EXHIBIT 13



              EXCERPT FROM ANNUAL REPORT TO SHAREHOLDERS
                FOR FISCAL YEAR ENDED DECEMBER 31, 1999



                                  22

<PAGE>



<TABLE>
FIRST KEYSTONE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 and 1999

<CAPTION>
___________________________________________________________________________

                                                    2000            1999
___________________________________________________________________________
<S>                                          <C>             <C>

ASSETS

Cash and due from banks                           $  6,732,976    $  6,883,976
Interest-bearing deposits
  in other banks                                     2,427,980          80,157
Investment securities Available-
  for-Sale                                         147,700,955     123,467,820
Investment securities Held-to-
  Maturity (estimated fair value
 2000 - $8,634,578; 1999 - $11,335,286)              8,736,737      11,562,998
Loans, net of unearned income                      190,671,641     185,230,902
Allowance for loan losses                           (2,702,313)     (2,599,550)
                                                  ____________    ____________
  Net loans                                       $187,969,328    $182,631,352
                                                  ____________    ____________
Premises and equipment, net                          3,570,493       3,881,011
Accrued interest receivable                          2,491,093       2,238,835
Other assets                                           712,744       2,769,638
     TOTAL ASSETS                                 $360,342,306    $333,515,787
                                                  ============    ============



LIABILITIES

Deposits:
  Non-interest bearing                            $ 24,846,933    $ 20,919,398
  Interest bearing                                 246,626,077     223,760,786
     Total Deposits                               $271,473,010    $244,680,184
Short-term borrowings                                8,559,655      31,594,327
Long-term borrowings                                41,250,000      26,000,000
Accrued interest and other expenses                  2,231,272       1,831,865
Other liabilities                                      170,732          51,892
                                                  ____________    ____________
     TOTAL LIABILITIES                            $323,684,669    $304,158,268



STOCKHOLDERS' EQUITY

Preferred stock, par value $10.00
  per share; authorized and
  unissued 500,000 shares                         $     -         $     -
Common stock, par value $2.00 per
  share; authorized 10,000,000
  shares; issued 2,933,727 shares                    5,867,454       5,867,454
Surplus                                              9,761,066       9,761,066
Retained earnings                                   23,311,355      20,285,218
Accumulated other comprehensive
  income (loss)                                        814,443      (3,459,538)
Treasury stock, 100,000 shares
  at cost                                           (3,096,681)     (3,096,681)
                                                  ____________    ____________

     TOTAL STOCKHOLDERS' EQUITY                   $ 36,657,637    $ 29,357,519

     TOTAL LIABILITIES AND
       STOCKHOLDERS' EQUITY                       $360,342,306    $333,515,787
                                                  ============    ============

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


</TABLE>

4    FIRST KEYSTONE CORPORATION  * Annual Report 2000


<PAGE>

<TABLE>

FIRST KEYSTONE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998

<CAPTION>
___________________________________________________________________________

                                                  2000             1999
___________________________________________________________________________

<S>                                         <C>              <C>
INTEREST INCOME

Interest and fees on loans                       $15,891,357      $14,567,163
Interest and dividends on
  investment securities:
  Taxable                                          6,044,612        5,098,399
  Tax-exempt                                       3,185,612        3,087,924
  Dividends                                          521,415          252,460
Deposits in banks                                      7,404          166,666
                                                 ___________      ___________
    Total interest income                        $25,650,400      $23,172,612

INTEREST EXPENSE
Deposits                                         $10,972,391      $ 9,496,065
Short-term borrowings                              1,317,936        1,383,099
Long-term borrowings                               1,705,032        1,009,031
                                                 ___________      ___________
    Total interest expense                       $13,995,359      $11,888,195
                                                 ___________      ___________
    Net interest income                          $11,655,041      $11,284,417
Provision for loan losses                            425,000          325,000
                                                 ___________      ___________
    Net interest income after
      provision for loan losses                  $11,230,041      $10,959,417

NON-INTEREST INCOME
  Trust Department                               $   570,631      $   577,152
  Service charges and fees                         1,093,057          940,144
  Gain on sale of loans                               58,093           34,820
  Investment securities gains
   (losses) - net                                    113,001          123,738
  Other                                               40,272           38,731
                                                 ___________      ___________
    Total non-interest income                    $ 1,875,054      $ 1,714,585
                                                 ___________      ___________

NON-INTEREST EXPENSE
  Salaries and employee benefits                 $ 3,761,797      $ 3,453,167
  Occupancy, net                                     431,223          401,120
  Furniture and equipment                            569,590          550,620
  State Shares Tax                                   308,747          284,385
  Other                                            1,715,234        1,620,679
                                                 ___________      ___________
    Total non-interest expense                   $ 6,786,591      $ 6,309,971

Income before income taxes                       $ 6,318,504      $ 6,364,031
Income tax expense                                 1,110,397        1,203,966
                                                 ___________      ___________

    NET INCOME                                   $ 5,208,107      $ 5,160,065
                                                 ===========      ===========

PER SHARE DATA
  Net income                                     $      1.84      $      1.80
  Cash dividends                                 $       .77      $       .70
  Weighted average shares
    outstanding                                    2,833,727        2,862,890


<CAPTION>
___________________________________________________________________________

                                                  1998
___________________________________________________________________________

<S>                                         <C>
INTEREST INCOME

Interest and fees on loans                       $13,412,619
Interest and dividends on
  investment securities:
  Taxable                                          4,301,941
  Tax-exempt                                       2,562,325
  Dividends                                          179,521
Deposits in banks                                    246,822
                                                 ___________
    Total interest income                        $20,703,228

INTEREST EXPENSE
Deposits                                         $ 9,208,368
Short-term borrowings                                303,467
Long-term borrowings                                 817,313
                                                 ___________
    Total interest expense                       $10,329,148
                                                 ___________
    Net interest income                          $10,374,080
Provision for loan losses                            275,000
                                                 ___________
    Net interest income after
      provision for loan losses                  $10,099,080
                                                 ___________

NON-INTEREST INCOME
  Trust Department                               $   524,835
  Service charges and fees                           749,705
  Gain on sale of loans                              126,409
  Investment securities gains
    (losses) - net                                   178,634
  Other                                               48,555
                                                 ___________
    Total non-interest income                    $ 1,628,138

NON-INTEREST EXPENSE
  Salaries and employee benefits                 $ 2,887,862
  Occupancy, net                                     403,242
  Furniture and equipment                            516,186
  State Shares Tax                                   252,230
  Other                                            1,475,560
                                                 ___________
    Total non-interest expense                   $ 5,535,080
                                                 ___________

Income before income taxes                       $ 6,192,138
Income tax expense                                 1,304,606

    NET INCOME                                   $ 4,887,532
                                                 ===========

PER SHARE DATA
  Net income                                     $      1.67
  Cash dividends                                 $       .59
  Weighted average shares
    outstanding                                    2,925,695


Basic earnings per share and diluted earnings per share are the same for
2000, 1999, and 1998.


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


</TABLE>


                                                                   5


     <PAGE>


<TABLE>

FIRST KEYSTONE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998

<CAPTION>
___________________________________________________________________________
                                       Common                   Comprehensive
                                        Stock     Surplus      Income (Loss)
___________________________________________________________________________

<S>                              <C>            <C>            <C>
Balance At December 31, 1997          $1,955,818     $9,761,066

Comprehensive Income:
  Net income                                                        $4,887,532
  Change in net unrealized
    gain (loss) on
    investment securities
    available-for-sale, net
    of reclassification
    adjustment and tax
    effects                                                            (35,237)
                                                                    __________
  Total comprehensive income                                        $4,852,295
                                                                    ==========
3 for 1 stock split in the
  form of a 200% stock
  dividend                             3,911,636
Cash dividends - $.59
  per share
Acquisition of 35,134
  shares of treasury stock
                                      __________     __________
Balance At December 31, 1998          $5,867,454     $9,761,066

Comprehensive Income (Loss):
  Net income                                                        $5,160,065
  Change in net unrealized
    gain (loss) on
    investment securities
    available-for-sale, net
    of reclassification
    adjustment and tax
    effects                                                         (5,652,066)
                                                                    __________
  Total comprehensive
    income (loss)                                                   $ (492,001)
                                                                    ==========
Cash dividends - $.70
  per share
Acquisition of 64,866
  shares of treasury stock
                                      __________     __________
Balance At December 31, 1999          $5,867,454     $9,761,066

Comprehensive Income (Loss):
  Net income                                                        $5,208,107
  Change in net unrealized
    gain (loss) on
    investment securities
    available-for-sale, net
    of reclassification
    adjustment and tax
    effects                                                          4,273,981
                                                                    __________
  Total comprehensive
    income (loss)                                                   $9,482,088
                                                                    ==========
Cash dividends - $.77
  per share
                                      __________     __________
Balance At December 31, 2000          $5,867,454     $9,761,066
                                      ==========     ==========


<CAPTION>
___________________________________________________________________________
                                                 Accumulated
                                                    Other
                                    Retained     Comprehensive    Treasury
                                    Earnings     Income (Loss)      Stock
___________________________________________________________________________

<S>                            <C>             <C>            <C>
Balance At December 31, 1997        $17,873,418     $2,227,765     $    -

Comprehensive Income:
  Net income                         $4,887,532
  Change in net unrealized
    gain (loss) on
    investment securities
    available-for-sale, net
    of reclassification
    adjustment and tax
    effects                                            (35,237)
  Total comprehensive income
3 for 1 stock split in the
  form of a 200% stock
  dividend                           (3,911,636)
Cash dividends - $.59
  per share                          (1,726,192)
Acquisition of 35,134
  shares of treasury stock                                          (1,191,021)
                                    ___________     __________     ___________
Balance At December 31, 1998        $17,123,122     $2,192,528     $(1,191,021)

Comprehensive Income:
  Net income                         $5,160,065
  Change in net unrealized
    gain (loss) on
    investment securities
    available-for-sale, net
    of reclassification
    adjustment and tax
    effects                                         (5,652,066)
  Total comprehensive
    income (loss)
Cash dividends - $.70
  per share                          (1,997,969)
Acquisition of 64,866
  shares of treasury stock                                          (1,905,660)
                                    ___________     __________     ___________
Balance At December 31, 1999        $20,285,218    $(3,459,538)    $(3,096,681)

Comprehensive Income (Loss):
  Net income                         $5,208,107
  Change in net unrealized
    gain (loss) on
    investment securities
    available-for-sale, net
    of reclassification
    adjustment and tax
    effects                                          4,273,981
  Total comprehensive
    income (loss)
Cash dividends - $.77
  per share                          (2,181,970)
                                    ___________     __________     ___________
Balance At December 31, 2000        $23,311,355     $  814,443     $(3,096,681)
                                    ===========     ==========     ===========


<CAPTION>
___________________________________________________________________________

                                           Total
___________________________________________________________________________

<S>                                  <C>
Balance At December 31, 1997              $31,818,067

Comprehensive Income:
  Net income                              $ 4,887,532
  Change in net unrealized
    gain (loss) on
    investment securities
    available-for-sale, net
    of reclassification
    adjustment and tax
    effects                                   (35,237)
  Total comprehensive income
3 for 1 stock split in the
  form of a 200% stock
  dividend                                      -
Cash dividends - $.59
  per share                                (1,726,192)
Acquisition of 35,134 shares
  of treasury stock                        (1,191,021)
                                          ___________
Balance At December 31, 1998              $33,753,149

Comprehensive Income (Loss):
  Net income                               $5,160,065
  Change in net unrealized
    gain (loss) on
    investment securities
    available-for-sale, net
    of reclassification
    adjustment and tax
    effects                                (5,652,066)
  Total comprehensive income
    (loss)
Cash dividends - $.70
  per share                                (1,997,969)
Acquisition of 64,866
  shares of treasury stock                 (1,905,660)
                                          ___________
Balance At December 31, 1999              $29,357,519

Comprehensive Income (Loss):
  Net income                               $5,208,107
  Change in net unrealized
    gain (loss) on
    investment securities
    available-for-sale, net
    of reclassification
    adjustment and tax
    effects                                 4,273,981
  Total comprehensive
    income (loss)
Cash dividends - $.77
  per share                                (2,181,970)
                                          ___________
Balance At December 31, 2000              $36,657,637
                                          ===========


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

</TABLE>


   6   FIRST KEYSTONE CORPORATION  *  Annual Report 2000


      <PAGE>


<TABLE>

FIRST KEYSTONE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998

<CAPTION>
___________________________________________________________________________

                                                   2000              1999
___________________________________________________________________________

<S>                                          <C>             <C>

OPERATING ACTIVITIES
Net income                                        $  5,208,107    $  5,160,065
Adjustments to reconcile net income
  to net cash provided by operating
  activities:
    Provision for loan losses                          425,000         325,000
    Depreciation and amortization                      406,244         389,368
    Premium amortization on investment
      securities                                        99,905         233,671
    Discount accretion on investment
      securities                                    (1,041,070)       (242,116)
    Deferred income taxes (benefit)                    (12,487)        (13,451)
    Gain on sale of loans                              (58,093)        (34,820)
    Proceeds from sale of loans                      3,912,715       5,686,033
    Originations of loans held for
      resale                                        (3,030,719)     (8,147,429)
    Gain on sales of investment
      securities                                      (113,001)       (123,738)
    Gain on sale of premises and
      equipment                                          -               -
    Loss on sale of foreclosed assets
      held for sale                                     35,549          20,285
    Increase in accrued interest
      receivable                                      (252,258)       (105,805)
    Increase in other assets - net                     (85,528)       (328,740)
    Increase (decrease) in accrued
      interest and other expenses                      399,407         310,836
    Increase (decrease) in other
      liabilities - net                                 32,485        (104,477)
                                                  ____________    ____________
    NET CASH PROVIDED BY OPERATING
      ACTIVITIES                                  $  5,926,256    $  3,024,682

INVESTING ACTIVITIES
Proceeds from sales of investment
  securities Available-for-Sale                   $ 42,234,478    $ 42,527,853
Proceeds from maturities and
   redemptions of investment
  securities Available-for-Sale                      6,859,854      16,454,598
Purchases of investment securities
  Available-for-Sale                               (64,194,871)    (71,777,779)
Purchases of investment securities
  Held-to-Maturity                                      -               -
Proceeds from maturities and
  redemption of investment
  securities Held-to-Maturity                        1,191,510          -
Net increase in loans                               (6,668,862)    (21,696,625)
Proceeds from sale of premises
  and equipment                                         -               -
Purchases of premises and equipment                    (95,726)       (512,814)
Proceeds from sale of foreclosed
  assets held for sale                                 118,000         242,900
                                                  ____________    ____________
    NET CASH USED IN INVESTING
      ACTIVITIES                                  $(20,555,617)   $(34,761,867)
                                                  ____________    ____________
FINANCING ACTIVITIES
Net increase (decrease) in deposits               $ 26,792,826    $ (2,411,335)
Net increase (decrease) in
  short-term borrowings                            (23,034,672)     24,960,681
Proceeds from long-term borrowings                  32,500,000      20,000,000
Repayment of long-term borrowings                  (17,250,000)     (7,000,000)
Acquisition of Treasury Stock                           -           (1,905,660)
Cash dividends paid                                 (2,181,970)     (1,997,969)
                                                  ____________    ____________
    NET CASH PROVIDED BY FINANCING
      ACTIVITIES                                  $ 16,826,184    $ 31,645,717
                                                  ____________    ____________
INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                $  2,196,823    $    (91,468)
CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR                                  6,964,133       7,055,601
                                                  ____________    ____________
    CASH AND CASH EQUIVALENTS
      AT END OF YEAR                              $  9,160,956    $  6,964,133
                                                  ============    ============


<CAPTION>
___________________________________________________________________________


                                                   1998
___________________________________________________________________________

<S>                                          <C>
OPERATING ACTIVITIES
Net income                                        $  4,887,532
Adjustments to reconcile net income
  to net cash provided by operating
  activities:
    Provision for loan losses                          275,000
    Depreciation and amortization                      345,566
    Premium amortization on investment
      securities                                       260,911
    Discount accretion on investment
      securities                                      (143,293)
    Deferred income taxes (benefit)                      1,586
    Gain on sale of loans                             (126,409)
    Proceeds from sale of loans                      5,751,429
    Originations of loans held for
      resale                                        (7,506,624)
    Gain on sales of investment
      securities                                      (178,634)
    Gain on sale of premises and
      equipment                                        (12,157)
    Loss on sale of foreclosed assets
      held for sale                                      -
    Increase in accrued interest
      receivable                                      (135,094)
    Increase in other assets - net                     (43,090)
    Increase (decrease) in accrued
      interest and other expenses                         (803)
    Increase (decrease) in other
      liabilities - net                               (272,171)
                                                  ____________
    NET CASH PROVIDED BY OPERATING
      ACTIVITIES                                  $  3,103,749
                                                  ____________
INVESTING ACTIVITIES
Proceeds from sales of investment
  securities Available-for-Sale                   $  9,799,220
Proceeds from maturities and
  redemptions of investment
  securities Available-for-Sale                     15,869,144
Purchases of investment securities
  Available-for-Sale                               (60,639,364)
Purchases of investment securities
  Held-to-Maturity                                    (676,524)
Proceeds from maturities and
  redemption of investment
  securities Held-to-Maturity                        3,437,452
Net increase in loans                               (7,725,344)
Proceeds from sale of premises
  and equipment                                         22,042
Purchases of premises and equipment                   (677,327)
Proceeds from sale of foreclosed
  assets held for sale                                   -
                                                  ____________
    NET CASH USED IN INVESTING
      ACTIVITIES                                  $(40,590,701)

FINANCING ACTIVITIES
Net increase (decrease) in deposits               $ 29,444,335
Net increase (decrease) in
  short-term borrowings                                531,486
Proceeds from long-term borrowings                   7,000,000
Repayment of long-term borrowings                   (3,000,000)
Acquisition of Treasury Stock                       (1,191,021)
Cash dividends paid                                 (1,726,192)
                                                  ____________
    NET CASH PROVIDED BY FINANCING
      ACTIVITIES                                  $ 31,058,608
                                                  ____________
INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                $ (6,428,344)
CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR                                 13,483,945
                                                  ____________
    CASH AND CASH EQUIVALENTS
      AT END OF YEAR                              $  7,055,601
                                                  ============



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

</TABLE>

                                                                  7

<PAGE>

FIRST KEYSTONE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements for Years Ended December
31, 2000, 1999 and 1998

NOTE 1 * SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     The accounting policies of First Keystone Corporation and
Subsidiary (the "Corporation") are in accordance with accounting
principles generally accepted in the United States of America and
conform to common practices within the banking industry. The more
significant policies follow:

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

Nature of Operations
     The Corporation, headquartered in Berwick, Pennsylvania, provides
a full range of banking, trust and related services through its wholly
owned Bank subsidiary and is subject to competition from other
financial institutions in connection with these services. The Bank
serves a customer base which includes individuals, businesses, public
and institutional customers primarily located in the Northeast Region
of Pennsylvania. The Bank has nine full service offices and 12 ATMs
located in Columbia, Luzerne and Montour Counties. The Corporation and
its subsidiary must also adhere to certain federal banking laws and
regulations and are subject to periodic examinations made by various
federal agencies.

Segment Reporting
     The Corporation's banking subsidiary acts as an independent
community financial services provider, and offers traditional banking
and related financial services to individual, business and government
customers. Through its branch and automated teller machine network,
the Bank offers a full array of commercial and retail financial
services, including the taking of time, savings and demand deposits;
the making of commercial, consumer and mortgage loans; and the
providing of other financial services. The Bank also performs
personal, corporate, pension and fiduciary services through its Trust
Department.
     Management does not separately allocate expenses, including the
cost of funding loan demand, between the commercial, retail, trust and
mortgage banking operations of the Corporation. Currently, management
measures the performance and allocates the resources of First Keystone
Corporation as a single segment.

Use of Estimates
     The preparation of these consolidated financial statements in
conformity with 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 classifies its investment securities as either
"Held-to-Maturity" or "Available-for-Sale" at the time of purchase.
Debt securities are classified as Held-to-Maturity when the
Corporation has the ability and positive intent to hold the securities
to maturity. Investment securities Held-to-Maturity are carried at
cost adjusted for amortization of premium and accretion of discount to
maturity.
     Debt securities not classified as Held-to-Maturity and equity
securities are included in the Available-for-Sale category and are
carried at fair value. The amount of any unrealized gain or loss, net
of the effect of deferred income taxes, is reported as other
comprehensive income in the Consolidated Statement of Stockholders'
Equity. Management's decision to sell Available-for-Sale securities is
based on changes in economic conditions controlling the sources and
applications of funds, terms, availability of and yield of alternative
investments, interest rate risk and the need for liquidity.
     The cost of debt securities classified as Held-to-Maturity or
Available-for-Sale is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and accretion,
as well as interest and dividends is included in interest income from
investments. Realized gains and losses are included in net investment
securities gains. The cost of investment securities sold, redeemed or
matured is based on the specific identification method.

8  FIRST KEYSTONE CORPORATION * Annual Report 2000


<PAGE>

Loans
     Loans are stated at their outstanding unpaid principal balances,
net of deferred fees or costs, unearned income and the allowance for
loan losses. Interest on installment loans is recognized as income
over the term of each loan, generally, by the "actuarial method".
Interest on all other loans is primarily recognized based upon the
principal amount outstanding. Loan origination fees and certain direct
loan origination costs have been deferred with the net amount
amortized using the interest method over the contractual life of the
related loans as an interest yield adjustment.
     Mortgage loans held for resale are carried at the lower of cost
or market on an aggregate basis. These loans are sold without recourse
to the Corporation.

Non-Accrual Loans - Generally, a loan is classified as non-accrual and
the accrual of interest on such a loan is discontinued when the
contractual payment of principal or interest has become 90 days past
due or management has serious doubts about further collectibility of
principal or interest, even though the loan currently is performing. A
loan may remain on accrual status if it is in the process of
collection and is either guaranteed or well secured. When a loan is
placed on non-accrual status, unpaid interest credited to income in
the current year is reversed and unpaid interest accrued in prior
years is charged against the allowance for loan losses. Certain
       non-accrual loans may continue to perform, that is, payments are still
being received. Generally, the payments are applied to principal.
These loans remain under constant scrutiny and if performance
continues, interest income may be recorded on a cash basis based on
management's judgement as to collectibility of principal.

Allowance for Loan Losses - The allowance for loan losses is
established through provisions for loan losses charged against income.
Loans deemed to be uncollectible are charged against the allowance for
loan losses and subsequent recoveries, if any, are credited to the
allowance.
     A principal factor in estimating the allowance for loan losses is
the measurement of impaired loans. A loan is considered impaired when,
based on current information and events, it is probable that the
Corporation will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Under current accounting
standards, the allowance for loan losses related to impaired loans is
based on discounted cash flows using the effective interest rate of
the loan or the fair value of the collateral for certain collateral
dependent loans.
     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.

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

Foreclosed Assets Held For Sale
     Real estate properties acquired through, or in lieu of, loan
foreclosure are held for sale and are initially recorded at fair value
on the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and
the real estate is carried at the lower of carrying amount or fair
value less cost to sell and is included in other assets. Revenues
derived from and costs to maintain the assets and subsequent gains and
losses on sales are included in other non-interest income and expense.

                                                                  9


<PAGE>

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

Stock Based Compensation
     The Corporation accounts for stock options and shares issued
under the Stock Option Incentive Plan in accordance with Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees". Under this method no compensation expense is recognized
for stock options when the exercise price equals the fair value of the
options at the grant date. Under provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock Based
Compensation", the fair value of a stock option is required to be
recognized as compensation expense over the service period (generally
the vesting period). As permitted under SFAS No. 123 the Corporation
has elected to continue to account for its stock option plan in
accordance with APB No. 25. Additionally, as required, the notes to
the consolidated financial statements disclose the proforma impact to
net income and earnings per share that would occur if compensation
expense had been recognized under SFAS No. 123.

Per Share Data
     Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share, requires dual presentation of basic and fully
diluted earnings per share. Basic earnings per share is calculated by
dividing net income by the weighted average number of shares of common
stock outstanding at the end of each period. Diluted earnings per
share is calculated by increasing the denominator for the assumed
conversion of all potentially dilutive securities. The Corporation's
dilutive securities are limited to stock options which currently have
no effect on earnings per share since the market price per share
historically has not been greater than the lowest stock option
exercise price.
     Per share data has been adjusted retroactively for stock splits
and stock dividends.

Cash Flow Information
     For purposes of reporting consolidated cash flows, cash and cash
equivalents include cash on hand and due from other banks and interest
bearing deposits in other banks. The Corporation considers cash
classified as interest bearing deposits with other banks as a cash
equivalent since they are represented by cash accounts essentially on
a demand basis.
     Interest paid on deposits and other borrowings was $13,691,639,
$11,665,446, and $10,355,156 in 2000, 1999 and 1998, respectively.
Cash payments for income taxes were $1,024,517, $1,327,420, and
$1,314,645 for 2000, 1999 and 1998, respectively. The Corporation
transferred loans to foreclosed assets held for sale in the amounts of
$81,982 in 2000.

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

New Accounting Standards
     Statement of Financial Accounting Standards (SFAS) No. 133 (as
amended by SFAS No. 138), "Accounting for Derivative Instruments and
Hedging Activities", becomes effective for financial reporting periods
beginning after June 15, 2000. SFAS 133 requires the recognition of
the fair value of all derivative instruments on the consolidated
balance sheet. Since the Corporation does not enter into transactions
involving derivatives described in the standard and does not engage in
hedging activities, the standard is not expected to have a significant
impact on the Corporation's consolidated financial condition or
results of operations.
     Statement of Financial Accounting Standards (SFAS) No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities", is generally effective for
transactions occurring after March 31, 2001. For recognition and
reclassification of collateral and for disclosure related to
securitization transactions and collateral, the effective date is for
fiscal years ending after December 15, 2000. SFAS No. 140 replaces
SFAS No. 125 and provides revisions to the standards for accounting
and requirements for certain disclosures relating to securitzations
and other transfers of financial assets. The standard is not expected
to have a significant impact on the Corporation's consolidated
financial condition or results of operations.


10  FIRST KEYSTONE CORPORATION  * Annual Report 2000


<PAGE>

Reporting Format
     Certain amounts in the consolidated financial statements of prior
periods have been reclassified to conform with presentation used in
the 2000 consolidated financial statements. Such reclassifications
have no effect on the Corporation's consolidated financial condition
or net income.


NOTE 2 * RESTRICTED CASH BALANCES
     Regulations of the Board of Governors of the Federal Reserve
System impose uniform reserve requirements on all member depository
institutions. The Corporation's banking subsidiary was required to
have aggregate cash reserves of $700,000 and $333,000 at December 31,
2000, and 1999, respectively.
     The Corporation's banking subsidiary also, from time to time,
maintains deposits with the Federal Reserve Bank and other banks for
various services such as check clearing and charge card processing.
Balances maintained for this purpose were $1,271,283 at December 31,
2000.


NOTE 3 * INVESTMENT SECURITIES
     The amortized cost, related estimated fair value, and unrealized
gains and losses for investment securities classified as "Available-For-Sale"
       or "Held-to-Maturity" were as follows at December 31, 2000
and 1999:

<TABLE>
<CAPTION>

                                     Available-for-Sale Securities
                           _________________________________________________
                                          Gross        Gross       Estimated
                           Amortized   Unrealized   Unrealized      Fair
                            Cost          Gains        Losses       Value
                           _________   __________   _________       ________
<S>                  <C>            <C>          <C>        <C>
December 31, 2000:
Obligations of U.S.
 Government
 Corporations
 and Agencies:
  Mortgage-backed         $ 49,734,384   $  301,618   $  565,195 $ 49,470,807
  Other                     17,001,311       70,247      121,912   16,949,646
Obligations of
  state and
  political
  subdivisions              57,778,168    1,793,777      873,525   58,698,420
Corporate
  securities                13,235,759      276,454        7,206   13,505,007
Equity securities            8,677,073      546,560      146,558    9,077,075
                          ____________   __________   __________ ____________
Total                     $146,426,695   $2,988,656   $1,714,396 $147,700,955
                          ============   ==========   ========== ============

</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, 2000:
Obligations of U.S.
  Government
  Corporations
  and Agencies:
  Mortgage-backed           $6,946,702     $12,624     $130,600    $6,828,726
Obligations of
  state and
  political
  subdivisions               1,790,035      16,084          267     1,805,852
                            __________     _______     ________    __________
Total                       $8,736,737     $28,708     $130,867    $8,634,578
                            ==========     =======     ========    ==========

</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, 1999:
Obligations of U.S.
  Government
  Corporations
  and Agencies:
   Mortgage-backed        $ 42,398,524    $  10,874   $1,849,700 $ 40,559,698
  Other                     22,004,537       -           831,100   21,173,437
Obligations of
  state and
  political
  subdivisions              57,763,990      447,062    3,670,341   54,540,711
Equity securities            6,470,328      808,279       84,633    7,193,974
                          ____________   __________   __________ ____________
Total                     $128,637,379   $1,266,215   $6,435,774 $123,467,820
                          ============   ==========   ========== ============


</TABLE>
                                                                   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, 1999:
Obligations of U.S.
  Government
  Corporations
  and Agencies:
  Mortgage-backed          $ 8,169,734     $ 8,253     $228,506   $ 7,949,481
Obligations of
  state and
  political
  subdivisions               3,393,264      24,414       31,873     3,385,805
                           ___________     _______     ________   ___________
Total                      $11,562,998     $32,667     $260,379   $11,335,286
                           ===========     =======     ========   ===========
</TABLE>



     Securities Available-for-Sale with an aggregate fair value of
$64,894,418 in 2000, $48,426,229 in 1999; and securities Held-to-Maturity
         with an aggregate unamortized cost of $8,736,737 in 2000 and
$11,121,179 in 1999, were pledged to secure public funds, trust funds,
securities sold under agreements to repurchase, FHLB advances and
other balances of $42,269,159 in 2000 and $28,664,980 in 1999 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, 2000. 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, 2000
                                    __________________________________
                                      U.S. Government       Obligations
                                         Agency &              of State
                                        Corporation         & Political
                                     Obligations <F1>    Subdivisions <F2>
                                       _____________       ______________
<S>                                   <C>                <C>
Available-For-Sale:
Within 1 Year:
 Amortized Cost                           $    -              $ 1,596,182
 Estimated Fair Value                          -                1,617,903
 Weighted average yield                        -                    7.85%
1 - 5 Years:
 Amortized cost                             1,999,492               -
 Estimated fair value                       2,016,243               -
 Weighted average yield                         6.51%               -
5 - 10 Years:
 Amortized cost                            12,570,546             611,671
 Estimated Fair value                      12,573,712             559,630
 Weighted average yield                         6.94%              10.51%
After 10 Years:
 Amortized cost                            52,165,657          55,570,315
 Estimated fair value                      51,830,498          56,520,887
 Weighted average yield                         6.98%               8.19%
                                          ___________         ___________
Total:
 Amortized cost                           $66,735,695         $57,778,168
 Estimated fair value                      66,420,453          58,698,420
 Weighted average yield                         6.96%               8.22%



<CAPTION>
                                             December 31, 2000
                                  ______________________________________
                                 Marketable
                                    Other             Equity     Corporate
                                 Securities         Securities  Securities
                                   <F3>               <F3>
                                  ________          ________     _________
<S>                            <C>              <C>           <C>
Available-For-Sale:
Within 1 Year:
 Amortized Cost                     $    -           $    -        $    -
 Estimated Fair Value                    -                -             -
 Weighted average yield                  -                -             -
1 - 5 Years:
 Amortized cost                          -                -          9,568,694
 Estimated fair value                    -                -          9,767,671
 Weighted average yield                  -                -              7.42%
5 - 10 Years:
 Amortized cost                          -                -          3,667,065
 Estimated Fair value                    -                -          3,737,336
 Weighted average yield                  -                -              7.76%
After 10 Years:
 Amortized cost                      7,482,667        1,194,406          -
 Estimated fair value                7,479,700        1,597,375          -
 Weighted average yield                  6.27%            4.71%          -
                                    __________       __________    ___________
Total:
 Amortized cost                     $7,482,667       $1,152,400    $13,235,759
 Estimated fair value                7,479,700        1,597,375     13,505,007
 Weighted average yield                  6.27%            4.71%          7.52%
_______________________

<FN>
<F1>
Mortgage-backed securities are allocated for maturity reporting at their
original maturity date.
<F2>
Average yields on tax-exempt obligations of state and political
subdivisions have been computed on a tax-equivalent basis using a 34% tax
rate.
<F3>
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 * Annual Report 2000


<PAGE>



<TABLE>
<CAPTION>
                                             December 31, 2000
                                     _________________________________
                                      U.S. Government       Obligations
                                         Agency &              of State
                                        Corporation         & Political
                                     Obligations <F1>    Subdivisions <F2>
                                       _____________       ______________
<S>                                    <C>                <C>
Held-To-Maturity:
Within 1 Year:
 Amortized Cost                            $   -               $  289,181
 Estimated fair value                          -                  293,161
 Weighted average yield                        -                    8.43%
1 - 5 Years:
 Amortized cost                                -                  500,000
 Estimated fair value                          -                  500,710
 Weighted average yield                        -                    7.19%
5 - 10 Years:
 Amortized cost                                -                  196,230
 Estimated Fair value                          -                  195,964
 Weighted average yield                        -                    6.97%
After 10 Years:
 Amortized cost                             6,946,702             804,624
 Estimated fair value                       6,828,726             816,017
 Weighted average yield                         7.13%               7.87%
                                           __________          __________
Total:
 Amortized cost                            $6,946,702          $1,790,035
 Estimated fair value                       6,828,726           1,805,582
 Weighted average yield                         7.13%               7.67%


<CAPTION>

                                             December 31, 2000
                                 ________________________________________
                                  Marketable
                                     Other           Equity     Corporate
                                  Securities       Securities    Securities
                                    <F3>             <F3>
                                   _________        _________   _________
<S>                             <C>              <C>          <C>
Held-To-Maturity:
Within 1 Year:
 Amortized Cost                      $   -            $   -        $   -
 Estimated fair value                    -                -            -
 Weighted average yield                  -                -            -
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>
Mortgage-backed securities are allocated for maturity reporting at their
original maturity date.
<F2>
Average yields on tax-exempt obligations of state and political
subdivisions have been computed on a tax-equivalent basis using a  34% tax
rate.
<F3>
Other securities and marketable equity securities are not considered to
have defined maturities and are included in the after ten year category.

</FN>
</TABLE>


     FHLB stock has no stated maturity; however, it must be owned as
long as the Bank remains a member of the FHLB System. The Bank does
not anticipate that it will discontinue its membership and therefore,
the investment in the amount of $5,000,000 and $5,000,000 in 2000 and
1999, respectively are classified as other securities.
     There were no aggregate investments with a single issuer
(excluding the U.S. Government and its agencies) which exceeded ten
percent of consolidated shareholders' equity at December 31, 2000. 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 Available-for-Sale debt and
equity securities during 2000, 1999 and 1998 were $42,234,478,
$42,527,853, and $9,799,220, respectively. Gross gains realized on
these sales were $642,360, $645,549, and $219,310, respectively. Gross
losses on these sales were $529,359, $521,811, and $40,676,
respectively.


                                                                 13


<PAGE>

NOTE 4 * LOANS
     Major classifications of loans at December 31, 2000 and 1999
consisted of:


<TABLE>
<CAPTION>
                                                   2000              1999
                                                   _______          _______
<S>                                          <C>              <C>
Commercial, Financial, and Agricultural           $ 22,673,573     $ 17,863,635
Tax-exempt                                           3,798,359        4,133,085
Real estate mortgage                               137,938,222      138,613,253
Consumer                                            32,844,448       30,594,972
                                                  ____________     ____________
Gross loans                                       $197,254,602     $191,204,945
Less: Unearned discount                              6,604,850        5,892,301
      Net deferred loan fees and costs                 (21,889)          81,742
                                                  ____________     ____________
Loans, net of unearned income                     $190,671,641     $185,230,902
                                                  ============     ============
</TABLE>


     Mortgage loans held for sale included in loans were $5,624,623
and $6,448,526 at December 31, 2000 and 1999, respectively.
     Changes in the allowance for loan losses for the years ended
December 31, 2000, 1999 and 1998, were as follows:


<TABLE>
<CAPTION>
                                      2000            1999           1998
                                       _____          _____         _____
<S>                             <C>            <C>             <C>
Balance, January 1                   $2,599,550     $2,421,042     $2,371,194
Provision charged to
  operations                            425,000        325,000        275,000
Loans charged off                      (349,387)      (258,743)      (269,218)
Recoveries                               27,150        112,251         44,066
                                     __________     __________     __________
Balance, December 31                 $2,702,313     $2,599,550     $2,421,042
                                     ==========     ==========     ==========
</TABLE>



<PAGE>
     Non-accrual loans at December 31, 2000, 1999 and 1998 were
$714,214, $617,763, and $854,295, respectively. The gross interest
that would have been recorded if these loans had been current in
accordance with their original terms and the amounts actually recorded
in income were as follows:


<TABLE>
<CAPTION>

                                           2000         1999          1998
                                           ____          ____         ____
<S>                                     <C>          <C>          <C>
Gross interest due under terms              $67,584      $68,569      $96,425
Amount included in income                    30,345        6,380        5,610
                                            _______      _______      _______
Interest income not recognized              $37,239      $62,189      $90,815
                                            =======      =======      =======
</TABLE>


     At December 31, 2000 and 1999 the recorded investment in loans
that are considered to be impaired as defined by SFAS No. 114 was
$61,192 and $55,889, respectively. No additional charge to operations
was required to provide for the impaired loans since the total
allowance for loan losses is estimated by management to be adequate to
provide for the loan loss allowance required by SFAS No. 114 along
with any other potential losses. The average recorded investment in
impaired loans during the year ended December 31, 2000 and 1999 was
approximately $77,014 and $70,620, respectively.
     At December 31, 2000, there were no significant commitments to
lend additional funds with respect to non-accrual and restructured
loans.


NOTE 5 * MORTGAGE SERVICING RIGHTS
     The mortgage loans serviced for others are not included in the
accompanying Consolidated Balance Sheets. The unpaid principal
balances of mortgage loans serviced for others was $13,042,084 and
$10,781,607 at December 31, 2000 and 1999.
     Custodial escrow balances maintained in connection with the
foregoing loan servicing, and included in demand deposits, were
approximately $5,912 and $4,536 at December 31, 2000 and 1999.


14  FIRST KEYSTONE CORPORATION * Annual Report 2000


<PAGE>

     Changes in the balances of servicing assets for the years ended
December 31, 2000, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>

                                       2000             1999        1998
                                       ____             ____        ____
<S>                              <C>             <C>            <C>
Balance at January 1                  $104,999       $ 61,612        $ 7,032
Servicing asset additions               32,467         51,412         56,251
Amortization                           (13,126)        (8,025)        (1,671)
                                      ________       ________        _______
Balance at December 31                $124,340       $104,999        $61,612
                                      ========       ========        =======
</TABLE>


     There was no valuation allowance on servicing assets as of
December 31, 2000 and 1999. Additionally, there were no unrecognized
servicing assets or liabilities for which it is not practicable to
estimate fair value. Mortgage servicing rights in the Consolidated
Balance Sheet are included in other assets at December 31, 2000 and
1999.


NOTE 6 * PREMISES AND EQUIPMENT
     A summary of premises and equipment at December 31, 2000 and 1999
follows:

<TABLE>
<CAPTION>
                                              2000                1999
                                             _______             _______
<S>    <C>                             <C>
Land                                          $  876,526          $  876,526
Buildings and improvements                     2,812,773           2,811,246
Equipment                                      4,103,708           4,048,362
                                              __________          __________
                                              $7,793,007          $7,736,134
Less:  Accumulated depreciation                4,222,514           3,855,123
                                              __________          __________
Total                                         $3,570,493          $3,881,011
                                              ==========          ==========
</TABLE>


     Depreciation amounted to $406,244 for 2000, $389,368 for 1999,
and $345,566 for 1998.


NOTE 7 * DEPOSITS
     Major classifications of deposits at December 31, 2000 and 1999
consisted of:

<TABLE>
<CAPTION>
                                                2000          1999
                                              _______        _______
<S>                                    <C>             <C>
Demand - non-interest bearing                $ 24,846,933     $ 20,919,398
Demand - interest bearing                      48,911,441       47,630,009
Savings                                        47,826,463       44,099,703
Time, $100,000 and over                        41,227,452       29,849,603
Other time                                    108,660,721      102,181,471
                                             ____________     ____________
Total deposits                               $271,473,010     $244,680,184
                                             ============     ============
</TABLE>


     The following is a schedule reflecting classification and
remaining maturities of time deposits of $100,000 and over at December
31, 2000:

<TABLE>
<CAPTION>

                  <S>                <C>
                  2001                       $37,115,594
                  2002                         2,050,382
                  2003                         1,473,973
                  2004                           100,000
                  2005                           487,503
                                             ___________
                                             $41,227,452
                                             ===========
</TABLE>


     Interest expense related to time deposits of $100,000 or more was
$1,762,574 in 2000, $1,573,586 in 1999, and $1,339,212 in 1998.


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. 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, 2000, and
1999:

                                                                 15


<PAGE>

<TABLE>
<CAPTION>

                                                      2000
                                         _________________________________
                                                            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                      $7,824,323   $ 7,434,721   $ 9,442,568  5.15%
Federal Home Loan Bank                -         13,862,814    23,725,000  6.43%
U.S. Treasury tax and
  loan notes                         735,332       586,999     2,006,529  7.40%
                                  __________   ___________   ___________  _____
Total                             $8,559,655   $21,884,534   $35,174,097  6.47%
                                  ==========   ===========   ===========  =====

</TABLE>


<TABLE>
<CAPTION>
                                                      1999
                                      ______________________________________
                                                            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                      $ 7,803,238  $22,974,939   $35,369,195  5.36%
Federal Home Loan Bank             22,250,000    4,695,648    22,250,000  5.47%
U.S. Treasury tax and
  loan notes                        1,541,089      636,757     1,733,122  4.91%
                                  ___________  ___________   ___________  _____
Total                             $31,594,327  $28,307,344   $59,352,317  5.41%
                                  ===========  ===========   ===========  =====

</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
Corporation's banking subsidiary which consist principally of first
mortgage loans and certain investment securities.
     A schedule of long-term borrowings by maturity as of December 31,
2000 and 1999 follows:

<TABLE>
<CAPTION>
                                        2000           1999
                                       ______          ______
<S>                                <C>              <C>

Due 2000, 5.76% to 6.73%                  $    -           $ 8,250,000
Due 2001, 6.68% to 6.70%                    5,000,000           -
Due 2002, 5.48% to 7.77%                    4,000,000        2,000,000
Due 2003, 6.79%                             1,500,000           -
Due 2004, 5.60%                                -             3,000,000
Due 2005, 5.36% to 6.49%                    8,500,000        2,000,000
Due 2008, 5.02% to 5.48%                    3,000,000        5,000,000
Due 2009, 5.30%                                -             2,000,000
Due 2010, 5.45% to 6.80%                   15,500,000           -
Due 2014, 5.41%                             3,750,000        3,750,000
                                          ___________      ___________
                                          $41,250,000      $26,000,000
                                          ===========      ===========
</TABLE>


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

<TABLE>
<CAPTION>

                                       2000          1999          1998
                                       ____          ____          ____
<S>                             <C>           <C>          <C>
Federal
  Current                            $1,113,666    $1,213,194   $1,291,313
  Deferred (benefit)                    (12,487)      (13,451)       1,586
                                     __________    __________   __________
                                     $1,101,179    $1,199,743   $1,292,899
State
  Current                            $    9,218    $    4,223   $   11,707
  Deferred (benefit)                      -             -            -
                                     __________    __________   __________
                                     $    9,218    $    4,223   $   11,707
                                     __________    __________   __________
Total provision for
  income taxes                       $1,110,397    $1,203,966   $1,304,606
                                     ==========    ==========   ==========
</TABLE>


16  FIRST KEYSTONE CORPORATION * Annual Report 2000


<PAGE>

     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>


                                                         2000
                                                 Amount           Rate
                                                 ______           ____
<S>                                         <C>              <C>
Provision at statutory rate                        $2,148,291        34.0%
Tax-exempt income                                  (1,169,055)      (18.5)
Non-deductible expenses                               159,348         2.5
Other, net                                            (37,405)        (.6)
    __________                                           ____
Applicable federal income
  tax and rate                                     $1,101,179        17.4
    ==========                                           ====

<CAPTION>

                                                         1999
                                                 Amount           Rate
                                                 ______           ____
<S>                                         <C>              <C>
Provision at statutory rate                        $2,163,771        34.0%
Tax-exempt income                                  (1,098,282)      (17.2)
Non-deductible expenses                               146,791         2.3
Other, net                                            (12,537)        (.2)
    __________                                           ____
Applicable federal income
  tax and rate                                     $1,199,743        18.9
    ==========                                           ====


<CAPTION>
                                                         1998
                                                 Amount           Rate
                                                 ______           ____
<S>                                         <C>              <C>
Provision at statutory rate                        $2,105,327        34.0%
Tax-exempt income                                    (929,748)      (15.0)
Non-deductible expenses                               125,925         2.0
Other, net                                             (8,605)        (.1)
    __________                                           ____
Applicable federal income
  tax and rate                                     $1,292,899        20.9
    ==========                                           ====

</TABLE>


     Total federal income tax attributable to realized security gains
and losses was $38,420 in 2000, $42,071 in 1999, and $60,736 in 1998.
     The deferred tax assets and liabilities resulting from temporary
timing differences have been netted to reflect a net deferred tax
asset (liability) included in other assets or other liabilities in
these consolidated financial statements. The components of the net
deferred tax asset (liability) at December 31, 2000, 1999 and 1998,
are as follows:

<TABLE>
<CAPTION>

                                        2000           1999           1998
                                        ____           ____           ____
<S>                               <C>            <C>          <C>
Deferred Tax Assets:
  Loan loss reserve                   $ 771,882      $  736,943    $   676,251
  Deferred compensation                 105,142          71,846         44,307
  Contributions                           6,455           8,710         11,240
  Alternative minimum
    tax credits forward                  13,798            -             -
  Unrealized investment
    securities losses                      -          1,709,880          -
                                      _________      __________    ___________

    Total                             $ 897,277      $2,527,379    $   731,798
                                      _________      __________    ___________
Deferred Tax Liabilities:
  Loan fees and costs                 $(223,253)     $ (205,733)   $  (171,850)
  Mortgage servicing rights              (3,988)         (1,962)          (576)
  Accretion                             (52,763)        (23,055)       (21,883)
  Unrealized investment
    securities gains                   (459,818)           -        (1,220,294)
  Depreciation                         (243,810)       (225,773)      (189,964)
                                      _________      __________    ___________
    Total                             $(983,632)     $ (456,523)   $(1,604,567)
                                      _________      __________    ___________
  Net Deferred Tax Asset
   (Liability)                        $ (86,355)     $2,070,856    $  (872,769)
                                      =========      ==========    ===========

</TABLE>


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


NOTE 11 * EMPLOYEE BENEFIT PLANS AND DEFERRED COMPENSATION AGREEMENTS
     The Corporation maintains a 401K Plan which has a combined tax
qualified savings feature and profit sharing feature for the benefit
of its employees. Under the savings feature, the Corporation
contributes 100% of the employee contribution up to 3% of compensation
which amounted to $81,262, $75,725, and $67,377 in 2000, 1999 and
1998, respectively. Under the profit sharing feature, contributions,
at the discretion of the Board of Directors are funded currently and
amounted to $217,017, $193,481, and $167,497 in 2000, 1999 and 1998,
respectively.
     The Bank also has non-qualified deferred compensation agreements
with four of its officers. These agreements are essentially unsecured
promises by the Bank to make monthly payments to the officers over a
twenty year period. Payments begin based upon specific criteria
generally, when the officer retires. To account for the cost of
payments yet to be made in the future, the Bank recognizes an accrued
liability in years prior to when payments begin based on the present
value of those future payments. The Bank's accrued liability for these
deferred compensation agreements as of December 31, 2000 and 1999, was
$309,240 and $211,311, respectively.  The related expense for these
plans amounted to $97,929, $80,996, and $70,222 in 2000, 1999 and
1998, respectively.

                                                                 17


<PAGE>

NOTE 12 * LEASE COMMITMENTS AND CONTINGENCIES
     The Corporation's banking subsidiary leases four branch banking
facilities, as well as the operations center adjoining the main bank
office, under operating leases. Rent expense for the year ended
December 31, 2000, 1999 and 1998 was $137,876, $109,228, and $82,804,
respectively. The lease commitments, including a new banking facility
opened in 1999 with a base annual rental of $30,000 are: 2001 -
$119,983, 2002 - $102,726, 2003 - $99,768, 2004 - $60,485 and 2005 -
$34,983.
     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 effect on the
consolidated financial position of the Corporation.


NOTE 13 * RELATED PARTY TRANSACTIONS
     Certain directors and executive officers of First Keystone
Corporation and its Subsidiary and companies in which they are
principal owners (i.e., at least 10%) were indebted to the Corporation
at December 31, 2000, 1999 and 1998. These loans were made on
substantially the same terms and conditions, including interest rates
and collateral, as those prevailing at the time for comparable
transactions with unrelated parties. The loans do not involve more
than the normal risk of collectibility nor present other unfavorable
features.
     A summary of the activity on the related party loans, comprised
of 5 directors and 4 executive officers, consists of the following for
the years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>

                                   2000           1999          1998
                                   ____           ____          ____
<S>                         <C>            <C>            <C>
Balance at January 1                $1,708,323     $2,032,334    $2,080,963
Additions                              493,879        456,766       738,176
Deductions                            (746,727)      (780,777)     (786,805)
                                    __________     __________    __________
Balance at December 31              $1,455,475     $1,708,323    $2,032,334
                                    ==========     ==========    ==========
</TABLE>


NOTE 14 * REGULATORY MATTERS
     Dividends are paid by the Corporation to shareholders which are
mainly provided by dividends from the Bank. However, national banking
laws place certain restrictions on the amount of cash 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 2001, without prior regulatory
approval, the Bank may declare dividends to the Corporation in the
amount of $4,644,421 plus additional amounts equal to the net income
earned in 2001 for the period January 1, 2001, through the date of
declaration, less any dividends which may have already been paid in
2001. Regulations also limit the amount of loans and advances from the
Bank to the Corporation to 10% of consolidated net assets.
     The Corporation is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory - and
possibly additional discretionary - actions by regulators that, if
undertaken, could have a direct material effect on the Corporation's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Corporation
must meet specific capital guidelines that involve quantitative
measures of the Corporation's assets, liabilities, and certain off-balance
         sheet items as calculated under regulatory accounting
practices. The Corporation's capital amounts and classification are
also subject to qualitative judgements by the regulators about
components, risk weightings, and other factors. Management believes,
as of December 31, 2000 and 1999, that the Corporation and the Bank
met all capital adequacy requirements to which they are subject.
     Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
fourth in the table below) of Total and Tier I Capital (as defined in
the regulations) to Risk-Weighted Assets (as defined), and of Tier I
Capital (as defined) to Average Assets (as defined).


18  FIRST KEYSTONE CORPORATION * Annual Report 2000


<PAGE>


     As of December 31, 2000, the most recent notification from the
Office of the Comptroller of the Currency categorized the Bank as Well
Capitalized under the regulatory framework for prompt corrective
action. To be categorized as Well Capitalized, the Bank must maintain
minimum Total Risk-Based, Tier I Risked-Based, and Tier I Leverage
Ratios as set forth in the table. There are no conditions or events
since the notification that management believes have changed the
Bank's category.


<TABLE>
<CAPTION>

(Amounts in thousands)                                Actual
                                                 ___________________
                                               Amount         Ratio
                                               ______         _____
<S>                                        <C>             <C>
As of December 31, 2000:
  Total Capital
    (to Risk Weighted Assets)                   $36,965         17.75%
  Tier I Capital
    (to Risk Weighted Assets)                    34,361         16.50%
  Tier I Capital
    (to Average Assets)                          34,361         10.09%


As of December 31, 1999:
  Total Capital
    (to Risk Weighted Assets)                   $33,920         18.25%
  Tier I Capital
    (to Risk Weighted Assets)                    31,604         17.01%
  Tier I Capital
    (to Average Assets)                          31,604          9.71%


<CAPTION>
                                                   For Capital
(Amounts in thousands)                           Adequacy Purposes
                                                 _____________________
                                               Amount         Ratio
                                               ______         _____
<S>                                        <C>              <C>
As of December 31, 2000:
  Total Capital
    (to Risk Weighted Assets)                   $16,658          8.00%
  Tier I Capital
    (to Risk Weighted Assets)                     8,329          4.00%
  Tier I Capital
    (to Average Assets)                          13,622          4.00%


As of December 31, 1999:
  Total Capital
    (to Risk Weighted Assets)                   $14,865          8.00%
  Tier I Capital
    (to Risk Weighted Assets)                     7,433          4.00%
  Tier I Capital
    (to Average Assets)                          13,016          4.00%


<CAPTION>

                                                     To Be Well
                                                 Capitalized Under
                                                 Prompt Corrective
(Amounts in thousands)                           Action Provisions
                                                 _____________________
                                               Amount         Ratio
                                               ______         _____
<S>                                        <C>             <C>
As of December 31, 2000:
  Total Capital
    (to Risk Weighted Assets)                   $20,822         10.00%
  Tier I Capital
    (to Risk Weighted Assets)                    12,493          6.00%
  Tier I Capital
    (to Average Assets)                          17,027          5.00%


As of December 31, 1999:
  Total Capital
    (to Risk Weighted Assets)                   $18,581         10.00%
  Tier I Capital
    (to Risk Weighted Assets)                    11,149          6.00%
  Tier I Capital
    (to Average Assets)                          16,270          5.00%

</TABLE>


     The Corporation's capital ratios are not materially different
from those of the Bank.


NOTE 15 * FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
          CONCENTRATIONS OF CREDIT RISK
     The Corporation is a party to financial instruments with off-balance
          sheet risk  in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. Those
instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of involvement the Corporation has in
particular classes of financial instruments. The Corporation does not
engage in trading activities with respect to any of its financial
instruments with off-balance sheet risk.
     The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is
represented by the contractual notional amount of those instruments.
     The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance
sheet instruments.
     The Corporation may require collateral or other security to
support financial instruments with off-balance sheet credit risk. The
contract or notional amounts at December 31, 2000, and 1999 were as
follows:

<TABLE>
<CAPTION>

                                                  2000          1999
                                                  ____          ____
<S>                                        <C>           <C>
Financial instruments whose contract
  amounts represent credit risk:
  Commitments to extend credit                   $15,467,188    $17,348,615
  Standby letters of credit                      $   947,096    $   632,654

</TABLE>

                                                                 19

<PAGE>

     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.
     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, 2000,
to the extent necessary to avoid any significant concentration of
credit risk.


NOTE 16 * COMPREHENSIVE INCOME
     The Corporation adopted Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income, as of
January 1, 1998. Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in net
income. Certain changes in assets and liabilities, such as unrealized
gains and losses on Available-for-Sale investment securities, along
with net income comprise comprehensive income that is reported as a
component of consolidated stockholders' equity. The adoption of SFAS
No. 130 had no effect on the Corporation's consolidated net income.
     The components of other comprehensive income and related tax
effects are as follows:

<TABLE>
<CAPTION>

                                            Years Ended December 31,
                                          _________________________
                                       2000          1999          1998
                                       ____          ____          ____
<S>                               <C>           <C>            <C>
Unrealized holding gains
 (losses) on Available-for-
 Sale investment securities           $6,556,681    $(8,458,502)    $133,777
Less reclassification
 adjustment for gains
 realized in income                      113,001        123,738      178,634
                                      __________    ___________     ________
Net unrealized gains (losses)         $6,443,680    $(8,582,240)    $(44,857)
Tax effects                           (2,169,699)     2,930,174        9,620
                                      __________    ___________     ________
Net of tax amount                     $4,273,981    $(5,652,066)    $(35,237)
                                      ==========    ===========     ========

</TABLE>


NOTE 17 * STOCKHOLDERS' EQUITY
     On January 27, 1998, the Board of Directors approved a 3 for 1
stock split issued in the form of a 200% stock dividend to be paid
March 2, 1998, to shareholders of record February 10, 1998. A total of
1,955,818 shares were issued resulting in a transfer from retained
earnings in the amount of $3,911,636 at par value.
     On February 10, 1998, the Board of Directors adopted a stock
option incentive plan and reserved 100,000 shares of common stock for
issuance under the plan for certain employees of the Bank. Under the
Plan, options are granted at fair market value and the time period
during which any option granted may be exercised may not commence
before six months or continue beyond the expiration of ten years after
the option is awarded.


NOTE 18 * STOCK OPTIONS
     The Corporation accounts for its stock option plan in accordance
with APB Opinion No. 25 "Accounting for Stock Issued to Employees".
Under this method, no compensation expense is recognized for stock
options when the exercise price equals the quoted market price at the
date of grant. Had compensation cost for the plan been determined
based on the fair value of the options at the grant date consistent
with the method of SFAS No. 123 "Accounting for Stock-Based
Compensation" the Corporation's consolidated net income and earnings
per share would have been as follows:


20  FIRST KEYSTONE CORPORATION * Annual Report 2000


<PAGE>

<TABLE>
<CAPTION>

                                      2000          1999          1998
                                      ____          ____          ____
<S>                              <C>           <C>           <C>
Net income       As reported          $5,208,107    $5,160,065    $4,887,532
                 Pro forma             5,146,004     5,066,740     4,834,092

Basic Earnings
Per Share        As reported          $     1.84    $     1.80    $     1.67
                 Pro forma                  1.82          1.77          1.65

</TABLE>



     The stock options were not required to be included in the
computation of diluted earnings per share because the stock option's
exercise price was greater than the average market price of the common
shares.

     The fair value of each option grant is estimated on the date of
grant using the Binomial Option Pricing Model derived from the Black-Scholes
         Option Pricing Model with the following weighed-average
assumptions used for options granted in 2000, 1999 and 1998,
respectively: dividend yield of 3.80%, 2.07% and 1.56%; expected
volatility of 32.17%, 32.06% and 40.00%; risk-free interest rate of
5.93%, 6.07% and 4.77%; and an expected life of 8 years, 8 years and 8
years.

      Information about stock options outstanding at December 31,
2000, is summarized as follows:
<TABLE>
           <CAPTION>
                                                      2000
                                               ____________________
                                                              Weighted
                                                             Average
                                                Stock         Exercise
                                               Options         Price
                                                ______        _______
<S>                                         <C>           <C>
Balance at January 1                               23,000        $29.72
Granted                                            12,250         17.00
Exercised                                             -             -
Forfeited                                            (500)        29.88
                                                   ______        ______
Balance at December 31                             34,750        $25.23
                                                   ======        ======

Exercisable at December 31                         22,500        $29.71
                                                   ======        ======

Weighted average fair value of
options granted during the year                                  $17.00
                                                                 ======


<CAPTION>
                                                      1999
                                               ____________________
                                                              Weighted
                                                             Average
                                                Stock         Exercise
                                               Options         Price
                                                ______        _______
<S>                                         <C>           <C>
Balance at January 1                               11,000        $33.50
Granted                                            12,000         26.25
Exercised                                             -             -
Forfeited                                             -             -
                                                   ______        ______
Balance at December 31                             23,000        $29.72
                                                   ======        ======

Exercisable at December 31                         11,000        $33.50
                                                   ======        ======

Weighted average fair value of
options granted during the year                                  $26.25
                                                                 ======

<CAPTION>
                                                      1998
                                                ___________________
                                                              Weighted
                                                             Average
                                                Stock         Exercise
                                               Options         Price
                                                ______        _______
<S>                                         <C>           <C>
Balance at January 1                                -            $ -
Granted                                            11,000         33.50
Exercised                                            -             -
Forfeited                                            -             -
                                                   ______        ______
Balance at December 31                             11,000        $33.50
                                                   ======        ======

Exercisable at December 31                           -             -
                                                   ======        ======

Weighted average fair value of
options granted during the year                                  $33.50
                                                                 ======

</TABLE>


     Exercise prices of options outstanding as of December 31, 2000,
ranged from $17.00 to $33.50 per share. The weighted average remaining
contracted life is approximately 8 years.


NOTE 19 * FAIR VALUES OF FINANCIAL INSTRUMENTS
     Statement of Financial Accounting Standards (SFAS) 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. SFAS
No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Corporation.
     The following methods and assumptions were used by the
Corporation in estimating its fair value disclosures for financial
instruments:

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

     Investment Securities
          Fair values have been individually determined based on
currently quoted market prices. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities.

                                                                 21


<PAGE>

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

     Deposits
          Under SFAS 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, 2000, and 1999.
          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 and Long-Term Borrowings
          The fair values of short-term and long-term borrowings are
estimated using discounted cash flow analyses based on the
Corporation's incremental borrowing rate for similar instruments.

     Commitments to Extend Credit and Standby 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, 2000 and 1999, the carrying values and
estimated fair values of financial instruments of the Corporation are
presented in the table below:

<TABLE>
<CAPTION>
                                                               2000
                                                          _______________________
                                                   Carrying        Estimated
                                                    Amount         Fair Value
                                                    ______         __________
<S>                                         <C>               <C>
FINANCIAL ASSETS:
  Cash and due from banks                        $  6,732,976      $  6,732,976
  Short-term investments                            2,427,980         2,427,980
  Investment securities                           156,437,692       156,335,533
  Net loans                                       187,969,328       190,930,188
  Accrued interest receivable                       2,491,093         2,491,093

FINANCIAL LIABILITIES:
  Deposits                                        271,473,010       271,934,431
  Short-term borrowings                             8,559,655         8,565,204
  Long-term borrowings                             41,250,000        40,049,024
  Accrued interest payable                          1,506,845         1,506,845

OFF-BALANCE SHEET FINANCIAL
  INSTRUMENTS:
  Commitments to extend credit                                       15,467,188
  Standby letters of credit                                             947,096



<CAPTION>
                                                               1999
                                                          ________________________
                                                   Carrying        Estimated
                                                    Amount         Fair Value
                                                    ______         __________
<S>                                         <C>               <C>
FINANCIAL ASSETS:
Cash and due from banks                          $  6,883,976      $  6,883,976
Short-term investments                                 80,157            80,157
Investment securities                             135,030,818       134,803,106
Net loans                                         182,631,352       181,374,636
Accrued interest receivable                         2,238,835         2,238,835

FINANCIAL LIABILITIES:
Deposits                                          244,680,184       244,140,095
Short-term borrowings                              31,594,327        31,593,182
Long-term borrowings                               26,000,000        25,404,360
Accrued interest payable                            1,203,132         1,203,132

OFF-BALANCE SHEET FINANCIAL
INSTRUMENTS:
Commitments to extend credit                                         17,348,615
Standby letters of credit                                               632,654

</TABLE>


22  FIRST KEYSTONE CORPORATION * Annual Report 2000


<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
                                                       ___________________
                                                    2000              1999
                                                    ____            ____
<S>                                            <C>            <C>
ASSETS
  Cash in subsidiary bank                          $   214,839     $   228,926
  Investment in subsidiary bank                     34,947,652      27,714,846
  Investment in other equity securities              1,597,375       1,716,916
  Prepayments and other assets                           4,282          92,983
  Advance to Subsidiary Bank                            68,234          -
                                                   ___________     ___________
    TOTAL ASSETS                                   $36,832,382     $29,753,671

LIABILITIES
  Payable to Subsidiary Bank                       $    -          $    99,742
  Accrued expenses and other liabilities               174,745         296,410
                                                   ___________     ___________
    TOTAL LIABILITIES                              $   174,745     $   396,152

STOCKHOLDERS' EQUITY
  Preferred stock                                  $    -          $    -
  Common stock                                       5,867,454       5,867,454
  Surplus                                            9,761,066       9,761,066
  Retained earnings                                 23,311,355      20,285,218
  Accumulated other comprehensive
    income (loss)                                      814,443      (3,459,538)
  Treasury stock, at cost                           (3,096,681)     (3,096,681)
                                                   ___________     ___________
    TOTAL STOCKHOLDERS' EQUITY                     $36,657,637     $29,357,519
                                                   ___________     ___________
    TOTAL LIABILITIES AND
      STOCKHOLDERS' EQUITY                         $36,832,382     $29,753,671
                                                   ===========     ===========

</TABLE>



<TABLE>
<CAPTION>

STATEMENTS OF INCOME
                                                 Year Ended December 31

                                            2000          1999        1998
                                            ____          ____        ____
<S>                                   <C>           <C>         <C>
INCOME
  Dividends from Subsidiary Bank           $2,346,982    $3,227,100  $3,344,449
  Dividends - other                            54,699        45,243      41,423
  Securities gains                            129,998        51,000     117,203
  Interest                                      5,666        12,772      24,560
                                           __________    __________  __________
    TOTAL INCOME                           $2,537,345    $3,336,115  $3,527,635

Operating Expenses                             60,019        35,075      36,999
                                           __________    __________  __________
Income Before Taxes and Equity
  in Undistributed Net Income
  of Subsidiary                            $2,477,326    $3,301,040  $3,490,636
Income tax expense                             37,456        17,159      47,572
                                           __________    __________  __________
Income Before Equity in
  Undistributed Net Income
  of Subsidiary                            $2,439,870    $3,283,881  $3,443,064
Equity in undistributed
  income of Subsidiary                      2,768,237     1,876,184   1,444,468
                                           __________    __________  __________
NET INCOME                                 $5,208,107    $5,160,065  $4,887,532
                                           ==========    ==========  ==========

</TABLE>

                                                                 23


<PAGE>


<TABLE>
<CAPTION>

STATEMENTS OF CASH FLOWS
                                               Year Ended December 31
                                            _____________________________
                                         2000          1999         1998
                                         ____          ____         ____
<S>                               <C>           <C>            <C>
OPERATING ACTIVITIES
Net income                             $ 5,208,107   $ 5,160,065    $ 4,887,532
Adjustments to reconcile
  net income to net cash
  provided by operating
  activities:
    Securities gains                      (129,998)      (51,000)      (117,202)
    Equity in undistributed
      net income of Subsidiary          (2,768,237)   (1,876,184)    (1,444,468)
    (Increase) decrease in
      prepaid expenses and
      other assets                          88,701       (92,983)         -
    (Increase) decrease in
      advanced receivable
      from Subsidiary Bank                 (68,234)        -              -
    Increase (decrease) in
      advances payable to
      Subsidiary Bank                      (99,742)       67,448         28,552
    Increase (decrease) in
      accrued expenses
      and other liabilities                  8,566       (15,390)       (14,955)
                                       ___________   ___________    ___________
    NET CASH PROVIDED BY
      OPERATING ACTIVITIES             $ 2,239,163   $ 3,191,956    $ 3,339,459

INVESTING ACTIVITIES
Purchase of equity securities          $  (314,936)  $  (142,626)   $  (201,023)
Proceeds from sale of equity
  securities                               243,656        88,500        179,904
                                       ___________   ___________    ___________
  NET CASH PROVIDED (USED) IN
   INVESTING ACTIVITIES                $   (71,280)  $   (54,126)   $   (21,119)

FINANCING ACTIVITIES
Acquisition of treasury stock          $     -       $(1,905,660)   $(1,191,021)
Cash dividends paid                     (2,181,970)   (1,997,969)    (1,726,192)
                                       ___________   ___________    ___________
  NET CASH (USED) BY
    FINANCING ACTIVITIES               $(2,181,970)  $(3,903,629)   $(2,917,213)

  INCREASE (DECREASE) IN
    CASH AND CASH EQUIVALENTS          $   (14,087)  $  (765,799)   $   401,127
  CASH AND CASH EQUIVALENTS
    AT BEGINNING OF YEAR                   228,926       994,725        593,598
                                       ___________   ___________    ___________
  CASH AND CASH EQUIVALENTS
    AT END OF YEAR                     $   214,839   $   228,926    $   994,725
                                       ===========   ===========    ===========

</TABLE>


24  FIRST KEYSTONE CORPORATION * Annual Report 2000


<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Stockholders of First Keystone Corporation:

     We have audited the accompanying consolidated balance sheets of
First Keystone Corporation and Subsidiary as of December 31, 2000 and
1999, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 2000.  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 auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free
of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial statements.  An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial
statement presentation.  We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of First Keystone Corporation and Subsidiary as of
December 31, 2000 and 1999, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.






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



Kingston, Pennsylvania
January 10, 2001


                                                                 25


<PAGE>

MANAGEMENT'S STATEMENT OF RESPONSIBILITY


To Our Stockholders:

     The management of First Keystone Corporation is responsible for
the preparation, integrity and the objectivity of the consolidated
financial statements and other financial information presented in this
annual report.  The consolidated financial statements have been
prepared in conformity with accounting principles generally accepted
in the United States of America and reflect the effects of certain
estimates and judgements made by management.

     First Keystone Corporation's management maintains an effective
system of internal control which in the opinion of management is
designed to provide reasonable assurance that its financial records
can be relied on in the preparation of consolidated financial
statements and that its assets are safeguarded against loss or
unauthorized use.  The system of internal controls provides for
appropriate division and responsibility and is documented by written
policies and procedures that are communicated to employees with
significant roles in the financial reporting process and updated as
necessary.  Management continually monitors the system for compliance.


     The Audit Committee of the Board of Directors composed entirely
of directors who are not employees of First Keystone Corporation,
meets periodically, privately, and separately with First Keystone
Corporation's independent auditors and management to review
accounting, auditing, internal control, and financial reporting
matters.





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



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




Berwick, Pennsylvania
March 9, 2001


26  FIRST KEYSTONE CORPORATION * Annual Report 2000


<PAGE>

Management's Discussion and Analysis
___________________________________________________________________


              MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
             RESULTS OF OPERATIONS AND FINANCIAL CONDITION


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

RESULTS OF OPERATIONS
Year Ended December 31, 2000 Versus Year Ended December 31, 1999

     Net income increased to $5,208,107 for the year ended December
31, 2000, as compared to $5,160,065 for the prior year. The net income
for 2000 marked the 18th consecutive year that earnings and earnings
per share have increased. Earnings per share, both basic and diluted,
for 2000 were $1.84 as compared to $1.80 in 1999. The Corporation's
return on average assets declined slightly to 1.52% in 2000 from 1.58%
in 1999. However, the return on average equity increased to 16.55% in
2000 from 16.12% in 1999. The increase in average earning assets in
2000 resulted in an increase of interest income to $25,650,000 up
10.7% over 1999. Higher interest rates and the accompanying increase
cost of funds resulted in interest expense of $13,995,000 in 2000, an
increase of 17.7% over 1999.
     Net interest income, as indicated below in Table 1, increased by
only $371,000 or 3.3% to $11,655,000 for the year ended December 31,
2000. The Corporation's net interest income on a fully taxable
equivalent basis increased $471,000, or 3.6% in 2000 as compared to an
increase of $1,175,000, or 10.0% in 1999.

Year Ended December 31, 1999 Versus Year Ended December 31, 1998

     Net income increased to $5,160,065 for the year ended December
31, 1999, as compared to $4,887,532 in 1998. Earnings per share, both
basic and diluted, for 1999 were $1.80 as compared to $1.67 in 1998.
The Corporation's return on average assets and return on average
equity was 1.58% and 16.12%, respectively in 1999, as compared to
1.72% and 14.68%, respectively
in 1998.
     Net interest income increased by $910,000 or 8.8% to $11,284,000
for the year ended 1999. The Corporation's net interest income on a
fully taxable equivalent basis increased 10.0% in 1999 or $1,175,000
as indicated in Table 1 to $12,958,000 as compared to $11,783,000 for
the year ended 1998.

<TABLE>

Table 1 * Net Interest Income

<CAPTION>

(Amounts in thousands)                                  2000/1999
                                                _______________________
                                                  Increase/(Decrease)
                                           2000      Amount   %        1999
                                           ____      ______  ___      ____
<S>                                   <C>        <C>       <C>    <C>
Interest Income                            $25,650    $2,478   10.7    $23,172
Interest Expense                            13,995     2,107   17.7     11,888
                                           _______    ______           _______
Net Interest Income                         11,655       371    3.3     11,284
Tax Equivalent Adjustment                    1,774       100    6.0      1,674
                                           _______    ______           _______
Net Interest Income
  (fully tax equivalent)                   $13,429    $  471    3.6    $12,958
                                           =======    ======           =======


<CAPTION>

(Amounts in thousands)                                  1999/1998
                                             _____________________________
                                                  Increase/(Decrease)
                                                    __________________
                                           1999      Amount   %        1998
                                           ____      ______  ___      ____
<S>                                   <C>        <C>       <C>    <C>
Interest Income                            $23,172    $2,469   11.9    $20,703
Interest Expense                            11,888     1,559   15.1     10,329
                                           _______    ______           _______
Net Interest Income                         11,284       910    8.8     10,374
Tax Equivalent Adjustment                    1,674       265   18.8      1,409
                                           _______    ______           _______
Net Interest Income
  (fully tax equivalent)                   $12,958    $1,175   10.0    $11,783
                                           =======    ======           =======

</TABLE>

                                                                 27

<PAGE>


Management's Discussion and Analysis
_____________________________________________________________________


<TABLE>

Table 2 * Distribution of Assets, Liabilities and Stockholders' Equity

<CAPTION>


                                                       2000
                                              ________________________
                                     Avg. Balance        Revenue       Yield
                                                         /Expense     /Rate
                                      ___________         ________     _____
<S>                               <C>               <C>            <C>
Interest Earning Assets:
Loans:
Commercial <F1>                        $ 17,409,129      $ 1,809,232    10.39%
Real Estate <F1>                        138,855,558       11,491,131     8.28%
Installment Loans,
  Net <F1><F2>                           31,376,389        2,695,065     8.59%
Fees on Loans                                     0           28,438        0%
                                       ____________      ___________    ______
  Total Loans (Including
    Fees) <F3>                         $187,641,076      $16,023,866     8.54%

Investment Securities:
Taxable                                $ 93,011,187      $ 6,566,028     7.06%
Tax Exempt <F1>                          48,778,533        4,826,683     9.90%
                                       ____________      ___________    ______
  Total Investment Securities          $141,789,720      $11,392,711     8.03%
Interest Bearing Deposits
  in Banks                                   59,731            7,404    12.40%
                                       ____________      ___________    ______
  Total Interest-Earning
    Assets                             $329,490,527      $27,423,981     8.32%

Non-Interest Earning Assets:
Cash and Due From Banks                $  6,881,283
Allowance for Loan Losses                (2,599,044)
Premises and Equipment                    3,751,007
Foreclosed Assets Held for
  Sale                                            0
Other Assets                              4,724,690
                                       ____________
  Total Non-Interest Earning
    Assets                               12,757,936
                                       ____________
  Total Assets                         $342,248,463
                                       ============
Interest-Bearing Liabilities:
Savings, NOW Accounts,
  and Money Markets                    $101,727,428      $ 3,273,578     3.22%
Time Deposits                           134,872,486        7,698,813     5.71%
Short-Term Borrowings                    14,449,813          935,108     6.47%
Long-Term Borrowings                     27,558,202        1,705,032     6.19%
Securities Sold U/A to
  Repurchase                              7,734,721          382,828     4.95%
                                       ____________      ___________    ______
  Total Interest-Bearing
    Liabilities                        $286,342,650      $13,995,359     4.89%

Non-Interest Bearing
  Liabilities:
Demand Deposits                        $ 22,277,061
Other Liabilities                         2,158,311
Stockholders' Equity                     31,470,441
                                       ____________
  Total Liabilities/
    Stockholders' Equity               $342,248,463
                                       ============
  Net Interest Income
   Tax Equivalent                                        $13,428,622
                                                         ===========
Margin Analysis:
Interest Income/Earning
  Assets                                                                 8.32%
Interest Expense/
  Earning Assets                                                         4.25%
Net Interest Income/
  Earning Assets                                                         4.08%


28  FIRST KEYSTONE CORPORATION * Annual Report 2000


<PAGE>

   Management's Discussion and Analysis
   ___________________________________________________________________

<CAPTION>
                                                       1999
                                         ___________________________________
                                     Avg. Balance        Revenue       Yield
                                                         /Expense     /Rate
                                      ___________         ________     _____
<S>                               <C>               <C>             <C>
Interest Earning Assets:
Loans:
Commercial <F1>                        $ 18,510,931      $ 1,590,855     8.59%
Real Estate <F1>                        131,870,649       10,799,473     8.19%
Installment Loans,
  Net <F1><F2>                           24,289,440        2,269,305     9.34%
Fees on Loans                                     0           (9,119)       0%
                                       ____________      ___________     ____
  Total Loans (Including
    Fees) <F3>                         $174,671,020      $14,650,514     8.39%

Investment Securities:
Taxable                                $ 84,228,396      $ 5,357,426     6.36%
Tax Exempt <F1>                          53,607,172        4,672,106     8.72%
                                       ____________      ___________     ____
  Total Investment Securities          $137,835,568      $10,029,532     7.28%
Interest Bearing Deposits
  in Banks                                3,452,932          166,666     4.83%
                                       ____________      ___________     ____
  Total Interest-Earning
    Assets                             $315,959,520      $24,846,711     7.86%

Non-Interest Earning Assets:
Cash and Due From Banks                  $7,167,881
Allowance for Loan Losses                (2,490,397)
Premises and Equipment                    3,785,614
Foreclosed Assets Held for
  Sale                                       48,151
Other Assets                              2,835,955
                                        ___________
  Total Non-Interest
    Earning Assets                       11,347,204
                                       ____________
  Total Assets                         $327,306,724
                                       ============
Interest-Bearing Liabilities:
Savings, NOW Accounts,
  and Money Markets                    $100,597,697       $2,967,250     2.95%
Time Deposits                           125,229,509        6,528,815     5.21%
Short-Term Borrowings                     5,337,884          288,553     5.41%
Long-Term Borrowings                     17,700,701        1,009,032     5.70%
Securities Sold U/A to
  Repurchase                             22,969,459        1,094,546     4.77%
                                       ____________      ___________     ____
  Total Interest-Bearing
    Liabilities                        $271,835,250      $11,888,196     4.37%

Non-Interest Bearing
  Liabilities:
Demand Deposits                        $ 21,650,871
Other Liabilities                         1,808,797
Stockholders' Equity                     32,011,806
                                       ____________
  Total Liabilities/
    Stockholders' Equity               $327,306,724
                                       ============
  Net Interest Income
    Tax Equivalent                                       $12,958,515
                                                         ===========
Margin Analysis:
Interest Income/Earning
  Assets                                                                 7.86%
Interest Expense/Earning
  Assets                                                                 3.76%
Net Interest Income/
 Earning Assets                                                          4.10%



<CAPTION>
                                                       1998
                                         ___________________________________
                                     Avg. Balance        Revenue       Yield
                                                         /Expense     /Rate
                                      ___________        _______       _____
<S>                               <C>               <C>             <C>
Interest Earning Assets:
Loans:
Commercial <F1>                        $ 18,349,551      $ 1,645,311     8.97%
Real Estate <F1>                        116,452,691        9,986,605     8.58%
Installment Loans,
  Net <F1> <F2>                          18,989,332        1,861,608     9.80%
Fees on Loans                                     0            7,819        0%
                                       ____________      ___________     ____
  Total Loans (Including
     Fees) <F3>                        $153,791,574      $13,501,343     8.78%

Investment Securities:
Taxable                                $ 70,371,073      $ 4,481,462     6.37%
Tax Exempt <F1>                          45,379,362        3,882,311     8.56%
                                       ____________      ___________     ____
  Total Investment Securities          $115,750,435      $ 8,363,773     7.23%
Interest Bearing Deposits
  in Banks                                4,486,588          246,822     5.50%
                                       ____________      ___________     ____
  Total Interest-Earning
    Assets                             $274,028,597      $22,111,938     8.07%

Non-Interest Earning Assets:
Cash and Due From Banks                $  6,586,890
Allowance for Loan Losses                (2,374,338)
Premises and Equipment                    3,531,253
Foreclosed Assets Held for
  Sale                                       14,533
Other Assets                              2,387,914
                                       ____________

  Total Non-Interest Earning
    Assets                               10,146,252
  Total Assets                         $284,174,849
                                       ============
Interest-Bearing Liabilities:
Savings, NOW Accounts, and
  Money Markets                        $100,617,034       $3,248,282     3.23%
Time Deposits                           108,004,662        5,960,085     5.52%
Short-Term Borrowings                       849,372           45,149     5.32%
Long-Term Borrowings                     13,871,969          817,313     5.89%
Securities Sold U/A to
  Repurchase                              6,158,768          258,319     4.19%
                                       ____________      ___________     ____
  Total Interest-Bearing
    Liabilities                        $229,501,805      $10,329,148     4.50%

Non-Interest Bearing
  Liabilities:
Demand Deposits                         $18,970,283
Other Liabilities                         2,401,369
Stockholders' Equity                     33,301,392
                                       ____________
  Total Liabilities/
    Stockholders' Equity               $284,174,849
                                       ============
  Net Interest Income Tax
    Equivalent                                           $11,782,790
                                                         ===========
Margin Analysis:
Interest Income/Earning
  Assets                                                                 8.07%
Interest Expense/Earning
  Assets                                                                 3.77%
Net Interest Income/
 Earning Assets                                                          4.30%

____________________
<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>

                                                                 29

<PAGE>


Management's Discussion and Analysis
___________________________________________________________________


NET INTEREST INCOME
     The major source of operating income for the Corporation is net
interest income. Net interest income is the difference between
interest income on earning assets, such as loans and securities, and
the interest expense on liabilities used to fund those assets,
including deposits and other borrowings. 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 2 on the preceding pages provides a summary of average
outstanding balances of earning assets and interest bearing
liabilities with the associated interest income and expense as well as
average rates earned and paid as of year-end 2000, 1999, and 1998.
     The yield on earning assets was 8.32% in 2000, 7.86% in 1999, and
8.07% in 1998. The rate paid on interest bearing liabilities was 4.89%
in 2000, 4.37% in 1999, and 4.50% in 1998. A 46 basis point increase
in the yield on earning assets, offset by a 52 basis point increase on
the rate paid on interest bearing liabilities in 2000 put additional
pressure on the net interest margin. The effect was a decrease in our
net interest margin to 4.08% in 2000 as compared to 4.10% in 1999 and
4.30% in 1998. The net interest margins are presented on a tax-equivalent
          basis. The continued maintenance of an adequate net
interest margin is a primary concern being addressed by management on
an ongoing basis.
     The decline in net interest margin was due primarily to the rate
on liabilities increasing more than the rate on earning assets. The
narrowing of our net interest margin is consistent with industry
trends. The trend reflects increased competition for both loans and
deposits.
     Table 3 sets forth certain information regarding changes in
interest income and interest expense for the periods indicated for
each category of interest earning assets and interest bearing
liabilities. Information is provided on changes attributable to (i)
changes in volume (changes in average volume multiplied by prior
rate); (ii) changes in rate (changes in average rate multiplied by
prior average volume); and, (iii) changes in rate and volume (changes
in average volume multiplied by change in average rate).
     In 2000, the increase in net interest income of $470,000 resulted
from a change in volume of $197,000 and an increase of $273,000 due to
changes in rate. In 1999, there was an increase in net interest income
of $1,175,000 resulted from a change in volume of $1,243,000 and a
decrease of $68,000 due to rate.

<TABLE>

Table 3 * Changes in Income and Expense, 2000 and 1999

<CAPTION>

(Amounts in thousands)                          2000 COMPARED TO 1999
                                            _____________________________
                                        VOLUME          RATE           NET
                                         _____          ____           ___
<S>                                  <C>             <C>          <C>
Interest Income:
Loans, Net                                $1,088         $  285        $1,373
Taxable Investment Securities                559            650         1,209
Tax-Exempt Investment Securities            (421)           575           154
Other Short-Term Investments                (164)             5          (159)
                                          ______         ______        ______
Total Interest Income                     $1,062         $1,515        $2,577
Interest Expense:
Savings, Now, and Money Markets           $   33         $  273        $  306
Time Deposits                                503            667         1,170
Short-Term Borrowings                        493            154           647
Long-Term Borrowings                         562            134           696
Securities Sold U/A to Repurchase           (726)            14          (712)
                                          ______         ______        ______
Total Interest Expense                    $  865         $1,242        $2,107
                                          ______         ______        ______
Net Interest Income                       $  197         $  273        $  470
                                          ======         ======        ======


<CAPTION>

(Amounts in thousands)                          1999 COMPARED TO 1998
                                               _______________________
                                        VOLUME          RATE           NET
                                         _____          ____           ___
<S>                                  <C>             <C>          <C>
Interest Income:
Loans, Net                                $1,833          $(684)       $1,149
Taxable Investment Securities                882             (7)          875
Tax-Exempt Investment Securities             704             86           790
Other Short-Term Investments                 (57)           (23)          (80)
                                          ______          _____        ______
  Total Interest Income                   $3,362          $(628)       $2,734

Interest Expense:
Savings, Now, and Money Markets           $   (1)         $(280)       $ (281)
Time Deposits                                950           (382)          568
Short-Term Borrowings                        239              5           244
Long-Term Borrowings                         226            (34)          192
Securities Sold U/A to Repurchase            705            131           836
                                          ______          _____        ______
  Total Interest Expense                  $2,119          $(560)       $1,559
                                          ______          _____        ______
  Net Interest Income                     $1,243          $ (68)       $1,175
                                          ======          =====        ======
________________________
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 $3,442,834 in 2000, $3,249,720
in 1999, and $2,735,553 in 1998.  Tax-exempt income has been adjusted to a
tax-equivalent basis using an incremental rate of 34%.

</TABLE>

30  FIRST KEYSTONE CORPORATION * Annual Report 2000


<PAGE>

Management's Discussion and Analysis
___________________________________________________________________


PROVISION FOR LOAN LOSSES
     For the year ended December 31, 2000, the provision for loan
losses was $425,000 as compared to $325,000 as of December 31, 1999,
an increase of 30.8%. The Corporation's provision for loan losses for
the year ended December 31, 1998, was $275,000. The provision has
increased primarily because of the loan growth experienced by the
Corporation. Net charge-offs by the Corporation for the fiscal year
end December 31, 2000, 1999, and 1998, were $323,000, $146,000, and
$225,000, respectively.
     The allowance for loan losses as a percentage of loans, net of
unearned interest, was 1.42% as of December 31, 2000, 1.40% as of
December 31, 1999, and 1.50% as of December 31, 1998.
     On a quarterly basis, the Corporation's Board of Directors and
management performs a detailed analysis of the adequacy of the
allowance for loan losses. This analysis includes an evaluation of
credit risk concentration, delinquency trends, past loss experience,
current economic conditions, composition of the loan portfolio,
classified loans and other relevant factors.
     The Corporation will continue to monitor its allowance for loan
losses and make future adjustments to the allowance through the
provision for loan losses as conditions warrant. Although the
Corporation believes that the allowance for loan losses is adequate to
provide for losses inherent in the loan portfolio, there can be no
assurance that future losses will not exceed the estimated amounts or
that additional provisions will not be required in the future.
     The Bank is subject to periodic regulatory examination by the
Office of the Comptroller of the Currency (OCC).  As part of the
examination, the OCC will assess the adequacy of the bank's allowance
for loan losses and may include factors not considered by the Bank. In
the event that an OCC examination results in a conclusion that the
Bank's allowance for loan losses is not adequate, the Bank may be
required to increase its provision for loan losses.

NON-INTEREST INCOME
     Non-interest income is derived primarily from trust department
revenue, service charges and fees, other miscellaneous revenue and the
gain on the sale of mortgage loans. In addition, investment security
gains or losses also impact total non-interest income.
     For the year ended December 31, 2000, non-interest income
increased $160,000, or 9.3% as compared to an increase of $86,000, or
5.3% for the year ended December 31, 1999. Table 4 provides the major
categories of non-interest income and each respective change comparing
the past three years.
     Excluding investment security gains, non-interest income in 2000
increased $171,000, or 10.7%. This compares to an increase of
$141,000, or 9.7% in 1999 before investment security gains. Income
from the trust department, which consists of fees generated from
individual and corporate accounts, decreased in 2000 by $6,000 after
increasing by $52,000 in 1999.  Decreased income from the trust
department in 2000 was due primarily to the decline in market value of
accounts.
     Service charges and fees, consisting primarily of service charges
on deposit accounts, was the largest source of non-interest income in
2000 and 1999. Service charges and fees increased by $153,000, or
16.3% in 2000 compared to an increase of $190,000, or 25.3% in 1999.
A higher volume of debit card, ATM, and other transactions led to the
growth in both years.
     Other income increased by $1,000, or 2.6% in 2000 compared to a
decrease of $10,000, or 20.4% in 1999. The gain on sale of mortgages
provided $58,000 in 2000, an increase of $23,000 over 1999.  Gains on
sale of mortgages are largely a function of the volume of mortgages
originated for sale in the secondary market and the volatility of
interest rates. Since the Corporation continues to service the
mortgages which are sold, this provides a source for additional
          non-interest income on an ongoing basis.

<TABLE>

Table 4 * Non-Interest Income

<CAPTION>

(Amounts in thousands)                                 2000/1999
                                             ______________________________
                                                 Increase/(Decrease)
                                                   __________________
                                          2000      Amount      %      1999
                                          ____       _____    __       ____
<S>                                  <C>         <C>       <C>     <C>
Trust Department                          $  571      $ (6)     (1.0)   $  577
Service Charges and Fees                   1,093       153      16.3       940
Other                                         40         1       2.6        39
Gain on Sale of Mortgages                     58        23      65.7        35
                                          ______      ____              ______
 Subtotal                                 $1,762      $171      10.7    $1,591
Investment Securities Gains                  113       (11)      8.9       124
                                          ______      ____              ______
 Total                                    $1,875      $160       9.3    $1,715
                                          ======      ====              ======

<CAPTION>

(Amounts in thousands)                                 1999/1998
                                             ______________________________
                                                 Increase/(Decrease)
                                                  _________________
                                          1999      Amount      %       1998
                                          ____      ______     ___     ____
<S>                                  <C>         <C>      <C>      <C>
Trust Department                          $  577      $ 52       9.9    $  525
Service Charges and Fees                     940       190      25.3       750
Other                                         39       (10)    (20.4)       49
Gain on Sale of Mortgages                     35       (91)    (72.2)      126
                                          ______      ____              ______
  Subtotal                                $1,591      $141       9.7    $1,450
Investment Securities Gains                  124       (55)    (30.7)      179
                                          ______      ____              ______
  Total                                   $1,715      $ 86       5.3    $1,629
                                          ======      ====              ======

</TABLE>

                                                                 31

<PAGE>

Management's Discussion and Analysis
___________________________________________________________________


NON-INTEREST EXPENSES
     Non-interest expense consists of salaries and benefits,
occupancy, furniture and equipment, and other miscellaneous expenses.
Table 5 provides the yearly non-interest expense by category, along
with the amount, dollar changes, and percentage of change.
     Total non-interest expense increased by $477,000, or 7.6% in 2000
compared to an increase of $775,000, or
14.0% in 1999. Expenses associated with employees (salaries and
employee benefits) continue to be the largest non-interest
expenditure. Salaries and employee benefits amounted to 55.4% of total
non-interest expense in 2000 and 54.7% in 1999. Salaries and employee
benefits increased $309,000, or 8.9% in 2000 and $565,000, or 19.6% in
1999. The increase in both years were due to an increased number of
employees, plus normal salary adjustments and increased benefit costs.
Full time equivalent employees total 122 as of December 31, 2000, and
1999 compared to 111 in 1998.
     Net occupancy expense increased $30,000, or 7.5% in 2000 as
compared to a decrease of $2,000, or .5% in 1999.  Furniture and
equipment expense increased $19,000, or 3.4% in 2000 compared to an
increase of $35,000, or 6.8% in 1999. The increase in furniture and
equipment expense in 2000 and 1999 relate to higher depreciation
associated with computer processing and related equipment. Other
operating expenses increased $119,000, or 6.2% in 2000 as compared to
an increase of $177,000, or 10.2% in 1999. Higher other expenses are
associated with increased professional fees, postage, supplies,
insurance, marketing, and advertising.
     The overall level of non-interest expense continues to be low,
relative to our peers. In fact, our total non-interest expense was
less than 2% of average assets in both 2000 and 1999. Non-interest
expense as a percentage of average assets under 2% places us among the
leaders in our peer financial institution categories in controlling
non-interest expense.


<TABLE>

Table 5 * Non-Interest Expense

<CAPTION>

(Amounts in thousands)                                 2000/1999
                                          _________________________________
                                                 Increase/(Decrease)
                                                 ___________________
                                         2000       Amount      %      1999
                                         ____       ______     ___     ____
<S>                                  <C>        <C>         <C>    <C>
Salaries and Employee Benefits            $3,762     $309        8.9    $3,453
Occupancy, Net                               431       30        7.5       401
Furniture and Equipment                      570       19        3.4       551
Other and State Shares Tax                 2,024      119        6.2     1,905
                                          ______     ____               ______
  Total                                   $6,787     $477        7.6    $6,310
                                          ======     ====               ======

<CAPTION>

(Amounts in thousands)                                 1999/1998
                                            ________________________________
                                                 Increase/(Decrease)
                                                   __________________
                                         1999       Amount      %      1998
                                         ____       ______   ______     ____
<S>                                  <C>        <C>        <C>     <C>
Salaries and Employee Benefits            $3,453     $565       19.6    $2,888
Occupancy, Net                               401       (2)       (.5)      403
Furniture and Equipment                      551       35        6.8       516
Other                                      1,905      177       10.2     1,728
                                          ______     ____               ______
  Total                                   $6,310     $775       14.0    $5,535
                                          ======     ====               ======

</TABLE>


INCOME TAX EXPENSE
     Income tax expense for the year ended December 31, 2000, was
$1,110,397 as compared to $1,203,966 and $1,304,606 for the years
ended December 31, 1999, and December 31, 1998, respectively. In 1999,
our income tax expense decreased even though income before taxes
increased $171,893. In 2000, our income before taxes declined $45,527
as compared to 1999; however, our income tax expense declined $93,569
resulting in increased net income for the year. An increase in tax
exempt interest, derived from both our tax-free loans and tax free
municipal investment securities in 2000 and 1999, resulted in a lower
income tax liability. The effective income tax rate was 17.4% in 2000,
18.9% in 1999, and 20.9% in 1998. The limited availability of tax free
municipal investments at attractive interest rates may result in a
higher effective tax rate in future years.


FINANCIAL CONDITION

GENERAL
     Total assets increased to $360,342,306, at year-end 2000, an
increase of 8.0% over year-end 1999. As of December 31, 2000, total
deposits amounted to $271,473,010, an increase of 11.0% over 1999.
Assets as of December 31, 1999, were $333,515,787, an increase of
10.1% over 1998, while total deposits as of year-end 1999 amounted to
$244,680,184, a decrease of 1.0% from 1998.
     In 2000, the increase in assets primarily reflects the deployment
of proceeds from borrowings and deposits into loans and investment
securities. The Corporation continues to maintain and manage its asset
growth. Our strong equity capital position provides us an opportunity
to leverage our asset growth. Borrowings did decrease in 2000 by
$7,784,672 after increasing 1999 by $37,960,681. Strong


32  FIRST KEYSTONE CORPORATION * Annual Report 2000


<PAGE>

Management's Discussion and Analysis
___________________________________________________________________


deposit growth in 2000 afforded the opportunity to reduce borrowings.
The additional borrowings in 1999 were used to fund our asset growth
since deposits declined $2,411,335. Core deposits, which include
demand deposits, interest bearing demand deposits, money market
accounts, savings accounts, and time deposits of individuals are our
most significant source of funds. In 2000, several successful sales
campaigns attracted new customers and  generated growth in retail
certificates of deposit (time deposits of individuals). In 1999, the
loss of a substantial commercial deposit account and a shifting of our
customer preferences led to an overall decline in deposits.

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 average earning assets as a percentage of average total
assets, the Corporation maximizes income. The earning asset ratio
equaled 97.0% for the year ended 2000, compared to 96.0% for 1999, and
96.4% for 1998. 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
     Total loans, net of unearned income, increased to $190,671,641 as
of December 31, 2000, as compared to $185,230,902 as of December 31,
1999. Table 6 provides data relating to the composition of the
Corporation's loan portfolio on the dates indicated. Total loans, net
of unearned income increased $5,441,000, or 2.9% in 2000 compared to
an increase of $23,698,000, or 14.7% in 1999 and an increase of
$9,382,000, or 6.2% in 1998.
     The loan portfolio is well diversified and increases in the
portfolio the last two years have been primarily from real estate
loans, commercial loans, and consumer loans. In 2000, approximately
$6,000,000 of residential mortgage loans were sold in the secondary
market and approximately $6,000,000 were sold in 1999. The Corporation
will continue to originate and sell long-term fixed rate residential
mortgage loans which conform to secondary market requirements. The
Corporation derives ongoing income from the servicing of mortgages
sold in the secondary market.
     The noted loan growth was achieved without a significant
percentage increase in delinquencies or charge-offs. The Corporation
internally underwrites each of its loans to comply with prescribed
policies and approval levels established by its Board of Directors.



<TABLE>

Table 6 * Loans Outstanding, Net of Unearned Income

<CAPTION>

(Amounts in thousands)                              December 31,
                                                2000      1999        1998
                                                ____      ____        ____
<S>                                       <C>         <C>         <C>
Commercial, financial and
  agricultural:
  Commercial secured by real estate            $ 53,608    $ 55,514    $ 43,366
  Commercial - other                             22,674      17,864      16,579
Tax exempt                                        3,798       4,133       2,254
Real estate (primarily residential
  mortgage loans)                                84,330      83,099      77,858
Consumer loans                                   32,845      30,595      26,205
                                               ________    ________    ________
Total Gross Loans                              $197,255    $191,205    $166,262
  Less: Unearned income and
    unamortized loan fees net
    of costs                                      6,583       5,974       4,729
                                               ________    ________    ________
Total Loans, net of unearned income            $190,672    $185,231    $161,533
                                               ========    ========    ========

<CAPTION>

(Amounts in thousands)                              December 31,
                                                   ________________
                                             1997          1996
                                              ____         ____
<S>                                     <C>           <C>
Commercial, financial and
  agricultural:
  Commercial secured by real estate          $ 41,566      $ 33,103
  Commercial - other                           17,241        13,574
Tax exempt                                      2,566         2,263
Real estate (primarily residential
  mortgage loans)                              72,901        65,145
Consumer loans                                 22,009        23,027
                                             ________      ________
Total Gross Loans                            $156,283      $137,112
  Less: Unearned income and
    unamortized loan fees net
    of costs                                    4,132         3,851
                                             ________      ________
Total Loans, net of unearned income          $152,151      $133,261
                                             ========      ========

</TABLE>


INVESTMENT SECURITIES
     The Corporation uses investment securities to not only generate
interest and dividend revenue, but also to help manage interest rate
risk and to provide liquidity to meet operating cash needs.
     The investment portfolio has been allocated between securities
available for sale and securities held to maturity. No investment
securities were established in a trading account. Available for sale
securities increased to $147,701,000 in 2000, a 19.6% increase over
1999. At December 31, 2000, the net unrealized gain, net of the tax
effect, on these securities was $814,443 and is included in
stockholders' equity as accumulated other comprehensive gain. At
December 31, 1999, accumulated other comprehensive loss, net of tax
effect, amounted to $3,459,538. The decrease in interest rates during
2000, especially medium term and long-term rates, increased the market
value of our available-for-sale securities. Held-to-maturity
securities declined $2,826,000, or a 24.4% decrease from 1999. Table 7
provides data on the carrying value of our investment portfolio on the
dates indicated. The vast majority of investment security purchases
are

                                                                 33

<PAGE>

Management's Discussion and Analysis
___________________________________________________________________


allocated as available-for-sale.  This provides the Corporation with
increased flexibility should  there be a need or desire to liquidate
an investment security.
     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 primarily of common stock investments in the
Federal Reserve Bank and the Federal Home Loan Bank, as well as other
commercial banks and bank holding companies.
     Securities available-for-sale may be sold as part of the overall
asset and liability management process. Realized gains and losses are
reflected in the results of operations on our statements of income.
The investment portfolio does not contain any structured notes, step-up
          bonds, or any off-balance sheet derivatives.
     During 2000, interest bearing deposits in other banks increased
to $2,427,980 from $80,157 in 1999. Balances in interest bearing
deposits in other banks were kept relatively low as funds were
invested in marketable securities to maximize income while still
addressing liquidity needs.


<TABLE>

Table 7 *  Carrying Value of Investment Securities

<CAPTION>

(Amounts in thousands)                         December 31,
                                             __________________
                                                   2000
                                             __________________
                                        Available       Held to
                                          for Sale      Maturity
<S>                                     <C>            <C>
U.S. Treasury                             $      0        $     0
U. S. Government Corporations
   and Agencies                             66,421          6,947
State and Municipal                         58,698          1,790
Other Securities                            13,505              0
Equity Securities                            9,077              0
                                          ________         ______
Total Investment Securities               $147,701         $8,737
                                          ========         ======

<CAPTION>

(Amounts in thousands)                         December 31,
                                             __________________
                                                   1999
                                             __________________
                                        Available       Held to
                                          for Sale      Maturity
                                          ________      ________
<S>                                     <C>            <C>
U.S. Treasury                             $      0        $     0
U. S. Government Corporations
  and Agencies                              61,733          8,170
State and Municipal                         54,541          3,393
Other Securities                                 0              0
Equity Securities                            7,194              0
                                          ________        _______
Total Investment Securities               $123,468        $11,563
                                          ========        =======

<CAPTION>

(Amounts in thousands)                         December 31,
                                             __________________
                                                   1998
                                             __________________
                                        Available       Held to
                                          for Sale      Maturity
                                          ________      ________
<S>                                     <C>            <C>
U.S. Treasury                             $  7,486        $     0
U. S. Government Corporations
  and Agencies                              52,633         10,594
State and Municipal                         52,369          3,391
Other Securities                                 0              0
Equity Securities                            4,213              0
                                          ________        _______
Total Investment Securities               $116,701        $13,985
                                          ========        =======

</TABLE>


ALLOWANCE FOR LOAN LOSSES
     The allowance for loan losses constitutes the amount available to
absorb losses within the loan portfolio. As of December 31, 2000, the
allowance for loan losses was $2,702,000 as compared to the December
31, 1999, amount of $2,600,000 and the December 31, 1998, amount of
$2,421,000. The allowance for loan losses is established through a
provision for loan losses charged to expenses. Loans are charged
against the allowance for possible loan losses when management
believes that the collectibility of the principal is unlikely. The
risk characteristics of the loan portfolio are managed through the
various control processes, including credit evaluations of individual
borrowers, periodic reviews, and diversification by industry. Risk is
further mitigated through the application of lending procedures such
as the holding of adequate collateral and the establishment of
contractual guarantees.
     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. This
assessment results in an allowance consisting of two components,
allocated and unallocated. 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 8 contains an analysis of our
Allowance for Loan Losses indicating charge-offs and recoveries by the
year. In 2000, net charge-offs as a percentage of average loans were
 .17% compared to .08% in 1999 and .15% in 1998. Net charge-offs
amounted to $322,000 in 2000 as compared to $146,000 and $225,000 in
1999 and 1998, respectively.
     It is the policy of management and the Corporation's Board of
Directors to provide for losses on both identified  and unidentified
losses inherent in its loan portfolio. A provision for loan losses is
charged to operations based upon an evaluation of the potential losses
in the loan portfolio. This evaluation takes into account such factors
as portfolio concentrations, delinquency, trends, trends of non-accrual
          and classified loans, economic conditions, and other relevant
factors.


34  FIRST KEYSTONE CORPORATION * Annual Report 2000


<PAGE>

Management's Discussion and Analysis
___________________________________________________________________


     The loan review process which is conducted quarterly, is an
integral part of our evaluation of the loan portfolio. A detailed
quarterly analysis to determine the adequacy of the Corporation's
allowance for loan losses is reviewed by our Board of Directors.
     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 1.44% in
2000, 1.49% in 1999, and 1.57% in 1998.


<TABLE>

Table 8 * Analysis of Allowance for Loan Losses

<CAPTION>

(Amounts in thousands)                             Years Ended December 31,
                                                  2000       1999       1998
                                                  ____       ____      _____
<S>                                           <C>         <C>       <C>
Balance at beginning of period                     $2,600      $2,421    $2,371
  Charge-offs:
    Commercial, financial, and
      agricultural                                     79          25        66
    Real estate - mortgage                             44          20        42
    Installment loans to individuals                  226         213       161
                                                   ______      ______    ______
                                                      349         258       269
  Recoveries:
    Commercial, financial, and agricultural             0          23         0
    Real estate - mortgage                             10          62         8
    Installment loans to individuals                   16          27        36
                                                   ______      ______    ______
                                                       26         112        44

Net charge-offs                                       323         146       225
Additions charged to operations                       425         325       275
                                                   ______      ______    ______
Balance at end of period                           $2,702      $2,600    $2,421
                                                   ======      ======    ======
Ratio of net charge-offs during
  the period to average loans
  outstanding during the period                      .17%        .08%      .15%
Allowance for loan losses to average
  loans outstanding during the period               1.44%       1.49%     1.57%


<CAPTION>

(Amounts in thousands)                          Years Ended December 31,
                                                _______________________
                                               1997        1996
                                                ____       ____
<S>                                         <C>         <C>
Balance at beginning of period                     $2,267      $2,015
Charge-offs:
  Commercial, financial, and
    agricultural                                      107         214
  Real estate - mortgage                               54           0
  Installment loans to individuals                    111          88
                                                   ______      ______
                                                      272         302
Recoveries:
  Commercial, financial, and agricultural               7          12
  Real estate - mortgage                               17           8
  Installment loans to individuals                     27          17
                                                   ______      ______
                                                       51          37

Net charge-offs                                       221         265
Additions charged to operations                       325         517
                                                   ______      ______
Balance at end of period                           $2,371      $2,267
                                                   ======      ======
Ratio of net charge-offs during
  the period to average loans
  outstanding during the period                      .15%        .21%
Allowance for loan losses to average
  loans outstanding during the period               1.63%       1.76%

</TABLE>


 Table 9 sets forth the allocation of the Bank's allowance for loan
losses by loan category and the percentage of loans in each category
to total loans receivable at the dates indicated. The portion of the
allowance for loan losses allocated to each loan category does not
represent the total available for future losses that may occur within
the loan category, since the total loan loss allowance is a valuation
reserve applicable to the entire loan portfolio.


<TABLE>

Table 9 * Allocation of Allowance for Loan Losses

<CAPTION>

(Amounts in thousands)                         December 31,
                                   ____________________________________
                                2000        % <F1>      1999       % <F1>
                                ____        ____        ____       ____
<S>                          <C>         <C>        <C>         <C>
Commercial, financial,
  and agricultural                $  316       10.7      $  308       11.2
Real estate - mortgage             1,133       72.6       1,431       75.5
Consumer and other loans           1,030       16.7         425       13.3
Unallocated                          223        N/A         436        N/A
                                  ______      _____      ______      _____
                                  $2,702      100.0      $2,600      100.0
                                  ======      =====      ======      =====

<CAPTION>

(Amounts in thousands)                         December 31,
                                   ____________________________________
                                1998        % <F1>      1997       % <F1>
                                ____        ____        ____       ____
<S>                          <C>         <C>        <C>         <C>
Commercial, financial,
  and agricultural                $  253        9.8      $  271       12.1
Real estate - mortgage             1,237       74.3       1,135       73.9
Consumer and other loans             319       15.9         241       14.0
Unallocated                          612        N/A         724        N/A
                                  ______     ______      ______      _____
                                  $2,421     100.00      $2,371      100.0
                                  ======     ======      ======      =====

<CAPTION>

(Amounts in thousands)                         December 31,
                                  _______________________________________
                                1996        % <F1>
                                ____        ____
<S>                          <C>         <C>
Commercial, financial,
  and agricultural                $  303       10.7
Real estate - mortgage             1,088       72.5
Consumer and other loans             203       16.8
Unallocated                          673        N/A
                                  ______      _____
                                  $2,267      100.0
                                  ======      =====
____________________
<FN>
<F1>
Percentage of loans in each category to total loans.

</FN>
</TABLE>

                                                                 35

<PAGE>

Management's Discussion and Analysis
___________________________________________________________________


NON-PERFORMING ASSETS
     The recent growth experienced by the Corporation has not resulted
in a corresponding percentage increase in delinquencies and non-performing
           loans. Table 10 details the Corporation's non-performing
assets at the dates indicated.
     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. Foreclosed assets held for sale represents property acquired
through foreclosure, or considered to be an in-substance foreclosure.
     The total of non-performing assets did decrease slightly to
$742,000 as of December 31, 2000, as compared to $750,000 as of
December 31, 1999. Non-accrual and restructured loans increased from
$618,000 in 1999 to $719,000 in 2000. Foreclosed assets, consisting of
one real estate parcel, decreased to $13,000 in 2000. Loans past-due
90 days or more and still accruing decreased to $10,000 in 2000 from
$47,000 in 1999. Our allowance for loan losses to total non-performing
assets remains very strong at 364.2% in 2000 and 346.6% in 1999.
     Loan quality is monitored closely, and we actively work with
borrowers to resolve credit problems. Excluding the assets disclosed
in Table 10, management is not aware of any information about
borrowers' possible credit problems, which cause serious doubt as to
their ability to comply with present loan repayment terms.
     Should the economic climate no longer continue to be stable or
begin to deteriorate, borrowers may experience difficulty, and the
level of non-performing loans and assets, charge-offs and
delinquencies could rise and possibly require additional increases in
our allowance for loan losses.
     In addition, regulatory authorities, as an integral part of their
examinations, periodically review the allowance for possible loan and
lease losses. They may require additions to allowances based upon
their judgements about information available to them at the time of
examination.
     Interest income received on non-performing loans in 2000 and 1999
was $30,345 and $6,380, respectively. Interest income, which would
have been recorded on these loans under the original terms in 2000 and
1999 was $67,584 and $68,569, respectively. At December 31, 2000, the
Corporation had no outstanding commitments to advance additional funds
with respect to these non-performing loans.

<TABLE>


Table 10 * Non-Performing Assets

<CAPTION>

(Amounts in thousands)                               December 31,

                                        2000   1999     1998   1997      1996
                                        ____   ____     ____   ____      ____
<S>                               <C>      <C>     <C>     <C>      <C>
Non-accrual and restructured
  loans                                $  719   $  618  $  854  $  321   $  267
Foreclosed assets                          13       85       0      29       84
Loans past-due 90 days or
  more and still accruing                  10       47      27     336      263
                                       ______   ______  ______  ______   ______
  Total non-performing assets          $  742   $  750  $  881  $  686   $  614
                                       ======   ======  ======  ======   ======

Non-performing assets to
  period-end loans and
  foreclosed assets                      .39%     .40%    .55%    .45%     .46%
Total non-performing assets
  to total assets                        .21%     .22%    .29%    .26%     .25%
Total allowance for loan
  losses to total
  non-performing assets                364.2%   346.6%  274.8%  345.7%   369.2%

</TABLE>


     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, 2000, 1999, and 1998, management is of the opinion
that there were no loan concentrations exceeding 10% of total loans.
     There is a concentration of real estate mortgage loans in the
loan portfolio. Real estate mortgages, including residential and
commercial, comprise 72.3% of the loan portfolio as of December 31,
2000, down from 74.8% in 1999. Real estate mortgages consist of both
residential and commercial real estate loans. The real estate loan
portfolio is well diversified in terms of borrowers, collateral,
interest rates, and maturities. Also, the real estate loan portfolio
has a mix of both fixed rate and adjustable rate mortgages. The real
estate loans are concentrated primarily in our marketing area and are
subject to risks associated with the local economy.


36  FIRST KEYSTONE CORPORATION * Annual Report 2000


<PAGE>

Management's Discussion and Analysis
___________________________________________________________________


DEPOSITS AND OTHER BORROWED FUNDS
     Consumer and commercial retail deposits are attracted primarily
by First Keystone's subsidiary bank's nine full service office
locations. The Bank offers a broad selection of deposit products and
continually evaluates its interest rates and fees on deposit products.
The Bank regularly reviews competing financial institutions and takes
in account prevailing market rates, especially when establishing
interest rates on certificates of deposit.
     Deposits increased by $26,792,826, or an 11.0% increase when
comparing December 31, 2000, to December 31, 1999. This increase
compares to a deposit decrease of 1.0% in 1999 and an increase of
13.5% in 1998.
     During 2000, the Corporation experienced a deposit increase in
both non-interest bearing and interest bearing deposits. Non-interest
bearing deposits increased to $24,846,933 as of December 31, 2000, an
increase of $3,927,535, or 18.8% over 1999. Interest bearing deposits
amounted to $246,626,077 as of December 31, 2000, an increase of
$22,865,291, or 10.2% over 1999.
     During 2000, the Corporation decreased its reliance on both
short-term borrowings. Short-term borrowings were reduced to
$8,559,655 as of year-end 2000, a reduction of $23,034,672 from 1999.
Long-term borrowings increased $15,250,000 in 2000 to $41,250,000 as
of December 31, 2000. Total borrowings were $49,809,655 as of
December 31, 2000, compared to $57,594,327 on December 31, 1999.
Short-term borrowings are comprised of federal funds purchased,
securities sold under agreements to repurchase, U.S. Treasury demand
notes, and overnight, as well as short-term borrowings from the
Federal Home Loan Bank (FHLB).
     Long-term borrowings are typically FHLB term borrowings with a
maturity of one year or more. Some of the additional term borrowings
were made to take advantage of special rates offered by the FHLB. In
connection with FHLB borrowings and securities sold under agreements
to repurchase, the Corporation maintains certain eligible assets as
collateral.

CAPITAL STRENGTH
     Normal increases in capital are generated by net income, less
cash dividends paid out. Also, the net unrealized gains on investment
securities available-for-sale, net of taxes, increased shareholders'
equity or capital in 2000, referred to as accumulated other
comprehensive income (loss). The total net increase in capital was
$7,300,118 in 2000 after an decrease of $4,395,630 in 1999. The
accumulated other comprehensive income amounted to $814,443 in 2000
and a loss of $3,459,538 in 1999. Another factor which decreases
equity capital relates to our stock repurchase plan. The Corporation's
Board of Directors approved repurchasing up to 100,000 shares of
common stock. As of December 31, 1999 and 2000, the Corporation had
repurchased 100,000 shares at a cost of $3,096,681.
     Return on equity (ROE) is computed by dividing net income by
average stockholders' equity.  This ratio was 16.55% for 2000, 16.12%
for 1999, and 14.68% for 1998. 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 11 reflects
risk-based capital ratios and the leverage ratio for our Corporation
and Bank. The Corporation's leverage ratio was 10.47% at December 31,
2000, and 10.02% as of December 31, 1999.
     The Corporation has consistently maintained regulatory capital
ratios at or above the "well capitalized" standards. For additional
information on capital ratios, see Note 14 to the Consolidated
Financial Statements. The risk-based capital ratios also decreased
somewhat in 2000 from 1999 for both the Corporation and the Bank, but
remain strong. 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. Table 11 indicates
capital ratios as of December 31, 2000, and December 31, 1999.


<TABLE>

Table 11 * Capital Ratios

<CAPTION>
                                                          December 31, 2000
                                                          ________________
                                                         Corporation  Bank
                                                         __________    ____
<S>                                                     <C>         <C>
Risk-Based Capital:
  Tier I risk-based capital ratio                            16.25%      16.50%
  Total risk-based capital ratio
    (Tier 1 and Tier 2)                                      17.55%      17.75%
Leverage Ratio:
  Tier I capital to average assets                           10.47%      10.09%


<CAPTION>
                                                         December 31, 1999
                                                          ________________

                                                         Corporation  Bank
                                                         __________    ____
<S>                                                     <C>         <C>
Risk-Based Capital:
  Tier I risk-based capital ratio                            16.43%      17.01%
  Total risk-based capital ratio
    (Tier 1 and Tier 2)                                      17.85%      18.25%
Leverage Ratio:
  Tier I capital to average assets                           10.02%       9.71%

</TABLE>

                                                                 37

<PAGE>

Management's Discussion and Analysis
___________________________________________________________________



LIQUIDITY MANAGEMENT

     Effective liquidity management ensures that the cash flow
requirements of depositors and borrowers, as well as the operating
cash needs of the Corporation, are met.
     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. At year-end 2000, cash and due from banks and
interest-bearing deposits in other banks totaled $9,160,956 as
compared to $6,964,133 at year-end 1999. 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, the Corporation's subsidiary bank does have access to
funds on a short-term basis from the Federal Reserve Bank discount
window. Also, Fed funds can be purchased by means of a borrowing line
at the Atlantic Central Bankers Bank. The Corporation has indirect
access to the capital markets through its membership in the Federal
Home Loan Bank. Advances on borrowings, both short-term and long-term,
are available to help address any liquidity needs.

<TABLE>

Table 12 * Loan Maturities and Interest Sensitivity <F1>

<CAPTION>

(Amounts in thousands)                         December 31, 2000
                                               _______________________________
                                     One year   One thru    Over five
                                    or less    five years    years     Total
<S>                              <C>         <C>        <C>        <C>
Commercial, Financial and
  Agricultural
  Fixed interest rate                 $ 7,205     $12,150    $12,392    $31,747
  Variable interest rate               25,269      27,983        941     54,193
                                      _______     _______    _______    _______
    Total                             $32,474     $40,133    $13,333    $85,940
                                      =======     =======    =======    =======
Real Estate Construction
  Fixed interest rate                 $    92     $     0    $    21    $   113
  Variable interest rate              $     0     $    28    $     0    $    28
____________________
<FN>
<F1>
Excludes residential mortgages and consumer loans.

</FN>
</TABLE>


FORWARD LOOKING STATEMENTS
     The sections that follow, Market Risk Management and
Asset/Liability Management contain certain forward looking statements.
These forward looking statements involve significant risks and
uncertainties, including changes in economic and financial market
conditions.  Although First Keystone Corporation believes that the
expectations reflected in such forward looking statements are
reasonable, actual results may differ materially.

MARKET RISK MANAGEMENT
     Market risk is the risk of loss arising from adverse changes in
the fair value of financial instruments due to changes in interest
rates, exchange rates and equity prices.  First Keystone Corporation's
market risk is composed primarily of interest rate risk. The
Corporation's interest rate risk results from timing differences in
the repricing of assets, liabilities, off-balance sheet instruments,
and changes in relationships between ratio indices and the potential
exercise of explicit or embedded options.
     Increases in the level of interest rates also may adversely
affect the fair value of the Corporation's securities and other
earning assets. Generally, the fair value of fixed-rate instruments
fluctuates inversely with changes in interest rates. As a result,
increases in interest rates could result in decreases in the fair
value of the Corporation's interest-earning assets, which could
adversely affect the Corporation's results of operations if sold, or,
in the case of interest earning assets classified as available for
sale, the Corporation's stockholders' equity, if retained. Under The
Financial Accounting Standards Board (FASB) Statement 115, changes in
the unrealized gains and losses, net of taxes, on securities
classified as available for sale


38  FIRST KEYSTONE CORPORATION * Annual Report 2000


<PAGE>

Management's Discussion and Analysis
___________________________________________________________________


will be reflected in the Corporation's stockholders' equity. As of
December 31, 2000, the Corporation's securities portfolio included
$147,700,955 in securities classified as available for sale.
Accordingly, with the magnitude of the Corporation's holdings of
securities available for sale, changes in interest rates could produce
significant changes in the value of such securities and could produce
significant fluctuations in the stockholders' equity of the
Corporation. The Corporation does not own any trading assets.

ASSET/LIABILITY MANAGEMENT
     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. A positive gap occurs when the amount of interest
sensitive assets exceeds interest sensitive liabilities. This position
would contribute positively to net-interest income in a rising
interest rate environment. Conversely, when the Corporation's balance
sheet has more liabilities repricing than assets it is liability
sensitive or negatively gapped. This position would contribute
positively to net interest income in a falling rate environment.
     Limitations of gap analysis as illustrated in Table 13 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, 2000 in the case of the following schedule) while the
Corporation continually adjusts its interest sensitivity throughout
the year.
     Also in Table 13, the Corporation has elected to incorporate some
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 $30,755,000. However, much of our
interest bearing demand deposits and savings deposits are considered
core deposits and are not rate sensitive, especially in the three
months or less time frame. Accordingly, the Corporation feels it is
only slightly negatively gapped with exposure to an increase in
interest rates limited within policy guidelines. As discussed
previously, a negative gap will decrease net interest income should
interest rates rise. Despite the Corporation's negative gap position,
the impact of a rapid rise in interest rates as occurred in 1994 and
1999, did not have a significant effect on our net interest income.

 <TABLE>


Table 13 * Interest Rate Sensitivity Analysis

<CAPTION>

(Amounts in thousands)                             December 31, 2000
                                            _____________________________
                                           3 Months       3 - 12       1 - 5
                                          or Less         Months       Years
                                            ______       ______       _____
<S>                                    <C>          <C>          <C>
Rate Sensitive Assets:
  Cash and cash equivalent                  $  2,428     $      0     $      0
  Loans                                       28,735       26,439       77,032
  Investments                                  8,755        8,406       28,709
                                            ________     ________     ________
  Total Rate Sensitive Assets               $ 39,918     $ 34,845     $105,741
                                            ========     ========     ========
Rate Sensitive Liabilities:
  Interest-bearing deposits                 $ 57,316     $ 79,006     $ 32,733
  Short-term borrowings                        8,357          203            0
  Long-term borrowings                         5,000            0       14,000
                                            ________     ________     ________
  Total Rate Sensitive
    Liabilities                             $ 70,673     $ 79,209     $ 46,733
                                            ========     ========     ========
Interest Rate Sensitivity:
  Current period                            $(30,755)    $(44,364)    $ 59,008
  Cumulative gap                             (30,755)     (75,119)     (16,111)
Cumulative gap to total assets                (8.53%)     (20.85%)      (4.47%)


<CAPTION>

(Amounts in thousands)                             December 31, 2000
                                             ______________________________
                                            Over
                                          5 Years        Total
                                            ______        _____
<S>                                    <C>          <C>
Rate Sensitive Assets:
  Cash and cash equivalent                  $      0     $  2,428
  Loans                                       55,763      187,969
  Investments                                110,568      156,438
                                            ________     ________
  Total Rate Sensitive Assets               $166,331     $346,835
Rate Sensitive Liabilities:
  Interest-bearing deposits                 $ 77,571     $246,626
  Short-term borrowings                            0        8,560
  Long-term borrowings                        22,250       41,250
                                            ________     ________
  Total Rate Sensitive
    Liabilities                             $ 99,821     $296,436
                                            ========     ========
Interest Rate Sensitivity:
  Current period                            $ 66,510     $ 50,399
  Cumulative gap                              50,399
Cumulative gap to total assets                13.99%

</TABLE>


                                                                 39

<PAGE>

Management's Discussion and Analysis
___________________________________________________________________


INTEREST RATE RISK MEASUREMENT
     The Bank's Asset/Liability Committee (ALCO) is responsible for
reviewing the interest rate sensitivity position and establishing
policies to monitor and limit exposure to interest rate risk. The
guidelines established by ALCO are reviewed by the Corporation's Board
of Directors. One of the primary goals of asset/liability management
is to maximize net interest income and the net value of the
Corporation's future cash flows within established interest rate risk
limits.
     Another way management reviews its interest sensitivity position
in addition to earnings simulation modeling is net present value
estimation. While each of these interest rate risk measurements has
limitations, taken together they represent a reasonably comprehensive
view of the magnitude of interest rate risk in the Corporation.

EARNINGS SIMULATION MODELING
     Earnings simulation modeling is the primary mechanism used in
assessing the impact of changes in interest rates on net interest
income. The model reflects management's 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.
     Table 14 presents an analysis of the changes in net-interest
income and net present value of the balance sheet resulting from an
increase or decrease of two percentage points (200 basis points) in
the level of interest rates. The calculated estimates of change in net
interest income and net present value of the balance sheet are
compared to current limits approved by ALCO and the Board of
Directors. The earnings simulation model projects net-interest income
would increase by approximately 16.4% if rates fell by two percentage
points over one year. The model projects a decrease of approximately
21.7% in net-interest income if rates rise gradually by two percentage
points over one year. Both of these forecasts are within the one year
policy guidelines.

NET PRESENT VALUE ESTIMATION
     The net present value measure is used for helping to determine
levels of risk at a point in time present in the balance sheet that
might not be taken into account in the earnings simulation model. The
net present value of the balance sheet is defined as the discounted
present value of asset cash flows minus the discounted present value
of liability cash flows. At year-end, a 200 basis point immediate
decrease in rates is estimated to increase net present value by 46.5%.
Additionally, net present value is projected to decrease by 44.9% if
rates increase immediately by 200 basis points, both within policy
guidelines. During 2000, the Corporation's net present value risk
position grew more liability sensitive. The change in position was
primarily a result of higher interest rates.
     The computation of the effects of hypothetical interest rate
changes are based on many assumptions. They should not be relied upon
solely as being indicative of actual results, since the computations
do not contemplate actions management could undertake in response to
changes in interest rates.


<TABLE>

Table 14 * Effect of Change in Interest Rates

<CAPTION>
                                                      Projected Change
                                                     _______________
<S>                                                   <C>
Effect on Net Interest Income
1-year Net Income simulation Projection
   200 bp Shock vs Stable Rate                              16.4%
  +200 bp Shock vs Stable Rate                             (21.7%)

Effect on Net Present Value of
  Balance Sheet
Static Net Present Value Change
   200 bp Shock vs Stable Rate                              46.5%
  +200 bp Shock vs Stable Rate                             (44.9%)

</TABLE>


40  FIRST KEYSTONE CORPORATION * Annual Report 2000


<PAGE>

Management's Discussion and Analysis
___________________________________________________________________


MARKET PRICE/DIVIDEND HISTORY

     First Keystone Corporation's common stock is quoted on the Over
The Counter (OTC) Bulletin Board under the symbol "FKYS." 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 3 for 1 split in the form
of a 200% dividend paid in March 1998. These prices do not necessarily
reflect any dealer or retail markup, markdown or commission.


<TABLE>

Table 15 * Market Price/Dividend History

<CAPTION>
                                         2000
                               __________________________
                              Common Stock        Dividends
                                High/Low           Paid
                                 _______           ____
<S>                        <C>                    <C>
First Quarter              $21.25/$17.50                 $.19
Second Quarter             $19.50/$17.75                  .19
Third Quarter              $18.25/$17.00                  .19
Fourth Quarter             $17.13/$15.88                  .20


<CAPTION>
                                         1999
                               __________________________
                              Common Stock        Dividends
                                High/Low           Paid
                                 _______           ____
<S>                        <C>                    <C>
First Quarter              $33.50/$30.00                 $.17
Second Quarter             $30.25/$28.50                  .17
Third Quarter              $29.00/$26.25                  .17
Fourth Quarter             $26.25/$20.25                  .19


<CAPTION>
                                         1998
                               __________________________
                              Common Stock        Dividends
                                High/Low           Paid
                                 _______           ____
<S>                        <C>                    <C>
First Quarter              $30.25/$19.08                 $.14
Second Quarter             $32.50/$29.50                  .14
Third Quarter              $36.13/$32.00                  .14
Fourth Quarter             $34.38/$32.50                  .17

</TABLE>



     The following brokerage firms make a market in First Keystone
Corporation stock:


   Janney Montgomery Scott, Inc.    1801 Market Street
                                    Philadelphia, PA  19103
                                    (800) 526-6397


   Ryan, Beck and Company           401 City Avenue
                                    Suite 902
                                    Bala Cynwyd, PA  19004
                                    (800) 223-8969


   Tucker Anthony Cleary Gull       2101 Oregon Pike
                                    Lancaster, PA  17601
                                    (717) 519-6020


                                                                 41

<PAGE>

Management's Discussion and Analysis
___________________________________________________________________


<TABLE>

Table 16 * Quarterly Results of Operations (Unaudited)


<CAPTION>

(Amounts in thousands, except per share)

                                               Three Months Ended
                                     _______________________________________
                                 March      June        September     December         31        30        30        31
                                 _____      ____        ________      _______
<S>                           <C>         <C>         <C>          <C>
2000
Interest income                    $6,044      $6,239      $6,552       $6,815
Interest expense                    3,218       3,341       3,649        3,787
                                   ______      ______      ______       ______
Net interest income                $2,826      $2,898      $2,903       $3,028
Provision for loan losses              75          85          75          190
Other non-interest income             355         452         525          543
Non-interest expense                1,746       1,662       1,662        1,717
                                   ______      ______      ______       ______
Income before income taxes         $1,360      $1,603      $1,691       $1,664
Income taxes                          202         280         328          300
                                   ______      ______      ______       ______
Net income                         $1,158      $1,323      $1,363       $1,364
                                   ======      ======      ======       ======

Per share                          $  .41      $  .47      $  .48       $  .48



<CAPTION>

(Amounts in thousands, except per share)

                                               Three Months Ended
                                      _____________________________________

1999                             March      June        September     December
                                 31           30          30           31
                                 _____      ____        ________      _______
<S>                           <C>         <C>         <C>          <C>
Interest income                    $5,435      $5,765      $5,900       $6,072
Interest expense                    2,745       2,994       3,030        3,119
                                   ______      ______      ______       ______
Net interest income                $2,690      $2,771      $2,870       $2,953
Provision for loan losses              75         100          50          100
Other non-interest income             364         478         461          412
Non-interest expense                1,491       1,517       1,588        1,714
                                   ______      ______      ______       ______
Income before income taxes         $1,488      $1,632      $1,693       $1,551
Income taxes                          265         332         338          269
                                   ______      ______      ______       ______
Net income                         $1,223      $1,300      $1,355       $1,282
                                   ======      ======      ======       ======

Per share                          $  .42      $  .45      $  .47       $  .45

</TABLE>


42  FIRST KEYSTONE CORPORATION * Annual Report 2000