##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-K



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(Mark One)

|x | ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------



For the fiscal year ended December 31, 2004



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------------



For the transition period from  to



Commission file Number: 000-32891



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1ST CONSTITUTION BANCORP

(Exact Name of Registrant as Specified in Its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|New Jersey                                                     |  | 22-3665653                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (IRS Employer Identification Number)



2650 Route 130, P.O.
Box 634, Cranbury, NJ 08512

(Address of Principal Executive Offices, including Zip Code)



(609) 655-4500

(Registrants telephone number, including area code)



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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
ACT:



None



SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:



Common Stock, No Par Value, and Related Stock Purchase Rights

(Title of Class)



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Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.  x



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of
1934).    Yes ̈No  x



The aggregate market value of the registrants common stock held by
non-affiliates of the registrant, computed by reference to the price at which the common stock was last sold, or the average bid and asked price of such common stock, as of the last business day of the registrants most recently completed
second quarter, is $42,938,308.



As of March 1, 2005, 3,315,196
shares of the registrants common stock were outstanding.



Portions of the registrants definitive Proxy Statement for its 2005 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.



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##### Table of Contents

FORM 10-K



TABLE OF CONTENTS



|           |  |                                                                                                              |  |   
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|PART I    
|           |  |                                                                                                             
|Item 1.    |  | Business                                                                                                     |  | 1 
|Item 2.    |  | Properties                                                                                                   |  | 10
|Item 3.    |  | Legal Proceedings                                                                                            |  | 10
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 11
|          
|PART II   
|           |  |                                                                                                             
|Item 5.    |  | Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities |  | 11
|Item 6.    |  | Selected Financial Data                                                                                      |  | 12
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operation                         |  | 13
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 28
|Item 8.    |  | Financial Statements and Supplementary Data                                                                  |  | 28
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 29
|Item 9A.   |  | Controls and Procedures                                                                                      |  | 29
|Item 9B.   |  | Other Information                                                                                            |  | 29
|          
|PART III  
|           |  |                                                                                                             
|Item 10.   |  | Directors and Executive Officers of the Registrant                                                           |  | 29
|Item 11.   |  | Executive Compensation                                                                                       |  | 29
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters               |  | 29
|Item 13.   |  | Certain Relationships and Related Transactions                                                               |  | 29
|Item 14.   |  | Principal Accountant Fees and Services                                                                       |  | 29
|          
|PART IV   
|           |  |                                                                                                             
|Item 15.   |  | Exhibits and Financial Statement Schedules                                                                   |  | 29
|           | 
|SIGNATURES |  | 33                                                                                                          



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##### Table of Contents

PART I



Item 1. Business.



1st Constitution Bancorp



1st Constitution Bancorp (the Company) is a
bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was organized under the laws of the State of New Jersey in February 1999 for the purpose of acquiring all of the issued and outstanding stock of 1st
Constitution Bank (the Bank) and thereby enabling the Bank to operate within a bank holding company structure. The Company became an active bank holding company on July 1, 1999. The Bank is a wholly-owned subsidiary of the Company. Other
than its investment in the Bank, the Company currently conducts no other significant business activities.



As of December 31, 2004, the Company, on a consolidated basis, had total assets of approximately $336.8 million, total deposits of approximately $276.9
million, total loans of approximately $220.6 million and total shareholders equity of approximately $26.8 million.



The main office of the Company and the Bank is located at 2650 Route 130 North, Cranbury, New Jersey 08512, and the telephone number is (609) 655-4500.



1st Constitution Bank



The Bank, a commercial bank formed under the laws of the State of New
Jersey, engages in the business of commercial and retail banking. As a community bank, the Bank offers a wide range of services (including demand, savings and time deposits and commercial and consumer/installment loans) to individuals, small
businesses and not-for-profit organizations principally in Middlesex, Mercer and Somerset Counties, New Jersey. The Bank conducts its operations through its main office located in Cranbury, New Jersey, and operates eight additional branch offices in
downtown Cranbury, Hamilton Square, Jamesburg, Montgomery, Perth Amboy, Plainsboro, West Windsor, and Princeton, New Jersey and a loan production office in Fort Lee, New Jersey. The Banks deposits are insured up to applicable legal limits by
the Federal Deposit Insurance Corporation (FDIC).



Management efforts focus on positioning the Bank to meet the financial needs of the communities in Middlesex, Mercer and Somerset Counties and to provide financial services to individuals, families, institutions and small businesses. To
achieve this goal, the Bank is focusing its efforts on:



| |  |  | personal service;
| | - |  | -----------------



| |  |  | expansion of its branch network;
| | - |  | --------------------------------



| |  |  | innovative product offerings; and
| | - |  | ---------------------------------



| |  |  | technological advances and e-commerce.
| | - |  | --------------------------------------



Personal Service



The Bank provides a wide range of commercial and consumer banking services to individuals, families, institutions and small businesses in central New
Jersey. The Banks focus is to understand the needs of the community and the customers and tailor products, services and advice to meet those needs. The Bank seeks to provide a high level of personalized banking services, emphasizing quick and
flexible responses to customer demands.



Expansion of Branch Banking



The Bank continually evaluates opportunities for branch
bank expansion, either mini branches or full service banks, to continue to grow and meet the needs of the community. During the second quarter of 2004, the Bank opened new branch offices in Jamesburg, Middlesex County, and West Windsor, Mercer
County. During the third quarter of 2004, the Bank relocated the interim Perth Amboy branch office to its new permanent location.



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Innovative Product Offerings



In 2000, the Bank introduced 1st Choice Banking, a seamless cash management solution that links checking and
investments into one account for customers. With a minimum balance of $10,000, customers enjoy all the flexibility of a free checking account while earning an investment rate of return which keeps pace with the current short-term money markets.



Technological Advances and e-Commerce



The Bank recognizes that customers want to receive service via their most
convenient delivery channel, be it the traditional branch office, by telephone, ATM, or the internet. For this reason, the Bank continues to enhance its e-commerce capabilities. At www.1stconstitution.com, customers have easy access to
online banking, including account access, and to the Banks bill payment system. Consumers can apply online for loans and interact with senior management through the e-mail system. Business customers have access to cash management information
and transaction capability through the Banks online Business Express product offering. This overall expansion in electronic banking offers the Banks customers another means to access the Banks services easily and at their own
convenience.



Competition



The Bank experiences substantial competition in attracting and retaining
deposits and in making loans. In attracting deposits and borrowers, the Bank competes with commercial banks, savings banks, and savings and loan associations, as well as regional and national insurance companies and non-bank financial institutions,
regulated small loan companies and local credit unions, regional and national issuers of money market funds and corporate and government borrowers. Within the direct market area of the Bank, there are a significant number of offices of competing
financial institutions. In New Jersey generally, and in the Banks local market specifically, large commercial banks, as well as savings banks and savings and loan associations, including Provident Savings Bank and Hudson City Savings Bank,
hold a dominant market share and there has been significant merger activity in the last few years, creating even larger competitors. During 2004, Fleet Bancorp, a northeast super regional bank with locations in New Jersey was acquired by Bank of
America, one of the nations largest bank holding companies. In January 2005, Fulton Financial Corporation, based in Lancaster, Pennsylvania, announced the signing of a definitive agreement to acquire SVB Financial Services, Inc. based in
Somerville, New Jersey. SVB Financial Services, Inc.s sole banking subsidiary is Somerset Valley Bank. The combined entity, Fulton Financial Corporation, will serve 14 of the 21 counties in New Jersey and offer 64 banking locations in those
markets.



Locally, the Banks most direct competitors
include Bank of America, PNC Bank, Wachovia, and Sovereign Bank. The Bank is at a competitive disadvantage compared with these larger national and regional commercial and savings banks. By virtue of their larger capital, asset size or reserves, many
of such institutions have substantially greater lending limits (ceilings on the amount of credit a bank may provide to a single customer that are linked to the institutions capital) and other resources than the Bank. Many such institutions are
empowered to offer a wider range of services, including trust services, than the Bank and, in some cases, have lower funding costs (the price a bank must pay for deposits and other borrowed monies used to make loans to customers) than the Bank. In
addition to having established deposit bases and loan portfolios, these institutions, particularly large national and regional commercial and savings banks, have the financial ability to finance extensive advertising campaigns and to allocate
considerable resources to locations and products perceived as profitable.



In addition, non-bank financial institutions offer services that compete for deposits with the Bank. For example, brokerage firms and insurance companies offer such instruments as short-term money market funds,
corporate and government securities funds, mutual funds and annuities. It is expected that competition in these areas will continue to increase. Some of these competitors are not subject to the same degree of regulation and supervision as the
Company and the Bank and therefore may be able to offer customers more attractive products than the Bank.



However, management of the Bank believes that loans to small and mid-sized businesses and professionals, which represent the main commercial loan business
of the Bank, are not always of primary importance to the larger banking institutions. The Bank competes for this segment of the market by providing responsive personalized services, local decision-making, and knowledge of its customers and their
businesses.



Lending Activities



The Banks lending activities include both commercial and consumer
loans. Loan originations are derived from a number of sources including real estate broker referrals, mortgage loan companies, direct solicitation by the Banks loan officers, existing depositors and borrowers, builders, attorneys, walk-in
customers and, in some instances, other lenders. The Bank has established disciplined and systematic procedures for approving and monitoring loans that vary depending on the size and nature of the loan.



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Commercial Lending



The Bank offers a variety of commercial loan services including term loans, lines of credit, equipment loans and receivable financing loans. A broad range
of short-to-medium term commercial loans, both secured and unsecured, are made available to businesses for working capital (including inventory and receivables), business expansion (including acquisition and development of real estate and
improvements), and the purchase of equipment and machinery. The Bank also makes construction loans to real estate developers for the acquisition, development and construction of residential subdivisions.



Commercial loans are granted based on the borrowers ability to generate
cash flow to support its debt obligations and other cash related expenses. A borrowers ability to repay commercial loans is substantially dependent on the success of the business itself and on the quality of its management. As a general
practice, the Bank takes as collateral a security interest in any available real estate, equipment, inventory, receivables or other personal property of its borrowers, although occasionally the Bank makes commercial loans on an unsecured basis.
Generally, the Bank requires personal guaranties of its commercial loans to offset the risks associated with such loans.



Residential Consumer Lending



A portion of the Banks lending activities consists of the origination of fixed and adjustable rate residential first mortgage loans secured by
owner-occupied property located in the Banks primary market areas. Home mortgage lending is unique in that a broad geographic territory may be serviced by originators working from strategically placed offices either within the Banks
traditional banking facilities or from affordable storefront locations in commercial buildings. The Bank also offers construction loans, second mortgage home improvement loans and home equity lines of credit.



The Bank finances the construction of individual, owner-occupied houses on
the basis of written underwriting and construction loan management guidelines. First mortgage construction loans are made to contractors on both a pre-sold and a speculation basis. Such loans are also made to qualified individual
borrowers and are generally supported by a take-out commitment from a permanent lender. The Bank makes residential construction loans to individuals who intend to erect owner occupied housing on a purchased parcel of real estate. The construction
phase of these loans has certain risks, including the viability of the contractor, the contractors ability to complete the project and changes in interest rates.



In most cases, the Bank will sell its mortgage loans with terms of 15 years or more in the secondary market. The sale to the
secondary market allows the Bank to hedge against the interest rate risks related to such lending operations. This brokerage arrangement allows the Bank to accommodate its clients demands while eliminating the interest rate risk for the 15- to
30- year period generally associated with such loans.



The Bank
in most cases requires borrowers to obtain and maintain title, fire, and extended casualty insurance, and, where required by applicable regulations, flood insurance. The Bank maintains its own errors and omissions insurance policy to protect against
loss in the event of failure of a mortgagor to pay premiums on fire and other hazard insurance policies. Mortgage loans originated by the Bank customarily include a due on sale clause, which gives the Bank the right to declare a loan
immediately due and payable in certain circumstances, including, without limitation, upon the sale or other disposition by the borrower of the real property subject to a mortgage. In general, the Bank enforces due on sale clauses. Borrowers are
typically permitted to refinance or repay loans at their option without penalty.



Non-Residential Consumer Lending



Non-residential consumer loans made by the Bank include loans for automobiles, recreation vehicles, and boats, as well as personal loans (secured and unsecured) and deposit account secured loans. The Bank also conducts various indirect
lending activities through established retail companies in its market areas. Non-residential consumer loans are attractive to the Bank because they typically have a shorter term and carry higher interest rates than are charged on other types of
loans. Non-residential consumer loans, however, do pose additional risk of collectibility when compared to traditional types of loans, such as residential mortgage loans granted by commercial banks.



Consumer loans are granted based on employment and financial information
solicited from prospective borrowers as well as credit records collected from various reporting agencies. Stability of the borrower, willingness to pay and credit history are the primary factors to be considered. The availability of collateral is
also a factor considered in making such a loan. The Bank seeks collateral that can be assigned and has good marketability with a clearly adequate margin of value. The geographic area of the borrower is another consideration, with preference given to
borrowers in the Banks primary market areas.



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Supervision and Regulation



Banking is a complex, highly regulated industry. The primary goals of the bank regulatory scheme are to maintain a safe and
sound banking system and to facilitate the conduct of monetary policy. In furtherance of those goals, Congress has created several largely autonomous regulatory agencies and enacted a myriad of legislation that governs banks, bank holding companies
and the banking industry. This regulatory framework is intended primarily for the protection of depositors and not for the protection of the Companys shareholders. Descriptions of, and references to, the statutes and regulations below are
brief summaries thereof, and do not purport to be complete. The descriptions are qualified in their entirety by reference to the specific statutes and regulations discussed.



State and Federal Regulations



The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the BHCA). As a bank holding
company, the Company is subject to inspection, examination and supervision by the Board of Governors of the Federal Reserve System (the Federal Reserve Board) and is required to file with the Federal Reserve Board an annual report and
such additional information as the Federal Reserve Board may require pursuant to the BHCA. The Federal Reserve Board may also make examinations of the Company and its subsidiaries. The Company is subject to capital standards similar to, but separate
from, those applicable to the Bank.



Under the BHCA, bank
holding companies that are not financial holding companies generally may not acquire the ownership or control of more than 5% of the voting shares, or substantially all the assets, of any company, including a bank or another bank holding company,
without the Federal Reserve Boards prior approval. The Company has not applied to become a financial holding company but did obtain such approval to acquire the shares of the Bank. A bank holding company that does not qualify as a financial
holding company is generally limited in the types of activities in which it may engage to those that the Federal Reserve Board had recognized as permissible for bank holding companies prior to the date of enactment of the Gramm-Leach-Bliley
Financial Services Modernization Act of 1999. For example, a holding company and its banking subsidiary are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or lease or sale of any property or the
furnishing of services. At present, the Company does not engage in any significant activity other than owning the Bank.



In addition to federal bank holding company regulation, the Company is registered as a bank holding company with the New Jersey Department of Banking and
Insurance (the Department). The Company is required to file with the Department copies of the reports it files with the Federal banking and securities regulators.



Capital Adequacy



The Company is required to comply with minimum capital adequacy standards established by the Federal Reserve Board. There are two basic measures of
capital adequacy for bank holding companies and the depository institutions that they own: a risk based measure and a leverage measure. All applicable capital standards must be satisfied for a bank holding company to be considered in compliance.



The Federal Deposit Insurance Corporation Improvement Act of
1991 (FDICIA) required each federal banking agency to revise its risk-based capital standards to ensure that those standards take adequate account of interest rate risk, concentration of credit risk and the risks of non-traditional
activities. In addition, pursuant to FDICIA, each federal banking agency has promulgated regulations, specifying the levels at which a bank would be considered well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, or critically undercapitalized, and to take certain mandatory and discretionary supervisory actions based on the capital level of the institution.



The regulations implementing these provisions of FDICIA provide that a bank
will be classified as well capitalized if it (i) has a total risk-based capital ratio of at least 10.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 6.0 percent, (iii) has a Tier 1 leverage ratio of at least 5.0
percent, and (iv) meets certain other requirements. A bank will be classified as adequately capitalized if it (i) has a total risk-based capital ratio of at least 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 4.0
percent, (iii) has a Tier 1 leverage ratio of (a) at least 4.0 percent, or (b) at least 3.0 percent if the institution was rated 1 in its most recent examination, and (iv) does not meet the definition of well capitalized. A bank will be
classified as undercapitalized if it (i) has a total risk-based capital ratio of less than 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 4.0 percent, or (iii) has a Tier 1 leverage ratio of (a) less than 4.0
percent, or (b) less than 3.0 percent if the institution was rated 1 in its most recent examination. A bank will be classified as significantly undercapitalized if it (i) has a total risk-based capital ratio of less than 6.0 percent,
(ii) has a Tier 1 risk-based capital ratio of less than 3.0 percent, or (iii) has a Tier 1 leverage ratio of less than 3.0 percent. An institution will be classified as critically undercapitalized if it has a tangible equity to total
assets ratio that is equal to or less than 2.0 percent. An insured depository institution may be deemed to be in a lower capitalization category if it receives an unsatisfactory examination.



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As of December 31, 2004, the Banks capital ratios exceed the requirements to be considered a well
capitalized institution under the FDIC regulations, which is its principal federal bank regulator.



The risk-based capital guidelines for bank holding companies such as the Company currently require a minimum ratio of total capital to risk-weighted
assets (including off-balance sheet activities, such as standby letters of credit) of 8%. At least half of the total capital is required to be Tier 1 capital, consisting principally of common shareholders equity, non-cumulative perpetual
preferred stock, a limited amount of cumulative perpetual preferred stock and minority interest in the equity accounts of consolidated subsidiaries, less goodwill. The remainder of the total capital (Tier 2 capital) may consist of a limited amount
of subordinated debt and intermediate-term preferred stock, certain hybrid capital instruments and other debt securities, perpetual preferred stock and a limited amount of the general loan loss allowance. At December 31, 2004, the Company maintained
a Tier 1 capital ratio of 13.17% and total qualifying capital ratio of 13.99%.



In addition to the risk-based capital guidelines, the federal banking regulators established minimum leverage ratio (Tier 1 capital to total assets) guidelines for bank holding companies. These guidelines provide for
a minimum leverage ratio of 3% for those bank holding companies which have the highest regulatory examination ratings and are not contemplating or experiencing significant growth or expansion. All other bank holding companies are required to
maintain a leverage ratio of at least 1% to 2% above the 3% stated minimum. The Companys leverage ratio at December 31, 2004 was 10.16%.



Management has determined that the 1stConstitution Capital Trust I (the Trust) qualifies as a variable interest entity under issued FASB Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities. The Trust issued
mandatorily redeemable preferred stock to investors and loaned the proceeds to the Company. The Trust holds, as its sole asset, subordinated debentures issued by the Company in 2002. Prior to December 31, 2003, the Trust was included in the
Companys consolidated balance sheet and statements of income. Subsequent to the issuance of FIN 46, the FASB issued a revised interpretation, FIN 46(R), the provisions of which were required to be applied to certain variable interest entities,
including the Trust, by March 31, 2004. The Company adopted the provisions under FIN 46 and accordingly deconsolidated the Trust as of December 31, 2003.



In March 2005, the Federal Reserve Board adopted a final rule that would continue to allow the inclusion of trust preferred securities of the kind issued
by the Trust in Tier 1 capital, but with stricter quantitative limits. Under the final rule, after a five-year transition period, the aggregate amount of trust preferred securities and certain other capital elements would be limited to 25% of Tier 1
capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit could be included in Tier 2 capital, subject to restrictions. Based on the final rule, the Company expects to include all
of its $5.2 million in trust preferred securities in Tier 1 capital. Management has evaluated the effects of the final rule and does not anticipate a material impact on its capital ratios by the end of the transition period.



Restrictions on Dividends



The primary source of cash to pay dividends, if any, to the Companys
shareholders and to meet the Companys obligations is dividends paid to the Company by the Bank. Dividend payments by the Bank to the Company are subject to the New Jersey Banking Act of 1948 (the Banking Act) and the Federal
Deposit Insurance Act (the FDIA). Under the Banking Act and the FDIA, the Bank may not pay any dividends if after paying the dividend, it would be undercapitalized under applicable capital requirements. In addition to these explicit
limitations, the federal regulatory agencies are authorized to prohibit a banking subsidiary or bank holding company from engaging in an unsafe or unsound banking practice. Depending upon the circumstances, the agencies could take the position that
paying a dividend would constitute an unsafe or unsound banking practice.



It is the policy of the Federal Reserve Board that bank holding companies should pay cash dividends on common stock only out of income available over the immediately preceding year and only if prospective earnings
retention is consistent with the organizations expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividend that undermines the bank holding companys ability
to serve as a source of strength to its banking subsidiary. A bank holding company may not pay and dividends when it is insolvent.



The Company has never paid a cash dividend and the Companys Board of Directors has no plans to pay a cash dividend in the foreseeable future. The
Bank paid a stock dividend every year from 1993 to 1999, when it was acquired by the Company. The Company has paid a 5% stock dividend every year since its formation in 1999. The Company declared a two-for-one stock split on January 20, 2005 and
paid February 28, 2005 to shareholders of record on February 10, 2005.



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Priority on Liquidation



The Company is a legal entity separate and distinct from the Bank. The rights of the Company as the sole shareholder of the Bank, and therefore the
rights of the Companys creditors and shareholders, to participate in the distributions and earnings of the Bank when the Bank is not in bankruptcy, are subject to various state and federal law restrictions as discussed above under the heading
Restrictions of Dividends. In the event of a liquidation or other resolution of an insured depository institution such as the Bank, the claims of depositors and other general or subordinated creditors are entitled to a priority of
payment over the claims of holders of an obligation of the institution to its shareholders (the Company) or any shareholder or creditor of the Company. The claims on the Bank by creditors include obligations in respect of federal funds purchased and
certain other borrowings, as well as deposit liabilities.



Financial
Institution Legislation



The Gramm-Leach-Bliley Financial
Modernization Act of 1999 (the Modernization Act) became effective in early 2000. The Modernization Act:



| |  |  | allows bank holding companies meeting management, capital and Community Reinvestment Act standards to engage in a substantially broader range of non-banking activities than is
permissible for a bank holding company, including insurance underwriting and making merchant banking investments in commercial and financial companies; if a bank holding company elects to become a financial holding company, it files a certification,
effective in 30 days, and thereafter may engage in certain financial activities without further approvals;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | allows banks to establish subsidiaries to engage in certain activities which a financial holding company could engage in, if the bank meets certain management, capital and Community
Reinvestment Act standards;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | allows insurers and other financial services companies to acquire banks and removes various restrictions that currently apply to bank holding company ownership of securities firms
and mutual fund advisory companies; and establishes the overall regulatory structure applicable to financial holding companies that also engage in insurance and securities operations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Modernization Act modified other financial laws, including laws related
to financial privacy and community reinvestment.



The
Modernization Act also amends the BHCA and the Bank Merger Act to require the federal banking agencies to consider the effectiveness of a financial institutions anti-money laundering activities when reviewing an application under these acts.



Additional proposals to change the laws and regulations
governing the banking and financial services industry are frequently introduced in Congress, in the state legislatures and before the various bank regulatory agencies. The likelihood and timing of any such changes and the impact such changes might
have on the Company cannot be determined at this time.



The
Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), which became law on July 30, 2002, added new legal requirements affecting corporate governance, accounting and corporate reporting for companies with publicly traded securities.



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The Sarbanes-Oxley Act provides for, among other things:



| |  |  | a prohibition on personal loans made or arranged by the issuer to its directors and executive officers (except for loans made by a bank subject to Regulation O);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | independence requirements for audit committee members;
| | - |  | ------------------------------------------------------



| |  |  | independence requirements for outside auditors;
| | - |  | -----------------------------------------------



| |  |  | certification of financial statements and reports on Forms 10-K, 10-KSB, 10-Q, and 10-QSB by the chief executive officer and the chief financial officer;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuers securities by directors and senior officers in the twelve month period
following initial publication of any financial statements that later require restatement due to corporate misconduct;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | disclosure of off-balance sheet transactions;
| | - |  | ---------------------------------------------



| |  |  | two-business day filing requirements for insiders filing Forms 4;
| | - |  | -----------------------------------------------------------------



| |  |  | disclosure of a code of ethics for financial officers and filing a Form 8-K for a change or waiver of such code;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | real time filing of periodic reports;
| | - |  | ---------------------------------------



| |  |  | posting of certain SEC filings and other information on the company website;
| | - |  | ----------------------------------------------------------------------------



| |  |  | the reporting of securities violations up the ladder by both in-house and outside attorneys;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | restrictions on the use of non-GAAP financial measures;
| | - |  | -------------------------------------------------------



| |  |  | the formation of a public accounting oversight board; and
| | - |  | ---------------------------------------------------------



| |  |  | various increased criminal penalties for violations of securities laws.
| | - |  | -----------------------------------------------------------------------



Each of the national stock exchanges, including the Nasdaq Stock Market where the Companys common stock is listed, have implemented new corporate
governance rules, including rules strengthening director independence requirements for boards, and the adoption of charters for the nominating, corporate governance, and audit committees. The rule changes are intended to, among other things, make
the board of directors independent of management and allow shareholders to more easily and efficiently monitor the performance of companies and directors. These increased burdens have increased the Companys legal and accounting fees and the
amount of time that the Board of Directors and management must devote to corporate governance issues.



Effective August 29, 2002, as directed by Section 302(a) of Sarbanes-Oxley, the Companys chief executive officer and chief financial officer are
each required to certify that the Companys Quarterly and Annual Reports do not contain any untrue statement of a material fact. The rules have several requirements, including having these officers certify that: they are responsible for
establishing, maintaining and regularly evaluating the effectiveness of the Companys internal controls; they have made certain disclosures to the Companys auditors and the audit committee of the Board of Directors about the
Companys internal controls; and they have included information in the Companys Quarterly and Annual Reports about their evaluation and whether there have been significant changes in the Companys internal controls or in other
factors that could significantly affect internal controls subsequent to the evaluation.



As part of the USA Patriot Act, signed into law on October 26, 2001, Congress adopted the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (the Act). The Act authorizes the
Secretary of the Treasury, in consultation with the heads of other government agencies, to adopt special measures applicable to financial institutions such as banks, bank holding companies, broker-dealers and insurance companies. Among its other
provisions, the Act requires each financial institution: (i) to establish an anti-money laundering program; (ii) to establish due diligence policies, procedures and controls that are reasonably designed to detect and report instances of money
laundering in United



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States private banking accounts and correspondent accounts maintained for non-United States persons or their representatives; and (iii) to avoid
establishing, maintaining, administering, or managing correspondent accounts in the United States for, or on behalf of, a foreign shell bank that does not have a physical presence in any country. In addition, the Act expands the circumstances under
which funds in a bank account may be forfeited and requires covered financial institutions to respond under certain circumstances to requests for information from federal banking agencies within 120 hours.



The Department of Treasury has issued regulations implementing the due
diligence requirements. These regulations require minimum standards to verify customer identity and maintain accurate records, encourages cooperation among financial institutions, federal banking agencies, and law enforcement authorities regarding
possible money laundering or terrorist activities, prohibits the anonymous use of concentration accounts, and requires all covered financial institutions to have in place an anti-money laundering compliance program.



The Bank, a New Jersey-chartered commercial bank, is subject to supervision
and examination by the New Jersey Department of Banking and Insurance. The Bank is also subject to regulation by the FDIC, which is its principal federal bank regulator.



The Bank must comply with various requirements and restrictions under Federal and state law, including the maintenance of
reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, limitations on the types of investments that may be made and the services that may be offered, and
restrictions on dividends as described in the preceding section. Consumer laws and regulations also affect the operations of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal
Reserve Board which influence the money supply and credit availability in the national economy.



Community Reinvestment Act



Under the Community Reinvestment Act (CRA), as implemented by FDIC regulations, a bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire
community, including low- and moderate-income neighborhoods. CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institutions discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with CRA. CRA requires the FDIC to assess an institutions record of meeting the credit needs of its community and to take such record into account in its evaluation of
certain applications by the applicable institution. The CRA requires public disclosure of an institutions CRA rating and requires that the FDIC provide a written evaluation of an institutions CRA performance utilizing a four-tiered
descriptive rating system. An institutions CRA rating is considered in determining whether to grant charters, branches and other deposit facilities, relocations, mergers, consolidations and acquisitions. Performance less than satisfactory may
be the basis for denying an application. The Bank is currently rated satisfactory under CRA.



Insurance of Deposits



The Banks deposits are insured up to a maximum of $100,000 per depositor under the Bank Insurance Fund (BIF). The FDICIA is applicable to depository institutions and deposit insurance. FDICIA requires the FDIC to establish
a risk-based assessment system for all insured depository institutions. Under this legislation, the FDIC is required to establish an insurance premium assessment system based upon: (i) the probability that the insurance fund will incur a loss with
respect to the institution, (ii) the likely amount of the loss, and (iii) the revenue needs of the insurance fund. In compliance with this mandate, the FDIC has developed a matrix that sets the assessment premium for a particular institution in
accordance with its capital level and overall rating by the primary regulator. Under the matrix as currently in effect, the assessment rate ranges from 0 to 27 basis points of assessed deposits. The Bank is also subject to a quarterly FICO
assessment.



Employees



The Company has two paid employees. Banking operations are conducted by the
Bank, and as of December 31, 2004, the Bank had 80 full-time employees and 15 part-time employees. Neither the Banks nor the Companys employees are represented by any collective bargaining group. The Bank and the Company each considers
its relations with such employees to be good.



8



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##### Table of Contents

Risk Factors



The common stock of the Company is speculative in nature and involves a significant degree of risk. The risk factors below are not listed in order of
importance.



The Company faces significant competition



The Company faces significant competition from many other banks, savings
institutions and other financial institutions which have branch offices or otherwise operate in the Companys market area. Non-bank financial institutions, such as securities brokerage firms, insurance companies and money market funds, engage
in activities which compete directly with traditional bank business which has also led to greater competition. Many of these competitors have substantially greater financial resources than the Company, including larger capital bases that allow them
to attract customers seeking larger loans than the Company is able to accommodate and the ability to aggressively advertise their products. There can be no assurance that the Company and the Bank will be able to successfully compete with these
entities in the future. See BUSINESS  Competition.



Economic Conditions and Related Uncertainties



Commercial banking is affected, directly and indirectly, by local, domestic, and international economic and political conditions, and by government monetary and fiscal policies. Conditions such as inflation, recession, unemployment,
volatile interest rates, tight money supply, scarce natural resources, real estate values, international conflicts and other factors beyond the control of the Company may adversely affect the potential profitability of the Company. A downtrend in
several areas, such as real estate, construction and consumer spending, could have a material adverse impact on the Companys ability to maintain or increase profitability.



Federal and State Government Regulation



The operations of the Company and the Bank are heavily regulated and will be affected by present and future legislation and by the policies established
from time to time by various Federal and state regulatory authorities. In particular, the monetary policies of the Federal Reserve Board have had a significant effect on the operating results of banks in the past and are expected to continue to do
so in the future. Among the instruments of monetary policy used by the Federal Reserve Board to implement its objectives is changes in the discount rate charged on bank borrowings. It is not possible to predict what changes, if any, will be made to
the monetary policies of the Federal Reserve Board or to existing Federal and state legislation or the effect that such changes may have on the future business and earnings prospects of the Company.



The Company and the Bank are subject to examination, supervision and
comprehensive regulation by various federal and state agencies. Compliance with the rules and regulations of these agencies may be costly and may limit growth and restrict certain activities, including payment of dividends, investments, loans and
interest rate charges, interest rates paid on deposits, and locations of offices. The Bank is also subject to capitalization guidelines set forth in federal legislation. See BUSINESS  Supervision and Regulation.



The laws and regulations applicable to the banking industry could change at
any time, and we cannot predict the impact of these changes on our business and profitability. Because government regulation greatly effects the business and financial results of all commercial banks and bank holding companies, the cost of
compliance could adversely affect the Companys ability to operate profitably.



Forward Looking Statements



When used in this
and in future filings by the Company with the Securities and Exchange Commission, in the Companys press releases and in oral statements made with the approval of an authorized executive officer of the Company, the words or phrases
will, will likely result, could, anticipates, believes, continues, expects, plans, will continue, is anticipated,
estimated, project or outlook or similar expressions (including confirmations by an authorized executive officer of the Company of any such expressions made by a third party with respect to the Company) are
intended to identify forward-looking statements. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, each of which speak only as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Factors that may cause actual results to differ from those results expressed or implied, include, but are not
limited to, those listed above under Risk Factors; the overall economy and the interest rate environment; the ability of customers to repay their obligations; the adequacy of the allowance for loan losses; competition; significant
changes in accounting, tax or regulatory practices and requirements; and technological changes. Although management has taken certain steps to mitigate



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##### Table of Contents

any negative effect of the aforementioned items, significant unfavorable changes could severely impact the assumptions used and have an adverse effect on
profitability. Such risks and other aspects of the Companys business and operations are described in Business and Managements Discussion and Analysis of Financial Condition and Results of Operations. The Company
has no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements.



Item 2. Properties.



General



The Companys and the Banks principal office in Cranbury, New
Jersey (the Principal Office), which it occupies under a lease, which expires in December 2010, provides for an aggregate monthly rental of $15,667 subject to annual rental increases plus real estate taxes and certain common space
charges allocated by the landlord. This lease grants the Bank two additional five-year renewal periods. The Bank also has the right of first refusal to purchase the premises of which the Principal Office is a part on the same terms and conditions as
contained in any bona fide offer for the premises. In July 2003, The Bank entered into a five-year lease for an additional 1,900 square feet of office space in this building for an aggregate monthly rental of $2,137 per month, subject to annual
rental increases.



The Bank leases approximately 2,400 square
feet for its branch office in Montgomery Township, New Jersey for an aggregate monthly rental of $5,050. This lease expires on September 30, 2004.



The Bank also leases approximately 3,780 square feet for its branch office in downtown Cranbury, New Jersey for an aggregate monthly rental of $3,744 per
month. The Bank has renewed the lease for the first of two five-year periods through July 2007 at aggregate monthly rental rates adjusted based on the consumer price index. The Bank has the right of first refusal to purchase this branch office on
the same terms and conditions as contained in any bona fide offer for the building in which the branch is located. Notwithstanding receipt of a bona fide offer, the Bank also has the option to purchase this branch office at any time during the
initial term or renewal term provided the Bank has exercised its option to renew the lease for the branch office.



In July 2003, the Bank amended the lease for its branch located in Plainsboro, New Jersey. This lease provides for the rental of approximately 2,000
square feet. The Bank has extended the lease for an additional term of five years and has the right to early termination after the thirtieth month of occupancy by giving 180 days prior written notice of termination. The aggregate monthly payment for
this lease is $3,000, with annual escalations.



The Bank
entered into a lease for the branch located in Hamilton Square, New Jersey in April 1999. This lease expires in July 2014 and provides for a rental of approximately 4,170 square feet. The Bank has two five-year renewal options for this space. The
aggregate monthly rental payment for this lease is $9,128, with annual escalations.



In January 2004, the Bank entered into a two-year lease for a new Loan Production Office in Fort Lee, New Jersey. The lease provides for the rental of 1,567 square feet with an aggregate monthly rental of $2,873 in
the first year and $2,938 in the second year.



In June 2004,
the Bank commenced the lease for the West Windsor, New Jersey branch. The lease expires in July 2019 and provides for a rental of approximately 3,000 square feet. The lease provides for three five-year renewal options for this space. The aggregate
monthly rental payment for this lease is $2,083, with annual escalations.



In August 2004, the Bank commenced the lease for the Perth Amboy, New Jersey branch. This lease expires in August 2019 and provides for a rental of approximately 3,000 square feet The lease provides for two seven and
one-half year renewal options for this space. The aggregate monthly rental payment for this lease is $6,000, with annual escalations.



In June 2004, the Bank completed the construction and renovations project associated with opening a branch office in Jamesburg, New Jersey. The Bank
purchased the site at 1 Harrison Street in 2002.



Management
believes the foregoing facilities are suitable for the Companys and the Banks present and projected operations.



Item 3. Legal Proceedings.



None.



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##### Table of Contents

Item 4. Submission of Matters to a Vote of Security Holders.



No matters were submitted to a vote of the Companys shareholders during the fourth quarter of the fiscal year ended December 31, 2004.



PART II



Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.



The common stock of the Company trades on the NASDAQ National Market System under the trading symbol FCCY. The following are the high and low
sales prices per share for 2004 and 2003, as reported on the Nasdaq National Market System.



|               |  |      |       |     |      |       |        |  |     |       |  |   |       |       
|-------------- |  | ---- | ----- | --- | ---- | ----- | ------ |  | --- | ----- |  | - | ----- | ------
|               |  | 2004 |       |     | 2003 |      
|               |  | High |       | Low |      |       | High   |  | Low |      
|First Quarter  |  | $    | 16.07 |     | $    | 14.39 | (1)(2) |  | $   | 13.03 |  | $ | 11.78 | (1)(2)
|Second Quarter |  |      | 15.95 |     |      | 14.56 | (1)(2) |  |     | 12.48 |  |   | 11.45 | (1)(2)
|Third Quarter  |  |      | 15.57 |     |      | 14.45 | (1)(2) |  |     | 11.91 |  |   | 11.34 | (1)(2)
|Fourth Quarter |  |      | 17.82 |     |      | 15.31 | (1)(2) |  |     | 14.05 |  |   | 11.50 | (1)(2)

---

|(1) | Prices have been retroactively adjusted for the 5% stock dividend declared December 16, 2004 and paid January 31, 2005 to shareholders of record on January 18, 2005.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Prices have been retroactively adjusted for the two-for-one stock split in the form of a stock dividend declared January 20, 2005, and paid February 28, 2005 to shareholders of
record on February 10, 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of March 4, 2005
there were approximately 344 holders of the Companys common stock.



The Company paid a 5% stock dividend on January 31, 2005 and January 31, 2004. The Company declared a two-for-one stock split on January 20, 2005, that was paid February 28, 2005 to shareholders of record on February
10, 2005. The Company has never paid a cash dividend and there are no plans to pay a cash dividend at this time. The Company will retain its earnings in order to provide capital for growth of the Bank.



Issuer Purchases of Equity Securities



On March 12, 2001, the Board of Directors authorized a stock repurchase program that allows
for the repurchase of a limited number of the Companys common stock at managements discretion on the open market. The Company undertook this repurchase program in an effort to increase shareholder value. The following table provides
common stock repurchases made by or on behalf of the Company during the three months ended December 31, 2004.



Issuer Purchases of Equity Securities (1)



|                 |  |                               |  |                            |       |                                                                             |        |                                                                          |        |  |       
|---------------- |  | ----------------------------- |  | -------------------------- | ----- | --------------------------------------------------------------------------- | ------ | ------------------------------------------------------------------------ | ------ |  | ------
|Period           |  | TotalNumber ofSharesPurchased |  | AveragePrice PaidPer Share |       | Total Number ofShares Purchased AsPart of Publicly Announced Plan orProgram |        | Maximum Numberof Shares That MayYet be PurchasedUnder the Plan orProgram
|Beginning        |  | Ending                        |  |                            |       |                                                                             |        |                                                                          |        | 
|October 1, 2004  |  | October 31, 2004              |  | 109                        |       | $                                                                           | 32.32  |                                                                          | 109    |  | 45,673
|November 1, 2004 |  | November 30, 2004             |  | 10,568                     |       | $                                                                           | 33.50  |                                                                          | 10,568 |  | 35,105
|December 1, 2004 |  | December 31, 2004             |  | 2,100                      |       | $                                                                           | 36.82  |                                                                          | 2,100  |  | 33,005
|                 |  |                               |  |                           
|Total            |  | 12,777                        |  | $                          | 34.04 |                                                                             | 12,777 |                                                                          | 33,005

---

|(1) | The stock repurchase program covers a maximum of 66,805 shares of common stock of the Company, representing 5% of the common stock of the Company on December 31, 2000, and was
announced on March 12, 2001. Unless terminated earlier by resolution of the Board of Directors, the stock repurchase program will expire when the Company has repurchased all shares authorized for repurchase under the program.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Item 6. Selected Financial Data.



The following
selected financial data should be read in conjunction with the Companys Consolidated Financial Statements and the accompanying notes presented elsewhere herein.



|                                       |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |                                |   |             |   |  |      |  
|-------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | - |  | ---- | ----------- | - | ------------------------------ | - | ----------- | - |  | ---- | -
|For years ended December 31            |  | 2004 |             |   | 2003 |   |             | 2002 |  |   | 2001        |   |  | 2000 |             |   | Five YearCompoundedGrowth Rate |  
|Highlights                             |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |                                |   |             |   |  |      |  
|Net income                             |  | $    | 3,837,714   |   |      | $ | 3,228,500   |      |  | $ | 2,687,322   |   |  | $    | 2,152,001   |   |                                | $ | 1,729,778   |   |  | 21.5 | %
|Return on average assets               |  |      | 1.22        | % |      |   | 1.18        | %    |  |   | 1.06        | % |  |      | 1.03        | % |                                |   | 1.08        | % |  |      |  
|Return on average equity               |  |      | 15.54       | % |      |   | 14.85       | %    |  |   | 14.09       | % |  |      | 13.17       | % |                                |   | 13.09       | % |  |      |  
|Net interest margin                    |  |      | 4.25        | % |      |   | 3.94        | %    |  |   | 3.87        | % |  |      | 4.04        | % |                                |   | 4.75        | % |  |      |  
|                                       |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |                                |   |             |   |  |      |  
|Income Statement Data                  |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |                                |   |             |   |  |      |  
|Net interest income                    |  | $    | 12,470,773  |   |      | $ | 10,012,780  |      |  | $ | 9,209,044   |   |  | $    | 8,054,847   |   |                                | $ | 7,167,837   |   |  | 17.2 | %
|Provision for loan losses              |  |      | 240,000     |   |      |   | 240,000     |      |  |   | 240,000     |   |  |      | 300,000     |   |                                |   | 215,875     |   |  |      |  
|Non-interest income                    |  |      | 2,557,242   |   |      |   | 2,401,349   |      |  |   | 1,525,526   |   |  |      | 1,186,582   |   |                                |   | 865,878     |   |  |      |  
|Non-interest expenses                  |  |      | 8,989,961   |   |      |   | 7,168,722   |      |  |   | 6,287,881   |   |  |      | 5,552,291   |   |                                |   | 5,095,732   |   |  |      |  
|                                       |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |                                |   |             |   |  |      |  
|Balance Sheet Data at December 31      |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |                                |   |             |   |  |      |  
|Total Assets                           |  | $    | 335,830,440 |   |      | $ | 293,483,174 |      |  | $ | 273,862,343 |   |  | $    | 232,800,734 |   |                                | $ | 181,183,775 |   |  | 16.4 | %
|Total Deposits                         |  |      | 276,887,033 |   |      |   | 245,353,724 |      |  |   | 224,149,464 |   |  |      | 193,882,067 |   |                                |   | 137,635,827 |   |  | 15.6 | %
|Total Loans                            |  |      | 210,653,051 |   |      |   | 163,950,306 |      |  |   | 151,049,736 |   |  |      | 124,937,483 |   |                                |   | 110,356,471 |   |  | 21.0 | %
|Shareholders Equity                   |  |      | 26,790,384  |   |      |   | 23,585,256  |      |  |   | 20,994,842  |   |  |      | 17,432,944  |   |                                |   | 15,220,830  |   |  | 16.5 | %
|Intangible Assets                      |  |      | 0           |   |      |   | 0           |      |  |   | 0           |   |  |      | 0           |   |                                |   | 16,355      |   |  |      |  
|Allowance for Loan Losses              |  |      | 2,005,169   |   |      |   | 1,786,632   |      |  |   | 1,669,882   |   |  |      | 1,414,495   |   |                                |   | 1,132,555   |   |  | 16.3 | %
|                                       |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |                                |   |             |   |  |      |  
|Share Information (1)                  |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |                                |   |             |   |  |      |  
|Earnings per share  Basic             |  | $    | 1.17        |   |      | $ | 0.99        |      |  | $ | 0.83        |   |  | $    | 0.66        |   |                                | $ | 0.53        |   |  | 20.3 | %
|Earnings per share  Diluted           |  | $    | 1.13        |   |      | $ | 0.94        |      |  | $ | 0.79        |   |  | $    | 0.64        |   |                                | $ | 0.52        |   |  | 20.1 | %
|Book value per share                   |  | $    | 8.11        |   |      | $ | 7.18        |      |  | $ | 6.47        |   |  | $    | 5.39        |   |                                | $ | 4.68        |   |  | 15.0 | %
|Average diluted shares outstanding     |  |      | 3,413,540   |   |      |   | 3,437,276   |      |  |   | 3,421,658   |   |  |      | 3,362,430   |   |                                |   | 2,998,662   |   |  | 3.3  | %
|                                       |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |                                |   |             |   |  |      |  
|Capital Ratios                         |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |                                |   |             |   |  |      |  
|Total capital to risk-weighted assets  |  |      | 13.99       | % |      |   | 14.94       | %    |  |   | 14.75       | % |  |      | 12.82       | % |                                |   | 13.46       | % |  |      |  
|Tier 1 capital to risk-weighted assets |  |      | 13.17       | % |      |   | 14.06       | %    |  |   | 13.84       | % |  |      | 11.86       | % |                                |   | 12.53       | % |  |      |  
|Tier 1 capital to average assets       |  |      | 10.16       | % |      |   | 9.74        | %    |  |   | 9.64        | % |  |      | 7.57        | % |                                |   | 8.61        | % |  |      |  
|                                       |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |                                |   |             |   |  |      |  

---

|(1) | All share information has been restated for the effect of (i) a 5% stock dividend declared on December 17, 2004 and paid on January 31, 2005 to shareholders of
record on January 18, 2005, and (ii) a two-for-one stock split in the form of a stock dividend declared on January 20, 2005 and paid on February 28, 2005 to shareholders of record on February 10, 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12



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##### Table of Contents

Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation.



This discussion should be read in conjunction with the consolidated financial statements, notes and tables included elsewhere in this report. Throughout
the following sections, the Company refers to 1STConstitution Bancorp and its wholly owned
subsidiaries, 1STConstitution Bank and 1STConstitution Capital Trust I, the Bank refers to 1STConstitution Bank, and the Trust refers to 1STConstitution Capital I. The purpose of this discussion and analysis is to assist in the understanding and evaluation of the Companys financial condition, changes in financial condition and results of operations.



Executive Summary



The Company reported net income for the 12 months ended December 31, 2004 of $3,837,714, an increase of 18.9% from the
$3,228,500 reported for the 12 months ended December 31, 2003. Diluted net income per share was $1.13 in 2004 compared to $0.94 reported in 2003. Basic net income per share in 2004 was $1.17 as compared to the $0.99 reported in 2003. The Company has
achieved a five-year compounded growth rate for net income of 21.5% over the 1999-2004 period. All share information has been restated for the effect of a 5% stock dividend declared on December 17, 2004, and paid on January 31, 2005, to shareholders
of record on January 18, 2005, and the Companys two-for-one stock split in the form of a stock dividend declared on January 20, 2005, and paid on February 28, 2005, to shareholders of record on February 10, 2005.



Key performance ratios continued to improve in 2004 as compared to the prior
year. Return on average assets (ROA) and return on average equity (ROE) were 1.22% and 15.54%, respectively, in 2004, compared to 1.18% and 14.85%, respectively, in 2003.



The Companys record earnings for 2004 reflect continuing momentum
across a broad range of product and service offerings. Increased lending activity, coupled with increases in deposits through branch network expansion and secondary market loan sales volume, fueled both the record earnings and balance sheet growth.



The Companys net interest income for 2004 was
$12,470,773, an increase of 24.5% from the $10,012,780 reported for 2003. The net interest margin for 2004 was 4.25% compared to 3.94% reported for 2003. During 2003, the Company was confronted with continuing net interest margin pressures due to
the very low interest rate environment, as well as, elevated levels of loan prepayments and accelerated amortization of premiums on mortgage backed securities. During 2004, a rising interest rate environment evolved during the latter half of the
year resulting in a lesser level of loan prepayments with net amortization expense decreasing by $840,685, or 70.6%, to $350,168 for the year ended December 31, 2004 compared to $1,190,853 for the year ended December 31, 2003.



The Federal Reserve Banks Open Market Committee (FOMC) held
eight meetings in 2004. Beginning with the June 30, 2004 meeting, the FOMC increased short-term interest rates by 25 basis points and continued with a series of 25 basis point increases in each of the next four meetings. The immediate benefit of
these interest rate increases to the Companys investment security purchases and floating rate assets resulted in a 16 basis point increase in the yield on total interest-earning assets. In addition, managements ability to lag the
interest rate increases on deposits coupled with a tight discipline in deposit pricing resulted in a reduction of 19 basis points in the cost of total interest-bearing liabilities. Management expects the FOMC to continue its program of increasing
the targeted Federal Funds rate over the next several months and has structured the Companys balance sheet to an asset sensitive position in order to continue to benefit from this rising market rates environment.



During 2004, the Company increased the number of branch offices in its target
markets and introduced its products and services to an expanded geographic region. In January 2004, a new loan production office was opened in Fort Lee (Bergen County), New Jersey. During June 2004, new branch offices were opened in Jamesburg
(Middlesex County) and West Windsor (Mercer County), New Jersey. In August 2004, the Perth Amboy (Middlesex County), New Jersey branch office was relocated to its new permanent location. This 2004 expansion program has resulted in significant
incremental non-interest expenses as a result of branch leases, facilities maintenance, and personnel staffing. Non-interest expense increased by $1,821,239, or 25.4%, to $8,989,961 in 2004 from $7,168,722 in 2003. Management believes the Company
will soon realize strategic benefits of this network expansion through increased deposits and a lower cost of funds.



Driven by construction loan growth, the Banks loan portfolio increased 34.5% in 2004 from 2003. At December 31, 2004, total loans outstanding
reached $220,580,932 compared to $163,950,306 at December 31, 2003. Asset quality remained strong in 2004, as illustrated by the ratio of nonperforming loans to total loans of 0.50% in 2004 and 0.20% in 2003. The allowance for loan losses totaled
$2,005,169, or 0.91% of total loans, covering over 180.2% of the balance of total nonperforming loans. The Banks deposit base increased by 12.9% in 2004 from $245,353,724 at December 31, 2003 to $276,887,033 at December 31, 2004. Management
priced deposit products to be competitive with other financial institutions with branch locations in its market.



13



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##### Table of Contents

Management believes that the Company has positioned itself for continued success with the combination of
a strong capital base, a commitment to provide exceptional customer service, and a commitment to maintain the technology necessary to provide its customers with easy access to the financial products and services offered by the Bank.



Critical Accounting Policies and Estimates



Managements Discussion and Analysis of Financial Condition and
Results of Operation is based upon the Companys consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Companys Consolidated Financial Statements for the year ended December 31, 2004
contains a summary of the Companys significant accounting policies. Management believes the Companys policy with respect to the methodology for the determination of the allowance for loan losses involves a higher degree of complexity and
requires management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact results of operations. This
critical policy and its application is periodically reviewed with the Audit Committee and the Board of Directors. The provision for loan losses is based upon managements evaluation of the adequacy of the allowance, including an assessment of
known and inherent risks in the portfolio, giving consideration to the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, detailed analysis of individual loans for which full collectibility may not be
assured, the existence and estimated net realizable value of any underlying collateral and guarantees securing the loans, and current economic and market conditions. Although management uses the best information available to it, the level of the
allowance for loan losses remains an estimate which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Companys allowance for loan
losses. Such agencies may require the Company to make additional provisions for loan losses based upon information available to them at the time of their examination. Furthermore, the majority of the Companys loans are secured by real estate
in the State of New Jersey. Accordingly, the collectibility of a substantial portion of the carrying value of the Companys loan portfolio is susceptible to changes in local market conditions and may be adversely affected should real estate
values decline or the Central New Jersey area experience an adverse economic shock. Future adjustments to the allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Companys control.



Results of Operations



The Company reported record earnings of $3,837,714, or $1.13 per share
(diluted), for the year ended December 31, 2004 compared to $3,228,500, or $0.94 per share (diluted), in 2003. Net income and diluted earnings per share grew 18.9% and 19.7%, respectively, in 2004. The Company posted net income of $2,687,322 or
$0.79 per share (diluted) in 2002.



Net Interest Income



Net interest income, the Companys largest and most significant
component of operating income, is the difference between interest and fees earned on loans and other earning assets, and interest paid on deposits and borrowed funds. This component represented 83.0% of the Companys net revenues in 2004. Net
interest income also depends upon the relative amount of interest earning assets, interest-bearing liabilities, and the interest rate earned or paid on them.



14



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##### Table of Contents

The following tables set forth the Companys consolidated average balances of assets and liabilities and
shareholders equity as well as interest income and expense on related items, and the Companys average yield or rate for the years ended December 31, 2004, 2003 and 2002. The average rates are derived by dividing interest income and
expense by the average balance of assets and liabilities, respectively.



Average Balance Sheets with Resultant Interest and Rates



|                                                                |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|--------------------------------------------------------------- |  | -------------- | ----------- | - | -------- | - | ----------- | ---- | ---- | -------------- |  | - | ----------- | - | ----------- | - | ---------- | -------------- | ----- | - | -------- | - | ----------- | - |  | - | ---------- |  | ----- | -
|(yields on a tax-equivalent basis)                              |  | 2004           |             |   | 2003     |   |             | 2002 |     
|                                                                |  | AverageBalance |             |   | Interest |   | AverageRate |      |      | AverageBalance |  |   | Interest    |   | AverageRate |   |            | AverageBalance |       |   | Interest |   | AverageRate |  
|Assets:                                                         |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|Federal Funds Sold/Short-Term Investments                       |  | $              | 976,584     |   |          | $ | 10,977      |      | 1.12 | %              |  | $ | 3,044,985   |   |             | $ | 29,458     |                | 0.97  | % |          | $ | 11,743,276  |   |  | $ | 198,659    |  | 1.69  | %
|                                                                |  |                |             |   |          |   |             |      |     
|Investment Securities:                                          |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|                                                                |  |                |             |   |          |   |             |      |     
|Collateralized Mortgage Obligations/Mortgaged Backed Securities |  |                | 87,636,728  |   |          |   | 3,196,937   |      | 3.65 | %              |  |   | 76,837,624  |   |             |   | 2,619,813  |                | 3.41  | % |          |   | 79,604,274  |   |  |   | 3,598,437  |  | 4.52  | %
|Obligations of States and Political Subdivisions                |  |                | 10,132,976  |   |          |   | 571,410     |      | 5.64 | %              |  |   | 8,058,436   |   |             |   | 461,411    |                | 5.73  | % |          |   | 3,722,838   |   |  |   | 243,341    |  | 6.54  | %
|                                                                |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|Total                                                           |  |                | 97,769,704  |   |          |   | 3,768,347   |      | 3.85 | %              |  |   | 84,896,060  |   |             |   | 3,081,224  |                | 3.63  | % |          |   | 83,327,112  |   |  |   | 3,841,778  |  | 4.61  | %
|                                                                |  |                |             |   |          |   |             |      |     
|Loan Portfolio:                                                 |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|                                                                |  |                |             |   |          |   |             |      |     
|Commercial                                                      |  |                | 27,656,123  |   |          |   | 2,149,021   |      | 7.75 | %              |  |   | 38,410,951  |   |             |   | 2,768,004  |                | 7.21  | % |          |   | 30,758,677  |   |  |   | 2,275,368  |  | 7.40  | %
|Installment                                                     |  |                | 3,255,459   |   |          |   | 264,074     |      | 8.09 | %              |  |   | 8,947,398   |   |             |   | 675,344    |                | 7.55  | % |          |   | 14,435,272  |   |  |   | 1,095,210  |  | 7.59  | %
|Commercial Mortgages and Construction Wholesale                 |  |                | 125,877,374 |   |          |   | 7,644,898   |      | 6.07 | %              |  |   | 90,701,292  |   |             |   | 5,567,060  |                | 6.14  | % |          |   | 71,547,571  |   |  |   | 4,640,234  |  | 6.49  | %
|Residential Mortgages and Construction Retail                   |  |                | 14,518,615  |   |          |   | 945,843     |      | 6.51 | %              |  |   | 23,133,308  |   |             |   | 1,276,368  |                | 5.52  | % |          |   | 19,892,071  |   |  |   | 1,268,682  |  | 6.38  | %
|                                                                |  |                |             |   |          |   |             |      |     
|All Other Loans                                                 |  |                | 27,144,851  |   |          |   | 2,418,230   |      | 8.91 | %              |  |   | 8,998,670   |   |             |   | 1,138,986  |                | 12.66 | % |          |   | 8,525,695   |   |  |   | 1,067,307  |  | 12.52 | %
|                                                                |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|Total (1)                                                       |  |                | 198,452,422 |   |          |   | 13,422,066  |      | 6.76 | %              |  |   | 170,191,619 |   |             |   | 11,425,762 |                | 6.71  | % |          |   | 145,159,286 |   |  |   | 10,346,801 |  | 7.13  | %
|Total Interest-Earning Assets                                   |  |                | 297,198,710 |   |          |   | 17,201,390  |      | 5.79 | %              |  |   | 258,132,664 |   |             |   | 14,536,444 |                | 5.63  | % |          |   | 240,229,674 |   |  |   | 14,387,238 |  | 5.99  | %
|                                                                |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|Allowance for Loan Losses                                       |  |                | (1,909,294  | ) |          |   |             |      |      |                |  |   | (1,769,585  | ) |             |   |            |                |       |   |          |   | (1,554,474  | ) |  |   |            |  |       |  
|                                                                |  |                |             |   |          |   |             |      |     
|Cash and Due From Banks                                         |  |                | 7,853,303   |   |          |   |             |      |      |                |  |   | 8,678,793   |   |             |   |            |                |       |   |          |   | 9,134,645   |   |  |   |            |  |       |  
|Other Assets                                                    |  |                | 10,815,249  |   |          |   |             |      |      |                |  |   | 8,906,063   |   |             |   |            |                |       |   |          |   | 5,118,255   |   |  |   |            |  |       |  
|                                                                |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|Total Assets                                                    |  | $              | 313,957,968 |   |          |   |             |      |      |                |  | $ | 273,947,935 |   |             |   |            |                |       |   |          | $ | 252,928,100 |   |  |   |            |  |       |  
|                                                                |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|Liabilities and Shareholders Equity:                           |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|                                                                |  |                |             |   |          |   |             |      |     
|Interest-Bearing Liabilities:                                   |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|Money Market and NOW Accounts                                   |  | $              | 96,113,368  |   |          | $ | 986,531     |      | 1.02 | %              |  | $ | 76,435,477  |   |             | $ | 752,547    |                | 0.98  | % |          | $ | 76,698,669  |   |  | $ | 980,605    |  | 1.28  | %
|Savings Accounts                                                |  |                | 26,890,218  |   |          |   | 136,530     |      | 0.51 | %              |  |   | 21,684,139  |   |             |   | 155,221    |                | 0.72  | % |          |   | 15,548,553  |   |  |   | 184,759    |  | 1.19  | %
|Certificates of Deposit                                         |  |                | 74,136,634  |   |          |   | 1,917,353   |      | 2.58 | %              |  |   | 63,182,395  |   |             |   | 1,751,582  |                | 2.77  | % |          |   | 59,131,266  |   |  |   | 2,166,251  |  | 3.66  | %
|Certificates of Deposit of $100,000 and Over                    |  |                | 10,156,576  |   |          |   | 260,109     |      | 2.55 | %              |  |   | 18,287,421  |   |             |   | 503,905    |                | 2.76  | % |          |   | 18,619,750  |   |  |   | 629,594    |  | 3.38  | %
|Federal Funds Purchased/Other Borrowed Funds                    |  |                | 24,812,983  |   |          |   | 981,689     |      | 3.95 | %              |  |   | 23,985,934  |   |             |   | 952,910    |                | 3.97  | % |          |   | 19,769,886  |   |  |   | 921,982    |  | 4.66  | %
|Trust Preferred Securities                                      |  |                | 5,000,000   |   |          |   | 263,083     |      | 5.33 | %              |  |   | 5,000,000   |   |             |   | 257,852    |                | 5.16  | % |          |   | 3,621,299   |   |  |   | 216,081    |  | 5.89  | %
|                                                                |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|Total Interest-Bearing Liabilities                              |  |                | 237,109,779 |   |          |   | 4,545,295   |      | 1.91 | %              |  |   | 208,575,366 |   |             |   | 4,374,017  |                | 2.10  | % |          |   | 193,389,423 |   |  |   | 5,099,272  |  | 2.64  | %
|                                                                |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|Net Interest Spread (2)                                         |  |                |             |   |          |   |             |      | 3.86 | %              |  |   |             |   |             |   |            |                | 3.53  | % |          |   |             |   |  |   |            |  | 3.35  | %
|                                                                |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|                                                                |  |                |             |   |          |   |             |      |     
|Demand Deposits                                                 |  |                | 49,622,127  |   |          |   |             |      |      |                |  |   | 41,318,131  |   |             |   |            |                |       |   |          |   | 39,021,155  |   |  |   |            |  |       |  
|Other Liabilities                                               |  |                | 2,536,002   |   |          |   |             |      |      |                |  |   | 2,310,536   |   |             |   |            |                |       |   |          |   | 1,447,781   |   |  |   |            |  |       |  
|                                                                |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|Total Liabilities                                               |  |                | 289,267,908 |   |          |   |             |      |      |                |  |   | 252,204,033 |   |             |   |            |                |       |   |          |   | 233,858,359 |   |  |   |            |  |       |  
|                                                                |  |                |             |   |          |   |             |      |     
|Shareholders Equity                                            |  |                | 24,690,060  |   |          |   |             |      |      |                |  |   | 21,743,902  |   |             |   |            |                |       |   |          |   | 19,069,741  |   |  |   |            |  |       |  
|                                                                |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|Total Liabilities and Shareholders Equity                      |  | $              | 313,957,968 |   |          |   |             |      |      |                |  | $ | 273,947,935 |   |             |   |            |                |       |   |          | $ | 252,928,100 |   |  |   |            |  |       |  
|                                                                |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  
|Net Interest Margin (3)                                         |  |                |             |   |          | $ | 12,656,095  |      | 4.25 | %              |  |   |             |   |             | $ | 10,162,427 |                | 3.94  | % |          |   |             |   |  | $ | 9,287,966  |  | 3.87  | %
|                                                                |  |                |             |   |          |   |             |      |      |                |  |   |             |   |             |   |            |                |       |   |          |   |             |   |  |   |            |  |       |  



---

|(1) | Loan origination fees are considered an adjustment to interest income. For the purpose of calculating loan yields, average loan balances include nonaccrual loans with no related
interest income.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15



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##### Table of Contents

|(2) | The interest rate spread is the difference between the average yield on interest earning assets and the average rate paid on interest bearing liabilities.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The net interest margin is equal to net interest income divided by average interest earning assets.
|--- | ---------------------------------------------------------------------------------------------------



Changes in net interest income and margin result from the interaction between the volume and composition of interest earning
assets, interest bearing liabilities, related yields, and associated funding costs. The Rate/Volume Table demonstrates the impact on net interest income of changes in the volume of interest earning assets and interest bearing liabilities and changes
in interest rates earned and paid.



The Companys net
interest income increased by $2,457,993, or 24.5%, to $12,470,773 in 2004, from the $10,012,780 reported in 2003. As indicated in the Rate/Volume Table, the principal factor contributing to the 2004 increase in net interest income was an increase in
the interest income of $1,912,491, resulting from increased balances in the loan portfolio components. This was partially offset by an increase in interest expense resulting from increases in deposit components.



The Companys net interest income increased by $803,736, or 8.7%, to
$10,012,780 in 2003, from the $9,209,044 reported in 2002. As indicated in the Rate/Volume Table, the principal factor contributing to the 2003 increase in net interest income was an increase in the interest income of $1,552,729, resulting from
increased balances in the loan portfolio components. This was partially offset by decreases in both loan and investment securities yields due to the lower interest rate environment and the impact of accelerate premium amortization on mortgage-backed
securities during 2003.



Rate/Volume Table



|                                                      |  |                                                            |           |   |                                                            |   |          |       |  |   |           |   |  |      |           |   |       |    |            |   |  |   |           |  
|----------------------------------------------------- |  | ---------------------------------------------------------- | --------- | - | ---------------------------------------------------------- | - | -------- | ----- |  | - | --------- | - |  | ---- | --------- | - | ----- | -- | ---------- | - |  | - | --------- | -
|                                                      |  | Amount of Increase (Decrease)                              |          
|                                                      |  | Year Ended December 31, 2004 versus 2003 Due to Change in: |           |   | Year Ended December 31, 2003 versus 2002 Due to Change in: |  
|(Tax-equivalent basis)                                |  | Volume                                                     |           |   | Rate                                                       |   |          | Total |  |   | Volume    |   |  | Rate |           |   | Total |   
|Interest Income:                                      |  |                                                            |           |   |                                                            |   |          |       |  |   |           |   |  |      |           |   |       |    |            |   |  |   |           |  
|Loans:                                                |  |                                                            |           |   |                                                            |   |          |       |  |   |           |   |  |      |           |   |       |    |            |   |  |   |           |  
|Commercial                                            |  | $                                                          | (775,423  | ) |                                                            | $ | 207,419  |       |  | $ | (68,004   | ) |  | $    | 566,268   |   |       | $  | (58,441    | ) |  | $ | 507,827   |  
|Installment                                           |  |                                                            | (429,741  | ) |                                                            |   | 48,316   |       |  |   | (381,425  | ) |  |      | (416,530  | ) |       |    | (5,774     | ) |  |   | (422,304  | )
|Commercial Mortgages and Construction - Wholesale     |  |                                                            | 1,727,846 |   |                                                            |   | (63,491  | )     |  |   | 1,664,356 |   |  |      | 1,136,982 |   |       |    | (250,416   | ) |  |   | 886,566   |  
|Residential Mortgages and Construction - Retail       |  |                                                            | (475,531  | ) |                                                            |   | 229,020  |       |  |   | (246,511  | ) |  |      | 206,791   |   |       |    | (171,072   | ) |  |   | 35,719    |  
|All Other Loans                                       |  |                                                            | 1,865,341 |   |                                                            |   | (337,450 | )     |  |   | 1,527,890 |   |  |      | 59,216    |   |       |    | 11,936     |   |  |   | 71,152    |  
|                                                      |  |                                                            |           |   |                                                            |   |          |       |  |   |           |   |  |      |           |   |       |    |            |   |  |   |           |  
|Total loans                                           |  |                                                            | 1,912,491 |   |                                                            |   | 83,815   |       |  |   | 1,996,305 |   |  |      | 1,552,729 |   |       |    | (473,767   | ) |  |   | 1,078,961 |  
|                                                      |  |                                                            |           |   |                                                            |   |          |       |  |   |           |   |  |      |           |   |       |    |            |   |  |   |           |  
|Investment Securities :                               |  |                                                            |           |   |                                                            |   |          |       |  |   |           |   |  |      |           |   |       |    |            |   |  |   |           |  
|Collat. Mortg. Obligations / Mortg. Backed Securities |  |                                                            | 361,833   |   |                                                            |   | 184,410  |       |  |   | 546,244   |   |  |      | (125,053  | ) |       |    | (853,571   | ) |  |   | (978,624  | )
|States and political subdivisions                     |  |                                                            | 112,455   |   |                                                            |   | (7,253   | )     |  |   | 105,203   |   |  |      | 248,225   |   |       |    | (30,155    | ) |  |   | 218,070   |  
|                                                      |  |                                                            |           |   |                                                            |   |          |       |  |   |           |   |  |      |           |   |       |    |            |   |  |   |           |  
|Total Investment Securities                           |  |                                                            | 474,289   |   |                                                            |   | 177,158  |       |  |   | 651,447   |   |  |      | 123,172   |   |       |    | (883,726   | ) |  |   | (760,554  | )
|                                                      |  |                                                            |           |   |                                                            |   |          |       |  |   |           |   |  |      |           |   |       |    |            |   |  |   |           |  
|Federal Funds Sold / Short-Term Investments           |  |                                                            | (23,048   | ) |                                                            |   | 4,567    |       |  |   | (18,481   | ) |  |      | (115,825  | ) |       |    | (53,376    | ) |  |   | (169,201  | )
|                                                      |  |                                                            |           |   |                                                            |   |          |       |  |   |           |   |  |      |           |   |       |    |            |   |  |   |           |  
|Total Interest Income                                 |  |                                                            | 2,363,732 |   |                                                            |   | 265,540  |       |  |   | 2,629,271 |   |  |      | 1,560,076 |   |       |    | (1,410,869 | ) |  |   | 149,201   |  
|                                                      |  |                                                            |           |   |                                                            |   |          |       |  |   |           |   |  |      |           |   |       |    |            |   |  |   |           |  
|Interest Expense :                                    |  |                                                            |           |   |                                                            |   |          |       |  |   |           |   |  |      |           |   |       |    |            |   |  |   |           |  
|Money Market and NOW Accounts                         |  |                                                            | 192,843   |   |                                                            |   | 30,574   |       |  |   | 223,418   |   |  |      | (3,369    | ) |       |    | (289,848   | ) |  |   | (293,217  | )
|Savings Accounts                                      |  |                                                            | 37,484    |   |                                                            |   | (45,537  | )     |  |   | (8,053    | ) |  |      | 73,013    |   |       |    | (73,078    | ) |  |   | (65       | )
|Certificates of Deposit                               |  |                                                            | 304,764   |   |                                                            |   | (120,047 | )     |  |   | 184,718   |   |  |      | 148,271   |   |       |    | (526,268   | ) |  |   | (377,997  | )
|Certificates of Deposit of $100,000 And Over          |  |                                                            | (224,441  | ) |                                                            |   | (38,404  | )     |  |   | (262,815  | ) |  |      | (11,233   | ) |       |    | (115,442   | ) |  |   | (126,675  | )
|Federal Funds Purchased / Other Borrowed Funds        |  |                                                            | 33,576    |   |                                                            |   | (4,797   | )     |  |   | 28,779    |   |  |      | 167,340   |   |       |    | (136,412   | ) |  |   | 30,928    |  
|Trust Preferred Securities                            |  |                                                            | 0         |   |                                                            |   | 5,231    |       |  |   | 5,231     |   |  |      | 68,206    |   |       |    | (26,435    | ) |  |   | 41,771    |  
|                                                      |  |                                                            |           |   |                                                            |   |          |       |  |   |           |   |  |      |           |   |       |    |            |   |  |   |           |  
|Total interest expense                                |  |                                                            | 344,255   |   |                                                            |   | (172,979 | )     |  |   | 171,277   |   |  |      | 442,229   |   |       |    | (1,167,485 | ) |  |   | (725,255  | )
|                                                      |  |                                                            |           |   |                                                            |   |          |       |  |   |           |   |  |      |           |   |       |    |            |   |  |   |           |  
|Net Interest Income                                   |  | $                                                          | 2,019,476 |   |                                                            | $ | 438,519  |       |  | $ | 2,457,994 |   |  | $    | 1,117,847 |   |       | ($ | 243,384    | ) |  | $ | 874,461   |  
|                                                      |  |                                                            |           |   |                                                            |   |          |       |  |   |           |   |  |      |           |   |       |    |            |   |  |   |           |  



Average interest
earning assets increased by $39,066,046, or 15.1%, to $297,198,710 in 2004 from $258,132,644 in 2003, with increases in 2004 of $28,260,803 in loans and $12,873,644 in investment securities compared to 2003. Led by



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##### Table of Contents

commercial mortgages and construction loans, the Banks average loan portfolio grew by 16.6% and loan yields averaged 6.76% in 2004, 5 basis points
higher than 2003. This increase was primarily the result of 2004 loan growth at floating yields amid the increasing interest rate environment that evolved during the latter part of year. The Banks average investment securities portfolio grew
15.2%, and the yield on that portfolio increased 22 basis points, in 2004 compared to 2003, primarily as a result of the reduced level of premium amortization on mortgage-backed securities due to the rising rate environment. Net premium amortization
for 2004 was $350,168 compared to $1,190,853 for 2003. Overall, the yield on interest earning assets increased 16 basis points to 5.79% in 2004 from 5.63% in 2003.



Average interest earning assets increased by $17,902,990, or 7.5%, to $258,132,664 in 2003 from $240,229,674 in 2002, with
increases in 2003 of $25,032,333 in loans and $1,568,948 in investment securities compared to 2002. Led by commercial mortgages and construction loans, the Banks average loan portfolio grew by 17.2% and loan yields averaged 6.71% in 2003, 42
basis points lower than 2002. This decrease was primarily the result of 2003 loan growth at lower yields amid a decreasing interest rate environment for the entire year. The Banks average investment securities portfolio grew 1.9%, and the
yield on that portfolio decreased 98 basis points, in 2003 compared to 2002, primarily as a result of the accelerated premium amortization on mortgage-backed securities. Net premium amortization for 2003 was $1,190,853 compared to $520,346 for 2002.
Overall, the yield on interest earning assets decreased 36 basis points to 5.63% in 2003 from 5.99% in 2002.



Interest expense increased by $171,278, or 3.9%, to $4,545,295 for 2004, from $4,374,017 for 2003. This increase in interest expense is principally
attributable to higher levels of interest-bearing liabilities priced at a higher market interest rate level. Money market and NOW accounts increased on average by $19,677,891 in 2004 as compared to 2003, contributing to the funding of loan portfolio
growth. The cost on these deposits increased 4 basis points in 2004 from 2003. Average interest bearing liabilities rose 13.7% in 2004 from 2003. The cost of total interest-bearing liabilities decreased 19 basis points to 1.91% in 2004 from 2.10% in
2003.



Interest expense decreased by $725,255, or 14.2%, to
$4,374,017 for 2003 from $5,099,272 for 2002. This decrease in interest expense is principally attributable to higher levels of interest-bearing liabilities priced at a significantly lower market interest rate level. Savings accounts increased on
average by $6,135,586 in 2003, as compared to 2002, contributing to the funding of loan portfolio growth. The cost on these deposits decreased 47 basis points in 2003 from 2002. Average interest bearing liabilities rose 7.9% in 2003 from 2002. The
cost of total interest bearing liabilities decreased 54 basis points to 2.10% in 2003 from 2.64% in 2002.



Average non-interest bearing demand deposits increased by $8,303,996, or 20.1%, to $49,622,127 in 2004 from $41,318,131 in 2003. Expansion of the branch
network during 2004 and the resulting new business relationships have generated most of this increase. Throughout the comparative periods, increases in average non-interest bearing deposits contributed to the increases in net interest income.



Non-Interest Income



Non-interest income increased by $155,893, or 6.5%, to $2,557,242 in 2004
from $2,401,349 in 2003. Non-interest income in 2003 increased by $875,823, or 57.4%, from a total of $1,525,526 for 2002.



Service charges on deposit accounts represent a significant source of non-interest income. Service charge revenues decreased by $45,204, or 8.1%, to
$514,494 in 2004 from $559,698 in 2003. Service charge revenue totaled $517,415 in 2002. This component of non-interest income represented 20.1%, 23.3%, and 33.9% of the total non-interest income in 2004, 2003, and 2002, respectively. Service charge
income decreased in 2004 as a result of the Bank waiving service charges on new accounts during the period of branch expansion, and a decreasing number of accounts subject to service charges. Management continues to utilize a strategy of requiring
compensating balances from its commercial customers. Those who meet balance requirements are not assessed service charges.



Gain on sale of loans held for sale increased by $88,747, or 6.9%, to $1,373,660 for 2004, from $1,284,913 for 2003. Gain on sale of loans held for sale
totaled $676,208 in 2002. Market interest rates on 30-year fixed rate mortgages fell consistently during 2003, and into the first half of 2004. Consumer refinance of home loans, which, along with a strong housing market, led to the Bank achieving
high levels in mortgage origination volumes and mortgage loan sale gains, as newly-originated loans were sold at higher than normal spreads due to the consistently lower level of market interest rates. The rising rate environment that evolved during
late 2004 has not significantly impacted the mortgage market and resultant secondary loan sales as long term rates have note increased at the same pace as short term rates. In 2002, a higher interest rate environment existed that resulted in less
reported gain on loan sales for that year.



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##### Table of Contents

Non-interest income also includes income from bank-owned life insurance (BOLI) which amounted
to $312,496 for 2004 compared to $261,301 for 2003. During 2002, the Bank purchased $6.0 million in tax-free BOLI assets which partially offset the cost of employee benefit plans and reduced the overall effective tax rate. The Bank also generates
non-interest income from a variety of fee-based services. These include safe deposit rentals, wire transfer service fees and Automated Teller Machine fees for non-customers. Deposit and service fee charges are reviewed and adjusted as needed from
time to time by management to reflect current costs incurred by the Bank to offer the products or services and prices charged by competitor financial institutions amid the Banks competitive market.



The Company recorded net securities gains of $27,545 in 2004. These gains
were primarily the result of modest portfolio restructurings. Their purpose was to improve the Companys longer-term interest rate risk position.



Non-Interest Expenses



Non-interest expenses increased by $1,821,239, or 25.4%, to $8,989,961 in 2004, from $7,168,722 in 2003. Non-interest expenses in 2003 increased 14.0% to
$7,668,722 from $6,287,881 in 2002. The largest increase in non-interest expenses in 2004 compared to 2003 was in salaries and employees benefits. To a lesser extent, occupancy, and other non-interest expenses also reflect increases for the
comparable periods. The largest increase in non-interest expenses in 2003 compared to 2002 was in salaries and employee benefits and, to a lesser extent, other non-interest expenses, as indicated in the table below. The following table presents the
major components of non-interest expenses for the years 2002 through 2004.



Non-interest Expenses

|                                        |  |      |           |      |   |           |  |   |          
|--------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | ---------
|                                        |  | 2004 |           | 2003 |   | 2002     
|Salaries and employee benefits          |  | $    | 4,955,587 |      | $ | 3,979,655 |  | $ | 3,229,793
|Occupancy expense                       |  |      | 1,071,463 |      |   | 818,545   |  |   | 740,088  
|Equipment expense                       |  |      | 464,928   |      |   | 434,933   |  |   | 451,054  
|Marketing                               |  |      | 274,095   |      |   | 225,860   |  |   | 237,268  
|Date processing services                |  |      | 636,076   |      |   | 498,081   |  |   | 432,875  
|Regulatory, professional and other fees |  |      | 542,001   |      |   | 548,440   |  |   | 436,701  
|Office expense                          |  |      | 462,586   |      |   | 312,055   |  |   | 311,346  
|All other expenses                      |  |      | 583,225   |      |   | 351,153   |  |   | 448,756  
|                                        |  |      |           |      |   |           |  |   |          
|Total                                   |  | $    | 8,989,961 |      | $ | 7,168,722 |  | $ | 6,287,881
|                                        |  |      |           |      |   |           |  |   |          



Salaries and employee
benefits, which represent the largest portion of non-interest expenses, increased by $975,932, or 24.5%, to $4,955,587 in 2004 compared to $3,979,655 in 2003. These expenses increased in 2003 by $749,862, or 23.2%, over the $3,229,793 reported for
2002. The 2004 increase is primarily due to (a) increased staffing levels as a result of the opening of three new branch locations plus a new loan production office during 2004 plus (b) normal employee salary increases. The increase in the level of
salaries and employee benefits for 2003 versus 2002 reflects the increase in staffing levels required to support the mortgage loan origination function plus normal salary increases. Salaries and employee benefits as a percentage of average assets
were 1.58% in 2004, 1.45% in 2003 and 1.28% in 2002.



For 2004,
occupancy expense increased by $252,918, or 30.9%, to $1,071,463 from $818,545 for 2003. The increase in occupancy expense for 2004 compared to 2003 was a result of the 2004 branch expansion program which included new office space rentals,
maintenance, and other related expenses. The increase in occupancy expense in 2003 compared to 2002 was due primarily to contractual rent increases at most of the Banks branch offices.



The occupancy expense component of total non-interest expense as a percentage
of average assets was 0.34% in 2004, 0.30% in 2003 and 0.29% in 2002, respectively.



Data processing services increased by $137,995, or 27.7%, to $636,076 in 2004 from $498,081 in 2003. These expenses increased by $65,206 in 2003, or 15.1%, over 2002. The branch expansion program of 2004 required an
increased level of expense to bring each of the three new branch offices plus the new loan production office on-line.



Office expense increased by $150,531, or 48.2%, to $462,586 in 2004 from $312,055 in 2003. These expenses increased in 2003 by $709 over 2002. Office
expense is mainly comprised of office supply and telephone expenses, and the increase in 2004 was a result of the branch expansion program as compared to prior years expense levels.



The Banks ratio of non-interest expense to average assets was 2.86% for 2004 compared to 2.62% for 2003 and 2.49% for
2002.



An important industry productivity measure is the
efficiency ratio. The efficiency ratio is calculated by dividing total operating expenses by net interest income and other income. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same or greater
volume of income, while a decrease would indicate a more efficient allocation of resources. The Banks efficiency ratio increased modestly in 2004 to 59.8% compared to 57.7% in 2003 and 58.6% in 2002.



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##### Table of Contents

Financial Condition



Cash and Cash Equivalents



At December 31, 2004, cash and cash equivalents totaled $7,924,409 compared to $14,702,886 at December 31, 2003. Cash and cash equivalents at December 31,
2004 consisted of cash and due from banks of $7,898,395 and federal funds sold/short-term investments of $26,014. The corresponding balances at December 31, 2003 were $6,987,850 and $7,715,036, respectively. The higher balances of cash and cash
equivalents at December 31, 2003 were primarily due to late December 2003 interest-bearing deposits balances raised to fund loan growth and manage the Banks liquidity position.



Securities



The Banks investment securities portfolio amounted to $97,755,786, or 29.1% of total assets at December 31, 2004, compared to $91,191,170, or 31.1%
of total assets at December 31, 2003. On an average balance basis, the investment securities portfolio represented 32.9% and 34.7% of average interest-earning assets for the years ended December 31, 2004 and 2003, respectively. The average yield
earned on the portfolio was 3.85% in 2004, an increase of 22 basis points from 3.63% earned in 2003.



Securities available for sale are investments that may be sold in response to changing market and interest rate conditions or for other business purposes.
Securities available for sale consist primarily of U.S. Government and Federal agency securities as well as mortgage-backed securities. Activity in this portfolio is undertaken primarily to manage liquidity and interest rate risk and to take
advantage of market conditions that create economically more attractive returns. At December 31, 2004, available-for-sale securities amounted to $85,588,649, an increase of $588,676 from December 31, 2003.



Proceeds from maturities and prepayments of securities available for sale
amounted to $29,011,317 in 2004 and $57,073,223 in 2003. At December 31, 2004, the portfolio had net unrealized losses of $170,875, compared to net unrealized gains of $234,627 at December 31, 2003. These unrealized gains and losses are reflected
net of tax in shareholders equity as other comprehensive income (loss).



Securities held to maturity, which are carried at amortized historical cost, are investments for which there is the positive intent and ability to hold to maturity. The held-to-maturity portfolio consists primarily of
obligations of states and political subdivisions. At December 31, 2004, securities held to maturity were $12,167,137, an increase of $5,975,940 from $6,191,197 at December 31, 2003. The market value of the held-to-maturity portfolio at December 31,
2004 was $12,292,250, resulting in a net unrealized gain of $125,113.



The amortized cost, estimated market value and weighted average yield of debt securities at December 31, 2004, by contractual maturity, are shown below. 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. Federal Home Loan Bank stock is included in Due in one year or less.



|                                       |  |               |            |                        |   |                       |  |      |  
|-------------------------------------- |  | ------------- | ---------- | ---------------------- | - | --------------------- |  | ---- | -
|                                       |  | AmortizedCost |            | Estimated Market Value |   | WeightedAverageYield* | 
|Available for sale-                    |  |               |            |                        |   |                       |  |      |  
|Due in one year or less                |  | $             | 1,689,184  |                        | $ | 1,689,184             |  | 2.15 | %
|Due after one year through five years  |  |               | 35,891,040 |                        |   | 35,858,268            |  | 3.15 | %
|Due after five years through ten years |  |               | 16,903,299 |                        |   | 16,985,544            |  | 4.03 | %
|Due after ten years                    |  |               | 31,276,001 |                        |   | 31,055,653            |  | 4.39 | %
|                                       |  |               |            |                        |   |                       |  |      |  
|Total                                  |  | $             | 85,759,524 |                        | $ | 85,588,649            |  | 3.69 | %
|                                       |  |               |            |                        |   |                       |  |      |  
|Held to maturity-                      |  |               |            |                        |   |                       |  |      |  
|Due in one year or less                |  | $             | 0          |                        | $ | 0                     |  |     |  
|Due after one year through five years  |  |               | 2,528,806  |                        |   | 2,604,688             |  | 4.04 | %
|Due after five years through ten years |  |               | 3,175,783  |                        |   | 3,182,896             |  | 3.69 | %
|Due after ten years                    |  |               | 6,462,548  |                        |   | 6,504,666             |  | 4.22 | %
|                                       |  |               |            |                        |   |                       |  |      |  
|Total                                  |  | $             | 12,167,137 |                        | $ | 12,292,250            |  | 4.05 | %
|                                       |  |               |            |                        |   |                       |  |      |  

---

|* | computed on a tax equivalent basis.
|- | -----------------------------------



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##### Table of Contents

Loans



The loan portfolio, which represents the Banks largest asset, is a significant source of both interest and fee income. Elements of the loan
portfolio are subject to differing levels of credit and interest rate risk. The Banks primary lending focus continues to be commercial loans, owner-occupied commercial mortgage loans and tenanted commercial real estate loans. Total loans
averaged $198,452,422 during 2004, an increase of $28,260,803, or 16.6%, compared to an average of $170,191,619 in 2003. Growth in the average loan portfolio balance was generated primarily by an increase of $35,176,082, or 38.8%, in commercial
mortgage and construction wholesale loans. At December 31, 2004, total loans amounted to $210,653,051 compared to $163,950,306 at December 31, 2003, an increase of $46,702,745, or 28.5%. The average yield earned on the loan portfolio was 6.76% in
2004 compared to 6.71% in 2003, an increase of 5 basis points. This increase is primarily due to the rising interest rate environment that evolved during the last half of 2004.



The following table represents the components of the loan portfolio for the dates indicated.



|                                            |  |              |             |   |      |   |        |   |             |      |     |        |  |   |             |  |        |   |   |      |             |        |     |   |  |   |             |  |     |  
|------------------------------------------- |  | ------------ | ----------- | - | ---- | - | ------ | - | ----------- | ---- | --- | ------ |  | - | ----------- |  | ------ | - | - | ---- | ----------- | ------ | --- | - |  | - | ----------- |  | --- | -
|                                            |  | December 31, |            
|                                            |  | 2004         |             |   | 2003 |   |        |   |             | 2002 |     |        |  |   | 2001        |  |        |   |   | 2000 |             |        |    
|                                            |  | Amount       |             | % |      |   | Amount |   | %           |      |     | Amount |  | % |             |  | Amount |   | % |      |             | Amount |     | % | 
|Construction loans                          |  | $            | 88,027,024  |   | 42   | % |        | $ | 56,971,265  |      | 35  | %      |  | $ | 32,342,880  |  | 21     | % |   | $    | 29,385,096  |        | 24  | % |  | $ | 17,957,852  |  | 16  | %
|Residential real estate loans               |  |              | 9,815,366   |   | 5    | % |        |   | 8,059,032   |      | 5   | %      |  |   | 9,023,228   |  | 6      | % |   |      | 11,634,097  |        | 9   | % |  |   | 14,854,583  |  | 13  | %
|Commercial and commercial real estate loans |  |              | 96,021,077  |   | 46   | % |        |   | 83,840,831  |      | 51  | %      |  |   | 89,415,759  |  | 59     | % |   |      | 62,442,753  |        | 50  | % |  |   | 54,974,300  |  | 50  | %
|Loans to individuals                        |  |              | 16,002,619  |   | 7    | % |        |   | 13,236,895  |      | 8   | %      |  |   | 14,851,742  |  | 10     | % |   |      | 15,587,772  |        | 12  | % |  |   | 14,767,100  |  | 13  | %
|Lease financing                             |  |              | 74,543      |   | 0    | % |        |   | 1,054,198   |      | 1   | %      |  |   | 4,773,528   |  | 4      | % |   |      | 5,717,826   |        | 5   | % |  |   | 7,649,860   |  | 8   | %
|All others loans                            |  |              | 712,534     |   | 0    | % |        |   | 788,085     |      | 0   | %      |  |   | 642,599     |  | 0      | % |   |      | 169,939     |        | 0   | % |  |   | 152,776     |  | 0   | %
|                                            |  |              |             |   |      |   |        |   |             |      |     |        |  |   |             |  |        |   |   |      |             |        |     |   |  |   |             |  |     |  
|                                            |  |              |             |   |      |   |        |   |             |     
|                                            |  | $            | 210,653,163 |   | 100  | % |        | $ | 163,950,306 |      | 100 | %      |  | $ | 151,049,836 |  | 100    | % |   | $    | 124,937,483 |        | 100 | % |  | $ | 110,356,471 |  | 100 | %
|                                            |  |              |             |   |      |   |        |   |             |      |     |        |  |   |             |  |        |   |   |      |             |        |     |   |  |   |             |  |     |  



Commercial loans
averaged $27,656,123 for 2004, a decrease of $10,754,828, or 28.0%, compared to $38,410,951 for 2003. Commercial loans are made to small to middle market businesses and are typically working capital loans used to finance inventory, receivables or
equipment needs. These loans are generally secured by business assets of the commercial borrower. The average yield on the commercial loan portfolio increased 54 basis points to 7.75% in 2004 from 7.21% in 2003. The rising interest rate environment
that evolved in late 2004, especially the rising average prime rate, and competitive loan pricing resulted in the increased yield on this portfolio as well as the portfolio components discussed in the following paragraphs.



Commercial mortgages and construction wholesale loans averaged $125,877,374
for 2004, an increase of $35,176,082, or 38.8%, compared to $90,701,292 for 2003. Generally, these loans represent owner-occupied or investment properties and usually complement a broader commercial relationship with the borrower. Construction loans
are structured to provide for advances only after work is completed and inspected by qualified professionals. The average yield on the commercial mortgages and construction wholesale loan portfolio decreased 7 basis points to 6.07% for 2004 from
6.14% for 2003.



Residential mortgages and construction retail
loans averaged $14,518,615 for 2004, a decrease of $8,614,693, or 37.2%, compared to $23,133,308 for 2003. These loans consist primarily of residential mortgage loans, home equity loans and business loans secured by residential real estate. The
average yield on this portfolio increased 99 basis points to 6.51% for 2004 from 5.52% for 2003.



20



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##### Table of Contents

The following table provides information concerning the interest rate sensitivity of the Banks
commercial and commercial real estate loans and construction loans at December 31, 2004.



|                                    |  |                 |            |                                 |   |                  |  |       |            |  |   |            
|----------------------------------- |  | --------------- | ---------- | ------------------------------- | - | ---------------- |  | ----- | ---------- |  | - | -----------
|                                    |  | Maturity Range  |            |                                
|Type                                |  | Within One Year |            | After One But Within Five Years |   | After Five Years |  | Total
|Commercial & Commercial real estate |  | $               | 22,881,840 |                                 | $ | 29,005,809       |  | $     | 44,133,428 |  | $ | 96,021,077 
|Construction Loans                  |  |                 | 70,058,479 |                                 |   | 17,968,545       |  |       | 0          |  |   | 88,027,024 
|                                    |  |                 |            |                                 |   |                  |  |       |            |  |   |            
|Total                               |  | $               | 92,940,319 |                                 | $ | 46,974,354       |  | $     | 44,133,428 |  | $ | 184,048,101
|                                    |  |                 |            |                                 |   |                  |  |       |            |  |   |            
|Fixed rate loans                    |  | $               | 4,376,043  |                                 | $ | 19,246,910       |  | $     | 4,196,443  |  | $ | 27,819,396 
|Floating rate loans                 |  |                 | 88,564,276 |                                 |   | 27,727,444       |  |       | 39,936,985 |  |   | 156,228,705
|                                    |  |                 |            |                                 |   |                  |  |       |            |  |   |            
|Total                               |  | $               | 92,940,319 |                                 | $ | 46,974,354       |  | $     | 44,133,428 |  | $ | 184,048,101
|                                    |  |                 |            |                                 |   |                  |  |       |            |  |   |            



Non-Performing Assets



Non-performing assets consist of non-performing loans and
other real estate owned. Non-performing loans are composed of (1) loans on a non-accrual basis, (2) loans which are contractually past due 90 days or more as to interest and principal payments but have not been classified as non-accrual, and (3)
loans whose terms have been restructured to provide a reduction or deferral of interest on principal because of a deterioration in the financial position of the borrower.



The Banks policy with regard to non-accrual loans varies by the type of loan involved. Generally, loans are placed on
a non-accrual status when they are 90 days past due unless these loans are well secured and in the process of collection or, regardless of the past due status of the loan, when management determines that the complete recovery of principal or
interest is in doubt. Consumer loans are generally charged off after they become 90 days past due. Subsequent payments are credited to income only if collection of principal is not in doubt.



Non-performing loans increased by $781,758, or 236%, to $1,112,541 at
December 31, 2004, from $330,783 at December 31, 2003. This increase is primarily due to an increase of $718,628 in non-accrual loans to $1,049,411 at December 31, 2004 compared to $330,783 at December 31, 2003. Management believes that the
borrowing relationships representing this increase are well collateralized and present minor risk of financial loss to the Company. The table below sets forth non-performing assets and risk elements in the Banks portfolio by type for the years
indicated. As the table demonstrates, loan quality and ratios remain strong. This was accomplished through quality loan underwriting, a proactive approach to loan monitoring and aggressive workout strategies.



Non-performing assets increased by $772,787, or 227%, to $1,112,541 at
December 31, 2004 from $339,754 at December 31, 2003. Non-performing assets represented 0.33% of total assets at December 31, 2004 and 0.12% at December 31, 2003. Non-performing loans as a percentage of total loans were 0.50% at December 31, 2004,
compared to 0.20% at December 31, 2003.



The Bank had $8,971 of
other real estate owned at December 31, 2003.



The Bank had no
restructured loans or potential problem loans at December 31, 2004 and 2003.



21



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##### Table of Contents

At December 31, 2004, the Bank had $63,130 in loans that were 90 days or more past due but still accruing
interest income compared to no loans in this category of non-performing loans at December 31, 2003. Managements decision to accrue income on these loans was based on the level of collateral and the status of collection efforts.



|                               
|-------------------------------
|Non-Performing Assets and Loans

|                                                  |  |      |           |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|------------------------------------------------- |  | ---- | --------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                  |  | 2004 |           |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|Non-Performing loans:                             |  |      |           |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Loans 90 days or more past due and still accruing |  | $    | 63,130    |   |      | $ | 0       |      |  | $ | 2,156   |   |  | $    | 0       |   |  | $ | 471,040 |  
|Non-accrual loans                                 |  |      | 1,049,411 |   |      |   | 330,783 |      |  |   | 156,156 |   |  |      | 618,102 |   |  |   | 106,959 |  
|                                                  |  |      |           |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total non-performing loans                        |  |      | 1,112,541 |   |      |   | 330,783 |      |  |   | 158,312 |   |  |      | 618,102 |   |  |   | 577,999 |  
|Other real estate owned                           |  |      | 0         |   |      |   | 8,971   |      |  |   | 9,492   |   |  |      | 0       |   |  |   | 0       |  
|                                                  |  |      |           |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total non-performing assets                       |  | $    | 1,112,541 |   |      | $ | 339,754 |      |  | $ | 167,804 |   |  | $    | 618,102 |   |  | $ | 577,999 |  
|                                                  |  |      |           |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Non-performing loans to total loans               |  |      | 0.50      | % |      |   | 0.20    | %    |  |   | 0.10    | % |  |      | 0.49    | % |  |   | 0.52    | %
|Non-performing assets to total assets             |  |      | 0.33      | % |      |   | 0.12    | %    |  |   | 0.06    | % |  |      | 0.28    | % |  |   | 0.32    | %



Allowance for Loan Losses and
Related Provision



The allowance for loan losses is
maintained at a level sufficient to absorb estimated credit losses in the loan portfolio as of the date of the financial statements. The allowance for loan losses is a valuation reserve available for losses incurred or inherent in the loan portfolio
and other extensions of credit. The determination of the adequacy of the allowance for loan losses is a critical accounting policy of the Company.



Management utilizes a systematic and documented allowance adequacy methodology for loan losses that requires specific allowance assessment for all loans,
including real estate mortgages and consumer loans. This methodology assigns reserves based upon credit risk ratings for all loans. The reserves are based upon various factors, including historical performance and the current economic environment.
Management continually reviews the process used to determine the adequacy of the allowance for loan losses. Allocations to the allowance for loan losses, both specific and general, are determined after this review. Loans are classified based on
internal reviews and evaluations performed by the lending staff. These evaluations are, in turn, examined by the Banks internal loan review specialist. A formal loan review function, independent of loan origination, is used to identify and
monitor risk classifications. The table below presents, for the years indicated, an analysis of the allowance for loan losses and other related data.



|                         
|-------------------------
|Allowance for Loan Losses

|                                                          |  |      |             |    |      |   |             |      |  |   |             |   |  |      |             |    |  |   |             |   
|--------------------------------------------------------- |  | ---- | ----------- | -- | ---- | - | ----------- | ---- |  | - | ----------- | - |  | ---- | ----------- | -- |  | - | ----------- | --
|                                                          |  | 2004 |             |    | 2003 |   |             | 2002 |  |   | 2001        |   |  | 2000 |            
|Balance, beginning of period                              |  | $    | 1,786,632   |    |      | $ | 1,669,882   |      |  | $ | 1,414,495   |   |  | $    | 1,132,555   |    |  | $ | 941,556     |   
|Provision charged to operating expenses                   |  |      | 240,000     |    |      |   | 240,000     |      |  |   | 240,000     |   |  |      | 300,000     |    |  |   | 215,875     |   
|Loans charged off                                         |  |      | (22,273     | )  |      |   | (123,666    | )    |  |   | (8,182      | ) |  |      | (20,973     | )  |  |   | (28,158     | ) 
|Recoveries                                                |  |      | 810         |    |      |   | 416         |      |  |   | 23,569      |   |  |      | 2,913       |    |  |   | 3,282       |   
|                                                          |  |      |             |    |      |   |             |      |  |   |             |   |  |      |             |    |  |   |             |   
|Net (charge offs) / recoveries                            |  |      | (21,463     | )  |      |   | (123,250    | )    |  |   | 15,387      |   |  |      | (18,060     | )  |  |   | (24,876     | ) 
|                                                          |  |      |             |    |      |   |             |      |  |   |             |   |  |      |             |    |  |   |             |   
|Balance, end of period                                    |  | $    | 2,005,169   |    |      | $ | 1,786,632   |      |  | $ | 1,669,882   |   |  | $    | 1,414,495   |    |  | $ | 1,132,555   |   
|                                                          |  |      |             |    |      |   |             |      |  |   |             |   |  |      |             |    |  |   |             |   
|Loans :                                                   |  |      |             |    |      |   |             |      |  |   |             |   |  |      |             |    |  |   |             |   
|At year end                                               |  | $    | 220,580,932 |    |      | $ | 163,950,306 |      |  | $ | 151,049,736 |   |  | $    | 124,937,483 |    |  | $ | 110,356,471 |   
|Average during the year                                   |  |      | 198,452,421 |    |      |   | 170,191,619 |      |  |   | 145,159,286 |   |  |      | 123,944,552 |    |  |   | 99,472,064  |   
|Net recoveries (charge offs) to average loans outstanding |  |      | (0.01       | )% |      |   | (0.07       | )%   |  |   | 0.01        | % |  |      | (0.01       | )% |  |   | (0.03       | )%
|                                                          |  |      |             |    |     
|Allowance for loan losses to:                             |  |      |             |    |      |   |             |      |  |   |             |   |  |      |             |    |  |   |             |   
|Total loans at year end                                   |  |      | 0.91        | %  |      |   | 1.09        | %    |  |   | 1.11        | % |  |      | 1.13        | %  |  |   | 1.02        | % 
|Non-performing loans                                      |  |      | 180.23      | %  |      |   | 540.12      | %    |  |   | 270.16      | % |  |      | 228.84      | %  |  |   | 195.94      | % 



At December 31, 2004,
the allowance for loan losses was $2,005,169 compared to $1,786,632 at December 31, 2003, an increase of $218,537, or 12.2%. The ratio of the allowance for loan losses to total loans at December 31, 2004 and 2003



22



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##### Table of Contents

was 0.91% and 1.09%, respectively. The allowance for loan losses as a percentage of non-performing loans was 180.23% at December 31, 2004, compared to
540.12% at December 31, 2003. Management believes the quality of the loan portfolio remains strong and that the allowance for loan losses is adequate in relation to credit risk exposure levels.



The provision for loan losses was $240,000 for the years ended December 31,
2004 and 2003. Management believes the quality of the loan portfolio remains sound, the determination of the provision for loan losses amount was primarily due to the manageable balances in non-accrual loans and managements assessment of
economic conditions in the Banks marketplace. Net charge offs/recoveries amounted to a net charge off of $21,463 in 2004 compared to a net charge off of $123,250 in 2003.



The following table describes the allocation of the allowance for loan losses among the various categories of loans and
certain other information as of the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to absorb losses from any
segment of loans.



Allocation of the Allowance for Loan Losses



|                                        |  |                   |           |                                             |                   |   |        |                   |                                             |  |                   |        |  |                                             |           |  |        |   |                                             |   |           |        |     |                                             |  |   |           |  |     |  
|--------------------------------------- |  | ----------------- | --------- | ------------------------------------------- | ----------------- | - | ------ | ----------------- | ------------------------------------------- |  | ----------------- | ------ |  | ------------------------------------------- | --------- |  | ------ | - | ------------------------------------------- | - | --------- | ------ | --- | ------------------------------------------- |  | - | --------- |  | --- | -
|                                        |  | December 31, 2004 |           |                                             | December 31, 2003 |   |        | December 31, 2002 |                                             |  | December 31, 2001 |        |  | December 31, 2000                           |          
|                                        |  | Amount            |           | Percent ofloans ineachcategoryto totalloans |                   |   | Amount |                   | Percent ofloans ineachcategoryto totalloans |  |                   | Amount |  | Percent ofloans ineachcategoryto totalloans |           |  | Amount |   | Percent ofloans ineachcategoryto totalloans |   |           | Amount |     | Percent ofloans ineachcategoryto totalloans | 
|Balance of end of period applicable to: |  |                   |           |                                             |                   |   |        |                   |                                             |  |                   |        |  |                                             |           |  |        |   |                                             |   |           |        |     |                                             |  |   |           |  |     |  
|                                        |  |                   |           |                                             |                   |   |        |                   |                                             | 
|Domestic:                               |  |                   |           |                                             |                   |   |        |                   |                                             |  |                   |        |  |                                             |           |  |        |   |                                             |   |           |        |     |                                             |  |   |           |  |     |  
|Commercial, financial and agricultural  |  | $                 | 1,183,050 |                                             | 46                | % |        | $                 | 1,054,113                                   |  | 52                | %      |  | $                                           | 985,230   |  | 60     | % |                                             | $ | 707,248   |        | 51  | %                                           |  | $ | 577,603   |  | 50  | %
|Real estate  construction              |  |                   | 491,266   |                                             | 42                | % |        |                   | 375,193                                     |  | 35                | %      |  |                                             | 350,676   |  | 21     | % |                                             |   | 325,334   |        | 23  | %                                           |  |   | 271,813   |  | 16  | %
|Real estate  mortgage                  |  |                   | 120,310   |                                             | 5                 | % |        |                   | 107,198                                     |  | 5                 | %      |  |                                             | 100,193   |  | 6      | % |                                             |   | 127,305   |        | 9   | %                                           |  |   | 136,907   |  | 14  | %
|Installment loans to individuals        |  |                   | 200,517   |                                             | 8                 | % |        |                   | 178,663                                     |  | 8                 | %      |  |                                             | 186,988   |  | 10     | % |                                             |   | 160,739   |        | 12  | %                                           |  |   | 79,279    |  | 13  | %
|Lease financing                         |  |                   | 4,010     |                                             | 0                 | % |        |                   | 53,599                                      |  | 1                 | %      |  |                                             | 50,096    |  | 3      | % |                                             |   | 70,725    |        | 5   | %                                           |  |   | 45,302    |  | 7   | %
|Unallocated                             |  |                   | 6,016     |                                             |                  |   |        |                   | 17,866                                      |  |                  |        |  |                                             | 18,899    |  |       |   |                                             |   | 14,144    |        |    |                                             |  |   | 22,651    |  |    |  
|                                        |  |                   |           |                                             |                   |   |        |                   |                                             |  |                   |        |  |                                             |           |  |        |   |                                             |   |           |        |     |                                             |  |   |           |  |     |  
|                                        |  |                   |           |                                             |                   |   |        |                   |                                             | 
|                                        |  | $                 | 2,005,169 |                                             | 100               | % |        | $                 | 1,788,632                                   |  | 100               | %      |  | $                                           | 1,669,882 |  | 100    | % |                                             | $ | 1,414,495 |        | 100 | %                                           |  | $ | 1,132,566 |  | 100 | %
|                                        |  |                   |           |                                             |                   |   |        |                   |                                             |  |                   |        |  |                                             |           |  |        |   |                                             |   |           |        |     |                                             |  |   |           |  |     |  



Deposits



Deposits, which include demand deposits (interest bearing and non-interest
bearing), savings and time deposits, are a fundamental and cost-effective source of funding. The Bank offers a variety of products designed to attract and retain customers, with the Banks primary focus being on building and expanding long-term
relationships. Deposits in 2004 averaged $256,918,923, an increase of $36,011,360, or 16.3%, compared to $220,907,563 for 2003. At December 31, 2004, total deposits were $276,887,033, an increase of $31,533,309, or 12.9%, from $245,353,724 at
December 31, 2003. The average rate paid on the Banks interest-bearing deposit balances for 2004 was 1.59%, decreasing from the 1.76% average rate for 2003.



The significant contributor to the level of deposit growth in the year ended December 31, 2004 were non-interest bearing
demand deposits, which increased by $8,133,149, or 19.1%, to $50,794,581 at December 31, 2004 from $42,661,432 at December 31, 2003. Interest bearing demand deposits, which include interest-bearing checking, money market and the Banks premier
money market product, 1STChoice accounts, also increased by $19,677,891, or 25.7%, to an average of $96,113,368 in
2004 from an average of $76,435,477 in 2003. The average cost of interest bearing demand deposits increased 4 basis points to 1.02% in 2004 compared to 0.98% in 2003.



Savings accounts decreased by $1,915,846, or 6.6%, to $27,310,910 at December 31, 2004 from $29,226,756 at December 31,
2003. The average balance of savings accounts for 2004 increased by $5,206,079 to $26,890,218 compared to an average balance of $21,684,139 for 2003.



Average non-interest bearing demand deposits increased by $8,303,996, or 20.1%, to $49,622,127 for 2004 from $41,318,131 for 2003. At December 31, 2004,
non-interest bearing demand deposits totaled $50,794,581, an increase of 19.1% compared to $42,661,432 at December 31, 2003. Non-interest bearing demand deposits represent a stable, interest-free source of funds. Growth in business and personal
checking accounts through the 2004 branch expansion program generated most of the current year increase.



23



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##### Table of Contents

Time deposits consists primarily of retail certificates of deposit and certificates of deposit of
$100,000 and over. Time deposits at December 31, 2004 were $88,699,457, an increase of $2,328,967, or 2.7%, from $86,370,490 at December 31, 2003. The retail certificates of deposit component of time deposits increased by $10,954,239, or 17.3%, to
an average of $74,136,634 for 2004 from an average of $63,182,395 for 2003. The average cost of these deposits decreased by 19 basis points to 2.58% for 2004 from 2.77% for 2003. Certificates of deposit of $100,000 and over decreased by $8,130,845,
or 44.5%, to an average of $10,156,576 for 2004 from an average of $18,287,421 for 2003. The average cost for these deposits decrease by 21 basis points to 2.55% for 2004 compared to 2.76% for 2003. Certificates of deposit of $100,000 and over are a
less stable funding source and are used primarily as an alternative to other sources of borrowed funds.



The following table illustrates the components of average total deposits for the past three years.



Average Deposit Balances



|                                            |  |                 |             |                     |        |   |                 |      |                    |  |        |                 |  |                    |             |  |        |  
|------------------------------------------- |  | --------------- | ----------- | ------------------- | ------ | - | --------------- | ---- | ------------------ |  | ------ | --------------- |  | ------------------ | ----------- |  | ------ | -
|                                            |  | 2004            |             |                     | 2003   |   |                 | 2002 |                   
|                                            |  | Average Balance |             | Percentage of Total |        |   | Average Balance |      | Percentageof Total |  |        | Average Balance |  | Percentageof Total |            
|Non-interest bearing demand deposits        |  | $               | 49,622,127  |                     | 19.31  | % |                 | $    | 41,318,131         |  | 18.70  | %               |  | $                  | 39,021,155  |  | 18.67  | %
|Money market and NOW accounts               |  |                 | 96,113,368  |                     | 37.41  | % |                 |      | 76,435,477         |  | 34.60  | %               |  |                    | 76,698,669  |  | 36.69  | %
|Savings deposits                            |  |                 | 26,800,503  |                     | 10.43  | % |                 |      | 21,684,139         |  | 9.82   | %               |  |                    | 15,548,553  |  | 7.44   | %
|Certificates of deposit of $100,000 or more |  |                 | 10,156,576  |                     | 3.95   | % |                 |      | 18,287,421         |  | 8.28   | %               |  |                    | 18,619,750  |  | 8.91   | %
|Other time deposits                         |  |                 | 74,226,349  |                     | 28.89  | % |                 |      | 63,182,395         |  | 28.60  | %               |  |                    | 59,131,266  |  | 28.29  | %
|                                            |  |                 |             |                     |        |   |                 |      |                    |  |        |                 |  |                    |             |  |        |  
|Total                                       |  | $               | 256,918,923 |                     | 100.00 | % |                 | $    | 220,907,563        |  | 100.00 | %               |  | $                  | 209,019,393 |  | 100.00 | %
|                                            |  |                 |             |                     |        |   |                 |      |                    |  |        |                 |  |                    |             |  |        |  



Other Borrowed Funds



Other borrowed funds are mainly comprised of Federal Home
Loan Bank (FHLB) borrowings, and overnight funds purchased. These borrowings are primarily used to fund asset growth not supported by deposit generation. The average balance of other borrowed funds increased by $827,049, or 3.44%, to
$24,812,983 for 2004 from the average balance of $23,985,934 for 2003. This increase is primarily due to the fact that loan portfolio growth exceeded deposit growth.



The balance of other borrowings was $25,200,000 at December 31, 2004, consisting of long-term FHLB borrowings of $15,500,000
and overnight funds purchased of $9,700,000. The balance of other

borrowings at December 31, 2003 consisted of FHLB borrowings of
$15,500,000. The average cost of other borrowed funds decreased 2 basis points to 3.95% for 2004 compared with 3.97% for 2003.



During 2000, the Bank purchased three ten-year fixed rate convertible advances from the FHLB. These advances, in the amounts of $2,500,000, $5,000,000,
and $5,000,000 bear interest at the rates of 5.50%, 5.34%, and 5.06%, respectively. These advances are convertible quarterly at the option of the FHLB.



These advances are fully secured by marketable securities and qualifying one-to-four family mortgage loans.



Securities sold under agreements to repurchase are summarized as follows:



|                                              |  |      |           |   |      |   |           |      |  |   |           |  
|--------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                              |  | 2004 |           |   | 2003 |   |           | 2002 | 
|Balance outstanding at year end               |  |      |          |   |      | $ | 1,921,015 |      |  | $ | 2,554,815 |  
|Weighted average interest rate at year end    |  |      | 1.27      | % |      |   | 1.15      | %    |  |   | 0.89      | %
|Average daily balance outstanding during year |  | $    | 1,674,172 |   |      | $ | 2,290,866 |      |  | $ | 4,124,680 |  
|Weighted average interest rate during year    |  |      | 1.28      | % |      |   | 1.46      | %    |  |   | 1.77      | %
|Highest month-end outstanding balance         |  | $    | 1,941,042 |   |      | $ | 2,562,549 |      |  | $ | 4,198,060 |  



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##### Table of Contents

Shareholders Equity and Dividends



Shareholders equity increased by $3,205,128, or 13.6% to $26,790,384 at December 31, 2004, from $23,585,256 at
December 31, 2003. Book value per common share increased by $0.93, or 12.95%, to $8.11 at December 31, 2004 from $7.18 at December 31, 2003. The increase in shareholders equity and book value per share resulted primarily from net income of
$3,837,714, less the effect of stock buybacks and the unrealized holding loss on securities.



During the period 1999  2004, the Company has achieved a five year compounded growth rate for shareholders equity of 16.5%. The Companys book value per share has also increased over this period at a
compounded growth rate of 15.0%. In lieu of cash dividends, the Company has declared a stock dividend every year since 1992 and has paid such dividends every year since 1993. A 5% stock dividend was declared in the years 2004, 2003 and 2002. The
Company declared a two-for-one stock split on January 20, 2005 and paid February 28, 2005 to shareholders of record on February 10, 2005.



The Companys common stock is quoted on the NASDAQ National Market System under the symbol FCCY.



The Company and the Bank are subject to various regulatory capital
requirements administered by the Federal Reserve Board and the Federal Deposit Insurance Corporation. For information on regulatory capital, see Note 15 of the Notes to Consolidated Financial Statements.



Off-Balance Sheet Arrangements and Contractual Obligations



Off-Balance Sheet Arrangements



The following table shows the amounts and expected maturities of significant
commitments as of December 31, 2004. Further discussion of these commitments is included in Note 13 to the Consolidated Financial Statements.



|                                      |  |                  |           |                    |   |                     |  |                 |   |       |   |   |  |   |          
|------------------------------------- |  | ---------------- | --------- | ------------------ | - | ------------------- |  | --------------- | - | ----- | - | - |  | - | ---------
|                                      |  | One Year or Less |           | One to Three Years |   | Three to Five Years |  | Over Five Years |   | Total
|Standby letters of credit             |  | $                | 875,467   |                    | $ | 0                   |  | $               | 0 |       | $ | 0 |  | $ | 875,467  
|Commitments to sell residential loans |  | $                | 9,927,881 |                    | $ | 0                   |  | $               | 0 |       | $ | 0 |  | $ | 9,927,881



Contractual Obligations



The following table shows the significant contractual
obligations of the Company by expected payment period as of December 31, 2004. Further discussion of these commitments is included in Note 13 to the Consolidated Financial Statements.



|                           |  |       |            |                   |   |                   |  |                    |            |                |   |            |  |   |           
|-------------------------- |  | ----- | ---------- | ----------------- | - | ----------------- |  | ------------------ | ---------- | -------------- | - | ---------- |  | - | ----------
|Contractual Obligation     |  | Total |            | Less ThanOne Year |   | One to ThreeYears |  | Three to FiveYears |            | Over FiveYears
|Long-term debt obligations |  | $     | 15,500,000 |                   | $ | 0                 |  | $                  | 0          |                | $ | 3,000,000  |  | $ | 12,500,000
|Operating lease obligation |  | $     | 4,696,827  |                   | $ | 661,747           |  | $                  | 1,192,848  |                | $ | 907,497    |  | $ | 1,934,735 
|Purchase obligations       |  | $     | 1,964,722  |                   | $ | 611,130           |  | $                  | 1,353,592  |                | $ | 0          |  | $ | 0         
|Certificates of deposit    |  | $     | 88,699,457 |                   | $ | 52,505,117        |  | $                  | 25,836,159 |                | $ | 10,358,182 |  | $ | 0         



Long-term debt
obligations includes fixed term borrowings from the Federal Home Loan Bank and Securities Sold under Agreements to Repurchase. The borrowings have defined terms and under certain circumstances are callable at the option of the lender. Operating
leases represent obligations entered into by the Company for the use of land and premises. The leases generally have escalation terms based upon certain defined indices. Purchase obligations represent legally binding and enforceable agreements to
purchase goods and services from third parties and consists primarily of contractual obligations under data processing service agreements.



The Company also has commitments and obligations under its employee benefit plans as described in Note 11 to the Consolidated Financial Statements.



25



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##### Table of Contents

Liquidity



Liquidity measures the ability to satisfy current and future cash flow needs as they become due.



Liquidity management refers to the Companys ability to support asset
growth while satisfying the borrowing needs and deposit withdrawal requirements of customers. In addition to maintaining liquid assets, factors such as capital position, profitability, asset quality and availability of funding affect a banks
ability to meet its liquidity needs. On the asset side, liquid funds are maintained in the form of cash and cash equivalents, federal funds sold, investment securities held to maturity maturing within one year, securities available for sale and
loans held for sale. Additional asset-based liquidity is derived from scheduled loan repayments as well as investment repayments of principal and interest from mortgage-backed securities. On the liability side, the primary source of liquidity is the
ability to generate core deposits. Short-term borrowings are used as supplemental funding sources when growth in the core deposit base does not keep pace with that of earnings assets.



The Bank has established a borrowing relationship with the FHLB and its correspondent banks which further supports and
enhances liquidity.



The Consolidated Statements of Cash Flows
present the changes in cash from operating, investing and financing activities. At December 31, 2004, the balance of cash and cash equivalents was $7,924,409.



Net cash provided by operating activities increased by $5,016,666, or 108%, to $9,645,642 for 2004 from $4,628,976 for 2003. The primary source of
funds is net income from operations adjusted for provision for loan losses, depreciation expenses, and net amortization of premiums on securities. During 2004, a lower volume of originations of loans held for sale required less cash to be used in
this operating activity.



Net cash used in investing activities
increased by $37,746,358, or 214%, to $55,364,757 for 2004 from $17,618,399 for 2003. The increase in cash usage for 2004 compared to 2003 resulted from increase in loans and purchases of securities.



Net cash provided by financing activities increased by $20,842,703, or 115%,
to $38,940,638 for 2004 from $18,097,935 for 2003. The cash provided in 2004 resulted primarily from the increase in total deposits.



The securities portfolios are also a source of liquidity, providing cash flows from maturities and periodic repayments of principal. During 2004,
prepayments and maturities of investment securities totaled $29,906,302. Another source of liquidity is the loan portfolio, which provides a steady flow of payments and maturities.



Interest Rate Sensitivity Analysis



The largest component of the Banks total income is net interest income, and the majority of the Banks financial instruments are composed of
interest rate-sensitive assets and liabilities with various terms and maturities. The primary objective of management is to maximize net interest income while minimizing interest rate risk. Interest rate risk is derived from timing differences in
the repricing of assets and liabilities, loan prepayments, deposit withdrawals, and differences in lending and funding rates. Management actively seeks to monitor and control the mix of interest rate-sensitive assets and interest rate-sensitive
liabilities.



26



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##### Table of Contents

The following tables set forth certain information relating to the Banks financial instruments that
are sensitive to changes in interest rates, categorized by expected maturity or repricing and the fair value of such instruments at December 31, 2004.



Interest Rate Sensitivity Analysis At December 31, 2004



($ in thousands)

|                                   |  |                             |         |   |                     |   |        |                     |  |   |                                         |   |  |       |        |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |        
|---------------------------------- |  | --------------------------- | ------- | - | ------------------- | - | ------ | ------------------- |  | - | --------------------------------------- | - |  | ----- | ------ | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | - |  | - | -------
|                                   |  | Interest Sensitivity Period |         |   | TotalWithinOne Year |   |        | OneYear To TwoYears |  |   | Non-interest Sensitiveand Over TwoYears |   |  | Total
|                                   |  | 30 Day                      |         |   | 90 Day              |   |        | 180 Day             |  |   | 365 Day                                 |   |  |       |        |  
|Earning Assets:                    |  |                             |         |   |                     |   |        |                     |  |   |                                         |   |  |       |        |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |        
|Total Investment Securities        |  | $                           | 2,129   |   |                     | $ | 3,690  |                     |  | $ | 2,299                                   |   |  | $     | 18,969 |   |  | $ | 27,087  |   |  | $ | 27,568 |   |  | $ | 43,101  |   |  | $ | 97,756 
|Loans                              |  |                             | 132,092 |   |                     |   | 6,310  |                     |  |   | 5,693                                   |   |  |       | 8,676  |   |  |   | 152,771 |   |  |   | 13,805 |   |  |   | 44,077  |   |  |   | 210,653
|Other Interest-earning assets      |  |                             | 9,954   |   |                     |   |        |                     |  |   |                                         |   |  |       |        |   |  |   | 9,954   |   |  |   |        |   |  |   | 17,467  |   |  |   | 27,421 
|                                   |  |                             |         |   |                     |   |        |                     |  |   |                                         |   |  |       |        |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |        
|                                   |  |                             | 144,175 |   |                     |   | 10,000 |                     |  |   | 7,992                                   |   |  |       | 27,645 |   |  |   | 189,812 |   |  |   | 41,373 |   |  |   | 104,645 |   |  |   | 335,830
|                                   |  |                             |         |   |                     |   |        |                     |  |   |                                         |   |  |       |        |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |        
|Source of Funds:                   |  |                             |         |   |                     |   |        |                     |  |   |                                         |   |  |       |        |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |        
|Savings and time deposits          |  |                             | 24,269  |   |                     |   | 9,255  |                     |  |   | 12,922                                  |   |  |       | 19,267 |   |  |   | 65,713  |   |  |   | 33,273 |   |  |   | 27,302  |   |  |   | 126,288
|Other interest-bearing liabilities |  |                             | 78,412  |   |                     |   |        |                     |  |   | 5,000                                   |   |  |       |        |   |  |   | 83,412  |   |  |   | 2,789  |   |  |   | 43,803  |   |  |   | 130,004
|Non-interest-bearing sources       |  |                             |         |   |                     |   |        |                     |  |   |                                         |   |  |       |        |   |  |   |         |   |  |   |        |   |  |   | 79,538  |   |  |   | 79,538 
|                                   |  |                             |         |   |                     |   |        |                     |  |   |                                         |   |  |       |        |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |        
|                                   |  |                             | 102,681 |   |                     |   | 9,255  |                     |  |   | 17,922                                  |   |  |       | 19,267 |   |  |   | 149,125 |   |  |   | 36,062 |   |  |   | 150,643 |   |  |   | 335,830
|                                   |  |                             |         |   |                     |   |        |                     |  |   |                                         |   |  |       |        |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |        
|Asset (Liability) Sensitivity Gap: |  |                             |         |   |                     |   |        |                     |  |   |                                         |   |  |       |        |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   |        
|Period Gap                         |  | $                           | 41,494  |   |                     | $ | 745    |                     |  | $ | (9,930                                  | ) |  | $     | 8,378  |   |  | $ | 40,687  |   |  | $ | 5,311  |   |  | $ | (45,998 | ) |  | $ | 0      
|Cumulative Gap                     |  | $                           | 41,494  |   |                     | $ | 42,239 |                     |  | $ | 32,309                                  |   |  | $     | 40,687 |   |  | $ | 40,687  |   |  | $ | 45,998 |   |  |   |         |   |  |   |        
|Cumulative Gap to Total Assets     |  |                             | 12.4    | % |                     |   | 12.6   | %                   |  |   | 9.6                                     | % |  |       | 12.1   | % |  |   | 12.1    | % |  |   | 13.7   | % |  |   |         |   |  |   |        



The Bank continually
evaluates interest rate risk management opportunities, including the use of derivative financial instruments. Management believes that hedging instruments currently available are not cost-effective, and therefore, has focused its efforts on
increasing the Banks spread by attracting lower-costing retail deposits.



In addition to utilizing the gap ratio for interest rate risk assessment, management utilizes simulation analysis whereby the model estimates the variance in net income with a change in interest rates of plus or minus
200 basis points over 12 and 24 month periods. Given recent simulations, net interest income would be within policy guidelines regardless of the direction of market rates.



Recent Accounting Pronouncements



In November 2003, the Emerging Issues Task Force (EITF) of the FASB issued EITF Abstract 03-1, The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments (EITF 03-1). The quantitative and qualitative disclosure provisions of EITF 03-1 were effective for years ending after December 15, 2003 and were included in the Companys 2003 Form 10-K. In March 2004, the
EITF issued a Consensus on Issue 03-1 requiring that the provisions of EITF 03-1 be applied for reporting periods beginning after June 15, 2004 to investments accounted for under SFAS No. 115 and 124. EITF 03-1 establishes a three-step approach for
determining whether an investment is considered impaired, whether that impairment is other-than-temporary, and the measurement of an impairment loss. In September 2004, the FASB issued a proposed Staff Position, EITF Issue 03-1-a, Implementation
Guidance for the Application of Paragraph 16 of EITF 03-1 (EITF 03-1-a). EITF 03-1-a would provide implementation guidance with respect to debt securities that are impaired solely due to interest rates and/or sector spreads and analyzed for
other-than-temporary impairment under paragraph 16 of EITF 03-1. In September 2004, the FASB also issued a Staff Position, EITF Issue 03-1-1, Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1 (EITF 03-1-1). EITF 03-1-1 delays the effective
date for the measurement and recognition guidance contained in paragraphs 10-20 of EITF 03-1. The delay of the effective date will be superseded concurrent with the final issuance of EITF 03-1-a. The Company is in the process of determining the
impact that this EITF will have on its financial statements.



FASB Statement No. 123 (revised 2004), Share-Based Payment. Statement 123(R) addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of
the enterprise or (b) liabilities that are based on the fair value of the enterprises equity instruments or that may be settled by the issuance of such equity instruments. Statement 123(R) requires an entity to recognize the grant-date
fair-value of stock options and other equity-based compensation issued to employees in the income statement. The revised Statement generally requires that an entity account for those transactions using the fair-value-based method; and eliminates an
entitys ability to account for share-based compensation transactions using the intrinsic value method of accounting in APB Opinion No. 25, Accounting for Stock Issued to Employees, which was permitted under Statement 123, as originally
issued. The revised Statement requires entities to disclose information about the nature of the share-based payment transactions and the effects of those transactions on the financial statements. Statement 123(R) is effective for the Company
beginning July 1, 2005. The Company must use either the modified prospective or the modified retrospective transition method. Early adoption of this



27



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Statement for interim or annual periods for which financial statements or interim reports have not been issued is permitted. The adoption of Statement 123(R)
is expected to reduce reported net income and earnings per share. Management is in the process of evaluating Statement 123(R) and does not know its full impact on the consolidated financial statements at this time.



The guidance in EITF 03-1 The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments, was effective for other-than-temporary impairment evaluations made in reporting periods beginning after June 15, 2004. However, the guidance contained in paragraphs 10-20 of the Issue has
been delayed by FSP EITF Issue 03-1-1, The Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, posted on September 30, 2004.
The disclosure requirements continue to be effective in annual financial statements for fiscal years ending after December 15, 2003. The Company will evaluate the impact on its consolidated financial statements, if any, when the recognition and
measurement requirements for other-than-temporary impairment are finalized.



Item 7a. Quantitative and Qualitative Disclosures About Market Risk.



Market Risk Analysis



To measure the impacts of longer-term asset and liability mismatches beyond two years, the Company utilizes Modified Duration of Equity and Economic Value of Portfolio Equity (EVPE) models. The modified duration of equity
measures the potential price risk of equity to changes in interest rates. A longer modified duration of equity indicates a greater degree of risk to rising interest rates. Because of balance sheet optionality, an EVPE analysis is also used to
dynamically model the present value of asset and liability cash flows, with rates ranging up or down 200 basis points. The economic value of equity is likely to be different as interest rates change. Results falling outside prescribed ranges require
action by Management. At December 31, 2004 and 2003, the Companys variance in the economic value equity as a percentage of assets with an instantaneous and sustained parallel shift of 200 basis points is within the negative 3% guideline, as
shown in the tables below.



The market capitalization of the
Company should not be equated to the EVPE, which only deals with the valuation of balance sheet cash flows using conservative assumptions. Calculated core deposit premiums may be less than what is available in an outright sale. The model does not
consider potential premiums on floating rate loan sales, the impact of overhead expense, non-interest income, taxes, industry market price multiples and other factors reflected in the market capitalization of a company.



Market Risk Analysis



December 31, 2004



|                                   |  |      |            |        |   |            |        |  |   |            |   
|---------------------------------- |  | ---- | ---------- | ------ | - | ---------- | ------ |  | - | ---------- | --
|Change in Interest Rates           |  | Flat |            | -200bp |   |            | +200bp | 
|Economic Value of Portfolio Equity |  | $    | 38,221,000 |        | $ | 34,681,000 |        |  | $ | 35,641,000 |   
|                                   |  |      |           
|Change                             |  |      |            |        |   | (3,540,000 | )      |  |   | (2,580,000 | ) 
|                                   |  |      |           
|Change as a % of assets            |  |      |            |        |   | (1.05      | )%     |  |   | (0.77      | )%
|                                   |  |      |            |        |   |            |        |  |   |            |   



December 31, 2003



|                                   |  |      |            |        |   |            |        |  |   |            |   
|---------------------------------- |  | ---- | ---------- | ------ | - | ---------- | ------ |  | - | ---------- | --
|Change in Interest Rates           |  | Flat |            | -200bp |   |            | +200bp | 
|Economic Value of Portfolio Equity |  | $    | 30,507,000 |        | $ | 27,599,000 |        |  | $ | 26,218,000 |   
|                                   |  |      |           
|Change                             |  |      |            |        |   | (2,907,000 | )      |  |   | (4,288,000 | ) 
|                                   |  |      |           
|Change as a % of assets            |  |      |            |        |   | (0.99      | )%     |  |   | (1.46      | )%
|                                   |  |      |            |        |   |            |        |  |   |            |   



Item 8. Financial Statements and Supplementary Data.



Reference is made to Item 15(a)(1) and (2) to page F-1 for a list of financial statements and supplementary data required to be filed pursuant to this Item 8. The information required by this Item 8 is provided on
pages F-1 through F-23 hereof.



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Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.



Not applicable.



Item 9A. Controls and Procedures.



The Companys Chief Executive Officer and Chief Financial Officer, with the assistance of other members of the Companys management, have evaluated the effectiveness of the Companys disclosure controls and procedures as of
the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, the Companys Chief Executive Officer and Chief Financial Officers have concluded that the Companys disclosure controls and procedures are
effective.



The Companys Chief Executive Officer and
Chief Financial Officer have also concluded that there have not been any changes in the Companys internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.



Item 9B. Other Information.



None.



PART III



Item 10. Directors and Executive Officers of the Registrant.



The information required by this item is incorporated by reference to the Companys Proxy Statement for its 2005 Annual Meeting of Shareholders under the caption Directors and Executive Officers.



Item 11. Executive Compensation.



The information required by this item is incorporated by reference to the Companys Proxy Statement for its 2005 Annual Meeting of Shareholders under the caption Executive Compensation.



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.



The information required by this item is incorporated by reference from the Companys Proxy Statement for its 2005 Annual Meeting of Shareholders
under the captions Stock Ownership of Management and Principal Shareholders and Equity Compensation Plan Information.



Item 13. Certain Relationships and Related Transactions.



This information required by this item is incorporated by reference from the Companys Proxy Statement for its 2005 Annual Meeting of Shareholders under the caption Certain Transactions With
Management.



Item 14. Principal Accountant Fees and Services.



The information regarding principal accounting fees and services and the Companys pre-approval policies and procedures for audit and non-audit services provided by the Companys independent accountants is
incorporated by reference to the Companys Proxy Statement for its 2005 Annual Meeting of Shareholders under the caption Principal Accountant Fees and Services.



PART IV



Item 15. Exhibits and Financial Statement Schedules.



| | (a) | Financial Statements and Financial Statement Schedules
| | --- | ------------------------------------------------------



The following documents are filed as part of this report:



| | 1. | Financial Statements of 1st Constitution Bancorp.
| | -- | -------------------------------------------------



Consolidated Balance Sheet  December 31, 2004 and 2003.



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##### Table of Contents

Consolidated Statements of Income  Years Ended December 31, 2004, 2003 and 2002.



Consolidated Statements of Changes in
Shareholders Equity  Years Ended December 31, 2004, 2003 and 2002.



Consolidated Statements of Cash Flows  years Ended December 31, 2004, 2003, and 2002.



Notes to Consolidated Financial Statements



Report of Independent Registered Public Accounting Firm
 Grant Thornton LLP



Report of
Independent Registered Public Accounting Firm  KPMG LLP



These statements are incorporated by reference to the Companys Annual Report to Shareholders for the year ended December 31, 2004.



| | 2. | All schedules are omitted because either they are inapplicable or not required, or because the information required therein is included in the Consolidated Financial Statements and
Notes thereto.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. | Exhibits
|-- | --------



|                          |  |                                                                                                                                                                                                                                                                                                                                           
|------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.               |  | Description                                                                                                                                                                                                                                                                                                                               
|3            (i)        * |  | Certificate of Incorporation of the Company (conformed copy).                                                                                                                                                                                                                                                                             
|                          | 
|3            (i)(A)       |  | Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(i)(A) to the Companys Form 8-K filed with the SEC on January 25, 2005).                                                                                                                                                                 
|                          | 
|3            (ii)         |  | Bylaws of the Company (incorporated by reference to Exhibit 3(ii) to the Companys Form 10-QSB filed with the SEC on May 14, 2003)                                                                                                                                                                                                        
|                          | 
|4.1                       |  | Specimen Share of Common Stock (incorporated by reference to the Companys Form 10-KSB filed with the SEC on March 22, 2002)                                                                                                                                                                                                              
|                          | 
|4.2                       |  | Amended and Restated Declaration of Trust of 1stConstitution Capital Trust I dated as of April 10, 2002 among the Registrant, as sponsor, Wilmington Trust Company, as Delaware and institutional trustee, and the Administrators named therein (incorporated by reference to the Companys Form
10-QSB filed with the SEC on May 8, 2002)
|                          | 
|4.3                       |  | Indenture dated as of April 10, 2002 between the Registrant, as issuer, and Wilmington Trust Company, as trustee, relating to the Floating Rate Junior Subordinated Debt Securities due 2032
(incorporated by reference to the Companys Form 10-QSB filed with the SEC on May 8, 2002)                                                   
|                          | 
|4.4                       |  | Guarantee Agreement dated as of April 10, 2002 between the Registrant and the Wilmington Trust Company, as guarantee trustee (incorporated by reference to the Companys Form 10-QSB filed
with the SEC on May 8, 2002)                                                                                                                   



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##### Table of Contents

|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.5         |  |   |  | Rights Agreement, dated as of March 18, 2004, between 1stConstitution Bancorp and Registrar and Transfer Company, as Rights Agent, including the form of Certificate of Amendment to the Companys Certificate of Incorporation as Exhibit A thereto, the form of Rights Certificates as Exhibit B thereto,
and the Summary of Rights as Exhibit C thereto. Pursuant to the Rights Agreement, printed Rights Certificates will not be mailed until after the Distribution Date (as such term is defined in the Rights Agreement) (incorporated by reference to the
Companys Form 8-A12G filed with the SEC on March 18, 2004).
|            |  |  
|10.1        |  | # |  | 1st Constitution Bancorp Supplemental Executive Retirement Plan, dated as of October 1, 2002 (Incorporated by reference to the Companys Form 10-QSB filed with the SEC on November 13,
2002)                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |  |  
|10.2        |  | # |  | 1st Constitution Bancorp Directors Deferral Plan, dated as of October 1, 2002 (Incorporated by reference to the Companys Form 10-QSB filed with the SEC on November 13,
2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |  |  
|10.3        |  | # |  | 1st Constitution Bancorp Directors Insurance Plan, dated as of October 1, 2002 (Incorporated by reference to the Companys Form 10-QSB filed with the SEC on November 13,
2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |  |  
|10.4        |  | # |  | 1st Constitution Bancorp Form of Executive Life Insurance Agreement (Incorporated by reference to the Companys Form 10-QSB filed with the SEC on November 13, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |  |  
|10.5        |  | # |  | Amended and Restated 1990 Stock Option Plan for Key Employees, as amended (incorporated by reference to Exhibit No. 10.1 to the Companys Form 10-QSB filed with the SEC on August 9,
2002)                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |  |  
|10.6        |  | # |  | 1996 Employee Stock Option Plan, as amended (incorporated by reference to Exhibit No. 10.2 to the Companys Form 10-QSB filed with the SEC on August 9, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |  |  
|10.7        |  | # |  | 2000 Employee Stock Option and Restricted Stock Plan (incorporated by reference to Exhibit No. 6.3 to the Companys Form 10-SB filed with the SEC on June 15, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |  |  
|10.8        |  | # |  | Directors Stock Option and Restricted Stock Plan (incorporated by reference to Exhibit No. 6.4 to the Companys Form 10-SB filed with the SEC on June 15, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |  |  
|10.9        |  | # |  | Employment Agreement between the Company and Robert F. Mangano dated April 22, 1999 (incorporated by reference to Exhibit No. 6.5 to the Companys Form 10-SB filed with the SEC on June
15, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |  |  
|10.10       |  | # |  | Agreement for Consulting Services between the Company and Edward D. Knapp (incorporated by reference to Exhibit 10.10 to the Companys Form 10-KSB filed with the SEC on March 20,
2003)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |  |  
|10.11       |  | # |  | Amendment to 1st Constitution Bancorp Directors Insurance Plan, dated as of February 19, 2004 (incorporated by reference to Exhibit 10.11 to the Companys Form 10-K filed with the SEC on
March 25, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                     



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|            |  |   |  |                                                                                                                                                                                                                                                                         
|----------- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description                                                                                                                                                                                                                                                             
|10.12       |  | # |  | Amendment No. 1 to 1st Constitution Bancorp Supplemental Executive Retirement Plan, effective January 1, 2004 (incorporated by reference to Exhibit 10.12 to the Companys Form 10-Q filed
with the SEC on August 11, 2004)                                             
|            |  |  
|10.13       |  | # |  | Change of Control Agreement, effective as of April 1, 2004, by and between the Company and Joseph M. Reardon (incorporated by reference to Exhibit 10.13 to the Companys Form 10-Q filed
with the SEC on August 11, 2004)                                              
|            |  |  
|10.14       |  | # |  | Form of Stock Option Agreement under the 1st Constitution Bancorp Employee Stock Option and Restricted Stock Plan (incorporated by reference to Exhibit 10.14 to the Companys Form 8-K
filed with the SEC on December 22, 2004)                                        
|            |  |  
|10.15       |  | # |  | Form of Restricted Stock Agreement under the 1st Constitution Bancorp Employee Stock Option and Restricted Stock Plan (incorporated by reference to Exhibit 10.15 to the Companys Form
8-K filed with the SEC on December 22, 2004)                                    
|            |  |  
|10.16       |  | # |  | Employment Agreement between the Company and Robert F. Mangano dated February 22, 2005 (incorporated by reference to Exhibit No. 10.16 to the Companys Form 8-K filed with the SEC on
February 24, 2005)                                                               
|            |  |  
|13.1        |  |   |  | 2001 Annual Report to Security Holders (incorporated by reference to the Companys Form 10-KSB filed with the SEC on March 22, 2002)                                                                                                                                    
|            |  |  
|21          |  |   |  | Subsidiaries of the Company (incorporated by reference to the Companys Form 10-KSB filed with the SEC on March 20, 2003)                                                                                                                                               
|            |  |  
|23.1        |  | * |  | Consent of Independent Registered Public Accounting Firm  Grant Thornton LLP                                                                                                                                                                                           
|            |  |  
|23.2        |  | * |  | Consent of Independent Registered Public Accounting Firm  KPMG LLP                                                                                                                                                                                                     
|            |  |  
|31.1        |  | * |  | Certification of Robert F. Mangano, Chief Executive Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a).                                                                                                                                         
|            |  |  
|31.2        |  | * |  | Certification of Joseph M. Reardon, Chief Financial Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a).                                                                                                                                         
|            |  |  
|32          |  | * |  | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by Robert F. Mangano, Chief Executive Officer of the Company,
and Joseph M. Reardon, Senior Vice President and Treasurer of the Company.

---

|* | Filed herewith.
|- | ---------------

|# | A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(c) of Form 10-K.
|- | ---------------------------------------------------------------------------------------------------------------------------------



|(b) | Exhibits.
|--- | ---------



Exhibits required by Section 601 of Regulation S-K (see (a) above)



|(c) | Financial Statement Schedules
|--- | -----------------------------



See the notes to the Consolidated Financial Statements included in this report.



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1STCONSTITUTION BANCORP



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                |  |     
|--------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                |  | Page
|Report of Independent Registered Public Accounting Firm  Grant Thornton LLP                                    |  | F-2 
|                                                                                                                | 
|Report of Independent Registered Public Accounting Firm  KPMG LLP                                              |  | F-3 
|                                                                                                                | 
|Consolidated Balance Sheet  December 31, 2004 and 2003                                                         |  | F-4 
|                                                                                                                | 
|Consolidated Statements of Income  Years Ended December 31, 2004, 2003 and 2002                                |  | F-5 
|                                                                                                                | 
|Consolidated Statements of Changes in Shareholders Equity for the Years Ended December 31, 2004, 2003 and 2002 |  | F-6 
|                                                                                                                | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002                      |  | F-7 
|                                                                                                                | 
|Notes to Consolidated Financial Statements                                                                      |  | F-8 



F-1



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors and Shareholders

1stConstitution Bancorp:



We have
audited the consolidated balance sheet of 1stConstitution Bancorp and subsidiaries as of December 31, 2004 and the
related consolidated statements of income, changes in shareholders equity and cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion
on these financial statements based on our audit.



We conducted
our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of 1stConstitution Bancorp and subsidiaries as of December 31, 2004 and the consolidated results of their operations and their
consolidated cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.



|                          
|--------------------------
|/s/ GRANT THORNTON LLP    
|                          
|Philadelphia, Pennsylvania
|January 25, 2005          



F-2



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Shareholders

1stConstitution Bancorp:



We
have audited the accompanying consolidated balance sheet of 1stConstitution Bancorp and subsidiaries as of December
31, 2003, and the related consolidated statements of income, changes in shareholders equity, and cash flows for each of the years in the two-year period ended December 31, 2003. These consolidated financial statements are the responsibility of
the Company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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall 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 financial position of 1stConstitution Bancorp and subsidiaries as of
December 31, 2003, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2003, in conformity with U.S. generally accepted accounting principles.



|                       
|-----------------------
|/s/ KPMG LLP           
|                       
|Short Hills, New Jersey
|February 6, 2004       



F-3



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##### Table of Contents

1STCONSTITUTION BANCORP

CONSOLIDATED BALANCE SHEETS

December 31, 2004 and 2003



|                                                                                                                                                                                              |  |      |             |   |      |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                                                                              |  | 2004 |             |   | 2003 |  
|ASSETS                                                                                                                                                                                        |  |      |             |   |      |   |             |  
|CASH AND DUE FROM BANKS                                                                                                                                                                       |  | $    | 7,898,395   |   |      | $ | 6,987,850   |  
|                                                                                                                                                                                              |  |     
|FEDERAL FUNDS SOLD / SHORT TERM INVESTMENTS                                                                                                                                                   |  |      | 26,014      |   |      |   | 7,715,036   |  
|                                                                                                                                                                                              |  |      |             |   |      |   |             |  
|Total cash and cash equivalents                                                                                                                                                               |  |      | 7,924,409   |   |      |   | 14,702,886  |  
|                                                                                                                                                                                              |  |     
|INVESTMENT SECURITIES:                                                                                                                                                                        |  |      |             |   |      |   |             |  
|Available for sale, at market value                                                                                                                                                           |  |      | 85,588,649  |   |      |   | 84,999,973  |  
|Held to maturity (market value of $12,292,250 and $6,516,652 in 2004 and 2003, respectively)                                                                                                  |  |      | 12,167,137  |   |      |   | 6,191,197   |  
|                                                                                                                                                                                              |  |      |             |   |      |   |             |  
|Total securities                                                                                                                                                                              |  |      | 97,755,786  |   |      |   | 91,191,170  |  
|                                                                                                                                                                                              |  |     
|LOANS HELD FOR SALE                                                                                                                                                                           |  |      | 9,927,881   |   |      |   | 15,405,982  |  
|                                                                                                                                                                                              |  |     
|LOANS                                                                                                                                                                                         |  |      | 210,653,051 |   |      |   | 163,950,306 |  
|Less- Allowance for loan losses                                                                                                                                                               |  |      | (2,005,169  | ) |      |   | (1,786,632  | )
|                                                                                                                                                                                              |  |      |             |   |      |   |             |  
|Net loans                                                                                                                                                                                     |  |      | 208,647,882 |   |      |   | 162,163,674 |  
|                                                                                                                                                                                              |  |     
|PREMISES AND EQUIPMENT, net                                                                                                                                                                   |  |      | 2,324,219   |   |      |   | 1,361,517   |  
|                                                                                                                                                                                              |  |     
|ACCRUED INTEREST RECEIVABLE                                                                                                                                                                   |  |      | 1,444,493   |   |      |   | 1,169,015   |  
|                                                                                                                                                                                              |  |     
|BANK-OWNED LIFE INSURANCE                                                                                                                                                                     |  |      | 6,643,502   |   |      |   | 6,331,006   |  
|                                                                                                                                                                                              |  |     
|OTHER ASSETS                                                                                                                                                                                  |  |      | 1,162,268   |   |      |   | 1,157,924   |  
|                                                                                                                                                                                              |  |      |             |   |      |   |             |  
|Total assets                                                                                                                                                                                  |  | $    | 335,830,440 |   |      | $ | 293,483,174 |  
|                                                                                                                                                                                              |  |      |             |   |      |   |             |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                          |  |      |             |   |      |   |             |  
|                                                                                                                                                                                              |  |     
|LIABILITIES:                                                                                                                                                                                  |  |      |             |   |      |   |             |  
|Deposits                                                                                                                                                                                      |  |      |             |   |      |   |             |  
|Non-interest bearing                                                                                                                                                                          |  | $    | 50,794,581  |   |      | $ | 42,661,432  |  
|Interest bearing                                                                                                                                                                              |  |      | 226,092,452 |   |      |   | 202,692,292 |  
|                                                                                                                                                                                              |  |      |             |   |      |   |             |  
|Total deposits                                                                                                                                                                                |  |      | 276,887,033 |   |      |   | 245,353,724 |  
|                                                                                                                                                                                              |  |     
|SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE                                                                                                                                                |  |      |            |   |      |   | 1,921,015   |  
|OTHER BORROWINGS                                                                                                                                                                              |  |      | 25,200,000  |   |      |   | 15,500,000  |  
|REDEEMABLE SUBORDINATED DEBENTURES                                                                                                                                                            |  |      | 5,155,000   |   |      |   | 5,155,000   |  
|ACCRUED INTEREST PAYABLE                                                                                                                                                                      |  |      | 982,020     |   |      |   | 906,576     |  
|ACCRUED EXPENSES AND OTHER LIABILITIES                                                                                                                                                        |  |      | 816,003     |   |      |   | 1,061,603   |  
|                                                                                                                                                                                              |  |      |             |   |      |   |             |  
|Total liabilities                                                                                                                                                                             |  |      | 309,040,056 |   |      |   | 269,897,918 |  
|                                                                                                                                                                                              |  |      |             |   |      |   |             |  
|SHAREHOLDERS EQUITY                                                                                                                                                                          |  |      |             |   |      |   |             |  
|Common stock, no par value; 30,000,000 shares authorized; 3,311,621 and 3,287,270 shares issued and 3,306,422 and 3,286,842 shares outstanding
as of December 31, 2004 and 2003, respectively |  |      | 22,255,402  |   |      |   | 19,694,828  |  
|Retained earnings                                                                                                                                                                             |  |      | 4,725,257   |   |      |   | 3,745,784   |  
|Treasury Stock, at cost, 5,199 shares and 428 shares at December 31, 2004 and 2003, respectively                                                                                              |  |      | (86,896     | ) |      |   | (5,517      | )
|Accumulated other comprehensive (loss) income                                                                                                                                                 |  |      | (103,379    | ) |      |   | 150,161     |  
|                                                                                                                                                                                              |  |      |             |   |      |   |             |  
|Total shareholders equity                                                                                                                                                                    |  |      | 26,790,384  |   |      |   | 23,585,256  |  
|                                                                                                                                                                                              |  |      |             |   |      |   |             |  
|Total liabilities and shareholders equity                                                                                                                                                    |  | $    | 335,830,440 |   |      | $ | 293,483,174 |  
|                                                                                                                                                                                              |  |      |             |   |      |   |             |  



F-4



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##### Table of Contents

1STCONSTITUTION BANCORP

CONSOLIDATED STATEMENTS OF INCOME



For the Years Ended December 31, 2004, 2003 and 2002



|                                                                                    |  |      |            |      |   |            |  |   |           
|----------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|                                                                                    |  | 2004 |            | 2003 |   | 2002      
|INTEREST INCOME:                                                                    |  |      |            |      |   |            |  |   |           
|Interest and fees on loans                                                          |  | $    | 13,422,067 |      | $ | 11,425,762 |  | $ | 10,346,801
|Interest on securities:                                                             |  |      |            |      |   |            |  |   |           
|Taxable                                                                             |  |      | 3,196,936  |      |   | 2,619,813  |  |   | 3,598,437 
|Tax-exempt                                                                          |  |      | 386,088    |      |   | 311,764    |  |   | 164,419   
|Interest on Federal funds sold and short-term investments                           |  |      | 10,977     |      |   | 29,458     |  |   | 198,659   
|                                                                                    |  |      |            |      |   |            |  |   |           
|Total interest income                                                               |  |      | 17,016,068 |      |   | 14,386,797 |  |   | 14,308,316
|                                                                                    |  |      |            |      |   |            |  |   |           
|INTEREST EXPENSE:                                                                   |  |      |            |      |   |            |  |   |           
|Interest on deposits                                                                |  |      | 3,300,523  |      |   | 3,163,255  |  |   | 3,961,209 
|Interest on securities sold under agreements to repurchase and other borrowed funds |  |      | 981,689    |      |   | 952,910    |  |   | 921,982   
|Interest on redeemable subordinated debentures                                      |  |      | 263,083    |      |   | 257,852    |  |   | 216,081   
|                                                                                    |  |      |            |      |   |            |  |   |           
|Total interest expense                                                              |  |      | 4,545,295  |      |   | 4,374,017  |  |   | 5,099,272 
|                                                                                    |  |      |            |      |   |            |  |   |           
|Net interest income                                                                 |  |      | 12,470,773 |      |   | 10,012,780 |  |   | 9,209,044 
|                                                                                    |  |      |           
|PROVISION FOR LOAN LOSSES                                                           |  |      | 240,000    |      |   | 240,000    |  |   | 240,000   
|                                                                                    |  |      |            |      |   |            |  |   |           
|Net interest income after provision for loan losses                                 |  |      | 12,230,773 |      |   | 9,772,780  |  |   | 8,969,044 
|                                                                                    |  |      |            |      |   |            |  |   |           
|NON-INTEREST INCOME:                                                                |  |      |            |      |   |            |  |   |           
|Service charges on deposit accounts                                                 |  |      | 514,494    |      |   | 559,698    |  |   | 517,415   
|Gain on sale of loans held for sale                                                 |  |      | 1,373,660  |      |   | 1,284,913  |  |   | 676,208   
|Gain on sale of securities available for sale                                       |  |      | 27,545     |      |   |           |  |   |          
|Income on Bank-owned life insurance                                                 |  |      | 312,496    |      |   | 261,301    |  |   | 69,705    
|Other income                                                                        |  |      | 329,047    |      |   | 295,437    |  |   | 262,198   
|                                                                                    |  |      |            |      |   |            |  |   |           
|Total other income                                                                  |  |      | 2,557,242  |      |   | 2,401,349  |  |   | 1,525,526 
|                                                                                    |  |      |            |      |   |            |  |   |           
|NON-INTEREST EXPENSES:                                                              |  |      |            |      |   |            |  |   |           
|Salaries and employee benefits                                                      |  |      | 4,955,587  |      |   | 3,979,655  |  |   | 3,229,793 
|Occupancy expense                                                                   |  |      | 1,071,463  |      |   | 818,545    |  |   | 740,088   
|Other operating expenses                                                            |  |      | 2,962,911  |      |   | 2,370,522  |  |   | 2,318,000 
|                                                                                    |  |      |            |      |   |            |  |   |           
|Total other expenses                                                                |  |      | 8,989,961  |      |   | 7,168,722  |  |   | 6,287,881 
|                                                                                    |  |      |            |      |   |            |  |   |           
|Income before income taxes                                                          |  |      | 5,798,054  |      |   | 5,005,407  |  |   | 4,206,689 
|                                                                                    |  |      |           
|INCOME TAXES                                                                        |  |      | 1,960,340  |      |   | 1,776,907  |  |   | 1,519,367 
|                                                                                    |  |      |            |      |   |            |  |   |           
|Net income                                                                          |  | $    | 3,837,714  |      | $ | 3,228,500  |  | $ | 2,687,322 
|                                                                                    |  |      |            |      |   |            |  |   |           
|NET INCOME PER SHARE                                                                |  |      |            |      |   |            |  |   |           
|Basic                                                                               |  | $    | 1.17       |      | $ | 0.99       |  | $ | 0.83      
|Diluted                                                                             |  | $    | 1.13       |      | $ | 0.94       |  | $ | 0.79      
|                                                                                    |  |      |            |      |   |            |  |   |           
|WEIGHTED AVERAGE SHARES                                                             |  |      |            |      |   |            |  |   |           
|OUTSTANDING                                                                         |  |      |            |      |   |            |  |   |           
|Basic                                                                               |  |      | 3,284,332  |      |   | 3,277,262  |  |   | 3,244,176 
|Diluted                                                                             |  |      | 3,413,540  |      |   | 3,437,276  |  |   | 3,421,658 
|                                                                                    |  |      |            |      |   |            |  |   |           



F-5



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##### Table of Contents

1STCONSTITUTION BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY



For the Years Ended December 31, 2004, 2003 and 2002



|                                                                                                   |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   |            |  
|-------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---------------- | - | ---------- | -------------- |  | -- | --------------------------------------------- | - |  | ------------------------ | -------- | - |  | - | ---------- | -
|                                                                                                   |  | Common Stock |            |   | RetainedEarnings |   |            | Treasury Stock |  |    | Accumulated Other Comprehensive (Loss) Income |   |  | TotalShareholdersEquity |         
|BALANCE, January 1, 2002                                                                           |  | $            | 15,198,339 |   |                  | $ | 2,360,437  |                |  | $  | (83,190                                       | ) |  | $                        | (42,642  | ) |  | $ | 17,432,944 |  
|                                                                                                   |  |              |            |   |                 
|Exercise of stock options (5,637 shares)                                                           |  |              | 53,195     |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   | 53,195     |  
|Treasury Stock, 2,861 shares at cost                                                               |  |              |            |   |                  |   |            |                |  |    | (36,654                                       | ) |  |                          |          |   |  |   | (36,654    | )
|5% stock dividend declared December 2002, including fractional share cash payments (70,527 shares) |  |              | 2,068,557  |   |                  |   | (2,068,886 | )              |  |    |                                               |   |  |                          |          |   |  |   | (329       | )
|                                                                                                   |  |              |            |   |                 
|Comprehensive Income:                                                                              |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   |            |  
|Net income  2002                                                                                  |  |              |            |   |                  |   | 2,687,322  |                |  |    |                                               |   |  |                          |          |   |  |   | 2,687,322  |  
|Unrealized gain on securities available for sale, net of tax expense of $445,807                   |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          | 858,364  |   |  |   | 858,364    |  
|                                                                                                   |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   |            |  
|Comprehensive Income                                                                               |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   | 3,545,686  |  
|                                                                                                   |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   |            |  
|BALANCE, December 31, 2002                                                                         |  | $            | 17,320,091 |   |                  | $ | 2,978,873  |                |  | $  | (119,844                                      | ) |  | $                        | 815,722  |   |  | $ | 20,994,842 |  
|                                                                                                   |  |              |            |   |                 
|Exercise of stock options, net                                                                     |  |              | 188,822    |   |                  |   | (275,674   | )              |  |    | 114,327                                       |   |  |                          |          |   |  |   | 27,475     |  
|5% stock dividend declared December 2003, including fractional share cash payments (74,541 shares) |  |              | 2,185,915  |   |                  |   | (2,185,915 | )              |  |    |                                               |   |  |                          |          |   |  |   |            |  
|                                                                                                   |  |              |            |   |                 
|Comprehensive Income:                                                                              |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   |            |  
|Net income  2003                                                                                  |  |              |            |   |                  |   | 3,228,500  |                |  |    |                                               |   |  |                          |          |   |  |   | 3,228,500  |  
|Unrealized gain on securities available for sale, net of tax (benefit) of ($335,754)               |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          | (665,561 | ) |  |   | (665,561   | )
|                                                                                                   |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   |            |  
|Comprehensive Income                                                                               |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   | 2,562,939  |  
|                                                                                                   |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   |            |  
|BALANCE, December 31, 2003                                                                         |  | $            | 19,694,828 |   |                  | $ | 3,745,784  |                |  | ($ | 5,517                                         | ) |  | $                        | 150,161  |   |  | $ | 23,585,256 |  
|                                                                                                   |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   |            |  
|Exercise of stock options, net and issuance of vested shares under employee benefit programs       |  |              | (290,277   | ) |                  |   |            |                |  |    | 468,176                                       |   |  |                          |          |   |  |   | 177,899    |  
|Treasury Stock, 16,661 shares at cost                                                              |  |              |            |   |                  |   |            |                |  |    | (549,555                                      | ) |  |                          |          |   |  |   | (549,555   | )
|5% stock dividend declared December 2004, including fractional share cash payments                 |  |              | 2,850,851  |   |                  |   | (2,858,241 | )              |  |    |                                               |   |  |                          |          |   |  |   | (7,390     | )
|Comprehensive Income:                                                                              |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   |            |  
|Net income  2004                                                                                  |  |              |            |   |                  |   | 3,837,714  |                |  |    |                                               |   |  |                          |          |   |  |   | 3,837,714  |  
|Unrealized loss on securities available for sale net of tax (benefit) of ($151,962)                |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          | (253,540 | ) |  |   | (253,540   | )
|                                                                                                   |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   |            |  
|Comprehensive Income                                                                               |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   | 3,584,174  |  
|                                                                                                   |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   |            |  
|BALANCE, December 31, 2004                                                                         |  | $            | 22,255,402 |   |                  | $ | 4,725,257  |                |  | ($ | 86,896                                        | ) |  | ($                       | 103,379  | ) |  | $ | 26,790,384 |  
|                                                                                                   |  |              |            |   |                  |   |            |                |  |    |                                               |   |  |                          |          |   |  |   |            |  



F-6



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##### Table of Contents

1STCONSTITUTION BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS



For the Years Ended December 31, 2004, 2003 and 2002



|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|--------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                                  |  | 2004 |             |   | 2003 |   |             | 2002 | 
|OPERATING ACTIVITIES:                                                             |  |      |             |   |      |   |             |      |  |   |             |  
|Net income                                                                        |  | $    | 3,837,714   |   |      | $ | 3,228,500   |      |  | $ | 2,687,322   |  
|Adjustments to reconcile net income to net cash provided by operating activities- |  |      |             |   |      |   |             |      |  |   |             |  
|                                                                                  |  |      |            
|Provision for loan losses                                                         |  |      | 240,000     |   |      |   | 240,000     |      |  |   | 240,000     |  
|Depreciation and amortization                                                     |  |      | 385,106     |   |      |   | 327,446     |      |  |   | 317,720     |  
|Net amortization of premiums on securities                                        |  |      | 350,168     |   |      |   | 1,190,853   |      |  |   | 520,346     |  
|Gain on sale of loans held for sale                                               |  |      | (1,373,660  | ) |      |   | (1,284,913  | )    |  |   | (676,208    | )
|Gain on sale of securities available for sale                                     |  |      | (27,545     | ) |      |   |            |      |  |   |            |  
|Originations of loans held for sale                                               |  |      | (75,514,197 | ) |      |   | (91,972,465 | )    |  |   | (63,511,458 | )
|Income on Bank-owned life insurance                                               |  |      | (312,496    | ) |      |   | (261,301    | )    |  |   | (69,705     | )
|Proceeds from sales of loans held for sale                                        |  |      | 82,365,958  |   |      |   | 94,150,868  |      |  |   | 60,499,707  |  
|(Increase) decrease in accrued interest receivable                                |  |      | (275,478    | ) |      |   | 93,988      |      |  |   | (215,333    | )
|(Increase) decrease in other assets                                               |  |      | 140,228     |   |      |   | (43,957     | )    |  |   | (631,586    | )
|Increase (decrease) increase in accrued interest payable                          |  |      | 75,444      |   |      |   | (305,326    | )    |  |   | (345,490    | )
|Decrease (increase) increase in accrued expenses and other liabilities            |  |      | (245,600    | ) |      |   | (734,717    | )    |  |   | 1,331,172   |  
|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|Net cash provided by operating activities                                         |  |      | 9,645,642   |   |      |   | 4,628,976   |      |  |   | 146,487     |  
|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|INVESTING ACTIVITIES:                                                             |  |      |             |   |      |   |             |      |  |   |             |  
|                                                                                  |  |      |            
|Purchases of securities -                                                         |  |      |             |   |      |   |             |      |  |   |             |  
|Available for sale                                                                |  |      | (34,116,716 | ) |      |   | (62,222,441 | )    |  |   | (60,068,896 | )
|Held to maturity                                                                  |  |      | (6,883,726  | ) |      |   | (198,102    | )    |  |   | (2,344,038  | )
|Proceeds from maturities and prepayments of securities -                          |  |      |             |   |      |   |             |      |  |   |             |  
|Available for sale                                                                |  |      | 29,011,317  |   |      |   | 57,073,223  |      |  |   | 40,436,189  |  
|Held to maturity                                                                  |  |      | 894,985     |   |      |   | 1,164,762   |      |  |   | 1,196,156   |  
|Proceeds from sales of securities available for sale                              |  |      | 3,801,399   |   |      |   |            |      |  |   | 7,112,177   |  
|Purchase of Bank owned life insurance                                             |  |      |            |   |      |   |            |      |  |   | (6,000,000  | )
|Net increase in loans                                                             |  |      | (46,724,208 | ) |      |   | (13,023,820 | )    |  |   | (26,096,866 | )
|Capital expenditures                                                              |  |      | (1,347,808  | ) |      |   | (412,021    | )    |  |   | (595,918    | )
|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|Net cash used in investing activities                                             |  |      | (55,364,757 | ) |      |   | (17,618,399 | )    |  |   | (53,473,373 | )
|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|FINANCING ACTIVITIES:                                                             |  |      |             |   |      |   |             |      |  |   |             |  
|                                                                                  |  |      |            
|Issuance of common stock, net                                                     |  |      | 177,899     |   |      |   | 27,475      |      |  |   | 52,866      |  
|                                                                                  |  |      |            
|Purchase of Treasury Stock                                                        |  |      | (549,555    | ) |      |   |            |      |  |   | (36,654     | )
|Net increase in demand, savings and time deposits                                 |  |      | 31,533,309  |   |      |   | 21,204,260  |      |  |   | 34,730,202  |  
|Net decrease in securities sold under agreements to repurchase                    |  |      | (1,921,015  | ) |      |   | (633,800    | )    |  |   | (1,253,368  | )
|Net advances (repayments) in other borrowings                                     |  |      | 9,700,000   |   |      |   | (2,500,000  | )    |  |   | 2,500,000   |  
|Proceeds from issuance of trust preferred securities                              |  |      |            |   |      |   |            |      |  |   | 5,000,000   |  
|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|Net cash provided by financing activities                                         |  |      | 38,940,638  |   |      |   | 18,097,935  |      |  |   | 40,993,046  |  
|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|                                                                                  |  |      |            
|(Decrease) increase in cash and cash equivalents                                  |  |      | (6,778,477  | ) |      |   | 5,108,512   |      |  |   | (12,333,840 | )
|                                                                                  |  |      |            
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    |  |      | 14,702,886  |   |      |   | 9,594,374   |      |  |   | 21,928,214  |  
|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                          |  | $    | 7,924,409   |   |      | $ | 14,702,886  |      |  | $ | 9,594,374   |  
|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                |  |      |             |   |      |   |             |      |  |   |             |  
|Cash paid during the year for -                                                   |  |      |             |   |      |   |             |      |  |   |             |  
|Interest                                                                          |  | $    | 4,469,851   |   |      | $ | 4,679,343   |      |  | $ | 5,444,762   |  
|Income taxes                                                                      |  |      | 2,429,565   |   |      |   | 1,909,578   |      |  |   | 1,643,980   |  
|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  



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##### Table of Contents

1STCONSTITUTION BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2004, 2003 AND 2002



1. Summary of Significant Accounting Policies



1STConstitution Bancorp, (the Company) is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended, and was organized under the laws of the State of New Jersey. The Company is parent to 1st Constitution Bank (the Bank), a state chartered commercial bank. The Bank provides community banking
services to a broad range of customers, including corporations, individuals, partnerships and other community organizations in the central New Jersey area. The Bank conducts its operations through its main office located in Cranbury, New Jersey, and
operates eight additional branch offices in downtown Cranbury, Hamilton Square, Jamesburg, Montgomery, Perth Amboy, Plainsboro, West Windsor, and Princeton, New Jersey and a loan production office in Fort Lee, New Jersey.



Principles Of Consolidation



The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, 1STConstitution Capital Trust I (the Trust) and the Bank
and the Banks wholly-owned subsidiaries, 1STConstitution Investment Company of Delaware, Inc. and FCB Assets
Holdings, Inc. All significant inter-company accounts and transactions have been eliminated. In accordance with the Companys adoption of Financial Accounting Interpretation No. 46, Consolidation of Variable Interest Entities, as revised
December 2003, the Company de-consolidated the accounts and related activity of 1stConstitution Capital Trust I as
of December 31, 2003.



Use of Estimates in the Preparation
of Financial Statements



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



Investment Securities



Investment Securities which the Bank has the intent and ability to hold
until maturity are classified as held to maturity and are recorded at cost, adjusted for amortization of premiums and accretion of discounts using the interest method.



Investment Securities which are held for indefinite periods of time, which management intends to use as part of its
asset/liability management strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, increased capital requirements or other similar factors, are classified as available for sale and are carried at estimated
market value, except for Federal Home Loan Bank stock, which is carried at cost. Unrealized gains and losses on such securities are recorded as a separate component of shareholders equity. Realized gains and losses, which are computed using
the specific identification method, are recognized on a trade date basis.



In November 2003, the Emerging Issues Task Force (EITF) of the FASB issued EITF Abstract 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (EITF 03-1). The
quantitative and qualitative disclosure provisions of EITF 03-1 were effective for years ending after December 15, 2003 and were included in the Companys Form 10-K for the year ended December 31, 2003. In March 2004, the EITF issued a
Consensus on Issue 03-1 requiring that the provisions of EITF 03-1 be applied for reporting periods beginning after June 15, 2004 to investments accounted for under SFAS No. 115 and 124. EITF 03-1 establishes a three-step approach for determining
whether an investment is considered impaired, whether that impairment is other-than-temporary, and the measurement of an impairment loss. In September 2004, the FASB issued a proposed Staff Position, EITF Issue 03-1-a, Implementation Guidance for
the Application of Paragraph 16 of EITF 03-1 (EITF 03-1-a). EITF 03-1-a would provide implementation guidance with respect to debt securities that are impaired solely due to interest rates and/or sector spreads and analyzed for
other-than-temporary impairment under paragraph 16 of EITF 03-1. In September 2004, the FASB also issued a Staff Position, EITF Issue 03-1-1, Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1 (EITF 03-1-1). EITF 03-1-1 delays the
effective date for the measurement and recognition guidance contained in paragraphs 10-20 of EITF 03-1. The delay of the effective date will be superseded concurrent with the final issuance of EITF 03-1-a. The Company is in the process of
determining the impact that this EITF will have on its financial statements.



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##### Table of Contents

Bank-Owned Life Insurance



The Company invests in bank-owned life insurance (BOLI). BOLI involves the purchasing of life insurance by the Company on a
chosen group of employees. The Company is the owner and beneficiary of the policies. This pool of insurance, due to the advantages of the Bank, is profitable to the Company. This profitability is used to offset a portion of future benefit cost
increases. The Banks deposits fund BOLI and the earnings from BOLI are recognized as noninterest income.



Loans And Loans Held For Sale



Loans that management intended to hold to maturity are stated at the principal amount outstanding, net of unearned income. Unearned income is recognized
over the lives of the respective loans, principally using the effective interest method. Income from direct financing leases is recorded over the life of the lease under the financing method of accounting. The investment includes the sum of
aggregate rentals receivable and the estimated residual value of leased equipment, less deferred income. Interest income is generally not accrued on loans, including impaired loans, where interest or principal is 90 days or more past due, unless the
loans are adequately secured and in the process of collection, or on loans where management has determined that the borrowers may be unable to meet contractual principal and/or interest obligations. When it is probable that, based upon current
information, the Bank will not collect all amounts due under the contractual terms of the loan, the loan is reported as impaired. Smaller balance homogenous type loans, such as residential loans and loans to individuals, which are collectively
evaluated, are excluded from consideration for impairment. Loan impairment is measured based upon the present value of the expected future cash flows discounted at the loans effective interest rate or the underlying value of collateral for
collateral dependent loans. When a loan, including an impaired loan, is placed on non-accrual, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Non-accrual loans are generally not returned to
accruing status until principal and interest payments have been brought current and full collectibility is reasonably assured. Cash receipts on non-accrual and impaired loans are applied to principal, unless the loan is deemed fully collectible.
Loans held for sale are carried at the aggregate lower of cost or market value. Realized gains and losses on loans held for sale are recognized at settlement date and are determined based on the cost, including deferred net loan origination fees and
the costs of the specific loans sold.



The Bank accounts for
its transfers and servicing financial assets in accordance with SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The Bank originates mortgages under a definitive plan to sell or
securitize those loans and service the loans owned by the investor. Upon the transfer of the mortgage loans in a sale or a securitization, the Bank records the servicing assets retained in accordance with SFAS No. 140. The Bank records mortgage
servicing rights and the loans based on relative fair values at the date of origination.



Mortgage loans originated and intended for sale in the secondary market are carried at the lower aggregate cost or estimated fair value. Gains and losses on sales are also accounted for in accordance with SFAS No.
134, Accounting for Mortgage Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise. This statement requires that an entity engage in mortgage banking activities classify the
retained mortgage-backed security or other interest, which resulted from the securitizations of a mortgage loan held for sale, based upon its ability and intent to sell or hold these investments.



The Bank adopted SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities, on July 1, 2003. Implementation issue C13, When a Loan Commitment Is Included in the Scope of Statement 133. is included in SFAS No. 149. SFAS No. 149 amends SFAS No. 133 to add a scope exception
for borrowers (all commitments) and lenders (all commitments except those relating to mortgage loans that will be held for sale). Statement 149 also amends SFAS No. 133 to require a lender to account for loan commitments related to mortgage loans
that will be held for sale as derivatives. The Bank periodically enters into commitments with the customers, which it intends to sell in the future.



The Bank adopted FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees
of Indebtedness of Others (FIN 45), on January 1, 2003. FIN 45 requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee.



Allowance for Loan
Losses



The allowance for loan losses is a valuation
reserve available for losses incurred or expected on extensions of credit. Credit losses primarily arise from the loan portfolio, but may also be derived from other credit-related sources including commitments to extend credit. Additions are made to
the allowance through periodic provisions which are charged to expense. All losses of principal are charged to the allowance when incurred or when a determination is made that a loss is expected. Subsequent recoveries, if any, are credited to the
allowance.



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##### Table of Contents

The adequacy of the allowance for loan losses is determined through a periodic review of outstanding
loans and commitments to extend credit. The impact of current economic conditions on the creditworthiness of the borrowers is considered, as well as loan loss experience, changes in the composition and volume of the loan portfolio and
managements assessment of the risks inherent in the loan portfolio. These and other factors are used in assessing the overall adequacy of the allowance for loan losses and the resulting provision for loan losses. While management uses
available information to recognize losses on loans, future additions to the allowance may be necessary based upon changes in economic conditions. In addition, various regulatory agencies periodically review the Banks allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance based upon their judgment of information available to them at the time of their examination.



Premises and Equipment



Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed primarily on the straight-line method
over the estimated useful lives of the assets. Building, furniture and fixtures, equipment and leasehold improvements are depreciated or amortized over the estimated useful lives of the assets or lease terms, as applicable. Estimated useful lives of
building is forty years, furniture and fixtures and equipment are three to fifteen years, and three to ten years for leasehold improvements. Maintenance and repairs are charged to expense as incurred.



Income Taxes



Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and
tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.



Other Real Estate



Other real estate is carried at the lower of fair value of the related property, as determined by current appraisals less estimated costs to sell, or the
recorded investment in the property. Write-downs on these properties, which occur after the initial transfer from the loan portfolio, are recorded as operating expenses. Costs of holding such properties are charged to expense in the current period.
Gains, to the extent allowable, and losses on the disposition of these properties are reflected in current operations.



Share-Based Compensation



Stock-based compensation is accounted for under the intrinsic value based method as prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. Included below are the pro forma disclosures required by SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation-Transaction and Disclosure which assumes the fair value based method of accounting had been adopted.



|                                                                                                                                 |  |      |           |      |   |           |      |  |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                                                                 |  | 2004 |           | 2003 |   |           | 2002 | 
|Net income -                                                                                                                     |  |      |           |      |   |           |      |  |   |           |  
|As reported                                                                                                                      |  | $    | 3,837,714 |      | $ | 3,228,500 |      |  | $ | 2,687,322 |  
|Deduct: Stock-based employee compensation determined under fair value based method for stock options, net of related tax
effects |  |      | 25,538    |      |   | (17,548   | )    |  |   | (8,862    | )
|                                                                                                                                 |  |      |           |      |   |           |      |  |   |           |  
|Pro forma                                                                                                                        |  | $    | 3,812,175 |      | $ | 3,210,952 |      |  | $ | 2,678,460 |  
|                                                                                                                                 |  |      |           |      |   |           |      |  |   |           |  
|Net income per share -                                                                                                           |  |      |           |      |   |           |      |  |   |           |  
|As reported -                                                                                                                    |  |      |           |      |   |           |      |  |   |           |  
|Basic                                                                                                                            |  | $    | 1.17      |      | $ | 0.99      |      |  | $ | 0.83      |  
|Diluted                                                                                                                          |  | $    | 1.13      |      | $ | 0.94      |      |  | $ | 0.79      |  
|Pro forma -                                                                                                                      |  |      |           |      |   |           |      |  |   |           |  
|Basic                                                                                                                            |  | $    | 1.16      |      | $ | 0.98      |      |  | $ | 0.83      |  
|Diluted                                                                                                                          |  | $    | 1.12      |      | $ | 0.93      |      |  | $ | 0.78      |  



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##### Table of Contents

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in 2004, 2003 and 2002; dividend yield of 0%; expected volatility of 35% in 2004, 2003 and 2002; risk-free interest rates of 3.60%, 3.27% and 3.03%, respectively; and
expected lives of 5 years.



FASB Statement No. 123 (revised
2004), Share-Based Payment. Statement 123(R) addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are
based on the fair value of the enterprises equity instruments or that may be settled by the issuance of such equity instruments. Statement 123(R) requires an entity to recognize the grant-date fair-value of stock options and other equity-based
compensation issued to employees in the income statement. The revised Statement generally requires that an entity account for those transactions using the fair-value-based method; and eliminates an entitys ability to account for share-based
compensation transactions using the intrinsic value method of accounting in APB Opinion No. 25, Accounting for Stock Issued to Employees, which was permitted under Statement 123, as originally issued. The revised Statement requires entities
to disclose information about the nature of the share-based payment transactions and the effects of those transactions on the financial statements. Statement 123(R) is effective for the Company beginning July 1, 2005. The Company must use either the
modified prospective or the modified retrospective transition method. Early adoption of this Statement for interim or annual periods for which financial statements or interim reports have not been issued is permitted. The adoption of Statement
123(R) is expected to reduce reported net income and earnings per share. Management is in the process of evaluating Statement 123(R) and does not know its full impact on the consolidated financial statements at this time.



Benefit Plans



The Company provides certain retirement benefits to employees under a 401(k)
plan. The Companys contributions to the 401(k) plan are expensed as incurred. The Company also provides retirement benefits to certain employees under a supplemental executive retirement plan. The plan is unfunded and the Company accrues
actuarial determined benefit costs over the estimated service period of the employees in the plan.



Cash And Cash Equivalents



Cash and cash equivalents includes cash on hand, interest and non-interest bearing amounts due from banks, Federal funds sold and short-term investments.
Generally, Federal funds are sold and short-term investments are made for a one or two-day period.



Reclassifications



Certain reclassifications have been made to the prior period amounts to conform with the current period presentation.



Net Income Per Share



Basic net income per share is calculated by dividing net income by the
weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted-average number of common shares outstanding plus the weighted-average number of net shares that
would be issued upon exercise of dilutive stock options and grants pursuant to the treasury stock method. Weighted average shares for the basic net income per share computation for the years ended December 31, 2004, 2003 and 2002 were 3,284,332,
3,277,262 and 3,244,176, respectively. For the diluted net income per share computation, common stock equivalents of 129,208, 160,014 and 177,482 are included for the years ended December 31, 2004, 2003 and 2002, respectively. All share information
reported in the statements of income reflects a (1) 5% stock dividend declared December 16, 2004 paid on January 31, 2005 to shareholders of record on January 18, 2005, and (2) a two-for-one stock split in the form of a stock dividend declared on
January 20, 2005 and paid on February 28, 2005 to shareholders of record on February 10, 2005.



Comprehensive Income



Comprehensive income consists of net income and net unrealized gains (losses) on securities available for sale and is presented in the consolidated statements of changes in shareholders equity.



Variable Interest Entities



Management has determined that the 1stConstitution Capital Trust I (the Trust) qualifies as a variable interest entity under FASB Interpretation 46 (FIN 46). The
Trust issued mandatorily redeemable preferred stock to investors and loaned the proceeds to the Company. The Trust holds, as its sole asset, subordinated debentures issued by the Company in 2002. Prior to December 31, 2003, the Trust was included in
the Companys consolidated balance sheet and statements of income. Subsequent to the issuance of FIN 46, the FASB issued a revised interpretation, FIN 46(R), the provisions of which were required to be applied to certain variable interest
entities, including the Trust, by March 31, 2004. The Company adopted the provisions under FIN 46 and accordingly deconsolidated the Trust as of December 31, 2003.



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##### Table of Contents

In March 2005, the Federal Reserve Board adopted a final rule that would continue to allow the inclusion
of trust preferred securities in Tier 1 capital, but with stricter quantitative limits. Under the final rule, after a five-year transition period, the aggregate amount of trust preferred securities and certain other capital elements would be limited
to 25% of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit could be included in Tier 2 capital, subject to restrictions. Based on the final rule, the Company expects
to include all of its $5.2 million in trust preferred securities in Tier 1 capital.



Segment Information



SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information establishes standards for the way public business enterprises report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosure about products and services, geographic areas, and major
customers. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The
statement also requires that public enterprises report a measure of segment profit or loss, certain specific revenue and expense items and segment assets. It also requires that information be reported about revenues derived from the
enterprises products or services, or about the countries in which the enterprises earn revenues and hold assets, and about major customers, regardless of whether the information is used in making operating decisions.



2. Investment Securities



Amortized cost, gross unrealized gains and losses, and the estimated fair
value by security type as of December 31, is as follows:



|                                                                                                 |  |               |             |                      |   |                       |  |            |         |  |   |           
|------------------------------------------------------------------------------------------------ |  | ------------- | ----------- | -------------------- | - | --------------------- |  | ---------- | ------- |  | - | ----------
|2004                                                                                             |  | AmortizedCost |             | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Fair Value
|Available for sale-                                                                              |  |               |             |                      |   |                       |  |            |         |  |   |           
|U. S. Treasury securities and obligations of U.S. Government sponsored corporations and agencies |  | $             | 57,848,615  |                      | $ | 85,649                |  | $          | 538,057 |  | $ | 57,396,206
|Mortgage backed securities                                                                       |  |               | 20,877,821  |                      |   | 412,179               |  |            | 53,848  |  |   | 21,236,152
|Obligations of State and Political subdivisions                                                  |  |               | 3,883,354   |                      |   | 3,070                 |  |            | 47,662  |  |   | 3,838,762 
|FHLB stock and other securities                                                                  |  |               | 3,149,734   |                      |   | 0                     |  |            | 32,205  |  |   | 3,117,529 
|                                                                                                 |  |               |             |                      |   |                       |  |            |         |  |   |           
|                                                                                                 |  |               | $85,759,524 |                      | $ | 500,897               |  | $          | 671,772 |  | $ | 85,588,649
|                                                                                                 |  |               |             |                      |   |                       |  |            |         |  |   |           
|Held to maturity-                                                                                |  |               |             |                      |   |                       |  |            |         |  |   |           
|Mortgage backed securities                                                                       |  | $             | 604,705     |                      | $ | 24,174                |  | $          | 0       |  | $ | 628,879   
|Obligations of State and Political subdivisions                                                  |  |               | 11,562,432  |                      |   | 164,247               |  |            | 63,308  |  |   | 11,553,371
|                                                                                                 |  |               |             |                      |   |                       |  |            |         |  |   |           
|                                                                                                 |  | $             | 12,167,137  |                      | $ | 188,421               |  | $          | 63,308  |  | $ | 12,292,250
|                                                                                                 |  |               |             |                      |   |                       |  |            |         |  |   |           



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##### Table of Contents

|                                                                                                 |  |               |             |                      |   |                       |  |            |         |  |   |           
|------------------------------------------------------------------------------------------------ |  | ------------- | ----------- | -------------------- | - | --------------------- |  | ---------- | ------- |  | - | ----------
|2003                                                                                             |  | AmortizedCost |             | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Fair Value
|Available for sale-                                                                              |  |               |             |                      |   |                       |  |            |         |  |   |           
|U. S. Treasury securities and obligations of U.S. Government sponsored corporations and agencies |  | $             | 45,775,988  |                      | $ | 173,837               |  | $          | 554,470 |  | $ | 45,395,355
|Mortgage backed securities                                                                       |  |               | 31,455,825  |                      |   | 731,392               |  |            | 41,231  |  |   | 32,145,986
|Obligations of State and Political subdivisions                                                  |  |               | 3,587,086   |                      |   | 16,494                |  |            | 33,220  |  |   | 3,570,360 
|FHLB stock and other securities                                                                  |  |               | 3,946,447   |                      |   | 19,485                |  |            | 77,660  |  |   | 3,888,272 
|                                                                                                 |  |               |             |                      |   |                       |  |            |         |  |   |           
|                                                                                                 |  |               | $84,765,346 |                      | $ | 941,208               |  | $          | 706,581 |  | $ | 84,999,973
|                                                                                                 |  |               |             |                      |   |                       |  |            |         |  |   |           
|Held to maturity-                                                                                |  |               |             |                      |   |                       |  |            |         |  |   |           
|Mortgage backed securities                                                                       |  | $             | 955,970     |                      | $ | 50,884                |  | $          | 0       |  | $ | 1,006,854 
|Obligations of State and Political subdivisions                                                  |  |               | 5,235,227   |                      |   | 274,571               |  |            | 0       |  |   | 5,509,798 
|                                                                                                 |  |               |             |                      |   |                       |  |            |         |  |   |           
|                                                                                                 |  | $             | 6,191,197   |                      | $ | 325,455               |  | $          | 0       |  | $ | 6,516,652 
|                                                                                                 |  |               |             |                      |   |                       |  |            |         |  |   |           



Gross unrealized
losses on securities and the estimated market value of the related securities aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2004 and December 31, 2003
are as follows:



|                                                                                                |  |                     |            |                  |                     |          |            |       |                  |            |  |            |          |                  |  |   |            |  |   |          |  
|----------------------------------------------------------------------------------------------- |  | ------------------- | ---------- | ---------------- | ------------------- | -------- | ---------- | ----- | ---------------- | ---------- |  | ---------- | -------- | ---------------- |  | - | ---------- |  | - | -------- | -
|2004                                                                                            |  | Less than 12 months |            |                  | 12 months or longer |          |            | Total |                 
|                                                                                                |  | Fair Value          |            | UnrealizedLosses |                     |          | Fair Value |       | UnrealizedLosses |            |  | Fair Value |          | UnrealizedLosses | 
|U.S. Treasury securities and obligations of U.S. Government sponsored corporations and agencies |  | $                   | 22,717,689 |                  | $                   | (181,022 | )          |       | $                | 9,408,192  |  | $          | (357,036 | )                |  | $ | 32,125,881 |  | $ | (538,058 | )
|Mortgage backed securities                                                                      |  |                     | 3,992,374  |                  |                     | (35,020  | )          |       |                  | 1,480,487  |  |            | (18,828  | )                |  |   | 5,472,861  |  |   | (53,848  | )
|Obligations of State and Political Subdivisions                                                 |  |                     | 8,988,653  |                  |                     | (110,970 | )          |       |                  | 0          |  |            | 0        |                  |  |   | 8,988,653  |  |   | (110,970 | )
|FHLB stock and other securities                                                                 |  |                     | 0          |                  |                     | 0        |            |       |                  | 1,428,345  |  |            | (32,205  | )                |  |   | 1,428,345  |  |   | (32,205  | )
|                                                                                                |  |                     |            |                  |                     |          |            |       |                  |            |  |            |          |                  |  |   |            |  |   |          |  
|Total temporarily impaired securities                                                           |  | $                   | 35,698,716 |                  | $                   | (327,012 | )          |       | $                | 12,317,024 |  | $          | (408,069 | )                |  | $ | 48,015,740 |  | $ | (735,081 | )
|                                                                                                |  |                     |            |                  |                     |          |            |       |                  |            |  |            |          |                  |  |   |            |  |   |          |  
|                                                                                                |  |                     |           
|2003                                                                                            |  | Less than 12 months |            |                  | 12 months or longer |          |            | Total |                 
|                                                                                                |  | Fair Value          |            | UnrealizedLosses |                     |          | Fair Value |       | UnrealizedLosses |            |  | Fair Value |          | UnrealizedLosses | 
|U.S. Treasury securities and obligations of U.S. Government sponsored corporations and agencies |  | $                   | 24,563,139 |                  | $                   | (551,678 | )          |       | $                | 830,608    |  | $          | (2,792   | )                |  | $ | 25,393,747 |  | $ | (554,470 | )
|Mortgage backed securities                                                                      |  |                     | 2,607,230  |                  |                     | (41,231  | )          |       |                  | 0          |  |            | 0        |                  |  |   | 2,607,230  |  |   | (41,231  | )
|Obligations of State and Political subdivisions                                                 |  |                     | 2,152,364  |                  |                     | (33,220  | )          |       |                  | 0          |  |            | 0        |                  |  |   | 2,152,364  |  |   | (33,220  | )
|FHLB stock and other securities                                                                 |  |                     | 0          |                  |                     | 0        |            |       |                  | 1,381,010  |  |            | (77,660  | )                |  |   | 1,381,010  |  |   | (77,660  | )
|                                                                                                |  |                     |            |                  |                     |          |            |       |                  |            |  |            |          |                  |  |   |            |  |   |          |  
|Total temporarily impaired securities                                                           |  | $                   | 29,322,733 |                  | $                   | (626,129 | )          |       | $                | 2,211,618  |  | $          | (80,452  | )                |  | $ | 31,534,351 |  | $ | (706,581 | )
|                                                                                                |  |                     |            |                  |                     |          |            |       |                  |            |  |            |          |                  |  |   |            |  |   |          |  



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##### Table of Contents

U.S. Treasury obligations and direct obligations of U.S. Government agencies: The unrealized
losses on investments in these securities were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the
Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than temporarily impaired.



Mortgage-backed securities: The unrealized losses on investments in mortgage-backed securities were caused by
interest rate increases. The contractual cash flows of these securities are guaranteed by the issuer, primarily government or government sponsored agencies. It is expected that the securities would not be settled at a price less than the amortized
cost of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity,
these investments are not considered other-than-temporarily impaired.



FHLB stock and other securities: The investments in these securities with unrealized losses are comprised of corporate trust preferred securities that mature in 2027. The unrealized losses on these securities were caused by interest
rate increases. The contractual terms of the bonds do not allow the issuer to settle the securities at a price less than the face value of the bonds, which is greater than the amortized cost of the bonds. Because the decline in fair value is
attributable to changes in interest rates and not credit quality, and because the Company has the intent and ability to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily
impaired.



Gross gains on securities sales were $27,545 in
2004. There were no sales of securities in 2003 or 2002.



As of
December 31, 2004 and 2003, securities having a book value of $17,367,486 and $25,614,650, respectively, were pledged to secure public deposits, other borrowings, and for other purposes as required by law.



3. Loans and Loans Held for Sale



Loans are as follows:



|                                      |  |      |             |      |   |            
|------------------------------------- |  | ---- | ----------- | ---- | - | -----------
|                                      |  | 2004 |             | 2003
|Construction loans                    |  | $    | 88,027,024  |      | $ | 56,971,265 
|Residential real estate loans         |  |      | 9,815,366   |      |   | 8,059,032  
|Commercial and commercial real estate |  |      | 96,021,077  |      |   | 83,840,831 
|Loans to individuals                  |  |      | 16,002,619  |      |   | 13,236,895 
|Lease financing                       |  |      | 74,543      |      |   | 1,054,198  
|All other                             |  |      | 712,534     |      |   | 788,085    
|                                      |  |      |             |      |   |            
|                                      |  | $    | 210,653,163 |      | $ | 163,950,306
|                                      |  |      |             |      |   |            



The Banks
business is concentrated in New Jersey, particularly Middlesex, Mercer and Somerset counties. A significant portion of the total loan portfolio is secured by real estate or other collateral located in these areas.



The Bank had residential mortgage loans held for sale of $9,927,769 at
December 31, 2004 and $15,405,982 at December 31, 2003. The Bank sells residential mortgage loans in the secondary market on a non-recourse basis. The related loan servicing rights are generally released to the purchaser. Loans held for sale at
December 31, 2004 and 2003 are residential mortgage loans that the Bank intends to sell under forward contracts providing for delivery to purchasers generally within a two month period.



4. Allowance for Loan Losses



A summary of the allowance for loan losses is as follows:



|                                |  |      |           |   |      |   |           |      |  |   |           |  
|------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                |  | 2004 |           |   | 2003 |   |           | 2002 | 
|Balance, beginning of year      |  | $    | 1,786,632 |   |      | $ | 1,669,882 |      |  | $ | 1,414,495 |  
|Provision charged to operations |  |      | 240,000   |   |      |   | 240,000   |      |  |   | 240,000   |  
|Loans charged off               |  |      | (22,273   | ) |      |   | (123,666  | )    |  |   | (8,182    | )
|Recoveries of loans charged off |  |      | 810       |   |      |   | 416       |      |  |   | 23,569    |  
|                                |  |      |           |   |      |   |           |      |  |   |           |  
|Balance, end of year            |  | $    | 2,005,169 |   |      | $ | 1,786,632 |      |  | $ | 1,669,882 |  
|                                |  |      |           |   |      |   |           |      |  |   |           |  



F-14



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##### Table of Contents

The amount of loans which were not accruing interest amounted to $1,049,411 and $330,783 at December 31,
2004 and 2003, respectively. Impaired loans totaled $1,049,411 and $330,783 at December 31, 2004 and 2003, respectively. There was no valuation allowance on impaired loans at December 31, 2004 and December 31, 2003. Loans 90 days or more past due
and still accruing totaled $63,130 at December 31, 2004. There were no loans 90 days or more past due and still accruing at December 31, 2003.



Additional income before taxes amounting to $80,698, $16,993 and $16,450 would have been recognized in 2004, 2003 and 2002, respectively, if interest on
all loans had been recorded based upon original contract terms. No interest was recognized on non-accrual loans in 2004, 2003 or 2002. The average recorded investment in impaired loans for the years ended December 31, 2004, 2003 and 2002, was
approximately $690,097, $240,949, and $380,176, respectively.



5. Loans to Related Parties



Activity related
to loans to directors, executive officers and their affiliated interests during 2004 is as follows:



|                           |  |   |           |  
|-------------------------- |  | - | --------- | -
|Balance, beginning of year |  | $ | 5,185,334 |  
|Loans granted              |  |   | 301,000   |  
|Repayments of loans        |  |   | (995,142  | )
|                           |  |   |           |  
|Balance, end of year       |  | $ | 4,491,192 |  
|                           |  |   |           |  



All such loans were
made under customary terms and conditions and were current as to principal and interest payments as of December 31, 2004 and 2003.



6. Premises And Equipment



Premises and equipment consist of the following:



|                              |  |                        |  |  |  |      |            |   |      |   |            |  
|----------------------------- |  | ---------------------- |  |  |  | ---- | ---------- | - | ---- | - | ---------- | -
|                              |  | Estimated Useful Lives |  |  |  | 2004 |            |   | 2003 |  
|Building                      |  | 40 Years               |  |  |  | $    | 417,928    |   |      | $ |           |  
|Leasehold improvements        |  | 10 Years               |  |  |  |      | 1,242,504  |   |      |   | 709,318    |  
|Furniture and equipment       |  | 3-15 Years             |  |  |  |      | 2,751,749  |   |      |   | 2,428,614  |  
|                              |  |                        |  |  |  |      |            |   |      |   |            |  
|                              |  |                        |  |  |  |      | 4,412,181  |   |      |   | 3,137,932  |  
|                              |  |                        |  | 
|Less-Accumulated depreciation |  |                        |  |  |  |      | (2,087,962 | ) |      |   | (1,776,415 | )
|                              |  |                        |  |  |  |      |            |   |      |   |            |  
|                              |  |                        |  |  |  | $    | 2,324,219  |   |      | $ | 1,361,517  |  
|                              |  |                        |  |  |  |      |            |   |      |   |            |  



7. Deposits



Deposits consist of the following:



|                     |  |      |             |      |   |            
|-------------------- |  | ---- | ----------- | ---- | - | -----------
|                     |  | 2004 |             | 2003
|Demand               |  |      |             |      |   |            
|Non-interest bearing |  | $    | 50,794,581  |      | $ | 42,661,432 
|Interest bearing     |  |      | 110,082,085 |      |   | 87,095,046 
|Savings              |  |      | 27,310,910  |      |   | 29,226,756 
|Time                 |  |      | 88,699,457  |      |   | 86,370,490 
|                     |  |      |             |      |   |            
|                     |  | $    | 276,887,033 |      | $ | 245,353,724
|                     |  |      |             |      |   |            



Individual time
deposits $100,000 or greater amounted to $13,178,791 and $14,200,907 at December 31, 2004 and 2003, respectively. As of December 31, 2004, time deposits mature as follows: $52,505,117 in 2005; $19,797,935 in 2006; $6,038,224 in 2007; $4,298,150 in
2008; and $6,060,032 in 2009.



8. Securities Sold Under
Agreements to Repurchase and Other Borrowings



Collateral,
consisting of investment securities, underlying the agreements is held by an outside custodian.



The balance of other borrowings was $25,200,000 at December 31, 2004 consisting of FHLB borrowings of $15,500,000 and Federal funds purchased of
$9,700,000. The balance of other borrowings at December 31, 2003 consisted of Federal Home Loan Bank (FHLB) borrowings of $15,500,000.



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##### Table of Contents

These advances are fully secured by marketable securities and qualifying one-to-four family mortgage loans.



Securities sold under agreements to repurchase are summarized as follows:



|                                              |  |      |           |   |      |   |           |      |  |   |           |  
|--------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                              |  | 2004 |           |   | 2003 |   |           | 2002 | 
|Balance outstanding at year end               |  |      |          |   |      | $ | 1,921,015 |      |  | $ | 2,554,815 |  
|Weighted average interest rate at year end    |  |      | 1.27      | % |      |   | 1.15      | %    |  |   | 0.89      | %
|Average daily balance outstanding during year |  | $    | 1,674,172 |   |      | $ | 2,290,866 |      |  | $ | 4,124,680 |  
|Weighted average interest rate during year    |  |      | 1.28      | % |      |   | 1.46      | %    |  |   | 1.77      | %
|Highest month-end outstanding balance         |  | $    | 1,941,042 |   |      | $ | 2,562,549 |      |  | $ | 4,198,060 |  



9. Redeemable
Subordinated Debentures



On April 10, 2002, 1STConstitution Capital Trust I (the Trust), a statutory business trust, and a wholly owned subsidiary of the
Company, issued $5.0 million of variable rate Trust Preferred Securities in a pooled institutional placement transaction maturing April 22, 2032. The Trust utilized the $5.0 million proceeds along with $155,000 invested in the Trust by the Company
to purchase $5,155,000 of subordinated debentures issued by the Company. The Subordinated Debentures have terms that mirror the Trust Preferred Securities. The Trust exists for the sole purpose of issuing Trust Preferred Securities. These
Subordinated Debentures constitute the sole assets of the Trust. These Subordinated Debentures are redeemable in whole or part prior to maturity after April 22, 2007. The Trust is obligated to distribute all proceeds of a redemption of these
Subordinated Debentures, whether voluntary or upon maturity, to holders of the Trust Preferred Securities. The Companys obligation with respect to the Trust Preferred Securities and the Subordinated Debentures, when taken together, provides a
full and unconditional guarantee on a subordinated basis by the Company of the obligations of the Trust to pay amounts when due on the Trust Preferred Securities.



Management has determined that the 1stConstitution Capital Trust I (the Trust) qualifies as a variable interest entity under FASB Interpretation 46 (FIN 46). The Trust issued mandatorily redeemable preferred stock
to investors and loaned the proceeds to the Company. The Trust holds, as its sole asset, subordinated debentures issued by the Company in 2002. Prior to December 31, 2003, the Trust was included in the Companys consolidated balance sheet and
statements of income. Subsequent to the issuance of FIN 46, the FASB issued a revised interpretation, FIN 46(R), the provisions of which were required to be applied to certain variable interest entities, including the Trust, by March 31, 2004. The
Company adopted the provisions under FIN 46 and accordingly deconsolidated the Trust as of December 31, 2003.



10. Income Taxes



The components of income tax expense (benefit) are summarized as follows:



|         |  |      |           |   |      |   |           |      |  |   |           |  
|-------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|         |  | 2004 |           |   | 2003 |   |           | 2002 | 
|Federal- |  |      |           |   |      |   |           |      |  |   |           |  
|Current  |  | $    | 1,836,439 |   |      | $ | 1,537,053 |      |  | $ | 1,371,755 |  
|Deferred |  |      | (127,181  | ) |      |   | (104,330  | )    |  |   | (99,254   | )
|         |  |      |           |   |      |   |           |      |  |   |           |  
|         |  |      | 1,709,258 |   |      |   | 1,432,723 |      |  |   | 1,272,501 |  
|         |  |      |           |   |      |   |           |      |  |   |           |  
|State-   |  |      |           |   |      |   |           |      |  |   |           |  
|Current  |  |      | 273,301   |   |      |   | 362,411   |      |  |   | 264,206   |  
|Deferred |  |      | (22,219   | ) |      |   | (18,227   | )    |  |   | (17,340   | )
|         |  |      |           |   |      |   |           |      |  |   |           |  
|         |  |      | 251,082   |   |      |   | 344,184   |      |  |   | 246,866   |  
|         |  |      |           |   |      |   |           |      |  |   |           |  
|         |  | $    | 1,960,340 |   |      | $ | 1,776,907 |      |  | $ | 1,519,367 |  
|         |  |      |           |   |      |   |           |      |  |   |           |  



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##### Table of Contents

A comparison of income tax expense at the Federal statutory rate in 2004, 2003 and 2002 to the
Companys provision for income taxes is as follows:



|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|--------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                    |  | 2004 |           |   | 2003 |   |           | 2002 | 
|Federal income tax                                  |  | $    | 1,971,338 |   |      | $ | 1,701,838 |      |  | $ | 1,430,274 |  
|Add (deduct) effect of:                             |  |      |           |   |      |   |           |      |  |   |           |  
|State income taxes net of federal income tax effect |  |      | 165,714   |   |      |   | 227,161   |      |  |   | 162,932   |  
|Tax-exempt interest income                          |  |      | (131,270  | ) |      |   | (106,000  | )    |  |   | (55,902   | )
|Bank-owned life insurance                           |  |      | (106,249  | ) |      |   | (88,842   | )    |  |   |          |  
|Other items, net                                    |  |      | 60,807    |   |      |   | 42,750    |      |  |   | (17,937   | )
|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Provision for income taxes                          |  | $    | 1,960,340 |   |      | $ | 1,776,907 |      |  | $ | 1,519,367 |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |  



The tax effects of
existing temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:



|                                                 |  |      |           |      |   |        
|------------------------------------------------ |  | ---- | --------- | ---- | - | -------
|                                                 |  | 2004 |           | 2003
|Deferred tax assets-                             |  |      |           |      |   |        
|Allowance for loan losses                        |  | $    | 800,864   |      | $ | 713,581
|Employee Benefits                                |  |      | 168,116   |      |   | 93,397 
|Unrealized loss on securities available for sale |  |      | 95,106    |      |   |       
|Other                                            |  |      | 13,126    |      |   | 2,136  
|                                                 |  |      |           |      |   |        
|Total deferred tax assets                        |  |      | 1,077,212 |      |   | 809,114
|                                                 |  |      |           |      |   |        
|Deferred tax liabilities-                        |  |      |           |      |   |        
|Unrealized gain on securities available for sale |  |      | 26,858    |      |   | 84,466 
|Other                                            |  |      | 23,593    |      |   |       
|                                                 |  |      |           |      |   |        
|Total deferred tax liabilities                   |  |      | 50,451    |      |   | 84,466 
|                                                 |  |      |           |      |   |        
|Net deferred tax asset                           |  | $    | 1,026,761 |      | $ | 724,648
|                                                 |  |      |           |      |   |        



Based upon the current
facts, management has determined that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets. However, there can be no assurances about the level of future earnings.



11. Benefit Plans



Retirement Savings Plan



The Bank has a 401(K) plan which covers substantially all employees with six
months or more of service. The plan permits all eligible employees to make basic contributions to the plan up to 12% of base compensation. Under the plan, the Bank provided a matching contribution of 50% in 2004, 2003 and 2002 up to 6% of base
compensation. Employer contributions to the plan amounted to $67,864 in 2004, $57,830 in 2003, and $39,945 in 2002.



Benefit Plans



During 2002, the Bank established a salary continuation plan for key executives and a director deferred compensation plan for its board members. The plans
provide for yearly retirement benefits to be paid over a specified period. In addition, there is an officer group term replacement plan for divisional officers. The present value of the benefits accrued under these plans as of December 31, 2004 and
2003 is approximately $420,921 and $233,845, respectively, and is included in other liabilities in the accompanying consolidated statements of condition. Compensation expense of approximately $420,921, $233,845 and $46,769 is included in the
accompanying consolidated statement of income for the years ended December 31, 2004, 2003 and 2002, respectively.



In connection with the benefit plans, the Bank has purchased $6 million in life insurance policies on the lives of its executives, directors and
divisional officers. The Bank is the owner and beneficiary of the policies. The cash surrender values of the policies are approximately $6.6 million and $6.3 million as of December 31, 2004 and 2003, respectively.



F-17



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##### Table of Contents

12. Share Based Compensation



The Companys shareholders have approved stock option plans and stock grant plans for directors and key employees. The
Company has also entered into an employment agreement pursuant to which additional options and stock grants were awarded to its President. The Bank accounts for the award of stock options in accordance with Accounting Principles Board Opinion No.
25, under which no compensation cost has been recognized. Had compensation cost for these option awards been determined consistent with FASB Statement No. 123, as amended, the Banks net income and net income per share for 2004, 2003 and 2002
would have been reduced to the following pro forma amounts:



A
summary of the status of the Companys stock options at December 31, 2004, 2003 and 2002 and changes during the years then ended is presented below:



|                                  |  |         |   |      |                    |       |        |         |   |                    |   |        |  |         |                    |  |   |      
|--------------------------------- |  | ------- | - | ---- | ------------------ | ----- | ------ | ------- | - | ------------------ | - | ------ |  | ------- | ------------------ |  | - | -----
|                                  |  | 2004    |   | 2003 |                    | 2002 
|                                  |  | Shares  |   |      | WeightedAvg. Price |       | Shares |         |   | WeightedAvg. Price |   | Shares |  |         | WeightedAvg. Price
|Outstanding, at beginning of year |  | 251,794 |   |      | $                  | 5.33  |        | 284,825 |   |                    | $ | 4.82   |  | 289,500 |                    |  | $ | 4.52 
|Granted                           |  | 11,550  |   |      |                    | 17.34 |        | 8,159   |   |                    |   | 13.33  |  | 10,662  |                    |  |   | 12.00
|Exercised                         |  | (72,186 | ) |      |                    | 4.85  |        | (41,189 | ) |                    |   | 3.32   |  | (12,430 | )                  |  |   | 3.53 
|Forfeited                         |  | (1,793  | ) |      |                    | 10.76 |        | 0       |   |                    |   |       |  | (2,906  | )                  |  |   | 5.23 
|                                  |  |         |   |      |                    |       |        |         |   |                    |   |        |  |         |                    |  |   |      
|Outstanding, at end of year       |  | 189,365 |   |      | $                  | 6.73  |        | 251,794 |   |                    | $ | 5.32   |  | 284,825 |                    |  | $ | 4.82 
|                                  |  |         |   |      |                    |       |        |         |   |                    |   |        |  |         |                    |  |   |      



The following table
summarizes information about options outstanding at December 31, 2004:



|                         |  |                                      |  |                                                  |  |                              |       |                                      |         |                              |   |      
|------------------------ |  | ------------------------------------ |  | ------------------------------------------------ |  | ---------------------------- | ----- | ------------------------------------ | ------- | ---------------------------- | - | -----
|Options outstanding      |  | Options exercisable                 
|Range of exercise prices |  | NumberOutstanding atDecember 31,2004 |  | Weightedaverageremainingcontractuallife in years |  | Weightedaverageexerciseprice |       | NumberOutstanding atDecember 31,2004 |         | Weightedaverageexerciseprice
|$3.16 - $4.74            |  | 78,379                               |  | 2.0                                              |  | $                            | 3.26  |                                      | 76,366  |                              | $ | 3.26 
|$5.27 - $5.73            |  | 56,459                               |  | 4.5                                              |  | $                            | 5.72  |                                      | 54,446  |                              | $ | 5.72 
|$7.96 - $11.45           |  | 26,505                               |  | 5.3                                              |  | $                            | 8.90  |                                      | 22,222  |                              | $ | 9.05 
|$11.99 - $17.34          |  | 28,022                               |  | 9.2                                              |  | $                            | 14.93 |                                      | 10,568  |                              | $ | 13.57
|                         |  |                                      |  |                                                  |  |                              |       |                                      |         |                              |   |      
|                         |  | 189,365                              |  | 4.4                                              |  | $                            | 6.73  |                                      | 163,602 |                              | $ | 5.53 
|                         |  |                                      |  |                                                  |  |                              |       |                                      |         |                              |   |      



13. Commitments and
Contingencies



The Banks main office is leased at a
monthly rental of $15,667 plus real estate taxes and certain common space charges allocated by the landlord. The lease expires in December 2010 and contains renewal options for two additional five-year terms at the Banks discretion.



As of December 31, 2004, future approximate minimum rental
payments under non-cancelable operating leases are as follows:



|           |  |   |          
|---------- |  | - | ---------
|2005       |  | $ | 661,747  
|2006       |  |   | 637,315  
|2007       |  |   | 555,533  
|2008       |  |   | 464,293  
|2009       |  |   | 443,204  
|Thereafter |  |   | 1,934,735
|           |  |   |          
|           |  | $ | 4,696,827
|           |  |   |          



Rent expense
aggregated $694,997, $557,592 and $525,318 for the years ended December 31, 2004, 2003 and 2002, respectively.



F-18



---

##### Table of Contents

Commitments With Off-Balance Sheet Risk



The statement of condition does not reflect various commitments relating to
financial instruments which are used in the normal course of business. Management does not anticipate that the settlement of those financial instruments will have a material adverse effect on the Companys financial position. These instruments
include commitments to extend credit and letters of credit. These financial instruments carry various degrees of credit risk, which is defined as the possibility that a loss may occur from the failure of another party to perform according to the
terms of the contract. As these off-balance sheet financial instruments have essentially the same credit risk involved in extending loans, the Bank generally uses the same credit and collateral policies in making these commitments and conditional
obligations as it does for on-balance sheet investments. Additionally, as some commitments and conditional obligations are expected to expire without being drawn or returned, the contractual amounts do not necessarily represent future cash
requirements.



Commitments to extend credit are legally binding
loan commitments with set expiration dates. They are intended to be disbursed, subject to certain conditions, upon request of the borrower. The Bank receives a fee for providing a commitment. The Bank was committed to advance $64,345,154 to its
borrowers as of December 31, 2004.



The Bank issues financial
standby letters of credit that are within the scope of FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. These are irrevocable undertakings by
the Bank to guarantee payment of a specified financial obligation. Most of the Banks financial standby letters of credit arise in connection with lending relationships and have terms of one year or less. The maximum potential future payments
the Bank could be required to make equals the contract amount of the standby letters of credit and amounted to $875,467 at December 31, 2004. The Banks recognized liability for financial standby letters of credit was insignificant at December
31, 2003.



The Bank also enters into forward contracts to sell
residential mortgage loans it has closed (loans held for sale) or that it expects to close (commitments to originate loans held for sale). These contracts are used to reduce the Banks market price risk during the period from the commitment
date to the sale date. The notional amount of the Banks forward sales contracts was approximately $9.9 million at December 31, 2004 and $15.4 million at December 31, 2003. Changes in fair value of the forward sales contracts, and the related
loan origination commitments and closed loans, were not significant at December 31, 2004.



Litigation



The Company
may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business. The Company may also have various commitments and contingent
liabilities which are not reflected in the accompanying consolidated statement of condition. Management is not aware of any present legal proceedings or contingent liabilities and commitments that would have a material impact on the Companys
financial position or results of operations.



14. Other
Operating Expenses



The components of other operating
expenses for the years ended December 31, 2004, 2003 and 2002 are as follows:



|                                        |  |      |           |      |   |           |  |   |          
|--------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | ---------
|                                        |  | 2004 |           | 2003 |   | 2002     
|Equipment expense                       |  | $    | 464,928   |      | $ | 434,933   |  | $ | 451,054  
|Marketing                               |  |      | 274,095   |      |   | 225,860   |  |   | 237,268  
|Computer services                       |  |      | 636,076   |      |   | 498,081   |  |   | 432,875  
|Regulatory, professional and other fees |  |      | 542,001   |      |   | 548,440   |  |   | 436,701  
|Office expense                          |  |      | 462,586   |      |   | 312,055   |  |   | 311,346  
|All other expenses                      |  |      | 583,225   |      |   | 351,153   |  |   | 448,756  
|                                        |  |      |           |      |   |           |  |   |          
|                                        |  | $    | 2,962,911 |      | $ | 2,370,522 |  | $ | 2,318,000
|                                        |  |      |           |      |   |           |  |   |          



15. Regulatory
Requirements



The Bank is subject to various regulatory
capital requirements administered by the Federal and state 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 Banks and the Companys financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Banks assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classifications are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.



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##### Table of Contents

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain
minimum amounts and ratios of Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined). As of December 31, 2004, the Bank meets all capital adequacy
requirements to which it is subject.



To be categorized as
adequately capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. As of December 31, 2004, the most recent notification from the Banks primary regulator
categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Banks category. Certain bank regulatory
limitations exist on the availability of Bank assets available for the payment of dividends without prior approval of bank regulatory authorities.



The Companys actual capital amounts and ratios as of December 31, 2004 and 2003 are as follows:



|                                         |  |        |            |       |                              |   |                                                               |   |            |  |        |  |       |            |  |     
|---------------------------------------- |  | ------ | ---------- | ----- | ---------------------------- | - | ------------------------------------------------------------- | - | ---------- |  | ------ |  | ----- | ---------- |  | ----
|                                         |  | Actual |            |       | For Capital AdequacyPurposes |   | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions
|                                         |  | Amount |            | Ratio |                              |   | Amount                                                        |   | Ratio      |  | Amount |  | Ratio
|As of December 31, 2004 -                |  |        |            |       |                              |   |                                                               |   |            |  |        |  |       |            |  |     
|Total capital (to Risk Weighted Assets)  |  | $      | 33,898,932 |       | 13.99                        | % |                                                               | $ | 19,379,760 |  | 38%    |  | $     | 24,224,700 |  | 310%
|Tier I Capital (to Risk Weighted Assets) |  |        | 31,893,763 |       | 13.17                        | % |                                                               |   | 9,689,880  |  | 34%    |  |       | 12,534,820 |  | 36% 
|Tier I Capital (to Average Assets)       |  |        | 31,893,763 |       | 10.16                        | % |                                                               |   | 12,558,319 |  | 34%    |  |       | 15,697,898 |  | 35% 
|                                         |  |        |            |       |                              |  
|As of December 31, 2003 -                |  |        |            |       |                              |   |                                                               |   |            |  |        |  |       |            |  |     
|Total capital (to Risk Weighted Assets)  |  | $      | 30,221,727 |       | 14.94                        | % |                                                               | $ | 16,184,080 |  | 38%    |  | $     | 20,230,100 |  | 310%
|Tier I Capital (to Risk Weighted Assets) |  |        | 28,435,095 |       | 14.06                        | % |                                                               |   | 8,092,040  |  | 34%    |  |       | 12,138,060 |  | 36% 
|Tier I Capital (to Average Assets)       |  |        | 28,435,095 |       | 9.74                         | % |                                                               |   | 11,677,680 |  | 34%    |  |       | 14,597,100 |  | 35% 



The primary source of
dividends paid to the Companys shareholders is dividends paid to the Company by the Bank. Dividend payments by the Bank to the Company are subject to the New Jersey Banking Act of 1948 (the Banking Act) and the Federal Deposit
Insurance Act (the FDIA). Under the Banking Act and the FDIA, the Bank may not pay any dividends if after paying the dividend, it would be undercapitalized under applicable capital requirements. In addition to these explicit limitations,
the federal regulatory agencies are authorized to prohibit a banking subsidiary or bank holding company from engaging in an unsafe or unsound banking practice. Depending upon the circumstances, the agencies could take the position that paying a
dividend would constitute an unsafe or unsound banking practice.



16. Estimated Fair Value Of Financial Instruments



The following is a summary of fair value versus the carrying value of the Banks financial instruments. For the Bank, as for most financial institutions, the bulk of its assets and liabilities are considered financial instruments. Many
of the Banks financial instruments lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. Therefore, significant estimations and present value calculations were used by the
Bank for the purpose of this note. Changes in assumptions could significantly affect these estimates.



Estimated fair values have been determined by the Bank using the best available data and an estimation methodology suitable for each category of financial
instruments. Financial instruments, such as securities available for sale and securities held to maturity, actively traded in the secondary market have been valued using available market prices. Carrying values of cash and cash equivalents and
securities sold under agreements to repurchase approximate fair value due to the short-term nature of these instruments. Other borrowings are valued on a discounted cash flow method utilizing current discount rates for instruments of similar
remaining terms.



Financial instruments with stated maturities
have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities. For those loans and deposits with floating interest rates, it is assumed that estimated fair values
generally approximate the recorded book balances.



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##### Table of Contents

The estimated fair values, and the recorded book balances, were as follows:



|                                               |  |                   |  |                   |  |               |  |            
|---------------------------------------------- |  | ----------------- |  | ----------------- |  | ------------- |  | -----------
|                                               |  | December 31, 2004 |  | December 31, 2003
|                                               |  | CarryingValue     |  | Fair Value        |  | CarryingValue |  | Fair Value 
|Securities available for sale                  |  | 85,588,649        |  | 85,588,649        |  | 84,999,973    |  | 84,999,973 
|Securities held to maturity                    |  | 12,167,137        |  | 12,292,250        |  | 6,191,197     |  | 6,516,652  
|Loans held for sale                            |  | 9,927,881         |  | 9,927,881         |  | 15,405,982    |  | 15,405,982 
|Gross loans                                    |  | 210,653,051       |  | 211,588,000       |  | 163,950,306   |  | 165,728,000
|Deposits                                       |  | 276,887,033       |  | 276,586,000       |  | 245,353,724   |  | 246,017,000
|Securities sold under agreements to repurchase |  | 0                 |  | 0                 |  | 1,921,015     |  | 1,921,015  
|Other borrowings                               |  | 25,200,000        |  | 25,968,000        |  | 15,500,000    |  | 17,408,000 



Loan commitments and
standby letters of credit as of December 31, 2004 and 2003 are based on fees charged for similar agreements; accordingly, the estimated fair value of loan commitments and standby letters of credit is nominal.



17. Condensed Financial Statements of 1stConstitution Bancorp (Parent Company Only)



The following information of the Company includes only financial statements as of and for the years ended December 31, 2004 and 2003 and should be read in
conjunction with the notes to the consolidated financial statements.



CONDENSEDSTATEMENTS OF CONDITION



|                                           |  |                   |            |                   |   |           
|------------------------------------------ |  | ----------------- | ---------- | ----------------- | - | ----------
|                                           |  | December 31, 2004 |            | December 31, 2003
|Assets:                                    |  |                   |            |                   |   |           
|Cash                                       |  | $                 | 21,021     |                   | $ | 13,150    
|Investment Securities available for sale   |  |                   | 155,000    |                   |   | 155,000   
|Investment in subsidiaries                 |  |                   | 31,458,256 |                   |   | 28,326,056
|Other assets                               |  |                   | 311,107    |                   |   | 246,050   
|                                           |  |                   |            |                   |   |           
|Total Assets                               |  | $                 | 31,945,384 |                   | $ | 28,740,256
|                                           |  |                   |            |                   |   |           
|Liabilities And Shareholders Equity       |  |                   |            |                   |   |           
|Subordinated debentures                    |  | $                 | 5,155,000  |                   | $ | 5,155,000 
|Shareholders equity                       |  |                   | 26,790,384 |                   |   | 23,585,256
|                                           |  |                   |            |                   |   |           
|Total Liabilities and Shareholders Equity |  | $                 | 31,945,384 |                   | $ | 28,740,256
|                                           |  |                   |            |                   |   |           



CONDENSED STATEMENTS OF INCOME



|                                                                            |  |                         |           |   |      |   |           |      |  |   |           |  
|--------------------------------------------------------------------------- |  | ----------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                            |  | Year ended December 31, |          
|                                                                            |  | 2004                    |           |   | 2003 |   |           | 2002 | 
|Operating Income:                                                           |  |                         |           |   |      |   |           |      |  |   |           |  
|Interest Income                                                             |  | $                       | 8,156     |   |      | $ | 7,994     |      |  | $ | 6,708     |  
|                                                                            |  |                         |           |   |      |   |           |      |  |   |           |  
|Total Operating Income                                                      |  |                         | 8,156     |   |      |   | 7,994     |      |  | $ | 6,708     |  
|                                                                            |  |                         |          
|Operating Expense:                                                          |  |                         |           |   |      |   |           |      |  |   |           |  
|Interest Expense                                                            |  |                         | 271,239   |   |      |   | 265,845   |      |  |   | 222,789   |  
|Other Expense                                                               |  |                         | 32,004    |   |      |   | 32,004    |      |  |   | 24,003    |  
|                                                                            |  |                         |           |   |      |   |           |      |  |   |           |  
|Total Operating Expense                                                     |  |                         | 303,243   |   |      |   | 297,849   |      |  |   | 246,792   |  
|                                                                            |  |                         |          
|Loss before income taxes and equity in undistributed income of subsidiaries |  |                         | (295,087  | ) |      |   | (289,855  | )    |  |   | (240,084  | )
|Federal income tax benefit                                                  |  |                         | (106,231  | ) |      |   | (104,419  | )    |  |   | (87,379   | )
|                                                                            |  |                         |           |   |      |   |           |      |  |   |           |  
|Loss before equity in undistributed income of subsidiaries                  |  |                         | (188,856  | ) |      |   | (185,436  | )    |  |   | (152,705  | )
|Equity in undistributed income of subsidiaries                              |  |                         | 4,026,569 |   |      |   | 3,413,936 |      |  |   | 2,840,027 |  
|                                                                            |  |                         |           |   |      |   |           |      |  |   |           |  
|Net Income                                                                  |  | $                       | 3,837,714 |   |      | $ | 3,228,500 |      |  | $ | 2,687,322 |  
|                                                                            |  |                         |           |   |      |   |           |      |  |   |           |  



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CONDENSED STATEMENTS OF CASH FLOWS



|                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                    |  | Year ended December 31, |           
|                                                    |  | 2004                    |            |   | 2003 |   |            | 2002 | 
|Cash Flows From Operating Activities:               |  |                         |            |   |      |   |            |      |  |   |            |  
|Net Income                                          |  | $                       | 3,837,714  |   |      | $ | 3,228,500  |      |  | $ | 2,687,322  |  
|Adjustments:                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|Increase in other assets                            |  |                         | (65,057    | ) |      |   | (75,837    | )    |  |   | (170,205   | )
|Equity in undistributed income of subsidiaries      |  |                         | (4,026,569 | ) |      |   | (3,413,936 | )    |  |   | (2,840,027 | )
|                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Net cash used In Operating Activities               |  |                         | (253,912   | ) |      |   | (261,273   | )    |  |   | (322,910   | )
|                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Cash Flows from Investing Activities:               |  |                         |            |   |      |   |            |      |  |   |            |  
|Investing in subsidiaries                           |  |                         |           |   |      |   |           |      |  |   | (4,827,040 | )
|Repayment of investments in subsidiaries            |  |                         | 261,693    |   |      |   | 269,373    |      |  |   |           |  
|                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Net cash provided by (used in) Investing Activities |  |                         | 261,693    |   |      |   | 269,373    |      |  |   | (4,827,040 | )
|                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Cash Flows from Financing Activities:               |  |                         |            |   |      |   |            |      |  |   |            |  
|Proceeds from issuance of subordinated debentures   |  |                         |           |   |      |   |           |      |  |   | 5,155,000  |  
|                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Net cash provided by Financing Activities           |  |                         |           |   |      |   |           |      |  |   | 5,155,000  |  
|                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Net increase in cash                                |  |                         | 7,781      |   |      |   | 8,100      |      |  |   | 5,050      |  
|Cash as of beginning of year                        |  |                         | 13,150     |   |      |   | 5,050      |      |  |   |           |  
|                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Cash as of end of year                              |  | $                       | 21,021     |   |      | $ | 13,150     |      |  | $ | 5,050      |  
|                                                    |  |                         |            |   |      |   |            |      |  |   |            |  



18. Unaudited
Quarterly Financial Data



|                                                    |  |         |           |          |   |           |  |          |           |  |   |          
|--------------------------------------------------- |  | ------- | --------- | -------- | - | --------- |  | -------- | --------- |  | - | ---------
|                                                    |  | 2004   
|                                                    |  | Dec. 31 |           | Sept. 30 |   | June 30   |  | March 31
|Summary of Operations                               |  |         |           |          |   |           |  |          |           |  |   |          
|Interest income                                     |  | $       | 4,580,274 |          | $ | 4,403,646 |  | $        | 4,043,826 |  | $ | 3,988,322
|Interest expense                                    |  |         | 1,230,950 |          |   | 1,211,334 |  |          | 1,069,777 |  |   | 1,033,234
|                                                    |  |         |           |          |   |           |  |          |           |  |   |          
|Net interest income                                 |  |         | 3,349,324 |          |   | 3,192,312 |  |          | 2,974,049 |  |   | 2,955,088
|Provision for loan losses                           |  |         | 60,000    |          |   | 60,000    |  |          | 60,000    |  |   | 60,000   
|                                                    |  |         |           |          |   |           |  |          |           |  |   |          
|Net interest income after provision for loan losses |  |         | 3,289,324 |          |   | 3,132,312 |  |          | 2,914,049 |  |   | 2,895,088
|Non-interest income                                 |  |         | 703,031   |          |   | 647,897   |  |          | 694,355   |  |   | 511,959  
|Non-interest expense                                |  |         | 2,278,380 |          |   | 2,355,577 |  |          | 2,236,092 |  |   | 2,119,912
|                                                    |  |         |           |          |   |           |  |          |           |  |   |          
|Income before income taxes                          |  |         | 1,713,975 |          |   | 1,424,632 |  |          | 1,372,312 |  |   | 1,287,135
|Income taxes                                        |  |         | 638,864   |          |   | 468,537   |  |          | 441,611   |  |   | 411,328  
|                                                    |  |         |           |          |   |           |  |          |           |  |   |          
|Net income                                          |  | $       | 1,075,111 |          | $ | 956,095   |  | $        | 930,701   |  | $ | 875,807  
|                                                    |  |         |           |          |   |           |  |          |           |  |   |          
|Net income per share :                              |  |         |           |          |   |           |  |          |           |  |   |          
|Basic                                               |  | $       | 0.33      |          | $ | 0.29      |  | $        | 0.29      |  | $ | 0.27     
|Diluted                                             |  | $       | 0.32      |          | $ | 0.28      |  | $        | 0.27      |  | $ | 0.25     



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##### Table of Contents

|                                                    |  |         |           |          |   |           |  |          |           |  |   |          
|--------------------------------------------------- |  | ------- | --------- | -------- | - | --------- |  | -------- | --------- |  | - | ---------
|                                                    |  | 2003   
|                                                    |  | Dec. 31 |           | Sept. 30 |   | June 30   |  | March 31
|Summary of Operations                               |  |         |           |          |   |           |  |          |           |  |   |          
|Interest income                                     |  | $       | 3,719,712 |          | $ | 3,606,241 |  | $        | 3,533,916 |  | $ | 3,526,928
|Interest expense                                    |  |         | 1,035,860 |          |   | 1,082,750 |  |          | 1,114,810 |  |   | 1,140,597
|                                                    |  |         |           |          |   |           |  |          |           |  |   |          
|Net interest income                                 |  |         | 2,683,852 |          |   | 2,523,491 |  |          | 2,419,106 |  |   | 2,386,331
|Provision for loan losses                           |  |         | 60,000    |          |   | 60,000    |  |          | 60,000    |  |   | 60,000   
|                                                    |  |         |           |          |   |           |  |          |           |  |   |          
|Net interest income after provision for loan losses |  |         | 2,623,852 |          |   | 2,463,491 |  |          | 2,359,106 |  |   | 2,326,331
|Non-interest income                                 |  |         | 526,326   |          |   | 681,482   |  |          | 658,172   |  |   | 535,368  
|Non-interest expense                                |  |         | 1,789,355 |          |   | 1,822,418 |  |          | 1,813,814 |  |   | 1,743,134
|                                                    |  |         |           |          |   |           |  |          |           |  |   |          
|Income before income taxes                          |  |         | 1,360,823 |          |   | 1,322,555 |  |          | 1,203,464 |  |   | 1,118,565
|Income taxes                                        |  |         | 488,040   |          |   | 469,722   |  |          | 425,449   |  |   | 393,696  
|                                                    |  |         |           |          |   |           |  |          |           |  |   |          
|Net income                                          |  | $       | 872,783   |          | $ | 852,833   |  | $        | 778,015   |  | $ | 724,869  
|                                                    |  |         |           |          |   |           |  |          |           |  |   |          
|Net income per share :                              |  |         |           |          |   |           |  |          |           |  |   |          
|Basic                                               |  | $       | 0.28      |          | $ | 0.26      |  | $        | 0.24      |  | $ | 0.22     
|Diluted                                             |  | $       | 0.27      |          | $ | 0.25      |  | $        | 0.23      |  | $ | 0.21     



F-23



---

##### Table of Contents

SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                     |  |     |  |                                      
|-------------------- |  | --- |  | -------------------------------------
|                     |  |     |  | 1STCONSTITUTION BANCORP              
|                     |  |    
|Date: March 24, 2005 |  | By: |  | /s/ ROBERT F. MANGANO                
|                     |  |     |  | Robert F. Mangano                    
|                     |  |     |  | President and Chief Executive Officer
|                     |  |     |  | (Principal Executive Officer)        



Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                             |  |                                                                               |  |               
|-------------------------------------------- |  | ----------------------------------------------------------------------------- |  | --------------
|Signature                                    |  | Capacity                                                                      |  | Date          
|/s/ ROBERT F. MANGANO                        |  | President, Chief Executive Officer and Director (Principal Executive Officer) |  | March 24, 2005
|Robert F. Mangano                            |  |                                                                              
|                                             |  |                                                                              
|/s/ CHARLES S. CROW, IIICharles S. Crow, III |  | Chairman of the Board                                                         |  | March 24, 2005
|                                             |  |                                                                              
|/s/ DAVID C. REEDDavid C. Reed               |  | Director                                                                      |  | March 24, 2005
|                                             |  |                                                                              
|/s/ WILLIAM M. RUEWilliam M. Rue             |  | Director                                                                      |  | March 24, 2005
|                                             |  |                                                                              
|/s/ FRANK W. WALSH, IIIFrank W. Walsh, III   |  | Director                                                                      |  | March 24, 2005
|                                             |  |                                                                              
|/s/ JOSEPH M. REARDONJoseph M. Reardon       |  | Senior Vice President and Treasurer (Principal
Accounting Officer)            |  | March 24, 2005



33



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##### Table of Contents

1STCONSTITUTION BANCORP

INDEX TO EXHIBITS



|            |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3(i)        |  | * |  | Certificate of Incorporation of the Company (conformed copy).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |  |  
|3(i)(A)     |  |   |  | Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(i)(A) to the Companys Form 8-K filed with the SEC on January 25, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |  |  
|3(ii)       |  |   |  | Bylaws of the Company (incorporated by reference to Exhibit 3(ii) to the Companys Form 10-QSB filed with the SEC on May 14, 2003)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |  |  
|4.1         |  |   |  | Specimen Share of Common Stock (incorporated by reference to the Companys Form 10-KSB filed with the SEC on March 22, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |  |  
|4.2         |  |   |  | Amended and Restated Declaration of Trust of 1stConstitution Capital Trust I dated as of April 10, 2002 among the Registrant, as sponsor, Wilmington Trust Company, as Delaware and institutional trustee, and the Administrators named therein (incorporated by reference to the Companys Form
10-QSB filed with the SEC on May 8, 2002)                                                                                                                                                                                                                                                                                     
|            |  |  
|4.3         |  |   |  | Indenture dated as of April 10, 2002 between the Registrant, as issuer, and Wilmington Trust Company, as trustee, relating to the Floating Rate Junior Subordinated Debt Securities due 2032
(incorporated by reference to the Companys Form 10-QSB filed with the SEC on May 8, 2002)                                                                                                                                                                                                                                                                                                                                        
|            |  |  
|4.4         |  |   |  | Guarantee Agreement dated as of April 10, 2002 between the Registrant and the Wilmington Trust Company, as guarantee trustee (incorporated by reference to the Companys Form 10-QSB filed
with the SEC on May 8, 2002)                                                                                                                                                                                                                                                                                                                                                                                                        
|            |  |  
|4.5         |  |   |  | Rights Agreement, dated as of March 18, 2004, between 1stConstitution Bancorp and Registrar and Transfer Company, as Rights Agent, including the form of Certificate of Amendment to the Companys Certificate of Incorporation as Exhibit A thereto, the form of Rights Certificates as Exhibit B thereto,
and the Summary of Rights as Exhibit C thereto. Pursuant to the Rights Agreement, printed Rights Certificates will not be mailed until after the Distribution Date (as such term is defined in the Rights Agreement) (incorporated by reference to the
Companys Form 8-A12G filed with the SEC on March 18, 2004).
|            |  |  
|10.1        |  | # |  | 1st Constitution Bancorp Supplemental Executive Retirement Plan, dated as of October 1, 2002 (Incorporated by reference to the Companys Form 10-QSB filed with the SEC on November 13,
2002)                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |  |  
|10.2        |  | # |  | 1st Constitution Bancorp Directors Deferral Plan, dated as of October 1, 2002 (Incorporated by reference to the Companys Form 10-QSB filed with the SEC on November 13,
2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |  |  
|10.3        |  | # |  | 1st Constitution Bancorp Directors Insurance Plan, dated as of October 1, 2002 (Incorporated by reference to the Companys Form 10-QSB filed with the SEC on November 13,
2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |  |  
|10.4        |  | # |  | 1st Constitution Bancorp Form of Executive Life Insurance Agreement (Incorporated by reference to the Companys Form 10-QSB filed with the SEC on November 13, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                           



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##### Table of Contents

|            |  |   |  |                                                                                                                                                                                                                                    
|----------- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description                                                                                                                                                                                                                        
|10.5        |  | # |  | Amended and Restated 1990 Stock Option Plan for Key Employees, as amended (incorporated by reference to Exhibit No. 10.1 to the Companys Form 10-QSB filed with the SEC on August 9,
2002)                                        
|            |  |  
|10.6        |  | # |  | 1996 Employee Stock Option Plan, as amended (incorporated by reference to Exhibit No. 10.2 to the Companys Form 10-QSB filed with the SEC on August 9, 2002)                                                                      
|            |  |  
|10.7        |  | # |  | 2000 Employee Stock Option and Restricted Stock Plan (incorporated by reference to Exhibit No. 6.3 to the Companys Form 10-SB filed with the SEC on June 15, 2001)                                                                
|            |  |  
|10.8        |  | # |  | Directors Stock Option and Restricted Stock Plan (incorporated by reference to Exhibit No. 6.4 to the Companys Form 10-SB filed with the SEC on June 15, 2001)                                                                    
|            |  |  
|10.9        |  | # |  | Employment Agreement between the Company and Robert F. Mangano dated April 22, 1999 (incorporated by reference to Exhibit No. 6.5 to the Companys Form 10-SB filed with the SEC on June
15, 2001)                                 
|            |  |  
|10.10       |  | # |  | Agreement for Consulting Services between the Company and Edward D. Knapp (incorporated by reference to Exhibit 10.10 to the Companys Form 10-KSB filed with the SEC on March 20,
2003)                                           
|            |  |  
|10.11       |  | # |  | Amendment to 1st Constitution Bancorp Directors Insurance Plan, dated as of February 19, 2004 (incorporated by reference to Exhibit 10.11 to the Companys Form 10-K filed with the SEC on
March 25, 2004)                         
|            |  |  
|10.12       |  | # |  | Amendment No. 1 to 1st Constitution Bancorp Supplemental Executive Retirement Plan, effective January 1, 2004 (incorporated by reference to Exhibit 10.12 to the Companys Form 10-Q filed
with the SEC on August 11, 2004)        
|            |  |  
|10.13       |  | # |  | Change of Control Agreement, effective as of April 1, 2004, by and between the Company and Joseph M. Reardon (incorporated by reference to Exhibit 10.13 to the Companys Form 10-Q filed
with the SEC on August 11, 2004)         
|            |  |  
|10.14       |  | # |  | Form of Stock Option Agreement under the 1stConstitution
Bancorp Employee Stock Option and Restricted Stock Plan (incorporated by reference to Exhibit 10.14 to the Companys Form 8-K filed with the SEC on December 22, 2004)    
|            |  |  
|10.15       |  | # |  | Form of Restricted Stock Agreement under the 1stConstitution Bancorp Employee Stock Option and Restricted Stock Plan (incorporated by reference to Exhibit 10.15 to the Companys Form 8-K filed with the SEC on December 22, 2004)
|            |  |  
|10.16       |  | # |  | Employment Agreement between the Company and Robert F. Mangano dated February 22, 2005 (incorporated by reference to Exhibit No. 10.16 to the Companys Form 8-K filed with the SEC on
February 24, 2005)                          
|            |  |  
|13.1        |  |   |  | 2001 Annual Report to Security Holders (incorporated by reference to the Companys Form 10-KSB filed with the SEC on March 22, 2002)                                                                                               
|            |  |  
|21          |  |   |  | Subsidiaries of the Company (incorporated by reference to the Companys Form 10-KSB filed with the SEC on March 20, 2003)                                                                                                          
|            |  |  
|23.1        |  | * |  | Consent of Independent Registered Public Accounting Firm  Grant Thornton LLP                                                                                                                                                      



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##### Table of Contents

|     |  |   |  |                                                                                                                                                                                                                                                                         
|---- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  |  
|23.2 |  | * |  | Consent of Independent Registered Public Accounting Firm  KPMG LLP                                                                                                                                                                                                     
|     |  |  
|31.1 |  | * |  | Certification of Robert F. Mangano, Chief Executive Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a).                                                                                                                                         
|     |  |  
|31.2 |  | * |  | Certification of Joseph M. Reardon, Chief Financial Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a).                                                                                                                                         
|     |  |  
|32   |  | * |  | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by Robert F. Mangano, Chief Executive Officer of the Company,
and Joseph M. Reardon, Senior Vice President and Treasurer of the Company.

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|* | Filed herewith.
|- | ---------------

|# | A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(c) of Form 10-K.
|- | ---------------------------------------------------------------------------------------------------------------------------------