UNITED STATES

                  SECURITIES AND EXCHANGE COMMISSION

                       Washington,  D.C.  20549

                               FORM 10Q

Quarterly Report Pursuant to Section 13 OR 15(d) of the Securities
Exchange Act of 1934

For the quarterly period ended June 30, 1999

Commission File Number: 2-88927

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


           Pennsylvania                        23-2249083
(State or other jurisdiction of            (I.R.S. Employer
incorporation or organization)            identification No.)


111 West Front Street, Berwick, PA               18603
(Address of principal executive offices)      (Zip Code)


Registrant's telephone number, including area code:  (570) 752-3671

   Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.

                         Yes   X     No


   Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical date:

Common Stock, $2 Par Value, 2,873,932 shares as of June 30, 1999.


<PAGE>


                    PART I. - FINANCIAL INFORMATION

Item. 1  Financial Statements

<TABLE>

                      FIRST KEYSTONE CORPORATION
                            BALANCE SHEETS
                              (Unaudited)


<CAPTION>
(Amounts in thousands, except per share data)

                                                  June         December
                                                  1999           1998
<S>                                          <C>            <C>
ASSETS
Cash and due from banks                             $  8,289       $  7,033
Interest bearing deposits with banks                   2,929             22
Available-for-sale securities carried
  at estimated fair value                            127,526        116,701
Investment securities, held to
  maturity securities, estimated
  fair value of $12,481 and $14,015                   12,665         13,985
Loans, net of unearned income                        173,773       161,532,
Allowance for loan losses                             (2,502)        (2,421)
                                                    ________       ________
Net loans                                           $171,271       $159,111
Bank premises and equipment                            3,736          3,758
Interest receivable                                    2,226          2,133
Other assets                                           1,285            285
   Total Assets                                     $329,927       $303,028

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
   Non-interest bearing                             $ 20,090       $ 22,749
   Interest bearing                                  224,708        224,342
                                                    ________       ________
   Total deposits                                   $244,798       $247,091
Short-term borrowings                                 34,882          6,634
Long-term borrowings                                  17,000         13,000
Accrued expenses                                       1,647          1,521
Other liabilities                                        100          1,029
                                                    ________       ________
   Total Liabilities                                $298,427       $269,275

STOCKHOLDERS' EQUITY
Common stock, par value $2 per
  share; authorized 10,000,000
  shares, issued 2,933,727 shares                   $  5,867       $  5,867
Surplus                                                9,761          9,761
Retained earnings                                     18,668         17,123
Accumulated other comprehensive
  income (loss)                                         (835)         2,193
Treasury stock at cost 59,795
  shares in 1999 and 35,134 in 1998                   (1,961)        (1,191)
                                                    ________       ________

    Total Stockholders' Equity                      $ 31,500       $ 33,753
                                                    ________       ________
    Total Liabilities and
      Stockholders' Equity                          $329,927       $303,028


See Accompanying Notes to Financial Statements

</TABLE>


                                 1


<PAGE>


<TABLE>

                      FIRST KEYSTONE CORPORATION
                         STATEMENTS OF INCOME
           FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
                              (Unaudited)

<CAPTION>
(Amounts in thousands except per share data)

                                                  1999          1998
<S>                                            <C>            <C>
INTEREST INCOME
Interest and fees on loans                            $3,585         $3,372
Interest and dividend income on
  securities                                           2,079          1,777
Interest on deposits in banks                            101             34
                                                      ______         ______
   Total Interest Income                              $5,765         $5,183

INTEREST EXPENSE
Interest on deposits                                  $2,350         $2,242
Interest on short-term borrowings                        411             80
Interest on long-term borrowings                         233            209
                                                      ______         ______
   Total Interest Expense                             $2,994         $2,531

Net interest income                                   $2,771         $2,652
Provision for loan losses                                100             75
                                                      ______         ______
Net Interest Income After
  Provision for Loan Losses                           $2,671         $2,577

OTHER INCOME
Service charges on deposit accounts                   $  222         $  175
Other non-interest income                                184            124
Investment securities gains
   (losses) net                                           72             25
                                                      ______         ______
   Total Other Income                                 $  478         $  324

OTHER EXPENSES
Salaries and employee benefits                        $  817         $  679
Net occupancy and fixed asset expense                    236            223
Other non-interest expense                               464            406
                                                      ______         ______
   Total Other Expenses                               $1,517         $1,308

Income before income taxes                            $1,632         $1,593
Applicable income tax (benefit)                          332            345
                                                      ______         ______
Net Income                                            $1,300         $1,248

Net Income Per Weighted
   Shares Outstanding                                 $  .45         $  .43


See Accompanying Notes to Financial Statements

</TABLE>


                                 2


<PAGE>


<TABLE>

                      FIRST KEYSTONE CORPORATION
                         STATEMENTS OF INCOME
            FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
                              (Unaudited)

<CAPTION>
(Amounts in thousands except per share data)

                                                  1999          1998
<S>                                           <C>            <C>
INTEREST INCOME
Interest and fees on loans                           $ 7,022        $ 6,659
Interest and dividend income
  on securities                                        4,025          3,338
Interest on deposits in banks                            153            138
                                                     _______        _______
   Total Interest Income                             $11,200        $10,135

INTEREST EXPENSE
Interest on deposits                                 $ 4,726        $ 4,475
Interest on short-term borrowings                        594            138
Interest on long-term borrowings                         419            364
                                                     _______        _______
   Total Interest Expense                            $ 5,739        $ 4,977

Net interest income                                  $ 5,461        $ 5,158
Provision for loan losses                                175            125
                                                     _______        _______
Net Interest Income After
   Provision for Loan Losses                         $ 5,286        $ 5,033

OTHER INCOME
Service charges on deposit accounts                  $   418        $   334
Other non-interest income                                328            282
Investment securities gains
  (losses) net                                            96             60
                                                     _______        _______
   Total Other Income                                $   842        $   676

OTHER EXPENSES
Salaries and employee benefits                       $ 1,617        $ 1,400
Net occupancy and fixed asset expense                    483            451
Other non-interest expense                               908            808
                                                     _______        _______
   Total Other Expenses                              $ 3,008        $ 2,659

Income before income taxes                           $ 3,120        $ 3,050
Applicable income tax (benefit)                          597            661
                                                     _______        _______
Net Income                                           $ 2,523        $ 2,389

Net Income Per Weighted Share
   Outstanding                                       $   .87        $   .81


See Accompanying Notes to Financial Statements

</TABLE>


                                 3


<PAGE>


<TABLE>

                      FIRST KEYSTONE CORPORATION
                       STATEMENTS OF CASH FLOWS
            FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
                              (Unaudited)

<CAPTION>
(Amounts in thousands)
                                                  1999          1998
<S>                                          <C>            <C>
OPERATING ACTIVITIES
Net income                                          $  2,523       $  2,389
Adjustments to reconcile net income
  to net cash provided by
  operating activities:
  Provision or loan losses                               175            125
  Provision for depreciation and
    amortization                                         200            175
  Premium amortization on
    investment securities                                140            132
  Discount accretion on investment
    securities                                           (85)           (64)
  Gain on sale of mortgage loans                          (1)           (30)
  Proceeds from sale of mortgage loans                 2,627            931
  Originations of mortgage loans
    for resale                                        (4,121)        (3,679)
  (Gain) loss on sales of investment
    securities                                           (96)           (60)
  Deferred income tax (benefit)                            2              0
  (Increase) decrease in interest
    receivable and other assets                         (407)          (323)
  Increase (decrease) in interest
    payable, accrued expenses and
    other liabilities                                     70           (576)
                                                    ________       ________
  Net Cash Provided by Operating
    Activities                                      $  1,027       $   (980)

INVESTING ACTIVITIES
  Purchases of investment securities
    available for sale                              $(45,945)      $(30,828)
  Proceeds from sales of investment
    securities available for sale                     19,782          7,693
  Proceeds from maturities and
    redemptions of investment
    securities available for sale                     10,826          7,118
  Purchase of investment securities
    held to maturity                                       0           (677)
  Proceeds from maturities and
    redemption of investment
    securities held to maturity                        1,285          1,895
  Net (increase) decrease in loans                   (10,841)        (1,049)
  Purchase of premises and equipment                    (178)          (137)
                                                    ________       ________
  Net Cash Used by Investing
    Activities                                      $(25,071)      $(15,985)

FINANCING ACTIVITIES
  Net increase (decrease) in
    deposits                                        $ (2,293)      $  5,475
  Net increase (decrease) in
    short-term borrowings                             28,248          1,718
  Net increase (decrease)in
    long-term borrowings                               4,000          7,000
  Acquisition of treasury stock                         (770)           (90)
  Cash dividends                                        (978)          (821)
                                                    ________       ________
  Net Cash Provided by Financing
    Activities                                      $ 28,207       $ 13,282

Increase (Decrease) in Cash and
  Cash Equivalent                                   $  4,163       $ (3,683)
Cash and Cash Equivalents, Beginning                   7,055         13,484
                                                    ________       ________
Cash and Cash Equivalents, Ending                   $ 11,218       $  9,801

SUPPLEMENTAL DISCLOSURE OF CASH
  FLOW INFORMATION
  Cash paid during period for
    Interest                                        $  5,705       $  5,077
    Income Taxes                                         569            627


See Accompanying Notes to Financial Statements

</TABLE>


                                 4


<PAGE>


                      FIRST KEYSTONE CORPORATION
              CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                             June 30, 1999
                              (Unaudited)


Note 1.

     The accounting and reporting policies of First Keystone
Corporation and Subsidiary conform to generally accepted accounting
principles and to general practices within the banking industry.
These consolidated interim financial statements include the accounts
of First Keystone Corporation and its wholly owned subsidiary, The
First National Bank of Berwick.  All significant inter-company
balances have been eliminated.


Note 2.

     The accompanying consolidated interim financial statements are
unaudited.  In management's opinion, the consolidated interim
financial statements reflect a fair presentation of the consolidated
financial position of First Keystone Corporation and Subsidiary, and
the results of their operations and their cash flows for the interim
periods presented.  Further, the consolidated interim financial
statements reflect all adjustments, which are in the opinion of
management, necessary to present fairly the consolidated financial
condition and consolidated results of operations and cash flows for
the interim period presented and that all such adjustments to the
consolidated financial statements are of a normal recurring nature.


Note 3.

     The results of operations for the six-month period ended June 30,
1999, are not necessarily indicative of the results to be expected for
the full year.


Note 4.

     Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share, requires dual presentation of basic and diluted
earnings per share.  Basic earnings per share is calculated by
dividing net income by the weighted average number of shares of common
stock outstanding at the end of each period.  Diluted earnings per
share is calculated by increasing the denominator for the assumed
conversion of all potentially dilutive securities.  The Corporation's
dilutive securities are limited to stock options which currently have
no effect on earnings per share.


Note 5.

LOANS
     Loans are stated at their outstanding principal balances, net of
any deferred fees or costs, unearned income, and the allowance for
loan losses.  Interest on installment loans is recognized as income
over the term of each loan, generally, by the "actuarial method".
Interest on other loans is primarily recognized based upon the
principal amount outstanding.  Loan origination fees and certain
direct loan origination costs have been deferred and the net amount
amortized using the interest method over the contractual life of the
related loans as an interest yield adjustment.


                                 5


<PAGE>


     Non-Accrual Loans - Generally, a loan (including a loan impaired
under Statement of Financial Accounting Standards No. 114) is
classified as non-accrual, and the accrual of interest on such a loan
is discontinued when the contractual payment of principal or interest
has become 90 days past due or management has serious doubts about
further collectibility of principal or interest, even though the loan
currently is performing.  A loan may remain on accrual status if it is
in the process of collection and is either guaranteed or well secured.
When a loan is placed on non-accrual status, unpaid interest credited
to income in the current year is reversed and unpaid interest accrued
in prior years is charged against the allowance for credit losses.
Potential problem loans are identified by management as a part of its
loan review process.

     Income recognition is in accordance with Statement of Financial
Accounting Standards No. 118.  Certain non-accrual loans may continue
to perform, that is, payments are still being received.  Generally,
the payments are applied to principal.  These loans remain under
constant scrutiny and if performance continues, interest income may be
recorded on a cash basis based on management's judgement as to
collectibility of principal.

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

     The Corporation adheres to the principles provided by Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan as amended by Statement of Financial
Accounting Standards No. 118, "Accounting by creditors for Impairment
of a Loan - Income Recognition and Disclosure."  Under these
standards, the allowance for loan losses related to loans that are
identified for evaluation in accordance with Statement No. 114 is
based on discounted cash flows using the loan's initial effective
interest rate or the fair value of the collateral for certain
collateral dependent loans.  Statement No. 118 allows the continued
use of existing methods for income recognition on impaired loans and
amends disclosure requirements to require information about the
recorded investment in certain impaired loans and related income
recognition on those loans.  The allowance for loan losses is
maintained at a level by management to be adequate to absorb estimated
potential loan losses.  Management's periodic evaluation of the
adequacy of the allowance for loan losses is based on the
Corporation's past loan experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability
to repay (including the timing of future payments), the estimated
value of any underlying collateral, composition of the loan portfolio,
current economic conditions, and other relevant factors.  This
evaluation is inherently subjective as it requires material estimates,
including the amounts and timing of future cash flows expected to be
received on impaired loans that may be susceptible to significant
change.


<TABLE>
<CAPTION>
     The following table presents the changes in the allowance for
credit losses:

(Amounts in Thousands)

<S>                                                   <C>
Balance at January 1, 1999                              $2,421
Provisions charged to operations                           175
Loans charged off                                         (107)
Recoveries                                                  13
                                                        ______
Balance at June 30, 1999                                $2,502

</TABLE>


     At June 30, 1999, the recorded investment in loans that are
considered to be impaired under Statement No. 114 was $67,090.  No
additional charge to operations is required since the total allowance
for loan losses is estimated by management to be adequate to provide
for the loan loss allowance under Statement No. 114 as well as any
other potential loan losses.


                                 6


<PAGE>


Note 6.

<TABLE>
<CAPTION>
(Amounts in thousands, except common share data)





                                         Common          Common
                                         Shares         Stock        Surplus
<S>                                  <C>              <C>          <C>
Balance at January 1, 1999                2,933,727        $5,867       $9,761

Comprehensive Income:
 Net Income
 Other comprehensive
   income (loss) net of tax:
 Unrealized gain (loss) on
   investment securities of
   ($2,965) net of
   reclassification
   adjustment for gains
   included in net
   income of $63
 Total Comprehensive
   income (loss)
Cash dividends -
 $.34 per share
Purchase of 24,661 shares
 of Treasury Stock                        _________        ______       ______

Balance at June 30, 1999                  2,933,727        $5,867       $9,761




<CAPTION>
(Amounts in thousands, except common share data)

                                                               Accumulated
                                     Compre-                       Other
                                     hensive       Retained   Comprehensive
                                     Income         Earnings      Income
<S>                               <C>           <C>            <C>
Balance at January 1, 1999                           $17,123        $2,193

Comprehensive Income:
 Net Income                            $2,523          2,523
 Other comprehensive
   income (loss) net of tax:
 Unrealized gain (loss)
   on investment
   securities of ($2,965)
   net of reclassification
   adjustment for gains
   included in net
   income of $63                       (3,028)                      (3,028)
                                       ______
 Total Comprehensive
   income (loss)                       $ (505)
Cash dividends -
 $.34 per share                                         (978)
Purchase of 24,661 shares
 of Treasury Stock
                                                     _______        ______
Balance at June 30, 1999                             $18,668        $ (835)




<CAPTION>
(Amounts in thousands, except common share data)

                                                Treasury
                                                  Stock         Total
<S>                                           <C>           <C>
Balance at January 1, 1999                         (1,191)       $33,753

Comprehensive Income:
  Net Income                                                       2,523
  Other comprehensive
     income (loss) net of tax:
  Unrealized gain (loss)
     on investment
     securities of ($2,965)
     net of reclassification
     adjustment for gains
     included in net
     income of $63                                                (3,028)
  Total Comprehensive
     income (loss)
Cash dividends -
   $.34 per share                                                   (978)
Purchase of 24,661 shares
   of Treasury Stock                                 (770)          (770)
                                                   ______        _______
Balance at June 30, 1999                           (1,961)       $31,500


</TABLE>


Note 7.

     As required on January 1, 1996, the Corporation adopted Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of."  The Statement requires that
long-lived assets and certain identifiable intangibles are classified
into two categories for the purpose of accounting for an impairment of
assets:  those to be held and used and those to be disposed of.
Assets to be held and used must be reviewed whenever events or changes
in circumstances indicate that the carrying value may not be
recoverable.  An impairment loss is indicated if the sum of the
expected future cash flows, undiscounted and without interest charges,
is less than the carrying amount of the assets.  An impairment loss
must be recognized as the amount by which the carrying amount of the
asset exceeds the fair value of the asset so determined.
Implementation of this Statement did not have any effect on the
consolidated financial condition or results of operations of the
Corporation.


Note 8.

     The consolidated interim financial statements have been prepared
in accordance with requirements of Form 10-Q and therefore does not
include all the disclosures normally required by generally accepted
accounting principles, or those normally made in the Corporation's
annual 10-K filing.  The reader of these consolidated interim
financial statements may wish to refer to the Corporation's annual
report or Form 10-K for the period ended December 31, 1998, filed with
the Securities and Exchange Commission.


                                 7


<PAGE>


Item 2.  First Keystone Corporation Management's Discussion and
         Analysis of Financial Condition and
         Results of Operation as of June 30, 1999



RESULTS OF OPERATIONS

     First Keystone Corporation realized record earnings for the
second quarter of 1999 of $1,300,000, an increase of $52,000, or 4.2%
over the second quarter of 1998.  Six months net income for the period
ended June 30, 1999, amounted to $2,523,000, an increase of 5.6% over
the $2,389,000 net income reported June 30, 1998.  On a per share
basis, net income per share increased to $.87 for the six months of
1999 compared to $.81 for the first six months of 1998, while
dividends increased to $.34 per share up from $.28 in 1998, or an
increase of 21.4%.

     Year-to-date net income annualized amounts to a return on average
common equity of 14.96% and a return on assets of 1.57%.  For the six
months ended June 30, 1998, these measures were 14.67% and 1.74%,
respectively on an annualized basis.


NET INTEREST INCOME

     The major source of operating income for the Corporation is net
interest income, defined as interest income less interest expense.  In
the second quarter of 1999 and year-to-date in 1999, interest income
has increased more than interest expense resulting in improved net
interest income.  In the second quarter of 1999, interest income
amounted to $5,765,000, an increase of $582,000 or 11.2% over the
second quarter of 1998.  Interest expense amounted to $2,994,000 in
the second quarter of 1999, an increase of $463,000, or 18.3% over the
second quarter of 1998.  Accordingly, net interest income amounted to
$2,771,000 in the second quarter of 1999, an increase of $119,000, or
4.5% over the second quarter of 1998.  Year-to-date for the six months
ended June 30, 1999, total interest income increased $1,065,000, or
10.5% over the first six months of 1998.  Total interest expense
increased $762,000, or 15.3% for the first six months of 1999 over
1998.  This resulted in net interest income increasing $303,000, or
5.9% for the six months ended June 30, 1999, over 1998.

     Our net interest margin for the quarter ended June 30, 1999, was
3.86% compared to 4.46% for the quarter ended June 30, 1998.  For the
six months ended June 30, 1999, our net interest margin was 3.96%
compared to 4.33% for the first six months of 1998.


PROVISION FOR LOAN LOSSES

     The provision for loan losses for the quarter ended June 30,
1999, was $100,000 compared to $75,000 for the second quarter of 1998.
Year-to-date, the provision for loan losses amounts to $175,000 in
1999 as compared to the $125,000 provision for the period ended June
30, 1998.  The provision for possible loan losses increased in 1999 as
loan demand continued to be strong.  Our allowance for loan losses of
$2,502,000 as of June 30, 1999, compared favorably to our allowance
for loan losses of $2,421,000 as of December 31, 1998.  Net charge-offs
totaled $94,000 for the six months ended June 30, 1999, as
compared to $98,000 for the first six months of 1998.

     The allowance for loan losses as a percentage of loans, net of
unearned interest was 1.44% as of June 30, 1999, and 1.54% as of June
30, 1998.


                                 8


<PAGE>


NON-INTEREST INCOME

     Total non-interest or other income was $478,000 for the quarter
ended June 30, 1999, as compared to $324,000 for the quarter ended
June 30, 1998.  Excluding investment security gains and losses, non-interest
income was $406,000 for the second quarter of 1999, an increase of $107,000
over the second quarter of 1998.  For the six months ended June 30, 1999,
total non-interest income was $842,000, an increase of $166,000, or 24.6%
over the first six months of 1998.  An increase in service charges on
deposit accounts and an increase of other non-interest income, primarily
fees generated by our trust department, account for the increase in
non-interest income.


NON-INTEREST EXPENSES

     Total non-interest, or other expenses, was $1,517,000 for the
quarter ended June 30, 1999, as compared to $1,308,000 for the quarter
ended June 30, 1998.  The increase of $209,000 is comprised of salary
and benefits increasing $138,000, occupancy expense increasing
$13,000, and other non-interest expense increasing $58,000.

     For the six months ended June 30, 1999, total non-interest
expense was $3,008,000, an increase of $349,000, or 13.1% over the
first six months of 1998.  Expenses associated with employee (salaried
employee benefits) continues to be the largest category of non-interest
expenses.  Salaries and benefits amount to 53.8% of total
non-interest expense for the six months ended June 30, 1999, as
compared to 52.7% for the first six months of 1998.  Salaries and
benefits amounted to $1,617,000 for the six months ended June 30,
1999, an increase of $217,000, or 15.5% over the first six months of
1998.  The increase was a result of normal salary adjustments and
additional hires as we prepare for the opening of our ninth full
service office in the third quarter of 1999.  Net occupancy expense
amounted to $483,000 for the six-months ended June 30, 1999, an
increase of $32,000, or 7.1% over 1998, primarily as a result of our
branch office expansion.  Other non-interest expenses amounted to
$908,000 for the six months ended June 30, 1999, an increase of
$100,000, or 12.4% over the first six months of 1998.  Our overall
non-interest expense of less than 2% of average assets on an
annualized basis for 1999 and 1998, places us among the leaders of our
peer financial institutions at controlling total non-interest expense.


INCOME TAXES

     Effective tax planning has helped produce favorable net income.
The effective total income tax rate was 20.3% for the second quarter
of 1999 as compared to 21.7% for the second quarter of 1998.  For the
six months ended June 30, 1999, our tax liability amounted to $597,000
for an effective tax rate of 19.1% as compared to an effective tax
rate of 21.7% for the first six months of 1998.  The decrease in our
effective tax rate was due primarily to the additional purchase of
municipal (tax-free investments) securities at attractive interest
rates.


ANALYSIS OF FINANCIAL CONDITION

ASSETS

     Total assets increased to $329,927,000 as of June 30, 1999, an
increase of $26,899,000, or 8.9% over year-end 1998.  Total deposits
decreased to $244,798,000 as of June 30, 1999, a decrease of
$2,293,000, or 0.9% over year-end 1998.

     The Corporation used borrowed funds to support asset growth not
provided by deposit growth.  Short-term borrowings increased to
$34,882,000, an increase of $28,248,000 over December 31, 1998.  The
increase in short-term borrowings was the result of an increase in
securities sold under an agreement to repurchase for a cash management
account.  Long-term borrowings increased somewhat to $17,000,000 as of
June 30, 1999, an increase of $4,000,000 over year-end 1998.


                                 9


<PAGE>


EARNING ASSETS

     Our primary earning asset, loan, net of unearned income increased
to $173,773,000 as of June 30, 1999, up $12,241,000, or 7.6% since
year-end 1998.  The loan portfolio is well diversified and increases
in the portfolio have been primarily from increased originations of
real estate loans and commercial loans secured by real estate.

     In addition to loans, another primary earning asset is our
investment portfolio which increased in size from December 31, 1998,
to June 30, 1999.  Held-to-maturity securities amounted to $12,665,000
as of June 30, 1999, a decrease of $1,320,000, or 9.4% since year-end
1998.  However, available-for-sale securities increased to
$127,526,000 as of June 30, 1999, an increase of $10,825,000, or 9.3%
from year-end 1998.  Interest bearing deposits with banks amounted to
$2,929,000 as of June 30, 1999, up from $22,000 as of December 31,
1998.


ALLOWANCE FOR LOAN LOSSES

     Management performs a quarterly analysis to determine the
adequacy of the allowance for loan losses.  The methodology in
determining adequacy incorporates specific and general allocations
together with a risk/loss analysis on various segments of the
portfolio according to an internal loan review process.  Management
maintains its loan review and loan classification standards consistent
with those of its regulatory supervisory authority.  Management feels,
considering the conservative portfolio composition, which is largely
composed of small retail loans (mortgages and installments) with
minimal classified assets, low delinquencies, and favorable loss
history, that the allowance for loan loss is adequate to cover
foreseeable future losses.

     Any loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that have not been disclosed under
Industry Guide 3 do not (i) represent or result from trends or
uncertainties which management reasonably expects will materially
impact future operating results, liquidity, or capital resources, or
(ii) represent material credits about which management is aware of any
information which causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms.

     The company was required to adopt Financial Accounting Standards
Board Statement No. 114, "Accounting by Creditors for Impairment of a
Loan" - Refer to Note 5 above for details.


NON-PERFORMING ASSETS

     Non-performing assets consist of non-accrual and restructured
loans, other real estate and foreclosed assets, together with the
loans past-due 90 days or more and still accruing.  As of June 30,
1999, total non-performing assets were $806,000 as compared to
$881,000 on December 31, 1998.  Non-performing assets to total loans
and foreclosed assets was .46% as of June 30, 1999, and .55% as of
December 31, 1998.

     Interest income received on non-performing loans as of June 30,
1999, was $0 compared to $5,610 as of December 31, 1998.  Interest
income, which would have been recorded on these loans under the
original terms as of June 30, 1999, and December 31, 1998, was $39,929
and $96,245, respectively.  As of June 30, 1999 and December 31, 1998,
there was no outstanding commitments to advance additional funds with
respect to these non-performing loans.


DEPOSITS AND OTHER BORROWED FUNDS

     As indicated previously, deposits decreased by $2,293,000 as
total deposits declined to $244,798,000 as of June 30, 1999, down from
$247,091,000 as of year-end 1998.  During 1999, the Corporation
experienced a deposit decline in non-interest bearing deposits.


                                 10


<PAGE>


CAPITAL STRENGTH

     Normal increases in capital are generated by net income, less
cash dividends paid out.  Also, net unrealized gains on investment
securities available-for-sale decreased shareholders' equity, or
capital by $835,000 as of June 30, 1999, and increased capital by
$2,193,000 as of December 31, 1998.  Our stock repurchase plan had
repurchased 59,795 shares and 35,134 shares as of June 30, 1999 and
December 31, 1998, respectively.  This had an effect of our reducing
our total stockholders' equity by $1,961,000 and $1,191,000 as of June
30, 1999 and December 31, 1998, respectively.

     Leverage ratio and risk based capital ratios remain very strong.
As of June 30, 1999, our leverage ratio was 9.71% compared to 10.50%
as of December 31, 1998.  In addition, Tier I risk based capital and
total risk based capital ratio as of June 30, 1999, were 17.37% and
18.84%, respectively.  The same ratios as of December 31, 1998, were
18.62% and 20.11%, respectively.


LIQUIDITY

     The liquidity position of the Corporation remains adequate to
meet customer loan demand and deposit fluctuation.  Managing liquidity
remains an important segment of asset liability management.  Our
overall liquidity position is maintained by an active asset liability
management committee.

     Management feels its current liquidity position is satisfactorily
given a very stable core deposit base which has increased annually.
Secondly, our loan payments and principal paydowns on our mortgage
backed securities provide and steady source of funds.  Also, short-term
investments and maturing investment securities represent
additional sources of liquidity.  Finally, short-term borrowings are
readily accessible at the Federal Reserve Bank discount window,
Atlantic Central Bankers Bank, or the Federal Home Loan Bank.


YEAR 2000 COMPLIANCE

     Management has completed its assessment of all business processes
that could be affected by the Year 2000 issue.  Each business process
assessment included a review of the information systems used in that
process, including related hardware and software, the involvement of
any third parties, and any affected operating equipment.  The mission
critical systems determined to be critical for supporting the core
services offered by First Keystone Corporation have been remediated,
unit tested, and returned to production. Management has completed the
remediation and testing of all affected systems within the critical
business processes by the end of the second quarter of 1999.

     The Corporation anticipates that its total Year 2000 project cost
will not exceed $100,000. This estimated project cost is based upon
currently available information and includes expenses paid to date.
The expenses for maintenance or modification of software associated
with the Year 2000 will be expensed as incurred. The costs of new
software will be capitalized and amortized over the software's useful
life. The aforementioned Year 2000 project cost estimate also may
change as the Corporation progresses in its Year 2000 program and
obtains additional information associated with and conducts further
testing concerning third parties. At this time, no significant
projects have been delayed as a result of the Corporation's Year 2000
effort.


                                 11


<PAGE>


     Management believes it has an effective plan in place to resolve
the Year 2000 issue in a timely manner and, thus far, activities have
tracked in accordance with the original plan. Management is in the
process of modifying its existing business continuity plans and is
also developing contingency plans to address potential risks in the
event of Year 2000 failures, including non-compliance by third
parties. Despite First Keystone Corporation's efforts to date to
remediate affected systems and develop contingency plans for potential
risks, management has not yet completed all activities associated with
resolving its Year 2000 issues. In addition, non-compliance by third
parties (including loan customers) and disruptions to the economy in
general resulting from Year 2000 issues could also have a negative
impact of undeterminable magnitude on First Keystone Corporation.


                                 12


<PAGE>


                      PART II - OTHER INFORMATION

     Item 1.     Legal Proceedings

                 None.


     Item 2.     Changes in Securities

                 None.


     Item 3.     Defaults Upon Senior Securities

                 None.


     Item 4.     Submission of Matters to a Vote of Security Holders

                 Annual Meeting of Shareholders of First Keystone
                 Corporation held on Tuesday, April 20, 1999, at
                 10:00 a.m.


<TABLE>
<CAPTION>
                                                     Votes      Votes
Directors Elected                  Votes For        Against      Withheld

<S>                            <C>              <C>             <C>
John L. Coates                 2,378,426        34,118          0
Dudley P. Cooley               2,385,107        27,437          0
Stanley E. Oberrender          2,385,207        27,337          0


<CAPTION>

Directors Elected              Abstentions      Non-Votes

<S>                            <C>              <C>
John L. Coates                 0                0
Dudley P. Cooley               0                0
Stanley E. Oberrender          0                0

</TABLE>


Directors Continuing:

John E. Arndt, term expires in 2001
J. Gerald Bazewicz, term expires in 2001
Budd L. Beyer, term expires in 2000
Robert E. Bull, term expires in 2001
Frederick E. Crispin, term expires in 2000
Jerome F. Fabian, term expires in 2000
Robert E. Wise, term expires in 2000

Matters Voted Upon:

Selection of J. H. Williams & Co., as auditors for the Corporation.
Votes For        -  2,387,481
Votes Against    -  798
Votes Withheld   -  0
Abstentions      -  24,265
Broker Non-Votes -  0

     Item 5.     Other Information

                 None


                                 13

<PAGE>


     Item 6.     Exhibits and Reports on Form 8-K

                 (a)  Exhibits required by Item 601 Regulation S-K


Exhibit Number                  Description of Exhibit

    3(i)               Articles of Incorporation, as amended
                       (Incorporated by reference to Exhibit 3(i) to
                       Registrant's Annual Report of Form 10-KSB for
                       the year ended December 31, 1996, and
                       Registrant's Form 10Q for the quarter ended
                       June 30, 1999).

    3(ii)              Bylaws, as amended (Incorporated by reference
                       to Exhibit 3(ii) to Registrant's Annual Report
                       on Form 10-KSB for the year ended
                       December 31, 1996).

    10                 Material Contracts

    11                 Statement RE:  Computation of Earnings Per
                       Share.

    27                        Financial Data Schedule.


                 (b)  The Registrant has filed no reports on Form 8-K
for this quarter.


                                 14


<PAGE>


                      FIRST KEYSTONE CORPORATION

                              SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly cause this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                              FIRST KEYSTONE CORPORATION
                              Registrant


August 12, 1999               /s/ J. Gerald Bazewicz
                              J. Gerald Bazewicz
                              President and
                              Chief Executive Officer
                              (Principal Executive Officer)



August 12, 1999               /s/ David R. Saracino
                              David R. Saracino
                              Treasurer/Assistant Secretary
                              (Principal Accounting Officer)


                                 15


<PAGE>


                           INDEX TO EXHIBITS

Exhibit             Description

  10                Material Contracts
                        Profit Sharing Plan Summary (Incorporated
                        by reference to Exhibit 10 (Page 16) to
                        Registrant's Form 10Q for the quarter
                        ended June 30, 1998)
                        Deferred Compensation (Incorporated
                        by reference to Exhibit 10 (Page 17) to
                        Registrant's Form 10Q for the quarter
                        ended June 30, 1998)
                            Other Executive Benefits
                            (Incorporated by reference to
                            Exhibit 99 (Page 9) of the Corporation's
                            Annual Report on Form 10-KSB
                            for the year ended December 31, 1996)
                        Management Incentive Compensation
                        Plan (Incorporated b reference to Exhibit 10
                        (Page 18) to Registrant's Form 10Q for
                        the quarter ended June 30, 1998)

  11                Compensation of Earning Per Share

  27                Financial Data Schedule


                                 16


<PAGE>