UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

[X] Filed by the Registrant

[ ] Filed by a Party other than the Registrant

(Amendment No. __)

x Filed by the Registrant

o Filed by a Party other than the Registrant
Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS
PERMITTED BY RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12

o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to Rule 14a-12

FIRST KEYSTONE CORPORATION
_____________________________________________________
(Exact
(Exact name of registrant as specified in its Charter)

_____________________________________________________
(Name

(Name of Person(s) Filing Proxy Statement if other than Registrant)

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the amount on which the filing fee is calculated and
state how it was determined):

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[ ] Check box if any part of the fee is offset as provided by
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FIRST KEYSTONE CORPORATION
_________________________________________________________________

x No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applied:
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(4) Date Filed:
First Keystone Corporation
111 West Front Street
Berwick, Pennsylvania 18603

March 24, 2010

April 5, 2011

Dear Fellow Shareholders of First Keystone Corporation:

It is my pleasure to invite you to attend the 20102011 Annual Meeting of Shareholders of First Keystone Corporation to be held on Tuesday, May 4, 2010,17, 2011, at 10:00 a.m., Eastern Daylight Time. The Annual Meeting this year will be held at the McBride Memorial Library, Community Room, 500 Market Street, Berwick, Pennsylvania 18603.

The Notice of the Annual Meeting and the Proxy Statement on the following pages address the formal business of the meeting. The formal business schedule includes:

The election of 42 Class BC Directors; and
*
The ratification of the selection of J. H. Williams & Co., LLP, as the independent auditorspublic accountants for the corporation for the fiscal year ending December 31, 2010.

2011;
Advisory vote on executive compensation; and
Advisory vote on the frequency of the advisory vote on executive compensation.

At the meeting, members of the corporation'scorporation’s management will review the corporation'scorporation’s operations during the past year and will be available to respond to questions.

We strongly encourage you to vote your shares, whether or not you plan to attend the meeting. It is very important that you sign, date and return your proxy form as soon as possible. The execution and delivery of your proxy does not affect your right to vote in person if you attend the meeting. You may revoke your proxy any time prior to its exercise, and you may attend the meeting and vote in person, even if you have previously returned your proxy.

Thank you for your continued support. I look forward to seeing you at the Annual Meeting if you are able to attend.

Sincerely,

/s/ J. Gerald Bazewicz
J. Gerald Bazewicz
President

Sincerely,
/s/ Matthew P. Prosseda
Matthew P. Prosseda
Chief Executive Officer

[THIS PAGE INTENTIONALLY LEFT BLANK ]

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FIRST KEYSTONE CORPORATION
_________________________________________

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 4, 2010
_________________________________________

May 17, 2011
TO THE SHAREHOLDERS OF FIRST KEYSTONE CORPORATION:

Notice is hereby given that the Annual Meeting of Shareholders of First Keystone Corporation will be held at 10:00 a.m., Eastern Daylight Time, on Tuesday, May 4, 2010,17, 2011, at the McBride Memorial Library, Community Room, 500 Market Street, Berwick, Pennsylvania 18603, for the following purposes:

1. To elect 4 Class B Directors to serve for a three
year term and until their successors are properly elected and
qualified;

2. To ratify the selection of J. H. Williams & Co., LLP
as the independent auditors for the corporation for the fiscal
year ending December 31, 2010; and

3. To transact any other business as may properly come
before the Annual Meeting and any adjournment or postponement of
the meeting.

1. To elect 2 Class C Directors to serve for a three-year term and until their successors are properly elected and qualified;
2. To ratify the selection of J. H. Williams & Co., LLP as the independent public accountants for the corporation for the fiscal year ending December 31, 2011;
3. To conduct a non-binding vote on executive compensation;
4. To conduct a non-binding vote on the frequency of non-binding shareholder votes on executive compensation; and
5. To transact any other business as may properly come before the Annual Meeting and any adjournment or postponement of the meeting.
In accordance with the bylaws of the corporation and action of the Board of Directors, the corporation is giving notice of the Annual Meeting only to those shareholders on the corporation'scorporation’s records as of the close of business on March 9,
2010,22, 2011, and only those shareholders may vote at the Annual Meeting and any adjournment or postponement of the Annual Meeting.

A copy of the corporation'scorporation’s Annual Report for the fiscal year ended December 31, 20092010 may be obtained, at no cost, by contacting Cheryl Wynings, Investor Relations, First Keystone Corporation, 111 West Front Street, Berwick, Pennsylvania 18603, telephone: 570.752.3671.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 4, 2010: THE(570) 752-3671.

Important Notice Regarding the Availability of Proxy Materials
for the Shareholder Meeting to be Held on May 17, 2011:
The 2011 Proxy Statement and the 2010 PROXY STATEMENT AND THE 2009 ANNUAL REPORT ON FORM 10K ARE ALSO
AVAILABLE AT: WWW.FKYSCORP.COM.

Annual Report on Form 10-K are also available at:
www.fkyscorp.com.

Whether or not you expect to attend the Annual Meeting in person, we ask you to complete, sign, date and promptly return your proxy form. By so doing, you will ensure your proper representation at the meeting. The prompt return of your signed proxy will also save the corporation the expense of additional proxy solicitation. The execution and delivery of your proxy does not affect your right to vote in person if you attend the meeting.

By Order of the Board of Directors,

/s/ J. Gerald Bazewicz
J. Gerald Bazewicz, President

By Order of the Board of Directors,
/s/ Matthew P. Prosseda
Matthew P. Prosseda, Chief Executive Officer
Berwick, Pennsylvania
March 24, 2010

April 5, 2011
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
OF FIRST KEYSTONE CORPORATION TO BE HELD ON MAY 4, 2010

17, 2011
Table of Contents
_________________

Page
____

General Information 3
Introduction, Date, Time and Place of
Annual Meeting 3
Solicitation and Voting of Proxies 3
Revocability of Proxy 4
Voting Securities, Record Date and Quorum 4
Vote Required for Approval of Proposals 4

Governance of the Company 5
Code of Ethics 6
Committees of the Board of Directors 6
Committees of the Bank 7
Board Meetings and Attendance 8
Shareholder Communications 8
Shareholder Proposals and Nominations 8

Proposal No. 1: Election of Directors 9
Information as to Directors and Nominees 10

Share Ownership 11
Principal Owners 11
Beneficial Ownership by Officers,
Directors and Nominees 12

Directors' Compensation Table 14
Compensation of Directors 14

Report of the Audit Committee 14

Compensation Discussion and Analysis 16

Summary Compensation Table 23

Principal Officers of the Bank and the Corporation 32

Legal Proceedings 33

Proposal No. 2: Ratification of Independent Auditors 33

Section 16(A) Beneficial Ownership Reporting
Compliance 33

Availability of Form 10-K 34

Other Matters 34

Page
General Information 3
Introduction, Date, Time and Place of Annual Meeting 3
Solicitation and Voting of Proxies 3
Revocability of Proxy 4
Voting Securities, Record Date and Quorum 4
Vote Required for Approval of Proposals 4
Governance of the Company 5
Code of Ethics 6
Committees of the Board of Directors 6
Committees of the Bank 7
Board Meetings and Attendance 8
Shareholder Communications 8
Shareholder Proposals and Nominations 8
Proposal No. 1: Election of Directors 9
Information as to Directors and Nominees 10
Share Ownership 12
Principal Owners 12
Beneficial Ownership by Officers, Directors and Nominees 12
Directors’ Compensation Table 15
Compensation of Directors 15
Report of the Audit Committee 15
Compensation Discussion and Analysis 17
Executive Compensation 24
Principal Officers of the Bank and the Corporation 35
Legal Proceedings 36
Proposal No. 2: Ratification of Independent Public Accountants 36
Proposal No. 3: Non-Binding Vote On Executive Compensation 36
Proposal No. 4: Non-Binding Vote On The Frequency Of Shareholder Votes On Executive Compensation 37
Section 16(a) Beneficial Ownership Reporting Compliance 38
Availability of Form 10-K 38
Other Matters 38
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
OF FIRST KEYSTONE CORPORATION TO BE HELD ON MAY 4, 2010

17, 2011
GENERAL INFORMATION

INTRODUCTION, DATE, TIME AND PLACE OF ANNUAL MEETING
____________________________________________________

Introduction, Date, Time and Place of Annual Meeting

First Keystone Corporation, a Pennsylvania business corporation and registered bank holding company, furnishes this Proxy Statement in connection with the solicitation, by its Board of Directors, of proxies to be voted at the Annual Meeting of Shareholders and at any adjournment or postponement of the Annual Meeting. The corporation will hold the meeting on Tuesday, May 4, 2010,17, 2011, at 10:00 a.m., Eastern Daylight Time, at the McBride Memorial Library, Community Room, 500 Market Street, Berwick, Pennsylvania 18603.

The principal executive office of the corporation is located at First Keystone NationalCommunity Bank, 111 West Front Street, Berwick, Pennsylvania 18603. The bank is the sole, wholly ownedwholly-owned subsidiary of the corporation. The telephone number for the corporation is 570.752.3671.(570) 752-3671. All inquiries should be directed to J. Gerald Bazewicz, PresidentMatthew P. Prosseda, Chief Executive Officer of the corporation and the bank.

SOLICITATION AND VOTING OF PROXIES
__________________________________

Solicitation and Voting of Proxies

By properly completing and returning your proxy form, a shareholder is appointing the proxy holders to vote his or her shares as the shareholder specifies on the proxy. If a shareholder signs the proxy but does not make any selection, the proxy holders will vote the proxy:

FOR the election of the nominees for Class BC Director named in this proxy statement; and
*
FOR the ratification of the selection of J. H. Williams & Co. as the independent auditorspublic accountants for the corporation for the year ending December 31, 2010.

2011;
FOR the compensation of the named executive officers; and
FOR a vote every 3 years for the frequency of shareholder votes on executive compensation.

The execution and return of your proxy will not affect your right to attend the Annual Meeting and vote in person.

The corporation will pay the cost of preparing, assembling, printing, mailing and soliciting proxies and any additional material that the corporation may furnish shareholders in connection with the Annual Meeting. In addition to the use of the mail, directors, officers and employees of the corporation and the bank may solicit proxies personally, by telephone, telecopier or other electronic means. The corporation will not pay any additional compensation for the solicitation. The corporation will make arrangements with brokerage houses and other custodians, nominees and fiduciaries to forward proxy solicitation material to the beneficial owners and will reimburse them for their reasonable forwarding expenses.
3
Revocability of Proxy Statement Page 3

REVOCABILITY OF PROXY
_____________________

A shareholder who returns a proxy may revoke the proxy at any time before it is voted only:

By executing a later datedlater-dated proxy; or
*
By attending the Annual Meeting and voting in person.

VOTING SECURITIES, RECORD DATE AND QUORUM
_________________________________________

Voting Securities, Record Date and Quorum

At the close of business on March 9, 2010,22, 2011, the corporation had 5,440,1965,444,292 shares of common stock outstanding, par value $2.00 per share. Our common stock is the corporation'scorporation’s only issued and outstanding class of stock. The corporation also had 247,571243,475 shares held in treasury, as issued but not outstanding shares on that date. The corporation'scorporation’s Articles of Incorporation authorize the issuance of up to 10,000,000 shares of common stock and up to 500,000 shares of preferred stock. As of March 9, 2010,22, 2011, no shares of preferred stock were issued or outstanding.

Only shareholders of record as of the close of business on March 9, 201022, 2011 may vote at the Annual Meeting. Cumulative voting rights do not exist with respect to the election of directors. On all matters to come before the Annual Meeting, each shareholder is entitled to one vote for each share of common stock held on the record date.

Pennsylvania law and the bylaws of the corporation require the presence of a quorum for each matter that shareholders will vote on at the Annual Meeting. The presence, in person or by proxy, of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast constitutes a quorum for the transaction of business at the Annual Meeting. The corporation will count votes withheld and abstentions in determining the presence of a quorum for a particular matter. The corporation will not count broker non votesnon-votes in determining the presence of a quorum for a particular matter. A broker non
votenon-vote occurs when a broker nominee, holding shares for a beneficial owner, does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item, and has not received instructions from the beneficial owner. Those shareholders present, in person or by proxy, may adjourn the meeting to another time and place if a quorum is lacking.

VOTE REQUIRED FOR APPROVAL OF PROPOSALS
_______________________________________

Vote Required for Approval of Proposals

Assuming the presence of a quorum, the 42 nominees for director receiving the highest number of votes cast by shareholders will be elected. Votes withheld from a nominee and broker non votesnon-votes will not be cast for the nominee.

Assuming the presence of a quorum, executive compensation, as disclosed in this proxy statement will be approved if a majority of votes cast at the annual meeting vote “FOR” this proposal.

Assuming the presence of a quorum, the option of one, two or three years receiving the highest number of votes cast by shareholders at the annual meeting will be the frequency for the advisory vote selected by shareholders.

Assuming the presence of a quorum, ratification of the selection of independent auditorspublic accountants requires the affirmative vote of a majority of all votes cast by shareholders, in person or by proxy, on the matter. Abstentions and broker non votesnon-votes are not votes cast and, therefore, do not count either for or against ratification. Abstentions and broker non votes,non-votes, however, have the practical effect of reducing the number of affirmative votes required to achieve a majority for each matter by reducing the total number of shares voted from which the majority is calculated.

Page
4 First Keystone Corporation

GOVERNANCE OF THE COMPANY

Our Board of Directors believes that the purpose of corporate governance is to ensure that we maximize shareholder value in a manner consistent with legal requirements and the highest standards of integrity. The Board has adopted and adheres to corporate governance practices which the Board and senior management believe promote this purpose and are sound and represent best practices.

BOARD LEADERSHIP STRUCTURE
__________________________

Board Leadership Structure

First Keystone Corporation separates the roles of CEO and Chairman of the Board in recognition of the differences between the two roles. The CEO is responsible for setting the strategic direction for the corporation and the day to day operation and performance of the corporation, while the Chairman of the Board provides guidance to the CEO and sets the agenda for Board meetings and presides over meetings of the Board. Mr. Robert E. Bull, our Chairman, has been a director for over 50 years, including serving as Chairman the past 30 years. The Board believes the separated roles of CEO and Chairman are in the best interest of shareholders because it promotes both strategic development and facilitiesfacilitates information flow between management and the Board, both essential for effective governance.

The corporation'scorporation’s Board of Directors oversees all business, property and affairs of the corporation. The Chairman and the corporation'scorporation’s officers keep the members of the Board informed of the corporation'scorporation’s business through discussions at Board meetings and by providing them with reports and other materials. The directors of the corporation also serve as the directors of the corporation's wholly ownedcorporation’s wholly-owned bank subsidiary, First Keystone NationalCommunity Bank, upon election by the corporation.

Currently, our Board of Directors has 9 members. Based on the qualifications for independence established under the Securities and Exchange Commission ("SEC"(“SEC”) and NASDAQ standards for independence, John Arndt, Don E. Bower, Joseph B. Conahan, Jr., Jerome F. Fabian, and David R. Saracino meet the standards for independence. Only independent directors serve on our Audit Committee.

In determining the directors'directors’ independence, the Board of Directors considered loan transactions between the bank and the directors, their family members and businesses with whom they are associated, as well as any contributions made to non profitnon-profit organizations with whom they are associated.

RISK MANAGEMENT
_______________

Risk Management

The Board'sBoard’s role in the corporation'scorporation’s risk oversight process includes receiving regular reports from members of senior management on areas of material risk to the corporation, including operational, financial, legal and regulatory, and strategic and reputational risks. The Board receives reports from the various committees of the Board. When a committee presents a report, the Chairman of the relevant committee reports on the discussion to the full Board during the committee reports portion of the Board meetings. This enables to the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships. As part of its charter, the Audit Committee discusses our policies with respect to risk assessment and management.

DIVERSITY
_________

Diversity

In considering whether to recommend any candidate for inclusion in the Board'sBoard’s slate of recommended director nominees, including candidates recommended by shareholders, the Board of Directors has determined that the Board must have the right diversity. This includes the candidate'scandidate’s integrity, business acumen, age, experience, commitment, diligence, conflicts of interest and the ability

Proxy Statement Page 5

to act in the interests of all shareholders. The Board seeks nominees with a broad diversity of experience, professions, skills, geographic representation and backgrounds. Nominees are not discriminated against on the basis of race, religion, national origin, sexual orientation, disability or any other basis proscribed by law.

5
CODE OF ETHICS

As required by law and regulation, in 2003 we adopted our Code of Ethics to be applicable to our directors and senior officers. The Code of Ethics is posted on our website at www.firstkeystonecorporation.com, which we filed with the SEC as exhibit 14 on Form 8K8-K on
January 11, 2007.

COMMITTEES OF THE BOARD OF DIRECTORS

The corporation'scorporation’s board of directors has, at present, an audit committee.

AUDIT COMMITTEE.

Audit Committee. Members of the Audit Committee, during 2009,2010, were David R. Saracino, Chairman, Don E. Bower, and Jerome F. Fabian, each of whom the Board of Directors has determined satisfies the NASDAQ independence and audit committee qualification standards. The Audit Committee met 45 times during 2009.2010. The principal duties of the Audit Committee are set forth in its charter which is available on our website at www.firstkeystonecorporation.com under the governance documents menu. The duties include reviewing significant audit and accounting principles, policies and practices, reviewing performance of internal auditing procedures, reviewing reports of examination received from regulatory authorities and recommending annually, to the Board of Directors, the engagement of an independent certified public accountant.

The Board of Directors has determined that David R. Saracino is an "audit“audit committee financial expert"expert” and "independent"“independent” as defined under applicable SEC and NASDAQ rules in 2009.2010. The Board deemed Mr. Saracino a "financial expert"“financial expert” as he possesses the following attributes:

An understanding of financial statements;
*
Proficiency in assessing the general utilization of such principles in connection with accounting for estimates, accruals and reserves;
*
Lengthy experience preparing, auditing, analyzing and evaluating financial statements;
*
Understanding of internal controls and procedures for financial reporting; and
*
Understanding of audit committee functions.

OVERSIGHT OF EXECUTIVE COMPENSATION AND DIRECTOR NOMINATIONS
____________________________________________________________

Oversight of Executive Compensation and Director Nominations

During 2009,2010, the corporation did not have formal nominating or compensation committees. The Board determined that it is appropriate for the corporation not to have a nominating or compensation committee in view of the corporation'scorporation’s relative size, stability of the corporation'scorporation’s Board of Directors, and the historic involvement of the entire Board in the director selection process and in the compensation process. Because there is no formal nominating or compensation committee, the corporation does not have a formal charter for such committees.

Page
6 First Keystone Corporation

COMMITTEES OF THE BANK

The Bank'sBank’s board of directors maintains standing committees: trust, asset liabilityasset-liability management, marketing, loan administration, human resources, building and executive. The composition of these committees is described below:

Name Trust ALCO Marketing
____ _____ _____ ________

John E. Arndt X X
J. Gerald Bazewicz X X* X
Don E. Bower X
Robert A. Bull X X X
Robert E. Bull X X
Joseph B. Conahan, Jr. X* X
Jerome F. Fabian X*
John G. Gerlach X X
David R. Saracino X

Number of Meetings
Held in 2009 12 4 4

Loan Human
Name Administration Resources
____ _____________ ________

John E. Arndt X*
J. Gerald Bazewicz X X
Don E. Bower X* X
Robert A. Bull X
Robert E. Bull X
Joseph B. Conahan, Jr. X
Jerome F. Fabian X X
John G. Gerlach X
David R. Saracino X

Number of Meetings
Held in 2009 4 1

Name Executive Building
____ _________ ________

John E. Arndt X
J. Gerald Bazewicz X X
Don E. Bower X
Robert A. Bull
Robert E. Bull X* X
Joseph B. Conahan, Jr.
Jerome F. Fabian X
John G. Gerlach X*
David R. Saracino X X

Number of Meetings
Held in 2009 0 2

*Denotes Chairman of Respective Committee

TRUST COMMITTEE

Name Trust ALCO Marketing Loan
Administration Human
Resources Executive Building
John E. Arndt x x x x* x x
J. Gerald Bazewicz x x x x x
Don E. Bower x x* x x
Robert A. Bull x x x x x*
Robert E. Bull x x x x* x
Joseph B. Conahan, Jr. x* x x x
Jerome F. Fabian x* x x x
John G. Gerlach x x* x x x
David R. Saracino x x x x x
Number of Meetings
Held in 2010 12 4 3 3 1 0 3

*Denotes Chairman of Respective Committee.

Trust Committee - This committee ensures that all trust activities of the bank are performed in a manner that is consistent with the legal instrument governing the account, prudent trust administration practices and approved trust policy.

ASSET/LIABILITY COMMITTEE

Asset/Liability Committee - This committee reviews asset/liability committee reports and provides support and discretion in managing the bank'sbank’s net interest income, liquidity and interest rate sensitivity positions.

MARKETING COMMITTEE

Marketing Committee - This committee provides guidance to management in formulating marketing/sales plans and programs to assist in evaluating the performance of the bank relative to these plans.

LOAN ADMINISTRATION COMMITTEE

Loan Administration Committee - This committee monitors loan review and compliance activities. Also, the committee ensures that loans are made and administered in accordance with the loan policy.

HUMAN RESOURCES COMMITTEE

Human Resources Committee - This committee helps ensure that a sound human resources management system is developed and maintained. This committee determines compensation for non executivenon-executive officers and employees. The entire Board of Directors acts as the Compensation Committee for the corporation and determines compensation for the executive officers.

EXECUTIVE COMMITTEE

Executive Committee - This committee exercises the authority of the Board of Directors in the management of the business of the bank between the dates of regular Board of Directors meetings.

Proxy Statement Page 7

BUILDING COMMITTEE

Building Committee - This committee makes recommendations to the Board relating to the bank'sbank’s physical assets, including both current and proposed physical assets.

BOARD MEETINGS AND ATTENDANCE
_____________________________

7
Board Meetings and Attendance

The members of the Board of Directors of the corporation also serve as members of the Board of Directors of First Keystone NationalCommunity Bank. During 2009,2010, the corporation'scorporation’s Board of Directors held 67 meetings. Each of the directors attended at least 75% of the combined total number of meetings of the corporation'scorporation’s Board of Directors and the committees of which he is a member. Although there is no formal policy, all directors are expected to attend the Annual Meeting of Shareholders. All directors attended the 20092010 Annual Meeting of Shareholders.

SHAREHOLDER COMMUNICATIONS
__________________________

Shareholder Communications

The Board of Directors does not have a formal process for shareholders to send communications to the Board. Due to the infrequency of shareholder communications to the Board of Directors, the Board does not believe that a formal process is necessary.

SHAREHOLDER PROPOSALS AND NOMINATIONS
_____________________________________

Shareholder Proposals and Nominations

If a shareholder wants us to include a proposal in our proxy statement for presentation at our 20102012 Annual Meeting of Shareholders, the proposal must be received by us at our principal executive offices at 111 West Front Street, Berwick, Pennsylvania 18603, no later than November 24, 2010.December 8, 2011. Any proposal must comply with Securities and Exchange Commission regulations regarding the inclusion of shareholder proposals in corporation sponsoredcorporation-sponsored proxy materials. If a shareholder proposal is submitted to the corporation after November 24, 2010,December 8, 2011, it is considered untimely; and, although the proposal may be considered at the annual meeting, the corporation is not obligated to include it in the 20112012 Proxy Statement.

The corporation'scorporation’s Board of Directors nominates individuals for the position of director and considers diversity in identifying nominees for director. Neither the corporation nor the bank has a nominating committee. In addition, a shareholder who desires to propose an individual for consideration by the Board of Directors as a nominee for director should submit a proposal in writing to the Secretary of the corporation in accordance with Section 10.1 of the corporation'scorporation’s bylaws. Any shareholder who intends to recommend nomination of any candidate for election to the Board of Directors must notify the Secretary of the corporation in writing not less than 120 days prior to the date of any meeting of shareholders called for the election of directors and must provide the specific information listed in Section 10.1 of the bylaws. You may obtain a copy of the corporation'scorporation’s bylaws by writing to John E. Arndt, Secretary, First Keystone Corporation, 111 West Front Street, Berwick, Pennsylvania 18603. Specifically, a shareholder who recommends a director candidate for consideration to the Board of Directors must provide the candidate'scandidate’s name, biographical data, and qualifications. A written statement from the candidate, consenting to be named as a candidate, and if nominated and elected, to serve as a director, should accompany any such recommendation.

The process that the Board of Directors uses for identifying and evaluating nominees for director is as follows: When there is a vacancy on the Board, either through the retirement of a director or the Board'sBoard’s determination that the size of the Board should be increased, nominations to fill that vacancy are made by current directors on the Board. The name of any individual recommended by the directors is provided to Chairman Robert E. Bull, who contacts the prospective director nominee and generally meets with him or her. The members of the Board of Directors then may meet with the prospective director nominee. If a nominee is qualified and will make a positive addition to the Board, the Board of Directors then nominates the candidate.

Page
8 First Keystone Corporation

PROPOSAL NO. 1: ELECTION OF CLASS BC DIRECTORS

The corporation'scorporation’s bylaws provide that its Board of Directors will manage the corporation'scorporation’s business. Sections 10.2 and 10.3 of the Bylaws provide that the number of directors on the Board will not be less than 7 nor more than 25 and that the Board of Directors will be classified into 3 classes, each class to be elected for a term of 3 years. Within the foregoing limits, the Board of Directors may, from time to time, fix the number of directors and their classifications. No person over 7075 years oldor older may serve as director with the exception of Mr. Robert E. Bull. Section 11.1 of the bylaws require that a majority of the remaining members of the Board of Directors, even if less than a quorum, will select and appoint directors to fill vacancies on the Board, and each person so appointed will serve as director until the expiration of the term of office of the class of directors to which he or she was appointed.

Section 10.3 of the bylaws provide for a classified Board of Directors with staggered three yearthree-year terms of office. Accordingly, at the 20102011 Annual Meeting of Shareholders, 42 Class BC Directors will be elected to serve for a three yearthree-year term and until their successors are properly elected and qualified. The Board of Directors of the corporation has nominated the current Class BC Directors to serve as Class BC Directors for the next three yearthree-year term of office. The nominees for reelection this year are as follows:

* John

Don E. Arndt,Bower, director since 1995;
* J. Gerald Bazewicz, director since 1986;
* 2001; and
Robert E.A. Bull, director since 1956; and
* Joseph B. Conahan, Jr., director since 2007.

2006.

Each nominee has consented to serve a three yearthree-year term of office and until his successor is elected and qualified.

Unless otherwise instructed, the proxy holders will vote the proxies for the election of these 42 nominees. If any nominee should become unavailable for any reason, proxies will be voted in favor of a substitute nominee named by the Board of Directors of the corporation. A majority of the directors of the corporation, in office, may appoint a new director to fill any vacancy occurring on the Board for any reason, and the new director will serve until the expiration of the term of the class of directors to which he or she was appointed.

The corporation'scorporation’s Articles of Incorporation provide that cumulative voting rights will not exist with respect to the election of directors. Accordingly, each share of common stock entitles its owner to cast one vote for each nominee. For example, if a shareholder owns 10 shares of common stock, he or she may cast up to 10 votes for each director to be elected.

The Board of Directors recommends that shareholders vote FOR the election of the above namedabove-named nominees.

Proxy Statement Page
9

INFORMATION AS TO DIRECTORS AND NOMINEES
________________________________________

Information as to Directors and Nominees

The following selected biographical information about the directors and nominees for director is accurate as of March 9,
2010,22, 2011, and includes each person'sperson’s business experience for at least the past 5 years.

CURRENT CLASS B DIRECTORS WHOSE TERM EXPIRES IN 2010
AND NOMINEES FOR CLASS B DIRECTOR WHOSE TERM WILL EXPIRE IN 2013

John E. Arndt Mr. Arndt (age 48), is an insurance
brokeryears and the ownerexperience, qualifications and attributes or skills that led the board of Arndt
Insurance Agency in Berwick,
Pennsylvania. He has serveddirectors to conclude that the person should serve as a director of the corporation and the
bank since 1995. Mr. Arndt has 25
years experience in the insurance
field, including 15 years overseeing
the management of his own insurance
agency.

J. Gerald Bazewicz Mr. Bazewicz (age 61), serves as the
President and Chief Executive Officer
of the corporation and the bank, a
position he has held since 1987. He
has served as a director of the
corporation and the bank since 1986.
Mr. Bazewicz has 39 years of banking
experience and a strong financial
background which includes a B.S. in
Finance and an MBA in Finance.

Robert E. Bull Mr. Bull (age 87), now retired,
practiced as an attorney at the law
firm Bull, Bull & Knecht, LLP, of
which he remains a partner. He has
been the Chairman of the Board of the
corporation since 1983 and of the
bank since 1981. He has served as a
director of the corporation since
1983 and of the bank since 1956. Mr.
Bull has a strong understanding of
our people and products which he
acquired over five decades of service
on our Board.

Joseph B. Conahan, Jr. Dr. Conahan (age 66), is an
Ophthalmologist and President of
Pocono Eye Associates, Inc. Dr.
Conahan has been a director of the
corporation and the bank since 2007.
Previously, he was a director at
Pocono Community Bank since 1998.
Dr. Conahan has strong management
skills and has served on the Board of
Directors of a regional medical
center.director.

CURRENT CLASS C DIRECTORS WHOSE TERM EXPIRES IN 2011

Don E. Bower Mr. Bower (age 61), is the President
and owner of Don E. Bower, Inc., an
excavation contracting corporation
located in Berwick, Pennsylvania. He
has been a director of the
corporation and the bank since 2001.
Mr. Bower has successfully developed
his business over 35 years and has
strong executive leadership and
management experience.

Robert A. Bull Mr. Bull (age 57), is an attorney at
the law firm Bull, Bull, & Knecht,
LLP. Mr. Bull has been a director of
the corporation and the bank since
2006. He has been an attorney for 30
years and has become knowledgeable in
banking since his law firm functions
as the corporation's solicitor.

Page 10 First Keystone Corporation

AND NOMINEES FOR CLASS C DIRECTOR WHOSE TERM WILL EXPIRE IN 2014

Don E. Bower Mr. Bower (age 62), is the President and owner of Don E. Bower, Inc., an excavation contracting corporation located in Berwick, Pennsylvania. He has been a director of the corporation and the bank since 2001. Mr. Bower has successfully developed his business over 36 years and has strong executive leadership and management experience.
Robert A. Bull(1) Mr. Bull (age 58), is an attorney at the law firm Bull, Bull, & Knecht, LLP. Mr. Bull has been a director of the corporation and the bank since 2006. He has been an attorney for 31 years and has become knowledgeable in banking since his law firm functions as the corporation’s solicitor.
CLASS A DIRECTORS WHOSE TERM EXPIRES IN 2012

Jerome F. Fabian Mr. Fabian (age 67), is the President
and owner of Tile Distributors of
America, Inc., located in Wilkes
Barre, Pennsylvania. He has served
as a director of the corporation and
the bank since 1998. Mr. Fabian has
been a successful entrepreneur with
extensive sales and marketing
experience.

John G. Gerlach Mr. Gerlach (age 68), is the
President of Pocono Community Bank, a
division of First Keystone National
Bank. He has been a director of the
corporation and the bank since 2007.
Previously, he was a director of
Pocono Community Bank since 1998.
Mr. Gerlach has over 40 years of
banking experience. He possesses
excellent banking knowledge and
served on the Board of Directors of
the Federal Reserve Bank of
Philadelphia.

David R. Saracino Mr. Saracino (age 65), is the former
Vice President, Cashier, and Chief
Financial Officer of First Keystone
National Bank. Mr. Saracino has
served as a director of the
corporation and the bank since 2006.
He has excellent accounting skills
and has been deemed our financial
expert on the Audit Committee of the
corporation.

Jerome F. Fabian Mr. Fabian (age 68), is the President and owner of Tile Distributors of America, Inc., located in Wilkes-Barre, Pennsylvania. He has served as a director of the corporation and the bank since 1998. Mr. Fabian has been a successful entrepreneur with extensive sales and marketing experience.
John G. Gerlach Mr. Gerlach (age 69), is the President of the Pocono division of First Keystone Community Bank and the former President of Pocono Community Bank. He has been a director of the corporation and the bank since 2007. Previously, he was a director of Pocono Community Bank since 1998. Mr. Gerlach has over 41 years of banking experience. He possesses excellent banking knowledge and served on the Board of Directors of the Federal Reserve Bank of Philadelphia.
David R. Saracino Mr. Saracino (age 67), is the former Vice President, Cashier, and Chief Financial Officer of First Keystone Community Bank. Mr. Saracino has served as a director of the corporation and the bank since 2006. He has excellent accounting skills and has been deemed our financial expert on the Audit Committee of the corporation.
10
CLASS B DIRECTORS WHOSE TERM EXPIRES IN 2013

John E. Arndt Mr. Arndt (age 49), is an insurance broker and the owner of Arndt Insurance Agency in Berwick, Pennsylvania. He has served as a director of the corporation and the bank since 1995. Mr. Arndt has 25 years experience in the insurance field, including 16 years overseeing the management of his own insurance agency.
J. Gerald Bazewicz Mr. Bazewicz (age 62), serves as the President of the corporation and the bank, a position he has held since 1987. Prior to that, Mr. Bazewicz also served as Chief Executive Officer from 1987 until September 2010. He has served as a director of the corporation and the bank since 1986. Mr. Bazewicz has 41 years of banking experience and a strong financial background which includes a B.S. in Finance and an MBA in Finance.
Robert E. Bull(1) Mr. Bull (age 88), now retired, practiced as an attorney at the law firm Bull, Bull & Knecht, LLP, of which he remains a partner. He has been the Chairman of the Board of the corporation since 1983 and of the bank since 1981. He has served as a director of the corporation since 1983 and of the bank since 1956. Mr. Bull has a strong understanding of our people and products which he acquired over five decades of service on our Board.
Joseph B. Conahan, Jr. Dr. Conahan (age 67), is an Ophthalmologist and President of Pocono Eye Associates, Inc. Dr. Conahan has been a director of the corporation and the bank since 2007. Previously, he was a director at Pocono Community Bank since 1998. Dr. Conahan has strong management skills and has served on the Board of Directors of a regional medical center.

(1)Robert E. Bull is the father of Robert A. Bull.
11
SHARE OWNERSHIP

PRINCIPAL OWNERS
________________

Principal Owners

The following table sets forth, as of March 9, 2010,22, 2011, the name and address of each person who owns of record or who is known by the Board of Directors to be the beneficial owner of more than 5% of the corporation'scorporation’s outstanding common stock, the number of shares beneficially owned by the person and the percentage of the corporation'scorporation’s outstanding common stock so owned.
________________________________________________________________________
Amount and Percent of
Nature of Outstanding
Beneficial Common Stock
Name and Address Ownership Beneficially Owned
________________________________________________________________________

Berbank 391,627 7.20%
First Keystone National Bank
Trust Department
111 West Front Street
Berwick, PA 18603
____________________

The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission and
may include securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment power
or has the right to acquire beneficial ownership within 60 days after
March 9, 2010. Beneficial ownership may be disclaimed as to certain of the
securities.

Proxy Statement Page 11

Nominee registration for the common stock held by the Trust Department of
the bank on behalf of various trusts, estates and other accounts for which
the bank acts as fiduciary with sole voting and dispositive power over
308,026 shares and as fiduciary with shared voting and dispositive power
over 83,601 shares. Total does not include 233,109 shares held by the
Trust Department of the bank for which the bank does not have sole or
shared voting or dispositive power. The Trust Department intends to cast
all shares under its voting power for the election of the nominees for
director named in this proxy statement and for the ratification of J. H.
Williams & Co., LLP, independent auditors of the corporation.

BENEFICIAL OWNERSHIP BY OFFICERS, DIRECTORS AND NOMINEES
________________________________________________________

Percent of
Outstanding
Amount and
Nature of Common
Stock
Name and Address Beneficial Ownership1 Beneficially
Owned
Berbank
First Keystone Community Bank
Trust Department
111 West Front Street
Berwick, PA 18603 293,503 2 5.39 %

1 The securities “beneficially owned” by an individual are determined in accordance with the definitions of “beneficial ownership” set forth in the General Rules and Regulations of the Securities and Exchange Commission and may include securities owned by or for the individual’s spouse and minor children and any other relative who has the same home, as well as securities to which the individual has or shares voting or investment power or has the right to acquire beneficial ownership within 60 days after March 22, 2011. Beneficial ownership may be disclaimed as to certain of the securities.

2 Nominee registration for the common stock held by the Trust Department of the bank on behalf of various trusts, estates and other accounts for which the bank acts as fiduciary with sole voting and dispositive power over 235,038 shares and as fiduciary with shared voting and dispositive power over 58,465 shares. Total does not include 275,820 shares held by the Trust Department of the bank for which the bank does not have sole or shared voting or dispositive power. The Trust Department intends to cast all shares under its voting power for the election of the nominees for director named in this proxy statement and for the ratification of J. H. Williams & Co., LLP, independent public accountants of the corporation.
12
Beneficial Ownership by Officers, Directors and Nominees

The following table sets forth, as of March 9, 2010,22, 2011, the amount and percentage of the outstanding common stock beneficially owned by each director, nominee for director, and other named executive officer of the corporation. The table also indicates the total number of shares owned by all directors, nominees for director, and executive officers of the corporation and the bank as a group. A person owns his shares directly as an individual unless otherwise indicated.
Number of
Name Shares Owned Percentage

____ _____________ _______

Nominee for Class B Directors
(to serve until 2013)
And Class B Directors
_____________________
John E. Arndt 9,686 -
J. Gerald Bazewicz 39,096
Robert E. Bull 191,890 3.53%
Joseph B. Conahan, Jr. 51,641

Class C Directors
(to serve until 2011)
____________________
Don E. Bower 51,383
Robert A. Bull 71,608 1.32%

Class A Directors
(to serve until 2012)
____________________
Jerome F. Fabian 41,303
John G. Gerlach 8,682
David R. Saracino 12,053

Other Named Executive Officers
______________________________
Matthew P. Prosseda 5,610
Diane C. Rosler 2,707

All Directors and Executive
Officers as a Group
(13 Persons in Total) 493,820 9.08%
____________________

Page 12 First Keystone Corporation

Information furnished by the directors and the corporation.

Less than 1% unless otherwise indicated.

Includes 8,083 shares held individually by Mr. Arndt, and 1,500 shares held
individually by his spouse, and 103 shares held as custodian for his
children.

Includes 18,933 shares held individually by Mr. Bazewicz, 7,855 shares held
in his bank 401(k) plan, 6,235 shares held jointly with his spouse, 873
shares held individually by his spouse, and 5,200 shares which may be
purchased upon the exercise of stock options.

Includes 103,495 shares held individually by Mr. R.E. Bull, 4,725 shares
held by Bull, Bull & Knecht, LLP, a law firm of which Mr. Bull is a
partner, and 83,670 shares held by the Sara E. Bull Decedent Estate Trust
of which Mr. Bull is the trustee.

Includes 41,449 shares held individually by Dr. Conahan and 10,192 shares
held jointly with his spouse.

Includes 49,928 shares held individually by Mr. Bower, 700 shares held
jointly with his spouse, and 755 shares held as custodian for his
grandchildren.

Includes 27,208 shares held individually by Mr. R.A. Bull, 4,725 shares
held by Bull, Bull & Knecht, LLP, a law firm of which Mr. Bull is a
partner, 32,022 shares held jointly with his spouse, and 7,653 shares held
individually by his spouse.

Includes 7,935 shares held individually by Mr. Fabian, 15,252 shares by the
Jerome F. Fabian Trust Under Agreement for which Mr. Fabian exercises
dispositive power, and 18,116 shares held jointly with his spouse.

Includes 500 shares held individually by Mr. Gerlach, 7,432 shares held
jointly with his spouse, and 750 shares which may be purchased upon the
exercise of stock options.

Includes 3,228 shares pledged securities.

Includes 3,297 shares held individually by Mr. Prosseda, 1,038 shares held
in his bank 401(k) plan, and 1,275 shares which may be purchased upon the
exercise of stock options.

Includes 721 shares held in her bank 401(k) plan and 1,986 shares which may
be purchased upon the exercise of stock options.

Proxy Statement Page

Number of
Name Shares
Owned1, 2 Percentage3
Nominee for Class C Directors
(to serve until 2014)
And Class C Directors
Don E. Bower 69,535 4 1.28 %
Robert A. Bull 77,913 5 1.43 %
Class A Directors (to serve until 2012)
Jerome F. Fabian 43,616 6 –
John G. Gerlach 9,477 7 –
David R. Saracino 12,053 8 –
Class B Directors (to serve until 2013)
John E. Arndt 10,636 9 –
J. Gerald Bazewicz 39,214 10 –
Robert E. Bull 179,554 11 3.30 %
Joseph B. Conahan, Jr. 61,441 12 1.13 %
Other Named Executive Officers
Matthew P. Prosseda 6,151 13 –
Kevin L. Miller 3,182 14 –
Diane C. Rosler 2,747 15 –
Elaine A. Woodland 1,879 16 –
All Directors and Executive
Officers as a Group (14 Persons in Total) 522,539 9.60 %

2 Information furnished by the directors and the corporation.

3 Less than 1% unless otherwise indicated.

4 Includes 68,019 shares held individually by Mr. Bower, 719 shares held jointly with his spouse, and 797 shares held as custodian for his grandchildren.

5 Includes 29,432 shares held individually by Mr. R.A. Bull, 4,989 shares held by Bull, Bull & Knecht, LLP, a law firm of which Mr. Bull is a partner, 35,216 shares held jointly with his spouse, and 8,276 shares held individually by his spouse.
13
6 Includes 8,379 shares held individually by Mr. Fabian, 16,106 shares by the Jerome F. Fabian Trust Under Agreement for which Mr. Fabian exercises dispositive power, and 19,131 shares held jointly with his spouse.

7 Includes 500 shares held individually by Mr. Gerlach, 8,227 shares held jointly with his spouse, and 750 shares which may be purchased upon the exercise of stock options.

8 Includes 3,228 shares pledged securities.

9 Includes 8,456 shares held individually by Mr. Arndt, and 1,500 shares held individually by his spouse, and 680 shares held as custodian for his children.

10 Includes 18,364 shares held individually by Mr. Bazewicz, 8,295 shares held in his bank 401(k) plan, 6,584 shares held jointly with his spouse, 771 shares held individually by his spouse, and 5,200 shares which may be purchased upon the exercise of stock options.

11 Includes 90,895 shares held individually by Mr. R.E. Bull, 4,989 shares held by Bull, Bull & Knecht, LLP, a law firm of which Mr. Bull is a partner, and 83,670 shares held by the Sara E. Bull Decedent Estate Trust of which Mr. Bull is the trustee.

12 Includes 41,449 shares held individually by Dr. Conahan and 19,992 shares held jointly with his spouse.

DIRECTORS' COMPENSATION TABLE

FEES EARNED
OR PAID
IN CASH STOCK
NAME ($) AWARDS
____ _______ ______

John Arndt 31,250.00 ---
Don E. Bower 29,100.00 ---
Robert A. Bull 31,900.00 ---
Robert E. Bull 33,600.00 ---
Joseph B. Conahan, Jr. 29,800.00 ---
Jerome F. Fabian 27,350.00 ---
David R. Saracino 29,800.00 ---
Robert J. Wise 3,150.00 ---

NON-EQUITY
OPTION INCENTIVE PLAN
NAME AWARDS COMPENSATION
____ ______ ____________

John Arndt --- ---
Don E. Bower --- ---
Robert A. Bull --- ---
Robert E. Bull --- ---
Joseph B. Conahan, Jr. --- ---
Jerome F. Fabian --- ---
David R. Saracino --- ---
Robert J. Wise --- ---

CHANGE IN PENSION
VALUE AND
NON-QUALIFIED
DEFERRED ALL OTHER
COMPENSATION COMPENSATION
NAME EARNINGS ($)
____ ________ ____________

John Arndt --- ---
Don E. Bower --- ---
Robert A. Bull --- ---
Robert E. Bull --- ---
Joseph B. Conahan, Jr. --- ---
Jerome F. Fabian --- ---
David R. Saracino --- ---
Robert J. Wise --- ---

TOTAL
($)
_____

John Arndt 31,250.00
Don E. Bower 29,100.00
Robert A. Bull 31,900.00
Robert E. Bull 33,600.00
Joseph B. Conahan, Jr. 29,800.00
Jerome F. Fabian 27,350.00
David R. Saracino 29,800.00
Robert J. Wise 3,150.00

Deceased February 20, 2009.

Includes 3,314 shares held individually by Mr. Prosseda, 1,562 shares held in his bank 401(k) plan, and 1,275 shares which may be purchased upon the exercise of stock options.

14 Includes 596 shares held individually by Mr. Miller, 906 shares held in her bank 401(k) plan and 1,680 shares which may be purchased upon the exercise of stock options.

15 Includes 412 shares held individually by Ms. Rosler, 761 shares held in her bank 401(k) plan and 1,574 shares which may be purchased upon the exercise of stock options.

16 Includes 577 shares held individually by Ms. Woodland, 92 shares held jointly with her spouse, 710 shares held in her bank 401(k) plan and 500 shares which may be purchased upon the exercise of stock options.
14
DIRECTORS’ COMPENSATION OF DIRECTORS
_________________________

TABLE

Name Fees Earned
or Paid in Cash
($) Stock
Awards Option
Awards Non-Equity Incentive
Plan Compensation Change in
Pension
Value and
Non-qualified Deferred
Compensation Earnings All Other Compensation
($) Total
($)
John Arndt 29,500.00 — — — — — 29,500.00
Don E. Bower 29,100.00 — — — — — 29,100.00
Robert A. Bull 31,550.00 — — — — — 31,550.00
Robert E. Bull 35,350.00 — — — — — 35,350.00
Joseph B. Conahan, Jr. 28,750.00 — — — — — 28,750.00
Jerome F. Fabian 26,300.00 — — — — — 26,300.00
David R. Saracino 40,150.00 — — — — — 40,150.00
Compensation of Directors

During 2009,2010, each member of the corporation'scorporation’s Board of Directors received $700 for his attendance at the Annual Meeting. Other corporate Board meetings met concurrently with the bank'sbank’s Board, and directors received no additional compensation. The bank'sbank’s directors received $700 for each directors'directors’ meeting attended. Non employeeNon-employee directors received a $5,000 retainer and $350 for each committee meeting attended. In addition, Chairman Bull received an annual stipend of $1,000 and Secretary Arndt received an annual stipend of $750. In addition, Mr. Saracino received compensation in the amount of $10,000 for his role as chair of the audit committee in 2010. In the aggregate, the Board of Directors received $258,750$261,050 for all Board of Directors'Directors’ meetings and committee meetings attended in 2009,2010, including all fees and stipends paid to all directors in 2009.

2010.

REPORT OF THE AUDIT COMMITTEE

The Audit Committee oversees the corporation'scorporation’s financial reporting process on behalf of the Board of Directors. In that connection, the committee, along with the Board of Directors, has formally adopted an audit committee charter setting forth its responsibilities.

Management has the primary responsibility for the financial statements and the reporting process including the systems of internal control. In fulfilling its oversight responsibilities, the committee reviewed the audited financial statements in the Annual Report with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.

Page 14 First Keystone Corporation

The committee reviewed with the independent auditors,public accountants, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the corporation'scorporation’s accounting principles and such other matters as are required to be discussed with the committee under generally accepted auditing standards. In addition, the committee has discussed with the independent auditors the auditors'public accountants, their independence from management and the corporation including the matters in written disclosures required by the Independencestatement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board and considered the compatibility of non auditnon-audit services with the auditors'accountants’ independence.
15
The committee discussed the overall scope and plans for their audits with the corporation'scorporation’s internal auditors and independent auditors.accountants. The committee meets with the internal auditors and independent auditors,accountants, with and without management present, to discuss the results of their examinations, their evaluations of the corporation'scorporation’s internal controls and the overall quality of the corporation'scorporation’s financial reporting. The corporation believes that it has established appropriate policies and procedures to comply with requirements of the Sarbanes OxleySarbanes-Oxley Act of 2002. The committee held 4 meetings during fiscal year 20092010 in addition to reviewing the quarterly results with the financial auditorsaccountants prior to press release.

With respect to the corporation'scorporation’s outside auditors, the committee, among other things, discussed with J.H. Williams & Co., LLP matters relating to its independence, including the written disclosures made to the committee by the outside auditors and the letter from the outside auditors as required by applicable requirements of the Public CorporationCompany Accounting Oversight Board regarding the independent accountant'saccountant’s communications with the audit committee concerning independence.

In reliance on the reviews and discussions referred to above, the committee recommended to the Board of Directors (and the Board has approved) that the audited financial statements be included in the Annual Report on Form 10K10-K for the year ended December 31, 20092010 for filing with the Securities and Exchange Commission. The committee and the Board of Directors have also approved the selection of the corporation'scorporation’s independent auditorspublic accountants for 2010.

2011.

Aggregate fees billed to the corporation and the bank by J. H. Williams & Co., LLP for services rendered during the years ended December 31, 20092010 and 20082009 were as follows:

Year Ended December 31,
2009 2008
____ ____

Audit fees $101,500 $116,000
Audit related fees 0 0
Tax fees 8,500 7,500
All other fees 0 0
________ ________
Total $110,000 $123,500
======== ========
_______________

Audit Fees include fees billed for professional services rendered
for the audit of annual financial statement and fees billed for
the review of financial statements included in First Keystone
Corporation's Forms 10Q or services that are normally provided by
J. H. Williams & Co., LLP in connection with statutory and
regulatory filings or engagements.

Audit Related Fees include fees reasonably related to the audit
services provided by J. H. Williams & Co, LLP but not reported
under Audit Fees.

Tax Fees include fees billed for professional services rendered
by J. H. Williams & Co., LLP for tax compliance. These services
include preparation of Federal and State Annual Tax Returns for
the Corporation.

Proxy Statement Page 15

AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITOR
_______________________________

Year Ended
December 31,
2010 2009
Audit fees1 $ 100,500 $ 101,500
Audit related fees 0 0
Tax fees2 9,500 8,500
All other fees 0 0
Total $ 110,000 $ 110,000
1Audit Fees include fees billed for professional services rendered for the audit of annual financial statement and fees billed for the review of financial statements included in First Keystone Corporation’s Forms 10-Q or services that are normally provided by J. H. Williams & Co., LLP in connection with statutory and regulatory filings or engagements.

2Tax Fees include fees billed for professional services rendered by J. H. Williams & Co., LLP for tax compliance. These services include preparation of Federal and State Annual Tax Returns for the Corporation.
16
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor

The Audit Committee pre approvespre-approves all audit and permissible non auditnon-audit services provided by the independent auditors.public accounts. These services may include audit services, audit related services, tax services, and other services. The Audit Committee has adopted a policy for the pre approvalpre-approval of services provided by the independent auditors.public accountants. Under the policy, pre approvalpre-approval is generally provided for up to one year and any pre approvalpre-approval is detailed as to the particular service or category of services and is subject to a specific budget. In addition, the Audit Committee may also pre approvepre-approve particular services on a case by case basis. For each proposed service, the independent auditor is required to provide a detailed engagement letter.

The committee is comprised of 3 directors, all of whom are considered "independent"“independent” as defined by theSEC Rules and NASDAQ listing standards. The Board of Directors has determined that no member of the committee has a relationship with the corporation that should interfere with his independence from the corporation or its management.

The foregoing report has been furnished by the current members of the committee.

MEMBERS OF THE AUDIT COMMITTEE
_____________________________

David R. Saracino, Chairman
Don E. Bower
Jerome F. Fabian

Members of the Audit Committee
David R. Saracino, Chairman
Don E. Bower
Jerome F. Fabian
COMPENSATION DISCUSSION AND ANALYSIS

INTRODUCTION
____________

Introduction

The Board of Directors serves as the Compensation Committee for the Bank and develops the bank'sbank’s and the corporation'scorporation’s executive compensation policy, with the guidance of the Human Resources Committee. The Human Resources Committee consists of independent directors and the Chief Executive Officer and helps ensure that a sound human resources management system is developed and maintained.

For the year 2009,2010, executive compensation included base salary, the opportunity for cash bonuses, health and welfare and pension plans. The basic mission of the corporation'scorporation’s executive compensation policy is to provide executives with a competitive compensation package that attracts and retains qualified executives while placing a portion of total pay at risk. At risk elements of compensation may have no value or may be worth less than the target value if goals are not met. At risk compensation includes all components of core compensation other than base
salary, pension plans, and health and welfare benefits.

the Management Incentive Compensation Plan.

The compensation program is designed to reward the named executive officers based on their level of assigned management responsibilities and individual performance levels, and individual
value in the job marketplace. The Chief Executive Officer's
individual performance objectives are the same as the strategic
and financial performance objectives of the bank as a whole. For
other executives, individual performances objectives are set by
the Chief Executive Officer and a year end performance appraisal
on each executive is prepared and reviewed by the Board of
Directors.levels. In 2009,2010, the Board awarded only cash compensation as
the 1998 Stock Incentive Plan expired in 2009 and no management incentive bonuses were paid since the required net income figure
for 2009 was not attained.

Page 16 First Keystone Corporation

EXECUTIVE OFFICERS' ROLE IN DETERMINING COMPENSATION
____________________________________________________

The executive compensation established by the Board of
Directors is based upon its overall subjective assessment of the
value of the services provided by each executive officer with
consideration given to performance factors and peer group
compensation information.

totaling $73,125.
17
Executive Officers’ Role in Determining Compensation

The Board considers information provided by the Chief Executive Officer in determining the appropriate level of compensation for other executives, includingexecutives. Individual performance objectives are set by the Chief Executive Officer's viewsOfficer and a year-end appraisal on each executive is prepared and reviewed by the appropriate levelsBoard of compensation for
other named executive officers for the ensuing year.Directors. No executive officer other than the Chief Executive Officer attends those portions of the Board meetings during which the performance of the other named executive officers is evaluated or their compensation is being determined. For compensation provided to
the Chief Executive Officer, the Board considers his performance,
the results of management decisions made by him, and the earnings
of the organization. The Chief Executive Officer is not present during these discussions.

COMPENSATION CONSULTANT
_______________________

the Board’s discussion of his compensation.

Compensation Consultant

The firm of L. R. Webber Associates Inc. acts as a compensation consultant for the bank.
L. R. Webber was hired by the Board of Directors. The bank requested that the consultant provide compensation survey information and be available to address the bank'sbank’s questions. The consultant did not play a role in setting compensation or advising on specific compensation. In 2009,2010, the role of L. R. Webber Associates Inc. was to provide its annual compensation survey. In addition, L. R. Webber Associates provided a custom peer survey on compensation for the 12 institutions listed below.

BENCHMARKING
____________

Benchmarking

The Board of Directors uses data from the L. R. Webber Associates Inc. compensation survey of the Pennsylvania banking and thrift industry to assist in determining executive pay. The peer group of financial institutions chosen by the Board of Directors for purposes of making a comparative analysis of executive compensation does include some of the same financial institutions incorporated in the peer group established to compare shareholder returns as indicated in the performance graph included in the Form 10K.

10-K.

From the L. R. Webber survey, the financial institutions chosen to benchmark included (11) banks and (1) thrift with assets generally between $500 million and $1 billion with headquarters located in Northeastern and Central Pennsylvania. The financial institutions included:

- -

— First Columbia Bank (Bloomsburg)
- -
— Community Bank & Trust Company (Clarks Summit)
- -
— Dime Bank (Honesdale)
- -
— Ephrata National Bank (Ephrata)
- -
— ESSA Bank & Trust (Stroudsburg)
- -
— Fidelity Deposit & Discount Bank (Dunmore)
- -
— First Citizens National Bank (Mansfield)
- -
— First National Community Bank (Dunmore)
- -
— Jersey Shore State Bank (Williamsport)
- -
— Honesdale National Bank (Honesdale)
- -
— Mid Penn Bank (Millerburg)
- -
— Peoples National Bank (Hallstead)

Proxy Statement Page 17

As a result of the benchmarking, after reviewing base salaries and benefits, no adjustments to compensation were necessary in 2009,2010, other than the normal annual salary increases. The goal of First Keystone Corporation is to compensate at approximately the average range mid point for each job classification with at risk portion of compensation for the executives to reward favorable overall bank earnings performance. The executive positions reviewed were all in the mid pointmid-point range except for the Chief Financial Officer, which was below the mid
pointmid-point range because of the limited amount of time the present CFO served in this position.

BASE SALARY
___________

18
Base Salary

The executive compensation established by the Board of Directors is based upon its overall subjective assessment of the value of the services provided by each executive officer with consideration given to performance factors and peer group compensation information.

The Board of Directors determines base salary for the executive officers with guidance from the Human Resources Committee and from compensation surveys. For the base salary paid to executive officers other than the Chief Executive Officer, the Board of Directors considers information provided by the Chief Executive Officer as to each executive officer'sofficer’s level of individual performance, contribution to the organization, scope of responsibilities, salary history and market levels gathered from the compensation surveys. For the base salary paid to the Chief Executive Officer, the Board of Directors, with the Chief Executive Officer not being present, considers his performance level, the results of management decisions made by him and the earnings of the organization. The Board of Directors considersreviews the return on assets and return on equity when determining whether or not the Chief Executive Officer'sOfficer’s base pay should be at the median, below the median, or above the median provided in the compensation surveys. No particular weight is assigned to any of the foregoing individual performance factors and no specific performance targets are used in determining whether an increase in base salary is warranted.

Decisions regarding base salary are made without consideration of other forms of compensation provided. Bonuses and long termlong-term incentive awards are intended to provide additional incentive to the executives to achieve a higher level of success. Adjusting the base salary to correspond with the amount of the bonuses and long termlong-term incentive awards would defeat the purpose of having at risk compensation. The at risk compensation
incorporates a performance target for the corporation as
described in cash bonuses below.

CASH BONUSES
____________

Cash Bonuses

The purpose of the Management Incentive Compensation Plan (the "Plan"“Plan”) is to provide incentives and awards to top management employees who, through high levels of performance, contribute to the success and profitability of the bank. The bonus plan serves as short term incentives that align executive pay with the annual performance of the corporation and is earned through the achievement of overall annual earnings objectives. It aligns management'smanagement’s interests with those of the shareholders because, generally, the higher the net income for the year, the larger the bonuses paid to management. The Plan is also designed to support organizational objectives and financial goals, as defined by the bank'sbank’s Strategic and Financial Plans, by making available additional, variable and contingent incentive compensation. The required budget net income figure has generally been 5% to 10% over the previous year'syear’s net income for the corporation.

The Plan is based upon the achievement of a required budget net income figure of approximately $8.0$8.7 million in 20092010 before any incentive award "pool"“pool” is formed. The calculation of share of profits to be distributed to the Plan participants, and the incentive compensation is constructed to provide awards that are consistent with achieved profitability levels. The management incentive bonuses are designed not to exceed a total of $75,000 annually and have never exceeded that amount. The incentive formulas insure a level of incentive award that will enable the bank to attract, retain, and motivate high quality management personnel and support continued growth and profitability.

Page 18 First Keystone Corporation

The Plan is also established to augment regular salary and benefits programs already in existence. It is not meant to be a substitute for salary increases, but as a supplement to salary, and, as stated earlier, as an incentive for performance that contributes to outstanding levels of achievement.
19
A committee appointed by the Board recommends performance levels to the Board for final action before the beginning of each year with the approval of our annual budget. Plan participants who are members of that committee shall not be entitled to vote on matters relating to the eligibility for and/or determination of their own incentive compensation awards. The committee, in the exercise of its discretion with respect to the determination of the amount of the incentive plan pool for any given plan year, may take into account the presence or absence of nonrecurring or extraordinary items of income, gain, expense, or loss, and any and all factors that, in its sole discretion, may deem relevant. Extraordinary occurrences may be excluded when calculating performance results to insure that the best interests of the Bank are protected and are not brought into conflict with the best interest of plan participants. NoThe management incentive cash bonuses were paidbonus was $73,125 in 2010, $0 in 2009 while the management incentive bonus
wasand $55,500 in 2008 and $0 in 2007.

2008.

Participation in the Plan is limited to the executive management team. This management team includes the following functional job titles: Chief Executive Officer/President,
Executive Vice President/Director of Lending,Officer, Chief Operating Officer, Senior Vice President/Deposit/Operations Division Manager,President and Chief Financial Officer, Senior Vice President/Technology DivisionPresident and Deposit Operations Manager, and Senior Vice President/Chief
FinancialPresident and Senior Loan Officer. The management incentive pool created after the achievement of a required budget net income is distributed to the executive management team as follows:

CEO/President 45%
Executive Vice President 25%
Senior Vice President/CFO 10%
Senior Vice President/Operations 10%
Senior Vice President/IT 10%

LONG-TERM INCENTIVES
____________________

Long term corporation performance is best achieved through
an ownership culture that encourages long term performance
through the use of stock based awards.

Chief Executive Officer 45 %
Chief Operating Officer 25 %
Senior Vice President and Chief Financial Officer 10 %
Senior Vice President and Deposit Operations Manager 10 %
Senior Vice President and Senior Loan Officer 10 %

Long-Term Incentives

The Board of Directors believes that stock option awards under the corporation'scorporation’s 1998 Stock Incentive Plan ("(“1998 Plan"Plan”) provide a vehicle for long term incentive compensation through financial rewards dependent on future increases in the market value of the corporation'scorporation’s stock. The purpose of the 1998 Plan was to advance the development, growth and financial condition of the corporation and its subsidiaries by providing incentives through participation in the appreciation of capital stock of the corporation in order to secure, retain and motivate personnel responsible for the operation and management of the corporation and its subsidiaries. The 1998 Plan expired in 2008 and the Board of Directors will explore the possibility of implementing another plan in the future.

The value realized by named executive officers from award grants in prior years is not taken into account in the process of setting compensation for the current year. We also do not maintain any equity or other security ownership guidelines or requirements.

401(K) PLAN
___________

401(k) Plan

The Board believes that it is essential for employees to save for retirement and as such has provided all employees a vehicle through which to do so. The Bank maintains a 401(k) plan, which has a combined tax qualified savings feature and profit sharing feature.

Proxy Statement Page 19

SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
_____________________________________

20
Supplemental Employee Retirement Plan

The Supplemental Employee Retirement Plan ("SERP"(“SERP”) rewards certain executive officers for their long termlong-term contributions to the bank. Additionally, to encourage the executives to continue their employment with the corporation until retirement, the Board believed it to be in the best interests of the corporation to enter into salary continuation agreements with them. The agreements were also established to reward certain executives for past and future services to the corporation. The Board believes the income benefit amounts are reasonable and consistent with the compensation standards of Section 39 of the Federal Deposit Insurance Company Improvement Act of 1991 and the related implementing regulations.

Currently, the corporation maintains a SERP for which Mr. Bazewicz, and Mr. Prosseda, and Ms. Woodland participate. The SERP provides that if the executive officer continues to serve as an officer of the bank until a stated retirement age of 60 years (for Bazewicz) and, 62 years (for Prosseda), and 63 years (for Woodland), the bank will pay 240 guaranteed consecutive monthly payments to Bazewicz and Prosseda, and 180 guaranteed consecutive monthly payments to Woodland commencing on the first day of the month following the officer'sofficer’s retirement age and the termination of employment in the amounts indicated in this proxy. Generally, no benefit will be paid if the executive officer voluntarily terminates employment prior to attaining the stated retirement age. The Board has also determined that it is in the best interests of the corporation to finance the SERP benefits by purchasing life insurance on the lifelives of certain executives. The
Board selected Bank Compensation Strategies Group, a benefits
consulting firm endorsed by the American Banking Association

Health and many other state bank associations to calculate cost projections
and choose life insurance appropriate to finance the obligations.

HEALTH AND WELFARE PLANS
________________________

Welfare Plans

Health and welfare plans are not tied to corporation or individual performance. The costs of providing such benefits to all employees are not taken into account when determining specific salaries of the named executives and is seen as a cost of doing business.

Group life insurance, group disability, vision benefits and health insurance are available to all employees, as well is an IRS 125 plan. Such plans are standard in the industry and in the geographic area for all industries and necessary to compete for talented employees at all levels of the corporation. Named executives participate in these plans under the same terms and conditions as other employees.

Health insurance premiums are partially paid by employees through payroll deductions for the employee share of the health care cost.

TRIGGERING EVENTS IN CONTRACTS
______________________________

Triggering Events In Contracts

Presently, there are no named executive officers who are parties to employment or consulting agreements with the corporation as Mr. Gerlach's consulting agreement expired in
2009.

corporation.

Under the Supplemental Executive Retirement Plans to which both Mr. Bazewicz and Mr. Prosseda are parties, the triggering events are change of control, retirement, disability, involuntary termination and death.

Page 20 First Keystone Corporation

21
The Compensation Committee believes that the triggering events in these agreements are appropriate in that they encourage executives to act in the best interests of the shareholders in evaluating any change of control opportunities and it keeps the executives focused on running the corporation in the face of real or rumored corporate transactions. The Compensation Committee also believes that it is appropriate to provide the executives a benefit under the Supplemental Executive Retirement Plan in the event the executive becomes disabled and a benefit to his beneficiaries in the event of this death as consideration for the executive'sexecutive’s past employment with the bank. Additionally, as the Supplemental Executive Retirement Plan is a benefit upon which the executive will rely upon for retirement income, the bank also believes that it is important to provide the executive with a benefit under the Supplemental Executive Retirement Plan if the executive is terminated without cause before retirement age.

ACCOUNTING AND TAX TREATMENTS
_____________________________

Accounting and Tax Treatments

Sections 162(m) of the Internal Revenue Code generally limits the tax deductibility of compensation paid in one year to highly compensated employees to $1 million. Performance basedPerformance-based compensation is not subject to the limits on deductibility of Section 162(m) provided such compensation meets certain requirements. The Compensation Committee strives to provide the named executive officers with compensation which will preserve the tax deductibility of compensation paid. Given the current level of compensation, the Compensation Committee does not feel that it is necessary to have a formal policy with regard to Section 162(m).

MATERIAL DIFFERENCES IN NAMED EXECUTIVE OFFICERS' COMPENSATION
______________________________________________________________

Material Differences in Named Executive Officers’ Compensation

The Named Executive Officers are compensated based upon their respective position and longevity with the bank. Mr. Gerlach'sGerlach’s compensation in 2007 and 2008 was determined after negotiations between Mr. Gerlach and the corporation during merger negotiations. Mr. Gerlach'sGerlach’s compensation also takes into consideration his previous role as president of Pocono Community Bank,Bank. As mentioned earlier, the one year term ofdifference in the employment agreement, followed by
a one year consulting agreement. Mr. Gerlach agreed to continue
his employment after his initial two years. Mr. Gerlachnamed executive officers’ base salary is subject to the three year noncompetionpremised upon their position, experience, and nonsolicitation
provision regardless of the reason of his termination of
employment.

CONCLUSION
__________

individual performance.

Conclusion

The Compensation Committee believes the amount and types of compensation provided to the Executives are competitive and appropriate for First Keystone Corporation to attain its short and long termlong-term objectives and goals. The compensation programs are designed to provide an incentive to the Executive on both a short termshort-term and long termlong-term basis. The programs have been tailored by First Keystone Corporation so that the various elements of compensation align the interests of our shareholders and those of the Executives to maximize shareholder value.

COMPENSATION COMMITTEE REPORT
_____________________________

Compensation Committee Report

The Board of Directors has reviewed and discussed the Compensation Discussion and Analysis with management, and based on the review and discussions, the Board of Directors concluded that the Compensation Discussion and Analysis be included in the corporation'scorporation’s proxy statement.

Proxy Statement Page 21

BOARD OF DIRECTORS
__________________

Robert E. Bull, Chairman
J. Gerald Bazewicz, President
John E. Arndt, Secretary
Don E. Bower
Robert A. Bull
Dr. Joseph B. Conahan, Jr.
Jerome F. Fabian
John G. Gerlach
David R. Saracino

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
___________________________________________________________

Robert E. Bull, Chairman Dr. Joseph B. Conahan, Jr.
J. Gerald Bazewicz, President Jerome F. Fabian
John E. Arndt, Secretary John G. Gerlach
Don E. Bower David R. Saracino
Robert A. Bull
Compensation Committee Interlocks and Insider Participation

The Board of Directors, which includes J. Gerald Bazewicz, Chief Executive Officer,President, functions as the Compensation Committee. For compensation paid to executive officers other than the Chief Executive Officer, the Board of Directors considers information provided by the Chief Executive Officer. For compensation paid
to the Chief

Executive Officer, the Board of Directors, with Mr.
Bazewicz not being present, determines his compensation, as
outlined above under "Base Salary".

EXECUTIVE COMPENSATION
______________________

Compensation

During the beginning of 2010, the Board of Directors conducted a risk assessment of the bank'sbank’s compensation program. The Board concluded that the program is balanced, does not motivate imprudent risk taking, and is not reasonably likely to have a material adverse effect on the bank.

The table below shows information concerning the annual and long termlong-term compensation for services rendered in all capacities to the corporation and the bank for the fiscal year ended December 31, 20092010 of those persons who were:

all individuals who served as the Principal Executive Officer and Principal Financial Officer during 2009,2010, and
*
the other 3 most highly compensated executive officers of the corporation and the bank at December 31, 20092010 whose total compensation exceeded $100,000.

Page 22 First Keystone

On October 1, 2010, J. Gerald Bazewicz retired as Chief Executive Officer of the Corporation

SUMMARY COMPENSATION TABLE

NAME AND
PRINCIPAL SALARY
POSITION YEAR ($)
________ ____ ______

J. Gerald Bazewicz 2009 215,000
Principal Executive Officer 2008 203,000
2007 193,000

Diane C. A. Rosler 2009 80,000
Chief Financial Officer 2008 69,558
2007 57,681

John G. Gerlach 2009 142,789
President, Pocono Division 2008 275,913
2007 42,052

Matthew P. Prosseda 2009 157,000
Executive Vice President 2008 151,000
2007 145,000

NAME AND STOCK
PRINCIPAL BONUS AWARDS
POSITION ($) ($)
________ _____ ______

J. Gerald Bazewicz --- ---
Principal Executive Officer 24,975 ---
--- ---

Diane C. A. Rosler --- ---
Chief Financial Officer 5,550 ---
--- ---

John G. Gerlach --- ---
President, Pocono Division --- ---
--- ---

Matthew P. Prosseda --- ---
Executive Vice President 13,875 ---
--- ---

CHANGE IN
PENSION
VALUE AND
NONQUALIFIED
DEFERRED
NAME AND OPTION COMPENSATION
PRINCIPAL AWARDS EARNINGS
POSITION ($) ($)
________ ______ ________

J. Gerald Bazewicz --- ---
Principal Executive Officer 2,884 68,079
96 77,689

Diane C. A. Rosler --- ---
Chief Financial Officer --- ---
--- ---

John G. Gerlach --- ---
President, Pocono Division 2,163 ---
72 ---

Matthew P. Prosseda --- 23,272
Executive Vice President 2,163 21,921
72 13,902

NAME AND ALL OTHER
PRINCIPAL COMPENSATION TOTAL
POSITION ($) ($)
________ ____ ______

J. Gerald Bazewicz 44,400 259,400
Principal Executive Officer 35,900 334,838
36,582 307,367

Diane C. A. Rosler 8,793 88,793
Chief Financial Officer 6,956 82,064
5,910 63,591

John G. Gerlach 34,179 176,968
President, Pocono Division 38,600 316,676
540,280 582,404

Matthew P. Prosseda 17,691 197,963
Executive Vice President 15,100 204,059
14,862 173,836
____________________

Bonus earned in 2008 and paid in 2009.

Option awards represent the compensation expense and financial reporting
value of 2007 grants issued December 27, 2007 and recognized in 2008 for
the named executive officers. There can be no assurance that these values
will ever be realized by the executive in the future, or that the options
will ever be exercised. No option awards were granted in 2009.

Amounts shown for Mr. Bazewicz in 2009 include $19,900 in director fees,
$7,350 in 401(k) matching contribution, and $17,150 401(k) profit sharing
award, in 2008 $15,600 in director fees, $6,090 401(k) matching
contribution and $14,210 401(k) profit sharing award, and 2007 $16,800 in
director fees, $5,790 401(k) matching contribution and $13,992 401(k)
profit sharing award.

Amounts shown for Ms. Rosler in 2009 include $2,638 401(k) matching
contribution and $6,155 401(k) profit sharing award, in 2008 $2,087 401(k)
matching contribution and $4,869 401(k) profit sharing award, and in 2007
$1,730 401(k) matching contribution and $4,180 401(k) profit sharing award.

Amounts shown for Mr. Gerlach in 2009 include $19,900 in director fees,
$4,284 401(k) matching contribution and $9,995 401(k) profit sharing, in
2008 $15,600 in director fees, $6,900 in 401(k) matching contribution and
$16,100 401(k) profit sharing award, and in 2007 $2,400 in director fees,
$3,049 in 401(k) matching contribution, $1,221 401(k) profit sharing award,
and $533,610 for the buyout of his Pocono warrants as provided in the
merger agreement.

Amounts shown for Mr. Prosseda in 2009 include $5,307 401(k) matching
contribution and $12,384 401(k) profit sharing award, in 2008 $4,530 401(k)
matching contribution and $10,570 401(k) profit sharing award, and in 2007
$4,350 401(k) matching contribution and $10,512 401(k) profit sharing
award.

Proxy Statement Page and the Bank. Matthew P. Prosseda, former Chief Operating Officer, was appointed to the office of Chief Executive Officer. Mr. Bazewicz, while retired from the day-to-day activities of the Bank, retained the position of President of the Corporation and the Bank. Kevin L. Miller, former Information Technology Director, was promoted to Chief Operating Officer on October 1, 2010.
23

401(K) PLAN
___________

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

Change in
Pension
Value and
Nonqualified
Deferred
Name and Stock Option Compensation All Other
Principal Salary Bonus Awards Awards Earnings Compensation Total
Position Year ($) ($)1 ($) ($)2 ($) ($) ($)
J. Gerald Bazewicz 2010 210,058 25,313 — — — 42,156 3 277,527
President 2009 215,000 — — — — 44,400 3 259,400
2008 203,000 24,975 — 2,884 68,079 35,900 3 334,838
Matthew P. Prosseda 2010 169,539 22,500 — — 24,709 16,954 4 233,702
Chief Executive Officer 2009 157,000 — — — 23,272 17,691 4 197,963
2008 151,000 13,875 — 2,163 21,921 15,100 4 204,059
Diane C.A. Rosler 2010 85,654 7,500 — — — 8,566 5 101,720
Chief Financial Officer 2009 80,000 — — — — 8,793 5 88,793
2008 69,558 5,550 — — — 6,956 5 82,064
Kevin L. Miller 2010 99,038 10,313 — — — 9,904 6 119,255
Chief Operating Officer 2009 98,038 — — — — 10,359 6 108,397
2008 87,231 5,550 — 1,442 — 8,723 6 102,946
Elaine A. Woodland 2010 132,500 — — — 13,531 13,250 7 159,281
Senior Vice President 2009 131,758 — — — 12,745 13,176 7 157,679
2008 92,300 — — 1,442 7,090 9,230 7 110,062
John G. Gerlach 2010 75,000 — — — — 26,700 8 101,700
President, Pocono Division 2009 142,789 — — — — 34,179 8 176,968
2008 275,913 — — 2,163 — 38,600 8 316,676

1 Bonus earned in 2010 paid in 2011 and bonus earned in 2008 paid in 2009.

2 Option awards represent the compensation expense and financial reporting value of 2007 grants issued December 27, 2007 and recognized in 2008 for the named executive officers. The amount shown is the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. There can be no assurance that these values will ever be realized by the executive in the future, or that the options will ever be exercised. No option awards were granted in 2009 and 2010.

3 Amounts shown for Mr. Bazewicz in 2010 include $21,150 in director fees, $6,302 in 401(k) matching contribution, and $14,704 401(k) profit sharing award, in 2009 $19,900 in director fees, $7,350 in 401(k) matching contribution, and $17,150 401(k) profit sharing award, and in 2008 $15,600 in director fees, $6,090 401(k) matching contribution and $14,210 401(k) profit sharing award.

4 Amounts shown for Mr. Prosseda in 2010 include $5,086 401(k) matching contribution and $11,868 401(k) profit sharing award, in 2009 $5,307 401(k) matching contribution and $12,384 401(k) profit sharing award, and in 2008 $4,530 401(k) matching contribution and $10,570 401(k) profit sharing award.

24
5 Amounts shown for Ms. Rosler in 2010 include $2,570 401(k) matching contribution and $5,996 401(k) profit sharing award, in 2009 $2,638 401(k) matching contribution and $6,155 401(k) profit sharing award, and in 2008 $2,087 401(k) matching contribution and $4,869 401(k) profit sharing award.

6 Amounts shown for Mr. Miller in 2010 include $2,971 401(k) matching contribution and $6,933 401(k) profit sharing award, in 2009 $3,108 401(k) matching contribution and $7,251 401(k) profit sharing award, and in 2008 $2,617 401(k) matching contribution and $6,106 401(k) profit sharing award.

7 Amounts shown for Ms. Woodland in 2010 include $3,975 401(k) matching contribution and $9,275 401(k) profit sharing award, in 2009 $3,953 401(k) matching contribution and $9,223 401(k) profit sharing award, and in 2008 $2,769 401(k) matching contribution and $6,461 401(k) profit sharing award.

8 Amounts shown for Mr. Gerlach in 2010 include $19,200 in director fees, $2,250 401(k) matching contribution and $5,250 401(k) profit sharing award, in 2009 $19,900 in director fees, $4,284 401(k) matching contribution and $9,995 401(k) profit sharing award, and in 2008 $15,600 in director fees, $6,900 in 401(k) matching contribution and $16,100 401(k) profit sharing award.

401(k) Plan

The bank maintains a 401(k) Plan which has a combined tax qualified savings feature and profit sharing feature. The plan provides benefits to employees who have completed at least one year of service and are at least 21 years of age. The plan agreement provides that the bank will match employee deferrals to the plan up to 3% of their respective eligible compensations. Additionally, the bank may make a discretionary profit sharing contribution annually to the plan. Contributions made by the bank to the plan are allocated to participants in the same portions that each participant'sparticipant’s compensation bears to the aggregate compensation of all participants. Each participant in the plan is 100% vested at all times. Benefits are payable under the plan upon termination of employment, disability, death, or retirement.

Of the $554,980$584,700 total expenses during 2009, $65,2632010, $61,114 was credited among the individual accounts of the 4 most highly compensated executive officers of the bank. Of the $65,263,$61,114, Mr. Bazewicz was credited with $24,500,$21,006, Mr. Prosseda with $17,691,$16,954, Mr. Miller with $9,904, and Ms. RoslerWoodland with $8,793, and Mr. Gerlach with $14,279.$13,250. Mr. Bazewicz has been a member of the plan for 2425 years, Mr. Prosseda for 45 years, Ms. RoslerMr. Miller for 1825 years, and Mr. GerlachMs. Woodland for 23 years.

AGGREGATED OPTIONS, GRANTS OR EXERCISES IN 2009 YEAR END OPTION
VALUES
_______________________________________________________________

Aggregated Options, Grants or Exercises in 2010 Year-End Option Values

There were no grants or exercises of stock options by the named executive officer under the 1998 Stock Incentive Plan.

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2009