The purpose of this discussion and analysis of the operating results and financial condition at March 31, 2009 is intended to help readers analyze the accompanying financial statements, notes and other supplemental information contained in this document. Results of operations for the three month period ended March 31, 2009 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, 2008, as filed with the Securities and Exchange Commission (the "SEC") on March 27, 2009.

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. Trust II is not included in the Company's consolidated financial statements as it is a variable interest entity 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.

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 March 27, 2009, 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, modified or ceased to provide certain types of funding to borrowers, including other lending institutions. The availability of credit and confidence in the entire financial sector have been adversely affected and there has been increased volatility in financial markets. These disruptions have had and are likely to continue to have a material impact on 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 March 31, 2009 Compared to the Three Months Ended March 31, 2008

Summary

The Company realized net income of $476,690 for the three months ended March 31, 2009, a decrease of 40.6% from the $802,197 reported for the three months ended March 31, 2008. The decrease is due primarily to increases in non-interest expenses relating to professional fees, FDIC insurance premiums and salaries and employee benefits and to an increase in the loan loss provision for the three months ended March 31, 2009, which resulted from a higher level of non-performing assets as at March 31, 2009 compared to March 31, 2008. Diluted net income per common share was $0.07 for the three months ended March 31, 2009 compared to $0.19 per diluted common share for the three months ended March 31, 2008. All prior year share information has been restated for the effect of a 5% stock dividend declared on December 18, 2008 and paid on February 2, 2009 to shareholders of record on January 20, 2009.

Key performance ratios declined for the three months ended March 31, 2009 due to lower net income for that period compared to the three months ended March 31, 2008. Return on average assets and return on average equity were 0.34% and 3.49% for the three months ended March 31, 2009 compared to 0.72% and 7.75%, respectively, for the three months ended March 31, 2008.

A significant factor impacting the Company's net interest income has been the continued low level of market interest rates on loans and the resulting compression of the Company's net interest margin. The net interest margin for the three months ended March 31, 2009 was 3.30% as compared to the 3.88% net interest margin recorded for the three months ended March 31, 2008, a reduction of 58 basis points. The Federal Reserve has decreased the discount rate by 400 basis points since January 1, 2008, which has resulted in lower market interest rates on loans. 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 federal agency-backed collateralized mortgage obligations and trust preferred securities. The Company does not have any investments in private issuer collateralized mortgage obligations. At March 31, 2009, the Company held collateralized mortgage obligations with an aggregate market value of $6,626,500 in the available for sale portfolio. These securities had an unrealized loss of $97,513. The Company held trust preferred securities in the available for sale portfolio with an aggregate market value of $1,088,030 and an unrealized loss of $1,367,354 at March 31, 2009. The Company also held trust preferred securities in the held to maturity portfolio with a cost of $998,358 and an unrealized loss of $889,719 at March 31, 2009. 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 March 31, 2009. 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

Net Interest Income

Net interest income, the Company's largest and most significant component of operating income, is the difference between interest and fees earned on loans and other earning assets, and interest paid on deposits and borrowed funds. This component represented 83.2% of the Company's net revenues for the three-month period ended March 31, 2009 and 83.6% of net revenues for the three-month period ended March 31, 2008. Net interest income also depends upon the relative amount of interest-earning assets, interest-bearing liabilities, and the interest rate earned or paid on them.

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 yield or rate for the three month periods ended March 31, 2009 and 2008, respectively. The average rates are derived by dividing interest income and expense by the average balance of assets and liabilities, respectively.

Average Balance Sheets with Resultant Interest and Rates

 (yields on a
tax-equivalent basis)               Three months ended March 31, 2009                   Three months ended March 31, 2008
                                 Average                           Average           Average                           Average
                                 Balance          Interest          Rate             Balance          Interest          Rate
 Assets:
 Federal Funds
Sold/Short-Term
Investments                  $     1,689,465     $     8,594            2.06 %   $     4,140,640     $    36,956            3.58 %
 Investment Securities:
Taxable                          107,599,793       1,237,655            4.66 %        75,746,746         975,402            5.17 %
Tax-exempt                        13,185,747         190,262            5.85 %        15,373,203         215,486            5.62 %
Total                            120,785,540       1,427,917            4.79 %        91,119,949       1,190,888            5.24 %

 Loan Portfolio:
Construction                      92,670,610       1,396,767            6.11 %       130,639,223       2,381,892            7.31 %
Residential real estate           11,165,216         175,975            6.39 %        10,110,283         159,309            6.32 %
Home Equity                       15,536,040         225,505            5.89 %        14,627,203         245,339            6.73 %
Commercial and commercial
real estate                      135,866,767       2,328,972            6.95 %       123,704,192       2,320,399            7.52 %
Mortgage warehouse lines         116,887,876       1,332,358            4.62 %        21,520,265         324,612            6.05 %
Installment                          825,581          16,543            8.13 %         1,399,625          28,330            8.12 %
All Other Loans                   29,059,088         563,481            7.86 %        23,301,888         549,219            9.45 %
Total                            402,011,178       6,039,601            6.09 %       325,302,679       6,009,100            7.49 %

Total Interest-Earning
Assets                           524,486,183       7,476,112            5.78 %       420,563,268       7,236,943            6.90 %

 Allowance for Loan Losses        (3,789,419 )                                        (3,405,168 )
 Cash and Due From Bank           29,821,054                                          10,094,025
 Other Assets                     21,043,796                                          20,330,862
Total Assets                 $   571,561,614                                     $   447,582,987

 Interest-Bearing
Liabilities:
Money Market and NOW
Accounts                     $    97,318,705     $   490,133            2.04 %   $    86,359,683     $   504,836            2.34 %
Savings Accounts                 105,534,945         618,651            2.38 %        68,446,977         499,764            2.93 %
Certificates of Deposit          178,417,901       1,476,167            3.36 %       132,123,368       1,533,493            4.66 %
Other Borrowed Funds              34,463,333         363,230            4.27 %        32,736,813         376,027            4.61 %
Trust Preferred Securities        18,557,000         266,235            5.82 %        18,557,000         249,806            5.41 %
Total Interest-Bearing
Liabilities                      434,291,884       3,214,416            3.00 %       338,223,841       3,163,926            3.76 %

Net Interest Spread                                                     2.78 %                                              3.14 %

 Demand Deposits                  76,552,970                                          63,097,231
 Other Liabilities                 5,336,952                                           4,619,947
 Total Liabilities               516,181,806                                         405,941,019
 Shareholders' Equity             55,379,808                                          41,641,968
 Total Liabilities and
Shareholders'
Equity                       $   571,561,614                                     $   447,582,987

Net Interest Margin                              $ 4,261,695            3.30 %                       $ 4,073,017            3.88 %

The Company's net interest income on a tax-equivalent basis increased by $188,678, or 4.6%, to $4,261,695 for the three months ended March 31, 2009 from the $4,073,017 reported for the three months ended March 31, 2008. The increase in net interest income was attributable to increased average balances of earning assets exceeding the increase in average interest bearing liabilities.

Average interest earning assets increased by $103,922,915, or 24.7%, to $524,486,183 for the quarter ended March 31, 2009 from $420,563,268 for the quarter ended March 31, 2008, with an increase of $76,708,499 in average total loans and an increase of $29,665,591 in average total securities in the three months ended March 31, 2009 when compared to the three months ended March 31, 2008.

The average loan portfolio grew by 23.6% for the first quarter of 2009 when compared to the average loan portfolio for the first quarter of 2008. The yield on loans averaged 6.09% for the first quarter of 2009, decreasing 140 basis points compared to the 7.49% yield on loans for the first quarter of 2008. The average securities portfolio increased by 32.6% and the yield on that portfolio decreased by 45 basis points for the quarter ended March 31, 2009 when compared to the quarter ended March 31, 2008. Overall, the yield on interest earning assets decreased 112 basis points to 5.78% for the quarter ended March 31, 2009 when compared to 6.90% for the quarter ended March 31, 2008.

Average interest bearing liabilities increased by $96,068,043, or 28.4%, to $434,291,884 for the quarter ended March 31, 2009 from $338,223,841 for the quarter ended March 31, 2008. Certificates of deposit increased on average by $46,294,533, or 35.0%, for the three months ended March 31, 2009 when compared to the three months ended March 31, 2008. The cost of certificates of deposit decreased 130 basis points to 3.36% for the first quarter of 2009 compared to 4.66% for the first quarter of 2008. Overall, the cost of total interest bearing liabilities decreased 76 basis points to 3.00% for the three months ended March 31, 2009 compared to 3.76% for the three months ended March 31, 2008.

The net interest margin (on a tax-equivalent basis), which is net interest income divided by average interest earning assets, was 3.30% for the first three months of 2009 compared to 3.88% for the first three months of 2008.

Non-Interest Income

Total non-interest income for the three months ended March 31, 2009 was $847,052, an increase of $60,675, or 7.7%, over non-interest income of $786,377 for the three months ended March 31, 2008.

Service charges on deposit accounts represents a significant source of non-interest income. Service charge revenues increased by $52,631, or 28.3%, to $238,519 for the three months ended March 31, 2009 from the $185,888 for the three months ended March 31, 2008. This increase was the result of a higher volume of uncollected funds and overdraft fees collected on deposit accounts during the first quarter of 2009 compared to the first quarter of 2008.

Gain on sales of loans decreased by $37,851, or 12.2%, to $272,193 for the three months ended March 31, 2009 when compared to $310,044 for the three months ended March 31, 2008. The Bank sells both residential mortgage loans and SBA loans in the secondary market. Although the volume of loan sales has increased during the first quarter of 2009 compared to the first quarter of 2008, the margin earned as a result of these sales in the first quarter of 2009 has decreased from that of the first quarter of 2008 due to the lower level of interest rates in the first quarter of 2009. The lower interest rate environment that continued from 2008 into the first quarter of 2009 has significantly decreased the volume of sales transactions in the SBA loan markets and resultant gains resulting from these transactions.

Non-interest income also includes income from bank-owned life insurance ("BOLI"), which amounted to $91,022 for the three months ended March 31, 2009 compared to $91,827 for the three months ended March 31, 2008. 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 $245,318 for the three months ended March 31, 2009, compared to $198,618 for the three months ended March 31, 2008.

Non-Interest Expense

Non-interest expenses increased by $606,263, or 17.8%, to $4,020,613 for the
three months ended March 31, 2009 from $3,414,350 for the three months ended
March 31, 2008. The following table presents the major components of
non-interest expenses for the three months ended March 31, 2009 and 2008.

     Non-interest Expenses
                                                 Three months ended March 31,
                                                    2009                2008
     Salaries and employee benefits            $     2,227,329       $ 1,978,061
     Occupancy expenses                                452,665           432,015
     Equipment expense                                 155,079           137,791
     Marketing                                          39,441            66,329
     Data processing services                          259,683           211,781
     Regulatory, professional and other fees           379,815           171,718
     Office expense                                    128,037           141,171
     All other expenses                                378,564           275,484
                                               $     4,020,613       $ 3,414,350

Salaries and employee benefits, which represent the largest portion of non-interest expenses, increased by $249,268, or 12.6%, to $2,227,329 for the three months ended March 31, 2009 compared to $1,978,061 for the three months ended March 31, 2008. The increase in salaries and employee benefits for the three months ended March 31, 2009 was a result of an increase in the number of employees, regular merit increases and increased health care costs. Staffing levels overall increased to 113 full-time equivalent employees at March 31, 2009 as compared to 105 full-time equivalent employees at March 31, 2008.

Regulatory, professional and other fees increased by $208,097, or 121.2%, to $379,815 for the three months ended March 31, 2009 compared to $171,718 for the three months ended March 31, 2008. During the first quarter of 2009, the Company incurred additional legal fees primarily in connection with the recovery of non-performing asset balances. The Bank incurred additional fees in connection with examinations performed by independent consultants during the first quarter of 2009 to assess the effectiveness of internal controls as required by the Sarbanes-Oxley Act. In addition, the cost of FDIC deposit insurance has increased from $25,026 for the three months ended March 31, 2008 to $99,758 for the three months ended March 31, 2009.

Data processing services increased by $47,902, or 22.6%, to $259,683 for the three months ended March 31, 2009 compared to $211,781 for the three months ended March 31, 2008. The increase in expense was primarily attributable to increased costs in enhancing the Bank's data security systems.

All other expenses increased by $103,080, or 37.4%, to $378,564 for the three months ended March 31, 2009 compared to $275,484 for the three months ended March 31, 2008. The primary cause for the current year increase was due to the costs incurred to maintain the Bank's other real estate owned properties. Other Real Estate owned expenses increased by $51,952 to $55,368 to for the three months ended March 31, 2009 compared to $3,416 for the three months ended March 31, 2008. All other expenses are comprised of a variety of operating expenses and fees as well as expenses associated with lending activities.

An important financial services industry productivity measure is the efficiency ratio. The efficiency ratio is calculated by dividing total operating expenses by net interest income plus non-interest income. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same or greater volume of income, while a decrease would indicate a more efficient allocation of resources. The Company's efficiency ratio increased to 79.7% for the three months ended March 31, 2009, compared to 71.3% for the three months ended March 31, 2008. 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 $321,222 to $86,738 for the three months ended March 31, 2009 from $407,960 for the three months ended March 31, 2008. The decrease was primarily due to a lower 2009 level of pretax income. The decrease in the effective tax rate of 15.4% for the three months ended March 31, 2009 as compared to 33.7% for the three months ended March 31, 2008 can be attributed to a higher proportion of earnings from tax-exempt assets, such as bank-owned life insurance and obligations of states and political subdivisions during the 2009 period compared to the 2008 period.

Financial Condition

March 31, 2009 Compared with December 31, 2008

Total consolidated assets at March 31, 2009 were $586,943,854, representing an increase of $40,657,325, or 7.44%, from $546,286,529 at December 31, 2008. The asset growth was focused in our loan portfolio, which increased by $32,263,567. The primary funding for asset growth came from deposits, which increased by $59,962,694.

Cash and Cash Equivalents

Cash and cash equivalents at March 31, 2009 totaled $25,754,522 compared to $14,333,119 at December 31, 2008. Cash and cash equivalents at March 31, 2009 consisted of cash and due from banks of $25,743,339 and Federal funds sold/short term investments of $11,363. The corresponding balances at December 31, 2008 were $14,321,777 and $11,342, respectively. The increase was due primarily to timing of cash flows related to the Bank's business activities.

Investment Securities

Investment securities represented 20.3% of total assets at March 31, 2009 and 23.8% at December 31, 2008. Total investment securities decreased $10,778,788, or 8.3%, to $119,248,812 at March 31, 2009 from $130,027,600 at December 31, 2008. Due to the continued low level of market interest rates during the first three months of 2009, combined with strong loan and deposit growth, funds were used primarily to fund loan portfolio growth and secondarily to purchase investment securities at a reduced net interest spread.

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 and mortgage-backed securities, with smaller amounts of municipal obligations, corporate debt and restricted stock. Activity in this portfolio is undertaken primarily to manage liquidity and interest rate risk and to take advantage of market conditions that create more economically attractive returns. At March 31, 2009, securities available for sale totaled $82,117,870, which is a decrease of $11,359,153 or 12.2%, from securities available for sale totaling $93,477,023 at December 31, 2008.

At March 31, 2009, the securities available for sale portfolio had net unrealized gains of $1,244,738, compared to net unrealized gains of $926,166 at December 31, 2008. These unrealized gains are reflected net of tax in shareholders' equity as a component of Accumulated other comprehensive loss.

Securities held to maturity, which are carried at amortized historical cost, are investments for which there is the positive intent and ability to hold to maturity. The held to maturity portfolio consists primarily of U.S. Government . . .