EXHIBIT 13



              EXCERPT FROM ANNUAL REPORT TO SHAREHOLDERS
                FOR FISCAL YEAR ENDED DECEMBER 31, 1996


                                  25

<PAGE>



<TABLE>

FIRST KEYSTONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 and 1995

<CAPTION>
                                                                           

                                                    1996            1995
                                                                           
<S>                                               <C>             <C>
ASSETS
Cash and due from banks                           $  5,147,438    $  4,656,866
Interest-bearing deposits 
  in other banks                                        32,093       1,962,946
Investment securities available for 
  sale carried at estimated fair value              81,145,934      64,703,806
Investment securities held to maturity, 
  estimated fair value 
  1996 $19,954,360; 1995 $23,439,296                20,079,559      23,421,484
Loans, net of unearned income                      133,260,961     128,061,435
Allowance for loan losses                          (2,266,983)     (2,015,236)
                                                                              
 Net loans                                        $130,993,978    $126,046,199
Premises and equipment                               2,881,176       3,066,001
Other real estate owned                                 46,184           -    
Accrued interest receivable                          1,958,882       1,875,368
Other assets                                           271,906         300,593
                                                                              
  TOTAL ASSETS                                    $242,557,150    $226,033,263



LIABILITIES

Deposits:
 Non-interest bearing                             $ 17,804,634    $ 17,621,563
 Interest bearing                                  180,741,149     169,698,524
                                                                              
  Total Deposits                                  $198,545,783    $187,320,087
Short-term borrowings                                5,121,367       4,358,601
Long-term borrowings                                10,000,000       7,000,000
Accrued interest and other expenses                  1,128,034       1,180,110
Other liabilities                                      288,971         775,004
                                                                              
  TOTAL LIABILITIES                               $215,084,155    $200,633,802


                                                         
STOCKHOLDERS' EQUITY                                     

Preferred stock, par value $10.00 
  per share; authorized                                  
  500,000 shares; no shares issued                $      -        $      -    
Common stock, par value $2.00 per 
  share; authorized 3,000,000 shares; 
  issued 889,147 shares 1996 and 
  808,429 shares 1995                                1,778,294       1,616,858
Surplus                                              6,654,396       3,829,266
Retained earnings                                   17,889,923      17,888,934
Unrealized gain (loss) on investment 
  securities available for sale,
  net of taxes                                       1,150,382       2,064,403
                                                                              

  TOTAL STOCKHOLDERS' EQUITY                      $ 27,472,995    $ 25,399,461
                                                                              
                                                         
  TOTAL LIABILITIES AND 
    STOCKHOLDERS' EQUITY                          $242,557,150    $226,033,263



                                                                          
The accompanying notes are an integral part of these consolidated financial
statements.

</TABLE>

4  First Keystone Corporation

<PAGE>


<TABLE>

FIRST KEYSTONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, and 1994

<CAPTION>

                                                                          
                                                  1996             1995
                                                                          
<S>                                              <C>              <C>
INTEREST INCOME
Interest and fees on loans:

 Taxable                                         $11,193,303      $10,569,702
 Tax exempt                                          212,206          290,578
Interest and dividends on investment 
  securities:                                          
 Taxable interest                                  3,856,431        3,887,673
 Tax exempt interest                               2,317,029        1,631,495
 Dividends                                           115,054          107,443
Interest on deposits in banks                         91,782          149,793
  TOTAL INTEREST INCOME                          $17,785,805      $16,636,684
                                                                             

INTEREST EXPENSE                                       
Interest on deposits                             $ 7,864,665      $ 7,450,453
Interest on short-term borrowings                    261,458          236,928
Interest on long-term borrowings                     541,243          583,469

  TOTAL INTEREST EXPENSE                         $ 8,667,366      $ 8,270,850
  NET INTEREST INCOME                            $ 9,118,439      $ 8,365,834
  PROVISION FOR LOAN LOSSES                          516,584          372,448
  NET INTEREST INCOME AFTER 
    PROVISION FOR LOAN LOSSES                    $ 8,601,855      $ 7,993,386

NON-INTEREST INCOME                                    
 Fiduciary activities income                     $   424,740      $   349,809
 Service charges and fees                            616,487          572,535
 Other operating income                               48,936           41,825
 Investment securities gains 
   (losses) - net                                   (37,729)            4,841
  TOTAL NON-INTEREST INCOME                      $ 1,052,434      $   969,010

NON-INTEREST EXPENSE                                   
 Salaries and employee benefits                  $ 2,448,234      $ 2,262,650
 Occupancy expense, net                              281,222          292,731
 Furniture and equipment expense                     467,973          456,013
 FDIC insurance                                        2,000          199,953
 Other operating expense                           1,341,236        1,345,098
                                                                             
  TOTAL NON-INTEREST EXPENSE                     $ 4,540,665      $ 4,556,445
                                                                             

Income before income taxes                       $ 5,113,624      $ 4,405,951
Income tax expense                                   983,339          919,758
                                                                             

NET INCOME                                       $ 4,130,285      $ 3,486,193

PER SHARE DATA
 Net income                                      $      4.70      $      3.97
 Cash dividends                                  $      1.29      $      1.09
 Weighted average shares outstanding                 879,002          879,002


                                                                          
The accompanying notes are an integral part if these consolidated financial
statements.


<CAPTION>
                                                                          
                                                  1993
                                                                          
<S>                                              <C>
INTEREST INCOME
Interest and fees on loans:
 Taxable                                         $ 9,179,252
 Tax exempt                                          195,199
Interest and dividends on investment 
  securities:                                          
 Taxable interest                                  2,894,880
 Tax exempt interest                               1,306,861
 Dividends                                            94,953
Interest on deposits in banks                         60,176
                                                            
  TOTAL INTEREST INCOME                          $13,731,321

INTEREST EXPENSE                                       
Interest on deposits                             $ 5,736,505
Interest on short-term borrowings                    215,721
Interest on long-term borrowings                     400,907
                                                            
  TOTAL INTEREST EXPENSE                         $ 6,353,133
                                                            
  NET INTEREST INCOME                            $ 7,378,188
  PROVISION FOR LOAN LOSSES                           31,233
                                                            
  NET INTEREST INCOME AFTER 
    PROVISION FOR LOAN LOSSES                    $ 7,346,955

NON-INTEREST INCOME
 Fiduciary activities income                     $   294,831
 Service charges and fees                            472,922
 Other operating income                               43,755
 Investment securities gains 
   (losses) - net                                    180,284
                                                            
  TOTAL NON-INTEREST INCOME                      $   991,792

NON-INTEREST EXPENSE                                   
 Salaries and employee benefits                  $ 2,121,904
 Occupancy expense, net                              273,746
 Furniture and equipment expense                     401,378
 FDIC insurance                                      377,154
 Other operating expense                           1,133,909
                                                            
  TOTAL NON-INTEREST EXPENSE                     $ 4,308,091

Income before income taxes                       $ 4,030,656
Income tax expense                                   916,063
                                                            

NET INCOME                                       $ 3,114,593

PER SHARE DATA
 Net income                                      $      3.54
 Cash dividends                                  $      1.01
 Weighted average shares outstanding                 879,002

                                                                          
The accompanying notes are an integral part if these consolidated financial
statements.

</TABLE>
                                                1996 Annual Report  5

<PAGE>


<TABLE>

FIRST KEYSTONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, and 1994

<CAPTION>
                                                                          
                                       Common                       Retained
                                        Stock       Surplus          Earnings
                                                                          
<S>                                   <C>            <C>           <C>
BALANCE at DECEMBER 31, 1993          $1,616,858     $3,829,266    $13,131,366

Cumulative effect as of 
  January 1, 1994, relating 
  to change in accounting 
  principle applicable
  to investment securities
  available for sale, 
  net of taxes                        $    -         $    -        $     -    
Net Income                                 -              -          3,114,593
Cash dividends - 
  $1.01 per share                          -              -           (889,272)
Change in unrealized gain 
  (loss) on investment 
  securities available for
  sale, net of taxes                       -              -              -    
                                                                              
BALANCE at DECEMBER 31, 1994          $1,616,858     $3,829,266    $15,356,687
                                                                              


<CAPTION>
                                                                        
                                                      Net
                                                    Unrealized
                                                  Gain (Loss)
                                                 On Investment
                                                    Securities
                                      Treasury      Available
                                        Stock        For Sale        Total
                                                                        
<S>                                   <C>            <C>           <C>
BALANCE at DECEMBER 31, 1993          $    -         $    -        $18,577,490

Cumulative effect as of 
  January 1, 1994, relating 
  to change in accounting 
  principle applicable
  to investment securities
  available for sale, 
  net of taxes                        $    -         $2,175,724     $2,175,724
Net Income                                 -              -          3,114,593
Cash dividends - 
  $1.01 per share                          -              -           (889,272)
Change in unrealized gain 
  (loss) on investment 
  securities available for
  sale, net of taxes                       -         (2,190,464)    (2,190,464)
                                                                              
BALANCE at DECEMBER 31, 1994          $    -         $  (14,740)   $20,788,071
                                                                              



<CAPTION>
                                                                           

                                       Common                       Retained
                                        Stock       Surplus          Earnings
                                                                           


<S>                                   <C>            <C>           <C>
Net Income                            $    -         $    -        $ 3,486,193
Cash Dividends -
  $1.09 per share                          -              -           (953,946)
Change in unrealized gain 
  (loss) on investment 
  securities available for
  sale, net of taxes                       -              -             -     
                                                                              
BALANCE at DECEMBER 31, 1995          $1,616,858     $3,829,266    $17,888,934
                                                                              


<CAPTION>
                                                                        
                                                      Net
                                                    Unrealized
                                                  Gain (Loss)
                                                 On Investment
                                                    Securities
                                      Treasury      Available
                                        Stock        For Sale        Total
                                                                        
<S>                                   <C>            <C>           <C>
Net Income                            $    -         $    -        $ 3,486,193
Cash Dividends -
  $1.09 per share                          -              -           (953,946)
Change in unrealized gain 
  (loss) on investment 
  securities available for
  sale, net of taxes                       -          2,079,143      2,079,143
                                                                              
BALANCE at DECEMBER 31, 1995          $    -         $2,064,403    $25,399,461
                                                                              

<CAPTION>
                                                                           

                                       Common                       Retained
                                        Stock       Surplus          Earnings
                                                                           


<S>                                   <C>            <C>           <C>
Net Income                            $    -         $    -        $ 4,130,285
10% Stock Dividend                       161,436      2,825,130     (2,986,566)
Dividends paid in lieu of 
  fractional shares                        -              -             (4,622)
Cash Dividends -
  $1.29 per share                          -              -         (1,138,108)
Change in unrealized gain
(loss) on investment 
securities available for
  sale, net of taxes                       -              -              -    
                                                                              
BALANCE AT DECEMBER 31, 1996          $1,778,294     $6,654,396    $17,889,923
                                                                              


<CAPTION>
                                                                        
                                                      Net
                                                    Unrealized
                                                  Gain (Loss)
                                                 On Investment
                                                    Securities
                                      Treasury      Available
                                        Stock        For Sale        Total
                                                                        
<S>                                   <C>            <C>           <C>
Net Income                            $    -         $    -        $ 4,130,285
10% Stock Dividend                         -              -             -     
Dividends paid in lieu of 
  fractional shares                        -              -             (4,622)
Cash Dividends -
  $1.29 per share                          -              -         (1,138,108)
Change in unrealized gain
(loss) on investment 
securities available for
  sale, net of taxes                       -           (914,021)      (914,021)
                                                                              
BALANCE AT DECEMBER 31, 1996          $1,778,294     $6,654,396    $17,889,923
                                                                              


                                                                           
The accompanying notes are an integral part of these consolidated financial
statements.


</TABLE>

6  First Keystone Corporation

<PAGE>


<TABLE>

FIRST KEYSTONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994

<CAPTION>
                                                                         
                                                   1995              1994
                                                                         

<S>                                               <C>             <C>
OPERATING ACTIVITIES
Net income                                        $  4,130,285    $  3,486,193
Adjustments to reconcile net income 
 to net cash provided by operating 
 activities:                                             
  Provision for loan losses                            516,584         372,448
  Depreciation                                         299,274         311,636
  Premium amortization on investment 
    securities                                         158,011         254,510
  Discount accretion on investment 
    securities                                         (86,481)       (141,052)
  Deferred income taxes (benefit)                      (32,241)        (29,421)
  (Gain) loss on sales of investment 
    securities                                          37,729          (4,841)
  Gain on sale of premises and 
    equipment                                             (804)         (2,342)
  (Gain) loss on sale of other real 
    estate owned                                        -               37,155
  (Increase) decrease in accrued 
    interest receivable                                (83,514)       (602,849)
  (Increase) decrease in other 
    assets - net                                        28,687         100,671
  Increase (decrease) in accrued 
    interest and other expenses                        (52,076)        398,383
  Decrease in other liabilities - net                     (301)         (7,395)
                                                                              
  NET CASH PROVIDED BY OPERATING 
    ACTIVITIES                                    $  4,915,153    $  4,173,096
                                                                              

INVESTING ACTIVITIES
Purchases of investment securities 
  available for sale                              $(40,909,754)   $(36,711,805)
Proceeds from sales of investment 
  securities available for sale                     20,076,003      22,461,737
Proceeds from maturities and 
  redemptions of investment
 securities available for sale                       3,998,416       6,424,757
Purchases of investment securities 
  held to maturity                                    (996,170)     (5,608,356)
Proceeds from maturities and 
  redemption of investment securities 
  held to maturity                                   3,254,532       8,307,905
Net increase in loans                               (5,575,547)    (10,218,544)
Proceeds from sales of loans                            65,000         182,500
Proceeds from sale of premises 
  and equipment                                          1,200           3,000
Purchases of premises and equipment                   (114,846)       (348,965)
Proceeds from sale of other real 
  estate owned                                          -              197,845
  NET CASH USED IN INVESTING 
    ACTIVITIES                                    $(20,201,166)   $(15,309,926)

FINANCING ACTIVITIES
Net increase in deposits                          $ 11,225,696    $ 15,040,312
Net increase (decrease) in 
  short-term borrowings                                762,766      (1,126,013)
Proceeds from long-term borrowings                  12,000,000       1,000,000
Repayment of long-term borrowings                   (9,000,000)     (1,500,000)
Cash dividends paid                                 (1,138,108)       (953,946)
Dividends paid in lieu of fractional 
  shares                                                (4,622)         -     
                                                                              
  NET CASH PROVIDED BY FINANCING 
    ACTIVITIES                                    $ 13,845,732    $ 12,460,353
                                                                              

Increase (decrease) in cash and cash 
  equivalents                                     $ (1,440,281)   $  1,323,523
Cash and cash equivalents at 
  beginning of year                                  6,619,812       5,296,289
                                                                              
  CASH AND CASH EQUIVALENTS AT 
    END OF YEAR                                   $  5,179,531    $  6,619,812
                                                                              

                                                                         
The accompany notes are an integral part of these consolidated financial
statements.


<CAPTION>
                                                                           

                                                      1993
                                                                           


<S>                                                <C>
OPERATING ACTIVITIES
Net income                                         $  3,114,593
Adjustments to reconcile net income
  to net cash provided by operating 
  activities:                                             
  Provision for loan losses                              31,233
  Depreciation                                          295,327
  Premium amortization on 
    investment securities                               315,008
  Discount accretion on investment 
    securities                                          (43,119)
  Deferred income taxes (benefit)                        88,542
  (Gain) loss on sales of 
    investment securities                              (180,284)
  Gain on sale of premises and 
    equipment                                            -     
  (Gain) loss on sale of other real 
    estate owned                                         (3,730)
  (Increase) decrease in accrued 
    interest receivable                                  28,256
  (Increase) decrease in other 
    assets - net                                        (70,258)
  Increase (decrease) in accrued 
    interest and other expenses                         (43,889)
  Decrease in other liabilities - net                   (61,521)
                                                               
  NET CASH PROVIDED BY OPERATING 
    ACTIVITIES                                     $  3,470,158

INVESTING ACTIVITIES
Purchases of investment securities 
  available for sale                               $(19,799,911)
Proceeds from sales of investment 
  securities available for sale                      19,505,870
Proceeds from maturities and 
  redemptions of investment
 securities available for sale                        5,757,254
Purchases of investment securities 
  held to maturity                                   (4,345,463)
Proceeds from maturities and 
  redemption of investment
  securities held to maturity                         4,889,106
Net increase in loans                               (10,148,833)
Proceeds from sales of loans                             -     
Proceeds from sale of premises and 
  equipment                                              -     
Purchases of premises and equipment                    (591,525)
Proceeds from sale of other real 
  estate owned                                            8,730
                                                               
  NET CASH USED IN INVESTING 
    ACTIVITIES                                     $ (4,724,772)
                                                               

FINANCING ACTIVITIES                                      
Net increase in deposits                           $  6,549,062
Net increase (decrease) in 
  short-term borrowings                              (4,559,871)
Proceeds from long-term borrowings                    3,500,000
Repayment of long-term borrowings                    (2,000,000)
Cash dividends paid                                    (889,272)
Dividends paid in lieu of 
  fractional shares                                      -     
                                                               
  NET CASH PROVIDED BY FINANCING 
    ACTIVITIES                                     $  2,599,919
                                                               

Increase (decrease) in cash and 
  cash equivalents                                 $  1,345,305
Cash and cash equivalents at 
  beginning of year                                   3,950,984
                                                               
  CASH AND CASH EQUIVALENTS 
    AT END OF YEAR                                 $  5,296,289
                                                               


                                                                           
The accompanying notes are an integral part of these consolidated financial
statements.

</TABLE>
                                                1996 Annual Report  7

<PAGE>


FIRST KEYSTONE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements for Years Ended December
31, 1996, 1995, and 1994

Note 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     The accounting and reporting policies of First Keystone
Corporation and Subsidiary (the "Corporation") conform to generally
accepted accounting principles and to general 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 Subsidiaries, The
First National Bank of Berwick and FKC Realty Corporation.  All
significant inter-company balances and transactions have been
eliminated in consolidation.  On December 29, 1995, FKC Realty, Inc.,
a wholly owned realty subsidiary of the Corporation, was liquidated. 
Transfer of assets in liquidation were at book value to the
Corporation and bank subsidiary.  No gain or loss is recognized in
these consolidated financial statements.

Nature of Operations
     The Corporation provides full banking services, including trust
services, through its subsidiary, The First National Bank of Berwick,
to individuals and corporate customers.  The Bank has six offices
covering an area of approximately 300 square miles in Columbia and
Lower Luzerne Counties.  The Corporation and its banking subsidiary
are subject to regulation of the Office of the Comptroller of the
Currency, The Federal Deposit Insurance Corporation, and the Federal
Reserve Bank of Philadelphia.

Use of Estimates
     The preparation of these consolidated financial statements in
conformity with generally accepted accounting principles 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 adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" as required January 1, 1994.  As a result of
adopting Statement No. 115, the Corporation classified investment
securities into two categories:  those to be held to maturity and
those available for sale.  In accordance with the Statement, prior
period consolidated financial statements have not been restated to
reflect the change in accounting principle.  The cumulative effect, as
of January 1, 1994, of adopting Statement No. 115 increased
Stockholders' Equity in the amount of $2,175,724 (net of deferred
income tax of $1,147,985) to reflect the net unrealized gain on
investment securities classified as available for sale.
     In November 1995, the Financial Accounting Standards Board (FASB)
published a special report, "A Guide to Implementation of Statement
No. 115 on Accounting for Certain Investments in Debt and Equity
Securities."  The report included a provision that allowed banks a
one-time opportunity to reclassify (at fair value) held-to-maturity
securities without calling into question their intent to hold other
debt securities to maturity in the future.  The reclassifications had
to be made in conjunction with implementation of the supplemental
guidance by December 31, 1995.  The Corporation did not make any
reclassifications as allowed under this special provision.
     The classification of investment securities into categories held
to maturity or available for sale is initially determined at the date
the security is purchased and is reevaluated at each balance sheet
date.  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.
     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 is
reported as a separate component of Stockholders' Equity net of the
effect of deferred income tax.  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 maturity, or in the case of mortgage-backed
security, over the estimated life of the security.  Such amortization
and accretion, as well as interest and dividends is included in
interest from investments.  Realized gains and losses are included in
net investment securities gains.  The cost of investment securities
sold, redeemed or matured is based on the specific identification
method.


8 First Keystone Corporation

<PAGE>

Loans
     Loans are stated at their outstanding unpaid 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.
     Mortgage loans held for resale are carried at the lower of cost
or market.  These loans are sold without recourse to the Corporation.

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 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. 
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.
     As of January 1, 1995, the Corporation adopted 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 the new 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. 
Prior to 1995, the allowance for loan losses related to these loans
was based on undiscounted cash flows or the fair value of the
collateral for 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 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.

Premises and Equipment
     Premises and equipment are stated at cost less accumulated
depreciation computed principally on the straight-line method over the
estimated useful lives of the assets.  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.
     As of January 1, 1996, the Corporation adopted Statement of
Financial Accounting Standards 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 be reviewed for impairment 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 by the Corporation did not result in any impairment losses.


                                             1996 Annual Report 9

<PAGE>

Other Real Estate Owned
     Real estate properties acquired through, or in lieu of, loan
foreclosure are to be sold and are initially recorded at fair value at
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.  Revenue and expenses from operations and
changes in the valuation allowance are included in loss on foreclosed
real estate.

Advertising Costs
     Advertising costs are expensed as the costs are incurred. 
Advertising expenses amounted to $119,579, $107,541, and $114,124 for
1996, 1995, and 1994, respectively.

Contributions (Charitable)
     The Corporation adopted Statement of Financial Accounting
Standard No. 116 "Accounting for Contributions Received and
Contributions Made."  Under this Statement, the entire amount of
contributions in the form of unconditional promises to pay (bona fide
pledges) must be accrued and reflected as a contribution expense in
the year of the pledge.  The measurement of the accrual required is
based on the present value of future cash flows using a current market
discount rate.  A prospective change is permitted, however, the
Corporation has elected not to reflect the cumulative effect of the
change due to implementing Statement No. 116 at January 1, 1995, since
the amount at that date was not significant.  

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.  Further, the
Statement requires that a valuation allowance be provided in an amount
sufficient to reduce the deferred tax asset to the amount that is more
likely than not to be realized. 

Per Share Data
     Net income and cash dividends per share are based upon weighted
average number of shares outstanding during each period.  All data
with respect to weighted average number of shares outstanding, net
income and cash dividends was retroactively adjusted to reflect the
stock dividends.

Cash Flow Information
     For purposes of reporting 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.  
     Interest paid on deposits and other borrowings was $8,682,349,
$7,994,087 and $6,287,219 in 1996, 1995 and 1994, respectively.  Cash
payments for income taxes were $1,125,251, $902,567 and $760,056 for
1996, 1995 and 1994, respectively.  The Corporation transferred loans
to other real estate owned in the amounts of $46,184 in 1996 and
$256,530 in 1994.

Derivative Financial Instruments
     The Corporation has no derivative financial instruments requiring
disclosure under Statement of Financial Accounting Standards No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments."

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.  Fiduciary activities income is recognized on a cash
basis and is not materially different than if it were reported on an
accrual basis.

Reporting Format
     Certain amounts in the financial statements of prior periods have
been reclassified to conform with presentation used in the 1996
financial statements.  Such reclassifications have no effect on the
Corporation's consolidated financial condition or net income.


10 First Keystone Corporation

<PAGE>

NOTE 2.  RESTRICTED CASH BALANCES
     Regulations of the Board of Governors of the Federal Reserve
System impose uniform reserve requirements on all member depository
institutions.  The Bank subsidiary was required to have aggregate cash
reserves of $1,949,000 and $1,508,000 at December 31, 1996, and 1995,
respectively.
     The Bank subsidiary also, from time to time, maintains deposits
with the Federal Reserve Bank and other banks for various services
such as check clearing and charge card processing.  Balances
maintained for this purpose were $1,032,133 at December 31, 1996.


NOTE 3.  INVESTMENT SECURITIES
     The amortized cost, related estimated fair value, and unrealized
gains and losses for investment securities classified as "Available
For Sale" or "Held to Maturity" were as follows at December 31, 1996,
and 1995:


<TABLE>
<CAPTION>

                                     Available For Sale Securities
                                                                          
                                          Gross        Gross       Estimated
                           Amortized   Unrealized   Unrealized      Fair
                            Cost          Gains        Losses       Value
                                                                           
<S>                        <C>           <C>           <C>        <C>
December 31, 1996:
U.S. Treasury 
  securities               $ 3,294,242   $   46,430    $   -      $ 3,340,672
Obligations of U.S. 
  Government 
  Corporations and 
  Agencies:
  Mortgage-backed           18,874,935         -         62,810    18,812,125
  Other                     17,748,918         -        221,778    17,527,140
Obligations of state 
  and political 
  subdivisions              35,971,566    1,630,009        -       37,601,575
Corporate debt 
  securities:
  Mortgage-backed            1,292,934         -         27,116     1,265,818
  Other                              0         -           -                0
Equity securities            2,178,352      420,252        -        2,598,604
                                                                             
Total                      $79,360,947   $2,096,691    $311,704   $81,145,934
                                                                             


</TABLE>


<TABLE>
<CAPTION>

                                      Held to Maturity Securities
                                                                           
                                          Gross        Gross       Estimated
                           Amortized   Unrealized   Unrealized      Fair
                            Cost          Gains        Losses       Value
                                                                           
<S>                        <C>             <C>         <C>        <C>
December 31, 1996:
Obligations of U.S. 
  Government 
  Corporations and 
  Agencies,
  Mortgage-backed          $16,786,482     $   -       $173,419   $16,613,063
Obligations of state 
  and political 
  subdivisions               3,293,077      48,220         -        3,341,297
                                                                             
Total                      $20,079,559     $48,220     $173,419   $19,954,360
                                                                             

</TABLE>


<TABLE>
<CAPTION>

                                     Available For Sale Securities
                                                                         
                                          Gross        Gross       Estimated
                           Amortized   Unrealized   Unrealized      Fair
                            Cost          Gains        Losses       Value
                                                                           
<S>                        <C>           <C>           <C>        <C>
December 31, 1995:
U.S. Treasury 
  Securities               $ 4,947,272   $  228,353    $   -      $ 5,175,625
Obligations of U.S. 
  Government 
  Corporations and 
  Agencies:
  Mortgage-backed           16,266,958      121,160     136,491    16,251,627
  Other                      5,999,434      106,816        -        6,106,250
Obligations of state 
  and political 
  subdivisions              29,477,870    2,641,955      14,516    32,105,309
Corporate debt 
  securities:
  Mortgage-backed            2,849,219        -          41,281     2,807,938
  Other                         92,033           93           0        92,126
Equity securities            1,918,523      246,408           0     2,164,931
                                                                             
Total                      $61,551,309   $3,344,785    $192,288   $64,703,806
                                                                             

</TABLE>


                                                 1996 Annual Report 11

<PAGE>


<TABLE>
<CAPTION>

                                      Held to Maturity Securities
                                                                          
                                          Gross        Gross       Estimated
                           Amortized   Unrealized   Unrealized      Fair
                            Cost          Gains        Losses       Value
                                                                           
<S>                        <C>            <C>          <C>        <C>
December 31, 1995:
Obligations of U.S. 
  Government 
  Corporations and
  Agencies,
  Mortgage-backed          $20,130,568    $ 60,767     $124,139   $20,067,196
Obligations of state 
  and political 
  subdivisions               3,290,916      84,205        3,021     3,372,100
                                                                             
Total                      $23,421,484    $144,972     $127,160   $23,439,296
                                                                             

</TABLE>


<TABLE>
<CAPTION>

                                             December 31, 1996
                                                                            
                                               U.S. Government     Obligations
                                   U.S.             Agency &        of State
                                  Treasury        Corporation     & Political
                                 Securities      Obligations      Subdivisions
                                                                      <F1>
                                                                             
<S>                                <C>             <C>            <C>
Available For Sale:
Within 1 Year                      $    -          $    -         $      -   
1 - 5 Years:
  Amortized cost                    3,294,242           -                -   
  Estimated fair value              3,340,672           -                -   
  Weighted average yield                6.89%           -                -   
5 - 10 Years:
  Amortized cost                        -           11,818,162        485,916

  Estimated Fair value                  -           11,788,996        538,971
  Weighted average yield                -                7.29%         11.69%
After 10 Years:
  Amortized cost                        -           24,805,692     35,485,650
  Estimated fair value                  -           24,550,269     37,062,605
  Weighted average yield                -                7.33%          9.30%
                                                                             
Total:
  Amortized cost                   $3,294,242      $36,623,854    $35,971,566
  Estimated fair value             $3,340,672      $36,339,265    $37,601,575
  Weighted average yield                6.89%            7.32%          9.33%


<CAPTION>

                                             December 31, 1996
                                                                            
                                    Other                           Marketable
                                   Debt             Other             Equity
                                 Securities    Securities <F2>     Securities
                                                                      <F2>
                                                                              
<S>                                <C>               <C>             <C>
Available For Sale:
Within 1 Year                      $    -            $    -          $    -    
1 - 5 Years:
  Amortized cost                        -                 -               -    
  Estimated fair value                  -                 -               -    
  Weighted average yield                -                 -               -    
5 - 10 Years:
  Amortized cost                        -                 -               -    
  Estimated Fair value                  -                 -               -    
  Weighted average yield                -                 -               -    
After 10 Years:
  Amortized cost                    1,292,934         1,428,050         750,302
  Estimated fair value              1,265,818         1,428,050       1,170,554
  Weighted average yield                6.18%             6.28%           3.31%
                                                                               
Total:
  Amortized cost                   $1,292,934        $1,428,050      $  750,302
  Estimated fair value             $1,265,818        $1,428,050      $1,170,554
  Weighted average yield                6.18%             6.28%           3.31%
_______________________
<FN>
<F1>
Average yields on tax-exempt obligations of state and political
subdivisions have been computed on a tax-equivalent basis using a  34% tax
rate.
<F2>
Other securities and marketable equity securities are not considered to
have defined maturities and are included in the after ten year category.

</FN>
</TABLE>

12  First Keystone Corporation

<PAGE>

<TABLE>
<CAPTION>

                                             December 31, 1996
                                                                            
                                               U.S. Government     Obligations
                                   U.S.             Agency &        of State
                                  Treasury        Corporation     & Political
                                 Securities      Obligations      Subdivisions
                                                                      <F1>
                                                                            
<S>                                <C>             <C>             <C>
Held To Maturity:
Within 1 Year                      $    -          $    -          $     -   
1 - 5 Years:
  Amortized cost                        -               -             303,011
  Estimated fair value                  -               -             306,802
  Weighted average yield                -               -               8.34%
5 - 10 Years:
  Amortized cost                        -               -             498,125
  Estimated Fair value                  -               -             498,190
  Weighted average yield                -               -               7.27%
After 10 Years:
  Amortized cost                        -           16,786,482      2,491,941
  Estimated fair value                  -           16,613,063      2,536,305
  Weighted average yield                -                6.62%          8.84%
                                                                             
Total:
  Amortized cost                    $   -          $16,786,482     $3,293,077
  Estimated fair value              $   -          $16,613,063     $3,341,297
  Weighted average yield                -                6.62%          8.56%



<CAPTION>

                                             December 31, 1996
                                                                            
                                    Other                           Marketable
                                   Debt             Other             Equity
                                 Securities    Securities <F2>     Securities
                                                                      <F2>
                                                                            
<S>                                <C>               <C>             <C>
Held To Maturity:
Within 1 Year                      $    -            $    -          $    -    
1 - 5 Years:
  Amortized cost                        -                 -               -    
  Estimated fair value                  -                 -               -    
  Weighted average yield                -                 -               -    
5 - 10 Years:
  Amortized cost                        -                 -               -    
  Estimated Fair value                  -                 -               -    
  Weighted average yield                -                 -               -    
After 10 Years:
  Amortized cost                        -                 -               -    
  Estimated fair value                  -                 -               -    
  Weighted average yield                -                 -               -    
                                                                               
Total:
  Amortized cost                   $    -            $    -          $    -    
  Estimated fair value             $1,265,818        $1,428,050      $1,170,554
  Weighted average yield                6.18%             6.28%           3.31%

_______________________
<FN>
<F1>
Average yields on tax-exempt obligations of state and political
subdivisions have been computed on a tax-equivalent basis using a  34% tax
rate.
<F2>
Other securities and marketable equity securities are not considered to
have defined maturities and are included in the after ten year category.

</FN>
</TABLE>

     There were no aggregate investments with a single issuer which
exceeded ten percent of consolidated shareholders' equity at December
31, 1996.  The quality rating of all obligations of state and
political subdivisions are "A" or higher, as rated by Moody's or
Standard and Poors.  The only exceptions are local issues which are
not rated, but are secured by the full faith and credit obligations of
the communities that issued these securities.  All of the state and
political subdivision investments are actively traded in a liquid
market.
     Proceeds from sale of investments in debt and equity securities
during 1996, 1995 and 1994 were $20,076,003, $22,461,737, and
$19,505,870, respectively.  Gross gains realized on these sales were
$414,239, $350,410 and $332,506, respectively.  Gross losses on these
sales were $451,968, $345,569 and $152,222, respectively.  Net
unrealized gains (losses) on securities available for sale included as
a separate component of consolidated stockholders' equity net of tax
was $1,150,382 and $2,064,403 in 1996 and 1995, respectively.


NOTE 4.  LOANS
     Major classifications of loans at December 31, 1996 and 1995
consisted of:


<TABLE>
<CAPTION>

                                                   1996              1995
                                                                             
<S>                                               <C>              <C>
Commercial, Financial, and Agricultural           $ 13,573,843     $ 17,563,201
Tax exempt                                           2,263,116        3,602,088
Real estate mortgage                                98,248,599       87,284,672
Consumer                                            23,026,816       23,680,715
Gross loans                                       $137,112,374     $132,130,676
Less:  Unearned discount                             3,544,417        3,752,652
  Unamortized loan fees net of costs                   306,996          316,589
                                                                               
Loans, net of unearned income                     $133,260,961     $128,061,435
                                                                               

</TABLE>

     Mortgage loans held for sale included in loans were $1,126,213
and $103,900 at December 31, 1996, and 1995, respectively.


                                             1996 Annual Report  13

<PAGE>


     Changes in the allowance for loan losses for the years ended
December 31, 1996, 1995, and 1994, were as follows:

<TABLE>
<CAPTION>

                                      1996           1995            1994
                                                                         
<S>                                  <C>            <C>            <C>
Balance, January 1                   $2,015,236     $1,801,517     $1,844,196
Provision charged to 
  operations                            516,584        372,448         31,233
Loans charged off                      (302,480)      (185,643)      (181,666)
Recoveries                               37,643         26,914        107,754
                                                                             
Balance, December 31                 $2,266,983     $2,015,236     $1,801,517
                                                                             

</TABLE>

Non-accrual loans at December 31, 1996, 1995 and 1994 were
approximately $267,445, $556,533 and $619,732, respectively.  The
gross interest that would have been recorded if these loans had been
current in accordance with their original terms and the amounts
actually recorded in income were as follows:

<TABLE>
<CAPTION>

                                            1996          1995         1994 
                                                                          
<S>                                         <C>          <C>          <C>
Gross interest due under terms              $46,924      $53,224      $61,108
Amount included in income                     3,048        2,700        3,555
                                                                             
Interest income not recognized              $43,876      $50,524      $57,553
                                                                             

</TABLE>


     At December 31, 1996 and 1995 the recorded investment in loans
that are considered to be impaired as defined by Statement No. 114 was
$108,749 and $242,319, respectively.  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 Statement
No. 114 along with any other potential losses.  The average recorded
investment in impaired loans during the year ended December 31, 1996
and 1995 was approximately $126,641 and $237,090, respectively.
     At December 31, 1996, there were no significant commitments to
lend additional funds with respect to non-accrual and restructured
loans.


Note 5.  PREMISES AND EQUIPMENT
  A summary of premises and equipment at December 31, 1996 and 1995
follows:

<TABLE>
<CAPTION>
                                               1996                1995
                                                                       
<S>                                           <C>                 <C>
Land                                          $  840,288          $  840,288
Buildings and improvements                     2,386,788           2,386,788
Equipment                                      2,953,482           2,850,527
                                                                            
                                              $6,180,558          $6,077,603
Less:  Accumulated depreciation                3,299,382           3,011,602
                                                                            
Total                                         $2,881,176          $3,066,001
                                                                            

</TABLE>

     Depreciation amounted to $299,274 for 1996, $311,636 for 1995,
and $295,327 for 1994.


Note 6.  DEPOSITS
  Major classifications of deposits at December 31, 1996 and 1995
consisted of:

<TABLE>
<CAPTION>
                                                                    1996     1995
                                                                                     
<S>                                              <C>              <C>
Demand - non-interest bearing                    $ 17,804,634     $ 17,621,563
Demand - interest bearing                          42,838,638       37,617,465
Savings                                            40,405,703       42,333,211
Time, $100,000 and over                            21,053,285       17,683,648
Other time                                         76,443,523       72,064,200
                                                                              
Total deposits                                   $198,545,783     $187,320,087
                                                                              

</TABLE>


14  First Keystone Corporation

<PAGE>


  The following is a schedule reflecting classification and remaining
maturities of time deposits of $100,000 and over at December 31, 1996:

<TABLE>
<CAPTION>

                                              CERTIFICATES       OTHER TIME
                                               OF DEPOSIT          DEPOSITS
                                                                           
<S>                                             <C>                <C>
Three months or less                            $ 7,348,723        $5,247,000
Over three to six months                          2,424,960            -     
Over six to twelve months                         3,238,845            -     
Over twelve months                                2,793,757            -     

Total                                           $15,806,285        $5,247,000
                                                                             

</TABLE>

     Interest expense related to time deposits of $100,000 or more was
$1,066,135 in 1996, $1,156,943 in 1995, and $589,750 in 1994.


Note 7.  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.  Short-term 
borrowings consisted of the following at December 31, 1996, and
1995:


<TABLE>
<CAPTION>
                                                           1996
                                                                                           
                                                            Maximum
                                                             Month
                                    Ending       Average       End     Average
                                    Balance     Balance     Balance     Rate
                                                                            
<S>                                 <C>          <C>          <C>         <C>
Federal funds purchased and 
  securities sold under 
  agreements to repurchase          $3,388,466   $3,767,724   $ 4,095,918 4.28%
Federal Home Loan Bank                 500,000    1,088,209     5,775,000 6.52%
U.S. Treasury tax and
  loan notes                         1,232,901      570,705     1,506,241 5.11%
                                                                               
Total                               $5,121,367   $5,426,638   $11,377,159 6.03%
                                                                               


<CAPTION>
                                                           1995
                                                                                          
                                                            Maximum
                                                             Month
                                    Ending       Average       End     Average
                                    Balance     Balance     Balance     Rate
                                                                            
<S>                                 <C>          <C>         <C>          <C>
Federal funds purchased and 
  securities sold under 
  agreements to repurchase          $3,199,824   $3,994,116  $4,311,556   4.49%
Federal Reserve Bank
  discount window                        -            -           -         -  
Federal Home Loan Bank               1,000,000      286,466   1,000,000   6.19%
U.S. Treasury tax and
  loan notes                           158,777      722,108   2,171,398   5.51%
                                                                               
Total                               $4,358,601   $5,002,690  $7,482,954   5.71%
                                                                               

</TABLE>


NOTE 8.  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 Bank
subsidiary which consist principally of first mortgage loans.
     A schedule of long-term borrowings by maturity as of December 31,
1996, and 1995 follows:


<TABLE>
<CAPTION>

        Maturity         Interest Rate       1996               1995
                                                                   
    <S>                      <C>             <C>               <C>
    08/08/1996               7.40%           $     -           $1,000,000
    10/27/1996               7.36%                 -            1,000,000
    01/28/1997               5.50%             1,000,000            -    
    04/28/1997               5.80%             1,000,000            -    
    05/18/1997               6.90%             2,000,000        2,000,000
    10/27/1997               7.65%             1,000,000        1,000,000
    11/04/1997               5.73%             2,000,000            -    
    11/01/1998               5.56%             1,000,000        1,000,000
    12/27/2001               4.97%             1,000,000            -    
    05/18/2002               7.77%             1,000,000        1,000,000
                                             $10,000,000       $7,000,000
                                                                         

</TABLE>

                                              1996 Annual Report  15

<PAGE>


NOTE 9.  INCOME TAXES
     The current and deferred components of the income tax provision
(benefit) consisted of the following:


<TABLE>
<CAPTION>
                                       1996          1995          1994
                                                                       
<S>                                  <C>             <C>          <C>
Federal
  Current                            $1,013,777      $947,026     $815,005
  Deferred (benefit)                    (32,241)      (28,711)      88,584
                                                                          
                                     $  981,536      $918,315     $903,589
State
  Current (benefit)                      $1,803        $2,153     $ 12,516
  Deferred (benefit)                      -              (710)         (42)
                                                                          
                                     $    1,803      $  1,443     $ 12,474
Total provision for 
  income taxes                       $  983,339      $919,758     $916,063
                                                                          

</TABLE>

     The following is a reconciliation between the actual provision
for federal income taxes and the amount of federal income taxes which
would have been provided at the statutory rate of 34%:

<TABLE>
<CAPTION>
                                        1996                     1995
                                                                           
                                   Amount    Rate            Amount   Rate
                                                                          
<S>                                <C>           <C>        <C>          <C>
Provision at statutory rate        $1,738,632     34.0%     $1,498,023    34.0%
Tax exempt income                    (859,940)   (16.8)       (653,505)  (14.8)
Dividend received exclusion            (8,565)     (.2)         (6,433)    (.2)
Non-deductible expenses               112,022      2.2          83,110     1.9
Other, net                               (613)     -            (2,880)    (.1)
                                                                              
Applicable federal income 
   tax and rate                    $  981,536     19.2%     $  918,315    20.8%
                                                                              

<CAPTION>
                                        1994
                                                     
                                   Amount    Rate
                                                 
<S>                                <C>          <C>

Provision at statutory rate        $1,370,423     34.0%
Tax exempt income                   (510,700)   (12.7)
Dividend received exclusion           (6,085)     (.2)
Non-deductible expenses                54,552      1.4
Other, net                            (4,601)     (.1)
                                                      
Applicable federal income 
  tax and rate                     $  903,589     22.4%
                                                      

</TABLE>


     Income tax (benefit) attributable to realized security losses was
($12,828) in 1996.  Income tax expense attributable to realized
security gains was $1,646 in 1995 and $61,297 in 1994.
     The deferred tax assets and liabilities resulting from temporary
timing differences have been netted to reflect a net deferred tax
asset included in other assets in these consolidated financial
statements.  The components of the net deferred tax assets at December
31, 1996, 1995, and 1994 are as follows:


<TABLE>
<CAPTION>
                                        1996           1995           1994
                                                                          
<S>                                     <C>           <C>            <C>
Deferred Tax Assets:
  Loan loss Reserve                     $ 623,870     $   538,276    $ 465,612
  Loan origination fees 
    and costs                               -               -            9,059
  Contributions                             -               4,454        -    
    Total                               $ 623,870     $   542,730    $ 474,671
                                                                              
Deferred Tax Liabilities:
  Loan origination fees 
    and costs                           $ (64,371)    $   (30,176)   $   -    
  Accretion                               (24,302)        (11,622)      (3,358)
  Unrealized investment 
    securities gains 
    (loss in 1994 <F1>                   (634,604)     (1,088,095)      (5,018)
  Depreciation                           (167,442)       (165,418)    (165,220)
                                                                              
    Total                               $(890,719)    $(1,295,311)   $(173,596)
                                                                              
  Net Deferred Tax Asset 
    (Liability)                         $(266,849)    $  (752,581)   $ 301,075
                                                                              
____________________________

<FN>
<F1>
The net deferred tax liability on unrealized investment securities losses
for 1994 results from deferred federal and state tax on parent company
unrealized securities gains being greater than deferred federal tax on Bank
unrealized losses.

</FN>
</TABLE>

     It is anticipated that all tax assets are to be realized,
accordingly no valuation allowance has been provided.


16 First Keystone Corporation

<PAGE>


Note 10.  EMPLOYEE BENEFIT PLANS
     The Corporation maintains a 401K Profit Sharing Plan.  The Plan
agreement provides that the Corporation will match employee deferrals
to the Plan not to exceed 3% of their respective eligible
compensations.  Additionally, the Corporation may make a discretionary
contribution annually to the Plan, which when combined with the
employee's deferral and Corporation's matching contributions, cannot
exceed 15% of total eligible compensation.
     Contributions reflected as expense in the accompanying
consolidated financial statements under the current plan are as
follows:

  
<TABLE>
<CAPTION>

                                             1996         1995        1994
                                                                          
<S>                                           <C>        <C>          <C>
Matching Contribution                         $ 52,892   $ 46,306     $ 41,564
Discretionary Contribution                     138,818    195,291      169,347
                                                                              
   Total Expense                              $191,710   $241,597     $210,911
                                                                              

</TABLE>


Note 11.  LEASE COMMITMENTS
     At December 31, 1996, the Corporation was leasing two branch bank
buildings.  The lease agreement on the Nescopeck branch bank office
was renewed June 1, 1995, for a five-year period and provides, among
other items, renewal options and the payment of other expenses in
addition to a base annual rental of $9,600.  The lease agreement on
the Scott Township branch bank office, dated May 31, 1988, is an
eight-year lease requiring an annual rental of $21,800 for each of the
first three years and an annual rental of $25,800 for each of the
remaining five years increased annually for inflation.  The lease
provides for a renewal option and the payment of other normal
operating expenses.
     On November 15, 1995, the Corporation renewed their Scott
Township lease for an additional five-year period.  Total rent expense
on the two branch bank buildings for the years ended December 31,
1996, 1995 and 1994 was $48,180, $45,997 and $34,347, respectively.
     Minimum future non-cancelable rental payments for the branch
buildings as of December 31, 1996, for each of the next five years
are:

<TABLE>
<CAPTION>

                   <S>                            <C>
                    1997                          $ 43,678
                    1998                            44,837
                    1999                            45,824
                    2000                            40,540
                    2001                            15,452
                    Thereafter                        -   
                                                          
                    Total                         $190,331
                                                          
</TABLE>

NOTE 12.  LEGAL MATTERS
     In the normal course of business, there are various pending legal
actions and proceedings that are not reflected in the consolidated
financial statements.  Management does not believe the outcome of
these actions and proceedings will have a material adverse effect on
the consolidated financial position of the Corporation.


NOTE 13.  RELATED PARTY TRANSACTIONS
     Certain directors and executive officers of First Keystone
Corporation and its Subsidiary and companies in which they are
principal owners (i.e., at least 10%) were indebted to the Corporation
at December 31, 1996, 1995 and 1994.  These loans were made on
substantially the same terms and conditions, including interest rates
and collateral, as those prevailing at the time for comparable
transactions with unrelated parties.  The loans do not involve more
than the normal risk of collectibility nor present other unfavorable
features.
     A summary of the activity on the related party loans, comprised
of 5 directors and 3 executive officers, consists of the following for
the years ended December 31, 1996, 1995, and 1994:


<TABLE>
<CAPTION>

                                    1996           1995             1994
                                                                        
<S>                                   <C>            <C>           <C>
Balance at January 1                  $3,090,030     $3,410,457    $2,813,715
New loan advances                        224,885      1,513,122     1,593,607
Repayments                              (760,970)    (1,833,549)     (996,865)
                                                                             
Balance at December 31                $2,553,945     $3,090,030    $3,410,457
                                                                             

</TABLE>

                                               1996 Annual Report  17

<PAGE>


Note 14.  REGULATORY MATTERS
     Dividends are paid by the Corporation to stockholders from its
assets which are mainly provided by the Bank.
     National banking laws place certain restrictions on the amount of
dividends allowed to be paid by the Bank to the Corporation. 
Generally, the limitation provides that dividend payments may not
exceed the Bank's current year's retained income plus retained net
income for the preceding two years.  Accordingly, in 1997, without
prior regulatory approval, the Bank may declare dividends to the
Corporation in the amount of $5,457,319 plus additional amounts equal
to the net income earned in 1997 for the period January 1, 1997,
through the date of declaration, less any dividends which may have
already been paid in 1997.
     Federal regulations provide standards which require that U.S.
banking organizations meet certain minimum capital ratios as a measure
of capital adequacy.  In general, the standards require banks and bank
holding companies to maintain capital based on "risk-adjusted" assets
so that categories of assets with potentially higher credit risk will
require more capital backing than assets with lower risk.  In
addition, banks and bank holding companies are required to maintain
capital to support, on a "risk-adjusted" basis, certain off-balance
sheet activities such as loan commitments and letters of credit.
     The Federal Standards provide specific guidelines which classify
Capital into two Tiers, referred to as Tier 1 and Tier 2.  Under these
guidelines the Bank's Tier 1 Capital consists of common stockholders'
equity and Tier 2 Capital consists of Tier 1 Capital plus the lesser
of the allowance for loan losses, or 1.25% of gross risk-weighted
assets.  Total qualifying Capital consist of the total of Tier 1
Capital plus Tier 2 Capital with Tier 2 Capital being limited to 100%
of Tier 1 Capital.  At December 31, 1996, the Corporation exceeded all
minimum Capital requirements as reflected in the following table:


<TABLE>
<CAPTION>

                                                                  Minimum
                                                 Calculated        Standard
                                                   Ratios           Ratios
                                                                           
<S>                                                    <C>             <C>
Risk Based Ratios:
Tier 1 Capital to Risk-Weighted Asset                  19.29%          4.00%
Total Qualifying Capital to Risk-Weighted 
     Assets                                            20.55%          8.00%

</TABLE>


Note 15.  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 December 31, 1996, and 1995 were as
follows:


<TABLE>
<CAPTION>

                                                    1996            1995
                                                                        
<S>                                                <C>             <C>
Financial instruments whose contract 
   amount represent credit risk:
  Commitments to extend credit                     $17,675,879     $10,036,866
  Standby letters of credit                        $ 1,331,233     $ 1,824,649


</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. However,
at December 31, 1996, all standby letters of credit are generally
unsecured.


18 First Keystone Corporation

<PAGE>


     The Corporation grants commercial, agribusiness and residential
loans to customers within the state.  It is management's opinion that
the loan portfolio was balanced and diversified at December 31, 1996,
to the extent necessary to avoid any significant concentration of
credit risk.                                 


Note 16.  STOCKHOLDERS' EQUITY
     On January 4, 1996, the Board of Directors declared a 10% Stock
Dividend paid February 16, 1996, to Shareholders of Record January 4,
1996.  The stock dividend was valued based on the market price of
$37.00 per share on January 4, 1996.  A total of 80,718 shares were
issued as a result of this stock dividend with a total value of
$2,991,188, including cash in lieu of fractional shares.
     All data with respect to shares, net income and cash dividends
per share, and weighted average number of shares outstanding was
retroactively adjusted to reflect the stock dividends.


NOTE 17.  FAIR VALUES OF FINANCIAL INSTRUMENTS
     Statement of Financial Accounting Standards Board Statement No.
107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of fair value information about financial instruments,
whether or not required to be recognized in the consolidated balance
sheet, for which it is practicable to estimate such fair value.  In
cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. 
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows.  Fair
value estimates derived through these techniques cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. 
Statement No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. 
Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Corporation.
     The following methods and assumptions were used by the
Corporation in estimating its fair value disclosures for financial
instruments:

     Cash and Due From Banks, Short-Term Investments, Accrued Interest
     Receivable and Accrued Interest Payable
          The fair values are equal to the current carrying values.

     Investment Securities
          The fair value of investment securities which include
     mortgage backed securities, except certain state and municipal
     securities, is estimated based on bid prices published in
     financial newspapers or bid quotations received from securities
     dealers.  The fair value of certain state and municipal
     securities is not readily available through market sources other
     than dealer quotations, thus fair value estimates are based on
     quoted market prices of similar instruments, adjusted for
     differences between the quoted instruments and the instruments
     being valued.

     Loans
          Fair values are estimated for categories of loans with
     similar financial characteristics.  Loans were segregated by type
     such as commercial, tax exempt, real estate mortgages and
     consumer.  For estimation purposes each loan category was further
     segmented into fixed and adjustable rate interest terms and also
     into performing and non-performing classifications.
          The fair value of each category of performing loans is
     calculated by discounting future cash flows using the current
     rates at which similar loans would be made to borrowers with
     similar credit ratings and for the same remaining maturities.
          Fair value for non-performing loans is based on managements'
     estimate of future cash flows discounted using a rate
     commensurate with the risk associated with the estimated future
     cash flows.  The assumptions used by management are judgmentally
     determined using specific borrower information.

     Deposits
          Under Statement No. 107, the fair value of deposits with no
     stated maturity, such as Demand Deposits, Savings Accounts and
     Money Market Accounts is equal to the amount payable on demand at
     December 31, 1996, and 1995.
          Fair values for fixed-rate certificates of deposit are
     estimated using a discounted cash flow calculation that applies
     interest rates currently being offered on certificates to a
     schedule of aggregated expected monthly maturities on time
     deposits.


                                                1996 Annual Report 19

<PAGE>



     Short-Term and Long-Term Borrowings
          The fair values of short-term and long-term borrowings are
     estimated using discounted cash flow analyses based on the
     Corporation's incremental borrowing rate for similar instruments.

     Commitments to Extend Credit and Stand-By Letters of Credit
          Management estimates that there are no material differences
     between the notional amount and the estimated fair value of those
     off-balance sheet items since they are primarily composed of
     unfunded loan commitments which are generally priced at market at
     the time of funding.
          At December 31, 1996 and 1995, the carrying values and
     estimated fair values of financial instruments of the Corporation
     are presented in the table below:

<TABLE>
<CAPTION>
                                                               1996
                                                                                   
                                                   Carrying        Estimated
                                                    Amount         Fair Value
                                                                             
     <S>                                         <C>               <C>
    FINANCIAL ASSETS:
     Cash and due from banks                     $  5,147,438      $  5,147,438
     Short-term investments                            32,093            32,093
     Investment securities                        101,225,493       100,100,281
     Net loans                                    130,933,978       132,207,197
     Accrued interest receivable                    1,958,882         1,958,882


    FINANCIAL LIABILITIES:
     Deposits                                     198,545,783       198,681,259
     Short-term borrowings                          5,121,367         5,122,376
     Long-term borrowings                          10,000,000        10,041,133
     Accrued interest payable                         900,396           900,396


    OFF-BALANCE SHEET FINANCIAL 
      INSTRUMENTS:
     Commitments to extend credit                                    17,675,879
     Standby letters of credit                                        1,331,233



<CAPTION>
                                                               1995
                                                                                     
                                                   Carrying        Estimated
                                                    Amount         Fair Value
                                                                             
     <S>                                         <C>               <C>
    FINANCIAL ASSETS:
     Cash and due from banks                     $  4,656,866      $  4,658,866
     Short-term investments                         1,962,946         1,962,946
     Investment securities                         88,125,290        88,143,102
     Net loans                                    126,046,199       133,936,414
     Accrued interest receivable                    1,875,368         1,875,368


    FINANCIAL LIABILITIES:
     Deposits                                     187,320,087       188,306,316
     Short-term borrowings                          4,358,601         4,358,601
     Long-term borrowings                           7,000,000         7,219,928
     Accrued interest payable                         915,379           915,379


    OFF-BALANCE SHEET FINANCIAL 
      INSTRUMENTS:
     Commitments to extend credit                                    10,036,866
     Standby letters of credit                                        1,824,649


</TABLE>

20 First Keystone Corporation

<PAGE>


Note 18.  PARENT COMPANY FINANCIAL INFORMATION
  Condensed financial information for First Keystone Corporation
(parent company only) was as follows:

<TABLE>
<CAPTION>

BALANCE SHEETS                                              December 31
                                                                          
                                                     1996             1995
                                                                          
<S>                                                 <C>             <C>
ASSETS
  Cash in subsidiary bank                           $   468,854     $   445,312
  Investment in subsidiary bank                      26,000,323      24,060,533
  Investment in other equity securities               1,170,554         955,082
  Receivables from subsidiary bank                        -              54,681
  Prepayments and other assets                           11,400          82,394
                                                                               
    TOTAL ASSETS                                    $27,651,131     $25,598,002
                                                                               

LIABILITIES                                               
  Payable to subsidiary bank                        $     6,745     $    -     
  Accrued expenses and other liabilities                171,391         198,541
                                                                               
    TOTAL LIABILITIES                               $   178,136     $   198,541
                                                                               

STOCKHOLDERS' EQUITY                                      
  Preferred stock                                   $    -          $    -     
  Common stock                                        1,778,294       1,616,858
  Surplus                                             6,654,396       3,829,266
  Retained earnings                                  17,889,923      17,888,934
  Unrealized gain (loss) on investment 
    securities available for sale                     1,150,382       2,064,403
                                                                               
    TOTAL STOCKHOLDERS' EQUITY                      $27,472,995     $25,399,461
                                                                               

    TOTAL LIABILITIES AND STOCKHOLDERS' 
      EQUITY                                        $27,651,131     $25,598,002
                                                                               

</TABLE>



<TABLE>
<CAPTION>

INCOME STATEMENTS                                 Year Ended December 31       
                                                                          
                                            1996          1995        1994
                                                                          
<S>                                        <C>           <C>         <C>
INCOME
  Dividends from subsidiary bank           $1,138,110    $  953,945  $  889,272
  Dividends - other                            34,818        26,553      25,370
  Securities gains                             -             21,760      99,616
  Interest                                     28,810        15,372      15,473
                                                                               
   TOTAL INCOME                            $1,201,738    $1,017,630  $1,029,731

Operating Expenses                             21,212        27,102      22,840
                                                                               
  Income Before Taxes and Equity 
   in Undistributed Net Income 
   of Subsidiary                           $1,180,526    $  990,528  $1,006,891
  Income tax expense                            7,325         7,305      41,855
                                                                               
  Income Before Equity in 
   Undistributed Net Income of 
   Subsidiary                              $1,173,201    $  983,223  $  965,036
  Equity in undistributed income 
   of Subsidiary                            2,957,084     2,502,970   2,149,557
                                                                               

   NET INCOME                              $4,130,285    $3,486,193  $3,114,593
                                                                               

</TABLE>

                                               1996 Annual Report  21

<PAGE>


<TABLE>
<CAPTION>

STATEMENTS OF CASH FLOWS                       Year Ended December 31
                                                                         
                                          1996         1995           1994
                                                                          
<S>                                      <C>           <C>           <C>
Net income                               $ 4,130,285   $3,486,193    $3,114,593
Adjustments to reconcile net 
  income to net cash provided 
  by operating activities:
    Securities gains                          -           (21,760)      (99,616)
    Equity in undistributed 
      net income of Subsidiary            (2,957,084)  (2,502,970)   (2,149,557)
    (Increase) decrease in 
      receivables from 
      Subsidiary                              54,681      (53,325)          (22)
    (Increase) decrease in 
      prepaid expenses and
      other assets                            70,994         (245)      (65,556)
    Increase (decrease) in 
      advances payable to 
      Subsidiary                               6,745      (56,093)       42,804
    Increase (decrease) in 
      accrued expenses                       (97,721)      45,900        52,616
                                                                               
    NET CASH PROVIDED BY 
      OPERATING ACTIVITIES               $ 1,207,900   $  897,700    $  895,262
                                                                               

INVESTING ACTIVITIES
Purchase of equity securities            $   (41,628)  $ (166,253)   $ (254,565)
Sale of equity securities                     -            56,438       272,442
Dissolution of non-bank 
  subsidiary                                  -            12,851        -     
                                                                               
  NET CASH PROVIDED (USED) 
    IN INVESTING ACTIVITIES              $   (41,628)  $  (96,964)   $   17,877
                                                                               

FINANCING ACTIVITIES
Cash dividends paid                      $(1,138,108)  $ (953,946)   $ (889,272)
Dividends paid in lieu of 
  fractional shares                           (4,622)      -             -     
                                                                               
  NET CASH PROVIDED (USED) 
    BY FINANCING ACTIVITIES              $(1,142,730)  $ (953,946)   $ (889,272)
                                                                               

  INCREASE (DECREASE) IN 
    CASH AND CASH EQUIVALENTS            $    23,542   $ (153,210)   $   23,867
  CASH AND CASH EQUIVALENTS 
    AT BEGINNING OF YEAR                     445,312      598,522       574,655
                                                                               
  CASH AND CASH EQUIVALENTS 
    AT END OF YEAR                       $   468,854   $  445,312    $  598,522
                                                                               

</TABLE>

22  First Keystone Corporation

<PAGE>


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Stockholders of First Keystone Corporation:

     We have audited the accompanying consolidated balance sheets of
First Keystone Corporation and Subsidiary as of December 31, 1996 and
1995, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1996.  These consolidated financial statements are the
responsibility of the Corporation's management.  Our responsibility is
to express an opinion on these consolidated financial statements based
on our audits.

     We conducted our audits in accordance with generally accepted
auditing standards.  Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. 
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements.  An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of First Keystone Corporation and Subsidiary as of
December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.

     As discussed in Note 1 to the Consolidated Financial Statements,
the Corporation changed its method of accounting for impaired loans
and contributions in 1995 and investments in debt and equity
securities in 1994.






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









Kingston, Pennsylvania
January 9, 1997

                                               1996 Annual Report  23

<PAGE>



Management's Discussion and Analysis
                                                                      


                                                          
              Management's Discussion and Analysis of the
             Results of Operations and Financial Condition
                                                          


PURPOSE
     The purpose of the Management Discussion and Analysis of First
Keystone Corporation, a bank holding company (the Corporation), and
its wholly owned subsidiary, The First National Bank of Berwick (the
Bank), is to assist the reader in reviewing the financial information
presented and should be read in conjunction with the consolidated
financial statements and other financial data contained herein.

RESULTS OF OPERATIONS              
     First Keystone Corporation realized record earnings in 1996 with
reported net income of $4,130,285.  The net income for 1996 marked the
14th consecutive year that earnings and earnings per share have
increased.  Earnings per share for 1996 were $4.70 as compared to
$3.97 and $3.54 in 1995 and 1994, respectively.  The Corporation's
return on average assets improved to 1.75% in 1996 from 1.58% in 1995
and 1.54% in 1994.  Likewise, the Corporation's return on average
equity remained strong at 15.98% in 1996, an increase from 15.24% in
1995 and 15.34% in 1994.  
     Average earning assets increased $14,621,113, or 6.9% during
1996, while average interest bearing liabilities grew $11,744,524, or
6.5%.  The average yield on earning assets increased to 8.38% in 1996
from 8.27% in 1995 while the rate paid on interest bearing liabilities
decreased to 4.53% in 1996 from 4.60% in 1995.  As a result, the
Corporation's net interest income on a fully taxable equivalent basis
increased 11.4% in 1996.

NET INTEREST INCOME
     The major source of operating income for the Corporation is net
interest income, defined as interest income less interest expense. 
The amount of interest income is dependent upon both the volume of
earning assets and the level of interest rates.  In addition, the
volume of non-performing loans affects interest income.  The amount of
interest expense varies with the amount of funds needed to support
earnings assets, interest rates paid on deposits and borrowed funds,
and finally, the level of interest free deposits.  Table 1 indicates
the amount of net interest income in each of the past-three years and
the increase or decrease in each of the components.  With interest
income increasing more than interest expense, net interest income on a
fully tax equivalent basis increased $1,065,000 in 1996 after
increasing $1,204,000, or 14.8% in 1995.
     Table 2 on the following page provides a breakdown of average
balances with corresponding revenues and expense resulting in average
yield or rates paid.  The yield on earning assets was 8.38% in 1996,
8.27% in 1995, and 7.44% in


<TABLE>

Table 1 - Net Interest Income

<CAPTION>

(Amounts in thousands)                                  1996/1995
                                                  Increase/(Decrease)
                                                                          
                                           1996      Amount   %        1995
                                                                          
<S>                                        <C>        <C>      <C>     <C>
Interest Income                            $17,786    $1,149    6.9    $16,637
Interest Expense                             8,667       396    4.8      8,271
                                                                              
Net Interest Income                          9,119       753    9.0      8,366
Tax Equivalent Adjustment                    1,302       312   31.5        990
                                                                              
Net Interest Income (fully 
 tax equivalent)                           $10,421    $1,065   11.4    $ 9,356
                                                                              

<CAPTION>

(Amounts in thousands)                                 1995/1994
                                                                          
                                                 Increase/(Decrease)
                                          1995      Amount     %       1994
                                                                           
<S>                                       <C>        <C>       <C>     <C>
Interest Income                           $16,637    $2,906    21.2    $13,731
Interest Expense                            8,271     1,918    30.2      6,353
                                                                              
Net Interest Income                         8,366       988    13.4      7,378
Tax Equivalent Adjustment                     990       216    27.9        774
                                                                              
Net Interest Income (fully 
 tax equivalent)                          $ 9,356    $1,204    14.8    $ 8,152
                                                                              

</TABLE>


1994.  The yield on earning assets increased 11 basis points in 1996
after increasing 83 basis points in 1995.  At the same time, the rate
paid on interest bearing liabilities decreased to 4.53% after
increasing to 4.60% in 1995 from 3.83% in 1994.  Therefore, the rate
on interest bearing liabilities decreased 7 basis points in 1996 after
increasing 77 basis points in 1995.  This had the effect of increasing
our net interest margin to 4.58% in 1996 from 4.39% in 1995 and 4.18%
in 1994.  The continued maintenance of an adequate net interest margin
is a primary concern being addressed by management on an ongoing
basis.

                                               1996 Annual Report  25

<PAGE>


Management's Discussion and Analysis
                                                                      

<TABLE>

Table 2   Distribution of Assets, Liabilities and Stockholders' Equity

<CAPTION>

                                                       1996
                                                                            
                                     Avg. Balance         Revenue/    Yield/
                                                          Expense      Rate
                                                                            
<S>                                    <C>               <C>            <C>
Interest Earning Assets:
Loans:
Commercial <F1>                        $ 15,770,100      $ 1,542,429     9.78%
Real Estate <F1>                         93,136,506        8,008,957     8.60%
Installment Loans, 
  Net <F1><F2>                           19,832,168        1,986,279    10.02%
Fees on Loans                                     0          (22,838)       0%
                                                                              
  Total Loans 
    (Including Fees) <F3>              $128,738,774      $11,514,827     8.94%

Investment Securities:
Taxable                                $ 58,566,185      $ 3,971,485     6.78%
Tax Exempt <F1>                          38,724,074        3,510,650     9.07%
  Total Investment Securities          $ 97,290,259      $ 7,482,135     7.69%

Other Short-Term Investments:
Interest Bearing Deposits 
  in Banks                             $  1,690,096      $    91,782     5.43%
Federal Funds Sold                                0                0        0%
                                                                              
 Total Other Short-Term 
    Investments                           1,690,096           91,782     5.43%
                                                                              
 Total Interest-Earning 
   Assets                              $227,719,129      $19,088,744     8.38%
                                                                              

Non-Interest Earning Assets:
Cash and Due From Banks                $  4,589,473
Allowance for Loan Losses                (1,956,549)
Premises and Equipment                    2,957,176
Other Real Estate Owned                      51,253
Other Assets                              2,245,001
                                                   
 Total Non-Interest Earning 
   Assets                                 7,886,354
                                                   
 Total Assets                          $235,605,483
                                                   

Interest-Bearing Liabilities:
Savings, NOW Accounts, and 
  Money Markets                        $ 84,434,401      $ 2,601,722     3.08%
Time Deposits                            93,521,485        5,262,943     5.63%
Short-Term Borrowings                     1,658,914          100,183     6.04%
Long-Term Borrowings                      8,021,858          541,243     6.75%
Securities Sold U/A to 
  Repurchase                              3,767,725          161,275     4.28%
                                                                              
 Total Interest-Bearing 
   Liabilities                         $191,404,383      $ 8,667,366     4.53%
                                                                              

Non-Interest Bearing 
  Liabilities:
Demand Deposits                        $ 16,664,535
Other Liabilities                         1,506,985
Stockholders' Equity                     26,029,580
                                                   
 Total Liabilities/
   Stockholders' Equity                $235,605,483
                                                   

 Net Interest Income                                     $10,421,378
                                                                    
Margin Analysis:
Interest Income/Earning 
  Assets                                                                 8.38%
Interest Expense/Earning 
  Assets                                                                 3.81%
Net Interest Income/
  Earning Assets                                                         4.58%


26 First Keystone Corporation

Management's Discussion and Analysis
                                                                         

<CAPTION>
                                                       1995
                                                                             
                                     Avg. Balance         Revenue/    Yield/
                                                          Expense      Rate
                                                                            
<S>                                    <C>               <C>            <C>
Interest Earning Assets
Loans:
Commercial <F1>                        $ 20,081,671      $ 1,810,582     9.02%
Real Estate <F1>                         84,960,257        7,367,400     8.67%
Installment Loans, 
  Net <F1><F2>                           17,105,408        1,880,933    11.00%
Fees on Loans                                     0          (48,943)       0%
                                                                              
 Total Loans 
   (Including Fees) <F3>               $122,147,336      $11,009,972     9.01%
                                                                              
Investment Securities:
Taxable                                $ 62,270,253      $ 3,995,116     6.42%
Tax Exempt <F1>                          26,120,515        2,471,962     9.46%
                                                                              
 Total Investment Securities           $ 88,390,768      $ 6,467,078     7.32%
                                                                              
Other Short-Term Investments:
Interest Bearing Deposits 
  in Banks                             $  2,559,912      $   149,793     5.85%
Federal Funds Sold                                0                0        0%
                                                                              
 Total Other Short-Term 
   Investments                            2,559,912          149,793     5.85%
                                                                              
 Total Interest-Earning 
   Assets                              $213,098,016      $17,626,843     8.27%
                                                                              
Non-Interest Earning Assets:
Cash and Due From Banks                $  4,138,600
Allowance for Loan Losses                (1,823,528)
Premises and Equipment                    3,034,903
Other Real Estate Owned                      71,370
Other Assets                              2,328,407
                                                   
 Total Non-Interest Earning 
   Assets                                 7,749,752
                                                   
 Total Assets                          $220,847,768
                                                   
Interest-Bearing Liabilities:
Savings, NOW Accounts, and 
  Money Markets                        $ 79,045,538      $ 2,502,194     3.17%
Time Deposits                            87,133,168        4,948,259     5.68%
Short-Term Borrowings                     1,008,574           57,590     5.71%
Long-Term Borrowings                      8,478,003          583,469     6.88%
Securities Sold U/A to 
  Repurchase                              3,994,576          179,338     4.49%
                                                                              
 Total Interest-Bearing 
   Liabilities                         $179,659,859      $ 8,270,850     4.60%
                                                                              
Non-Interest Bearing 
  Liabilities:
Demand Deposits                        $ 16,910,070
Other Liabilities                         1,408,712
Stockholders' Equity                     22,869,127
                                                   
 Total Liabilities/
   Stockholders' Equity                $220,847,768
                                                   
 Net Interest Income                                     $ 9,355,993
                                                                    
Margin Analysis:
Interest Income/Earning Assets                                           8.27%
Interest Expense/Earning 
  Assets                                                                 3.88%
Net Interest Income/Earning 
  Assets                                                                 4.39%



<CAPTION>
                                                       1994
                                                                               
                                     Avg. Balance         Revenue/    Yield/
                                                          Expense      Rate
                                                                            
<S>                                    <C>               <C>            <C>
Interest Earning Assets
Loans:
Commercial <F1>                        $ 16,285,410      $ 1,303,728     8.01%
Real Estate <F1>                         81,252,856        6,585,333     8.10%
Installment Loans, 
  Net<F1><F2>                            14,118,826        1,572,414    11.14%
Fees on Loans                                     0           13,533        0%
                                                                              
 Total Loans 
   (Including Fees) <F3>               $111,657,092      $ 9,475,008     8.49%
                                                                              
Investment Securities:
Taxable                                $ 61,558,049      $ 2,989,833     4.86%
Tax Exempt1                              20,539,131        1,980,092     9.64%
                                                                              
 Total Investment Securities           $ 82,097,180      $ 4,969,925     6.05%
                                                                              
Other Short-Term Investments:
Interest Bearing Deposits 
  in Banks                             $  1,202,110      $    60,176     5.01%
Federal Funds Sold                                0                0        0%
                                                                              
 Total Other Short-Term 
   Investments                            1,202,110           60,176     5.01%
                                                                              
 Total Interest-Earning 
   Assets                              $194,956,382      $14,505,109     7.44%
                                                                              
Non-Interest Earning Assets:
Cash and Due From Banks                $  4,270,589
Allowance for Loan Losses                (1,826,250)
Premises and Equipment                    2,886,072
Other Real Estate Owned                      89,064
Other Assets                              1,671,304
                                                   
 Total Non-Interest Earning 
   Assets                                 7,090,779
                                                   
 Total Assets                          $202,047,161
                                                   
Interest-Bearing Liabilities:
Savings, NOW Accounts, and 
  Money Markets                        $ 82,791,038      $ 2,506,883     3.03%
Time Deposits                            70,016,841        3,229,622     4.61%
Short-Term Borrowings                     1,941,622           77,837     4.01%
Long-Term Borrowings                      6,661,644          400,907     6.02%
Securities Sold U/A to 
  Repurchase                              4,288,450          137,884     3.22%
                                                                              
 Total Interest-Bearing 
   Liabilities                         $165,699,595      $ 6,353,133     3.83%
                                                                              
Non-Interest Bearing 
  Liabilities:
Demand Deposits                        $ 15,136,451
Other Liabilities                           907,310
Stockholders' Equity                     20,303,805
                                                   
 Total Liabilities/
   Stockholders' Equity                $202,047,161
                                                   
 Net Interest Income                                     $ 8,151,976
                                                                    
Margin Analysis:
Interest Income/Earning Assets                                           7.44%
Interest Expense/Earning 
  Assets                                                                 3.26%
Net Interest Income/Earning 
  Assets                                                                 4.18%

______________________
<FN>
<F1>
Tax-exempt income has been adjusted to a tax-equivalent basis using an
incremental rate of 34%.
<F2>
Installment loans are stated net of unearned interest.
<F3>
Average loan balances include non-accrual loans.  Interest income on non-accrual loans is not included.

</FN>
</TABLE>

                                               1996 Annual Report  27

<PAGE>


Management's Discussion and Analysis
                                                                     



     Table 3 analyzes the changes attributable to the volume and rate
components of net interest income on a fully tax equivalent basis.  In
1996, the increase in net interest income of $1,065,000 resulted from
change in volume of $969,000 and an increase of $96,000 due to changes
in rate.  In 1995, there was an increase in net interest  income of 
$1,204,000 due to changes in volume of $790,000 and an increase of
$414,000 due to changes in rate.


<TABLE>

Table 3 - Changes in Income and Expense, 1996 and 1995

<CAPTION>

(Amounts in thousands)                          1996 COMPARED TO 1995
                                                                            
                                        VOLUME          RATE           NET
                                                                          
<S>                                       <C>             <C>          <C>
Interest Income:
Loans, Net                                $  594          $ (89)       $  505
Taxable Investment Securities               (238)           214           (24)
Tax-Exempt Investment Securities           1,193           (154)        1,039
Other Short-Term Investments                 (51)            (7)          (58)
                                                                             
 Total Interest Income                    $1,498          $ (36)       $1,462

Interest Expense:
Savings, Now, and Money Markets           $  170          $ (71)       $   99
Time Deposits                                363            (48)          315
Short-Term Borrowings                         37              6            43
Long-Term Borrowings                         (31)           (11)          (42)
Securities Sold U/A to Repurchase            (10)            (8)          (18)
                                                                             
 Total Interest Expense                   $  529          $(132)       $  397
                                                                             
 Net Interest Income                      $  969          $  96        $1,065
                                                                             



<CAPTION>
                                                1995 COMPARED TO 1994
                                                                            
                                        VOLUME         RATE            NET
                                                                          
<S>                                       <C>            <C>           <C>
Interest Income:
Loans, Net                                $  890         $  645        $1,535
Taxable Investment Securities                 34            971         1,005
Tax-Exempt Investment Securities             538            (46)          492
Other Short-Term Investments                  68             22            90
                                                                             
 Total Interest Income                    $1,530         $1,592        $3,122
                                                                             
Interest Expense:
Savings, Now, and Money Markets           $ (113)        $  108        $   (5)
Time Deposits                                790            929         1,719
Short-Term Borrowings                        (37)            17           (20)
Long-Term Borrowings                         109             73           182
Securities Sold U/A to Repurchase             (9)            51            42
                                                                             
 Total Interest Expense                   $  740         $1,178        $1,918
                                                                             
 Net Interest Income                      $  790         $  414        $1,204
                                                                             
________________________

The change in interest due to both volume and yield/rate has been allocated
to change due to volume and change due to yield/rate in proportion to the
absolute value of the change in each.
Balance on non-accrual loans are included for computational purposes. 
Interest income on non-accrual loans is not included.
Interest income exempt from federal tax was $1,922,073 in 1995; $1,502,060
in 1994; and $1,606,895 in 1993.  Tax-exempt income has been adjusted to a
tax-equivalent basis using an incremental rate of 34%.


</TABLE>


NON INTEREST INCOME
     Total non-interest income increased $82,000, or 8.5% in 1996 as
compared to a decrease of $22,000, or 2.2% in 1995 as illustrated in
Table 5.  
     Excluding investment securities gains, non-interest income in
1996 increased $125,000, or 13.0% compared to 1995 when non-interest
income increased $153,000, or 18.8%.
Income from fiduciary activities, which consists of fees
generated by our Trust Department, increased in 1996 by $75,000 after
increasing $55,000 in 1995.  Increased income from fiduciary
activities was due to a larger overall number of accounts in 1996. 
Also, in 1996 more accounts were moved to a quarterly fee assessment
as opposed to annual.  Assets under management by our Trust Department
continue to increase as illustrated in Table 4.

<TABLE>

Table 4 - Assets Under Management by Trust Department

<CAPTION>

(Amounts in thousands)      1996       1995        1994      1993      1992
                                                                          
<S>                         <C>         <C>        <C>       <C>        <C>
Individual Trusts           $ 91,256    $83,886    $72,027   $70,300    $71,113
Corporate Trusts              10,004      7,676      3,569     3,887      4,066
                                                                               
Total Trust 
  Department                $101,260    $91,562    $75,596   $74,187    $75,179
                                                                               

</TABLE>

28  First Keystone Corporation

<PAGE>


Management's Discussion and Analysis
                                                                    

     Service charges and fees, our largest generator of non-interest
income, increased $43,000, or 7.5% in 1996 compared to an increase of
$100,000, or 21.1% in 1995.  Other operating income increased $7,000,
or 16.7% in 1996 compared with a decrease of $2,000, or 4.5% in 1995.  
     The table below illustrates the change in non-interest income by
category for the years ended December 31, 1996, 1995, and 1994.


<TABLE>

Table 5 - Non-Interest Income

<CAPTION>

(Amounts in thousands)                                 1996/1995
                                                                           
                                                 Increase/(Decrease)
                                                                     
                                          1996      Amount      %       1995
                                                                           
<S>                                       <C>         <C>     <C>         <C>
Fiduciary Activities                      $  425      $ 75      21.4      $350
Service Charges and Fees                     616        43       7.5       573
Other Operating Income                        49         7      16.7        42
                                                                              
 Subtotal                                 $1,090      $125      13.0      $965
Investment Securities Gains                  (38)      (43)   (860.0)        5
                                                                              
 Total                                    $1,052      $ 82       8.5      $970
                                                                              




<CAPTION>
                                                      1995/1994
                                                                           
                                                 Increase/(Decrease)
                                                                     
                                          1995      Amount      %       1994
                                                                           
<S>                                         <C>      <C>       <C>        <C>
Fiduciary Activities                        $350     $  55      18.6      $295
Service Charges and Fees                     573       100      21.1       473
Other Operating Income                        42        (2)     (4.5)       44
                                                                              
 Subtotal                                   $965     $ 153      18.8      $812
Investment Securities Gains                    5      (175)    (97.2)      180
                                                                              
 Total                                      $970     $ (22)     (2.2)     $992
                                                                              


</TABLE>

PROVISION FOR LOAN LOSSES
     The provision for loan losses for the year-ended December 31,
1996, was $516,584 compared to $372,448 and $31,233 for the years
ended December 31, 1995, and 1994, respectively.  The provision for
possible loan losses was increased in 1996 to cushion us against
possible increased charge-offs.  Net charge-offs totaled $265,000 in
1996 as compared to $159,000 for 1995 and $73,000 in 1994.  Despite
increased net charge-offs, our manageable losses and reduced non-performing 
assets indicate good overall asset quality.  Non-performing
assets, consisting of non-performing loans and foreclosed assets, were
$351,000, $557,000, and $855,000 at December 31, 1996, 1995, and 1994,
respectively, representing .26%, .44%, and .73%, respectively, of
loans net of unearned income and foreclosed assets.
     The allowance for loan losses as a percentage of loans, net of
unearned interest, was 1.70% at December 31, 1996, 1.57% at December
31, 1995, and 1.52% at December 31, 1994.  The allowance for loan
losses as a percentage of non-performing assets remains strong at
645.9%, 361.8%, and 210.8% at year-end 1996, 1995, and 1994,
respectively.
     Loans past-due 90 or more days and still accruing did increase to
$263,000 in 1996 from $68,000 and $49,000 in 1995 and 1994,
respectively.  With the increase in our allowance for loan losses and
our continued collection efforts, the increase in loans past-due 90 or
more days does not represent a concern.

NON-INTEREST EXPENSES
     Total non-interest expense decreased by $15,000, or 0.3% in 1996
compared to an increase of $248,000, or 5.8% in 1995 as illustrated in
Table 6.  Expenses associated with employees (salaries and employee
benefits) continue to be the largest category of non-interest expense. 
Salaries and employee benefits amounted to 53.9% of total non-interest 
expense in 1996 (49.7% in 1995 and 49.3% in 1994).  Salaries and
employee benefits increased $185,000, or 8.2% in 1996 and $141,000, or
6.6% in 1995.  The increases in 1996 and 1995 were due to an increased
number of employees plus normal salary adjustments and increased
benefit costs. Full-time equivalent employees were 91 at December 31,
1996, compared to 89 in 1995 and 87 at end year 1994.  Based upon our
total deposits and total assets, our number of employees compares
favorably against peer financial institutions.
     Net occupancy expense decreased $11,000, or 3.8% in 1996 as
compared to an increase of $18,000, or 6.6% in 1995.  The decrease in
1996 relates primarily to a reduction in depreciation expense. 
Furniture and equipment expense increased $12,000, or 2.6% in 1996
compared to an increase of $35,000, or 13.7% in 1995.  The increases
in 1996 and 1995 relate directly to higher depreciation associated
with computer processing equipment and related equipment put into
service in the third quarter of 1994.
     Due to the restructuring of the payment of FDIC premiums, the
Corporation paid the minimum annual assessment rate of $2,000 in 1996
as a result of our well capitalized status.  This represented a
decrease of $198,000 in FDIC insurance expense from 1995.
     Other operating expenses decreased $3,000, or 0.2% in 1996 from a
$211,000 increase, or 18.6% in 1995.  A leveling-off of the other
operating expenses took place in 1996 after higher expenses associated
with professional fees, postage, printing supplies, insurance,
marketing, and advertising in 1995.
     Our overall non-interest expense of less than 2% of average
assets in 1996, places us among the leaders of our peer financial
institutions in controlling non-interest expense.


                                               1996 Annual Report  29

<PAGE>


Management's Discussion and Analysis
                                                                      

<TABLE>

Table 6 - Non-Interest Expense

<CAPTION>

(Amounts in thousands)                                 1996/1995
                                                                           
                                                 Increase/(Decrease)
                                                                     
                                         1996       Amount      %       1995
                                                                           
<S>                                       <C>        <C>       <C>      <C>
Salaries and Employee Benefits            $2,448     $ 185       8.2    $2,263
Net Occupancy Expense                        281       (11)     (3.8)      292
Furniture and Equipment Expense              468        12       2.6       456
FDIC Insurance                                 2      (198)    (99.0)      200
Other Operating Expenses                   1,342        (3)     (0.2)    1,345
                                                                              
 Total                                    $4,541     $ (15)     (0.3)   $4,556
                                                                              


<CAPTION>

                                                      1995/1994
                                                                           
                                                 Increase/(Decrease)
                                                                     
                                         1995       Amount      %       1994
                                                                           
<S>                                       <C>         <C>      <C>      <C>
Salaries and Employee Benefits            $2,263      $141       6.6    $2,122
Net Occupancy Expense                        292        18       6.6       274
Furniture and Equipment Expense              456        55      13.7       401
FDIC Insurance                               200      (177)    (46.9)      377
Other Operating Expenses                   1,345       211      18.6     1,134
                                                                              
 Total                                    $4,556      $248       5.8    $4,308
                                                                              

</TABLE>


INCOME TAXES
     Effective tax planning has helped produce favorable net income in
each of the past three years.  In 1996, net income before taxes
increased $707,673.  In 1995, income before income taxes increased
$375,295 over 1994, while our income tax liability increased $63,581
and $3,695 in 1996 and 1995, respectively.  The effective total income
tax rate was 19.2% in 1996, 20.8% in 1995, and 22.4% in 1994. The
decrease in our tax liability rate in 1996 and 1995 was due primarily
to the increased purchase of municipal (tax-free investments)
securities at attractive interest rates.


ANALYSIS OF FINANCIAL CONDITION

ASSETS
     Total assets increased to $242,557,150, an increase of 7.3% over
year-end 1995.  Total deposits increased to $198,545,783, or 6.0%. 
Assets at December 31, 1995, were up 9.3% to $226,033,263, while total
deposits were up 8.7% to $187,320,087 compared to 1994.  
     The Corporation used borrowed funds to support asset growth not
provided by deposit growth.  Deposit growth in 1996 was $11,225,696 as
compared to 1995 deposit growth of $15,040,312.  With conventional
deposit growth decreasing in 1996, as compared to 1995, the
Corporation increased its short-term borrowings and long-term
borrowings to $15,121,367 in 1996 as compared to $11,358,601 in 1995.
     The Corporation continues to maintain and manage its asset
growth.  Our strong equity capital position has put us in a position
where we can leverage our asset growth.  Depending upon interest rates
in 1997, the Corporation may borrow additional funds to leverage its
balance sheet if net income can be incrementally increased without
increasing interest rate risk.  The capital ratios, as illustrated in
Table 12   Capital Ratios for the Corporation and the Bank, continue
to exceed all minimum capital ratio requirements.

EARNING ASSETS
     Earning assets are defined as those assets that produce interest
income.  By maintaining a healthy asset utilization rate, i.e., the
volume of earning assets as a percentage of total assets, the
Corporation maximizes income.  The earning asset ratio equaled 96.7%
as of December 31, 1996, compared to 96.5% at December 31, 1995, and
96.5% as of December 31, 1994.  This indicates that the management of
earning assets is a priority and non-earning assets, primarily cash
and due from banks, fixed assets and other assets, are maintained  at
minimal levels.
     The primary earning assets are loans and investment securities. 
Loans, as illustrated in Table 7   Loans Outstanding, have steadily
increased.  Total loans, net of unearned income, increased $5,200,000,
or 4.1% in 1996 as compared to $9,877,000, or 8.4% in 1995 and
$9,840,000, or 9.1% in 1994.  The loan portfolio is well diversified,
and increases in the portfolio have primarily been from real estate
loans and commercial loans secured by real estate.  In addition,
consumer loans remained stable in 1996 after a large increase in 1995.


30 First Keystone Corporation

<PAGE>


Management's Discussion and Analysis
                                                                     


<TABLE>

Table 7 - Loans Outstanding, Net of Unearned Income

<CAPTION>

(Amounts in thousands)                                  December 31,
                                                                           
                                                1996      1995        1994
                                                                          
<S>                                            <C>         <C>         <C>
Commercial, financial and 
  agricultural:
   Commercial secured by real estate           $ 33,103    $ 28,846    $ 30,127
   Commercial - other                            13,574      17,563      16,285
Tax exempt                                        2,263       3,602       3,754
Real estate (primarily residential 
  mortgage loans)                                65,145      58,438      52,389
Consumer loans                                   23,027      23,681      19,370
                                                                               
Total Gross Loans                              $127,112    $132,130    $121,925
   Less: Unearned income and
       unamortized loan fees net 
       of costs                                   3,851       4,069       3,741
                                                                               
Total Loans, net of unearned income            $133,261    $128,061    $118,184
                                                                               


<CAPTION>

                                                    December 31,
                                                                   
                                              1993         1992
                                                                 
<S>                                          <C>           <C>
Commercial, financial and 
  agricultural:
 Commercial secured by real estate           $ 30,097      $ 26,296
 Commercial - other                            14,005        14,340
Tax exempt                                      2,717         3,063
Real estate (primarily residential
  mortgage loans)                              47,867        44,293
Consumer loans                                 17,156        19,247
                                                                   
Total Gross Loans                            $111,842      $107,239
 Less: Unearned income and
     unamortized loan fees net 
     of costs                                   3,498         4,009
                                                                   
Total Loans, net of unearned income          $108,344      $103,230
                                                                   

</TABLE>


     The investment portfolio has been allocated between securities
available for sale and securities held to maturity.  No investment
securities were established in a trading account. Available for sale
securities increased $16,442,000 to $81,146,000 in 1996, while held to
maturity securities decreased $3,341,000 to $20,080,000, as
illustrated in Table 8.  The vast majority of investment security
purchases in 1996 were allocated as available for sale.  This provides
the Corporation with increased flexibility should there be a need or
desire to liquidate an investment security.  Deposit growth not used
to fund loans in 1996 provided the primary source of funds for the
increase in investment securities available for sale. The investment
portfolio includes short-term investments, U.S. Treasury Securities,
U.S. Government Agencies, corporate obligations, mortgage backed
securities, state and municipal securities, and other debt securities.
In addition, the investment portfolio includes equity securities
consisting of common stock investments in other bank holding companies
and commercial banks.


<TABLE>

Table 8 - Carrying Value of Investment Securities

<CAPTION>

(Amounts in thousands)                         December 31,
                                                                 
                                                  1996
                                                                
                                        Available       Held to
                                          for Sale      Maturity
                                                                
<S>                                        <C>            <C>
U.S. Treasury                              $ 3,341        $     0
U. S. Government Corporations 
  and Agencies                              36,339         16,787
State and Municipal                         37,602          3,293
Other Securities                             1,266              0
Equity Securities                            2,598              0
                                                                 
Total Investment Securities                $81,146        $20,080
                                                                 


<CAPTION>

                                                December 31,
                                                                 
                                                  1995
                                                                
                                        Available       Held to
                                          for Sale      Maturity
                                                                
<S>                                        <C>            <C>
U.S. Treasury                              $ 5,176        $     0
U. S. Government Corporations 
  and Agencies                              22,358         20,130
State and Municipal                         32,105          3,291
Other Securities                             2,900              0
Equity Securities                            2,165              0
                                                                 
Total Investment Securities                $64,704        $23,421
                                                                 


<CAPTION>

                                                December 31,
                                                                 
                                                  1994
                                                                
                                        Available       Held to
                                          for Sale      Maturity
                                                                
<S>                                        <C>            <C>
U.S. Treasury                              $ 3,882        $ 1,701
U. S. Government Corporations 
  and Agencies                              27,190         23,894
State and Municipal                         14,971          2,198
Other Securities                             4,273              0
Equity Securities                            1,837              0
                                                                 
Total Investment Securities                $52,153        $27,793
                                                                 


</TABLE>


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 losses is adequate to cover
foreseeable future losses.  Table 9 contains an analysis of our
Allowance for Loan Losses indicating charge-offs and recoveries by the
year.  In 1996, net charge-offs as a percentage of average loans were
 .21% compared to .13% in 1995 and .07% in 1994.  Net charge-offs
amounted to $265,000 in 1996 after $159,000 and $73,000 in 1995 and
1994, respectively.  The increase in net charge-offs  in 1996 resulted
largely from the loss associated

                                               1996 Annual Report  31

<PAGE>

Management's Discussion and Analysis
                                                                     


with one commercial loan where the borrower declared bankruptcy.  
With our manageable level of net charge-offs and the additions to the 
reserve from our provision out of operations, the allowance for loan
losses as a percentage of average loans amounted to 1.76% in 1996,
1.65% in 1995, and 1.61% in 1994.


<TABLE>

Table 9 - Analysis of Allowance for Loan Losses 

<CAPTION>

(Amounts in thousands)                             Years Ended December 31,
                                                                            
                                                  1996       1995       1994
                                                                            
<S>                                                <C>         <C>       <C>
Balance at beginning of period                     $2,015      $1,802    $1,844
   Charge-offs:
     Commercial, financial, and 
       agricultural                                   214          18        80
     Real estate - mortgage                             0         118        29
     Installment loans to individuals                  88          50        72
                                                                               
                                                   $  302      $  186    $  181
   Recoveries:
     Commercial, financial, and 
       agricultural                                $   12      $    6    $   81
     Real estate - mortgage                             8           2         6
     Installment loans to individuals                  17          19        21
                                                                               
                                                   $   37      $   27    $  108

Net charge-offs                                    $  265      $  159    $   73
Additions charged to operations                       517         372        31
                                                                               
Balance at end of period                           $2,267      $2,015    $1,802
                                                                               
Ratio of net charge-offs during the 
   period to average loans 
   outstanding during the period                     .21%        .13%      .07%
Allowance for loan losses to average 
   loans outstanding during the period              1.76%       1.65%     1.61%


<CAPTION>

                                                 Years Ended December 31,
                                                                       
                                                1993       1992
                                                               
<S>                                                <C>         <C>
Balance at beginning of period                     $1,366      $  966
   Charge-offs:
     Commercial, financial, and 
     agricultural                                      54         142
     Real estate - mortgage                             9          84
     Installment loans to individuals                  86         110
                                                                     
                                                   $  149      $  336
   Recoveries:
     Commercial, financial, and 
       agricultural                                $    0      $    3
     Real estate - mortgage                             3           0
     Installment loans to individuals                 106          22
                                                                     
                                                   $  109      $   25

Net charge-offs                                    $   40      $  311
Additions charged to operations                       518         711
                                                                     
Balance at end of period                           $1,844      $1,366
                                                                     

Ratio of net charge-offs during the
  period to average loans outstanding
  during the period                                  .04%        .31%
Allowance for loan losses to average 
  loans outstanding during the period               1.75%       1.38%

</TABLE>


     The Bank's actual provision for loan losses and its allowance for
loan losses are based upon an active loan review procedure.  A loan
review is conducted quarterly to assess loan quality, analyze
delinquencies, identify and evaluate potential problem loans
(classified loans), and review general economic conditions.  The
quarterly review includes a determination of the adequacy of the
Bank's loan loss reserves.
     The allowance for loan losses was allocated to specific
categories as illustrated in Table 10.


<TABLE>

Table 10 - Allocation of Allowance for Loan Losses

<CAPTION>

(Amounts in thousands)                         December 31,
                                                                         
                                1996        % <F1>      1995       % <F1>
                                                                       
<S>                               <C>         <C>        <C>         <C>
Commercial, financial,
   and agricultural               $  303       10.7      $  344       17.4
Real estate - mortgage             1,088       72.5         663       66.1
Installments to 
  individuals                        203       16.8         443       16.5
Unallocated                          673        N/A         565        N/A
                                                                          
                                  $2,267      100.0      $2,015      100.0
                                                                          


<CAPTION>

                                               December 31,
                                                                         
                                1994        % <F1>      1993       % <F1>
                                                                       
<S>                               <C>         <C>        <C>         <C>
Commercial, financial,
   and agricultural               $  253       15.2      $  262       13.4
Real estate - mortgage               985       68.9       1,077       71.3
Installments to 
  individuals                        153       15.9         174       15.3
Unallocated                          411        N/A         331        N/A
                                                                          
                                  $1,802      100.0      $1,844      100.0
                                                                          





<CAPTION>

                                               December 31,
                                                                        
                                1992        % <F1>
                                                 
<S>                               <C>         <C>
Commercial, financial,
   and agricultural               $  386       14.5
Real estate - mortgage               418       67.6
Installments to 
  individuals                        135       17.9
Unallocated                          427        N/A
                                                   
                                  $1,366      100.0
                                                   
______________________
<FN>
<F1>
Percentage of loans in each category to total loans.

</FN>
</TABLE>


NON-PERFORMING ASSETS
     Table 11 reflects non-performing assets for the past five years. 
Non-accrual loans are generally delinquent on which principal or 
interest is past-due approximately 90 days or more, depending upon the
type of credit and the collateral.  When a loan is placed on non-accrual 
status, any unpaid interest is charged against income. Restructured loans are


32  First Keystone Corporation

<PAGE>

Management's Discussion and Analysis
                                                                     


loans where the borrower has been granted a concession in the
interest rate or payment amount because of financial problems.  Other
real estate owned represents property acquired through foreclosure, or
considered to be an in-substance foreclosure.
     The total of non-performing assets has declined annually after
increasing rather substantially in 1993.  The decline in non-performing assets 
in 1994 relates primarily to one commercial loan
which was brought current and put back on accrual.  The further
reduction in non-performing assets in 1995 relates primarily to the
sale of other real estate owned.  The current level of non-performing
assets of $351,000 and loans past-due 90 days or more are considered
manageable.  Loans which are past-due 90 days or more as to interest
or principal and still  accruing did increase to $263,000 in 1996
after being relatively stable in the preceding years.
     With a full-time loan review officer, loan quality is monitored
closely, and we actively attempt to work with borrowers to resolve
credit problems.  Excluding the assets disclosed in Table 11,
management is not aware of any information about borrowers' possible
credit problems, which cause serious doubt as to their ability to
comply with present loan repayment terms.
     Should the economic climate no longer continue to be stable or
begin to deteriorate, borrowers may experience difficulty, and the
level of non-performing loans and assets, charge-offs and
delinquencies could rise and possibly require additional increases in
our allowance for loan losses.
     In addition, regulatory authorities, as an integral part of their
examinations, periodically review the allowance for possible loan and
lease losses.  They may require additions to allowances based upon
their judgements about information available to them at the time of
examination.
     Interest income received on non-performing loans in 1996 and 1995
was $3,048 and $2,700, respectively.  Interest income, which would
have been recorded on these loans under the original terms in 1996 and
1995 was $46,924 and $53,224, respectively.  At December 31, 1996, the
Corporation had no outstanding commitments to advance additional funds
with respect to these non-performing loans.
     A concentration of credit exists when the total amount of loans
to borrowers, who are engaged in similar activities that are similarly
impacted by economic or other conditions, exceed 10% of total loans. 
As of December 31, 1996, 1995, and 1994, management is of the opinion
that there were no loan concentrations exceeding 10% of total loans.


<TABLE>

Table 11 - Non-Performing Assets

<CAPTION>

(Amounts in thousands)                               December 31,
                                                                            
                                          1996   1995    1994    1993    1992
                                                                             
<S>                                         <C>    <C>     <C>    <C>      <C>
Non-accrual and restructured loans          $267   $557    $620   $1,431   $346
Foreclosed assets                             84      0     235        5    107
                                                                               
  Total non-performing assets               $351   $557    $855   $1,436   $453
                                                                               
Non-performing assets to period-
  end loans and foreclosed
  assets                                    .26%   .44%    .73%    1.35%   .44%
Loans past-due 90 or more days and 
  still accruing                            $263    $68     $49      $27    $92

</TABLE>


DEPOSITS AND OTHER BORROWED FUNDS
     Deposit growth amounted to $11,225,696, or a 6.0% increase when
comparing December 31, 1996, to December 31, 1995.  This increase
compares to deposit increases of 8.7% in 1995 and 4.0% in 1994.
     First Keystone's subsidiary bank, like many other commercial
banks, experienced reduced deposit growth in 1996 after increased
deposit growth in 1995.  Low interest rates and intense competition
for depositors' funds can be attributed to the slower deposit growth.
     During 1996, the Corporation experienced the vast majority of its
deposits growth in interest bearing deposits.  In particular, interest
bearing demand deposits increased in 1996.  Also,  certificates  of 
deposit  under  $100,000  and  time deposits of $100,000 or more
increased in 1996. Short-term borrowings and long-term borrowings were
increased in 1996 by $3,762,766.

CAPITAL STRENGTH
     Normal increases in capital are generated by net income, less
cash dividends paid out.  Also, the net unrealized gains on investment
securities available for sale increased shareholders' equity or
capital in both 1996 and 1995.  The net increase in capital was
$2,073,534 in 1996 and $4,611,390 in 1995.  The unrealized gain on
investment securities available-for-sale net of taxes fell to
$1,150,382 in 1996 from $2,064,403 in 1995.
     Return on equity (ROE) is computed by dividing net income by
average stockholders' equity.  This ratio was 15.98% for 1996, 15.24%
for 1995, and 15.34% for 1994. Refer to Performance Ratios on Page 2 -
Summary of Selected Financial Data for a more expanded listing of the
ROE.

                                               1996 Annual Report  33

<PAGE>


Management's Discussion and Analysis
                                                                     


     Adequate capitalization of banks and bank holding companies is
required and monitored by regulatory authorities.  Table 12 reflects
risk-based capital ratios and the leverage ratio for our Corporation
and Bank.  The Corporation's leverage ratio was 10.87% at December 31,
1996, and 10.22% as of December 31, 1995.
     The risk-based capital ratios also increased from 1995 to 1996
for both the Corporation and the Bank.  The risk-based capital
calculation assigns various levels of risk to different categories of
bank assets, requiring higher levels of capital for assets with more
risk.  Also measured in the risk-based capital ratio is credit risk
exposure associated with off-balance sheet contracts and commitments. 
The following table indicates capital ratios as of December 31, 1996,
and December 31, 1995, for the Corporation and the Bank.


<TABLE>

Table 12 - Capital Ratios

<CAPTION>
                                                          December 31, 1996
                                                                           
                                                         Corporation  Bank
                                                                          
<S>                                                          <C>         <C>
Risk-Based Capital:
   Tier I risk-based capital ratio                           19.29%      18.83%
   Total risk-based capital ratio 
     (Tier 1 and Tier 2)                                     20.55%      20.08%
Leverage Ratio:
   Tier I capital to average assets                          10.87%      10.42%


<CAPTION>
                                                          December 31, 1995
                                                                           
                                                         Corporation  Bank
                                                                          
<S>                                                          <C>         <C>
Risk-Based Capital:
   Tier I risk-based capital ratio                           17.40%      16.64%
   Total risk-based capital ratio 
     (Tier 1 and Tier 2)                                     18.65%      17.89%
Leverage Ratio:
   Tier I capital to average assets                          10.22%       9.74%


</TABLE>


ASSET LIABILITY MANAGEMENT

LIQUIDITY
     The primary strategies of asset liability management focus on
liquidity and interest rate sensitivity.  Liquidity is needed to
provide the funding requirements of depositors withdrawals, loan
growth, and other operational needs.  Asset liquidity is provided by
investment securities maturing in one year or less, other short-term
investments, federal funds sold, and cash and due from banks. 
Additionally, maturing loans and repayment of loans are another source
of asset liquidity.
     Liability liquidity is accomplished by maintaining a core deposit
base, acquired by attracting new deposits and retaining maturing
deposits.  Also, short-term borrowings provide funds to meet
liquidity.
     Management feels its current liquidity position is satisfactory
given the factors that the Corporation has 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
investments 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.


<TABLE>

Table 13 - Loan Maturities and Interest Sensitivity <F1>

<CAPTION>

(Amounts in thousands)                        December 31, 1995
                                                                                     
                                     One year   One thru    Over five
                                     or less   five years    years    Total
                                                                           
<S>                                   <C>          <C>        <C>       <C>
Commercial, Financial and 
  Agricultural
    Fixed interest rate               $ 4,266      $ 4,336    $1,073    $ 9,675
    Variable interest rate             33,476        8,504         0     41,980
                                                                               
       Total                          $37,742      $12,840    $1,073    $51,655
                                                                               
Real Estate Construction
    Fixed interest rate               $     0      $     0    $    0    $     0
    Variable interest rate            $     0      $     0    $    0    $     0
__________________________
<FN>
<F1>
Excludes residential mortgages and consumer loans.

</FN>
</TABLE>


34  First Keystone Corporation

<PAGE>


Management's Discussion and Analysis
                                                                     


INTEREST RATE SENSITIVITY
     The principal objective of asset liability management is to
manage the sensitivity of the net interest margin to potential
movements in interest rates and to enhance profitability through
returns from managed levels of interest rate risk.  The Corporation
actively manages the interest rate sensitivity of its assets and
liabilities.  Several techniques are used for measuring interest rate
sensitivity.  The traditional maturity "gap" analysis, which reflects
the volume difference between interest rate sensitive assets and
liabilities during a given time period, is reviewed regularly by
management.  A positive gap occurs when the amount of interest
sensitive assets exceeds interest sensitive liabilities.  This
position would contribute positively to net income in a rising
interest rate environment.  Conversely, if the balance sheet has more
liabilities repricing than assets, the balance sheet is liability
sensitive or negatively gaped.  In our current sensitivity position,
management continues to monitor sensitivity so we do not become
overexposed in a rising interest rate environment.
     Limitations of gap analysis as illustrated in Table 14 include: 
a) assets and liabilities which contractually reprice within the same
period may not, in fact, reprice at the same time or to the same
extent; b) changes in market interest rates do not affect all assets
and liabilities to the same extent or at the same time, and c)
interest rate gaps reflect the Corporation's position on a single day
(December 31, 1996 in the case of the following schedule) while the
Corporation continually adjusts its interest sensitivity throughout
the year.
     Another way management reviews its interest sensitivity position
is through dynamic income simulation.  A dynamic income simulation
model is the primary mechanism used in assessing the impact of changes
in interest rates on net interest income.  The model reflects
managements assumptions related to asset yields and rates paid on
liabilities, deposit sensitivity, size and composition of the balance
sheet.  The assumptions are based on what management believes at that
time to be the most likely interest rate environment.  Management also
evaluates the impact of higher and lower interest rates.  Management
cannot predict the direction of interest rates or how the mix of
assets and liabilities will change.  The use of this information will
help formulate strategies to minimize the unfavorable effect on net
interest income caused by interest rate changes.
     In Table 14 the Corporation has elected to incorporate interest
bearing demand deposits and savings deposits as rate sensitive in the
three months or less time frame.  The result is a negative gap in that
time frame of $67,646,000.  However, much of our interest bearing
demand deposits and savings deposits are considered core deposits and
are not rate sensitive. As discussed previously, a negative gap will
decrease net interest income should interest rates increase.  Despite
the Corporation's negative gap position, the impact of a rapid rise in
interest rates as occurred in 1994, did not have a significant effect
on our net interest income.  Accordingly, even though there are some
inherent limitations to gap analysis and dynamic income simulation,
the Corporation believes that the tools used to manage its interest
rate sensitivity provide an appropriate reflection of interest rate
risk exposure.

<TABLE>

Table 14 - Interest Rate Sensitivity Analysis

<CAPTION>

(Amounts in thousands)                             December 31, 1996
                                                                           
                                           3 Months       3 - 12       1 - 5
                                           or Less        Months       Years
                                                                            
<S>                                         <C>           <C>          <C>
Rate Sensitive Assets:
   Cash and cash equivalent                 $     32      $     0      $     0
   Loans                                      33,489       28,862       44,918
   Investments                                16,138       11,488       12,926
                                                                              
   Total Rate Sensitive Assets              $ 49,659      $40,350      $57,844
                                                                              

Rate Sensitive Liabilities:
   Deposits:
   Deposits:
      Interest-bearing demand/
        savings                             $ 83,607      $     0      $     0
        Time                                  27,577       40,204       29,353
   Short-term borrowings                       5,121            0            0
   Long-term borrowings                        1,000        7,000        1,000
                                                                              
   Total Rate Sensitive 
     Liabilities                            $117,305      $47,204      $30,353
                                                                              

Interest Rate Sensitivity:
   Current period                           $(67,646)     $(6,854)     $27,491
   Cumulative gap                            (67,646)     (74,500)     (47,009)
Cumulative gap to total assets               (27.89%)     (30.71%)     (19.38%)


<CAPTION>

                                                  December 31, 1996
                                                                          
                                            Over
                                           5 Years        Total
                                                                
<S>                                          <C>          <C>
Rate Sensitive Assets:
   Cash and cash equivalent                  $     0      $     32
   Loans                                      25,992       133,261
   Investments                                60,674       101,226
                                                                  
   Total Rate Sensitive Assets               $86,666      $234,519
                                                                  

Rate Sensitive Liabilities:
   Deposits:
   Deposits:
      Interest-bearing demand/
        savings                              $     0      $ 83,607
      Time                                         0        97,134
   Short-term borrowings                           0         5,121
   Long-term borrowings                        1,000        10,000
                                                                  
   Total Rate Sensitive 
     Liabilities                             $ 1,000      $195,862
                                                                  

Interest Rate Sensitivity:
   Current period                            $85,666      $ 38,657
   Cumulative gap                             38,657
Cumulative gap to total assets                15.94%

</TABLE>


                                               1996 Annual Report  35

<PAGE>


Management's Discussion and Analysis
                                                                    


EFFECT OF INFLATION
     Although inflation was not significant in 1996, the potential for
increased inflation must be kept in mind.
     The impact of inflation on a financial institution can be
difficult to measure.  Inflation affects asset growth due to inflated
borrowing requests, which in turn requires a bank to increase its
equity capital to maintain  an  appropriate  capital base. 
Additionally, overall increases in inflation tend to increase  medium
to long-term interest rates and consequently reduce the market value
of investment securities, residential mortgage  loans,  and  other 
fixed-rate,  long-term  assets. Management believes that it can cope
with the impact of inflation by managing the mix of interest rate
sensitive assets and liabilities in order to reduce the impact of
changing interest rates on net interest income.  Also, inflation has a
direct impact on non-interest income and expense.  Management attempts
to offset the effect of inflation by reviewing the prices of its
products and services regularly, and by controlling overhead expenses. 
Management believes inflation is another risk associated with the
business of providing financial services.  Continuing effective
management practices will be a key, as with other risks to future
success.  Planning, monitoring, and revising our short-range and long-range 
plans will provide results needed to attain our goals.

FORWARD OUTLOOK
     Management and the Board of Directors of the Corporation
continually evaluate its operating procedures and practices. 
Additionally, bank regulators often make observations and
recommendations regarding such procedures and practices as a result of
their examinations.  Those observations and recommendations are
promptly considered by management and actions are taken as warranted.  
Financial indicators are mixed on whether continued economic expansion
will take place in 1997.  We are optimistic that loan growth will 
continue  in 1997.   Although it is anticipated that the majority of
the loan growth in 1997 will be in the residential mortgage area and
home equity loans, any deposit increases in excess of loan demand will
be primarily directed to the investment securities portfolio.  We will
continue to give careful attention to the pricing of loans and
deposits, such that our net interest margin is not adversely affected.
     Increasing non-interest income and controlling non-interest
expense in 1997 and beyond will continue to be a priority.
     Finally, the Corporation, as part of its strategic plan, will
continue to investigate expansion.  The Corporation will explore
market possibilities for future branch locations.  We will maintain a
delivery system and practices which maximize convenience and offer
comprehensive user-friendly service to the market.


MARKET PRICE/DIVIDEND HISTORY

     First Keystone Corporation's common stock is traded in the local
over-the-counter market.  This over-the-counter market does not
include a specific "market maker"; however, at various times, a number
of brokerage companies may provide "bid" and "asked" quotations as to
the price of the corporation's stock.  The following have indicated
that they are market makers in our stock:  Ryan, Beck and Company, 80
Main Street, West Orange, NJ 07052; and Janney Montgomery Scott, Inc.,
1801 Market Street, Philadelphia, PA 19103.  The table below reports
the highest and lowest per share prices known to the Corporation and
the dividends paid during the periods indicated.  All amounts are
restated to reflect a 10% stock dividend paid February 16, 1996. 
These prices do not necessarily reflect any dealer or retail markup,
markdown or commission.


<TABLE>


Table 15 - Market Price/Dividend History


<CAPTION>
                                          1996
                                                           
                               Common Stock       Dividends
                                 High/Low            Paid
                                                         
<S>                          <C>                        <C>
First Quarter                $37.00/$33.64              $.31
Second Quarter               $37.00/$37.00               .31
Third Quarter                $37.00/$37.00               .31
Fourth Quarter               $37.00/$37.00               .36

<CAPTION>
                                          1995
                                                           
                               Common Stock       Dividends
                                 High/Low            Paid
                                                         
<S>                          <C>                        <C>
First Quarter                $31.82/$31.82              $.27
Second Quarter               $31.82/$31.82               .27
Third Quarter                $33.64/$31.82               .27
Fourth Quarter               $33.64/$33.64               .28


<CAPTION>
                                          1994
                                                           
                               Common Stock       Dividends
                                 High/Low            Paid
                                                         
<S>                          <C>                        <C>
First Quarter                $29.32/$29.32              $.24
Second Quarter               $31.82/$24.55               .25
Third Quarter                $31.82/$31.82               .25
Fourth Quarter               $31.82/$31.82               .27


</TABLE>

36  First Keystone Corporation

<PAGE>

Management's Discussion and Analysis
                                                                     


<TABLE>

Table 16 - Quarterly Results of Operations (Unaudited)


<CAPTION>

(Amounts in thousands, except per share)

                                               Three Months Ended
                                                                              
1996                             March      June        September     December
                                 31           30          30           31
                                                                             
<S>                                <C>         <C>         <C>          <C>
Interest income                    $4,253      $4,390      $4,542       $4,601
Interest expense                    2,129       2,152       2,158        2,228
                                                                              
Net interest income                $2,124      $2,238      $2,384       $2,373
Provision for loan 
  losses                               25          65          45          382
Other non-interest 
  income                              240         275         262          275
Non-interest expense                1,155       1,081       1,095        1,210
                                                                              
Income before income 
  taxes and cumulative 
  effect of accounting 
  change                           $1,184      $1,367      $1,506       $1,056
Income taxes                          216         274         314          179
                                                                              
Net income                         $  968      $1,093      $1,192       $  877
                                                                              

Per share <F1>                      $1.10       $1.24       $1.36        $1.00



<CAPTION>

(Amounts in thousands, except per share)

                                               Three Months Ended
                                                                              
1995                             March      June        September     December
                                 31           30          30           31
                                                                              
<S>                                <C>         <C>         <C>          <C>
Interest income                    $3,839      $4,084      $4,297       $4,417
Interest expense                    1,861       2,041       2,196        2,174
                                                                              
Net interest income                $1,978      $2,043      $2,101       $2,243
Provision for loan 
   losses                              12          62          43          255
Other non-interest 
   income                             172         228         229          340
Non-interest expense                1,229       1,182       1,037        1,108
                                                                              
Income before income 
   taxes and cumulative 
   effect of accounting 
   change                          $  909      $1,027      $1,250       $1,220
Income taxes                          192         218         271          239
                                                                              
Net income                         $  717      $  809      $  979       $  981
                                                                              

Per share <F1>                     $  .82      $  .92      $ 1.11       $ 1.12

<FN>
<F1>
Adjusted for 10% stock dividend paid in 1996.

</FN>

</TABLE>

                                               1996 Annual Report  37

<PAGE>