The purpose of this discussion and analysis of the operating results and financial condition at June 30, 2012 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 and six month periods ended June 30, 2012 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, 2011, as filed with the Securities and Exchange Commission (the "SEC") on March 23, 2012.

General

Throughout the following sections, the "Company" refers to 1st Constitution Bancorp and, as the context requires, its wholly-owned subsidiary, 1st Constitution Bank (the "Bank") and the Bank's wholly-owned subsidiaries, 1st Constitution Investment Company of New Jersey, Inc., FCB Assets Holdings, Inc., 1st Constitution Title Agency, 204 South Newman Street Corp. and 249 New York Avenue, LLC. 1st Constitution Capital Trust II, ("Trust II"), a subsidiary of the Company, 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 fourteen branches, and manages an investment portfolio through its subsidiary, 1st Constitution Investment Company of New Jersey, Inc. FCB Assets Holdings, Inc., a subsidiary of the Bank, is used by the Bank to manage and dispose of repossessed real estate.

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

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 23, 2011, 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.

Acquisition of Three Branches in 2011

On March 25, 2011, the Bank acquired certain deposit and other liabilities, real estate and related assets of the Rocky Hill, Hillsborough and Hopewell, New Jersey branch banking offices from another financial institution for a purchase price of $9.85 million (the "March 2011 Acquisition"). The March 2011 Acquisition was completed pursuant to the terms and conditions of the Branch Purchase and Assumption Agreement and Agreement for Purchase dated as of December 30, 2010, which was previously disclosed on a Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on January 3, 2011.

As a result of the March 2011 Acquisition, the three branches became branches of the Bank. Included in the March 2011 Acquisition were the assumption of deposit liabilities of $111.9 million, primarily consisting of demand deposits, and the acquisition of cash of approximately $101.5 million, fixed assets of approximately $4.6 million, which includes, without limitation, ownership of the real estate and improvements upon which the branches are situated, and loans of $862,000. The Bank recorded goodwill of approximately $3.2 million and a core deposit intangible asset of approximately $1.7 million as a result of the March 2011 Acquisition.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2012 Compared to the Three Months Ended June 30, 2011

Summary

The Company realized net income of $1,298,108 for the three months ended June 30, 2012, an increase of $469,192, or 56.6%, from the $828,916 reported for the three months ended June 30, 2011. The increase was due primarily to increases in net interest income and non-interest income which, in total, offset increases in the provision for loan losses and non-interest expenses. Net income per diluted common share was $0.25 for the three months ended June 30, 2012 compared to net income per diluted common share of $0.16 for the three months ended June 30, 2011. All prior year share information has been adjusted for the effect of a 5% stock dividend declared on December 15, 2011 and paid on February 2, 2012 to shareholders of record on January 17, 2012.

Key performance ratios improved for the three months ended June 30, 2012 due to higher net income for that period compared to the three months ended June 30, 2011. Return on average assets and return on average equity were 0.68% and 9.18% for the three months ended June 30, 2012 compared to 0.45% and 6.55%, respectively, for the three months ended June 30, 2011.

The Bank's results of operations depend primarily on net interest income, which is primarily affected by the market interest rate environment, the shape of the U.S. Treasury yield curve, and the difference between the yield on interest-earning assets and the rate paid on interest-bearing liabilities. Other factors that may affect the Bank's operating results are general and local economic and competitive conditions, government policies and actions of regulatory authorities. The net interest margin on a tax-equivalent basis for the three months ended June 30, 2012 was 3.87% as compared to the 3.25% net interest margin recorded for the three months ended June 30, 2011, an increase of 62 basis points. 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.

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 84.8% of the Company's net revenues for the three month period ended June 30, 2012 and 82.1% of net revenues for the three month period ended June 30, 2011. Net interest income also depends upon the relative amount of average interest-earning assets, average interest-bearing liabilities, and the interest rate earned or paid on them, respectively.

The Company's net interest income increased by $1,413,883, or 27.1 %, to $6,627,922 for the three months ended June 30, 2011 from the $5,214,039 reported for the three months ended June 30, 2011. The increase in net interest income was primarily attributable to lower rates paid on interest-bearing liabilities during the current period. The average rate paid on interest-bearing liabilities for the three months ended June 30, 2012 was 0.89%, a reduction of 43 basis points compared to 1.32% paid for the three months ended June 30, 2011. The portfolio yield increased despite declining market rates due to a shift in average assets away from securities into loans which typically have higher yields than securities.

Average interest earning assets increased by $43,581,005, or 6.6%, to $707,149,181 for the three month period ended June 30, 2012 from $663,568,176 for the three month period ended June 30, 2011. The overall yield on interest earning assets, on a tax-equivalent basis, increased 22 basis points to 4.60% for the three month period ended June 30, 2012 when compared to 4.38% for the three month period ended June 30, 2011. The portfolio yield increased despite declining market rates due to a shift in average assets away from securities and into loans.

Average interest bearing liabilities increased by $10,681,057, or 1.9%, to $577,646,246 for the three month period ended June 30, 2012 from $566,965,189 for the three month period ended June 30, 2011. Overall, the cost of total interest bearing liabilities decreased 43 basis points to 0.89% for the three months ended June 30, 2012 compared to 1.32% for the three months ended June 30, 2011.

The net interest margin (on a tax-equivalent basis), which is net interest income divided by average interest earning assets, was 3.87% for the three months ended June 30, 2012 compared to 3.25% the three months ended June 30, 2011.

Provision for Loan Losses

Management considers a complete review of the following specific factors in determining the provisions for loan losses: historical losses by loan category, non-accrual loans, and problem loans as identified through internal classifications, collateral values, and the growth and size of the loan portfolio. In addition to these factors, management takes into consideration current economic conditions and local real estate market conditions. Using this evaluation process, the Company's provision for loan losses was $549,998 for the three months ended June 30, 2012 compared to $275,000 for the three months ended June 30, 2011. The increased provision for 2012 was primarily the result of increased general allowances on construction loans and commercial real estate loans.

Non-Interest Income

Total non-interest income for the three months ended June 30, 2012 was $1,187,966, an increase of $47,654, or 4.2%, over non-interest income of $1,140,312 for the three months ended June 30, 2011.

Service charges on deposit accounts represent a consistent source of non-interest income. Service charge revenues decreased to $231,256 for the three months ended June 30, 2012 from $234,898 for the three months ended June 30, 2011.

Gain on sales of loans held for sale increased by $83,504, or 20.3%, to $495,147 for the three months ended June 30, 2012 compared to $411,643 for the three months ended June 30, 2011. The Bank sells both residential mortgage loans and Small Business Administration loans in the secondary market. The volume of mortgage loan sales increased significantly for the three months ended June 30, 2012 compared to the three months ended June 30, 2011.

Non-interest income also includes income from bank-owned life insurance ("BOLI"), which amounted to $113,176 for the three months ended June 30, 2012 compared to $103,522 for the three months ended June 30, 2011, an increase of $9,654 for the second quarter of 2012 as compared to the second quarter of 2011. 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. Decreased customer demand for these services contributed $348,387 to the other income component of non-interest income for the three months ended June 30, 2012 compared to $390,249 for the three months ended June 30, 2011, a decrease of $41,862 for the second quarter of 2012 as compared to the second quarter of 2011.

Non-Interest Expense

Non-interest expenses increased by $218,189, or 4.2%, to $5,373,974 for the
three months ended June 30, 2012 from $5,155,785 for the three months ended June
30, 2011. The current period increase in other real estate owned expenses was
the primary cause for this current period increase in total non-interest expense
when compared with the prior period's non-interest expense. The following table
presents the major components of non-interest expenses for the three months
ended June 30, 2012 and 2011.

      Non-interest Expenses
                                                  Three months ended June 30,
                                                     2012               2011

      Salaries and employee benefits            $     3,154,903      $ 2,843,948
      Occupancy expenses                                613,534          580,969
      Data processing services                          252,545          313,776
      Marketing                                          53,789           52,021
      Regulatory, professional and other fees           232,028          286,084
      FDIC insurance expense                            139,873          246,458
      Other real estate owned expenses                  418,563           72,971
      Amortization of intangible assets                  66,991           66,992
      All other expenses                                418,748          692,566
                                                $     5,373,974      $ 5,155,785

Salaries and employee benefits, which represent the largest portion of non-interest expenses, increased by $310,955, or 10.9%, to $3,154,903 for the three months ended June 30, 2012 compared to $2,843,948 for the three months ended June 30, 2011. The increase in salaries and employee benefits for the three months ended June 30, 2012 was a result of regular merit increases and increased health care costs.

Occupancy expenses increased by $32,565, or 5.6%, to $613,534 for the three months ended June 30, 2012 compared to $580,969 for the three months ended June 30, 2011. The increase in occupancy expenses was primarily attributable to increased depreciation, property taxes and maintenance costs in maintaining the Bank's branch properties.

The cost of data processing services has decreased to $252,545 for the three months ended June 30, 2012 from $313,776 for the three months ended June 30, 2011, as Bank management reviewed all data processing systems during the second quarter of 2012, streamlined operating efficiencies and purged non-essential elements, resulting in lower monthly costs.

Regulatory, professional and other fees decreased by $54,056, or 18.9%, to $232,028 for the three months ended June 30, 2012 compared to $286,084 for the three months ended June 30, 2011. During the second quarter of 2011, the Company incurred non-recurring professional fees in connection with the March 2011 Acquisition, which was completed on March 25, 2011.

Other real estate owned expenses increased by $368,592 to $441,563 for the three months ended June 30, 2012 compared to $72,971 for the three months ended June 30, 2011 as the Company incurred increased loss provisions, property taxes, and maintenance expenses on more properties during the second quarter of 2012 compared to the second quarter of 2011.

FDIC insurance expense decreased to $139,873 for the three months ended June 30, 2012 compared to $246,458 for the three months ended June 30, 2011 as a result of the changes required by the Dodd-Frank Act with respect to FDIC premium assessment rules.

All other expenses decreased to $418,748 for the three months ended June 30, 2012 from $692,566 for the three months ended June 30, 2011 primarily due to decreases in the Bank's office and supplies expenses. During the second quarter of 2012, fewer maintenance agreements on equipment were renewed as compared with the same period in the prior year. In addition, the Bank contracted with a new vendor for office supplies during the second quarter of 2012 that has resulted in reduced costs as compared with the same period in 2011.

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 decreased to 68.8% for the three months ended June 30, 2012 compared to 81.1% for the three months ended June 30, 2011.

Income Taxes

Income tax expense increased by $499,158 to $593,808 for the three months ended June 30, 2012 from $94,650 for the three months ended June 30, 2011. The increase was primarily due to a higher level of pretax income for the second quarter of 2012 as compared to the second quarter of 2011.

Six Months Ended June 30, 2012 Compared to the Six Months Ended June 30, 2011

Summary

The Company realized net income of $2,464,840 for the six months ended June 30, 2012, an increase of 52.3% from the $1,618,784 reported for the six months ended June 30, 2011. The increase was due primarily to increases in net interest income and non-interest income which, in total, offset increases in the provision for loan losses and non-interest expenses for the six months ended June 30, 2012 compared to the same period in 2011.

Diluted net income per common share was $0.48 for the six months ended June 30, 2012 compared to diluted net income per common share of $0.32 for the six months ended June 30, 2011. All prior year share information has been adjusted for the effect of a 5% stock dividend declared on December 15, 2011, and paid on February 2, 2012 to shareholders of record on January 17, 2012.

Key performance ratios improved for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 due to higher net income for the 2012 period. Return on average assets and return on average equity were 0.65% and 8.81% for the six months ended June 30, 2012 compared to 0.47% and 6.52%, respectively, for the six months ended June 30, 2011.

The Bank's results of operations depend primarily on net interest income, which is primarily affected by the market interest rate environment, the shape of the U.S. Treasury yield curve, and the difference between the yield on interest-earning assets and the rate paid on interest-bearing liabilities. Other factors that may affect the Bank's operating results are general and local economic and competitive conditions, government policies and actions of regulatory authorities. The net interest margin for the six months ended June 30, 2012 was 3.92% as compared to the 3.38% net interest margin recorded for the six months ended June 30, 2011, an increase of 54 basis points. 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.

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 84.9% of the Company's net revenues for the six month period ended June 30, 2012 and 82.7% of net revenues for the six month period ended June 30, 2011. 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, respectively.

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 six month periods ended June 30, 2012 and 2011, 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)                Six months ended June 30, 2012                  Six months ended June 30, 2011
                                               Average                         Average         Average                         Average
                                               Balance          Interest         Rate          Balance          Interest         Rate
Assets:
Federal Funds Sold/Short-Term Investments   $  36,860,458     $     48,340        0.26%     $  53,784,770     $     72,110        0.27%
Investment Securities:
Taxable                                       171,349,167        2,327,759        2.72%       208,521,295        2,788,077        2.70%
Tax-exempt                                     51,276,230        1,230,374        4.81%        37,213,024          942,463        5.04%
Total                                         222,625,397        3,558,133        3.21%       245,734,319        3,730,540        3.06%

Loan Portfolio:
Construction                                   54,948,513        1,855,335        6.77%        64,630,882        1,994,670        6.22%
Residential real estate                        12,303,773          316,592        5.16%        10,512,306          322,570        6.19%
Home Equity                                    10,779,569          303,956        5.65%        12,380,687          353,045        5.75%
Commercial and commercial real estate         144,033,903        5,287,559        7.36%       131,980,885        5,047,386        7.71%
Mortgage warehouse lines                      184,622,769        4,396,188        4.78%        95,073,344        2,348,262        4.98%
Installment                                       378,818           12,629        6.69%           429,371           14,948        7.02%
All Other Loans                                32,259,311          561,304        3.49%        23,078,861          440,765        3.85%
Total                                         439,326,656       12,733,563        5.81%       338,086,336       10,521,646        6.28%

      Total Interest-Earning Assets           698,812,511       16,340,036        4.69%       637,605,425       14,324,296        4.53%

Allowance for Loan Losses                     (5,955,926)                                     (6,007,813)
Cash and Due From Bank                         12,726,136                                      23,608,726
Other Assets                                   52,881,065                                      39,973,930
Total Assets                                $ 758,463,786                                   $ 695,180,268

Liabilities and Shareholders' Equity:
Interest-Bearing Liabilities:
Money Market and NOW Accounts               $ 204,902,097     $    542,887        0.53%     $ 164,207,897     $    853,425        1.05%
Savings Accounts                              191,355,779          620,354        0.65%       179,218,559          747,154        0.84%
Certificates of Deposit                       147,499,965        1,101,598        1.50%       157,516,362        1,327,825        1.70%
Other Borrowed Funds                           16,220,330          221,561        2.74%        11,396,740          210,632        3.56%
Trust Preferred Securities                     18,557,000          195,892        2.12%        18,557,000          501,434        5.37%
   Total Interest-Bearing Liabilities         578,535,171        2,682,292        0.93%       531,436,558        3,640,470        1.38%

           Net Interest Spread                                                    3.76%                                           3.15%

Demand Deposits                               115,201,429                                     103,997,443
Other Liabilities                               8,634,205                                       9,677,753
Total Liabilities                             702,370,805                                     645,111,754
Shareholders' Equity                           56,092,981                                      50,068,514
Total Liabilities and Shareholders'
Equity                                      $ 758,463,786                                   $ 695,180,268

           Net Interest Margin                                $ 13,657,744        3.92%                       $ 10,683,826        3.38%

The Company's net interest income increased by $2,880,317, or 27.8%, to $13,258,481 for the six months ended June 30, 2012 from the $10,378,164 reported for the six months ended June 30, 2011. The increase in net interest income was attributable to an increased loan portfolio volume combined with lower rates paid on interest-bearing liabilities, which was more than sufficient to offset the reduced volume of the investment portfolio.

Average interest earning assets increased by $61,207,086, or 9.6%, to $698,812,511 for the six month period ended June 30, 2012 from $637,605,425 for the six month period ended June 30, 2011. The average investment securities portfolio decreased by $23,108,922, or 9.4%, to $222,625,397 for the six month . . .