   |
| With an allowance recorded:         |   |       |    |   |      |   |    |      |   |   |       |   |   |       |    |   |   |   |   |   |
| Commercial                          |   |       | 672     |   |      |   | 672     |      |   |   | 560        |   |   |       | 692     |   |   |   | 2 |   |
| Commercial real estate              |   |       | 306     |   |      |   | 306     |      |   |   | 264        |   |   |       | 305     |   |   |   | 8 |   |
| Residential                         |   |       | 77      |   |      |   | 77      |      |   |   | 10         |   |   |       | 77      |   |   |   | — |   |
| Total                               |   | $          | 2,948   |   |      | $      | 2,948   |      |   | $      | 834        |   |   | $          | 2,982   |   |   | $ | 61 |   |
|                                |   |       |    |   |      |   |    |      |   |   |       |   |   |       |    |   |   |   |   |   |
| Total consists of:                  |   |       |    |   |      |   |    |      |   |   |       |   |   |       |    |   |   |   |   |   |
| Commercial                          |   | $          | 672     |   |      | $      | 672     |      |   | $      | 560        |   |   | $          | 692     |   |   | $ | 2 |   |
| Commercial real estate              |   | $          | 2,058   |   |      | $      | 2,058   |      |   | $      | 264        |   |   | $          | 2,093   |   |   | $ | 52 |   |
| Residential                         |   | $          | 218     |   |      | $      | 218     |      |   | $      | 10         |   |   | $          | 197     |   |   | $ | 7 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| (Amounts in thousands)                            |   |   |    |   |   |   |
|---------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                              |   | 2010   |    |   | 2009   |   |
| Commercial - R/E                                  |   | $      | 3,108   |   |   | $      | 2,058 |   |
| Commercial - other                                |   |   | 381     |   |   |   | 672 |   |
| Residential                                       |   |   | 787     |   |   |   | 218 |   |
| Consumer                                          |   |   | — |   |   |   | — |   |
| Total non-accruing loans                          |   | $      | 4,276   |   |   | $      | 2,948 |   |
| Restructured loans                                |   |   | — |   |   |   | — |   |
| Total impaired loans                              |   | $      | 4,276   |   |   | $      | 2,948 |   |
| Loans past-due 90 days or more and still accruing |   |   | — |   |   |   | 140 |   |
| Foreclosed assets                                 |   |   | 1,149   |   |   |   | 330 |   |
| Total non-performing assets                       |   | $      | 5,425   |   |   | $      | 3,418 |   |

| (Amounts in thousands) |   |            |   |   |            |   |    |              |   |   |          |   |   |    |   |   | Total       |      |
|----------------------------------|--------|-----------------|--------|--------|-----------------|--------|---------|-------------------|--------|--------|---------------|--------|--------|---------|--------|--------|-------------|-----------|
|                             |   | 30-59 Days |   |   | 60-89 Days |   |    | Greater Than |   |   | Total         |   |   |    |   |   | Financing   |      |
|                             |   | Past Due   |   |   | Past Due   |   |    | 90 Days      |   |   | Past Due |   |   | Current |   |   | Receivables |      |
| 2010                             |   |            |   |   |            |   |    |              |   |   |          |   |   |    |   |   |        |      |
| Commercial                       |   | $               | 740    |   |            | $      | 101     |              |   | $      | —       |   |   | $       | 842    |   |        | $         | 34,758 |   |   | $ | 35,600 |   |
| Commercial real estate           |   |            | 999    |   |            |   | 2,149   |              |   |   | —       |   |   |    | 3,148  |   |        |      | 230,638 |   |   |   | 233,786 |   |
| Consumer                         |   |            | 75     |   |            |   | 1       |              |   |   | —       |   |   |    | 76     |   |        |      | 8,127 |   |   |   | 8,203 |   |
| Residential                      |   |            | 1,212  |   |            |   | 155     |              |   |   | —       |   |   |    | 1,367  |   |        |      | 133,696 |   |   |   | 132,062 |   |
|                             |   |            |   |   |            |   |    |              |   |   |          |   |   |    |   |   |        |      |   |   |   |   |   |   |
| Total                            |   | $               | 3,026  |   |            | $      | 2,408   |              |   | $      | —       |   |   | $       | 5,433  |   |        | $         | 404,219 |   |   | $ | 409,651 |   |
|                             |   |            |   |   |            |   |    |              |   |   |          |   |   |    |   |   |        |      |   |   |   |   |   |   |
| (Amounts in thousands)           |   |            |   |   |            |   |    |              |   |   |          |   |   |    |   |   |        |      |   |   |   | Total |   |
|                             |   | 30-59 Days      |   |   | 60-89 Days      |   |    | Greater Than      |   |   | Total         |   |   |    |   |   |        | Financing |   |
|                             |   | Past Due        |   |   | Past Due        |   |    | 90 Days           |   |   | Past Due      |   |   | Current |   |   | Receivables |      |
| 2009                             |   |            |   |   |            |   |    |              |   |   |          |   |   |    |   |   |        |      |   |   |   |   |   |   |
| Commercial                       |   | $               | 388    |   |            | $      | 22      |              |   | $      | —       |   |   | $       | 410    |   |        | $         | 51,125 |   |   | $ | 51,536 |   |
| Commercial real estate           |   |            | 1,009  |   |            |   | — |              |   |   | 140           |   |   |    | 1,149  |   |        |      | 206,209 |   |   |   | 207,358 |   |
| Consumer                         |   |            | 131    |   |            |   | 147     |              |   |   | —       |   |   |    | 278    |   |        |      | 9,376 |   |   |   | 9,654 |   |
| Residential                      |   |            | 414    |   |            |   | 9       |              |   |   | —       |   |   |    | 423    |   |        |      | 137,726 |   |   |   | 138,149 |   |
|                             |   |            |   |   |            |   |    |              |   |   |          |   |   |    |   |   |        |      |   |   |   |   |   |   |
| Total                            |   | $               | 1,942  |   |            | $      | 178     |              |   | $      | 140           |   |   | $       | 2,260  |   |        | $         | 404,437 |   |   | $ | 406,697 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| (Amounts in thousands)    |   |   |   |   |   |   |   |   |   |
|---------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                      |   | 2010   |   |   | 2009   |   |   | 2008   |   |
| Balance, January 1        |   | $      | 346    |   |   | $      | 277    |   |   | $ | 297 |   |
| Servicing asset additions |   |   | 80     |   |   |   | 148    |   |   |   | 63 |   |
| Amortization              |   |   | (39    | )      |   |   | (79    | )      |   |   | (83 | ) |
| Balance, December 31      |   | $      | 387    |   |   | $      | 346    |   |   | $ | 277 |   |

| (Amounts in thousands)                    |   |   |   |   |   |   |
|-------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                      |   | 2010   |   |   | 2009   |   |
| Land                                      |   | $      | 1,851  |   |   | $      | 1,746 |   |
| Buildings                                 |   |   | 10,158 |   |   |   | 9,815 |   |
| Leasehold improvements                    |   |   | 376    |   |   |   | 390 |   |
| Equipment                                 |   |   | 8,518  |   |   |   | 8,153 |   |
|                                      |   |   | 20,903 |   |   |   | 20,104 |   |
| Less:  Accumulated depreciation |   |   | 9,061  |   |   |   | 8,639 |   |
| Total                                     |   | $      | 11,842 |   |   | $      | 11,465 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| (Amounts in thousands)                                        |   |                 |   |   |                     |   |   |   |   |   |    |   |
|-------------------------------------------------------------------------|--------|----------------------|--------|--------|--------------------------|--------|--------|--------|--------|--------|---------|--------|
|                                                                    |   | Gross                |   |   | Accumulated              |   |
|                                                                    |   | Carrying Amount |   |   | Amortization/(Accretion) |   |
|                                                                    |   | 2010                 |   |   | 2009                     |   |   | 2010   |   |   | 2009    |   |
| Unamortized intangible asset:                                           |   |                 |   |   |                     |   |   |   |   |   |    |   |
| Goodwill                                                                |   | $                    | 19,133 |   |                     | $      | 19,133 |   |   | $      | — |   |   | $ | — |   |
|                                                                    |   |                 |   |   |                     |   |   |   |   |   |    |   |   |   |   |   |
| Core deposit intangibles                                                |   | $                    | 2,218  |   |                     | $      | 2,218  |   |   | $      | 977     |   |   | $ | 688 |   |
| Premium discount (negative premium) on acquired certificates of deposit |   | $                    | (385   | )      |                     | $      | (385   | )      |   | $      | (384    | )      |   | $ | (383 | ) |

|   |   | Amortization            |   |   | Accretion of Premium Discount |   |
|--------|--------|-------------------------|--------|--------|----------------------------------------------|--------|
|   |   | of Core            |   |   | (Negative Premium)                      |   |
|   |   | Deposit Intangible |   |   | on Certificates of Deposit    |   |
| 2011   |   |                    | 289    |   |                                         |   | (1 | ) |
| 2012   |   |                    | 283    |   |                                         |   | — |   |
| 2013   |   |                    | 274    |   |                                         |   | — |   |
| 2014   |   |                    | 274    |   |                                         |   | — |   |
| 2015   |   |                    | 121    |   |                                         |   | — |   |

|                          |   | 2010   |    |   | 2009   |   |
|-------------------------------|--------|--------|---------|--------|--------|--------|
| Demand - non-interest bearing |   | $      | 69,080  |   |   | $      | 61,779 |   |
| Demand - interest bearing     |   |   | 142,364 |   |   |   | 117,229 |   |
| Savings                       |   |   | 156,670 |   |   |   | 116,857 |   |
| Time, $100,000 and over       |   |   | 75,719  |   |   |   | 96,335 |   |
| Other time                    |   |   | 183,062 |   |   |   | 188,369 |   |
| Total deposits                |   | $      | 626,895 |   |   | $      | 580,569 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| 2011   |   | $      | 52,876 |   |
|--------|--------|--------|--------|--------|
| 2012   |   |   | 12,317 |   |
| 2013   |   |   | 4,973  |   |
| 2014   |   |   | 2,917  |   |
| 2015   |   |   | 2,636  |   |
|   |   | $      | 75,719 |   |

| School district |   | $      | 31,767,000 |   |
|-----------------|--------|--------|------------|--------|
| Tax collection  |   |   | 25,598,000 |   |
| Total           |   | $      | 57,365,000 |   |

| (Amounts in thousands)                                           |   | 2010    |    |   |    |   |
|----------------------------------------------------------------------------|--------|---------|---------|--------|---------|--------|
|                                                                       |   |    |    |   |    |   |   | Maximum |   |   |   |   |
|                                                                       |   | Ending  |    |   | Average |   |   | Month End |   |   | Average |   |
|                                                                       |   | Balance |    |   | Balance |   |   | Balance |   |   | Rate |   |
| Federal funds purchased and securities sold under agreements to repurchase |   | $       | 19,948  |   |    | $      | 19,442 |   |   | $ | 25,683 |   |   |   | 1.18 | % |
| Federal Home Loan Bank                                                     |   |    | — |   |    |   | 28 |   |   |   | — |   |   |   | .64 | % |
| U.S. Treasury tax and loan notes                                           |   |    | 1,029   |   |    |   | 473 |   |   |   | 1,056 |   |   |   | — | % |
| Total                                                                      |   | $       | 20,977  |   |    | $      | 19,943 |   |   | $ | 26,739 |   |   |   | 1.15 | % |

| (Amounts in thousands)                                                     |   | 2009    |    |   |    |   |
|----------------------------------------------------------------------------|--------|---------|---------|--------|---------|--------|
|                                                                       |   |    |    |   |    |   |   | Maximum |   |   |   |   |
|                                                                       |   | Ending  |    |   | Average |   |   | Month End |   |   | Average |   |
|                                                                       |   | Balance |    |   | Balance |   |   | Balance |   |   | Rate |   |
| Federal funds purchased and securities sold under agreements to repurchase |   | $       | 17,024  |   |    | $      | 19,385 |   |   | $ | 23,000 |   |   |   | 1.75 | % |
| Federal Home Loan Bank                                                     |   |    | — |   |    |   | 4,479 |   |   |   | 31,350 |   |   |   | .72 | % |
| U.S. Treasury tax and loan notes                                           |   |    | 438     |   |    |   | 440 |   |   |   | 907 |   |   |   | — | % |
| Total                                                                      |   | $       | 17,462  |   |    | $      | 24,304 |   |   | $ | 55,257 |   |   |   | 1.53 | % |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| (Amounts in thousands)   |   |   |    |   |   |   |
|--------------------------|--------|--------|---------|--------|--------|--------|
|                     |   | 2010   |    |   | 2009   |   |
| Due 2010, 4.95% to 6.76% |   | $      | — |   |   | $      | 23,520 |   |
| Due 2011, 2.73% to 5.03% |   |   | 12,000  |   |   |   | 12,000 |   |
| Due 2012, 1.44% to 4.93% |   |   | 16,000  |   |   |   | 16,000 |   |
| Due 2013, 2.48% to 4.60% |   |   | 17,000  |   |   |   | 17,000 |   |
| Due 2014, 5.41%          |   |   | 3,750   |   |   |   | 3,750 |   |
| Due 2015, 3.29%          |   |   | 7,000   |   |   |   | — |   |
| Due 2018, 3.91% to 4.86% |   |   | 8,000   |   |   |   | 8,000 |   |
| Due 2028, 5.14%          |   |   | 2,000   |   |   |   | 2,000 |   |
|                     |   | $      | 65,750  |   |   | $      | 82,270 |   |

| (Amounts in thousands)           |   |   |   |   |   |   |   |   |   |
|----------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                             |   | 2010   |   |   | 2009   |   |   | 2008   |   |
| Federal                          |   |   |   |   |   |   |   |   |   |
| Current                          |   | $      | 2,145  |   |   | $      | 1,484  |   |   | $ | 1,865 |   |
| Deferred (benefit)               |   |   | 240    |   |   |   | (177   | )      |   |   | (419 | ) |
|                             |   | $      | 2,385  |   |   | $      | 1,307  |   |   | $ | 1,446 |   |
| State                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                          |   |   | (27    | )      |   |   | (40    | )      |   |   | — |   |
| Deferred                         |   |   | 4      |   |   |   | 12     |   |   |   | (52 | ) |
|                             |   | $      | (23    | )      |   | $      | (28    | )      |   | $ | (52 | ) |
|                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Total provision for income taxes |   | $      | 2,362  |   |   | $      | 1,279  |   |   | $ | 1,394 |   |

| (Amounts in thousands)                                      |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|-------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                        |   | Amount |   |   | Rate   |   |   | Amount |   |   | Rate |   |   | Amount |   |   | Rate |   |
| Provision at statutory rate                                 |   | $      | 3,850  |   |   |   | 34.0   | %      |   | $ | 3,133 |   |   |   | 34.0 | % |   | $ | 3,041 |   |   |   | 34.0 | % |
| Tax-exempt income                                           |   |   | (1,294 | )      |   |   | (11.4  | )      |   |   | (1,463 | ) |   |   | (15.9 | ) |   |   | (1,397 | ) |   |   | (15.6 | ) |
| Non-deductible expenses                                     |   |   | 104    |   |   |   | 0.9    |   |   |   | 147 |   |   |   | 1.6 |   |   |   | 177 |   |   |   | 2.0 |   |
| Tax credit from limited partnership Less amortization - net |   |   | (128   | )      |   |   | (1.1   | )      |   |   | (134 | ) |   |   | (1.5 | ) |   |   | (136 | ) |   |   | (1.5 | ) |
| Bank owned life insurance income - net                      |   |   | (260   | )      |   |   | (2.3   | )      |   |   | (337 | ) |   |   | (3.7 | ) |   |   | (240 | ) |   |   | (2.7 | ) |
| Other-net                                                   |   |   | 113    |   |   |   | 1.0    |   |   |   | (39 | ) |   |   | (.3 | ) |   |   | 1 |   |   |   | — |   |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Applicable federal income tax and rate                      |   | $      | 2,385  |   |   |   | 21.1   | %      |   | $ | 1,307 |   |   |   | 14.2 | % |   | $ | 1,446 |   |   |   | 16.2 | % |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

|                                          |   | 2010   |    |   | 2009   |   |
|-----------------------------------------------|--------|--------|---------|--------|--------|--------|
| Deferred Tax Assets:                          |   |   |    |   |   |   |
| Allowance for loan losses                     |   | $      | 1,928   |   |   | $      | 1,791 |   |
| Deferred compensation                         |   |   | 456     |   |   |   | 435 |   |
| Mortgage servicing rights                     |   |   | — |   |   |   | 2 |   |
| Contributions                                 |   |   | 4       |   |   |   | 6 |   |
| Non-accrual interest                          |   |   | 15      |   |   |   | 5 |   |
| Leases                                        |   |   | 110     |   |   |   | 112 |   |
| Limited partnership investments               |   |   | 110     |   |   |   | 100 |   |
| Alternative minimum tax credits               |   |   | 352     |   |   |   | 356 |   |
| Tax credits from limited partnerships         |   |   | 385     |   |   |   | 531 |   |
| Unrealized investment securities losses-net   |   |   | 831     |   |   |   | 1,358 |   |
| Impairment loss on investment securities      |   |   | 50      |   |   |   | 129 |   |
| Capital and net operating loss carry forwards |   |   | 57      |   |   |   | 8 |   |
| Total                                         |   | $      | 4,298   |   |   | $      | 4,833 |   |
| Deferred Tax Liabilities:                     |   |   |    |   |   |   |   |   |
| Loan fees and costs                           |   | $      | 158     |   |   | $      | 205 |   |
| Premises and equipment                        |   |   | 655     |   |   |   | 550 |   |
| Accretion                                     |   |   | 353     |   |   |   | 173 |   |
| Mortgage servicing rights                     |   |   | 28      |   |   |   | — |   |
| Intangibles                                   |   |   | 362     |   |   |   | 392 |   |
| Total                                         |   | $      | 1,556   |   |   | $      | 1,320 |   |
| Net Deferred Tax Asset                        |   | $      | 2,742   |   |   | $      | 3,513 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

|                                           |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Interest paid on deposits and other borrowings |   | $      | 13,050 |   |   | $      | 15,874 |   |   | $ | 18,268 |   |
|                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Income taxes paid                              |   | $      | 1,923  |   |   | $      | 1,650  |   |   | $ | 1,598 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| Year Ending December 31                     |   |   |    |
|---------------------------------------------|--------|--------|---------|
| 2011                                        |   | $      | 113,000 |   |
| 2012                                        |   |   | 115,000 |   |
| 2013                                        |   |   | 132,000 |   |
| 2014                                        |   |   | 132,000 |   |
| 2015                                        |   |   | 132,000 |   |
| Thereafter                                  |   |   | 253,000 |   |
|                                        |   |   |    |   |
| Total minimum lease payments                |   |   | 877,000 |   |
| Less amounts representing interest          |   |   | 227,000 |   |
| Present value of net minimum lease payments |   | $      | 650,000 |   |

|                   |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Balance at January 1   |   | $      | 4,451  |   |   | $      | 3,542  |   |   | $ | 3,650 |   |
| Additions              |   |   | 1,610  |   |   |   | 3,881  |   |   |   | 1,779 |   |
| Deductions             |   |   | (1,174 | )      |   |   | (2,972 | )      |   |   | (1,887 | ) |
| Balance at December 31 |   | $      | 4,887  |   |   | $      | 4,451  |   |   | $ | 3,542 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| (Amounts in thousands)    |   |   |   |   |              |   |   | To Be Well        |   |
|---------------------------|--------|--------|--------|--------|-------------------|--------|--------|-------------------|--------|
|                      |   |   |   |   |              |   |   | Capitalized Under |   |
|                      |   |   |   |   | For Capital       |   |   | Prompt Corrective |   |
|                      |   | Actual |   |   | Adequacy Purposes |   |   | Action Provisions |   |
|                      |   | Amount |   |   | Ratio             |   |   | Amount            |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
| As of December 31, 2010:  |   |   |   |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |
| Total Capital             |   |   |   |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |
| (to Risk Weighted Assets) |   | $      | 70,493 |   |              |   | 12.53  | %                 |   | $ | 45,006 |   |   |   | 8.00 | % |   | $ | 56,257 |   |   |   | 10.00 | % |
| Tier I Capital            |   |   |   |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (to Risk Weighted Assets) |   |   | 64,792 |   |              |   | 11.52  | %                 |   |   | 22,503 |   |   |   | 4.00 | % |   |   | 33,754 |   |   |   | 6.00 | % |
| Tier I Capital            |   |   |   |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (to Average Assets)       |   |   | 64,792 |   |              |   | 8.02   | %                 |   |   | 32,311 |   |   |   | 4.00 | % |   |   | 40,388 |   |   |   | 5.00 | % |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| (Amounts in thousands)    |   |   |   |   |              |   |   |              |   |   |              |   |   | To Be Well        |   |
|---------------------------|--------|--------|--------|--------|-------------------|--------|--------|-------------------|--------|--------|-------------------|--------|--------|-------------------|--------|
|                      |   |   |   |   |              |   |   |              |   |   |              |   |   | Capitalized Under |   |
|                      |   |   |   |   |              |   |   | For Capital       |   |   | Prompt Corrective |   |
|                      |   | Actual |   |   | Adequacy Purposes |   |   | Action Provisions |   |
|                      |   | Amount |   |   | Ratio             |   |   | Amount            |   |   | Ratio             |   |   | Amount            |   |   | Ratio |   |
| As of December 31, 2009:  |   |   |   |   |              |   |   |              |   |   |              |   |   |              |   |   |   |   |
| Total Capital             |   |   |   |   |              |   |   |              |   |   |              |   |   |              |   |   |   |   |
| (to Risk Weighted Assets) |   | $      | 66,666 |   |              |   | 12.88  | %                 |   | $      | 41,421            |   |   |              | 8.00   | % |   | $ | 51,777 |   |   |   | 10.00 | % |
| Tier I Capital            |   |   |   |   |              |   |   |              |   |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |
| (to Risk Weighted Assets) |   |   | 61,344 |   |              |   | 11.85  | %                 |   |   | 20,711            |   |   |              | 4.00   | % |   |   | 31,066 |   |   |   | 6.00 | % |
| Tier I Capital            |   |   |   |   |              |   |   |              |   |   |              |   |   |              |   |   |   |   |   |   |   |   |   |   |
| (to Average Assets)       |   |   | 61,344 |   |              |   | 8.21   | %                 |   |   | 29,884            |   |   |              | 4.00   | % |   |   | 37,355 |   |   |   | 5.00 | % |

| NOTE 17 —  | FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK |
|-----------------------|-------------------------------------------------------------------------------------|

|                                                                |   | 2010   |   |   | 2009   |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Financial instruments whose contract amounts represent credit risk: |   |   |   |   |   |   |
| Commitments to extend credit                                        |   | $      | 55,551 |   |   | $      | 63,247 |   |
| Financial standby letters of credit                                 |   | $      | 805    |   |   | $      | 843 |   |
| Performance standby letters of credit                               |   | $      | 5,315  |   |   | $      | 5,806 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| (Amounts in thousands)                                                                        |   | Years Ended December 31, |   |
|---------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                                                    |   |                                    |   |   |   |   |   |   |   |
|                                                                                                    |   | 2010                                    |   |   | 2009 |   |   | 2008 |   |
| Unrealized holding gains (losses) on available-for-sale investment securities arising during the period |   | $                                       | 1,639  |   |   | $ | 3,025 |   |   | $ | (7,000 | ) |
| Less reclassification adjustment for net gains and (losses) realized in income                          |   |                                    | 163    |   |   |   | (138 | ) |   |   | (148 | ) |
| Change in unrealized gains (losses) before tax effect                                                   |   | $                                       | 1,476  |   |   | $ | 3,163 |   |   | $ | (6,852 | ) |
| Tax effects                                                                                             |   |                                    | 526    |   |   |   | 1,075 |   |   |   | 2,347 |   |
| Net change in unrealized gains (losses)                                                                 |   | $                                       | 950    |   |   | $ | 2,088 |   |   | $ | (4,505 | ) |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| Year |   | Number of Shares |   |
|------|--------|------------------|--------|
| 2001 |   |             | 3,260  |   |
| 2002 |   |             | 7,747  |   |
| 2003 |   |             | 8,000  |   |
| 2004 |   |             | 13,932 |   |
| 2005 |   |             | 21,491 |   |
| 2006 |   |             | 22,964 |   |
| 2007 |   |             | 25,900 |   |
| 2008 |   |             | 34,389 |   |
| 2009 |   |             | 39,772 |   |
| 2010 |   |             | 41,227 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

|                                                           |   | 2010    |    |   | 2009     |   |    | 2008    |   |
|----------------------------------------------------------------|--------|---------|---------|--------|----------|--------|---------|---------|--------|
|                                                           |   |    |    |   | Weighted |   |    |    |   |   | Weighted |   |   |   |   |   | Weighted |   |
|                                                           |   |    |    |   | Average  |   |    |    |   |   | Average |   |   |   |   |   | Average |   |
|                                                           |   | Stock   |    |   | Exercise |   |    | Stock   |   |   | Exercise |   |   | Stock |   |   | Exercise |   |
|                                                           |   | Options |    |   | Price    |   |    | Options |   |   | Price |   |   | Options |   |   | Price |   |
| Balance at January 1                                           |   |    | 31,723  |   |     | $      | 17.17   |    |   |   | 41,695 |   |   | $ | 16.86 |   |   |   | 54,562 |   |   | $ | 17.65 |   |
| Granted                                                        |   |    | — |   |     |   | — |    |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Granted due to stock dividend                                  |   |    | — |   |     |   | — |    |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Exercised                                                      |   |    | (4,101  | )      |     |   | 10.42   |    |   |   | — |   |   |   | — |   |   |   | (50 | ) |   |   | 15.88 |   |
| Forfeited                                                      |   |    | (969    | )      |     |   | 10.28   |    |   |   | (9,972 | ) |   |   | 15.85 |   |   |   | (12,817 | ) |   |   | 19.80 |   |
| Balance at December 31                                         |   |    | 26,653  |   |     |   | 18.46   |    |   |   | 31,723 |   |   |   | 17.17 |   |   |   | 41,695 |   |   |   | 16.86 |   |
|                                                           |   |    |    |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Exercisable at December 31                                     |   |    | 26,653  |   |     | $      | 18.46   |    |   |   | 31,723 |   |   | $ | 17.17 |   |   |   | 41,695 |   |   | $ | 16.86 |   |
|                                                           |   |    |    |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average fair value of options granted during the year |   |    |    |   |     |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 2.98 |   |

|   |   | Options Outstanding |   |   | Options Exercisable |   |
|--------|--------|--------------------------|--------|--------|--------------------------|--------|
|   |   |                     |   |   | Weighted                 |   |   | Weighted |   |   |   |   |   | Weighted |   |
|   |   |                     |   |   | Average                  |   |   | Average |   |   |   |   |   | Average |   |
|   |   | Number                   |   |   | Remaining                |   |   | Exercise |   |   | Number |   |   | Exercise |   |
| Year   |   | Outstanding*             |   |   | Contractual Life    |   |   | Price |   |   | Exercisable |   |   | Price |   |
|   |   |                     |   |   |                     |   |   |   |   |   |   |   |   |   |   |
| 2002   |   |                     | 7,274  |   |                     |   | 1.75 |   |   |   | 15.08 |   |   |   | 7,174 |   |   |   | 15.08 |   |
| 2003   |   |                     | 10,231 |   |                     |   | 2.75 |   |   |   | 21.11 |   |   |   | 10,231 |   |   |   | 21.11 |   |
| 2005   |   |                     | 3,148  |   |                     |   | 4.75 |   |   |   | 20.95 |   |   |   | 3,148 |   |   |   | 20.95 |   |
| 2007   |   |                     | 6,000  |   |                     |   | 7.00 |   |   |   | 16.75 |   |   |   | 6,000 |   |   |   | 16.75 |   |
|   |   |                     |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   |   |                     | 26,653 |   |                     |   |   |   |   |   | 18.46 |   |   |   | 26,653 |   |   |   | 18.46 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| (Amounts in thousands)                     |   | 2010     |    |   | 2009       |   |
|--------------------------------------------|--------|----------|---------|--------|------------|--------|
|                                       |   | Carrying |    |   | Estimated  |   |   | Carrying |   |   | Estimated |   |
|                                       |   | Amount   |    |   | Fair Value |   |   | Amount |   |   | Fair Value |   |
| FINANCIAL ASSETS:                          |   |     |    |   |       |   |   |   |   |   |   |   |
| Cash and due from banks                    |   | $        | 4,346   |   |       | $      | 4,346 |   |   | $ | 4,199 |   |   | $ | 4,199 |   |
| Short-term investments                     |   |     | 7,559   |   |       |   | 7,559 |   |   |   | 7,227 |   |   |   | 7,227 |   |
| Investment securities - available for sale |   |     | 310,265 |   |       |   | 310,265 |   |   |   | 277,824 |   |   |   | 277,824 |   |
| Investment securities - held to maturity   |   |     | 6,266   |   |       |   | 6,191 |   |   |   | 4,974 |   |   |   | 4,936 |   |
| Net loans                                  |   |     | 403,950 |   |       |   | 408,984 |   |   |   | 401,375 |   |   |   | 415,261 |   |
| Accrued interest receivable                |   |     | 4,589   |   |       |   | 4,589 |   |   |   | 4,213 |   |   |   | 4,213 |   |
| Cash surrender value of life insurance     |   |     | 18,388  |   |       |   | 18,388 |   |   |   | 17,622 |   |   |   | 17,622 |   |
|                                       |   |     |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| FINANCIAL LIABILITIES:                     |   |     |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                   |   |     | 626,895 |   |       |   | 610,632 |   |   |   | 580,569 |   |   |   | 558,389 |   |
| Short-term borrowings                      |   |     | 20,977  |   |       |   | 20,977 |   |   |   | 17,462 |   |   |   | 17,462 |   |
| Long-term borrowings                       |   |     | 66,400  |   |       |   | 69,869 |   |   |   | 82,976 |   |   |   | 86,771 |   |
| Accrued interest and other expenses        |   |     | 2,976   |   |       |   | 2,976 |   |   |   | 3,101 |   |   |   | 3,101 |   |
|                                       |   |     |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:   |   |     |    |   |       |   |   |   |   |   |   |   |   |   |   |   |
| Commitments to extend credit               |   |     |    |   |       |   | 55,551 |   |   |   |   |   |   |   | 63,247 |   |
| Financial standby letters of credit        |   |     |    |   |       |   | 805 |   |   |   |   |   |   |   | 843 |   |
| Performance standby letters of credit      |   |     |    |   |       |   | 5,315 |   |   |   |   |   |   |   | 5,806 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| BALANCE SHEETS                              |   |             |    |   |   |   |
|--------------------------------------------------|--------|------------------|---------|--------|--------|--------|
| (Amounts in thousands)                 |   | December 31 |    |
|                                             |   | 2010             |    |   | 2009   |   |
| ASSETS                                           |   |             |    |   |   |   |
| Cash in subsidiary bank                          |   | $                | 2,879   |   |   | $      | 1,899 |   |
| Investment in subsidiary bank                    |   |             | 83,513  |   |   |   | 79,618 |   |
| Investment in other equity securities            |   |             | 1,825   |   |   |   | 1,759 |   |
| Prepayments and other assets                     |   |             | 538     |   |   |   | 683 |   |
| TOTAL ASSETS                                     |   | $                | 88,755  |   |   | $      | 83,959 |   |
|                                             |   |             |    |   |   |   |   |   |
| LIABILITIES                                      |   |             |    |   |   |   |   |   |
| Advance from subsidiary bank                     |   | $                | 9,695   |   |   | $      | 9,792 |   |
| TOTAL LIABILITIES                                |   | $                | 9,695   |   |   | $      | 9,792 |   |
|                                             |   |             |    |   |   |   |   |   |
| STOCKHOLDERS’ EQUITY                       |   |             |    |   |   |   |   |   |
| Preferred stock                                  |   | $                | — |   |   | $      | — |   |
| Common stock                                     |   |             | 11,375  |   |   |   | 11,375 |   |
| Surplus                                          |   |             | 30,175  |   |   |   | 30,269 |   |
| Retained earnings                                |   |             | 45,246  |   |   |   | 41,346 |   |
| Accumulated other comprehensive (loss)           |   |             | (1,633  | )      |   |   | (2,583 | ) |
| Treasury stock, at cost                          |   |             | (6,103  | )      |   |   | (6,240 | ) |
| TOTAL STOCKHOLDERS’ EQUITY                 |   | $                | 79,060  |   |   | $      | 74,167 |   |
|                                             |   |             |    |   |   |   |   |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |   | $                | 88,755  |   |   | $      | 83,959 |   |

| STATEMENTS OF INCOME                                           |   |                   |   |
|--------------------------------------------------------------------------|--------|------------------------|--------|
| (Amounts in thousands)                                                   |   | Year Ended December 31 |   |
|                                                                     |   | 2010                   |   |   | 2009 |   |   | 2008 |   |
| INCOME                                                                   |   |                   |   |   |   |   |   |   |   |   |   |   |
| Dividends from Subsidiary Bank                                           |   | $                      | 5,867  |   |   | $ | 5,427 |   |   | $ | 5,662 |   |
| Dividends - other                                                        |   |                   | 51     |   |   |   | 57 |   |   |   | 100 |   |
| Securities (losses)                                                      |   |                   | (81    | ) |   |   | (295 | ) |   |   | (542 | ) |
| Interest                                                                 |   |                   | 14     |   |   |   | 14 |   |   |   | 11 |   |
| TOTAL INCOME                                                             |   | $                      | 5,851  |   |   | $ | 5,203 |   |   | $ | 5,231 |   |
|                                                                     |   |                   |   |   |   |   |   |   |   |   |   |   |
| Operating Expenses                                                       |   |                   | 131    |   |   |   | 67 |   |   |   | 86 |   |
| Income Before Taxes and Equity in Undistributed Net Income of Subsidiary |   | $                      | 5,720  |   |   | $ | 5,136 |   |   | $ | 5,145 |   |
| Income tax expense (benefit)                                             |   |                   | (78    | ) |   |   | (81 | ) |   |   | (213 | ) |
| Income Before Equity in Undistributed Net Income of Subsidiary           |   | $                      | 5,798  |   |   | $ | 5,217 |   |   | $ | 5,358 |   |
| Equity in Undistributed Net Income of Subsidiary                         |   |                   | 3,163  |   |   |   | 2,720 |   |   |   | 2,193 |   |
|                                                                     |   |                   |   |   |   |   |   |   |   |   |   |   |
| NET INCOME                                                               |   | $                      | 8,961  |   |   | $ | 7,937 |   |   | $ | 7,551 |   |

----

| FIRST KEYSTONE CORPORATION AND SUBSIDIARY                                                       |
|-------------------------------------------------------------------------------------------------|
| Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 |

| (Amounts in thousands)                                                  |   | Year Ended December 31 |    |
|-----------------------------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                                              |   | 2010                                  |    |   | 2009 |   |   | 2008 |   |
| OPERATING ACTIVITIES                                                              |   |                                  |    |   |   |   |   |   |   |
| Net income                                                                        |   | $                                     | 8,961   |   |   | $ | 7,937 |   |   | $ | 7,551 |   |
| Adjustments to reconcile net income to net cash provided by operating activities: |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Securities losses                                                                 |   |                                  | 81      |   |   |   | 295 |   |   |   | 105 |   |
| Deferred income tax benefit                                                       |   |                                  | 31      |   |   |   | 59 |   |   |   | (196 | ) |
| Impairment loss on investment securities                                          |   |                                  | — |   |   |   | — |   |   |   | 437 |   |
| Equity in (excess of) undistributed net income of subsidiary                      |   |                                  | (3,163  | ) |   |   | (2,720 | ) |   |   | (2,193 | ) |
| (Increase) decrease in prepaid expenses and other assets                          |   |                                  | (36     | ) |   |   | (86 | ) |   |   | (18 | ) |
| Increase (decrease) in advances payable to subsidiary bank - net operating        |   |                                  | (97     | ) |   |   | 193 |   |   |   | 117 |   |
| Increase (decrease) in accrued expenses and other liabilities                     |   |                                  | — |   |   |   | — |   |   |   | (102 | ) |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                         |   | $                                     | 5,777   |   |   | $ | 5,678 |   |   | $ | 5,701 |   |
|                                                                              |   |                                  |    |   |   |   |   |   |   |   |   |   |
| INVESTING ACTIVITIES                                                              |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Purchase of equity securities                                                     |   | $                                     | (19     | ) |   | $ | (237 | ) |   | $ | — |   |
| Proceeds from sale of equity securities                                           |   |                                  | 240     |   |   |   | 83 |   |   |   | 204 |   |
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                               |   | $                                     | 221     |   |   | $ | (154 | ) |   | $ | 204 |   |
|                                                                              |   |                                  |    |   |   |   |   |   |   |   |   |   |
| FINANCING ACTIVITIES                                                              |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Proceeds from sale of treasury stock                                              |   | $                                     | 43      |   |   | $ | — |   |   | $ | 1 |   |
| Cash dividends paid                                                               |   |                                  | (5,061  | ) |   |   | (5,005 | ) |   |   | (4,842 | ) |
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                          |   | $                                     | (5,018  | ) |   | $ | (5,005 | ) |   | $ | (4,841 | ) |
|                                                                              |   |                                  |    |   |   |   |   |   |   |   |   |   |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  |   | $                                     | 980     |   |   | $ | 519 |   |   | $ | 1,064 |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    |   |                                  | 1,899   |   |   |   | 1,380 |   |   |   | 316 |   |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                                          |   | $                                     | 2,879   |   |   | $ | 1,899 |   |   | $ | 1,380 |   |

----

|   |   | /s/ J. H. Williams & Co., LLP |
|--------|--------|-----------------------------------|
|   |   | J. H. Williams & Co., LLP     |

----

| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
|---------|--------------------------------------------------------------------------------------|

| ITEM 9A. | CONTROLS AND PROCEDURES |
|----------|-------------------------|

----

| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
|----------|--------------------------------------------------------|

| ITEM 11. | EXECUTIVE COMPENSATION |
|---------------|------------------------|

----

| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS |
|---------------|------------------------------------------------------------------------------------------------|

|                                              |   |                           |    |   |                          |   |    | Number of securities         |   |
|--------------------------------------------------------|--------|--------------------------------|---------|--------|-------------------------------|--------|---------|----------------------------------------|--------|
|                                              |   |                           |    |   |                          |   |    | remaining available               |   |
|                                              |   | Number of securities |    |   |                          |   |    | for future issuance          |   |
|                                              |   | to be issued         |    |   | Weighted-average              |   |    | under equity                      |   |
|                                              |   | upon exercise of     |    |   | exercise price of   |   |    | compensation plans                |   |
|                                              |   | outstanding options,      |    |   | outstanding options,     |   |    | excluding securities              |   |
| Plan category                                     |   | warrants and rights  |    |   | warrants and rights |   |    | reflected in column (a) |   |
|                                              |   | (a)                            |    |   | (b)                           |   |    | (c)                                    |   |
| Equity compensation plans approved by shareholders     |   |                           | 26,653  |   |                          | $      | 18.46   |                                   |   |   | 85,445 |   |
|                                                   |   |                           |    |   |                          |   |    |                                   |   |   |   |   |
| Equity compensation plans not approved by shareholders |   |                           | — |   |                          |   | — |                                   |   |   | — |   |
|                                                   |   |                           |    |   |                          |   |    |                                   |   |   |   |   |
| Total                                                  |   |                           | 26,653  |   |                          | $      | 18.46   |                                   |   |   | 85,445 |   |

| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
|---------------|---------------------------------------------------------------------------|

| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
|----------|----------------------------------------|

| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
|----------|--------------------------------------------|

| Report of Independent Registered Public Accounting Firm |   | 37 |
|---------------------------------------------------------|--------|----|
| Consolidated Balance Sheets                             |   | 38 |
| Consolidated Statements of Income                       |   | 39 |
| Consolidated Statements of Stockholders’ Equity   |   | 40 |
| Consolidated Statements of Cash Flows                   |   | 41 |
| Notes to Consolidated Financial Statements              |   | 42 |
| Report of Independent Registered Public Accounting Firm |   | 77 |

----

| Exhibit Number Referred to      |   |                                                                                                                                                                         |
|------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Item 601 of Regulation S-K |   | Description of Exhibit                                                                                                                                             |
|                                           |   |                                                                                                                                                                         |
| 3i                                             |   | Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3(I) to the Registrant's Report on Form 10-Q for the quarter ended March 31, 2006).              |
|                                           |   |                                                                                                                                                                         |
| 3ii                                            |   | By-Laws, as amended (Incorporated by reference to Exhibit 3(ii) to the Registrant's Report on Form 8-K dated February 25, 2009).                                             |
|                                           |   |                                                                                                                                                                         |
| 10.1                                           |   | Supplemental Employee Retirement Plan (Incorporated by reference to Exhibit 10 to Registrant's Annual Report on Form 10-Q for the quarter ended September 31, 2005).         |
|                                           |   |                                                                                                                                                                         |
| 10.2                                           |   | Management Incentive Compensation Plan.                                                                                                                                      |
|                                           |   |                                                                                                                                                                         |
| 10.3                                           |   | Profit Sharing Plan (Incorporated by reference to Exhibit 10 to Registrant's Report on Form 10-Q for the quarter ended September 30, 2006).                                  |
|                                           |   |                                                                                                                                                                         |
| 10.4                                           |   | First Keystone Corporation 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 10 to Registrant's Report on Form 10-Q for the quarter ended September 30, 2006). |
|                                           |   |                                                                                                                                                                         |
| 14                                             |   | Code of Ethics (Incorporated by reference to Exhibit 14 to Registrant’s Report on Form 8-K dated January 9, 2007).                                                     |
|                                           |   |                                                                                                                                                                         |
| 21                                             |   | List of Subsidiaries of the Corporation.                                                                                                                                     |
|                                           |   |                                                                                                                                                                         |
| 23                                             |   | Consent of Independent Auditors.                                                                                                                                             |
|                                           |   |                                                                                                                                                                         |
| 31.1                                           |   | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.                                                                                                           |
|                                           |   |                                                                                                                                                                         |
| 31.2                                           |   | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.                                                                                                           |
|                                           |   |                                                                                                                                                                         |
| 32.1                                           |   | Section 1350 Certification of Chief Executive Officer.                                                                                                                       |
|                                           |   |                                                                                                                                                                         |
| 32.2                                           |   | Section 1350 Certification of Chief Financial Officer.                                                                                                                       |

----

| FIRST KEYSTONE CORPORATION   |           |
|------------------------------|----------------|
|                         |           |
| /s/ Matthew P. Prosseda      |           |
| Matthew P. Prosseda          |           |
| Chief Executive Officer      |           |
| (Principal Executive Officer |           |
|                         |           |
| Date:              | March 15, 2011 |   |

| /s/ John Arndt                             |   | March 15, 2011 |
|--------------------------------------------|--------|----------------|
| John Arndt, Secretary/Director             |   | Date           |
|                                       |   |           |
| /s/ J. Gerald Bazewicz                     |   | March 15, 2011 |
| J. Gerald Bazewicz, President/Director     |   | Date           |
|                                       |   |           |
| /s/ Don E. Bower                           |   | March 15, 2011 |
| Don E. Bower, Director                     |   | Date           |
|                                       |   |           |
| /s/ Robert A. Bull                         |   | March 15, 2011 |
| Robert A. Bull, Director                   |   | Date           |
|                                       |   |           |
| /s/ Robert E. Bull                         |   | March 15, 2011 |
| Robert E. Bull, Chairman/Director          |   | Date           |
|                                       |   |           |
| /s/ Joseph B. Conahan, Jr.                 |   | March 15, 2011 |
| Joseph B. Conahan, Jr., Director           |   | Date           |
|                                       |   |           |
| /s/ Jerome F. Fabian                       |   | March 15, 2011 |
| Jerome F. Fabian, Director                 |   | Date           |
|                                       |   |           |
| /s/ John G. Gerlach                        |   | March 15, 2011 |
| John G. Gerlach, Director                  |   | Date           |
|                                       |   |           |
| /s/ Diane C. A. Rosler                     |   | March 15, 2011 |
| Diane C.A. Rosler, Chief Financial Officer |   | Date           |
| (Principal Financial Officer)              |   |           |
|                                       |   |           |
| /s/ David R. Saracino                      |   | March 15, 2011 |
| David R. Saracino, Director                |   | Date           |

----