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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2004

or

For the transition period from                      to                     

Commission file Number: 000-32891

1ST CONSTITUTION BANCORP

(Exact Name of Registrant as Specified in Its Charter)

(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 ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No x

As of May 11, 2004, there were 1,562,328 shares of the registrant’s common stock, no par value, outstanding.

1ST CONSTITUTION BANCORP

FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION

1st Constitution Bancorp and Subsidiaries

Consolidated Balance Sheets

(unaudited)

See accompanying notes to consolidated financial statements.

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1^st Constitution Bancorp and Subsidiaries

Consolidated Statements of Income

(unaudited)

See accompanying notes to consolidated financial statements.

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1st Constitution Bancorp and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

See accompanying notes to consolidated financial statements.

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1st Constitution Bancorp and Subsidiaries

Notes To Consolidated Financial Statements

March 31, 2004 (Unaudited)

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, 2003, filed with the SEC on March 25, 2004.

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.

Certain reclassifications have been made to the prior years’ financial statements to conform with the classifications used in 2004.

Net Income Per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of shares outstanding during each period.

Diluted net income per common share is computed 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 and per share amounts have been restated for the effect of a 5% stock dividend declared on December 18, 2003 and paid on January 31, 2004 to shareholders of record on January 15, 2004.

The following tables illustrate the required disclosure of the reconciliation of the numerators and denominators of the basic and diluted earnings per share (EPS) computations,

All options have been included in the computation of diluted earnings per share.

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All options have been included in the computation of diluted earnings per share.

Stock-Based Compensation

Stock-based compensation is accounted for under the intrinsic value based method as prescribed by Accounting Principals Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Included below are the pro forma disclosures required by SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transaction and Disclosure” which assumes the fair value based method of accounting had been adopted.

On March 31, 2004, the FASB issued a proposed Statement, Share-Based Payment, that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The proposed Statement would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25, Accounting for Stock Issued to Employees, and generally would require instead that such transactions be accounted for using a fair-value-based method. The Company is currently evaluating this proposed statement.

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Trust Preferred Securities

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation 46 (“FIN 46”), “Consolidation of Variable Interest Entities”. FIN 46 clarifies the application of Accounting Research Bulletin 51, Consolidated Financial Statements, to certain entities in which voting rights are not effective in identifying the investor with the controlling financial interest. An entity is subject to consolidation under FIN 46 if the investors either do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support, are unable to direct the entity’s activities, or are not exposed to the entity’s losses or entitled to its residual returns (“variable interest entities”). Variable interest entities within the scope of FIN 46 would be required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected returns, or both.

Management has determined that 1^st Constitution Capital Trust I (the “Trust”) qualifies as a variable interest entity under FIN 46. The Trust issued mandatorily redeemable preferred stock to investors and loaned the proceeds to the Company. The Trust holds, as its sole asset, subordinated debentures issued by the Company in 2002. Prior to December 31, 2003, the Trust was included in the Company’s consolidated balance sheet and statements of income. Subsequent to the issuance of FIN 46, the FASB issued a revised interpretation, FIN 46(R), the provisions of which must be applied to certain variable interest entities by March 31, 2004. The Company adopted the provisions under FIN 46 and accordingly deconsolidated the Trust as of December 31, 2003. The banking regulatory agencies have not issued any guidance that would change the regulatory capital treatment for the trust-preferred securities issued by the Trust. However, as additional interpretations from the banking regulators related to entities such as the Trust become available, management will reevaluate its potential impact to its Tier I capital calculation under such interpretations. As of March 31, 2004 and December 31, 2003, assuming the Company was not allowed to include the $5.2 million in subordinated debentures issued by the Trust in Tier 1 capital, the Company would have Tier 1 capital ratios of 11.94% and 11.58% and leverage ratios of 8.34% and 8.03%, respectively, each on a pro forma basis.

The following discussion of the operating results and financial condition at March 31, 2004 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, 2004 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, 2003, as filed with the Securities and Exchange Commission on March 25, 2004.

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General

Throughout the following sections, the “Company” refers to 1^st Constitution Bancorp and its wholly owned subsidiaries, 1^st Constitution Bank and 1^st Constitution Capital Trust I, the “Bank” refers to 1^st Constitution Bank, and the “Trust” refers to 1^st Constitution Capital Trust I. The purpose of this discussion and analysis is to assist in the understanding and evaluation of the Company’s financial condition, changes in financial condition, and results of operations.

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 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 investment in the Bank, the Company currently conducts no other significant business activities.

The Bank operates seven branches, and has two subsidiaries, 1^st Constitution Investment Company of Delaware, Inc., which manages an investment portfolio, and FCB Assets Holdings, Inc., which is used by the Bank to manage and dispose of repossessed real estate.

The Trust, a subsidiary of the Company, was created 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 The Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about our confidence and strategies and our expectations about new and existing programs and products, relationships, opportunities, technology and market conditions. These statements may be identified by such forward-looking terminology as “expect,” “believe,” “anticipate,” or by expressions of confidence such as “continuing” or “strong” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties. These include, but are not limited to, expected cost savings not being realized or not being realized within the expected time frame; income or revenues being lower than expected or operating costs higher; competitive pressures in the banking or financial services industries increasing significantly; business disruption related to program implementation or methodologies; weakening of general economic conditions nationally or in New Jersey; changes in legal and regulatory barriers and structures; and unanticipated occurrences delaying planned programs or initiatives or increasing their costs or decreasing their benefits, as well as other risks and uncertainties detailed from time to time in filings of the Company with the U.S. Securities and Exchange Commission. Actual results may differ materially from such forward-looking statements. These forward-looking statements speak only as of the date of this document.

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RESULTS OF OPERATIONS

Summary

The Company realized net income of $875,807 for the three months ended March 31, 2004, an increase of 20.8% over the $724,869 for the same period in 2003. Net income per diluted share was $0.53 for the three months ended March 31, 2004 compared to $0.45 per diluted share for the prior year.

Earnings Analysis

Interest Income

For the first three months of 2004, interest income was $3,988,322, an increase of $461,394, or 13.1%, compared to interest income of $3,526,928 for the same period in 2003. The following table sets forth the Company’s consolidated average balances of assets, liabilities and shareholders’ equity as well as interest income and expense on related items, and the Company’s average rates for the three month periods ended March 31, 2004 and 2003, respectively.

Average Balance Sheets with Resultant Interest and Rates

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The current year increase in interest income on a tax-equivalent basis resulted from higher average balances in the securities and loan portfolios which were partially offset by a lower average yield earned on the loan portfolio. Average loans increased $19,028,507, or 11.9% to $178,958,998 while the yield on the portfolio decreased 7 basis points to 6.91% from 6.98%. The lower loan yield reflected the lower interest rate environment that existed throughout 2003 and continued into the first quarter of 2004.

Average securities increased $8,781,425, or 10.4%, to $93,440,106 for the quarter ended March 31, 2004 from $84,658,681 for the quarter ended March 31, 2003 while the yield on the securities portfolio increased 23 basis points to 4.01% for the quarter ended March 31, 2004 from 3.78% for the quarter ended March 31, 2003.

Overall, the yield on the Company’s total interest-earning assets increased 2 basis points to 5.88% for the three months ended March 31, 2004 from the 5.86% for three months ended March 31, 2003.

Interest Expense

Total interest expense decreased by $107,363, or 9.4%, to $1,033,234 for the three months ended March 31, 2004 from $1,140,597 for the three months ended March 31, 2003. The decrease in interest expense for the current period resulted primarily from the impact of higher levels of interest-bearing liabilities priced at a significantly lower market interest rate level. The average rate paid on interest bearing liabilities for the three months ended March 31, 2004 decreased 43 basis points to 1.90% from 2.33% for the three months ended March 31, 2003.

Net Interest Income

The Company’s net interest income for the three month period ended March 31, 2004 was $2,955,088, an increase of 23.8% from $2,386,331 for the three months ended March 31, 2003. For the first three months of 2004, interest income increased by $461,394 compared to the first three months of 2003, while interest expense decreased by $107,363 compared to the first three months of 2003. The increase in the loan and securities portfolios average balances during the first three months of 2004, compared to the first three months of 2003 contributed to the current period increase in net interest income despite the lower yield on the loan portfolio in the three months ended March 31, 2004 compared to the three months ended March 31, 2003.

The net interest margin (on a tax-equivalent basis), which is net interest income divided by average interest-earning assets, was 4.37% for the first three months of 2004 compared to 3.98% for the first three months of 2003. The principal factor causing the increase in the net interest margin was the decrease in net investment portfolio amortization for the three months ended March 31, 2004 versus the three months ended March 31, 2003. Net amortization for the three

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months ended March 31, 2004 was $118,919 versus $336,689 for the three months ended March 31, 2003.

Provision for Loan Losses

For the three months ended March 31, 2004 and March 31, 2003, the provision for loan losses was $60,000. The amount of the loan loss provisions and the level of the allowance for loan losses are critical accounting polices of the Company and are based upon a number of factors including management’s evaluation of potential losses in the portfolio after consideration of appraised collateral values, financial conditions and past credit history of the borrowers as well as prevailing economic conditions.

Non-Interest Income

Total non-interest income for the three months ended March 31, 2004 was $511,959, a decrease of 4.4% over non-interest income of $535,368 for the three months ended March 31, 2003. The decrease was due to decreases in service charges on deposit accounts, gains on sales of loans held for sale, income on Bank-owned life insurance and an increase in other non-interest income.

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 three months ended March 31, 2004 was $262,436 compared to $265,707 for the three months ended March 31, 2003. The volatile interest rate environment that existed in the first three months of 2004 lowered the current period volume of mortgage loan originations and subsequent secondary market mortgage loan sales.

Service charges on deposit accounts amounted to $126,632 for the three months ended March 31, 2004 compared to $145,642 for the three months ended March 31, 2003. Service charge income decreased in the first three months of 2004 principally due to decreases in income from overdraft fees and wire transfer service fees.

The other income component of non-interest income amounted to $63,641 for the three months ended March 31, 2004 compared to $54,314 for the three months ended March 31, 2003. Income from Bank Owned Life Insurance (“BOLI”) amounted to $59,250 for the three months ended March 31, 2004 compared to $69,705 for the three months ended March 31, 2003. In April 2001, the Company purchased $6.0 million in tax-free BOLI assets which partially offset the cost of employee benefit plans and reduced the overall effective tax rate.

The Company also generates non-interest income from a variety of other fee-based services. Deposit and service fee charges are received and adjusted as needed from time to time by management to reflect current costs incurred by the Bank to the offer the products or services amid the Company’s competitive market.

Non-Interest Expense

Total non-interest expense for the three months ended March 31, 2004 was $2,119,912, an increase of $376,778, or 21.6% compared to non-interest expense of $1,743,134 for the three months ended March 31, 2003.

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In January 2004, the Company entered into a two year lease for a new Loan Production Office in Fort Lee, New Jersey. The lease provides for the rental of 1,567 square feet with an aggregate monthly rental of $2,873 in the first year and $2,938 in the second year. The staffing and operations of this Loan Production Office have resulted in increases in each of non-interest expense categories for the three months ended March 31, 2004 compared to the three months ended March 31, 2003.

The following table presents the major components of non-interest expense for the three months ended March 31, 2004 and 2003.

Non-interest Expenses

Salaries and employee benefits increased 24.5% to $1,193,865 for the three months ended March 31, 2004 from $958,825 for the three months ended March 31, 2003. This increase reflects the increase in staffing levels to manage the continuing growth of the Company.

The Company’s ratio of non-interest expense to average assets increased to 2.94% for the three months ended March 31, 2004 compared to 2.90% for the three months ended March 31, 2003. The Company’s efficiency ratio increased to 61.1% for the first three months of 2004 compared to a ratio of 59.7% for the first three months of 2003.

Financial Condition

March 31, 2004 Compared with December 31, 2003

Total consolidated assets at March 31, 2004 totaled $294,849,281, increasing from $293,483,174 at December 31, 2003.

Cash and Cash Equivalents

Cash and Cash Equivalents at March 31, 2004 totaled $10,781,425 compared to $14,702,886 at December 31, 2003. Cash and cash equivalents at March 31, 2004 consisted of cash and due from banks of $7,560,178 and Federal funds sold/short term investments of $3,221,247. The corresponding balances at December 31, 2003 were $6,987,850 and $7,715,036, respectively.

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Investment Securities

Investment Securities represented 33.3% of total assets at March 31, 2004 and 31.1% at December 31, 2003. Total securities increased $6,920,995, or 7.6%, at March 31, 2004 to $98,112,165 from $91,191,170 at December 31, 2003.

Investment Securities available for sale totaled $92,051,823 at March 31, 2004, an increase of $7,051,850, or 8.3%, from December 31, 2003. During the first three months of 2004, $14,236,640 of securities available for sale were purchased (predominantly U.S. government agency securities) and funded by calls and maturities of securities held to maturity, securities available for sale and short-term investments.

Investment Securities held to maturity totaled $6,060,342 at March 31,2004, a decrease of $130,855, or 2.1%, from December 31, 2003.

Loans

The loan portfolio, which represents the Company’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 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 March 31, 2004 and December 31, 2003.

Loan Portfolio Composition

The loan portfolio increased $5,602,424, or 3.4%, at March 31, 2004 to $169,552,730 from $163,950,306 at December 31, 2003. 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. Strong competition from both bank and non-bank competitors could result in comparatively lower yields on new and established lending relationships. 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.

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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 Company’s policy with regard to non-accrual loans varies by the type of loan involved. Generally, commercial 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 90 days past due. Residential mortgage loans are not generally placed on a non-accrual status unless the value of the real estate has deteriorated to the point that a potential loss of principal or interest exists. Subsequent payments are credited to income only if collection of principal is not in doubt.

Nonaccrual loans amounted to $330,194 at March 31, 2004, compared to $330,783 at December 31, 2003. As the table demonstrates, despite the amount of non-performing assets at March 31, 2003, loan quality and ratios remain strong. This was accomplished through quality loan underwriting, a proactive approach to loan monitoring and aggressive workout strategies.

Non-Performing Assets and Loans

The Company had no restructured loans at March 31, 2004 and December 31, 2003. Impaired loans totaled $330,194 at March 31, 2004 and $330,783 at December 31, 2003.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level sufficient 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.

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Management utilizes a systematic and documented allowance adequacy methodology for loan losses that requires specific allowance assessment for all loans, including real estate mortgages and consumer loans. This methodology assigns reserves based upon credit risk ratings for all loans. The reserves are based upon various factors, including historical performance, and the current economic environment. Management continually reviews the process used to determine the adequacy of the allowance for loan losses. Allocations to the allowance for loan losses, both specific and general, are determined after this review. Loans are classified based on internal reviews and evaluations performed by the lending staff. These evaluations are, in turn, examined by the Company’s internal loan review specialist. A formal loan review function, independent of loan origination, is used to identify and monitor risk classifications.

The allowance for loan losses amounted to $1,846,632 at March 31, 2004, an increase of $60,000 from December 31, 2003. The ratio of the allowance for loan losses to total loans was 1.09% at March 31, 2004 and December 31, 2003, respectively. The quality of the loan portfolio remained strong and it is management’s belief 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

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 decreased $1,453,398, or 0.6%, to $243,900,326 at March 31, 2004 from $245,353,724 at December 31, 2003. This decrease in total deposits was primarily the result of a $5,454,912 decrease in interest bearing deposits to $197,237,380, as management believes that depositors with maturing time deposits migrated from the Company in searching for higher rates during the current period of financial market volatility and economic uncertainty. This was partially offset by a $4,001,514 increase in non-interest bearing deposits to $46,662,946.

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Other Borrowings

Other 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 March 31, 2004 and December 31, 2003 consisted of FHLB borrowings of $15,500,000. FHLB advances are fully secured by marketable securities and qualifying one-to-four family mortgage loans.

Trust Preferred Securities

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 clarifies the application of Accounting Research Bulletin 51, Consolidated Financial Statements, to certain entities in which voting rights are not effective in identifying the investor with the controlling financial interest. An entity is subject to consolidation under FIN 46 if the investors either do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support, are unable to direct the entity’s activities, or are not exposed to the entity’s losses or entitled to its residual returns (“variable interest entities”). Variable interest entities within the scope of FIN 46 would be required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected returns, or both.

Management has determined that the Trust qualifies as a variable interest entity under FIN 46. The Trust issued mandatorily redeemable preferred stock to investors and loaned the proceeds to the Company. The Trust holds, as its sole asset, subordinated debentures issued by the Company in 2002. Prior to December 31, 2003, the Trust was included in the Company’s consolidated balance sheet and statements of income. Subsequent to the issuance of FIN 46, the FASB issued a revised interpretation, FIN 46(R), the provisions of which must be applied to certain variable interest entities by March 31, 2004. The Company adopted the provisions under FIN 46 and accordingly, deconsolidated the Trust as of December 31, 2003. The banking regulatory agencies have not issued any guidance that would change the regulatory capital treatment for the trust-preferred securities issued by the Trust. However, as additional interpretations from the banking regulators related to entities such as the Trust become available, management will reevaluate its potential impact to its Tier I capital calculation under such interpretations. As of March 31, 2004 and December 31, 2003, assuming the Company was not allowed to include the $5.2 million in subordinated debentures issued by the Trust in Tier 1 capital, the Company would have Tier 1 capital ratios of 11.94% and 11.58% and leverage ratios of 8.34% and 8.03%, respectively, each on a pro forma basis.

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Shareholders’ Equity And Dividends

Shareholders’ equity at March 31, 2004 totaled $24,784,799, an increase of $1,199,543, or 5.1%, from $23,585,256 at December 31, 2003. Book value per common share rose to $15.86 at March 31, 2004 from $15.07 at December 31, 2003.

The increase in shareholders’ equity and book value per share resulted primarily from net income of $875,807 less the effect of stock buybacks plus the increase in unrealized holding gains on securities.

The Company’s stock is listed for trading on the Nasdaq National Market System, under the symbol “FCCY.”

In 2000, the Board of Directors authorized a 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 first quarter ended March 31, 2004 is set forth under Part II, Item 2 of this report, Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

The table below presents the actual capital amounts and ratios of the Company for the periods indicated:

Capital Ratios