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 June 30,
                2007
 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  x  No o
 
 Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of accelerated
      filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
      one):
  Large
        accelerated filer  oAccelerated
        filer  oNon-accelerated
        filer  x
  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
      August 8, 2007, there were 3,744,465 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 Sheets
              as
                of June 30, 2007 (unaudited)
              and
                December 31, 2006
            1Consolidated
                Statements of Income
              for
                the Three Months and Six Months Ended
              June
                30, 2007 (unaudited) and June 30, 2006 (unaudited)
            2Consolidated
                Statements of Changes in Shareholders’ Equity
              for
                the Six Months Ended
              June
                30, 2007 (unaudited) and June 30, 2006 (unaudited)
            3Consolidated
                Statements of Cash Flows
              for
                the Six Months Ended
              June
                30, 2007 (unaudited) and June 30, 2006 (unaudited)
            4Notes
              to Consolidated Financial Statements (unaudited)
            5Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition
              and
                  Results of Operations
            12Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            28Item
                4.
            Controls
                and Procedures
            29PART
                II
            OTHER
                INFORMATIONItem
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            29Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            30Item
                6.
            Exhibits
            30SIGNATURES
            31
 
  
 **PART
      I.   FINANCIAL INFORMATION**
 
 **Item
      1.             Financial
      Statements**
  **1st
      Constitution Bancorp and Subsidiaries**
 **Consolidated
      Balance Sheets**
 
 June
                30, 2007
            
            
            December
                31, 2006**ASSETS**
            
            **(unaudited)**CASH
                AND DUE FROM BANKS
            
            $
            9,559,584
            
            
            $
            10,336,334FEDERAL
                FUNDS SOLD / SHORT-TERM INVESTMENTS
            
            
            20,901
            
            
            
            25,478Total
                cash and cash equivalents
            
            
            9,580,485
            
            
            
            10,361,812INVESTMENT
                SECURITIES:Available
                for sale, at fair value
            
            
            82,047,134
            
            
            
            70,421,328Held
                to maturity (fair value of $26,041,037 and $19,164,679 in
                2007
              and
                2006, respectively)
            
            
            26,528,257
            
            
            
            19,254,476Total
                investment securities
            
            
            108,575,391
            
            
            
            89,675,804LOANS
                HELD FOR SALE
            
            
            8,937,522
            
            
            
            13,608,942LOANS
            
            
            285,576,595
            
            
            
            265,142,313Less-
                Allowance for loan losses
            
            
            (3,310,080
            )
            
            
            (3,228,360
            )Net
                loans
            
            
            282,266,515
            
            
            
            261,813,953PREMISES
                AND EQUIPMENT, net
            
            
            2,916,754
            
            
            
            3,033,618ACCRUED
                INTEREST RECEIVABLE
            
            
            2,582,561
            
            
            
            2,235,671BANK
                - OWNED LIFE INSURANCE
            
            
            9,357,989
            
            
            
            9,179,408OTHER
                ASSETS
            
            
            3,982,204
            
            
            
            2,668,338Total
                assets
            
            $
            428,199,422
            
            
            $
            392,677,546**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**LIABILITIES:DepositsNon-interest
                bearing
            
            $
            59,254,332
            
            
            $
            64,305,445Interest
                bearing
            
            
            266,696,151
            
            
            
            248,418,977Total
                deposits
            
            
            325,950,483
            
            
            
            312,724,422BORROWINGS
            
            
            43,000,000
            
            
            
            17,200,000REDEEMABLE  SUBORDINATED
                DEBENTURES
            
            
            18,557,000
            
            
            
            23,712,000ACCRUED
                INTEREST PAYABLE
            
            
            1,869,468
            
            
            
            1,957,574ACCRUED
                EXPENSES AND OTHER LIABILITIES
            
            
            1,430,128
            
            
            
            1,886,980Total
                liabilities
            
            
            390,807,079
            
            
            
            357,480,976COMMITMENTS
                AND CONTINGENCIESSHAREHOLDERS’
                EQUITY:Common
                stock, no par value; 30,000,000 shares authorized; 3,732,689
              shares
                issued and 3,742,662 shares outstanding as of June 30, 2007
              and
                December 31, 2006, respectively
            
            
            28,935,469
            
            
            
            28,886,105Retained
                earnings
            
            
            10,194,120
            
            
            
            7,290,916Treasury
                Stock, shares at cost, 10,171 shares and 198 shares at
              June
                30, 2007 and December 31, 2006, respectively
            
            
            (186,969
            )
            
            
            (3,545
            )Accumulated
                other comprehensive (loss)
            
            
            (1,550,277
            )
            
            
            (976,906
            )Total
                shareholders’ equity
            
            
            37,392,343
            
            
            
            35,196,570Total
                liabilities and shareholders’ equity
            
            $
            428,199,422
            
            
            $
            392,677,546See
                accompanying notes to consolidated financial statements.
  1
 **1ST
                Constitution
                Bancorp and Subsidiaries****Consolidated
                Statements of Income****(Unaudited)**Three
                months ended June 30,
            
            
            Six
                months ended June 30,**INTEREST
                INCOME**
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006Loans,
                including fees
            
            $
            6,092,841
            
            
            $
            5,822,356
            
            
            $
            12,260,566
            
            
            $
            10,999,172SecuritiesTaxable
            
            
            1,083,967
            
            
            
            795,540
            
            
            
            2,076,294
            
            
            
            1,601,906Tax-exempt
            
            
            225,791
            
            
            
            147,052
            
            
            
            432,359
            
            
            
            307,843Federal
                funds sold and short-term investments
            
            
            42,879
            
            
            
            24,674
            
            
            
            65,423
            
            
            
            33,338Total
                interest income
            
            
            7,445,478
            
            
            
            6,789,622
            
            
            
            14,834,642
            
            
            
            12,942,259**INTEREST
                EXPENSE**Deposits
            
            
            2,435,381
            
            
            
            1,524,009
            
            
            
            4,651,466
            
            
            
            2,874,339Securities
                sold under agreement to repurchase
              and
                other borrowed funds
            
            
            346,073
            
            
            
            490,796
            
            
            
            632,412
            
            
            
            957,133Redeemable
                subordinated debentures
            
            
            349,507
            
            
            
            165,708
            
            
            
            778,574
            
            
            
            267,552Total
                interest expense
            
            
            3,130,961
            
            
            
            2,180,513
            
            
            
            6,062,452
            
            
            
            4,099,024Net
                interest income
            
            
            4,314,517
            
            
            
            4,609,109
            
            
            
            8,772,190
            
            
            
            8,843,235Provision
                for loan losses
            
            
            30,000
            
            
            
            170,000
            
            
            
            70,000
            
            
            
            340,000Net
                interest income after provision for loan losses
            
            
            4,284,517
            
            
            
            4,439,109
            
            
            
            8,702,190
            
            
            
            8,503,235**NON-INTEREST
                INCOME**Service
                charges on deposit accounts
            
            
            175,181
            
            
            
            167,042
            
            
            
            325,036
            
            
            
            353,601Gain
                on sale of loans
            
            
            188,741
            
            
            
            174,930
            
            
            
            420,518
            
            
            
            493,619Losses
                on sales of investment securities, net
            
            
            0
            
            
            
            (99,714
            )
            
            
            0
            
            
            
            (99,714
            )Income
                on bank-owned life insurance
            
            
            88,233
            
            
            
            82,934
            
            
            
            178,581
            
            
            
            163,534Other
                income
            
            
            196,268
            
            
            
            149,517
            
            
            
            368,029
            
            
            
            293,255Total
                non-interest income
            
            
            648,423
            
            
            
            474,709
            
            
            
            1,292,164
            
            
            
            1,204,295**NON-INTEREST
                EXPENSE**Salaries
                and employee benefits
            
            
            1,637,213
            
            
            
            1,712,959
            
            
            
            3,450,012
            
            
            
            3,397,981Occupancy
                expense
            
            
            406,012
            
            
            
            378,143
            
            
            
            796,944
            
            
            
            697,127Other
                operating expenses
            
            
            779,101
            
            
            
            1,017,201
            
            
            
            1,596,583
            
            
            
            2,103,223Total
                non-interest expenses
            
            
            2,822,326
            
            
            
            3,108,303
            
            
            
            5,843,539
            
            
            
            6,198,331Income
                before income taxes
            
            
            2,110,614
            
            
            
            1,805,515
            
            
            
            4,150,815
            
            
            
            3,509,199**INCOME
                TAXES**
            
            
            612,909
            
            
            
            448,251
            
            
            
            1,247,610
            
            
            
            897,177Net
                income
            
            $
            1,497,705
            
            
            $
            1,357,264
            
            
            $
            2,903,205
            
            
            $
            2,612,022**NET
                INCOME PER SHARE**Basic
            
            $
            0.40
            
            
            $
            0.37
            
            
            $
            0.78
            
            
            $
            0.72Diluted
            
            $
            0.39
            
            
            $
            0.36
            
            
            $
            0.76
            
            
            $
            0.69See
                accompanying notes to consolidated financial statements
 
  2
 **1st
                  Constitution Bancorp and
                  Subsidiaries****Consolidated
                  Statements of Changes in Shareholders’ Equity****For
                  the Six Months Ended June 30, 2007 and 2006****(unaudited)**
 
 AccumulatedOther
              
              
              TotalCommon
              
              
              Retained
              
              
              Treasury
              
              
              Comprehensive
              
              
              Shareholders’Stock
              
              
              Earnings
              
              
              Stock
              
              
              (Loss)
                  Income
              
              
              EquityBALANCE,
                  December 31,
                  2005
              
              $
              25,589,320
              
              
              $
              5,981,803
              
              
              $
              (1,008,998
              )
              
              $
              (765,258
              )
              
              $
              29,796,867Exercise
                  of stock options, net
                  andissuance
                  of vested shares
                  underemployee
                  benefit
                  programs
              
              
              (108,992
              )
              
              
              
              
              
              
              153,948
              
              
              
              
              
              
              
              44,956FAS
                  123R share-based
                  compensation
              
              
              46,085
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              46,085Treasury
                  Stock, shares purchased
                  at cost
              
              
              
              
              
              
              
              
              
              
              (35,472
              )
              
              
              
              
              
              
              (35,472
              )Adjustment
                  to initially apply
                  FASBStatement
                  No. 158 (net of tax benefitof
                  $257,160)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (499,194
              )
              
              
              (499,194
              )Comprehensive
                  Income:Net Income
                  for
                  the six monthsended
                  June 30, 2006
              
              
              
              
              
              
              2,612,022
              
              
              
              
              
              
              
              
              
              
              
              2,612,022Unrealized
                  loss on securitiesavailable
                  for sale, net of tax
                  benefit
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (756,596
              )
              
              
              (756,596
              )Total
                  comprehensive
                  Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,855,426BALANCE,
                  June 30,
                  2006
              
              $
              25,526,413
              
              
              $
              8,593,825
              
              
              $
              (890,522
              )
              
              $
              (2,021,048
              )
              
              $
              31,208,668BALANCE,
                  December 31,
                  2006
              
              $
              28,886,105
              
              
              $
              7,290,916
              
              
              $
              (3,545
              )
              
              $
              (976,906
              )
              
              $
              35,196,570Exercise
                  of stock options, net
                  andissuance
                  of vested shares
                  underemployee
                  benefit
                  programs
              
              
              (13,881
              )
              
              
              
              
              
              
              45,093
              
              
              
              
              
              
              
              31,212FAS
                  123R share-based
                  compensation
              
              
              63,245
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              63,245Treasury
                  Stock, shares purchased
                  at cost
              
              
              
              
              
              
              
              
              
              
              (228,517
              )
              
              
              
              
              
              
              (228,517
              )Comprehensive
                  Income:Net Income
                  for
                  the six monthsended
                  June 30, 2007
              
              
              
              
              
              
              2,903,205
              
              
              
              
              
              
              
              
              
              
              
              2,903,205Reduction
                  of
                  retirement plan definedbenefit
                  liability
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              36,823
              
              
              
              36,823Unrealized
                  loss on securitiesavailable
                  for sale, net of tax
                  benefit
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (610,194
              )
              
              
              (610,194
              )Total
                  comprehensive
                  Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,293,011BALANCE,
                  June 30,
                  2007
              
              $
              28,935,469
              
              
              $
              10,194,120
              
              
              $
              (186,969
              )
              
              $
              (1,550,277
              )
              
              $
              37,392,343See
                  accompanying notes to
                  consolidated financial statements
 
 3
  **1st
                  Constitution Bancorp and
                  Subsidiaries****Consolidated
                  Statements of Cash Flows****(unaudited)**
 
 Six
                  months ended June
                  30,2007
              
              
              2006OPERATING
                  ACTIVITIES:Net
                  income
              
              $
              2,903,205
              
              
              $
              2,612,022Adjustments
                  to reconcile net
                  incometo net cash provided by operating activities-Provision
                  for loan
                  losses
              
              
              70,000
              
              
              
              340,000Depreciation
                  and
                  amortization
              
              
              369,719
              
              
              
              288,413Net amortization
                  of premiums on
                  securities
              
              
              11,907
              
              
              
              29,515Gain on
                  sales of loans held for
                  sale
              
              
              (420,518
              )
              
              
              (493,619
              )Loss on
                  sale of securities
                  available for sale
              
              
              -
              
              
              
              99,714Originations
                  of loans held for
                  sale
              
              
              (30,603,730
              )
              
              
              (26,714,241
              )Income on
                  Bank – owned life
                  insurance
              
              
              (178,581
              )
              
              
              (163,534
              )Proceeds
                  from sales of loans held
                  for sale
              
              
              35,695,668
              
              
              
              31,014,958Increase
                  in accrued interest
                  receivable
              
              
              (346,890
              )
              
              
              (757,644
              )(Increase)
                  in other
                  assets
              
              
              (115,036
              )
              
              
              (298,599
              )(Decrease)
                  increase in accrued
                  interest payable
              
              
              (88,106
              )
              
              
              340,671(Decrease)
                  increase in accrued
                  expenses and other liabilities
              
              
              (456,852
              )
              
              
              1,062,056Net cash
                  provided by operating
                  activities
              
              
              6,840,786
              
              
              
              7,359,712INVESTING
                  ACTIVITIES:Purchases
                  of
                  securities -Available
                  for sale
              
              
              (15,776,240
              )
              
              
              (6,958,616
              )Held to
                  maturity
              
              
              (7,677,917
              )
              
              
              -Proceeds
                  from
                  maturities and prepayments of securities -Available
                  for sale
              
              
              3,226,445
              
              
              
              7,479,257Held to
                  maturity
              
              
              337,517
              
              
              
              4,311,655Proceeds
                  from
                  sales of securities available for sale
              
              
              -
              
              
              
              2,899,385Net increase
                  in loans
              
              
              (20,422,562
              )
              
              
              (24,514,687
              )Capital
                  expenditures
              
              
              (252,855
              )
              
              
              (279,000
              )Cash
                  consideration paid to acquire branch
              
              
              (730,257
              )
              
              
              -Cash and
                  cash
                  equivalents acquired from branch
              
              
              19,514,239
              
              
              
              -Net cash
                  used in investing
                  activities
              
              
              (21,781,630
              )
              
              
              (17,062,006
              )FINANCING
                  ACTIVITIES:Issuance
                  of
                  common stock, net
              
              
              31,212
              
              
              
              44,956Purchase
                  of
                  treasury stock
              
              
              (228,517
              )
              
              
              (35,472
              )Net increase
                  (decrease) in demand, savings and time deposits
              
              
              (6,288,178
              )
              
              
              (11,884,098
              )(Repayments)
                  proceeds from issuance of redeemablesubordinated debentures
              
              
              (5,155,000
              )
              
              
              18,557,000Net advances
                  (repayments) in other borrowings
              
              
              25,800,000
              
              
              
              (100,000
              )Net cash
                  provided by financing
                  activities
              
              
              14,159,517
              
              
              
              6,582,386Increase
                  (decrease) in cash and
                  cash equivalents
              
              
              (781,327
              )
              
              
              (3,119,908
              )CASH
                  AND CASH
                  EQUIVALENTSAT BEGINNING
                  OF PERIOD
              
              
              10,361,812
              
              
              
              12,137,750AT END OF
                  PERIOD
              
              $
              9,580,485
              
              
              $
              9,017,842SUPPLEMENTAL
                  DISCLOSURESOF CASH
                  FLOW
                  INFORMATION:Cash paid
                  during the year for
                  -Interest
              
              $
              6,150,558
              
              
              $
              3,758,353Income
                  taxes
              
              
              1,421,600
              
              
              
              1,352,372See
                  accompanying notes to
                  consolidated financial statements*.*
 
 4
  **1st
      Constitution Bancorp and Subsidiaries**
 **Notes
      To Consolidated Financial Statements**
 **June
      30, 2007 (Unaudited)**
 
 **Summary
      of Significant Accounting Policies**
 
 The
      accompanying unaudited Consolidated
      Financial Statements herein have been prepared by 1st Constitution Bancorp
      (the
“Company”), in accordance with accounting principles generally accepted in the
      United States of America 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
      financial statements and the notes thereto included in the Company’s Form 10-K
      for the year ended December 31, 2006, filed with the SEC on April 2,
      2007.
 
 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 common share is calculated by dividing net income by the weighted
      average number of shares outstanding, as adjusted for the assumed exercise
      of
      potential common stock options, using the treasury stock method.  All
      share information has been restated for the effect of a 6% stock dividend
      declared on December 21, 2006 and paid on January 31, 2007 to shareholders of
      record on January 23, 2007.
 
 The
      following (unaudited) tables illustrate the reconciliation of the numerators
      and
      denominators of the basic and diluted earnings per share (EPS)
      calculations.
 
 Three
                Months Ended June 30, 2007Income
            
            
            Weighted-
              average
              shares
            
            
            Per
                share
              amountBasic
                EPSNet
                income available to common stockholders
            
            $
            1,497,705
            
            
            
            3,734,800
            
            
            $
            0.40Effect
                of dilutive securitiesOptions
                and Grants
            
            
            -
            
            
            
            59,623
            
            
            
            (0.01
            )Diluted
                EPSNet
                income available to common stockholdersplus assumed
                conversion
            
            $
            1,497,705
            
            
            
            3,794,423
            
            
            $
            0.39All
                options have been included in the computation of diluted earnings
                per
                share.
  5
  Three
                Months Ended June 30, 2006Income
            
            
            Weighted-
              average
              shares
            
            
            Per
                share
              AmountBasic
                EPSNet
                income available to common stockholders
            
            $
            1,357,264
            
            
            
            3,650,024
            
            
            $
            0.37Effect
                of dilutive securitiesOptions
                and Grants
            
            
            -
            
            
            
            125,093
            
            
            
            (0.01
            )Diluted
                EPSNet
                income available to common stockholdersplus assumed
                conversion
            
            $
            1,357,264
            
            
            
            3,775,117
            
            
            $
            0.36All
                options have been included in the computation of diluted earnings
                per
                share.
 
 Six
                Months Ended June 30, 2007Income
            
            
            Weighted-
              average
              shares
            
            
            Per
                share
              AmountBasic
                EPSNet
                income available to common stockholders
            
            $
            2,903,205
            
            
            
            3,738,709
            
            
            $
            0.78Effect
                of dilutive securitiesOptions
                and Grants
            
            
            -
            
            
            
            60,422
            
            
            
            (0.02
            )Diluted
                EPSNet
                income available to common stockholdersplus assumed
                conversion
            
            $
            2,903,205
            
            
            
            3,799,131
            
            
            $
            0.76All
                options have been included in the computation of diluted earnings
                per
                share.
 
 Six
                Months Ended June 30, 2006Income
            
            
            Weighted-
              average
              shares
            
            
            Per
                share
              AmountBasic
                EPSNet
                income available to common stockholders
            
            $
            2,612,022
            
            
            
            3,647,062
            
            
            $
            0.72Effect
                of dilutive securitiesOptions
                and Grants
            
            
            -
            
            
            
            125,251
            
            
            
            (0.03
            )Diluted
                EPSNet
                income available to common stockholdersplus assumed
                conversion
            
            $
            2,612,022
            
            
            
            3,772,313
            
            
            $
            0.69All
                options have been included in the computation of diluted earnings
                per
                share.
  6
  **Share-based
      Compensation**
 Effective
      January 1, 2006, the Company adopted FASB Statement No. 123 (R), “Share-Based
      Payment”. Statement 123 (R) requires that compensation cost relating to
      share-based payment transactions be recognized in financial statements. The
      cost
      is measured based on the fair value of the equity or liability instruments
      issued.
  The
      Company adopted Statement 123 (R) using the modified prospective transition
      method. Under this method, the Company records compensation expense for all
      awards granted after the date of adoption and for the unvested portion of
      previously granted awards that remain outstanding as of the beginning of the
      period of adoption. The Company measures share-based compensation cost using
      the
      Black-Scholes option pricing model for stock option grants. The assumptions
      used
      in the option-pricing model in 2006 were: dividend yield of 0%; expected
      volatility of 26.6%; risk-free interest rate of 4.53%; and expected term of
      7
      years.  Although the initial fair value of stock options is not
      adjusted after the grant date, changes in the Company’s assumptions may change
      the value of, and therefore the expense related to, future stock option
      grants.  Forfeitures did not affect the calculated expense based upon
      historical activities of option grantees.
  The
      Company issued no stock options during the first six months of 2007 or
      2006.
  Transactions
      under the Company’s stock option plans during the six months ended June 30, 2007
      are summarized as follows:
   
 Stock
                Options
            
            Number
                  ofShares
            
            
            Weighted
              Average
              Exercise
                Price
            
            
            Weighted
              Average
              Remaining
              Contractual
              Term
                (years)
            
            
            Aggregate
              Intrinsic
              ValueOutstanding
                at December 31, 2006
            
            
            132,851
            
            
            $
            10.58Options
                Granted
            
            
            -
            
            
            
            -Options
                Exercised
            
            
            (852
            )
            
            
            3.30Options
                Expired
            
            
            -
            
            
            
            -Outstanding
                at June 30, 2007
            
            
            131,999
            
            
            $
            10.58
            
            
            
            5.6
            
            
            $
            915,406Exercisable
                at June 30, 2007
            
            
            100,583
            
            
            $
            8.54
            
            
            
            4.6
            
            
            $
            901,315
  The
        following table summarized non-vested stock options activity for the six
        months
        ended June 30, 2007:
 Number
                of
              Shares
            
            
            Average
                Grant Date Fair ValueNon-vested
                stock options at December 31, 2006
            
            
            42,780
            
            
            $
            16.07Granted
            
            
            -
            
            
            
            -Vested
            
            
            -
            
            
            
            -Forfeited
            
            
            -
            
            
            
            -Non-vested
                stock options at June 30, 2007
            
            
            42,780
            
            
            $
            16.07
  As
      of
      June 30, 2007, there was approximately $271,388 of unrecognized compensation
      cost related to non-vested share-based compensation arrangements granted under
      the Company’s stock incentive plans.  That cost is expected to be
      recognized over the next three years.
  7
  The
      total
      intrinsic value (spread between the market value and exercise price) of the
      stock options exercised during the six months ended June 30, 2007 was
      $12,601.  The amount of cash received from the exercise of options for
      the six month period ended June 30, 2007 was $2,812.
  **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
      incremental effect of apply SFAS No. 158 on individual line items in the
      December 31, 2006 Consolidated Balance Sheet is as follows (in
      thousands):
 
 Before
              Application
                of Statement 158
            
            
            Adjustments
            
            
            After
                Application of Statement 158Deferred
                income taxes
            
            $
            1,905
            
            
            $
            257
            
            
            $
            2,162Total
                Assets
            
            
            392,421
            
            
            
            257
            
            
            
            392,678Other
                liabilities
            
            
            1,131
            
            
            
            756
            
            
            
            1,887Total
                liabilities
            
            
            356,725
            
            
            
            756
            
            
            
            357,481Accumulated
                other comprehensive loss
            
            
            (478
            )
            
            
            (499
            )
            
            
            (977
            )Total
                shareholders’ equity
            
            $
            35,696
            
            
            $
            (499
            )
            
            $
            35,197
  **Redeemable
      Subordinated Debentures**
  On
      April
      10, 2002, 1ST
      Constitution Capital Trust I (“Trust I”), a statutory business trust and a
      wholly-owned subsidiary of the Company, issued $5.0 million of variable rate
      trust preferred securities (the “Trust Preferred Securities”) in a pooled
      institutional placement transaction maturing April 22, 2032.  Trust I
      utilized the $5.0 million proceeds along with $155,000 invested in Trust I
      by
      the Company to purchase $5,155,000 of floating rate subordinated debentures
      issued by the Company and due to mature on April 22, 2032 (the “Subordinated
      Debentures”).  The Subordinated Debentures constituted the sole assets
      of Trust I, had terms that mirrored the Trust Preferred Securities and were
      redeemable in whole or part prior to maturity after April 22, 2007. Trust I
      was
      obligated to distribute all proceeds of a redemption of the Subordinated
      Debentures, whether voluntary or upon maturity, to holders of the Trust
      Preferred Securities. The Company’s obligation with respect to the Trust
      Preferred Securities and the Subordinated Debentures, when taken together, provided
      a full and unconditional guarantee on a subordinated basis by the Company of
      the
      obligations of Trust I to pay amounts when due on the Trust Preferred
      Securities. On February 23, 2007, the Company notified Wilmington Trust Company,
      as Indenture Trustee, of the Company’s intention to redeem the Subordinated
      Debentures on April 22, 2007, and the Company redeemed the Subordinated
      Debentures on that date, as discussed below.
  8
  On
      May
      30, 2006, 1ST
      Constitution Bancorp established 1STConstitution
      Capital Trust II, a Delaware business trust subsidiary (“Trust II”), for the
      sole purpose of issuing $18 million of trust preferred securities (the “Capital
      Securities”).  The Capital Securities were issued in connection with a
      pooled offering involving approximately 50 other financial institution holding
      companies.  All of the Capital Securities were sold to a single
      pooling vehicle.
  The
      proceeds from the sale of the Capital Securities were loaned to the Company
      under 30-year floating rate junior subordinated debentures issued to Trust
      II by
      the Company.  The debentures are the only asset of Trust
      II.  Interest payments on the debentures flow through Trust II to the
      pooling vehicle.  Payments of distributions by Trust II to the pooling
      vehicle are guaranteed by the Company.
  Effective
      April 22, 2007, the Company redeemed of all of the Subordinated
      Debentures.  The redemption price was 100% of the aggregate $5,155,000
      principal amount of the Subordinated Debentures, plus approximately $233,786
      of
      accrued interest thereon through the redemption date.  As a result of
      the redemption of the Subordinated Debentures, a like amount of capital
      securities issued by 1ST Constitution
      Capital Trust I will also be redeemed under the same terms and
      conditions.  This redemption does not impact the Capital Securities
      issued by the Company’s wholly-owned subsidiary 1ST Constitution
      Capital Trust II on May 30, 2006.
  **Variable
      Interest Entities**
  Management
      has determined that Trust I and Trust II (the “Trusts”) qualify as variable
      interest entities under FASB Interpretation 46 (“FIN 46”). The Trusts issued
      mandatorily redeemable preferred stock to investors and loaned the proceeds
      to
      the Company.  Each of the Trusts holds, as its sole asset,
      subordinated debentures issued by the Company.  Subsequent to the
      issuance of FIN 46, and prior to the establishment of Trust II, the FASB issued
      a revised interpretation, FIN 46(R), the provisions of which were required
      to be
      applied to certain variable interest entities, including the Trust, by March
      31,
      2004, at which time the Trust I was deconsolidated.
  In
      March
      2005, the Federal Reserve Board adopted a final rule that would continue to
      allow the inclusion of trust preferred securities in Tier 1 capital, but with
      stricter quantitative limits. Under the final rule, after a five-year transition
      period, the aggregate amount of trust preferred securities and certain other
      capital elements would be limited to 25% of Tier 1 capital elements, net of
      goodwill. The amount of trust preferred securities and certain other elements
      in
      excess of the limit could be included in Tier 2 capital, subject to
      restrictions. Based on the final rule, as of June 30, 2007, the Company included
      all of its then-outstanding $18.6 million in trust preferred securities in
      Tier 1 capital.
  **Segment
      Information**
  SFAS
      No.
      131, *Segment Reporting*, establishes standards for public business
      enterprises to report information about operating segments in their annual
      financial statements and requires that those enterprises report selected
      information about operating segments in subsequent interim financial reports
      issued to shareholders.  It also established standards for related
      disclosure about products and services, geographic areas, and major
      customers.  Operating segments are components of an enterprise,
      which are evaluated regularly by the chief operating decision-maker in deciding
      how to allocate and assess resources and performance.  The Company’s
      chief operating decision-maker is the President and Chief Executive
      Officer.  The Company has applied the aggregation criteria set forth
      in SFAS No. 131 for its operating segments to create one reportable segment,
      “Community Banking.”
   9
  The
      Company’s Community Banking segment consists of construction, commercial, retail
      and mortgage banking.  The Community Banking segment is managed as a
      single strategic unit, which generates revenue from a variety of products and
      services provided by the Company.  For example, construction and
      commercial lending is dependent upon the ability of the Company to fund itself
      with retail deposits and other borrowings and to manage interest rate and credit
      risk.  This situation is also similar for consumer and residential
      real estate lending.
  **Recent
      Accounting Pronouncements**
  In
      February, 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments – an amendment of FASB Statements No. 133 and 140” (“SFAS
      155”), to simplify and make more consistent the accounting for certain financial
      instruments.  SFAS 155 amends SFAS No. 133, “Accounting for Derivative
      Instruments and Hedging Activities” (“SFAS 133”) and permits fair value
      re-measurement for any hybrid financial instrument with an embedded derivative
      that otherwise would require bifurcation, provided that the whole instrument
      is
      accounted for on a fair value basis.  Prior to fair value measurement,
      interests in securitized financial assets must be evaluated to identify
      interests containing embedded derivatives requiring bifurcation.  The
      amendments to SFAS 133 also clarify which interest-only and principal-only
      strips are not subject to the requirements of SFAS 133, and that concentration
      of credit risk in the form of subordination are not embedded
      derivatives.  SFAS 155 amends SFAS 140 to allow a qualifying
      special-purpose entity to hold a derivative financial instrument that pertains
      to a beneficial interest other than another derivative financial
      instrument.  SFAS 155 applies to all financial instruments acquired or
      issued after the beginning of an entity’s first fiscal year that begins after
      September 15, 2006.  The adoption of SFAS 155 did not have a material
      impact on the Company’s consolidated financial statements.
  In
      March
      2006, the Financial Accounting Standards Board (FASB) issued Statement No.
      156,
“Accounting for Servicing of Financial Assets - an amendment of FASB Statement
      No. 140” (“SFAS 156”).  SFAS 156 amends SFAS No. 140, “Accounting for
      Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”
SFAS 156 permits, but does not require, an entity to choose either the
      amortization method or the fair value measurement method for measuring each
      class of separately recognized servicing assets and servicing
      liabilities.  The adoption of SFAS 156 did not have a material impact
      on the Company’s consolidated financial statements.
  The
      Company adopted the provisions of FASB Interpretation 48, *Accounting for
      Uncertainty in Income Taxes*, on January 1, 2007.  Previously, the
      Company had accounted for tax contingencies in accordance with Statement of
      Financial Accounting Standards 5, *Accounting for
      Contingencies*.  As required by Interpretation 48, which clarifies
      Statement 109, *Accounting for Income Taxes*, the Company recognizes the
      financial statement benefit of a tax position only after determining that the
      relevant tax authority would more likely than not sustain the position following
      an audit.  For tax positions meeting the more-likely-than-not
      threshold, the amount recognized in the financial statements is the largest
      benefit that has a greater than 50 percent likelihood of being realized upon
      ultimate settlement with the relevant tax authority.  The Company is
      subject to income taxes in the U.S. federal jurisdiction, and the states of
      New
      Jersey and Delaware.  Tax regulations within each jurisdiction are
      subject to the interpretation of the related tax laws and regulations and
      require significant judgment to apply.
  10
  The
      Company applied Interpretation 48 to all tax positions for which the statute
      of
      limitations remained open.  The adoption of Interpretation 48 did not
      have a material impact on the results operations or financial condition of
      the
      Company.
  In
      September 2006, FASB Issued Statement No. 157, “Fair****Value
      Measurements” (“SFAS 157”), which is effective for****fiscal
      years beginning after November 15, 2007 and for
      interim****periods within those years.  This
      statement defines fair value, establishes a framework****for
      measuring fair value and expands the related disclosure
      requirements.  The Company is****currently
      evaluating the impact the adoption of****SFAS No. 157 will
      have on its consolidated****financial
      statements.
  At
      its
      September 2006 meeting, the Emerging Issues Task Force (“EITF”) reached a final
      consensus on Issue 06-04, “*Accounting for Deferred Compensation and
      Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
      Arrangements.”*  In accordance with the EITF consensus, an
      agreement by an employer to share a portion of the proceeds of a life insurance
      policy with an employee during the postretirement period is a postretirement
      benefit arrangement required to be accounted for under SFAS No. 106 and,
      therefore, a liability for the postretirement obligation must be recognized
      under SFAS No. 106 if the benefit is offered under an arrangement that
      constitutes a plan or under APB No. 12 if it is not part of a
      plan.  The provisions of Issue 06-04 are to be applied through either
      a cumulative-effect adjustment to retained earnings as of the beginning of
      the
      year of adoption or retrospective application.  Issue 06-04 is
      effective for annual or interim reporting periods beginning after December
      15,
      2007.  The application of Issue 06-04 is not expected to have a
      material effect on the Company’s financial position or results of
      operations.
  At
      its
      September 2006 meeting, the EITF reached a final consensus on Issue 06-05,
      “*Accounting for Purchases of Life Insurance - Determining the Amount That
      Could be Realized in Accordance with FASB Technical Bulletin No.
      85-4.*”  Issue 06-05 concludes that in determining the amount that
      could be realized under an insurance contract accounted for under FASB Technical
      Bulletin No. 85-4, “*Accounting for Purchases of Life Insurance,*” the
      policyholder should (1) consider any additional amounts included in the
      contractual terms of the policy; (2) assume the surrender value on an individual
      life-by individual-life policy basis; and (3) not discount the cash surrender
      value component of the amount that could be realized when contractual
      restrictions on the ability to surrender a policy exist.  Issue 06-05
      should be adopted through either (1) a change in accounting principle through
      a
      cumulative-effect adjustment to retained earnings as of the beginning of the
      year of adoption or (2) a change in accounting principle through retrospective
      application to all prior periods.  Issue 06-05 is effective for fiscal
      years beginning after December 15, 2006. The application of Issue 06-05 did
      not
      have a material effect on the Company’s financial position or results of
      operations.
  In
      February 2007, the FASB issued Statement of Financial Standards No. 159, “The
      Fair Value for Financial Assets and Financial Liabilities” (Statement
      159).  Statement 159 permits entities to choose to measure many
      financial instruments and certain other items at fair value.  The
      objective is to improve financial reporting by providing entities with the
      opportunity to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply complex
      hedge
      accounting provisions.  The Statement is effective as of the beginning
      of an entities first year that begins after November 15, 2007.  The
      Company does not expect the adoption of Statement 159 to have a material impact
      on the consolidated financial statements.
  **(2)           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 $730,257.
  11
  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, cash of
      approximately $18.8 million, net of assets acquired, 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 $445,653 and a core deposit intangible
      asset of $274,604.
  **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 June 30, 2007 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 and six month periods
      ended June 30, 2007 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, 2006, as filed with the SEC on April 2, 2007.
  **General**
  Throughout
      the following sections, the “Company” refers to 1st Constitution
      Bancorp and, as the context requires, its subsidiaries, 1st Constitution
      Bank
      and 1st
      Constitution Capital Trust II, and its former subsidiary, 1st Constitution
      Capital Trust I, the “Bank” refers to 1st Constitution
      Bank,
      and the “Trusts” refers to 1st Constitution
      Capital Trust I and 1st Constitution
      Capital Trust II, collectively.
  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.
  1st
      Constitution
      Capital Trust II, a subsidiary of the Company, and 1st Constitution
      Capital Trust I, which was formerly a subsidiary of the Company, were created
      to
      issue trust preferred securities to assist the Company to raise additional
      regulatory capital.
  **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 2, 2007, 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; 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**
 
 **Three
      Months Ended June 30, 2007 and June 30, 2006**
 
 **Summary**
 
 The
      Company realized net income of $1,497,705 for the three months ended June 30,
      2007, an increase of 10.3% from the $1,357,264 reported for the three months
      ended June 30, 2006.  Diluted net income per share was $0.39 for the
      three months ended June 30, 2007 compared to $0.36 per diluted share for the
      three months ended June 30, 2006.  All prior year share information
      has been restated for the effect of a 6% stock dividend declared on December
      21,
      2006 and paid on January 31, 2007 to shareholders of record on January 23,
      2007.
 
 Key
      performance ratios remained strong for the three months ended June 30,
      2007.  Return on average assets and return on average equity were
      1.43% and 16.22% for the three months ended June 30, 2007 compared to 1.45%
      and
      17.69%, respectively, for the three months ended June 30, 2006.
 
 A
      significant factor impacting the Company’s net interest income has been the
      rising level of market interest rates that characterized the marketplace in
      2006
      and has continued through the first half of 2007.  The Federal Reserve
      Bank’s Open Market Committee raised short-term interest rates four times during
      2006, which raised the targeted Federal funds rate to the current 5.25% at
      June
      30, 2007.  These increases in short-term market rates drive up the
      cost of the Company’s core deposits.  As a result, the Company
      experienced a 92 basis point increase in the cost of its interest-bearing
      deposits to 3.93% at June 30, 2007 compared to 3.01% at June 30,
      2006.  The Company’s net interest margin experienced a decrease of 54
      basis points to 4.64% at June 30, 2007 compared to 5.18% at June 30,
      2006.
  A
      second
      significant factor impacting financial results for the first half of 2007 was
      the February 27, 2007 closing of a transaction whereby 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 $19.5 million in new deposits and $18.8 million in cash
      to
      the balance sheet in 2007 in addition to having an impact on most components
      of
      income/expense on the statement of income for the six months ended June 30,
      2007.
  13
  **Earnings
      Analysis**
 
 **Interest
      Income**
 
 Interest
      income for the three months ended June 30, 2007 was $7,445,478, increasing
      by
      9.7% from the $6,789,622 reported in the three months ended June 30,
      2006.  This is primarily attributable to a higher volume of total
      interest-earning assets when compared to the prior year period.  For
      the three months ended June 30, 2007, average interest earning assets increased
      $43,618,780 or 12.4%, to $395,860,393 compared to $352,241,613 for the three
      months ended June 30, 2006.  For the three months ended June 30, 2007,
      the average yield on earning assets decreased 16 basis points to 7.65% from
      7.81% for the three months ended June 30, 2006.
 
 **Interest
      Expense**
 
 Interest
      expense for the three months ended June 30, 2007 was $3,130,961, an increase
      of
      $950,448 from $2,180,513 reported for the three months ended June 30,
      2006.  Total average interest bearing liabilities increased by
      $43,929,636 to $318,230,562 for the three months ended June 30, 2007 from
      $274,300,926 for the three months ended June 30, 2006.  The average
      cost of interest bearing liabilities increased 76 basis points to 3.95% for
      the
      three months ended June 30, 2007 from 3.19% for the three months ended June
      30,
      2006, primarily as a result of an increase in market-driven rates paid on
      deposits and short-term borrowed funds.
 
 **Net
      Interest Income**
 
 The
      Company’s net interest income for the three months ended June 30, 2007 was
      $4,314,517, a decrease of 6.4% from the $4,609,109 reported for June 30,
      2006.  The net interest margin (on a tax-equivalent basis), which is
      net interest income divided by average interest-earning assets, decreased 85
      basis points to 4.48% for the three months ended June 30, 2007 from 5.33% for
      the three months ended June 30, 2006.  The increased cost of deposits
      in the competitive New Jersey marketplace combined with a shift in the Company’s
      deposit mix to higher cost certificates of deposit accounts has been contributed
      significantly to this margin compression.
 
 **Provision
      for Loan Losses**
 
 Management
      maintains the allowance for loan losses at a level that is considered adequate
      to absorb losses on existing loans that may become uncollectible based upon
      an
      evaluation of known and inherent risks in the loan
      portfolio.  Additions to the allowance are made by charges to the
      provision for loan losses.  The evaluation considers a complete review
      of the following specific factors:  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.  Additionally, current economic conditions and local real
      estate market conditions are considered.  As a result of this
      evaluation process, the Company’s provision for loan losses was $30,000 for the
      three months ended June 30, 2007 and $170,000 for the three months ended June
      30, 2006.  See “Allowance for Loan Losses” on page 23.
  14
  **Non-Interest
      Income**
  Total
      non-interest income for the three months ended June 30, 2007 was $648,423,
      an
      increase of $173,714, or 36.6%, over non-interest income of $474,709 for the
      three months ended June 30, 2006.
  Service
      charges on deposit accounts represents a significant source of non-interest
      income.  Service charge revenues increased by $8,139, or 4.9%, to
      $175,181 for the three months ended June 30, 2007 from the $167,042 for the
      three months ended June 30, 2006.  This increase was the result of a
      higher volume of uncollected and overdraft fees collected on deposit accounts
      during the second quarter of 2007 compared to the same period in
      2006.
  Gain
      on
      sales of loans increased by $13,811, or 7.9%, to $188,741 for the three months
      ended June 30, 2007 when compared to $174,930 for the three months ended June
      30, 2006.  The rising rate environment that existed throughout 2006
      and continued into the first half of 2007 has impacted the volume of sales
      transactions in the mortgage loan and 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 $88,233 for the three months ended June 30, 2007 compared to $82,934
      for the three months ended June 30, 2006.  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 $196,268
      for
      the three months ended June 30, 2007, compared to $149,517 for the three months
      ended June 30, 2006.
  The
      Company recorded net losses on sales of investment securities of $99,714 for
      the
      three months ended June 30, 2006.  These transactions were primarily
      the result of modest portfolio restructurings.  Their purpose was to
      improve the Company’s longer-term interest rate risk position.
  **Non-Interest
      Expense**
  Non-interest
      expenses decreased by $285,977, or 9.2%, to $2,822,326 for the three months
      ended June 30, 2007 from $3,108,303 for the three months ended June 30,
      2006.  The following table presents the major components of
      non-interest expenses for the three months ended June 30, 2007 and
      2006.
 **Non-interest
                Expenses**Three
                months ended June 30,2007
            
            
            2006Salaries
                and employee benefits
            
            $
            1,637,213
            
            
            $
            1,712,959Occupancy
                expenses
            
            
            406,012
            
            
            
            378,143Equipment
                expense
            
            
            120,796
            
            
            
            116,163Marketing
            
            
            22,145
            
            
            
            65,100Computer
                services
            
            
            215,898
            
            
            
            175,327Regulatory,
                professional and other fees
            
            
            73,320
            
            
            
            290,178Office
                expense
            
            
            152,408
            
            
            
            105,630All
                other expenses
            
            
            794,534
            
            
            
            264,803Total
            
            $
            2,822,326
            
            
            $
            3,108,303
 
 15
  Salaries
      and employee benefits, which represent the largest portion of non-interest
      expenses, decreased by $75,746, or 4.4%, to $1,637,213 for the three months
      ended June 30, 2007 compared to $1,712,959 for the three months ended June
      30,
      2006.  The decrease in salaries and employee benefits for the three
      months ended June 30, 2007 was a result of a lower level of expenses incurred
      in
      connection with the Company’s health insurance and other employee benefit plans
      partially offset by an increase in staffing levels.  Staffing levels
      overall increased to 97 full-time equivalent employees at June 30, 2007 as
      compared to 93 full-time equivalent employees at June 30, 2006.  The
      February 23, 2007 acquisition of the Hightstown branch contributed to this
      increase by increasing the number of full-time equivalent employees by
      4.
 Regulatory,
      professional and other fees decreased by $216,858, or 74.7%, to $73,320 for
      the
      three months ended June 30, 2007 compared to $290,178 for the three months
      ended
      June 30, 2006.  During 2006, the Company chose to incur additional
      accounting, legal and consulting fees primarily as a result of the new internal
      control compliance requirements contained in Section 404 of the Sarbanes-Oxley
      Act in anticipation of the Company’s compliance in 2008.
  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
      decreased to 56.9% for the three months ended June 30, 2007, compared to 61.1%
      for the three months ended June 30, 2006.
  **Six
      Months Ended June 30, 2007 and June 30, 2006**
  **Summary**
  The
      Company realized net income of $2,903,205 for the six months ended June 30,
      2007, an increase of $291,183, or 11.1%, over the $2,612,022 realized for the
      six months ended June 30, 2006.  Net income per diluted share was
      $0.76 for the six months ended June 30, 2007 compared to $0.69 per diluted
      share
      for the six months ended June 30, 2006.
  Key
      performance ratios remained strong for the six months ended June 30,
      2007.  Return on average assets and return on average equity were
      1.42% and 16.02%, respectively, for the six months ended June 30, 2007 compared
      to 1.42% and 17.31%, respectively, for the six months ended June 30,
      2006.
  **Earnings
      Analysis**
  **Interest
      Income**
  For
      the
      six months ended June 30, 2007, total interest income was $14,834,642 an
      increase of $1,892,383 or 14.6%, compared to total interest income of
      $12,942,259 for the six months ended June 30, 2006.
  
 16
  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 rate for the six month
      periods ended June 30, 2007 and 2006.
 **Average
                Balance Sheets with Resultant Interest and Rates**(yields
                on a tax-equivalent basis)
            
            Six
                months ended June 30, 2007
            
            
            Six
                months ended June 30, 2006Average
              Balance
            
            
            Interest
            
            
            Average
              Rate
            
            
            Average
              Balance
            
            
            Interest
            
            
            Average
              Rate**Assets:**Federal
                Funds Sold/Short-Term Investments
            
            $
            2,542,891
            
            
            $
            65,423
            
            
            
            5.20
            %
            
            $
            882,764
            
            
            $
            33,338
            
            
            
            4.88
            %Investment
                Securities:Collateralized
                Mortgage Obligations/
              Mortgage
                Backed Securities
            
            
            79,834,540
            
            
            
            2,076,294
            
            
            
            5.20
            %
            
            
            67,267,461
            
            
            
            1,601,907
            
            
            
            4.76
            %Obligations
                of States and Political Subdivisions
            
            
            22,534,371
            
            
            
            639,892
            
            
            
            5.68
            %
            
            
            16,826,536
            
            
            
            455,607
            
            
            
            5.42
            %Total
            
            
            102,368,911
            
            
            
            2,716,186
            
            
            
            5.31
            %
            
            
            84,093,997
            
            
            
            2,057,514
            
            
            
            4.89
            %Loan
                Portfolio:Construction
            
            
            128,038,453
            
            
            
            5,772,790
            
            
            
            9.09
            %
            
            
            122,076,525
            
            
            
            5,308,225
            
            
            
            8.77
            %Residential
                Real Estate
            
            
            7,657,934
            
            
            
            342,816
            
            
            
            9.03
            %
            
            
            8,373,845
            
            
            
            281,883
            
            
            
            6.79
            %Home
                Equity
            
            
            13,978,390
            
            
            
            529,513
            
            
            
            7.64
            %
            
            
            14,349,464
            
            
            
            510,640
            
            
            
            7.18
            %Commercial
                and commercial real estate
            
            
            112,177,995
            
            
            
            4,341,501
            
            
            
            7.80
            %
            
            
            95,523,253
            
            
            
            3,576,994
            
            
            
            7.55
            %Installment
            
            
            1,543,012
            
            
            
            64,859
            
            
            
            8.48
            %
            
            
            2,212,513
            
            
            
            92,273
            
            
            
            8.41
            %All
                Other Loans
            
            
            21,698,761
            
            
            
            1,209,086
            
            
            
            11.24
            %
            
            
            22,361,005
            
            
            
            1,229,158
            
            
            
            11.08
            %Total
            
            
            285,094,545
            
            
            
            12,260,565
            
            
            
            8.67
            %
            
            
            264,896,605
            
            
            
            10,999,173
            
            
            
            8.37
            %**Total
                Interest-Earning Assets**
            
            ****
            **390,006,347**
            
            
            ****
            **15,042,174**
            
            
            ****
            **7.78**
            **%**
            
            ****
            **349,873,366**
            
            
            ****
            **13,090,025**
            
            
            ****
            **7.54**
            **%**Allowance
                for Loan Losses
            
            
            (3,202,227
            )
            
            
            
            
            
            
            
            
            
            
            (2,521,830
            )Cash
                and Due From Bank
            
            
            9,840,214
            
            
            
            
            
            
            
            
            
            
            
            9,192,148Other
                Assets
            
            
            16,993,628
            
            
            
            
            
            
            
            
            
            
            
            15,117,762**Total
                Assets**
            
            **$**
            **413,637,962**
            
            
            
            
            
            
            
            
            
            
            **$**
            **371,661,446****Liabilities
                and Shareholders’ Equity:**Interest-Bearing
                Liabilities:Money
                Market and NOW Accounts
            
            $
            83,227,341
            
            
            $
            838,662
            
            
            
            2.03
            %
            
            $
            91,223,484
            
            
            $
            680,438
            
            
            
            1.50
            %Savings
                Accounts
            
            
            65,745,828
            
            
            
            1,004,462
            
            
            
            3.08
            %
            
            
            43,010,509
            
            
            
            369,525
            
            
            
            1.73
            %Certificates
                of Deposit
            
            
            117,341,127
            
            
            
            2,808,342
            
            
            
            4.83
            %
            
            
            95,281,466
            
            
            
            1,824,376
            
            
            
            3.86
            %Other
                Borrowed Funds
            
            
            24,034,530
            
            
            
            632,412
            
            
            
            5.31
            %
            
            
            38,242,265
            
            
            
            957,133
            
            
            
            5.05
            %Trust
                Preferred Securities
            
            
            21,093,923
            
            
            
            778,574
            
            
            
            7.34
            %
            
            
            6,591,160
            
            
            
            267,552
            
            
            
            8.07
            %**Total
                Interest-Bearing Liabilities**
            
            ****
            **311,442,749**
            
            
            ****
            **6,062,452**
            
            
            ****
            **3.93**
            **%**
            
            ****
            **274,348,884**
            
            
            ****
            **4,099,024**
            
            
            ****
            **3.01**
            **%****Net
                Interest Spread**
            
            
            
            
            
            
            
            
            
            ****
            **3.85**
            **%**
            
            
            
            
            
            
            
            
            
            ****
            **4.53**
            **%**Demand
                Deposits
            
            
            60,426,470
            
            
            
            
            
            
            
            
            
            
            
            61,998,664Other
                Liabilities
            
            
            5,212,864
            
            
            
            
            
            
            
            
            
            
            
            4,882,757Total
                Liabilities
            
            
            377,082,083
            
            
            
            
            
            
            
            
            
            
            
            341,230,305Shareholders'
                Equity
            
            
            36,555,879
            
            
            
            
            
            
            
            
            
            
            
            30,431,141**Total
                Liabilities and Shareholders' Equity**
            
            **$**
            **413,637,962**
            
            
            
            
            
            
            
            
            
            
            **$**
            **371,661,446****Net
                Interest Margin**
            
            
            
            
            
            **$**
            **8,979,722**
            
            
            ****
            **4.64**
            **%**
            
            
            
            
            
            **$**
            **8,991,001**
            
            
            ****
            **5.18**
            **%**
 
 The
      current year increase in interest income resulted from a higher average balance
      in the loan portfolio combined with higher average yields earned on the
      securities and loan portfolios.  Average loans increased $20,197,940,
      or 7.6%, to $285,094,545 for the six months ended June 30, 2007 from
      $264,896,605 for the six months ended June 30, 2006, while the yield on the
      portfolio increased 30 basis points to 8.67% for the six months ended June
      30,
      2007 from 8.37% for the six months ended June 30, 2006.  The higher
      loan yield reflected the higher interest rate environment that existed during
      2006 and continued through the first half of 2007.
  17
  Average
      securities increased $18,274,914, or 21.7%, from $84,093,997 for the six months
      ended June 30, 2006 to $102,368,911 for the six months ended June 30, 2007,
      while the yield on the securities portfolio increased to 5.31% for the six
      months ended June 30, 2007 from 4.89% for the six months ended June 30,
      2006.
 
 Overall,
      the yield on the Company’s total interest-earning assets increased 24 basis
      points to 7.78% for the six months ended June 30, 2007 from 7.54% for the six
      months ended June 30, 2006.
 
 **Interest
      Expense**
 
 Total
      interest expense for the six months ended June 30, 2007 was $6,062,452, an
      increase of $1,963,428, or 47.9%, compared to $4,099,024 for the six months
      ended June 30, 2006.  The increase in interest expense for the current
      period resulted primarily from the impact of higher levels of interest-bearing
      liabilities priced at higher market interest rate levels and a change in the
      mix
      of interest bearing liabilities, principally the decline in lower rate money
      market and NOW accounts and an increase in higher rate savings accounts,
      certificates of deposit and trust preferred securities.  The average
      rate paid on interest bearing liabilities for the six months ended June 30,
      2007
      increased 92 basis points to 3.93% from 3.01% for the six months ended June
      30,
      2006.
 
 **Net
      Interest Income**
 
 The
      Company’s net interest income for the six months ended June 30, 2007 was
      $8,772,190, a decrease of $71,045, or 0.8%, compared to $8,843,235 for the
      six
      months ended June 30, 2006.  The net interest margin (on a
      tax-equivalent basis) was 4.64% for the six months ended June 30, 2007 compared
      to 5.18% for the six months ended June 30, 2006.  The increased cost
      of deposits in the competitive New Jersey marketplace combined with a shift
      in
      the Company’s deposit mix to higher cost certificates of deposit accounts has
      contributed significantly to this margin compression.
 
 **Provision
      for Loan Losses**
 
 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.  As a result of this
      evaluation process, the Company’s provision for loan losses was $70,000 for the
      six months ended June 30, 2007 and $340,000 for the six months ended June 30,
      2006.  Net charge offs/recoveries amounted to a net recovery of
      $11,720 for the six months ended June 30, 2007 compared to a net charge off
      of
      $8,639 for the six months ended June 30, 2006.  See “Allowance for
      Loan Losses” on page 23.
 
 **Non-Interest
      Income**
 
 Total
      non-interest income for the six months ended June 30, 2007 was $1,292,164,
      an
      increase of $87,869, or 7.3%, from non-interest income of $1,204,295 for the
      six
      months ended June 30, 2006.
 
 Gain
      on
      sale of loans held for sale represents the largest single source on non-interest
      income. Gain on sale of loans held for sale for the six months ended June 30,
      2007 was $420,518 compared to $493,619 for the six months ended June 30,
      2006.  The current rising interest rate environment has significantly
      impacted the volume of sales transactions in the mortgage loan and SBA loan
      markets and resultant gains from these transactions.
 
 18
  Service
      charges on deposit accounts were $325,036 for the six months ended June 30,
      2007
      compared to $353,601 for the six months ended June 30, 2006.  Service
      charge income decreased in 2007 principally due to a lower volume of uncollected
      and overdraft fees collected on deposit accounts during the first six months
      of
      2007 compared to 2006.
 
 Income
      from Bank Owned Life Insurance (“BOLI”) amounted to $178,581 for the six months
      ended June 30, 2007, compared to $163,534 for the six months ended June 30,
      2006.  The Company owns $9.4 million in tax-free BOLI assets which
      partially offset the cost of employee benefit plans and reduced the Company’s
      overall effective tax rate.
 
 The
      Company recorded net losses on sales of investment securities of $99,714 for
      the
      six months ended June 30, 2006.  These transactions were primarily the
      result of modest portfolio restructurings.  Their purpose was to
      improve the Company’s longer-term interest rate risk position.
 
 **Non-Interest
      Expense**
 
 Total
      non-interest expense for the six months ended June 30, 2007 was $5,843,539,
      a
      decrease of $354,792, or 5.7%, compared to non-interest expense of $6,198,331
      for the six months ended June 30, 2006.
 
 The
      following table presents the major components of non-interest expense for the
      six months ended June 30, 2007 and 2006.
 
 **Non-interest
                Expenses**Six
                months ended June 30,2007
            
            
            2006Salaries
                and employee benefits
            
            $
            3,450,012
            
            
            $
            3,397,981Occupancy
                expense
            
            
            796,944
            
            
            
            697,127Equipment
                expense
            
            
            246,209
            
            
            
            237,167Marketing
            
            
            47,026
            
            
            
            174,198Computer
                services
            
            
            412,974
            
            
            
            341,962Regulatory,
                professional and other fees
            
            
            182,106
            
            
            
            681,569Office
                expense
            
            
            294,782
            
            
            
            207,652All
                other expenses
            
            
            413,486
            
            
            
            460,676$
            5,843,539
            
            
            $
            6,198,332
 
 Salaries
      and employee benefits increased $52,031, or 1.5%, to $3,450,012 for the six
      months ended June 30, 2007 compared to $3,397,981 for the six months ended
      June
      30, 2006.  This increase reflects the increase in staffing levels plus
      normal employee salary increases.
  Regulatory,
      professional and other fees decreased by $499,463, or 73.2%, to $182,106for
      the
      six months ended June 30, 2007 compared to $681,569 for the six months ended
      June 30, 2006.  During the first six months of 2006, the Company
      incurred increased consulting fees primarily as a result of preparations for
      internal control compliance requirements contained in Section 404 of the
      Sarbanes-Oxley Act for which the Company must be in compliance at December
      31,
      2008.
  The
        Company’s efficiency ratio decreased to 58.1% for the six months ended June 30,
        2007 compared to a ratio of 61.7% for the six months ended June 30,
        2006.
  19
  **Financial
      Condition**
  **June
      30, 2007 Compared with December 31, 2006**
  Total
      consolidated assets at June 30, 2007 totaled $428,199,422, increasing by
      $35,521,876 from $392,677,546 at December 31, 2006.  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
      $445,653 in goodwill and $274,604 in core deposit intangibles, which appear
      as
“Other Assets” in the Consolidated Balance Sheet at June 30, 2007.
  **Cash
      and Cash Equivalents**
  Cash
      and
      Cash Equivalents**at June 30, 2007 totaled $9,580,485 compared to
      $10,361,812 at December 31, 2006.  Cash and cash equivalents at June
      30, 2007 consisted of cash and due from banks of $9,559,584 and Federal funds
      sold/short term investments of $20,901.  The corresponding balances at
      December 31, 2006 were $10,336,334 and $25,478, respectively.
  **Investment
      Securities**
  The
      Bank’s investment securities represented 25.4% of total assets at June 30, 2007
      and 22.8% at December 31, 2006.  Total investment securities increased
      $18,899,587, or 21.1%, at June 30, 2007 to $108,575,391 from $89,675,804 at
      December 31, 2006.
  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 June
      30, 2007, available-for-sale securities amounted to $82,047,134, and increase
      of
      $11,625,806 or 16.5%, from December 31, 2006.
  At
      June
      30, 2007, the securities available for sale portfolio had net unrealized losses
      of $1,648,343 compared to net unrealized losses of $719,367 at December 31,
      2006.  These unrealized losses are reflected net of tax in
      shareholders’ equity as a component of other comprehensive income
      (loss).
  Securities
      held to maturity, which are carried at amortized historical cost, are
      investments for which there is the positive intent and ability to hold to
      maturity.  The held-to-maturity portfolio consists primarily of
      obligations of states and political subdivisions.  At June 30, 2007,
      securities held to maturity were $26,528,257, an increase of $7,273,781, or
      37.8% from $19,254,476 at December 31, 2006.  The fair value of the
      held-to-maturity portfolio at June 30, 2007, was $26,041,037, resulting in
      a net
      unrealized loss of $487,219.
  During
      the six months ended June 30, 2007, the Bank purchased securities in the amounts
      of $15,776,240 and $7,677,917 for the available for sale and held to maturity
      portfolios, respectively.  These purchases were funded primarily by
      the cash received in the Hightstown branch acquisition completed in February
      2007.
  20
  **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.
  The
      following table sets forth the classification of loans by major category at
      June
      30, 2007 and December 31, 2006.
 **Loan
                Portfolio Composition**
            
            June
                30, 2007
            
            
            December
                31, 2006Component
            
            Amount
            
            
            %
              of
                total
            
            
            Amount
            
            
            %
              of
                totalConstruction
                loans
            
            $
            130,623,738
            
            
            
            46
            %
            
            $
            125,268,871
            
            
            
            47
            %Residential
                real estate loans
            
            
            9,155,735
            
            
            
            4
            %
            
            
            7,670,370
            
            
            
            3
            %Commercial
                and commercial real estate
            
            
            129,611,101
            
            
            
            45
            %
            
            
            114,897,040
            
            
            
            44
            %Loans
                to individuals
            
            
            15,598,979
            
            
            
            5
            %
            
            
            16,728,025
            
            
            
            6
            %Deferred
                loan fees
            
            
            409,494
            
            
            
            0
            %
            
            
            404,074
            
            
            
            0
            %All
                other loans
            
            
            177,548
            
            
            
            0
            %
            
            
            173,933
            
            
            
            0
            %$
            285,576,595
            
            
            
            100
            %
            
            $
            265,142,313
            
            
            
            100.0
            %
 
 The
      loan
      portfolio increased $20,434,282, or 7.7%, at June 30, 2007 to $285,576,595
      from
      $265,142,313 at December 31, 2006.  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.
  Non-performing
      loans decreased by $699,453 to $3,493,756 at June 30, 2007 from $4,193,209
      at
      December 31, 2006.  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 decreased to 1.23%
      at June 30, 2007 from 1.58% at December 31, 2006 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.
  21
  Non-performing
      assets decreased by $679,453 to $3,513,756 at June 30, 2007 from $4,193,209
      at
      December 31, 2006.  Non-performing assets represented 0.82% of total
      assets at June 30, 2007 and 1.07% at December 31,
      2006.  Non-performing loans as a percentage of total loans were 1.23%
      at June 30, 2007, compared to 1.58% at December 31, 2006.
  The
      Bank
      had no loans classified as restructured loans at June 30, 2007 or December
      31,
      2006.
  At
      June
      30, 2007 and December 31, 2006, the Bank had no loans that were 90 days or
      more
      past due but still accruing interest.
 **Non-Performing
                Assets and Loans**
            
            June
                30
            
            
            December
                312007
            
            
            2006Non-Performing
                loans:Loans
                90 days or more past due and still accruing
            
            $
            0
            
            
            $
            0Non-accrual
                loans
            
            
            3,493,756
            
            
            
            4,193,209Total
                non-performing loans
            
            
            3,493,756
            
            
            
            4,193,209Other
                real estate owned
            
            
            0
            
            
            
            0Total
                non-performing assets
            
            $
            3,493,756
            
            
            $
            4,193,209Non-performing
                loans to total loans
            
            
            1.23
            %
            
            
            1.58
            %Non-performing
                assets to total assets
            
            
            0.82
            %
            
            
            1.07
            %
 
 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 carried at the lower of fair market value
      less estimated selling costs, or at cost. 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, increases in interest rates, 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.
  22
  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 and lease losses is restricted to any individual loan or groups of loans,
      and the entire allowance is available to absorb any and all loan and lease
      losses.
  Management
      reviews the adequacy of the allowance on at least a quarterly basis to ensure
      that the provision for loan and lease 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 and
      lease 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 and lease 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.
  23
  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 June 30, 2007, management believed that the allowance for
      loan losses and non-performing loans was adequate.
  The
      allowance for loan losses amounted to $3,310,080 at June 30, 2007, an increase
      of $81,720 from December 31, 2006.  The ratio of the allowance for
      loan losses to total loans was 1.12% at June 30, 2007 and 1.16% at December
      31,
      2006, 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.
  The
      following table presents, for the periods indicated, an analysis of the
      allowance for loan losses and other related data.
 **Allowance
                for Loan Losses**
            
            June
                30,
              2007
            
            
            December
                31, 2006
            
            
            June
                30,
              2006Balance,
                beginning of period
            
            $
            3,228,360
            
            
            $
            2,361,375
            
            
            $
            2,361,375Provision
                charged to operating expenses
            
            
            70,000
            
            
            
            893,500
            
            
            
            340,000Loans
                charged off:Construction
                loans
            
            
            -
            
            
            
            -
            
            
            
            -Residential
                real estate loans
            
            
            -
            
            
            
            -
            
            
            
            -Commercial
                and commercial real estate
            
            
            (65,891
            )
            
            
            (11,154
            )
            
            
            (11,154
            )Loans
                to individuals
            
            
            (1,614
            )
            
            
            (18,314
            )
            
            
            (285
            )Lease
                financing
            
            
            (478
            )
            
            
            -
            
            
            
            -All
                other loans
            
            
            -
            
            
            
            -
            
            
            
            -(67,983
            )
            
            
            (29,468
            )
            
            
            (11,439
            )Recoveries:Construction
                loans
            
            
            75,000
            
            
            
            -
            
            
            
            -Residential
                real estate loans
            
            
            
            
            
            
            
            
            
            
            -Commercial
                and commercial real estate
            
            
            -
            
            
            
            153
            
            
            
            -Loans
                to individuals
            
            
            4,703
            
            
            
            2,800
            
            
            
            2,800Lease
                financing
            
            
            -
            
            
            
            -
            
            
            
            -All
                other loans
            
            
            -
            
            
            
            -
            
            
            
            -79,703
            
            
            
            2,953
            
            
            
            2,800Net
                (charge offs) / recoveries
            
            
            11,720
            
            
            
            (26,515
            )
            
            
            (8,639
            )Balance,
                end of period
            
            $
            3,310,080
            
            
            $
            3,228,360
            
            
            $
            2,692,736Loans:At
                period end
            
            $
            294,514,117
            
            
            $
            278,751,255
            
            
            $
            277,471,033Average
                during the period
            
            
            285,094,544
            
            
            
            271,740,647
            
            
            
            264,896,605Net
                charge offs to average loans outstanding
            
            
            0.00
            %
            
            
            (0.01
            %)
            
            
            0.00
            %Allowance
                for loan losses to:Total
                loans at period end
            
            
            1.12
            %
            
            
            1.16
            %
            
            
            0.97
            %Non-performing
                loans
            
            
            94.74
            %
            
            
            76.99
            %
            
            
            325.25
            %
 
 
 24
  **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.
  Total
      deposits increased $13,226,061, or 4.2%, to $325,950,483 at June 30, 2007 from
      $312,724,422 at December 31, 2006.  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.
  **Borrowings**
  Borrowings
      are mainly comprised of fixed rate convertible advances from the Federal Home
      Loan Bank (“FHLB”) and federal funds purchased.  These borrowings are
      primarily used to fund asset growth not supported by deposit
      generation.  The balance of other borrowings at June 30, 2007
      consisted of long-term FHLB borrowings of $15,500,000 and overnight funds
      purchased of $27,500,000.  The balance of borrowings at December 31,
      2006 consisted of long-term FHLB borrowings of $15,500,000 and overnight funds
      purchased of $1,700,000.  FHLB advances are fully secured by
      marketable securities.
  **Shareholders’
      Equity And Dividends**
  Shareholders’
      equity at June 30, 2007 totaled $37,392,343, an increase of $2,195,773, or
      6.2%,
      from $35,196,570 at December 31, 2006.  Book value per common share
      rose to $10.02 at June 30, 2007 from $9.40 at December 31, 2006.  The
      ratio of shareholders’ equity to total assets was 8.73% at June 30, 2007 and
      8.96% at December 31, 2006.
  The
      increase in shareholders’ equity and book value per share resulted primarily
      from net income of $2,903,205 partially offset by the increase in unrealized
      holding losses on available for sale securities.
  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 June 30, 2007 is
      set
      forth under Part II, Item 2 of this report, *Unregistered Sales of Equity
      Securities and Use of Proceeds*.
  25
  Actual
      capital amounts and ratios for the Company and the Bank as of June 30, 2007
      and
      December 31, 2006 are as follows:
 Actual
            
            
            For
                Capital
              Adequacy
                Purposes
            
            To
                Be Well CapitalizedUnder Prompt CorrectiveAction
                ProvisionAmount
            
            
            Ratio
            
            
            Amount
            
            Ratio
            
            Amount
            
            Ratio**As
                of June 30, 2007 -**CompanyTotal
                Capital to Risk Weighted Assets
            
            $
            59,514,548
            
            
            
            17.60
            %
            
            $
            27,048,560
            
            >
                8%
            
            $
            33810,700
            
            N/ATier
                1 Capital to Risk Weighted Assets
            
            
            51,172,360
            
            
            
            15.13
            %
            
            
            13,524,280
            
            >
                4%
            
            
            20,286,420
            
            N/ATier
                1 Capital to Average Assets
            
            
            51,172,360
            
            
            
            12.19
            %
            
            
            16,788,365
            
            >
                4%
            
            
            20,985,457
            
            N/ABankTotal
                Capital to Risk Weighted Assets
            
            $
            56,921,903
            
            
            
            16.84
            %
            
            $
            27,048,560
            
            >
                8%
            
            $
            33,810,700
            
            >10%Tier
                1 Capital to Risk Weighted Assets
            
            
            53,611,833
            
            
            
            15.86
            %
            
            
            13,524,280
            
            >
                4%
            
            
            20,286,420
            
            >
                6%Tier
                1 Capital to Average Assets
            
            
            53,611,823
            
            
            
            12.80
            %
            
            
            16,749,000
            
            >
                4%
            
            
            20,936,250
            
            >
                5%
 
 **As
                of December 31, 2006 -**CompanyTotal
                Capital to Risk Weighted Assets
            
            $
            62,614,642
            
            
            
            20.23
            %
            
            $
            24,751,678
            
            >8%
            
            $
            30,939,598
            
            N/ATier
                1 Capital to Risk Weighted Assets
            
            
            47,720,050
            
            
            
            15.42
            %
            
            
            12,375,839
            
            >4%
            
            
            18,563,759
            
            N/ATier
                1 Capital to Average Assets
            
            
            47,720,050
            
            
            
            12.18
            %
            
            
            15,752,046
            
            >4%
            
            
            19,690,058
            
            N/ABankTotal
                Capital to Risk Weighted Assets
            
            $
            53,871,072
            
            
            
            17.38
            %
            
            $
            24,751,040
            
            >8%
            
            $
            30,938,800
            
            >10%Tier
                1 Capital to Risk Weighted Assets
            
            
            50,542,712
            
            
            
            16.34
            %
            
            
            12,375,520
            
            >4%
            
            
            18,563,280
            
            >6%Tier
                1 Capital to Average Assets
            
            
            50,542,712
            
            
            
            12.87
            %
            
            
            15,710,320
            
            >4%
            
            
            19,637,900
            
            >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
      June 30, 2007, 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
      June
      30, 2007, 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.
  26
  The
      Bank
      has established a borrowing relationship with the FHLB and a correspondent
      bank
      which further supports and enhances liquidity.  At June 30, 2007, the
      Bank maintained an Overnight Line of Credit at the FHLB in the amount of
      $16,176,500 plus a One-Month Overnight Repricing Line of Credit of
      $10,176,500.  Effective August 1, 2007, these lines were renewed by
      FHLB at the amount of $28,883,000 for the Overnight Line of Credit and the
      One-Month Overnight Repricing Line of Credit.  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.
  The
      Consolidated Statements of Cash Flows present the changes in cash from
      operating, investing and financing activities.  At June 30, 2007, the
      balance of cash and cash equivalents was $9,580,485.
  Net
      cash
      provided by operating activities totaled $6,840,786 in the six months ended
      June
      30, 2007 compared to $7,359,712 in the six months ended June 30,
      2006.  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.
  Net
      cash
      used in investing activities totaled $21,781,630 in the six months ended June
      30, 2007 compared to $17,062,006 used in investing activities in the six months
      ended June 30, 2006.  The current period amount was primarily the
      result of investment securities purchases partially offset by the cash and
      cash
      equivalents acquired with the Hightstown branch.
  Net
      cash
      provided by financing activities amounted to $14,159,517 in the six months
      ended
      June 30, 2007 compared to $6,582,386 provided by financing activities in the
      six
      months ended June 30, 2006.  The current period amount resulted
      primarily from an increase in borrowings combined with a decrease in demand,
      savings and time deposits plus the repayment of redeemable subordinated
      debentures during the six months period ended June 30, 2007.
  The
      securities portfolio is also a source of liquidity, providing cash flows from
      maturities and periodic repayments of principal.  During the six
      months ended June 30, 2007, maturities and prepayments of investment securities
      totaled $3,563,962.  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.
  27
  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**
  To
      measure the impacts of longer-term asset and liability mismatches beyond two
      years, the Company utilizes Modified Duration of Equity and Economic Value
      of
      Portfolio Equity (“EVPE”) models.  The modified duration of equity
      measures the potential price risk of equity to changes in interest
      rates.  A longer modified duration of equity indicates a greater
      degree of risk to rising interest rates.  Because of balance sheet
      optionality, an EVPE analysis is also used to dynamically model the present
      value of asset and liability cash flows, with rates ranging up or down 200
      basis
      points.  The economic value of equity is likely to be different as
      interest rates change.  Results falling outside prescribed ranges
      require action by management.  At June 30, 2007 and December 31, 2006,
      the Company’s variance in the economic value equity as a percentage of assets
      with an instantaneous and sustained parallel shift of 200 basis points is within
      the negative 3% guideline, as shown in the tables below.
  The
      market capitalization of the Company should not be equated to the EVPE, which
      only deals with the valuation of balance sheet cash flows using conservative
      assumptions.  Calculated core deposit premiums may be less than what
      is available in an outright sale.  The model does not consider
      potential premiums on floating rate loan sales, the impact of overhead expense,
      non-interest income, taxes, industry market price multiples and other factors
      reflected in the market capitalization of a company.
  The
      following tables set forth certain information relating to the Company’s
      financial instruments that are sensitive to changes in interest rates,
      categorized by expected maturity or repricing and the instruments fair value
      at
      June 30, 2007 and December 31, 2006.
  **Market
      Risk Analysis**
  **June
      30, 2007**
 Change
                in Interest Rates
            
            **Flat**
            
            
            -200bp
            
            
            +200bpEconomic
                Value of Portfolio Equity
            
            $
            49,748,000
            
            
            $
            50,615,000
            
            
            $
            44,189,000Change
            
            
            
            
            
            $
            867,000
            
            
            $
            (5,559,000
            )Change
                as a Percentage of Assets
            
            
            
            
            
            
            0.20
            %
            
            
            (1.30
            %)
 
 **December
      31, 2006**
 Change
                in Interest Rates
            
            **Flat**
            
            
            -200bp
            
            
            +200bpEconomic
                Value of Portfolio Equity
            
            $
            47,670,000
            
            
            $
            46,869,000
            
            
            $
            44,183,000Change
            
            
            
            
            
            $
            (800,000
            )
            
            $
            (3,487,000
            )Change
                as a Percentage of Assets
            
            
            
            
            
            
            (0.20
            %)
            
            
            (0.89
            %)
 
 28
  **Item
      4.        Controls and
      Procedures.**
  The
      Company’s chief executive officer and chief financial officer, with the
      assistance of other members of the Company’s management, have evaluated the
      effectiveness of the 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) 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
      chief executive officer and chief financial officer have concluded that the
      Company’s disclosure controls and procedures are effective as of the end of the
      period covered by this quarterly report.
  The
      Company’s chief executive officer and chief financial officer have also
      concluded that there have not been any changes in the Company’s internal control
      over financial reporting that have materially affected, or are reasonably likely
      to materially affect, the Company’s internal control over financial
      reporting.
  **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 June 30,
      2007.
  **Issuer
      Purchases of Equity Securities (1)**
 **Period**
            
            **TotalNumber
                ofSharesPurchased**
            
            
            **Average
                PricePaid Per Share**
            
            
            **Total
                Number of Shares PurchasedAs Part ofPubliclyAnnounced
                Planor Program**
            
            
            **MaximumNumber
                ofShares ThatMay Yet bePurchasedUnder thePlan
                orProgram**Beginning
            EndingApril
                1, 2007
            April
                30, 2007
            
            
            12,000
            
            
            $
            18.40
            
            
            
            12,000
            
            
            
            153,441May
                1, 2007
            May
                30, 2007
            
            
            225
            
            
            $
            18.18
            
            
            
            225
            
            
            
            153,216June
                1, 2007
            June
                30, 2007
            
            
            200
            
            
            $
            18.13
            
            
            
            200
            
            
            
            153,016Total
            
            
            12,425
            
            
            $
            18.39
            
            
            
            12,425
            
            
            
            153,016
 _________________
 (1)
            The
                Company’s common stock repurchase program covers a maximum of 175,271
                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
                6% stock
                dividend declared December 31, 2006 and paid on January 31,
                2007.
 
 29
  **Item
              4.**
            **Submission
              of Matters to a Vote of Securities Holders.**
 ****
 The
      Company’s Annual Meeting of Shareholders (the “Annual Meeting”) was held on May
      24, 2007.
  There
      were present at the Annual Meeting in person or by proxy shareholders holding
      an
      aggregate of 3,195,726 shares of common stock of a total number of 3,742,860
      shares of common stock issued, outstanding and entitled to vote at the Annual
      Meeting.
  At
      the
      Annual Meeting, Frank E. Walsh III and William M. Rue were re-elected as a
      Class
      III directors of the Company, with 3,190,664 shares votes cast for and 5,062
      shares withheld.  Directors whose term of office continued following
      the meeting were Charles S. Crow, III, Robert F. Mangano, and David C.
      Reed.
  A
      vote of
      the shareholders was taken at the Annual Meeting on the proposal to approve
      and
      ratify the appointment of Grant Thornton LLP as the Company’s independent
      auditor for the year ending December 31, 2007.  The proposal was
      approved by the shareholders, with 3,187,463 shares voting in favor of the
      proposal and 8,263 shares voting against the proposal.  There were
      547,134 abstentions and broker non-votes.
 ****
 **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) to the
                Company’s Form 10-QSB filed with the SEC on May 14,
                2003)31.1
            *
            Certification
                of Robert F. Mangano, chief executive officer of the Company, pursuant
                to
                Securities Exchange Act Rule 13a-14(a)31.2
            *
            Certification
                of Joseph M. Reardon, chief financial officer of the Company, pursuant
                to
                Securities Exchange Act Rule 13a-14(a)32
            *
            Certifications
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                The Sarbanes-Oxley Act of 2002, signed by Robert F. Mangano, chief
                executive officer of the Company, and Joseph M. Reardon, chief financial
                officer of the Company
 _____________________
 *           Filed
      herewith.
 
 30
  **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
              BANCORP**Date:
                August 13,
                2007
            By:
            /s/ ROBERT
              F. MANGANORobert
              F. ManganoPresident
              and Chief Executive
              Officer(Principal
              Executive
              Officer)Date:
              August 13, 2007
            By:
            /s/
              JOSEPH M. REARDONJoseph
              M. ReardonSenior
              Vice President and Treasurer(Principal
              Accounting Officer)
    31