The purpose of this discussion and analysis of the operating results and financial condition at September 30, 2008 is intended to help readers analyze the accompanying financial statements, notes and other supplemental information contained in this document. Results of operations for the three and nine month periods ended September 30, 2008 are not necessarily indicative of results to be attained for any other period.

This discussion and analysis should be read in conjunction with the Consolidated Financial Statements, notes and tables included elsewhere in this report and Part II, Item 7 of the Company's Form 10-K (Management's Discussion and Analysis of Financial Condition and Results of Operations) for the year ended December 31, 2007, as filed with the Securities and Exchange Commission (the "SEC") on April 15, 2008.

General

Throughout the following sections, the "Company" refers to 1st Constitution Bancorp and, as the context requires, its wholly-owned subsidiaries, 1st Constitution Bank and 1st Constitution Capital Trust II; the "Bank" refers to 1st Constitution Bank; "Trust II" refers to 1st Constitution Capital Trust II; and "Trust I" refers to 1st Constitution Capital Trust I, which was a subsidiary of the Company until its termination in April 2007. Trust II and Trust I are not included in the Company's consolidated financial statements as they are variable interest entities and the Company is not the primary beneficiary.

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 1st Constitution Investment Company of Delaware, Inc., its subsidiary. FCB Assets Holdings, Inc., a subsidiary of the Bank, is used by the Bank to manage and dispose of repossessed real estate.

Trust II, a subsidiary of the Company, was created in May 2006 to issue trust preferred securities to assist the Company to raise additional regulatory capital.

Trust I, which was a statutory business trust and a wholly-owned subsidiary of the Company, had issued $5.0 million of variable rate trust preferred securities in April 2002 and had held, as its sole asset, subordinated debentures issued by the Company until such debentures were redeemed by the Company, and Trust I was terminated, in April 2007.

The Company's Annual Report on Form 10-K filed with the SEC on April 15, 2008 contains restated unaudited consolidated financial information of the Company for each of the first three quarters of 2007. To the extent that the discussion and analysis contained herein relates or refers to the Company's results for the first quarter or nine months of 2007, such discussion and analysis reflects the Company's restated results for the three and nine months ended September 30, 2007.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for 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.

Factors that may cause actual results to differ from those results expressed or implied, include, but are not limited to, those listed under "Business", "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K filed with the SEC on April 15, 2008, such as the overall economy and the interest rate environment; the ability of customers to repay their obligations; the adequacy of the allowance for loan losses; competition; significant changes in accounting, tax or regulatory practices and requirements; certain interest rate risks; risks associated with investments in mortgage-backed securities; and risks associated with speculative construction lending. Although management has taken certain steps to mitigate any negative effect of the aforementioned items, significant unfavorable changes could severely impact the assumptions used and could have an adverse effect on profitability. The Company undertakes no obligation to publicly revise any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements, except as required by law.

Recent Developments

There have been historical disruptions in the financial system during the past year and many lenders and financial institutions have reduced or ceased to provide funding to borrowers, including other lending institutions. The availability of credit, confidence in the entire financial sector, and volatility in financial markets have been adversely affected. These disruptions are likely to have some impact on all institutions in the U.S. banking and financial industries. The Federal Reserve System has been providing vast amounts of liquidity into the banking systems to compensate for weaknesses in short-term borrowing markets and other capital markets. A reduction in the Federal Reserve's activities or capacity could reduce liquidity in the markets, thereby potentially increasing funding costs to the Bank or reducing the availability of funds to the Bank to finance its existing operations.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2008 Compared to the Three Months Ended September 30, 2007

Summary

The Company realized net income of $782,394 for the three months ended September 30, 2008, a decrease of 45.5% from the $1,435,730 reported for the three months ended September 30, 2007. Diluted net income per share was $0.19 for the three months ended September 30, 2008 compared to $0.36 per diluted share for the three months ended September 30, 2007. All prior year share information has been restated for the effect of a 6% stock dividend declared on December 20, 2007 and paid on February 6, 2008 to shareholders of record on January 23, 2008.

Key performance ratios declined for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007. Return on average assets and return on average equity were 0.62% and 7.39% for the three months ended September 30, 2008 compared to 1.32% and 14.84%, respectively, for the three months ended September 30, 2007.

A significant factor impacting the Company's net interest income has been the declining level of market interest rates and the resulting compression of the Company's net interest margin. The net interest margin for the three months ended September 30, 2008 was 3.61% as compared to the 4.51% net interest margin recorded for the three months ended September 30, 2007, a reduction of 90 basis points. The Federal Reserve has decreased the level of market interest rates by 300 basis points since September 18, 2007. Since the majority of the Company's interest earning assets earn at floating rates, these interest rate reductions have resulted in a decreased level of interest income. The Company will continue to closely monitor the mix of earning assets and funding sources to maximize net interest income during this challenging interest rate environment.

The Company has a significant investment in collateralized mortgage obligations and trust preferred securities. At September 30, 2008, the Company held collateralized mortgage obligations with an aggregate market value of $6,909,259 in the Available for Sale portfolio. These securities had an unrealized loss of $315,982. The Company also held trust preferred securities in the Available for Sale portfolio with an aggregate market value of $1,876,539 and an unrealized loss of $576,140 at September 30, 2008. Several financial institutions have reported significant write-downs of the value of mortgage-related and trust preferred securities. Management has considered the severity and duration of the unrealized losses within the Company's collateralized mortgage obligations and trust preferred securities portfolios, and evaluated recent events specific to the issuers of these securities and their industries, as well as external credit ratings and downgrades thereto. Based on these considerations and evaluations, management does not believe that any of the Company's collateralized mortgage obligations or trust preferred securities are other-than-temporarily impaired as of September 30, 2008. Certain of these types of securities may also not be marketable except at significant discounts. While management of the Company is, as of the date of this report, unaware of any other-than-temporarily impairment in the Company's portfolio of these securities, market, entity or industry conditions could further deteriorate and result in the recognition of future impairment losses related to these securities.

Earnings Analysis

Interest Income

Interest income for the three months ended September 30, 2008 was $7,389,253, decreasing by 5.6% from the $7,825,738 reported in the three months ended September 30, 2007. The decrease in interest income was attributable to the current period decrease in yields earned on the Bank's interest-earning assets, partially offset by increased average balances in those interest-earning assets. For the three months ended September 30, 2008, average interest earning assets increased $61.2 million or 15.0%, to $468.3 million compared to $407.1 million for the three months ended September 30, 2007. For the three months ended September 30, 2008, the average yield on earning assets, on a tax-equivalent basis, decreased 140 basis points to 6.33% from 7.73% for the three months ended September 30, 2007.

Interest Expense

Interest expense for the three months ended September 30, 2008 was $3,201,563, a decrease of $105,633 from $3,307,196 reported for the three months ended September 30, 2007. Total average interest bearing liabilities increased by $57.6 million to $384.4 million for the three months ended September 30, 2008 from $326.8 million for the three months ended September 30, 2007. The average cost of interest bearing liabilities decreased 71 basis points to 3.31% for the three months ended September 30, 2008 from 4.02% for the three months ended September 30, 2007. These decreases were primarily a result of the current period decrease 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 September 30, 2008 was $4,187,690, a decrease of 7.3% from the $4,518,542 reported for September 30, 2007. The net interest margin (on a tax-equivalent basis), which is net interest income divided by average interest-earning assets, decreased 90 basis points to 3.61% for the three months ended September 30, 2008 from 4.51% for the three months ended September 30, 2007. The declining level of market interest rates on the Bank's floating rate assets in the competitive New Jersey marketplace has 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 and impaired 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 $175,000 for the three months ended September 30, 2008 and $30,000 for the three months ended September 30, 2007. See "Allowance for Loan Losses" on page 25.

Non-Interest Income

Total non-interest income for the three months ended September 30, 2008 was $976,211, an increase of $330,505, or 51.2%, over non-interest income of $645,706 for the three months ended September 30, 2007.

Service charges on deposit accounts represent a significant source of non-interest income. Service charge revenues increased by $89,399, or 53.0%, to $257,977 for the three months ended September 30, 2008 from $168,578 for the three months ended September 30, 2007. This increase was the result of a higher volume of uncollected funds and overdraft fees collected on deposit accounts during the third quarter of 2008 compared to the same period in 2007.

Gain on sales of loans increased by $114,592, or 62.4%, to $298,342 for the three months ended September 30, 2008 when compared to $183,750 for the three months ended September 30, 2007. The Bank sells both residential mortgage loans and Small Business Administration ("SBA") loans in the secondary market. The lower interest rate environment that continued into 2008 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 $97,901 for the three months ended September 30, 2008 compared to $95,446 for the three months ended September 30, 2007. The Bank purchased tax-free BOLI assets to partially offset the cost of employee benefit plans and reduce 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 $321,991 for the three months ended September 30, 2008, compared to $197,932 for the three months ended September 30, 2007.

Non-Interest Expense

Non-interest expenses increased by $916,873, or 30.4%, to $3,928,244 for the
three months ended September 30, 2008 from $3,011,371 for the three months ended
September 30, 2007. The following table presents the major components of
non-interest expenses for the three months ended September 30, 2008 and 2007.

                                               Three months ended September 30,
 Non-interest Expenses                           2008                    2007

 Salaries and employee benefits            $       2,177,318       $       1,810,573
 Occupancy expenses                                  459,958                 431,888
 Equipment expense                                   167,544                 109,336
 Marketing                                            63,825                  27,141
 Data processing expenses                            230,618                 213,763
 Regulatory, professional and other fees             323,062                 112,286
 Office expense                                      183,764                 142,749
 All other expenses                                  322,155                 163,635
 Total                                     $       3,928,244       $       3,011,371

Salaries and employee benefits, which represent the largest portion of non-interest expenses, increased by $366,745, or 20.3%, to $2,177,318 for the three months ended September 30, 2008 compared to $1,810,573 for the three months ended September 30, 2007. The increase in salaries and employee benefits for the three months ended September 30, 2008 was a result of an increase in the number of employees, regular merit increases and increased health care costs. Overall staffing levels increased to 112 full-time equivalent employees at September 30, 2008 as compared to 104 full-time equivalent employees at September 30, 2007.

In January 2008, the Bank established a Mortgage Warehouse Funding Group, which introduced a revolving line of credit that is available to licensed mortgage banking companies. This group is based in a newly leased office space in Somerset, NJ and consists of five newly hired staff members. The Bank's action to establish this group and commence operations has contributed to the 2008 third quarter increase in most components of non-interest expenses (in particular, salaries and employee benefits, equipment expense, and all other expenses) when compared with 2007 expenses for the same period.

Marketing expenses increased by $36,684, or 135.2%, to $63,825 for the three months ended September 30, 2008 compared to $27,141 for the three months ended September 30, 2007. The increase in marketing expenses was attributable to marketing campaigns designed to increase low-cost core deposits, further develop our brand image and continue the Bank's support of community activities.

Regulatory, professional and other fees increased by $210,776, or 187.7% to $323,062 for the three months ended September 30, 2008 compared to $112,286 for the three months ended September 30, 2007. During 2008, the Company incurred increased accounting and legal fees as a result of the restatement of the Company's financial statements for the first three quarters and the year ended December 31, 2006 and the first three quarters of the year ended December 31, 2007, as described in Item 8 of the 2007 Form 10-K, which became payable in the three months ended September 30, 2008. The Bank also incurred additional professional fees for the three months ended September 30, 2008 in connection with audits performed by independent consultants in 2008 to assess the effectiveness of controls established over internal systems as required by the Sarbanes-Oxley Act.

All other expenses, which are comprised of a variety of operating expenses and fees as well as expenses associated with lending activities, increased by $158,520, or 96.9% to $322,155 for the three months ended September 30, 2008 compared to $163,635 for the three months ended September 30, 2007. The addition of the Mortgage Warehouse Funding Group in January 2008, as noted above, contributed significantly to the current period increase in this category.

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 Company's efficiency ratio increased to 76.1% for the three months ended September 30, 2008, compared to 58.3% for the three months ended September 30, 2007. The increase in the efficiency ratio is due to the above-noted increases in non-interest expenses and reduced net interest income.

Income Taxes

Income tax expense decreased by $408,903 from $687,147 for the three months ended September 30, 2007 to $278,244 for the three months ended September 30, 2008. This decrease was primarily due to a lower 2008 level of pretax income. The decrease in the effective tax rate of 26.2% for the three months ended September 30, 2008 as compared to 32.3% for the three months ended September 30, 2007 can be attributed to a higher proportion of earnings from tax-exempt assets, such as obligations of states and political subdivisions during the 2008 period.

Nine Months Ended September 30, 2008 Compared to the Nine Months Ended September 30, 2007

Summary

The Company reported net income of $2,302,437 for the nine months ended September 30, 2008, a decrease of $1,877,285, or 44.9%, from the $4,179,722 reported for the nine months ended September 30, 2007. Net income per diluted share was $0.57 for the nine months ended September 30, 2008 compared to $1.04 per diluted share for the nine months ended September 30, 2007.

Key performance ratios declined for the nine months ended September 30, 2008. Return on average assets and return on average equity were 0.64% and 7.36%, respectively, for the nine months ended September 30, 2008 compared to 1.33% and 15.04%, respectively, for the nine months ended September 30, 2007.

Earnings Analysis

Interest Income

For the nine months ended September 30, 2008, total interest income was $21,748,439, representing a decrease of $911,941 or 4.0%, from the total interest income of $22,660,380 for the nine months ended September 30, 2007. 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 yields and costs, on a tax-equivalent basis, for the nine month periods ended September 30, 2008 and 2007.

Average Balance Sheets with Resultant Interest and Rates
(yields and costs on a tax-equivalent basis)          Nine months ended September 30, 2008                   Nine months ended September 30, 2007
                                                   Average                              Average           Average                             Average
                                                   Balance             Interest       Yield/Cost          Balance            Interest        Yield/Cost
Assets:
Federal Funds Sold/Short-Term Investments      $      5,984,401      $    102,571            2.28 %   $     1,896,548      $     73,510             5.18 %
Investment Securities:
  Taxable                                            77,102,296         2,884,520            4.98 %        81,190,767         3,175,138             5.21 %
  Tax-exempt                                         14,724,025           629,592            5.70 %        22,953,730           973,635             5.66 %
  Total                                              91,826,321         3,514,112            5.10 %       104,144,497         4,148,773             5.31 %

Loan Portfolio:
  Construction                                      120,390,986         6,420,158            7.10 %       128,836,323         8,714,805             9.04 %
  Residential Real Estate                            10,396,339           490,967            6.29 %         8,457,815           499,148             7.89 %
  Home Equity                                        15,187,852           734,246            6.44 %        14,023,750           800,678             7.63 %
  Commercial and commercial real estate             125,655,843         6,922,897            7.34 %       115,293,035         6,734,658             7.81 %
  Mortgage warehouse lines                           51,543,319         1,870,119            4.83 %                 -                 -                -
  Installment                                         1,338,486            79,240            7.89 %         1,551,403            98,140             8.46 %
  All Other Loans                                    26,743,585         1,818,322            9.06 %        21,540,462         1,906,441            11.83 %
  Total                                             351,256,410        18,335,949            6.95 %       289,702,788        18,753,870             8.66 %

        Total Interest-Earning Assets               449,067,132        21,952,632            6.51 %       395,743,833        22,976,153             7.76 %

Allowance for Loan Losses                            (3,565,315 )                                          (3,248,097 )
Cash and Due From Bank                               11,661,357                                             9,912,262
Other Assets                                         21,976,659                                            17,362,502
Total Assets                                   $    479,139,833                                       $   419,770,500

Liabilities and Shareholders' Equity:
Interest-Bearing Liabilities:
  Money Market and NOW Accounts                      88,728,412         1,661,505            2.49 %        83,618,465         1,268,455             2.05 %
  Savings Accounts                                   78,154,933         1,465,495            2.50 %        65,739,735         1,512,053             3.12 %
  Certificates of Deposit                           143,165,745         4,468,593            4.16 %       120,391,470         4,357,012             4.84 %
  Other Borrowed Funds                               33,553,650         1,151,511            4.57 %        28,815,385         1,131,093             5.25 %
  Trust Preferred Securities                         18,000,000           799,742            5.92 %        20,051,282         1,101,034             7.34 %
     Total Interest-Bearing Liabilities             361,602,740         9,546,846            3.52 %       316,616,337         9,369,647             3.96 %

             Net Interest Spread                                                             2.99 %                                                 3.80 %

Demand Deposits                                      70,568,752                                            60,993,033
Other Liabilities                                     5,194,861                                             4,994,721
Total Liabilities                                   437,366,353                                           382,604,091
Shareholders' Equity                                 41,773,481                                            37,166,409
Total Liabilities and Shareholders' Equity     $    479,139,834                                       $   419,770,500

              Net Interest Margin                                    $ 12,405,786            3.69 %                        $ 13,606,506             4.60 %

The decrease in interest income for the nine months ended September 30, 2008 resulted from a lower average yields earned on the securities and loan portfolios partially offset by an increase in the loan portfolio average balance. Average loans increased $61.6 million, or 21.2%, to $351.3 million for the nine months ended September 30, 2008 from $289.7 million for the nine months . . .