UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 (Mark
One)
 
 x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
quarterly period ended March 31, 2008
 or
  
 o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
      the transition period from _____ to
_____
 
 Commission
file Number:  000-32891
  1ST
      CONSTITUTION BANCORP(Exact
      Name of Registrant as Specified in Its Charter)
 
 New
      Jersey
            
            22-3665653(State
      of Other Jurisdiction
              of
      Incorporation or Organization)
            
            (I.R.S.
      Employer Identification No.)
 
 2650 Route 130, P.O. Box 634, Cranbury, NJ
            
            08512(Address
      of Principal Executive Offices)
            
            (Zip
      Code)
  (609)
      655-4500(Issuer’s
      Telephone Number, Including Area Code)
 (Former
      name, former address and former fiscal year, if changed since last
      report)
 
 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 xNoo
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 Large
      accelerated filer
            o
            Accelerated
      filer
            oNon-accelerated
      filer
            o
            Smaller
      reporting company
            x(Do
      not check if a smaller reporting company)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes o    
No  x
  As of May
9, 2008, there were 3,989,428 shares of the registrant’s common stock, no par
value, outstanding.
  
 1ST
CONSTITUTION BANCORP
  FORM
10-Q
  INDEX
  PagePART
      I.
            
            FINANCIAL
      INFORMATIONItem
      1.
            
            Financial
      Statements
            1Consolidated
      Balance Sheetsas
      of March 31, 2008 and December 31, 2007 (unaudited)
            1Consolidated
      Statements of Incomefor
      the Three Months Ended March 31, 2008and
      March 31, 2007 (unaudited)
            2Consolidated
      Statements of Changes in Shareholders’ Equityfor
      the Three Months Ended March 31, 2008and
      March 31, 2007 (unaudited)
            3Consolidated
      Statements of Cash Flowsfor
      the Three Months Ended March 31, 2008and
      March 31, 2007 (unaudited)
            4Notes
      to Consolidated Financial Statements (unaudited)
            5Item
      2.
            
            Management’s
      Discussion and Analysis of Financial Conditionand
      Results of Operations
            12Item
      3.
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            24Item
      4.
            
            Controls
      and Procedures
            24PART
      II.
            
            OTHER
      INFORMATIONItem
      2.
            
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            26Item
      6.
            
            Exhibits
            26SIGNATURES
            27
  
 PART
I. FINANCIAL INFORMATION
 
 Item
1.                                Financial
Statements
  1st
Constitution Bancorp and Subsidiaries
 Consolidated
Balance Sheets
 March
      31, 2008
              (unaudited)
            
            
            December
      31, 2007ASSETSCASH
      AND DUE FROM BANKS
            
            $
            11,650,085
            
            
            $
            7,517,158FEDERAL
      FUNDS SOLD / SHORT-TERM INVESTMENTS
            
            
            11,148
            
            
            
            30,944Total
      cash and cash equivalents
            
            
            11,661,233
            
            
            
            7,548,102INVESTMENT
      SECURITIES:Available
      for sale, at fair value
            
            
            71,055,792
            
            
            
            75,192,137Held
      to maturity (fair value of $16,499,376 and $23,411,269 in
              2008
      and 2007, respectively)
            
            
            16,486,512
            
            
            
            23,512,346Total
      investment securities
            
            
            87,542,304
            
            
            
            98,704,483LOANS
      HELD FOR SALE
            
            
            13,569,983
            
            
            
            10,322,005LOANS
            
            
            344,583,370
            
            
            
            294,760,718Less-
      Allowance for loan losses
            
            
            (3,513,080
            )
            
            
            (3,348,080
            )Net
      loans
            
            
            341,070,290
            
            
            
            291,412,638PREMISES
      AND EQUIPMENT, net
            
            
            2,656,900
            
            
            
            2,760,203ACCRUED
      INTEREST RECEIVABLE
            
            
            2,060,607
            
            
            
            2,495,732BANK-OWNED
      LIFE INSURANCE
            
            
            9,642,179
            
            
            
            9,550,352OTHER
      REAL ESTATE OWNED
            
            
            4,305,293
            
            
            
            2,960,727OTHER
      ASSETS
            
            
            3,770,844
            
            
            
            3,397,297Total
      assets
            
            $
            476,279,633
            
            
            $
            429,151,539LIABILITIES
      AND SHAREHOLDERS’ EQUITYLIABILITIES:DepositsNon-interest
      bearing
            
            $
            73,111,552
            
            
            $
            59,055,803Interest
      bearing
            
            
            305,597,937
            
            
            
            270,276,565Total
      deposits
            
            
            378,709,489
            
            
            
            329,332,368BORROWINGS
            
            
            31,800,000
            
            
            
            35,600,000REDEEMABLE
      SUBORDINATED DEBENTURES
            
            
            18,557,000
            
            
            
            18,557,000ACCRUED
      INTEREST PAYABLE
            
            
            2,018,045
            
            
            
            1,992,187ACCRUED
      EXPENSES AND OTHER LIABILITIES
            
            
            3,547,274
            
            
            
            2,696,667Total
      liabilities
            
            
            434,631,808
            
            
            
            388,178,222COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS’
      EQUITY:Common
      stock, no par value; 30,000,000 shares authorized; 3,992,339
              and
      3,993,905 shares issued and 3,989,428 and 3,992,715 shares
              outstanding
      as of March 31, 2008 and December 31, 2007, respectively
            
            
            32,547,049
            
            
            
            32,514,936Retained
      earnings
            
            
            9,482,446
            
            
            
            9,009,955Treasury
      Stock, shares at cost, 2,911 and 1,190 shares at
              March
      31, 2008 and December 31, 2007, respectively
            
            
            (46,583
            )
            
            
            (18,388
            )Accumulated
      other comprehensive loss
            
            
            (335,087
            )
            
            
            (533,186
            )Total
      shareholders’ equity
            
            
            41,647,825
            
            
            
            40,973,317Total
      liabilities and shareholders’ equity
            
            $
            476,279,633
            
            
            $
            429,151,539
 See
accompanying notes to consolidated financial statements
  1
 1st
Constitution Bancorp and Subsidiaries
 Consolidated
Statements of Income
 (unaudited)
 Three
      Months Ended March 31,2008
            
            
            2007(restated)INTEREST
      INCOME:Loans,
      including fees
            
            $
            6,009,100
            
            
            $
            6,167,725Securities:Taxable
            
            
            975,401
            
            
            
            992,327Tax-exempt
            
            
            145,599
            
            
            
            206,568Federal
      funds sold and short-term investments
            
            
            36,956
            
            
            
            22,544Total
      interest income
            
            
            7,167,056
            
            
            
            7,389,164INTEREST
      EXPENSE:Deposits
            
            
            2,538,093
            
            
            
            2,216,085Securities
      sold under agreements to repurchase
              and
      other borrowed funds
            
            
            376,027
            
            
            
            286,339Redeemable
      subordinated debentures
            
            
            249,806
            
            
            
            429,067Total
      interest expense
            
            
            3,163,926
            
            
            
            2,931,491Net
      interest income
            
            
            4,003,130
            
            
            
            4,457,673PROVISION
      FOR LOAN LOSSES
            
            
            165,000
            
            
            
            40,000Net
      interest income after provision for loan losses
            
            
            3,838,130
            
            
            
            4,417,673NON-INTEREST
      INCOME:Service
      charges on deposit accounts
            
            
            185,888
            
            
            
            149,855Gain
      on sales of loans
            
            
            310,044
            
            
            
            231,777Income
      on Bank-owned life insurance
            
            
            91,827
            
            
            
            90,348Other
      income
            
            
            198,618
            
            
            
            171,761Total
      non-interest income
            
            
            786,377
            
            
            
            643,741NON-INTEREST
      EXPENSE:Salaries
      and employee benefits
            
            
            1,978,061
            
            
            
            1,863,252Occupancy
      expense
            
            
            432,015
            
            
            
            393,491Data
      processing expenses
            
            
            211,781
            
            
            
            197,076Other
      operating expenses
            
            
            792,493
            
            
            
            620,405Total
      non-interest expenses
            
            
            3,414,350
            
            
            
            3,074,224Income
      before income taxes
            
            
            1,210,157
            
            
            
            1,987,190INCOME
      TAXES
            
            
            407,960
            
            
            
            661,296Net
      income
            
            $
            802,197
            
            
            $
            1,325,894NET
      INCOME PER SHARE:Basic
            
            $
            0.20
            
            
            $
            0.33Diluted
            
            $
            0.20
            
            
            $
            0.33
 See
accompanying notes to consolidated financial statements.
  2
 1st
Constitution Bancorp and Subsidiaries
 Consolidated
Statements of Changes in Shareholders’ Equity
 For
the Three Months Ended March 31, 2008 and 2007
 Restated
for the period ended March 31, 2007
 (unaudited)
 Common
              Stock
            
            
            Retained
              Earnings
            
            
            Treasury
              Stock
            
            
            Accumulated
              Other
              Comprehensive
              Loss
            
            
            Total
              Shareholders’
              EquityBALANCE,
      January 1, 2007 (restated)
            
            $
            28,886,105
            
            
            $
            7,010,211
            
            
            $
            (3,545
            )
            
            $
            (945,726
            )
            
            $
            34,947,045FAS
      123R share-based compensation
            
            
            32,852
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            32,852Comprehensive
      Income:Net
      Income for the three months
              ended
      March 31, 2007 (restated)
            
            
            -
            
            
            
            1,325,894
            
            
            
            -
            
            
            
            -
            
            
            
            1,325,894Unrealized
      gain on securities
              available
      for sale net of tax
              of
      $172,448 (restated)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            366,453
            
            
            
            366,453Comprehensive
      Income (restated)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,692,347Balance,
      March 31, 2007 (restated)
            
            $
            28,918,957
            
            
            $
            8,336,105
            
            
            $
            (3,545
            )
            
            $
            (579,273
            )
            
            $
            36,672,244Balance,
      January 1, 2008
            
            $
            32,514,936
            
            
            $
            9,009,955
            
            
            $
            (18,388
            )
            
            $
            (533,186
            )
            
            $
            40,973,317Adjustment
      to initially apply EITF 06-4
            
            
            -
            
            
            
            (329,706
            )
            
            
            -
            
            
            
            -
            
            
            
            (329,706
            )FAS
      123R share-based compensation
            
            
            32,113
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            32,113Treasury
      stock, shares acquired at cost
            
            
            -
            
            
            
            
            
            
            
            (28,195
            )
            
            
            
            
            
            
            (28,195
            )Comprehensive
      Income:Net
      Income for the three months
              ended
      March 31, 2008
            
            
            -
            
            
            
            802,197
            
            
            
            -
            
            
            
            -
            
            
            
            802,197Unrealized
      gain on securities
              available
      for sale net of tax
              of
      $326,666
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            634,517
            
            
            
            634,517Unrealized
      loss on interest rate
              swap
      contract net of tax of $289,860
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (436,418
            )
            
            
            (436,418
            )Comprehensive
      Income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,000,296BALANCE,
      March 31, 2008
            
            $
            32,547,049
            
            
            $
            9,482,446
            
            
            $
            (46,583
            )
            
            $
            (335,087
            )
            
            $
            41,647,825
 See
accompanying notes to consolidated financial statements
  3
 1st
Constitution Bancorp and Subsidiaries
 Consolidated
Statements of Cash Flows
 (unaudited)
 Three
      months ended March 31,2008
              
              
              2007(restated)OPERATING
      ACTIVITIES:Net income
              
              $
              802,197
              
              
              $
              1,325,894Adjustments to reconcile net incometo net cash provided by operating
      activities-Provision for loan losses
              
              
              165,000
              
              
              
              40,000Depreciation and amortization
              
              
              173,960
              
              
              
              180,573Net (accretion) amortization of premiums on
      securities
              
              
              (3,229
              )
              
              
              11,378Gain on sales of loans held for sale
              
              
              (310,044
              )
              
              
              (231,777
              )Originations of loans held for sale
              
              
              (19,388,430
              )
              
              
              (14,001,050
              )Proceeds from sales of loans held for sale
              
              
              16,450,496
              
              
              
              17,177,599Income on Bank – owned life insurance
              
              
              (91,827
              )
              
              
              (90,348
              )Share-based
      compensation expense
              
              
              32,113
              
              
              
              32,852Decrease (increase) in accrued interest
      receivable
              
              
              435,125
              
              
              
              (161,158
              )(Increase) decrease in other assets
              
              
              (419,531
              )
              
              
              407,620Increase in accrued interest payable
              
              
              25,858
              
              
              
              48,313(Decrease) increase in accrued expenses and
      other liabilities
              
              
              (205,377
              )
              
              
              799,204Net
      cash (used in) provided by operating activities
              
              
              (2,333,689
              )
              
              
              5,539,100INVESTING
      ACTIVITIES:Purchases of securities -Available for sale
              
              
              (3,020,614
              )
              
              
              (11,920,653
              )Held to maturity
              
              
              -
              
              
              
              (7,677,917
              )Proceeds from maturities and prepayments of securities -Available for sale
              
              
              8,128,985
              
              
              
              2,871,299Held to maturity
              
              
              7,018,220
              
              
              
              342,556Net increase in loans
              
              
              (50,832,012
              )
              
              
              (4,799,001
              )Additional
      investment in other real estate owned
              
              
              (335,206
              )
              
              
              -Capital expenditures
              
              
              (61,479
              )
              
              
              (186,161
              )Cash consideration paid to acquire branch
              
              
              -
              
              
              
              (747,330
              )Cash and cash equivalents acquired from branch
              
              
              -
              
              
              
              19,514,239Net
      cash used in investing activities
              
              
              (39,102,106
              )
              
              
              (2,602,968
              )FINANCING
      ACTIVITIES:Purchase of treasury stock
              
              
              (28,195
              )
              
              
              -Net increase in demand, savings and time deposits
              
              
              49,377,121
              
              
              
              8,542,984Net repayments in other borrowings
              
              
              (3,800,000
              )
              
              
              (1,700,000
              )Net
      cash provided by financing activities
              
              
              45,548,926
              
              
              
              6,842,984Increase
      in cash and cash equivalents
              
              
              4,113,131
              
              
              
              9,779,116CASH
      AND CASH EQUIVALENTSAT BEGINNING OF PERIOD
              
              
              7,548,102
              
              
              
              10,361,812CASH
      AND CASH EQUIVALENTSAT END OF PERIOD
              
              $
              11,661,233
              
              
              $
              20,140,928SUPPLEMENTAL
      DISCLOSURESOF CASH FLOW INFORMATION:Cash paid during the period for -Interest
              
              $
              3,138,068
              
              
              $
              2,883,178Income
      taxes
              
              
              1,051,040
              
              
              
              325,000Non-cash
      investing activitiesReal
      estate acquired in full satisfaction of loans in
    foreclosure
              
              
              1,009,360
              
              
              
              -
 See
accompanying notes to consolidated financial statements.
  4
  1st
Constitution Bancorp and Subsidiaries
 Notes
To Consolidated Financial Statements
 March
31, 2008 (Unaudited)
  (1)  Summary
of Significant Accounting Policies
  The
accompanying unaudited Consolidated Financial Statements include 1st
Constitution Bancorp (the “Company”), its wholly-owned subsidiary, 1st
Constitution Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries, 1st
Constitution Investment Company of Delaware, Inc., FCB Assets Holdings, Inc. and
1st Constitution Title Agency, LLC.  1st Constitution Capital Trust
II, a subsidiary of the Company, and 1st Constitution Capital Trust I, which was
a subsidiary of the Company until April 2007, are not included in the Company’s
consolidated financial statements as they are variable interest entities and the
Company is not the primary beneficiary.  All significant intercompany
accounts and transactions have been eliminated in consolidation and certain
prior period amounts have been reclassified to conform to current year
presentation.  The accounting and reporting policies of the Company
and its subsidiaries conform to accounting principles generally accepted in the
United States and pursuant to the rules and regulations of the Securities and
Exchange Commission (the “SEC”).  Certain information and footnote
disclosures normally included in financial statements have been condensed or
omitted pursuant to such rules and regulations.  These Consolidated
Financial Statements should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company’s Form 10-K
for the year ended December 31, 2007, filed with the SEC on April 15,
2008.
  In the
opinion of the Company, all adjustments (consisting only of normal recurring
accruals) which are necessary for a fair presentation of the operating results
for the interim periods have been included. The results of operations for
periods of less than a year are not necessarily indicative of results for the
full year.
  Net
Income Per Common Share
  Basic net
income per common share is calculated by dividing net income by the weighted
average number of shares outstanding during each period.
  Diluted
net income per share is calculated by dividing net income by the weighted
average number of shares outstanding, as adjusted for the assumed exercise of
common shares related to stock options and unvested stock awards, using the
treasury stock method. All share information has been restated for the effect of
a 6% stock dividend declared December 20, 2007 and paid on February 6, 2008 to
shareholders of record on January 23, 2008.
  The
following tables illustrate the reconciliation of the numerators and
denominators of the basic and diluted earnings per share (EPS)
calculations.
  Three
      Months Ended March 31, 2008Income
            
            
            Weighted-
              average
              shares
            
            
            Per
      share
              amountBasic
      EPSNet
      income available to common shareholders
            
            $
            802,197
            
            
            
            3,989,428
            
            
            $
            0.20Effect
      of dilutive securitiesStock
      options and unvested stock awards
            
            
            -
            
            
            
            54,934
            
            
            
            -Diluted
      EPSNet
      income available to common shareholders
              plus
      assumed conversion
            
            $
            802,197
            
            
            
            4,044,362
            
            
            $
            0.20
  5
  Three
      Months Ended March 31, 2007
              (restated)Income
            
            
            Weighted-
              average
              shares
            
            
            Per
      share
              AmountBasic
      EPSNet
      income available to common shareholders
            
            $
            1,325,894
            
            
            
            3,967,179
            
            
            $
            0.33Effect
      of dilutive securitiesStock
      options and unvested stock awards
            
            
            -
            
            
            
            63,411
            
            
            
            -Diluted
      EPSNet
      income available to common shareholders
              plus
      assumed conversion
            
            $
            1,325,894
            
            
            
            4,030,590
            
            
            $
            0.33
 
 Share-Based
Compensation
  Share-based
compensation is accounted for in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 123 (revised 2004) (“SFAS No. 123R”), Share-Based
Payment.  The Company adopted SFAS No. 123R on January 1, 2006
using the modified prospective approach.  The Company establishes fair
value for its equity awards to determine its cost and the Company recognizes the
related expense for stock options over the vesting period using the
straight-line method.  The grant date fair value for stock options is
calculated using the Black-Scholes option valuation model.
  The
Company’s stock plans authorize the issuance of shares of common stock pursuant
to awards that may be granted in the form of stock options to purchase common
stock (“options”) and awards of shares of common stock (“stock
awards”).  The purpose of the Company’s stock plans is to attract and
retain personnel for positions of substantial responsibility and to provide
additional incentive to certain officers, directors, employees and other persons
to promote the success of the Company.  Under the Company’s stock
plans, options expire no later than ten years after the date of
grant.  Options are granted with an exercise price set at no less than
the fair market value of the Company’s stock on the date of the
grant.  The grant date fair value of the stock options is calculated
using the Black-Scholes option valuation model.
  Stock-based
compensation expense related to stock options was $32,113 and $32,852 for the
three months ended March 31, 2008 and 2007, respectively.
  Stock
options granted under the Company’s stock plans during the three months ended
March 31, 2008 are summarized as follows:
  Stock
      Options
            
            Number
      of
              Shares
            
            
            Weighted
              Average
              Exercise
      Price
            
            
            Weighted
              Average
              Remaining
              Contractual
              Term
      (years)
            
            
            Aggregate
              Intrinsic
              ValueOutstanding
      at January 1, 2008
            
            
            156,838
            
            
            $
            10.43Options
      Granted
            
            
            -
            
            
            
            -Options
      Exercised
            
            
            -
            
            
            
            -Options
      Forfeited
            
            
            -
            
            
            
            -Options
      Expired
            
            
            -
            
            
            
            -Outstanding
      at March 31, 2008
            
            
            156,838
            
            
            $
            10.43
            
            
            
            5.1
            
            
            $
            588,611Exercisable
      at March 31, 2008
            
            
            121,066
            
            
            $
            8.94
            
            
            
            4.0
            
            
            $
            493,681
 
 6
  Stock
awards generally vest over a four-year service period on the anniversary of the
grant date.  Once vested, stock awards are irrevocable.  The
product of the number of shares granted and the grant date market price of the
Company’s common stock determine the fair value of shares covered by the stock
award under the Company’s stock plans.  Management recognizes
compensation expense for the fair value of the shares covered by the stock award
on a straight-line basis over the requisite service period.
  The
following table summarizes the non-vested portion of stock awards outstanding at
March 31, 2008:
  Stock
      Awards
            
            Number
      of
              Shares
            
            
            Average
      Grant Date
              Fair
      ValueNon-vested
      stock awards at January 1, 2008
            
            
            47,993
            
            
            $
            15.35Shares granted
            
            
            -
            
            
            
            -Shares vested
            
            
            -
            
            
            
            -Shares forfeited
            
            
            -
            
            
            
            -Non-vested
      stock awards at March 31, 2008
            
            
            47,993
            
            
            $
            15.35
  As of
March 31, 2008, there was approximately $525,090 of unrecognized compensation
cost related to non-vested share-based compensation arrangements granted under
the Company’s stock plans.  That cost is expected to be recognized
over the next four years.
  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.  The Company follows SFAS No.
132, as revised in December 2003, “Employers’ Disclosures about Pensions and
Other Post-retirement Benefits” and SFAS No. 158, “Employers Accounting for
Defined Benefit Pension and Other Post-retirement Plans-an amendment of FASB
Statements No. 87, 88, 106 and 132(R). SFAS No. 132 revised employers’
disclosures about pension and other post-retirement benefit plans. It requires
additional information about changes in the benefit obligation and the fair
values of plan assets. It also standardized the requirements for pensions and
other postretirement benefit plans to the extent possible, and illustrates
combined formats for the presentation of pension plan and other post-retirement
benefit plan disclosures. SFAS 158 requires an employer to recognize the over
funded or under funded status of a defined benefit postretirement plan (other
than a multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income.
  The
components of net periodic expense for the Company’s supplemental executive
retirement plan for the quarters ended March 31, 2008 and 2007 are as
follows:
  March
      31,2008
            
            
            2007
              (restated)Service
      cost
            
            $
            57,637
            
            
            $
            56,791Interest
      cost
            
            
            39,830
            
            
            
            32,889Actuarial
      loss recognized
            
            
            15,375
            
            
            
            6,217Prior
      service cost recognized
            
            
            24,858
            
            
            
            24,858$
            137,700
            
            
            $
            120,755
 
 7
  In
September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4,
Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-dollar Life
Insurance Arrangements, or EITF
06-4.  EITF 06-4 requires that a liability be recorded during the
service period when a split-dollar life insurance agreement continues after
participants’ employment or retirement.  The required accrued
liability is based on either the post-employment benefit cost for the continuing
life insurance or based on the future death benefit depending on the
contractual terms of the underlying agreement.  The Company adopted
EITF 06-4 on January 1, 2008, and recorded a cumulative effect adjustment of
$329,706 as a reduction of retained earnings effective January 1,
2008.  Total compensation expense for 2008 is projected to increase by
approximately $16,120 as a result of the adoption of EITF 06-4.
  Recent
Accounting Pronouncements
  In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards No. 161 (“SFAS No. 161”), “Disclosures about
Derivative Instruments and Hedging Activities - an amendment of FASB Statement
No. 133”. SFAS No. 161 gives financial statement users better information about
the reporting entity's hedges by providing for qualitative disclosures about the
objectives and strategies for using derivatives, quantitative data about the
fair value of and gains and losses on derivative contracts, and details of
credit-risk-related contingent features in their hedged positions. The standard
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged,
but not required.  We do not anticipate the adoption of SFAS No. 161
will have a material effect on the Company’s financial statements.
  In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations (revised
2007).” FAS 141(R) will significantly change how entities apply the acquisition
method to business combinations. The new standard requires the acquiring entity
in a business combination to recognize all (and only) the assets acquired and
liabilities assumed in the transaction; establishes the acquisition-date fair
value as the measurement objective for all assets acquired and liabilities
assumed; and requires the acquirer to disclose to investors and other users all
of the information they need to evaluate and understand the nature and financial
effect of the business combination. This Statement is broader than SFAS 141,
which only applied to business combinations in which control was obtained by
transferring consideration. SFAS 141(R) applies to all transactions or other
events in which an entity (the acquirer) obtains control of one or more
businesses including combinations achieved without the transfer of
consideration.  SFAS 141(R) requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the Statement. This replaces SFAS 141’s
cost allocation process, which required the cost of an acquisition to be
allocated to the individual assets acquired and liabilities assumed based on
their estimated fair values. SFAS 141 required the acquirer to include the costs
incurred to effect the acquisition (acquisition-related costs) in the cost of
the acquisition that was allocated to the assets acquired and the liabilities
assumed. SFAS 141 (R) requires those costs to be recognized separately from the
acquisition. In accordance with SFAS 141, restructuring costs that the acquirer
expected but was not obligated to incur were recognized as if they were a
liability assumed at the acquisition date. SFAS 141(R) requires the acquirer to
recognize those restructuring costs that do not meet the criteria in SFAS No.
146, “Accounting for Costs Associated with Exit or Disposal Activities” as an
expense as incurred. Acquisition related transaction costs will be expensed as
incurred. SFAS 141(R) requires an acquirer to recognize assets or liabilities
arising from all other contingencies (contractual contingencies) as of the
acquisition date, measured at their acquisition-date fair values only if it is
more likely than not that they meet the definition of an asset or a liability on
the acquisition date. Under SFAS 141(R), changes in deferred tax asset valuation
allowances and acquired income tax uncertainties in a business combination after
the measurement period will impact income tax expense. Additionally, under SFAS
141(R), the allowance for loan losses of an acquiree will not be permitted to be
recognized by the acquirer. SFAS 141(R) is effective for fiscal years beginning
after December 15, 2008.  This new pronouncement will impact the
Company’s accounting for business combinations beginning January 1,
2009.
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in
Consolidated Financial Statements–an amendment of Accounting Research Bulletin
No. 51, “Consolidated Financial Statements.” FAS 160 requires all entities to
report noncontrolling (minority) interests in subsidiaries as equity in the
consolidated financial statements. Its intention is to eliminate the diversity
in practice regarding the accounting for transactions between an entity and
noncontrolling interests. SFAS 160 is effective for fiscal years beginning after
December 15, 2008. The Company is currently assessing the impact of the adoption
of SFAS 160 on its financial statements.
  8
  In
November 2007, the SEC issued SAB 109, “Written Loan Commitments Recorded at
Fair Value through Earnings.” SAB 109 revises and rescinds portions of SAB 105,
“Application of Accounting Principles to Loan Commitments.” The SEC staff’s
current view is that the expected net future cash flows related to the
associated servicing of a loan should be included in the measurement of
derivative and other written loan commitments that are accounted for at fair
value through earnings. That view is consistent with the guidance in Financial
Accounting Standards Board (FASB) No. 156, “Accounting for Servicing of
Financial Assets” and FASB No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities.” SAB 109 retains the view expressed in SAB 105 that
internally developed intangible assets should not be recorded as part of the
fair value of a derivative loan commitment. The guidance in SAB 109 is effective
for derivative loan commitments issued or modified in fiscal quarters beginning
after December 15, 2007. The adoption of SAB 109 did not have a material impact
on the Company’s financial statements.
  (2)  Fair
Value Measurements
  Effective
January 1, 2008, the Company adopted the provisions of SFAS No. 157, “Fair Value
Measurements,” for financial assets and financial liabilities (“SFAS No.
157”).  In accordance with Financial Accounting Standards Board Staff
Position (FSP) No. 157-2, “Effective Date of FASB Statement no. 157,” the
Company will delay application of SFAS No. 157 for non-financial assets and
non-financial liabilities, until January 1, 2009.  SFAS No. 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurement.
  SFAS No.
157 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants.  A fair value measurement assumes that the transaction
to sell the asset or transfer the liability occurs in the principal market for
the asset or liability or, in the absence of a principal market, the most
advantageous market for the asset or liability.  The price in the
principal (or most advantageous) market used to measure the fair value of the
asset or liability shall not be adjusted for transaction costs.  An
orderly transaction is a transaction that assumes exposure to the market for a
period prior to the measurement date to allow for marketing activities that are
usual and customary for transactions involving such assets and liabilities; it
is not a forced transaction.  Market participants are buyers and
sellers in the principal market that are (i) independent, (ii) knowledgeable,
(iii) able to transact and (iv) willing to transact.
  SFAS No.
157 requires the use of valuation techniques that are consistent with the market
approach, the income approach and/or the cost approach.  The market
approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets and
liabilities.  The income approach uses valuation techniques to convert
future amounts, such as cash flows or earnings, to a single present amount on a
discounted basis.  The cost approach is based on the amount that
currently would be required to replace the service capacity of an asset
(replacement cost).  Valuation techniques should be consistently
applied.  Inputs to valuation techniques refer to the assumptions that
market participants would use in pricing the asset or
liability.  Inputs may be observable, meaning those that reflect the
assumptions market participants would use in pricing the asset or liability
developed based on market data obtained from independent sources, or
unobservable, meaning those that reflect the reporting entity’s own assumptions
about the assumptions market participants would use in pricing the asset or
liability developed based on the best information available in the
circumstances.  In that regard, SFAS No. 157 establishes a fair value
hierarchy for valuation inputs that gives the highest priority to quoted prices
in active markets for identical assets or liabilities and the lowest priority to
unobservable inputs.  The fair value hierarchy is as
follows:
  ·
            Level
      1 Inputs – Unadjusted quoted prices in active markets for identical assets
      or liabilities that the reporting entity has the ability to access at the
      measurement date.
  ·
            Level
      2 Inputs – Inputs other than quoted prices included in Level 1 that are
      observable for the asset or liability, either directly or
      indirectly.  These might include quoted prices for similar
      assets or liabilities in active markets, quoted prices for identical or
      similar assets or liabilities in markets that are not active, inputs other
      than quoted prices that are observable for the asset or liability (such as
      interest rates, volatilities, prepayment speeds, credit risks, etc). or
      inputs that are derived principally from or corroborated by market data by
      correlation or other means.
  9
  ·
            Level
      3 Inputs – Unobservable inputs for determining the fair values of assets
      or liabilities that reflect an entity’s own assumptions about the
      assumptions that market participants would use in pricing the assets or
      liabilities.
  A
description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the
valuation hierarchy, is set forth below.  These valuation
methodologies were applied to all of the Company’s financial assets and
financial liabilities carried at fair value effective January 1,
2008.
  In
general, fair value is based upon quoted market prices, where
available.  If such quoted market prices are not available, fair value
is based upon internally developed models that primarily use, as inputs,
observable market-based parameters.  Valuation adjustments may be made
to ensure that financial instruments are recorded at fair
value.  These adjustments may include amounts to reflect counterparty
credit quality, the Company’s creditworthiness, among other things, as well as
unobservable parameters.  Any such valuation adjustments are applied
consistently over time.  The Company’s valuation methodologies may
produce a fair value calculation that may not be indicative of net realizable
value or reflective value or reflective of future values.  While
management believes the Company’s valuation methodologies are appropriate and
consistent with other market participants, the use of different methodologies or
assumptions to determine the fair value of certain financial instruments could
result in a different estimate of fair value at the reporting date.
  Securities Available for
Sale.  Securities classified as available for sale are reported
at fair value utilizing Level 2 inputs.  For these securities, the
Company obtains fair value measurements from an independent pricing
service.  The fair value measurements consider observable data that
may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield
curve, live trading levels, trade executive data, market consensus prepayments
speeds, credit information and the bond’s terms and conditions, among other
things.
  Derivatives.  Derivatives
are reported at fair value utilizing Level 2 inputs.  The Company
obtains dealer quotations to value its interest rate swap.
  The
following table summarizes financial assets and financial liabilities measured
at fair value on a recurring basis as of March 31, 2008, segregated by the level
of the valuation inputs within the fair value hierarchy utilized to measure fair
value:
  Level
      1
              Inputs
            
            
            Level
      2
              Inputs
            
            
            Level
      3
              Inputs
            
            
            Total Fair
              ValueSecurities
      available for sale
            
            $
            -
            
            
            $
            71,055,792
            
            
            $
            -
            
            
            $
            71,055,792Derivative
      liabilities
            
            
            -
            
            
            
            825,491
            
            
            
            -
            
            
            
            825,491
  Certain
financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of
impairment).  Financial assets and financial liabilities measured at
fair value on a non-recurring basis were not significant at March 31,
2008.
  Certain
non-financial assets and non-financial liabilities measured at fair value on a
recurring basis include reporting units measured at fair value in the first step
of a goodwill impairment test.  Certain non-financial assets measured
at fair value on a non-recurring basis include non-financial assets and
non-financial liabilities measured at fair value in the second step of a
goodwill impairment test, as well as intangible assets and other non-financial
long-lived assets measured at fair value for impairment
assessment.  As stated above, SFAS No. 157 will be applicable to these
fair value measurements beginning January 1, 2009.
  10
  Effective
January 1, 2008, the Company adopted the provisions of SFAS No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities – Including an
amendment of FASB Statement No. 115” (“SFAS No. 159”).  SFAS No. 159
permits the Company to choose to measure eligible items at fair value at
specified election dates.  Unrealized
gains and losses on items for which the fair value measurement option has been
elected are reported in earnings at each subsequent reporting
date.  The fair value option (i) may be applied instrument by
instrument, with certain exceptions, thus the Company may record identical
financial assets and liabilities at fair value or by another measurement basis
permitted under generally accepted accounting principals, (ii) is irrevocable
(unless a new election date occurs) and (iii) is applied only to entire
instruments and not to portions of instruments.  Adoption of SFAS No.
159 on January 1, 2008 did not have a significant impact on the Company’s
financial statements.
  (3)
Acquisition of Unaffiliated Branch
  On
February 27, 2007, the Company, through the Bank, completed its acquisition of
the Hightstown, New Jersey branch of another financial institution for a
purchase price of $747,330.
  As a
result of the acquisition, the Hightstown branch became a branch of the Bank.
Included in the acquisition of the branch were deposit liabilities of $19.5
million, mostly in certificates of deposit, and cash of approximately $18.8
million, net of assets acquired consisting of cash on hand of approximately
$137,000, fixed and other assets of approximately $91,000 and the assumption of
the lease of the branch premises. The cash received in the transaction was
utilized to repay short term borrowings used to purchase investment securities
prior to, and in contemplation of, the completion of the
acquisition.
  In
addition, the Bank recorded goodwill of $472,726 and a core deposit intangible
asset of $274,604.
  11
  Item
2.                                Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
  The
purpose of this discussion and analysis of the operating results and financial
condition at March 31, 2008 is intended to help readers analyze the accompanying
financial statements, notes and other supplemental information contained in this
document. Results of operations for the three month period ended March 31, 2008
are not necessarily indicative of results to be attained for any other
period.
  This
discussion and analysis should be read in conjunction with the Consolidated
Financial statements, notes and tables included elsewhere in this report and
Part II, Item 7 of the Company’s Form 10-K (Management’s Discussion and Analysis
of Financial Condition and Results of Operations) for the year ended December
31, 2007, as filed with the SEC on April 15, 2008.
  General
  Throughout
the following sections, the “Company” refers to 1ST Constitution Bancorp
and, as the context requires, its wholly-owned subsidiaries, 1STConstitution Bank and
1STConstitution Capital Trust II, the “Bank” refers to 1ST Constitution Bank,
“Trust II” refers to 1STConstitution Capital Trust II, and “Trust I” refers to 1ST Constitution Capital
Trust I, which was a subsidiary of the Company until its termination in April
2007.
  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 the Bank, a full service commercial bank which began
operations in August 1989, 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 ownership interest in the Bank, the Company currently conducts no
other significant business activities.
  The Bank
operates eleven branches, and manages an investment portfolio through its
subsidiary, 1st
Constitution Investment Company of Delaware, Inc. FCB Assets Holdings, Inc., a
subsidiary of the Bank, is used by the Bank to manage and dispose of repossessed
real estate.
  Trust II,
a subsidiary of the Company, was created in May 2006 to issue trust preferred
securities to assist the Company to raise additional regulatory
capital.
  Trust I,
which was a statutory business trust and a wholly-owned subsidiary of the
Company, had issued $5.0 million of variable rate trust preferred securities in
April 2002 and had held, as its sole asset, subordinated debentures issued by
the Company until such debentures were redeemed by the Company, and Trust I was
terminated, in April 2007.
  The
Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2008
contains restated unaudited consolidated financial information of the Company
for each of the first three quarters of 2007.  To the extent that the
discussion and analysis contained herein relates or refers to the Company’s
results for the first quarter of 2007, such discussion and analysis reflects the
Company’s restated results for the three months ended March 31,
2007.
  Forward-Looking
Statements
  When used
in this and in future filings by the Company with the SEC, 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.
  12
  Factors
that may cause actual results to differ from those results expressed or implied,
include, but are not limited to, those listed under “Business”, “Risk Factors”
and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in the Company’s Annual Report on Form 10-K filed with the SEC on
April 15, 2008, such as 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; certain interest rate risks; risks
associated with investments in mortgage-backed securities; and risks associated
with speculative construction lending. Although management has taken certain
steps to mitigate any negative effect of the aforementioned items, significant
unfavorable changes could severely impact the assumptions used and have an
adverse effect on profitability. 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.
  RESULTS
OF OPERATIONS
  Summary
  The
Company reported net income of $802,197 for the three months ended March 31,
2008, a decrease of 39.5% from the $1,325,894 reported for the three months
ended March 31, 2007.  Diluted net income per share was $0.20 for the
three months ended March 31, 2008 compared to $0.33 reported for the three
months ended March 31, 2007. All prior year share information has been restated
for the effect of a 6% stock dividend declared on December 20, 2007 and paid on
February 6, 2008 to shareholders of record on January 23, 2008.
  Key
performance ratios declined for the three months ended March 31, 2008 as
compared to the three months ended March 31, 2007. Return on average assets and
return on average equity were 0.72% and 7.75%, respectively, for the three
months ended March 31, 2008, compared to 1.31% and 14.79%, respectively, for the
corresponding prior year period.
  A
significant factor impacting the Company’s net interest income has been the
declining level of market interest rates and the resulting compression of the
Company’s net interest margin.  The net interest margin for the three
months ended March 31, 2008 was 3.88% as compared to the 4.81% net interest
margin recorded for the quarter ended March 31, 2007, a reduction of 93 basis
points.  The Federal Reserve has decreased the level of market
interest rates by 250 basis points since September 18, 2007.  Since
the majority of the Company’s interest earning assets earn at floating rates,
these interest rate reductions have resulted in a decreased level of interest
income.  The Company will continue to closely monitor the mix of
earning assets and funding sources to maximize net interest income during this
challenging interest rate environment.
  The
Company has a significant investment in collateralized mortgages and
mortgage-backed securities.  Several financial institutions have
reported significant write-downs of the value of mortgage related
securities.  Certain of these types of securities may also not be
marketable except at significant discounts.  While management of the
Company is as of the date of this report unaware of any material exposures in
its portfolio of these securities, market conditions could further deteriorate
and result in the recognition of losses in the value of these
securities.
  Earnings
Analysis
  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 83.6% of the Company’s net revenues for the three-month
period ended March 31, 2008 and 87.4% of net revenues for the three-month period
ended March 31, 2007. 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.
  13
  The
following table sets forth the Company’s consolidated average balances of
assets, liabilities and shareholders’ equity as well as interest income and
expense on related items, and the Company’s average rates for the three month periods
ended March 31, 2008 and 2007, respectively. 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)
            
            Three months ended
      March 31, 2008
            
            
            Three months ended
      March 31, 2007Average
              Balance
            
            
            Interest
            
            
            Average
              Rate
            
            
            Average
              Balance
            
            
            Interest
            
            
            Average
              RateAssets:Federal
      Funds Sold/Short-Term Investments
            
            $
            4,140,640
            
            
            $
            36,956
            
            
            
            3.58
            %
            
            $
            2,003,236
            
            
            $
            22,544
            
            
            
            5.20
            %Securities:Collateralized
      Mortgage Obligations/
              Mortgage
      Backed Securities
            
            
            75,746,746
            
            
            
            975,401
            
            
            
            5.17
            %
            
            
            77,250,121
            
            
            
            992,327
            
            
            
            5.14
            %States
      and Political Subdivisions
            
            
            15,373,203
            
            
            
            215,486
            
            
            
            5.62
            %
            
            
            21,202,098
            
            
            
            305,721
            
            
            
            5.77
            %Total
            
            
            91,119,949
            
            
            
            1,190,888
            
            
            
            5.24
            %
            
            
            98,452,219
            
            
            
            1,298,048
            
            
            
            5.27
            %Loan
      Portfolio:Construction
            
            
            130,639,223
            
            
            
            2,381,892
            
            
            
            7.31
            %
            
            
            126,866,201
            
            
            
            2,857,337
            
            
            
            9.13
            %Residential
      real estate
            
            
            10,110,283
            
            
            
            159,309
            
            
            
            6.32
            %
            
            
            7,156,527
            
            
            
            212,274
            
            
            
            12.03
            %Home
      Equity
            
            
            14,627,203
            
            
            
            245,339
            
            
            
            6.73
            %
            
            
            14,392,895
            
            
            
            270,455
            
            
            
            7.62
            %Commercial
      and commercial real estate
            
            
            123,704,192
            
            
            
            2,320,400
            
            
            
            7.52
            %
            
            
            110,973,830
            
            
            
            2,147,906
            
            
            
            7.85
            %Installment
            
            
            1,399,625
            
            
            
            28,330
            
            
            
            8.12
            %
            
            
            1,573,806
            
            
            
            33,436
            
            
            
            8.62
            %All
      Other Loans
            
            
            44,822,153
            
            
            
            873,830
            
            
            
            7.82
            %
            
            
            22,709,509
            
            
            
            646,317
            
            
            
            11.54
            %Total
            
            
            325,302,679
            
            
            
            6,009,100
            
            
            
            7.49
            %
            
            
            283,672,768
            
            
            
            6,167,725
            
            
            
            8.82
            %Total
      Interest-Earning Assets
            
            
            420,563,268
            
            
            
            7,236,943
            
            
            
            6.90
            %
            
            
            384,128,223
            
            
            
            7,448,317
            
            
            
            7.91
            %Allowance
      for Loan Losses
            
            
            (3,405,168
            )
            
            
            
            
            
            
            
            
            
            
            (3,051,032
            )Cash
      and Due From Bank
            
            
            10,094,025
            
            
            
            
            
            
            
            
            
            
            
            9,414,281Other
      Assets
            
            
            20,330,862
            
            
            
            
            
            
            
            
            
            
            
            16,296,108Total
      Assets
            
            $
            447,582,987
            
            
            
            
            
            
            
            
            
            
            $
            406,787,580Interest-Bearing
      Liabilities:Money
      Market and NOW Accounts
            
            $
            86,359,683
            
            
            $
            504,836
            
            
            
            2.34
            %
            
            $
            83,302,779
            
            
            $
            415,115
            
            
            
            2.02
            %Savings
      Accounts
            
            
            68,446,977
            
            
            
            499,764
            
            
            
            2.93
            %
            
            
            62,486,829
            
            
            
            449,086
            
            
            
            2.91
            %Certificates
      of Deposit
            
            
            132,123,368
            
            
            
            1,533,493
            
            
            
            4.66
            %
            
            
            113,702,589
            
            
            
            1,351,884
            
            
            
            4.82
            %Other
      Borrowed Funds
            
            
            32,736,813
            
            
            
            376,027
            
            
            
            4.61
            %
            
            
            22,116,111
            
            
            
            286,339
            
            
            
            5.25
            %Trust
      Preferred Securities
            
            
            18,000,000
            
            
            
            249,806
            
            
            
            5.55
            %
            
            
            23,000,000
            
            
            
            429,067
            
            
            
            7.46
            %Total
      Interest-Bearing Liabilities
            
            
            337,666,841
            
            
            
            3,163,926
            
            
            
            3.76
            %
            
            
            304,608,308
            
            
            
            2,931,491
            
            
            
            3.90
            %Net
      Interest Spread
            
            
            
            
            
            
            
            
            
            
            3.14
            %
            
            
            
            
            
            
            
            
            
            
            4.01
            %Demand
      Deposits
            
            
            63,097,231
            
            
            
            
            
            
            
            
            
            
            
            60,679,465Other
      Liabilities
            
            
            5,176,947
            
            
            
            
            
            
            
            
            
            
            
            5,436,127Total
      Liabilities
            
            
            405,941,019
            
            
            
            
            
            
            
            
            
            
            
            370,723,900Shareholders’
      Equity
            
            
            41,641,968
            
            
            
            
            
            
            
            
            
            
            
            36,063,680Total
      Liabilities and Shareholders’
              Equity
            
            $
            447,582,987
            
            
            
            
            
            
            
            
            
            
            $
            406,787,580Net
      Interest Margin
            
            
            
            
            
            $
            4,073,017
            
            
            
            3.88
            %
            
            
            
            
            
            $
            4,556,826
            
            
            
            4.81
            %
  The
Company’s net interest income on a tax-equivalent basis decreased by $483,809,
or 10.6%, to $4,073,017 for the three months ended March 31, 2008 from the
$4,556,826 reported for the three months ended March 31, 2007. The decrease in
net interest income was attributable to the decreases in net interest margin and
spread, partially offset by increased average balances.
  Average
interest earning assets increased by $36,435,045, or 9.5%, to $420,563,268 for
the quarter ended March 31, 2008 from $384,128,223 for the quarter ended March
31, 2007, with an increase of $41,629,911 in average total loans and
a decrease of $7,332,270 in average total securities in the three months ended
March 31, 2008 when compared to the three months ended March 31,
2007.
  14
  The
Bank’s average loan portfolio grew by 14.7% when compared to the average loan
portfolio for the first quarter of 2007. The yields on loans averaged 7.49% for
the first quarter of 2008, decreasing 133 basis points compared to the 8.82%
yield on loans for the first quarter of 2007. The Bank’s average securities
portfolio decreased by 7.45% and the yield on that portfolio decreased by 3
basis points for the quarter ended March 31, 2008 when compared to the quarter
ended March 31, 2007. Overall, the yield on interest earning assets decreased
101 basis points to 6.90% for the quarter ended March 31, 2008 when compared to
7.91% for the quarter ended March 31, 2007.
  Average
interest bearing liabilities increased by $33,058,533, or 10.9%, to $337,666,841
for the quarter ended March 31, 2008 from $304,608,308 for the quarter ended
March 31, 2007. Certificates of deposit increased on average by $18,420,779, or
16.2%, for the three months ended March 31, 2008 when compared to the three
months ended March 31, 2007. The cost of certificates of deposit decreased 16
basis points to 4.66% for the first quarter of 2008 compared to 4.82% for the
first quarter of 2007. Overall, the cost of total interest bearing liabilities
decreased 14 basis points to 3.76% for the three months ended March 31, 2008
compared to 3.90% for the three months ended March 31, 2007.
  The net
interest margin (on a tax-equivalent basis), which is net interest income
divided by average interest earning assets, was 3.88% for the first three months
of 2008 compared to 4.81% for the first three months of 2007.
  Non-Interest
Income
  Total
non-interest income for the three months ended March 31, 2008 was $786,377, an
increase of $142,636, or 22.2%, over non-interest income of $643,741 for the
three months ended March 31, 2007.
  Service
charges on deposit accounts represents a significant source of non-interest
income. Service charge revenues increased by $36,033, or 24.0%, to $185,888 for
the three months ended March 31, 2008 from the $149,855 for the three months
ended March 31, 2007. This increase was the result of a higher volume of
uncollected funds and overdraft fees collected on deposit accounts during the
first quarter of 2008 compared to the first quarter of 2007.
  Gain on
sales of loans increased by $78,267, or 33.8%, to $310,044 for the three months
ended March 31, 2008 when compared to $231,777 for the three months ended March
31, 2007.  The Bank sells both residential mortgage loans and SBA
loans in the secondary market.  The lower interest rate environment
that continued into the first quarter of 2008 has significantly increased the
volume of sales transactions in the SBA loan markets and resultant gains
resulting from these transactions.
  Non-interest
income also includes income from bank-owned life insurance (“BOLI”), which
amounted to $91,827 for the three months ended March 31, 2008 compared to
$90,348 for the three months ended March 31, 2007. The Bank purchased tax-free
BOLI assets to partially offset the cost of employee benefit plans and reduced
the Company’s overall effective tax rate.
  The Bank
also generates non-interest income from a variety of fee-based services. These
include safe deposit box rental, wire transfer service fees and Automated Teller
Machine fees for non-Bank customers. Increased customer demand for these
services contributed to the other income component of non-interest income
amounting to $198,618 for the three months ended March 31, 2008, compared to
$171,761 for the three months ended March 31, 2007.
  15
  Non-Interest
Expense
  Non-interest
expenses increased by $340,126, or 11.1%, to $3,414,350 for the three months
ended March 31, 2008 from $3,074,224 for the three months ended March 31, 2007.
The following table presents the major components of non-interest expenses for
the three months ended March 31, 2008 and 2007.
  Non-interest
      ExpensesThree
      months ended March 31,2008
            
            
            2007
              (restated)Salaries
      and employee benefits
            
            $
            1,978,061
            
            
            $
            1,863,252Occupancy
      expenses
            
            
            432,015
            
            
            
            393,491Equipment
      expense
            
            
            137,791
            
            
            
            125,413Marketing
            
            
            66,329
            
            
            
            24,881Computer
      services
            
            
            211,781
            
            
            
            197,076Regulatory,
      professional and other fees
            
            
            171,718
            
            
            
            108,786Office
      expense
            
            
            141,171
            
            
            
            142,374All
      other expenses
            
            
            275,484
            
            
            
            218,951$
            3,414,350
            
            
            $
            3,074,224
  Salaries
and employee benefits, which represent the largest portion of non-interest
expenses, increased by $114,809, or 6.2%, to $1,978,061 for the three months
ended March 31, 2008 compared to $1,863,252 for the three months ended March 31,
2007. The increase in salaries and employee benefits for the three months ended
March 31, 2008 was a result of an increase in the number of employees, regular
merit increases and increased health care costs. Staffing levels overall
increased to 105 full-time equivalent employees at March 31, 2008 as compared to
102 full-time equivalent employees at March 31, 2007.
  Regulatory,
professional and other fees increased by $62,932, or 57.8%, to $171,718 for the
three months ended March 31, 2008 compared to $108,786 for the three months
ended March 31, 2007.  During the first quarter of 2008, the Company
incurred additional accounting and legal fees primarily as a result of the
restatement of the Company’s financial statements for the first three quarters
and the year ended December 31, 2006 and the first three quarters of the year
ended December 31, 2007, as described in Item 8 of the Company’s Annual Report
on Form 10-K filed with the SEC on April 15, 2008.
  Marketing
expenses increased by $41,448, or 167%, to $66,329 for the three months ended
March 31, 2008 compared to $24,881 for the three months ended March 31,
2007.  The increase in expense was attributable to marketing campaigns
designed to increase low-cost core deposits, further develop our brand image and
continue the Bank’s support of community activities.
  All other
expenses increased by $56,533, or 25.8%, to $275,484 for the three months ended
March 31, 2008 compared to $218,951 for the three months ended March 31,
2007.  All other expenses are comprised of a variety of operating
expenses and fees as well as expenses associated with lending
activities.
  An
important financial services industry productivity measure is the efficiency
ratio. The efficiency ratio is calculated by dividing total operating expenses
by net interest income plus non-interest 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 to
71.3% for the three months ended March 31, 2008, compared to 60.3% for the three
months ended March 31, 2007.  The decline in efficiency ratio is due
to the above-noted increases in non-interest expenses and reduced net interest
income.
  Provision
for Loan Losses
  The
provision for loan losses was $165,000 for the three months ended March 31, 2008
and $40,000 for the three months ended March 31, 2007. Management considers a
complete review of the following specific factors in determining
the provision for loan losses: historical losses by loan category, non-accrual
loans, problem loans as identified through internal classifications, collateral
values, and the growth and size of the portfolio. In addition to these factors,
management takes into consideration current economic conditions and local real
estate market conditions. Net charge offs/recoveries amounted to zero for the
three months ended March 31, 2008 compared to a net recovery of $79,703 for the
three months ended March 31, 2007. See “Allowance for Loan Losses” on page
14.
  16
  Financial
Condition
  March
31, 2008 Compared with December 31, 2007
  Total
consolidated assets at March 31, 2008 totaled $476,279,633, increasing by
$47,128,094 from $429,151,539 at December 31, 2007. On February 27, 2007, the
Bank acquired all of the deposit liabilities and related assets of the
Hightstown, New Jersey branch banking office of another financial institution.
This acquisition added approximately $19 million in new deposits. In connection
with such acquisition, the Company recorded $472,726 in goodwill and $274,604 in
core deposit intangibles, which appear as “Other Assets” in the Consolidated
Balance Sheet at March 31, 2008 and December 31, 2007.
  Cash
and Cash Equivalents
  Cash and
Cash Equivalentsat March 31, 2008
totaled $11,661,233 compared to $7,548,102 at December 31, 2007. Cash and cash
equivalents at March 31, 2008 consisted of cash and due from banks of
$11,650,085 and Federal funds sold/short term investments of $11,148. The
corresponding balances at December 31, 2007 were $7,517,158 and $30,944,
respectively.
  Investment
Securities
  The
Bank’s investment securities represented 18.4% of total assets at March 31, 2008
and 23.0% at December 31, 2007. Total investment securities decreased
$11,162,179, or 11.3%, at March 31, 2008 to $87,542,304 from $98,704,483 at
December 31, 2007.
  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 March
31, 2008, available-for-sale securities amounted to $71,055,792, a decrease of
$4,136,345, or 5.5%, from available-for-sale securities of $75,192,137 at
December 31, 2007.
  At March
31, 2008, the securities available for sale portfolio had net unrealized gains
of $991,746 compared to net unrealized gains of $30,563 at December 31,
2007.  These unrealized gains are reflected net of tax in
shareholders’ equity as a component of Accumulated other comprehensive
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 March 31, 2008, securities held to
maturity were $16,486,512, a decrease of $7,025,834, or 29.9%, from $23,512,346
at December 31, 2007. The fair value of the held-to-maturity portfolio at March
31, 2008 was $16,499,376, resulting in an unrealized gain of
$12,864.
  During
the three months ended March 31, 2008, the Bank purchased securities in the
amounts of $3,020,614 for the available for sale portfolio. During this same
period, $15,147,205 in proceeds from maturities and repayments were
received.
  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 Company’s primary lending
focus continues to be construction loans, commercial loans, owner-occupied
commercial mortgage loans and tenanted commercial real estate
loans.
  17
  The
following table sets forth the classification of loans by major category at
March 31, 2008 and December 31, 2007.
  Loan
      Portfolio Composition
            
            March
      31, 2008
            
            
            December
      31, 2007Component
            
            Amount
            
            
            %
              of
      total
            
            
            Amount
            
            
            %
              of
      totalConstruction
      loans
            
            $
            127,644,696
            
            
            
            37
            %
            
            $
            132,735,920
            
            
            
            45
            %Residential
      real estate loans
            
            
            10,026,958
            
            
            
            3
            %
            
            
            10,088,515
            
            
            
            3
            %Commercial
      and commercial real estate
            
            
            138,729,574
            
            
            
            40
            %
            
            
            135,128,642
            
            
            
            46
            %Mortgage
      warehouse lines
            
            
            51,614,814
            
            
            
            15
            %
            
            
            -0-
            
            
            
            0
            %Loans
      to individuals
            
            
            16,024,464
            
            
            
            5
            %
            
            
            16,324,817
            
            
            
            6
            %Deferred
      loan fees
            
            
            377,803
            
            
            
            0
            %
            
            
            302,818
            
            
            
            0
            %All
      other loans
            
            
            165,061
            
            
            
            0
            %
            
            
            180,006
            
            
            
            0
            %$
            344,583,370
            
            
            
            100.0
            %
            
            $
            294,760,718
            
            
            
            100.0
            %
 
 The loan
portfolio increased by $49,822,652, or 16.9%, to $344,583,370 at March 31, 2008
compared to $294,760,718 at December 31, 2007.  In January 2008, the
Bank’s Mortgage Warehouse Funding Group introduced a revolving line of credit
that is available to licensed mortgage banking companies (the “Warehouse Line of
Credit”) and that has been successful from inception.  The Warehouse
Line of Credit is used by the mortgage banker to originate one to four family
residential mortgage loans that are pre-sold to the secondary mortgage market,
which includes state and national banks, national mortgage banking firms,
insurance companies and government-sponsored enterprises, including the Federal
National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation
(FHLMC) and others.  On average, an advance under the Warehouse Line
of Credit remains outstanding for a period of less than 30 days, with repayment
coming directly from the sale of the loan into the secondary mortgage
market.  Interest (the spread between our borrowing cost and the rate
charged to the client) and a transaction fee are collected by the Bank at the
time of repayment.  Additionally, these customers are required to
maintain deposit relationships with the Bank that, on average, represent 10% to
15% of the loan balances.  The Bank had outstanding Warehouse Line of
Credit advances of $51,614,814 at March 31, 2008.
  The
ability of the Company to enter into larger loan relationships and management’s
philosophy of relationship banking are key factors in the Company’s strategy for
loan growth.  The ultimate collectability of the loan portfolio and
the recovery of the carrying amount of real estate are subject to changes in the
Company’s market region’s economic environment and real estate
market.
  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 is that 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 120 days past due. Subsequent payments on loans in non-accrual
status are credited to income only if collection of principal is not in
doubt.
  18
  Non-performing
loans increased by $1,232,238 to $3,269,096 at March 31, 2008 from $2,036,858 at
December 31, 2007. The largest segment of non-accrual loans represents
unfinished residential construction where litigation has commenced and workout
negotiations are in process. The balance of the non-performing loans are
centered in commercial loans for which litigation has commenced. 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, non-performing loans to
total loans increased to 0.91% at March 31, 2008 from 0.67% at December 31, 2007
for the reasons previously stated, but loan quality is still considered to be
strong. This was accomplished through quality loan underwriting, a proactive
approach to loan monitoring and aggressive workout strategies.
  Non-Performing
      Assets and Loans
            
            March
      31,
            
            
            December
      31,2008
            
            
            2007Non-Performing
      loans:Loans
      90 days or more past due and still accruing
            
            $
            300,000
            
            
            $
            0Non-accrual
      loans
            
            
            2,969,096
            
            
            
            2,036,858Total
      non-performing loans
            
            
            3,269,096
            
            
            
            2,036,858Other
      real estate owned
            
            
            4,305,293
            
            
            
            2,960,727Total
      non-performing assets
            
            $
            7,574,389
            
            
            $
            4,997,585Non-performing
      loans to total loans
            
            
            0.91
            %
            
            
            0.67
            %Non-performing
      assets to total assets
            
            
            1.59
            %
            
            
            1.16
            %
  Non-performing
assets increased by $2,576,804 to $7,574,389 at March 31, 2008 from $4,997,585
at December 31, 2007. Non-performing assets represented 1.59% of total assets at
March 31, 2008 and 1.16% at December 31, 2007.
  The Bank
had no loans classified as restructured loans at March 31, 2008 or December 31,
2007.
  At March
31, 2008, the Bank had one $300,000 loan that was 90 days or more past due but
still accruing interest.  At December 31, 2007, the Bank had no such
loans.
  Management
takes a proactive approach in addressing delinquent loans. The Company’s
President meets weekly with all loan officers to review the status of credits
past-due ten days or more. An action plan is discussed for each of the loans to
determine the steps necessary to induce the borrower to cure the delinquency and
restore the loan to a current status. Also, delinquency notices are system
generated when loans are five days past-due and again at 15 days
past-due.
  In most
cases, the Company’s collateral is real estate and when the collateral is
foreclosed upon, the real estate is recorded at fair market value less estimated
selling costs, and subsequently carried at the lower of fair market value less
the estimated selling costs or the initially recorded amount. The amount, if
any, by which the recorded amount of the loan exceeds the fair market value of
the asset is a loss which is charged to the allowance for loan losses at the
time of foreclosure or repossession. Resolution of a past-due loan can be
delayed if the borrower files a bankruptcy petition because collection action
cannot be continued unless the Company first obtains relief from the automatic
stay provided by the bankruptcy code.
  Allowance
for Loan Losses
  The
allowance for loan losses is maintained at a level sufficient in the opinion of
management 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.
  The
Company’s primary lending emphasis is the origination of commercial and
commercial real estate loans, including construction loans. Based on the
composition of the loan portfolio, the primary risks inherent in it are
deteriorating credit quality, a decline in the economy, and a decline in New
Jersey real estate market values. Any one or a combination of these events may
adversely affect the loan portfolio and may result in increased delinquencies,
loan losses and increased future provision levels.
  19
  All, or
part, of the principal balance of commercial and commercial real estate loans,
and construction loans are charged off to the allowance as soon as it is
determined that the repayment of all, or part, of the principal balance is
unlikely. Consumer loans are generally charged off no later than 120 days past
due on a contractual basis, earlier in the event of bankruptcy, or if there is
an amount deemed uncollectible.Because all identified
losses are immediately charged off, no portion of the allowance for loan losses
is restricted to any individual loan or groups of loans, and the entire
allowance is available to absorb any and all loan losses.
  Management
reviews the adequacy of the allowance on at least a quarterly basis to ensure
that the provision for loan losses has been charged against earnings in an
amount necessary to maintain the allowance at a level that is adequate based on
management’s assessment of probable estimated losses. The Company’s methodology
for assessing the adequacy of the allowance for loan losses consists of several
key elements. These elements include a specific reserve for doubtful or high
risk loans, an allocated reserve, and an unallocated portion. The Company
consistently applies the following comprehensive methodology.
  During
the quarterly review of the allowance for loan losses, management of the Company
considers a variety of factors that include:
  ·
            General
      economic conditions.
 ·
            Trends
      in charge-offs.
 ·
            Trends
      and levels of delinquent loans.
 ·
            Trends
      and levels of non-performing loans, including loans over 90 days
      delinquent.
 ·
            Trends
      in volume and terms of loans.
 ·
            Levels
      of allowance for specific classified
loans.
 ·
            Credit
      concentrations.
  The
specific reserve for high risk loans is established for specific commercial
loans, commercial real estate loans, and construction loans which have been
identified by management as being high risk loan assets. These high risk loans
are assigned a doubtful risk rating grade because the loan has not performed
according to payment terms and there is reason to believe that repayment of the
loan principal in whole, or part, is unlikely. The specific portion of the
allowance is the total amount of potential unconfirmed losses for these
individual doubtful loans. To assist in determining the fair value of loan
collateral, the Company often utilizes independent third party qualified
appraisal firms which in turn employ their own criteria and assumptions that may
include occupancy rates, rental rates, and property expenses, among
others.
  The
second category of reserves consists of the allocated portion of the allowance.
The allocated portion of the allowance is determined by taking pools of loans
outstanding that have similar characteristics and applying historical loss
experience for each pool. This estimate represents the potential unconfirmed
losses within the portfolio. Individual loan pools are created for commercial
and commercial real estate loans, construction loans, and for the various types
of loans to individuals. The historical estimation for each loan pool is then
adjusted to account for current conditions, current loan portfolio performance,
loan policy or management changes, or any other factor which may cause future
losses to deviate from historical levels.
  The
Company also maintains an unallocated allowance. The unallocated allowance is
used to cover any factors or conditions which may cause a potential loan loss
but are not specifically identifiable. It is prudent to maintain an unallocated
portion of the allowance because no matter how detailed an analysis of potential
loan losses is performed, these estimates by definition lack precision.
Management must make estimates using assumptions and information which is often
subjective and changing rapidly. At March 31, 2008, management believed that the
allowance for loan losses was adequate.
  The
allowance for loan losses amounted to $3,513,080 at March 31, 2008, an increase
of $165,000 from December 31, 2007. The ratio of the allowance for loan losses
to total loans was 0.98% at March 31, 2008 and 1.10% at December 31, 2007,
respectively. 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.
  20
  The
following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data.
  Allowance
      for Loan Losses
            
            Quarter
      Ended
              March
      31,
              2008
            
            
            Year
      Ended
              December
      31,
              2007
            
            
            Quarter
      Ended
              March
      31,
              2007Balance,
      beginning of period
            
            $
            3,348,080
            
            
            $
            3,228,360
            
            
            $
            3,228,360Provision
      charged to operating expenses
            
            
            165,000
            
            
            
            130,000
            
            
            
            40,000Loans
      charged off:Construction
      loans
            
            
            -
            
            
            
            -
            
            
            
            -Residential
      real estate loans
            
            
            -
            
            
            
            -
            
            
            
            -Commercial
      and commercial real estate
            
            
            -
            
            
            
            (88,891
            )
            
            
            -Loans
      to individuals
            
            
            -
            
            
            
            (1,614
            )
            
            
            -Lease
      financing
            
            
            -
            
            
            
            (478
            )
            
            
            -All
      other loans
            
            
            -
            
            
            
            -
            
            
            
            --
            
            
            
            (90,983
            )
            
            
            -Recoveries:Construction
      loans
            
            
            -
            
            
            
            75,000
            
            
            
            75,000Residential
      real estate loans
            
            
            -
            
            
            
            -
            
            
            
            -Commercial
      and commercial real estate
            
            
            -
            
            
            
            153
            
            
            
            -Loans
      to individuals
            
            
            -
            
            
            
            5,703
            
            
            
            4,703Lease
      financing
            
            
            -
            
            
            
            -
            
            
            
            -All
      other loans
            
            
            -
            
            
            
            -
            
            
            
            --
            
            
            
            80,703
            
            
            
            79,703Net
      (charge offs) / recoveries
            
            
            -
            
            
            
            (10,280
            )
            
            
            79,703Balance,
      end of period
            
            $
            3,513,080
            
            
            $
            3,348,080
            
            
            $
            3,348,063Loans:At
      period end
            
            $
            358,153,333
            
            
            $
            305,082,723
            
            
            $
            280,685,187Average
      during the period
            
            
            325,302,679
            
            
            
            292,371,351
            
            
            
            283,672,769Net
      charge offs to average loans outstanding
            
            
            0.00
            %
            
            
            (0.00
            %)
            
            
            0.03
            %Allowance
      for loan losses to:Total
      loans at period end
            
            
            0.98
            %
            
            
            1.10
            %
            
            
            1.19
            %Non-performing
      loans
            
            
            107.46
            %
            
            
            164.37
            %
            
            
            93.91
            %
  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 Company offers a variety of products designed to attract and retain
customers, with the Company’s primary focus being on building and expanding
long-term relationships.
  The
following table summarizes deposits at March 31, 2008 and December 31,
2007.
  March
      31,
              2008
            
            
            December
      31,
              2007DemandNon-interest
      bearing
            
            $
            73,111,552
            
            
            $
            59,055,803Interest
      bearing
            
            
            85,098,604
            
            
            
            86,168,444Savings
            
            
            76,205,354
            
            
            
            62,094,432Time
            
            
            144,293,979
            
            
            
            122,013,689$
            378,709,489
            
            
            $
            329,332,368
  21
  It is the
Bank’s strategy to fund loan growth with deposits.  To achieve this
goal, deposit products, particularly short term certificates of deposit, were
priced to be attractive to depositors.  At March 31, 2008, time
deposits increased by $22,280,290, or 6.8%, to $144,293,979 compared to
$122,013,689 at December 31, 2007.  Balances were attracted from both
new customers as well as exiting customers.
  Non-interest
bearing demand deposits increased by $14,055,749, or 23.8%, to $73,111,552 at
March 31, 2008 compared to $59,055,803 at December 31, 2007, as the Bank
attracted new business customers through the newly introduced mortgage warehouse
line of credit product, which contributed significantly to this current period
increase in balances.
  Borrowings
  Borrowings
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 balance of other borrowings at March 31,
2008 consisted of long-term FHLB borrowings of $$30,500,000 and overnight funds
purchased of $1,300,000. The balance of borrowings at December 31, 2007
consisted of long-term FHLB borrowings of $30,500,000 and overnight funds
purchased of $5,100,000. The $3,800,000 decline in borrowings during the quarter
was the result of a reduction in short-term borrowings.  FHLB advances
are fully secured by marketable securities.
  Shareholders’
Equity And Dividends
  Shareholders’
equity at March 31, 2008 totaled $41,647,825, an increase of $674,508, or 1.6%,
from $40,973,317 at December 31, 2007. Book value per common share rose to
$10.44 at March 31, 2008 from $10.26 at December 31, 2007. The ratio of
shareholders’ equity to total assets was 8.74% at March 31, 2008 and 9.55% at
December 31, 2007.
  The
increase in shareholders’ equity and book value per share for the three months
ended March 31, 2008 resulted primarily from comprehensive income, consisting of
net income of $802,197, unrealized gain on securities available for sale net of
tax benefits of $634,517 and unrealized loss on interest rate swap contract net
of tax benefits of $436,418, and was partially reduced by an adjustment of
$329,706 resulting from the initial adoption of EITF 06-04 effective January 1,
2008.
  The
Company’s stock is listed for trading on the Nasdaq Global Market System, under
the symbol “FCCY.”
  In 2005,
the Board of Directors authorized a common stock repurchase program that allows
for the repurchase of a limited number of the Company’s shares at management’s
discretion on the open market. The Company undertook this repurchase program in
order to increase shareholder value. A table disclosing repurchases of Company
shares made during the quarter ended March 31, 2008 is set forth under Part II,
Item 2 of this report, Unregistered Sales of Equity
Securities and Use of Proceeds.
  22
  Actual
capital amounts and ratios for the Company and the Bank as of March 31, 2008 and
December 31, 2007 are as follows:
  Actual
            
            
            For
      Capital
              Adequacy
      Purposes
            
            To
      Be Well Capitalized
              Under
      Prompt Corrective
              Action
      ProvisionAmount
            
            
            Ratio
            
            
            Amount
            
            Ratio
            
            Amount
            
            RatioAs
      of March 31, 2008 -CompanyTotal
      Capital to Risk Weighted Assets
            $
            62,289,574
            
            
            
            15.79
            %
            
            $
            31,551,920
            
            >8%
            
            $
            39,439,900
            
            >10%Tier
      1 Capital to Risk Weighted Assets
            
            54,591,702
            
            
            
            13.84
            %
            
            
            15,775,960
            
            >4%
            
            
            23,663,940
            
            >6%Tier
      1 Capital to Average Assets
            
            54,591,702
            
            
            
            12.20
            %
            
            
            17,903,319
            
            >4%
            
            
            22,379,149
            
            >5%BankTotal
      Capital to Risk Weighted Assets
            $
            60,768,187
            
            
            
            15.41
            %
            
            $
            31,551,920
            
            >8%
            
            $
            39,439,900
            
            >10%Tier
      1 Capital to Risk Weighted Assets
            
            57,255,107
            
            
            
            14.52
            %
            
            
            15,775,960
            
            >4%
            
            
            23,663,940
            
            >6%Tier
      1 Capital to Average Assets
            
            57,255,107
            
            
            
            12.84
            %
            
            
            17,831,000
            
            >4%
            
            
            22,288,750
            
            >5%
 
 As
      of December 31, 2007 -CompanyTotal
      Capital to Risk Weighted Assets
            $
            62,006,573
            
            
            
            17.75
            %
            
            $
            27,949,600
            
            >8%
            
            $
            34,937,000
            
            >10%Tier
      1 Capital to Risk Weighted Assets
            
            54,437,463
            
            
            
            15.58
            %
            
            
            13,974,800
            
            >4%
            
            
            20,962,200
            
            >6%Tier
      1 Capital to Average Assets
            
            54,437,463
            
            
            
            12.66
            %
            
            
            17,196,222
            
            >4%
            
            
            21,495,277
            
            >5%BankTotal
      Capital to Risk Weighted Assets
            $
            59,961,320
            
            
            
            17.16
            %
            
            $
            27,949,600
            
            >8%
            
            $
            34,937,000
            
            >10%Tier
      1 Capital to Risk Weighted Assets
            
            56,613,240
            
            
            
            16.20
            %
            
            
            13,974,800
            
            >4%
            
            
            20,962,200
            
            >6%Tier
      1 Capital to Average Assets
            
            56,613,240
            
            
            
            13.20
            %
            
            
            17,152,520
            
            >4%
            
            
            21,440,650
            
            >5%
  The
minimum regulatory capital requirements for financial institutions require
institutions to have a Tier 1 capital to average assets ratio of 4.0%, a Tier 1
capital to risk weighted assets ratio of 4.0% and a total capital to risk
weighted assets ratio of 8.0%. To be considered “well capitalized,” an
institution must have a minimum Tier 1 leverage ratio of 5.0%. At March 31,
2008, the ratios of the Company exceeded the ratios required to be considered
well capitalized. It is management’s goal to monitor and maintain adequate
capital levels to continue to support asset growth and continue its status as a
well-capitalized institution.
  Liquidity
  At March
31, 2008, the amount of liquid assets remained at a level management deemed
adequate to ensure that contractual liabilities, depositors withdrawal
requirements, and other operational and customer credit needs could be
satisfied.
  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 a correspondent bank
which further supports and enhances liquidity. At March 31, 2008, the Bank
maintained an Overnight Line of Credit at the FHLB in the amount of $28,883,000
plus a One-Month Overnight Repricing Line of Credit of $28,883,000. Advances
issued under these programs are subject to FHLB stock level and collateral
requirements. Pricing of these advances may fluctuate based on existing market
conditions. The Bank also maintains an unsecured Federal funds line of
$13,500,000 with a correspondent bank.
  23
  The
Consolidated Statements of Cash Flows present the changes in cash from
operating, investing and financing activities. At March 31, 2008, the balance of
cash and cash equivalents was $11,661,233.
  Net cash
used in operating activities totaled $2,333,689 for the three months ended March
31, 2008 compared to $5,539,100 in the three months ended March 31, 2007. The
primary sources of funds are net income from operations adjusted for provision
for loan losses, depreciation expenses, and net proceeds from sales of loans
held for sale.  The primary use of funds was origination of loans held
for sale.
  Net cash
used in investing activities totaled $39,102,106 in the three months ended March
31, 2008 compared to $2,602,968 used in investing activities in the three months
ended March 31, 2007. The current period amount was primarily the result of the
increase in the loan portfolio.
  Net cash
provided by financing activities amounted to $45,548,926 in the three months
ended March 31, 2008 compared to $6,842,984 used in financing activities in the
three months ended March 31, 2007. The current period amount resulted primarily
from an increase in deposits combined with a decrease in borrowings during the
three months period ended March 31, 2008.
  The
securities portfolio is also a source of liquidity, providing cash flows from
maturities and periodic repayments of principal. During the three months ended
March 31, 2008, maturities and prepayments of investment securities totaled
$15,147,205.  Another source of liquidity is the loan portfolio, which
provides a flow of payments and maturities.
  The
Company anticipates that cash and cash equivalents on hand, the cash flow from
assets as well as other sources of funds will provide adequate liquidity for the
Company’s future operating, investing and financing needs.  Management
will continue to monitor the Company’s liquidity and maintain it at a level that
it deems adequate and not excessive.
  Interest
Rate Sensitivity Analysis
  The
largest component of the Company’s total income is net interest income, and the
majority of the Company’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.
  The
Company 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 Company’s spread by attracting
lower-cost retail deposits.
  Item
3.                                Quantitative
and Qualitative Disclosures About Market Risk
  Not
required.
  Item
4.                                Controls
and Procedures.
  The
Company’s principal executive officer and principal financial officer, with the
assistance of other members of the Company’s management, have evaluated the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the
end of the period covered by this quarterly report.  Disclosure
controls and procedures include those designed to ensure that information
required to be disclosed is accumulated and communicated to the Company’s
management as appropriate to allow timely decisions regarding disclosure. Based
upon such evaluation, the Company’s principal executive officer and principal
financial officer have concluded that the Company’s disclosure controls and
procedures were not effective as of the end of the period covered by this
quarterly report because, while the Company had initiated the process of
identifying and engaging external tax preparation and compliance consultants to
assist it with analyzing the Company’s accounting for income taxes and tax
compliance, the Company had not retained such consultants by such
time.
  24
  The
Company’s principal executive officer and principal financial officer have also
concluded that there were changes in the Company’s internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) that occurred during the quarter ended March 31, 2008
that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.  During such
quarter, the Company made the following changes in its internal control over
financial reporting to remediate the conditions described in Item 9A. Controls and Procedures, of
the Company’s Annual Report on Form 10-K filed with the SEC on April 15,
2008:
  ·
            Current
      and Deferred Tax Accounting – The Company has implemented an internal
      policy pursuant to which the Company will retain external tax preparation
      and compliance consultants to assist it with analyzing the Company’s
      accounting for income taxes and tax compliance for compliance with
      generally accepted accounting principles and reviewing the results with
      the Company’s principal executive officer and principal financial officer
      on a quarterly basis.
  ·
            Supplemental
      Executive Retirement Plan – The Company’s principal executive officer,
      principal financial officer and human resources officer will review on a
      quarterly basis with the plan’s administrator and actuarial consultant to
      determine that all liability balances and expense levels are properly
      recorded and reflect the current life circumstances of all participants in
      the plan.
  ·
            Accrued
      Liabilities – The Company’s principal executive officer and principal
      financial officer will meet at the end of each fiscal quarter to review
      documentation in support of all major operating expense accruals to
      determine if expense accruals are properly supported by documentation and
      that these expense accruals are consistent with generally accepted
      accounting principles.
  25
  PART
II. OTHER INFORMATION
  Item
2.                                Unregistered Sales of Equity
Securities and Use of Proceeds.
  Issuer
Purchases of Equity Securities
  In 2005,
the Board of Directors authorized a stock repurchase program under which the
Company may purchase in open market or privately negotiated transactions up to
5% of its common shares outstanding on that date. The Company undertook these
repurchase programs 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 March 31, 2008.
  Issuer
Purchases of Equity Securities (1)
 Period
            Total
              Number
      of
              Shares
              Purchased
            Average
      Price
              Paid
      Per Share
            Total
      Number of
              Shares
      Purchased
              As
      Part of Publicly
              Announced
      Plan or
              Program
            Maximum
              Number
      of
              Shares
      That
              May
      Yet be
              Purchased
              Under
      the Plan
              or
      ProgramBeginning
            EndingJanuary
      1, 2008
            January
      31, 2008
            -
            -
            -
            161,030February
      1, 2008
            February
      29, 2008
            1,534
            $17.04
            1,534
            159,496March
      1, 2008
            March
      31, 2008
            -
            -
            -
            159,496Total
            1,534
            $17.04
            1,534
            159,496
 
 (1)
            The
      Company’s common stock repurchase program covers a maximum of 185,787
      shares of common stock of the Company, representing 5% of the outstanding
      common stock of the Company on July 21, 2005, as adjusted for the annual
      stock dividends, including the 6% stock dividend declared on December 20,
      2007 paid on February 6, 2008.
 
 Item
      6.
            Exhibits.3(i)
            
            Certificate
      of Incorporation of the Company (incorporated by reference to Exhibit 3(i)
      to the Company’s Form 10-K filed with the SEC on March 24,
      2005)3(ii)
            
            Bylaws
      of the Company (incorporated by reference to Exhibit 3(ii)(A) to the
      Company’s Form 8-K filed with the SEC on October 22,
  2007)31.1
            *
            Certification
      of Robert F. Mangano, principal executive officer of the Company, pursuant
      to Securities Exchange Act Rule 13a-14(a)31.2
            *
            Certification
      of Joseph M. Reardon, principal 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, principal
      executive officer of the Company, and Joseph M. Reardon, principal
      financial officer of the Company*           Filed
      herewith.
  26
  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.
 
  1ST CONSTITUTION
      BANCORPDate:
      May 15, 2008
              By:
              /s/
      ROBERT F. MANGANORobert
      F. ManganoPresident
      and Chief Executive Officer(Principal
      Executive Officer)Date:
      May 15, 2008
              By:
              /s/
      JOSEPH M. REARDONJoseph
      M. ReardonSenior
      Vice President and Treasurer(Principal
      Financial and Accounting Officer)
      27