EXHIBIT 13
                                             


                         ANNUAL REPORT TO SHAREHOLDERS
                    FOR FISCAL YEAR ENDED DECEMBER 31, 1995


                                       22

<PAGE>


<LOGO>


                                                 1995
                                                ANNUAL
                                                REPORT




                                                FIRST
                                               KEYSTONE
                                             CORPORATION

<PAGE>


The Corporation
                                                                       
First Keystone Corporation is a bank holding company incorporated under the
Pennsylvania Business Corporation Laws.  Its assets consists primarily of
the assets of its wholly-owned subsidiary, The First National Bank of
Berwick.

The First National Bank of Berwick serves an area of approximately 300
square miles in Columbia and Lower Luzerne Counties.  The Bank engages in
general banking business and also provides fiduciary services.





Corporation's Annual Report and 
Form 10-KSB
                                                                       
A copy of the Corporation's Annual Report and Form 10-KSB, as filed with
the Securities and Exchange Commission, will be furnished upon request. 
Address requests to:

J. Gerald Bazewicz, President
First Keystone Corporation
P. O. Box 287
Berwick, PA   18603-0287
Telephone:  (717) 752-3671





Annual Meeting
                                                                       
The Annual Meeting of shareholders will be held on April 16, 1996, at 9:00
a.m.  The location will be at the Main Office of The First National Bank of
Berwick, located at 111 West Front Street, Berwick, Pennsylvania.





Contents
                                       
 2      Financial Data

 3      President's Letter

 4      Consolidated Balance
        Sheets

 5      Consolidated Statements of
        Income

 6      Consolidated Statements of
        Stockholders' Equity

 7      Consolidated Statements of
        Cash Flows

 8      Notes to Consolidated
        Financial Statements

23      Report of Independent
        Certified Public
        Accountants

24      Management's Discussion
        and Analysis

38      Directors and Officers

40      Office Locations

<PAGE>


<TABLE>

SUMMARY OF SELECTED FINANCIAL DATA

<CAPTION>

(Amounts in thousands, 
  except per share)         1995       1994       1993       1992       1991
                                                                            

<S>                      <C>         <C>        <C>        <C>       <C>
Summary of Operations
Interest income          $ 16,637    $ 13,731   $ 13,734   $ 14,010  $ 13,729
Interest expense            8,271       6,353      6,519      7,438     8,115
    Net interest 
   income                   8,366       7,378      7,215      6,572     5,614
Provision for loan 
   losses                     372          31        518        711       360
Investment securities 
   gains (losses)               5         180         70        100       136
Net income               $  3,486    $  3,115   $  3,101   $  2,324  $  1,935

                                                                            
Per Common Share
Net income               $   4.31    $   3.85   $   3.84   $   2.89  $   2.41
Cash dividends               1.18        1.10        .95        .85       .78

                                                                            
Balance Sheet Data
Assets                   $226,033    $206,864   $201,270   $187,795  $165,232
Investment securities      88,125      79,946     86,054     73,755    63,489
Net loans                 126,046     116,383    106,500    101,864    93,489
Deposits                  187,320     172,280    165,731    162,897   144,423
Stockholders' equity       25,399      20,788     18,577     16,210    14,417

                                                                            
Performance Ratios
Return on average 
   assets                   1.58%       1.54%      1.58%      1.31%     1.25%
Return on average 
   equity                  15.24%      15.34%     17.56%     14.68%    13.71%
Dividend payout ratio      27.36%      28.55%     24.79%     29.61%    32.49%
Average equity to 
   average assets 
   ratio                   10.36%      10.05%      9.02%      8.93%     9.18%

</TABLE>

2  First Keystone Corporation


<PAGE>


To Our Shareholders                                                       


   First Keystone Corporation, and its principal subsidiary, The First
National Bank of Berwick, have completed another record year in 1995.  In
fact, 1995 represents the thirteenth consecutive year of record earnings
for your company.

   Net income for 1995 was $3,486,193, or $4.31 per share, an increase of
11.9% over net income of $3,114,593, or $3.85 per share reported in 1994. 
Earnings were positively affected in 1995 by increased net interest income
as a result of our improved net interest margin.  Our return on average
assets was 1.58% in 1995 and our return on average equity was 15.24%.  This
earnings performance level continues to compare very favorably with our
peer financial institutions and ranks First Keystone among the most
profitable in its peer group.

   Another area of financial strength is our equity capital.  Total
stockholders' equity increased to $25,399,461 as of year-end 1995.  Average
stockholders' equity to average assets increased to 10.36% in 1995 as
compared to 10.05% in 1994.  Our strong equity base provides an excellent
foundation for future growth and continued improved shareholder value. 
During 1995 total assets and total deposits also reached new record levels. 
As of December 31, 1995, total assets were $226,033,263, an increase of
9.3% over 1994.  Total deposits increased to $187,320,087 as of year-end
1995, an increase of 8.7% over 1994.

   Our strong earnings performance, sound balance sheet, and excellent
capital position afforded an opportunity for our Board of Directors to
increase the cash dividend paid per share to $1.18 in 1995 from $1.10 in
1994, an increase of 7.3%.  In addition, in January 1996, a 10% stock
dividend was declared payable in mid February 1996.

   Our increased net interest income in 1995 was made possible largely
through our efforts to increase our outstanding loans.  Total loans net of
unearned interest increased to $127,957,535, an increase of 8.3% over 1994. 
Loan quality remains excellent with past-dues at manageable levels and non-
accruals and restructured loans less than industry averages.  We feel our
reserve, or allowance for loan losses, which increased by $213,719 in 1995
to $2,015,236, or 1.57% of loans is sufficient against potential future
problem loans.  Additional details on our loan portfolio and other related
financial information may be found in the Management's Discussion and
Analysis section of this annual report. 

   During 1995 we celebrated the first anniversary of our Mifflinville
office.  Results continue to be very encouraging as the office's customer
base, asset level, and deposits increase.  In 1995, we opened the first
drive-up ATM in the Berwick market at the corner of Market Street and
Second Street.  This ATM has had very strong usage to date.  Through our
technology based products - check imaging and "TouchPhone", a telephone
banking service we continue to provide our customers with some of the
latest in state of the art banking services.  Finally, in the fourth
quarter of 1995 we introduced Performance Plus   our guarantee of quality
service.  In fact, for any bank error The First National Bank of Berwick
will pay $10.00 for the inconvenience caused.

   Regretfully, since our last annual meeting, Arthur E. Arndt, Jr., our
corporate secretary and a member of our Board of Directors since 1976,
died.  Mr. Arndt's support and guidance will be missed.  We are happy to
welcome John Arndt as a new member of our Board of Directors.  His energy
and dedication should prove invaluable.

   In 1996, the economy is expected to perform positively.  The possibility
of the economy stumbling into recession seems increasingly remote. 
However, economic growth is expected to be quite slow in 1996.  To date,
interest rate reductions have done little to spur increased economic
growth.  Further interest rate reductions are likely as we move through
1996.

   Thank you to our Board of Directors for its guidance and our Officers
and employees for their continued dedication to providing quality customer
service.  Finally, thanks to our customers and shareholders for their
loyalty, continued support and confidence.




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

                                                     1995 Annual Report  3

<PAGE>


<TABLE>

FIRST KEYSTONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 and 1994

<CAPTION>
                                                                            
                                                           1995      1994
                                                                            
<S>                                               <C>            <C>
ASSETS
Cash and due from banks                           $  4,656,866   $  4,811,770
Interest-bearing deposits in other banks             1,962,946        484,519
Investment securities available for sale 
  carried at estimated fair value                   64,703,806     52,153,036
Investment securities held to maturity, 
  estimated fair value 1995 $23,439,296;
  1994 $26,908,978                                  23,421,484     27,792,891
Mortgages held for resale                              103,900       -       
Loans, net of unearned income                      127,957,535    118,184,120
Allowance for loan losses                               (2,015,236)                    (1,801,517)
                                                                                                 
    Net loans                                     $125,942,299   $116,382,603
Premises and equipment                               3,066,001      3,029,329
Other real estate owned                                -              235,000
Accrued interest receivable                          1,875,368      1,272,519
Other assets                                              300,593                         702,339
                                                                             
     TOTAL ASSETS                                 $   226,033,263            $        206,864,006
                                                                             


LIABILITIES

Deposits:
    Non-interest bearing                          $ 17,621,563   $ 16,682,464
    Interest bearing                                   169,698,524                    155,597,311
                                                                             
     Total Deposits                               $187,320,087   $172,279,775
Short-term borrowings                                4,358,601      5,484,614
Long-term borrowings                                 7,000,000      7,500,000
Accrued interest and other expenses                  1,180,110        781,727
Other liabilities                                         775,004                          29,819
                                                                             
     TOTAL LIABILITIES                            $   200,633,802            $        186,075,935
                                                                             
                                                  
                                                  
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 808,429 shares 1995 and 1994              1,616,858      1,616,858
Surplus                                              3,829,266      3,829,266
Retained earnings                                   17,888,934     15,356,687
Unrealized gain (loss) on investment 
   securities available for sale,
   net of taxes                                         2,064,403                        (14,740)
                                                                             

     TOTAL STOCKHOLDERS' EQUITY                   $    25,399,461            $         20,788,071
                                                                             
                                                  
     TOTAL LIABILITIES AND 
        STOCKHOLDERS' EQUITY                      $   226,033,263            $        206,864,006
                                                                             

                                                                           
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, 1995, 1994, and 1993

<CAPTION>

                                                                            
                                                 1995                  1994
                                                                            

<S>   <C>                                     <C>
INTEREST INCOME
Interest and fees on loans:
    Taxable                                   $10,569,702          $ 9,179,252
    Tax exempt                                    290,578              195,199
Interest and dividends on investment 
   securities:                                           
    Taxable interest                            3,887,673            2,894,880
    Tax exempt interest                         1,631,495            1,306,861
    Dividends                                     107,443               94,953
Interest on federal funds sold                      -                    -    
Interest on deposits in banks                     149,793               60,176
                                                                              
      TOTAL INTEREST INCOME                   $16,636,684          $13,731,321
                                                                              
INTEREST EXPENSE                                         
Interest on deposits                          $ 7,450,453          $ 5,736,505
Interest on short-term borrowings                 236,928              215,721
Interest on long-term borrowings                  583,469              400,907
                                                                              
      TOTAL INTEREST EXPENSE                  $ 8,270,850          $ 6,353,133
                                                                              
      NET INTEREST INCOME                     $ 8,365,834          $ 7,378,188
      PROVISION FOR LOAN LOSSES                   372,448               31,233
                                                                              
      NET INTEREST INCOME AFTER 
         PROVISION
           FOR LOAN LOSSES                    $ 7,993,386          $ 7,346,955
                                                                              
NON-INTEREST INCOME                                      
    Fiduciary activities income               $   349,809          $   294,831
    Service charges and fees                      572,535              472,922
    Other operating income                         41,825               43,755
    Investment securities gains 
       - net                                        4,841              180,284
                                                                              
      TOTAL NON-INTEREST INCOME               $   969,010          $   991,792
                                                                              
NON-INTEREST EXPENSE                                     
    Salaries and wages                        $ 1,659,468          $ 1,534,129
    Pensions and other employee 
       benefits                                   603,182              587,775
    Occupancy expense, net                        292,731              273,746
    Furniture and equipment expense               456,013              401,378
    FDIC insurance                                199,953              377,154
    Other operating expense                     1,345,098            1,133,909
                                                                              
      TOTAL NON-INTEREST EXPENSE              $ 4,556,445          $ 4,308,091
                                                                              
Income before income taxes and 
    cumulative effect of a
    change in accounting principle            $ 4,405,951          $ 4,030,656
Income tax expense                                919,758              916,063
                                                                              
Income before cumulative effect of 
    a change in accounting principle          $ 3,486,193          $ 3,114,593
Cumulative effect of a change in 
    accounting principle
    relating to income taxes                       -                           -     
                                                                              
NET INCOME                                    $ 3,486,193          $ 3,114,593
                                                                              
PER SHARE DATA
    Income before cumulative 
       effect of a change in
       accounting principle                   $      4.31          $      3.85
    Cumulative effect of a change in 
       accounting principle                          -                    -   
                                                                              
    Net income                                $      4.31          $      3.85
                                                                              
    Cash dividends                            $      1.18          $      1.10
    Weighted average shares outstanding           808,429              808,429
                                                                           
The accompanying notes are an integral part if these consolidated financial
statements.


<CAPTION>
                                                                            
                                                 1993
                                                                            

<S>   <C>
INTEREST INCOME
Interest and fees on loans:
    Taxable                                   $ 8,766,286
    Tax exempt                                    187,494
Interest and dividends on investment 
    securities:                                          
    Taxable interest                            3,184,410
    Tax exempt interest                         1,419,401
    Dividends                                      85,980
Interest on federal funds sold                     16,358
Interest on deposits in banks                      74,030
                                                         
      TOTAL INTEREST INCOME                   $13,733,959
                                                         
INTEREST EXPENSE                                         
Interest on deposits                          $ 6,123,214
Interest on short-term borrowings                 156,643
Interest on long-term borrowings                  238,714
                                                         
      TOTAL INTEREST EXPENSE                  $ 6,518,571
                                                         
      NET INTEREST INCOME                     $ 7,215,388
      PROVISION FOR LOAN LOSSES                   518,242
                                                         
      NET INTEREST INCOME AFTER 
         PROVISION
           FOR LOAN LOSSES                    $ 6,697,146
                                                         
NON-INTEREST INCOME                                      
    Fiduciary activities income               $   349,968
    Service charges and fees                      438,682
    Other operating income                         38,910
    Investment securities gains 
       - net                                       69,906
                                                         
      TOTAL NON-INTEREST INCOME               $   897,466
                                                         
NON-INTEREST EXPENSE                                     
    Salaries and wages                        $ 1,427,655
    Pensions and other employee 
       benefits                                   567,557
    Occupancy expense, net                        253,946
    Furniture and equipment expense               371,386
    FDIC insurance                                373,532
    Other operating expense                     1,119,042
                                                         
      TOTAL NON-INTEREST EXPENSE              $ 4,113,118
                                                         
Income before income taxes and 
    cumulative effect of a
    change in accounting principle            $ 3,481,494
Income tax expense                                697,750
                                                         
Income before cumulative effect of 
    a change in accounting principle          $ 2,783,744
Cumulative effect of a change in 
    accounting principle
    relating to income taxes                      317,433
                                                         
NET INCOME                                    $ 3,101,177
                                                         
PER SHARE DATA
    Income before cumulative 
       effect of a change in
       accounting principle                   $      3.45
    Cumulative effect of a change in 
       accounting principle                           .39
                                                         
    Net income                                $      3.84
                                                         
    Cash dividends                            $       .95
    Weighted average shares outstanding           806,971
                                                                           
The accompanying notes are an integral part if these consolidated financial
statements.

</TABLE>
                                                      1995 Annual Report  5

<PAGE>


<TABLE>

FIRST KEYSTONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, and 1993

<CAPTION>
                                                                            
                                       Common                       Retained
                                        Stock        Surplus        Earnings
                                                                            

<S>                                 <C>             <C>           <C>
BALANCE at DECEMBER 31, 1992        $1,470,000      $1,590,225    $13,169,221


Net Income                          $    -          $    -        $ 3,101,177
Cash dividends - 
     $.95 per share                      -               -           (768,657)
10% stock dividend                     146,858       2,221,227     (2,368,085)
Dividends paid in lieu of
     fractional shares                   -               -             (2,290)
Treasury stock purchased -
     3,475 shares                        -               -              -    
Sale of treasury stock -
     4,196 shares resulting
     in a gain of $17,814                -              17,814          -    
                                                                             
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 - 
     $1.10 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


Net Income                          $    -          $    -        $ 3,486,193
Cash Dividends -
     $1.18 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
                                                                             
                                                                           
The accompanying notes are an integral part of these consolidated financial
statements.

<CAPTION>
                                                                            
                                                       Net
                                                   Unrealized
                                                   Gain (Loss)
                                                  On Investment
                                                   Securities
                                      Treasury      Available
                                        Stock       For Sale          Total
                                                                            

<S>                                 <C>             <C>           <C>
BALANCE at DECEMBER 31, 1992        $  (19,336)     $   -         $16,210,110


Net Income                          $    -          $   -         $ 3,101,177
Cash dividends - 
     $.95 per share                      -              -            (768,657)
10% stock dividend                       -              -               -    
Dividends paid in lieu of
     fractional shares                   -              -              (2,290)
Treasury stock purchased -
     3,475 shares                      (98,169)         -             (98,169)
Sale of treasury stock -
     4,196 shares resulting
     in a gain of $17,814              117,505          -             135,319
                                                                             
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 -
     $1.10 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


Net Income                          $    -          $    -        $ 3,486,193
Cash Dividends -
     $1.18 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
                                                                             

                                                                           
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, 1995, 1994 and 1993

<CAPTION>
                                                                            
                                                   1995                1994
                                                                            

<S>                                           <C>                <C>
OPERATING ACTIVITIES
Net income                                    $  3,486,193       $  3,114,593
Adjustments to reconcile net income 
    to net cash  provided by 
    operating activities:                                 
      Provision for loan losses                    372,448             31,233
      Depreciation                                 311,636            295,327
      Premium amortization on 
         investment securities                     254,510            315,008
      Discount accretion on 
         investment securities                    (141,052)           (43,119)
      Deferred income taxes (benefit)              (29,421)            88,542
      Cumulative effect of a change
         in accounting principle
         relating to income taxes                   -                  -     
     Gain on sales of investment 
         securities                                 (4,841)          (180,284)
     Gain on sale of premises and 
         equipment                                  (2,342)            -     
      (Gain) loss on sale of other 
         real estate owned                          37,155             (3,730)
      (Increase) decrease in accrued 
         interest receivable                      (602,849)            28,256
      (Increase) decrease in other 
         assets - net                              100,671            (70,258)
      Increase (decrease) in accrued 
         interest and other expenses               398,383            (43,889)
      Increase (decrease) in other 
         liabilities - net                          (7,395)           (61,521)
                                                                             
    
      NET CASH PROVIDED BY OPERATING 
         ACTIVITIES                           $  4,173,096       $  3,470,158

INVESTING ACTIVITIES
Purchases of investment securities 
    available for sale                        $(36,711,805)      $(19,799,911)
Proceeds from sales of investment 
    securities available for sale               22,461,737         19,505,870
Proceeds from maturities and 
    redemptions 
    of investment securities available 
    for sale                                     6,424,757          5,757,254
Purchases of investment securities 
    held to maturity                            (5,608,356)        (4,345,463)
Proceeds from sale of investment 
    securities                                      -                  -     
Proceeds from maturities and redemption 
    of investment securities held to 
    maturity                                     8,307,905          4,889,106
Net increase in loans                          (10,218,544)       (10,148,833)
Proceeds from sales of loans                       182,500             -     
Proceeds from sale of premises and 
    equipment                                        3,000             -     
Purchases of premises and equipment               (348,965)          (591,525)
Proceeds from sale of other real 
    estate owned                                   197,845              8,730
                                                                             
      NET CASH USED IN INVESTING 
         ACTIVITIES                           $(15,309,926)      $ (4,724,772)

FINANCING ACTIVITIES                                      
Net increase in deposits                      $ 15,040,312       $  6,549,062
Net increase (decrease) in short-term 
    borrowings                                  (1,126,013)        (4,559,871)
Proceeds from long-term borrowings               1,000,000          3,500,000
Repayment of long-term borrowings               (1,500,000)        (2,000,000)
Proceeds from sale of treasury stock                -                  -     
Acquisition of treasury stock                       -                  -     
Cash dividends paid                               (953,946)          (889,272)
                                                                             
      NET CASH PROVIDED BY FINANCING 
         ACTIVITIES                           $ 12,460,353       $  2,599,919
Increase (decrease) in cash and 
    cash equivalents                          $  1,323,523       $  1,345,305
Cash and cash equivalents at beginning 
    of year                                      5,296,289          3,950,984
                                                                             
      CASH AND CASH EQUIVALENTS AT 
         END OF YEAR                          $  6,619,812       $  5,296,289
                                                                             
                                                                           
The accompany notes are an integral part of these consolidated financial
statements.


<CAPTION>
                                                                            
                                                   1993
                                                                            

<S>                                           <C>
OPERATING ACTIVITIES
Net income                                    $  3,101,177
Adjustments to reconcile net income 
    to net cash  provided by 
    operating activities:                                 
      Provision for loan losses                    518,242
      Depreciation                                 274,409
      Premium amortization on 
         investment securities                     359,238
      Discount accretion on 
         investment securities                     (44,406)
      Deferred income taxes (benefit)             (183,468)
      Cumulative effect of a change
         in accounting principle
         relating to income taxes                 (317,433)
      Gain on sales of investment 
         securities                                (69,906)
      Gain on sale of premises and 
         equipment                                  -     
      (Gain) loss on sale of other 
         real estate owned                         (19,244)
      (Increase) decrease in accrued 
         interest receivable                        27,523
      (Increase) decrease in other 
         assets - net                               13,463
      Increase (decrease) in accrued 
         interest and other expenses               136,126
      Increase (decrease) in other 
         liabilities - net                          56,822
                                                          
      NET CASH PROVIDED BY OPERATING 
         ACTIVITIES                           $  3,852,543

INVESTING ACTIVITIES
Purchases of investment securities 
    available for sale                        $     -     
Proceeds from sales of investment 
    securities available for sale                   -     
Proceeds from maturities and 
    redemptions 
    of investment securities available 
    for sale                                        -     
Purchases of investment securities 
    held to maturity                           (36,224,417)
Proceeds from sale of investment 
    securities                                   6,793,500
Proceeds from maturities and redemption 
    of investment securities held to 
    maturity                                    16,886,579
Net increase in loans                           (5,154,017)
Proceeds from sales of loans                        -     
Proceeds from sale of premises and 
    equipment                                       -     
Purchases of premises and equipment               (290,269)
Proceeds from sale of other real 
    estate owned                                   121,300
                                                          
      NET CASH USED IN INVESTING 
         ACTIVITIES                           $(17,867,324)

FINANCING ACTIVITIES                                      
Net increase in deposits                      $  2,833,335
Net increase (decrease) in short-term 
    borrowings                                   5,105,014
Proceeds from long-term borrowings               3,000,000
Repayment of long-term borrowings                   -     
Proceeds from sale of treasury stock               135,319
Acquisition of treasury stock                      (98,169)
Cash dividends paid                               (770,947)
                                                          
      NET CASH PROVIDED BY FINANCING 
         ACTIVITIES                           $ 10,204,552
Increase (decrease) in cash and 
    cash equivalents                          $ (3,810,229)
Cash and cash equivalents at beginning 
    of year                                      7,761,213
                                                          
      CASH AND CASH EQUIVALENTS AT 
         END OF YEAR                          $  3,950,984
                                                          
                                                                           
The accompanying notes are an integral part of these consolidated financial
statements.

</TABLE>

                                                      1995 Annual Report  7

<PAGE>


FIRST KEYSTONE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements for Years Ended December 31,
1995, 1994, and 1993

Note 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     The accounting and reporting policies of First Keystone Corporation
and Subsidiaries (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.

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.
     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.
     On November 15, 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 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.

Mortgages Held for Resale
     Mortgages held for resale are valued at the lower of cost or market.

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.

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 1995 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.

Other Real Estate Owned
     Other real estate owned is comprised of property acquired through a
foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure and
loans classified as in-substance foreclosure.  In accordance with Statement
No. 114, a loan is classified as in-substance foreclosure when the
Corporation has taken possession of the collateral regardless of whether
formal foreclosure proceedings take place.  Other real estate owned is
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 (1) cost or (2)
fair value minus estimated costs to sell.  Income and expenses from
operations of other real estate owned and changes in the valuation
allowance are included in loss on other real estate owned.

Advertising Costs
     Advertising costs are expensed as the costs are incurred.  Advertising
expenses amounted to $107,541, $114,124 and $100,742 for 1995, 1994, and
1993, respectively.

                                                      1995 Annual Report  9

<PAGE>


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. 
Charitable Pledges Payable at December 31, 1995, calculated as required
under Statement No. 116 are $13,100.

Income Taxes
     The Corporation adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" as required on January 1, 1993.  As
permitted by Statement No. 109, prior year's consolidated financial
statements have not been restated to reflect the change in accounting
method.  The cumulative effect as of January 1, 1993, of adopting Statement
No. 109 increased consolidated net income by $317,433, or $.39 per share.
     Under this Statement 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.  Previously, deferred
income taxes were accounted for using the deferred method.

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, interest bearing deposits in
other banks, and federal funds sold.  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.  Federal funds are also included as a cash equivalent since
they are generally purchased and sold for one-day periods.
     Interest paid on deposits and other borrowings was $7,994,087,
$6,287,219, and $6,547,994 in 1995, 1994, and 1993, respectively.  Cash
payments for income taxes were $902,567, $760,056, and $889,939 for 1995,
1994, and 1993, respectively.  During 1994, the Corporation transferred
$256,530 from loans to other real estate owned.

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.


Note 2.  CHANGES IN ACCOUNTING STANDARDS
     In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of."  The Statement requires that
long-lived assets and certain identifiable intangibles are classified into
two categories for the purpose of accounting for an impairment of assets: 
those to be held and used and those to be disposed of.  Assets to be held
and used must be reviewed whenever events or changes in circumstances
indicate that the carrying value may not be recoverable.  An impairment
loss is indicated if the sum of the expected future cash flows,
undiscounted and without interest charges, is less than the carrying amount
of the assets.  An impairment loss must be recognized as the amount by
which the carrying amount of the asset exceeds the fair value of the asset
so determined.  The Corporation intends to adopt Statement No. 121, as
required, in its fiscal year beginning January 1, 1996.  Implementation of
this Statement is not expected to have a material effect on the
consolidated financial condition or results of operations of the
Corporation.

10  First Keystone Corporation

<PAGE>


Note 3. 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 a reserve of $1,508,000 at
December 31, 1995, which requirement was satisfied by vault cash on that
date.
     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 $373,721 at December 31, 1995.


Note 4.  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, 1995, and 1994:

<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        -           92,126
Equity securities          1,918,523      246,408        -        2,164,931
                                                                           
Total                    $61,551,309   $3,344,785   $ 192,288   $64,703,806
                                                                           

</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, 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>

                                     Available For Sale Securities
                                                                             
                                          Gross        Gross       Estimated
                           Amortized   Unrealized   Unrealized       Fair
                             Cost         Gains       Losses         Value
                                                                            
<S>                      <C>           <C>          <C>         <C>
December 31, 1994:
U.S. Treasury 
   securities            $ 3,883,692   $   37,390   $   39,137  $ 3,881,945
Obligations of U.S. 
   Government 
   Corporations and 
   Agencies,
   Mortgage-backed        28,136,404       11,482      957,773   27,190,113
Obligations of state 
   and political 
   subdivisions           14,088,634      882,642        -       14,971,276
Corporate debt 
   securities:
   Mortgage-backed         4,084,961       11,644       67,788    4,028,817
   Other                     247,068       -             2,930      244,138
Equity securities          1,721,998      139,873       25,124    1,836,747
                                                                           
Total                    $52,162,757  $ 1,083,031   $1,092,752  $52,153,036
                                                                           

</TABLE>
                                                     1995 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, 1994:
U.S. Treasury 
   securities            $ 1,700,877   $    -       $  13,627   $ 1,687,250
Obligations of U.S. 
   Government 
   Corporations and 
   Agencies,
   Mortgage-backed        23,893,903        3,238     809,468    23,087,673
Obligations of state 
   and political 
   subdivisions            2,198,111       27,640      91,696     2,134,055
                                                                           
Total                    $27,792,891   $   30,878   $ 914,791   $26,908,978
                                                                           

</TABLE>


     Securities available for sale with an aggregate fair value of
$9,269,723 in 1995; $8,064,139 in 1994 and securities held to maturity with
an aggregate unamortized cost of $20,129,586 in 1995; $19,439,083 in 1994
respectively, were pledged to secure public funds, trust funds, securities
sold under agreements to repurchase and other balances of $17,378,996 in
1995 and $13,536,022 in 1994 as required by law.
     The amortized cost, estimated fair value and weighted average yield of
debt securities, by contractual maturity, are shown below at December 31,
1995.  Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.


<TABLE>
<CAPTION>

                                             December 31, 1995
                                                                            
                                              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               3,915,520           965,466             -    
   Estimated fair value         4,111,250           970,064             -    
   Weighted average yield          7.0013            6.3271             -    
5 - 10 Years:
   Amortized cost               1,031,752         5,658,383           486,160
   Estimated Fair value         1,064,375         5,742,821           551,910
   Weighted average yield          6.0487            7.5576           11.2412
After 10 Years:
   Amortized cost                   -            15,642,543        28,991,710
   Estimated fair value             -            15,644,992        31,553,399
   Weighted average yield           -                7.4013            9.2529
                                                                             
Total:
   Amortized cost              $4,947,272       $22,266,392       $29,477,870
   Estimated fair value        $5,175,625       $22,357,877       $32,105,309
   Weighted average yield         6.8026%           7.3944%           9.2857%
                                                                             


<CAPTION>

                                             December 31, 1995
                                                                            
                                    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                  92,034             -                 -    
   Estimated fair value            92,127             -                 -    
   Weighted average yield          5.8085             -                 -    
5 - 10 Years:
   Amortized cost                   -                 -                 -    
   Estimated Fair value             -                 -                 -    
   Weighted average yield           -                 -                 -    
After 10 Years:
   Amortized cost               2,849,218         1,209,851           708,672
   Estimated fair value         2,807,937         1,209,850           955,081
   Weighted average yield          7.1461            6.7751            3.3124
                                                                             
Total:
   Amortized cost              $2,941,252        $1,209,851          $708,672
   Estimated fair value        $2,900,064        $1,209,850          $955,081
   Weighted average yield         7.1042%           6.7751%           3.3124%
                                                                             
_______________________
<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, 1995
                                                                            
                                              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                  -                -                  97,405
   Estimated fair value            -                -                 102,961
   Weighted average yield          -                -                  9.8638
5 - 10 Years:
   Amortized cost                  -                -                 702,076
   Estimated Fair value            -                -                 701,785
   Weighted average yield          -                -                  6.9019
After 10 Years:
   Amortized cost                  -             20,130,568         2,491,435
   Estimated fair value            -             20,067,196         2,567,354
   Weighted average yield          -                 7.7913            8.3667
                                                                             
Total:
   Amortized cost              $   -            $20,130,568        $3,290,916
   Estimated fair value        $   -            $20,067,196        $3,372,100
   Weighted average yield          -                7.7913%           8.0985%
                                                                             


<CAPTION>

                                             December 31, 1995
                                                                            
                                    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        $   -             $   -             $   -     
   Weighted average yield      $   -             $   -             $   -     
                                                                             
_______________________
<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,
1995.  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
1995, 1994 and 1993 were $22,461,737, $19,505,870 and $6,793,500,
respectively.  Gross gains realized on these sales were $350,410, $332,506,
and $97,864, respectively.  Gross losses on these sales were $345,569,
$152,222, and $27,958, respectively.  Net unrealized gains (losses) on
securities available for sale included as a separate component of
consolidated stockholders' equity net of tax was $2,064,403 and ($14,740)
in 1995 and 1994 respectively.


Note 5.  LOANS
     Major classifications of loans at December 31, 1995 and 1994 consisted
of:

<TABLE>
<CAPTION>

                                                     1995           1994
                                                                           
<S>                                              <C>            <C>
Commercial, Financial, and Agricultural          $ 19,437,137   $ 16,284,630
Tax exempt                                          3,602,088      3,754,344
Real estate mortgage                               87,180,772     82,515,832
Consumer                                           21,806,779     19,370,010
                                                                
                                                                            
Gross loans                                      $132,026,776   $121,924,816
Less: Unearned discount                             3,752,652      3,368,307
      Unamortized loan fees net of costs              316,589        372,389
                                                                            
Loans, net of unearned income                    $127,957,535   $118,184,120
                                                 
                                                                            

</TABLE>

                                                    1995 Annual Report  13

<PAGE>


     Changes in the allowance for loan losses for the years ended December
31, 1995, 1994, and 1993, were as follows:

<TABLE>
<CAPTION>

                                       1995           1994            1993
                                                                          
<S>  <C>                            <C>           <C>
Balance, January 1                  $1,801,517    $1,844,196       $1,365,697
Provision charged to 
   operations                          372,448        31,233          518,242
Loans charged off                     (185,643)     (181,666)        (148,878)
Recoveries                              26,914       107,754          109,135
                                                                             
Balance, December 31                $2,015,236    $1,801,517       $1,844,196
                                                                             

</TABLE>

     At December 31, 1995, the recorded investment in loans that are
considered to be impaired under Statement No. 114 was $556,533, which were
all non-accrual loans.  The related allowance for loan losses for the
impaired loans utilizing standards provided in Statement No. 114 is
$242,319.  No additional charge to operations is required since the total
allowance for loan losses is estimated by management to be adequate to
provide for the loan loss allowance under Statement No. 114 as well as any
other potential loan losses.  The average recorded investment in impaired
loans during the year ended December 31, 1995, was approximately $601,061. 
For the year ended December 31, 1995, the Corporation recognized interest
income on those impaired loans of $2,700 using the cash basis method of
income recognition.
     At December 31, 1994, the Corporation had non-accrual loans of
$619,732 that would be considered impaired under Statement No. 114.  The
Corporation recorded $3,555 of interest income on these loans in 1994.
     Interest income in the amount of $53,224 in 1995 and $61,108 in 1994
would have been recorded on non-accrual loans had they performed according
to their contractual terms.
     At December 31, 1995, there were no significant commitments to lend
additional funds with respect to non-accrual and restructured loans.


Note 6.  PREMISES AND EQUIPMENT
     A summary of premises and equipment at December 31, 1995 and 1994
follows:

<TABLE>
<CAPTION>

                                                1995               1994
                                                                       
<S>                                         <C>                 <C>
Land                                        $  840,288          $  835,421
Buildings and improvements                   2,386,788           2,351,528
Equipment                                    2,850,527           2,616,528
                                                                          
                                            $6,077,603          $5,803,477
Less:  Accumulated depreciation              3,011,602           2,774,148
                                                                          
Total                                       $3,066,001          $3,029,329
                                                                          

</TABLE>

     Depreciation amounted to $311,636 for 1995, $295,327 for 1994, and
$274,409 for 1993.


Note 7.  DEPOSITS
     Major classifications of deposits at December 31, 1995 and 1994
consisted of:

<TABLE>
<CAPTION>

                                                                 1995      1994
                                                                                     

<S>                                         <C>              <C>
Demand - non-interest bearing               $ 17,621,563     $ 16,682,464
Demand - interest bearing                     37,617,465       32,867,640
Savings                                       42,333,211       46,727,932
Time, $100,000 and over                       17,683,648       14,863,170
Other time                                    72,064,200       61,138,569
                                                                         
Total deposits                              $187,320,087     $172,279,775
                                                                         

</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, 1995:

<TABLE>
<CAPTION>

                                           CERTIFICATES        OTHER TIME
                                            OF DEPOSIT          DEPOSITS
                                                                        
<S>                                        <C>                  <C>
Three months or less                       $ 6,110,785          $855,000
Over three to six months                     4,776,630                 0
Over six to twelve months                    2,906,737                 0
Over twelve months                           3,034,496                 0
                                                                        
Total                                      $16,828,648          $855,000
                                                                        

</TABLE>

     Interest expense related to time deposits of $100,000 or more was
$1,156,943 in 1995, $589,750 in 1994, and $782,364 in 1993.


Note 8.  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.  Federal discount window
borrowings generally cannot extend beyond 14 days and are normally
overnight 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, 1995, and 1994:

<TABLE>
<CAPTION>

                                                      1995
                                                                            
                                                              Maximum
                                  Ending         Average     Month 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%
                                                                              


<CAPTION>

                                                      1994
                                                                              
                                                              Maximum
                                  Ending         Average     Month End  Average
                                  Balance        Balance      Balance    Rate
                                                                             
<S>                             <C>           <C>          <C>           <C>
Federal funds purchased and 
     securities sold under 
     agreements to repurchase     $4,825,928    $4,288,450   $ 9,315,073    3.32%
Federal Reserve Bank
     discount window                   -             1,233         -        4.66%
Federal Home Loan Bank                 -         1,344,000     7,530,000    3.74%
U.S. Treasury tax and
     loan notes                      658,686       596,389     1,215,773    3.81%
                                                                                 
Total                             $5,484,614    $6,230,072   $18,060,846    3.75%
                                                                                 

</TABLE>


Note 9.  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,
1995, and 1994 follows:

<TABLE>
<CAPTION>

       Maturity      Interest Rate      1995             1994
                                                             
      <S>               <C>         <C>               <C>
      02/14/1995        5.60%            -               500,000
      07/11/1995        5.94%            -             1,000,000
      08/08/1996        7.40%        1,000,000             -    
      10/27/1996        7.36%        1,000,000         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
      11/01/1998        5.56%        1,000,000         1,000,000
      05/18/2002        7.77%        1,000,000         1,000,000
                                                                
                                    $7,000,000        $7,500,000
                                                                

</TABLE>

                                                    1995 Annual Report  15

<PAGE>


Note 10.  INCOME TAXES
     The current and deferred components of the income tax provision
(benefit) consisted of the following:

<TABLE>
<CAPTION>

                                      1995          1994           1993
                                                                       
<S>                                <C>            <C>           <C>
Federal
  Current                          $947,026       $815,005      $880,197
  Deferred (benefit)                (28,711)        88,584      (183,506)
                                                                        
                                   $918,315       $903,589      $696,691
                                                                        
State
  Current (benefit)                $  2,153       $ 12,516      $  1,021
  Deferred (benefit)                   (710)           (42)           38
                                                                        
                                   $  1,443       $ 12,474      $  1,059
                                                                        
Total provision for income taxes   $919,758       $916,063      $697,750
                                                                        

</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>

                                         1995                     1994
                                                                              
                                   Amount       Rate        Amount       Rate
                                                                             
<S>                              <C>           <C>        <C>           <C>
Provision at statutory rate      $1,498,023     34.0%     $1,370,423     34.0%
Tax exempt income                  (653,505)   (14.8)       (510,700)   (12.7)
Dividend received exclusion          (6,433)     (.2)         (6,085)     (.2)
Non-deductible expenses              83,110      1.9          54,552      1.4
Other, net                           (2,880)     (.1)         (4,601)     (.1)
                                                                             
Applicable federal income
   tax and rate                  $  918,315     20.8%     $  903,589     22.4%
                                                                             

<CAPTION>
                                         1993
                                                     
                                   Amount       Rate
                                                    
<S>                              <C>           <C>

Provision at statutory rate      $1,183,708     34.0%
Tax exempt income                  (546,344)   (15.7)
Dividend received exclusion          (4,104)     (.1)
Non-deductible expenses              61,222      1.8
Other, net                            2,209      -  
                                                    
Applicable federal income 
     tax and rate                $  696,691     20.0%
                                                    

</TABLE>


     Income taxes attributable to realized security gains were $1,646 in
1995, $61,297 in 1994, and $23,768 in 1993.
     Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 109 as more fully explained in Note 1 to
Consolidated Financial Statements, which required the Corporation to change
its method of accounting for income taxes.  Statement No. 109 was adopted
on a prospective basis and amounts presented for prior years were not
required to be reflected or restated.  Application of Statement No. 109
resulted in a cumulative tax benefit of $317,433 recorded as of January 1,
1993.
     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, 1995, 1994, and
1993 are as follows:

<TABLE>
<CAPTION>

                                           1995           1994         1993
                                                                           
<S>                                   <C>             <C>           <C>
Deferred Tax Assets:
    Loan loss Reserve                 $   538,276     $ 465,612    $ 480,123
    Loan origination fees and 
       costs                                -             9,059      147,690
    Non-accrual loan interest               -             -           14,645
    Contributions                           4,454         -             -   
                                                                            
       Total                          $   542,730     $ 474,671    $ 642,458
                                                                            
Deferred Tax Liabilities:
     Loan origination fees and 
       costs                          $   (30,176)    $    -       $    -   
     Accretion                            (11,622)       (3,358)      (2,020)
     Unrealized investment 
       securities gains (loss 
       in 1994) <F1>                   (1,088,095)       (5,018)        -   
     Depreciation                        (165,418)     (165,220)    (163,943)
                                                                            
       Total                          $(1,295,311)    $(173,596)   $(165,963)
                                                                            
     Net Deferred Tax Asset 
       (Liability)                    $  (752,581)    $ 301,075    $ 476,495
                                                                            
____________________________
<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 11.  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>

                                           1995        1994         1993
                                                                        
<S>                                      <C>         <C>         <C>
Matching Contribution                    $ 46,306   $ 41,564     $ 38,050
Discretionary Contribution                195,291    169,347      158,156
                                                                         
     Total Expense                       $241,597   $210,911     $196,206
                                                                         

</TABLE>


Note 12.  LEASE COMMITMENTS
     At December 31, 1995, 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, 1995, 1994 and 1993
was $45,997, $34,347 and $31,793, respectively.

<TABLE>
<CAPTION>

     Minimum future non-cancelable rental payments for the branch buildings
as of December 31, 1995, for each of the next five years are:


                 <S>                         <C>
               1996                        $ 41,745
               1997                          43,378
               1998                          44,837
               1999                          45,824
               2000                          40,540
               Thereafter                    15,195
                                                   
               Total                       $231,519
                                                   

</TABLE>


Note 13.  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 14.  RELATED PARTY TRANSACTIONS
     Certain directors and executive officers of First Keystone Corporation
and its subsidiaries and companies in which they are principal owners
(i.e., at least 10%) were indebted to the Corporation at December 31, 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 7
directors and 3 executive officers, consists of the following for the years
ended December 31, 1995, 1994, and 1993:

<TABLE>
<CAPTION>

                                     1995           1994            1993
                                                                        
<S>                              <C>             <C>             <C>
Balance at January 1              $3,410,457     $2,813,715      $2,266,352
New loan advances                  1,513,122      1,593,607       1,942,870
Repayments                        (1,833,549)      (996,865)     (1,395,507)
                                                                           
Balance at December 31            $3,090,030     $3,410,457      $2,813,715
                                                                           

</TABLE>

                                                    1995 Annual Report  17

<PAGE>


Note 15.  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 1996, without prior regulatory approval, the
Bank may declare dividends to the Corporation in the amount of $4,646,920
plus additional amounts equal to the net income earned in 1996 for the
period January 1, 1996, through the date of declaration, less any dividends
which may have already been paid in 1996.
     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, 1995, the Corporation exceeded all minimum Capital
requirements as reflected in the following table:

<TABLE>
<CAPTION>

                                              Calculated        Minimum
                                                Ratios         Standard
Ratios
                                                                        
<S>                                             <C>             <C>
Risk Based Ratios:
Tier 1 Capital to Risk-Weighted Assets          17.40%          4.00%
Total Qualifying Capital to Risk-Weighted 
    Assets                                      18.65%          8.00%

</TABLE>


Note 16.  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, 1995, and 1994 were as follows:

<TABLE>
<CAPTION>

                                                  1995            1994
                                                                      
<S>                                           <C>             <C>
Financial instruments whose contract 
   amount represent credit risk:
  Commitments to extend credit                $10,036,866     $ 8,594,652
  Standby letters of credit                   $ 1,824,649     $ 3,176,364

</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, 1995, 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, 1995, to the extent
necessary to avoid any significant concentration of credit risk.


Note 17.  STOCKHOLDERS' EQUITY
     On December 14, 1993, the Board of Directors declared a 10% stock
dividend paid December 31, 1993, to stockholders of record December 14,
1993.  The stock dividend was valued based on the market price of the
Corporation on December 14, 1993.  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.
     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.


Note 18.  LIQUIDATION OF SUBSIDIARY
     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.


Note 19.  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 Other Short-Term Instruments
     Cash and due from banks, interest bearing deposits with other banks
and Federal Funds sold have carrying values which are a reasonable estimate
of fair value.  Accordingly, fair values regarding these instruments are
provided by reference to carrying values reflected on the Consolidated
Balance Sheet.

     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.

                                                    1995 Annual Report  19

<PAGE>


     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, 1995, and
1994.
     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.

     Short-Term Borrowings
     The carrying amounts of federal funds purchased and securities sold
under agreements to repurchase and other short-term borrowings approximate
their fair values.

     Long-Term Borrowings
     The fair values of 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, 1995 and 1994, the carrying values and estimated fair
values of financial instruments of the Corporation are presented in the
table below:

<TABLE>
<CAPTION>
                                                             1995
                                                                                     
                                                Carrying         Estimated
                                                 Amount         Fair Value
                                                                           

     <S>                                    <C>               <C>
    FINANCIAL ASSETS:
     Cash and short-term investments        $  6,619,812      $  6,619,812
     Investment securities                    88,125,290        88,143,102
     Loans:
       Commercial, Financial and 
          Agricultural                      $ 19,788,350      $ 19,736,649
       Tax exempt                              3,602,088         3,701,060
       Real estate mortgage                   87,285,848        89,045,448
       Consumer                               21,454,389        21,453,257
                                                                          
       Gross loans                          $132,130,675      $133,936,414
       Less:  Unearned discount                3,752,652           -      
              Unamortized loan fees 
                net of costs                     316,589           -      
                                                                          
       Loans net of unearned income         $128,061,434      $133,936,414
       Less allowance for losses               2,015,235           -      
                                                                          
                Net Loans                   $126,046,199      $133,936,414
                                                                          

    FINANCIAL LIABILITIES:
     Deposits:
       Demand - non-interest bearing        $ 17,621,563      $ 17,621,563
       Demand - interest bearing              37,617,465        37,617,465
       Savings                                42,333,211        42,333,211
       Time - $100,000 and over               17,683,648        17,878,115
       Other time                             72,064,200        72,855,962
                                                                          
         Total 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

    OFF-BALANCE SHEET ASSETS 
       (LIABILITIES):
     Commitments to extend credit            $10,036,866
     Standby letters of credit                 1,824,649


<CAPTION>
                                                             1994
                                                                                    
                                               Carrying          Estimated
                                                Amount          Fair Value
                                                                           

     <S>                                    <C>               <C>
    FINANCIAL ASSETS:
     Cash and short-term investments        $  5,296,289      $  5,296,289
     Investment securities                    79,945,927        79,062,014
     Loans:
       Commercial, Financial and 
         Agricultural                       $ 16,284,630      $ 16,358,696
       Tax exempt                              3,754,344         3,891,234
       Real estate mortgage                   82,515,832        82,413,099
       Consumer                               19,370,010        19,660,198
                                                                          
       Gross loans                          $121,924,816      $122,323,227
       Less:  Unearned discount                3,368,307           -      
              Unamortized loan fees 
                net of costs                     372,389           -      
                                                                          
       Loans net of unearned income         $118,184,120      $122,323,227
       Less allowance for losses               1,801,517           -      
                                                                          
              Net Loans                     $116,382,603      $122,323,227
                                                                          

    FINANCIAL LIABILITIES:
     Deposits:
       Demand - non-interest bearing        $ 16,682,464      $ 16,682,464
       Demand - interest bearing              32,867,640        32,867,640
       Savings                                46,727,932        46,727,932
       Time - $100,000 and over               14,863,170        14,701,949
       Other time                             61,138,569        59,754,550
                                                                          
          Total Deposits                    $172,279,775      $170,734,535
                                                                          

     Short-term borrowings                  $  5,484,614      $  5,484,614
     Long-term borrowings                      7,500,000         7,261,496

    OFF-BALANCE SHEET ASSETS 
       (LIABILITIES):
     Commitments to extend credit                             $  8,594,652
     Standby letters of credit                                   3,176,364

</TABLE>

20 First Keystone Corporation

<PAGE>


Note 20.  PARENT COMPANY FINANCIAL INFORMATION
     Condensed financial information for First Keystone Corporation (parent
company only) was as follows:

<TABLE>
<CAPTION>

BALANCE SHEETS                                           December 31
                                                                        
                                                   1995            1994
                                                                       
<S>                                            <C>             <C>
ASSETS
  Cash in subsidiary bank                      $   445,312     $   598,522
  Investment in subsidiaries at equity:
    Subsidiary bank                             24,060,533      19,560,128
    Other subsidiary                                -               10,116
  Investment in other equity securities            955,082         691,847
  Receivables from subsidiaries                     54,681           1,356
  Prepayments and other assets                      82,394          82,149
                                                                          
    TOTAL ASSETS                               $25,598,002     $20,944,118
                                                                          
LIABILITIES                                               
  Payable to subsidiaries                      $     -         $    56,093
  Accrued expenses and other liabilities           198,541          99,954
                                                                          
    TOTAL LIABILITIES                          $   198,541     $   156,047
                                                                          
STOCKHOLDERS' EQUITY                                      
  Preferred stock                              $    -          $    -     
  Common stock                                   1,616,858       1,616,858
  Surplus                                        3,829,266       3,829,266
  Retained earnings                             17,888,934      15,356,687
  Unrealized gain (loss) on investment 
     securities available for sale               2,064,403                
(14,740)
                                                                          
    TOTAL STOCKHOLDERS' EQUITY                 $25,399,461     $20,788,071
                                                                          
    TOTAL LIABILITIES AND STOCKHOLDERS' 
       EQUITY                                  $25,598,002     $20,944,118
                                                                          

</TABLE>



<TABLE>
<CAPTION>

INCOME STATEMENTS                             Year Ended December 31
                                                                   
                                               1995               1994
                                                                      
<S>                                         <C>                <C>
INCOME
Dividends from bank subsidiary              $  953,945         $ 889,272
Dividends - other                               26,553            25,370
Securities gains                                21,760            99,616
Interest                                        15,372            15,473
                                                                        
 TOTAL INCOME                               $1,017,630        $1,029,731
Operating Expenses                              27,102            22,840
                                                                        
Income Before Taxes and Equity in                     
 Undistributed Net Income of 
    Subsidiaries                            $  990,528        $1,006,891
Income tax expense                               7,305            41,855
                                                                        
Income Before Equity in Undistributed
 Net Income of Subsidiaries                 $  983,223        $  965,036
Equity in undistributed income of 
    subsidiaries                             2,502,970         2,149,557
                                                                        

 NET INCOME                                 $3,486,193        $3,114,593
                                                                        


<CAPTION>

INCOME STATEMENTS                             Year Ended December 31
                                                                    
                                               1993
                                                   
<S>                                         <C>
INCOME
Dividends from bank subsidiary              $  791,576
Dividends - other                               17,085
Securities gains                               -      
Interest                                        20,056
                                                      
 TOTAL INCOME                               $  828,717
Operating Expenses                              21,320
                                                      
Income Before Taxes and Equity in                     
 Undistributed Net Income of 
    Subsidiaries                            $  807,397
Income tax expense                               1,625
                                                      
Income Before Equity in Undistributed
 Net Income of Subsidiaries                 $  805,772
Equity in undistributed income of 
    subsidiaries                             2,295,405
                                                      

 NET INCOME                                 $3,101,177
                                                      

</TABLE>

                                                    1995 Annual Report  21

<PAGE>


<TABLE>
<CAPTION>

STATEMENTS OF CASH FLOWS                      Year Ended December 31
                                                                    
                                                1995             1994
                                                                     
<S>                                          <C>              <C>
OPERATING ACTIVITIES
Net income                                   $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 subsidiaries                          (2,502,970)      (2,149,557)
  (Increase) decrease in receivables 
    from subsidiaries                           (53,325)             (22)
  (Increase) decrease in prepaid 
    expenses and other assets                      (245)         (65,556)
  Increase (decrease) in advances 
    payable to subsidiaries                     (56,093)          42,804
  Increase (decrease) in accrued 
    expenses                                     45,900           52,616
                                                                        
  NET CASH PROVIDED BY OPERATING 
    ACTIVITIES                               $  897,700       $  895,262
                                                                        
                                                       
INVESTING ACTIVITIES                                   
Purchase of equity securities                $ (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                      $  (96,964)      $   17,877
                                                                        

FINANCING ACTIVITIES                                   
Proceeds from sale of treasury stock         $    -           $    -    
Acquisition of treasury stock                     -                -    
Cash dividends paid                            (953,946)        (768,657)
Dividends paid in lieu of 
 fractional shares                                -                -    
                                                                        
 NET CASH PROVIDED (USED) BY 
   FINANCING ACTIVITIES                      $ (953,946)      $ (889,272)
                                                                        

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


<CAPTION>

STATEMENTS OF CASH FLOWS                      Year Ended December 31
                                                                     
                                                1993
                                                    
<S>                                          <C>
OPERATING ACTIVITIES
Net income                                   $3,101,177
Adjustments to reconcile net income 
 to net cash provided by operating 
 activities:
  Securities gains                                -    
  Equity in undistributed net income 
    of subsidiaries                          (2,295,405)
  (Increase) decrease in receivables 
    from subsidiaries                              (425)
  (Increase) decrease in prepaid 
    expenses and other assets                    (9,333)
  Increase (decrease) in advances 
    payable to subsidiaries                      (7,229)
  Increase (decrease) in accrued 
    expenses                                     (1,124)
                                                       
  NET CASH PROVIDED BY OPERATING 
    ACTIVITIES                               $  787,661
                                                       
                                                       
INVESTING ACTIVITIES                                   
Purchase of equity securities                $ (102,000)
Sale of equity securities                         -    
Dissolution of non-bank subsidiary                -    
                                                       
 NET CASH PROVIDED (USED) IN 
   INVESTING ACTIVITIES                      $ (102,000)
                                                       

FINANCING ACTIVITIES                                   
Proceeds from sale of treasury stock         $  135,319
Acquisition of treasury stock                   (98,169)
Cash dividends paid                            (768,657)
Dividends paid in lieu of 
 fractional shares                               (2,290)
                                                       
 NET CASH PROVIDED (USED) BY 
   FINANCING ACTIVITIES                      $ (733,797)
                                                       

 INCREASE (DECREASE) IN CASH AND 
   CASH EQUIVALENTS                          $  (48,136)
 CASH AND CASH EQUIVALENTS AT 
   BEGINNING OF YEAR                            622,791
                                                       
 CASH AND CASH EQUIVALENTS AT END 
   OF YEAR                                   $  574,655
                                                       

</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 Subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31,
1995.  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 Subsidiaries as of December 31,
1995 and 1994, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31,
1995, 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, investments in debt and equity securities in 1994
and income taxes in 1993.





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





Kingston, Pennsylvania
January 9, 1996

                                                    1995 Annual Report  23

<PAGE>


                      Management's Discussion and Analysis


MANAGEMENT'S STATEMENT OF RESPONSIBILITY


To Our Stockholders:

    The management of First Keystone Corporation is responsible for the
fairness and integrity of the consolidated financial statements as
presented in this annual report.  Therefore, all financial statements were
prepared to conform with generally accepted accounting principles and in
accordance with guidelines established by the accounting profession,
Securities and Exchange Commission, and regulatory authorities of bank
holding companies.

    Management has designed internal accounting systems and controls to
provide reasonable assurance that financial data is presented fairly.  The
monitoring of these systems is accomplished by an internal auditing program
directed by our outside independent auditors, J. H. Williams & Co., LLP. 
Additionally, the Audit Committee of the Board of Directors, which is
composed of outside directors and senior management meets periodically with
the auditors.

    In addition, the Corporation and its subsidiaries are examined
periodically by various regulatory authorities.  Management reviews all
reports from internal and external sources and takes appropriate action.




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


                         /s/ David R. Saracino
                         David R. Saracino, Treasurer & Assistant Secretary





Berwick, Pennsylvania
March 5, 1996

24  First Keystone Corporation

<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 1995 with
reported net income of $3,486,193.  The net income for 1995 marked the 13th
consecutive year that earnings and earnings per share have increased. 
Earnings per share for 1995 were $4.31 as compared to $3.85 and $3.84 in
1994 and 1993, respectively.  Included in 1993 results was a $317,433, or
$.39 per share non-recurring Federal income tax benefit due to the adoption
of Statement of Financial Accounting Standard No. 109, "Accounting for
Income Taxes".  The Corporation's return on average assets improved to
1.58% in 1995 from 1.54% in 1994 and 1.42% before the extraordinary item in
1993.  Likewise, the Corporation's return on average equity remained strong
at 15.24% in 1995 from 15.34% in 1994 and 15.76% (before the extraordinary
item) in 1993.  After recording the extraordinary item in 1993, return on
average assets was 1.58% and return on average equity was 17.56%. 
    Average earning assets increased $18,141,634, or 9.3% during 1995,
while average interest bearing liabilities grew $13,960,264, or 8.4%.  The
average yield on earning assets and interest paying liabilities increased
in 1995 after declining in each of the preceding two years.  The
Corporation's net interest income on a fully taxable equivalent basis
increased $1,204,017, or 14.8% in 1995.

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 a higher interest rate environment prevalent in
1995 over 1994, interest income and interest expense both increased after
declining in 1994.  With interest income increasing more than interest
expense, net interest income on a fully tax equivalent basis increased
$1,204,000, or 14.8% in 1995 after increasing $109,000, or 1.4% in 1994.


<TABLE>

Table 1 - Net Interest Income

<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
                                                                            

<CAPTION>

(Amounts in thousands)                                     1994/1993
                                                                             
                                                      Increase/(Decrease)
                                           1994     Amount     %       1993
                                                                           
<S> <C>                                  <C>        <C>      <C>
Interest Income                          $13,731    $ (3)    (0.0)   $13,734
Interest Expense                           6,353    (166)    (2.5)     6,519
                                                                            
Net Interest Income                        7,378     163      2.3      7,215
Tax Equivalent Adjustment                    774     (54)    (6.5)       828
                                                                            
Net Interest Income (fully 
    tax equivalent)                      $ 8,152    $109      1.4    $ 8,043
                                                                            

</TABLE>


    Table 2 on the following page illustrates why the increase in net
interest income during 1995 was substantially higher than 1994.  The yield
on earning assets was 8.27% in 1995, 7.44% in 1994, and 7.71% in 1993.  The
yield on earning assets increased 83 basis points in 1995 after falling 27
basis points in 1994.  At the same time, the rate on interest bearing
liabilities increased to 4.60% after dropping to 3.83% in 1994 from 3.99%
in 1993.  Therefore, the rate on interest bearing liabilities increased 77
basis points in 1995 after dropping 16 basis points in 1994.  This had the
effect of increasing our net interest margin to 4.39% in 1995 from 4.18% in
1994 and 4.26% in 1993.  The continued maintenance of an adequate net
interest margin is a primary concern being addressed by management on an
ongoing basis.

                                                    1995 Annual Report  25

<PAGE>


Management's Discussion and Analysis
                                                                           

<TABLE>

Table 2   Distribution of Assets, Liabilities and Stockholders' Equity

<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 Exempt1                            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%


26  First Keystone Corporation

<PAGE>


Management's Discussion and Analysis
                                                                           

<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%


<CAPTION>

                                                        1993
                                                                               
                                     Avg. Balance         Revenue/     Yield/
                                                           Expense      Rate
                                                                             
<S>                                  <C>               <C>             <C>
Interest Earning Assets
Loans:
Commercial <F1>                      $ 15,077,530      $   984,470      6.53%
Real Estate <F1>                       76,055,443        6,318,523      8.31%
Installment Loans, 
  Net <F1><F2>                         14,340,159        1,697,218     11.84%
Fees on Loans                                   0           50,157         0%
                                                                             
    Total Loans 
      (Including Fees) <F3>          $105,473,132      $ 9,050,368      8.58%
                                                                             
Investment Securities:
Taxable                              $ 59,617,782      $ 3,270,390      5.49%
Tax Exempt1                            20,732,564        2,150,608     10.37%
                                                                             
    Total Investment Securities      $ 80,350,346      $ 5,420,998      6.75%
                                                                             
Other Short-Term Investments:
Interest Bearing Deposits 
  in Banks                           $  2,384,787      $    74,030      3.10%
Federal Funds Sold                        561,740           16,358      2.91%
                                                                             
    Total Other Short-Term 
      Investments                       2,946,527           90,388      3.07%
                                                                             
    Total Interest-Earning 
      Assets                         $188,770,005      $14,561,754      7.71%
                                                                             
Non-Interest Earning Assets:
Cash and Due From Banks              $  4,022,936
Allowance for Loan Losses              (1,525,186)
Premises and Equipment                  2,617,477
Other Real Estate Owned                    64,672
Other Assets                            1,899,787
                                                 
    Total Non-Interest Earning 
      Assets                            7,079,686
                                                 
    Total Assets                     $195,849,691
                                                 
Interest-Bearing Liabilities:
Savings, NOW Accounts, and 
  Money Markets                      $ 82,746,295      $ 2,679,583      3.24%
Time Deposits                          72,298,169        3,443,631      4.76%
Short-Term Borrowings                     942,167           26,971      2.86%
Long-Term Borrowings                    3,528,767          238,714      6.76%
Securities Sold U/A to 
  Repurchase                            4,029,255          129,672      3.22%
                                                                             
    Total Interest-Bearing 
      Liabilities                    $163,544,653      $ 6,518,571      3.99%
                                                                             
Non-Interest Bearing 
  Liabilities:
Demand Deposits                      $ 13,697,043
Other Liabilities                         942,693
Stockholders' Equity                   17,665,302
                                                 
    Total Liabilities/
      Stockholders' Equity           $195,849,691
                                                 
    Net Interest Income                                $ 8,043,183

                                                                  
Margin Analysis:
Interest Income/Earning Assets                                          7.71%
Interest Expense/Earning 
  Assets                                                                3.45%
Net Interest Income/Earning 
  Assets                                                                4.26%
______________________
<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>

                                                    1995 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
1995, the increase in net interest income of  $1,204,000 resulted from
change in  volume of $790,000and an increase of $414,000 due to changes in
rate.  In 1994, there was an increase in net interest income of  $109,000
due to changes in volume of  $422,000 and a decrease of $313,000 due to
changes in rate.

<TABLE>

Table 3 - Changes in Income and Expense, 1995 and 1994

<CAPTION>

(Amounts in thousands)                          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
                                                                            

<CAPTION>

(Amounts in thousands)                          1994 COMPARED TO 1993
                                                                            
                                        VOLUME          RATE            NET
                                                                           
<S>                                     <C>            <C>            <C>
Interest Income:
Loans, Net                              $  531         $ (106)        $  425
Taxable Investment Securities              106           (387)          (281)
Tax-Exempt Investment Securities           (20)          (150)          (170)
Other Short-Term Investments               (54)            23            (31)
                                                                            
    Total Interest Income               $  563         $ (620)        $  (57)
                                                                            
Interest Expense:
Savings, Now, and Money Markets         $    1         $ (174)        $ (173)
Time Deposits                             (109)          (105)          (214)
Short-Term Borrowings                       29             22             51
Long-Term Borrowings                       212            (50)           162
Securities Sold U/A to Repurchase            8              0              8
                                                                            
    Total Interest Expense              $  141         $ (307)        $ (166)
                                                                            
    Net Interest Income                 $  422         $ (313)        $  109
                                                                            
________________________

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 decreased $22,000, or 2.2% in 1995 as
compared to an increase of $94,000, or 10.5% in 1994 as illustrated in
Table 5.  The overall increase in 1994 has been effected greatly by gains
in securities which amounted to $180,000 in 1994 as compared to $5,000 in
1995.
    Excluding investment securities gains, non-interest income in 1995
increased $153,000, or 18.8% compared to 1994 when non-interest income
decreased $16,000, or 1.9%.  Income from fiduciary activities, which
consists of fees generated by our Trust Department, increased in 1995 to
approximately the same level as 1993 following a decline in 1994. 
Increased fee income from a larger overall number of accounts in 1995 was
the primary reason for the increase in fees from fiduciary activities of
$55,000, or 18.6%.  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)      1995       1994       1993       1992       1991
                                                                            
<S> <C>                   <C>        <C>        <C>        <C>
Individual Trusts         $83,886    $72,027    $70,300    $71,113     $67,775
Corporate Trusts            7,676      3,569      3,887      4,066       4,325
                                                                              
Total Trust Department    $91,562    $75,596    $74,187    $75,179     $72,100
                                                                              

</TABLE>

28  First Keystone Corporation

<PAGE>


Management's Discussion and Analysis
                                                                           

    Service charges and fees increased $100,000, or 21.1% in 1995 compared
to an increase of $34,000, or 7.8% in 1994.  The increase in 1995 service
charges and fees was due primarily to an increasing customer base and some
pricing changes.  Other operating income decreased $2,000, or 4.5% in 1995
compared with an increase of $5,000, or 12.6% in 1994.  The pricing
changes, which were effective the first quarter of 1995, should help
continue to increase service charges and other operating income at least
marginally in 1996.  Finally, we keep abreast of regulations which may
enable our bank or holding company to provide other products or services
which may increase our non-interest income.

<TABLE>

Table 5 - Non-Interest Income

<CAPTION>

(Amounts in thousands)                              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
                                                                         


<CAPTION>

(Amounts in thousands)                              1994/1993
                                                                       
                                               Increase/(Decrease)
                                                                 
                                       1994      Amount      %       1993
                                                                         
<S>                                    <C>      <C>       <C>        <C>
Fiduciary Activities                   $295     $ (55)    (15.7)     $350
Service Charges and Fees                473        34       7.8       439
Other Operating Income                   44         5      12.6        39
                                                                         
 Subtotal                              $812     $ (16)     (1.9)     $828
Investment Securities Gains             180       110     157.9        70
                                                                         
 Total                                 $992     $  94      10.5      $898
                                                                         

</TABLE>

PROVISION FOR LOAN LOSSES
    The provision for loan losses for the year-ended December 31, 1995, was
$372,448 compared to $31,233 and $518,242 for the years ended December 31,
1994, and 1993, respectively.  The provision for possible loan losses was
increased in 1995 to cushion us against possible increased charge-offs. 
Net charge-offs totaled $158,000 in 1995 as compared to $73,000 for 1994
and $40,000 in 1993.  Despite increased net charge-offs, our ratios in the
loan loss area indicate stable asset quality.  Non-performing assets,
consisting of non-performing loans and other real estate owned, were
$557,000, $855,000, and $1,436,000 at December 31, 1995, 1994, and 1993,
respectively, representing .44%, .73%, and 1.35%, respectively, of
outstanding loans and other real estate owned. 
    The allowance for loan losses as a percentage of loans, net of unearned
interest, was 1.57% at December 31, 1995, 1.52% at December 31, 1994, and
1.70% at December 31, 1993.  The allowance for loan losses as a percentage
of non-performing assets remains strong at 361.8% and 210.7% at year-end
1995 and 1994, respectively.

NON-INTEREST EXPENSES
    Total non-interest expense increased by $248,000, or 5.8% in 1995
compared to an increase of $195,000, or 4.7% in 1994 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 49.7% of total non-interest
expense in 1995 (49.3% in 1994 and 48.5% in 1993).  Salaries and employee
benefits increased $141,000, or 6.6% in  1995  and  $127,000,  or 6.4% in
1994.  The increases in 
1995 and 1994 were due to an increased number of employees plus normal
salary adjustments and increased benefit costs. Full-time equivalent
employees were 89 at December 31, 1995, compared to 87 in 1994 and 84 at
end year 1993.  Based upon our total deposits and total assets, our number
of employees compares favorably against peer financial institutions.
    Net occupancy expense increased $18,000, or 6.6% in 1995 as compared to
an increase of $20,000, or 7.9% in 1994.  The increases in 1995 and 1994
relate primarily to increases in building maintenance and repair, higher
real estate taxes and rent expense.  Furniture and equipment expense
increased $55,000, or 13.7% in 1995 compared to an increase of $30,000, or
8.1% in 1994 from 1993.  The increase in 1995 relates directly to higher
depreciation associated with computer processing equipment and related
equipment put into service in the third quarter of 1994.
    With the substantial reduction in FDIC insurance premiums in the past
year, the actual deposit insurance expense decreased $177,000, or 46.9% in
1995 after an increase of $3,000, or 0.8% in 1994.  The FDIC Board reduced
Bank Insurance Fund premiums in 1995 after the fund became adequately
capitalized.
    Other operating expenses increased $211,000, or 18.6% in 1995 after
just a $15,000 increase, or 1.3% in 1994.  The increase in 1995 is from
increases in professional fees, postage, printing supplies, insurance,
marketing, and advertising.
    Our overall non-interest expense at slightly over 2% of average assets
places us among the leaders of our peer financial institutions in
controlling non-interest expense.

                                                    1995 Annual Report  29

<PAGE>


Management's Discussion and Analysis
                                                                           

<TABLE>

Table 6 - Non-Interest Expense

<CAPTION>

(Amounts in thousands)                              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
                                                                         

<CAPTION>

(Amounts in thousands)                              1994/1993
                                                                       
                                               Increase/(Decrease)
                                                                 
                                      1994      Amount       %       1993
                                                                         
<S>                                  <C>         <C>      <C>      <C>
Salaries and Employee Benefits       $2,122      $127       6.4    $1,995
Net Occupancy Expense                   274        20       7.9       254
Furniture and Equipment Expense         401        30       8.1       371
FDIC Insurance                          377         3       0.8       374
Other Operating Expenses              1,134        15       1.3     1,119
                                                                         
 Total                               $4,308      $195       4.7    $4,113
                                                                         

</TABLE>

NCOME TAXES
    Effective tax planning has helped produce favorable net income in each
of the past three years.  In 1995, net income before taxes increased
$375,295.  In 1994, income before income taxes and cumulative effect of a
change in accounting principle increased $549,162 over 1993, while our
income tax liability increased $3,695 and $218,313 in 1995 and 1994,
respectively.  The effective total income tax rate was 20.8% in 1995, 22.4%
in 1994, and 20.0% in 1993. The increase in our tax liability rate in 1994
was due primarily to the limited availability of both tax-free loans and
tax-free investments at attractive interest rates.
    Effective January 1, 1993, First Keystone Corporation adopted the
provisions of SFAS 109 (See Note 1 of the Notes to Consolidated Financial
Statements for Years Ended December 31, 1994, 1993, and 1992).  In
connection with this adoption, the Bank changed its method of accounting
for income taxes from the deferred method to the liability method. 
Finally, with the Tax Reform Act of 1986, as tax-free loans continue to
mature and future opportunities for tax-free loans and investments become
less attractive, an increasing effective tax rate is anticipated.


ANALYSIS OF FINANCIAL CONDITION

ASSETS
    Total assets increased to $226,033,263, an increase of 9.3% over year-
end 1994.  Total deposits increased to $187,320,087, or 8.7%.  Assets at
December 31, 1994, were up 2.8% to $206,864,006, while total deposits were
up 4.0% to $172,279,775 compared to 1993.  Annual growth rate in assets
increased in 1995 after slowing in 1994 and 1993.  The increase in assets
in 1995 came primarily from our increased growth in deposits.  The low
interest rate environment and competition from not only other commercial
banks, thrifts and credit unions, but also mutual funds and brokerage
houses, limited deposit growth in 1994 and 1993.  This trend eased somewhat
in 1995 with higher interest rates spurring deposit growth, especially in
certificates of deposit.
    The Corporation used borrowed funds to support asset growth not
provided by deposit growth.  Deposit growth in 1995 was $15,040,312 as
compared to 1994 with $6,549,062 in deposit growth and $2,883,335 in 1993. 
With conventional deposit growth increasing in 1995 and 1994 over 1993, the
Corporation reduced its short-term borrowings and long-term borrowings to
$11,358,601 in 1995 as compared to $12,984,614 in 1994 and $16,044,485 in
1993.
    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 1996, 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 96.5% as of December 31, 1995, compared to
96.0% at December 31, 1994, as of December 31, 1993, earnings asset ratio
was 96.6%.  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 $9,773,000, or 8.3% in 1995
as compared to $9,840,000, or 9.1% in 1994 and $5,114,000, or 5.0% in 1993.
The loan portfolio is well diversified, and increases in the portfolio have
primarily been from real estate loans and commercial loans.  In addition,
consumer loans increased in both 1995 and  1994 after declining the
previous two years.

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,
                                                                              
                                              1995          1994         1993
                                                                               
<S> <C>                                     <C>          <C>
Commercial, financial and 
  agricultural:
    Commercial secured by real estate       $ 28,744    $ 30,127      $ 30,097
    Commercial - other                        19,437      16,285        14,005
Tax exempt                                     3,602       3,754         2,717
Real estate (primarily residential 
  mortgage loans)                             58,438      52,389        47,867
Consumer loans                                21,807      19,370        17,156
                                                                              
Total Gross Loans                           $132,028    $121,925      $111,842
    Less: Unearned income and
        unamortized loan fees net 
        of costs                               4,070       3,741         3,498
                                                                              
Total Loans, net of unearned income         $127,958    $118,184      $108,344
                                                                              


<CAPTION>

(Amounts in thousands)                                 December 31,
                                                                            
                                              1992          1991
                                                                  
<S> <C>                                    <C>

Commercial, financial and 
  agricultural:
    Commercial secured by real estate      $ 26,296      $ 21,292
    Commercial - other                       14,340        13,627
Tax exempt                                    3,063         2,849
Real estate (primarily residential 
  mortgage loans)                            44,293        39,503
Consumer loans                               19,247        21,577
                                                                 
Total Gross Loans                          $107,239      $ 98,848
    Less: Unearned income and
        unamortized loan fees net 
        of costs                              4,009         4,393
                                                                 
Total Loans, net of unearned income        $103,230      $ 94,455
                                                                 

</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. Total investment
securities as illustrated in Table 8, increased $8.2 million in 1995 after
decreasing $6.1 million in 1994. Deposit growth not used to fund loans in
1995 provided a source  of  funds  for  an  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,
                                                                
                                                  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>

(Amounts in thousands)                               December 31,
                                                                           
                                                  1994                  1993
                                                                            
                                         Available       Held to
                                         for Sale       Maturity
                                                                
<S> <C>                                   <C>           <C>
U.S. Treasury                            $ 3,882        $ 1,701        $ 1,704
U. S. Government Corporations 
  and Agencies                            21,190         23,894         54,613
State and Municipal                       14,971          2,198         22,708
Other Securities                           4,273              0          6,534
Equity Securities                          1,837              0            495
                                                                              
Total Investment Securities              $52,153        $27,793        $86,054
                                                                              


</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 1995, net charge-
offs as a percentage of average loans were .13% compared to .07% in 1994
and .04% in 1993.  Recoveries on charge-offs of $27,000 in 1995 after
$108,000 in 1994 and  $109,000 in 1993 was the primary reason for the
increase in net charge-offs as a percentage of loans in 1995.  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 1.65% in 1995, 1.61% in 1994, and
1.75% in 1993.

                                                   1995 Annual Report  31

<PAGE>

Management's Discussion and Analysis
                                                                           


<TABLE>

Table 9 - Analysis of Allowance for Loan Losses 

<CAPTION>

(Amounts in thousands)                             Years Ended December 31,
                                                                            
                                                1995        1994        1993
                                                                            
<S> <C>                                        <C>         <C>
Balance at beginning of period                 $1,802      $1,844      $1,366
    Charge-offs:
      Commercial, financial, and 
        agricultural                               18          80          54
      Real estate - mortgage                      118          29           9
      Installment loans to individuals             50          72          86
                                                                             
                                               $  186      $  181      $  149
    Recoveries:
      Commercial, financial, and 
        agricultural                           $    6      $   81      $    0
      Real estate - mortgage                        2           6           3
      Installment loans to individuals             19          21         106
                                                                             
                                               $   27      $  108      $  109

Net charge-offs                                $  159      $   73      $   40
Additions charged to operations                   372          31         518
                                                                             
Balance at end of period                       $2,015      $1,802      $1,844
                                                                             
Ratio of net charge-offs during the 
    period to average loans 
    outstanding during the period                .13%        .07%        .04%
Allowance for loan losses to average 
    loans outstanding during the period         1.65%       1.61%       1.75%


<CAPTION>

(Amounts in thousands)                             Years Ended December 31,
                                                                           
                                                1992        1991
                                                                
<S> <C>                                        <C>
Balance at beginning of period                 $  966      $  690
    Charge-offs:
      Commercial, financial, and 
      agricultural                                142          17
      Real estate - mortgage                       84           0
      Installment loans to individuals            110          91
                                                                 
                                               $  336      $  108
    Recoveries:
      Commercial, financial, and 
        agricultural                           $    3      $   15
      Real estate - mortgage                        0           0
      Installment loans to individuals             22           9
                                                                 
                                               $   25      $   24

Net charge-offs                                $  311      $   84
Additions charged to operations                   711         360
                                                                 
Balance at end of period                       $1,366      $  966
                                                                 

Ratio of net charge-offs during the
  period to average loans outstanding
  during the period                              .31%        .09%
Allowance for loan losses to average 
  loans outstanding during the period           1.38%       1.06%

</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,
                                                                            
                           1995    % <F1>     1994    % <F1>     1993   % <F1>
                                                                             
<S>                       <C>      <C>       <C>      <C>       <C>      <C>
Commercial, financial,
   and agricultural       $  344    17.4     $  253    15.2    $  262     13.4
Real estate - mortgage       663    66.1        985    68.9     1,077     71.3
Installments to 
 individuals                 443    16.5        153    15.9       174     15.3
Unallocated                  565     N/A        411     N/A       331      N/A
                                                                              
                          $2,015   100.0     $1,802   100.0    $1,844    100.0
                                                                              



<CAPTION>

(Amounts in thousands)                          December 31,
                                                                            
                           1992    % <F1>     1991    % <F1>
                                                           
<S>                       <C>      <C>       <C>      <C>
Commercial, financial,
   and agricultural       $  386    14.5     $  214    14.4
Real estate - mortgage       418    67.6        327    67.4
Installments to 
 individuals                 135    17.9        153    18.2
Unallocated                  427     N/A        272     N/A
                                                           
                          $1,366   100.0     $  966   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 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 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 

32  First Keystone Corporation

<PAGE>

Management's Discussion and Analysis
                                                                           



further reduction in non-performing assets in 1995 relates primarily to the
sale of other real estate owned.  In 1995, this other real estate owned was
sold and the deficiency of $37,000 was charged to expense.  The current
level of non-performing assets is considered manageable.  In addition,
loans  which are past-due 90 days or more as to interest or principal and
still  accruing has remained relatively stable.
    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 improve 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 1995 and 1994 was
$2,700 and $3,555, respectively.  Interest income, which would have been
recorded on these loans under the original terms was $53,224 and $61,108,
respectively.  At December 31, 1995, 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, 1995, 1994, and 1993, 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,
                                                                            
    1995                                 1994   1993      1992     1991
                                                                       
<S> <C>                                 <C>     <C>      <C>       <C>
Non-accrual and restructured loans      $557    $620     $1,431    $346   $259
Other real estate held                     0     235          5     107    378
                                                                              
 Total non-performing assets            $557    $855     $1,436    $453   $637
                                                                              
As a percentage of period-end 
  loans and other real estate held      .44%    .73%      1.35%    .44%   .68%
Loans past-due 90 or more days and 
  still accruing                          68      49         27      92    212

</TABLE>


DEPOSITS AND OTHER BORROWED FUNDS
    Deposit growth amounted to $15,040,312, or an 8.7% increase when
comparing December 31, 1995, to December 31, 1994.  This increase compares
to deposit increases of 4.0% in 1994 and 1.7% in 1993.
    First Keystone's subsidiary bank, like many other commercial banks,
experienced increased deposit growth in 1995 after slow deposit growth in 
both 1994 and 1993.  Low interest rates and intense competition for
depositors' funds can be attributed to the slow deposit growth.  Increasing
interest rates resulted in an increased emphasis and demand for
certificates of deposits in the fourth quarter of 1994 into much of 1995.
    During 1995, the Corporation experienced an increase in both non-
interest bearing demand deposits and interest bearing demand deposits. 
Certificates of deposit under $100,000 increased significantly in 1995. 
Also, time deposits of $100,000 or more increased slightly in 1995.  
Short-term borrowings and long-term borrowings from the Federal Home Loan
Bank were reduced in 1995 by $1,626,013.

CAPITAL STRENGTH
    Normal increases in capital are generated by net income, less cash
dividends paid out.  Also, the net unrealized gain or loss on investment
securities available for sale increased or decreased shareholders' equity
or capital beginning in 1994.  The net increase in capital was $4,611,390
in 1995, $2,210,501 during 1994 and $2,367,380 in 1993.
    Return on equity (ROE) is computed by dividing net income by average
stockholders' equity.  This ratio was 15.24% for 1995, 15.34% for 1994, and
17.56% for 1993. Refer to Performance Ratios on Page 2 - Summary of
Selected Financial Data for a more expanded listing of the ROE.
    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 10.22% at December 31, 1995, and 10.14% 
as of December 31, 1994.

                                                   1995 Annual Report  33

<PAGE>


Management's Discussion and Analysis
                                                                           



    Effective December 31, 1992, new federal regulatory guidelines
measuring risk-based capital were effective.  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 required and actual ratios as of December 31, 1995, for the
Corporation and the Bank.


<TABLE>

Table 12 - Capital Ratios

<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%


<CAPTION>
                                                             December 31, 1994
                                                                              
                                                          Corporation   Bank
                                                                            
<S> <C>                                                     <C>
Risk-Based Capital:
    Tier I risk-based capital ratio                         16.94%     16.08%
    Total risk-based capital ratio (Tier 1 and Tier 2)      18.19%     17.33%
Leverage Ratio:
    Tier I capital to average assets                        10.14%      9.61%

</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           $ 2,759      $ 5,302      $   0      $ 8,061
    Variable interest rate         38,741       11,403          0       50,144
                                                                              
       Total                      $41,500      $16,705      $   0      $58,205
                                                                              
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 this current changing environment, 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, 1995 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
$48,783,000.  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, 1995
                                                                            
                                        3 Months        3 - 12          1 - 5
                                         or Less        Months          Years
                                                                             
<S> <C>                                 <C>            <C>
Rate Sensitive Assets:
    Cash and cash equivalent            $  2,067       $      0       $      0
    Loans                                 38,049         28,482         43,066
    Investments                           14,644         15,733          5,242

                                                                              
    Total Rate Sensitive Assets         $ 54,760       $ 44,215       $ 48,308
                                                                              
Rate Sensitive Liabilities:
    Deposits:
         Interest-bearing demand        $ 37,617       $      0       $      0
         Savings                          42,333              0              0
         Time                             19,456         37,935         32,358
    Short-term borrowings                  4,137            222              0
    Long-term borrowings                       0          2,000          4,000
                                                                              
    Total Rate Sensitive Liabilities    $103,543       $ 40,157       $ 36,358
                                                                              
Interest Rate Sensitivity:
    Current period                      $(48,783)      $  4,058       $ 11,950
    Cumulative gap                       (48,783)       (44,725)       (32,775)
Cumulative gap to total assets           (21.58%)       (19.79%)       (14.50%)


<CAPTION>

(Amounts in thousands)                             December 31, 1995
                                                                            
                                          Over
                                         5 Years         Total
                                                              
<S> <C>                                 <C>
Rate Sensitive Assets:
    Cash and cash equivalent            $      0      $  2,067
    Loans                                 18,361       127,958
    Investments                           52,506        88,125
                                                              
    Total Rate Sensitive Assets         $ 70,867      $218,150
                                                              
Rate Sensitive Liabilities:
    Deposits:
         Interest-bearing demand        $      0      $ 37,617
         Savings                               0        42,333
         Time                                  0        89,749
    Short-term borrowings                      0         4,359
    Long-term borrowings                   1,000         7,000
                                                              
    Total Rate Sensitive Liabilities    $  1,000      $181,058
                                                              
Interest Rate Sensitivity:
    Current period                      $ 69,867      $ 37,092
    Cumulative gap                        37,092
Cumulative gap to total assets            16.41%

</TABLE>


                                                    1995 Annual Report  35

<PAGE>


Management's Discussion and Analysis
                                                                           


EFFECT OF INFLATION
    Although inflation was not significant in 1995, 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 indicate a slowing
economic environment in 1996.  We are optimistic that the improved loan
growth experienced in  1995  should continue well into 1996.  Although it
is anticipated that the majority of the loan growth in 1996 will be in the
residential mortgage area as interest rates decline, 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
1996 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 December 31, 1993.  These prices do not necessarily reflect
any dealer or retail markup, markdown or commission.

<TABLE>


Table 15 - Market Price/Dividend History

<CAPTION>
                                        1995
                                                        
                            Common Stock        Dividends
                              High/Low            Paid
                                                       
<S>                        <C>                    <C>
First Quarter              $35.00/$35.00          $.290
Second Quarter             $35.00/$35.00           .290
Third Quarter              $37.00/$35.00           .290
Fourth Quarter             $37.00/$37.00           .310


<CAPTION>
                                        1994
                                                        
                            Common Stock        Dividends
                              High/Low            Paid
                                                       
<S>                        <C>                    <C>
First Quarter              $32.25/$32.25          $.270
Second Quarter             $35.00/$27.00           .270
Third Quarter              $35.00/$35.00           .270
Fourth Quarter             $35.00/$35.00           .290


<CAPTION>
                                        1994
                                                        
                            Common Stock        Dividends
                              High/Low            Paid
                                                       
<S>                        <C>                    <C>
First Quarter              $29.32/$29.09          $.227
Second Quarter             $29.32/$25.68           .227
Third Quarter              $29.32/$29.32           .227
Fourth Quarter             $32.25/$32.25           .270

</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
                                                                              
1995                           March 31    June 30   September 30   December 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                       $  .89     $ 1.00      $ 1.21         $ 1.21


<CAPTION>

(Amounts in thousands, except per share)

                                              Three Months Ended
                                                                              
1994                           March 31    June 30   September 30   December 31
                                                                               
<S>                             <C>        <C>         <C>            <C>
Interest income                 $3,346     $3,315      $3,442         $3,628
Interest expense                 1,516      1,527       1,592          1,718
                                                                            
Net interest income             $1,830     $1,788      $1,850         $1,910
Provision for loan 
   losses                            2          1           3             25
Other non-interest 
   income                          224        202         203            363
Non-interest expense             1,087      1,106       1,058          1,057
                                                                            
Income before income 
   taxes and cumulative 
   effect of accounting 
   change                       $  965     $  883      $  992         $1,191
Income taxes                       202        176         227            311
                                                                            
Net income                      $  763     $  707      $  765         $  880
                                                                            
Per share                       $  .94     $  .87      $  .95         $ 1.09

</TABLE>

                                                    1995 Annual Report  37

<PAGE>


                           FIRST KEYSTONE CORPORATION                        



DIRECTORS*

John Arndt
Owner, Arndt Insurance Agency
J. Gerald Bazewicz
President and Chief Executive Officer of the
   Corporation and the Bank
Budd L. Beyer
Investor; Retired President, Sunshine Textile 
   Services, Inc.
Robert E. Bull
Chairman; Attorney, Bull, Bull & Knecht
John L. Coates
President, Tri-County Hardware, Inc.
Dudley P. Cooley
Financial Consultant; Former Comptroller,
   Wise Foods, Borden, Inc.
Frederick E. Crispin, Jr.
Financial Consultant, F. E. Crispin and Associates
Stanley E. Oberrender
Owner, Suntex
F. Stuart Straub
Retired President of the Corporation and the Bank
Robert J. Wise
Investor


OFFICERS

Robert E. Bull
Chairman
J. Gerald Bazewicz
President and Chief Executive Officer
David R. Saracino
Treasurer and Assistant Secretary
John L. Coates
Secretary


*Also Directors of The First National Bank of Berwick




                       THE FIRST NATIONAL BANK OF BERWICK                   



OFFICERS

Robert E. Bull
Chairman of the Board
J. Gerald Bazewicz
President and Chief Executive Officer
since January 1987
with the Bank since February 1973
25 years in banking
David R. Saracino
Vice President, Cashier and
   Assistant Secretary
since January 1987
with the Bank since February 1972
23 years in banking
Leslie W. Bodle
Vice President and Trust Officer
since October 1985
with the Bank since October 1985
30 years in banking
Sally A. Rishkofski
Assistant Vice President and Community 
   Office Manager, Scott Township Office
since January 1989
with the Bank since February 1964
35 years in banking

38  First Keystone Corporation

<PAGE>


                       THE FIRST NATIONAL BANK OF BERWICK                   



OFFICERS (continued)

Robert D. McWilliams
Assistant Vice President and Loan
   Administration Manager
since March 1989
with the Bank since September 1973
22 years in banking
Barbara J. Robbins
Assistant Vice President and EDP Manager
since April 1990
with the Bank since June 1970
25 years in banking
Timothy K. Kishbach
Assistant Vice President and Senior Loan Officer
since April 1993
with the Bank since September 1989
8 years in banking
Linda K. Yerges
Assistant Vice President and Human 
   Resources Manager
since April 1993
with the Bank since January 1973
22 years in banking
Gabriel D. Alessi
Assistant Vice President and
   Mortgage Officer
since May 1995
with the Bank since May 1995
22 years in banking
Judith A. Gizenski
Trust Officer
since August 1991
with the Bank since June 1976
19 years in banking
Marlene L. Eckrote
Assistant Trust Officer
since July 1979
with the Bank since September 1972
23 years in banking
Evelyn M. Bower
Assistant Cashier and Loan Review Officer
since June 1993
with the Bank since March 1978
19 years in banking
John J. Petruzella
Assistant Cashier and Community Office
   Manager, Freas Avenue Office
since December 1988
with the Bank since August 1978
17 years in banking
Carmie A. Cleaver
Assistant Cashier and Community Office
   Manager, Main Office
since January 1989
with the Bank since May 1972
23 years in banking
J. Steven Shuman
Assistant Cashier and Security Officer
since April 1990
with the Bank since December 1975
20 years in banking
Kevin L. Miller
Assistant Cashier and Assistant EDP Manager
since April 1991
with the Bank since November 1982
13 years in banking
Diane C. A. Rosler
Assistant Cashier and Accounting Manager
since April 1994
with the Bank since July 1990
5 years in banking
Douglas E. Klinger
Assistant Cashier and Commercial 
   Loan Officer
since April 1995
with the Bank since August 1993
2 years in banking
Richard L. Holloway
Assistant Cashier and Community Office
   Manager, Nescopeck Office
since April 1994
with the Bank since September 1983
12 years in banking
Tina M. Gray
Assistant Cashier and Community Office
   Manager, Salem Office
since April 1995
with the Bank since June 1984
 21 years in banking
John L. Coates
Secretary

                                                    1995 Annual Report  39

<PAGE>


                       THE FIRST NATIONAL BANK OF BERWICK                   


     *MAIN OFFICE                            *NESCOPECK OFFICE
     111 West Front Street                   West Third Street
     Berwick, Pennsylvania                   Nescopeck, Pennsylvania
     752-3671                                759-2767




     *SALEM OFFICE                           *FREAS AVENUE OFFICE
     400 Fowler Avenue                       701 Freas Avenue
     Berwick, Pennsylvania                   Berwick, Pennsylvania
     759-2628                                752-1244




     *SCOTT TOWNSHIP OFFICE                  *MIFFLINVILLE OFFICE
     Central Road and Route 11               Third and Race Streets
     Bloomsburg, Pennsylvania                Mifflinville, Pennsylvania
     784-0354                                752-5750





                                                              

                                 *MAC Locations
                                24 Hour Banking
                                    also at:
                            Berwick Hospital Center
                  701 East 16th Street, Berwick, Pennsylvania
                                      and
                            Sheetz Convenience Store
                       Route 11, Bloomsburg, Pennsylvania
                                                              


                       <FIRST KEYSTONE CORPORATION LOGO>

                                                       
                        A First Keystone Community Bank
                                                       


                                          <PICTURE OF EQUAL HOUSING HOUSE>
MEMBER FDIC                                         Equal Housing
                                                        Lender

40  First Keystone Corporation

<PAGE>