UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10 – Q

		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-52584

BIRMINGHAM BLOOMFIELD BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Michigan		20-3993452
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

33583 Woodward Avenue, Birmingham, MI 48009
(Address of principal executive offices, including zip code)

(248) 723-7200
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (i) 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 (ii) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filed,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes o No þ

The number of shares outstanding of the issuer’s Common Stock as of May 13, 2011, was 1,800,000 shares.

 

 

INDEX

PART I. FINANCIAL INFORMATION					3
ITEM 1.		FINANCIAL STATEMENTS (Unaudited)			3
ITEM 2.		MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			20
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			28
ITEM 4.		CONTROLS AND PROCEDURES			28
PART II. OTHER INFORMATION					29
ITEM 1.		LEGAL PROCEEDINGS			29
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			29
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES			29
ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			29
ITEM 5.		OTHER INFORMATION			29
ITEM 6.		EXHIBITS			30
EX-31.1
EX-31.2
EX-32.1

PART I — FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF CONDITION

		(Unaudited)
		March 31,				December 31,
		2011				2010
Assets
Cash and cash equivalents
Cash		$	14,036,879			$	5,300,368
Federal funds sold			—				65,936
Total cash and cash equivalents			14,036,879				5,366,304
Securities, available for sale (Note 2)			3,150,652				3,200,002
Federal Home Loan Bank stock			160,200				160,200
Loans held for Sale			—				322,500
Loans (Note 3)
Total portfolio loans			98,205,105				100,378,678
Less: allowance for loan losses			(1,487,099	)			(1,448,096	)
Net portfolio loans			96,718,006				98,930,582
Premises & equipment, net			1,435,426				1,359,510
Interest receivable and other assets			1,019,575				995,438
Totals assets		$	116,520,738			$	110,334,536
Liabilities and Shareholders’ Equity
Deposits (Note 4)
Non-interest bearing		$	12,477,840			$	14,190,295
Interest bearing			92,110,155				83,060,199
Total deposits			104,587,995				97,250,494
Secured borrowings			—				1,469,095
Interest payable and other liabilities			529,558				629,422
Total liabilities			105,117,553				99,349,011
Shareholders’ equity
Senior cumulative perpetual preferred stock series A $1,000 liquidation value per share, 5% Authorized, issued and outstanding — 1,635 shares			1,635,000				1,635,000
Discount on senior preferred stock series A			(56,427	)			(61,027	)
Senior cumulative perpetual preferred stock series B $1,000 liquidation value per share, 9% Authorized, issued and outstanding — 82 shares			82,000				82,000
Premium on preferred stock series B			6,134				6,634
Senior cumulative perpetual preferred stock series C $1,000 liquidation value per share, 5% Authorized, issued and outstanding — 1,744 shares			1,744,000				1,744,000
Common stock, no par value Authorized — 4,500,000 shares Issued and outstanding — 1,800,000 shares			17,034,330				17,034,330
Additional paid in capital			493,154				493,154
Accumulated deficit			(9,647,177	)			(10,061,474	)
Accumulated other comprehensive income			112,171				112,908
Total shareholders’ equity			11,403,185				10,985,525
Total liabilities and shareholders’ equity		$	116,520,738			$	110,334,536

See accompanying notes to consolidated financial statements

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

		For the three months ended March 31,
		2011				2010
Interest Income
Interest and fees on loans		$	1,555,809			$	1,232,140
Interest on securities			27,911				34,698
Interest on federal funds and bank balances			4,631				6,334
Total interest income			1,588,351				1,273,172
Interest Expense
Interest on deposits			314,055				324,246
Interest on federal funds and short-term borrowings			14,509				—
Total interest expense			328,564				324,246
Net Interest Income			1,259,787				948,926
Provision for loan losses			39,000				112,405
Net Interest Income After Provision for Loan Losses			1,220,787				836,521
Non-interest Income
Service charges on deposit accounts			11,572				9,635
Other income			302,098				17,387
Mortgage banking activities			11,439				—
Total non-interest income			325,109				27,023
Non-interest Expense
Salaries and employee benefits			582,017				400,624
Share based payments			—				3,695
Occupancy expense			118,102				118,634
Equipment expense			35,400				35,577
Advertising and public relations			36,046				5,280
Data processing expense			49,013				55,550
Professional fees			111,524				68,211
Other expenses			151,314				146,633
Total non-interest expense			1,083,416				834,204
Net Income Before Federal Income Tax			462,480				29,339
Federal income tax			—				—
Net Income			462,480				29,339
Dividend on senior preferred stock			44,083				43,351
Accretion of discount on preferred stock			4,100				4,100
Net Income (Loss) Applicable to Common Shareholders		$	414,297			$	(18,112	)
Basic and Diluted Income (Loss) per Share		$	0.23			$	(0.01	)

See notes to consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

			Three Months Ended March 31,
Total Shareholders’ Equity			2011				2010
Balance at beginning of period			$	10,985,525			$	10,727,933
Net income				462,480				29,339
Other comprehensive income:
Net change in unrealized gains on securities available for sale				(737	)			81
Total comprehensive income				461,743				29,420
Share based payments expense				—				3,695
Preferred dividends				(44,083	)			(43,351	)
Balance at end of period			$	11,403,185			$	10,717,697

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

		For the Three Months Ended March 31,
		2011				2010
Cash flows from operating activities
Net income		$	462,480			$	29,339
Share based payment expense			—				3,695
Provision for loan losses			39,000				112,405
Gain on sale of loans			(8,697	)			—
Proceeds for sales of loans originated for sale			436,197				—
Loans originated for sale			(105,000	)			—
Accretion of securities			(1,576	)			(2,018	)
Depreciation expense			43,669				44,618
Net decrease (increase) in other assets			(24,137	)			(76,171	)
Net increase (decrease) in other liabilities			(99,863	)			(83,580	)
Net cash provided by (used) in operating activities			742,073				28,288
Cash flows from investing activities
Net change in portfolio loans			2,173,575				(6,528,521	)
Purchase of securities			—				(352,546	)
Proceeds from calls or maturities of securities			—				393,699
Principal payments on securities			50,189				—
Purchases of premises and equipment			(119,585	)			—
Net cash provided by (used) in investing activities			2,104,179				(6,487,368	)
Cash flows from financing activities
Increase in deposits			7,337,501				6,267,016
Net change in short term borrowings			(1,469,095	)			—
Dividend on senior preferred stock			(44,083	)			(43,351	)
Net cash provided by financing activities			5,824,323				6,223,665
(Decrease) increase in cash and cash equivalents			8,670,575				(235,415	)
Cash and cash equivalents — beginning of period			5,366,304				7,758,201
Cash and cash equivalents — end of period		$	14,036,879			$	7,522,786
Supplemental Information:
Interest paid		$	642,745			$	316,907
Income tax paid			—				—
Loans transferred to other real estate			—				—

See accompanying notes to consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 — Summary of Significant Accounting Policies

Basis of Statement Presentation

The accompanying unaudited consolidated interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) with the instructions to Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements are not included herein. The interim financial statements should be read in conjunction with the financial statements of Birmingham Bloomfield Bancshares, Inc. (the “Corporation”) and the notes thereto included in the Corporation’s annual report on Form 10-K for the year ended December 31, 2010.

All adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for a fair presentation of financial position, results of operations, and cash flows, have been made. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ended December 31, 2011.

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

Principles of Consolidation

The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary the Bank of Birmingham (the “Bank”). All significant intercompany balances and transactions have been eliminated in consolidation.

Changes in Significant Accounting Policies

Income Recognition on Small Business Administration Loan Sales — On January 28, 2011, the Small Business Administration (“SBA”) released a notice removing the 90-day warranty, or “recourse provision,” on the guaranteed portion of SBA 7(a) loans sold at a premium in the secondary market. This change allowed the Corporation to recognize income from SBA loan sales immediately upon settlement rather than waiting for the expiration of the recourse period. The Corporation had been selling the guaranteed portion of SBA loans to outside investors with a provision whereby the Corporation must rebate the premium received on the sale if a loan prepays or defaults within 90 days of the loan origination (the “recourse provision.”) After the recourse provision expired, the Corporation recognized the outstanding transaction as a sale by decreasing the Corporations loan balance, removing the secured borrowing and recognizing the gain associated with the sale.

Recent Accounting Developments

Accounting Standards Update (ASU) No. 2010-20, “Receivables (Topic 310): Disclosure about Credit Quality of Financing Receivables and the Allowance For Credit Losses” The objective of this guidance is for an entity to provide disclosures that facilitate the evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables; how that risk is analyzed and assessed in arriving at the allowance for doubtful accounts and; the changes and reasons for those changes in the allowance for credit losses. To achieve those objectives, disclosures on a disaggregated basis shall be provided on two defined levels: (1) portfolio segment; and (2) class of financing receivable. This guidance makes changes to existing disclosure requirements and includes additional disclosure requirements relating to financing receivables. Short-term accounts receivable, receivables measured at fair value or lower of cost or fair value and debt securities are exempt from this guidance. The guidance pertaining to disclosures as of the end of a reporting period is effective for the Corporation for interim and annual reporting periods on or after December 15, 2010. The guidance pertaining to disclosures about activity that occurs during a reporting period is effective for the Corporation for interim and annual reporting periods beginning on or after December 15, 2010.

Note 1 — Summary of Significant Accounting Policies — Continued

ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (‘TDR’)” In April, 2011, FASB issued ASU No. 2011-02, intended to provide additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring. The amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011, and are to be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. Early adoption is permitted. The Corporation intends to adopt the methodologies prescribed by this ASU by the date required. Given the recent issuance of this pronouncement, the Corporation is continuing to evaluate the impact of adoption of this ASU.

Note 2 — Securities

The amortized cost and estimated fair value of securities, with gross unrealized gains and losses, follows (000s omitted):

						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
March 31, 2011
U. S. Government agency securities		$	1,349			$	10			$	—			$	1,359
Municipal securities			650				5				—				655
Mortgage backed securities			790				89				—				879
Corporate bonds			250				8				—				258
Sub-total available for sale		$	3,039			$	112			$	—			$	3,151
FHLB Stock			160				—				—				160
Total securities		$	3,199			$	112			$	—			$	3,311
December 31, 2010
U. S. Government agency securities		$	1,350			$	11			$	—			$	1,361
Municipal securities			650				7				—				657
Mortgage backed securities			837				91				—				928
Corporate bonds			250				4				—				254
Sub-total available for sale		$	3,087			$	113			$	—			$	3,200
FHLB Stock			160				—				—				160
Total Securities		$	3,247			$	113			$	—			$	3,360

As of March 31, 2011 and December 31, 2010, all securities are classified as available for sale. Unrealized gains and losses within the investment portfolio are determined to be temporary. The Corporation has performed an analysis of the portfolio for other than temporary impairment and concluded no losses are required to be recognized. Management has no specific intent to sell any securities and it is not more likely than not the Corporation will be required to sell any securities before recovery of the cost basis. Management expects to collect all amounts due according to the contractual terms of the security. The Corporation had no individual securities with gross unrealized losses at March 31, 2011 and December 31, 2010.

Total securities representing $1,737,000 and $1,788,000 as of March 31, 2011 and December 31, 2010 were pledged to secure public deposits from the State of Michigan.

Federal Home Loan Bank stock is restricted and can only be sold back to the Federal Home Loan Bank. The carrying value of the stock approximates its fair value.

Note 2 — Securities — Continued

The amortized cost and estimated fair value of all securities at March 31, 2011, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties. The contractual maturities of securities are as follows (000s omitted):

		Amortized cost				Estimated fair value
Due in one year or less		$	1,200			$	1,202
Due in one year through five years			1,839				1,949
Due in five years through ten years			—				—
Due after ten years			—				—
Total		$	3,039			$	3,151

Note 3 — Loans

A summary of the balances of loans as of March 31, 2011 and December 31, 2010 is as follows (000s omitted):

		March 31,				December 31,
		2011				2010
Mortgage loans on real estate:
Residential 1 to 4 family		$	3,368			$	3,380
Multifamily			12,439				12,355
Commercial			47,507				49,029
Construction			3,058				2,024
Second mortgage			117				118
Equity lines of credit			11,730				11,794
Total mortgage loans on real estate			78,219				78,700
Commercial loans			19,258				20,776
Consumer installment loans			811				964
Total loans			98,288				100,440
Less: Allowance for loan losses			(1,487	)			(1,448	)
Net deferred loan fees			(83	)			(61	)
Net loans		$	96,718			$	98,931

Note 3 — Loans — Continued

An analysis of the allowance for loan losses for the year to date period ended March 31, 2011 and December 31, 2010 (000s omitted):

Three months ended March 31, 2011

							Home																2010
Allowance for Loan Losses			Commercial				Equity				Residential				Consumer				Total				Total
Beginning balance			$	1,070			$	352			$	14			$	12			$	1,448			$	1,174
Charge-offs				—				—				—				—				—				(31	)
Recoveries				—				—				—				—				—				—
Provision				43				(2	)			—				(2	)			39				112
Ending balance			$	1,113			$	350			$	14			$	10			$	1,487			$	1,255
Percent of principal balance				1.29	%			3.47	%			1.22	%			1.23	%			1.51	%
Ending balance: individually evaluated for impairment			$	56			$	212			$	—			$	—			$	268
Ending balance: collectively evaluated for impairment			$	1,057			$	138			$	14			$	10			$	1,219
Portfolio Loans
Ending unpaid principal balance			$	86,233			$	10,099			$	1,145			$	811			$	98,288
Ending unpaid principal balance: individually evaluated for impairment			$	699			$	888			$	—			$	—			$	1,587
Ending unpaid principal balance: collectively evaluated for impairment			$	85,534			$	9,211			$	1,145			$	811			$	96,701

Year ended December 31, 2010

							Home
Allowance for Loan Losses			Commercial				Equity				Residential				Consumer				Total
Beginning balance			$	991			$	166			$	10			$	7			$	1,174
Charge-offs				(141	)			(225	)			—				—				(366	)
Recoveries				46				—				—				—				46
Provision				174				410				4				6				594
Ending balance			$	1,070			$	351			$	14			$	13			$	1,448
Percent of principal balance				1.21	%			3.45	%			1.21	%			1.25	%			1.44	%
Ending balance: individually evaluated for impairment			$	25			$	212			$	—			$	—			$	237
Ending balance: collectively evaluated for impairment			$	1,045			$	139			$	14			$	13			$	1,211
Portfolio Loans
Ending unpaid principal balance			$	88,080			$	10,166			$	1,153			$	1,041			$	100,440
Ending unpaid principal balance: individually evaluated for impairment			$	2,107			$	887			$	—			$	—			$	2,994
Ending unpaid principal balance: collectively evaluated for impairment			$	85,973			$	9,279			$	1,153			$	1,041			$	97,446

Note 3 — Loans — continued

Management uses a loan rating system to identify the inherent risk associated with portfolio loans. Loan ratings are based on a subjective definition that describes the conditions present at each level of risk and identifies the important aspect of each loan. The Bank currently uses a 1 to 8 grading scale for commercial loans. Each loan grade corresponds to a specific qualitative classification. All other consumer and mortgage loan types are internally rated based on various credit quality characteristics using the same qualitative classification. The risk rating classifications included: pass, special mention, substandard, doubtful and loss.

Loans risk-rated as special mention, are considered criticized loans, exhibiting some potential credit weakness that requires additional attention by management and are maintained on the internal watch list and monitored on a regular basis. Loans risk-rated as substandard or higher are considered classified loans exhibiting well-defined credit weakness and are recorded on the problem loan list and evaluated more frequently. The Bank’s credit administration function is designed to provide increased information on all types of loans to identify adverse credit risk characteristics in a timely manner. Total criticized and classified loans increased $1,337,000 to $12,227,000 at March 31, 2011 from $10,890,000 at December 31, 2010. The change was the result of an increase totaling $2,748,000 in special mention loans and a $1,412,000 decrease in substandard accounts. The majority of the increase is isolated to commercial loans and represents the weakness of the economic environment of our market area. The Bank only has one loan in non-accrual status. This is a home equity credit totaling $298,000 and is in the process of foreclosure. The loan has been individually evaluated for impairment and a corresponding charge-off has been recorded. There were no loans that were risk rated doubtful or loss at March 31, 2011 or December 31, 2010. Management closely monitors each loan adversely criticized or classified and institutes appropriate measures to eliminate the basis of criticism.

The primary risk elements considered by management regarding each consumer and residential real estate loan are lack of timely payment and loss of real estate values. Management has a reporting system that monitors past due loans and has adopted policies to pursue its creditor’s rights in order to preserve the Bank’s position. The primary risk elements concerning commercial and industrial loans and commercial real estate loans are the financial condition of the borrower, the sufficiency of collateral, and lack of timely payment. Management has a policy of requesting and reviewing periodic financial reporting from its commercial loan customers and verifies existence of collateral and its value.

An analysis of credit quality indicators at March 31, 2011 and December 31, 2010 follows (000s omitted):

     March 31, 2011

Commercial Loans			Commercial				Commercial				Commercial				Commercial
Credit Quality			Real Estate				Term				LOC				Construction
1 — pass			$	—			$	—			$	—			$	—
2 — pass				388				—				—				—
3 — pass				16,814				3,753				4,775				—
4 — pass				38,890				5,484				4,039				1,250
5 — special mention				3,064				3,561				910				1,808
6 — substandard				1,437				60				—				—
7 — doubtful				—				—				—				—
8 — loss				—				—				—				—
			$	60,593			$	12,858			$	9,724			$	3,058

Consumer Loans			Home Equity				Residential				Home Equity				Consumer				Consumer
Credit Quality			LOC				Mortgage				Term				Installment				LOC
Pass			$	8,742			$	1,029			$	116			$	387			$	394
Special mention				343				—				—				30				—
Substandard				1,014				—				—				—				—
Doubtful				—				—				—				—				—
Loss				—				—				—				—				—
			$	10,099			$	1,029			$	116			$	417			$	394

Note 3 — Loans — continued

     December 31, 2010

Commercial Loans			Commercial				Commercial				Commercial				Commercial
Credit Quality			Real Estate				Term				LOC				Construction
1 — pass			$	—			$	—			$	—			$	—
2 — pass				392				—				—				—
3 — pass				16,845				3,994				4,416				—
4 — pass				40,348				6,265				5,071				1,250
5 — special mention				2,994				1,249				1,574				774
6 — substandard				1,441				857				610				—
7 — doubtful				—				—				—				—
8 - loss				—				—				—				—
			$	62,020			$	12,365			$	11,671			$	2,024

Consumer Loans			Home Equity				Residential				Home Equity				Consumer				Consumer
Credit Quality			LOC				Mortgage				Term				Installment				LOC
Pass			$	8,808			$	1,035			$	118			$	335			$	673
Special mention				344				—				—				33				—
Substandard				1,014				—				—				—				—
Doubtful				—				—				—				—				—
Loss				—				—				—				—				—
			$	10,166			$	1,035			$	118			$	368			$	673

A loan is considered a troubled debt restructure (“TDR”) if the Bank for economic or legal reasons related to the borrower’s financial condition grants a concession to the debtor that the Bank would not otherwise consider. TDRs represent loans where the original terms of the agreement have been modified to provide relief to the borrower and are individually evaluated for impairment. The Bank had one loan classified as a TDR at March 31, 2011 and December 31, 2010, which continues to perform.

Information regarding modified loans as of March 31, 2011 and December 31 (000s omitted):

     March 31, 2011

							Pre-				Post-
			Number of				Modification				Modification
Trouble Debt Restructuring			Contracts				Investment				Investment
Commercial Real Estate				1			$	699			$	699
Commercial Term				—				—				—
Commercial LOC				—				—				—
Construction				—				—				—
Home Equity				—				—				—
Residential Mortgage				—				—				—
Consumer				—				—				—

     December 31, 2010

Trouble Debt Restructuring
Commercial Real Estate				1			$	699			$	699
Commercial Term				—				—				—
Commercial LOC				—				—				—
Construction				—				—				—
Home Equity				—				—				—
Residential Mortgage				—				—				—
Consumer				—				—				—

Note 3 — Loans — continued

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all principal and interest payments according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include delinquency status, collateral value, and known factors adversely affecting the ability of the borrower to satisfy the terms of the agreement. When an individual loan is classified as impaired, the Corporation measures impairment using (1) the present value of expected cash flows discounted at the loans effective interest rate, (2) the loans observable market price, or (3) the fair value of the collateral. The method used is determined on a loan by loan basis, except for a collateral dependent loan. All collateral dependent loans are required to be measured using the fair value of collateral method. If the value of an impaired loan is less than the recorded investment in the loan an impairment reserve is recognized. All modified loans are considered impaired.

Large groups of homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures, except if modified and considered to be a troubled debt restructuring.

Information regarding impaired loans at March 31, 2011 and December 31, 2010 (000s omitted):

     

																		Year to Date
		Recorded				Unpaid								Average				Interest
		Investment				Principal				Allowance				Investment				Recognized
March 31, 2011
Impaired loans
No related allowance recorded:
Home Equity Line of Credit		$	298			$	298			$	—			$	298			$	—
Allowance recorded:
Commercial Line of Credit			—				—				—				—				—
Commercial Real Estate			699				699				56				675				4
Home Equity Line of Credit			590				590				212				378				7
Total:
Commercial		$	699			$	699			$	56			$	675			$	4
Home Equity		$	888			$	888			$	212			$	676			$	7
December 31, 2010
Impaired loans
No related allowance recorded:
Home Equity Line of Credit		$	298			$	298			$	—			$	256			$	—
Allowance recorded:
Commercial Line of Credit			1,407				1,407				17				1,418				99
Commercial Real Estate			699				699				8				117				7
Home Equity Line of Credit			590				590				212				197				10
Total:
Commercial		$	2,107			$	2,107			$	25			$	1,535			$	106
Home Equity		$	887			$	887			$	212			$	453			$	10

Note 3 — Loans — continued

As of March 31, 2011 and December 31, 2010, loans totaling approximately $298,000 were more than 30 days past due. Nonperforming loans, which represents non-accruing loans and loans past due 90 days or more and still accruing interest, were $298,000 at March 31, 2011 and December 31, 2010. The nonperforming loan at the end of both periods represents one home equity loan currently recorded as non-accrual and in the process of foreclosure. Loans are placed in non-accrual status when, in the opinion of management, uncertainty exists as to the ultimate collection of principal and interest. Commercial loans are reported as being in non-accrual status if: (a) they are maintained on a cash basis because of deterioration in the financial position of the borrower, (b) payment in full of interest or principal is not expected, or (c) principal or interest has been in default for a period of 90 days or more. If it can be documented that the loan obligation is both well secured and in the process of collection, the loan may remain on accrual status. However, if the loan is not brought current before becoming 120 days past due, the loan is reported as non-accrual. A non-accrual asset may be restored to accrual status when none of its principal or interest is due and unpaid, when it otherwise becomes well secured, or is in the process of collection.

Information regarding past due loans at March 31, 2011 and December 31, 2010 follows (000s omitted):

March 31, 2011

		Loans past due												Total								Total				Non-				>90 days
		30 - 59				60 - 90				Over 90				Past Due				Current				Loans				Accrual				Accruing
Commercial real estate		$	—			$	—			$	—			$	—			$	60,593			$	60,593			$	—			$	—
Commercial term			—				—				—				—				12,858				12,858				—				—
Commercial LOC			—				—				—				—				9,724				9,724				—				—
Construction			—				—				—				—				3,058				3,058				—				—
Home equity LOC			—				—				298				298				9,801				10,099				298				—
Residential mortgage			—				—				—				—				1,029				1,029				—				—
Home equity term			—				—				—				—				116				116				—				—
Consumer installment			—				—				—				—				417				417				—				—
Consumer LOC			—				—				—				—				394				394				—				—
		$	—			$	—			$	298			$	298			$	97,990			$	98,288			$	298			$	—

December 31, 2010

		Loans past due												Total								Total				Non-				>90 days
		30 - 59				60 - 90				Over 90				Past Due				Current				Loans				Accrual				Accruing
Commercial real estate		$	—			$	—			$	—			$	—			$	62,020			$	62,020			$	—			$	—
Commercial term			—				—				—				—				12,365				12,365				—				—
Commercial LOC			—				—				—				—				11,671				11,671				—				—
Construction			—				—				—				—				2,024				2,024				—				—
Home equity LOC			—				—				298				298				9,868				10,166				298				—
Residential mortgage			—				—				—				—				1,035				1,035				—				—
Home equity term			—				—				—				—				118				118				—				—
Consumer installment			—				—				—				—				368				368				—				—
Consumer LOC			—				—				—				—				673				673				—				—
		$	—			$	—			$	298			$	298			$	100,142			$	100,440			$	298			$	—

Note 4 — Deposits

Deposits are summarized as follows (000s omitted):

		March 31, 2011								December 31, 2010
		Balance				Percentage				Balance				Percentage
Noninterest bearing demand		$	12,478				11.93	%		$	14,190				14.59	%
NOW accounts			8,860				8.47	%			7,897				8.12	%
Money market			8,778				8.40	%			8,179				8.41	%
Savings			18,932				18.10	%			16,521				16.99	%
Time deposits under $100,000			11,957				11.43	%			12,153				12.50	%
Time deposits over $100,000			43,583				41.67	%			38,310				39.39	%
Total deposits		$	104,588				100.0	%		$	97,250				100.0	%

At March 31, 2011, the scheduled maturities of time deposits are as follows (000s omitted):

		<$100,000				>$100,000				Total
2011		$	4,277			$	23,260			$	27,537
2012			5,968				15,094				21,062
2013			976				3,242				4,218
2014			450				1,361				1,811
2015			12				—				12
Thereafter			274				626				900
Total		$	11,957			$	43,583			$	55,540

Note 5 — Leases and Commitments

The Corporation has entered into a lease agreement for its main office facility. Payments began in February 2005 and the initial term of the lease expires in October 2015. In October 2007, the Corporation exercised its first renewal option on the property which expires in October 2025. The main office lease has one additional ten year renewal option. The Corporation also entered into a lease agreement for its former branch office in Bloomfield Township which provided for lease payments to begin in March 2006 and expire February 2016. The Bloomfield Township branch office lease was terminated effective January 18, 2010 pursuant to an agreement with the leaseholder. The termination agreement called for a one-time payment of $110,000 to the leaseholder to end the lease. In October 2010, the Corporation entered into a one year lease agreement for a lending production office (“LPO”) in Bay City, Michigan. The lease has two, one year renewal options. In March 2011, a new one year lease was signed for additional office space in the building adjacent to the main office at a rate of $2,800 per month. The lease has two, five year renewal options. Rent expense under these agreements was $64,100 and $67,900 for the three month period ended March 31, 2011 and 2010, respectively.

The following is a schedule of future minimum rental payments under operating leases on a calendar year basis:

2011		$	208
2012			243
2013			239
2014			244
2015			249
Thereafter			2,473
Total		$	3,656

Note 6 — Fair Value of Financial Instruments

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Corporation’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. FASB ASC 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Corporation.

The following methods and assumptions were used by the Corporation in estimating fair value disclosures for financial instruments:

Cash and Cash Equivalents — The carrying values of cash and cash equivalents approximate fair values.

Securities — Fair values of securities are based on quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans Receivable — For variable-rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values of nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Deposit Liabilities — The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Accrued Interest — The carrying value of accrued interest approximates fair value.

Other Financial Instruments — The fair value of other financial instruments, including loan commitments and unfunded letters of credit, based on discounted cash flow analyses, is not material.

The carrying values and estimated fair values of financial instruments at March 31, 2011 and December 31, 2010, are as follows (in thousands):

		March 31, 2011								December 31, 2010
						Estimated								Estimated
		Carrying				Fair				Carrying				Fair
		Value				Value				Value				Value
Financial assets:
Cash and cash equivalents		$	14,037			$	14,037			$	5,366			$	5,366
Securities available for sale			3,311				3,311				3,360				3,360
Loans			96,718				97,407				98,931				99,786
Loans held for sale			—				—				323				323
Accrued interest receivable			432				432				440				440
Financial liabilities:
Deposits			104,588				104,913				97,250				97,688
Secured borrowings			—				—				1,469				1,469
Accrued interest payable			125				125				115				115

Note 7 — Fair Value Accounting

Valuation Hierarchy

Accounting standards establish a three-level valuation hierarchy for fair value measurements. The valuation hierarchy prioritizes valuation techniques based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and are the primary method of valuation used by Birmingham Bloomfield Bancshares, Inc. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows.

	•		Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets which the Corporation can participate.
	•		Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
	•		Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement, and include inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

Following is a description of the inputs and valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as general classification of those instruments under the valuation hierarchy.

Available-for-sale Securities

Quoted market prices in an active market are used to value securities when such prices are available. Those securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, the fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows using reasonable inputs. Level 2 securities include U.S. Government agency securities, mortgage backed securities, obligations of states and municipalities, and certain corporate securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities, but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. In certain cases where Level 1 or Level 2 inputs are not available, securities would be classified within Level 3 of the hierarchy.

The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the valuation hierarchy in which the fair value measurements fall at March 31, 2011 and December 31, 2010 (000s omitted):

		Level 1				Level 2				Level 3				Fair Value
March 31, 2011
U.S. government agency		$	—			$	1,359			$	—			$	1,359
Municipal securities			—				655				—				655
Mortgage backed securities			—				879				—				879
Corporate bonds			—				258				—				258
Securities available for sale		$	—			$	3,151			$	—			$	3,151
December 31, 2010
U.S. government agency		$	—			$	1,361			$	—			$	1,361
Municipal securities			—				657				—				657
Mortgage backed securities			—				928				—				928
Corporate bonds			—				254				—				254
Securities available for sale		$	—			$	3,200			$	—			$	3,200