UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934

      For the fiscal year ended December 31, 2002

[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

               For the transition period from ________ to ________

                         BROADWAY FINANCIAL CORPORATION
                 (Name of Small Business Issuer in its Charter)

                    Delaware                                   95-4547287
        (State or other jurisdiction of                     (I.R.S. Employer
         Incorporation or organization)                   Identification No.)

4800 Wilshire Boulevard, Los Angeles, California                 90010
    (Address of principal executive offices)                   (Zip Code)

                                 (323) 634-1700
                (Issuer's Telephone Number, Including Area Code)

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:

       Common Stock (including attached preferred stock purchase rights),
                            $0.01 par value per share
                                (Title of Class)

     Check  whether  the issuer:  (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements  for the past 90 days.  Yes [X] No
[   ]

     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ X ].

    State issuer's revenues for its most recent fiscal year: $13,468,000

     State the aggregate market value of the voting and non-voting common equity
held by non-affiliates:  $18,467,000,  based on the average bid and asked prices
of such  common  equity as of February  28,  2003 as quoted on The Nasdaq  Stock
Market.

     State the number of shares  outstanding of each of the issuer's  classes of
common equity,  as of the latest  practicable  date:  1,815,294 shares of Common
Stock at February 28, 2003.

     Transitional Small Business Disclosure Format (check one): Yes [   ] No [X]

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive Proxy Statement for the Registrant's 2003 Annual
Meeting of Shareholders are incorporated by reference into Part III.

<PAGE>



                         BROADWAY FINANCIAL CORPORATION

                          ANNUAL REPORT ON FORM 10-KSB

                                     PART I

Item 1   DESCRIPTION OF BUSINESS.............................................1
            Broadway Financial Corporation...................................1
            Broadway Federal Bank, f.s.b.....................................1
                  General....................................................1
            Market Area and Competition......................................1
            Lending Activities...............................................2
                  General....................................................2
                  Loan Portfolio Composition.................................2
                  Loan Maturities............................................3
                  Origination, Purchase, Sale and Servicing of Loans.........4
                  One-to Four-Family Mortgage Lending........................5
                  Multi-Family Lending.......................................6
                  Non-Residential Real Estate Lending........................7
                  Consumer Lending...........................................8
                  Loan Approval Procedures and Authority.....................8
                  Delinquencies and Classified Assets........................8
                  Non-Performing Assets.....................................10
                  Allowance for Loan Losses.................................10
            Investment Activities...........................................12
            Sources of Funds................................................13
                  General...................................................13
                  Deposits..................................................13
                  Borrowings................................................14
            Personnel.......................................................15
            Regulation
                  General...................................................15
                  Capital Requirements......................................15
                  Loans to One Borrower.....................................17
                  Community Reinvestment Act................................17
                  Qualified Thrift Lender Test..............................17
                  Savings and Loan Holding Company Regulation...............17
                  Restrictions on Dividends and Other Capital Distributions.18
                  Financial Modernization Legislation.......................18
            Tax Matters
                  Federal Income Tax........................................18
                        General.............................................18
                        Bad Debt Reserves...................................18
                  California Taxes..........................................19
Item 2   DESCRIPTION OF PROPERTY............................................19
Item 3   LEGAL PROCEEDINGS..................................................19
Item 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................19

                                       i
<PAGE>


                                    PART II

Item 5   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...........20
Item 6   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS
            General.........................................................20
            Interest Rate Sensitivity.......................................21
                  Net Portfolio Value.......................................21
               Critical Accounting Policies.................................22
                  Market Risk...............................................22
                  Average Balance Sheet.....................................25
                  Rate/Volume Analysis......................................26
            Comparison of Operating Results for the Years
                Ended December 31, 2002 and December 31,2001
                  General...................................................27
                  Interest Income...........................................27
                  Interest Expense..........................................27
                  Net Interest Income After Provision for (Recovery of)
                    Loan Losses.............................................27
                  Non-Interest Income.......................................27
                  Non-Interest Expense......................................27
            Comparison of Financial Condition at December 31, 2002 and
                December 31, 2001
                  Assets....................................................28
                  Liabilities...............................................28
                  Liquidity and Capital Resources...........................28
                  Impact of Inflation and Changing Prices...................29
                  Recent Accounting Pronouncements..........................29
Item 7   FINANCIAL STATEMENTS OF BROADWAY FINANCIAL CORPORATION.............29
Item 8   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE...............................................29

                                    PART III

Item 9   DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.....................29
Item 10  EXECUTIVE COMPENSATION.............................................29
Item 11  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         AND RELATED STOCKHOLDER MATTERS....................................29
Item 12  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................30
Item 13  EXHIBITS AND REPORTS ON FORM 8-K...................................30
Item 14  CONTROLS AND PROCEDURES............................................33
         SECTION 302 CERTIFICATIONS.........................................34
         INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.........................36

                                       ii
<PAGE>

Forward-Looking Statements

     Certain statements herein, including without limitation,  matters discussed
under  "Management's  Discussion and Analysis of Financial Condition and Results
of  Operations"  in Part II,  Item 6 of this  Form  10-KSB  are  forward-looking
statements,  within the meaning of Section 21E of the Securities Exchange Act of
1934 and  Section  27A of the  Securities  Act of 1933,  that  reflect  Broadway
Financial  Corporation's  current  views  with  respect  to  future  events  and
financial  performance.  Forward-looking  statements typically include the words
"anticipate,"  "believe,"  "estimate,"  "expect," "project," "plan," "forecast,"
"intend," and other similar expressions.  These  forward-looking  statements are
subject to risks and  uncertainties,  including those  identified  below,  which
could cause actual future results to differ  materially from historical  results
or from those  anticipated.  Readers  should not place  undue  reliance on these
forward-looking  statements,  which speak only as of their dates, or, if no date
is provided,  then as of the date of this Form 10-KSB. The Company undertakes no
obligation to publicly update or revise any forward-looking statements,  whether
as a result of new information, future events or otherwise.

     The following  factors could cause future results to differ materially from
historical  results  or from  those  anticipated:  (1) the level of  demand  for
mortgage  loans,  which is affected by such  external  factors as interest  rate
levels,  tax  laws,  the  strength  of  various  segments  of  the  economy  and
demographics  of the Company's  lending  markets;  (2) the direction of interest
rates and the  relationship  between market  interest rates and the yield on the
Company's interest-earning assets and the cost of interest-bearing  liabilities;
(3) the rate of loan  losses  incurred by  Broadway  Federal,  the level of loss
reserves maintained by Broadway Federal and management's judgments regarding the
collectibility  of loans;  (4) federal  and state  regulation  of the  Company's
lending and deposit  operations  or other  regulatory  actions;  (5) the actions
undertaken by both current and potential new competitors; (6) the possibility of
adverse trends in the residential and non-residential  real estate markets;  (7)
the effect of changes in  economic  conditions;  (8) the effect of  geopolitical
uncertainties;  and (9) other  risks  and  uncertainties  detailed  in this Form
10-KSB,  including  Management's  Discussion and Analysis of Financial Condition
and Results of Operations.


                                   iii
<PAGE>


                                     PART I

Item 1. Description Of Business

Broadway Financial Corporation

     Broadway  Financial  Corporation  (the  "Company") was  incorporated  under
Delaware  law in 1995  for the  purpose  of  acquiring  and  holding  all of the
outstanding  capital  stock of Broadway  Federal  Savings  and Loan  Association
("Broadway  Federal"  or the  "Bank")  as part of the Bank's  conversion  from a
federally  chartered mutual savings  association to a federally  chartered stock
savings bank. In connection with the conversion,  the Bank's name was changed to
"Broadway  Federal Bank,  f.s.b." The  conversion  was  completed,  and the Bank
became a wholly owned subsidiary of the Company in January 1996.

     The  Company's  principal  business is serving as the  holding  company for
Broadway  Federal.  The Company is subject to regulation and  examination by the
Office of Thrift Supervision ("OTS") as a savings and loan holding company.  The
executive  offices of the Company are located at 4800  Wilshire  Boulevard,  Los
Angeles, California 90010. The telephone number is (323) 634-1700. Shareholders,
analysts and others seeking  information  about the Company and its subsidiaries
can visit the Bank's website at www.broadwayfed.com.

Broadway Federal Bank, f.s.b.

     General.  Broadway  Federal  is a  community-oriented  savings  institution
dedicated to serving the  African-American,  Hispanic and other  communities  of
Mid-City and South Central Los Angeles,  California.  Broadway  Federal conducts
its business  from three banking  offices in Los Angeles and one banking  office
located in the nearby City of Inglewood.

     Broadway  Federal's   principal  business  consists  of  attracting  retail
deposits from the general public in the areas surrounding its branch offices and
investing  those  deposits,  together with funds  generated from  operations and
borrowings,  primarily in multi-family and  single-family  residential  mortgage
loans.  To a lesser extent,  Broadway  Federal invests in  non-residential  real
estate loans, secured primarily by church properties and commercial  properties,
and also invests in certain other types of loans. In addition,  Broadway Federal
invests  in  securities   issued  by  the  federal   government   and  agencies,
mortgage-backed securities, mortgage-related mutual funds and other investments.

     Broadway  Federal  originates  and purchases  loans for  investment and for
sale. In most  instances,  Broadway  Federal  retains the servicing  rights with
respect to loans sold.  Broadway Federal's revenues are derived principally from
interest on its mortgage  loans and interest and  dividends on its  investments.
Broadway  Federal's  principal  expenses  are  interest  paid  on  deposits  and
borrowings,   together  with  general  and  administrative  expenses.   Broadway
Federal's primary sources of funds are deposits, principal and interest payments
on loans and mortgage-backed securities, and Federal Home Loan Bank borrowings.

     The Bank is regulated by the Federal Deposit Insurance Corporation ("FDIC")
and the OTS.  The Bank's  deposits  are insured up to  applicable  limits by the
Savings  Association  Insurance  Fund  ("SAIF") of the FDIC.  The Bank is also a
member  of  the  Federal  Home  Loan  Bank  ("FHLB")  of  San   Francisco.   See
"-Regulation."

     At December 31, 2002, the Bank was classified as  "well-capitalized"  under
applicable OTS and FDIC capital regulations.


Market Area and Competition

     The Los Angeles  metropolitan area is a highly  competitive market in which
Broadway Federal faces significant  competition in making loans and, to a lesser
extent,  in  attracting  deposits.   Although  Broadway  Federal's  offices  are
primarily   located  in  low  and  moderate  income  minority  areas  that  have
historically been under-served by other financial institutions, Broadway Federal
is facing increasing  competition for deposits and residential  mortgage lending
in its immediate  market areas,  including  direct  competition from a number of
financial  institutions with branch offices or loan origination  capabilities in
its market area as well as from institutions with internet-based  programs. Most
of these  financial  institutions  are  significantly  larger  and have  greater
financial resources than Broadway Federal,  and many have a regional,  statewide
or national  presence.  Management  believes that this competition has increased
substantially,  particularly  with  respect to one- to  four-family  residential
lending activities.  Many larger  institutions,  able to accept lower returns on
loans in Broadway Federal's market, do so to attract a sufficient volume of such
loans in response to the increased  emphasis by federal  regulators on financial
institutions'   fulfillment  of  their   responsibilities  under  the  Community
Reinvestment Act. See "-Regulation-Community Reinvestment Act."


                                       1
<PAGE>

     For much of the period since World War II, the  communities of Mid-City and
South Central Los Angeles had a predominately  African-American  population and,
although there is significant  variation among  communities in South Central Los
Angeles, a substantial portion of the area has historically consisted of low and
moderate  income  neighborhoods  and  commercial  areas.  While the area remains
predominately  low and  moderate  income in  nature,  in more  recent  years the
population has changed,  with a rapidly growing Hispanic  community,  as well as
Asian and other ethnic communities.

     Historically, there has been relatively few retail banking offices of other
financial  institutions  located in Broadway Federal's primary market area. This
fact, coupled with our observation that the deposit needs and preferences of the
Bank's customers tend to be for passbook or other transactional accounts, rather
than  higher cost  certificates  of deposit,  has  enabled  Broadway  Federal to
maintain a higher  proportion  of its  deposit  funding  in such "core  deposit"
accounts.  Management believes that this results in Broadway Federal realizing a
substantially  higher  interest  rate spread and margin than many other  savings
institutions.

     With respect to its lending  activities,  Broadway Federal also tailors its
business  strategy  to  the  communities  it  serves.  Broadway  Federal's  loan
originations  consist  primarily of loans on multi-family  properties,  loans on
one- to  four-family  properties,  loans on  church  properties  and  commercial
properties.  Broadway Federal's  borrowers often request small loan amounts that
result  in  loans  with  relatively  low  loan-to-value  ratios.  To  facilitate
single-family  loans  to low and  moderate-income  borrowers,  Broadway  Federal
utilizes flexible credit underwriting standards in that the Bank accepts various
forms of alternative  documentation  substantiating  the prospective  borrower's
credit  worthiness.  In addition,  Broadway  Federal  accepts  higher  ratios of
housing  expense and total expense to borrower  income  because it believes that
many low and moderate-income borrowers are able to devote a higher percentage of
their income to housing without  material default  experience.  Broadway Federal
will also, in cases it believes to be appropriate, accept a greater incidence of
late payments by loan applicants on their other financial  obligations if it can
be  established  that these were beyond the control of the  borrower and are not
likely to reoccur.

Lending Activities

     General.  Broadway  Federal  emphasizes the origination of  adjustable-rate
loans  ("ARMs")  and hybrid ARM loans  (ARM loans  having an initial  fixed rate
period)  primarily  for  retention  in its  portfolio  in order to increase  the
percentage  of loans with more frequent  repricing,  thereby  reducing  Broadway
Federal's  exposure to interest rate risk.  At December 31, 2002,  approximately
89.74% of Broadway  Federal's  mortgage  loans had  adjustable  rates.  Although
Broadway  Federal  has  continued  to  originate  fixed-rate  mortgage  loans in
response to customer demand,  and Broadway  Federal's strategy to have a portion
of its interest earning assets be assets that do not reprice regularly,  a large
portion of the  conforming  fixed-rate  mortgage  loans  originated  by Broadway
Federal and some of its ARMs and hybrid ARMs are sold in the  secondary  market,
primarily to the Federal National  Mortgage  Association  ("FNMA"),  the Federal
Home Loan Mortgage Corporation ("FHLMC") and other financial  institutions.  The
decision  as to  whether  the  loans  will be  retained  in  Broadway  Federal's
portfolio or sold is made at the time of loan origination. At December 31, 2002,
Broadway  Federal  had 19 loans held for sale with a  principal  balance of $3.8
million. The loans consist of six single-family loans and 13 multi-family loans.

     The types of loans that Broadway Federal  originates are subject to federal
laws and  regulations.  Interest rates charged by Broadway  Federal on loans are
affected by the demand for such loans, the supply of money available for lending
purposes  and the  rates  offered  by  competitors.  These  factors  are in turn
affected by, among other things,  economic conditions,  monetary policies of the
federal  government,  including the Federal  Reserve Board,  and legislative tax
policies.  Federal  savings  associations  and savings  banks are not subject to
usury or other interest rate limitations.

     Loan Portfolio  Composition.  Broadway  Federal's  loan portfolio  consists
primarily of first  mortgage  loans not insured or guaranteed by any  government
agency.  At December 31, 2002,  Broadway  Federal's gross loan portfolio totaled
$146.5 million, of which approximately 20.55% was secured by one- to four-family
residential properties, 65.39% was secured by multi-family properties and 11.56%
was secured by non-residential  properties,  with  approximately  49.62% of such
non-residential   properties  being  church  properties.   At  that  same  date,
approximately  56.07% of Broadway Federal's one- to four-family  mortgage loans,
99.71%  of its  multi-family  residential  mortgage  loans,  and  92.11%  of its
non-residential mortgage loans had adjustable rates.


                                       2
<PAGE>

     The following table sets forth the  composition of Broadway  Federal's loan
portfolio in dollar amounts and as a percentage of Broadway Federal's total loan
portfolio  (held  for  investment  and held for  sale) by loan type at the dates
indicated.
<TABLE>
<CAPTION>

                                                          December 31,
                                     ------------------------------------------------------
                                                2002                        2001
                                     ------------------------------------------------------
                                        Amount      Percentage     Amount       Percentage
                                     ------------  ------------  ------------  ------------

                                                      (Dollars in thousands)
Real Estate:
   Residential:
<S>                                   <C>                <C>        <C>              <C>
      One-to Four-Units               $   30,092         20.55%     $  33,715        23.42%
      Five or More Units                  95,770         65.39%        89,777        62.35%
      Construction
                                           1,726          1.18%             -          -
   Non-residential                        16,924         11.56%        18,383        12.77%
Loans Secured by Savings Accounts            350          0.24%           897         0.62%
Other                                      1,593          1.08%         1,206         0.84%
                                     ------------  ------------  ------------  ------------
Gross Loans                              146,455        100.00%       143,978       100.00%
                                     ------------  ============  ------------  ============
   Plus:
Premiums on Loans Purchased                    1                            4
   Less:
Allowance for Loan Losses                  1,429                        1,571
Loans in Process                             568                           16
Deferred Loan Fees, net                      431                          683
Unamortized Discounts                        173                          413
                                     ------------                ------------
                                         143,855                      141,299
   Less:
Loans Held for Sale                        3,770                        7,362
                                     ------------                ------------
Total Loans Held for Investment        $ 140,085                     $133,937
                                    ============                ============
</TABLE>

     Loan Maturities.  The following table sets forth the contractual maturities
of  Broadway  Federal's  gross loans at December  31,  2002.  The table does not
reflect the effect of scheduled principal  repayments.  Principal  repayments on
loans totaled  $28.8 million and $19.6 million for the years ended  December 31,
2002 and 2001, respectively.
<TABLE>
<CAPTION>

                                                                    December 31, 2002
                                 -----------------------------------------------------------------------------------------
                                  One-to-       Five or                                      Savings           Gross
                                   Four          More                          Non-         Secured &          Loans
                                  Family        Units       Construction    residential       Other         Receivable
                                 ---------     ---------    ------------    -----------    -----------    --------------
                                                                      (In thousands)
Amounts Due:
<S>                              <C>           <C>           <C>              <C>           <C>             <C>
   One year or less              $     185     $    178      $     906        $     414     $    1,533      $     3,216
   After one year:
      After one to three years         120           16            820              153            395            1,504
      After three to five years        247        1,940              0              279             15            2,481
      After five to ten years        2,196       15,359              0            5,736              -           23,291
      After ten to twenty years     12,368        2,468              0            9,525              -           24,361
      More than twenty years        14,976       75,809              0              817              -           91,602
                                 ---------     ---------    ------------    -----------    -----------      -----------
      Total due after one year      29,907       95,592            820           16,510            410          143,239
                                 ---------     ---------    ------------    -----------    -----------      -----------

      Total Amounts Due          $  30,092     $ 95,770      $   1,726        $  16,924     $    1,943      $   146,455
                                 =========     =========    ============    ===========    ===========      ===========
</TABLE>


                                       3
<PAGE>


     The following table sets forth the dollar amount of gross loans receivable,
excluding loans held for sale, at December 31, 2002 which are  contractually due
after  December 31, 2003,  and whether such loans have fixed  interest  rates or
adjustable interest rates.
<TABLE>
<CAPTION>

                                              December 31, 2002
                                 ------------------------------------------
                                  Adjustable       Fixed           Total
                                 ------------    ---------     ------------
                                              (In thousands)
Real Estate Loans:
<S>                               <C>             <C>          <C>
   One-to four-units              $   16,727      $ 13,180     $     29,907
   Five or more units                 95,314           278           95,592
   Construction                          820             -              820
   Non-residential real estate        15,576           934           16,510
Other                                    376            34              410
                                  ----------     ---------     ------------
      Total                       $  128,813      $ 14,426     $    143,239
                                  ==========     =========     ============
</TABLE>

     Origination,  Purchase,  Sale and  Servicing  of  Loans.  Broadway  Federal
originates and purchases  loans for investment and for sale. Loan sales are made
from loans held in Broadway Federal's portfolio  designated as held for sale and
loans originated during the period that are so designated.

     It is the current practice of Broadway  Federal to sell most  single-family
conforming  fixed-rate mortgage loans it originates,  retaining a limited amount
in its portfolio.  Broadway  Federal also may sell ARMs that it originates based
upon its investment and liquidity  needs and market  opportunities.  At December
31, 2002,  Broadway  Federal had six fixed rate loans  secured by  single-family
properties  totaling  $586,000 and  thirteen  adjustable  rate loans  secured by
multi-family  properties totaling $3.2 million that were categorized as held for
sale.  Broadway Federal  typically  retains the servicing rights associated with
loans sold. If material,  the servicing rights are recorded as assets based upon
the relative fair values of the servicing  rights and the  underlying  loans and
are amortized  over the period of the related loan servicing  income stream.  At
December 31, 2002, the Bank had $11,000 of capitalized servicing rights.

     Broadway  Federal  receives  monthly loan  servicing fees on loans sold and
serviced  for  others  that  are  payable  by the  loan  purchaser  out of  loan
collections  in an amount  equal to an agreed  percentage  of the  monthly  loan
installments  collected,  plus late  charges and certain  other fees paid by the
borrowers.  Loan servicing  activities include monthly loan payment  collection,
monitoring  of  insurance  and  tax  payment   status,   responses  to  borrower
information requests and dealing with loan delinquencies and defaults, including
conducting loan  foreclosures.  At December 31, 2002 and 2001,  Broadway Federal
was servicing $11.0 million and $12.7 million,  respectively,  of loans serviced
for others.

     From time to time, Broadway Federal purchases  residential loans originated
by other institutions based upon Broadway Federal's  investment needs and market
opportunities. The determination to purchase specific loans or pools of loans is
subject to Broadway Federal's underwriting policies, which consider, among other
factors, the financial condition of the borrower, the location of the underlying
property and the appraised  value of the property.  Broadway  Federal  purchased
$820,000  of loans  during the year ended  December  31,  2002 and $8.0  million
during the year ended December 31, 2001.


                                       4
<PAGE>

     The following table provides information concerning Broadway Federal's loan
origination,  purchase,  sale and principal  repayment  activity for the periods
indicated.
<TABLE>
<CAPTION>

                                              At or For the Year Ended
                                                     December 31,
                                         ---------------------------------
                                              2002                2001
                                         --------------      -------------
                                                    (In thousands)
Gross Loans:
<S>                                      <C>                  <C>
   Beginning Balance:                    $     143,978        $  129,241
Loans Originated:
   One-to Four-Units                             5,840             4,327
   Five or More Units                           21,819            19,078
   Non-residential                               2,251               924
   Loans Secured by Savings Accounts               245               456
Other                                            1,150             1,888
                                         --------------      -------------
   Total Loans Originated                       31,305            26,673
                                         --------------      -------------
Loan Purchased:
   One-to-Four Units                                 -                58
   Five or More Units                                -             8,211
   Construction                                    820                 -
                                         --------------      -------------
   Total Loans Purchased                           820             8,269
                                         --------------      -------------
Less:
Transfer to real estate owned ("REO")              107                 -
Principal Repayments                            28,811            19,605
Sales of Loans                                     730               600
                                         --------------      -------------
                                         $     146,455         $  143,978
                                         ==============      =============
</TABLE>

     One- to  Four-Family  Mortgage  Lending.  Broadway  Federal offers ARMs and
fixed-rate  loans secured by one- to four-family  ("single-family")  residences,
with maturities up to 30 years.  Substantially  all of such loans are secured by
properties located in Southern California, with most being in Broadway Federal's
primary   market  areas  of  Mid-City  and  South  Central  Los  Angeles.   Loan
originations   are   generally    obtained   from   Broadway    Federal's   loan
representatives,  existing or past  customers,  and  referrals  from  members of
churches or other  organizations in the local communities where Broadway Federal
operates.  Of the one- to four-family  residential mortgage loans outstanding at
December 31, 2002, 43.93% were fixed-rate loans and 56.07% were ARMs.

     The interest rates for Broadway Federal's single-family ARMs are indexed to
the 11th  District  Cost of Funds  Index  ("COFI"),  the 1-year  Treasury  Index
("Treasury")  the  12-month  average  of the  Treasury  index ("12 MTA") and the
six-month LIBOR Index.  Broadway  Federal  currently  offers loans with interest
rates that adjust monthly,  semi-annually,  and annually. Borrowers are required
to make monthly payments under the terms of such loans. At December 31, 2002 and
2001  Broadway  Federal  had  approximately  $22.0  million  and $24.2  million,
respectively,  in mortgage  loans that permit  negative  amortization.  Broadway
Federal has  discontinued  its loan programs that permit negative  amortization.
During  periods of high  interest  rates  negative  amortization  may  involve a
greater risk to Broadway  Federal  because the loan principal may increase above
the amount originally  advanced.  Broadway Federal believes,  however,  that the
risk of  default  is not  substantial  due to  Broadway  Federal's  underwriting
criteria,  including relatively low loan-to-value ratios. The loans it currently
holds that permit negative  amortization  have been  outstanding for substantial
periods  without  default.  No loans  were in  negative  amortization  status at
December 31, 2002 and 2001.

     Broadway  Federal  qualifies its ARM borrowers based upon the fully indexed
interest  rate (COFI or other index plus an  applicable  margin,  rounded to the
nearest  one-eighth  of 1%)  provided  by the  terms of the loan.  However,  the
initial rate paid by the  borrower may be  discounted  to a rate  determined  by
Broadway Federal to adjust for market and other  competitive  factors.  The ARMs
offered by Broadway have a lifetime adjustment limit that is set at the time the
loan is  approved.  Because of interest  rate caps and floors,  market rates may
exceed  and/or go below the  respective  maximum  or  minimum  rates  payable on
Broadway Federal's ARMs.

     Broadway Federal offers fixed-rate mortgage loans with terms that primarily
are 5, 15 and 30 years,  which are payable  monthly.  Interest  rates charged on
fixed-rate  mortgage loans are  competitively  priced based on market conditions
and Broadway Federal's cost of funds. Broadway Federal generally sells long-term
fixed-rate mortgages in the secondary market.


                                       5
<PAGE>

     Broadway  Federal's policy is to originate one- to four-family  residential
mortgage  loans in amounts up to 80% of the lower of the appraised  value or the
selling price of the property securing the loan and up to 95% (and under certain
circumstances up to 97%) of the selling price if private  mortgage  insurance is
obtained.  Broadway  Federal may originate  loans based on other  parameters for
loans  that are  originated  for  committed  sales to other  investors.  Many of
Broadway  Federal's  borrowers  on  one- to  four-family  properties  are  older
homeowners  who typically  prefer to maintain  lower than the maximum  permitted
loan  balances.  Properties  securing  a  loan  are  appraised  by  an  approved
independent appraiser and title insurance is required on all loans.

     Mortgage loans originated by Broadway Federal generally include due-on-sale
clauses,  which provide Broadway  Federal with the contractual  right to declare
the loan  immediately  due and  payable  in the  event  the  borrower  transfers
ownership  of the  property  without  Broadway  Federal's  consent.  Due-on-sale
clauses are an  important  means of  adjusting  the rates on Broadway  Federal's
fixed-rate mortgage loan portfolio.

     Multi-Family  Lending.  Broadway Federal originates  multi-family  mortgage
loans  generally  secured  by five or more unit  apartment  buildings  primarily
located in Broadway  Federal's  market area. In reaching its decision on whether
to make a multi-family  loan,  Broadway Federal considers the  qualifications of
the borrower as well as the underlying  property  securing the loan. The primary
factors considered include,  among other things, the net operating income of the
mortgaged  premises  before debt  service  and  depreciation,  the debt  service
coverage  ratio (the ratio of net  operating  income to debt  service),  and the
ratio of loan amount to the lower of the selling price or the  appraised  value.
Most  multi-family  loans  are  originated  with  maturities  of up to 30 years.
Multi-family  loans amounted to $95.8 and $89.8 million at December 31, 2002 and
2001,  respectively.  At December  31,  2002,  Broadway  Federal's  multi-family
lending  represented  65.39% of the Bank's  gross loan  portfolio,  compared  to
62.35% at December 31, 2001.

     Multi-family  lending is a significant  part of the  Company's  strategy to
focus  on loan  program  offerings  in less  competitive  markets  resulting  in
higher-yielding  assets.  The small multi-family loan (generally under $500,000)
on properties in Broadway  Federal's market area has been a successful niche for
Broadway Federal. Most of these multi-family loans had adjustable rates, with an
initial  fixed  interest rate period.  The fixed  interest rate period for these
loans generally ranges from three to seven years. The adjustable rate portion of
these loans is primarily indexed to the Treasury Index. In the fourth quarter of
2002, Broadway Federal introduced the LIBOR Index and the Prime Rate Index.

     The Company  believes that the risks  associated  with  multi-family  loans
described  below are  mitigated  by  underwriting  requirements,  which  include
conservative  loan-to-value  ratios  and debt  service  coverage  ratios.  Under
Broadway Federal's  underwriting  policies,  a multi-family ARM loan may only be
made in an amount up to 75% of the lower of the selling price or appraised value
of the  underlying  property.  Subsequent  declines in the real estate values in
Broadway Federal's primary market area, however,  may result in increases in the
loan-to-value ratios on Broadway Federal's existing multi-family mortgage loans.
Broadway  Federal also generally  requires  minimum debt service ratios of 120%.
Properties  securing a loan are appraised by an approved  independent  appraiser
and title insurance is required on all loans.

     When evaluating the qualifications of the borrower for a multi-family loan,
Broadway  Federal  considers,  among other things,  the financial  resources and
income level of the borrower,  the  borrower's  experience in owning or managing
similar property,  and Broadway  Federal's lending experience with the borrower,
where  applicable.  Broadway  Federal's  underwriting  policies require that the
borrower  be able to  demonstrate  strong  management  skills and the ability to
maintain the property from current  rental  income.  The borrower is required to
present  evidence of the ability to repay the  mortgage  and a history of making
mortgage   payments  on  a  timely  basis.  In  making  its  assessment  of  the
creditworthiness  of  the  borrower,  Broadway  Federal  generally  reviews  the
financial statements,  employment and credit history of the borrower, as well as
other related documentation.

     Broadway  Federal's  largest  multi-family  loan at December 31, 2002 was a
loan totaling $1.26 million.  The loan is secured by a 28-unit  property located
in  Torrance,  California.  This loan is currently  performing  according to its
terms.  Broadway  Federal's  second  largest  multi-family  loan totaling  $1.12
million at that date was secured by a 30-unit  property  located in Los Angeles,
California.  This  loan is  currently  performing  according  to its  terms.  At
December  31,  2002,  Broadway  Federal had one other  multi-family  loan with a
balance  exceeding $1.0 million and was secured by a 33-unit property located in
Downey, California and is currently performing according to its terms.

     Multi-family loans are generally viewed as exposing the lender to a greater
risk of loss than  single-family  residential loans and typically involve higher
loan  principal  amounts than loans secured by  single-family  residential  real
estate.  Repayment of multi-family loans generally is dependent,  in large part,
on  sufficient  income from the  property to cover  operating  expenses and debt
service.  As a result,  adverse economic  conditions that have severe effects in
Broadway Federal's primary market areas in Mid-City and South Central Los

                            6
<PAGE>

Angeles, may result in declines in real estate values of multi-family properties
that are more pronounced than for single-family residential properties. Broadway
Federal  attempts  to offset  the risks  associated  with  multi-family  lending
through careful application of its underwriting standards and procedures, and by
generally  making  such loans with lower  loan-to-value  ratios than the maximum
ratios  permitted  for  single-family  loans.  Economic  events  and  government
regulations,  which are  outside the  control of the  borrower or lender,  could
impact the value of the  security  for the loan or the  future  cash flow of the
affected properties.

     Non-Residential   Real  Estate   Lending.   Broadway   Federal   originates
non-residential  real estate loans that are generally secured by properties used
for religious or for business purposes such as church buildings,  schools, small
office  buildings,  health  care  facilities  and retail  facilities  located in
Broadway  Federal's  primary  market  area.  Broadway  Federal  has  limited the
origination of  non-residential  real estate loans in recent years. Of the $16.9
million in non-residential  real estate loans at December 31, 2002, $2.3 million
and $924,000 were originated in 2002 and 2001, respectively.

     Broadway Federal's  non-residential real estate loans are generally made in
amounts up to 75% of the lower of the selling  price or the  appraised  value of
the property. These loans may have amortization periods and maturity dates of up
to 30 years and are ARMs or hybrid ARMs indexed to the COFI, the Treasury Index,
the LIBOR Index or the Prime Rate Index. Broadway Federal's non-residential loan
underwriting  standards and  procedures  are similar to those  applicable to its
multi-family  loans.  Broadway Federal  considers,  among other things,  the net
operating income of the property and the borrower's management expertise, credit
history and  profitability.  Broadway  Federal has  generally  required that the
properties securing non-residential real estate loans have debt service coverage
ratios of at least 135%. The underwriting  standards for  non-residential  loans
secured by church properties are different than for non-church,  non-residential
real  estate in that the ratios used in  evaluating  the loan are based upon the
level and history of church member  contributions  as a repayment  source rather
than income generated by rents or leases.

     The  largest  non-residential  loan in  Broadway  Federal's  portfolio  was
originated  in  2001.  It is an  unsecured  line  of  credit  for  $1.8  million
guaranteed  by a  non-profit  organization,  and had an  outstanding  balance at
December 31, 2002 of $1.14 million.  This loan is currently performing according
to its terms.

     The second largest non-residential loan in Broadway Federal's portfolio was
originated in 2002. It is a $906,000  construction loan participation secured by
a residential  apartment  project located in San Pedro,  California,  and had an
outstanding  balance at December  31, 2002 of  $280,000.  This loan is currently
performing  according to its terms.  At December 31,  2002,  Broadway  Federal's
portfolio contained nine other non-residential loans with an outstanding balance
exceeding  $500,000.  These loans are  currently  performing  according to their
terms.

     Originating  loans secured by church  properties is a market niche in which
Broadway Federal has been active since its inception.  Although Broadway Federal
does experience  delinquencies  on some of these loans and has made additions to
its  allowance  for loan losses as a result  thereof,  this product has produced
higher  yields than the  residential  loan  portfolio  and Broadway  Federal has
incurred  no losses from  foreclosures  of these  loans to date.  Management  of
Broadway  Federal  believes that the importance of church  organizations  in the
social and economic structure of the communities they serve makes church lending
an important  aspect of Broadway  Federal's  community  orientation.  Management
further  believes that the importance of churches in the lives of the individual
members of the respective  congregations  encourages donations even in difficult
economic  times,  thereby  providing  somewhat  greater  assurance  of financial
resources to repay such church loans compared to other types of  non-residential
properties. Nonetheless, adverse economic conditions can result in risks to loan
repayment   that  are   similar  to  those   encountered   in  other   types  of
non-residential  lending,  and such church lending is subject to other risks not
necessarily directly related to economic factors such as the stability,  quality
and popularity of church leadership. Church loans included in Broadway Federal's
portfolio  totaled $8.4 million and $10.8 million at December 31, 2002 and 2001,
respectively.

     Loans secured by  non-residential  real estate generally  involve a greater
degree of risk than residential  mortgage loans because payment on loans secured
by  non-residential  real  estate  is  typically  dependent  on  the  successful
operation or management  of the  properties  and is thus  subject,  to a greater
extent than single family  residential  loans, to adverse conditions in the real
estate market or the economy. Additionally,  recessionary economic conditions in
the Bank's  primary  lending  market area could  result in reduced cash flows on
commercial  real  estate  loans,  vacancies  and  reduced  rental  rates on such
properties.  Broadway  Federal seeks to minimize these risks by originating such
loans on a  selective  basis with more  restrictive  underwriting  criteria  and
generally restricts such loans to its general market area.


                                       7
<PAGE>

     Consumer Lending.  Broadway  Federal's  consumer loans primarily consist of
loans  secured by savings  accounts.  At December  31,  2002,  loans  secured by
savings accounts  represented  $350,000,  or 0.24%, of Broadway  Federal's total
gross loan portfolio.  Loans secured by depositors'  accounts are generally made
up to 90% of the current value of the pledged account, at an interest rate

between 2% and 4% above the rate paid on the  account,  depending on the type of
account,  and for a term  expiring the earlier of one year from  origination  or
upon the maturity of the account.

     Loan  Approval  Procedures  and  Authority.  The Bank's  Board of Directors
establishes its lending policies.  The Loan Committee,  which is comprised of at
least three members of the Board of Directors,  one of whom is the President and
Chief  Executive  Officer,   is  primarily   responsible  for  establishing  and
monitoring the lending policies of Broadway Federal.

     The Board of Directors has authorized  the following  loan approval  limits
based upon the amount of Broadway Federal's total loans to each borrower: if the
total of the  borrower's  existing  loans and the loan  under  consideration  is
$300,700  or less,  the new loan may be  approved  by  either  the  Senior  Vice
President-Chief  Loan Officer or the  President;  if the total of the borrower's
existing  loans and the loan under  consideration  is from $300,701 to $499,999,
the new loan must be approved by one Loan Committee  member,  in addition to the
Senior  Vice  President-Chief  Loan  Officer;  if the  total  of the  borrower's
existing loans and the loan under consideration is from $500,000 up to $999,999,
the new loan must be approved by two Loan Committee members,  in addition to the
Senior Vice President/Chief Loan Officer; and if the total of existing loans and
the loan under  consideration  is $1.0  million or more,  the Board of Directors
must approve the new loan. In addition,  it is the practice of Broadway  Federal
that all loans  approved only by  management be reported the following  month to
the two outside directors on the Loan Committee.

     For all loans  originated  by  Broadway  Federal,  upon  receipt  of a loan
application from a prospective  borrower, a credit report is ordered and certain
other information is verified by an independent credit agency and, if necessary,
additional financial  information is requested.  An appraisal of the real estate
intended to secure the proposed loan is required,  which  appraisal is performed
by an  independent  licensed or certified  appraiser  designated and approved by
Broadway Federal. The Board annually approves the independent appraisers used by
Broadway Federal and approves Broadway Federal's appraisal policy.

     It is  Broadway  Federal's  policy to obtain  title  insurance  on all real
estate  loans.  Borrowers  must also obtain  hazard  insurance  naming  Broadway
Federal as a loss payee  prior to loan  closing.  If the  original  loan  amount
exceeds 80% on a sale or refinance of a first trust deed loan,  private mortgage
insurance is typically required and the borrower is required to make payments to
a mortgage impound account from which Broadway Federal makes  disbursements  for
private mortgage insurance, taxes and hazard and flood insurance as required.

     Delinquencies and Classified Assets.  Management  performs a monthly review
of all delinquent  loans and reports  quarterly to the Asset Review Committee of
the Board of Directors.  When a borrower  fails to make a required  payment on a
loan,  Broadway  Federal  takes a number of steps to induce the borrower to cure
the delinquency and restore the loan to current status. The procedures  followed
by Broadway Federal with respect to  delinquencies  vary depending on the nature
of the loan and the period of delinquency.  In the case of residential  mortgage
loans,  Broadway  Federal  generally  sends the  borrower  a  written  notice of
nonpayment promptly after the loan becomes past due. In the event payment is not
received promptly  thereafter,  additional letters and telephone calls are made.
If the loan is still not brought  current and it becomes  necessary for Broadway
Federal to take legal action,  Broadway Federal generally commences  foreclosure
proceedings against all real property that secures the loan.

     Broadway  Federal  ceases to accrue  interest on all loans that are 90 days
past due. When a loan first becomes 90 days past due, all previously accrued but
unpaid  interest is deducted  from interest  income.  In the event a non-accrual
loan subsequently becomes current, which would require that the borrower pay all
past due payments,  late charges and any other  delinquent fees owed, all income
is recognized by Broadway Federal and the loan is returned to accrual status.

     In  the  case  of  non-residential  real  estate  loans,  Broadway  Federal
generally  contacts  the  borrower by  telephone  and sends a written  notice of
non-payment  upon  expiration  of the  grace  period.  Decisions  as to  when to
commence foreclosure actions for non-residential real estate loans are made on a
case-by-case basis. Broadway Federal may consider loan workout arrangements with
these types of borrowers in certain circumstances.

     If a foreclosure  action is instituted and the loan is not brought current,
paid in full,  or  refinanced  before the  foreclosure  sale,  the real property
securing  the loan is sold at  foreclosure  by the trustee  named in the deed of
trust.  Property  foreclosed  upon  and not  purchased  by a third  party at the
foreclosure  sale is held by Broadway  Federal as real estate  acquired  through
foreclosure ("REO") and is carried in Broadway Federal's  consolidated financial
statements at the lower of estimated  fair value less the costs  estimated to be
necessary to sell the property, or cost.



                                       8
<PAGE>

     Federal  regulations and Broadway  Federal's internal policies require that
Broadway Federal utilize an asset classification system as a means of monitoring
and  reporting  problem  and  potential  problem  assets.  Broadway  Federal has
incorporated asset classifications as a part of its credit monitoring system and
thus classifies  problem assets and potential  problem assets as  "Substandard,"
"Doubtful"  or "Loss"  assets.  An asset is  considered  "Substandard"  if it is
inadequately  protected  by the  current  net worth and paying  capacity  of the
obligor or the collateral  pledged, if any.  "Substandard"  assets include those
characterized by the "distinct  possibility"  that the insured  institution will
sustain "some loss" if the deficiencies are not corrected.  Assets classified as
"Doubtful" have all of the weaknesses inherent in those classified "Substandard"
with  the  added   characteristic   that  the  weaknesses  make  "collection  or
liquidation in full," on the basis of currently existing facts, conditions,  and
values,  "highly  questionable and improbable."  Assets classified as "Loss" are
those considered "uncollectible" and of such little value that their continuance
as  assets  without  the  establishment  of a  specific  loss  allowance  is not
warranted.  Assets which do not currently  expose Broadway Federal to sufficient
risk to warrant classification in one of the aforementioned categories, but that
are considered to possess some weaknesses, are designated "Special Mention."

     Broadway  Federal has established an allowance for loan losses in an amount
deemed  prudent by  management.  General  valuation  allowances  represent  loss
allowances that have been  established to recognize the inherent risk associated
with lending activities,  but which, unlike specific  allowances,  have not been
allocated to particular  problem assets.  When a federally  insured  institution
classifies one or more assets,  or portions  thereof,  as "Loss," it is required
either to establish a specific  allowance for losses equal to 100% of the amount
of the asset so classified or to charge off such amount.

     A financial  institution's  determination as to the  classification  of its
assets and the amount of its  valuation  allowances  is subject to review by the
OTS, which can order the  establishment of additional loss allowances.  The OTS,
in  conjunction  with  the  other  federal  banking  agencies,  has  adopted  an
interagency  policy  statement on the allowance  for loan and lease losses.  The
policy  statement  provides  guidance  for  financial  institutions  on both the
responsibilities  of management for the assessment and establishment of adequate
allowances and guidance for banking agency  examiners to use in determining  the
adequacy of valuation  guidelines.  Generally,  the policy statement  recommends
that financial  institutions  have  effective  systems and controls to identify,
monitor  and  address  asset  quality  problems,  that  management  analyze  all
significant  factors  that  affect  the  collectibility  of the  portfolio  in a
reasonable manner and that management  establish acceptable allowance evaluation
processes that meet the objectives set forth in the policy  statement.  Although
management  believes it has established  adequate loan loss  allowances,  actual
losses are dependent upon future events. Accordingly, further material additions
to the level of loan loss allowances may become  necessary.  In addition,  while
Broadway Federal believes that it has established an adequate allowance for loan
losses at December 31, 2002, there can be no assurance that the OTS or the FDIC,
in reviewing  Broadway  Federal's  loan  portfolio in  connection  with periodic
regulatory  examinations,  will  not  request  Broadway  Federal  to  materially
increase its allowance for loan losses based on such agencies' evaluation of the
facts  available  to the  OTS or the  FDIC  at  that  time,  thereby  negatively
affecting Broadway Federal's financial condition and earnings.

     At December 31, 2002 Broadway  Federal had $984,000 of loans  classified as
"Substandard,"  of which the largest had a principal balance of $508,000 and was
secured  by a  multi-family  property.  At  December  31,  2002,  no loans  were
classified as "Doubtful" and no loans were classified as "Loss".  As of December
31,  2002,  loans  designated  as  "Special  Mention"  consisted  of seven loans
totaling $1.5 million,  which were so designated due to  delinquencies  or other
identifiable  weaknesses.  At December 31, 2002, the largest loan  designated as
"Special Mention" had a principal balance of $1.1 million and was unsecured.

     The following  table sets forth  delinquencies  in Broadway  Federal's loan
portfolio as of the dates indicated:
<TABLE>
<CAPTION>

                                                              December 31,
                                         2002                                           2001
                          60-89 Days          90 Days or More           60-89 Days             90 Days or More
                                 Principal              Principal              Principal                Principal
                       Number     Balance    Number      Balance     Number     Balance      Number      Balance
                      of Loans   of Loans   of Loans    of Loans    of Loans   of Loans     of Loans    of Loans
                                                            (In thousands)
<S>                              <C>           <C>         <C>                 <C>             <C>         <C>
One- to four family       -      $   -         2           96          -       $   -           4           257
Multi-family              -          -         -            -          -           -           -            -
Non-residential           -          -         1           39          -           -           1           211

   Total                  -      $   -         3          135          -       $   -           5           468
Delinquent loans to
  total gross loans                0.00%                 0.09%                    0.00%                   0.33%

</TABLE>


                                       9
<PAGE>

     Non-Performing  Assets.  Non-performing  assets,  consisting of non-accrual
loans and REO,  decreased  from  $468,000  at  December  31, 2001 to $135,000 at
December 31, 2002. The $333,000 decrease resulted from a decrease in non-accrual
loans. During December 2002, $142,000 of non-accrual loans were paid in full. As
a percentage of total assets,  non-performing  assets were 0.07% at December 31,
2002, as compared to 0.26% at December 31, 2001.

     The following  table  provides  information  regarding  Broadway  Federal's
non-performing  assets at the dates indicated.  For the years ended December 31,
2002 and 2001, the amount of interest  income that would have been recognized on
non-accrual  loans if such loans had  continued  to perform in  accordance  with
their contractual terms was $13,000 and $58,000,  respectively, as compared with
the respective  amounts  actually  received on non-accrual  loans of $13,000 and
$57,000.  Broadway  Federal  had no  commitments  to lend  additional  funds  to
borrowers  whose loans were on  non-accrual  status at  December  31,  2002.  No
accruing  loans were  contractually  past due by 90 days or more at December 31,
2002.

<TABLE>
<CAPTION>
                                                                                 At December 31,
                                                                          ---------------------------------
                                                                                2002               2001
                                                                          ---------------    --------------
                                                                                  (In thousands)
Non-accrual loans:
   Residential real estate:
<S>                                                                         <C>               <C>
      One- to four-family                                                   $      96         $     257
      Multi-family                                                                  -                 -
      Non-residential                                                              39               211
                                                                          ---------------    --------------
         Total non-performing loans                                               135               468
REO                                                                                 -                 -
                                                                          ---------------    --------------
         Total non-performing assets                                        $     135         $     468
                                                                          ===============    ==============

Allowance for loan losses as a percentage of gross loans                         0.98%             1.10%
Allowance for loan losses as a percentage of total non-performing loans      1,058.52%           335.68%
Allowance for losses as a percentage of total non-performing assets          1,058.52%           335.68%
Non-performing loans as a percentage of gross loans                              0.09%             0.33%
Non-performing assets as a percentage of total assets                            0.07%             0.26%
Net charge-offs to average loans                                                  -                 -
Impaired loans as a percentage of gross loans                                    0.03%             0.15%

</TABLE>

     At December 31, 2002,  Broadway  Federal's  total  recorded  investment  in
impaired loans was $39,000 and was fully reserved. All provisions for losses and
any related  recoveries are recorded as part of the provision for loan losses in
the  accompanying   consolidated  statements  of  operations  and  comprehensive
earnings.  During the year ended December 31, 2002,  Broadway  Federal's average
investment in impaired loans was $147,000,  and its interest  income recorded on
impaired loans during this period totaled $5,000. The accrual of interest income
on impaired loans is discontinued when the loan becomes impaired, and previously
accrued but uncollected interest income is reserved. Interest income on impaired
loans is  recognized  on a cash  basis.  During  December  2002,  certain  fully
reserved, non-accrual,  unsecured loans amounting to $142,000 were paid in full,
and  accordingly,  the related  specific  valuation  allowances of $142,000 were
reversed into income.

     Allowance for Loan Losses.  Broadway Federal's allowance for loan losses is
established through provisions for loan losses charged against income in amounts
that are based on  management's  evaluation  of the risks  inherent  in the loan
portfolio and the general  economy.  The allowance for loan losses is maintained
at an  amount  that  management  considers  adequate  to cover  losses  in loans
receivable,  which are deemed probable and estimable.  The Board of Directors of
Broadway Federal reviews the level and  reasonableness of the provision for loan
losses,  as well as the matrix that  supports the adequacy of the  allowance for
loan losses. The allowance is based upon a number of factors,  including current
economic   conditions,   actual  loss   experience,   industry   trends,   asset
classifications, levels of impaired loans, geographic concentrations,  estimated
collateral  values,  management's  assessment of the credit risk inherent in the
portfolio,  historical loan loss experience and Broadway Federal's  underwriting
policies.  To determine the overall allowance,  management  periodically reviews
all loans by loan category (one- to four-family,  multi-family,  non-residential
real estate).


                                       10
<PAGE>

     The Bank also  maintains an allowance for impaired  loans as a component of
its  allowance  for loan  losses.  The Bank  reviews  all loans  with  principal
balances of less than $250,000 for impairment on a collective basis. Loans with
balances of $250,000 and greater are evaluated  for  impairment on an individual
basis as part of the Bank's normal internal asset review process. Measurement of
impairment  may be based on (1) the present  value of the  expected  future cash
flows of the impaired loan discounted at the loan's original  effective interest
rate, (2) an observed market price of the impaired loan or (3) the fair value of
the collateral of a collateral-dependent  loan. The amount by which the recorded
investment  in the  loan  exceeds  the  measurement  of  the  impaired  loan  is
recognized by recording a valuation allowance with a corresponding charge to the
provision  for loan losses.  While the  measurement  method may be selected on a
loan-by-loan  basis, the Bank measures  impairment for all collateral  dependent
loans at the fair value of the collateral.

     Adjustments to the loan loss  allowance are made by Broadway  Federal based
upon  management's  analysis of each category of loans and of the potential risk
factors within each  category.  The provision for loan losses may fluctuate on a
monthly  basis as  changes  occur  within  the loan  categories  as a result  of
numerous  factors,   including  new  loan  originations,   loan  repayments  and
prepayments,  and changes in asset classifications.  Loan loss provisions may be
recaptured  for a particular  loan  category if management  determines  that the
factors that existed and required higher provisions are no longer present.  Loan
loss  provisions  also may be increased if  management  becomes aware of factors
elevating the risk in that loan category.

     Broadway Federal seeks to anticipate problems and take appropriate steps to
resolve them  through its internal  asset  review  procedures.  Such  procedures
include a review of all loans on which full collectibility may not be reasonably
assured,  and  consideration  of, among other  factors,  debt  service  coverage
ratios,  vacancy  rates,  the  estimated  value  of the  underlying  collateral,
economic  conditions,  historical  loan loss  experience  and other factors that
warrant  recognition in providing for an adequate loan loss allowance.  Broadway
Federal  monitors  and  modifies  its  allowance  for loan losses as  conditions
dictate.  Although  Broadway Federal  maintains its allowance at a level that it
considers  adequate to provide for potential  losses,  there can be no assurance
that  losses  will not  exceed  the  estimated  amounts.  In  addition,  various
regulatory  agencies,   as  an  integral  part  of  their  examination  process,
periodically  review Broadway Federal's allowance for loan losses. Such agencies
may require  Broadway  Federal to make additional  provisions for estimated loan
losses based upon judgments of the information  available to them at the time of
the examination.

     For loans  transferred  to REO,  any excess of cost or recorded  investment
over the  estimated  fair value of the asset at  foreclosure  is classified as a
loss and is charged  off  against the  general  loan loss  allowance  previously
established  for those loans.  REO is initially  recorded at the estimated  fair
value of the related assets at the date of foreclosure,  less estimated costs to
sell.  Thereafter,  if there is further deterioration in value, Broadway Federal
either  writes  down the REO  directly or  provides a  valuation  allowance  and
charges  operations for the diminution in value.  At December 31, 2002 and 2001,
Broadway Federal had no REO.

     The  following  table sets forth  Broadway  Federal's  allowances  for loan
losses at the dates indicated:
<TABLE>
<CAPTION>

                                                       December 31,
                                                -------------------------
                                                    2002          2001
                                                ------------  -----------
                                                     (In thousands)
Allowance for loan losses:
<S>                                              <C>             <C>
   Balance at beginning of year                  $  1,571        $1,421
   Charge-offs                                          -             -
   Recoveries                                        (142)            -
   Provision charged to earnings                        -           150
                                                ------------  -----------
   Balance at end of year                          $1,429        $1,571
                                                ============  ===========
</TABLE>

                                       11
<PAGE>

     The following table sets forth the ratios of Broadway  Federal's  allowance
for loan  losses  to total  loans,  and the  percentage  of loans in each of the
categories listed in total loans.
<TABLE>
<CAPTION>
                                       Allocation of the Allowance for Loan Losses at December 31,
                                  ----------------------------------------------------------------------
                                             2002                               2001
                                  ------------  --------------------  -----------  ---------------------
                                                Percentage of Loans                 Percentage of Loans
                                                in Each Category to                 in Each Category to
                                     Amount         Total Loans           Amount         Total Loans
                                  ------------  --------------------  -----------  ---------------------
                                                           (Dollars in thousands)
<S>                                 <C>                <C>              <C>                <C>
One-to-four family                  $     129          20.55%           $   142            23.42%
Multi-family                              855          65.39%               733            62.35%
Non-residential                           282          11.56%               399            12.77%
Construction                               19           1.18%                 -             -
Other                                      86           1.32%               243             1.46%
Unallocated                                58            -                   54             -
                                  ------------  --------------------  -----------  ---------------------
Total allowance for loan losses     $   1,429          100.00%          $ 1,571           100.00%
                                  ============  ====================  ===========  =====================
</TABLE>

     The Company periodically evaluates the allocation of the allowance for loan
losses to each  category  of loans.  This  evaluation  takes into  consideration
quantitative  and  qualitative  factors.  The reduction in the allocation to the
Other category in the table above from December 31, 2001 to December 31, 2002 is
primarily  attributable  to the  reduction  of  impaired  loans and the  related
impairment allowance. Qualitative factors include credit concentration, economic
and business conditions,  changes in lending programs and lending management and
staff, and geopolitical risks and uncertainties that impact business.

Investment Activities

     Federally  chartered  savings  institutions have the authority to invest in
various types of liquid assets,  including  United States Treasury  obligations,
securities  of various  federal  agencies,  certain  certificates  of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements  and  federal  funds.  Subject  to  various  restrictions,  federally
chartered savings  institutions may also invest in commercial paper,  investment
grade  corporate  debt  securities  and mutual funds whose assets are limited to
investments that a federally chartered savings institution is authorized to make
directly. Historically,  Broadway Federal has maintained liquid assets at levels
management believes to be adequate to support its normal daily activities.

     The  investment  policy of the Company is to provide a source of  liquidity
for deposit contraction, borrowings repayment and loan fundings, and to generate
a favorable  return on investments  without  incurring undue  interest-rate  and
credit risk. The Company's  investment policy generally  permits  investments in
money market instruments such as Federal Funds Sold,  certificates of deposit of
insured  banks  and  savings  institutions,  direct  obligations  of the  U.  S.
Treasury,    Federal   Agency   securities,    Agency-issued    securities   and
mortgage-backed securities, mutual funds, municipal obligations,  collateralized
mortgage  obligations,  corporate  bonds and marketable  equity  securities.  At
December  31,  2002 and 2001,  the Company had  investment  and  mortgage-backed
securities  in  the  aggregate  amount  of  $45.4  million  and  $18.5  million,
respectively, with fair values of $46.1 million and $18.8 million, respectively.
Mortgage-backed  securities  consist  principally  of Fannie Mae and Freddie Mac
securities backed by 30-year amortizing loans,  structured with a fixed interest
rate for a period  of five or  seven  years,  after  which  time the  securities
convert to a one-year or  six-month  adjustable  rate  mortgage.  Such loans are
referred to as hybrid ARMs.

                                       12
<PAGE>

     The following table sets forth information regarding the amortized cost and
fair values of the Company's  investment and  mortgage-backed  securities at the
dates indicated.
<TABLE>
<CAPTION>
                                                                          December 31,
                                                 ---------------------------------------------------
                                                             2002                    2001
                                                 ------------------------   ------------------------
                                                  Amortized                 Amortized
                                                    Cost       Fair Value     Cost       Fair Value
                                                 -----------   ----------   ----------   -----------
                                                                  (Dollars in thousands)
Investment and mortgage-backed securities:
   Held to maturity:
<S>                                               <C>           <C>         <C>           <C>
      Mortgage-backed securities                  $  10,843     $  11,317   $  13,931     $    14,23
      Federal Agency debentures                       2,000         2,046           -              -

Available for sale:
      Mortgage-backed securities                     27,603        27,697           -              -
      Mutual Funds                                    5,002         5,007       4,500          4,504
                                                 -----------   ----------   ----------    -----------
Total investment and mortgage-backed securities   $  45,448     $  46,067   $  18,431     $   18,735
                                                 ===========   ==========   ==========    ===========
</TABLE>

     The table below sets forth  certain  information  regarding  the  amortized
cost,  weighted  average  yields and  contractual  maturities  of the  Company's
investments and mortgage-backed securities as of December 31, 2002.
<TABLE>
<CAPTION>

                                                                       At December 31, 2002
                   --------------------------------------------------------------------------------------------------------------
                     Less Than One Year       One to Five Years    Five to Ten Years   More Than Ten Years        Total
                   ---------------------  ----------------------  -------------------  -------------------  ---------------------
                               Weighted                 Weighted             Weighted             Weighted             Weighted
                   Amortized   Average     Amortized    Average   Amortized   Average  Amortized  Average   Amortized   Average
                      Cost      Yield        Cost        Yield      Cost       Yield      Cost      Yield      Cost      Yield
                   ---------  ----------  -----------  ---------  ---------  --------  ---------  --------  ---------  ----------
                                                   (Dollars in thousands)
Held to maturity:
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Mortgage-backed
  securities       $      -       - %      $       -       - %     $     -      - %    $  10,843    6.48%   $  10,843      6.48%
Federal Agency
  debentures              -       - %              -       - %                  - %        2,000    4.25%       2,000      4.25%

Available for sale:
Mortgage-backed
  securities              -        -%              -       - %           -      - %       27,603    4.67%      27,603      4.67%
 Mutual funds         5,002     2.60%              -       - %           -      - %            -       -        5,002      2.60%
                   ---------              -----------             ---------            ----------           ---------
                    $ 5,002     2.60%              - %     - %      $    -      -%      $ 40,446    5.13%   $  45,448      4.85%
                   =========  ==========  ===========  =========  =========  ========  ========== ========= =========  ==========
</TABLE>

Sources of Funds

     General. Deposits are a primary source of Broadway Federal's funds used for
lending and other  investment  activities  and  general  business  purposes.  In
addition to deposits,  Broadway  Federal  derives funds from loan repayments and
prepayments,  proceeds from sales of loans and investment securities, maturities
of  investment  securities,  cash  flows  generated  from  operations  and  FHLB
advances.

     Deposits.  Broadway  Federal  offers a variety of deposit  accounts  with a
range of  interest  rates and terms.  Broadway  Federal's  deposits  principally
consist of passbook savings accounts,  non-interest  bearing checking  accounts,
NOW  and  other  demand  accounts,   money  market   accounts,   and  fixed-term
certificates  of deposit.  The flow of deposits is influenced  significantly  by
general economic conditions,  changes in money market rates, prevailing interest
rates and competition.  Broadway Federal's  deposits are obtained  predominately
from the areas in which its branch offices are located.  Broadway Federal relies
primarily on customer service and long-standing  relationships with customers to
attract and retain these deposits. The Bank emphasizes its retail "core" deposit
relationships,   consisting  of  passbook   accounts,   checking   accounts  and
non-interest bearing demand accounts,  which management believes tend to be more
stable and available at a lower cost than other,  longer term types of deposits.
However,  market interest rates,  including rates offered by competing financial
institutions,  significantly  affect Broadway  Federal's  ability to attract and
retain  deposits.  Certificate  accounts in excess of $100,000 and  out-of-state
deposits  are not  actively  solicited by the Bank.  Further,  Broadway  Federal
generally has not solicited deposit accounts by increasing the rates of interest
paid as quickly as some of its competitors  nor has it emphasized  offering high
dollar amount  deposit  accounts with higher yields to replace  deposit  account
runoff.
                                       13
<PAGE>

     The  following  table sets forth the  distribution  of  Broadway  Federal's
deposit accounts by category of account for the years indicated and the weighted
average balances and interest rates on each category of deposits presented.
<TABLE>
<CAPTION>

                                                        Year Ended December 31,
                                  -----------------------------------------------------------------
                                               2002                             2001
                                  ------------------------------  ---------------------------------
                                                        Weighted                           Weighted
                                   Average  Percentage  Average    Average   Percentage    Average
                                   Balance   of Total    Rate      Balance    of Total       Rate
                                  --------  ----------  --------  ---------  -----------   --------
                                                  (Dollars in thousands)

<S>                               <C>         <C>        <C>      <C>           <C>          <C>
Money market deposits             $  8,030    5.22%      1.48%    $  5,567      3.83%        1.91%
Passbook deposits                   28,665    18.62%     0.81%      27,835     19.14%        1.04%
NOW and other demand deposits       24,070    15.63%     0.18%      20,216     13.90%        0.38%
Time deposits                       93,223    60.53%     3.60%      91,797     63.13%        5.67%
                                  --------  ----------            ---------  -----------
Total Deposits                    $153,988    100.00%    2.42%    $145,415    100.00%        3.90%
                                  ========  ==========            =========  ===========
</TABLE>

     The following  table presents the amount and weighted  average rate of time
deposits equal to or greater than $100,000 at December 31, 2002, maturing within
the next twelve months.

<TABLE>
<CAPTION>
                                                December 31, 2002
                                      -------------------------------------
                                                           Weighted Average
                                           Amount                Rate
                                      -----------------    ----------------
                                               (Dollars in thousands)

<S>                                       <C>                   <C>
Three months or less                      $ 18,818              2.41%
Over three through six months                5,982              2.30%
Over six through 12 months                   6,442              2.83%
                                      -----------------    ----------------
        Total                             $ 31,242              2.48%
                                      =================    ================
</TABLE>


     Borrowings.  From time to time Broadway Federal has obtained  advances from
the FHLB and will do so in the future as an alternative to retail deposit funds.
FHLB  advances are used to meet cash needs for  operations,  to fund loans or to
acquire such other assets as may be deemed appropriate for investment  purposes.
Advances   from  the  FHLB  are  secured   primarily   by  mortgage   loans  and
mortgage-backed securities. Such advances are made pursuant to several different
credit  programs,  each  of  which  has its  own  interest  rate  and  range  of
maturities.   The  maximum   amount  that  the  FHLB  will   advance  to  member
institutions,  including  Broadway  Federal,  for  purposes  other than  meeting
withdrawals,  changes from time to time in  accordance  with the policies of the
OTS and of the FHLB.  At December 31, 2002 and 2001  Broadway  Federal had $28.7
million and $11.0 million,  respectively, in outstanding advances from the FHLB.
During December 2002, Broadway Federal refinanced $4.5 million in 6.64% advances
due in  September  2003 and incurred a  prepayment  fee of  $185,000,  which was
charged to interest expense. The new advances had maturities ranging from one to
three years and had a weighted average interest rate of 2.17%.

     On January 17, 2003 the Company  entered  into an  unsecured  $5.0  million
revolving  line of credit  agreement  with  First  Federal  Bank of  California.
Interest is at the prime rate if the loan proceeds are used for CRA lending, and
at prime plus one percent if the loan  proceeds are used for any other  purpose.
The line of credit is  renewable  annually,  and may be converted to a four-year
term loan at the same rate of interest.


                                       14
<PAGE>

     The  following  table sets forth  certain  information  regarding  Broadway
Federal's borrowed funds at or for the periods indicated:

<TABLE>
<CAPTION>
                                                               At or For the
                                                                Year Ended
                                                       -------------------------
                                                           2002          2001
                                                       ------------  -----------
                                                         (Dollars in thousands)
FHLB Advances:
<S>                                                    <C>            <C>
 Average balance outstanding                           $   15,088     $   8,788
 Maximum amount outstanding at any month-end period    $   30,664     $  11,000
 Balance outstanding at end of period                  $   28,724     $  11,000

 Weighted average interest rate during the period           5.41%         6.60%
 Weighted average interest rate at end of period            2.67%         4.93%
</TABLE>

Personnel

     At December 31, 2002,  Broadway  Federal had 64  employees,  49 of whom are
full-time  employees and 15 of whom are part-time  employees.  Broadway  Federal
believes that it has good relations with its employees and none are  represented
by a collective bargaining group.

Regulation

     General.  The  Company  is  registered  with the OTS as a savings  and loan
holding company and is subject to regulation and examination in that capacity by
the OTS. Broadway Federal is a federally  chartered savings bank and is a member
of the FHLB  System.  Its  customer  deposits  are  insured  through the Savings
Association  Insurance Fund, which is one of two deposit insurance funds managed
by the FDIC. The Bank is subject to  examination  and regulation by the OTS with
respect to most of its  business  activities,  including,  among  other  things,
capital standards,  general investment  authority,  deposit taking and borrowing
authority,  mergers,  establishment of branch offices,  and permitted subsidiary
investments  and  activities.  It is also subject to regulation by the FDIC. The
OTS's operations,  including examination  activities,  are funded by assessments
levied on its regulated institutions.

     Broadway  Federal is further  subject  to the  regulations  of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") concerning
reserves  required  to  be  maintained   against  deposits,   transactions  with
affiliates,  Truth in Lending and other  consumer  protection  requirements  and
certain other matters.

     Financial institutions, including Broadway Federal, are also subject, under
certain  circumstances,  to  potential  liability  under  various  statutes  and
regulations  applicable to property  owners  generally,  including  statutes and
regulations  relating  to the  environmental  condition  of  real  property  and
liability for the remediation of adverse  environmental  conditions thereof. The
potential  liabilities  under federal and state  environmental  legislation  may
affect the Bank's  decision  whether to foreclose on real  property that secures
its loans and on the  actions  the Bank may take with  respect to its  borrowers
preceding  foreclosure.  Liability for  environmental  remediation  costs may be
imposed  under  federal  and state  laws  without  regard to  whether  an entity
actually   caused  the   environmental   condition   and  may,   under   certain
circumstances,  be imposed on a real property  lender if the lender is deemed to
exercise  control over the borrower that is the owner of the real  property.  If
the Bank forecloses on property containing hazardous substances,  the Bank could
become subject to additional environmental statutes,  regulations and common law
relating to such  matters as asbestos  abatement,  lead-based  paint  abatement,
hazardous  substance  investigation  and  remediation,  waste water  discharges,
hazardous  waste  management,  and third party  claims for  personal  injury and
property damage.

     The descriptions of the statutes and regulations  applicable to the Company
and its  subsidiaries  and the effects  thereof  set forth  below and  elsewhere
herein  do not  purport  to be a  complete  description  of  such  statutes  and
regulations and their effects on the Company, Broadway Federal and the Company's
other subsidiary. The descriptions also do not purport to identify every statute
and regulation that may apply to the Company, Broadway Federal and the Company's
other subsidiary.

     Capital  Requirements.  The capital  regulations  of the OTS (the  "Capital
Regulations")  require  savings  institutions to meet three  regulatory  capital
requirements:  a  "leverage  limit"  (also  referred  to as  the  "core  capital
requirement"),  a  "tangible  capital  requirement"  and a  "risk-based  capital
requirement."  In  addition  to the  general  standards,  the OTS may  establish
individual  minimum  capital   requirements  for  a  savings  institution  on  a
case-by-case  basis, which vary from the requirements that would otherwise apply
under the Capital Regulations.


                                       15
<PAGE>

     A  savings  institution  that  fails to meet one or more of the  applicable
capital requirements is subject to various regulatory limitations and sanctions,
including a prohibition on growth and the issuance of a capital directive by the
OTS Director  requiring one or more of the following:  an increase in capital; a
reduction  of rates paid on savings  accounts;  cessation of or  limitations  on
operational  expenditures;  an increase in liquidity;  and such other actions as
may be deemed  necessary or  appropriate  by the OTS  Director.  In addition,  a
conservator or receiver may be appointed under appropriate circumstances.

     The core capital  requirement  generally requires a savings  institution to
maintain  "core  capital" of not less than 4% of adjusted  total  assets.  "Core
capital" includes common  stockholders'  equity (including  retained  earnings),
non-cumulative  perpetual  preferred  stock and any related surplus and minority
interests in the equity accounts of fully consolidated subsidiaries.  The amount
of an institution's  core capital is, in general,  calculated in accordance with
generally accepted  accounting  principles  ("GAAP"),  with certain  exceptions.
Intangible  assets must be deducted from core capital,  with certain  exceptions
and  limitations,   including   mortgage  servicing  rights  and  certain  other
intangibles, which may be included on a limited basis.

     A savings  institution  is required to  maintain  "tangible  capital" in an
amount  not less than 1.5% of  adjusted  total  assets.  "Tangible  capital"  is
defined for this purpose to mean core capital less any intangible  assets,  plus
mortgage servicing rights, subject to certain limitations.

     The  risk-based  capital  requirements  provide  that  the  capital  ratios
applicable to various classes of assets are to be adjusted to reflect the degree
of risk associated with such classes of assets. In addition,  the asset base for
computing a savings institution's capital requirement includes off-balance sheet
items, including assets sold with recourse.  Generally,  the Capital Regulations
require  savings  institutions  to maintain  "total  capital"  equal to 8.00% of
risk-weighted  assets.  "Total  capital"  for these  purposes  consists  of core
capital and supplementary capital.  Supplementary capital includes,  among other
things,  certain types of preferred stock and subordinated  debt and, subject to
certain limitations,  loan and lease general valuation  allowances.  At December
31, 2002 and 2001,  Broadway  Federal's general valuation  allowance included in
supplementary  capital was $1,429,000 and  $1,361,000,  respectively.  A savings
institution's  supplementary  capital  may be used  to  satisfy  the  risk-based
capital requirement only to the extent of that institution's core capital.

     Following is a reconciliation  of Broadway  Federal's equity capital to the
minimum OTS regulatory capital requirements as of December 31, 2002 and December
31, 2001:
<TABLE>
<CAPTION>
                                                           As of December 31,
                                    --------------------------------------------------------------
                                                 2002                            2001
                                    -------------------------------  -----------------------------
                                                                      (In thousands)
                                                            Risk-                          Risk-
                                    Tangible     Core       based    Tangible    Core      based
                                     Capital    Capital    Capital    Capital   Capital   Capital
                                    ---------   --------  ---------  ---------  --------  --------

<S>                                 <C>         <C>        <C>       <C>        <C>       <C>
Equity capital-Broadway Federal     $14,504     $14,504    $14,504   $12,826    $12,826   $12,826
Additional supplementary capital:
General valuation allowance               -           -      1,429         -          -     1,361
Assets required to be deducted         (157)       (157)      (157)     (103)      (103)     (103)
                                    ---------   --------  ---------  ---------  --------  --------
Regulatory capital balances          14,347      14,347     15,776    12,723     12,723    14,084
Minimum requirement                   3,069       8,185      9,599     2,679      7,145     9,318
                                    ---------   --------  ---------  ---------  --------  --------
Excess over requirement             $11,278     $ 6,162   $  6,177   $10,044    $ 5,578   $ 4,766
                                    =========   ========  =========  =========  ========  ========
</TABLE>

     The Federal Deposit Insurance Act contains prompt corrective action ("PCA")
provisions pursuant to which banks and savings institutions are to be classified
into one of five categories based primarily upon capital adequacy,  ranging from
"well capitalized" to "critically  undercapitalized" and which require,  subject
to certain  exceptions,  the  appropriate  federal banking agency to take prompt
corrective    action   with   respect   to   an   institution    which   becomes
"undercapitalized"  and to take additional  actions if the  institution  becomes
"significantly undercapitalized" or "critically undercapitalized."

     Under the OTS regulations  implementing the PCA provisions,  an institution
is "well  capitalized" if it has a total  risk-based  capital ratio of 10.00% or
greater,  has a Tier 1  risk-based  capital  ratio  (Tier  1  capital  to  total
risk-weighted  assets) of 6.00% or greater, has a core capital ratio of 5.00% or
greater and is not subject to any written capital order or directive to meet and
maintain a specific  capital level or any capital  measure.  An  institution  is
"adequately  capitalized" if it has a total risk-based capital ratio of 8.00% or
greater,  has a Tier 1  risk-based  capital  ratio of 4.00% or greater and has a
core  capital  ratio  of  4.00% or  greater  (3.00%  for  certain  highly  rated

                                       16
<PAGE>

institutions).  The OTS also has authority,  after an opportunity for a hearing,
to downgrade an institution from "well capitalized" to "adequately capitalized,"
or to subject an "adequately  capitalized" or "undercapitalized"  institution to
the supervisory  actions applicable to the next lower category,  for supervisory
concerns.  At  December  31,  2002,  Broadway  Federal  was  a  well-capitalized
institution.

     The table below presents Broadway  Federal's capital ratios at December 31,
2002 and 2001:
<TABLE>
<CAPTION>

                                      Actual
                              --------------------  Well Capitalized
                                 Amount    Ratios     Requirement
                              ---------    ------   ----------------
                                    (Dollars in thousands)
December 31, 2002:
<S>                           <C>           <C>          <C>
   Leverage/Tangible Ratio    $  14,347     7.01%        5.0%
   Tier 1 Risk based ratio    $  14,347    11.96%        6.0%
   Total Risk based ratio     $  15,776    13.15%       10.0%

December 31, 2001:
   Leverage/Tangible Ratio    $  12,723     7.12%        5.0%
   Tier I Risk based ratio    $  12,723    10.92%        6.0%
   Total Risk based ratio     $  14,084    12.09%       10.0%
</TABLE>

     Loans to One Borrower.  Savings  institutions are generally  subject to the
same loans to  one borrower  limitations  that are applicable to national banks.
With certain limited  exceptions,  the maximum amount that a savings institution
may lend to one borrower  (including certain related persons or entities of such
borrower)  is an amount  equal to 15% of the  savings  institution's  unimpaired
capital and unimpaired  surplus,  plus an additional 10% for loans fully secured
by  readily  marketable  collateral.  Real  estate is not  included  within  the
definition of "readily marketable  collateral" for this purpose. At December 31,
2002,  the maximum  amount that Broadway  Federal could lend to any one borrower
(including related persons and entities) under the current loans to one borrower
regulatory  limit was $2.1 million.  The Bank's  internal policy limits loans to
one borrower at $1.8 million. At December 31, 2002, the largest aggregate amount
of loans that  Broadway  Federal had  outstanding  to any one  borrower was $1.3
million.

     Community Reinvestment Act. The Community Reinvestment Act ("CRA") requires
each savings institution,  as well as other lenders, to identify the communities
served by the  institution's  offices  and to  identify  the types of credit the
institution  is  prepared  to  extend  within  those  communities.  The CRA also
requires the OTS to assess,  the  performance of the  institution in meeting the
credit  needs  of its  communities  as  part  of its  examination  of a  savings
institution,  and to take  such  assessments  into  consideration  in  reviewing
applications for mergers, acquisitions and other transactions. An unsatisfactory
CRA rating may be the basis for denying such application.  Community groups have
successfully  protested  applications  on CRA grounds.  In  connection  with the
assessment of a savings  institution's CRA performance,  the OTS assigns ratings
of   "outstanding,"   "satisfactory,"   "needs  to  improve"   or   "substantial
noncompliance."  Broadway Federal was rated "outstanding" in its most recent CRA
examination.

     Qualified Thrift Lender Test. Savings institutions regulated by the OTS are
subject to a qualified  thrift lender  ("QTL") test,  which in general  requires
such an  institution  to  maintain  on an  average  basis  at  least  65% of its
portfolio  assets (as  defined) in  "qualified  thrift  investments."  Qualified
thrift investments include, in general,  loans, securities and other investments
that are related to  housing,  shares of stock  issued by any Federal  Home Loan
Bank,  loans for  educational  purposes,  loans to small  business,  loans  made
through credit card or credit card accounts and certain other  permitted  thrift
investments.  A savings  institution's  failure  to  remain a QTL may  result in
conversion  of the  institution  to a bank  charter or operation  under  certain
restrictions  including  limitations on new investments and activities,  and the
imposition of the  restrictions  on branching and the payment of dividends  that
apply  to  national  banks.  At  December  31,  2002,  Broadway  Federal  was in
compliance with its QTL test requirements.

     Savings and Loan Holding Company Regulation.  As a savings and loan holding
company,  the  Company is subject to certain  restrictions  with  respect to its
activities  and  investments.  Among  other  things,  the  Company is  generally
prohibited,  either  directly or indirectly,  from acquiring more than 5% of the
voting  shares of any savings  association  or savings and loan holding  company
that is not a subsidiary of the Company.

     OTS approval must be obtained prior to any person acquiring  control of the
Company or Broadway Federal. Control is conclusively presumed to exist if, among
other  things,  a person  acquires more than 25% of any class of voting stock of
the  institution or holding  company or controls in any manner the election of a
majority of the directors of the insured institution or the holding company.


                                       17
<PAGE>

     Restrictions on Dividends and Other Capital Distributions.  In general, the
prompt corrective action regulations prohibit an OTS-regulated  institution from
declaring  any  dividends,  making any other capital  distribution,  or paying a
management fee to a controlling person, such as its parent holding company,  if,
following the  distribution or payment,  the institution  would be within any of
the three  undercapitalized  categories.  In addition  to the prompt  corrective
action  restriction on paying dividends,  OTS regulations limit certain "capital
distributions"  by savings  associations.  Capital  distributions are defined to
include,  among other things,  dividends and payments for stock  repurchases and
cash-out mergers.

     Under the OTS capital distribution regulations,  a savings association that
is a subsidiary of a savings and loan holding  company must notify the OTS of an
association  capital  distribution  at least 30 days prior to the declaration of
the capital  distribution.  The 30-day period provides the OTS an opportunity to
object to the proposed  dividend if it believes  that the dividend  would not be
advisable.

     An  application  to the OTS for  approval to pay a dividend is required if:
(a) the total of all  capital  distributions  made  during  that  calendar  year
(including  the  proposed  distribution)  exceeds  the sum of the  institution's
year-to-date net income and its retained income for the preceding two years; (b)
the institution is not entitled under OTS  regulations to "expedited  treatment"
(which is generally  available to  institutions  the OTS regards as well run and
adequately  capitalized);  (c) the institution would not be at least "adequately
capitalized"   following  the  proposed   capital   distribution;   or  (d)  the
distribution  would violate an applicable  statute,  regulation,  agreement,  or
condition imposed on the institutions by the OTS.

     In addition,  Broadway Federal's ability to pay dividends to the Company is
also  subject to the  restriction  arising from the  existence of a  liquidation
account  established upon the conversion of the institution from mutual to stock
form in January 1996.  The Bank is not permitted to pay dividends to the Company
if its  regulatory  capital would be reduced  below the amount  required for the
liquidation account.

     Financial  Modernization  Legislation.  On  November  12,  1999,  President
Clinton  signed  into law the  Gramm-Leach-Bliley  Act (the  "G-L-B  Act")  that
significantly  reforms various aspects of the financial services  industry.  The
G-L-B Act authorizes affiliations between banking securities and insurance firms
that were  previously  not permitted and authorizes  bank holding  companies and
national  banks to engage in a variety of new  financial  activities.  The G-L-B
Act, however, prohibits future affiliations between existing unitary savings and
loan holding  companies and firms that are engaged in  non-financial  activities
and prohibits the formation of new unitary  holding  companies by  non-financial
companies.

     The G-L-B Act also imposes new requirements on financial  institutions with
respect to customer  privacy.  The G-L-B Act generally  prohibits  disclosure of
customer  information  to  non-affiliated  third  parties,  except under certain
conditions  permissible  or mandated by law,  unless the customer has been given
the  opportunity  to object and has not objected to such  disclosure.  Financial
institutions,  however,  will be  required to comply with state laws if they are
more protective of customer privacy than the G-L-B Act.

     The G-L-B Act also makes membership in the Federal Home Loan Bank voluntary
for federal savings associations.

Tax Matters

    Federal Income Taxes

     General. The Company and its subsidiaries report their income on a calendar
year basis using the  accrual  method of  accounting  and are subject to federal
income  taxation  in  the  same  manner  as  other   corporations  with  certain
exceptions,  including particularly Broadway Federal's tax reserve for bad debts
discussed below.  The following  discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive  description of the tax rules
applicable to Broadway Federal or the Company.

     Bad Debt Reserves.  Broadway  Federal has qualified under provisions of the
Internal Revenue Code (the "Code") that in the past allowed  qualifying  savings
institutions to establish  reserves for bad debts, and to make additions to such
reserves,   using  certain  preferential   methodologies.   Under  the  relevant
provisions  of the Code as currently  in effect,  a small bank (a bank with $500
million  or less of  assets)  may  continue  to  utilize  a  reserve  method  of
accounting  for bad debts,  under which  additions  to reserves are based on the
institution's six-year average loss experience.  Broadway Federal qualifies as a
small bank and has utilized the reserve method of accounting for bad debts based
on its actual loss experience.


                                       18
<PAGE>

    California Taxes

     As a savings and loan  holding  company  filing  California  franchise  tax
returns on a combined  basis with its  subsidiaries,  the  Company is subject to
California franchise tax at the rate applicable to "financial corporations." The
applicable  tax  rate  is the  rate  on  general  corporations  plus  2%.  Under
California   regulations,   bad  debt  deductions  are  available  in  computing
California  franchise  taxes using a three or six year average  loss  experience
method.

Item 2. Description of Property

     Broadway  Federal  conducts  its  business  through  four  branch  offices.
Broadway  Federal's  loan service  operation is also  conducted  from one of its
branch offices.  Broadway Federal's  administrative and corporate operations are
conducted  from  the  Company's  corporate  facility  located  at 4800  Wilshire
Boulevard, Los Angeles, which also houses one of its branch offices.

     There are no  mortgages,  material  liens or  encumbrances  against  any of
Broadway  Federal's  owned  properties.  Management  believes  that  all  of the
properties  are  adequately  covered by  insurance,  and believes  that Broadway
Federal's  facilities are adequate to meet the present needs of Broadway Federal
and the Company.
<TABLE>
<CAPTION>
                                                                                       Net Book Value
                                                           Original                    of Property or
                                                             Date         Date            Leasehold
                                                           Leased or    of Lease       Improvements at
Location                               Leased or Owned     Acquired    Expiration     December 31, 2002
Administrative/Branch Office/
Loan Origination Center:
<C>                                                          <C>                         <C>
4800 Wilshire Blvd                     Owned                 1997          -             $1,956,000
Los Angeles, CA

Branch Offices:
4835 West Venice Blvd.                 Building Owned        1965         2013           $  128,000
Los Angeles, CA                        on Leased Land

Branch Office/Loan Service Center:
170 N. Market Street                   Owned                 1996          -             $  839,000
Inglewood, CA

4001 South Figueroa Street (1)         Owned                 1996          -             $2,281,000
Los Angeles, CA
</TABLE>
------------
(1) In April 2002,  Broadway  Federal  entered  into a  three-year  agreement to
sublease approximately 400 square feet to an attorney at $500.00 per month.

Item 3. Legal Proceedings

     In the ordinary  course of business,  the Company and Broadway  Federal are
defendants in various  litigation  matters.  In the opinion of  management,  and
based in part upon  opinions  of legal  counsel,  the  disposition  of any suits
pending  against  the  Company and  Broadway  Federal  would not have a material
adverse  effect on the Company's  financial  position,  results of operations or
cash flows.

Item 4. Submission of Matters to a Vote of Security Holders

None.
                                       19
<PAGE>


                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

     The Common  Stock of the Company is traded in the  over-the-counter  market
and is  quoted by the  National  Association  of  Securities  Dealers  Automated
Quotation  System-Small Cap ("NASDAQ-Small  Cap") under the symbol "BYFC." As of
February 28, 2003, 1,815,294 shares of Common Stock were outstanding and held by
approximately  426  holders of record  (not  including  the number of persons or
entities  holding  stock in nominee or street  name  through  various  brokerage
firms). The following table (adjusted for stock split) sets forth for the end of
the fiscal quarters  indicated the range of high and low bid prices per share of
the Common Stock of the Company as reported on NASDAQ-Small Cap.
<TABLE>
<CAPTION>

        2002     4th Quarter      3rd Quarter      2nd Quarter      1st Quarter

<S>               <C>                <C>             <C>            <C>
High              $ 10.16            $  8.35         $   8.00       $    6.40
Low               $  7.79            $  6.45         $   6.25       $    6.20

        2001
High              $  6.30            $  6.55         $   5.75       $    4.72
Low               $  4.63            $  4.99         $   3.88       $    3.44
</TABLE>

     The Company  paid  quarterly  dividends  on its Common Stock at the rate of
$0.025 per share during 2001 and the first three  quarters of 2002.  The Company
increased its quarterly  dividend to $0.0375 per share during the fourth quarter
of 2002. The Company may pay dividends out of funds legally available  therefore
at such times as the Board of Directors  determines  that dividend  payments are
appropriate,  after considering the Company's net income,  capital requirements,
financial   condition,   alternate   investment  options,   prevailing  economic
conditions,  industry  practices and other factors  deemed to be relevant at the
time. The actual  declaration and payment of future dividends will be subject to
determination  by the Company's  Board of Directors,  which will be based on and
subject to the Board's  assessment  of the  Company's  financial  condition  and
results of operations,  along with other factors. There can be no assurance that
dividends will in fact be paid on the Company's Common Stock in the future.

     Dividends from the Bank are the Company's  principal source of income.  The
payment of dividends and other capital  distributions by the Bank to the Company
is  subject  to  regulation  by the OTS.  A 30-day  prior  notice  to the OTS is
required before any capital distribution is made.

     In addition to Common Stock,  the Company,  as part of the Bank's mutual to
stock  conversion  in January  1996,  issued 91,073 shares of Series A Preferred
Stock.  The  Series A  Preferred  Stock has a par value of $0.01 per share and a
liquidation  preference  of $10.00 per share.  The Series A Preferred  Stock was
issued to holders of non-withdrawable Pledged Deposits held by the Bank prior to
conversion.  The holders of the  Pledged  Deposits  were  allowed to use them to
purchase  the  maximum  amount  of  Common  Stock  permitted  under  the Plan of
Conversion,  with the remainder of the Pledged  Deposits  being used to purchase
Series A Preferred  Stock.  On December 30,  2002,  the Company  issued  100,000
shares of non-cumulative, non-voting Series B Preferred Stock with a liquidation
preference  of $10 per share to Fannie Mae for gross  proceeds of $1.0  million.
Both the Series A and the Series B Preferred  Stock have  non-cumulative  annual
dividend  rates  of 5% of  their  liquidation  preference,  are  non-voting  and
non-convertible,  and  are  subordinate  to all  indebtedness  of  the  Company,
including customer accounts.  Both series of preferred stock were issued without
registration  under the  Securities  Act of 1933  pursuant  to the  registration
exemption provided by Section 4(2) thereof .

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

General

     Broadway Financial  Corporation was incorporated under Delaware law in 1995
for the purpose of acquiring and holding all of the outstanding capital stock of
the Bank as part of the Bank's  conversion  from a  federally  chartered  mutual
savings  association to a federally chartered stock savings bank. The Conversion
was completed,  and the Bank became a wholly owned  subsidiary of the Company in
January 1996. See "Description of Business-Broadway Financial Corporation."

     The Company's and Broadway  Federal's  results of operations  are dependent
primarily on net interest income after provisions for loan losses,  which is the
difference between the interest income earned on  interest-earning  assets, such
as  loans  and  investments,   and  the  interest  expense  on  interest-bearing
liabilities,  such as deposits and borrowings,  less provisions for loan losses.



                                       20
<PAGE>

Broadway  Federal  also  generates   recurring   non-interest   income  such  as
transactional fees on its loan and deposit  portfolios.  The Company's operating
results  are  affected by the amount of the Bank's  general  and  administrative
expenses,  which consist  principally of employee  compensation and benefits and
occupancy  expenses.  More  generally,  the results of  operations of thrift and
banking  institutions  are also  affected  by  prevailing  economic  conditions,
competition, and the monetary and fiscal policies of governmental agencies.

     For the years ended  December 31, 2002 and 2001,  the Company  recorded net
earnings of $1,441,000 or $0.77 per diluted common share, and $685,000, or $0.37
per  diluted  common  share,  respectively.  At  December  31,  2002  and  2001,
respectively, the Company had total assets of $204.9 million and $178.9 million;
total deposits of $156.1 million and $151.2 million; and stockholders' equity of
$16.9  million  and $14.6  million,  representing  8.26%  and  8.18% of  assets,
respectively.  Each of the Bank's regulatory capital ratios exceeded  regulatory
requirements  at December 31, 2002 and 2001, with tangible and core capital each
at 7.01% and 7.12% and risk-based capital at 13.15% and 12.09%, respectively.

     The Company's  level of  non-performing  assets,  comprised of  non-accrual
loans and REO,  declined to $135,000  or 0.07% of total  assets at December  31,
2002, from $468,000 or 0.26% at December 31, 2001.

     Interest Rate  Sensitivity.  Interest rate risk is the exposure of Broadway
Federal's  current and future  earnings and equity capital  arising from adverse
movements in interest  rates.  Net interest  income  represents  the  difference
between  income on  interest-earning  assets  and  expense  on  interest-bearing
liabilities.   Net  interest   income   depends  on  the  relative   amounts  of
interest-earning  assets and interest-bearing  liabilities and the interest rate
earned or paid on them.  Net interest  income is also affected by the maturities
and  repricing  characteristics  of the  Company's  interest-earning  assets  as
compared  with  its  interest-bearing   liabilities.   Broadway  Federal's  loan
portfolio is predominantly comprised of ARMs tied to COFI, the Treasury Index or
the 12 MTA.  During 2002,  these ARMs have  generally  repriced at a slower rate
than the repricing of the Bank's interest-bearing  liabilities. A portion of the
Bank's adjustable rate loans have reached their floors, thus contributing to the
slower rate of repricing on the loan portfolio. However, the benefit of this lag
effect has been partially  offset by the increase in  refinancings  of portfolio
loans resulting in loan pay-offs.  Additionally, new loan originations have been
recorded at lower rates than the rates for loans paid off.

     The  principal  objective of the Company's  interest  rate risk  management
function is to evaluate the interest rate risk included in certain balance sheet
accounts,  determine the level of risk appropriate given the Company's  business
focus, operating environment, capital and liquidity requirements and performance
objectives,  and manage the risk  consistent  with  Board  approved  guidelines.
Through such  management,  the Company seeks to reduce the  vulnerability of its
operations  to  changes  in  interest  rates and to manage the impact on its net
interest  income  and market  value of equity.  The  Company,  through  Broadway
Federal,  achieves  these  objectives  primarily by the marketing and funding of
ARMs, which, other than hybrid ARMs, generally reprice at least annually and are
indexed to COFI, the Treasury Index,  the 12 MTA or, more recently,  LIBOR.  The
hybrid ARMs have fixed rates of interest for a period of time,  generally  three
to seven years before adjusting.

     The Company closely monitors its interest rate risk as such risk relates to
its operational strategies.  The Company's Board of Directors has established an
Investment   Committee,   which  is  responsible  for  reviewing  the  Company's
asset/liability   policies  and  interest  rate  risk  position.  The  Committee
generally meets quarterly, or more often as deemed necessary, and reports to the
Board of Directors on interest rate risk and trends on a quarterly basis.  There
can be no  assurance  that the  Company  will be able to  maintain  its  desired
interest rate risk position or to implement other  strategies to manage interest
rate risk in the future.  Accordingly,  the Company's  net interest  income will
remain  subject  to the  movements  of  interest  rates,  up or  down,  and such
movements could have a negative impact on the earnings of the Company.

     Neither the  Company nor the Bank engage in the use of trading  activities,
derivatives,  synthetic  instruments or hedging  activities in  controlling  its
interest rate risk. Although such strategies could be permitted in the future if
recommended by the Company's  Investment  Committee and approved by the Board of
Directors,  the  Company  does not  intend to engage  in such  practices  in the
immediate future.

     Net Portfolio Value. Net Portfolio Value ("NPV") is the difference  between
the  present  value of  expected  future  cash  flows of the  Bank's  assets and
liabilities  under various  interest rate scenarios.  The present value of these
cash flows is calculated by discounting  the cash flows using the interest rates
for the various  scenarios.  Under current OTS  regulations  and  practice,  the
effect on NPV must be calculated for immediate, parallel, and sustained interest
rate  changes  of plus or minus  100  basis  points,  and plus 200 and 300 basis
points.

                                       21
<PAGE>

     The  following  tables  present  Broadway  Federal's NPV as of December 31,
2002. This information is provided solely to illustrate the current  application
of the above-described regulation to Broadway Federal and is based upon data and
assumptions  about how  interest  rate  changes  may affect  Broadway  Federal's
interest-earning  assets and  interest-bearing  liabilities.  Actual results may
vary.
<TABLE>
<CAPTION>

               Net Portfolio Value as of December 31, 2002
------------------------------------------------------------------------
 Change in Interest               NPV       Percent    Change in NPV as
Rates in Basis Points            Dollar     Change    Percent of Present
    (Rate Shock)       Amount    Change      (1)      Value of Assets
---------------------  -------  ----------  -------- -------------------
                              (In thousands)
<S>     <C>           <C>       <C>           <C>          <C>
        300           $21,493   $  1,668      8%           1.20%
        200           $20,736   $    911      5%           0.71%
        100           $20,512   $    687      3%           0.45%
       Zero           $19,825   $      -      -              -
       (100)          $18,849   $   (976)    (5)%         (0.58)%
</TABLE>

-----------
(1) Percentage  changes less than 1% not shown. The above table suggests that in
the event of an  immediate,  parallel,  and  sustained 100 basis point change in
interest  rates at December 31, 2002,  Broadway  Federal  would  experience a 3%
increase  in NPV in a rising  rate  environment  and a 5%  decrease  in NPV in a
declining rate environment.

     In evaluating  Broadway  Federal's  exposure to interest rate risk, certain
shortcomings  inherent in the NPV method of analysis  presented in the foregoing
table must be considered.  These include the factors mentioned in the discussion
under  "-Interest  Rate  Sensitivity"  above,  and the fact that market interest
rates are unlikely to adjust simultaneously.

     Critical Accounting Policies.  The discussion and analysis of the financial
condition  and  results  of  operations  of  the  Company  are  based  upon  the
consolidated  financial statements,  which have been prepared in accordance with
accounting  principles  generally accepted in the United States of America.  The
preparation of these financial  statements requires management to make estimates
and judgments that affect the reported  amounts of assets and liabilities at the
date of our financial statements. Actual results may differ from these estimates
under different assumptions or conditions.

     Accounting for the allowance for loan losses involves significant judgments
and  assumptions by management that have a material impact on the carrying value
of  loans  receivable.  Management  considers  this  accounting  policy  to be a
critical accounting policy. The judgments and assumptions used by management are
based on historical experience and other factors,  which are believed reasonable
under the  circumstances  as  described  in Item 1.  "Description  of Business -
Lending Activities-Allowance for Loan Losses".

     Market Risk. The following table provides  information  about the Company's
financial  instruments  that are  sensitive  to changes in interest  rates as of
December  31, 2002 based on the  information  and  assumptions  set forth in the
notes to the table.  The  Company had no  derivative  financial  instruments  or
trading  portfolio,  as of December 31, 2002. The expected  maturity date values
for loans receivable, mortgage-backed securities, and investment securities were
calculated  by  adjusting  the  instrument's   contractual  maturity  dates  for
expectations  of  prepayments,  as set forth in the notes.  Similarly,  expected
maturity date values for  interest-bearing  core deposits were calculated  based
upon estimates of the period over which the deposits would be outstanding as set
forth in the notes to the table.  With respect to the Company's  adjustable rate
instruments,  expected  maturity  date values were  measured  by  adjusting  the
instrument's  contractual maturity date for expectations of prepayments,  as set
forth in the notes.  From a risk management  perspective,  however,  the Company
believes that repricing  dates, as opposed to expected  maturity  dates,  may be
more relevant in analyzing the value of such instruments.


                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                                       Expected Maturity Date
                                                                 Fiscal Year Ended December 31, 2002
                                        -----------------------------------------------------------------------------------------
                                          2003       2004       2005      2006      2007     Thereafter     Total      Fair Value
                                        ---------  --------  ---------  --------  --------   -----------  ----------   ----------
                                          (Dollars in thousands)
Interest Earnings Assets:
Loans receivable (1)(2)(3)
<S>                                     <C>        <C>        <C>       <C>       <C>         <C>         <C>          <C>
   Fixed                                $  5,572   $ 3,524    $ 2,381   $ 1,393   $   976     $ 1,632     $ 15,478     $ 16,651
   Average interest rate                    8.08%     8.12%      8.06%     7.77%     7.66%       7.24%        7.94%

   Adjustable                           $ 94,334   $23,859    $10,966   $   627   $   628     $   212     $130,626     $132,343
   Average interest rate                    6.76%     6.99%      7.00%     6.73%     6.73%       6.01%        6.82%

Investment securities (4)               $  8,030       -          -          -        -           -       $  8,030     $  8,088
   Average interest rate                    3.07%      -          -          -        -           -          3.07%

Mortgage backed securities (5)(6)
   Fixed                                $  4,559   $ 2,430    $ 1,319   $   737   $   416     $   487     $  9,948     $ 10,382
   Average interest rate                    6.28%     6.31%      6.34%     6.36%     6.37%       6.40%        6.31%

   Adjustable                           $ 11,651   $ 6,561    $ 4,003   $ 3,141   $ 3,142         -       $ 28,498     $ 28,632
   Average interest rate                    4.10%     4.09%      4.10%     4.12%     4.12%        -           4.10%

Interest bearing deposits               $  1,500       -          -         -         -           -       $  1,500     $  1,500
   Average interest rate                    1.13%      -          -         -         -           -           1.13%

Total interest earning assets           $125,646    $36,374   $18,669   $ 5,898   $ 5,162     $ 2,331     $194,080     $197,596

Interest Bearing Liabilities
Savings account deposits
   NOW accounts (7)                     $  2,131    $ 1,768   $ 1,468   $ 1,218   $ 5,948         -       $ 12,533     $ 12,533
   Average interest rate                    0.34%      0.34%     0.34%     0.34%     0.34%        -           0.34%

   Passbook accounts (8)                $  5,011    $ 4,159   $ 3,452   $ 2,865   $ 2,378     $11,613     $ 29,478     $ 29,478
   Average interest rate                    0.78%      0.78%     0.78%     0.78%     0.78%       0.78%        0.78%

   Certificate accounts (9)             $ 64,601    $13,075   $ 8,012   $ 2,994   $ 2,997     $ 2,907     $ 94,586     $ 96,268
   Average interest rate                    2.51%      3.67%     4.88%     4.85%     4.85%       5.34%        3.10%


   Money Market funds (10)              $  2,877    $ 1,927   $ 3,936       -         -           -       $  8,740     $  8,740
   Average interest rate                    1.38%      1.38%     1.38%      -         -           -           1.38%

   Non-interest bearing checking        $  3,760    $ 2,445   $ 1,590   $ 1,034   $   672     $ 1,310     $ 10,811     $ 10,811
   Average interest rate

Federal Home Loan Bank Advances:
   Fixed rate borrowing                 $  8,247    $ 8,190   $ 6,181   $ 4,629   $ 1,477         -       $ 28,724     $ 28,986
   Average interest rate                    2.58%      2.58%     2.73%     2.87%     2.87%        -           2.67%

Other interest bearing liabilities          -           -         -     $   558       -           -       $    558     $    555
   Average interest rate                    -           -         -        2.00%      -           -           2.00%

Total interest bearing liabilities      $ 86,627    $31,564   $24,639   $13,298   $13,472     $15,830     $185,430     $187,371

</TABLE>

                                       23
<PAGE>


-------

(1)  Does not include  undisbursed loan proceeds,  net deferred loan fees or the
     allowance for loan losses.

(2)  For fixed rate single-family  residential loans assumes annual amortization
     and balloon  maturities as appropriate.  Assumes a prepayment rate of 10.8%
     to 29% for the  fixed and  balloon  mortgage  loans.  For  adjustable  rate
     single-family loans, the expected maturity is the repayment of principal or
     repricing, whichever occurs first. Assumes a prepayment rate of 21.90%. For
     fixed rate non-single family residential loans, assumes annual amortization
     and a prepayment rate of 6% to 17%. For adjustable  rate non-single  family
     residential  loans, the expected  maturity is the repayment of principal or
     repricing, whichever occurs first. Assumes a prepayment rate of 6%.

(3)  Approximately  forty-eight  percent (48%) of the Company's  adjustable rate
     loans  change  with COFI or the 12 MTA.  The vast  majority  of these loans
     reprice on an average of six months or less. The remaining  adjustable rate
     loans  primarily  change with a current  market  index such as the Treasury
     Index.  All loans are subject to various  market-based  annual and lifetime
     rate caps and floors.

(4)  Investment  securities  of the  Company  are  comprised  of a  mutual  fund
     invested in ARM loans  primarily  indexed to the one year Treasury bill and
     as such have an anticipated  maturity of one year or less, a certificate of
     deposit, and Federal Agency debentures.

(5)  For   mortgage-backed   securities  with  single-family   residential  loan
     collateral,   assumes  annual   amortization  and  balloon   maturities  as
     appropriate.  Assumes  prepayment  rates of 12.9% to 25.3% for  fixed  rate
     securities.

(6)  The Company's  adjustable  rate  mortgage-backed  securities  reprice on an
     annual  basis  based  upon  changes  in the  Treasury.  Various  annual and
     lifetime  market-based caps and floors exist.  Assumes a prepayment rate of
     21.90%.

(7)  For NOW  accounts,  assumes  a 17%  decay  rate  for five  years,  with the
     remaining balance maturing at the end of five years.

(8)  For regular passbook savings  accounts,  assumes a 17% decay rate for seven
     years, with the remaining balance maturing at the end of seven years.

(9)  Certificate accounts, assumes stated maturities.

(10) Money Market fund  accounts,  assumes a 33% decay rate,  with the remaining
     balances maturing in the third year.



                                      24
<PAGE>

     Average Balance Sheet.  The following table sets forth certain  information
relating to the Company's  average  balance  sheets for the years ended December
31,  2002 and 2001.  The yields  and costs are  derived  by  dividing  income or
expense by the average balance of assets or liabilities,  respectively,  for the
periods shown except where noted  otherwise.  Average  balances are derived from
average month-end balances.  Management does not believe that the use of average
monthly  balances  instead of average  daily  balances  has caused any  material
differences in the information presented. The yields and costs include fees that
are considered adjustments to yields.

<TABLE>
<CAPTION>
                                                            For the Year Ended December 31,
                                            -------------------------------------------------------------------
                                                         2002                             2001
                                           ---------------------------------  ---------------------------------
                                            Average                Average    Average                Average
                                            Balance    Interest   Yield/Cost  Balance   Interest    Yield/Cost
                                           ---------   ---------  ----------  -------   --------  -------------
                                                                 (Dollars in thousands)
Assets

Interest-earning assets:
<S>                                        <C>          <C>          <C>      <C>        <C>           <C>
Interest-earning deposits                  $   2,674    $    30      1.13%    $  1,658   $     21      1.27%
Federal Funds sold and other short-term
  investments                                 13,663        393      2.88%      11,650        594      5.10%
Investment securities                          1,703         68      3.99%       2,038         90      4.42%
Loans receivable(1)(2)                       139,349     10,784      7.74%     133,743     11,452      8.56%
Mortgage-backed securities                    20,765      1,109      5.34%      11,894        744      6.26%
FHLB stock                                     1,455         85      5.84%       1,363         97      7.12%
                                           ---------     -------              --------   --------
Total interest-earning assets                179,609    $12,469      6.94%     162,346   $ 12,998      8.01%
                                                        --------                         --------
Non-interest-earning assets                    8,180                            14,162
                                            --------                          --------
   Total assets                             $187,789                          $176,508
                                            ========                          ========

Liabilities and Retained Earnings

Interest-bearing liabilities:
Money market deposits                       $  8,030    $   119      1.48%    $  5,567   $    106      1.91%
Passbook deposits                             28,665        232      0.81%      27,835        289      1.04%
NOW and other demand deposits                 24,070         43      0.18%      20,216         78      0.38%
Certificate accounts                          93,223      3,358      3.60%      91,797      5,200      5.67%
                                            --------    -------               --------   --------      -----
Total deposits                               153,988      3,752      2.42%     145,415      5,673      3.90%
FHLB advances                                 15,088        817      5.41%       8,788        580      6.60%
                                            --------    -------               --------   --------
Total interest-bearing liabilities           169,076      4,659      2.70%     154,203      6,253      4.06%
                                            --------    -------               --------   --------
Non-interest-bearing liabilities               3,259                             7,994
Retained earnings                             15,454                            14,311
                                            --------                          --------
Total liabilities and retained earnings     $187,789                          $176,508
                                            ========                          ========
Net interest rate spread (3)                            $ 7,900      4.24%               $  6,745      3.95%
                                                        =======                          ========
Effective net interest rate spread(4)                                4.40%                             4.15%
Ratio of interest-earning assets
  to interest-bearing liabilities                                  106.23%                           105.28%
Return on average assets                                             0.77%                             0.39%
Return on average equity                                             9.32%                             4.79%
Average equity to average assets ratio                               8.23%                             8.11%

</TABLE>

-----------

(1)  Amount is net of deferred loan fees, loan  discounts,  loans in process and
     loan loss allowances, and includes loans held for sale.

(2)  Amount excludes non-performing loans.

(3)  Interest rate spread represents the difference between the yield on average
     interest-earning   assets   and  the  cost  of   average   interest-bearing
     liabilities.

(4)  Net  interest  margin  represents  net interest  income as a percentage  of
     average interest-earning assets.


                                       25
<PAGE>

     Rate/Volume  Analysis.  The  following  table  presents the extent to which
changes in interest rates and changes in the volume of  interest-earning  assets
and interest-bearing liabilities have affected the Company's interest income and
interest expense during the periods  indicated.  Information is provided in each
category with respect to (i) changes  attributable to changes in volume (changes
in volume  multiplied by prior rate),  (ii) changes  attributable  to changes in
rate (changes in rate  multiplied by prior volume),  and (iii) the total change.
The changes  attributable  to the  combined  impact of volume and rate have been
allocated  proportionately  to the  changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
                                    Year ended December 31, 2002     Year ended December 31, 2001
                                       Compared to year ended          Compared to year ended
                                         December 31, 2001               December 31, 2000
                                    -----------------------------   -------------------------------
                                     Increase (Decrease) in Net      Increase (Decrease) in Net
                                          Interest Income                 Interest Income
                                    -----------------------------   -------------------------------
                                     Due to    Due to                Due to      Due to
                                     Volume     Rate       Total     Volume       Rate      Total
                                    --------  --------   ---------  --------    --------    -------
                                       (In thousands)
Interest-earning assets:
<S>                                 <C>       <C>        <C>        <C>         <C>         <C>
Interest-earning deposits           $   12    $   (3)    $     9    $   25      $  (14)     $  11
Federal funds sold and other            90       (291)      (201)      548           2        550
  short term investments               (14)        (8)       (22)     (414)       (139)      (553)
Investment securities, net             520     (1,188)      (668)      545         156        701
Loans receivable, net                  488       (123)       365         1          (7)        (6)
Mortgage backed securities, net          7        (19)       (12)        6           4         10
FHLB stock                          -------   --------   ---------  --------    --------    -------
Total interest-earning assets        1,103     (1,632)      (529)      711           2        713
                                    -------   --------   ---------  --------    --------    -------

Interest-bearing liabilities:           40        (27)        13        26         (42)       (16)
Money market deposits                    9        (66)       (57)       (4)        (63)       (67)
Passbook deposits                       12        (47)       (35)       12         (27)       (15)
NOW and other demand deposits           82     (1,924)    (1,842)      386         422        808
Certificate accounts                   357       (120)       237      (315)         86       (229)
FHLB advances                       -------   --------   ---------  --------    --------    -------

Total interest-bearing
  liabilities                          500     (2,184)    (1,684)      105         376        481
                                    -------   --------   ---------  --------    --------    -------
Change in net interest income       $  603    $    552   $ 1,155    $  606       $(374)     $ 232
                                    =======   ========   =========  ========   =========    =======
</TABLE>


                                       26
<PAGE>

Comparison  of  Operating  Results  for the Years  Ended  December  31, 2002 and
December 31, 2001


     General.  The Company  recorded  net  earnings of  $1,441,000  or $0.77 per
diluted  common  share,  for the year ended  December 31, 2002,  compared to net
earnings  of  $685,000 or $0.37 per  diluted  common  share,  for the year ended
December 31, 2001.  The growth in net  earnings was largely  attributable  to an
increase in net interest  income after  provision for loan losses ("net interest
margin"), which increased by $1.4 million during the year.

     Interest  Income.  Interest  income  decreased  by $529,000 or 4.1% in 2002
compared to 2001. The decrease was primarily  attributable  to a 107 basis point
decrease in the yield on interest earning assets offset by the effect of a $17.3
million  increase in average  interest-earning  assets in 2002 compared to 2001.
The Bank was able to increase its loan portfolio  through loan  originations and
purchases.  The loan portfolio  increased to $143.9 million at December 31, 2002
from $141.3 million at December 31, 2001.

     The yield on average  interest-earning assets was 6.94% in 2002 compared to
8.01% in 2001, a decrease of 107 basis points.  The investment  portfolio  yield
declined  to 3.99% in 2002 from 4.42% in 2001,  a 43 basis point  decrease.  The
loan  portfolio  yield also  declined to 7.74% in 2002 from 8.56% in 2001, an 82
basis point decrease.

     Interest  Expense.  Interest expense  decreased by $1.7 million or 26.9% in
2002 compared to 2001.  The decrease was primarily  attributable  to a 136 basis
point decrease in the cost of interest-bearing liabilities to 2.70% in 2002 from
4.06% in 2001,  offset by the  effect of a $14.9  million  increase  in  average
interest-bearing  liabilities  to $169.1  million in 2002 from $154.2 million in
2001.  Deposits grew to $156.1  million at December 31, 2002 from $151.2 million
at December 31, 2001,  and the  weighted  average cost of deposits  decreased to
2.42% in 2002 from 3.90% in 2001. Of the deposit growth,  $7.6 million  occurred
in core deposit  accounts,  consisting of NOW and demand deposits,  money market
deposits and passbook deposits.  Core deposits grew to $61.6 million at December
31,  2002 from $53.9  million at December  31,  2001.  The average  cost of core
deposits  decreased  to  0.67%  in  2002  from  0.88%  in 2001  and the  cost of
certificate accounts, also decreased, to 3.60% in 2002 from 5.67% in 2001.

     The weighted  average cost of FHLB  advances was 5.41% in 2002  compared to
6.60% in 2001. The higher cost of borrowings in 2001 was  substantially  related
to fixed-rate  borrowings  maturing in 2002 and 2003 with interest rates ranging
from 6.64% to 6.77%.  During December 2002, FHLB advances of $4.5 million due in
September 2003 were refinanced with new borrowings with maturities  ranging from
one to three years,  and with an average  interest rate of 2.17%.  The Bank paid
$185,000 in prepayment  fees, which has been included in interest expense in the
accompanying Statement of Operations and Comprehensive Earnings.

     Net Interest  Income After  Provision for  (Recovery  of) Loan Losses.  Net
interest income after provision for (recovery of) loan losses  increased by $1.4
million  or 21.9%  in 2002  compared  to  2001.  The net  interest  rate  spread
increased to 4.24% from 3.95%.  The effective net interest rate spread increased
to 4.40% from 4.15%. The provision for loan losses  decreased  $292,000 based on
management's  estimate of the level of valuation  allowance  needed to cover the
inherent risk in the portfolio.

     The  allowance  for loan losses as a percentage of total loans was 0.98% at
December 31, 2002  compared to 1.10% at December  31, 2001.  The Bank's ratio of
non-performing assets,  consisting of non accrual loans and real estate acquired
through  foreclosure,  to total  assets  improved to 0.07% at December 31, 2002,
from 0.26% at December 31, 2001. At December 31, 2002 and 2001,  the Bank had no
foreclosed real estate assets.

     Non-Interest  Income.  Non-interest  income increased by $64,000 or 6.8% in
2002 compared to 2001 primarily from the increase in service  charges  amounting
to $61,000.

     Non-Interest  Expense.  Non-interest  expense increased $384,000 or 6.0% in
2002 compared to 2001. The increase was primarily attributable to an increase in
compensation and benefits relating to higher  performance  bonuses and to higher
salaries.



                                       27
<PAGE>

Comparison of Financial Condition at December 31, 2002 and December 31, 2001

     Assets.  Total  assets at the end of 2002 were $204.9  million  compared to
$178.9 million at the end of 2001, a $26.0 million  increase.  Assets  increased
largely due to the  increase in the  mortgage-backed  securities  portfolios  of
$24.6 million.

     Mortgage-backed  securities  available for sale increased  $27.7 million in
2002  reflecting  purchases,  net  of  repayments.   Mortgage-backed  securities
classified as held to maturity  decreased  $3.1 million  because of  repayments.
During the third and  fourth  quarter of 2002,  the Bank  implemented  a revenue
enhancement   strategy   consisting  of  investing  in  Agency   mortgage-backed
securities funded by liquidation of lower-yielding  short-term investments,  and
by FHLB advances.  The mortgage-backed  securities consist of 30 year amortizing
loans,  structured  with a fixed  interest  rate for a  period  of five or seven
years,  after  which time the  securities  convert to a  one-year  or  six-month
standard adjustable rate mortgage. Such loans are referred to as hybrid ARMs.

     Loans receivable,  including loans held for sale, increased $2.6 million in
2002 resulting from loan originations of $30.8 million,  offset by loan payoffs,
and principal  repayments of $28.8 million.  In 2001 loans receivable  increased
$14.7 million,  substantially  due to loan purchases of $8.2 million and a lower
level  of loan  payoffs.  At  December  31,  2002  and  2001  89.7%  and  89.5%,
respectively,  of loans receivable were adjustable rate mortgages. At those same
dates  65.4% and 62.4%,  respectively,  were  multifamily  loans,  and 20.6% and
23.4%, respectively, were single-family loans.

     Investment  securities  available  for sale is  comprised  of  mutual  fund
investments  in adjustable  rate mortgage  funds.  These mutual funds  generally
provide a higher  short-term  yield than Federal  funds sold or other  overnight
investments,  and due to the short duration of the underlying  assets, the funds
are relatively  stable in terms of changes in market value. At December 31, 2002
and 2001 the yield on these investments was 2.55% and 4.55%, respectively.

     Liabilities.  Total  liabilities  at the end of 2002  were  $188.0  million
compared to $164.3  million at the end of 2001, a $23.7  million  increase.  The
increase  was  primarily  attributable  to a  $17.7  million  increase  in  FHLB
borrowings.

     During the third and fourth  quarter of 2002, the Bank borrowed $20 million
in 54-month  amortizing  advances to fund the purchase of Agency  hybrid ARMs as
part of the Bank's revenue enhancement  strategy. At December 31, 2002 and 2001,
FHLB  advances  were  14.0% and 6.1%,  respectively,  of total  assets,  and the
weighted  average  cost  of  advances  at  those  dates  was  2.67%  and  4.93%,
respectively.

     Deposits  increased by $5.0 million in 2002. During the first half of 2002,
the  Bank  focused  on  increasing  the  percentage  of core  deposits  to total
deposits.  At the end of 2002, core deposits represented 39.4% of total deposits
compared to 35.7% at the end of 2001.  The Bank also  focused on  extending  its
certificate of deposit  maturities in the current low interest rate environment,
and was able to increase the weighted average certificate of deposit maturity to
18 months at year-end 2002 from 11 months at year-end 2001. At December 31, 2002
and  2001,  the  weighted   average  cost  of  deposits  was  2.42%  and  3.90%,
respectively, a 148 basis point decrease.

     Liquidity and Capital  Resources.  Sources of liquidity and capital for the
Company  on  a  stand-alone  basis  include  distributions  from  the  Bank  and
borrowings  under a $5  million  line  of  credit  with  First  Federal  Bank of
California. Additionally, in December 2002, the Company issued 100,000 shares of
non-cumulative,  non-voting  Series B  Preferred  Stock to Fannie  Mae for gross
proceeds of $1.0 million.  Dividends and other  capital  distributions  from the
Bank are subject to regulatory restrictions.

     The  Bank's  primary  sources  of funds are Bank  deposits,  principal  and
interest  payments on loans and  mortgage-backed  securities,  proceeds from the
sale of investment and mortgage-backed  securities,  and advances from the FHLB.
While  maturities  and  scheduled  amortization  of Bank  loans are  predictable
sources of funds,  deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions, and competition.

     In July 2001, the Office of Thrift Supervision  removed the regulation that
required a savings  institution  to maintain an average  daily balance of liquid
assets of at least 4% of its liquidity base, and retained a provision  requiring


                                       28
<PAGE>

a savings  institution to maintain  sufficient  liquidity to ensure its safe and
sound operation.  The determination of what constitutes safe and sound operation
was left to the  discretion of  management.  The Bank's goal is to maintain cash
and liquid investments at a modest level, particularly in light of the available
borrowing  capacity from the FHLB and other  sources.  At December 31, 2002 cash
and cash equivalents,  short-term investments and excess borrowing capacity from
the FHLB was 24.8% of the liquidity  base  (defined as deposits plus  borrowings
less share loans).

     The Bank has  other  sources  of  liquidity  in the  event  that a need for
additional  funds  arises,  including  brokered  deposits,  and the Company's $5
million  line of credit  with First  Federal  Bank of  California,  which can be
pushed down to the Bank.

     At December 31, 2002,  the Bank had  outstanding  commitments  to originate
loans of  approximately  $2.2 million.  The Bank  anticipates  that it will have
sufficient funds available to meet its future loan origination commitments.

     Impact  of  Inflation  and  Changing  Prices.  The  consolidated  financial
statements and notes thereto  presented  herein have been prepared in accordance
with  generally  accepted  accounting  principles  ("GAAP")  which  require  the
measurement of financial  position and operating  results in terms of historical
dollars  without  considering  the changes in the relative  purchasing  power of
money  over time due to  inflation.  The impact of  inflation  is  reflected  in
increased costs of the Company's operations. Unlike industrial companies, nearly
all of the assets and  liabilities  of the  Company  and  Broadway  Federal  are
monetary in nature.  As a result,  interest  rates have a greater  impact on the
Company's  performance  than do the  effects  of  general  levels of  inflation.
Interest  rates do not  necessarily  move in the same  direction  or to the same
extent as the price of goods and services.

     Recent  Accounting  Pronouncements.  For a discussion on recent  accounting
pronouncements,   see  Note  2  of  the  Notes  to  the  Consolidated  Financial
Statements.


Item 7. Financial Statements of Broadway Financial Corporation

     See Index to the Consolidated  Financial  Statements of Broadway  Financial
Corporation beginning on Page 38.

Item  8.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure

    None

                                    PART III

Item 9.  Directors and Executive Officers of the Registrant

     The information  required by this Item is incorporated  herein by reference
to the definitive Proxy Statement,  under the captions "Director's and Executive
Officers" and "Voting  Securities and Principal  Holders  Thereof",  to be filed
with the  Securities  and Exchange  Commission in connection  with the Company's
2003 Annual Meeting of Shareholders (the "Company's 2003 Proxy Statement").

Item 10. Executive Compensation

     The information  required by this Item is incorporated  herein by reference
to the Company's 2003 Proxy Statement, under the caption "Executive Compensation
Benefits and Related Matters".

Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management and
Related Stockholder Matters

     The information  required by this Item,  other than the following table, is
incorporated  herein by reference to the Company's 2003 Proxy  Statement,  under
the caption "Voting Securities and Principal Holders Thereof".




                                       29
<PAGE>

                                       Equity Compensation Plan Information

<TABLE>
<CAPTION>
                                        Number of Securities
                                         to be Issued Upon           Weighted Average             Number of Securities
                                            Exercise of              Exercise Price of           Remaining Available for
                                        Outstanding Options,       Outstanding Options,           Future Issuance Under
         Plan Category                  Warrants and Rights         Warrants and Rights         Equity Compensation Plans

<S>                                                 <C>                   <C>                                <C>
Recognition and Retention Plan                      759                   $  5.50                            7,773

Performance Equity Plan                          18,840                   $  6.51                            8,738

Employee Stock Ownership Plan                    73,247                   $  5.00                           31,265

Long Term Incentive Plan                        277,914                   $  6.14                           72,086

Stock Option Plan for
Outside Directors                                35,592                   $  5.31                           20,255
                                       -----------------------    ------------------------     ----------------------------
    Total                                       406,352                   $  5.89                          140,117
                                       =======================    ========================     ============================
</TABLE>

Item 12. Certain Relationships and Related Transactions

     None.

Item 13. Exhibits and Reports on Form 8-K

     (a) Exhibits
<TABLE>
<CAPTION>

    Exhibit
    Number
<S>  <C>
     2.1  Plan of Conversion,  including Certificate of Incorporation and Bylaws
          of the  Registrant  and Federal  Stock  Charter and Bylaws of Broadway
          Federal  (Exhibit 2.1 to Amendment No. 2 to Registration  Statement on
          Form S-1, No. 33-96814, filed by Registrant on November 13, 1995)

     3.1  Form of  Certificate  of  Incorporation  of  Registrant  (contained in
          Exhibit 2.1) 3.2 Form of Bylaws of  Registrant  (contained  in Exhibit
          2.1) 4.1 Form of Common Stock Certificate (Exhibit 4.1 to Registration
          Statement  on  Form  S-1,  No.  33-96814,filed  by the  Registrant  on
          September 12, 1995)

     4.2  Form of Series A Preferred Stock Certificate (Exhibit 4.2 to Amendment
          No. 1 to Registration  Statement on Form S-1, No.  33-96814,  filed by
          the Registrant on November 6, 1995)

     4.3  Form of Certificate of  Designation  for the Series A Preferred  Stock
          (contained in Exhibit 2.1)

     10.1 Form of Broadway  Federal Bank Employee Stock  Ownership Plan (Exhibit
          4.1 to Registration Statement on Form S-1, No. 33-96814,  filed by the
          Registrant on September 12, 1995)

     10.2 Form of ESOP  Loan  Commitment  Letter  and  ESOP  Loan  and  Security
          Agreement  (Exhibit  4.1 to  Registration  Statement  on Form S-1, No.
          33-96814, filed by the Registrant on September 12, 1995)

     10.3 Form of Severance  Agreement  among  Broadway  Financial  Corporation,
          Broadway  Federal  and certain  executive  officers  (Exhibit  10.7 to
          Amendment No. 2 to Registration  Statement on Form S-1, No.  33-96814,
          filed by the Registrant on November 13, 1995)

     10.4 Broadway  Financial  Corporation  Recognition  and Retention  Plan for
          Outside  Directors dated August 1, 1997,  (Exhibit 10.4 to Form 10-KSB
          filed by the Registrant for the fiscal year ended December 31, 1997.

     10.5 Broadway Financial Corporation Performance Equity Program for Officers
          and  Directors,  dated  August 1, 1997,  filed as Exhibit 10.5 to Form
          10-KSB filed by the  Registrant for the fiscal year ended December 31,
          1997.

     10.6 Broadway Financial Corporation Stock Option Plan for Outside Directors
          (filed  by the  Registrant  as part of Form  S-8,  No.  333-17331,  on
          December 5, 1996)

     10.7 Broadway  Financial  Corporation  Long Term  Incentive  Plan (filed by
          Registrant as part of Form S-8, No. 333-17331, on December 5, 1996)
                                       30
<PAGE>


     21.1 Subsidiaries  of  Broadway  Financial  Corporation  (Exhibit  21.1  to
          Amendment No. 1 to Registration  Statement on Form S-1, No.  33-96814,
          filed by the Registrant on November 6, 1995)

     23.1 Consent of KPMG LLP

     99.1 CEO and CFO  Certification  pursuant  to 18 U.S.C.  Section  1350,  as
          adopted  pursuant  to Section  906 of the  Sarbanes-Oxley  Act of 2002
</TABLE>
         ------------
     *    Exhibits  followed by a  parenthetical  reference are  incorporated by
          reference herein from the document described therein.

                                       31
<PAGE>



                                                                   Exhibit 23.1








                          Independent Auditors' Consent


The Board of Directors
Broadway Financial Corporation:


We consent to the incorporation by reference in the registration statements (No.
333-17331 and No. 333-102138) on Form S-8 of Broadway  Financial  Corporation of
our report  dated  February 6, 2003,  with respect to the  consolidated  balance
sheets of Broadway  Financial  corporation as of December 31, 2002 and 2001, and
the related  consolidated  statements of operations and comprehensive  earnings,
changes in stockholders'  equity and cash flows for the years then ended,  which
report appears in the December 31, 2002 annual report on Form 10-KSB of Broadway
Financial Corporation.


                                             /s/ KPMG LLP


Los Angeles, California
March 31, 2003


                                       32
<PAGE>



                                                                   Exhibit 99.1



                            SECTION 906 CERTIFICATION



The  following  statement  is  provided  by the  undersigned  to  accompany  the
foregoing  Report on Form 10-KSB  pursuant to 18 U.S.C.  Section 1350 as adopted
pursuant  to Section  906 of the  Sarbanes-Oxley  Act of 2002,  and shall not be
deemed filed  pursuant to any provision of the Exchange Act of 1934 or any other
securities law.


Each of the undersigned certifies that the foregoing Report on Form 10-KSB fully
complies with the  requirements of Section 13(a) of the Securities  Exchange Act
of 1934 (15 U.S.C.  Section 78) and that the  information  contained in the Form
10-KSB fairly presents,  in all material respects,  the financial  condition and
results of operations of Broadway  Financial  Corporation as of and for the year
ended December 31, 2002.


Date:  March 31 2003                By: /s/ Paul C. Hudson
                                          Paul C. Hudson
                                          President and Chief Executive Officer
                                          Broadway Financial Corporation


Date:  March 31 2003                By:  /s/ Alvin D. Kang
                                          Alvin D. Kang
                                          Chief Financial Officer



                                       33
<PAGE>

     (b)  Reports on Form 8-K

          The Company filed a report on Form 8-K on November 6, 2002  announcing
          a two-for-one stock split in the form of a stock dividend of one share
          for  each  outstanding  share,  and  its  intention  to  increase  the
          quarterly cash dividend.

          The Company filed a report on Form 8-K on November 8, 2002  clarifying
          its previous announcement regarding the cash dividend.

Item 14.  Controls and Procedures

     As of December 31, 2002, an evaluation was performed  under the supervision
of the Company's  Chief Executive  Officer  ("CEO") and Chief Financial  Officer
("CFO")  of the  effectiveness  of the  design and  operation  of the  Company's
disclosure controls and procedures.  Based on that evaluation, the Company's CEO
and CFO concluded that the Company's  disclosure  controls and  procedures  were
effective as of December 31, 2002. There have been no significant changes in the
Company's internal controls or in other factors that could significantly  affect
internal controls subsequent to December 31, 2002.



                                       34
<PAGE>



SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly  caused  this  report to be signed  on its  behalf by the  undersigned,
thereunto duly authorized.

                                BROADWAY FINANCIAL CORPORATION

                                By: /s/ Paul C. Hudson
                                    Paul C. Hudson
                                    Chief Executive Officer and President

Date:   March 31, 2003

     In  accordance  with the Exchange Act, this report has been signed below by
the following persons in the capacities and on the date indicated.


      /s/ Paul C. Hudson                               Date: March 31, 2003
        Paul C. Hudson
ief Executive Officer, President
         and Director
 (Principal Executive Officer)

       /s/ Alvin D. Kang                               Date: March 31, 2003
         Alvin D. Kang
    Chief Financial Officer
 (Principal Financial Officer)
(Principal Accounting Officer)

     /s/ Elbert T. Hudson                              Date: March 31, 2003
       Elbert T. Hudson
     Chairman of the Board

       /s/ Kellogg Chan                                Date: March 31, 2003
         Kellogg Chan
           Director

       /s/ Rosa M. Hill                                Date: March 31, 2003
         Rosa M. Hill
           Director

    /s/ Albert Odell Maddox                            Date: March 31, 2003
      Albert Odell Maddox
           Director

      /s/ Larkin Teasley                               Date: March 31, 2003
        Larkin Teasley
           Director

     /s/ Daniel A. Medina                              Date: March 31, 2003
       Daniel A. Medina
           Director

     /s/ Virgil P. Roberts                             Date: March 31, 2003
       Virgil P. Roberts
           Director

     /s/ Robert C. Davidson, Jr.                       Date: March 31, 2003
       Robert C. Davidson
            Director


                                       35
<PAGE>

                           SECTION 302 CERTIFICATION


     I, Paul C. Hudson, certify that:

     1. I have reviewed this annual report on Form 10-KSB of Broadway  Financial
Corporation.

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure controls and procedures (as designed in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions  about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

     a) all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date:    March 31, 2003


         /s/ Paul C. Hudson
         Signature

         Paul C. Hudson
         Chief Executive Officer
         Broadway Financial Corporation




                                      36
<PAGE>




                            SECTION 302 CERTIFICATION


    I, Alvin D. Kang, certify that:

     1. I have reviewed this annual report on Form 10-KSB of Broadway  Financial
Corporation.

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure controls and procedures (as designed in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions  about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

     a) all  significant  deficiencies  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date:    March 31, 2003


         /s/ Alvin D. Kang
         Signature

         Alvin D. Kang
         Chief Financial Officer
         Broadway Financial Corporation




                                       37
<PAGE>







                 BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

                   Index to Consolidated Financial Statements

                     Years ended December 31, 2002 and 2001





Independent Auditors' Report                                             F-1
Consolidated Balance Sheets                                              F-2
Consolidated Statements of Operations and Comprehensive Earnings         F-3
Consolidated Statements of Changes in Stockholders' Equity               F-4
Consolidated Statements of Cash Flows                                    F-5
Notes to Consolidated Financial Statements                               F-7





                                     38
<PAGE>








                          Independent Auditors' Report


The Board of Directors and Stockholders
Broadway Financial Corporation:

We have  audited  the  accompanying  consolidated  balance  sheets  of  Broadway
Financial Corporation and subsidiaries as of December 31, 2002 and 2001, and the
related  consolidated  statements  of  operations  and  comprehensive  earnings,
changes in stockholders'  equity and cash flows for the years then ended.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Broadway Financial
Corporation  and  subsidiaries as of December 31, 2002 and 2001, and the results
of their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.

                                         /s/ KPMG LLP


Los Angeles, California
February 6, 2003


                                      F-1

<PAGE>

                 BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

                           Consolidated Balance Sheets
<TABLE>
<CAPTION>

                                                                                   December 31,     December 31,
                                                                                      2002             2001
                                                                                   ------------     ------------
Assets
<S>                                                                                <C>              <C>
Cash                                                                               $  3,859,000     $  2,639,000
Federal funds sold                                                                    1,500,000        2,600,000
Interest bearing deposits                                                             1,028,000        5,028,000
Investment securities held to maturity (fair value of
    $2,046,000 at December 31, 2002)                                                  2,000,000                -
Investment securities available for sale, at fair value                               5,007,000        4,504,000
Mortgage-backed securities held to maturity (fair value of $11,317,000
   at December 31, 2002 and $14,231,000 at December 31, 2001)                       10,843,000         3,931,000
Mortgage-backed securities available for sale                                        27,697,000                -
Loans receivable, net                                                               140,085,000        3,937,000
Loans receivable held for sale, at lower of cost or fair value                        3,770,000        7,362,000
Accrued interest receivable                                                             995,000          943,000
Investments in capital stock of Federal Home Loan Bank, at cost                       1,561,000        1,399,000
Office properties and equipment, net                                                  5,811,000        6,001,000
Other assets                                                                            750,000          557,000
                                                                                   ------------     ------------

                  Total assets                                                     $204,906,000     $178,901,000
                                                                                   ============     ============

Liabilities and stockholders' equity
Deposits                                                                           $156,148,000     $151,156,000
Advances from Federal Home Loan Bank                                                 28,724,000       11,000,000
Advance payments by borrowers for taxes and insurance                                   311,000          224,000
Deferred income taxes                                                                   931,000          556,000
Other liabilities                                                                     1,871,000        1,337,000
                                                                                   ------------      -----------
                                                                                    187,985,000      164,273,000
                  Total liabilities

Stockholders' Equity:
Preferred non-convertible, non-cumulative, and non-voting stock, $.01par value,
    authorized 1,000,000 shares; issued and outstanding 55,199 shares of
    Series A and 100,000 shares of Series B at December 31, 2002 and 55,199
    shares of Series A at December 31, 2001                                               2,000            1,000
Common stock, $.01 par value, authorized 3,000,000 shares; issued and
    outstanding 1,815,294 shares at December 31, 2002 and 1,809,476
    shares at December 31, 2001                                                          10,000           10,000
Additional paid-in capital                                                           10,512,000        9,481,000
Accumulated other comprehensive gain, net of taxes                                       57,000            2,000

Retained earnings-substantially restricted                                            7,005,000        5,804,000
Treasury stock-at cost, 53,648 shares at December 31, 2002
    and 51,197 shares at December 31, 2001                                             (520,000)        (469,000)
Unearned Employee Stock Ownership Plan shares                                          (145,000)        (201,000)
                                                                                   ------------      -----------
Total stockholders' equity                                                           16,921,000       14,628,000
                                                                                   ------------      -----------
Total liabilities and stockholders' equity                                         $204,906,000     $178,901,000
                                                                                   ============     ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-2

<PAGE>


                 BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

        Consolidated Statements of Operations and Comprehensive Earnings
<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
                                                                                       2002           2001
                                                                                   ------------  -------------
<S>                                                                                <C>            <C>
Interest on loans receivable                                                       $10,784,000    $11,452,000
Interest on investment securities held to maturity                                      68,000        110,000
Interest on investment securities available for sale                                   247,000        136,000
Interest on mortgage-backed securities                                               1,109,000        744,000
Other interest income                                                                  261,000        556,000
                                                                                   ------------  -------------
         Total interest income                                                      12,469,000     12,998,000
                                                                                   ------------  -------------

Interest on deposits                                                                 3,752,000      5,673,000
Interest on borrowings                                                                 817,000        580,000
                                                                                   ------------  -------------
         Total interest expense                                                      4,569,000      6,253,000
                                                                                   ------------  -------------

Net interest income before provision for loan losses                                 7,900,000      6,745,000
Provision for (recovery of) loan losses                                               (142,000)       150,000
                                                                                   ------------  -------------
         Net interest income after provision for (recovery of) loan losses           8,042,000      6,595,000
Non-interest income:
     Service charges                                                                   858,000        797,000
     Gain on loans receivable held for sale                                              2,000          5,000
    Gain on securities available for sale                                               90,000          1,000
     Other                                                                              49,000        132,000
                                                                                   ------------  -------------
         Total non-interest income                                                     999,000        935,000
                                                                                   ------------  -------------

Non-interest expense:
     Compensation and benefits                                                       3,669,000      3,261,000
     Occupancy expense, net                                                          1,291,000      1,167,000
     Advertising and promotional expense                                               123,000        163,000
     Professional services                                                             455,000        402,000
     Contracted security services                                                      163,000        164,000
     Telephone and postage                                                             118,000        216,000
     Stationary, printing and supplies                                                 115,000        109,000
     Other                                                                             819,000        887,000
                                                                                   ------------  -------------
Total non-interest expense                                                           6,753,000      6,369,000
                                                                                   ------------ --------------

Earnings before income taxes                                                         2,288,000      1,161,000
Income taxes                                                                           847,000        476,000
                                                                                   ------------  -------------
Net earnings                                                                         1,441,000        685,000
                                                                                   ------------  -------------
Other comprehensive income, net of tax:
    Unrealized gain on securities available for sale                                    94,000          4,000
    Income tax expense                                                                 (39,000)        (2,000)
                                                                                   ------------   ------------
         Other comprehensive income, net of tax                                         55,000          2,000
                                                                                   ------------   ------------
Comprehensive earnings                                                             $ 1,496,000     $  687,000
                                                                                   ============   ============

Net earnings                                                                       $ 1,441,000     $  685,000
Dividends paid on preferred stock                                                      (40,000)       (28,000)
                                                                                   ------------    -----------
Earnings available to common shareholders                                          $ 1,401,000     $  657,000
                                                                                   ============    ===========
Earnings per share-basic                                                           $      0.79     $     0.37
                                                                                   ============    ===========
Earnings per share-diluted                                                         $      0.77     $     0.37
                                                                                   ============    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>


                 Broadway Financial Corporation and Subsidiaries

           Consolidated Statements of Changes in Stockholders' Equity


<TABLE>
<CAPTION>
                                                                                    Accumulated       Retained
                                                                                    Additional         Other
                                            Preferred     Common      Paid-in      Comprehensive  (Substantially
                                              Stock        Stock       Capital         Income       Restricted)
                                            ---------    --------   ------------   -------------  --------------

<S>                  <C> <C>                <C>          <C>        <C>            <C>            <C>
Balance, at December 31, 2000               $   1,000    $ 10,000   $ 9,460,000    $        -     $  5,322,000
   Net earnings for the year
   ended December 31, 2001                          -           -             -             -          685,000

   Unrealized gain on securities
   available for sale, net of tax                   -           -             -         2,000                -

   Treasury stock used for vested
   stock awards                                     -           -        15,000             -                -

   Cash dividends paid of $0.10 per
   share common stock                               -           -             -             -         (175,000)

   Cash dividends paid pf $0.50 per
   share preferred stock                            -           -             -             -          (28,000)

   Allocation of Employee Stock
   Ownership Shares                                 -           -         6,000             -                -
                                            ----------   --------   ------------   -------------  --------------
Balance at December 31, 2001                    1,000      10,000     9,481,000         2,000        5,804,000

   Net earnings for the year ended
   December 31,  2002                               -           -             -             -        1,441,000

   Unrealized  gain  on  securities
   available for sale, net of tax                   -           -             -             -           55,000

   Treasury stock used for vested
   stock awards                                     -           -             -        (3,000)               -

   Treasury stock acquired                          -           -             -             -                -

   Issuance of Series B Preferred Stock         1,000           -       999,000             -                -

   Cash dividends paid of $0.10 per
   share common stock                               -           -             -             -         (200,000)

   Cash dividends paid of $0.50 per
   share preferred stock                            -           -             -             -          (40,000)
                                            ----------   --------   ------------   -------------  --------------
   Allocation of Employee Stock
   Ownership Shares                                 -           -        35,000             -                -
                                            ----------   --------   ------------   -------------  --------------
Balance, at December 31, 2002               $   2,000    $ 10,000   $10,512,000    $   57,000      $ 7,005,000
                                            ==========   ========   ============   =============  ==============
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>
<TABLE>
<CAPTION>
                                        Earnings      Unearned       Total
                                        Treasury        ESOP      Stockholders'
                                         Stock         Shares        Equity
                                       ----------    ----------  --------------
<S>                  <C> <C>            <C>           <C>         <C>
Balance, at December 31, 2000           $(554,000)    $(262,000)  $  13,977,000
   Net earnings for the year
   ended December 31, 2001                      -             -         685,000

   Unrealized gain on securities
   avaialble for sale,net of tax                -             -           2,000

   Treasury stock used for vested
   stock awards                            85,000             -         100,000

   Cash dividends paid of $0.10 per
   share of common stock                        -             -        (175,000)

   Cash dividends paid of $0.50 per
   share of preferred stock                     -             -         (28,000)

   Allocation of Employer Stock
   Ownership Shares                                      61,000          67,000
                                       ----------    ----------  --------------
Balance at December 31, 2001             (469,000)     (201,000)     14,628,000

   Net earnings for the year
   ended December 31, 2002                      -             -       1,441,000

   Unrealized gain on securities
   available for sale, net of tax               -             -          55,000

   Treasury stock used for vested          32,000             -          29,000
   stock awards

   Treasury stock acquired                (83,000)            -         (83,000)

   Issuance of Series B Preferred Stoc          -             -       1,000,000

   Cash dividends paid of $0.10 per
   share of common stock                        -             -        (200,000)

   Cash dividends paid of $0.50 per
   share of preferred stock                     -             -         (40,000)
                                         ---------    ----------  -------------
   Allocation of Employee Stock
   Ownership Shares                             -        56,000          91,000
                                         ---------    ----------  -------------
Balance, at December 31, 2002           $(520,000)    $(145,000)   $ 16,921,000
                                        ==========    ==========  =============
</TABLE>

                                      F-4a

<PAGE>

                 Broadway Financial Corporation and Subsidiaries

                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                             Year ended December 31
                                                                                       ------------------------------------
                                                                                             2002                2001
                                                                                       ---------------     ----------------
Cash flows from operating activities:
<S>                                                                                    <C>                 <C>
Net earnings                                                                           $   1,441,000       $       685,000

Adjustments to reconcile net earnings to net cash provided by (used in)
   operating activities:
   Depreciation                                                                              392,000               341,000
   Amortization of premium and discounts on loans purchased                                 (145,000)                6,000
   Amortization of net deferred loan origination fees                                       (251,000)              (81,000)
   Amortization of discounts and premiums on investment securities
    and mortgage- backed securities                                                          182,000              (178,000)
   Amortization of deferred compensation                                                      91,000                90,000
   Gain on sale of securities available for sale                                             (90,000)               (1,000)
   Gain on sale of loans receivable held for sale                                             (2,000)               (5,000)
   (Gain) loss on disposal of fixed assets                                                    57,000               (18,000)
   Gain on sale of real estate acquired through foreclosure                                   (2,000)                    -
   Provision (recovery of) for loan losses                                                  (142,000)              150,000
   Loans originated for sale                                                              (1,079,000)             (777,000)
   Proceeds from sale of loans receivable held for sale                                      732,000               604,000
   Purchases of loans \                                                                      820,000            (8,001,000)
   Changes in operating assets and liabilities:
      Accrued interest receivable                                                            (52,000)              128,000
      Other assets                                                                          (193,000)              214,000
      Accrual for branch closure                                                                   -                55,000
      Deferred income taxes                                                                  331,000               154,000
      Other liabilities                                                                      536,000              (422,000)
      Other                                                                                        -               121,000
                                                                                       ---------------     ----------------
         Total adjustments                                                                  (455,000)           (7,620,000)
                                                                                       ---------------     ----------------
         Net cash provided by (used in) operating activities                                 986,000            (6,935,000)
                                                                                       ---------------     ----------------
Cash flows from investing activities:
Loans originated, net of refinances                                                      (29,766,000)          (25,925,000)
Principal repayment on loans                                                              28,810,000            19,605,000
Purchases of interest-bearing deposits                                                             -            (6,028,000)
Purchases of investment securities held-to-maturity                                       (2,000,000)                    -
Purchases of investment securities available for sale                                    (42,502,000)           (4,600,000)
Purchases of mortgage-backed securities held to maturity                                  (2,093,000)           (6,317,000)
Purchases of mortgage-backed securities available for sale                               (44,963,000)                    -
Proceeds from maturities of interest bearing deposits                                      4,000,000             1,000,000
Proceeds from maturities of investment securities held to maturity                                 -            10,623,000
Proceeds from maturities of mortgage-backed securities held to maturity                    5,013,000             3,312,000
Proceeds from sale of securities available for sale                                       42,012,000                     -
Proceeds from sale of mortgage-backed securities available for sale                       17,424,000                     -
Purchase of Federal Home Loan stock                                                         (162,000)              (83,000)
Proceeds from sale of fixed assets                                                             6,000               222,000
Proceeds from sale of real estate acquired through foreclosure                               109,000                     -
Capital expenditures for office properties and equipment                                    (266,000)             (291,000)
                                                                                       ---------------     ----------------
Net cash used in investing activities                                                  $ (24,378,000)      $    (8,482,000)
                                                                                      ---------------     ----------------
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       F-5

<PAGE>

                 Broadway Financial Corporation and Subsidiaries

                Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>

                                                                                             Year ended December 31,
                                                                                            2002               2001
                                                                                       --------------      --------------
Cash flows from financing activities:
<S>                                                                                    <C>                 <C>
Net increase in deposits                                                               $   4,992,000       $   9,562,000
Increase in advances from the Federal Home Loan Bank                                      17,724,000           1,000,000
Preferred stock issued                                                                     1,000,000                   -
Dividends paid                                                                              (240,000)           (203,000)
Purchases Treasury stock                                                                     (83,000)                  -
Stock optoins exericsed                                                                       32,000                   -
Increase in advances by borrowers for taxes and insurance                                     87,000              30,000
                                                                                       --------------      --------------
Net cash provided by financing activities                                                 23,512,000          10,389,000
                                                                                       --------------      --------------
Net increase (decrease) in cash and cash equivalents                                         120,000          (5,028,000)
Cash and cash equivalents at beginning of period                                           5,239,000          10,267,000
                                                                                       --------------      --------------
Cash and cash equivalents at end of year                                               $   5,359,000       $   5,239,000
                                                                                       ==============      ==============

Supplemental disclosures of cash flow information:

Cash paid for interest                                                                 $  4,720,000        $   6,253,000
                                                                                       ==============      =============

Cash paid for income taxes                                                             $    413,000        $     696,000
                                                                                       ==============      ==============
Supplemental disclosure of non-cash investing and financing activities
Transfers of loans to real estate acquired through foreclosure                         $    107,000        $           -
                                                                                       ==============      ==============
</TABLE>


          See accompanying notes to consolidated financial statements

                                      F-6

<PAGE>

                 BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


1.   Organization

     Broadway  Financial  Corporation ("the Company") is a Delaware  corporation
primarily  engaged in the savings  and loan  business  through its wholly  owned
subsidiary,  Broadway Federal Bank, f.s.b.  ("the Bank"). The Bank's business is
that of a financial  intermediary and consists primarily of attracting  deposits
from the general  public and using such deposits,  together with  borrowings and
other funds,  to make mortgage loans secured by residential  real estate located
in  Southern   California.   At  December  31,  2002,  the  Bank  operated  four
retail-banking   offices  in  Southern  California.   The  Bank  is  subject  to
significant competition from other financial  institutions,  and is also subject
to regulation by certain federal agencies and undergoes periodic examinations by
those regulatory authorities.

2.   Summary of Significant Accounting Policies

     The following accounting policies,  together with those disclosed elsewhere
in the consolidated  financial statements,  represent a summary of the Company's
and the Bank's significant accounting policies.

     Principles of Consolidation and Presentation

     The consolidated  financial  statements include the accounts of the Company
and its wholly  owned  subsidiaries,  the Bank and  BankSmart,  Inc.  (a dormant
company).  All  significant  intercompany  balances and  transactions  have been
eliminated in  consolidation.  Certain  reclassifications  have been made to the
prior  year   consolidated   financial   statements   to  conform  to  the  2002
presentation.

     These  consolidated  financial  statements have been prepared in conformity
with accounting  principles  generally accepted in the United States of America.
In preparing the consolidated  financial  statements,  management is required to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities,  to disclose  contingent  assets and liabilities at the date of the
financial statements,  and to report the amounts of revenues and expenses during
the reporting periods.  The most significant estimate for the Company relates to
the allowance for loan losses. Actual results could differ from those estimates.

     Securities Available For Sale

     Investment and mortgage-backed  securities not classified as either trading
or held to maturity are  considered to be available  for sale.  Gains and losses
realized  on  the  sale  of  these   securities   are  based  on  the   specific
identification  method.  Unrealized  gains and  losses  from  available-for-sale
securities  are excluded from earnings and reported (net of tax) in  accumulated
other comprehensive income until realized. Other than temporary declines in fair
value are recognized as a reduction to current earnings.

     Securities Held to Maturity

     Investment securities and mortgage-backed  securities  held-to-maturity are
carried at amortized  historical cost, adjusted for amortization of premiums and
discounts.  The carrying  value of these  assets is not  adjusted for  temporary
declines in fair value since the Company intends,  and has the ability,  to hold
them to their  maturities.  If a  decline  in the fair  value of  securities  is
determined to be other than temporary, the cost basis of the individual security
is written  down to fair value and the amount of the  write-down  is included in
earnings.

     Premiums  and  discounts  on  investment   securities  and  mortgage-backed
securities  are  amortized  utilizing the interest  method over the  contractual
terms of the assets.

                                      F-7
<PAGE>

                 BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)


     Loans Receivable and Allowance for Loan Losses

     Loans  receivable  are recorded in the  consolidated  balance sheets at the
unpaid principal balance,  adjusted for the allowance for loan losses,  loans in
process, net deferred loan fees or costs and unamortized discounts.  Interest on
loans  receivable is accrued monthly as earned,  except for loans delinquent for
90 days or more which are generally placed on non-accrual  status.  Whenever the
accrual of interest  is stopped,  previously  accrued but  uncollected  interest
income is reversed.  Loans are returned to accrual  status when all  contractual
principal and interest amounts are reasonably assured of repayment.

     The  allowance  for loan  losses  is  maintained  at an  amount  management
considers  adequate to cover probable and estimable losses on loans  receivable.
The allowance is reviewed and adjusted based upon a number of  quantitative  and
qualitative factors, including current economic trends, risks and uncertainties,
industry experience, historical loss experience, the borrowers' ability to repay
and repayment  performance,  probability of  foreclosure,  estimated  collateral
values,   asset   classifications,   the  Bank's   underwriting   practices  and
management's assessment of credit risk inherent in the portfolio.  Loans, deemed
uncollectible,  are  charged  off against the  allowance  for loan  losses.  The
provision  for loan losses and  recoveries on loans  previously  charged off are
added to the  allowance.  The allowance for loan losses is subjective and may be
adjusted  in the  future  depending  on  economic  conditions.  In  addition  to
management,   various  regulatory  agencies,   as  an  integral  part  of  their
examination  process,  periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to make  additional  provisions for estimated
loan losses based upon their judgments of the information  available at the time
of examination.

     A loan is considered  impaired  when,  based on current  circumstances  and
events,  it is probable  that the Bank will be unable to collect all amounts due
(i.e.,  both principal and interest)  according to the contractual  terms of the
loan  agreement.   Impaired  loans  exclude  large  groups  of  smaller  balance
homogenous loans that are collectively  evaluated for impairment.  For the Bank,
loans  collectively  reviewed for  impairment  include all loans with  principal
balances of less than $250,000.  Loans with balances of $250,000 and greater are
evaluated  for  impairment as part of the Bank's  normal  internal  asset review
process.  Measurement of impairment may be based on (1) the present value of the
expected  future  cash  flows of the  impaired  loan  discounted  at the  loan's
original  effective  interest rate, (2) an observed market price of the impaired
loan or (3) the fair value of the collateral of a collateral-dependent loan. The
amount by which the recorded  investment in the loan exceeds the  measurement of
the  impaired  loan is  recognized  by  recording a valuation  allowance  with a
corresponding  charge to the  provision for loan losses.  While the  measurement
method may be selected on a loan-by-loan basis, the Bank measures impairment for
all collateral dependent loans at the fair value of the collateral.  The accrual
of interest income on impaired loans is stopped when the loan becomes  impaired,
and previously  accrued but uncollected  interest  income is reversed.  Interest
income on impaired loans is recognized on a cash basis.

     Loan Origination and Commitment Fees and Related Costs

     Loan fees and certain direct loan origination  costs are deferred,  and the
net fee or cost is  recognized  in income  using the  interest  method  over the
contractual  life of the loans,  adjusted  for  prepayments.  Discounts on loans
receivable  are  recognized  in  income  using  the  interest  method  over  the
contractual life of the loans, adjusted for prepayments.  Accretion of discounts
and  deferred  loan fees is  discontinued  when loans are placed on  non-accrual
status.  When  loans  held for sale are sold,  existing  deferred  loan fees are
netted against the gain or loss on sale.

     Loans Receivable Held for Sale

     Loans receivable that are to be held for indefinite  periods of time or not
intended  to be held to  maturity  are  classified  as held for  sale.  The Bank
identifies those loans that, at the time of origination or acquisition,  it does
not have the positive intent or ability to hold to maturity. Loans held for sale
include  assets that  management  intends to use as part of its  asset/liability
management  strategy  and that may be sold in  response  to changes in  interest

                                    F-8
<PAGE>

rates,  resultant  prepayment  risk and other  factors.  Loans held for sale are
carried at the lower of aggregate  amortized  cost or fair value.  Fair value is
based on prevailing market rates for similar loans.

     Loan Sales and Servicing

     The Bank from time to time  sells  mortgage  loans and loan  participations
from originations or portfolios  identified as held for sale. Cash proceeds from
loan sales are equal to the  principal  amount of loans or  participations  with
yields to the investor based upon current market rates. Gain or loss on the sale
of loans is  recognized  to the extent that the selling  prices  differ from the
carrying value of the loans sold based on the estimated  relative fair values of
the assets  sold and any  retained  interests,  less any  liabilities  incurred.
Typically,  the Company will retain the servicing  rights  associated with loans
sold.  The servicing  rights are recorded as assets based upon the relative fair
values of the servicing  rights and underlying  loans and are amortized over the
period of the related loan servicing income stream. Amortization of these rights
is  reflected  in  the  Company's  Consolidated  Statements  of  Operations  and
Comprehensive  Earnings.  The Bank evaluates  servicing assets for impairment in
accordance with generally accepted accounting principles, which require that the
servicing assets be carried at the lower of capitalized cost or fair value.

     Loans Purchased

     The  Bank  purchases  or   participates   in  loans   originated  by  other
institutions.  The  determination  to  purchase  loans is based  upon the Bank's
investment needs and market  opportunities.  Subject to regulatory  restrictions
applicable to savings  institutions,  the Bank's current loan policies allow all
loan types to be purchased.  The  determination  to purchase  specific  loans or
pools of loans is subject to the Bank's  underwriting  policies,  which  require
consideration of the financial condition of the borrower and the appraised value
of the property,  among other factors.  Premiums or discounts  incurred upon the
purchase of loans are  recognized  in income using the interest  method over the
estimated life of the loans, adjusted for prepayments.

     Real Estate Acquired through Foreclosure

     Real estate acquired through foreclosure represents real estate received in
satisfaction of real estate secured loans and is initially recorded at estimated
fair value of the real estate, less costs of disposition.  An allowance for loss
is provided when any subsequent decline in fair value occurs. Income recognition
on the sale of real estate  acquired  through  foreclosure is dependent upon the
terms of the sale. Any  subsequent  operating  expenses or income,  reduction in
estimated  values,  and gains or losses on  disposition  of such  properties are
recorded in current operations.

     Office Properties and Equipment

     Office  properties  and  equipment  are  stated at  historical  cost,  less
accumulated  depreciation  and  amortization.  Depreciation  and amortization of
property and equipment is provided on a  straight-line  basis over the estimated
useful lives of the related assets.  Leasehold  improvements  are amortized over
the lease term or the estimated useful life of the asset,  whichever is shorter.
The useful lives for the classes of depreciable assets are shown as follows:
<TABLE>
<CAPTION>

<S>                                           <C>   <C>
     Buildings                                10 to 40 years
     Furniture, fixtures and equipment        3 to 10 years
     Leasehold improvements                   Shorter of the estimated useful
                                              lives of the assets, or the terms
                                              of the respective leases, not to
                                              exceed 15 years.
</TABLE>


                                      F-9
<PAGE>

     Income Taxes

     Income  taxes are  accounted  for under  the  asset and  liability  method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences  attributable to differences  between financial  statement carrying
amounts of existing assets and  liabilities  and their  respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured  using enacted tax rates expected to apply to taxable income in the
years in which those  temporary  differences  are  expected to be  recovered  or
settled.  The effect on deferred  taxes from a change in tax rates is recognized
in income in the period that includes the enactment date.

     Preferred Stock

     The  Series  A  and   Series  B   preferred   stock  are   non-convertible,
non-cumulative,  non-redeemable and non-voting perpetual preferred stock, with a
par value of $0.01 per share and a  liquidation  preference of $10.00 per share.
Both the  Series A and  Series B  Preferred  Stock  have  non-cumulative  annual
dividend  rates of 5% of the  liquidation  preference.

     Cash and Cash Equivalents

     For purposes of presentation in the Consolidated  Statements of Cash Flows,
cash and cash equivalents include cash on hand, cash due from banks, and federal
funds sold. Generally, federal funds are sold for one-day periods.

     Earnings Per Share

     Basic earnings per share is determined by dividing net income  available to
common stockholders by the average number of shares of common stock outstanding,
and diluted earnings per share is determined by dividing net income available to
common  stockholders by the average number of shares of common stock outstanding
adjusted for the dilutive effect of common stock equivalents.

     Risks Associated with Financial Instruments

     The credit risk of a financial  instrument is the  possibility  that a loss
may result from the failure of another party to perform in  accordance  with the
terms of the contract.  The most  significant  credit risk  associated  with the
Company's  financial  instruments is  concentrated in the Bank's loan portfolio.
The Bank has established a system for monitoring the level of credit risk in its
loan portfolio.

     Concentrations  of credit risk exist for groups of borrowers when they have
similar  economic  characteristics  that  would  cause  their  ability  to  meet
contractual obligations to be similarly affected by changes in economic or other
conditions.  The ability of the Bank's  borrowers to repay their  commitments is
contingent  on  several  factors,  including  the  economic  conditions  in  the
borrowers'  geographic  area  and  the  individual  financial  condition  of the
borrowers.

     The Bank's lending activities are concentrated in Southern California.  The
Bank currently focuses on the origination of multi-family  residential  mortgage
loans and, to a lesser  extent,  single family  residential  mortgage  loans and
loans to community  churches.  The Bank generally requires collateral to support
borrower commitments on loans receivable. The collateral may take several forms.
Generally,  for the Bank's mortgage loans, the collateral will be the underlying
mortgaged property.

     Market risk is the risk of loss from adverse  changes in market  prices and
rates.  The Bank's market risk arises primarily from interest rate risk inherent
in the Bank's lending, investing and deposit taking and borrowing activities. To
that end,  management  actively  monitors  and  manages its  interest  rate risk
exposure.  The Company  does not  currently  engage in trading  activities.  The

                                      F-10

<PAGE>

     Company  is  subject  to  interest   rate  risk  to  the  degree  that  its
interest-earning  assets  reprice on a different  frequency or schedule than its
interest-bearing  liabilities.  The Bank's loans  reprice  based on the Eleventh
District  Cost of Funds Index  ("COFI") the 12-month  moving  average of the one
year  Treasury  Index  ("12 MTA") and the  one-year  Treasury  Index  ("Treasury
Index").  The  repricing of loans based on the COFI and 12 MTA indexes means the
interest rate on those loans  receivable tend to lag market interest rates.  The
Treasury Index is considered a current market rate index.  At December 31, 2002,
$50.8  million  of  multi-family  residential  mortgage  loans were based on the
Treasury  Index.  The Company  closely  monitors the pricing  sensitivity of its
financial instruments.

     Stock Option Plan

     In January  1997 the Company  adopted  Statement  of  Financial  Accounting
Standards  ("SFAS") No. 123,  "Accounting for Stock-Based  Compensation,"  which
permits  entities to recognize as expense over the vesting period the fair value
of all stock-based compensation awards on the date of grant. Alternatively, SFAS
No. 123 also allows  entities to continue to apply the provisions of APB No. 25,
"Accounting  for Stock Issued to Employees" and provide pro forma net income and
pro forma earnings per share  disclosures  for employee stock options and grants
made in 1995 and future years as if the fair-value-based  method defined in SFAS
No. 123 had been  applied.  The  Company  has  elected to  continue to apply the
provisions of APB No. 25 and to provide the pro forma  disclosure  provisions of
SFAS No. 123.

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair value of traded options,  which have no vesting restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.   Because  the   Company's   stock   options  have   characteristics
significantly  different from those traded  options,  and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's   opinion,  the  Black-Scholes  option  valuation  model  does  not
necessarily  provide a reliable single measure of the fair value of its employee
stock options.

     The fair value of options  granted by the Company in 2002 was  estimated at
the  date of  grant  using a  Black-Scholes  option  valuation  model  with  the
following assumptions:
<TABLE>
<CAPTION>

<S>                                                            <C>
    Risk free interest rate                                    3.92%
    Expected volatility                                       29.74%
    Expected dividend yield                                    3.00%
    Expected option life                                    10 years
    Approximate fair value of options granted                  $1.94
</TABLE>

     Based on the fair value at the grant date for its stock  options under SFAS
No. 123, the Company's  proforma net earnings and net earnings per diluted share
for 2001 and 2000 would have been as follows:
<TABLE>
<CAPTION>

                                                  2002               2001
                                              -------------      -------------
        Net income
<S>                                           <C>                <C>
            As reported                       $  1,441,000       $   685,000
            Pro forma                         $  1,351,000       $   653,000
        Basic net income per share
            As reported                       $       0.79       $      0.37
            Pro forma                         $       0.76       $      0.36

        Diluted net income per share
            As reported                       $       0.77       $      0.37
            Pro forma                         $       0.74       $      0.35

</TABLE>

                                      F-11


<PAGE>

     Employee Stock Ownership Plan

     Accounting  principles  generally  accepted in the United States of America
require  that the  issuance  or sale of  treasury  shares to an  Employee  Stock
Ownership  Plan  ("ESOP") be reported  when the issuance or sale occurs and that
compensation  expense be  recognized  for shares  committed  to be  released  to
directly  compensate  employees equal to the fair value of the shares committed.
An ESOP funded with an employer loan (an internally leveraged ESOP) is reflected
as a  reduction  to equity and the  related  interest  income and expense is not
recorded.  The Company records  fluctuations in compensation expense as a result
of changes in the fair value of the Company's  common stock;  however,  any such
compensation expense fluctuations results in an offsetting adjustment to paid-in
capital.

     Recent Accounting Pronouncements

     In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Statements
No.  4,  44,  and  64,  Amendment  of  SFAS  Statement  No.  13,  and  Technical
Corrections"  ("SFAS 145"),  which updates,  clarifies and  simplifies  existing
accounting  pronouncements.  SFAS 145 rescinds SFAS No. 4, "Reporting  Gains and
Losses from  Extinguishment  of Debt." SFAS 145 amends SFAS No. 13,  "Accounting
for Leases," to eliminate an inconsistency  between the required  accounting for
sale-leaseback  transactions  and the  required  accounting  for  certain  lease
modifications  that have  economic  effects  that are similar to  sale-leaseback
transactions.  The  provisions of SFAS 145 related to SFAS No. 4 and SFAS No. 13
are effective for fiscal years  beginning and  transactions  occurring after May
15, 2002,  respectively.  Management  anticipates  that SFAS 145 will not have a
material effect on the Company's consolidated financial statement.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated  with Exit or  Disposal  Activities"  ("SFAS  146"),  which  requires
companies to recognize costs  associated  with exit or disposal  activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan.  SFAS 146 replaces  Emerging  Issues Task Force  ("EITF")  Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)."  The
provisions  of SFAS  146 are to be  applied  prospectively  to exit or  disposal
activities initiated after December 31, 2002.  Management  anticipates that SFAS
146 will not have a  material  effect on the  Company's  consolidated  financial
statements.

     In October 2002, the FASB  issued SFAS No.  147,  "Acquisitions  of Certain
Financial Institutions,  an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9" ("SFAS 147"), which addresses the financial accounting and
reporting for the acquisition of all or part of a financial institution,  except
for a  transaction  between  two or more  mutual  enterprises.  SFAS 147 removes
acquisitions of financial  institutions,  other than transactions between two or
more mutual  enterprises,  from the scope of Statement  of Financial  Accounting
Standards  No. 72,  "Accounting  for Certain  Acquisitions  of Banking or Thrift
Institutions,"   ("SFAS  72"),   and  Financial   Accounting   Standards   Board
Interpretation  No. 9,  "Applying  APB Opinions No. 16 and 17 When a Savings and
Loan Association or a Similar Institution Is Acquired in a Business  Combination
Accounted for by the Purchase  Method," and requires that those  transactions be
accounted for in accordance with Statement of Financial Accounting Standards No.
141, "Business  Combinations," and SFAS 142. Thus, the requirement in SFAS 72 to
recognize,   and  subsequently  amortize,  any  excess  of  the  fair  value  of
liabilities assumed over the fair value of tangible and identifiable  intangible
assets  acquired  as an  unidentifiable  intangible  asset no longer  applies to
acquisitions within the scope of SFAS 147.

     SFAS 147 also provides  guidance on the  accounting  for the  impairment or
disposal  of  acquired  long-term  customer-relationship  intangible  assets  of
financial institutions such as depositor- and  borrower-relationship  intangible
assets and credit  cardholder  intangible  assets.  Those intangible  assets are
subject to the same  undiscounted cash flow  recoverability  test and impairment
loss  recognition  and  measurement  provisions that SFAS 144 requires for other
long-lived  assets  that are  held  and  used.  The  provisions  of SFAS 147 are
effective on October 1, 2002. Management anticipates that SFAS 147 will not have
a material effect on the Company's consolidated financial statements.

                                      F-12

<PAGE>


     In December 2002, the FASB issued SFAS No. 148  "Accounting for Stock-Based
Compensation--Transition  and Disclosure",  which amends FASB Statement No. 123,
"Accounting  for  Stock-Based   Compensation"   ("SFAS  123"),   which  provides
alternative  methods of transition for  enterprises  that elect to change to the
SFAS 123 fair value method of accounting for stock-based employee  compensation.
SFAS 148 will permit two additional  transition  methods for entities that adopt
the preferable SFAS 123 fair value method of accounting for stock-based employee
compensation.  Both of those  methods  avoid the  ramp-up  effect  arising  from
prospective  application of the fair value method under the existing  transition
provisions  of SFAS 123. In  addition,  under the  provisions  of SFAS 148,  the
original  Statement 123 prospective method of transition for changes to the fair
value  method will no longer be  permitted  in fiscal  periods  beginning  after
December 15, 2003.

     SFAS 148 will also amend the disclosure requirements of SFAS 123 to require
prominent  disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported  results.  The  provisions of SFAS 148 are effective for
fiscal years ended after  December 15, 2002.  The  disclosures to be provided in
annual  financial  statements  will be  required  for fiscal  years  ended after
December  15,  2002,  and the  disclosures  to be provided in interim  financial
reports will be required for interim periods begun after December 15, 2002, with
earlier application encouraged.  Management anticipates the adoption of SFAS 148
will  not  have a  material  effect  on  the  Company's  consolidated  financial
statements.

     In November  2002,  the FASB  issued  Interpretation  No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness to Others,  an  interpretation of FASB Statements No.
5,  57,  and  107  and  a  rescission  of  FASB  Interpretation  No.  34."  This
Interpretation  elaborates on the  disclosures  to be made by a guarantor in its
interim and annual financial  statements about its obligations  under guarantees
issued.  The  Interpretation  also  clarifies  that a  guarantor  is  require to
recognize,  at inception of a guarantee,  a liability  for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation  are  applicable to guarantees  issued or modified after December
31, 2002. The disclosure  requirements are effective for financial statements of
interim  and  annual  periods   ending  after  December  15,  2002.   Management
anticipates that the application of this  Interpretation is not expected to have
a material effect on the Company's consolidated financial statements.

     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
Variable   Interest   Entities,"   an   interpretation   of  ARB  No.  51.  This
Interpretation  addresses the consolidation by business  enterprises of variable
interest entities as defined in the Interpretation.  The Interpretation  applies
immediately to variable interests in variable entities created after January 31,
2003, and to variable  interests in variable  interest  entities  obtained after
January 31, 2003. For public enterprises, with a variable interest in a variable
interest entity created before February 1, 2003, the  Interpretation  applies no
later  than the  beginning  of the  first  interim  or annual  reporting  period
beginning after June 15, 2003. The Interpretation  required certain  disclosures
in financial  statements  issued after  January 31,  2003,  if it is  reasonably
possible that public enterprises will consolidate or disclose  information about
variable interest entities when the Interpretation becomes effective. Management
anticipates  the  application of this  Interpretation  is not expected to have a
material effect on the Company's consolidated financial statements.


                                      F-13
<PAGE>

3.  Investment Securities

    The following table provides a summary of investment securities:
<TABLE>
<CAPTION>

                                              Gross       Gross
                               Amortized   Unrealized   Unrealized     Fair
                                 Cost         Gain         Loss         Value
                              ----------- -----------  ----------  -----------
December 31, 2002:
Held to maturity:
<S>                           <C>          <C>                     <C>
  Federal Agency Debentures   $2,000,000   $ 46,000       -        $2,046,000
                              -----------  ----------  ----------  -----------
                              $2,000,000   $ 46,000       -        $2,046,000
                              ===========  ==========  ==========  ===========

Available for sale:
  Mutual Funds                $5,002,000   $  5,000        -       $5,007,000
                               ----------  ----------  ----------  -----------
                              $5,002,000   $  5,000        -       $5,007,000
                              ===========  ==========  ==========  ===========

December 31, 2001:
Available for sale:
  Mutual Funds                $4,500,000   $  4,000        -       $4,504,000
                               ----------  ----------  ----------  -----------
                              $4,500,000   $  4,000        -       $4,504,000
                              ===========  ==========  ==========  ===========
</TABLE>


     The remaining contractual  maturities for investment securities at December
31, 2002 are as follows:

<TABLE>
<CAPTION>

                                                  Amortized
                                                     Cost     Fair Value
                                                ------------  -----------
<S>                                             <C>           <C>
   Due in one year or less                      $5,002,000    $5,007,000
   Due after one year through five years                 -             -
   Due after five years through ten years        2,000,000     2,046,000
                                                ------------  -----------
                    Total                       $7,002,000    $7,053,000
                                                ============  ===========
</TABLE>


     At December 31, 2002 and 2001, the Company had accrued interest  receivable
on investment securities of $51,000 and $14,000, respectively.


                                      F-14
<PAGE>



4.   Mortgage-backed Securities

     The following table provides a summary of agency mortgage-backed securities
held-to-maturity:
<TABLE>
<CAPTION>

December 31, 2002:

                               Gross       Gross
               Amortized    Unrealized   Unrealized
   Agency        Cost          Gain         Loss      Fair Value
------------  ------------  -----------  ---------   ------------
<S>           <C>           <C>           <C>        <C>
   FNMA       $ 8,590,000   $  369,000    $  -       $ 8,959,000

   GNMA         2,111,000      100,000       -         2,211,000

   FHLMC          142,000        5,000       -           147,000
              ------------  -----------  ---------   ------------
              $10,843,000   $  474,000   $   -       $11,317,000
              ============  ===========  =========   ============
</TABLE>

<TABLE>
<CAPTION>
December 31, 2001:


                               Gross       Gross
               Amortized    Unrealized   Unrealized
   Agency         Cost         Gain         Loss      Fair Value
------------  ------------  -----------  ---------   ------------
<S>           <C>           <C>          <C>         <C>
   FNMA       $ 10,212,000  $  243,000   $   -       $10,455,000

   GNMA          3,351,000      42,000       -         3,393,000

   FHLMC           368,000      15,000       -           383,000
              ------------  -----------  ---------   ------------
              $ 13,931,000  $  300,000   $   -       $14,231,000
              ============  ===========  =========   ============
</TABLE>


     The remaining contractual  maturities for investment securities at December
31, 2002 are as follows:
<TABLE>
<CAPTION>

                                      Amortized
                                        Cost          Fair Value
                                    ------------    -------------
<S>                                 <C>             <C>
Due within one year                 $         -     $          -
Due one year through five years               -                -
Due after five years                 10,843,000       11,317,000
                                    ------------    -------------
Total                               $10,843,000     $ 11,317,000
                                    ============    =============
</TABLE>



     The  following  table  provides  a summary  of  mortgage-backed  securities
available for sale with a comparison of carrying and fair value:
<TABLE>
<CAPTION>

December 31, 2002
                               Gross       Gross
               Amortized    Unrealized   Unrealized
   Agency         Cost         Gain         Loss      Fair Value
------------  ------------  -----------  ---------   ------------
<S>           <C>           <C>          <C>         <C>
   FHLMC      $ 20,269,000  $  68,000    $   -       $20,337,000

   FNMA          7,334,000     26,000        -         7,360,000
              ------------  -----------  ---------   ------------
              $ 27,603,000  $  94,000    $   -       $27,697,000
              ============  ===========  =========   ============
</TABLE>


                                      F-15
<PAGE>

     The  remaining  contractual   matruities  for  mortgage-backed   securities
available for sale at December 31, 2002 are as follows:

<TABLE>
<CAPTION>

                                     Amortized
                                        Cost          Fair Value
                                    ------------    -------------
<S>                                 <C>             <C>
Due within one year                 $         -     $          -
Due one year through five years               -                -
Due after five years                 27,603,000       27,697,000
                                    ------------    -------------
Total                               $27,603,000     $ 27,697,000
                                    ============    =============
</TABLE>

     At December 31, 2002 and 2001, the Company had accrued interest  receivable
on mortgage-backed securities of $219,000 and $132,000, respectively. During the
year ended December 31, 2002, the Company sold $16.8 million in  mortgage-backed
securities  available  for sale and realized  gains of $70,000,  which have been
included  in gain on  securities  available  for  sale  interest  income  in the
accompanying Statement of Operations and Comprehensive Earnings.

5.   Loans Receivable, Net and Loans Receivable Held for Sale

     The following is a summary of loans receivable, net:

<TABLE>
<CAPTION>
                                                      December 31,
                                              ---------------------------
                                                   2002         2001
                                              ------------  -------------
Held for investment:
    Real estate:
       Residential:
<S>                                           <C>           <C>
          One to four units                   $ 29,506,000  $ 33,478,000
          Five or more units                    92,586,000    82,652,000
          Construction                           1,726,000             -
                                              ------------  -------------
              Total residential                123,818,000   116,130,000
                                              ------------  -------------
       Non-residential                          16,924,000    18,383,000
                                              ------------  -------------
              Total real estate                140,742,000   134,513,000
    Loans secured by deposit accounts              350,000       897,000
    Other                                        1,593,000     1,206,000
                                              ------------  -------------
              Total gross loans receivable     142,685,000   136,616,000
                                              ------------  -------------
Plus:
    Premium on loans purchased                       1,000         4,000
Less:
    Loans in process                               568,000        16,000
    Allowance for loan losses                    1,429,000     1,571,000
    Deferred loan fees, net                        431,000       683,000
    Unamortized discounts                          173,000       413,000
                                              ------------  -------------
Loans receivable, net                         $140,085,000  $133,937,000
                                              ============  =============
Loans receivable held for sale:
    Residential:
       One to four units                      $    586,000  $    237,000
       Five or more units                        3,184,000     7,125,000
                                              ------------  -------------
    Loans receivable held for sale            $  3,770,000  $  7,362,000
                                              ============  =============
Weighted average interest rate                        6.84%         7.67%
                                              ============  =============
</TABLE>

                                      F-16

<PAGE>

     Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                              ---------------------------
                                                  2002          2001
                                              ------------  -------------
<S>                                            <C>          <C>
  Balance at beginning of year                 $ 1,571,000  $  1,421,000
  Provision for (recovery of) loan losses         (142,000)      150,000
  Charge-offs                                            -             -
                                              ------------  -------------
     Balance at end of year                    $ 1,429,000  $  1,571,000
                                              ============  =============
</TABLE>


     At December 31, 2002 and 2001, the Bank had accrued interest  receivable on
loans of $701,000 and $797,000, respectively.

     The Bank serviced loans for others totaling $11.1 million and $12.7 million
at December 31, 2002 and 2001, respectively.

     At December 31, 2002 and 2001, the Bank had loans to directors amounting to
$658,000 and $667,000,  respectively. In the opinion of management, the terms of
these  loans are based upon the normal  market for such loans.  At December  31,
2002 these loans were performing in accordance with their terms.

     The following is a summary of the Bank's  non-accrual loans by loan type at
December 31, 2002 and 2001:
<TABLE>
<CAPTION>
                                                   December 31,
                                           ----------------------
                                               2002         2001
                                           ---------    ---------
<S>                                        <C>          <C>
           Residential real estate         $ 96,000     $257,000
           Other                             39,000      211,000
                                           ---------    ---------
             Total non-accrual loans       $135,000     $468,000
                                           =========    =========
</TABLE>

     The Bank had no restructured loans or accruing loans that are contractually
past due 90 days or more at December 31, 2002 and 2001.

     The gross amount of interest  income that would have been  recorded  during
the years  ended  December  31,  2002 and 2001,  if  non-accrual  loans had been
current in  accordance  with their  original  terms,  was $13,000  and  $58,000,
respectively.  For the years  ended  December  31,  2002 and 2001,  $13,000  and
$57,000,  respectively,  was  actually  received  on  non-accrual  loans  and is
included in interest income on loans in the accompanying Consolidated Statements
of Operations and  Comprehensive  Earnings.  The Bank had no commitments to lend
additional  funds to borrowers  whose loans are on  non-accrual  at December 31,
2002 and 2001.

     At December 31, 2002 and 2001,  the total  recorded  investment in impaired
loans was approximately $39,000 and $211,000,  respectively.  There were related
impairment  allowances  of $16,000 and  $211,000 at December  31, 2002 and 2001,
respectively.  Provisions  for  losses  and any  related  recoveries  related to
impaired  loans are added to the  allowance  for loan  losses.  During the years
ended  December 31, 2002 and 2001,  the Bank's  average  investment  in impaired
loans was $147,000 and $303,000,  respectively,  and interest income recorded on
impaired  loans during these periods  totaled  $5,000 and $36,000  respectively,
none of which was recorded utilizing the accrual basis method of accounting.  At
December 31, 2002 and 2001,  all impaired  loans were  unsecured  fully reserved
lines of credit.

     Substantially all of the Bank's real estate loans are secured by properties
located  in  Southern  California.  At each  of  December  31,  2002  and  2001,
approximately  86%,  of  the  loan  portfolio  consisted  of  loans  secured  by
residential  real  estate.  In addition,  approximately  11% and 13% of the loan
portfolio  at  December  31,  2002  and  2001,  respectively,   was  secured  by


                                      F-17
<PAGE>

non-residential real estate. Loans secured by church real estate represented 52%
and 59% of  non-residential  real estate  loans at  December  31, 2002 and 2001,
respectively.

6.   Investment in Capital Stock of the FHLB

     As a member  of the  Federal  Home  Loan Bank  (FHLB)  System,  the Bank is
required  to own  capital  stock in the FHLB,  which is carried  at cost,  in an
amount at least equal to the greatest of 1% of the aggregate principal amount of
its unpaid  residential  mortgage  loans,  home  purchase  contracts and similar
obligations at the end of each year, 5% of its  outstanding  borrowings from the
FHLB,  0.3% of total  assets  at the end of each  year or $500.  The Bank was in
compliance  with this  requirement  with an investment in FHLB stock at December
31, 2002 and 2001, of $1.6 million and $1.4 million, respectively.

7.   Office Properties and Equipment, net

     Office properties and equipment consist of the following:
<TABLE>
<CAPTION>
                                                       December 31,
                                            ------------------------------------
                                                 2002                2001
                                            ----------------    ----------------
<S>                                          <C>                <C>
   Land                                      $ 1,723,000        $   1,723,000
   Office buildings and improvements           4,047,000            3,984,000
   Furniture, fixtures and equipment           1,598,000            1,726,000
                                            ----------------    ----------------
                                               7,368,000            7,433,000

   Less accumulated depreciation              (1,557,000)          (1,432,000)
                                            ----------------    ----------------

   Office properties and equipment, net      $ 5,811,000        $   6,001,000
                                            ================    ================
</TABLE>

     During the years ended  December  31, 2002 and 2001,  depreciation  expense
totaled $392,000 and $341,000, respectively.

8.   Deposits

     A summary of  deposits by type of account  and  interest  rate at the dates
indicated is as follows:
<TABLE>
<CAPTION>
                                                               December 31,
                                           ----------------------------------------------
                                                   2002                    2001
                                           ------------------------  --------------------
                                             Rate*       Amount      Rate*       Amount
                                           --------   -------------  -----   ------------
Balance by account type:
<S>                                         <C>       <C>            <C>     <C>
   NOW account and other demand deposits    0.34%     $ 12,533,000   0.34%   $ 12,055,000
   Non-interest bearing demand deposits      -          10,811,000      -       7,510,000
   Money market deposits                    1.36%        8,740,000   1.89%      8,906,000
   Passbook                                 0.79%       29,478,000   1.03%     25,471,000
   Certificates of deposit                  3.11%       94,586,000   4.44%     97,214,000
                                                      -------------          ------------
                                                      $156,148,000           $151,156,000
                                                      =============          ============

</TABLE>

------------

* Weighted average interest rate.

    The aggregate amount of time deposits equal to or exceeding $100,000 totaled
$42.6 million and $35.3 million at December 31, 2002 and 2001, respectively.

    During the years ended December 31, 2002 and 2001, the weighted average
interest rate on total deposits was 2.42% and 3.90%, respectively.

                                      F-18

<PAGE>

     Maturities of  certificates of deposit at December 31, 2002, are summarized
as follows:
<TABLE>
<CAPTION>

              Maturity                      Amount

<S>            <C>                      <C>
               2003                     $  64,662,000
               2004                        13,090,000
               2005                         8,020,000
               2006                         3,694,000
             Thereafter                     5,120,000
                                        -------------
                                        $  94,586,000
                                        =============
</TABLE>

     Interest  expense by type of deposit account is summarized in the following
table for the periods indicated:
<TABLE>
<CAPTION>
                                      Year ended December 31,
                                     --------------------------
                                        2002            2001
                                     -----------    -----------
<S>                                  <C>            <C>
    Money market deposits            $  119,000     $   106,000
    Passbook deposits                   232,000         289,000
    NOW and other demand deposits        43,000          78,000
    Certificates of deposit           3,358,000       5,200,000
                                     -----------     ----------
                                     $3,752,000      $5,673,000
                                     ===========     ==========
</TABLE>


9.   Advances from the Federal Home Loan Bank and Other Borrowings

     At December 31, 2002 and 2001, FHLB advances  amounted to $28.7 million and
$11.0 million, respectively. The outstanding borrowings at December 31, 2002 and
2001 had  weighted  average  interest  rates of 2.67% and  4.93%,  respectively.
Pursuant to collateral  agreements with the FHLB,  advances are secured by loans
totaling $69.6 million and $20.9 million, and mortgage-backed securities of $6.3
million  and $3.2  million at  December  31,  2002 and 2001,  respectively.  The
available unused borrowing capacity with the FHLB approximated $30.7 million and
$18.1 million as of December 31, 2002 and 2001, respectively.

     The maturities of FHLB advances at December 31, 2002 were as follows:
<TABLE>
<CAPTION>
                      Year Ending
                      December 31,
                      ------------
<S>                       <C>         <C>
                          2003        $  4,000,000
                          2004           4,000,000
                          2005           1,500,000
                          2007          19,224,000
                                      ------------
                                      $ 28,724,000
                                      ============
</TABLE>

     On January 17, 2003,  the Company  entered  into an unsecured  $5.0 million
revolving  line of credit  agreement  with  First  Federal  Bank of  California.
Interest is at the prime rate if the loan proceeds are used for CRA lending, and
at prime plus one percent if the loan  proceeds are used for any other  purpose.
The line of credit is  renewable  annually,  and may be converted to a four-year
term loan at the same rate of interest.

                                      F-19

<PAGE>

10.  Income Taxes

     The following is a summary of the provision for income tax expense:

<TABLE>
<CAPTION>
                                             2002         2001
                                         ----------    ----------
         Current taxes:
<S>                                      <C>           <C>
            Federal income               $ 505,000     $ 217,000
            State franchise                 11,000       105,000
                                         ----------    ----------
                                           516,000       322,000
                                         ----------    ----------
         Deferred taxes:
            Federal income                 243,000       144,000
            State franchise                 88,000        10,000
                                         ----------    ----------
                                           331,000       154,000
                                         ----------    ----------
                                         $ 847,000     $ 476,000
                                         ==========    ==========
</TABLE>

     A  reconciliation  of income taxes and the amounts computed by applying the
statutory  federal  income  tax  rate of 34% to  earnings  before  income  taxes
follows:

<TABLE>
<CAPTION>
                                            2002          2001
                                         -----------   ----------
<S>                                      <C>           <C>
 Computed "expected" federal taxes       $ 778,000     $ 395,000
 Increases to taxes resulting from:
    California franchise tax,
      net of federal income tax             65,000        76,000
    Other                                    4,000         5,000
                                         ------------  ----------
                                         $ 847,000     $ 476,000
                                         ============  ==========
</TABLE>

     In prior years,  the Bank had qualified under the provision of the Internal
Revenue  Code,  which  allowed  it to  deduct,  within  limitations,  a bad debt
deduction  computed as a percentage of taxable  income  before such  deductions.
Alternatively,  the Bank could deduct from taxable  income an allowance  for bad
debts based upon the experience method.  Under provisions of the Small Provision
Job Protection Act of 1996, the Bank lost the use of the method of calculating a
bad debt deduction  based on a percentage of taxable income.  However,  the Bank
may  continue  to maintain an  allowance  for bad debts based on the  experience
method,  and its tax  allowance  for bad debts has been  maintained  under  such
method.

     Retained earnings at December 31, 2002 is substantially  restricted for tax
purposes and includes  $3,013,000  in all  periods,  for which no provision  for
federal income tax has been made. If in the future, this tax bad debt reserve is
used for any purpose other than to absorb bad debt losses,  federal income taxes
may be imposed at the then applicable rates.

                                      F-20

<PAGE>

     The tax effects of temporary  and permanent  differences  that give rise to
significant  portions of the deferred tax assets and deferred tax liabilities at
December 31, 2002 and 2001, are presented below:
<TABLE>
<CAPTION>

                                                    2002          2001
                                               ------------    -----------
    Deferred tax assets:
<S>                                             <C>           <C>
       Allowance for loan losses                $  565,000    $   623,000
       Accrued liabilities                          48,000        166,000
       Lower of cost or market adjustment           22,000         60,000
       State income taxes                           31,000         27,000
       Other                                         5,000         44,000
                                               ------------   ------------
    Net deferred tax assets                        671,000        920,000

    Deferred tax liabilities:
       Basis difference on fixed assets           (399,000)      (438,000)
       Deferred loan fees                         (599,000)      (515,000)
       FHLB stock dividend                        (537,000)      (504,000)
       Other                                       (67,000)       (19,000)
                                               ------------   ------------
    Total gross deferred tax liabilities        (1,602,000)   $(1,476,000)
                                               ------------   ------------
    Net deferred tax liability                 $  (931,000)   $  (556,000)
                                               ============   ============

</TABLE>

     Deferred tax assets are initially  recognized for  differences  between the
financial  statement carrying amount and the tax bases of assets and liabilities
which will result in future deductible amounts and operating loss and tax credit
carryforwards. A valuation allowance is then established to reduce that deferred
tax  asset to the  level at which it is  "more  likely  than  not"  that the tax
benefits will be realized.  Realization of tax benefits of deductible  temporary
differences  and  operating  loss or  credit  carryforwards  depends  on  having
sufficient  taxable income of an appropriate  character within the carryback and
carryforward  periods.  Sources  of  taxable  income  that  may  allow  for  the
realization  of tax benefits  include (i) taxable  income in the current year or
prior years that is available  through  carrybacks,  (ii) future  taxable income
that will result from the reversal of existing  taxable  temporary  differences,
and (iii) future  taxable  income  generated by future  operations.  Based on an
evaluation  of the  realizability  of the Company's  gross  deferred tax assets,
management  believes  that it is more  likely  than not that  the  Company  will
realize the tax benefit related to these assets.

     At December  31,  2002,  the Company  had a net current tax  receivable  of
$198,000.  At December 31, 2001, the Company had a net current tax receivable of
$296,000.

11.  Employee Benefit Plans

Stock Incentive Plans

     Broadway Federal 401(k) Plan

     The Bank established a 401(k) Plan in which employees could elect to enroll
each January 1 or July 1 of every year provided that they were at least 21 years
of age and had been  employed  for at least six months  prior to the  semiannual
enrollment date. During January 2003, the Bank amended the Plan to eliminate the
six-month employment  requirement.  Employees may contribute up to 15 percent of
their pretax annual salary,  with the Company  matching up to 100 percent of the
employee's  contribution,  not to exceed three percent of that  employee's  base
salary.  In 2002 and 2001,  the Bank's  contribution  amounted  to  $42,000  and
$40,000, respectively.


                                      F-21

<PAGE>

     Recognition and Retention Plan (RRP)

     The Bank  adopted the RRP as a method of providing  non-employee  directors
with a  proprietary  interest in the Company in a manner  designed to  encourage
such  persons to remain with the Company.  Under the RRP,  awards are granted in
the form of shares of  common  stock  held by the RRP.  These  shares  represent
deferred  compensation  and are  accounted  for as a reduction of  stockholder's
equity.  Shares  allocated vest over a period of five years  commencing one year
from the date of grant. Awards are automatically vested upon a change in control
of  the  Company  or the  Bank.  In  the  event  that,  before  reaching  normal
retirement,  a non-employee  director terminates service with the Company or the
Bank,  that  person's  non-vested  awards are  forfeited.  Shares  available and
unissued under the Plan totaled 7,773 at December 31, 2002. The expense  related
to the RRP for the fiscal years ended December 31, 2002 and 2001 was immaterial.

     Performance Equity Program (PEP)

     The Bank  adopted the PEP as a method of  providing  certain  officers  and
employees with a proprietary  interest in the Company as an additional incentive
to  perform  in a  superior  manner  and to  promote  the  Company's  growth and
profitability  in the future.  Under the PEP,  awards are granted in the form of
shares  of  common  stock  held by the  PEP.  These  shares  represent  deferred
compensation  and are accounted for as a reduction of stockholders'  equity.  In
the event  that,  before  reaching  normal  retirement,  an officer or  employee
terminates service with the Company or the Bank, that person's non-vested awards
are  forfeited.  The PEP provides for "Base  Grants",  "Performance  Grants" and
"High  Performance  Grants."  Employees under the PEP are awarded Base Grants as
determined  under the plan.  Shares  allocated under the Base Grants vest over a
period of five  years  commencing  one year from the date of grant.  Performance
Grants  and  High  Performance  Grants  are  forfeited  and do not  vest  if the
performance goals are not attained. Shares available and unissued under the Plan
totaled 8,738 at December 31, 2002. On July 25, 2002, the Company awarded 15,208
(adjusted for stock dividends PEP Base Grants to employees.  The new grants were
awarded at a price of $6.68  (adjusted for stock split),  representing  the fair
market value of the Company's stock at the date of grant. The expense related to
the PEP for the fiscal years ended December 31, 2002 and 2001 was immaterial.

     The  table  below  reflects  the  RRP  and PEP  activity  for  the  periods
indicated:

<TABLE>
<CAPTION>
                                                              Stock Programs*
                                       -------------------------------------------------------------
                                              PEP                   RRP                 Total
                                       -------------------   ------------------   ------------------
                                        Shares     Price**    Shares    Price**    Shares     Price
                                       --------   --------   -------   --------   --------   -------
<S>                    <C>               <C>      <C>         <C>      <C>          <C>      <C>
Outstanding at January 1, 2002           8,392    $  4.63     2,073    $  5.50     10,465    $  4.82
Granted                                 15,208       6.68         -          -     15,208       6.68
Exercised                               (2,504)      5.09    (1,314)      5.50     (3,818)      5.23
Forfeited                               (2,256)      4.34         -       5.50     (2,256)      4.43
                                       --------              -------              --------
Outstanding at December 31, 2002        18,840    $  6.31       759    $     -     19,599    $  6.28
                                       ========   ========   =======   ========   ========   =======

Outstanding at January 1, 2001          21,940    $  5.03    10,524    $  5.50     32,464    $  5.19
Granted                                      -          -          -         -          -          -
Exercised                              (10,628)      5.36    (7,782)      5.50    (18,410)      5.41
Forfeited                               (2,920)      4.68       669       5.50     (3,589)      4.68
                                       --------              -------              --------
Outstanding at December 31, 2001         8,392    $  4.63     2,073    $  5.50     10,465    $  4.82
                                       ========   ========   =======   ========   ========   =======
</TABLE>

------------
*Adjusted for stock split
** Weighted average price.

                                      F-22


<PAGE>

     Employee Stock Ownership Plan

     The Company has an Employee  Stock  Ownership Plan (ESOP) for all employees
who attain a certain age and have  completed  one year of service  during  which
they served a minimum of 1,000 hours. The ESOP is internally  leveraged,  with a
$625,000 note from the Company.  The ESOP purchased 134,974 shares (adjusted for
stock  dividends)  of the common stock of the Company  issued in the  conversion
from mutual to stock form of organization.  The loan will be repaid  principally
from the Bank's discretionary  contributions to the ESOP, net of dividends paid,
over a period of ten years.  At  December  31,  2002 and 2001,  the  outstanding
balance of unallocated shares was $145,000 and $201,000,  respectively, which is
shown as Unearned ESOP shares in the equity section of the consolidated  balance
sheets.

     Shares  purchased with the loan proceeds are held in a suspense account for
allocation among  participants as the loan is repaid.  Contributions to the ESOP
and shares released from the suspense  account are allocated among  participants
on the  basis  of  compensation,  as  described  in the  plan,  in the  year  of
allocation.  Benefits generally become 100% vested after seven years of credited
service,  with  20%  of  the  shares  vesting  each  year  commencing  with  the
participant's  completion of the third year of credited  service under the ESOP.
Prior to the completion of seven years of credited  service,  a participant  who
terminates employment for reasons other than death, retirement, disability, or a
change in control of the Bank or the  Company,  will not  receive any benefit if
such  termination  is prior to the  participant's  completion  of three years of
credited   service.   Forfeitures  will  be  reallocated   among  the  remaining
participating  employees in the same proportion as  contributions.  Participants
will become fully vested in the shares allocated to their accounts upon a change
in control of the Bank or the Company.  Benefits  are payable  upon  retirement,
death or disability of the participant.  Since the quarterly  contributions  are
discretionary,  the  benefits  payable  under  the  ESOP  cannot  be  estimated.
Compensation  expense  related to the  allocation of shares at December 31, 2002
and 2001 was $91,000 and $66,000, respectively.

     During the year ended December 31, 2002 and 2001, 12,176 and 13,052 shares,
respectively,  were  allocated,  leaving  an  unallocated  balance of 31,265 and
43,440  shares at December 31, 2002 and 2001,  respectively  (adjusted for stock
dividends).  The fair value of  unallocated  ESOP shares totaled
$289,000 and $273,000 at December 31, 2002 and 2001, respectively.

     Stock Option Plans

     In 1996, the  stockholders of the Company  approved two stock option plans,
the Company's  Long-Term  Incentive  Plan (the "LTIP") and the 1996 Stock Option
Plan for Outside  Directors (the "Stock Option Plan" and together with the LTIP,
the "Stock Option Plans").

     The LTIP is a  non-qualified  stock  option  plan,  designed to attract and
retain  qualified  personnel  in key  positions  to  provide  officers  and  key
employees  with  a  proprietary  interest  in the  Company  as an  incentive  to
contribute  to the  success  of the  Company  and to reward  key  employees  for
outstanding  performance.  Options granted under the LTIP entitle the recipients
to purchase specified numbers of shares of the Company's common stock at a fixed
price  and are  exercisable  for up to ten years  from the date of  grant.  Such
options  become  vested  and  exercisable  at the rate of twenty  percent  (20%)
annually  commencing  one year from the date of  grant.  Options  available  and
unissued  under the Plan totaled  72,085 at December 31, 2002. On July 25, 2002,
November 15, 2000 and September 17, 1997,  options to purchase  183,538,  48,006
and 78,892 shares, respectively,  (adjusted for stock split) were granted. As of
December 31, 2002, 14,846 had been exercised.

     The  purpose  of the  Stock  Option  Plan  is to  promote  the  growth  and
profitability of the Company and the Bank by providing outside directors with an
incentive to achieve  long-term  objectives  of the  Company.  This plan is also
intended  to  assist in  retaining  and  attracting  non-employee  directors  of
outstanding  competence by providing such outside  directors with an opportunity
to acquire an equity interest in the Company. Options granted under the Stock

                                      F-23
<PAGE>

     Option Plan become  vested and  exercisable  at the rate of twenty  percent
(20%) annually  commencing  one year from the date of grant and are  exercisable
for up to ten years from the date of grant. Options available and unissued under
the Plan totaled 20,255 at December 31, 2002. On November 15, 2000 and September
17,  1997,  options to  purchase  7,000 and 32,290  shares,  respectively,  were
granted. As of December 31, 2002 no grants had been exercised.

     The table below reflects activity in the stock option plans for the periods
indicated:
<TABLE>
<CAPTION>

                                                                      Stock Option Plan
                                      ----------------------------------------------------------------------------------
                                               LTIP                 Stock Option Plan                   Total
                                      ------------------------    -----------------------     --------------------------
                                                    Exercise                   Exercise                      Exercise
                                        Shares        Price        Shares        Price         Shares          Price
                                      ----------    ----------    ---------    ----------     ----------    ------------

<S>                    <C>             <C>          <C>            <C>         <C>             <C>           <C>
Outstanding at January 1, 2002         117,693      $   5.11       44,290      $   5.32        161,983       $   5.17
Granted                                183,538      $   6.68            -             -        183,538       $   6.68
Exercised                              (14,846)     $   5.46       (2,000)         4.80        (16,846)      $   5.30
Expired or canceled                     (8,472)     $   4.72       (6,698)     $   5.50        (15,170)      $   5.06
                                      ----------                  ---------                   ----------
Outstanding at December 31, 2002       277,913      $   6.14       35,592      $   5.32        313,505       $   6.05
                                      ==========    ==========    =========    ==========     ==========    ============

Outstanding at January 1, 2001         131,048      $   5.07       44,290      $   5.32        175,338       $   5.13
Granted                                      -      $      -            -             -              -       $      -
Exercised                                    -      $      -            -             -              -       $      -
Expired or canceled                    (13,356)     $   4.72            -             -        (13,356)      $   4.72
                                      ----------                  ---------                   ----------
Outstanding at December 31, 2001       117,693      $   5.11       44,290      $   5.32        161,983       $   5.17
                                      ==========    ==========    =========    ==========     ==========    ============
</TABLE>

     The  following  table  summarizes   information  about  the  stock  options
outstanding at December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                Options Outstanding                             Options Exercisable
                                   ----------------------------------------------   ---------------------------------------------
                                                     Weighted                                       Weighted
                                   Outstanding        Average        Weighted     Outstanding       Average       Weighted
                                       at            Remaining       Average          at           Remaining      Average
Stock Option Plan     Exercise       December       Contractual      Exercise     December 31,    Contractual     Exercise
                       Price         31, 2002          Life           Price          2002            Life          Price
-------------------   ---------    -----------    --------------    -----------   ------------   -------------   -----------

December  31, 2002:
<S>                   <C>             <C>           <C>              <C>             <C>           <C>             <C>
LTIP                  $  5.50         64,723        4.71 years       $  5.50         59,038        4.71 years      $  5.50
                      $  4.34         29,652        7.88 years       $  4.34         11,859        7.88 years      $  4.34
                      $  6.68        183,538        9.57 years       $  6.68              -                        $  6.68

Stock Option Plan     $  5.50         29,792        4.71 years       $  5.50         27,526        4.71 years      $  5.50
                      $  4.34          5,800        7.88 years       $  4.34          2,200        7.88 years      $  4.34

December 31, 2001:

LTIP                  $  5.50         79,006        5.71 years       $  5.50         63,636        5.71 years      $  5.50
                      $  4.34         38,688        8.88 years       $  4.34          8,182        8.88 years      $  4.34

Stock Option Plan     $  5.50         37,290        5.71 years       $  5.50         30,378        5.71 years      $  5.50
                      $  4.34`         7,000        8.88 years       $  4.34          1,400        8.88 years      $  4.34

</TABLE>

                                      F-24


<PAGE>

     12. Commitments and Contingent Liabilities

Commitments

     The Company,  and the Bank, have operating  leases on certain  premises and
equipment on a long-term  basis.  Some of these leases require that the Company,
or the Bank, pay property taxes and insurance.  Lease expense was  approximately
$135,000  in 2002  and  $117,000  in  2001.  Annual  minimum  lease  commitments
attributable to long-term leases at December 31, 2002 are as follows:
<TABLE>
<CAPTION>

                                            Premises   Equipment       Total
                                           ----------  ----------   ----------
Year ending December 31:
<S>     <C>                                <C>         <C>          <C>
        2003                               $   42,000  $  111,000   $  153,000
        2004                                   42,000     111,000      153,000
        2005                                   42,000     103,000      145,000
        2006                                   42,000     100,000      142,000
        2007                                   42,000      75,000      117,000
Thereafter through 2013                       249,000           -      249,000
                                           ----------   ---------   ----------
                                           $  459,000   $ 500,000   $  959,000
                                           ==========   =========   ==========
</TABLE>

     The Bank had commitments to originate loans of approximately  $1.17 million
at December 31, 2002.  Commitments  to extend credit are agreements to lend to a
customer as long as there is no violation of any  condition  established  in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since certain commitments are expected
to expire without being drawn, the total  commitment  amounts do not necessarily
represent future cash requirements. The Bank had no commitments to sell loans at
December 31, 2002.

Contingent Liabilities

     In the ordinary course of business, the Company and the Bank are defendants
in various litigation matters.  In the opinion of management,  and based in part
upon opinions of legal counsel, the disposition of any suits pending against the
Company and the Bank would not have a material  adverse  effect on the Company's
financial position, results of operations or cash flows.

13.  Regulatory Capital

     The Financial  Institutions  Reform,  Recovery and  Enforcement Act of 1989
("FIRREA")  and  the  capital  regulations  of the  OTS  promulgated  thereunder
("Capital  Regulations")  established  three capital  requirements - a "leverage
limit," a "tangible capital requirement" and a "risk-based capital requirement."
These capital  standards set forth in the Capital  Regulations must generally be
no less stringent than the capital  standards  applicable to national banks. The
OTS may also  establish,  on a case-by-case  basis,  individual  minimum capital
requirements for a savings  institution,  which vary from the requirements  that
would otherwise apply under the Capital Regulations. The OTS has not established
such  individual  minimum  capital  requirements  for the Bank.  Failure to meet
minimum  capital  requirements  can  initiate  certain  mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could have
a direct material  effect on the Bank's  financial  statements.  At December 31,
2002 and 2001, the Bank was in compliance with such capital requirements.

     The  leverage   limit  adopted  by  the  OTS  Director  under  the  Capital
Regulations  requires a savings  institution  to maintain  "core capital" of not
less than 4% of adjusted total assets.  "Core capital" generally includes common
stockholders'  equity (including  retained earnings),  non-cumulative  perpetual
preferred  stock and any related  surplus and  minority  interests in the equity
accounts of fully consolidated subsidiaries.


                                      F-25

<PAGE>

     The tangible  capital  requirement  adopted by the OTS Director  requires a
savings  institution to maintain  "tangible  capital" in an amount not less than
1.5% of adjusted total assets,  which is the minimum amount  required by FIRREA.
"Tangible  capital"  means core capital less any  intangible  assets  (including
supervisory  goodwill),  plus purchased mortgage servicing rights, valued at the
lower of the maximum percentage established by the FDIC or the amount includable
in core capital as defined under the Capital Regulations.

     The risk-based capital  requirements  provide,  among other things that the
capital  ratio  applicable to an asset will be adjusted to reflect the degree of
defined credit risk associated with such asset. In addition,  the asset base for
computing  a  savings  institution's  risk-based  capital  requirement  includes
off-balance   sheet   items,   including   loans  and  other  assets  sold  with
subordination or recourse.  Generally,  the Capital  Regulations require savings
institutions to maintain  "total  capital" equal to 8% of risk weighted  assets.
"Total  capital" for these purposes  consists of core capital and  supplementary
capital.  Supplementary  capital  includes  among other things  certain types of
preferred  stock and  subordinated  debt and,  subject to  certain  limitations,
general valuation allowances.

     The  Federal  Deposit  Insurance   Corporation   Improvement  Act  of  1991
("FDICIA")  contains "prompt  corrective  action"  provisions  pursuant to which
banks  and  savings  institutions  are to be  classified  into  one of the  five
categories   based  primarily  upon  capital   adequacy.   The  OTS  regulations
implementing the "prompt corrective action" provisions of FDICIA define the five
capital  categories as follows:  (i) an institution is "well  capitalized" if it
has a  total  risk-based  capital  ratio  of  10.00%  or  greater,  has a Tier 1
risk-based capital ratio (Tier 1 capital to total risk-weighted assets) of 6.00%
or greater,  has a core capital  ratio of 5.00% or greater and is not subject to
any written  capital order or directive to meet and maintain a specific  capital
level or any capital measure; (ii) an institution is "adequately capitalized" if
it has a total  risk-based  capital  ratio  of 8.00%  or  greater,  has a Tier 1
risk-based  capital  ratio of 4.00% or greater and has a core  capital  ratio of
4.00%  or  greater  (3%  for  certain  highly  rated  institutions);   (iii)  an
institution is  "undercapitalized" if it has a total risk-based capital ratio of
less than 8.00% or has either a Tier 1 risk-based  or a core capital  ratio that
is less than 4.00%; (iv) an institution is "significantly  undercapitalized"  if
it has a total risk-based capital ratio that is less than 7.00%, or has either a
Tier 1 risk-based  or a core capital  ratio that is less than 3.00%;  and (v) an
institution is "critically  undercapitalized"  if its "tangible equity" (defined
in the prompt corrective action regulations to mean core capital plus cumulative
perpetual  preferred  stock) is equal to or less than 2.00% of its total assets.
The OTS also has authority,  after an opportunity for a hearing, to downgrade an
institution from "well  capitalized" to "adequately  capitalized," or to subject
an "adequately capitalized" or "undercapitalized" institution to the supervisory
actions  applicable to the next lower  category,  for supervisory  concerns.  At
December 31, 2002 and 2001, the Bank's  regulatory  capital was in excess of the
amount necessary to be "well  capitalized."  Management believes there have been
no conditions or events since the last notification by the OTS that would change
the institution's category.

                                      F-26

<PAGE>

     The table  below  presents  the Bank's  capital  ratios as  compared to the
requirements under FDICIA at December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                            Minimum For Capital        Minimum Amount Required
                                        Actual               Adequacy Purposes          to be Well Capitalized
                                -----------------------    -----------------------    ------------------------
                                  Amount       Ratio         Amount        Ratio        Amount          Ratio
                                ----------    ---------    -----------    --------    ------------    --------
                                                             (Dollars in thousands)
December 31, 2002:
<S>                             <C>             <C>         <C>            <C>         <C>              <C>
   Leverage/Tangible Ratio      $ 14,347        7.01%       $ 8,185        4.0%        $  10,231        5.00%
   Tier I Risk-based ratio      $ 14,347       11.96%       $ 4,799        4.0%        $   7,199        6.00%
   Total Risk-based ratio       $ 15,776       13.15%       $ 9,599        8.0%        $  11,998       10.00%

December 31, 2001:
   Leverage/Tangible Ratio      $ 12,723        7.12%       $ 7,145        4.0%        $   8,930         5.0%
   Tier I Risk-based ratio      $ 12,723       10.92%       $ 4,659        4.0%        $   6,989         6.0%
   Total Risk-based ratio       $ 14,084       12.09%       $ 9,318        8.0%        $  11,648        10.0%

</TABLE>

     The table  below  presents  the Bank's  capital  ratios as  compared to the
requirements under FIRREA at December 31, 2002 and 2001:
<TABLE>
<CAPTION>
                                  Tangible Capital             Core Capital              Risk-Based Capital
                                ----------------------    ------------------------    --------------------------
                                  Amount      Ratio         Amount         Ratio        Amount          Ratio
                                ---------    ---------    ------------    --------    ------------    ----------
                                                              (Dollars in thousands)
December 31, 2002:
<S>                             <C>            <C>        <C>              <C>         <C>              <C>
   Actual                       $ 14,347       7.01%      $ 14,347         7.01%       $ 15,776         13.15%
   Required                        3,069       1.50%         8,185         4.00%          9,599          8.00%
                                ---------    ---------    ------------    --------    ------------    ----------
   Excess                       $ 11,278       5.51%      $  6,162         3.01%       $  6,177          5.15%
                                =========    =========    ============    ========    ============    ==========

December 31, 2001:
   Actual                       $ 12,723       7.12%      $ 12,723         7.12%       $ 14,084         12.09%
   Required                        2,679       1.50%         7,145         4.00%          9,318          8.00%
                                ---------    ---------    ------------    --------    ------------    ----------
   Excess                       $ 10,044       5.62%      $  5,578         3.12%       $  4,766          4.09%
                                =========    =========    ============    ========    ============    ==========
</TABLE>

14.  Series B Preferred Stock

     On December  30,  2002 the Company  issued  100,000  shares of  non-voting,
non-cumulative Series B Preferred Stock to Fannie Mae for gross proceeds of $1.0
million.  The Company  intends to use the  proceeds  from the sale of  preferred
shares to invest in  Broadway  Federal,  which  will allow  Broadway  Federal to
engage in activities that will promote,  among other things, the availability of
affordable housing in the Bank's market area.

15.  Fair Values of Financial Instruments

     Pursuant to  applicable  accounting  standards the Company has included the
following  information  about  the fair  values  of its  financial  instruments,
whether or not such instruments are recognized in the accompanying  consolidated
balance sheets. All components of cash and cash equivalents and interest bearing
deposits are presumed to have  approximately  equal book and fair values because
the period over which such amounts are realized are relatively  short.  In cases
where quoted market prices are not  available,  fair values are estimated  based
upon discounted cash flows.  Those techniques are significantly  affected by the
assumptions  utilized,  including  the assumed  discount  rates and estimates of
future cash flows. In this regard,  the derived fair value  estimates  cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in an immediate  sale or other  disposition of the  instrument.  All
components  of accrued  interest  receivable  and payable  are  presumed to have
approximately  equal book and fair values  because  the periods  over which such


                                      F-27

<PAGE>

amounts  are  realized  are  relatively  short.  As a result of the  assumptions
utilized, the aggregate fair value estimates presented herein do not necessarily
represent the Company's aggregate underlying fair value.

     The fair values of investment securities and mortgage-backed securities are
generally obtained from market bids for similar or identical securities,  or are
obtained from quotes from independent security brokers or dealers.

     Fair values are  estimated for  portfolios of loans with similar  financial
characteristics.  Loans  are  segregated  by type  such  as one to  four  units,
multifamily, nonresidential real estate and other.

     Each loan  category is further  segmented  into fixed and  adjustable  rate
interest terms and by performing and non-performing categories.

     The fair value of performing  loans is calculated by discounting  scheduled
cash flows through the estimated  maturity using estimated market discount rates
that  reflect  the credit  and  interest  rate risk  inherent  in the loan.  The
estimate of maturity is based on the contractual  term of the loans to maturity,
adjusted for estimated prepayments.

     The fair value of non-performing  loans is based on discounting cash flows.
Estimated  cash flows are  discounted  using a rate  commensurate  with the risk
associated  with the estimated cash flows.  Assumptions  regarding  credit risk,
cash flows and discount rates are judgmentally determined using available market
information and specific borrower information.

     The fair values of deposits  are  estimated  based upon the type of deposit
product.  Demand and money  market  deposits are presumed to have equal book and
fair  values.  The  estimated  fair values of time  deposits are  determined  by
discounting the cash flows of segments of deposits having similar maturities and
rates,  utilizing a yield curve that  approximates  the rates  offered as of the
reporting date.

     The fair values of borrowings  were estimated using current market rates of
interest  for  similar   borrowings.   The  fair  values  of   off-balance-sheet
commitments to extend credit are based on rates for similar  transactions  as of
the reporting date. These fair values are not material.

                                      F-28

<PAGE>

    The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 2002 and 2001.
<TABLE>
<CAPTION>

                                       Carrying Value     Fair Value
                                       --------------   -------------
 Assets:
<S>                                    <C>              <C>
    Investment securities              $   7,007,000    $   7,053,000
    Mortgage-backed securities            38,540,000       39,014,000
    Loans receivable                     143,855,000      148,994,000
    Federal Home Loan Bank stock           1,561,000        1,561,000

 Liabilities:
    Deposits                             156,148,000      157,830,000
    Federal Home Loan Bank advances       28,724,000       28,986,000

 December 31, 2001
 Assets:
    Investment securities              $   4,504,000     $  4,504,000
    Mortgage-backed securities            13,931,000       14,231,000
    Loans receivable                     141,299,000      147,967,000
    Federal Home Loan Bank stock           1,399,000        1,399,000

 Liabilities:
    Deposits                             151,156,000      147,220,000
    Federal Home Loan Bank advances       11,000,000       11,283,000
</TABLE>

16.  Earnings Per Share

     For the years ended  December 31, 2002 and 2001,  basic  earnings per share
are computed based on earnings available to common stockholders and the weighted
average number of shares for each respective  year.  Basic and diluted  earnings
per share were the same for 2002 and 2001.

     The Company's stock-based  compensation awards were considered  outstanding
as of the grant date for  purposes of  computing  diluted EPS for the year ended
December 31, 2002 and 2001.  The dilutive  effect of stock awards and options is
calculated under the treasury stock method using the average market price during
the period these shares and options were outstanding.

                                      F-29

<PAGE>

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per share.

<TABLE>
<CAPTION>
                                                              Year ended December 31,
                               --------------------------------------------------------------------------------
                                                2002                                               2001
                               --------------------------------------    --------------------------------------
                                                                Per-                                       Per-
                               Net earnings     Avg. Shares    share     Net earnings    Avg. Shares      share
                               (Numerator)     (Denominator)   Amount     (Numerator)   (Denominator)    Amount
                               -------------   -------------   ------    ------------   -------------   -------

<S>                             <C>                                       <C>
Net earnings                    $1,441,000                                $ 685,000

Less:
  Preferred stock dividends        (40,000)                                 (28,000)
                               -------------                             ------------
Basic earnings per share         1,401,000       1,780,617     $0.79      $ 657,000       1,758,098      $0.37
Effect of dilutive
  stock options                          -          39,734                        -           5,738
                               -------------   -------------             ------------   -------------
Diluted earnings per share      $1,401,000       1,820,351     $0.77      $ 657,000       1,763,836      $0.37
                               =============   =============   ======    ============   =============   =======
</TABLE>

17.  Unaudited Quarterly Financial Data

<TABLE>
<CAPTION>
                                        First       Second         Third         Fourth
2002                                   Quarter      Quarter       Quarter        Quarter          Year
                                    ------------  -----------   ------------   ------------   -------------

<S>                                  <C>          <C>            <C>            <C>            <C>
Interest income                      $3,159,000   $3,095,000     $3,020,000     $3,195,000     $12,469,000
Interest expense                      1,176,000    1,088,000      1,022,000      1,283,000       4,569,000
Net interest income                   1,983,000    2,007,000      1,998,000      1,912,000       7,900,000
Provision for (recovery of)
    loan losses                               -            -              -       (142,000)       (142,000)
Income before taxes                     554,000      533,000        629,000        572,000       2,288,000
Net earnings                            326,000      322,000        440,000        353,000       1,441,000

Basic earnings per share                   0.18         0.35           0.25           0.19            0.79
Diluted earnings per share(1)              0.17         0.35           0.24           0.18            0.77
Market range:

         High market price                 6.40         8.00           8.35          10.16           10.16
         Low market price                  6.20         6.25           6.45           7.79            6.20
</TABLE>

<TABLE>
<CAPTION>

                                       First         Second        Third          Fourth
2001                                  Quarter        Quarter      Quarter        Quarter           Year
                                   -------------   ----------   ------------    -----------   ------------

<S>                                  <C>           <C>           <C>            <C>           <C>
Interest income                      $3,234,000    $3,305,000    $3,272,000     $3,187,000    $12,998,000
Interest expense                      1,656,000     1,621,000     1,556,000      1,420,000      6,253,000
Net interest income                   1,578,000     1,684,000     1,716,000      1,767,000      6,745,000
Provision for loan losses                30,000        45,000        30,000         45,000        150,000
Income before taxes                     315,000       256,000       407,000        183,000      1,161,000
Net earnings                            181,000       156,000       240,000        108,000        685,000


Basic earnings per share                   0.10          0.08          0.13           0.05           0.37
Diluted earnings per share (1)             0.10          0.08          0.13           0.05           0.37
Market range:

         High market price                 4.72          5.75          6.55           6.30           6.55
         Low market price                  3.44          3.87          4.99           4.63           3.44
</TABLE>
------------

(1)The sum of the quarterly  earnings per share amounts may not equal the amount
for the year  because per share  amounts  are  computed  independently  for each
quarter  and the full year  based upon  respective  weighted  average  shares of
common stock  outstanding.  For diluted earnings per share, the weighted average
shares of common stock are adjusted for the  contingently  issuable  shares that
are dilutive under the Company's stock-based compensation plans.


                                      F-30
<PAGE>

18.  Parent Company Financial Information

     This information  should be read in conjunction with the other notes to the
consolidated  financial  statements.  The parent company's principal business is
serving  as a  holding  company  for the Bank and  BankSmart,  Inc.  (a  dormant
company).  The parent company's  primary sources of funds are interest income on
investments and bank deposits; its primary uses are for the payment of dividends
and normal shareholder  expenses.  Since inception the Bank has paid $500,000 in
dividends to the parent company.


    Balance Sheets
<TABLE>
<CAPTION>
                                                     December 31,
                                            ----------------------------
                                               2002            2001
                                            ------------   ------------
   Assets
<S>                                         <C>            <C>
   Cash                                     $ 2,113,000    $ 1,515,000
   Investment in subsidiaries                14,504,000     12,733,000
   Other assets                                 413,000        434,000
                                            ------------   ------------
                                            $17,030,000    $14,682,000
                                            ============   ============
   Liabilities and stockholders' equity
   Other liabilities                        $   109,000    $    54,000
   Stockholders' equity                      16,921,000     14,628,000
                                            ------------   ------------
                                            $17,030,000    $14,682,000
                                            ============   ============

</TABLE>

    Statements of Earnings
<TABLE>
<CAPTION>
                                                   Year ended December 31,
                                                 --------------------------
                                                     2002           2001
                                                 ------------    ----------
<S>                                              <C>             <C>
   Interest income                               $   12,000      $  27,000
   Other income                                      20,000         23,000
   Other expense                                   (255,000)      (307,000)
                                                 ------------    ----------
   Earnings (loss) before income taxes             (223,000)      (257,000)
   Income taxes (benefit)                           (92,000)      (108,000)
                                                 ------------    ----------
   Earnings (loss) before equity in
     undistributed earnings of subsidiaries        (131,000)      (149,000)
   Equity in undistributed earnings
     of subsidiaries                              1,572,000        834,000
                                                 ------------    ----------
   Net earnings                                  $1,441,000      $ 685,000
                                                 ============    ==========
</TABLE>

                                      F-31


<PAGE>

Statements of Cash Flows
<TABLE>
<CAPTION>
                                                          Year ended December 31,
                                                        --------------------------
                                                           2002            2001
                                                        ------------   -----------
Cash flows from operating activities
<S>                                                     <C>            <C>
Net earnings                                            $ 1,441,000    $  685,000
Adjustments to reconcile net earnings to
  cash provided by operating activities:
   Equity in undistributed earnings of subsidiaries      (1,572,000)     (834,000)
   Decrease in interest receivable                                -        21,000
   Decrease  in other assets                                 21,000        47,000
   Increase (Decrease) in other liabilities                  55,000       (23,000)
   Other                                                    (56,000)       76,000
                                                        ------------   -----------
Net cash used in operating activities                      (111,000)      (28,000)
                                                        ------------   -----------

Cash flows from investing activities
Proceeds from maturities of investment
   securities held to maturity                                    -     1,000,000
                                                        ------------   -----------
   Net cash used in investing activities                          -     1,000,000
                                                        ------------   -----------

Cash flows from financing activities
Dividend received from subsidiary                                 -       500,000
Stock reissued                                               32,000        85,000
Proceeds from issuance of Preferred Stock                 1,000,000             -
Stock repurchased                                           (83,000)            -
Dividends paid                                             (240,000)     (203,000)
                                                        ------------   -----------
Net cash used in financing activities                       709,000       382,000
                                                        ------------   -----------

Net increase in cash and cash equivalents                   598,000     1,354,000
Cash and cash equivalents, beginning of year              1,515,000       161,000
                                                        ------------   -----------
Cash and cash equivalents, end of year                  $ 2,113,000    $1,515,000
                                                        ============   ===========
</TABLE>


19.  Subsequent Event

     On January 31, 2003 the Company's Board of Directors  adopted a Shareholder
Rights Plan (the "Rights Plan"). The Board's purpose in adopting the Rights Plan
is to protect  shareholder value in the event of an unsolicited offer to acquire
the Company,  particularly one that does not provide equitable  treatment to all
shareholders.  Adoption of the Rights Plan is intended to  encourage a potential
acquirer of the Company to negotiate directly with the Board. In connection with
the adoption of the Rights Plan, the Board declared a dividend  distribution  of
one Right for each  outstanding  common share held by  shareholders of record on
February 13, 2003.


                                      F-32