UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C.  20549

                              FORM 10-KSB

[x]  ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 

For the fiscal year ended December 31, 1996

Or

[ ]  TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 

For the transition period from _____________ to ________________

Commission file Number:  2-88927

                      FIRST KEYSTONE CORPORATION
            (Name of small business issuer in its charter)

PENNSYLVANIA                                 23-2249083
(State or other jurisdiction of              (I.R.S. Employer
incorporation or organization)               Identification Number)

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

Issuer's telephone number, including area code:  (717) 752-3671

Securities registered pursuant to Section 12(b) of the Act:  Not
Applicable

Securities registered pursuant to Section 12(g) of the Act:  Not
Applicable

     Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes  X   No______

     Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB.  [ ]

     The issuer's revenues for the year ended December 31, 1996, are
$18,838,239.

     The aggregate market value of the voting stock held by non-affiliates 
computed by reference to the price as of March 4, 1997, is
$26,611,473.

     The number of shares outstanding of the issuer's Common Stock, as
of March 4, 1997, was 889,147 shares of Common Stock, par value $2.00
per share.

                  DOCUMENTS INCORPORATED BY REFERENCE
Parts I and III        -    Definitive Proxy Statement, Notice of Annual
                            Meeting and Form of Proxy for the Annual
                            Meeting of Shareholders to be held April 15,
                            1997.
Part II        -       Excerpts from Annual Report to Shareholders
                       for Fiscal Year Ended December 31, 1996.

<PAGE>

                      FIRST KEYSTONE CORPORATION
                              FORM 10-KSB

                                PART I


ITEM 1.   DESCRIPTION OF THE BUSINESS

        General

        First Keystone Corporation (the "Corporation"), a Pennsylvania
business corporation, is a bank holding company, registered with and
supervised by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board").  The Corporation was incorporated on
July 6, 1983, and commenced operations on July 2, 1984, upon
consummation of the acquisition of all of the outstanding stock of The
First National Bank of Berwick (the "Bank").  Since commencing
operations, the Corporation's business has consisted primarily of
managing and supervising the Bank, and its principal source of income
has been dividends paid by the Bank.  The Corporation has one wholly-owned 
subsidiary, the Bank.  At December 31, 1996, the Corporation had
total consolidated assets, deposits and stockholders' equity of
approximately $242.6 million, $198.5 million and $27.5 million,
respectively.

        The Bank was organized in 1864.  The Bank is a national banking
association that is a member of the Federal Reserve System and the
deposits of which are insured by the Federal Deposit Insurance
Corporation (the "FDIC").  The Bank, having five branch locations
(three branches within Columbia County and two branches within Luzerne
County, Pennsylvania), is a full service commercial bank providing a
wide range of services to individuals and small to medium sized
businesses in its Northeastern Pennsylvania market area, including
accepting time, demand, and savings deposits and making secured and
unsecured commercial, real estate and consumer loans.

        FKC Realty Corporation commenced operations July 2, 1984.  It's
major asset is a parcel of real estate currently utilized for parking
located in Berwick, Pennsylvania and its only source of income is
parking fees.  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.

        Supervision and Regulation - Corporation

        The Corporation is subject to the jurisdiction of the Securities
and Exchange Commission ("SEC") and of state securities laws
administrators for matters relating to the offering and sale of its
securities.  The Corporation is currently subject to the SEC's rules
and regulations relating to periodic reporting in accordance with
Section 13 of the Securities Exchange Act of 1934.  Furthermore, the
Corporation qualifies as a "small business issuer" as that term is
defined under Item 10 of Regulation S-B of the SEC, and has elected to
make its SEC filings under the disclosure requirements afforded to
small business issuers.

                                   1

<PAGE>


        The Corporation is also subject to the provisions of the Bank
Holding Company Act of 1956, as amended ("Bank Holding Company Act"),
and to supervision by the Federal Reserve Board.  The Bank Holding
Company Act requires the Corporation to secure the prior approval of
the Federal Reserve Board before it owns or controls, directly or
indirectly, more than 5% of the voting shares of substantially all of
the assets of any institution, including another bank.  In addition,
the Bank Holding Company Act has been amended by the Riegle-Neal
Interstate Banking and Branching Efficiency Act which permits bank
holding companies to acquire a bank located in any state, subject to
certain limitations and restrictions as more fully described below.

        A bank holding company is prohibited from engaging in or
acquiring direct or indirect control of more than 5% of the voting
shares of any company engaged in non-banking activities unless the
Federal Reserve Board, by order or regulation, has found such
activities to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.  In making this
determination, the Federal Reserve Board considers whether the
performance of these activities by a bank holding company would offer
benefits to the public that outweigh possible adverse effects.

        The Bank Holding Company Act also prohibits acquisitions of
control of a bank holding company, such as the Corporation, without
prior notice to the Federal Reserve Board.  Control is defined for
this purpose as the power, directly or indirectly, to direct the
management or policies of a bank holding company or to vote twenty-five 
percent (25%) (or ten percent (10%), if no other person or
persons acting on concert, holds a greater percentage of the Common
Stock) or more of the Corporation's Common Stock.

        The Corporation is required to file an annual report with the
Federal Reserve Board and any additional information that the Federal
Reserve Board may require pursuant to the Bank Holding Company Act. 
The Federal Reserve Board may also make examinations of the
Corporation and any or all of its subsidiaries.  Further, under
Section 106 of the 1970 amendments to the Bank Holding Company Act and
the Federal Reserve Board's regulations, a bank holding company and
its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or provision
of credit or provision of any property or services.  The so-called
"Anti-tie-in" provisions state generally that a bank may not extend
credit, lease, sell property or furnish any service to a customer on
the condition that the customer provide additional credit or service
to the bank, to its bank holding company or to any other subsidiary of
its bank holding company or on the condition that the customer not
obtain other credit or service from a competitor of the bank, its bank
holding company or any subsidiary of its bank holding company.  

        Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or any of its subsidiaries, on
investments in the stock or other securities of the bank holding
company and on taking of such stock or securities as collateral for
loans to any borrower.

                                   2

<PAGE>


        Permitted Non-Banking Activities

        The Federal Reserve Board permits bank holding companies to
engage in non-banking activities so closely related to banking,
managing or controlling banks as to be a proper incident thereto.  The
Corporation does not at this time engage in any of these non-banking
activities, nor does the Corporation have any current plans to engage
in any other permissible activities in the foreseeable future.

        Legislation and Regulatory Changes

        From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding
permissible activities or affecting the competitive balance between
banks and other financial institutions.  Proposals to change the laws
and regulations governing the operations and taxation of banks, bank
holding companies and other financial institutions are frequently made
in Congress, and before various bank regulatory agencies.  No
prediction can be made as to the likelihood of any major changes or
the impact such changes might have on the Corporation and its
subsidiary bank.  Certain changes of potential significance to the
Corporation which have been enacted recently and others which are
currently under consideration by Congress or various regulatory
agencies are discussed below.

        On September 29, 1994, President Clinton signed into law the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking and Branch Act").  The legislation permits
interstate banking twelve months after its enactment into law.  Bank
holding companies, pursuant to an amendment to the Bank Holding
Company act, can acquire a bank located in any state, as long as the
acquisition does not result in the bank holding company controlling
more than 10 percent of the deposits in the United States, or 30
percent of the deposits in the target bank's state.  The legislation
permits states to waive the concentration limits and require that the
target institution be in existence for up to five years before it can
be acquired by an out-of-state bank or bank holding company. 
Interstate branching and merging of existing banks is permitted after
three years from the enactment of the Interstate Banking and Branching
Act, if the bank is adequately capitalized and demonstrates good
management.  Branch merging will be permitted earlier if a state
undertakes to enact a law which allows it and states may also enact a
law to permit banks to branch de novo.  See also, pages 17 and 18 of
Corporation's Annual Report to Shareholder's for the year ended
December 31, 1996, which pages are included in Exhibit 13.  The
Interstate Banking and Branching Act also amends the International
Banking Act to allow a foreign bank to establish and operate a federal
branch or agency upon approval of the appropriate federal and state
banking regulator.  As a national bank, the Bank currently can
relocate its main office across state lines by utilizing a provision
in the National Bank Act which permits such relocation to a location
not more than thirty miles from its existing main office.  In effect,
a national bank can thereby move across state lines as long as the
relocation does not exceed thirty miles, and also retain as branches
the offices located in the original state.

        The Federal Reserve Board, the FDIC and the Office of the
Comptroller of the Currency (the "OCC") have issued certain risk-based
capital guidelines, which supplement existing capital requirements. 
The guidelines require all United States banks and bank 

                                   3

<PAGE>

holding companies to maintain a minimum risk-based capital ratio of 8
percent (of which at least 4 percent must be in the form of common
stockholders' equity).  Assets are assigned to five risk categories,
with higher levels of capital being required for the categories
perceived as representing greater risk.  The required capital will
represent equity and (to the extent permitted) nonequity capital as a
percentage of total risk-weighted assets.  The risk-based capital
rules are designed to make regulatory capital requirements more
sensitive to differences in risk profiles among banks and bank holding
companies and to minimize disincentives for holding liquid assets.  On
the basis of an analysis of the rules and the projected composition of
the Corporation's consolidated assets, it is not expected that such
risk-based capital rules will have a material effect on the
Corporation's business and capital plans.  The Bank has capital ratios
exceeding the regulatory requirements.

        Regulatory Capital Requirements

<TABLE>

<CAPTION>

        The following table presents the Corporation's capital ratios at
December 31, 1996:

<S>                                                        <C>
Tier I Capital                                              $ 26,323,000
Tier II Capital                                                1,712,000
                                                                        
Total Capital                                               $ 28,035,000

Adjusted Total Average Assets                               $242,170,000
Total Adjusted Risk-Weighted Assets <F1>                     136,425,000

Tier I Risk-Based Capital Ratio <F2>                              19.29%
Required Tier I Risk-Based Capital Ratio                           4.00%
Excess Tier I Risk-Based Capital Ratio                            15.29%

Total Risk-Based Capital Ratio <F3>                               20.55%
Required Total Risk-Based Capital Ratio                            8.00%
Excess Total Risk-Based Capital Ratio                             12.55%

Tier I Leverage Ratio <F4>                                        10.87%
Required Tier I Leverage Ratio                                     3.00%
Excess Tier I Leverage Ratio                                       7.87%
_________________________

<FN>
<F1>
Includes off-balance sheet items at credit-equivalent values.
<F2>
Tier I Risk-Based Capital Ratio is defined as the ratio of Tier I
Capital to Adjusted Total Risk-Weighted Assets.
<F3>
Total Risk-Based Capital Ratio is defined as the ratio of Tier I and
Tier II Capital to Total Adjusted Risk-Weighted Assets.
<F4>
Tier I Leverage Ratio is defined as the ratio of Tier I Capital to
Adjusted Total Average Assets.

</FN>
</TABLE>

   As of January 1, 1996, the Corporation adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." 
The Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. 
An impairment loss is indicated if the sum of the expected future cash
flows, undiscounted and without interest charges, is less than the
carrying amount of the assets.  An impairment loss must be 

                                   4

<PAGE>


recognized as the amount by which the carrying amount of the asset
exceeds the fair value of the asset so determined.  Implementation of
this Statement by the Corporation did not result in any impairment
losses.

   The Corporation's ability to maintain the required levels of
capital is substantially dependent upon the success of the
Corporation's capital and business plans; the impact of future
economic events on the Corporation's loan customers; and the
Corporation's ability to manage its interest rate risk and investment
portfolio and control its growth and other operating expenses.

   Pending Legislation

   Various congressional bills and other proposals have proposed a
sweeping overhaul of the banking system, including provision for: 
limitations on deposit insurance coverage; changing the timing and
method financial institutions use to pay for deposit insurance;
expanding the power of banks by removing the restriction on bank
underwriting activities; and tightening the regulation of bank
derivatives activities; allowing commercial enterprises to own banks. 
Set forth below are some of the proposals advanced by the federal
banking agencies.

   Management has no way of anticipating whether these measures will
be enacted or if enacted, their impact on the Company's financial
position and reported results of operation.  As a consequence of the
extensive regulation of commercial banking activities in the United
States, the Corporation's and the Bank's business is particularly
susceptible to being affected by federal and state legislation and
regulations that may increase the costs of doing business.  See also,
the information under the caption "Regulatory Matters" appearing on
page 18 of Registrant's 1996 Annual Report, which page is included in
Exhibit 13.

   Effects of Inflation

   Inflation has some impact on the Corporation's and the Bank's
operating costs.  Unlike many industrial companies, however,
substantially all of the Bank's assets and liabilities are monetary in
nature.  As a result, interest rates have a more significant impact on
the Corporation's and the Bank's performance than the general level of
inflation.  Over short periods of time, interest rates may not
necessarily move in the same direction or in the same magnitude as
prices of goods and services.

                                   5

<PAGE>


   Effect of Government Monetary Policies

   The earnings of the Corporation are and will be affected by
domestic economic conditions and the monetary and fiscal policies of
the United States government and its agencies.  

   The monetary policies of the Federal Reserve Board have had, and
will likely continue to have, an important impact on the operating
results of commercial banks through its power to implement national
monetary policy in order to, among other things, curb inflation or
combat a recession.  The Federal Reserve Board has a major effect upon
the levels of bank loans, investments and deposits through its open
market operations in United States government securities and through
its regulations of, among other things, the discount rate on
borrowings of member banks and the reserve requirements against member
bank deposits.  It is not possible to predict the nature and impact of
future changes in monetary and fiscal policies.

   Environmental Regulation

   There are several federal and state statutes that regulate the
obligations and liabilities of financial institutions pertaining to
environmental issues.  In addition to the potential for attachment of
liability resulting from its own actions, a bank may be held liable,
under certain circumstances, for the actions of its borrowers, or
third parties, when such actions result in environmental problems on
properties that collateralize loans held by the bank.  Further, the
liability has the potential to far exceed the original amount of the
loan issued by the Bank.  Currently, neither the Corporation nor the
Bank is a party to any pending legal proceeding pursuant to any
environmental statute, nor are the Corporation and the Bank aware of
any circumstances that may give rise to liability under any such
statute.

   History and Business - Bank

   The Bank's legal headquarters are located at 111 West Front
Street, Berwick, Pennsylvania.

   As of December 31, 1996, the Bank had total assets of
$241,381,942, total shareholders' equity of $26,000,321 and total
deposits and other liabilities of $215,381,621.

   The Bank engages in a full-service commercial banking business,
including accepting time and demand deposits, and making secured and
unsecured commercial and consumer loans.  The Bank's business is not
seasonal in nature.  Its deposits are insured by the FDIC to the
extent provided by law.

   At December 31, 1996, the Bank had seventy-five (75) full-time
employees and twenty-nine (29) part-time employees.  In the opinion of
management, the Bank enjoys a satisfactory relationship with its
employees.  The Bank is not a party to any collective bargaining
agreement.

                                   6

<PAGE>


   Competition - Bank

   The Bank competes actively with other area commercial banks and
savings and loan associations, many of which are larger than the Bank,
as well as with major regional banking and financial institutions. 
The Bank's major competitors in its home county of Columbia are: 
First Columbia Bank & Trust Co. of Bloomsburg, PNC Bank, N.A., CCFNB,
Mellon Bank, N.A. of Wilkes-Barre and Franklin First Savings Bank of
Wilkes-Barre.  Except with respect to First Columbia Bank & Trust Co.
and CCFNB, all of the Bank's major competitors are larger than it in
terms of assets.  The Bank is generally competitive with all competing
financial institutions in its service area with respect to interest
rates paid on time and savings deposits, service charges on deposit
accounts and interest rates charged on loans.

   Supervision and Regulation - Bank

   The operations of the Bank are subject to federal and state
statutes applicable to banks chartered under the banking laws of the
United States, to members of the Federal Reserve System and to banks
whose deposits are insured by the FDIC.  Bank operations are also
subject to regulations of the OCC, the Federal Reserve Board and the
FDIC.

   The primary supervisory authority of the Bank is the OCC, which
regulates and examines the Bank.  The OCC has the authority under the
Financial Institutions Supervisory Act to prevent a national bank from
engaging in an unsafe or unsound practice in conducting its business.

   Federal and state banking laws and regulations govern, among
other things, the scope of a bank's business, the investments a bank
may make, the reserves against deposits a bank must maintain, loans a
bank makes and collateral it takes, and the activities of a bank with
respect to mergers and consolidations and the establishment of
branches.  

   As a subsidiary of a bank holding company, the Bank is subject to
certain restrictions imposed by the Federal Reserve Act on any
extensions of credit to the bank holding company or its subsidiaries,
on investments in the stock or other securities of the bank holding
company or its subsidiaries and on taking such stock or securities as
collateral for loans.  The Federal Reserve Act and Federal Reserve
Board regulations also place certain limitations and reporting
requirements on extensions of credit by a bank to principal
shareholders of its parent holding company, among others, and to
related interests of such principal shareholders.  In addition, such
legislation and regulations may affect the terms upon which any person
becoming a principal shareholder of a holding company may obtain
credit from banks with which the subsidiary bank maintains a
correspondent relationship.

   From time to time, various types of federal and state legislation
have been proposed that could result in additional regulations of, and
restrictions on, the business of the Bank.  It cannot be predicted
whether any such legislation will be adopted or how such legislation
would affect the business of the Bank.  As a consequence of the
extensive regulation of commercial banking activities in the United
States, the Bank's business is particularly susceptible to being
affected by federal legislation and regulations that may increase the
costs of doing business.

                                   7

<PAGE>


   Under the Federal Deposit Insurance Act ("FDIA"), the OCC
possesses the power to prohibit institutions regulated by it (such as
the Bank) from engaging in any activity that would be an unsafe or
unsound banking practice or would otherwise be in violation of the
law.  Moreover, the Financial Institutions Regulatory and Interest
Rate Control Act of 1978 ("FIRA") generally expanded the circumstances
under which officers or directors of a bank may be removed by the
institution's federal supervisory agency, restricts lending by a bank
to its executive officers, directors, principal shareholders or
related interests thereof and restricts management personnel of a bank
from serving as directors or in other management positions with
certain depository institutions whose assets exceed a specified amount
or which have an office within a specified geographic area, and
restricts the relationships of management personnel of a bank with
securities companies and securities dealers.  Additionally, FIRA
requires that no person may acquire control of a bank unless the
appropriate federal supervisory agency has given sixty (60) days prior
written notice and within that time has not disapproved the
acquisition or otherwise extended the period for disapproval.  Control
for purposes of FIRA means the power to direct, either directly or
indirectly, the management or policies or to vote twenty-five percent
(25%) or more of any class of outstanding stock of a financial
institution or its respective holding company.  A person or group
holding revocable proxies to vote twenty-five percent (25%) or more of
the outstanding common stock of a financial institution or holding
company would presumably be deemed to control the institution for
purposes of FIRA.

   Under the Community Reinvestment Act of 1977, as amended ("CRA"),
the OCC is required to assess the record of all financial institutions
regulated by it to determine is these institutions are meeting the
credit needs of the community (including low and moderate income
neighborhoods) which they serve and to take this record into account
in its evaluation of any application made by any of such institutions
for, among other things, approval of a branch or other deposit
facility, office relocation, a merger or any acquisition of bank
shares.  The Financial Institutions Reform, Recovery and Enforcement
Act of 1989 amended (see below) the CRA to require, among other
things, that the OCC make publicly available the evaluation of a
bank's record of meeting the credit needs of its entire community,
including low and moderate income neighborhoods.  This evaluation
includes a descriptive rating ("outstanding", "satisfactory", "needs
to improve", or "substantial noncompliance") and a statement
describing the basis for the rating.  These ratings are publicly
disclosed.

   In April 1995, regulators revised CRA with an emphasis on
performance over process and documentation.  Under the revised rules,
the five-point rating scale is still utilized; however, the 12
assessment factors have been replaced with a three-prong test.  A
bank's compliance is determined by a three-prong test whereby
examiners assign a numerical score for a bank's performance in each of
three areas:  lending, service and investment.  The area of lending is
weighted to increase its importance in the application of the test. 
The rule became effective July 1, 1995.

   When rating a bank in the area of lending, regulators examine the
number and amount of loan originations, the location of where the
loans were made, and the income levels of the borrowers.  Although
banks, under the revised rules, are not required to make loans in
every area, if there are apparent tracts in which there is little
lending, examiners will focus their investigations in that area.

                                   8

<PAGE>


   The service prong evaluates how a bank delivers its products to
the community through branching.  As with lending, banks are not
required to branch in every area, although conspicuous gaps will be
investigated.

   The third prong, investment in community, examines how the bank
meets the investment needs in the community within which it operates. 
Assessment of investment is accomplished using a "performance context"
pursuant to which regulators meet with civic, community and bank
officials in order to determine the credit needs of the community.

   Expanded Home Mortgage Disclosure Act reporting requirements were
also approved for large banks and thrifts which require reporting of
census tract data on mortgagees made outside of the delineated
communities.  In addition, effective March 1, 1997, institutions with
assets above $250 million will be required to report their aggregate
small business loans made by geographic region.

   Independent banks with total assets of less than $250 million and
bank subsidiaries with total assets of less than $250 million that
have holding companies with total assets of less than $1 billion will
be subjected to less stringent CRA examinations.

   Under the new regulation, banks will enjoy a reduction in
compliance burden.  Specifically, banks are not required to keep
extensive documentation to prove that directors have participated in
the drafting and review of CRA policies.  A formal CRA statement does
not have to be prepared.  The efforts banks make to market low- and
moderate-income communities do not have to be documented, nor will
banks have to justify the basis for their community delineation or the
methods utilized to determine the credit needs of the community.

   Under the Bank Secrecy Act ("BSA"), banks and other financial
institutions are required to report to the Internal Revenue Service
currency transactions of more than $10,000 or multiple transactions of
which the Bank is aware in any one day that aggregate in excess of
$10,000.  Civil and criminal penalties are provided under the BSA for
failure to file a required report, for failure to supply information
required by the BSA or for filing a false or fraudulent report.

   An omnibus federal banking bill, known as the Competitive
Equality Banking Act ("CEBA"), was signed into law in August of 1987. 
Included in the legislation were measures:  (1) imposing certain
restrictions on transactions between banks and their affiliates; (2)
expanding the powers available to Federal bank regulators in assisting
failed or failing banks; (3) limiting the amount of time banks may
hold certain deposits prior to making such funds available for
withdrawal and any interest thereon; and (4) requiring that any
adjustable rate mortgage loan secured by a lien on a one-to-four
family dwelling include a limitation on the maximum rate at which
interest may accrue on the principal balance during the term of such
loan.  This legislation has not had a material adverse effect on the
Bank's operations or its competitive position.

                                   9

<PAGE>


   On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") became law.  Under FDICIA,
institutions must be classified in one of five defined categories as
illustrated below (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized).



<TABLE>

<CAPTION>

                          Total        Tier 1                      Under a
                          Risk-        Risk-        Tier 1         Capital
                          Based        Based        Leverage       Order or
                          Ratio        Ratio        Ratio          Directive

<S>                       <C>          <C>         <C>               <C>
CAPITAL CATEGORY
Well capitalized          >/= 10.0     >/= 6.0     >/= 5.0           No
Adequately 
   capitalized            >/=  8.0     >/= 4.0     >/= 4.0 <F1>
Undercapitalized          <  8.0       < 4.0       < 4.0 <F1>
Significantly 
   undercapitalized       <  6.0       < 3.0       < 3.0
Critically
   undercapitalized                                </= 2.0
                             
<FN>
<F1>
3.0 for those banks having the highest available regulatory rating.

</FN>
</TABLE>


   In the event an institution's capital deteriorates to the
undercapitalized category or below, FDICIA prescribes an increasing
amount of regulatory intervention, including: (1) the institution by a
bank of a capital restoration plan and a guarantee of the plan by a
parent institution; and (2) the placement of a hold on increases in
assets, number of branches or lines of business.  If capital has
reached the significantly or critically undercapitalized levels,
further material restrictions can be imposed, including restrictions
on interest payable on accounts, dismissal of management and (in
critically undercapitalized situations) appointment of a receiver. 
For well capitalized institutions, FDICIA provides authority for
regulatory intervention where the institution is deemed to be engaging
in unsafe or unsound practices or receives a less than satisfactory
examination report rating for asset quality, management, earnings or
liquidity.  All but well capitalized institutions are prohibited from
accepting brokered deposits without prior regulatory approval.

   Under FDICIA, financial institutions are subject to increased
regulatory scrutiny and must comply with certain operational,
managerial and compensation standards to be developed by Federal
Reserve Board regulations.  FDICIA also requires the regulators to
issue new rules establishing certain minimum standards to which an
institution must adhere including standards requiring a minimum ratio
of classified assets to capital, minimum earnings necessary to absorb
losses and minimum ratio of market value to book value for publicly
held institutions.  Additional regulations are required to be
developed relating to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth and excessive
compensation, fees and benefits.

                                  10

<PAGE>


   A separate subtitle within FDICIA, called the "Bank Enterprise
Act of 1991", requires "truth-in-savings" on consumer deposit accounts
so that consumers can make meaningful comparisons between the
competing claims of banks with regard to deposit accounts and
products.  Under this provision, the Bank is required to provide
information to depositors concerning the terms of their deposit
accounts, and in particular, to disclose the annual percentage yield. 
There are some operational costs of complying with the Truth-In-Savings law.

   Management believes that full implementation of FDICIA has had no
material impact on liquidity, capital resources or reported results of
operation.  If FDIC insurance premium assessments increase in the
future, Management believes such future increase many have a material
impact on future reported results of operations.

   The Financial Institutions Reform Recovery and Enforcement Act of
1989 ("FIRREA") was enacted in August of 1989.  This law as enacted
primarily to improve the supervision of savings associations by
strengthening capital, accounting and other supervisory standards.  In
addition, FIRREA reorganized the FDIC by creating two deposit
insurance funds to be administered by the FDIC:  the Savings
Association Insurance Fund and the Bank Insurance Fund.  Customers'
deposits held by the Bank are insured under the Bank Insurance Fund. 
FIRREA also regulates real estate appraisal standards and the
supervisory/enforcement powers and penalty provisions in connection
with the regulation of the Bank.

   From time to time, various types of federal and state legislation
have been proposed that could result in additional regulation of, and
restrictions on, the business of the Bank.  It cannot be predicted
whether any such legislation will be adopted or, if adopted, how such
legislation would affect the business of the Bank.  As a consequence
of the extensive regulation of commercial banking activities in the
United States, the Bank's business is particularly susceptible to
being affected by federal legislation and regulations that may
increase the costs of doing business.

   Concentration

   The Corporation and Bank are not dependent for deposits nor
exposed by loan concentrations to a single customer or to a small
group of customers the loss of any one or more of whom would have a
materially adverse effect on the financial condition of the
Corporation or the Bank.


ITEM 2.  DESCRIPTION OF PROPERTIES

   The Corporation owns no property other than through its
subsidiaries.  These are:

                                  11

<PAGE>



<TABLE>
<CAPTION>

                                          Type of       Square
          Location                        Ownership     Footage   Use
                                                                     
<S>                          <C>          <C>           <C>
The First National 
Bank of Berwick 
Offices:

Columbia County, PA

111 W. Front Street, 
Berwick                      Owned        12,500        Administrative
                                                        office, banking and
                                                        trust services and
                                                        computer
                                                        department.

2nd & Market Streets,        Owned        Land Area     No buildings, held
Berwick                                                 for possible
                                                        expansion.
                                          1.45 Acres    Present use,
                                                        parking.

701 Freas Avenue, 
Berwick                      Owned        3,744         Banking services.

2401 New Berwick 
Highway, Bloomsburg          Leased       2,000         Banking services.
                             Annual
                             Rental
                             $21,800

U.S. Route 11 &              Owned        Land Area     No buildings, held
Central Road,                             1.11 Acres    for expansion. 
Bloomsburg                                              Present use,
                                                        rental.

Third & Race Streets,        Owned        2,500         Banking services.
Mifflinville                                            

Luzerne County, PA

Salem Township               Owned        3,700         Banking services.
Post Office Address -
400 Fowler Avenue,
Berwick

West Third Street,           Leased       2,300         Banking services.
Nescopeck                    Annual
                             Rental
                             $8,400


</TABLE>


                                  12

<PAGE>


    It is Management's opinion that the facilities currently utilized
are suitable and adequate for the Corporation's current and immediate
future purposes.


ITEM 3.  LEGAL PROCEEDINGS

    The information under the caption "Legal Matters" appearing on
page 17 of the Corporation's Annual Report to Shareholder's for the
year ended December 31, 1996, which page is included in Exhibit 13
hereto, is incorporated in its entirety by reference in response to
this Item 3.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    Not applicable.



                                Part II


ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS

    The Corporation's Common Stock is traded on a limited basis in
the local over-the-counter market.  The following table sets forth: 
(1) the quarterly high and low prices for a share of the Corporation's
Common Stock during the periods indicated as reported by the
management of the Corporation and (2) quarterly dividends on a share
of the Common Stock with respect to each quarter since January 1,
1995.  The following quotations represent prices between buyers and
sellers and do not include retail markup, markdown or commission, and
may not necessarily reflect actual transactions.


<TABLE>

<CAPTION>

                                     Stock Prices         
                                                           Dividends
                               High         Low            Declared
<S>                            <C>          <C>            <C>
1995:
First quarter                  $31.82       $31.82         $.27
Second quarter                 $31.82       $31.82         $.27
Third quarter                  $33.64       $31.82         $.27
Fourth quarter                 $33.64       $33.64         $.28

1996:
First quarter                  $37.00       $33.64         $.31
Second quarter                 $37.00       $37.00         $.31
Third quarter                  $37.00       $37.00         $.31
Fourth quarter                 $37.00       $37.00         $.36


</TABLE>

                                  13

<PAGE>


   As of December 31, 1996, the Corporation had approximately 492
shareholders of record.

   The Corporation has paid dividends since commencement of business
in 1984.  It is the present intention of the Corporation's Board of
Directors to continue the dividend payment policy; however, further
dividends must necessarily depend upon earnings, financial condition,
appropriate legal restrictions and other factors relevant at the time
the Board of Directors of the Corporation considers dividend policy. 
Cash available for dividend distributions to shareholders of the
Corporation must initially come from dividends paid by the Bank to the
Corporation.  Therefore, the restrictions on the Bank's dividend
payments are directly applicable to the Corporation.

   The OCC has issued rules governing the payment of dividends by
national banks.  Consequently, the Bank, which is subject to these
rules, may not pay dividends from capital (unimpaired common and
preferred stock outstanding) but only from retained earnings after
deducting losses and bad debts therefrom.  "Bad debts" are defined as
matured obligations in which interest is past due and unpaid for
ninety (90) days, but do not include well-secured obligations that are
in the process of collection.  Previously, the Bank was permitted to
add the balances in its allowance for loan and lease losses in
determining retained earnings, but the OCC's regulations now prohibit
that practice.  However, to the extent that (1) the Bank has capital
surplus in an amount in excess of common capital and (2) the Bank can
prove that such surplus resulted from prior period earnings, the Bank,
upon approval of the OCC, may transfer earned surplus to retained
earnings and thereby increase its dividend capacity.

   If, however, the Bank has insufficient retained earnings to pay a
dividend, the OCC's regulations allow the Bank to reduce its capital
to a specified level and to pay dividends upon receipt of the approval
of the OCC, as well as the approval of the holders of two-thirds of
the outstanding shares of the Corporation's Common Stock.  The Bank is
allowed to pay dividends no more frequently than quarterly.  Moreover,
the Bank must obtain the OCC's approval before paying a dividend, if
the total of all dividends declared by the Bank in any calendar year
would exceed the total of (1) the Bank's net profits for that year
plus (2) its retained net profits for the preceding two years less
(3) any required transfers to surplus or to a fund for the retirement
of preferred stock.

   The Bank may not pay any dividends on its capital stock during a
period in which it may be in default in the payment of its assessment
for a deposit insurance premium due to the FDIC, nor may it pay
dividends on Common Stock until any cumulative dividends on the Bank's
preferred stock (if any) have been paid in full.  The Bank has never
been in default in the payments of its assessments to the FDIC; and
the Bank has no outstanding preferred stock.  In addition, under the
Federal Deposit Insurance Act (912 U.S.C. Section 1818), dividends
cannot be declared and paid if the OCC obtains a cease and desist
order because, in the opinion of the OCC, such payment would
constitute an unsafe and unsound banking practice.  As of December 31,
1996, there was $5,457,319 in unrestricted retained earnings and net
income available at the Bank that could be paid as a dividend to the
Corporation under the current OCC regulations.

                                  14

<PAGE>


   Dividend Restrictions on the Corporation

   Under the Pennsylvania Business Corporation Law of 1988, as
amended (the "BCL"), the Corporation may not pay a dividend if, after
giving effect thereto, either (a) the Corporation would be unable to
pay its debts as they become due in the usual course of business or
(b) the Corporation's total assets would be less than its total
liabilities.  The determination of total assets and liabilities may be
based upon: (i) financial statements prepared on the basis of
generally accepted accounting principles, (ii) financial statements
that are prepared on the basis of other accounting practices and
principles that are reasonable under the circumstances, or (iii) a
fair valuation or other method that is reasonable under the
circumstances.


ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
          OPERATION

   The information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing
on pages 25 through 37 of the Corporation's Annual Report to
Shareholder's for the year ended December 31, 1996, which pages are
included in Exhibit 13 hereto, is incorporated in its entirety by
reference in response to this Item 6.


ITEM 7.   FINANCIAL STATEMENTS

   The Corporation's Consolidated Financial Statements and notes
thereto appearing on pages 4 through 23 of the Corporation's Annual
Report to Shareholder's for the year ended December 31, 1996, which
pages are included in Exhibit 13 hereto, are incorporated in their
entirety by reference in response to this Item 7.


ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

   None.


                               PART III


ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
          PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

   The information under the captions "Information As To Nominees,
Directors and Executive Officers," "Compliance with Section 16(a) of
the Securities Act of 1934," "Principal Officers of the Corporation,"
and "Principal Officers of the Bank" appearing on pages 5, 7, 10, and
11, respectively in the Corporation's Definitive Proxy Statement,
filed at Exhibit 99 hereto, are incorporated in their entirety by
reference in response to this Item 9.

                                  15

<PAGE>


ITEM 10.  EXECUTIVE COMPENSATION

   The information under the caption "Executive Compensation"
appearing on pages 7 through 9  of the Corporation's Definitive Proxy
Statement, filed as Exhibit 99 hereto, is incorporated in its entirety
by reference in response to this Item 10.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

   The information under the caption "Principal Beneficial Owners of
the Corporation's Stock" appearing on pages 2 through 4 of the
Corporation's Definitive Proxy Statement, filed as Exhibit 99 hereto,
is incorporated in its entirety by reference in response to this Item
11.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   The information under the caption "Certain Transactions"
appearing on page 10 of the Corporation's Definitive Proxy Statement,
filed as Exhibit 99 hereto, is incorporated in its entirety by
reference in response to this Item 12.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

   (a)  Exhibits required by Item 601 of Regulation S-B:


<TABLE>

<CAPTION>

Exhibit Number Referred to
Item 601 of Regulation S-B   Description of Exhibit

<S>                          <C>
3i                           Articles of Incorporation, as
                             amended, of First Keystone
                             Corporation, are incorporated herein
                             by reference to Exhibit 3i to the
                             Corporation's Annual Report on Form 
                             10-KSB for the year ended December
                             31, 1996.
3ii                          By-Laws, as amended, of First
                             Keystone Corporation, are
                             incorporated herein by reference to
                             Exhibit 3ii to the Corporation's
                             Annual Report on Form 10-KSB for the
                             year ended December 31, 1996.
11                           Computation of Earnings Per Share
                             incorporated by reference to Exhibit
                             11 to the Corporation's Annual
                             Report on Form 10-KSB for the year
                             ended December 31, 1996.
13                           Excerpt from Annual Report to
                             Shareholders for Fiscal Year Ended
                             December 31, 1996.

</TABLE>

                                  16

<PAGE>


<TABLE>

<CAPTION>

Exhibit Number Referred to
Item 601 of Regulation S-B   Description of Exhibit
<S>                          <C>

21                           List of Subsidiaries of the
                             Corporation (Incorporated by
                             reference to Exhibit 22 to the
                             Corporation's Annual Report on Form
                             10-KSB for the year ended December
                             31, 1996.
23                           Consent of Independent Auditors.
27                           Financial Data Schedule.
99                           Definitive Proxy Statement, Notice
                             of Annual Meeting and Form of Proxy
                             for the Annual Meeting of
                             Shareholders to be held April 15,
                             1997.

</TABLE>



        (b)  Reports on Form 8-K.


   The Corporation has filed no reports on Form 8-K during the last
quarter of the fiscal year ended December 31, 1996.

                                  17

<PAGE>


                              SIGNATURES


   In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


FIRST KEYSTONE CORPORATION
   (Issuer)


By:      /s/ J. Gerald Bazewicz      
        J. Gerald Bazewicz
        President and Chief Executive Officer

Date:   March 18, 1997


   In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.



By:      /s/ John L. Coates
        John L. Coates
        Secretary and Director

Date:   March 18, 1997



By:      /s/ J. Gerald Bazewicz      
        J. Gerald Bazewicz
        President, Chief Executive
        Officer and Director
        (Chief Executive Officer
            and Principal Financial Officer)

Date:   March 18, 1997

                                  18

<PAGE>



By:      /s/ John E. Arndt             
        John E. Arndt
        Director

Date:   March 18, 1997



By:      /s/ Budd L. Beyer            
        Budd L. Beyer
        Director

Date:   March 18, 1997



By:      /s/ Robert E. Bull                                
        Robert E. Bull
        Chairman of the Board 
           and Director

Date:   March 18, 1997



By:      /s/ Dudley P. Cooley          
        Dudley P. Cooley
        Director

Date:   March 18, 1997



By:      /s/ Frederick E. Crispin, Jr.
        Frederick E. Crispin, Jr.
        Director

Date:   March 18, 1997

                                  19

<PAGE



By:      /s/ Stanley E. Oberrender    
        Stanley E. Oberrender
        Director

Date:   March 18, 1997



By:      /s/ David R. Saracino         
        David R. Saracino
        Treasurer and Assistant Secretary
        (Principal Accounting Officer)

Date:   March 18, 1997



By:      /s/ F. Stuart Straub
        F. Stuart Straub
        Director

Date:   March 18, 1997



By:    
        Robert J. Wise
        Director

Date:   March 18, 1997

                                  20

<PAGE>


<TABLE>

<CAPTION>

                             INDEX TO EXHIBITS

Exhibit     Description                                             Page

<S>         <C>                                                     <C>
3i          Articles of Incorporation, as amended                   22


3ii         By-Laws, as amended                                     23


11          Compensation of Earnings Per Share                      24
                Summary of Selected Financial Data                   2
                Per Share Data                                      10


13          Excerpt from Annual Report to Shareholders for
            Fiscal Year Ended December 31, 1996                     25
               Legal Matters                                        17
               Regulatory Matters                                   18
               Consolidated Financial Statements and Notes          4-23
               Management's Discussion and Analysis of
                  Financial Condition and Results of 
                  Operation                                         25-37


21          List of Subsidiaries of the Issuer                      26

23          Consent of Independent Auditors                         27

27          Financial Data Schedule                                 28


99          Definitive Proxy Statement, Notice of 
            Annual Meeting and Form of Proxy for
            the Annual Meeting of Shareholders
            to be held April 15, 1997                               29
                Principal Beneficial Owners of the 
                   Corporation's Stock                              2-4
                Information as to Nominees, Directors, 
                   and Executive Officers                           5
                Compliance with Section 16(a) of the 
                   Securities Act of 1934                           7
                Executive Compensation                              7-9
                Certain Transactions                                10
                Principal Officers of the Corporation               10
                Principal Officers of the Bank                      11


CVR         Cover letter to the SEC


</TABLE>

                                  21

<PAGE>