FIRST KEYSTONE : MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

 The purpose of Management's Discussion and Analysis of , a bank holding company (the "Corporation"), and its wholly owned subsidiary,  (the "Bank"), is to assist the reader in reviewing the financial information presented and should be read in conjunction with the consolidated financial statements and other financial data contained herein. Refer to Forward-Looking Statements on page 1 for detailed information.                                         24    Table of Contents  RESULTS OF OPERATIONS 

Year Ended Versus Year Ended

  Net income increased to  for the year ended , as compared to  for the prior year, an increase of 15.7%. Earnings per share, both basic and diluted, for 2020 was  as compared to  in 2019, an increase of 14.7%. Dividends per share for 2020 and 2019 were . The Corporation's return on average assets was 1.09% in 2020 and 1.02% in 2019. Return on average equity increased to 8.61% in 2020 from 8.17% in 2019. Total interest income in 2020 amounted to , an increase of  or 2.7% from 2019. The increase in interest income reflects  in servicing fees earned from the SBA related to the origination of PPP loans throughout 2020. Total interest expense of  decreased  or 37.9% from 2019. The majority of this decrease related to a decrease in interest paid on deposits and short-term borrowings in 2020.  Net interest income, as indicated below in Table 1, increased by  or 17.4% to  for the year ended . The Corporation's net interest income on a fully tax equivalent basis increased by , or 15.8% to  in 2020 as compared to  in 2019.  

Table 1 – Reconciliation of Taxable Equivalent Net Interest Income

 (Dollars in thousands)                                                                    2020/2019                                                           Increase/(Decrease)                                                 2020       Amount        %         2019 Interest Income                                      2.7     Interest Expense                                 6,360      (3,883)    (37.9)      10,243 Net Interest Income                             33,207        4,923      17.4      28,284 Tax Equivalent Adjustment                        1,659        (162)    

(8.9) 1,821
Net Interest Income (fully tax equivalent) 15.8

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Table 2 – Average Balances, Rates and Interest Income and Expense

 (Dollars in thousands)                                                       2020                                2019                                         Average                 Yield/      Average                 Yield/                                         Balance     Interest     Rate       Balance     Interest     Rate Interest Earning Assets: Loans: Commercial, net1,2,4                       3.18 %       4.09 % Real Estate1,2                            581,404      26,590     4.57 %      525,169      24,727     4.71 % Consumer, net1,4                            5,310         440     8.30 %        5,723         497     8.68 % Fees on Loans                                   -       1,554        - %            -         782        - % Total Loans5                              684,132      31,680     4.63 %      621,598      29,713     4.78 %  Securities: Taxable                                   205,236       4,792     2.33 %      192,044       5,338     2.78 % Tax-Exempt1,3                             103,696       4,528     4.37 %      108,464       4,763     4.39 %

Total Investment Securities               308,932       9,320     3.02 %      300,508      10,101     3.36...