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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 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 November 9, 2004, there were 1,575,328 shares of the registrant’s common stock, no par value, outstanding.

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1ST CONSTITUTION BANCORP

FORM 10-Q

INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

1st Constitution Bancorp and Subsidiaries

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

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1st 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

September 30, 2004 (Unaudited)

(1) Summary of Significant Accounting Policies

The accompanying unaudited Consolidated Financial Statements herein have been prepared by 1st Constitution Bancorp (the “Company”), in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations. These Consolidated Financial Statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Form 10-K for the year ended December 31, 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.

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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.

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

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.

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On March 31, 2004, the Financial Accounting Standards Board (FASB) issued a proposed Statement, Share-Based Payment - an Amendment of FASB Statements No. 123 and APB No. 95, 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. Under the FASB’s proposal, all forms of share-based payments to employees, including employee stock options, would be treated the same as other forms of compensation by recognizing the related cost in the income statement. The expense of the award would generally be measured at fair value at the grant date. Current accounting guidance requires that the expense relating to so-called fixed plan employee stock options only be disclosed in the footnotes to the financial statements. 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. On October 13, 2004, FASB voted to delay the adoption of this proposed standard by public companies until their first fiscal quarter beginning after June 15, 2005. The Company continues to evaluate this proposed statement and its effects on its results of operations.

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

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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 were required to be applied to certain variable interest entities, including the Trust, by March 31, 2004. The Company adopted the provisions under FIN 46 and accordingly deconsolidated the Trust as of December 31, 2003.

In May 2004, the Federal Reserve Board proposed a rule that would continue to allow the inclusion of trust preferred securities in Tier 1 capital, but with stricter quantitative limits. Under the proposal, after a three-year transition period, the aggregate amount of trust preferred securities and certain other capital elements would be limited to 25% of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit could be included in Tier 2 capital, subject to restrictions. Based on the proposed rule, the Company expects to include all of its $5.2 million in trust preferred securities in Tier 1 capital. However, the provisions of the final rule could significantly differ from those proposed and there can be no assurance that the Federal Reserve Board will not further limit the amount of trust preferred securities permitted to be included in Tier 1 capital for regulatory capital purposes.

New Accounting Pronouncements

EITF Issue No. 03-1

In November 2003, the Emerging Issues Task Force (EITF) of the FASB issued EITF Abstract 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (EITF 03-1). The quantitative and qualitative disclosure provisions of EITF 03-1 were effective for years ending after December 15, 2003 and were included in the Company’s 2003 Form 10-K. In March 2004, the EITF issued a Consensus on Issue 03-1 requiring that the provisions of EITF 03-1 be applied for reporting periods beginning after June 15, 2004 to investments accounted for under SFAS No. 115 and 124. EITF 03-1 establishes a three-step approach for determining whether an investment is considered impaired, whether that impairment is other-than-temporary, and the measurement of an impairment loss. In September 2004, the FASB issued a proposed Staff Position, EITF Issue 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF 03-1 (EITF 03-1-a). EITF 03-1-a would provide implementation guidance with respect to debt securities that are impaired solely due to interest rates and/or sector spreads and analyzed for other-than-temporary impairment under paragraph 16 of EITF 03-1. In September 2004, the FASB also issued a Staff Position, EITF Issue 03-1-1, Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1 (EITF 03-1-1). EITF 03-1-1 delays the effective date for the measurement and recognition guidance contained in paragraphs 10-20 of EITF 03-1. The delay of the effective date will be superseded concurrent with the final issuance of EITF 03-1-a. The Company is in the process of determining the impact that this EITF will have on its financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the operating results and financial condition at September 30, 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 and nine month periods ended September 30, 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 SEC on March 25, 2004.

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 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 nine 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.

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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.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2004 and September 30, 2003

Summary

The Company realized net income of $956,095 for the three months ended September 30, 2004, an increase of 12.1% from the $852,833 reported for the three months ended September 30, 2003. Diluted net income per share was $0.58 for the three months ended September 30, 2004 compared to $0.52 per diluted share for the three months ended September 30, 2003.

Key performance ratios continued to improve for 2004. Return on average assets and return on average equity were 1.16% and 15.42% for the three months ended September 30, 2004 compared to 1.22% and 15.40%, respectively, for the three months ended September 30, 2003.

The Company’s net interest income for the three months ended September 30, 2004 was $3,192,312, an increase of 26.5% from the $2,523,491 reported for September 30, 2003. The net interest margin for the three months ended September 30, 2004 was 4.12% compared to 3.88% reported for the three months ended September 30, 2003. During fiscal 2003, the Company was confronted with continuing net interest margin pressures due to the very low interest rate environment, as well as elevated levels of loan prepayments and accelerated amortization of premiums on mortgage-backed investment securities. During the third quarter of 2004, a rising interest rate environment continued to evolve, resulting in a lesser level of loan prepayments and net premium amortization expense decreasing to $69,476 for the three months ended September 30, 2004 from $670,251 for the three months ended September 30, 2003.

Non-interest expense increased by $533,159, or 29.3%, to $2,355,577 for the three months ended September 30, 2004 compared to $1,822,418 for the three months ended September 30, 2003. During the second quarter of 2004, the Company opened two new branch offices, one in West Windsor, New Jersey and one in Jamesburg, New Jersey, and in August opened the permanent

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location of the Perth Amboy branch. As a result, each component of non-interest expense in the three months ended September 30, 2004 was impacted by the additional costs involved in staffing and otherwise making these new branches operational. Despite the increase in operating costs for the three months ended September 30, 2004 compared to the three months ended September 30, 2003, the Company’s efficiency ratio increased marginally to 62.4% compared to 59.3% for the three months ended September 30, 2003.

Earnings Analysis

Interest Income

Interest income for the three months ended September 30, 2004 was $4,403,646, increasing by 796,979, or 22.1%, from the $3,606,241 reported for the three months ended September 30, 2003. This is primarily attributable to the continuation of the rising interest rate environment that evolved during the second quarter of 2004. For the three months ended September 30, 2004, average interest earning assets increased $48,007,449 or 18.3% to $310,209,819 compared to $262,202,370 for the three months ended September 30, 2003. The increase in interest income resulting from increases in earning asset volume was also positively affected by an increase in the average yield earned on these assets. For the three months ended September 30, 2004, the average yield on earning assets increased 15 basis points to 5.67% from 5.52% for the same period last year.

Interest Expense

Interest expense for the three months ended September 30, 2004 was $1,211,334, an increase of $128,584, 11.9%, from $1,082,750 reported for the three months ended September 30, 2003. Total average interest bearing liabilities increased by $35,788,399, or 16.8%, to $249,180,721 for the three months ended September 30, 2004 from $213,392,322 for the three months ended September 30, 2003. The average cost of interest bearing liabilities decreased 8 basis points to 1.93% for the three months ended September 30, 2004 from 2.01% for the three months ended September 30, 2003. This was primarily a result of a change in the deposit mix between the two periods, as balances in higher rate certificates of deposit in excess of $100,000 decreased, whereas increases in lower rate money market and NOW accounts increased, as a percentage of average total deposits for the three months ended September 30, 2004 as compared to the three months ended September 30, 2003.

Net Interest Income

The net effect of the changes in interest income and interest expense for the three months ended September 30, 2004 compared to the three months ended September 30, 2003 was an increase of $668,821, or 26.5%, in net interest income. The net interest margin, on a fully taxable equivalent basis, increased 24 basis points to 4.12% for the three months ended September 30, 2004 from 3.88% for the three months ended September 30, 2003. The increase in the net interest margin was primarily the result of interest earning assets repricing faster than interest bearing liabilities in the rising rate environment that evolved during the second quarter of 2004, combined with a lower level of net amortization of premiums on mortgage-backed investment securities.

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Provision for Loan Losses

For each of the three month periods ended September 30, 2004 and September 30, 2003, the provision for loan losses was $60,000. The comparable provisions were the result of a stable loan portfolio combined with low levels of non-performing loans. The amount of the loan loss provisions and the level of the allowance for loan losses are critical accounting policies 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 decreased $33,585, or 4.9%, to $647,897 for the three months ended September 30, 2004 from $681,482 for the three months ended September 30, 2003. The decrease was due primarily to a decrease of $92,073 in gains on sale of loans held for sale. The increasing interest rate environment that evolved during mid-2004 has slowed the volume of mortgage loan originations and refinancing and subsequent secondary market mortgage loan sales.

Non-Interest Expense

Non-interest expense increased $533,159, or 29.3%, to $2,355,577 for the three months ended September 30, 2004, from $1,822,418 for the three months ended September 30, 2003. Salaries and employee benefits increased $261,474 for the three months ended September 30, 2004 compared to the three months ended September 30, 2003, primarily due to (a) increased branch staffing levels as a result of the opening of three new branch locations during mid-2004 plus (b) normal employee salary increases. Occupancy expense increased $82,830 and other expenses increased $188,855, primarily as a result of costs related to making these new branches operational.

An important industry productivity measure is the efficiency ratio. The efficiency ratio is calculated by dividing total operating expenses by net interest income and other 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 for the quarter ended September 30, 2004 was 62.4% compared to 59.3% for the quarter ended September 30, 2003.

Nine Months Ended September 30, 2004 and September 30, 2003

Summary

The Company realized net income of $2,762,603 for the nine months ended September 30, 2004, an increase of $406,886, or 17.3%, over the $2,355,717 realized for the nine months ended September 30, 2003. Net income per diluted share was $1.68 for the nine months ended September 30, 2004 compared to $1.44 per diluted share for the nine months ended September 30, 2003.

Key performance ratios remained strong for the nine months ended September 30, 2004. Return on average assets and return on average equity were 1.20% and 15.24% for the nine months ended September 30, 2004 compared to 1.18% and 14.65%, respectively, for the nine months ended September 30, 2003.

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The Company’s net interest income for the nine months ended September 30, 2004 was $9,121,449, an increase of $1,792,521, or 24.5%, from the $7,328,928 reported for the nine months ended September 30, 2003. The net interest margin for the nine months ended September 30, 2004 was 4.23% compared to 3.94% reported for the nine months ended September 30, 2003. During the 12 months ended December 31, 2003, the Company was confronted with continuing net interest margin pressures due to the very low interest rate environment as well as elevated levels of loan prepayments and accelerated amortization of premiums on mortgage-backed securities. During the nine months ended September 30, 2004, a rising interest rate environment evolved resulting in a lesser level of loan prepayments and amortization expense decreasing to $291,770 from the nine months ended September 30, 2004 versus the $1,006,940 reported for the nine months ended September 30, 2003.

Non-interest expense increased by $1,235,623, or 23.0%, to $6,614,990 for the nine months ended September 30, 2004 from $5,379,367 for the nine months ended September 30, 2003. During the nine months ended September 30, 2004, the Company opened a loan production office in Fort Lee, New Jersey, as well as three new branch locations in West Windsor, Jamesburg, and Perth Amboy, New Jersey. As a result, each component of non-interest expense in the nine months ended September 30, 2004 was impacted by the additional costs involved in staffing and otherwise making these offices operational. Despite the increase in operating costs for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003, the Company’s efficiency ratio increased modestly to 62.0% for the nine months ended September 30, 2004 compared to 60.5% for the nine months ended September 30, 2003.

Earnings Analysis

Interest Income

For nine months ended September 30, 2004, total interest income was $12,435,794, an increase of $1,768,709, or 16.6%, compared to total interest income of $10,667,085 for the nine months ended September 30, 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 rate for the nine month periods ended September 30, 2004 and 2003.

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