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		20-1132959
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

33583 Woodward Avenue, Birmingham, MI 48009

(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 filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

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 August 14, 2009, was 1,800,000 shares.

 

 

INDEX

PART I – FINANCIAL INFORMATION			3
ITEM 1. FINANCIAL STATEMENTS			3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			25
ITEM 4T. CONTROLS AND PROCEDURES			25
PART II. OTHER INFORMATION			27
ITEM 1. LEGAL PROCEEDINGS			27
ITEM 1A. RISK FACTORS			27
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			27
ITEM 5. OTHER INFORMATION			28
ITEM 6. EXHIBITS			28
EX-3.1
EX-31.1
EX-31.2
EX-32.1

PART I – FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

BIRMINGHAM BLOOMFIELD BANCSHARES, INC
CONSOLIDATED BALANCE SHEETS

		June 30,				December 31,
		2009				2008
		(unaudited)
Assets
Cash and cash equivalents
Cash		$	9,497,863			$	1,201,318
Federal funds sold			3,167,717				3,462,179
Total cash and cash equivalents			12,665,580				4,663,497
Securities, available for sale (Note 3)			2,940,371				3,880,401
Loans (Note 4)
Total loans			66,424,195				56,840,675
Less: allowance for loan losses			(840,426	)			(710,000	)
Net loans			65,583,769				56,130,675
Premises & equipment (Note 6)			2,093,632				2,232,317
Interest receivable and other assets			421,217				391,646
Total assets		$	83,704,569			$	67,298,536
Liabilities and Shareholders’ Equity
Deposits (Note 5)
Non-interest bearing		$	7,450,381			$	5,194,795
Interest bearing			65,876,370				52,553,240
Total deposits			73,326,751				57,748,035
Interest payable and other liabilities			245,095				238,532
Total liabilities			73,571,846				57,986,567
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				—
Warrant cumulative perpetual preferred stock series B
$1,000 liquidation value per share, 9% Authorized, issued and outstanding – 82 shares			82,000				—
Discount on senior preferred stock			(88,576	)			—
Premium on warrant preferred stock			9,628				—
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 — share based payments			479,853				466,553
Accumulated deficit			(9,104,913	)			(8,311,252	)
Accumulated other comprehensive income			85,401				122,338
Total shareholders’ equity			10,132,723				9,311,969
Total liabilities and shareholders’ equity		$	83,704,569			$	67,298,536

See accompanying notes to consolidated financial statements

BIRMINGHAM BLOOMFIELD BANCSHARES, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Interest Income
Loans, including fees		$	893,654			$	728,511			$	1,736,475			$	1,378,652
Taxable securities			37,105				26,490				74,511				55,635
Federal funds sold			1,024				41,830				1,915				90,130
Correspondent bank			6,256				—				7,596				—
Total interest income			938,039				796,831				1,820,497				1,524,417
Interest expense
Deposits			328,268				339,686				667,859				653,428
Total interest expense			328,268				339,686				667,859				653,428
Net interest income			609,771				457,145				1,152,638				870,989
Provision for loan losses			115,276				94,665				148,776				144,665
Net interest income after provision for loan losses			494,495				362,480				1,003,862				726,324
Non-interest income
Loan fees and charges			2,491				1,102				5,671				11,829
Deposit fees and charges			17,015				19,991				34,726				37,815
Other income			5,005				2,483				9,817				11,917
Total non-interest income			24,511				23,576				50,214				61,561
Non-interest expense
Salaries and benefits			406,766				312,540				778,094				861,604
Occupancy & equipment expense			202,073				199,284				415,540				418,244
FAS 123R share based payments			6,650				10,500				13,300				21,000
Data processing expense			49,869				43,368				103,765				87,095
Advertising and public relations			23,126				36,395				57,258				59,611
Professional fees			116,795				72,512				197,314				159,782
Printing and office supplies			7,004				7,590				16,022				14,126
Other expense			179,182				102,465				258,193				189,732
Total non-interest expense			991,465				784,654				1,839,486				1,811,194
Net loss before taxes			(472,459	)			(398,598	)			(785,410	)			(1,023,309	)
Income taxes			—				—				—				—
Net loss		$	(472,459	)		$	(398,598	)		$	(785,410	)		$	(1,023,309	)
Dividend on senior preferred stock			(4,769	)			—				(4,769	)			—
Accretion of discount on pref stock			(3,424	)			—				(3,424	)			—
Effective dividend on preferred stock			(8,193	)			—				(8,193	)			—
Dividend on warrant preferred stock			(430	)			—				(430	)			—
Amortization of premium on warrant pref stk			372				—				372				—
Effective dividend on warrant pref stk			(58	)			—				(58	)			—
Net loss applicable to common shareholders		$	(480,710	)		$	(398,598	)		$	(793,661	)		$	(1,023,309	)
Basic loss per share		$	(0.26	)		$	(0.22	)		$	(0.44	)		$	(0.57	)
Diluted loss per share		$	(0.26	)		$	(0.22	)		$	(0.44	)		$	(0.57	)

See accompanying notes to consolidated financial statements

BIRMINGHAM BLOOMFIELD BANCSHARES, INC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
January 1, 2009 to June 30, 2009
(Unaudited)

																		Accumulated
																		Other
		Preferred				Common				Additional				Accumulated				Comprehensive
		Stock				Stock				Paid in Capital				Deficit				Income				Total
Balance at January 1, 2009			—			$	17,034,330			$	466,553			$	(8,311,252	)		$	122,338			$	9,311,969
Issue senior preferred stock			1,635,000				—				—				—				—				1,635,000
Issue warrant preferred stock			82,000				—				—				—				—				82,000
Discount senior pref. stock			(88,576	)			—				—				—				—				(88,576	)
Amortization			—				—				—				(3,424	)			—				(3,424	)
Premium warrant pref. stock			9,628				—				—				—				—				9,628
Accretion			—				—				—				372				—				372
Preferred dividends															(5,199	)							(5,199	)
Share based payments			—				—				13,300				—				—				13,300
Comprehensive loss:
Net loss			—				—				—				(785,410	)			—				(785,410	)
Unrealized gain on securities			—				—				—				—				(36,937	)			(36,937	)
Total comprehensive loss																							(822,347	)
Balance at June 30, 2009		$	1,638,052			$	17,034,330			$	479,853			$	(9,104,913	)		$	85,401			$	10,132,723

See accompanying notes to consolidated financial statements

BIRMINGHAM BLOOMFIELD BANCSHARES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		For the Six Months Ended
		June 30,
		2009				2008
Cash flows from operating activities
Net loss		$	(785,410	)		$	(1,023,309	)
Share based payments expense			13,300				21,000
Provision for loan losses			148,776				144,665
Accretion of securities			(2,626	)			(7,305	)
Gain on calls of securities			(3,027	)			(6,474	)
Depreciation expense			150,450				156,000
Net (increase) in other assets			(29,571	)			(17,156	)
Net increase in other liabilities			6,563				132,667
Net cash used in operating activities			(501,545	)			(599,912	)
Cash flows from investing activities
Increase in loans			(9,601,870	)			(12,197,570	)
Purchase of securities			(952,100	)			—
Proceeds from sales, calls or maturities of securities			1,860,846				789,459
Purchases of premises and equipment			(11,765	)			(3,934	)
Net cash used in investing activities			(8,704,889	)			(11,412,045	)
Cash flows from financing activities
Increase in deposits			15,578,716				20,506,141
Proceeds from sale of senior preferred stock			1,635,000				—
Dividends on senior preferred stock			(5,199	)			—
Net cash provided by financing activities			17,208,517				20,506,141
Increase in cash and cash equivalents			8,002,083				8,494,184
Cash and cash equivalents at the beginning of the period			4,663,497				5,139,126
Cash and cash equivalents at the end of the period		$	12,665,580			$	13,633,310
Supplemental cash flow information:
Cash paid for interest:		$	723,512			$	542,564

See accompanying notes to consolidated financial statements

BIRMINGHAM BLOOMFIELD BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2008.

In the opinion of management, 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. Events occurring subsequent to the balance sheet date through August 14, 2009 (the date of filing with the Securities and Exchange Commission); have been evaluated for potential recognition or disclosure in the consolidated financial statements. The results of operations for the three and six month periods ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ended December 31, 2009.

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.

Recent Accounting Developments

During May of 2009 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) Number 165, “Subsequent Events”. This statement establishes standards under which an entity shall recognize and disclose events that occur after a balance sheet date but before the related financial statements are issued or are available to be issued. SFAS 165 is in effect for fiscal years and interim periods ending after June 15, 2009. Birmingham Bloomfield Bancshares’ adoption of SFAS 165 had no impact on our consolidated financial position or results of operations.

In June 2009, the Financial Accounting Standards board issued three additional pronouncements. Birmingham Bloomfield Bancshares is in the process of assessing the impact of the adoption of these pronouncements on its consolidated financial position and results of operations. The pronouncements were:

SFAS No. 166, “Accounting for Transfers of Financial Assets and amendment of FASB Statement No. 140.” SFAS amends SFAS No. 140 to improve both the relevance and the comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and the transferring entity’s continuing involvement, if any, in the transferred financial assets. This pronouncement is effective for interim and annual reporting periods that begin after November 15, 2009.

BIRMINGHAM BLOOMFIELD BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies – continued

SFAS No. 167 “Amendments to FASB Interpretation No.46 (r).” SFAS No. 167 changes the criteria significantly for determining whether the consolidation of a variable interest entity is required. SFAS No. 167 also addresses the effect of changes that SFAS No. 166 would have on FASB Interpretation No. 46 (r), including concerns that the accounting and disclosures under the Interpretation do not always provide useful and timely information about an entity’s involvement in a variable interest entity. SFAS is effective for interim and annual reporting periods that begin after November 15, 2009.

SFAS No. 168 “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162”. On the effective date of SFAS No. 168, the codification will become the sole source of authoritative U.S. Generally Accepted Accounting Principles, (GAAP), recognized by the Financial Accounting Standards Board. This pronouncement is effective for interim and fiscal years ending after September 15, 2009. As SFAS No. 168 does not alter current Generally Accepted Accounting Principles, Birmingham Bloomfield Bancshares’ adoption of the same is not expected to have any material impact on our consolidated financial position or results of operations.

Staff Position No. 115-2 and 124-2, “Recognition and Presentation of Other-than Temporary Impairments” (FSP FAS 115-2 and 124-2), modifies the requirements for recognizing other-than-temporary-impairment on debt securities and significantly changes the impairment model for such securities. Under FSP FAS 115-2 and 124-2, a security is considered to be other-than-temporarily impaired if the present value of cash flows expected to be collected are less than the security’s amortized cost basis (the difference being defined as the credit loss) or if the fair value of the security is less than the security’s amortized cost basis and the investor intends, or more-likely-than-not will be required, to sell the security before recovery of the security’s amortized cost basis. If an other-than-temporary impairment exists, the charge to earnings is limited to the amount of credit loss if the investor does not intend to sell the security, and it is more-likely-than-not that it will not be required to sell the security, before recovery of the security’s amortized cost basis. Any remaining difference between fair value and amortized cost is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings. Upon adoption of the FSP, an entity reclassifies from retained earnings to other comprehensive income the noncredit portion of an other-than-temporary impairment loss previously recognized on a security it holds if the entity does not intend to sell the security, and it is more-likely-than not that it will not be required to sell the security, before recovery of the security’s amortized cost basis. The FSP also modifies the presentation of other-than-temporary impairment losses and increases related disclosure requirements. FSP FAS 115-2 and 124-2 is effective for periods ending after June 15, 2009, with earlier adoption permitted. Birmingham Bloomfield Bancshares has assessed the impact of adoption of the FSP on its financial position and results of operations and for the period ending, June 30, 2009 has determined that it has no impact.

Note 2 – Fair Value Accounting

On January 1, 2008, the Corporation adopted SFAS 157. SFAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 was issued to bring conformity to the definition of fair value; prior to SFAS 157 there was no conformity in the accounting guidance regarding the definition of fair value. Staff Position No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS 157-4), provides guidance on how to determine the fair value of assets and liabilities in an environment where the volume and level of activity for the asset or liability have significantly decreased and re-emphasizes that the objective of a fair value measurement remains an exit price. The FSP is effective for periods ending after June 15, 2009, with earlier adoption permitted. The adoption of FSP FAS 157-4 in the period ending June 30, 2009 did not have a material effect on Birmingham Bloomfield Bancshares financial position or results of operations.

BIRMINGHAM BLOOMFIELD BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Fair Value Accounting – continued

As of June 30, 2009 Birmingham Bloomfield Bancshares adopted Staff Position No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Statements” (FSP FAS 107-1 and APB 28-1), requires companies to disclose the fair value of financial instruments within interim financial statements, adding to the current requirement to provide those disclosures annually. Since FSP 107-1 and 124-2 addresses financial statement disclosures only, its adoption, effective June 30, 2009, did not impact Birmingham Bloomfield Bancshares’ consolidated financial position or results of operations and the required disclosures have been provided within this note.

Valuation Hierarchy

SFAS 157 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is 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. 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.
			Birmingham Bloomfield Bancshares currently holds no securities in level one of the hierarchy.
	•		Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
			Level 2 assets and liabilities for Birmingham Bloomfield Bancshares, Inc. include available for sale investments in government sponsored agencies, asset backed securities, FHLB stock and investments in obligations of state and political subdivisions. Fair values of these items are determined via external pricing from vendors.
	•		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.
			Birmingham Bloomfield Bancshares currently holds no securities in level three of the hierarchy.

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 following table presents the financial instruments carried at fair value as of June 30, 2009, on the Consolidated Balance Sheet and by SFAS 157 valuation hierarchy (as described above):

Assets measured at fair value on a recurring basis as of June 30, 2009 (000s omitted):

Quoted Prices in

Significant

Active Markets

Other

Significant

for Identical

Observable

Unobservable

Assets

Inputs

Inputs

Balance at June

Level 1

Level 2

Level 3

30, 2009

Securities available for sale

$

—

$

2,778

$

162

$

2,940

BIRMINGHAM BLOOMFIELD BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – 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
June 30, 2009 (unaudited)		cost				gains				losses				value
U.S. Government agency securities		$	1,343			$	9			$	—			$	1,352
Municipal securities			200				3				—				203
Mortgage backed securities			1,150				73				—				1,223
Corporate bonds			—				—				—				—
FHLB Stock			162				—				—				162
Total securities available for sale		$	2,855			$	85			$	—			$	2,940

						Gross				Gross				Estimated
		Amortized				unrealized				unrealized				fair
December 31, 2008		cost				gains				losses				value
U.S. Government agency securities		$	2,004			$	30			$	—			$	2,034
Municipal securities			—				—				—				—
Mortgage backed securities			1,250				92				—				1,342
Corporate bonds			504				—				—				504
FHLB Stock			—				—				—				—
Total		$	3,758			$	122			$	—			$	3,880

As of June 30, 2009 and December 31, 2008, all securities are available for sale. The securities held in our portfolio experienced no rating changes during the quarter and remain at “AAA” for all except the municipal holding which is at “Aa3” based on ratings by Moody. At June 30, 2009, there were $1.56 million in securities pledged to secure public deposits from the State of Michigan. At December 31, 2008, there were no securities pledged to secure borrowings, public deposits or for other purposes required or permitted by law.

The amortized cost and estimated fair value of securities at June 30, 2009, 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):

						Estimated
		Amortized				fair
		cost				value
Due in one year or less		$	—			$	—
Due in one year through five years			1,543				1,555
Due in five years through ten years			162				162
Due after ten years			—				—
Subtotal			1,705				1,717
Mortgage backed securities, due after 10 years			1,150				1,223
Total		$	2,855			$	2,940

BIRMINGHAM BLOOMFIELD BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 – Loans

A summary of the balances of loans are as follows (000s omitted):

		June 30,				December 31,
		2009				2008
		(unaudited)
Mortgage loans on real estate:
Residential 1 to 4 family		$	2,249			$	2,745
Multifamily			8,602				7,676
Commercial			26,798				23,085
Construction			3,222				3,000
Second mortgage			175				736
Equity lines of credit			12,903				10,381
Total mortgage loans on real estate			53,949				47,623
Commercial loans			11,896				8,242
Consumer installment loans			621				1,007
Total loans			66,466				56,872
Less:
Allowance for loan losses			840				710
Net deferred loan fees			42				31
Net loans		$	65,584			$	56,131

Activity in the allowance for loan losses for the periods ended June 30, are as follows (000s omitted):

		Three months ended								Six months ended
		June 30,								June 30,
(unaudited)		2009				2008				2009				2008
Balance at beginning of period		$	743			$	610			$	710			$	560
Charge-offs			18				—				18				—
Recoveries			—				84				—				84
Provision for loan losses			115				95				148				145
Balance at end of period		$	840			$	789			$	840			$	789

At June 30, 2009, the Corporation had one impaired, nonaccrual loan with outstanding principal of approximately $817,000. Payment in full was received on this non-accrual loan on August 3, 2009. There were no loans over 90 days past due and still accruing interest.

BIRMINGHAM BLOOMFIELD BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 – Deposits

Deposits are summarized as follows (000s omitted):

		June 30,				December 31,
		2009				2008
		(unaudited)
Non-interest bearing deposits		$	7,450			$	5,195
NOW accounts			7,855				7,882
Savings and money market accounts			20,461				10,571
Certificates of deposit <$100,000			13,993				13,089
Certificates of deposit >$100,000			23,568				21,011
Total		$	73,327			$	57,748

At June 30, 2009, the scheduled maturities of time deposits maturing are as follows (000s omitted):

		<$100,000				>$100,000				Total
Within 12 months		$	10,932			$	17,029			$	27,961
> 12 months			3,061				6,539				9,600
Total		$	13,993			$	23,568			$	37,561

Note 6 – Leases and Commitments

The Corporation has entered into a lease agreement for its main office. 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 branch office in Bloomfield Township. Payments began in March 2006 and the lease expires February 2016. The Bloomfield branch office lease has one five year renewal option. Rent expense under the lease agreements was $70,000 and $69,000 for the three months ended June 30, 2009 and 2008, respectively. Rent expense under the lease agreements was $139,000 and $137,000 for the six months ended June 30, 2009 and 2008, respectively.

The following is a schedule of future minimum rental payments under operating leases on a calendar year basis (000s omitted):

2009		$	140
2010			286
2011			292
2012			298
2013			304
Thereafter			3,365
Total		$	4,685

BIRMINGHAM BLOOMFIELD BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 – 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. SFAS 107 excludes certain financial instruments and all nonfinancial 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.

BIRMINGHAM BLOOMFIELD BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 – Fair Value of Financial Instruments — continued

The carrying values and estimated fair values of financial instruments at June 30, 2009 and December 31, 2008, are as follows (in thousands):

		June 30, 2009								December 31, 2008
						Estimated								Estimated
		Carrying				Fair				Carrying				Fair
		Value				Value				Value				Value
Financial assets:
Cash and cash equivalents		$	12,666			$	12,666			$	4,663			$	4,663
Securities available for sale			2,940				2,940				3,880				3,880
Loans			66,424				66,345				56,841				57,273
Accrued interest receivable			331				331				293				293
Financial liabilities:
Deposits			73,327				73,536				57,748				57,897
Accrued interest payable			97				97				153				153

BIRMINGHAM BLOOMFIELD BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 – Minimum Regulatory Capital Requirements

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The prompt corrective action regulations provide four classifications, well capitalized, adequately capitalized, undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required. The Bank of Birmingham was well-capitalized as of June 30, 2009. At June 30, 2009, the Corporation qualifies for an exemption from regulatory capital requirements due to its asset size.

The Bank’s actual capital amounts and ratios as of June 30, 2009 are presented in the following table (000s omitted):

										For Capital								To be
		Actual								Adequacy Purposes								Well-Capitalized
		Amount				Ratio				Amount				Ratio				Amount				Ratio
As of June 30, 2009
Total risk-based capital (to risk weighted assets) Bank of Birmingham		$	8,841				13.0	%		$	5,430				8.0	%		$	6,788				10.0	%
Tier I capital (to risk weighted assets) Bank of Birmingham		$	8,001				11.8	%		$	2,715				4.0	%		$	4,073				6.0	%
Tier I capital (to average assets) Bank of Birmingham		$	8,001				10.5	%		$	3,042				4.0	%		$	3,803				5.0	%
As of December 31, 2008
Total risk-based capital (to risk weighted assets) Bank of Birmingham		$	9,345				16.6	%		$	4,491				8.0	%		$	5,614				10.0	%
Tier I capital (to risk weighted assets) Bank of Birmingham		$	8,635				15.4	%		$	2,246				4.0	%		$	3,369				6.0	%
Tier I capital (to average assets) Bank of Birmingham		$	8,635				12.8	%		$	2,695				4.0	%		$	3,369				5.0	%

BIRMINGHAM BLOOMFIELD BANCSHARES, INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Disclosure Regarding Forward Looking Statements

This report contains forward-looking statements throughout that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about the Corporation and the Bank. Words such as anticipates, believes, estimates, expects, forecasts, intends, is likely, plans, projects, variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are intended to be covered by the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Actual results and outcomes may materially differ from what may be expressed or forecasted in the forward-looking statements. The Corporation undertakes no obligation to update, amend, or clarify forward looking statements, whether as a result of new information, future events (whether anticipated or unanticipated), or otherwise.

Future factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses; competitive pressures among depository institutions, especially in light of increased consolidation within the industry; our ability to recruit and retain personnel required to support our growth and expansion and maintain the level of expertise necessary to support operational compliance; the ability to control expenses in this very difficult economic environment and era of special assessments from the FDIC and additional government oversight; interest rate movements and their impact on customer behavior and net interest margin; the impact of re-pricing and competitor’s pricing initiatives on loan and deposit products; the ability to adapt successfully to technological changes to meet customers’ needs and development in the market place; our ability to manage and access cost-effective funding; changes in economic conditions in general and particularly as related to the automotive and related industries in the Detroit metropolitan area; new legislation or regulatory changes, including but not limited to changes in federal and/or state tax laws or interpretations thereof by taxing authorities; changes in accounting principles, policies or guidelines; and our future acquisitions of other depository institutions or lines of business. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning and Corporation and its business, including additional factors that could materially affect the Corporation’s financial results, is included in its filings with the Securities and Exchange Commission.

BIRMINGHAM BLOOMFIELD BANCSHARES, INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

General economic conditions have worsened for banks in general and particularly in Michigan as the U.S. economic picture has placed us into a recession. The nation’s economy as a whole including the banking industry has experienced significant downturns resulting in losses, additional government intervention and oversight, and additional expense from FDIC special assessments within our industry. Michigan and the Detroit area in particular have been hit fairly hard. Michigan has one of the highest foreclosure rates and unemployment rates in the country. While Oakland county is not immune to these issues, the demographics of the Birmingham Bloomfield area somewhat lessen the impact as the residents of the area tend to be more business owners and professionals. The Bank has been very prudent in our lending practices and those efforts continue to show a very clean loan portfolio through the second quarter of the year. During April 2009, we placed two credits on non-accrual status, one for $18,277 and the second for $817,018. The first is a probate matter, and the second involves a collateral dependent commercial real estate property. The probate matter was charged off during the second quarter and any funds received as a result of probate will be treated as a recovery. The larger, collateral dependent real estate property loan was paid back to the Bank in full on August 3, 2009. There were no other loans on non-accrual status at the end of June 2009.

The Bank continues to use its capital for customer loans, investments and other general banking purposes. The Corporation’s initial offering proceeds have enabled the Bank to maintain a leverage capital ratio, which is a measure of core capital to average total assets, in excess of 8% for the first three years of operations as required by the FDIC. The Corporation does anticipate that it will require $4.0 to $6.0 million in additional equity during the next 36 months of operations in order to continue to grow while meeting regulatory capital requirements. The Bank has participated in the Government’s Capital Purchase Program, receiving $1.635 million in capital through the program to fulfill a portion of that need. Management is exploring the capital markets with the aid of consultants to determine how and when it may raise the additional equity.

FINANCIAL CONDITION

At June 30, 2009, the Corporation’s total assets were $83.7 million, an increase of $16.4 million or 24.4% from December 31, 2008. Cash and cash equivalents increased by $8.0 million or 171.6%. Investment securities decreased $1.1 million or 28.4% from December 31, 2008 to June 30, 2009. This decrease was offset by the purchase of $162,100 in FHLBI stock, a requirement of membership in the FHLB, which provides additional liquidity resources in addition to other services to the Bank. Loans, net of the allowance for loan losses, increased by $9.5 million or 16.8% from December 31, 2008 to June 30, 2009. Total deposits increased by $15.6 million or 27.0% from December 31, 2008 to June 30, 2009. Basic and diluted loss per share for the three and six months ended June 30, 2009 were $(0.26) per share and $(0.44) per share, respectively. These numbers include the impact of the Corporation’s participation in the Capital Purchase Program through the Department of Treasury. Basic and diluted loss per share for the three and six months ended June 30, 2008 were $(0.22) per share and $(0.57) per share, respectively.

Cash and Cash Equivalents

Cash and cash equivalents increased $8.0 million or 171.6% to $12.7 million at June 30, 2009 up from $4.7 million at December 31, 2008. Cash increased $8.3 million or 691.0% to $9.5 million at June 30, 2009. Federal funds sold decreased $294,000 or 8.5% to $3.2 million at June 30, 2009. The increase in cash is due to $1.635 million received through the Government Capital Purchase Plan, $1.5 million from the State of Michigan CD Stimulus program, $4.0 million in certificates of deposit gained through the Qwickrate listing service and $1.2 million in new customer deposits. These funds will be utilized for loan fundings and to extend the duration of our liability portfolio to assist in reducing our liability sensitive position.

BIRMINGHAM BLOOMFIELD BANCSHARES, INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Investments

Total investment securities available-for-sale decreased $940,000 or 24.2% to $2.9 million at June 30, 2009, compared to $3.9 million at December 31, 2008. The decrease in investment securities is primarily attributable to the sale of a corporate security and the call of three U.S. Government agency securities, resulting in an approximate decrease of $1.8 million, offset by $790,000 in U.S. Government agency security purchases and the purchase of $162,100 in FHLBI stock. The Bank purchased $162,100 in FHLB stock as a requirement of our membership in the Federal Home Loan Bank of Indianapolis. The remaining decrease was due to repayments on mortgage backed securities. The Bank had no held to maturity securities as of June 30, 2009 and December 31, 2008.

Loans, Credit Quality and Allowance for Loan Losses

During the first six months of 2009, loans, net of the allowance for loan losses, increased $9.5 million or 16.8%, to $65.6 million at June 30, 2009 up from $56.1 million at December 31, 2008. The largest single category increase within loans, as noted in Note 4 to the financial statements, was commercial non real estate loans which increased by $3.7 million or 69.3% to $11.9 million at June 30, 2009. Equity lines of credit increased by $2.5 million or 19.5% to $12.9 million at June 30, 2009. Commercial real estate increased by $3.7 million or 16.1% to $26.8 million at the current quarter end. These loans are for the most part owner occupied properties. These increases are due in part to increased draws on existing lines as well as continued business development efforts. Multifamily real estate loans increased approximately $926,000 or 12.1% to $8.6 million at June 30, 2009. The increase is due to new loan production.

The allowance for loan losses was $840,000 or 1.26% of loans at June 30, 2009. For the three and six month periods ended June 30, 2009, there was one home equity line of credit loan charge off for approximately $18,000 due to it becoming a probate matter, which occurred in the second quarter of 2009. There were no loan charge offs during the three and six month periods ended June 30, 2008. The Corporation had no loan recoveries during the three and six month periods ended June 30, 2009. In the second quarter of 2008, the Corporation did recover approximately $84,000 on a loan charged-off in 2007. There were no loans over 90 days past due and still accruing interest at June 30, 2009 or 2008, but as previously stated one account totaling $817,018 that was not past due was placed on non-accrual status during April 2009. Subsequent to the end of the second quarter this non-accrual loan was paid in full during early August 2009.

The primary risk element considered by management regarding each consumer and residential real estate loan is lack of timely payment. 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 annual financial statements from its commercial loan customers and periodically reviews existence of collateral and its value.

Management evaluates the condition of the loan portfolio on a quarterly basis to determine the adequacy of the allowance for loan losses. Management’s evaluation of the allowance is further based on consideration of actual loss experience, the present and prospective financial condition of borrowers, adequacy of collateral, industry concentrations within the portfolio, and general economic conditions. Management believes that the present allowance is currently adequate, based on the broad range of considerations listed above but will during 2009 increase its planned provision to increase the reserve to around 1.30% of total loans due to the continued unstable economic environment that we are operating within.

BIRMINGHAM BLOOMFIELD BANCSHARES, INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Although management believes that the allowance for loan losses is adequate to absorb losses as they arise, there can be no assurance that the Corporation will not sustain losses in any given period that could be substantial in relation to the size of the allowance for credit losses. Inherent risks and uncertainties related to the operation of a financial institution require management to depend on estimates, appraisals and evaluations of loans to prepare the Corporation’s financial statements. Changes in economic conditions and the financial prospects of borrowers may result in changes to the estimates, appraisals and evaluations used. In addition, if circumstances and losses differ substantially from management’s assumptions and estimates, the allowance for loan losses may not be sufficient to absorb all future losses and net income could be significantly impacted.

Premises and Equipment

Premises and equipment, net of depreciation, was $2.1 million as of June 30, 2009 and $2.2 million at December 31, 2008. The Corporation has no plans for significant additions over the next twelve months.

Deposits

Total deposits were $73.3 million as June 30, 2009, an increase of $15.6 million over December 31, 2008. In the deposit categories, noninterest bearing DDA deposits were $7.4 million, which were made up primarily of business accounts. NOW accounts which, except for limited circumstances, are owned by individuals were $7.8 million at June 30, 2009, while Money Market accounts were $10.9 million and Savings accounts were $9.6 million at the current quarter end. Certificates of deposit were $37.6 million at June 30, 2009. Of this amount $23.6 million was in certificates greater than $100,000. Beginning in February 2008, the Corporation began advertising its rates on certain certificates of deposits on a national certificate of deposit network, which has attracted some deposits from outside the local market. We will continue to utilize this avenue to supplement our deposit base as we continue to focus on growing our portion of the local retail and commercial deposit market. We have also chosen to participate in the MI-CD program with the State of Michigan. This program allows us to acquire State of Michigan certificate of deposit funds at below market rates to aid in the funding of our loan portfolio. Currently, $1.5 million in these funds are included in our time deposits over $100,000.

		As of June 30,
		2009
(000s omitted)		Balance				Percentage
Noninterest bearing demand		$	7,450				10.2	%
NOW accounts			7,855				10.7
Money market			10,853				14.8
Savings			9,608				13.1
Time deposits under $100,000			13,993				19.1
Time deposits over $100,000			23,568				32.1
Total deposits		$	73,327				100.0	%

BIRMINGHAM BLOOMFIELD BANCSHARES, INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Net Interest Income

Net interest income for the three months ended June 30, 2009 and 2008 were $610,000 and $457,000 respectively. Interest income on loans was $894,000 and $729,000 for the three months ended June 30, 2009 and 2008, respectively. The growth in interest income on loans was driven by continued growth in the loan portfolio. Deposit interest expense of $328,000 and $340,000 for the three month periods ended June 30, 2009 and 2008, respectively, decreased due to the growth in savings accounts and certificates of deposit accounts being offset by significantly lower interest rates offered during the 2^nd quarter of 2009 compared to the same period in 2008.

The following table shows the Corporation’s consolidated average balances of assets, liabilities, and equity. The table also details the amount of interest income or interest expense and the average yield or rate for each category of interest-earning asset or interest-bearing liability and the net interest margin for the three month period ended June 30, 2009 and 2008, respectively.

		Three Months Ended June 30,
		2009												2008
		Average								Average				Average								Average
		Balance								Yield/				Balance								Yield/
		(000s)				Interest				Rate				(000s)				Interest				Rate
Interest-earning assets
Loans		$	62,027			$	893,654				5.76	%		$	47,393			$	728,511				6.15	%
Securities			3,507				37,105				4.23	%			1,856				26,490				5.71	%
Federal funds sold			2,921				1,024				0.14	%			8,447				41,830				1.98	%
Interest-bearing balance with other financial institutions			4,548				6,256				0.55	%			—				—				—
Total interest-earning assets			73,003				938,039				5.14	%			57,696				796,831				5.52	%
Cash and due from banks			1,484												1,243
All other assets			1,688												2,019
Total assets		$	76,175											$	60,958
Interest-bearing liabilities
NOW accounts		$	7,908				16,927				0.86	%		$	7,809				31,733				1.63	%
Money market			10,063				30,157				1.20	%			11,905				55,563				1.87	%
Savings			9,122				39,253				1.72	%			386				1,513				1.57	%
Time deposits			32,371				241,931				2.99	%			24,858				250,877				4.04	%
Total interest-bearing liabilities			59,464				328,268				2.21	%			44,958				339,686				3.02	%
Non-interest bearing deposits			5,910												5,606
All other liabilities			220												325
Total liabilities			65,594												50,889
Shareholders’ equity			10,581												10,069
Total liabilities and shareholders’ equity		$	76,175											$	60,958
Net interest income						$	609,771											$	457,145
Net spread											2.93	%											2.50	%
Net interest margin (1)											3.34	%											3.17	%
Ratio of interest-earning assets to interest-bearing liabilities			122.77	%											128.33	%

BIRMINGHAM BLOOMFIELD BANCSHARES, INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Net interest income for the six months ended June 30, 2009 and 2008 was $1.153 million and $.871 million respectively. Interest income on loans was $1.7 million and $1.4 million for the six months ended June 30, 2009 and 2008, respectively. As indicated above, the growth in interest income on loans was driven by continued growth in the loan portfolio. Significant growth in interest bearing deposit balances, offset by significantly lower interest rates offered in 2009, resulted in slightly increased levels of deposit interest expense. Interest expense was $668,000 and $653,000 for the six month periods ended June 30, 2009 and 2008, respectively.

The following table shows the Corporation’s consolidated average balances of assets, liabilities, and equity. The table also details the amount of interest income or interest expense and the average yield or rate for each category of interest-earning asset or interest-bearing liability and the net interest margin for the six month period ended June 30, 2009 and 2008, respectively.

		Six Months Ended June 30,
		2009												2008
		Average								Average				Average								Average
		Balance								Yield/				Balance								Yield/
		(000s)				Interest				Rate				(000s)				Interest				Rate
Interest-earning assets
Loans		$	60,231			$	1,736,475				5.77	%		$	43,599			$	1,378,652				6.32	%
Securities			3,443				74,511				4.33	%			1,971				55,635				5.65	%
Federal funds sold			2,659				1,915				0.14	%			7,192				90,130				2.51	%
Interest-bearing balance with
other financial institutions			3,340				7,596				0.45	%			—				—				—
Total interest-earning assets			69,673				1,820,497				5.23	%			52,762				1,524,417				5.78	%
Cash and due from banks			1,727												1,251
All other assets			1,755												2,096
Total assets		$	73,155											$	56,109
Interest-bearing liabilities
NOW accounts		$	7,735				38,840				1.00	%		$	8,360				91,368				2.19	%
Money market			10,061				64,689				1.29	%			11,772				141,548				2.40	%
Savings			6,472				55,952				1.73	%			359				2,831				1.58	%
Time deposits			32,929				508,378				3.09	%			19,394				417,681				4.31	%
Total interest-bearing liabilities			57,197				667,859				2.34	%			39,885				653,428				3.28	%
Non-interest bearing deposits			5,849												5,644
All other liabilities			227												265
Total liabilities			63,273												45,794
Shareholders’ equity			9,882												10,315
Total liabilities and shareholders’ equity		$	73,155											$	56,109
Net interest income						$	1,152,638											$	870,989
Net spread											2.89	%											2.50	%
Net interest margin (1)											3.31	%											3.30	%
Ratio of interest-earning assets to interest-bearing liabilities			121.81	%											132.29	%