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 March 31, 2008

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 by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of "large accelerated filer,"
"accelerated filer," and "small reporting company" in Rule 12b-2 of
the Exchange Act.

Large accelerated filer [  ]       Accelerated filer  [X]
Non-accelerated filer   [  ]


Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act).

                         Yes [  ]      No [X]


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, 5,440,076 shares at May 7, 2008.


<PAGE>


                   PART I. - FINANCIAL INFORMATION

Item. 1  Financial Statements

<TABLE>

                 FIRST KEYSTONE CORPORATION AND SUBSIDIARY
                        CONSOLIDATED BALANCE SHEETS

<CAPTION>

(Amounts in thousands)
                                                    March          December
                                                     2008           2007
                                                 (Unaudited)

                                           <c>              <c>
ASSETS
Cash and due from banks                            $ 15,499         $  9,886
Interest-bearing deposits in other
   banks                                              4,809               89
Investment securities available-for-
   sale carried at estimated fair
   value                                            223,406          241,521
Investment securities, held-to-
   maturity securities, estimated
   fair value of $4,559 and $4,553                    4,535            4,538
Loans, net of unearned income                       384,474          376,603
Allowance for loan losses                            (5,142)          (5,046)
                                                   ________         ________
   Net loans                                       $379,332         $371,557
Premises and equipment - Net                          8,420            8,486
Accrued interest receivable                           3,220            3,241
Cash surrender value of bank owned
   life insurance                                    16,619           16,450
Goodwill                                             19,133           18,981
Other assets                                          6,663            6,458
                                                   ________         ________
   TOTAL ASSETS                                    $681,636         $681,207
                                                   ========         ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
   Non-interest bearing                            $ 58,124         $ 58,844
   Interest bearing                                 458,538          434,197
                                                   ________         ________
      TOTAL DEPOSITS                               $516,662         $493,041

Short-term borrowings                                14,199           47,349
Long-term borrowings                                 73,159           66,175
Accrued interest and other
   expenses                                           3,328            3,454
Other liabilities                                     2,046              264
                                                   ________         ________
   TOTAL LIABILITIES                               $609,394         $610,283
                                                   ________         ________
STOCKHOLDERS' EQUITY
Common stock, par value $2 per
   share                                           $ 11,375         $ 11,375
Surplus                                              30,261           30,252
Retained earnings                                    36,230           35,705
Accumulated other comprehensive
   income (loss)                                        618             (166)
Less treasury stock at cost 247,691
   shares in 2008 and 247,691
   shares in 2007                                    (6,242)          (6,242)
                                                   ________         ________
   TOTAL STOCKHOLDERS' EQUITY                      $ 72,242         $ 70,924
                                                   ________         ________
   TOTAL LIABILITIES AND
      STOCKHOLDERS' EQUITY                         $681,636         $681,207
                                                   ========         ========


See Accompanying Notes to Consolidated Financial Statements

</TABLE>

                                1

<PAGE>


<TABLE>

                 FIRST KEYSTONE CORPORATION AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF INCOME
            FOR THE THREE MONTHS ENDED March 31, 2008 AND 2007
                                (Unaudited)

<CAPTION>

(Amounts in thousands except per share data)

                                                  2008            2007

                                            <c>             <c>
INTEREST INCOME
Interest and fees on loans                           $6,370          $4,305
Interest and dividend income
   on securities                                      2,952           3,094
Deposits in banks                                        15               8
Interest on federal funds sold                           14               0
                                                     ______          ______
   TOTAL INTEREST INCOME                             $9,351          $7,407
                                                     ______          ______
INTEREST EXPENSE
Deposits                                             $3,789          $3,164
Short-term borrowings                                   216             231
Long-term borrowings                                    848             691
                                                     ______          ______
   TOTAL INTEREST EXPENSE                            $4,853          $4,086
                                                     ______          ______
   Net interest income                               $4,498          $3,321
Provision for loan losses                                50              50
                                                     ______          ______
   NET INTEREST INCOME AFTER
      PROVISION FOR LOAN LOSSES                      $4,448          $3,271
                                                     ______          ______
NON-INTEREST INCOME
Trust department                                     $  152          $  140
Service charges and fees                                578             470
Bank owned life insurance income                        169             124
Gain on sale of loans                                    42              34
Investment securities gains
   (losses) - net                                       104             126
Other                                                    60              59
                                                     ______          ______
   TOTAL NON-INTEREST INCOME                         $1,105          $  953
                                                     ______          ______
NON-INTEREST EXPENSE
Salaries and employee benefits                       $1,876          $1,357
Occupancy, net                                          265             178
Furniture and equipment                                 212             180
Professional services                                   111              99
State shares tax                                        170             135
Other                                                   816             542
                                                     ______          ______
   TOTAL NON-INTEREST EXPENSES                       $3,450          $2,491
                                                     ______          ______
Income before income taxes                           $2,103          $1,733
Income tax expense                                      381             299
                                                     ______          ______
Net Income                                           $1,722          $1,434
                                                     ======          ======
PER SHARE DATA
   Net Income Per Share:
      Basic                                          $  .32          $  .32
      Diluted                                           .32             .32
      Cash dividends per share                          .22             .22


See Accompanying Notes to Consolidated Financial Statements

</TABLE>

                                  2

<PAGE>


<TABLE>

                 FIRST KEYSTONE CORPORATION AND SUBSIDIARY
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
            FOR THE THREE MONTHS ENDED March 31, 2008 AND 2007
                                (Unaudited)

<CAPTION>

(Amounts in thousands)
                                                 2008              2007

                                          <c>              <c>
OPERATING ACTIVITIES
Net income                                        $  1,722         $  1,434
Adjustments to reconcile net
   income to net cash provided by
   operating activities:
   Provision for loan losses                            50               50
   Provision for depreciation and
      amortization                                     585              129
   Stock option expense                                  9                0
   Premium amortization on investment
      securities                                        29               33
   Discount accretion on investment
      securities                                      (152)            (141)
   Gain on sale of mortgage loans                      (42)             (37)
   Proceeds from sale of mortgage
      loans                                          1,567            3,349
   Originations of mortgage loans
      for resale                                    (2,272)          (1,014)
   Gain on sales of investment
      securities                                       (72)            (126)
   Deferred income tax (benefit)                       (30)             (44)
   Increase in interest receivable
      and other assets                                (607)            (677)
   Increase in cash surrender bank
      owned life insurance                            (169)            (124)
   Increase (decrease) in interest
      payable, accrued expenses and
      other liabilities                                (26)             309
   Loss on sale of premises and
      equipment                                          0                3
                                                  ________         ________
   NET CASH PROVIDED BY OPERATING
      ACTIVITIES                                  $    592         $  3,144
                                                  ________         ________
INVESTING ACTIVITIES
   Purchases of investment
      securities available-for-sale                (22,911)        $(33,242)
   Purchases of investment securities
      held-to-maturity                                   0                0
   Proceeds from sales of investment
      securities available-for-sale                 23,497           28,847
   Proceeds from maturities and
      redemptions of investment
      securities available for sale                 20,555            5,157
   Proceeds from maturities and
      redemption of investment
      securities held-to-maturity                        0            2,003
   Net increase in loans                            (7,116)          (3,034)
   Purchase of premises and
      equipment                                       (523)            (229)
   Proceeds from sale of premises
      and equipment                                      0                2
                                                  ________         ________
   NET CASH PROVIDED BY (USED IN)
      BY INVESTING ACTIVITIES                     $ 13,502         $   (496)
                                                  ________         ________
FINANCING ACTIVITIES
   Net increase in deposits                       $ 23,594         $  8,626
   Net decrease in short-term
      borrowings                                   (33,150)         (11,935)
   Proceeds from long-term
      borrowings                                    10,000                0
   Repayment of long-term
      borrowings                                    (3,008)               0
   Acquisition of treasury stock                         0             (144)
   Cash dividends                                   (1,197)            (996)
                                                  ________         ________
   NET CASH (USED IN) FINANCING
      ACTIVITIES                                  $ (3,761)        $ (4,449)
                                                  ________         ________
INCREASE (DECREASE) IN CASH
   AND CASH EQUIVALENTS                           $ 10,333         $ (1,801)
CASH AND CASH EQUIVALENTS,
   BEGINNING                                         9,975           10,188
                                                  ________         ________
CASH AND CASH EQUIVALENTS, ENDING                 $ 20,308         $  8,387
                                                  ========         ========
SUPPLEMENTAL DISCLOSURE OF
   CASH FLOW INFORMATION
   Cash paid during period for
      Interest                                    $  4,916         $  3,791
      Income Taxes                                      83               53


See Accompanying Notes to Consolidated Financial Statements

</TABLE>

                                  3

<PAGE>


              FIRST KEYSTONE CORPORATION AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            March 31, 2008
                             (Unaudited)

NOTE 1  -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The accounting policies of First Keystone Corporation and
Subsidiary (the "Corporation") are in accordance with accounting
principles generally accepted in the United States of America and
conform to common practices within the banking industry. The more
significant policies follow:

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of
First Keystone Corporation and its wholly owned Subsidiary, First
Keystone National Bank (the "Bank"). All significant inter company
balances and transactions have been eliminated in consolidation.

NATURE OF OPERATIONS

     The Corporation, headquartered in Berwick, Pennsylvania,
provides a full range of banking, trust and related services through
its wholly owned Bank subsidiary and is subject to competition from
other financial institutions in connection with these services. The
Bank serves a customer base which includes individuals, businesses,
public and institutional customers primarily located in the
Northeast Region of Pennsylvania. The Bank has 14 full service
offices and 16 ATMs located in Columbia, Luzerne, Montour and Monroe
Counties. The Corporation and its subsidiary must also adhere to
certain federal banking laws and regulations and are subject to
periodic examinations made by various federal agencies.

SEGMENT REPORTING

     The Corporation's banking subsidiary acts as an independent
community financial services provider, and offers traditional
banking and related financial services to individual, business and
government customers. Through its branch and automated teller
machine network, the Bank offers a full array of commercial and
retail financial services, including the taking of time, savings and
demand deposits; the making of commercial, consumer and mortgage
loans; and the providing of other financial services. The Bank also
performs personal, corporate, pension and fiduciary services through
its Trust Department.

     Management does not separately allocate expenses, including the
cost of funding loan demand, between the commercial, retail, trust
and mortgage banking operations of the Corporation. Currently,
management measures the performance and allocates the resources of
First Keystone Corporation as a single segment.

USE OF ESTIMATES

     The preparation of these consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America, requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of these consolidated financial statements and the reported
amounts of income and expenses during the reporting periods. Actual
results could differ from those estimates.

INVESTMENT SECURITIES

     The Corporation classifies its investment securities as either
"Held to Maturity" or "Available for Sale" at the time of purchase.
Debt securities are classified as Held to Maturity when the
Corporation has the ability and positive intent to hold the
securities to maturity. Investment securities Held to Maturity are
carried at cost adjusted for amortization of premium and accretion
of discount to maturity.



                               4


<PAGE>


     Debt securities not classified as Held to Maturity and equity
securities are included in the Available for Sale category and are
carried at fair value. The amount of any unrealized gain or loss,
net of the effect of deferred income taxes, is reported as other
comprehensive income (loss) in the Consolidated Statement of Changes
in Stockholders' Equity. Management's decision to sell Available for
Sale securities is based on changes in economic conditions
controlling the sources and applications of funds, terms,
availability of and yield of alternative investments, interest rate
risk and the need for liquidity.

     The cost of debt securities classified as Held to Maturity or
Available for Sale is adjusted for amortization of premiums and
accretion of discounts to expected maturity. Such amortization and
accretion, as well as interest and dividends is included in interest
income from investments. Realized gains and losses are included in
net investment securities gains and losses.

     The cost of investment securities sold, redeemed or matured is
based on the specific identification method.

LOANS

     Loans are stated at their outstanding unpaid principal
balances, net of 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 all other loans is primarily
recognized based upon the principal amount outstanding on an actual
day basis. Loan origination fees and certain direct loan origination
costs have been deferred with the net amount amortized using the
interest method over the contractual life of the related loans as an
interest yield adjustment.

     Mortgage loans held for resale are carried at the lower of cost
or market on an aggregate basis. These loans are sold without
recourse to the Corporation.

Past-Due Loans - Generally, a loan is considered to be past due when
scheduled loan payments are in arrears 15 days or more. Delinquent
notices are generated automatically when a loan is 15 days past due,
depending on the type of loan. Collection efforts continue on loans
past due beyond 60 days that have not been satisfied, when it is
believed that some chance exists for improvement in the status of
the loan. Past due loans are continually evaluated with the
determination for charge off being made when no reasonable chance
remains that the status of the loan can be improved.

Non-Accrual Loans - Generally, a loan 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 loan losses. 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.

     A principal factor in estimating the allowance for loan losses
is the measurement of impaired loans. A loan is considered impaired
when, based on current information and events, it is probable that
the Corporation will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Under current
accounting standards, the allowance for loan losses related to
impaired loans is based on discounted cash flows using the effective
interest rate of the loan or the fair value of the collateral for
certain collateral dependent loans.



                               5


<PAGE>


     The allowance for loan losses is maintained at a level
estimated by management to be adequate to absorb potential loan
losses. Management's periodic evaluation of the adequacy of the
allowance for loan losses is based on the Corporation's past loan
loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay
(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.

DERIVATIVES

     The Bank has outstanding loan commitments that relate to the
origination of mortgage loans that will be held for resale.
Pursuant to Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities"
as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" and the guidance
contained within the Derivatives Implementation Group Statement 133
Implementation Issue No. C 13, the Bank has accounted for such loan
commitments as derivative instruments.  The outstanding loan
commitments in this category did not give rise to any losses for the
years ended December 31, 2007 and 2006, as the fair market value of
each outstanding loan commitment exceeded the Bank's cost basis in
each outstanding loan commitment.

PREMISES AND EQUIPMENT

     Premises, improvements and equipment are stated at cost less
accumulated depreciation computed principally on the straight line
method over the estimated useful lives of the assets. Long lived
assets are reviewed for impairment whenever events or changes in
business circumstances indicate that the carrying value may not be
recovered.  Maintenance and minor repairs are charged to operations
as incurred. The cost and accumulated depreciation of the premises
and equipment retired or sold are eliminated from the property
accounts at the time of retirement or sale, and the resulting gain
or loss is reflected in current operations.

MORTGAGE SERVICING RIGHTS

     The Corporation originates and sells real estate loans to
investors in the secondary mortgage market. After the sale, the
Corporation may retain the right to service these loans. When
originated mortgage loans are sold and servicing is retained, a
servicing asset is capitalized based on relative fair value at the
date of sale. Servicing assets are amortized as an offset to other
fees in proportion to, and over the period of, estimated net
servicing income. The unamortized cost is included in other assets
in the accompanying consolidated balance sheet. The servicing rights
are periodically evaluated for impairment based on their relative
fair value.

FORECLOSED REAL ESTATE

     Real estate properties acquired through, or in lieu of, loan
foreclosure are held for sale and are initially recorded at fair
value on the date of foreclosure establishing a new cost basis.
After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of carrying
amount or fair value less cost to sell and is included in other
assets. Revenues derived from and costs to maintain the assets and
subsequent gains and losses on sales are included in other non
interest income and expense.  The total of foreclosed real estate
properties included in other assets amounted to $146,000 and $65,000
at March 31, 2008 and December 31, 2007, respectively.

BANK OWNED LIFE INSURANCE

     The Corporation invests in Bank Owned Life Insurance (BOLI)
with split dollar life provisions.  Purchase of BOLI provides life
insurance coverage on certain employees with the Corporation being
owner and beneficiary of the policies.



                               6


<PAGE>


INVESTMENTS IN REAL ESTATE VENTURES

     The Bank is a limited partner in  real estate ventures that own
and operate affordable residential low income housing apartment
buildings for elderly residents. The investments are accounted for
under the effective yield method under the Emerging Issues Task
Force (EITF) 94-1, "Accounting for Tax Benefits Resulting from
Investments in Affordable Housing Projects". Under the effective
yield method, the Bank recognizes tax credits as they are allocated
and amortizes the initial cost of the investment to provide a
constant effective yield over the period that the tax credits are
allocated to the Bank.  Under this method, the tax credits
allocated, net of any amortization of the investment in the limited
partnerships, are recognized in the consolidated statements of
income as a component of income tax expense.  The amount of tax
credits allocated to the Bank were $151,000 in 2007 and $128,000 in
2006 and 2005, and the amortization of the investments in the
limited partnerships were $37,000, $26,000 and $25,000 for the three
months ended March 31, 2008, 2007 and 2006, respectively.  The
carrying value of the investments as of March 31, 2008 and December
31, 2007 was $956,000 and $975,000, respectively, and is included in
other assets in the accompanying consolidated balance sheets.

INCOME TAXES

     The provision for income taxes is based on the results of
operations, adjusted primarily for tax exempt income. Certain items
of income and expense are reported in different periods for
financial reporting and tax return purposes. Deferred tax assets and
liabilities are determined based on the differences between the
consolidated financial statement and income tax bases of assets and
liabilities measured by using the enacted tax rates and laws
expected to be in effect when the timing differences are expected to
reverse. Deferred tax expense or benefit is based on the difference
between deferred tax asset or liability from period to period.

GOODWILL, OTHER INTANGIBLE ASSETS, AND PREMIUM DISCOUNT

     Goodwill resulted from the acquisition of the Pocono Community
Bank in November 2007 and of certain fixed and operating assets
acquired and deposit liabilities assumed of the branch of another
financial institution in Danville, Pennsylvania, in January 2004.
Such goodwill represents the excess cost of the acquired assets
relative to the assets fair value at the dates of acquisition.  The
Corporation accounts for goodwill pursuant to the Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and
Intangible Assets".  During the first quarter of 2008, $152,000 of
liabilities were recorded related to the Pocono acquisition as a
purchase accounting adjustment, resulting in an increase in excess
purchase price.  The amount was comprised of the finalization of
severance agreements and contract terminations related to the
acquisition.  SFAS No. 142 includes requirements to test goodwill
for impairments rather than to amortize goodwill.  The Corporation
has tested the goodwill included in its consolidated balance sheet
at December 31, 2007, and has determined there was no impairment as
of that date.

     Intangible assets are comprised of core deposit intangibles and
premium discount (negative premium) on certificates of deposit
acquired.  The core deposit intangible is being amortized over the
average life of the deposits acquired as determined by an
independent third party.  Premium discount (negative premium) on
acquired certificates of deposit resulted from the valuation of
certificate of deposit accounts by an independent third party.  The
book value of certificates of deposit acquired was greater than
their fair value at the date of acquisition which resulted in a
negative premium due to higher cost of the certificates of deposit
compared to the cost of similar term financing.

STOCK BASED COMPENSATION

     The Corporation sponsors a stock option plan (see Note 20).
Prior to January 1, 2006 the Corporation had accounted for this Plan
under the fair value recognition and measurement provisions of
Statement of Financial Accounting Standards (SFAS) 123, "Accounting
for Stock Based Compensation".  Effective January 1, 2006 the
Corporation adopted SFAS 123 (revised 2004), "Share Based Payment",
using the modified prospective application method.  Based on the
terms of the Plan, the Corporation did not have a cumulative effect
related to the Plan.  Since the fair value recognition provisions of
SFAS 123 and SFAS 123R are essentially the same as they relate to
the Corporation's Plan, the adoption of SFAS 123R did not and will
not have a material impact on the Corporation's consolidated
financial condition, results of operations or liquidity.  The fair
values of the stock awards are determined using the estimated
expected life.  The Corporation recognized stock based compensation
expense on the straight line basis over the period the stock award
is earned by the employee.



                               7


<PAGE>


PER SHARE DATA

     Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share", requires dual presentation of basic and fully
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.

CASH FLOW INFORMATION

     For purposes of reporting consolidated cash flows, cash and
cash equivalents include cash on hand and due from other banks and
interest bearing deposits in other banks. The Corporation considers
cash classified as interest bearing deposits with other banks as a
cash equivalent since they are represented by cash accounts
essentially on a demand basis.

TRUST ASSETS AND INCOME

     Property held by the Corporation in a fiduciary or agency
capacity for its customers is not included in the accompanying
consolidated financial statements since such items are not assets of
the Corporation. Trust Department income is generally  recognized on
a cash basis and is not materially different than if it were
reported on an accrual basis.

RECENT ACCOUNTING PRONOUNCEMENTS

     In December 2007, the Financial Accounting Standards Board
(FASB) issued State of Financial Accounting Standards SFAS 141,
"Business Combinations". SFAS 141 will significantly change how
entities apply the acquisition method to business combinations. The
most significant changes affecting how the Corporation will account
for business combinations under this Statement include: the
acquisition date will be the date the acquirer obtains control; all
(and only) identifiable assets acquired, liabilities assumed, and
noncontrolling interests in the acquiree will be stated at fair
value on the acquisition date; assets or liabilities arising from
noncontractual contingencies will be measured at their acquisition
date fair value only if it is more likely than not that they meet
the definition of an asset or liability on the acquisition date;
adjustments subsequently made to the provisional amounts recorded on
the acquisition date will be made retroactively during a measurement
period not to exceed one year; acquisition related restructuring
costs that do not meet the criteria in SFAS 146, "Accounting for
Costs Associated with Exit or Disposal Activities", will be expensed
as incurred; transaction costs will be expensed as incurred;
reversals of deferred income tax valuation allowances and income tax
contingencies will be recognized in earnings subsequent to the
measurement period; and the allowance for loan losses of an acquiree
will not be permitted to be recognized by the acquirer.
Additionally, SFAS 141 will require new and modified disclosures
surrounding subsequent changes to acquisition related contingencies,
contingent consideration, noncontrolling interests, acquisition
related transaction costs, fair values and cash flows not expected
to be collected for acquired loans, and an enhanced goodwill
rollforward.

     The Corporation will be required to prospectively apply SFAS
141 to all business combinations completed on or after January 1,
2009. Early adoption is not permitted. For business combinations in
which the acquisition date was before the effective date, the
provisions of SFAS 141 will apply to the subsequent accounting for
deferred income tax valuation allowances and income tax
contingencies and will require any changes in those amounts to be
recorded in earnings. Management is currently evaluating the effects
that SFAS 141 will have on the financial condition, results of
operations, liquidity, and the disclosures that will be presented in
the consolidated financial statements.

     In December 2007, the FASB issued Statement of Financial
Accounting Standards SFAS 160, "Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB 51". SFAS 160
establishes new accounting and reporting standards for
noncontrolling interests in a subsidiary and for the deconsolidation
of a subsidiary. SFAS 160 will require entities to classify
noncontrolling interests as a component of stockholders' equity and
will require subsequent changes in ownership interest in a
subsidiary to be accounted for as an equity transaction.
Additionally, SFAS 160 will require entities to recognize a gain or
loss upon the loss of control of a subsidiary and to remeasure any
ownership interest retained at fair value on that date. This
statement also requires expanded disclosures that clearly identify
and distinguish between the interests of the parent and the
interests of the noncontrolling owners. SFAS 160 is effective on a
prospective



                               8


<PAGE>


basis for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008, except for the
presentation and disclosure requirements, which are required to be
applied retrospectively. Early adoption is not permitted. The
adoption of this standard is not expected to have a material impact
on the Corporation's consolidated financial condition, results of
operations or liquidity.

     EITF 06-4, "Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split Dollar Life
Insurance Arrangements", was issued in September 2006 and is
effective for fiscal years beginning after December 15, 2007 with
earlier application permitted. EITF 06-4 requires that, for split
dollar life insurance arrangements that provide a benefit to an
employee that extends to postretirement periods, an employer should
recognize a liability for future benefits in accordance with SFAS
No. 106. EITF 06-4 requires that recognition of the effects of
adoption should be either by (a) a change in accounting principle
through a cumulative effect adjustment to retained earnings as of
the beginning of the year of adoption or (b) a change in accounting
principle through retrospective application to all prior periods.
The Corporation adopted this standard as of January 1, 2007 through
a cumulative effect adjustment to beginning retained earnings. This
adjustment represented a decrease of $36,000 to retained earnings.

     In November 2007, the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 109, which addresses the
valuation of written loan commitments accounted for a fair value
through earnings. The guidance in SAB 109 expresses the staff's view
that the measurement of fair value for a written loan commitment
accounted for at fair value through earnings should incorporate the
expected net future cash flows related to the associated servicing
of the loan. Previously under SAB 105, Application of Accounting
Principles to Loan Commitments, this component of value was not
incorporated into the fair value of the loan commitment. The
Corporation does not account for any written loan commitments at
fair value through earnings.

     In June 2007, the FASB ratified the consensus reached in EITF
06-11, "Accounting for Income Tax Benefits of Dividends on Share
Based Payment Awards". EITF 06-11 applies to entities that have
share based payment arrangements that entitle employees to receive
dividends or dividend equivalents on equity classified nonvested
shares when those dividends or dividend equivalents are charged to
retained earnings and result in an income tax deduction. Entities
that have share based payment arrangements that fall within the
scope of EITF 06-11 will be required to increase capital surplus for
any realized income tax benefit associated with dividends or
dividend equivalents paid to employees for equity classified
nonvested equity awards. Any increase recorded to capital surplus is
required to be included in any entity's pool of excess tax benefits
that are available to absorb potential future tax deficiencies on
share based payment awards. The Corporation will adopt EITF 06-11 on
January 1, 2008 for dividends declared on share based payment awards
subsequent to this date. The impact of adoption is not expected to
have a material impact on financial condition, results of
operations, or liquidity.

     In April 2007, the FASB issued FSP 39-1, "Amendments of FASB
Interpretation No. 39. Offsetting of Amounts Related to Certain
Contracts". FSP 39-1 permits entities to offset fair value amounts
recognized for multiple derivative instruments executed with the
same counterparty under a master netting agreement. FSP 39-1
clarifies that the fair value amounts recognized for the right to
reclaim cash collateral, or the obligation to return cash
collateral, arising from the same master netting arrangement, should
also be offset against the fair value of the related derivative
instruments.

     Effective January 1, 2008, the Corporation adopted a net
presentation for derivative positions and related collateral entered
into under master netting agreements pursuant to the guidance in FIN
39 and FSP 39-1. The adoption of this guidance would result in
balance sheet reclassifications of certain cash collateral based
short term investments against the related derivative liabilities
and certain deposit liability balances against the related fair
values of derivative assets. The effects of these reclassifications
will fluctuate based on the fair values of derivative contracts but
overall would not have a material impact on either total assets or
total liabilities. The adoption of these standards will not have an
impact on the Corporations consolidated financial condition, results
of operations or liquidity.

     In February 2007, the FASB issued SFAS No. 159, "The Fair Value
Option for Financial Assets and Liabilities". The statement allows
an entity to elect to measure certain financial assets and
liabilities at fair value with changes in fair value recognized in
the income statement each period. The statement also requires
additional disclosures to identify the effects of an entity's fair
value election on its earnings. The election is irrevocable. The
Corporation is currently assessing whether it will elect to adopt
SFAS 159.



                               9


<PAGE>


     In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards SFAS 158
"Employers' Accounting for Defined Benefit Pension and Other Post
Retirement Plans", which requires the Corporation to recognize the
funded status of a benefit plan as either assets or liabilities in
the consolidated balance sheet and to recognize as a component of
other comprehensive income, net of tax, unrecognized actuarial gains
or losses, prior service costs and transition obligations that arise
during the period. The adoption of SFAS 158 for year ended December
31, 2007 did not have a material impact on the Corporation's
consolidated financial position, results of operations, or
liquidity.

     In September 2006, the FASB issued Statement of Financial
Accounting Standards (SFAS) 157, "Fair Value Measurements", which
upon adoption will replace various definitions of fair value in
existing accounting literature with a single definition, will
establish a framework for measuring fair value, and will require
additional disclosures about fair value measurements. The statement
clarifies that fair value is the price that would be received to
sell an asset or the price paid to transfer a liability in the most
advantageous market available to the entity and emphasizes that fair
value is a market based measurement and should be based on the
assumptions market participants would use. The statement also
creates a three level hierarchy under which individual fair value
estimates are to be ranked based on the relative reliability of the
inputs used in the valuation. This hierarchy is the basis for the
disclosure requirements, with fair value estimates based on the
least reliable inputs requiring more extensive disclosures about the
valuation method used and the gains and losses associated with those
estimates. SFAS 157 is required to be applied whenever another
financial accounting standard requires or permits an asset or
liability to be measured at fair value. The statement does not
expand the use of fair value to any new circumstances. The
Corporation will be required to apply the new guidance beginning
January 1, 2008, and does not expect it to have a material impact on
the Corporation's consolidated financial condition, results of
operations, or liquidity.

     In July 2006, the FASB issued FASB Staff Position FSP 13-2,
"Accounting for a Change or Projected Change in the Timing of Cash
Flows Related to Income Taxes Generated by a Leveraged Lease
Transaction". This FSP amends SFAS 13, "Accounting for Leases", to
require a lessor in a leveraged lease transaction to recalculate the
leveraged lease for the effects of a change or projected change in
the timing of cash flows relating to income taxes that are generated
by the leveraged lease. The guidance in FSP 13-2 was adopted by the
Corporation on January 1, 2007. The application of this FSP is not
expected to have a material impact on the Corporation's consolidated
financial condition, results of operations, or liquidity.

     In June 2006, the FASB issued Interpretation No. 48 FIN 48,
"Accounting for Uncertainty in Income Taxes", an interpretation of
SFAS 109, "Accounting for Income Taxes". FIN 48 prescribes a
comprehensive model for how companies should recognize, measure,
present, and disclose in their financial statements uncertain tax
positions taken or expected to be taken on a tax return. Under FIN
48, tax positions shall initially be recognized in the financial
statements when it is more likely than not the position will be
sustained upon examination by the tax authorities. Such tax
positions shall initially and subsequently be measured as the
largest amount of tax benefit that is greater than 50% likely of
being realized upon ultimate settlement with the tax authority
assuming full knowledge of the position and all relevant facts. FIN
48 also revises disclosure requirements to include an annual tabular
roll forward of unrecognized tax benefits. The provisions of this
interpretation were adopted by the Corporation on January 1, 2007.
The adoption of FIN 48 is not expected to have a material impact on
the Corporation's consolidated financial condition, result of
operations, or liquidity.

     In March 2006, the FASB issued Statement of Financial
Accounting Standards SFAS 156, "Accounting for Servicing of
Financial Assets", an amendment of SFAS 140. This standard requires
entities to separately recognize a servicing asset or liability
whenever it undertakes an obligation to service financial assets and
also requires all separately recognized servicing assets or
liabilities to be initially measured at fair value. Additionally,
this standard permits entities to choose among two alternatives, the
amortization method or fair value measurement method, for the
subsequent measurement of each class of separately recognized
servicing assets and liabilities. Under the amortization method, an
entity shall amortize the value of servicing assets or liabilities
in proportion to and over the period of estimated net servicing
income or net servicing loss and assess servicing assets or
liabilities for impairment or increased obligation based on fair
value at each reporting date. Under the fair value measurement
method, an entity shall measure servicing assets or liabilities at
fair value at each reporting date and report changes in fair value
in earnings in the period in which the changes occur.



                              10


<PAGE>


     Effective January 1, 2006, the Corporation adopted this
statement by electing amortization method as the measurement method
for residential real estate mortgage servicing rights (MSRs).

     In February 2006, the FASB issued Statement of Financial
Accounting Standards SFAS 155, "Accounting for Certain Hybrid
Financial Instruments", which amends SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities", and SFAS 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". SFAS 155 requires entities to
evaluate and identify whether interests in securitized financial
assets are freestanding derivatives, hybrid financial instruments
that contain an embedded derivative requiring bifurcation, or hybrid
financial instruments that contain embedded derivatives that do not
require bifurcation. SFAS 155 also permits fair value measurement
for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation. This statement
was effective for all financial instruments acquired or issued by
the Corporation on or after January 1, 2007 and the adoption of SFAS
155 did not have a material impact on the Corporation's consolidated
financial condition, results of operations or liquidity.

ADVERTISING COSTS

     It is the Corporation's policy to expense advertising costs in
the period in which they are incurred. Advertising expense for the
three month period ended March 31, 2008 and 2007, was approximately
$83,000 and $86,000, respectively.

RECLASSIFICATIONS

     Certain amounts in the consolidated financial statements of
prior periods have been reclassified to conform with presentation
used in the 2008 consolidated financial statements. Such
reclassifications have no effect on the Corporation's consolidated
financial condition or net income.


NOTE 2.  ALLOWANCE FOR LOAN LOSSES

     Changes in the allowance for loan losses for the periods ended
March 31, 2008, and March 31, 2007, were as follows:

<TABLE>
<CAPTION>

(amounts in thousands)
                                               2008          2007
                                               ____          ____

                                       <c>           <c>
Balance, January 1                               $5,046        $3,671
Provision charged to operations                      50            50
Loans charged off                                   (16)          (19)
Recoveries                                           62            13
                                                               ______   ______
Balance, March 31                                $5,142        $3,715
                                                               ======   ======

</TABLE>

     At March 31, 2008, the recorded investment in loans that are
considered to be impaired as defined by SFAS No. 114 was $3,286,000.
No additional charge to operations was required to provide for the
impaired loans since the total allowance for loan losses is
estimated by management to be adequate to provide for the loan loss
allowance required by SFAS No. 114 along with any other potential
losses.

     At March 31, 2008, there were no significant commitments to
lend additional funds with respect to non accrual and restructured
loans.

  Non accrual loans at March 31, 2008, and December 31, 2007,
were $3,287,000 and $3,208,000, respectively.

     Loans past due 90 days or more and still accruing interest
amounted to $37,000 and $185,000 on March 31, 2008 and December 31,
2007, respectively.



                              11


<PAGE>


NOTE 3.  SHORT-TERM BORROWINGS

     Federal funds purchased, securities sold under agreements to
repurchase and Federal Home Loan Bank advances generally represent
overnight or less than 30 day borrowings. U.S. Treasury tax and loan
notes for collections made by the Bank are payable on demand.

NOTE 4.  LONG-TERM BORROWINGS

     Long term borrowings are comprised of advances from the Federal
Home Loan Bank (FHLB). Under terms of a blanket agreement,
collateral for the loans are secured by certain qualifying assets of
the Corporation's banking subsidiary which consist principally of
first mortgage loans and certain investment securities.


NOTE 5.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
         AND CONCENTRATIONS OF CREDIT RISK

     The Corporation is a party to financial instruments with off
balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The contract or notional amounts of
those instruments reflect the extent of involvement the Corporation
has in particular classes of financial instruments. The Corporation
does not engage in trading activities with respect to any of its
financial instruments with off balance sheet risk.

     The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is
represented by the contractual notional amount of those instruments.

     The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance
sheet instruments.

     The Corporation may require collateral or other security to
support financial instruments with off balance sheet credit risk.
The contract or notional amounts at March 31, 2008, and December 31,
2007, were as follows:

<TABLE>
<CAPTION>

(amounts in thousands)
                                             March 31,     December 31,
                                              2008             2007
                                              ____             ____

                                      <c>              <c>
Financial instruments whose
  contract amounts represent
  credit risk:
  Commitments to extend credit                  $44,119          $42,776
  Financial standby letters of
     credit                                       1,236            1,744
  Performance standby letters
     of credit                                    2,643            2,471

</TABLE>

     Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses that may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Corporation
evaluates each customer's creditworthiness on a case by case basis.
The amount of collateral obtained, if deemed necessary by the
Corporation upon extension of credit, is based on management's
credit evaluation of the counter party. Collateral held varies but
may include accounts receivable, inventory, property, plant and
equipment, and income producing commercial properties.

     Standby letters of credit are conditional commitments issued by
the Corporation to guarantee the performance of a customer to a
third party. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan
facilities to customers. The Corporation may hold collateral to
support standby letters of credit for which collateral is deemed
necessary.



                              12


<PAGE>


     The Corporation grants commercial, agricultural, real estate
mortgage and consumer loans to customers primarily in the counties
of Columbia, Luzerne and Montour, Pennsylvania.  It is management's
opinion that the loan portfolio was well balanced and diversified at
March 31, 2008, to the extent necessary to avoid any significant
concentration of credit risk.  However, its debtors' ability to
honor their contracts may be influenced by the region's economy.


NOTE 6.  STOCKHOLDERS' EQUITY

     Changes in Stockholders' Equity for the period ended March 31,
2008 were are follows:

<TABLE>
<CAPTION>

(Amounts in thousands, except common share data)

                                         Common          Common
                                         Shares         Stock       Surplus
                                         ______         _____       _______

                                  <c>            <c>           <c>
Balance at January 1, 2008                5,687,676      $11,375       $30,252

Comprehensive Income:
  Net Income
    Change in unrealized
    gain (loss) on
    investment securities
    available-for-sale,
    net of reclassification
    adjustment and tax
    effects
Total Comprehensive
  income (loss)
Recognition of stock
  option expense                                                             9
Cash dividends -
  $.22 per share
                                          _________      _______       _______

Balance at March 31, 2008                 5,687,767      $11,375       $30,261
                                          =========      =======       =======

<CAPTION>

(Amounts in thousands, except common share data)

                                                                Accumulated
                                     Compre-                      Other
                                     hensive      Retained     Comprehensive
                                     Income        Earnings   Income (Loss)
                                     ______        ________     ____________

                               <c>           <c>            <c>
Balance at January 1, 2008                           $35,705        $(166)

Comprehensive Income:
  Net Income                           $1,722          1,722
    Change in unrealized
    gain (loss) on
    investment securities
    available-for-sale,
    net of reclassification
    adjustment and tax
    effects                                                                     784                 784
                                       ______
Total Comprehensive
  income (loss)                                                              $2,506
                                       ======
Recognition of stock
  option expense
Cash dividends -
  $.22 per share                                      (1,197)
                                                     _______         ____
Balance at March 31, 2008                            $36,230         $618
                                                     =======         ====


<CAPTION>

(Amounts in thousands, except common share data)

                                                Treasury
                                                  Stock         Total
                                                  _____         _____

                                          <c>            <c>
Balance at January 1, 2008                        $(6,242)       $70,924

Comprehensive Income:
  Net Income                                                       1,722
    Change in unrealized
    gain (loss) on
    investment securities
    available-for-sale,
    net of reclassification
    adjustment and tax
    effects                                                          784
Total Comprehensive
  income (loss)
Recognition of stock
  option expense                                                       9
Cash dividends -
  $.22 per share                                                  (1,197)
                                                  _______        _______

Balance at March 31, 2008                         $(6,242)       $72,242
                                                  =======        =======

</TABLE>


NOTE 7.  MANAGEMENT'S ASSERTIONS AND COMMENTS REQUIRED
         TO BE PROVIDED WITH FORM 10Q FILING

     In management's opinion, the consolidated interim financial
statements reflect 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 are unaudited; however they 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 periods presented and that
all such adjustments to the consolidated financial statements are of
a normal recurring nature.  The independent registered public
accounting firm, J. H. Williams & Co., LLP, reviewed these
consolidated financial statements as stated in their accompanying
review report.

     The results of operations for the three month period ended
March 31, 2008, are not necessarily indicative of the results to be
expected for the full year.



                              13


<PAGE>


     These consolidated interim financial statements have been
prepared in accordance with requirements of Form 10Q and therefore
do not include all disclosures normally required by accounting
principles generally accepted in the United States of America
applicable to financial institutions as included with consolidated
financial statements included in the Corporation's annual Form 10K
filing.  The reader of these consolidated interim financial
statements may wish to refer to the Corporation's annual report or
Form 10K for the period ended December 31, 2007, filed with the
Securities and Exchange Commission.



                              14


<PAGE>


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of First Keystone Corporation:


We have reviewed the accompanying consolidated balance sheet of
First Keystone Corporation and Subsidiary as of March 31, 2008, and
the related consolidated statements of income and cash flows for the
three month periods ended March 31, 2008, and 2007.  These
consolidated interim financial statements are the responsibility of
the management of First Keystone Corporation and Subsidiary.

We conducted our reviews in accordance with the standards of the
Public Company Accounting Oversight Board (United States).  A review
of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible
for financial and accounting matters.  It is substantially less in
scope than an audit conducted in accordance with the standards of
the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the
financial statements taken as a whole.  Accordingly, we do not
express such an opinion.

Based on our reviews, we are not aware of any material modifications
that should be made to the consolidated interim financial statements
referred to above for them to be in conformity with accounting
principles generally accepted in the United States of America.

We have previously audited, in accordance with the auditing
standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheet of First Keystone
Corporation and Subsidiary as of December 31, 2007, and the related
consolidated statements of income, changes in stockholders' equity,
and cash flows for the year then ended (not presented herein); and
in our report dated March 11, 2008, we expressed an unqualified
opinion on those consolidated financial statements.  In our opinion,
the information set forth in the accompanying consolidated balance
sheet as of December 31, 2007, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which
it has been derived.




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



Kingston, Pennsylvania
May 7, 2008



                              15


<PAGE>


Item 2.   First Keystone Corporation Management's Discussion and
          Analysis of Financial Condition and Results of Operation
          as of March 31, 2008



     This quarterly report contains certain forward looking
statements (as defined in the Private Securities Litigation Reform
Act of 1995), which reflect management's beliefs and expectations
based on information currently available. These forward looking
statements are inherently subject to significant risks and
uncertainties, including changes in general economic and financial
market conditions, the Corporation's ability to effectively carry
out its business plans and changes in regulatory or legislative
requirements. Other factors that could cause or contribute to such
differences are changes in competitive conditions, and pending or
threatened litigation. Although management believes the expectations
reflected in such forward looking statements are reasonable, actual
results may differ materially.

     The Corporation acquired Pocono Community Bank, Stroudsburg,
Pennsylvania, in the fourth quarter of 2007.  Period to period
comparisons and the Management's Discussion are impacted by this
acquisition when 2008 results are compared to 2007.


RESULTS OF OPERATIONS

     First Keystone Corporation realized earnings for the first
quarter of 2008 of $1,722,000, an increase of $288,000, or 20.1%
from the first quarter of 2007.  The increase in net income for 2008
was primarily the result of the yield curve steepening and an
increase in net interest income of $1,177,000 from the first quarter
of 2007.  In addition, the first quarter of 2008 reflected the first
full quarter of earnings from our Pocono Community Bank acquisition
completed in November 2007.  Pocono Community Bank operates as a
division of First Keystone National Bank.  On a per share basis, net
income per share was $.32 for the first three months of 2008 equal
to $.32 for the first three months of 2007.  Cash dividends amounted
to $.22 per share, equal to $.22 paid in the first quarter of 2007.

     Year to date net income annualized amounts to a return on
average common equity of 9.62%, a return on tangible equity of
13.11% and a return on assets of 1.01%.  For the three months ended
March 31, 2007, these measures were 10.60%, 10.84%, and 1.09%,
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 first quarter of 2008, interest income amounted to
$9,351,000, an increase of $1,944,000 or 26.2% from the first
quarter of 2007, while interest expense amounted to $4,853,000 in
the first quarter of 2008, an increase of $767,000, or 18.8% from
the first quarter of 2007.  As a result, net interest income
increased $1,177,000, or 35.4% in the first quarter of 2008 to
$4,498,000 from $3,321,000 in first quarter of 2007.

     Our net interest margin for the quarter ended March 31, 2008,
was 3.19% compared to 2.96% for the quarter ended March 31, 2007.


PROVISION FOR LOAN LOSSES

     The provision for loan losses for the quarter ended March 31,
2008, was $50,000, the same as the provision for the first quarter
of 2007.  Recoveries exceeded charge offs in the amount of $46,000
for the three months ended March 31, 2008, as compared to net charge
offs of $7,000 for the first three months of 2007.  The allowance
for loan losses as a percentage of loans, net of unearned interest,
was 1.34% as of March 31, 2008, the same as 1.34% reported as of
December 31, 2007.



                              16


<PAGE>


NON-INTEREST INCOME

     Total non interest income or other income was $1,105,000 for
the quarter ended March 31, 2008, as compared to $953,000 for the
quarter ended March 31, 2007, an increase of $152,000, or 15.9%.
Excluding investment securities gains and losses, non interest
income was $1,001,000 for the first quarter of 2008, an increase of
$174,000, or 21.0% from the first quarter of 2007.  Increases in
trust department income, increased service changes and fees,
additional income on bank owned life insurance, higher gains on sale
of loans, and additional other non interest income were the primary
reasons for the higher non interest income in 2008.


NON-INTEREST EXPENSES

     Total non interest expenses, or other expenses, was $3,450,000
for the quarter ended March 31, 2008, as compared to $2,491,000 for
the quarter ended March 31, 2007.  The increase of $959,000, or
38.5% is comprised of salary and benefits increasing $519,000,
occupancy and fixed asset expense increasing $119,000, and other non
interest expense, including professional services and state shares
tax increasing $321,000.

     Expenses associated with employees (salaries and employee
benefits) continue to be the largest category of non interest
expenses.  Salaries and benefits amounted to $1,876,000, or 54.4% of
total non interest expense for the three months ended March 31,
2008, as compared to 54.5% for the first three months of 2007.  Net
occupancy and fixed asset expense amounted to $477,000 for the three
months ended March 31, 2008, an increase of $119,000, or 33.2%.
Other non interest expenses, including professional services and
state shares tax amounted to $1,097,000 for the three months ended
March 31, 2008, an increase of $321,000, or 41.4% from the first
three months of 2007.  Our non interest expense in the first quarter
of 2008 continues to be approximately 2.0% of average assets on an
annualized basis, which places us among the leaders of our peer
financial institutions at controlling total non interest expense.

     In March 2008, we successfully converted Pocono Community Bank
to our core processing system.  This conversion will improve
efficiency and provide future cost savings from the termination of
Pocono's computer contract and the reduction in employees.


INCOME TAXES

     Effective tax planning has helped produce favorable net income.
Income tax amounted to $381,000 for the three months ended March 31,
2008, as compared to $299,000 for 2007, an increase of $82,000.  The
effective total income tax rate was 18.1% for the first quarter of
2008 as compared to 17.3% for the first quarter of 2007.


ANALYSIS OF FINANCIAL CONDITION

ASSETS

     Total assets increased slightly to $681,636,000 as of March 31,
2008, an increase of $429,000 from year end 2007.  Total deposits
increased to $516,662,000 as of March 31, 2008, an increase of
$23,621,000, or 4.8% over year end 2007.  The increase in deposits
funded loan growth and a reduction in short term borrowings.

     During the first quarter of 2007 the Corporation reduced short
term borrowings to $14,199,000 as of March 31, 2008, as compared to
$47,349,000 as of December 31, 2007.  Long term borrowings were
$73,159,000 as of March 31, 2008, an increase from the $66,175,000
reported December 31, 2007.



                              17


<PAGE>


EARNING ASSETS

     Our primary earning asset, loans, net of unearned income
increased to $384,474,000 as of March 31, 2008, up $7,871,000, or
2.1% since year end 2007.  The loan portfolio continues to be
diversified.  Overall asset quality has remained stable with non
performing assets decreasing slightly since year end 2007.  Total
allowance for loan losses to total non performing assets was 149.1%
as of March 31, 2008, up from 145.9% at year end 2007.

     Besides loans, another primary earning asset is our overall
investment portfolio, which decreased in size from December 31,
2007, to March 31, 2008.  Held to maturity securities amounted to
$4,535,000 as of March 31, 2008, a decrease of $3,000 from December
31, 2007.  Available for sale securities amounted to $223,406,000 as
of March 31, 2008, a decrease of $18,115,000 from year end 2007.
Interest bearing deposits with banks increased as of March 31, 2008,
to $4,809,000 from $89,000 at year end 2007.


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 Corporation was required to adopt Financial Accounting
Standards Board Statement No. 114, "Accounting by Creditors for
Impairment of a Loan" - Refer to Note 2 above for details.


NON-PERFORMING ASSETS

     Non performing assets consist of non accrual and restructured
loans, other real estate and foreclosed assets, together with loans
past due 90 days or more and still accruing.  As of March 31, 2008,
total non performing assets were $3,448,000 as compared to
$3,458,000 on December 31, 2007.  Non performing assets to total
loans and foreclosed assets was 0.90% as of March 31, 2008, and
0.92% as of December 31, 2007.

     Interest income received on non performing loans as of March
31, 2008, was $18,000 compared to $147,000 for the year ending of
December 31, 2007.  Interest income, which would have been recorded
on these loans under the original terms as of March 31, 2008, and
December 31, 2007, were $78,000 and $175,000, respectively.  As of
March 31, 2008 and December 31, 2007, there were no outstanding
commitments to advance additional funds with respect to these non
performing loans.


DEPOSITS AND OTHER BORROWED FUNDS

     As indicated previously, total deposits increased $23,621,000
as non-interest bearing deposits decreased by $720,000 and interest
bearing deposits increased by $24,341,000 as of March 31, 2008, from
year end 2007.  Total short term and long term borrowings decreased
to $87,358,000 as of March 31, 2008, from $113,524,000 at year end
2007, a decrease of $26,166,000, or 23.0%.



                              18


<PAGE>


CAPITAL STRENGTH

     Normal increases in capital are generated by net income, less
cash dividends paid out.  Also, accumulated other comprehensive
income derived from unrealized gains or losses on investment
securities available for sale increased shareholders' equity, or
capital net of taxes, by $617,000 as of March 31, 2008, and reduced
equity by $166,000 as of December 31, 2007. A factor which reduced
total equity capital as of March 31, 2008, and year end 2007 relates
to stock repurchase.  The Corporation had 247,691 shares of common
stock on March 31, 2008 and December 31, 2007, as treasury stock.
This had an effect of our reducing our total stockholders' equity by
$6,242,000 on both March 31, 2008, and December 31, 2007.

     Total stockholders' equity was $72,242,000 as of March 31,
2008, and $70,924,000 as of December 31, 2007.  Leverage ratio and
risk based capital ratios remain very strong.  As of March 31, 2008,
our leverage ratio was 7.64% compared to 7.96% as of December 31,
2007.  In addition, Tier I risk based capital and total risk based
capital ratio as of March 31, 2008, were 11.77% and 12.97%,
respectively.  The same ratios as of December 31, 2007 were 11.86%
and 13.06%, 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 a 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, Atlantic Central Bankers Bank, or the Federal Home Loan Bank.


Item 3.   Quantitative and Qualitative Disclosures about Market Risk

     There have been no material changes in the Company's
quantitative and qualitative market risks since December 31, 2007.
The composition of rate sensitive assets and rate sensitive
liabilities as of March 31, 2008 is very similar to December 31,
2007.


Item 4.   Controls and Procedures

a)    Evaluation of disclosure controls and procedures.  The company
maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the company
files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange
Commission.  Based upon their evaluation of those controls and
procedures performed within 90 days of the filing date of this
report, the chief executive and chief financial officers of the
company concluded that the company's disclosure controls and
procedures were adequate.

b)    Changes in internal controls.  The Company made no significant
changes in its internal controls or in other factors that could
significantly affect these controls subsequent to the date of the
evaluation of the controls by the Chief Executive and Chief
Financial officers.



                              19


<PAGE>


                     PART II - OTHER INFORMATION


     Item 1.     Legal Proceedings

                 None.


     Item 1A.    There have been no material changes to the risk
                 factors disclosed in Item 1A "Risk Factors" in our
                 Annual Report on Form 10K for the year ended
                 December 31, 2007.


     Item 2.     Changes in Securities, Use of Proceeds and Issuer
                 Purchases of Equity Securities

<TABLE>
<CAPTION>
                                                     Total
                                                    Number          Maximum
                                                   of Shares       Number of
                                                   Purchased      Shares That
                                                  as Part of      May Yet Be
                     Total                         Publicly       Purchased
                      Number        Average       Announced       Under the
                   of Shares      Price Paid       Plans or         Plans or
     Period        Purchased       per Share       Programs         Programs
     ______        _________       _________       ________         ________

                <c>            <c>             <c>            <c>
January 1 -
January 31,
2008               ----           ----            ----           112,098

February 1 -
February 29,
2008               ----           ----            ----           112,098

March 1 -
March 31,
2008               ----           ----            ----           112,098

Total              ----           ----            ----           112,098


</TABLE>


     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, May 6, 2008, at 10:00
                 a.m.


<TABLE>
<CAPTION>
                                                     Votes        Votes
Directors Elected                   Votes For       Against      Withheld
_________________                   _________        ______      _______

                             <c>              <c>             <c>
Don E. Bower                    4,523,664        13,301          0
Robert A. Bull                  4,342,535        194,430         0
Dudley P. Cooley                4,522,664        14,301          0


<CAPTION>
                                                 Broker
Directors Elected               Abstentions      Non-Votes
_________________               ___________      _________

                             <c>              <c>
Don E. Bower                    0                0
Robert A. Bull                  0                0
Dudley P. Cooley                0                0

</TABLE>


                              20


<PAGE>


Directors Continuing:
____________________

Jerome F. Fabian, term expires in 2009
David R. Saracino, term expires in 2009
Robert J. Wise, term expires in 2009
John E. Arndt, term expires in 2010
J. Gerald Bazewicz, term expires in 2010
Robert E. Bull, term expires in 2010


Matters Voted Upon:
__________________

Selection of J. H. Williams & Co. LLP, as auditors for the
Corporation.

Votes For - 4,496,980
Votes Against - 5,408
Votes Withheld -  0
Abstentions - 34,577
Broker Non-Votes -  0


     Item 5.     Other Information

                 The Company made no material changes to the
                 procedures by which shareholders may recommend
                 nominees to the Company's Board of Directors.



                              21


<PAGE>


     Item 6.     Exhibits and Reports on Form 8-K

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


Exhibit Number     Description of Exhibit

3i                 Articles of Incorporation, as amended
                   (Incorporated by reference to Exhibit 3(i) to
                   the Registrant's Report on Form 10Q for the
                   quarter ended March 31, 2006).

3ii                By-Laws, as amended (Incorporated by reference
                   to Exhibit 3(ii) to the Registrant's Report on
                   Form 10Q for the quarter ended March 31, 2006).

10.1           Supplemental Employee Retirement Plan
                   (Incorporated by reference to Exhibit 10 to the
                   Registrant's Report on Form 10Q for the quarter
                   ended September 30, 2005).

10.2           Management Incentive Compensation Plan
                   (Incorporated by reference to Exhibit 10 to the
                   Registrant's Report on Form 10Q for the quarter
                   ended September 30, 2006).

10.3           Profit Sharing Plan (Incorporated by reference
                   to Exhibit 10 to the Registrant's Report on Form
                   10Q for the quarter ended September 30, 2006).

10.4           First Keystone Corporation 1998 Stock Incentive
                   Plan (Incorporated by reference to Exhibit 10 to
                   the Registrant's Report on Form 10Q for the
                   quarter ended September 30, 2006).

14              Code of Ethics (Incorporated by reference to
                   Exhibit 14 to the Registrant's Report on Form 8K
                   dated January 9, 2007).

31.1           Rule 13a-14(a)/15d-14(a) Certification of Chief
                   Executive Officer.

31.2           Rule 13a-14(a)/15d-14(a) Certification of Chief
                   Financial Officer.

32.1           Section 1350 Certification of Chief Executive
                   Officer.

32.2           Section 1350 Certification of Chief Financial
                   Officer.



                              22


<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



May 9, 2008                  /s/ J. Gerald Bazewicz
                                      J. Gerald Bazewicz
                                      President and
                                     Chief Executive Officer
                                     (Principal Executive Officer)



May 9, 2008                  /s/ Diane C.A. Rosler
                                      Diane C.A. Rosler
                                     Chief Financial Officer
                                     (Principal Accounting Officer)



                              23


<PAGE>


                          INDEX TO EXHIBITS

Exhibit            Description
_______            ___________

3i                 Articles of Incorporation, as amended
                   (Incorporated by reference to Exhibit 3(i) to
                   the Registrant's Report on Form 10Q for the
                   quarter ended March 31, 2006).

3ii                By-Laws, as amended (Incorporated by reference
                   to Exhibit 3(ii) to the Registrant's Report on
                   Form 10Q for the quarter ended March 31, 2006).

10.1               Supplemental Employee Retirement Plan
                   (Incorporated by reference to Exhibit 10 to the
                   Registrant's Report on Form 10Q for the quarter
                   ended September 30, 2005).

10.2               Management Incentive Compensation Plan
                   (Incorporated by reference to Exhibit 10 to the
                   Registrant's Report on Form 10Q for the quarter
                   ended September 30, 2006).

10.3               Profit Sharing Plan (Incorporated by reference
                   to Exhibit 10 to the Registrant's Report on Form
                   10Q for the quarter ended September 30, 2006).

10.4               First Keystone Corporation 1998 Stock Incentive
                   Plan (Incorporated by reference to Exhibit 10 to
                   the Registrant's Report on Form 10Q for the
                   quarter ended September 30, 2006).

14                 Code of Ethics (Incorporated by reference to
                   Exhibit 14 to the Registrant's Report on Form 8K
                   dated January 9, 2007).

31.1               Rule 13a-14(a)/15d-14(a) Certification of Chief
                   Executive Officer.

31.2               Rule 13a-14(a)/15d-14(a) Certification of Chief
                   Financial Officer.

32.1               Section 1350 Certification of Chief Executive
                   Officer.

32.2               Section 1350 Certification of Chief Financial
                   Officer.



                              24