##### Table of Contents



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, 2001



|[   ] | 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
incorporation ororganization) |  | (I.R.S. Employer 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, $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 there is no 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  [   ].

State issuers revenues for its most recent fiscal year: $13,821,000.





---



##### Table of Contents



State the aggregate market value of the voting and non-voting common equity
held by non-affiliates: $11,609,000, based on the average bid and asked prices
of such common equity as of February 28, 2002 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: 910,538 shares of Common
Stock at February 28, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Registrants 2002 Annual
Meeting of Shareholders are incorporated by reference into Part III.

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





---

TABLE OF CONTENTS



|             |                                                                                                                         |  |  |  |  |  |  | 
|------------ | ----------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I      
|             | Item 1. DESCRIPTION OF BUSINESS                                                                                        
|             | Item 2. DESCRIPTION OF PROPERTY                                                                                        
|             | Item 3. LEGAL PROCEEDINGS                                                                                              
|             | Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                            
|PART II     
|             | Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                       
|             | Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                          
|             | Item 7. FINANCIAL STATEMENTS OF BROADWAY FINANCIAL CORPORATION                                                         
|             | Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                           
|PART III    
|             | Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
|             | Item 10. EXECUTIVE COMPENSATION                                                                                        
|             | Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                                
|             | Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                
|             | Item 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K                                                                       
|SIGNATURES  
|EXHIBIT 23.1



---



##### Table of Contents



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
|       | Strategic Objectives           |                                                           | 2      
|       | Market Area and Competition    |                                                           | 2      
|       | Lending Activities             |                                                           | 3      
|       |                                | General                                                   |         | 3 
|       |                                | Loan Portfolio Composition                                |         | 3 
|       |                                | Loan Maturity                                             |         | 4 
|       |                                | Origination, Purchase, Sale and Servicing of Loans        |         | 5 
|       |                                | One-to Four-Family Mortgage Lending                       |         | 6 
|       |                                | Multi-Family Lending                                      |         | 7 
|       |                                | Non-Residential Real Estate Lending                       |         | 8 
|       |                                | Consumer Lending                                          |         | 9 
|       |                                | Loan Approval Procedures and Authority                    |         | 9 
|       |                                | Delinquencies and Classified Assets                       |         | 10
|       |                                | Non-Performing Assets                                     |         | 12
|       |                                | Allowance for Loan Losses                                 |         | 13
|       | Investment Activities          |                                                           | 15     
|       | Sources of Funds               |                                                           | 16     
|       |                                | General                                                   |         | 16
|       |                                | Deposits                                                  |         | 16
|       |                                | Borrowings                                                |         | 17
|       | Personnel                      |                                                           | 18     
|       | Environmental Regulation       |                                                           | 18     
|       | Regulation                     |                                                           |        
|       |                                | General                                                   |         | 19
|       |                                | Deposit Insurance                                         |         | 19
|       |                                | Capital Requirements                                      |         | 20
|       |                                | Loans to One Borrower                                     |         | 22
|       |                                | Federal Home Loan Bank System                             |         | 22
|       |                                | Liquidity                                                 |         | 22
|       |                                | Community Reinvestment Act                                |         | 22
|       |                                | Qualified Thrift Lender                                   |         | 22
|       |                                | Savings and Loan Holding Company Regulation               |         | 23
|       |                                | Restrictions on Dividends and Other Capital Distributions |         | 23
|       |                                | Lending Standards                                         |         | 24
|       |                                | U. S. Patriot Act of 2001                                 |         | 24
|       |                                | Financial Modernization Legislation                       |         | 24

i



---



##### Table of Contents



|        |                                                                                             |                                                     |                  |    |   
|------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------- | ---------------- | -- | --
|        | Tax Matters                                                                                 |                                                     | 25              
|        |                                                                                             | Federal Income Tax                                  |                  | 25
|        |                                                                                             |                                                     | General          |    | 25
|        |                                                                                             |                                                     | Bad Debt Reserve |    | 25
|        |                                                                                             | California Tax                                      |                  | 25
|       
|Item 2  | DESCRIPTION OF PROPERTY                                                                     |                                                     | 25              
|       
|Item 3  | LEGAL PROCEEDINGS                                                                           |                                                     | 26              
|       
|Item 4  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                         |                                                     | 26              
|       
|PART II |                                                                                            
|       
|Item 5  | MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS                                    |                                                     | 26              
|       
|Item 6  | MANAGEMENTS DISCUSSION AND ANALYSIS                                                        |                                                     | 27              
|       
|        | General                                                                                     |                                                     | 27              
|        | Interest Rate Sensitivity                                                                   |                                                     | 28              
|        |                                                                                             | Net Portfolio Value                                 |                  | 29
|        |                                                                                             | Critical Accounting Policies                        |                  | 30
|        |                                                                                             | Market Risk                                         |                  | 30
|        |                                                                                             | Average Balance Sheet                               |                  | 32
|        |                                                                                             | Rate/Volume Analysis                                |                  | 34
|        | Comparison of Operating Results for the Years Ended
December 31, 2001 and December 31, 2000 |                                                     | 34              
|        |                                                                                             | General                                             |                  | 34
|        |                                                                                             | Interest Income                                     |                  | 35
|        |                                                                                             | Interest Expense                                    |                  | 35
|        |                                                                                             | Net Interest Income After Provision for Loan Losses |                  | 35
|        |                                                                                             | Non-Interest Income                                 |                  | 35
|        |                                                                                             | Non-Interest Expense                                |                  | 35
|        | Comparison of Financial Condition at December 31 2001
And December 31, 2000                 |                                                     | 36              
|        |                                                                                             | Assets                                              |                  | 36
|        |                                                                                             | Liabilities                                         |                  | 36
|        |                                                                                             | Liquidity and Capital Resources                     |                  | 36
|        |                                                                                             | Impact of Inflation and Changing Prices             |                  | 37
|        |                                                                                             | Recent Accounting Pronouncements                    |                  | 37
|       
|Item 7  | FINANCIAL STATEMENTS OF BROADWAY FINANCIAL CORPORATION                                      |                                                     | 37              
|       
|Item 8  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE        |                                                     | 37              

ii



---



##### Table of Contents



|         |                                                                                                                 |  |    |  | 
|-------- | --------------------------------------------------------------------------------------------------------------- |  | -- |  | 
|PART III |                                                                                                                 | 
|        
|Item 9   | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT |  | 37
|        
|Item 10  | EXECUTIVE COMPENSATION                                                                                          |  | 37
|        
|Item 11  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT                                                  |  | 37
|        
|Item 12  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                  |  | 38
|        
|Item 13  | EXHIBITS, LISTS AND REPORTS ON FORM 8-K                                                                         |  | 38

iii



---



##### Table of Contents



Forward-Looking Statements

Except for the historical information contained in this Form 10-KSB,
certain items herein, including without limitation, matters discussed under
Managements Discussion and Analysis in Part II, Item 6 of this Form 10-KSB
(MD&A) 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 the Company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 such statements speak only 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 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 interest rates and the cost of funds; (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 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; and (7) other risks and
uncertainties detailed in this Form 10-KSB, including MD&A.

iv



---



##### Table of Contents






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 (the Conversion). 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, a wholly owned subsidiary of the Company. 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
Company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 that also houses the Banks loan
origination and loan service departments. In 2001, the Bank closed an
unprofitable branch in Los Angeles and incurred closure costs of $59,000 which
were charged to earnings.

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 residential mortgage loans. To a lesser extent, Broadway
Federal invests in non-residential real estate loans secured primarily by
church properties and certain other types of loans. In addition, Broadway
Federal invests in securities issued by the federal government and agencies
thereof, mortgage-backed securities, mortgage-related mutual funds and other
investments. Through its wholly owned subsidiary, Broadway Service Corporation
(BSC), the Bank also receives commissions from the sale of mortgage, life and
fire insurance. BSC also provides trustee services to Broadway Federal.
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, to a lesser extent, mortgage loan servicing
activities, 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 Federal Home
Loan Bank borrowings.

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

At December 31, 2001, the Bank was classified as well-capitalized under
applicable OTS and FDIC capital regulations.

1



---



##### Table of Contents



Strategic Objectives

The Companys primary strategic objective is to maintain the Banks
well-capitalized regulatory capital status in order to take advantage of future
expansion and growth opportunities, including internal growth and growth
through acquisitions of branch offices or other institutions. While managing
such growth, the Company also seeks to maintain a strong net interest margin,
maintain asset quality, reduce expenses and non-performing assets and limit
exposure to credit and interest rate risk. The Company seeks to accomplish
these objectives by: (i) utilizing retail deposits as Broadway Federals
primary source of funds, which are considered to be more stable and of lower
cost on average than borrowings, principal and interest payments on loans and
other sources of funding; (ii) maintaining a substantial portion of Broadway
Federals assets in loans secured by residential real estate primarily located
in its primary market area of Mid-City and South Central Los Angeles; (iii)
primarily retaining adjustable-rate mortgage loans (ARMs) in portfolio to
reduce Broadway Federals exposure to interest rate fluctuations; (iv)
continuing to improve Broadway Federals visibility and market share in the
communities it serves through increased outreach efforts and enhancement of the
services it offers; and (v) reducing Broadway Federals non-interest expense
through more efficient operations to the extent consistent with its commitment
of service to the under-served communities of Mid-City and South Central Los
Angeles.

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.

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 have 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 significantly higher proportion of its deposit funding in
such core deposit accounts compared to other institutions. 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 relatively low balance loans on one- to
four-family properties, loans on multi-family properties and loans on church
properties. Broadway Federals borrowers often request small loan amounts that
result in loans with relatively low loan-to-value ratios. To facilitate 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. For
example, Broadway Federal will accept higher ratios of housing expense and

2



---



##### Table of Contents



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) 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, 2001, approximately
86% 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 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, 2001, Broadway Federal
had 21 loans held for sale with a principal balance of $7.4 million. The loans
consist of two single-family loans and 19 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. Under California law, 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, 2001, Broadway Federals gross loan portfolio totaled
$144.0 million, of which approximately 23.42% was secured by one- to
four-family residential properties, 62.35% was secured by multi-family
properties and 12.77% was secured by non-residential properties, with
approximately 58.73% of such non-residential properties being church
properties. At that same date, approximately 59.47% of Broadway Federals one-
to four-family mortgage loans, 99.66% of its multi-family residential mortgage
loans, and 94.99% of its non-residential mortgage loans had adjustable rates.

3



---



##### Table of Contents



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.

|                                  |                 |                    |         |        |              |  |            |       |                        |   |            |        |        |  |        |       |       |   | 
|--------------------------------- | --------------- | ------------------ | ------- | ------ | ------------ |  | ---------- | ----- | ---------------------- | - | ---------- | ------ | ------ |  | ------ | ----- | ----- | - | 
|                                  |                 |                    |         |        | December 31,
|                                  |                 |                    |         |        |             
|                                  |                 |                    |         |        | 2001         |  | 2000      
|                                  |                 |                    |         |        |              |  |           
|                                  |                 |                    |         |        | Amount       |  | Percentage |       | Amount                 |   | Percentage
|                                  |                 |                    |         |        |              |  |            |       |                        |   |           
|                                  |                 |                    |         |        |              |  |            |       | (Dollars in thousands) |   |            |        |       
|Real Estate:                      |                 |                    |         |        |              |  |            |       |                        |   |            |        |        |  |        |      
|                                  | Residential:    |                    |         |        |              |  |            |       |                        |   |            |        |        |  |        |       |      
|                                  |                 | One-to Four-Units  |         | $      | 33,715       |  |            |       | 23.42                  | % |            | $      | 37,153 |  |        |       | 28.75 | %
|                                  |                 | Five or More Units |         |        | 89,777       |  |            |       | 62.35                  | % |            |        | 70,677 |  |        |       | 54.69 | %
|                                  | Non-residential |                    |         | 18,383 |              |  |            | 12.77 | %                      |   |            | 19,552 |        |  |        | 15.13 | %    
|Loans Secured by Savings
Accounts |                 |                    | 897     |        |              |  | 0.62       | %     |                        |   | 1,139      |        |        |  | 0.88   | %    
|Other                             |                 |                    | 1,206   |        |              |  | 0.84       | %     |                        |   | 720        |        |        |  | 0.55   | %    
|                                  |                 |                    |         |        |              |  |            |       |                        |   |            |        |        |  |        |      
|Gross Loans                       |                 |                    | 143,978 |        |              |  | 100.00     | %     |                        |   | 129,241    |        |        |  | 100.00 | %    
|                                  |                 |                    |         |        |              |  |            |       |                        |   |            |        |        |  |        |      
|                                  | Plus:           |                    |         |        |              |  |            |       |                        |   |            |        |        |  |        |       |      
|Premiums on Loans Purchased       |                 |                    | 4       |        |              |  |            |       |                        |   | 10         |        |        |  |        |      
|                                  | Less:           |                    |         |        |              |  |            |       |                        |   |            |        |        |  |        |       |      
|Allowance for Loan Losses         |                 |                    | 1,571   |        |              |  |            |       |                        |   | 1,421      |        |        |  |        |      
|Loans in Process                  |                 |                    | 16      |        |              |  |            |       |                        |   | 25         |        |        |  |        |      
|Deferred Loan Fees, net           |                 |                    | 683     |        |              |  |            |       |                        |   | 764        |        |        |  |        |      
|Unamortized Discounts             |                 |                    | 413     |        |              |  |            |       |                        |   | 167        |        |        |  |        |      
|                                  |                 |                    |         |        |              |  |            |       |                        |   |            |        |        |  |        |      
|                                  |                 |                    | 141,299 |        |              |  |            |       |                        |   | 126,874    |        |        |  |        |      
|                                  | Less:           |                    |         |        |              |  |            |       |                        |   |            |        |        |  |        |       |      
|Loans Held for Sale               |                 |                    | 7,362   |        |              |  |            |       |                        |   | 59         |        |        |  |        |      
|                                  |                 |                    |         |        |              |  |            |       |                        |   |            |        |        |  |        |      
|Total Loans Held for Investment   |                 | $                  | 133,937 |        |              |  |            |       |                        | $ | 126,815    |        |        |  |        |      
|                                  |                 |                    |         |        |              |  |            |       |                        |   |            |        |        |  |        |      

Loan Maturity.The following table sets forth the contractual maturities
of Broadway Federals gross loans at December 31, 2001. The table does not
reflect the effect of scheduled principal repayments. Principal repayments on
loans totaled $19.6 million and $13.8 million for the years ended December 31,
2001 and 2000, respectively.

|             |                  |                   |                           |    |                   |        |         |   |             |        |           |     |            |        |   |       |         |     |       |       |         |         | 
|------------ | ---------------- | ----------------- | ------------------------- | -- | ----------------- | ------ | ------- | - | ----------- | ------ | --------- | --- | ---------- | ------ | - | ----- | ------- | --- | ----- | ----- | ------- | ------- | 
|             |                  |                   |                           |    | December 31, 2001
|             |                  |                   |                           |    |                  
|             |                  |                   |                           |    |                   |        |         |   |             | Five   |           |     |            |        |   |       | Savings |     | Gross
|             |                  |                   |                           |    | One-to-           |        | or More |   | Non-        |        | Secured   |     | Loans     
|             |                  |                   |                           |    | Four Family       |        | Units   |   | residential |        | And Other |     | Receivable
|             |                  |                   |                           |    |                   |        |         |   |             |        |           |     |           
|             |                  |                   |                           |    | (In thousands)   
|Amounts Due: |                  |                   |                           |    |                   |        |         |   |             |        |           |     |            |        |   |       |         |     |       |      
|             | One year or less |                   | $                         | 69 |                   |        | $       | 3 |             |        | $         | 306 |            |        | $ | 1,219 |         |     | $     | 1,597 |        
|             | After one year:  |                   |                           |    |                   |        |         |   |             |        |           |     |            |        |   |       |         |     |       |       |        
|             |                  |                   | After one to three years  |    |                   | 293    |         |   |             | 195    |           |     |            | 807    |   |       |         | 839 |       |       |         | 2,134   | 
|             |                  |                   | After three to five years |    |                   | 253    |         |   |             | 146    |           |     |            | 29     |   |       |         | 11  |       |       |         | 439     | 
|             |                  |                   | After five to ten years   |    |                   | 1,997  |         |   |             | 17,747 |           |     |            | 4,342  |   |       |         | 16  |       |       |         | 24,102  | 
|             |                  |                   | After ten to twenty years |    |                   | 9,040  |         |   |             | 4,694  |           |     |            | 12,151 |   |       |         | 18  |       |       |         | 25,903  | 
|             |                  |                   | More than twenty years    |    |                   | 22,063 |         |   |             | 66,992 |           |     |            | 748    |   |       |         |    |       |       |         | 89,803  | 
|             |                  |                   |                           |    |                   |        |         |   |             |        |           |     |            |        |   |       |         |     |       |      
|             |                  |                   | Total due after one year  |    |                   | 33,646 |         |   |             | 89,774 |           |     |            | 18,077 |   |       |         | 884 |       |       |         | 142,381 | 
|             |                  |                   |                           |    |                   |        |         |   |             |        |           |     |            |        |   |       |         |     |       |      
|             |                  | Total Amounts Due |                           | $  | 33,715            |        |         | $ | 89,777      |        |           | $   | 18,383     |        |   | $     | 2,103   |     |       | $     | 143,978 |        
|             |                  |                   |                           |    |                   |        |         |   |             |        |           |     |            |        |   |       |         |     |       |      

4



---



##### Table of Contents



The following table sets forth the dollar amount of gross loans receivable at
December 31, 2001 which are contractually due after December 31, 2002, and
whether such loans have fixed interest rates or adjustable interest rates.

|                   |                             |       |     |                   |         |       |    |        |        |  |     |        |         | 
|------------------ | --------------------------- | ----- | --- | ----------------- | ------- | ----- | -- | ------ | ------ |  | --- | ------ | ------- | 
|                   |                             |       |     | December 31, 2001
|                   |                             |       |     |                  
|                   |                             |       |     | Adjustable        |         | Fixed |    | Total 
|                   |                             |       |     |                   |         |       |    |       
|                   |                             |       |     | (In thousands)   
|Real Estate Loans: |                             |       |     |                   |         |       |    |        |        |  |     |       
|                   | One-to four-units           |       | $   | 20,050            |         |       | $  | 13,596 |        |  | $   | 33,646 |        
|                   | Five or more units          |       |     | 89,466            |         |       |    | 308    |        |  |     | 89,774 |        
|                   | Non-residential real estate |       |     | 17,172            |         |       |    | 905    |        |  |     | 18,077 |        
|Other              |                             |       | 817 |                   |         |       | 67 |        |        |  | 884 |       
|                   |                             |       |     |                   |         |       |    |        |        |  |     |       
|                   |                             | Total |     | $                 | 127,505 |       |    | $      | 14,876 |  |     | $      | 142,381 | 
|                   |                             |       |     |                   |         |       |    |        |        |  |     |       

Origination, Purchase, Sale and Servicing of Loans.Broadway Federal
originates and purchases loans for investment and for sale. Loan sales come
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 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,
2001, Broadway Federal had two fixed rate loans secured by single family
properties totaling $237,000 and 19 adjustable rate loans secured by
multi-family properties totaling $7.1 million that were categorized as held for
sale. Typically, Broadway Federal will retain 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. Amortization of servicing rights is reflected in the Companys
Consolidated Statements of Operations and Comprehensive Earnings. The Company evaluates servicing assets
for impairment in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 140, which require that the servicing assets
be carried at the lower of capitalized cost or fair value. At December 31,
2001, the Bank had no servicing rights assets except for $21,000 of capitalized
servicing rights recorded prior to implementation of SFAS No. 140.

Broadway Federal receives monthly loan servicing fees on loans sold 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, 2001 and 2000, Broadway Federal was servicing $12.7 million and
$21.8 million, respectively, of loans owned by others.

From time to time, Broadway Federal has purchased 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 $8.3 million of loans during the year ended December
31, 2001 and did not purchase any loans during the year ended December 31,
2000.

5



---



##### Table of Contents



The following table provides information concerning Broadway Federals
loan origination, purchase, sale and principal repayment activity for the
periods indicated.

|                                      |                                   |                        |         |                          |        |      |         |         |        | 
|------------------------------------- | --------------------------------- | ---------------------- | ------- | ------------------------ | ------ | ---- | ------- | ------- | ------ | 
|                                      |                                   |                        |         | At or For the Year Ended
|                                      |                                   |                        |         | December 31,            
|                                      |                                   |                        |         |                         
|                                      |                                   |                        |         | 2001                     |        | 2000
|                                      |                                   |                        |         |                          |        |     
|                                      |                                   |                        |         | (In thousands)          
|Gross Loans:                          |                                   |                        |         |                          |        |      |         |        
|                                      | Beginning Balance:                |                        | $       | 129,241                  |        |      | $       | 131,887 |       
|Loans Originated:                     |                                   |                        |         |                          |        |      |         |        
|                                      | One-to Four-Units                 |                        |         | 4,327                    |        |      |         | 3,106   |       
|                                      | Five or More Units                |                        |         | 19,078                   |        |      |         | 9,981   |       
|                                      | Non-residential                   |                        |         | 924                      |        |      |         | 1,080   |       
|                                      | Loans Secured by Savings Accounts |                        |         | 456                      |        |      |         | 906     |       
|Other                                 |                                   |                        | 1,888   |                          |        |      | 1,935   |        
|                                      |                                   |                        |         |                          |        |      |         |        
|                                      |                                   | Total Loans Originated |         |                          | 26,673 |      |         |         | 17,008 | 
|Loan Purchased:                       |                                   |                        |         |                          |        |      |         |        
|                                      | One-to-Four Units                 |                        |         | 58                       |        |      |         |        |       
|                                      | Five or More Units                |                        |         | 8,211                    |        |      |         |        |       
|Less:                                 |                                   |                        |         |                          |        |      |         |        
|Transfer to real estate owned (REO) |                                   |                        |        |                          |        |      | 332     |        
|Principal Repayments                  |                                   |                        | 19,605  |                          |        |      | 13,808  |        
|Sales of Loans                        |                                   |                        | 600     |                          |        |      | 5,514   |        
|                                      |                                   |                        |         |                          |        |      |         |        
|                                      |                                   | $                      | 143,978 |                          |        | $    | 129,241 |        
|                                      |                                   |                        |         |                          |        |      |         |        

One- to Four-Family Mortgage Lending. Broadway Federal offers ARMs and
fixed-rate loans secured by one- to four-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, 2001, 40.53%
were fixed-rate loans and 59.47% were ARMs.

The interest rates for Broadway Federals ARMs are indexed to the 11th
District Cost of Funds Index (COFI), the 1-year Treasury Index (Treasury)
and the 12-month average of the Treasury index (12-MTA). Broadway Federal
currently offers loans with interest rates that adjust both semi-annually and
annually. Borrowers are required to make monthly payments under the terms of
such loans. Some of its loan programs have payment schedules that permit
negative amortization (that is, portions of the interest on loans that have
adjusted upward due to interest rate index increases are not payable currently
and are instead added to the loan principal). At December 31, 2001 and 2000
Broadway Federal had approximately $24.2 million and $26.2 million,
respectively, in mortgage loans that are subject to negative amortization.
Negative amortization may involve a greater risk to Broadway Federal because
during periods of high interest rates 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. No loans were in negative
amortization status at December 31, 2001 and 2000.

Broadway Federal qualifies its ARM borrowers based upon the fully indexed
interest rate (COFI or other index plus the 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 in accordance with market and competitive
factors. As of December 31, 2001, for ARMs, secured by one-to-four family
units that adjust annually, the introductory rate offered by Broadway Federal
was equal to the fully-indexed rate based on the one-year Treasury bill, which
was 2.23% at that date plus a margin of 2.50%. As of December 31, 2001, the
fully indexed rates on ARMs that adjust annually and are secured by
multi-family properties was 6.25% based on the 12 MTA index of 3.76% and a
margin of 2.49%. Broadway Federals annual ARMs adjust by a maximum of 2.00%
per adjustment. 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,
market rates may exceed the maximum rates payable on Broadway Federals ARMs.
At December 31, 2001, Broadway Federal policy provides for fees of up to 3.50%
of the original loan amount for its one- to four-family ARMs.

6



---



##### Table of Contents



Broadway Federal offers fixed-rate mortgage loans with terms of 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 policy provides for origination fees
on fixed-rate loans of up to 2.75% of the original loan amount at December 31,
2001.

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. 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 either the staff appraiser of Broadway Federal or 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 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.
At December 31, 2001, multi-family lending represented 62.35% of the Banks
gross loan portfolio, compared to 54.69% at December 31, 2000.

Multi-family loans amounted to $89.8 and $70.7 million at December 31,
2001 and 2000, respectively.

Multi-family lending is part of the Companys strategic focus on less
competitive, higher yielding loan products. Most of these multi-family loans
had adjustable rates, with an initial fixed interest rate period. The fixed
interest rate period for these loans ranges from one to five years. The
adjustable rate portion of these loans is primarily indexed to the Treasury.
The Company believes that the risks associated with multi-family loans
described below are mitigated by more stringent underwriting requirements,
which include lower loan-to-value ratios and increased 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% to 125%. Properties securing a loan are appraised
by either the staff appraiser of Broadway Federal or an approved independent
appraiser and title insurance is required on all loans.

7



---



##### Table of Contents



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. 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, 2001 was a
loan totaling $1,287,000. The loan is secured by a 28-unit property located in
the Los Angeles metropolitan area. This loan is currently performing according
to its terms. Broadway Federals second largest multi-family loan at that date
was secured by a 38-unit property located in Downey, California. At December
31, 2001, this loan had an outstanding balance of $1,175,000, and was
performing according to its terms. At December 31, 2001, Broadway Federal had
one other multi-family loan with a balance exceeding $1.0 million. This loan
was performing according to its terms.

Multi-family loans are generally viewed as exposing the lender to a
greater risk of loss than one- to four family residential loans and typically
involve higher loan principal amounts than loans secured by one- to four 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
may have severe effects in Broadway Federals primary market areas in Mid-City
and South Central Los Angeles, and 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 one- to
four-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 $18.4
million in non-residential real estate loans at December 31, 2001, $924,000 and
$1.1 million were originated in 2001 and 2000, 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 indexed to the COFI or the Treasury. 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 and had an outstanding
balance at December 31, 2001 of $818,000. This loan is currently performing
according to its terms.

8



---



##### Table of Contents



The second largest non-residential loan in Broadway Federals portfolio
was originated in 1987. It is secured by church property located in Los
Angeles, California, and had an outstanding balance at December 31, 2001 of
$662,000. This loan is currently performing according to its terms. At
December 31, 2001, Broadway Federals portfolio contained one other
non-residential loan with an outstanding balance exceeding $600,000. This loan
was secured by church property located in Los Angeles and was performing
according to its 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 it serves
makes church lending an important aspect of its 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 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 $10.8 million and $13.0 million at December 31,
2001 and 2000, 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 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
currently restricts such loans to its general market area.

Consumer Lending. Broadway Federals consumer loans primarily consist of
loans secured by savings accounts. At December 31, 2001, loans secured by
savings accounts represented $897,000, or 0.62%, 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
at or below $300,700, 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 the full Loan Committee; and if the
total of existing loans and the loan under consideration is $1.0 million or
more, the full 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 reviewed the following month by the two outside directors on the Loan
Committee.

9



---



##### Table of Contents



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 either the staff appraiser of Broadway Federal or 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 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. The procedures followed by Broadway Federal with
respect to delinquencies vary depending on the nature of the loan and the
period of delinquency. 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. 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.

Broadway Federal obtains appraisals on REO properties on an annual basis.
Broadway Federal generally conducts external inspections of REO properties
(excluding land) on at least a quarterly basis.

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

10



---



##### Table of Contents



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 that adequate loan loss allowances have been established,
actual losses are dependent upon future events and, as such, 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, 2001, 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, 2001 Broadway Federal had $2.1 million of loans classified
as Substandard, of which the largest had a principal balance of $611,000 and
was secured by a church. At December 31, 2001, no loans were classified as
Doubtful and three loans were classified as Loss. As of December 31, 2001,
loans designated as Special Mention consisted of eleven loans totaling $1.1
million, which were so designated due to delinquencies or other identifiable
weaknesses. At December 31, 2001, the largest loan designated as Special
Mention had a principal balance of $233,000 and was secured by a multi-family
property.

The following table sets forth delinquencies in Broadway Federals loan
portfolio as of the dates indicated:

11



---



##### Table of Contents



|                                      |       |  |              |   |                 |   |            |   |                 |  |          |   |           |  |                |     |          |  |           |   |  |   |      |   |           |  |   |   |  |   |      |     | 
|------------------------------------- | ----- |  | ------------ | - | --------------- | - | ---------- | - | --------------- |  | -------- | - | --------- |  | -------------- | --- | -------- |  | --------- | - |  | - | ---- | - | --------- |  | - | - |  | - | ---- | --- | 
|                                      |       |  | December 31,
|                                      |       |  |             
|                                      |       |  | 2001         |   | 2000           
|                                      |       |  |              |   |                
|                                      |       |  | 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) |     |          |  |           |   |  |   |      |   |           |  |  
|One- to four family                   |       |  |             |   |                 | $ |           |   |                 |  | 4        |   |           |  | 257            |     |          |  |          |   |  | $ |     |   |           |  | 3 |   |  | $ | 164  |    
|Multi-family                          |       |  |             |   |                 |   |           |   |                 |  |         |   |           |  |               |     |          |  |          |   |  |   |     |   |           |  |  |   |  |   |     |    
|Non-residential                       |       |  |             |   |                 |   |           |   |                 |  | 1        |   |           |  | 68             |     |          |  |          |   |  |   |     |   |           |  |  |   |  |   |     |    
|                                      |       |  |              |   |                 |   |            |   |                 |  |          |   |           |  |                |     |          |  |           |   |  |   |      |   |           |  |   |   |  |   |      |    
|                                      | Total |  |              |  |                 |   | $          |  |                 |  |          | 5 |           |  |                | 325 |          |  |           |  |  |   | $    |  |           |  |   | 3 |  |   | $    | 164 | 
|                                      |       |  |              |   |                 |   |            |   |                 |  |          |   |           |  |                |     |          |  |           |   |  |   |      |   |           |  |   |   |  |   |      |    
|Delinquent loans to total
gross loans |       |  |              |   |                 |   | 0.00       | % |                 |  |          |   |           |  | 0.23           |     |          |  |           |   |  |   | 0.00 |   |           |  |   |   |  |   | 0.10 |    
|                                      |       |  |              |   |                 |   |            |   |                 |  |          |   |           |  |                |     |          |  |           |   |  |   |      |   |           |  |   |   |  |   |      |    

Non-Performing Assets.Non-performing assets, consisting of non-accrual
loans and REO, decreased from $632,000 at December 31, 2000 to $468,000 at
December 31, 2001. The $164,000 decrease resulted from a decrease in
non-accrual loans. As a percentage of total assets, non-performing assets were
0.26% at December 31, 2001, as compared to 0.38% at December 31, 2000. The
allowance for loan losses was 335.68% of non-performing loans at December 31,
2001, as compared to 224.84% at December 31, 2000.

The following table includes information regarding Broadway Federals
non-performing assets at the dates indicated. For the years ended December 31,
2001 and 2000, 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 $58,000 and $24,000, respectively, as compared with
the respective amounts actually received on non-accrual loans of $57,000 and
$9,000. Broadway Federal had no commitments to lend additional funds to
borrowers whose loans were on non-accrual status at December 31, 2001. No
accruing loans were contractually past due by 90 days or more at December 31,
2001.

|                                                                        |                          |                     |                             |                            |     |                        |        |      |     |     |     | 
|----------------------------------------------------------------------- | ------------------------ | ------------------- | --------------------------- | -------------------------- | --- | ---------------------- | ------ | ---- | --- | --- | --- | 
|                                                                        |                          |                     |                             |                            |     | At December 31,       
|                                                                        |                          |                     |                             |                            |     |                       
|                                                                        |                          |                     |                             |                            |     | 2001                   |        | 2000
|                                                                        |                          |                     |                             |                            |     |                        |        |     
|                                                                        |                          |                     |                             |                            |     | (Dollars in thousands)
|Non-accrual loans:                                                      |                          |                     |                             |                            |     |                        |        |     
|                                                                        | Residential real estate: |                     |                             |                            |     |                        |        |      |    
|                                                                        |                          | One- to four-family |                             | $                          | 257 |                        |        | $    | 164 |    
|                                                                        |                          | Multi-family        |                             |                            |    |                        |        |      |    |    
|                                                                        |                          | Non-residential     |                             |                            | 211 |                        |        |      | 468 |    
|                                                                        |                          |                     |                             |                            |     |                        |        |     
|                                                                        |                          |                     |                             | Total non-performing loans |     |                        | 468    |      |     |     | 632 | 
|REO                                                                     |                          |                     |                            |                            |     |                        |       |     
|                                                                        |                          |                     |                             |                            |     |                        |        |     
|                                                                        |                          |                     | Total non-performing assets |                            | $   | 468                    |        |      | $   | 632 |    
|                                                                        |                          |                     |                             |                            |     |                        |        |     
|Allowance for loan losses as a percentage of gross loans                |                          |                     | 1.10                        | %                          |     |                        | 1.10   | %   
|Allowance for loan losses as a percentage of total non-performing loans |                          |                     | 335.68                      | %                          |     |                        | 224.84 | %   
|Allowance for losses as a percentage of total non-performing assets(1)  |                          |                     | 335.68                      | %                          |     |                        | 224.84 | %   
|Non-performing loans as a percentage of gross loans                     |                          |                     | 0.33                        | %                          |     |                        | 0.49   | %   
|Non-performing assets as a percentage of total assets                   |                          |                     | 0.26                        | %                          |     |                        | 0.38   | %   
|Net charge-offs to average loans                                        |                          |                     |                            |                            |     |                        | 0.29   | %   
|Impaired loans as a percentage of gross loans                           |                          |                     | 0.15                        | %                          |     |                        | 0.36   | %   



---

|(1) |  | Allowance for losses includes valuation allowances on loans and REO.
|--- |  | --------------------------------------------------------------------

12



---



##### Table of Contents



At December 31, 2001, Broadway Federals total recorded investment in
impaired loans was $211,000. The balance was fully reserved at December 31,
2001. All such 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, 2001, Broadway
Federals average investment in impaired loans was $303,000, and its interest
income recorded on impaired loans during this period totaled $36,000. 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.

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
monthly 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).

The Bank also maintains an allowance for impaired loans as a component
of its allowance for loan losses. 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.

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, 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 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.

13



---



##### Table of Contents



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, 2001 and 2000,
Broadway Federal had no REO.

The following table sets forth Broadway Federals allowances for loan and
real estate losses at the dates indicated:

|                           |                               |                     |                        |       |                |       |      |       |     |       | 
|-------------------------- | ----------------------------- | ------------------- | ---------------------- | ----- | -------------- | ----- | ---- | ----- | --- | ----- | 
|                           |                               |                     |                        |       | December 31,  
|                           |                               |                     |                        |       |               
|                           |                               |                     |                        |       | 2001           |       | 2000
|                           |                               |                     |                        |       |                |       |     
|                           |                               |                     |                        |       | (In thousands)
|Allowance for loan losses: |                               |                     |                        |       |                |       |      |      
|                           | Balance at beginning of year  |                     | $                      | 1,421 |                |       | $    | 1,439 |    
|                           | Charge-offs:                  |                     |                        |      |                |       |      |       |    
|                           |                               | One- to four-family |                        |       |               |       |      |       | 134 |      
|                           |                               | Multi-family        |                        |       |               |       |      |       | 244 |      
|                           |                               | Other               |                        |       |               |       |      |       |    |      
|                           |                               |                     |                        |       |                |       |      |      
|                           |                               |                     | Total charge-offs(1)   |       |                |      |      |       |     | 378   | 
|                           | Provision charged to earnings |                     |                        | 150   |                |       |      | 360   |    
|                           |                               |                     |                        |       |                |       |      |      
|                           |                               |                     | Balance at end of year |       | $              | 1,571 |      |       | $   | 1,421 | 
|                           |                               |                     |                        |       |                |       |      |      
|Allowance for REO          |                               |                     |                        |       |                |       |      |      
|                           | Balance at beginning of year  |                     |                        |      |                |       |      | 182   |    
|                           | Provision for losses          |                     |                        |      |                |       |      |      |    
|                           | Charge-offs (1)               |                     |                        |      |                |       |      | (182  | )  
|                           |                               |                     |                        |       |                |       |      |      
|                           |                               |                     | Balance at end of year |       | $              |      |      |       | $   |      | 
|                           |                               |                     |                        |       |                |       |      |      



---

|(1) |  | There were no recoveries for the years ended December 31, 2001 and 2000.
|--- |  | ------------------------------------------------------------------------

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.

|                                |  |                                                             |       |             |  |                        |        |             |  |   |       |                     |  |  |        |  
|------------------------------- |  | ----------------------------------------------------------- | ----- | ----------- |  | ---------------------- | ------ | ----------- |  | - | ----- | ------------------- |  |  | ------ | -
|                                |  | Allocation of the Allowance for Loan Losses at December 31,
|                                |  |                                                            
|                                |  | 2001                                                        |       | 2000       
|                                |  |                                                             |       |            
|                                |  |                                                             |       |             |  | Percentage of Loans    |        |             |  |   |       | Percentage of Loans
|                                |  |                                                             |       |             |  | in Each Category to    |        |             |  |   |       | in Each Category to
|                                |  | Amount                                                      |       | Total Loans |  | Amount                 |        | Total Loans
|                                |  |                                                             |       |             |  |                        |        |            
|                                |  |                                                             |       |             |  | (Dollars in thousands) |        |             |  |  
|One-to-four family              |  | $                                                           | 142   |             |  |                        | 23.42  | %           |  | $ | 118   |                     |  |  | 28.75  | %
|Multi-family                    |  |                                                             | 733   |             |  |                        | 62.35  | %           |  |   | 414   |                     |  |  | 54.69  | %
|Non-residential                 |  |                                                             | 399   |             |  |                        | 12.77  | %           |  |   | 229   |                     |  |  | 15.13  | %
|Other                           |  |                                                             | 243   |             |  |                        | 1.46   | %           |  |   | 550   |                     |  |  | 1.43   | %
|Unallocated                     |  |                                                             | 54    |             |  |                        |       |             |  |   | 111   |                     |  |  |       |  
|                                |  |                                                             |       |             |  |                        |        |             |  |   |       |                     |  |  |        |  
|Total allowance for
loan losses |  | $                                                           | 1,571 |             |  |                        | 100.00 | %           |  | $ | 1,421 |                     |  |  | 100.00 | %
|                                |  |                                                             |       |             |  |                        |        |             |  |   |       |                     |  |  |        |  

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, 2000 to
December 31, 2001 is primarily attributable to the reduction of impaired loans
and the related impairment allowance.

14



---



##### Table of Contents



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 and maintain liquidity,
generate a favorable return on investments without incurring undue
interest-rate and credit risk, and complement the Banks lending activities.
The Companys investment policy generally limits investments to government and
federal agency backed securities and other non-government guaranteed
securities, certificates of deposit of insured banks and savings institutions,
mortgage-backed securities issued by the FHLMC, the FNMA, the Government
National Mortgage Association (GNMA), mutual funds with assets that a
federally chartered savings institution is authorized to make directly, and
municipal obligations that have a rating which exceeds or is the equivalent of
an A rating as determined by Standard & Poors Ratings Group or Moodys
Investors Service. Bankers acceptances from any one issuer are limited to 10%
of the Banks capital and commercial paper is limited to 1% of the Banks
assets. The Companys policies provide the authority to invest in marketable
equity securities meeting the Companys guidelines and further provide that all
such investments be ratified by the Board of Directors on a quarterly basis.
At December 31, 2001 and 2000, the Company had investment and mortgage-backed
securities in the aggregate amount of $18.5 million and $21.4 million,
respectively, with fair values of $18.8 million and $21.3 million,
respectively.

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.

|                                                |                     |                            |        |                 |        |            |        |                |        |            |        |   |        |   |        |   |        | 
|----------------------------------------------- | ------------------- | -------------------------- | ------ | --------------- | ------ | ---------- | ------ | -------------- | ------ | ---------- | ------ | - | ------ | - | ------ | - | ------ | 
|                                                |                     |                            |        | At December 31,
|                                                |                     |                            |        |                
|                                                |                     |                            |        | 2001            |        | 2000      
|                                                |                     |                            |        |                 |        |           
|                                                |                     |                            |        | Amortized Cost  |        | Fair Value |        | Amortized Cost |        | Fair Value
|                                                |                     |                            |        |                 |        |            |        |                |        |           
|                                                |                     |                            |        |                 |        |            |        | (In thousands) |        |            |        |  
|Investment and mortgage-backed securities:      |                     |                            |        |                 |        |            |        |                |        |            |        |   |        |   |        |  
|                                                | Held to maturity:   |                            |        |                 |        |            |        |                |        |            |        |   |        |   |        |   |       
|                                                |                     | Mortgage-Backed Securities |        | $               | 13,931 |            |        | $              | 14,231 |            |        | $ | 10,748 |   |        | $ | 10,740 | 
|                                                |                     | Federal Agency debentures  |        |                 |       |            |        |                |       |            |        |   | 10,623 |   |        |   | 10,557 | 
|                                                | Available for sale: |                            |        |                 |        |            |        |                |        |            |        |   |        |   |        |   |       
|                                                |                     | Mutual Funds               |        |                 | 4,600  |            |        |                | 4,604  |            |        |   |       |   |        |   |       | 
|                                                |                     |                            |        |                 |        |            |        |                |        |            |        |   |        |   |        |  
|Total investment and mortgage-backed
securities |                     | $                          | 18,531 |                 |        | $          | 18,835 |                |        | $          | 21,371 |   |        | $ | 21,297 |  
|                                                |                     |                            |        |                 |        |            |        |                |        |            |        |   |        |   |        |  

15



---



##### Table of Contents



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, 2001.

|                   |  |   |                            |  |                      |       |                   |   |                   |      |                    |  |           |   |          |  |           |   |         |  |                        |   |         |  |  |   |          |  |   |        |      |   |          |      |        |  |   |        |      |   |  |      |  
|------------------ |  | - | -------------------------- |  | -------------------- | ----- | ----------------- | - | ----------------- | ---- | ------------------ |  | --------- | - | -------- |  | --------- | - | ------- |  | ---------------------- | - | ------- |  |  | - | -------- |  | - | ------ | ---- | - | -------- | ---- | ------ |  | - | ------ | ---- | - |  | ---- | -
|                   |  |   |                            |  | At December 31, 2001
|                   |  |   |                            |  |                     
|                   |  |   |                            |  | Less than One Year   |       | One to Five Years |   | Five To Ten Years |      | More Than 10 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:  |  |   |                            |  |                      |       |                   |   |                   |      |                    |  |           |   |          |  |           |   |         |  |                        |   |         |  |  |   |          |  |   |        |      |   |          |      |        |  |   |        |      |  
|                   |  |   | Mortgage-Backed
Securities |  | $                    |      |                   |   |                   |     |                    |  | $         |  |          |  |           |  |         |  | $                      |  |         |  |  |  |          |  | $ | 13,931 |      |   |          | 7.21 | %      |  | $ | 13,931 |      |   |  | 7.21 | %
|Available for sale |  |   |                            |  |                      |       |                   |   |                   |      |                    |  |           |   |          |  |           |   |         |  |                        |   |         |  |  |   |          |  |   |        |      |   |          |      |        |  |   |        |      |  
|                   |  |   | Mutual Funds               |  |                      | 4,600 |                   |   |                   | 4.45 | %                  |  |           |  |          |  |           |  |         |  |                        |  |         |  |  |  |          |  |   |       |      |   |          |     |        |  |   | 4,600  |      |   |  | 4.45 | %
|                   |  |   |                            |  |                      |       |                   |   |                   |      |                    |  |           |   |          |  |           |   |         |  |                        |   |         |  |  |   |          |  |   |        |      |   |          |      |        |  |   |        |      |  
|Total              |  | $ | 4,600                      |  |                      |       | 4.45              | % |                   | $    |                   |  |           |   |         |  |           | $ |        |  |                        |   |        |  |  | $ | 13,931   |  |   |        | 7.21 | % |          | $    | 18,531 |  |   |        | 6.55 | %
|                   |  |   |                            |  |                      |       |                   |   |                   |      |                    |  |           |   |          |  |           |   |         |  |                        |   |         |  |  |   |          |  |   |        |      |   |          |      |        |  |   |        |      |   |  |      |  

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, to a lesser
extent, 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.

16



---



##### Table of Contents



The following table sets forth the distribution of Broadway Federals
deposit accounts by average balance for the years indicated and the weighted
average interest rates on each category of deposits presented.

|                              |  |                         |         |            |  |         |        |         |  |            |      |         |  |   |         |  |  |  |        |          |  |  |      |  
|----------------------------- |  | ----------------------- | ------- | ---------- |  | ------- | ------ | ------- |  | ---------- | ---- | ------- |  | - | ------- |  |  |  | ------ | -------- |  |  | ---- | -
|                              |  | Year Ended December 31,
|                              |  |                        
|                              |  | 2001                    |         | 2000      
|                              |  |                         |         |           
|                              |  |                         |         |            |  |         |        |         |  | Weighted   |      |         |  |   |         |  |  |  |        | Weighted
|                              |  | Average                 |         | Percentage |  | Average |        | Average |  | Percentage |      | Average
|                              |  | Balance                 |         | of Total   |  | Rate    |        | Balance |  | of Total   |      | Rate   
|                              |  |                         |         |            |  |         |        |         |  |            |      |        
|                              |  | (Dollars in thousands) 
|Money market deposits         |  | $                       | 5,567   |            |  |         | 3.83   | %       |  |            | 1.91 | %       |  | $ | 4,463   |  |  |  | 3.31   | %        |  |  | 2.73 | %
|Passbook deposits             |  |                         | 27,835  |            |  |         | 19.14  | %       |  |            | 1.04 | %       |  |   | 28,159  |  |  |  | 20.85  | %        |  |  | 1.26 | %
|NOW and other demand deposits |  |                         | 20,216  |            |  |         | 13.90  | %       |  |            | 0.38 | %       |  |   | 17,786  |  |  |  | 13.17  | %        |  |  | 0.52 | %
|Time deposits                 |  |                         | 91,797  |            |  |         | 63.13  | %       |  |            | 5.67 | %       |  |   | 84,642  |  |  |  | 62.67  | %        |  |  | 5.19 | %
|                              |  |                         |         |            |  |         |        |         |  |            |      |         |  |   |         |  |  |  |        |          |  |  |      |  
|Total Deposits                |  | $                       | 145,415 |            |  |         | 100.00 | %       |  |            | 3.90 | %       |  | $ | 135,050 |  |  |  | 100.00 | %        |  |  | 3.67 | %
|                              |  |                         |         |            |  |         |        |         |  |            |      |         |  |   |         |  |  |  |        |          |  |  |      |  

The following table presents the amount and weighted average rate of time
deposits equal to or greater than $100,000 at December 31, 2001, maturing
within the next twelve months.

|                              |       |   |                        |        |              |  |          |      |  
|----------------------------- | ----- | - | ---------------------- | ------ | ------------ |  | -------- | ---- | -
|                              |       |   | For the Year Ended    
|                              |       |   | December 31, 2001     
|                              |       |   |                       
|                              |       |   |                        |        |              |  | Weighted
|                              |       |   | Amount                 |        | Average Rate
|                              |       |   |                        |        |             
|                              |       |   | (Dollars in thousands)
|Three months or less          |       | $ | 18,790                 |        |              |  | 4.18     | %   
|Over three through six months |       |   | 3,778                  |        |              |  | 4.86     | %   
|Over six through 12 months    |       |   | 5,405                  |        |              |  | 5.14     | %   
|Over 12 months                |       |   | 7,343                  |        |              |  | 4.51     | %   
|                              |       |   |                        |        |              |  |          |     
|                              | Total |   | $                      | 35,316 |              |  |          | 4.47 | %
|                              |       |   |                        |        |              |  |          |     

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 made 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. See
RegulationFederal Home Loan Bank System. 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, 2001 and 2000 Broadway Federal had
$11.0 million and $10.0 million, respectively, outstanding advances from the
FHLB and no other borrowings. Broadway Federals outstanding advances at
December 31, 2001 were secured by mortgage loans.

17



---



##### Table of Contents



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

|               |                                                    |  |                          |        |      |  |   |        |  
|-------------- | -------------------------------------------------- |  | ------------------------ | ------ | ---- |  | - | ------ | -
|               |                                                    |  | At or for the Year Ended
|               |                                                    |  | December 31,            
|               |                                                    |  |                         
|               |                                                    |  | 2001                     |        | 2000
|               |                                                    |  |                          |        |     
|               |                                                    |  | (Dollars in thousands)  
|FHLB Advances: |                                                    |  |                          |        |      |  |   |       
|               | Average balance outstanding                        |  | $                        | 8,788  |      |  | $ | 13,678 |  
|               | Maximum amount outstanding
at any month-end period |  | $                        | 11,000 |      |  | $ | 18,450 |  
|               | Balance outstanding at end of period               |  | $                        | 11,000 |      |  | $ | 10,000 |  
|               | Weighted average interest rate during the period   |  |                          | 6.60   | %    |  |   | 5.91   | %
|               | Weighted average interest rate at end of period    |  |                          | 4.93   | %    |  |   | 6.67   | %

Personnel

At December 31,
2001, Broadway Federal had 66 employees, 49 of whom are
full-time employees and 17 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.

Environmental Regulation

The Banks business and properties are subject to federal and state
laws and regulations governing environmental matters, including the regulation
of hazardous substances and wastes. For example, under the federal
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
and similar state laws, owners and operators of contaminated properties may be
liable for the costs of cleaning up hazardous substances without regard to
whether such persons actually caused the contamination. Such laws may affect
the Bank as an owner or operator of properties used in its business, and as a
secured lender of property that is found to contain hazardous substances or
wastes.

Although CERCLA and similar state laws generally exempt holders of
security interests, the exemption may not be available if a secured party
engages in the management of its borrower or the securing property in a manner
deemed beyond the protection of the secured partys interest. Recent federal
and state legislation, as well as guidance issued by the United States
Environmental Protection Agency and a number of court decisions, have provided
assurance to lenders regarding the activities they may undertake and remain
within CERCLAs secured party exemption. However, these assurances are not
absolute and generally will not protect a lender or fiduciary that participates
or otherwise involves itself in the management of its borrower, particularly in
foreclosure proceedings. As a result, CERCLA and similar state statutes may
influence the Banks decision whether to foreclose on property that is found to
be contaminated. The Banks policy is to obtain an environmental assessment if
information is disclosed in the appraisal of property during the underwriting
or foreclosure process. The existence of hazardous substances or wastes on
commercial real estate properties could cause the Bank to elect not to
foreclose on the property, thereby limiting, and in some instances precluding,
the Bank from realizing any proceeds on the related loan. Should the Bank
foreclose on property containing hazardous substances or wastes, the Bank would
become subject to other environmental statutes, regulations and common law
relating to matters such as, but not limited to, asbestos abatement, lead-based
paint abatement, hazardous substance investigation and remediation, air
emissions, wastewater discharges, hazardous waste management, and third party
claims for personal injury and property damage.

18



---



##### Table of Contents



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 SAIF,
which is 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. 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 certain adverse
environmental conditions thereof (See  Environmental
Regulation).

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.

The OTS has primary enforcement authority over savings institutions and
their holding companies. Such authority includes, among other things, the
ability to assess civil money penalties, to issue cease-and-desist orders and
to initiate injunctive actions and removal and prohibition orders against
officers, directors and certain other institution affiliated parties. In
general, enforcement actions may be initiated for violations of specific laws
and regulations and for unsafe or unsound conditions or practices.

Deposit Insurance.The FDIC administers two separate deposit insurance
funds. The SAIF is the insurance fund responsible for insuring the deposits of
savings institutions, the deposits of which were formerly insured by the
Federal Savings and Loan Insurance Corporation (the FSLIC). The Bank Insurance
Fund (the BIF) is the insurance fund responsible for insuring the deposits of
commercial banks and certain other institutions. Broadway Federal is a member
of the SAIF.

The FDIC has the authority to set the respective deposit insurance
premiums of the SAIF and of the BIF at levels it determines to be appropriate
to maintain the SAIF or BIF reserves or to fund the administration of the FDIC.
In addition, the FDIC may impose emergency special assessments on BIF and SAIF
members. The OTS Director is also authorized to impose assessments on savings
institutions to fund certain of the costs of administration of the OTS.

FDIC deposit insurance premiums are assessed pursuant to a risk-based
system. Under this risk-based assessment system, institutions are classified
on the basis of capital ratios, supervisory evaluations by the institutions
primary federal regulatory agency and other information determined by the FDIC
to be relevant to the institutions financial condition and the risk posed to
the insurance funds. Each of the nine resulting risk category subgroups of
institutions is assigned a deposit insurance premium assessment rate, currently
ranging up to 0.27%. During 2001, Broadway Federals assessment
rate was 0.03%;
however, the Bank received notification from the FDIC in December 2001 that its
risk classification would be changed effective January 1, 2002 causing its
assessment rate to be reduced to zero.

19



---



##### Table of Contents



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.

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 currently 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, 2001 and 2000, Broadway Federals general
valuation allowance included in supplementary capital was $1,361,000 and
$936,000, 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, 2001 and
December 31, 2000:

|                                  |  |                   |        |         |  |            |        |          |  |                |        |            |  |   |        |   |  |   |        |   |  |   |        |  
|--------------------------------- |  | ----------------- | ------ | ------- |  | ---------- | ------ | -------- |  | -------------- | ------ | ---------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                  |  | As of December 31
|                                  |  |                  
|                                  |  | 2001              |        | 2000   
|                                  |  |                   |        |        
|                                  |  | Tangible          |        | Core    |  | Risk-based |        | Tangible |  | Core           |        | Risk-based
|                                  |  | Capital           |        | Capital |  | Capital    |        | Capital  |  | Capital        |        | Capital   
|                                  |  |                   |        |         |  |            |        |          |  |                |        |           
|                                  |  |                   |        |         |  |            |        |          |  | (In thousands) |        |            |  |   |        |   |  |  
|Equity capital-Broadway Federal   |  | $                 | 12,826 |         |  | $          | 12,826 |          |  | $              | 12,826 |            |  | $ | 12,530 |   |  | $ | 12,530 |   |  | $ | 12,530 |  
|Additional supplementary
capital: |  |                   |        |         |  |            |        |          |  |                |        |            |  |   |        |   |  |   |        |   |  |   |        |  
|General valuation allowance       |  |                   |       |         |  |            |       |          |  |                | 1,361  |            |  |   |       |   |  |   |       |   |  |   | 936    |  
|Assets required to be deducted    |  |                   | (103   | )       |  |            | (103   | )        |  |                | (103   | )          |  |   | (196   | ) |  |   | (196   | ) |  |   | (196   | )
|                                  |  |                   |        |         |  |            |        |          |  |                |        |            |  |   |        |   |  |   |        |   |  |   |        |  
|Regulatory
capital balances       |  |                   | 12,723 |         |  |            | 12,723 |          |  |                | 14,084 |            |  |   | 12,334 |   |  |   | 12,334 |   |  |   | 13,270 |  
|Minimum requirement               |  |                   | 2,679  |         |  |            | 7,145  |          |  |                | 9,318  |            |  |   | 2,494  |   |  |   | 6,652  |   |  |   | 8,004  |  
|                                  |  |                   |        |         |  |            |        |          |  |                |        |            |  |   |        |   |  |   |        |   |  |   |        |  
|Excess over requirement           |  | $                 | 10,044 |         |  | $          | 5,578  |          |  | $              | 4,766  |            |  | $ | 9,840  |   |  | $ | 5,682  |   |  | $ | 5,266  |  
|                                  |  |                   |        |         |  |            |        |          |  |                |        |            |  |   |        |   |  |   |        |   |  |   |        |  

20



---



##### Table of Contents



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
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, 2001, Broadway Federal was a
well-capitalized institution.

The table below presents Broadway Federals capital ratios at December 31,
2001 and 2000:

|                   |                         |  |        |  |        |  |                        |        |  |  |  |       |   |  |  |             |  
|------------------ | ----------------------- |  | ------ |  | ------ |  | ---------------------- | ------ |  |  |  | ----- | - |  |  | ----------- | -
|                   |                         |  | Actual |  |        |  |                       
|                   |                         |  |        |  | Well  
|                   |                         |  |        |  |        |  |                        |        |  |  |  |       |   |  |  | Capitalized
|                   |                         |  | Amount |  | Ratios |  | Requirement           
|                   |                         |  |        |  |        |  |                       
|                   |                         |  |        |  |        |  | (Dollars in thousands)
|December 31, 2001: |                         |  |        |  |        |  |                        |        |  |  |  |       |   |  |  |            
|                   | Total Risk based ratio  |  |        |  |        |  | $                      | 14,084 |  |  |  | 12.09 | % |  |  | 10.0        | %
|                   | Tier 1 Risk based ratio |  |        |  |        |  | $                      | 12,723 |  |  |  | 10.92 | % |  |  | 6.0         | %
|                   | Leverage/Tangible Ratio |  |        |  |        |  | $                      | 12,723 |  |  |  | 7.12  | % |  |  | 5.0         | %
|                  
|December 31, 2000: |                         |  |        |  |        |  |                        |        |  |  |  |       |   |  |  |            
|                   | Total Risk based ratio  |  |        |  |        |  | $                      | 13,270 |  |  |  | 13.26 | % |  |  | 10.0        | %
|                   | Tier I Risk based ratio |  |        |  |        |  | $                      | 12,334 |  |  |  | 12.33 | % |  |  | 6.0         | %
|                   | Leverage/Tangible Ratio |  |        |  |        |  | $                      | 12,334 |  |  |  | 7.42  | % |  |  | 5.0         | %

Under the PCA provisions, an institution that is deemed to be
undercapitalized is subject to mandatory restrictions on capital distributions
(including cash dividends) and management fees, increased supervisory
monitoring by the OTS, growth restrictions, restrictions on certain expansion
proposals and capital restoration plan submission requirements. If an
institution is deemed to be significantly undercapitalized, all of the
foregoing mandatory restrictions apply, as well as a restriction on
compensation paid to senior executive officers. Furthermore, the OTS must take
one or more of the following actions: (i) require the institution to sell
shares (including voting shares) or obligations; (ii) require the institution
to be acquired or merge (if one or more grounds for the appointment of a
conservator or receiver exist); (iii) implement various restrictions on
transactions with affiliates; (iv) restrict interest rates on deposits; (v)
impose further asset growth restrictions or require asset reductions; (vi)
require the institution or a subsidiary to alter, reduce or terminate
activities considered risky; (vii) order a new election of directors; (viii)
dismiss directors and/or officers who have held office for more than 180 days
before the institution became undercapitalized; (ix) require the hiring of
qualified executives; (x) prohibit correspondent bank deposits; (xi) require
the institution to divest or liquidate a subsidiary in danger of insolvency or
a controlling company to divest any affiliate that poses a significant risk, or
is likely to cause a significant dissipation of assets or earnings; (xii)
require a controlling company to divest the institution if it improves the
institutions financial prospects; or (xiii) require any other action the OTS
determines fulfills the purposes of the PCA provisions. In addition, subject
to a limited exception, the OTS is required to appoint a receiver or
conservator for an institution that is critically undercapitalized.

21



---



##### Table of Contents



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. The term
unimpaired capital and unimpaired surplus is defined for this purpose by
reference to an institutions regulatory capital. In addition, the basic 15%
of capital lending limit includes as part of capital that portion of an
institutions general valuation allowances that is not includable in the
institutions regulatory capital for regulatory purposes. At December 31,
2001, 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
established the loans to one borrower limitation at $1.7 million. At December
31, 2001, the largest aggregate amount of loans that Broadway Federal had
outstanding to any one borrower was $1.4 million.

Federal Home Loan Bank System.The FHLB system provides a central credit
facility for member institutions. As a member of the FHLB system, Broadway
Federal is required to own capital stock in its regional FHLB, the FHLB of San
Francisco, in an amount at least equal to the greater of 1% of the aggregate
principal amount of its unpaid residential mortgage loans, home purchase
contracts and similar obligations at the end of each calendar year, or 5% of
its outstanding FHLB advances (borrowings).

Liquidity.Current revised regulations allow savings institutions to
maintain an average daily balance of liquid assets in each calendar quarter of
not less than 4% of (i) the amount of its liquidity base at the end of the
preceding calendar quarter; or (ii) the average daily balance of its liquidity
base during the preceding quarter. The average daily balance of either liquid
assets or liquidity base in a quarter is calculated by adding the respective
balance as of the close of each business day in a quarter, and for any
non-business day, as of the close of the nearest preceding business day, and
dividing the total by the number of days in the quarter. The new regulations
also require that in addition to meeting the minimum requirement above, each
savings institution must maintain sufficient liquidity to ensure its safe and
sound operation and that the OTS can permit an institution to reduce its liquid
assets below the minimum under certain conditions. For the calculation period
including December 31, 2001, the liquidity ratio for Broadway Federal was
16.44%, which exceeded the new requirement. Broadway Federals liquidity
includes its investments in short-term securities and CDs, and estimated
prepayments on mortgage-backed securities for one year.

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 such communities. The CRA
also requires the OTS to assess, as part of its examination of a savings
institution, the performance of the institution in meeting the credit needs of
its communities 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 will assign a rating of outstanding, satisfactory, needs to improve
or substantial noncompliance. Broadway Federal was rated outstanding in
its most recent CRA exam.

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, 2001, Broadway Federal was in
compliance with its QTL test requirements.

22



---



##### Table of Contents



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,
which is not a subsidiary of the Company. Prior OTS approval is required for
the Company to acquire an additional savings association as a subsidiary.

Similarly, 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.

The Company is considered an affiliate of Broadway Federal for
regulatory purposes. Savings institutions are subject to the rules relating to
transactions with affiliates and loans to insiders generally applicable to
commercial banks that are members of the Federal Reserve System and certain
additional limitations. In addition, savings institutions are generally
prohibited from extending credit to an affiliate, other than the institutions
subsidiaries, unless the affiliate is engaged only in activities which the
Federal Reserve Board has determined to be permissible for bank holding
companies and which the OTS has not disapproved.

A savings and loan holding company that controls only one savings
institution is exempt, if the institution meets its QTL test, from restrictions
on the conduct of unrelated business activities that are applicable to other
savings and loan holding companies and that are similar to the restrictions on
the conduct of unrelated business activities that are applicable to bank
holding companies under the Bank Holding Company Act.

Restrictions on Dividends and Other Capital Distributions.Savings
institution subsidiaries of holding companies generally are required to provide
at least a 30-day advance notice of any dividends proposed to be paid on the
institutions stock. Dividends declared in violation of this notice
requirement are invalid.

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 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.

23



---



##### Table of Contents



Lending Standards.The OTS and the other federal banking agencies have
jointly adopted uniform rules on real estate lending and related Interagency
Guidelines for Real Estate Lending Policies (the
Guidelines). The uniform rules require that institutions adopt and maintain comprehensive written policies for
real estate lending. The policies must reflect consideration of the
Guidelines and must address relevant lending procedures, such as
loan to value limitations, loan administration procedures, portfolio
diversification standards and documentation, approval and reporting
requirements. Although the uniform rules do not impose specific maximum loan
to value ratios, the related Guidelines state that such ratio
limits established by individual institutions boards of directors generally
should not exceed levels set forth in the Guidelines, which range from a
maximum of 65% for loans secured by unimproved land to 85% for improved
property. No limit is set for single family residence loans, but the
Guidelines state that such loans exceeding a 90% loan to value ratio should
have private mortgage insurance or some form of credit enhancement. The
Guidelines further permit a limited amount of loans that do not conform to
these criteria.

USA Patriot Act of 2001.On October 6, 2001, President Bush signed the
USA Patriot Act of 2001. Enacted in response to the terrorist attacks in New
York, Pennsylvania and Washington, D. C. on September 11, 2001, the Patriot Act
is intended to strengthen U. S. law enforcements and the intelligence
communities abilities to work cohesively to combat terrorism on a variety of
fronts. The potential impact of the Patriot Act on financial institutions of
all kinds is significant and wide ranging. The Patriot Act contains sweeping
anti-money laundering and financial transparency laws and requires various
regulations, including:



| |  |  | Due diligence requirements for financial institutions that
administer, maintain, or manage private banks accounts or
correspondent accounts for non-US persons;                  
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Standards for verifying customer identification at account
opening;                                                                                                              
|
| |  |  | Rules to promote cooperation among financial institutions,
regulators, and law enforcement entities in identifying parties that
may be involved in terrorism or money laundering;
|
| |  |  | Reports by non-financial trades and businesses filed with the
Treasury Departments Financial Crimes Enforcement Network for
transactions exceeding $10,000; and                 
|
| |  |  | Filing of suspicious activities reports of securities by
brokers and dealers if they believe a customer may be violating U.S. laws and regulations.                              

The Company is not able to predict the impact of the Patriot Act on its
financial condition or results of operations at this time.

Financial Modernization Legislation.On November 12, 1999, President
Clinton signed into law the Gramm-Leach-Bliley Act (the G-L-B Act) which
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. Among
the new activities permitted to bank holding companies and national bank
subsidiaries are securities and insurance brokerage, securities underwriting
and certain forms of insurance underwriting. Bank holding companies have been
granted broader insurance underwriting powers than national banks and may
engage in merchant banking activities after the adoption of implementing
regulations. Merchant banking activities may also become available to national
bank subsidiaries after five years. The Federal Reserve Board, in consultation
with the Department of Treasury, may approve additional 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 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.

24



---



##### Table of Contents



The G-L-B Act also makes membership in the Federal Home Loan Bank
voluntary for federal savings associations. The G-L-B Act contains a variety
of other provisions, including, a prohibition against ATM surcharges unless the
customer has first been provided notice of the imposition and the amount of the
fee. The G-L-B Act also imposes certain reporting requirements on depository institutions
that make payments to non-governmental entities in connection with the
Community Reinvestment Act.

Tax Matters

Federal Income Tax

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 Reserve. 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.

California Tax

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 origination and service operations are also conducted
from two 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 its fourth
branch office.

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 that the carrying amount of
the properties approximates their fair values. Management also believes that
Broadway Federals facilities are adequate to meet the present needs of
Broadway Federal and the Company.

25



---



##### Table of Contents



|                                                   |  |                |  |           |      |            |  |                   |      |           |  |                |           |                |  | 
|-------------------------------------------------- |  | -------------- |  | --------- | ---- | ---------- |  | ----------------- | ---- | --------- |  | -------------- | --------- | -------------- |  | 
|                                                   |  |                |  |           |      |            |  |                   |      |           |  |                |           | Net Book Value
|                                                   |  |                |  |           |      | Original   |  |                   |      |           |  | of Property or
|                                                   |  |                |  |           |      | Date       |  | Date              |      | Leasehold
|                                                   |  | Leased or      |  | Leased or |      | of Lease   |  | Improvements at  
|Location                                           |  | Owned          |  | Acquired  |      | Expiration |  | December 31, 2001
|                                                   |  |                |  |           |      |            |  |                  
|Administrative/Branch Office:                      |  |                |  |           |      |            |  |                   |      |           |  |                |           |                |  | 
|4800 Wilshire Blvd                                 |  | Owned          |  |           | 1997 |            |  |                   |     |           |  | $              | 1,932,000 |               
|Los Angeles, CA                                    |  |                |  |           |      |            |  |                   |      |           |  |                |           |                |  | 
|Branch Offices:                                    |  |                |  |           |      |            |  |                   |      |           |  |                |           |                |  | 
|4835 West Venice Blvd.(1)                          |  | Building Owned |  |           | 1965 |            |  |                   | 2013 |           |  | $              | 132,000   |               
|Los Angeles, CA                                    |  | on Leased Land |  |           |      |            |  |                   |      |           |  |                |           |               
|Branch Office/Loan Origination
and Service Center: |  |                |  |           |      |            |  |                   |      |           |  |                |           |                |  | 
|170 N. Market Street                               |  | Owned          |  |           | 1996 |            |  |                   |     |           |  | $              | 896,000   |               
|Inglewood, CA                                      |  |                |  |           |      |            |  |                   |      |           |  |                |           |                |  | 
|4001 South Figueroa Street                         |  | Owned          |  |           | 1996 |            |  |                   |     |           |  | $              | 2,323,000 |               
|Los Angeles, CA                                    |  |                |  |           |      |            |  |                   |      |           |  |                |           |                |  | 



---

|(1) |  | In June 1997, Broadway Federal leased 575 square feet of space to the
Automobile Club of Southern California for a term of five years at $1,750
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.




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, 2002, 910,538 shares of Common Stock were outstanding and held by
approximately 431 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 sets forth for 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.

26



---



##### Table of Contents



|     |  |             |       |             |  |             |       |             |  |   |       |  |  |   |      | 
|---- |  | ----------- | ----- | ----------- |  | ----------- | ----- | ----------- |  | - | ----- |  |  | - | ---- | 
|2001 |  | 4th Quarter |       | 3rd Quarter |  | 2nd Quarter |       | 1st Quarter
|     |  |             |       |             |  |             |       |            
|High |  | $           | 12.60 |             |  | $           | 13.10 |             |  | $ | 11.50 |  |  | $ | 9.44 | 
|Low  |  | $           | 9.26  |             |  | $           | 9.98  |             |  | $ | 7.75  |  |  | $ | 6.88 | 

|     |  |   |          |  |  |   |         |  |  |   |         |  |  |   |        | 
|---- |  | - | -------- |  |  | - | ------- |  |  | - | ------- |  |  | - | ------ | 
|2000 |  |   |          |  |  |   |         |  |  |   |         |  |  |   |        | 
|     |  |   |          |  |  |   |         |  |  |   |         |  |  |   |        | 
|High |  | $ | 8  15/16 |  |  | $ | 9  5/16 |  |  | $ | 8  9/16 |  |  | $ | 7  3/4 | 
|Low  |  | $ | 6  3/4   |  |  | $ | 7       |  |  | $ | 6  1/4  |  |  | $ | 4  5/8 | 

During 2001 and 2000, the Company paid quarterly dividends on its Common
Stock at the rate of $0.05 per share. The Company may pay dividends out of
funds legally available therefor 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. Broadway Federal received
OTS approval for and declared a dividend dated January 31, 2001. The payment
date was February 9, 2001.

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 (Preferred Stock). The Preferred Stock has a par value of $0.01 per
share and a liquidation preference of $10.00 per share. The Preferred Stock
was not publicly offered. The 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 purchase the maximum amount of
Common Stock permitted under the Plan of Conversion, with the remainder of the
Pledged Deposits being used to purchase Preferred Stock. The Preferred Stock
is non-voting and, as Preferred Stock, is subordinate to all indebtedness of
the Company, including customer accounts. Dividends on the Preferred Stock are
non-cumulative. In December 1997, the Company issued 32,613 shares of its
Common Stock from its Treasury shares in exchange for 35,874 shares of the
Companys Preferred Stock, which was retired. At December 31, 2001, a total of
55,199 shares of Preferred Stock are outstanding.




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 its net interest income after provisions for loan losses, which is
the difference between the interest income earned on its interest-earning
assets, such as loans and investments, and the interest expense on its
interest-bearing liabilities, such as deposits and borrowings less provisions
for loan losses. 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

27



---



##### Table of Contents



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, 2001 and 2000, the Company recorded net
earnings of $685,000, or $0.75 per diluted common share, and $677,000, or
$0.74 per diluted common share, respectively. At December 31, 2001 and 2000,
respectively, the Company had total consolidated assets of $178.9 million and
$167.9 million; total deposits of $151.2 million and $141.6 million; and
stockholders equity of $14.6 million and $14.0 million, representing 8.18%
and 8.33% of assets. Each of the Banks regulatory capital ratios exceeded
regulatory requirements at December 31, 2001 and 2000, with tangible and core
capital each at 7.12% and 7.42% and risk-based capital at 12.09% and 13.26%,
respectively.

The Companys level of non-performing assets declined from December 31,
2000, both in total dollar amount and as a percentage of total assets. The
Company includes non-accrual loans and REO in determining its level of
non-performing assets. At December 31, 2001, the Company reported $468,000 in
non-performing assets compared to $632,000 at December 31, 2000.

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 interest-earning assets as compared with those
of the Companys interest-bearing liabilities. Broadway Federals loan
portfolio is predominantly ARMs tied to COFI, the Treasury or the 12 MTA.
During 2001, these ARMs have generally repriced at a slower rate compared to
the repricing of the Banks interest-bearing liabilities. 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, establish prudent asset concentration guidelines 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 ratio of interest rate sensitive
assets to interest rate sensitive liabilities within specified maturities or
repricing dates. The Company, through Broadway Federal, achieves these
objectives primarily by the marketing and funding of ARMs, which are generally
repriced at least annually and indexed to COFI, the Treasury or the 12 MTA.

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 Asset/Liability 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 Asset/Liability Committee and approved by the
Board of Directors, the Company does not intend to engage in such practices in
the immediate future.

28



---



##### Table of Contents



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, the effect on
NPV must be calculated for immediate and sustained interest rate changes of ±
100, 200 and 300 basis points.

The following tables present Broadway Federals NPV as of December 31,
2001 and 2000. 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.

|                                            |       |        |                        |        |  |           |   |                 |   |                    |  |                  |    |  |  |       |   
|------------------------------------------- | ----- | ------ | ---------------------- | ------ |  | --------- | - | --------------- | - | ------------------ |  | ---------------- | -- |  |  | ----- | --
|Net Portfolio Value as of December 31, 2001
|                                           
|Change in Interest                          |       |        |                        |        |  | NPV       |   |                 |   |                    |  | Change in NPV as
|Rates in Basis Points                       |       |        |                        |        |  | Dollar    |   | Percent         |   | Percent of Present
|(Rate Shock)                                |       | Amount |                        | Change |  | Change(1) |   | Value of Assets
|                                            |       |        |                        |        |  |           |   |                
|                                            |       |        | (Dollars in thousands) |        |  |           |  
|                                            | 300   |        | $                      | 19,986 |  |           | $ | (1,848          | ) |                    |  | (8               | )% |  |  | (0.49 | )%
|                                            | 200   |        | $                      | 20,521 |  |           | $ | (1,313          | ) |                    |  | (6               | )% |  |  | (0.35 | )%
|                                            | 100   |        | $                      | 21,555 |  |           | $ | (379            | ) |                    |  | (1               | )% |  |  | 0.01  | % 
|                                            | Zero  |        | $                      | 21,834 |  |           |   |                |   |                    |  |                 |    |  |  |      |   
|                                            | (100) |        | $                      | 21,264 |  |           | $ | (570            | ) |                    |  | (3               | )% |  |  | (0.42 | )%
|                                            | (200) |        | $                      | 20,144 |  |           | $ | (1,690          | ) |                    |  | (8               | )% |  |  | (1.10 | )%
|                                            | (300) |        | $                      | 18,700 |  |           | $ | (3,134          | ) |                    |  | (14              | )% |  |  | (1.94 | )%

|                                            |       |        |                        |        |  |           |   |                 |   |                    |  |     |    |                  |  |       |   
|------------------------------------------- | ----- | ------ | ---------------------- | ------ |  | --------- | - | --------------- | - | ------------------ |  | --- | -- | ---------------- |  | ----- | --
|Net Portfolio Value as of December 31, 2000
|                                           
|Change in Interest                          |       |        |                        |        |  |           |   |                 |   |                    |  |     |    | Change in NPV as
|Rates in Basis Points                       |       |        |                        |        |  | Dollar    |   | Percent         |   | Percent of Present
|(Rate Shock)                                |       | Amount |                        | Change |  | Change(1) |   | Value of Assets
|                                            |       |        |                        |        |  |           |   |                
|                                            |       |        | (Dollars in thousands) |        |  |           |  
|                                            | 300   |        | $                      | 18,260 |  |           | $ | (640            | ) |                    |  | (3  | )% |                  |  | 0.11  | % 
|                                            | 200   |        | $                      | 18,487 |  |           | $ | (413            | ) |                    |  | (2  | )% |                  |  | 0.80  | % 
|                                            | 100   |        | $                      | 19,070 |  |           | $ | 170             |   |                    |  | 1   | %  |                  |  | 0.25  | % 
|                                            | Zero  |        | $                      | 18,900 |  |           | $ |                |   |                    |  |    |    |                  |  |      |   
|                                            | (100) |        | $                      | 18,433 |  |           | $ | (467            | ) |                    |  | (2  | )% |                  |  | (0.40 | )%
|                                            | (200) |        | $                      | 17,743 |  |           | $ | (1,157          | ) |                    |  | (6  | )% |                  |  | (1.16 | )%
|                                            | (300) |        | $                      | 16,155 |  |           | $ | (2,745          | ) |                    |  | (15 | )% |                  |  | (1.78 | )%



---

|(1) |  | Percentage changes less than 1% not shown.
The above table suggests that in the event of an immediate and sustained
200 basis point change in interest rates at December 31, 2001 and 2000,
Broadway Federal would experience a (6)% and an (2)% decrease, respectively, in
NPV in a rising rate environment and a (8)% decrease and a (6)% decrease,
respectively, in NPV in a declining rate environment.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

It is not unusual for the Banks NPV to decrease in a rising interest rate
environment because its interest-bearing liabilities typically reprice faster
than its interest-earning assets. However, in the interest rate environment
present at December 31, 2001, the Banks NPV also declines in all of the
decreasing interest rate environments presented in the table above. This
situation occurs because interest rates on a substantial portion of the Banks
core interest bearing liabilities carry a stated interest rate that does not
allow the stated interest rate to decline as much as indicated in the table
above. As a result, in the interest rate environment that existed at December
31, 2001, the downward repricing of interest-earning assets has a greater
impact on NPV than the downward repricing of interest-bearing liabilities.

29



---



##### Table of Contents



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 our
financial condition and results of operations are based upon our consolidated
financial statements, which have been reviewed 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 allowances for loan losses involves significant
judgments and assumptions by management, which have a material impact on the
carrying value of net loans; 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 the section 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, 2001 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, 2001. 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

30



---



##### Table of Contents



|                                                     |                         |                       |         |                                     |      |      |        |       |      |      |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      |   |         |         |      |   |         |         |  | 
|---------------------------------------------------- | ----------------------- | --------------------- | ------- | ----------------------------------- | ---- | ---- | ------ | ----- | ---- | ---- | ------ | ------ | ---- | ---------- | ----- | ---------------------- | ---- | ---------- | ----- | ----- | ---- | - | ----- | ----- | ---- | - | ------- | ------- | ---- | - | ------- | ------- |  | 
|                                                     |                         |                       |         | Expected Maturity Date              |      |      |        |       |      |      |        |        |      |            |       |                       
|                                                     |                         |                       |         | Fiscal Year Ended December 31, 2001 |      |      |        |       |      |      |        |        |      |            |       |                       
|                                                     |                         |                       |         |                                     |      |      |        |       |      |      |        |        |      |            |       |                       
|                                                     |                         |                       |         | 2002                                |      | 2003 |        | 2004  |      | 2005 |        | 2006   |      | Thereafter |       | Total                  |      | Fair Value
|                                                     |                         |                       |         |                                     |      |      |        |       |      |      |        |        |      |            |       |                        |      |           
|                                                     |                         |                       |         |                                     |      |      |        |       |      |      |        |        |      |            |       | (Dollars in thousands) |      |            |       |       |      |   |       |      
|Interest Earnings Assets:                            |                         |                       |         |                                     |      |      |        |       |      |      |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      |   |         |         |      |   |         |        
|Loans receivable(1)(2)(3)                            |                         |                       |         |                                     |      |      |        |       |      |      |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      |   |         |         |      |   |         |        
|                                                     | Fixed                   |                       | $       | 4,539                               |      |      | $      | 2,736 |      |      | $      | 2,213  |      |            | $     | 1,612                  |      |            | $     | 1,135 |      |   | $     | 3,787 |      |   | $       | 16,022  |      |   | $       | 17,083  | 
|                                                     |                         | Average interest rate |         |                                     | 8.85 | %    |        |       | 8.86 | %    |        |        | 8.76 | %          |       |                        | 8.58 | %          |       |       | 8.18 | % |       |       | 7.57 | % |         |         | 8.46 | % |         |         |  | 
|                                                     | Adjustable              |                       | $       | 94,584                              |      |      | $      | 6,373 |      |      | $      | 24,445 |      |            | $     | 1,918                  |      |            | $     | 636   |      |   |       |       |      |   | $       | 127,956 |      |   | $       | 130,884 | 
|                                                     |                         | Average interest rate |         |                                     | 7.49 | %    |        |       | 7.73 | %    |        |        | 7.56 | %          |       |                        | 7.51 | %          |       |       | 7.61 | % |       |       |      |   |         |         | 7.52 | % |         |         |  | 
|Investment securities(4)                             |                         | $                     | 4,600   |                                     |      |      |        |       |      |      |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      | $ | 4,600   |         |      | $ | 4,604   |        
|                                                     | Average interest rate   |                       |         | 4.45                                | %    |      |        |       |      |      |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      |   |         | 4.45    | %    |   |         |         | 
|Mortgage backed securities(5)(6)                     |                        
|                                                     | Fixed                   |                       | $       | 2,855                               |      |      | $      | 2,185 |      |      | $      | 1,672  |      |            | $     | 1,281                  |      |            | $     | 987   |      |   | $     | 3,342 |      |   | $       | 12,322  |      |   | $       | 12,560  | 
|                                                     |                         | Average interest rate |         |                                     | 6.21 | %    |        |       | 6.22 | %    |        |        | 6.22 | %          |       |                        | 6.23 | %          |       |       | 6.24 | % |       |       | 6.26 | % |         |         | 6.23 | % |         |         |  | 
|                                                     | Adjustable              |                       | $       | 1,609                               |      |      |        |       |      |      |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      |   | $       | 1,609   |      |   | $       | 1,671   | 
|                                                     |                         | Average interest rate |         |                                     | 6.03 | %    |        |       |      |      |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      |   |         |         | 6.03 | % |         |         |  | 
|Interest bearing deposits                            |                         | $                     | 5,028   |                                     |      |      |        |       |      |      |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      | $ | 5,028   |         |      | $ | 5,028   |        
|                                                     | Average interest rate   |                       |         | 3.65                                | %    |      |        |       |      |      |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      |   |         | 3.65    | %    |   |         |         | 
|FHLB stock                                           |                         | $                     | 1,399   |                                     |      |      |        |       |      |      |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      | $ | 1,399   |         |      | $ | 1,399   |        
|                                                     | Average interest rate   |                       |         | 7.12                                | %    |      |        |       |      |      |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      |   |         | 7.12    | %    |   |         |         | 
|Total interest earning assets                        |                         | $                     | 114,614 |                                     |      | $    | 11,294 |       |      | $    | 28,330 |        |      | $          | 4,811 |                        |      | $          | 2,758 |       |      | $ | 7,129 |       |      | $ | 168,936 |         |      | $ | 173,229 |        
|Interest Bearing Liabilities:                        |                         |                       |         |                                     |      |      |        |       |      |      |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      |   |         |         |      |   |         |        
|Savings accounts                                     |                         |                       |         |                                     |      |      |        |       |      |      |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      |   |         |         |      |   |         |        
|                                                     | NOW accounts(7)         |                       | $       | 2,204                               |      |      | $      | 1,829 |      |      | $      | 1,519  |      |            | $     | 1,260                  |      |            | $     | 5,243 |      |   |       |       |      |   | $       | 12,055  |      |   | $       | 12,055  | 
|                                                     |                         | Average interest rate |         |                                     | 0.34 | %    |        |       | 0.34 | %    |        |        | 0.34 | %          |       |                        | 0.34 | %          |       |       | 0.34 | % |       |       |      |   |         |         | 0.34 | % |         |         |  | 
|                                                     | Passbook accounts(8)    |                       | $       | 4,591                               |      |      | $      | 3,810 |      |      | $      | 3,163  |      |            | $     | 2,625                  |      |            | $     | 2,179 |      |   | $     | 9,103 |      |   | $       | 25,471  |      |   | $       | 25,471  | 
|                                                     |                         | Average interest rate |         |                                     | 1.03 | %    |        |       | 1.03 | %    |        |        | 1.03 | %          |       |                        | 1.03 | %          |       |       | 1.03 | % |       |       | 1.03 | % |         |         | 1.03 | % |         |         |  | 
|                                                     | Certificate accounts(9) |                       | $       | 77,390                              |      |      | $      | 7,476 |      |      | $      | 7,470  |      |            | $     | 2,439                  |      |            | $     | 2,439 |      |   |       |       |      |   | $       | 97,214  |      |   | $       | 93,278  | 
|                                                     |                         | Average interest rate |         |                                     | 4.34 | %    |        |       | 4.71 | %    |        |        | 4.71 | %          |       |                        | 6.46 | %          |       |       | 6.46 | % |       |       |      |   |         |         | 4.44 | % |         |         |  | 
|                                                     | Money Market funds(10)  |                       | $       | 2,939                               |      |      | $      | 1,968 |      |      | $      | 3,999  |      |            |       |                        |      |            |       |       |      |   |       |       |      |   | $       | 8,906   |      |   | $       | 8,906   | 
|                                                     |                         | Average interest rate |         |                                     | 1.89 | %    |        |       | 1.89 | %    |        |        | 1.89 | %          |       |                        |      |            |       |       |      |   |       |       |      |   |         |         | 1.89 | % |         |         |  | 
|Federal Home Loan Bank advances
Fixed rate borrowing |                         | $                     | 6,500   |                                     |      | $    | 4,500  |       |      |      |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      | $ | 11,000  |         |      | $ | 11,283  |        
|                                                     |                         | Average interest rate |         |                                     | 3.75 | %    |        |       | 6.64 | %    |        |        |      |            |       |                        |      |            |       |       |      |   |       |       |      |   |         |         | 4.93 | % |         |         |  | 
|Total interest bearing liabilities                   |                         | $                     | 93,624  |                                     |      | $    | 19,583 |       |      | $    | 16,151 |        |      | $          | 6,324 |                        |      | $          | 9,861 |       |      | $ | 9,103 |       |      | $ | 154,646 |         |      | $ | 150,993 |        

31



---



##### Table of Contents





---

|(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-nine percent (49%) of the Companys adjustable rate
loans change with COFI. 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. 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.                                                                                                                                                                     
|    
|    
|    
|    
|(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.                                                                                                                                                                                                                                                               

Average Balance Sheet.The following table sets forth certain information
relating to the Companys average balance sheets for the years ended December
31, 2001 and 2000. 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.

32



---



##### Table of Contents



|                                                                 |              |   |                         |         |          |   |        |  |         |  |                        |   |      |   |         |         |        |   |        |  |         |  |        |   | 
|---------------------------------------------------------------- | ------------ | - | ----------------------- | ------- | -------- | - | ------ |  | ------- |  | ---------------------- | - | ---- | - | ------- | ------- | ------ | - | ------ |  | ------- |  | ------ | - | 
|                                                                 |              |   | For the                
|                                                                 |              |   | Year Ended December 31,
|                                                                 |              |   |                        
|                                                                 |              |   | 2001                    |         | 2000    
|                                                                 |              |   |                         |         |         
|                                                                 |              |   |                         |         |          |   |        |  |         |  | Average                |   |      |   |         |         |        |   |        |  | Average
|                                                                 |              |   | Average                 |         |          |   |        |  | Yield/  |  | Average                |   |      |   |         |         | Yield/
|                                                                 |              |   | Balance                 |         | Interest |   | Cost   |  | Balance |  | Interest               |   | Cost
|                                                                 |              |   |                         |         |          |   |        |  |         |  |                        |   |     
|                                                                 |              |   |                         |         |          |   |        |  |         |  | (Dollars in thousands) |   |      |   |         |         |        |   |       
|Assets                                                           |              |   |                         |         |          |   |        |  |         |  |                        |   |      |   |         |         |        |   |        |  |         |  |        |  
|Interest-earning assets:                                         |              |   |                         |         |          |   |        |  |         |  |                        |   |      |   |         |         |        |   |        |  |         |  |        |  
|Interest-earning deposits                                        |              | $ | 1,658                   |         |          | $ | 21     |  |         |  | 1.27                   | % |      | $ | 155     |         |        | $ | 10     |  |         |  | 6.45   | %
|Federal Funds sold and other
short-term investments              |              |   | 11,650                  |         |          |   | 594    |  |         |  | 5.10                   | % |      |   | 896     |         |        |   | 44     |  |         |  | 4.91   | %
|Investment securities                                            |              |   | 2,038                   |         |          |   | 90     |  |         |  | 4.42                   | % |      |   | 10,633  |         |        |   | 643    |  |         |  | 6.05   | %
|Loans receivable(1)(2)                                           |              |   | 133,743                 |         |          |   | 11,452 |  |         |  | 8.56                   | % |      |   | 127,437 |         |        |   | 10,751 |  |         |  | 8.44   | %
|Mortgage-backed securities                                       |              |   | 11,894                  |         |          |   | 744    |  |         |  | 6.26                   | % |      |   | 11,878  |         |        |   | 750    |  |         |  | 6.31   | %
|FHLB stock                                                       |              |   | 1,363                   |         |          |   | 97     |  |         |  | 7.12                   | % |      |   | 1,278   |         |        |   | 87     |  |         |  | 6.81   | %
|                                                                 |              |   |                         |         |          |   |        |  |         |  |                        |   |      |   |         |         |        |   |        |  |         |  |        |  
|Total interest-earning assets                                    |              |   | 162,346                 |         |          | $ | 12,998 |  |         |  | 8.01                   | % |      |   | 152,277 |         |        | $ | 12,285 |  |         |  | 8.07   | %
|                                                                 |              |   |                         |         |          |   |        |  |         |  |                        |   |      |   |         |         |        |   |        |  |         |  |        |  
|Non-interest-earning assets                                      |              |   | 14,162                  |         |          |   |        |  |         |  |                        |   |      |   | 12,068  |         |        |   |        |  |         |  |        |  
|                                                                 |              |   |                         |         |          |   |        |  |         |  |                        |   |      |   |         |         |        |   |        |  |         |  |        |  
|                                                                 | Total assets |   | $                       | 176,508 |          |   |        |  |         |  |                        |   |      |   | $       | 164,345 |        |   |        |  |         |  |        |   | 
|                                                                 |              |   |                         |         |          |   |        |  |         |  |                        |   |      |   |         |         |        |   |        |  |         |  |        |  
|Liabilities and Retained Earnings                                |              |   |                         |         |          |   |        |  |         |  |                        |   |      |   |         |         |        |   |        |  |         |  |        |  
|Interest-bearing liabilities:                                    |              |   |                         |         |          |   |        |  |         |  |                        |   |      |   |         |         |        |   |        |  |         |  |        |  
|Money market deposits                                            |              | $ | 5,567                   |         |          | $ | 106    |  |         |  | 1.91                   | % |      | $ | 4,463   |         |        | $ | 122    |  |         |  | 2.73   | %
|Passbook deposits                                                |              |   | 27,835                  |         |          |   | 289    |  |         |  | 1.04                   | % |      |   | 28,159  |         |        |   | 356    |  |         |  | 1.26   | %
|NOW and other demand deposits                                    |              |   | 20,216                  |         |          |   | 78     |  |         |  | 0.38                   | % |      |   | 17,786  |         |        |   | 93     |  |         |  | 0.52   | %
|Certificate accounts                                             |              |   | 91,797                  |         |          |   | 5,200  |  |         |  | 5.67                   | % |      |   | 84,642  |         |        |   | 4,392  |  |         |  | 5.19   | %
|                                                                 |              |   |                         |         |          |   |        |  |         |  |                        |   |      |   |         |         |        |   |        |  |         |  |        |  
|Total deposits                                                   |              |   | 145,415                 |         |          |   | 5,673  |  |         |  | 3.90                   | % |      |   | 135,050 |         |        |   | 4,963  |  |         |  | 3.67   | %
|FHLB advances                                                    |              |   | 8,788                   |         |          |   | 580    |  |         |  | 6.60                   | % |      |   | 13,678  |         |        |   | 809    |  |         |  | 5.91   | %
|                                                                 |              |   |                         |         |          |   |        |  |         |  |                        |   |      |   |         |         |        |   |        |  |         |  |        |  
|Total interest-bearing liabilities                               |              |   | 154,203                 |         |          | $ | 6,253  |  |         |  | 4.06                   | % |      |   | 148,728 |         |        | $ | 5,772  |  |         |  | 3.88   | %
|                                                                 |              |   |                         |         |          |   |        |  |         |  |                        |   |      |   |         |         |        |   |        |  |         |  |        |  
|Non-interest-bearing liabilities                                 |              |   | 7,994                   |         |          |   |        |  |         |  |                        |   |      |   | 1,595   |         |        |   |        |  |         |  |        |  
|Retained earnings                                                |              |   | 14,311                  |         |          |   |        |  |         |  |                        |   |      |   | 14,022  |         |        |   |        |  |         |  |        |  
|                                                                 |              |   |                         |         |          |   |        |  |         |  |                        |   |      |   |         |         |        |   |        |  |         |  |        |  
|Total liabilities and retained earnings                          |              | $ | 176,508                 |         |          |   |        |  |         |  |                        |   |      | $ | 164,345 |         |        |   |        |  |         |  |        |  
|                                                                 |              |   |                         |         |          |   |        |  |         |  |                        |   |      |   |         |         |        |   |        |  |         |  |        |  
|Net interest rate spread(3)                                      |              |   |                         |         |          | $ | 6,745  |  |         |  | 3.95                   | % |      |   |         |         |        | $ | 6,513  |  |         |  | 4.19   | %
|Net interest margin(4)                                           |              |   |                         |         |          |   |        |  |         |  | 4.15                   | % |      |   |         |         |        |   |        |  |         |  | 4.28   | %
|Ratio of interest-earning assets to
interest-bearing liabilities |              |   |                         |         |          |   |        |  |         |  | 105.28                 | % |      |   |         |         |        |   |        |  |         |  | 102.40 | %
|Return on average assets                                         |              |   |                         |         |          |   |        |  |         |  | 0.39                   | % |      |   |         |         |        |   |        |  |         |  | 0.41   | %
|Return on average equity                                         |              |   |                         |         |          |   |        |  |         |  | 4.79                   | % |      |   |         |         |        |   |        |  |         |  | 4.83   | %
|Average equity to average assets ratio                           |              |   |                         |         |          |   |        |  |         |  | 8.11                   | % |      |   |         |         |        |   |        |  |         |  | 8.53   | %



---

|(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.                                                   

33



---



##### Table of Contents



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.

|                                                    |  |                              |      |                              |  |        |      |               |  |                |      |       |  |   |      |        |  |   |     |   |  |   |      |  
|--------------------------------------------------- |  | ---------------------------- | ---- | ---------------------------- |  | ------ | ---- | ------------- |  | -------------- | ---- | ----- |  | - | ---- | ------ |  | - | --- | - |  | - | ---- | -
|                                                    |  | Year ended December 31, 2001 |      | Year ended December 31, 2000
|                                                    |  | compared to year ended       |      | compared to year ended      
|                                                    |  | December 31, 2000            |      | December 31, 1999           
|                                                    |  |                              |      |                             
|                                                    |  | Increase (Decrease) in Net   |      | Increase (Decrease) in Net  
|                                                    |  | Interest Income              |      | Interest Income             
|                                                    |  |                              |      |                             
|                                                    |  |                              |      |                              |  | Due to |      |               |  |                |      |       |  |   |      | Due to |  |   |     |  
|                                                    |  | Due to Volume                |      | Rate                         |  | Total  |      | Due to Volume |  | Rate           |      | Total
|                                                    |  |                              |      |                              |  |        |      |               |  |                |      |      
|                                                    |  |                              |      |                              |  |        |      |               |  | (In thousands) |      |       |  |   |      |        |  |  
|Interest-earning assets:                            |  |                              |      |                              |  |        |      |               |  |                |      |       |  |   |      |        |  |   |     |   |  |   |      |  
|Interest-earning deposits                           |  | $                            | 25   |                              |  | $      | (14  | )             |  | $              | 11   |       |  | $ |     |        |  | $ | 2   |   |  | $ | 2    |  
|Federal funds sold and other
short term investments |  |                              | 548  |                              |  |        | 2    |               |  |                | 550  |       |  |   | 6    |        |  |   | 13  |   |  |   | 19   |  
|Investment securities, net                          |  |                              | (414 | )                            |  |        | (139 | )             |  |                | (553 | )     |  |   | 34   |        |  |   | (10 | ) |  |   | 24   |  
|Loans receivable, net                               |  |                              | 545  |                              |  |        | 156  |               |  |                | 701  |       |  |   | 558  |        |  |   | 408 |   |  |   | 966  |  
|Mortgage backed securities, net                     |  |                              | 1    |                              |  |        | (7   | )             |  |                | (6   | )     |  |   | (134 | )      |  |   | 17  |   |  |   | (117 | )
|FHLB stock                                          |  |                              | 6    |                              |  |        | 4    |               |  |                | 10   |       |  |   | 10   |        |  |   | 21  |   |  |   | 31   |  
|                                                    |  |                              |      |                              |  |        |      |               |  |                |      |       |  |   |      |        |  |   |     |   |  |   |      |  
|Total interest-earning assets                       |  |                              | 711  |                              |  |        | 2    |               |  |                | 713  |       |  |   | 474  |        |  |   | 451 |   |  |   | 925  |  
|                                                    |  |                              |      |                              |  |        |      |               |  |                |      |       |  |   |      |        |  |   |     |   |  |   |      |  
|Interest-bearing liabilities:                       |  |                              |      |                              |  |        |      |               |  |                |      |       |  |   |      |        |  |   |     |   |  |   |      |  
|Money market deposits                               |  |                              | 26   |                              |  |        | (42  | )             |  |                | (16  | )     |  |   | (8   | )      |  |   | 39  |   |  |   | 31   |  
|Passbook deposits                                   |  |                              | (4   | )                            |  |        | (63  | )             |  |                | (67  | )     |  |   | (10  | )      |  |   | (65 | ) |  |   | (75  | )
|NOW and other demand deposits                       |  |                              | 12   |                              |  |        | (27  | )             |  |                | (15  | )     |  |   | 3    |        |  |   | (9  | ) |  |   | (6   | )
|Certificate accounts                                |  |                              | 386  |                              |  |        | 422  |               |  |                | 808  |       |  |   | 211  |        |  |   | 364 |   |  |   | 575  |  
|FHLB advances                                       |  |                              | (315 | )                            |  |        | 86   |               |  |                | (229 | )     |  |   | 65   |        |  |   | 166 |   |  |   | 231  |  
|                                                    |  |                              |      |                              |  |        |      |               |  |                |      |       |  |   |      |        |  |   |     |   |  |   |      |  
|Total interest-bearing liabilities                  |  |                              | 105  |                              |  |        | 376  |               |  |                | 481  |       |  |   | 261  |        |  |   | 495 |   |  |   | 756  |  
|                                                    |  |                              |      |                              |  |        |      |               |  |                |      |       |  |   |      |        |  |   |     |   |  |   |      |  
|Change in net
interest income                       |  | $                            | 606  |                              |  | $      | (374 | )             |  | $              | 232  |       |  | $ | 213  |        |  | $ | (44 | ) |  | $ | 169  |  
|                                                    |  |                              |      |                              |  |        |      |               |  |                |      |       |  |   |      |        |  |   |     |   |  |   |      |  

Comparison of Operating Results for the Years Ended December 31, 2001 and
December 31, 2000

General.The Company recorded net earnings of $685,000 or $0.75 per
diluted common share, for the year ended December 31, 2001, compared to net
earnings of $677,000 or $0.74 per diluted common share, for the year ended
December 31, 2000. While net interest income after provision for loan losses
in 2001 increased $442,000 or 7.18% compared to the prior year, non-interest
expense increased by $534,000 or 9.33% for the same period, thus negating the
positive impact of declining rates. The increase in non-interest expense
during 2001 was primarily attributable to increased compensation costs,
increased professional services fees, savings operation losses and fixed asset
write-offs.

During the year ended December 31, 2000, net earnings were negatively
impacted by the accrual of $171,000 of estimated exit costs of closing the
Companys SmartCopy operations and losses from savings operations.

34



---



##### Table of Contents



Interest Income.Interest income increased by $713,000 or 5.80% in 2001
compared to 2000. The increase was primarily attributable to a $10.1 million
increase in average interest-earning assets in 2001 compared to 2000, as the
Bank was able to increase its loan portfolio through loan originations and
purchases. The loan portfolio increased from $126.9 million at December 31,
2000 to $141.3 million at December 31, 2001.

The yield on average interest-earning assets was 8.01% in 2001 compared to
8.07% in 2000. The decrease was influenced principally by the yield on the
investment portfolio, which declined by 163 basis points in 2001 compared to
2000 from 6.05% to 4.42%. The loan portfolio yield increased slightly by 12
basis points in 2001 compared to 2000 from 8.44% to 8.56%.

Interest Expense.Interest expense increased by $481,000 or 8.3% in 2001
compared to 2000. The increase was primarily attributable to the $5.5 million
increase in average interest-bearing liabilities and an 18 basis point increase
in the cost of interest-bearing liabilities to 4.06% in 2001 from 3.88% in
2000. Deposits grew from $141.6 million at December 31, 2000 to $151.2 million
at December 31, 2001, and the average cost of deposits increased to 3.90% from
3.67%. Of that growth $3.8 million occurred in core deposit accounts,
consisting of NOW and demand deposits, money market deposits and passbook
deposits. Core deposits grew from $50.1 million at December 31, 2000 to $53.9
million at December 31, 2001. The decrease in the average cost of core
deposits to 0.88% in 2001 from 1.13% in 2000 significantly offset the increase
in the cost of certificate accounts, which increased to 5.67% in 2001 from
5.19% in 2000.

The average cost of FHLB advances was 6.60% in 2001 compared to 5.91% in
2000. In 2001, the Banks primary sources of funds were deposit growth and
loan principal repayments and payoffs. As a result, the FHLB borrowing
facility was not used as frequently or at the volume levels of 2000. The 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%.

Net Interest Income After Provision for Loan Losses.Net interest income
after provision for loan losses increased by $442,000 or 7.18% in 2001 compared
to 2000. The net interest rate spread decreased from 4.19% to 3.95%. The
effective net interest rate spread decreased from 4.28% to 4.15%. The
provision for loan losses decreased $210,000 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 1.10% at
December 31, 2001 and 2000. The Banks non-performing assets to total assets
ratio improved to 0.26 % at December 31, 2001, compared to 0.38% at December
31, 2000. The Banks allowance for loan losses as a percentage of
non-performing loans was 335.68 % at December 31, 2001 compared to 224.84% at
December 31, 2000. At December 31, 2001 and 2000, the Bank had no foreclosed
real estate assets.

Non-Interest Income.Non-Interest income increased by $69,000 or 9.15% in
2001 compared to 2000 primarily from the increase in service charges amounting
to $97,000. In 2000, there were offsetting non-recurring items relating to a
$116,000 loss on sale of loans, and a $178,000 gain from insurance proceeds in
connection with the recovery of savings losses from previous years.

Non-Interest Expense.Non-interest expense increased $534,000 or 9.33% in
2001 compared to 2000. The increase was primarily attributable to an increase
in compensation expense, professional services, savings operation losses, a
write-off of fixed assets, and offset by a decrease in occupancy expense

Compensation expense increased $327,000 resulting from the addition of
several higher salaried employees, and an increase in salaries and bonuses for
employees.

Professional services costs increased $115,000 in 2001 compared to 2000
due principally to higher accounting fees.

35



---



##### Table of Contents



Other non-interest expense increased $240,000 in 2001 compared to 2000 due
principally to a $99,000 increase in savings operation losses from $86,000 in
2000 to $185,000 in 2001, a write-off of abandoned computer equipment of
$47,000 and other non-recurring expenses and losses of $ 94,000 incurred in
2001.

Occupancy expense, net decreased by $245,000 in 2001 compared to 2000 as a
result of non-recurring SmartCopy closure costs of $344,000 in 2000 offset by
closure costs of $59,000 for the Watts branch closure, and higher computer
service costs of $39,000.

Comparison of Financial Condition at December 31, 2001 and December 31, 2000

Assets.Total assets at the end of 2001 were $178.9 million compared to
$167.9 million at the end of 2000, an $11.0 million increase. Assets increased
largely due to the increase in the loan and mortgage-backed securities
portfolios amounting to $17.8 million, offset and partially funded by the
decrease in cash and investments amounting to $6.0 million.

Loans receivable, including loans held for sale, increased $14.7 million
in 2001 resulting from loan originations of $26.7 million and loan purchases of
$8.2 million offset by loan payoffs, $0.6 million of loan sales and principal
repayments of $19.6 million. In 2000 net loans receivable decreased $2.3
million.

Mortgage-backed securities increased $3.2 million in 2001 reflecting
purchases, net of repayments. All mortgage-backed securities are classified as
held to maturity.

Investment securities held to maturity amounting to $10.6 million at
year-end 2000 were called away by the issuers in 2001. Excess liquidity was
invested in CDs and an ARM mutual fund in 2001.

Liabilities.Total liabilities at the end of 2001 were $164.3 million
compared to $153.9 million at the end of 2000, a $10.4 million increase. The
increase was primarily attributable to a $9.6 million increase in deposits, of
which $3.8 or 39.6% million came from core deposits. At the end of 2001, 36.6%
of total deposits were core deposits compared to 35.6% at the end of 2000.

Liquidity and Capital Resources. Sources of liquidity and capital for the
Company on a stand-alone basis include distributions from the Bank and
borrowings such as securities sold under agreements to repurchase. 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, to a lesser extent, proceeds from the sale of
loans and investments 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. Broadway Federals average
liquidity ratios were 22.99% and 12.87% for the years ended December 31, 2001
and 2000, respectively. Managements goal is to reduce the liquidity ratio as part of the Companys strategy to invest excess
liquidity in Bank loans or other higher yielding interest-earning assets.

The Bank has other sources of liquidity in the event that a need for
additional funds arises, including FHLB advances. At December 31, 2001 and
2000, FHLB advances totaled $11.0 million and $10.0 million, respectively.
During the years ended December 31, 2001 and 2000, Broadway Federal had
borrowed from the FHLB to meet its short-term loan funding needs. Other
sources of liquidity include investment securities maturing within one year.

At December 31,
2001, the Bank had outstanding commitments to originate
loans of approximately $673,000. The Bank anticipates that it will have
sufficient funds available to meet its future loan origination commitments.
Certificates of deposits that have contractual maturities of one year or less
from December 31, 2001,
totaled $77.0 million. If a significant portion of the maturing certificates
is not renewed at maturity, the Banks other sources of liquidity include
FHLB advances, principal and interest payments on loans, proceeds from loan

36



---



##### Table of Contents



sales and other borrowings, such as repurchase
transactions. The Bank could
also choose to pay higher rates to maintain maturing deposits, which could
result in an increased cost of funds. Historically, the Bank has retained a
significant portion of maturing deposits. While management anticipates that
there may be some outflow of these deposits upon maturity due to the current
competitive rate environment, these are not expected to have a material impact
on the long-term liquidity position of the Bank.

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 the
increased cost 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 41.




Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None




PART III




Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

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
2002 Annual Meeting of Shareholders (the Companys 2002 Proxy Statement).




Item 10. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference
to the Companys 2002 Proxy Statement, under the caption Executive
Compensation Benefits and Related Matters.




Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The information required by this Item is incorporated herein by reference
to the Companys 2002 Proxy Statement, under the caption Voting Securities and
Principal Holders Thereof.

37



---



##### Table of Contents






Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.




Item 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K

(a)  Exhibits

|        |  |                                                                                                                                                                                                                                                            
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                            
|Number  |  |                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                            
|2.1     |  | Plan of Conversion (including Certificate of Incorporation and Bylaws
of the Company and Federal Stock Charter and Bylaws of Broadway
Federal) (Exhibit 2.1 to Amendment No. 2 to Registration
S-1, No. 33-96814, filed by Registrant on November 13,
1995)
|3.1     |  | Form of Certificate of Incorporation of Broadway Financial Corporation
(contained in Exhibit 2.1)                                                                                                                                                          
|3.2     |  | Form of Bylaws of Broadway Financial Corporation (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 C to the Plan of Conversion in Exhibit 2.1 hereto)                                                                                                               
|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                                                                                                                                                                        
|10.5    |  | Broadway Financial Corporation Performance Equity Program for Officers and Directors                                                                                                                                                                       
|10.6    |  | Broadway Financial Corporation Stock Option Plan for Outside
Directors (filed by 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)                                                                                                                      
|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                                                                                                                                                                                                                                        
|*       |  | Exhibits followed by a parenthetical reference are incorporated by
reference herein from the document described therein.                                                                                                                                   

(b)  Reports on Form 8-K

None

38



---



##### Table of Contents






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 29, 2002

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

|                                                                                                   |  |  |  |                     
|-------------------------------------------------------------------------------------------------- |  |  |  | --------------------
|Paul C. Hudson
Chief Executive Officer, President
and Director
(Principal Executive Officer)       |  |  |  | Date: March 28, 2002
|                                                                                                  
|Alvin D. Kang
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer) |  |  |  | Date: March 28, 2002
|                                                                                                  
|Elbert T. Hudson
Chairman of the Board                                                             |  |  |  | Date: March 28, 2002
|                                                                                                  
|Kellogg Chan
Director                                                                              |  |  |  | Date: March 28, 2002
|                                                                                                  
|Stephen N. Rippe
Director                                                                          |  |  |  | Date: March 28, 2002

39



---



##### Table of Contents



|                             |  |  |  |                     
|---------------------------- |  |  |  | --------------------
|                            
|Rosa M. Hill
Director        |  |  |  | Date: March 28, 2002
|                            
|Albert Odell Maddox
Director |  |  |  | Date: March 28, 2002
|                            
|Lyle A. Marshall
Director    |  |  |  | Date: March 28, 2002
|                            
|Larkin Teasley
Director      |  |  |  | Date: March 28, 2002
|                            
|Daniel A. Medina
Director    |  |  |  | Date: March 28, 2002

40



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Consolidated Financial Statements

Years ended December 31, 2001 and 2000

INDEX

|                                          |                                                                 |     |    
|----------------------------------------- | --------------------------------------------------------------- | --- | ---
|Report of Independent Auditors            |                                                                 | F-1
|                                         
|Audited Consolidated Financial Statements |                                                                 |    
|                                         
|                                          | Consolidated Balance Sheets                                     |     | F-2
|                                         
|                                          | Consolidated Statement 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

41





---



##### Table of Contents



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 (the Company) as of December 31, 2001
and 2000, 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, 2001 and 2000, and the results
of their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.



| | KPMG LLP
| | --------

Los Angeles, California
February 14, 2002

F-1



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries
Consolidated Balance Sheets

|                                     |                                                                                                                                   |                                                                                                                                                                                  |                                            |             |             |             |      |             |           |             | 
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------- | ----------- | ----------- | ---- | ----------- | --------- | ----------- | 
|                                     |                                                                                                                                   |                                                                                                                                                                                  |                                            |             | December 31
|                                     |                                                                                                                                   |                                                                                                                                                                                  |                                            |             |            
|                                     |                                                                                                                                   |                                                                                                                                                                                  |                                            |             | 2001        |             | 2000
|                                     |                                                                                                                                   |                                                                                                                                                                                  |                                            |             |             |             |     
|Assets                               |                                                                                                                                   |                                                                                                                                                                                  |                                            |             |             |             |      |            
|                                     | Cash                                                                                                                              |                                                                                                                                                                                  | $                                          | 2,639,000   |             |             | $    | 5,367,000   |          
|                                     | Federal funds sold                                                                                                                |                                                                                                                                                                                  |                                            | 2,600,000   |             |             |      | 4,900,000   |          
|                                     | Interest bearing deposits                                                                                                         |                                                                                                                                                                                  |                                            | 5,028,000   |             |             |      |            |          
|                                     | Investment
securities held to maturity (fair value of
$10,557,000 at December 31, 2000)                                           |                                                                                                                                                                                  |                                            |            |             |             |      | 10,623,000  |          
|                                     | Investment
securities available for sale                                                                                          |                                                                                                                                                                                  |                                            | 4,604,000   |             |             |      |            |          
|                                     | Mortgage-backed
securities held to maturity (fair value
of $14,231,000 at December 31, 2001 and $10,740,000
at December 31, 2000) |                                                                                                                                                                                  |                                            | 13,931,000  |             |             |      | 10,748,000  |          
|                                     | Loans receivable, net                                                                                                             |                                                                                                                                                                                  |                                            | 133,937,000 |             |             |      | 126,815,000 |          
|                                     | Loans
receivable held for sale, at lower of cost or
fair value                                                                    |                                                                                                                                                                                  |                                            | 7,362,000   |             |             |      | 59,000      |          
|                                     | Accrued interest receivable                                                                                                       |                                                                                                                                                                                  |                                            | 943,000     |             |             |      | 1,071,000   |          
|                                     | Federal Home Loan Bank stock, at cost                                                                                             |                                                                                                                                                                                  |                                            | 1,399,000   |             |             |      | 1,316,000   |          
|                                     | Office properties and equipment, net                                                                                              |                                                                                                                                                                                  |                                            | 6,001,000   |             |             |      | 6,357,000   |          
|                                     | Other assets                                                                                                                      |                                                                                                                                                                                  |                                            | 457,000     |             |             |      | 670,000     |          
|                                     |                                                                                                                                   |                                                                                                                                                                                  |                                            |             |             |             |      |             |          
|                                     |                                                                                                                                   |                                                                                                                                                                                  | Total assets                               |             | $           | 178,901,000 |      |             | $         | 167,926,000 | 
|                                     |                                                                                                                                   |                                                                                                                                                                                  |                                            |             |             |             |      |            
|Liabilities and stockholders equity |                                                                                                                                   |                                                                                                                                                                                  |                                            |             |             |             |      |            
|                                     | Deposits                                                                                                                          |                                                                                                                                                                                  | $                                          | 151,156,000 |             |             | $    | 141,594,000 |          
|                                     | Advances from Federal Home Loan Bank                                                                                              |                                                                                                                                                                                  |                                            | 11,000,000  |             |             |      | 10,000,000  |          
|                                     | Advance payments by borrowers for taxes and insurance                                                                             |                                                                                                                                                                                  |                                            | 224,000     |             |             |      | 194,000     |          
|                                     | Deferred income taxes                                                                                                             |                                                                                                                                                                                  |                                            | 556,000     |             |             |      | 402,000     |          
|                                     | Other liabilities                                                                                                                 |                                                                                                                                                                                  |                                            | 1,337,000   |             |             |      | 1,759,000   |          
|                                     |                                                                                                                                   |                                                                                                                                                                                  |                                            |             |             |             |      |            
|                                     |                                                                                                                                   |                                                                                                                                                                                  | Total liabilities                          |             |             | 164,273,000 |      |             |           | 153,949,000 | 
|                                     | Commitments and contingent liabilities                                                                                            |                                                                                                                                                                                  |                                            |            |             |             |      |            |          
|                                     | Stockholders equity:                                                                                                             |                                                                                                                                                                                  |                                            |             |             |             |      |             |          
|                                     |                                                                                                                                   | Preferred non-convertible, non-cumulative, and
non-voting stock, $.01 par value, authorized
1,000,000 shares; issued and outstanding 55,199
shares at December 31, 2001 and 2000 |                                            |             | 1,000       |             |      |             | 1,000     |            
|                                     |                                                                                                                                   | Common stock, $.01 par value, authorized 3,000,000
shares; issued and outstanding 910,538 and 901,333
shares at December 31, 2001 and 2000, respectively                         |                                            |             | 10,000      |             |      |             | 10,000    |            
|                                     |                                                                                                                                   | Additional paid-in capital                                                                                                                                                       |                                            |             | 9,481,000   |             |      |             | 9,460,000 |            
|                                     |                                                                                                                                   | Accumulated other comprehensive income, net of taxes                                                                                                                             |                                            |             | 2,000       |             |      |             |          |            
|                                     |                                                                                                                                   | Retained earnings  substantially restricted                                                                                                                                     |                                            |             | 5,804,000   |             |      |             | 5,322,000 |            
|                                     |                                                                                                                                   | Treasury stock  51,197 and 60,402 shares, at cost at
December 31, 2001 and 2000, respectively                                                                                   |                                            |             | (469,000    | )           |      |             | (554,000  | )          
|                                     |                                                                                                                                   | Unearned ESOP shares                                                                                                                                                             |                                            |             | (201,000    | )           |      |             | (262,000  | )          
|                                     |                                                                                                                                   |                                                                                                                                                                                  |                                            |             |             |             |      |            
|                                     |                                                                                                                                   |                                                                                                                                                                                  | Total stockholders equity                 |             |             | 14,628,000  |      |             |           | 13,977,000  | 
|                                     |                                                                                                                                   |                                                                                                                                                                                  |                                            |             |             |             |      |            
|                                     |                                                                                                                                   |                                                                                                                                                                                  | Total liabilities and stockholders equity |             | $           | 178,901,000 |      |             | $         | 167,926,000 | 
|                                     |                                                                                                                                   |                                                                                                                                                                                  |                                            |             |             |             |      |            

See accompanying notes to consolidated financial statements.

F-2



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Consolidated Statements of Operations and Comprehensive Earnings

|                                                     |                                                       |                                                     |            |                        |            |      |            |           |            | 
|---------------------------------------------------- | ----------------------------------------------------- | --------------------------------------------------- | ---------- | ---------------------- | ---------- | ---- | ---------- | --------- | ---------- | 
|                                                     |                                                       |                                                     |            | Year ended December 31
|                                                     |                                                       |                                                     |            |                       
|                                                     |                                                       |                                                     |            | 2001                   |            | 2000
|                                                     |                                                       |                                                     |            |                        |            |     
|Interest on loans receivable                         |                                                       | $                                                   | 11,452,000 |                        |            | $    | 10,751,000 |          
|Interest on investment securities                    |                                                       |                                                     | 246,000    |                        |            |      | 643,000    |          
|Interest on mortgage-backed securities               |                                                       |                                                     | 744,000    |                        |            |      | 750,000    |          
|Other interest income                                |                                                       |                                                     | 556,000    |                        |            |      | 141,000    |          
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|                                                     |                                                       | Total interest income                               |            |                        | 12,998,000 |      |            |           | 12,285,000 | 
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|                                                    
|                                                    
|                                                    
|
|Interest on deposits                                 |                                                       |                                                     | 5,673,000  |                        |            |      | 4,963,000  |          
|Interest on borrowings                               |                                                       |                                                     | 580,000    |                        |            |      | 809,000    |          
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|                                                     |                                                       | Total interest expense                              |            |                        | 6,253,000  |      |            |           | 5,772,000  | 
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|                                                    
|                                                    
|                                                    
|
|Net interest income before provision for loan losses |                                                       |                                                     | 6,745,000  |                        |            |      | 6,513,000  |          
|Provision for loan losses                            |                                                       |                                                     | 150,000    |                        |            |      | 360,000    |          
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|                                                     |                                                       | Net interest income after provision for loan losses |            |                        | 6,595,000  |      |            |           | 6,153,000  | 
|                                                    
|Non-interest income:                                 |                                                       |                                                     |            |                        |            |      |            |          
|                                                     | Service charges                                       |                                                     |            | 685,000                |            |      |            | 588,000   |           
|                                                     | Gain (Loss) on sale of loans receivable held-for-sale |                                                     |            | 5,000                  |            |      |            | (116,000  | )         
|                                                     | Gain on casualty insurance reimbursement              |                                                     |            |                       |            |      |            | 178,000   |           
|                                                     | Other                                                 |                                                     |            | 133,000                |            |      |            | 104,000   |           
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|                                                     |                                                       | Total non-interest income                           |            |                        | 823,000    |      |            |           | 754,000    | 
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|Non-interest expense:                                |                                                       |                                                     |            |                        |            |      |            |          
|                                                     | Compensation and benefits                             |                                                     |            | 3,261,000              |            |      |            | 2,934,000 |           
|                                                     | Occupancy expense, net                                |                                                     |            | 1,167,000              |            |      |            | 1,412,000 |           
|                                                     | Advertising and promotional expense                   |                                                     |            | 163,000                |            |      |            | 190,000   |           
|                                                     | Professional services                                 |                                                     |            | 402,000                |            |      |            | 287,000   |           
|                                                     | Real estate operations, net                           |                                                     |            |                       |            |      |            | (87,000   | )         
|                                                     | Contracted security services                          |                                                     |            | 164,000                |            |      |            | 162,000   |           
|                                                     | Telephone and postage                                 |                                                     |            | 216,000                |            |      |            | 163,000   |           
|                                                     | Stationary, printing and supplies                     |                                                     |            | 109,000                |            |      |            | 127,000   |           
|                                                     | Other                                                 |                                                     |            | 775,000                |            |      |            | 535,000   |           
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|                                                     |                                                       | Total non-interest expense                          |            |                        | 6,257,000  |      |            |           | 5,723,000  | 
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|Earnings before income taxes                         |                                                       |                                                     | 1,161,000  |                        |            |      | 1,184,000  |          
|Income taxes                                         |                                                       |                                                     | 476,000    |                        |            |      | 507,000    |          
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|Net earnings                                         |                                                       |                                                     | 685,000    |                        |            |      | 677,000    |          
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|Other comprehensive earnings:                        |                                                       |                                                     |            |                        |            |      |            |          
|                                                     | Unrealized income on securities available for sale    |                                                     |            | 4,000                  |            |      |            |          |           
|                                                     | Income tax expense                                    |                                                     |            | (2,000                 | )          |      |            |          |           
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|                                                     | Other
comprehensive earnings                          |                                                     |            | 2,000                  |            |      |            |          |           
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|Comprehensive earnings                               |                                                       | $                                                   | 687,000    |                        |            | $    | 677,000    |          
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|Net earnings                                         |                                                       | $                                                   | 685,000    |                        |            | $    | 677,000    |          
|Less dividends paid on preferred stock               |                                                       |                                                     | (28,000    | )                      |            |      | (28,000    | )        
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|Earnings available to common shareholders:           |                                                       | $                                                   | 657,000    |                        |            | $    | 649,000    |          
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|Earnings per share  basic                           |                                                       | $                                                   | 0.75       |                        |            | $    | 0.74       |          
|                                                     |                                                       |                                                     |            |                        |            |      |            |          
|Earnings per share  diluted                         |                                                       | $                                                   | 0.75       |                        |            | $    | 0.74       |          
|                                                     |                                                       |                                                     |            |                        |            |      |            |          

See accompanying notes to consolidated financial statements.

F-3



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders Equity

|                              |                                                              |                               |       |           |       |        |        |         |        |               |           |                |           |          |   |                   |       |               |           |          |           |          |          |          |          |   |          |         |          |   |            |          |            | 
|----------------------------- | ------------------------------------------------------------ | ----------------------------- | ----- | --------- | ----- | ------ | ------ | ------- | ------ | ------------- | --------- | -------------- | --------- | -------- | - | ----------------- | ----- | ------------- | --------- | -------- | --------- | -------- | -------- | -------- | -------- | - | -------- | ------- | -------- | - | ---------- | -------- | ---------- | 
|                              |                                                              |                               |       |           |       |        |        |         |        |               |           |                |           |          |   | Accumulated       |       |               |           |          |           |          |          |          |          |   |          |         |          |   |            |         
|                              |                                                              |                               |       |           |       |        |        |         |        |               |           | Additional     |           | Other    |   | Retained Earnings |       |               |           |          |           | Unearned |          | Total   
|                              |                                                              |                               |       | Preferred |       | Common |        | Paid-in |        | Comprehensive |           | (Substantially |           | Treasury |   | ESOP              |       | Stockholders'
|                              |                                                              |                               |       | Stock     |       | Stock  |        | Capital |        | Income        |           | Restricted)    |           | Stock    |   | Shares            |       | Equity       
|                              |                                                              |                               |       |           |       |        |        |         |        |               |           |                |           |          |   |                   |       |              
|Balance, at December 31, 1999 |                                                              | $                             | 1,000 |           |       |        | 10,000 |         |        |               | 9,674,000 |                |           |          |  |                   |       |               | 4,809,000 |          |           |          | (318,000 | )        |          |   | (375,000 | )       |          |   | 13,801,000 |         
|                              | Net earnings for the year ended
December 31, 2000            |                               |       |           |       |        |        |        |        |               |           |               |           |          |   |                  |       |               |           | 677,000  |           |          |          |         |          |   |          |        |          |   |            | 677,000  |           
|                              | Treasury stock acquired                                      |                               |       |          |       |        |        |        |        |               |           |               |           |          |   |                  |       |               |           |         |           |          |          | (236,000 | )        |   |          |        |          |   |            | (236,000 | )         
|                              | Cash dividends paid  2% common stock                        |                               |       |          |       |        |        |        |        |               |           |               |           |          |   |                  |       |               |           | (136,000 | )         |          |          |         |          |   |          |        |          |   |            | (136,000 | )         
|                              | Cash dividends paid  5% preferred stock                     |                               |       |          |       |        |        |        |        |               |           |               |           |          |   |                  |       |               |           | (28,000  | )         |          |          |         |          |   |          |        |          |   |            | (28,000  | )         
|                              | Allocation of Employee Stock Ownership
Shares                |                               |       |          |       |        |        |        |        |               |           | (214,000       | )         |          |   |                  |       |               |           |         |           |          |          |         |          |   |          | 113,000 |          |   |            | (101,000 | )         
|                              |                                                              |                               |       |           |       |        |        |         |        |               |           |                |           |          |   |                   |       |               |           |          |           |          |          |          |          |   |          |         |          |   |            |         
|                              |                                                              | Balance at December 31, 2000  |       | $         | 1,000 |        |        |         | 10,000 |               |           |                | 9,460,000 |          |   |                   |      |               |           |          | 5,322,000 |          |          |          | (554,000 | ) |          |         | (262,000 | ) |            |          | 13,977,000 | 
|                              | Net earnings for the year ended
December 31, 2001            |                               |       |          |       |        |        |        |        |               |           |               |           |          |   |                  |       |               |           | 685,000  |           |          |          |         |          |   |          |        |          |   |            | 685,000  |           
|                              | Unrealized gain on securities available
for sale, net of tax |                               |       |          |       |        |        |        |        |               |           |               |           |          |   | 2,000             |       |               |           |         |           |          |          |          |          |   |          |        |          |   |            | 2,000    |           
|                              | Treasury stock used for vested stock awards                  |                               |       |          |       |        |        |        |        |               |           | 15,000         |           |          |   |                  |       |               |           |         |           |          |          | 85,000   |          |   |          |        |          |   |            | 100,000  |           
|                              | Cash dividends paid  2% common stock                        |                               |       |          |       |        |        |        |        |               |           |               |           |          |   |                  |       |               |           | (175,000 | )         |          |          |         |          |   |          |        |          |   |            | (175,000 | )         
|                              | Cash dividends paid  5% preferred stock                     |                               |       |          |       |        |        |        |        |               |           |               |           |          |   |                  |       |               |           | (28,000  | )         |          |          |         |          |   |          |        |          |   |            | (28,000  | )         
|                              | Allocation of Employee Stock Ownership
Shares                |                               |       |          |       |        |        |        |        |               |           | 6,000          |           |          |   |                  |       |               |           |         |           |          |          |         |          |   |          | 61,000  |          |   |            | 67,000   |           
|                              |                                                              |                               |       |           |       |        |        |         |        |               |           |                |           |          |   |                   |       |               |           |          |           |          |          |          |          |   |          |         |          |   |            |         
|                              |                                                              | Balance, at December 31, 2001 |       | $         | 1,000 |        |        |         | 10,000 |               |           |                | 9,481,000 |          |   |                   | 2,000 |               |           |          | 5,804,000 |          |          |          | (469,000 | ) |          |         | (201,000 | ) |            |          | 14,628,000 | 
|                              |                                                              |                               |       |           |       |        |        |         |        |               |           |                |           |          |   |                   |       |               |           |          |           |          |          |          |          |   |          |         |          |   |            |         

See accompanying notes to consolidated financial statements.

F-4



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

|                                                                                              |                                                                                                |                                   |                                           |          |                        |           |             |            |          |           | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | --------------------------------- | ----------------------------------------- | -------- | ---------------------- | --------- | ----------- | ---------- | -------- | --------- | 
|                                                                                              |                                                                                                |                                   |                                           |          | Year ended December 31
|                                                                                              |                                                                                                |                                   |                                           |          |                       
|                                                                                              |                                                                                                |                                   |                                           |          | 2001                   |           | 2000       
|                                                                                              |                                                                                                |                                   |                                           |          |                        |           |            
|Cash flows from operating activities                                                          |                                                                                                |                                   |                                           |          |                        |           |             |           
|Net earnings                                                                                  |                                                                                                | $                                 | 685,000                                   |          |                        | $         | 677,000     |           
|Adjustments to reconcile net earnings to net cash (used in)
provided by operating activities: |                                                                                                |                                   |                                           |          |                        |           |             |           
|                                                                                              | Depreciation                                                                                   |                                   |                                           | 341,000  |                        |           |             | 375,000    |         
|                                                                                              | Amortization of premium on loans purchased                                                     |                                   |                                           | 6,000    |                        |           |             | 4,000      |         
|                                                                                              | Amortization of net deferred loan origination fees                                             |                                   |                                           | (81,000  | )                      |           |             | (44,000    | )       
|                                                                                              | Amortization of discounts and premiums on investment
securities and mortgage-backed securities |                                   |                                           | (178,000 | )                      |           |             | 120,000    |         
|                                                                                              | Amortization of deferred compensation                                                          |                                   |                                           | 90,000   |                        |           |             | (101,000   | )       
|                                                                                              | Gain on sale of real estate acquired through foreclosure                                       |                                   |                                           |         |                        |           |             | (109,000   | )       
|                                                                                              | Loss (Gain) on sale of loans receivable held for sale                                          |                                   |                                           | (5,000   | )                      |           |             | 116,000    |         
|                                                                                              | Gain on sale of fixed assets                                                                   |                                   |                                           | (18,000  | )                      |           |             |           |         
|                                                                                              | Accrual for branch closure                                                                     |                                   |                                           | 55,000   |                        |           |             |           |         
|                                                                                              | Provision for loan losses                                                                      |                                   |                                           | 150,000  |                        |           |             | 360,000    |         
|                                                                                              | Loans originated for sale, net of refinances                                                   |                                   |                                           | (777,000 | )                      |           |             | (3,114,000 | )       
|                                                                                              | Proceeds from sale of loans receivable held for sale                                           |                                   |                                           | 604,000  |                        |           |             | 5,397,000  |         
|                                                                                              | Changes in operating assets and liabilities:                                                   |                                   |                                           |          |                        |           |             |            |         
|                                                                                              |                                                                                                | Accrued interest receivable       |                                           |          | 128,000                |           |             |            | (58,000  | )        
|                                                                                              |                                                                                                | Deferred income tax liability     |                                           |          | 154,000                |           |             |            | (203,000 | )        
|                                                                                              |                                                                                                | Equipment lease termination costs |                                           |          |                       |           |             |            | 136,000  |          
|                                                                                              |                                                                                                | Other assets                      |                                           |          | 213,000                |           |             |            | 47,000   |          
|                                                                                              |                                                                                                | Other liabilities                 |                                           |          | (422,000               | )         |             |            | 784,000  |          
|                                                                                              |                                                                                                | Other                             |                                           |          | 121,000                |           |             |            |         |          
|                                                                                              |                                                                                                |                                   |                                           |          |                        |           |             |           
|                                                                                              |                                                                                                |                                   | Total adjustments                         |          |                        | 381,000   |             |            |          | 3,710,000 | 
|                                                                                              |                                                                                                |                                   |                                           |          |                        |           |             |           
|                                                                                              |                                                                                                |                                   | Net cash provided by operating activities |          |                        | 1,066,000 |             |            |          | 4,387,000 | 
|Cash flows from investing activities                                                          |                                                                                                |                                   |                                           |          |                        |           |             |           
|Loans originated, net of refinances                                                           |                                                                                                |                                   | (25,925,000                               | )        |                        |           | (14,387,000 | )         
|Principal repayment on loans                                                                  |                                                                                                |                                   | 19,605,000                                |          |                        |           | 13,808,000  |           
|Proceeds from sale of office properties and equipment                                         |                                                                                                |                                   | 222,000                                   |          |                        |           |            |           
|Purchases of interest-bearing deposits                                                        |                                                                                                |                                   | (6,028,000                                | )        |                        |           |            |           
|Purchases of mortgage backed securities held-to-maturity                                      |                                                                                                |                                   | (6,317,000                                | )        |                        |           |            |           
|Purchases of securities available for sale                                                    |                                                                                                |                                   | (4,600,000                                | )        |                        |           |            |           
|Purchases
of loans held for sale                                                              |                                                                                                |                                   | (8,001,000                                | )        |                        |           |            |           
|Proceeds from maturities of interest bearing deposits                                         |                                                                                                |                                   | 1,000,000                                 |          |                        |           |            |           
|Proceeds from maturities and repayments of investment securities
held to maturity             |                                                                                                |                                   | 10,623,000                                |          |                        |           |            |           
|Proceeds from maturities and repayments of mortgage-backed
securities held to maturity        |                                                                                                |                                   | 3,312,000                                 |          |                        |           | 2,342,000   |           
|Federal Home Loan Bank stock dividend                                                         |                                                                                                |                                   | (83,000                                   | )        |                        |           | (87,000     | )         
|Capital expenditures for office properties and equipment                                      |                                                                                                |                                   | (291,000                                  | )        |                        |           | (199,000    | )         
|Proceeds from sale of real estate acquired through foreclosure                                |                                                                                                |                                   |                                          |          |                        |           | 956,000     |           
|                                                                                              |                                                                                                |                                   |                                           |          |                        |           |             |           
|Net cash provided (used) in investing activities                                              |                                                                                                |                                   | (16,483,000                               | )        |                        |           | 2,433,000   |           

See accompanying notes to consolidated financial statements

F-5



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (continued)

|                                                                       |  |                        |            |      |  |   |            |  
|---------------------------------------------------------------------- |  | ---------------------- | ---------- | ---- |  | - | ---------- | -
|                                                                       |  | Year ended December 31
|                                                                       |  |                       
|                                                                       |  | 2001                   |            | 2000
|                                                                       |  |                        |            |     
|Cash flows from financing activities                                   |  |                        |            |      |  |   |            |  
|Net increase in deposits                                               |  | $                      | 9,562,000  |      |  | $ | 7,610,000  |  
|(Decrease) increase in advances from the Federal Home Loan Bank        |  |                        | 1,000,000  |      |  |   | (6,900,000 | )
|Dividends paid                                                         |  |                        | (203,000   | )    |  |   | (164,000   | )
|Acquisition of Treasury stock                                          |  |                        |           |      |  |   | (236,000   | )
|Increase in advance payments by borrowers for taxes and insurance      |  |                        | 30,000     |      |  |   | 2,000      |  
|                                                                       |  |                        |            |      |  |   |            |  
|Net cash provided by financing activities                              |  |                        | 10,389,000 |      |  |   | 312,000    |  
|                                                                       |  |                        |            |      |  |   |            |  
|Net (decrease) increase in cash and cash equivalents                   |  |                        | (5,028,000 | )    |  |   | 7,132,000  |  
|Cash and cash equivalents at beginning of year                         |  |                        | 10,267,000 |      |  |   | 3,135,000  |  
|                                                                       |  |                        |            |      |  |   |            |  
|Cash and cash equivalents at end of year                               |  | $                      | 5,239,000  |      |  | $ | 10,267,000 |  
|                                                                       |  |                        |            |      |  |   |            |  
|Supplemental disclosures of cash flow information                      |  |                        |            |      |  |   |            |  
|Cash paid for interest                                                 |  | $                      | 6,253,000  |      |  | $ | 5,625,000  |  
|                                                                       |  |                        |            |      |  |   |            |  
|Cash paid for income taxes                                             |  | $                      | 696,000    |      |  | $ | 260,000    |  
|                                                                       |  |                        |            |      |  |   |            |  
|Supplemental disclosure of non-cash investing and financing
activities |  |                        |            |      |  |   |            |  
|Transfer of loans to real estate acquired through foreclosure          |  | $                      |           |      |  | $ | 332,000    |  

See accompanying notes to consolidated financial statements

F-6



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

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, 2001, 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 2001 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, disclose contingent assets
and liabilities at the date of the financial statements, and the reported
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.

Available-For-Sale Securities

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.

Assets Held to Maturity

Investment securities and mortgage-backed securities 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



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (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
factors, including current economic trends, 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,
which are 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 judgements 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 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.

F-8



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Loans Held for Sale

Loans 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 for which, 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 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 of 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.

F-9



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

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:

|                                  |  |                                                                                                                    
|--------------------------------- |  | -------------------------------------------------------------------------------------------------------------------
|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.

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 preferred stock is non-convertible, non-cumulative,
non-redeemable and non-voting perpetual preferred stock, with a par value
of $0.01 per share. At December 31, 2001 and 2000 there were 55,199
shares outstanding.

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

The Company is required to report both basic and diluted earnings
per share under generally accepted accounting principles. Basic earnings
per share is determined by dividing net income available to common
stockholders by the average number of shares of common stock outstanding,
while 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.

F-10



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Risks Associated with Financial Instruments (continued)

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 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 activities. To that end, management actively monitors and
manages its interest rate risk exposure. The Company does not currently
engage in trading activities. The 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 majority of the Banks loans reprice based on the Eleventh
District Cost of Funds Index (COFI) and the one-year Treasury bill with
an annual adjustment of the interest rate and payment. The repricing of
loans based on the COFI index and an annual adjustment of the one year
Treasury bill rate means the interest rate on the majority of the
Banks loans receivable tend to lag market interest rates. 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.

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
(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.

F-11



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 141, Business Combinations,
which superseded Accounting Principles Board Opinion (APB) No. 16,
Business Combinations, and SFAS No. 38, Accounting for Preacquisition
Contingencies of Purchased Enterprises. The FASB concurrently issued
SFAS No. 142, Goodwill and Other Tangible Assets, which supersedes APB
No. 17, Intangible Assets. These Statements change the accounting for
business combinations, goodwill and other intangible assets by
eliminating the pooling-of-interests method of accounting, and requiring
an impairment-only approach to goodwill accounting instead of
amortization. SFAS No. 141 was effective for all business combinations
initiated after June 30, 2001. SFAS No. 142 was effective for fiscal
years beginning after December 15, 2001. These Statements did not have
any effect on the Companys consolidated financial statements.

In July 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, requiring companies to record a liability for
asset retirement obligations in the period in which they are incurred and
to measure the liability at fair value, the amount a third party
contractor would charge to remove the asset. SFAS 143 is effective for
years beginning after June 15, 2002. Management anticipates the adoption
of SFAS No. 143 will not have a material impact on the Companys
financial statements.

In August 2001, the FASB issued SFAS No. 144, Accounting for
Impairment and Disposal of Long Lived Assets and for Obligations
Associated With Disposal Activities, which supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. This Statement retains the basic recognition
and measurement model for assets held for use and held for sale.
However, it provides guidance on differentiating between assets held and
used, held for sale, and held for disposal other than by sale. Assets to
be sold must be stated at the lower of the assets carrying amounts or
fair values, and depreciation would no longer be recognized. The
Statement also supersedes the accounting and reporting provisions of APB
30, Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, that related to
discontinued operations. SFAS 144 is effective for years beginning after
December 15, 2001. Management anticipates the adoption of SFAS No. 144
will not have a material impact on the Companys financial statements.

3. Investment Securities

At December 31, 2001 the Company had no investment securities
classified as held to maturity. At December 31, 2000, the Company had no
investment securities classified as available-for-sale.

The following table provides a summary of investment securities with
a comparison of amortized cost and fair values:

|                   |                                 |   |           |           |            |   |            |       |       |  |   |   |  |   |           |           | 
|------------------ | ------------------------------- | - | --------- | --------- | ---------- | - | ---------- | ----- | ----- |  | - | - |  | - | --------- | --------- | 
|                   |                                 |   |           |           |            |   | Gross      |       | Gross |  |   |   | 
|                   |                                 |   | Amortized |           | Unrealized |   | Unrealized |       | Fair 
|                   |                                 |   | Cost      |           | Gain       |   | Loss       |       | Value
|                   |                                 |   |           |           |            |   |            |       |      
|December 31, 2001: |                                 |   |           |           |            |   |            |       |       |  |   |   |  |   |           |          
|                   | Available
for sale
Mutual funds |   | $         | 4,600,000 |            |   | $          | 4,000 |       |  |   |  |  |   | $         | 4,604,000 | 
|                   |                                 |   |           |           |            |   |            |       |       |  |   |   |  |   |           |          
|                   |                                 | $ | 4,600,000 |           |            | $ | 4,000      |       |       |  |  |   |  | $ | 4,604,000 |          
|                   |                                 |   |           |           |            |   |            |       |       |  |   |   |  |   |           |          

F-12



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)

3. Investment Securities (continued)

|                   |                  |                 |            |           |           |            |   |            |   |       |        |   |        |   |            |   |           | 
|------------------ | ---------------- | --------------- | ---------- | --------- | --------- | ---------- | - | ---------- | - | ----- | ------ | - | ------ | - | ---------- | - | --------- | 
|                   |                  |                 |            |           |           |            |   | Gross      |   | Gross |        |   |        |  
|                   |                  |                 |            | Amortized |           | Unrealized |   | Unrealized |   | Fair 
|                   |                  |                 |            | Cost      |           | Gain       |   | Loss       |   | Value
|                   |                  |                 |            |           |           |            |   |            |   |      
|December 31, 2000: |                  |                 |            |           |           |            |   |            |   |       |        |   |        |   |            |  
|                   | Held
to maturity |                
|                   |                  | FHLB debentures |            | $         | 5,623,000 |            |   | $          |  |       |        | $ | 48,000 |   |            | $ | 5,575,000 | 
|                   |                  | FNMA debentures |            |           | 5,000,000 |            |   |            |  |       |        |   | 18,000 |   |            |   | 4,982,000 | 
|                   |                  |                 |            |           |           |            |   |            |   |       |        |   |        |   |            |  
|                   |                  | $               | 10,623,000 |           |           | $          |  |            |   | $     | 66,000 |   |        | $ | 10,557,000 |  
|                   |                  |                 |            |           |           |            |   |            |   |       |        |   |        |   |            |  

The remaining contractual maturities for investment securities at
December 31, 2001 are as follows:

|                   |                                |   |                      |           |             |   |            |   |       |   |   |   |  |   |           |           | 
|------------------ | ------------------------------ | - | -------------------- | --------- | ----------- | - | ---------- | - | ----- | - | - | - |  | - | --------- | --------- | 
|                   |                                |   | Contractual Maturity
|                   |                                |   |                     
|                   |                                |   | Within               |           | One Through |   | After      |   |       |   |  
|                   |                                |   | One Year             |           | Five Years  |   | Five Years |   | Total
|                   |                                |   |                      |           |             |   |            |   |      
|December 31, 2001: |                                |   |                      |           |             |   |            |   |       |   |   |   |  |   |           |          
|                   | Available
for saleMutual Funds |   | $                    | 4,600,000 |             |   | $          |  |       |   | $ |  |  |   | $         | 4,600,000 | 
|                   |                                |   |                      |           |             |   |            |   |       |   |   |   |  |   |           |          
|                   |                                | $ | 4,600,000            |           |             | $ |           |   |       | $ |  |   |  | $ | 4,600,000 |          
|                   |                                |   |                      |           |             |   |            |   |       |   |   |   |  |   |           |          

At December 31, 2001 and 2000, the Company had accrued interest
receivable on investment securities of $14,000 and $154,000,
respectively. During the years ended December 31, 2001 and 2000, the
Company had no sales of investment securities. The investment securities
that were classified as held to maturity at December 31, 2000 were
redeemed by the issuers under call provisions.

4. Mortgage-backed Securities Held
to Maturity

At December 31, 2001 and 2000, all of the Companys mortgage-backed
securities are classified as held to maturity based on the Companys
intent and ability to hold the securities to maturity.

The following table provides a summary of mortgage-backed securities
held to maturity with a comparison of carrying and fair values.

|                  |  |          |            |            |  |            |         |       |  |   |        |  |  |   |            | 
|----------------- |  | -------- | ---------- | ---------- |  | ---------- | ------- | ----- |  | - | ------ |  |  | - | ---------- | 
|                  |  |          |            |            |  | Gross      |         | Gross |  |   |        | 
|                  |  | Carrying |            | Unrealized |  | Unrealized |         | Fair 
|                  |  | Value    |            | Gain       |  | Loss       |         | Value
|                  |  |          |            |            |  |            |         |      
|December 31, 2001 |  |          |            |            |  |            |         |       |  |   |        |  |  |   |            | 
|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 | 
|                  |  |          |            |            |  |            |         |       |  |   |        |  |  |   |            | 
|December 31, 2000 |  |          |            |            |  |            |         |       |  |   |        |  |  |   |            | 
|FNMA              |  | $        | 6,713,000  |            |  | $          | 16,000  |       |  | $ |       |  |  | $ | 6,729,000  | 
|GNMA              |  |          | 3,334,000  |            |  |            |        |       |  |   | 37,000 |  |  |   | 3,297,000  | 
|FHLMC             |  |          | 701,000    |            |  |            | 13,000  |       |  |   |       |  |  |   | 714,000    | 
|                  |  |          |            |            |  |            |         |       |  |   |        |  |  |   |            | 
|                  |  | $        | 10,748,000 |            |  | $          | 29,000  |       |  | $ | 37,000 |  |  | $ | 10,740,000 | 
|                  |  |          |            |            |  |            |         |       |  |   |        |  |  |   |            | 

F-13



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. Mortgage-backed Securities Held
to Maturity (continued)

The remaining contractual maturities for mortgage-backed securities
held-to-maturity at December 31, 2001 are as follows:

|                  |  |                      |   |            |  |       |            |  |  |   |            | 
|----------------- |  | -------------------- | - | ---------- |  | ----- | ---------- |  |  | - | ---------- | 
|                  |  | Contractual Maturity
|                  |  |                     
|                  |  | Within               |   | After      |  |       |            | 
|                  |  | One Year             |   | Five Years |  | Total
|                  |  |                      |   |            |  |      
|December 31, 2001 |  |                      |   |            |  |       |            |  |  |   |            | 
|FNMA              |  | $                    |  |            |  | $     | 10,212,000 |  |  | $ | 10,212,000 | 
|GNMA              |  | $                    |  |            |  |       | 3,351,000  |  |  |   | 3,351,000  | 
|FHLMC             |  | $                    |  |            |  |       | 368,000    |  |  |   | 368,000    | 
|                  |  |                      |   |            |  |       |            |  |  |   |            | 
|                  |  | $                    |  |            |  | $     | 13,931,000 |  |  | $ | 13,931,000 | 
|                  |  |                      |   |            |  |       |            |  |  |   |            | 

| | 
| | 

At December 31, 2001 and 2000, the Company had accrued interest
receivable on mortgage-backed securities held to maturity of $132,000 and
$72,000, respectively. During the years ended December 31, 2001 and
2000, the Company had no sales of mortgage-backed securities.

5. Loans Receivable, Net

The following is a summary of loans receivable, net:

|                                |                                   |                            |                    |           |             |            |             |           |            |            | 
|------------------------------- | --------------------------------- | -------------------------- | ------------------ | --------- | ----------- | ---------- | ----------- | --------- | ---------- | ---------- | 
|                                |                                   |                            |                    |           | December 31
|                                |                                   |                            |                    |           |            
|                                |                                   |                            |                    |           | 2001        |            | 2000       
|                                |                                   |                            |                    |           |             |            |            
|Held for investment:            |                                   |                            |                    |           |             |            |             |          
|                                | Real estate:                      |                            |                    |           |             |            |             |           |           
|                                |                                   | Residential:               |                    |           |             |            |             |           |            |           
|                                |                                   |                            | One to four units  |           | $           | 33,478,000 |             |           | $          | 37,094,000 | 
|                                |                                   |                            | Five or more units |           |             | 82,652,000 |             |           |            | 70,677,000 | 
|                                |                                   | Non-residential            |                    |           | 18,383,000  |            |             |           | 19,552,000 |           
|                                | Loans secured by deposit accounts |                            |                    | 897,000   |             |            |             | 1,139,000 |           
|                                | Other                             |                            |                    | 1,206,000 |             |            |             | 720,000   |           
|                                |                                   |                            |                    |           |             |            |             |          
|                                |                                   |                            | 136,616,000        |           |             |            | 129,182,000 |          
|                                | Plus:                             |                            |                    |           |             |            |             |           |           
|                                |                                   | Premium on loans purchased |                    |           | 4,000       |            |             |           | 10,000     |           
|                                | Less:                             |                            |                    |           |             |            |             |           |           
|                                |                                   | Loans in process           |                    |           | 16,000      |            |             |           | 25,000     |           
|                                |                                   | Allowance for loan losses  |                    |           | 1,571,000   |            |             |           | 1,421,000  |           
|                                |                                   | Deferred loan fees, net    |                    |           | 683,000     |            |             |           | 764,000    |           
|                                |                                   | Unamortized discounts      |                    |           | 413,000     |            |             |           | 167,000    |           
|                                |                                   |                            |                    |           |             |            |             |          
|Loans receivable, net           |                                   | $                          | 133,937,000        |           |             | $          | 126,815,000 |          
|                                |                                   |                            |                    |           |             |            |             |          
|Loans receivable held for sale: |                                   |                            |                    |           |             |            |             |          
|                                | Residential:                      |                            |                    |           |             |            |             |           |           
|                                |                                   | One to four units          |                    |           | 237,000     |            |             | $         | 59,000     |           
|                                |                                   | Five or more units         |                    |           | 7,125,000   |            |             |           |           |           
|                                |                                   |                            |                    |           |             |            |             |          
|Loans receivable held for sale  |                                   |                            | 7,362,000          |           |             | $          | 59,000      |          
|                                |                                   |                            |                    |           |             |            |             |          
|Weighted average interest rate  |                                   |                            | 7.67               | %         |             |            | 8.46        | %        
|                                |                                   |                            |                    |           |             |            |             |          

F-14



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. Loans Receivable, Net (continued)

Activity in the allowance for loan losses is summarized as follows:

|                             |                        |   |           |           |      |   |           |           | 
|---------------------------- | ---------------------- | - | --------- | --------- | ---- | - | --------- | --------- | 
|                             |                        |   | 2001      |           | 2000
|                             |                        |   |           |           |     
|Balance at beginning of year |                        | $ | 1,421,000 |           |      | $ | 1,439,000 |          
|Provision for loan losses    |                        |   | 150,000   |           |      |   | 360,000   |          
|Charge-offs                  |                        |   |          |           |      |   | (378,000  | )        
|                             |                        |   |           |           |      |   |           |          
|                             | Balance at end of year |   | $         | 1,571,000 |      |   | $         | 1,421,000 | 
|                             |                        |   |           |           |      |   |           |          

The Bank had no recoveries during the years ended December 31, 2001 and
2000.

At December 31, 2001 and 2000, the Bank had accrued interest
receivable on loans of $797,000 and $824,000, respectively.

The Bank serviced loans for others totaling $12.7 million and $21.8
million at December 31, 2001 and 2000, respectively.

At December 31, 2001 and 2000, the Bank had loans to senior officers
and directors amounting to $667,000 and $805,000, respectively. In the
opinion of management, the terms of these loans are based upon the normal
market for such loans. At December 31, 2001 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, 2001 and 2000:

|                        |                         |   |             |         |      |   |         |         | 
|----------------------- | ----------------------- | - | ----------- | ------- | ---- | - | ------- | ------- | 
|                        |                         |   | December 31
|                        |                         |   |            
|                        |                         |   | 2001        |         | 2000
|                        |                         |   |             |         |     
|Residential real estate |                         | $ | 257,000     |         |      | $ | 164,000 |        
|Other                   |                         |   | 211,000     |         |      |   | 468,000 |        
|                        |                         |   |             |         |      |   |         |        
|                        | Total non-accrual loans |   | $           | 468,000 |      |   | $       | 632,000 | 
|                        |                         |   |             |         |      |   |         |        

The Bank had no restructured loans or accruing loans that are
contractually past due 90 days or more at December 31, 2001 and 2000.

The gross amount of interest income that would have been recorded
during the years ended December 31, 2001 and 2000, if non-accrual loans
had been current in accordance with their original terms, was $58,000 and
$24,000, respectively. For the years ended December 31, 2001 and 2000,
$57,000 and $9,000, respectively, was actually received on non-accrual
loans and is included in interest income on loans in the accompanying
consolidated statements of earnings. The Bank had no commitments to lend
additional funds to borrowers whose loans are on non-accrual at December
31, 2001 and 2000.

At December 31, 2001 and 2000, the total recorded investment in
impaired loans was approximately $211,000 and $468,000, respectively.
There is a related impairment allowance of $211,000 and $468,000 at
December 31, 2001 and 2000, 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, 2001 and 2000, the
Banks average investment in impaired loans was at $303,000 and $615,000,
respectively, and interest income recorded on impaired loans during these
periods totaled $36,000 and $11,000 respectively, none of which was
recorded utilizing the accrual basis method of accounting. At December
31, 2001 and 2000, all impaired loans were unsecured fully reserved lines
of credit.

F-15



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. Loans Receivable, Net (continued)

Substantially all of the Banks real estate loans are secured by
properties located in Southern California. At December 31, 2001 and
2000, approximately 86% and 83%, respectively, of the loan portfolio
consisted of loans secured by residential real estate. In addition,
approximately 13% and 15% of the loan portfolio at December 31, 2001 and
2000, respectively, was secured by non-residential real estate. Loans
secured by church real estate represented 59% and 66% of non-residential
real estate loans at December 31, 2001 and 2000, respectively.

6. Real Estate Acquired through Foreclosure, Net

The Bank had no real estate acquired through foreclosure at December
31, 2001 and 2000.

Activity in the allowance for losses on real estate acquired through
foreclosure during the years ended December 31, 2001 and 2000, is
summarized as follows:

|                             |  |      |   |      |  |   |          |  
|---------------------------- |  | ---- | - | ---- |  | - | -------- | -
|                             |  | 2001 |   | 2000
|                             |  |      |   |     
|Balance at beginning of year |  | $    |  |      |  | $ | 182,000  |  
|Provision for losses         |  |      |  |      |  |   |         |  
|Charge-offs                  |  |      |  |      |  |   | (182,000 | )
|                             |  |      |   |      |  |   |          |  
|Balance at end of year       |  | $    |  |      |  | $ |         |  
|                             |  |      |   |      |  |   |          |  

Real estate operations, net, are summarized as follows:

|                                                   |  |      |   |      |  |   |         |  
|-------------------------------------------------- |  | ---- | - | ---- |  | - | ------- | -
|                                                   |  | 2001 |   | 2000
|                                                   |  |      |   |     
|Net loss from operations of foreclosed real estate |  | $    |  |      |  | $ | (22,000 | )
|Net gain on sales of foreclosed real estate        |  |      |  |      |  |   | 109,000 |  
|                                                   |  |      |   |      |  |   |         |  
|                                                   |  |      |  |      |  |   | 87,000  |  
|Provision for losses                               |  |      |  |      |  |   |        |  
|                                                   |  |      |   |      |  |   |         |  
|Real estate operations, net                        |  | $    |  |      |  | $ | 87,000  |  
|                                                   |  |      |   |      |  |   |         |  

7. 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 in an amount at least equal to
the greater 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, 2001 and 2000, of $1,399,000 and $1,316,000,
respectively.

8. Office Properties and Equipment, net

Office properties and equipment consist of the following:

|                                     |  |             |            |      |  |   |            |  
|------------------------------------ |  | ----------- | ---------- | ---- |  | - | ---------- | -
|                                     |  | December 31
|                                     |  |            
|                                     |  | 2001        |            | 2000
|                                     |  |             |            |     
|Land                                 |  | $           | 1,723,000  |      |  | $ | 1,918,000  |  
|Office buildings and improvements    |  |             | 3,984,000  |      |  |   | 3,986,000  |  
|Furniture, fixtures and equipment    |  |             | 1,726,000  |      |  |   | 1,595,000  |  
|                                     |  |             |            |      |  |   |            |  
|                                     |  |             | 7,433,000  |      |  |   | 7,499,000  |  
|Less accumulated depreciation        |  |             | (1,432,000 | )    |  |   | (1,142,000 | )
|                                     |  |             |            |      |  |   |            |  
|Office properties and equipment, net |  | $           | 6,001,000  |      |  | $ | 6,357,000  |  
|                                     |  |             |            |      |  |   |            |  

F-16



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

8. Office Properties and Equipment, net (continued)

During the years ended December 31, 2001 and 2000, depreciation
expense totaled $341,000 and $375,000, respectively.

9. Deposits

A summary of deposits by type of account and interest rate is as
follows:

|                         |                                       |  |             |      |        |   |             |            |        |  |  |      |   |   |             |            | 
|------------------------ | ------------------------------------- |  | ----------- | ---- | ------ | - | ----------- | ---------- | ------ |  |  | ---- | - | - | ----------- | ---------- | 
|                         |                                       |  | December 31
|                         |                                       |  |            
|                         |                                       |  | 2001        |      | 2000  
|                         |                                       |  |             |      |       
|                         |                                       |  | Rate*       |      | Amount |   | Rate*       |            | Amount
|                         |                                       |  |             |      |        |   |             |            |       
|Balance by account type: |                                       |  |             |      |        |   |             |            |        |  |  |      |   |   |             |           
|                         | NOW account and other demand deposits |  |             | 0.34 | %      |   | $           | 12,055,000 |        |  |  | 0.58 | % |   | $           | 11,555,000 | 
|                         | Non-interest bearing demand deposits  |  |             |     |        |   |             | 7,510,000  |        |  |  |     |   |   |             | 7,308,000  | 
|                         | Money market deposits                 |  |             | 1.89 | %      |   |             | 8,906,000  |        |  |  | 3.78 | % |   |             | 5,083,000  | 
|                         | Passbook                              |  |             | 1.03 | %      |   |             | 25,471,000 |        |  |  | 1.28 | % |   |             | 26,192,000 | 
|                         | Certificates of deposit               |  |             | 4.44 | %      |   |             | 97,214,000 |        |  |  | 5.77 | % |   |             | 91,456,000 | 
|                         |                                       |  |             |      |        |   |             |            |        |  |  |      |   |   |             |           
|                         |                                       |  |             |      |        | $ | 151,156,000 |            |        |  |  |      |   | $ | 141,594,000 |           
|                         |                                       |  |             |      |        |   |             |            |        |  |  |      |   |   |             |           

*Weighted average interest rate.

The aggregate amount of time deposits equal to or exceeding $100,000
totaled $35,316,000 and $46,327,000 at December 31, 2001 and 2000,
respectively.

During the years ended December 31, 2001 and 2000 the weighted
average interest rate on total deposits was 3.90% and 3.67%,
respectively. At December 31, 2001 and 2000, the weighted average
interest rate on total deposits was 3.15% and 4.15%, respectively.

Deposit account maturities at December 31, 2001, are summarized as
follows:

|           |  |        |            | 
|---------- |  | ------ | ---------- | 
|Maturity   |  | Amount
|           |  |       
|2002       |  | $      | 77,020,000 | 
|2003       |  |        | 12,505,000 | 
|2004       |  |        | 2,775,000  | 
|2005       |  |        | 4,193,000  | 
|Thereafter |  |        | 721,000    | 
|           |  |        |            | 
|           |  | $      | 97,214,000 | 
|           |  |        |            | 

Interest expense by type of deposit account is summarized in the
following table for the periods indicated:

|                              |  |                         |           |      |  |   |           | 
|----------------------------- |  | ----------------------- | --------- | ---- |  | - | --------- | 
|                              |  | Year Ended December 31,
|                              |  |                        
|                              |  | 2001                    |           | 2000
|                              |  |                         |           |     
|Money market deposits         |  | $                       | 106,000   |      |  | $ | 122,000   | 
|Passbook deposits             |  |                         | 289,000   |      |  |   | 356,000   | 
|NOW and other demand deposits |  |                         | 78,000    |      |  |   | 93,000    | 
|Certificate of deposit        |  |                         | 5,200,000 |      |  |   | 4,392,000 | 
|                              |  |                         |           |      |  |   |           | 
|                              |  | $                       | 5,673,000 |      |  |   | 4,963,000 | 
|                              |  |                         |           |      |  |   |           | 

F-17



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

10. Advances from the Federal Home Loan Bank

There were $11.0 million and $10.0 million in borrowings outstanding
with the FHLB as of December 31, 2001 and 2000, respectively. The
outstanding borrowings at December 31, 2001 and 2000 had weighted average
interest rates of 4.93% and 6.67%, respectively. Pursuant to collateral
agreements with the FHLB, advances are secured by loans totaling $20.9
million and $26.1 million as of December 31, 2001 and 2000, respectively.
The advances were also secured by mortgage-backed securities totaling
$3.2 million as of December 31, 2000, with no mortgage-backed securities
pledged as of December 31, 2001. Available borrowing capacity with the
FHLB approximates $18.1 million and $26.6 million as of December 31, 2001
and 2000, respectively.

The maturities of FHLB advances are as follows:

|                         |      |   |            |           | 
|------------------------ | ---- | - | ---------- | --------- | 
|Year Ending December 31, |      |   |            |          
|                         | 2002 |   |            | 6,500,000 | 
|                         | 2003 |   |            | 4,500,000 | 
|                         |      |   |            |          
|                         |      | $ | 11,000,000 |          
|                         |      |   |            |          

11. Income Taxes

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

|                |                 |   |         |         |      |   |          |          |  
|--------------- | --------------- | - | ------- | ------- | ---- | - | -------- | -------- | -
|                |                 |   | 2001    |         | 2000
|                |                 |   |         |         |     
|Current taxes:  |                 |   |         |         |      |   |          |         
|                | Federal income  |   | $       | 217,000 |      |   | $        | 606,000  |  
|                | State franchise |   |         | 105,000 |      |   |          | 104,000  |  
|                |                 |   |         |         |      |   |          |         
|                |                 |   | 322,000 |         |      |   | 710,000  |         
|                |                 |   |         |         |      |   |          |         
|Deferred taxes: |                 |   |         |         |      |   |          |         
|                | Federal income  |   |         | 144,000 |      |   |          | (224,000 | )
|                | State franchise |   |         | 10,000  |      |   |          | 21,000   |  
|                |                 |   |         |         |      |   |          |         
|                |                 |   | 154,000 |         |      |   | (203,000 | )       
|                |                 |   |         |         |      |   |          |         
|                |                 | $ | 476,000 |         |      | $ | 507,000  |         
|                |                 |   |         |         |      |   |          |         

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:

|                                   |                                                     |   |         |        |      |   |         |        | 
|---------------------------------- | --------------------------------------------------- | - | ------- | ------ | ---- | - | ------- | ------ | 
|                                   |                                                     |   | 2001    |        | 2000
|                                   |                                                     |   |         |        |     
|Computed expected federal taxes  |                                                     | $ | 395,000 |        |      | $ | 403,000 |       
|Increases to taxes resulting from: |                                                     |   |         |        |      |   |         |       
|                                   | California franchise tax, net of federal income tax |   |         | 76,000 |      |   |         | 82,000 | 
|                                   | Other                                               |   |         | 5,000  |      |   |         | 22,000 | 
|                                   |                                                     |   |         |        |      |   |         |       
|                                   |                                                     | $ | 476,000 |        |      | $ | 507,000 |       
|                                   |                                                     |   |         |        |      |   |         |       

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.

F-18



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

11. Income Taxes (continued)

Retained earnings at December 31, 2001 and 2000 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.

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, 2001 and 2000, are presented below:

|                                     |                                    |   |            |          |      |   |            |          |  
|------------------------------------ | ---------------------------------- | - | ---------- | -------- | ---- | - | ---------- | -------- | -
|                                     |                                    |   | 2001       |          | 2000
|                                     |                                    |   |            |          |     
|Deferred tax assets:                 |                                    |   |            |          |      |   |            |         
|                                     | Allowance for loan losses          |   | $          | 623,000  |      |   | $          | 757,000  |  
|                                     | Accrued liabilities                |   |            | 166,000  |      |   |            | 110,000  |  
|                                     | Lower of cost or market adjustment |   |            | 60,000   |      |   |            | 69,000   |  
|                                     | State income taxes                 |   |            | 27,000   |      |   |            | 46,000   |  
|                                     | Allowance for loss                 |   |            |         |      |   |            | 15,000   |  
|                                     | Other                              |   |            | 44,000   |      |   |            | 52,000   |  
|                                     |                                    |   |            |          |      |   |            |         
|Net deferred tax assets              |                                    |   | 920,000    |          |      |   | 1,049,000  |         
|                                     |                                    |   |            |          |      |   |            |         
|Deferred tax liabilities:            |                                    |   |            |          |      |   |            |         
|                                     | Basis difference on fixed assets   |   |            | (438,000 | )    |   |            | (439,000 | )
|                                     | Deferred loan fees                 |   |            | (515,000 | )    |   |            | (501,000 | )
|                                     | FHLB stock dividend                |   |            | (504,000 | )    |   |            | (465,000 | )
|                                     | Other                              |   |            | (19,000  | )    |   |            | (46,000  | )
|                                     |                                    |   |            |          |      |   |            |         
|Total gross deferred tax liabilities |                                    |   | (1,476,000 | )        |      |   | (1,451,000 | )       
|                                     |                                    |   |            |          |      |   |            |         
|Net deferred tax liability           |                                    | $ | (556,000   | )        |      | $ | (402,000   | )       
|                                     |                                    |   |            |          |      |   |            |         

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 its realizability of its
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, 2001, the Company had a net current tax receivable
of $296,000. At December 31, 2000, the company had a net current tax
payable of $84,000.

F-19



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

12. Employee Benefit Plans

Stock Incentive Plans

Broadway Federal 401(k) Plan

The Bank has established a 401(k) Plan in which employees may elect
to enroll each January 1 or July 1 of every year provided that they are
at least 21-years of age and have been employed for at least six months
prior to the semiannual enrollment date. 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 2001 and 2000, the Banks
contribution amounted to $40,000 and $42,000, respectively.

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. The expense related to the RRP for the
fiscal years ended December 31, 2001 and 2000 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. On November 15, 2000 the
Company awarded 3,950 PEP Base Grants to employees. The new grants were
awarded at a price of $8.69, 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, 2001 and 2000 was immaterial. The
table below reflects the RRP and PEP activity for the periods indicated:

F-20



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

12. Employee Benefit Plans (continued)

Stock Incentive Plans (continued)

|                                 |  |                |        |        |  |        |       |        |  |        |        |       |  |   |       |  |  |  |        |   |  |   |       | 
|-------------------------------- |  | -------------- | ------ | ------ |  | ------ | ----- | ------ |  | ------ | ------ | ----- |  | - | ----- |  |  |  | ------ | - |  | - | ----- | 
|                                 |  | Stock Programs
|                                 |  |               
|                                 |  | PEP            |        | RRP    |  | Total 
|                                 |  |                |        |        |  |       
|                                 |  | Shares         |        | Price* |  | Shares |       | Price* |  | Shares |        | Price
|                                 |  |                |        |        |  |        |       |        |  |        |        |      
|Outstanding at January 1, 2001   |  |                | 9,707  |        |  | $      | 10.06 |        |  |        | 4,872  |       |  | $ | 11.00 |  |  |  | 14,579 |   |  | $ | 10.37 | 
|Granted                          |  |                |       |        |  |        |      |        |  |        |       |       |  |   |      |  |  |  |       |   |  |   |      | 
|Exercised                        |  |                | (5,314 | )      |  |        | 10.72 |        |  |        | (3,891 | )     |  |   | 11.00 |  |  |  | (9,205 | ) |  |   | 10.82 | 
|Forfeited                        |  |                | (1,021 | )      |  |        | 9.36  |        |  |        |       |       |  |   |      |  |  |  | (1,021 | ) |  |   | 9.36  | 
|                                 |  |                |        |        |  |        |       |        |  |        |        |       |  |   |       |  |  |  |        |   |  |   |       | 
|Outstanding at December 31, 2001 |  |                | 3,372  |        |  | $      | 9.25  |        |  |        | 981    |       |  | $ | 11.00 |  |  |  | 4,353  |   |  | $ | 9.64  | 
|                                 |  |                |        |        |  |        |       |        |  |        |        |       |  |   |       |  |  |  |        |   |  |   |       | 
|Outstanding at January 1, 2000   |  |                | 5,757  |        |  | $      | 11.00 |        |  |        | 4,872  |       |  | $ | 11.00 |  |  |  | 10,629 |   |  | $ | 11.00 | 
|Granted                          |  |                | 3,950  |        |  |        | 8.69  |        |  |        |       |       |  |   |      |  |  |  | 3,950  |   |  |   | 8.69  | 
|Exercised                        |  |                |       |        |  |        |      |        |  |        |       |       |  |   |      |  |  |  |       |   |  |   |      | 
|Forfeited                        |  |                |       |        |  |        |      |        |  |        |       |       |  |   |      |  |  |  |       |   |  |   |      | 
|                                 |  |                |        |        |  |        |       |        |  |        |        |       |  |   |       |  |  |  |        |   |  |   |       | 
|Outstanding at December 31, 2000 |  |                | 9,707  |        |  | $      | 10.06 |        |  |        | 4,872  |       |  | $ | 11.00 |  |  |  | 14,579 |   |  | $ | 10.37 | 
|                                 |  |                |        |        |  |        |       |        |  |        |        |       |  |   |       |  |  |  |        |   |  |   |       | 

*Weighted average price.

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 67,487 shares 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,
2001 and 2000, the outstanding balance of unallocated shares was $201,000
and $262,000, 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,
2001 and 2000 was $66,000 and $52,000, respectively.

During the year ended December 31, 2001 and 2000, 6,526 and 6,965
shares, respectively, were allocated, leaving an unallocated balance of
21,720 and 28,246 shares at December 31, 2001 and 2000, respectively,
after giving effect to an 8% stock dividend received from the Company in
1998. The fair value of unallocated ESOP shares totaled $273,000 and
$215,000 at December 31, 2001 and 2000, respectively.

F-21



---



##### Table of Contents



Broadway Financial Corporation and
Subsidiaries

Notes to Consolidated Financial
Statements (continued)

12. Employee Benefit Plans (continued)

Stock Incentive Plans (continued)

Stock Option Plans

In 1996, the stockholders of the Company ratified 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). During 1997, the
effective date of the Stock Option Plan was changed from December 1, 1995
to August 1, 1997.

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 will 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 will become vested and exercisable at the
rate of twenty percent (20%) annually commencing one year from the date
of grant. An aggregate of 62,488 options are available for issuance
under the Plan. On November 15, 2000 and September 17, 1997, options to
purchase 24,003 and 43,909 shares, respectively, were granted. As of
December 31, 2001 none 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 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. An aggregate of 26,781 options are available for issuance
under the plan. On November 15, 2000 and September 17, 1997, options to
purchase 3,500 and 17,264 shares, respectively, were granted. As of
December 31, 2001 none had been exercised.

The table below reflects activity on the stock option plans for the
periods indicated:

|                                 |  |                    |        |                   |  |          |       |       |  |        |        |          |  |   |       |  |  |  |        |   |  |   |       | 
|-------------------------------- |  | ------------------ | ------ | ----------------- |  | -------- | ----- | ----- |  | ------ | ------ | -------- |  | - | ----- |  |  |  | ------ | - |  | - | ----- | 
|                                 |  | Stock Option Plans
|                                 |  |                   
|                                 |  | LTIP               |        | Stock Option Plan |  | Total   
|                                 |  |                    |        |                   |  |         
|                                 |  |                    |        |                   |  | Exercise |       |       |  |        |        | Exercise |  |   |       |  |  |  |        |  
|                                 |  | Shares             |        | Price             |  | Shares   |       | Price |  | Shares |        | Price   
|                                 |  |                    |        |                   |  |          |       |       |  |        |        |         
|Outstanding at January 1, 2001   |  |                    | 62,449 |                   |  | $        | 10.11 |       |  |        | 20,764 |          |  | $ | 10.61 |  |  |  | 83,213 |   |  | $ | 10.24 | 
|Granted                          |  |                    |       |                   |  |          |      |       |  |        |       |          |  |   |      |  |  |  |       |   |  |   |      | 
|Exercised                        |  |                    |       |                   |  |          |      |       |  |        |       |          |  |   |      |  |  |  |       |   |  |   |      | 
|Expired or canceled              |  |                    | (3,529 | )                 |  |          | 8.69  |       |  |        |       |          |  |   |      |  |  |  | (3,529 | ) |  |   | 8.69  | 
|                                 |  |                    |        |                   |  |          |       |       |  |        |        |          |  |   |       |  |  |  |        |   |  |   |       | 
|Outstanding at December 31, 2001 |  |                    | 58,920 |                   |  | $        | 10.20 |       |  |        | 20,764 |          |  | $ | 10.61 |  |  |  | 79,684 |   |  | $ | 10.30 | 
|                                 |  |                    |        |                   |  |          |       |       |  |        |        |          |  |   |       |  |  |  |        |   |  |   |       | 
|Outstanding at January 1, 2000   |  |                    | 38,446 |                   |  | $        | 11.00 |       |  |        | 17,264 |          |  | $ | 11.00 |  |  |  | 55,710 |   |  | $ | 11.00 | 
|Granted                          |  |                    | 24,003 |                   |  |          | 8.69  |       |  |        | 3,500  |          |  |   | 8.69  |  |  |  | 27,503 |   |  |   | 8.69  | 
|Exercised                        |  |                    |       |                   |  |          |      |       |  |        |       |          |  |   |      |  |  |  |       |   |  |   |      | 
|Expired or canceled              |  |                    |       |                   |  |          |      |       |  |        |       |          |  |   |      |  |  |  |       |   |  |   |      | 
|                                 |  |                    |        |                   |  |          |       |       |  |        |        |          |  |   |       |  |  |  |        |   |  |   |       | 
|Outstanding at December 31, 2000 |  |                    | 62,449 |                   |  | $        | 10.11 |       |  |        | 20,764 |          |  | $ | 10.61 |  |  |  | 83,213 |   |  | $ | 10.24 | 
|                                 |  |                    |        |                   |  |          |       |       |  |        |        |          |  |   |       |  |  |  |        |   |  |   |       | 

F-22



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

12. Employee Benefit Plans (continued)

Stock Incentive Plans (continued)

Stock Option Plans (continued)

The following table summarizes information about the stock options
outstanding at December 31, 2001 and 2000:

|                   |  |          |       |                   |  |                     |        |                     |  |                   |  |             |       |          |  |  |        |           |  |            |   |   |       |   |   |  |  | 
|------------------ |  | -------- | ----- | ----------------- |  | ------------------- | ------ | ------------------- |  | ----------------- |  | ----------- | ----- | -------- |  |  | ------ | --------- |  | ---------- | - | - | ----- | - | - |  |  | 
|                   |  |          |       |                   |  | Options Outstanding |        | Options Exercisable
|                   |  |          |       |                   |  |                     |        |                    
|                   |  |          |       |                   |  |                     |        |                     |  | Weighted          |  |             |       |          |  |  |        |           |  | Weighted   |   |   |       |  
|                   |  |          |       |                   |  |                     |        |                     |  | Average           |  | Weighted    |       |          |  |  |        | Average   |  | Weighted  
|                   |  |          |       |                   |  |                     |        |                     |  | Remaining         |  | Average     |       |          |  |  |        | Remaining |  | Average   
|                   |  | Exercise |       | Outstanding at    |  | Contractual         |        | Exercise            |  | Outstanding at    |  | Contractual |       | Exercise
|Stock Option Plan  |  | Prices   |       | December 31, 2001 |  | Life                |        | Price               |  | December 31, 2001 |  | Life        |       | Price   
|                   |  |          |       |                   |  |                     |        |                     |  |                   |  |             |       |         
|December 31, 2001: |  |          |       |                   |  |                     |        |                     |  |                   |  |             |       |          |  |  |        |           |  |            |   |   |       |   |   |  |  | 
|LTIP               |  | $        | 11.00 |                   |  |                     | 38,446 |                     |  | 5.71 years        |  | $           | 11.00 |          |  |  | 30,755 |           |  | 5.71 years |   | $ | 11.00 |  
|                   |  | $        | 8.69  |                   |  |                     | 20,474 |                     |  | 8.88 years        |  | $           | 8.69  |          |  |  | 4,091  |           |  | 8.88 years |   | $ | 8.69  |  
|Stock Option Plan  |  | $        | 11.00 |                   |  |                     | 17,264 |                     |  | 5.71 years        |  | $           | 11.00 |          |  |  | 13,808 |           |  | 5.71 years |   | $ | 11.00 |  
|                   |  | $        | 8.69  |                   |  |                     | 3,500  |                     |  | 8.88 years        |  | $           | 8.69  |          |  |  | 700    |           |  | 8.88 years |   | $ | 8.69  |  
|December 31, 2000: |  |          |       |                   |  |                     |        |                     |  |                   |  |             |       |          |  |  |        |           |  |            |   |   |       |   |   |  |  | 
|LTIP               |  | $        | 11.00 |                   |  |                     | 38,446 |                     |  | 6.71 years        |  | $           | 11.00 |          |  |  | 23,068 |           |  | 6.71 years |   | $ | 11.00 |  
|                   |  | $        | 8.69  |                   |  |                     | 24,003 |                     |  | 9.88 years        |  | $           | 8.69  |          |  |  |       |           |  |            |  |   |       | $ |  | 
|Stock Option Plan  |  | $        | 11.00 |                   |  |                     | 17,264 |                     |  | 6.71 years        |  | $           | 11.00 |          |  |  | 10,358 |           |  | 6.71 years |   | $ | 11.00 |  
|                   |  | $        | 8.69  |                   |  |                     | 3,500  |                     |  | 9.88 years        |  | $           | 8.69  |          |  |  |       |           |  |            |  |   |       | $ |  | 

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 existing model does
not necessarily provide a reliable single measure of the fair value of
its employee stock options.

No grants of options were made in 2001. The fair value of options
granted by the Company in 2000 was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions:

|                                          |  |          |       |  
|----------------------------------------- |  | -------- | ----- | -
|Risk free interest rate                   |  |          | 5.74  | %
|Expected volatility                       |  |          | 30.10 | %
|Expected dividend yield                   |  |          | 2.00  | %
|Expected option life                      |  | 10 years
|Approximate fair value of options granted |  | $        | 3.46  |  

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:

|                                       |  |      |         |      |  |   |         | 
|-------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                       |  | 2001 |         | 2000
|                                       |  |      |         |     
|Proforma net earnings                  |  | $    | 653,000 |      |  | $ | 655,000 | 
|Proforma diluted earnings per share    |  | $    | 0.71    |      |  | $ | 0.71    | 
|Net earnings as reported               |  | $    | 685,000 |      |  | $ | 677,000 | 
|Diluted earnings per share as reported |  | $    | 0.75    |      |  | $ | 0.74    | 

F-23



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

13. 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 $117,000 in 2001 and $296,000 in 2000. Annual minimum
lease commitments attributable to long-term leases at December 31, 2001
are as follows:

|                         |      |   |          |        |           |   |        |        |  |   |         |        | 
|------------------------ | ---- | - | -------- | ------ | --------- | - | ------ | ------ |  | - | ------- | ------ | 
|                         |      |   | Premises |        | Equipment |   | Total 
|                         |      |   |          |        |           |   |       
|Year ending December 31: |      |   |          |        |           |   |        |        |  |   |         |       
|                         | 2002 |   | $        | 42,000 |           |   | $      | 30,000 |  |   | $       | 72,000 | 
|                         | 2003 |   |          | 42,000 |           |   |        | 30,000 |  |   |         | 72,000 | 
|                         | 2004 |   |          | 42,000 |           |   |        | 30,000 |  |   |         | 72,000 | 
|                         | 2005 |   |          | 42,000 |           |   |        | 9,000  |  |   |         | 51,000 | 
|                         | 2006 |   |          | 42,000 |           |   |        |       |  |   |         | 42,000 | 
|Thereafter through 2013  |      |   | 291,000  |        |           |   |       |        |  |   | 291,000 |       
|                         |      |   |          |        |           |   |        |        |  |   |         |       
|                         |      | $ | 501,000  |        |           | $ | 99,000 |        |  | $ | 600,000 |       
|                         |      |   |          |        |           |   |        |        |  |   |         |       

The Bank had commitments to originate loans of approximately
$673,000 and $1.1 million, respectively, at December 31, 2001 and 2000.
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
commitments to sell loans of $273,000 at December 31, 2001. The Bank had
no commitments to sell loans at December 31, 2000. The Bank had no
commitments to purchase loans at December 31, 2001 and 2000.

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.

14. 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, 2001 and
2000, the Bank was in compliance with such capital requirements.

F-24



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

14. Regulatory Capital (continued)

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, which is the minimum amount
required by FIRREA. 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.

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 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, 2001
and 2000, 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-25



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

14. Regulatory Capital (continued)

The table below presents the Banks capital ratios as compared to
the requirements under FDICIA at December 31, 2001 and 2000:

|                       |                         |        |        |        |          |        |             |       |   |        |                      |       |                     |  |  |     |   |  |         |        |  |  |  |      |  
|---------------------- | ----------------------- | ------ | ------ | ------ | -------- | ------ | ----------- | ----- | - | ------ | -------------------- | ----- | ------------------- |  |  | --- | - |  | ------- | ------ |  |  |  | ---- | -
|                       |                         |        |        |        |          |        |             |       |   |        |                      |       |                     |  |  |     |   |  | Minimum
|                       |                         |        |        |        |          |        |             |       |   |        | Minimum              |       | Amount             
|                       |                         |        |        |        |          |        |             |       |   |        | For Capital Adequacy |       | Required to be Well
|                       |                         |        | Actual |        | Purposes |        | Capitalized
|                       |                         |        |        |        |          |        |            
|(Dollars in thousands) |                         | Amount |        | Ratio  |          | Amount |             | Ratio |   | Amount |                      | Ratio
|                       |                         |        |        |        |          |        |             |       |   |        |                      |      
|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 | %
|                      
|December 31, 2000:     |                         |        |        |        |          |        |             |       |   |        |                      |       |                     |  |  |     |   |  |         |        |  |  |  |     
|                       | Leverage/Tangible Ratio |        | $      | 12,334 |          |        |             | 7.42  | % |        | $                    | 6,562 |                     |  |  | 4.0 | % |  | $       | 8,315  |  |  |  | 5.0  | %
|                       | Tier I Risk-based ratio |        | $      | 12,334 |          |        |             | 12.33 | % |        | $                    | 4,002 |                     |  |  | 4.0 | % |  | $       | 6,003  |  |  |  | 6.0  | %
|                       | Total Risk-based ratio  |        | $      | 13,270 |          |        |             | 13.26 | % |        | $                    | 8,004 |                     |  |  | 8.0 | % |  | $       | 10,004 |  |  |  | 10.0 | %

The table below presents the Banks capital ratios as compared to
the requirements under FIRREA at December 31, 2001 and 2000:

|                       |  |          |   |                  |        |              |  |                    |      |        |   |       |        |  |  |      |      |   |   |       |        |  |  |      |       |  
|---------------------- |  | -------- | - | ---------------- | ------ | ------------ |  | ------------------ | ---- | ------ | - | ----- | ------ |  |  | ---- | ---- | - | - | ----- | ------ |  |  | ---- | ----- | -
|                       |  |          |   | Tangible Capital |        | Core Capital |  | Risk-Based Capital
|                       |  |          |   |                  |        |              |  |                   
|(Dollars in thousands) |  | Amount   |   | Ratio            |        | Amount       |  | Ratio              |      | Amount |   | Ratio
|                       |  |          |   |                  |        |              |  |                    |      |        |   |      
|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  | %
|                       |  |          |   |                  |        |              |  |                    |      |        |   |       |        |  |  |      |      |   |   |       |        |  |  |     
|December 31, 2000:     |  |          |   |                  |        |              |  |                    |      |        |   |       |        |  |  |      |      |   |   |       |        |  |  |     
|                       |  | Actual   |   | $                | 12,334 |              |  |                    | 7.42 | %      |   | $     | 12,334 |  |  |      | 7.42 | % |   | $     | 13,270 |  |  |      | 13.26 | %
|                       |  | Required |   |                  | 2,494  |              |  |                    | 1.50 | %      |   |       | 6,652  |  |  |      | 4.00 | % |   |       | 8,004  |  |  |      | 8.00  | %
|                       |  |          |   |                  |        |              |  |                    |      |        |   |       |        |  |  |      |      |   |   |       |        |  |  |     
|                       |  | Excess   | $ | 9,840            |        |              |  | 5.92               | %    |        | $ | 5,682 |        |  |  | 3.42 | %    |   | $ | 5,266 |        |  |  | 5.26 | %    
|                       |  |          |   |                  |        |              |  |                    |      |        |   |       |        |  |  |      |      |   |   |       |        |  |  |     

15. Restructuring

As of December 31, 2000, the Company decided to close its SmartCopy
postal/copy centers because they were not profitable. Included in
earnings for 2000 are accruals of $171,000 for the estimated exit costs
of this activity. This includes $136,000 for equipment lease termination
costs, $22,000 for asset impairment write-offs and $13,000 for employee
severance costs. No additional costs were incurred in 2001 in connection
with the closures. The Company completed its exit of this activity by
March 31, 2001.

16. 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,

F-26



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

16. Fair Values of Financial Instruments (continued)

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 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.

The following table presents the carrying amounts and fair values of
the Companys financial instruments at December 31, 2001 and 2000.

|                  |                                 |       |          |             |      |  |   |             | 
|----------------- | ------------------------------- | ----- | -------- | ----------- | ---- |  | - | ----------- | 
|                  |                                 |       | Carrying |             | Fair
|December 31, 2001 |                                 | Value |          | Value      
|                  |                                 |       |          |            
|Assets:           |                                 |       |          |             |      |  |   |            
|                  | Investment securities           |       | $        | 4,604,000   |      |  | $ | 4,604,000   | 
|                  | 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  | 

F-27



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

16. Fair Values of Financial Instruments (continued)

|                  |                                 |       |          |             |      |  |   |             | 
|----------------- | ------------------------------- | ----- | -------- | ----------- | ---- |  | - | ----------- | 
|                  |                                 |       | Carrying |             | Fair
|December 31, 2000 |                                 | Value |          | Value      
|                  |                                 |       |          |            
|Assets:           |                                 |       |          |             |      |  |   |            
|                  | Investment securities           |       | $        | 10,623,000  |      |  | $ | 10,557,000  | 
|                  | Mortgage-backed securities      |       | $        | 10,748,000  |      |  | $ | 10,740,000  | 
|                  | Loans receivable                |       | $        | 126,874,000 |      |  | $ | 131,377,000 | 
|                  | Federal Home Loan Bank stock    |       | $        | 1,316,000   |      |  | $ | 1,316,000   | 
|Liabilities:      |                                 |       |          |             |      |  |   |            
|                  | Deposits                        |       | $        | 141,594,000 |      |  | $ | 141,578,000 | 
|                  | Federal Home Loan Bank advances |       | $        | 10,000,000  |      |  | $ | 10,156,000  | 

17. Earnings Per Share

For the years ended December 31, 2001 and 2000, 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 2001 and 2000.

The Companys stock-based compensation awards were considered
outstanding as of the grant date for purposes of computing diluted EPS at
December 31, 2001 and 2000. 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.

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

|                                                    |                                                             |                   |         |                        |         |               |       |           |         |              |   |               |      |           |         |         |         |  |   |         |         |  |   |      |      | 
|--------------------------------------------------- | ----------------------------------------------------------- | ----------------- | ------- | ---------------------- | ------- | ------------- | ----- | --------- | ------- | ------------ | - | ------------- | ---- | --------- | ------- | ------- | ------- |  | - | ------- | ------- |  | - | ---- | ---- | 
|                                                    |                                                             |                   |         | Year ended December 31
|                                                    |                                                             |                   |         |                       
|                                                    |                                                             |                   |         | 2001                   |         | 2000         
|                                                    |                                                             |                   |         |                        |         |              
|                                                    |                                                             |                   |         | Net
earnings           |         | Avg. Shares   |       | Per-Share |         | Net
earnings |   | Avg. Shares   |      | Per-Share
|                                                    |                                                             |                   |         | (Numerator)            |         | (Denominator) |       | Amount    |         | (Numerator)  |   | (Denominator) |      | Amount   
|                                                    |                                                             |                   |         |                        |         |               |       |           |         |              |   |               |      |          
|Net earnings                                        |                                                             | $                 | 685,000 |                        |         |               |       |           |         |              |   |               |      | $         | 677,000 |         |         |  |  |         |         |  |  |     
|Less: Preferred stock dividends                     |                                                             |                   | (28,000 | )                      |         |               |       |           |         |              |   |               |      |           | (28,000 | )       |         |  |  |         |         |  |  |     
|                                                    |                                                             |                   |         |                        |         |               |       |           |         |              |   |               |      |           |         |         |         |  |   |         |         |  |   |     
|Earnings per common share:                          |                                                             |                   |         |                        |         |               |       |           |         |              |   |               |      |           |         |         |         |  |   |         |         |  |   |     
|                                                    | Basic and diluted
earnings available to common
stockholders |                   | $       | 657,000                |         |               |       | 879,049   |         |              | $ | 0.75          |      |           | $       | 649,000 |         |  |   | 882,325 |         |  | $ | 0.74 |     
|Effect of dilutive securities
Stock Option Programs |                                                             |                   |        |                        |         |               | 2,869 |           |         |              |   |               |      |           |        |         |         |  |  |         |         |  |  |     
|                                                    |                                                             |                   |         |                        |         |               |       |           |         |              |   |               |      |           |         |         |         |  |   |         |         |  |   |     
|Earnings per common share:                          |                                                             |                   |         |                        |         |               |       |           |         |              |   |               |      |           |         |         |         |  |   |         |         |  |   |     
|                                                    |                                                             | Basic and diluted |         | $                      | 657,000 |               |       |           | 881,918 |              |   | $             | 0.75 |           |         | $       | 649,000 |  |   |         | 882,325 |  |   | $    | 0.74 | 
|                                                    |                                                             |                   |         |                        |         |               |       |           |         |              |   |               |      |           |         |         |         |  |   |         |         |  |   |     

F-28



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)

18. Unaudited Quarterly Financial Data

|                                     |                   |         |       |         |        |         |       |         |        |      |       |       |  |   |       |       |  |   |        |       | 
|------------------------------------ | ----------------- | ------- | ----- | ------- | ------ | ------- | ----- | ------- | ------ | ---- | ----- | ----- |  | - | ----- | ----- |  | - | ------ | ----- | 
|                                     |                   |         | First |         | Second |         | Third |         | Fourth |      |       |       | 
|2001                                 |                   | Quarter |       | Quarter |        | Quarter |       | Quarter |        | Year
|                                     |                   |         |       |         |        |         |       |         |        |     
|Interest income                      |                   | $       | 3,234 |         |        | $       | 3,305 |         |        | $    | 3,272 |       |  | $ | 3,187 |       |  | $ | 12,998 |      
|Interest expense                     |                   |         | 1,656 |         |        |         | 1,621 |         |        |      | 1,556 |       |  |   | 1,420 |       |  |   | 6,253  |      
|Net interest income                  |                   |         | 1,578 |         |        |         | 1,684 |         |        |      | 1,716 |       |  |   | 1,767 |       |  |   | 6,745  |      
|Provision for loan losses            |                   |         | 30    |         |        |         | 45    |         |        |      | 30    |       |  |   | 45    |       |  |   | 150    |      
|Income before taxes                  |                   |         | 315   |         |        |         | 256   |         |        |      | 407   |       |  |   | 183   |       |  |   | 1,161  |      
|Net earnings                         |                   |         | 181   |         |        |         | 156   |         |        |      | 240   |       |  |   | 108   |       |  |   | 685    |      
|Basic earnings per share             |                   |         | .20   |         |        |         | .17   |         |        |      | .26   |       |  |   | .11   |       |  |   | .75    |      
|Diluted earnings per share(1)        |                   |         | .20   |         |        |         | .17   |         |        |      | .26   |       |  |   | .11   |       |  |   | .75    |      
|Market range:                        |                   |         |       |         |        |         |       |         |        |      |       |       |  |   |       |       |  |   |        |      
|                                     | High market price |         |       | 9.44    |        |         |       | 11.50   |        |      |       | 13.10 |  |   |       | 12.60 |  |   |        | 13.10 | 
|                                     | Low market price  |         |       | 6.88    |        |         |       | 7.75    |        |      |       | 9.98  |  |   |       | 9.26  |  |   |        | 6.88  | 
|                                    
|                                     |                   |         | First |         | Second |         | Third |         | Fourth |      |       |       | 
|2000                                 |                   | Quarter |       | Quarter |        | Quarter |       | Quarter |        | Year
|                                     |                   |         |       |         |        |         |       |         |        |     
|Interest income                      |                   | $       | 3,067 |         |        | $       | 3,055 |         |        | $    | 3,025 |       |  | $ | 3,138 |       |  | $ | 12,285 |      
|Interest expense                     |                   |         | 1,390 |         |        |         | 1,377 |         |        |      | 1,447 |       |  |   | 1,558 |       |  |   | 5,772  |      
|Net interest income                  |                   |         | 1,677 |         |        |         | 1,678 |         |        |      | 1,578 |       |  |   | 1,580 |       |  |   | 6,513  |      
|Provision for loan losses            |                   |         | 90    |         |        |         | 90    |         |        |      | 90    |       |  |   | 90    |       |  |   | 360    |      
|Income before taxes                  |                   |         | 281   |         |        |         | 384   |         |        |      | 519   |       |  |   |      |       |  |   | 1,184  |      
|Net earnings (loss)                  |                   |         | 167   |         |        |         | 228   |         |        |      | 282   |       |  |   |      |       |  |   | 677    |      
|Basic earnings (loss) per share      |                   |         | .17   |         |        |         | .24   |         |        |      | .32   |       |  |   | (.01  | )     |  |   | 0.74   |      
|Diluted earnings (loss) per share(1) |                   |         | .17   |         |        |         | .24   |         |        |      | .32   |       |  |   | (.01  | )     |  |   | 0.74   |      
|Market range:                        |                   |         |       |         |        |         |       |         |        |      |       |       |  |   |       |       |  |   |        |      
|                                     | High market price |         |       | 7.75    |        |         |       | 8.56    |        |      |       | 9.31  |  |   |       | 8.94  |  |   |        | 9.31  | 
|                                     | Low market price  |         |       | 4.63    |        |         |       | 6.25    |        |      |       | 7.00  |  |   |       | 6.75  |  |   |        | 4.63  | 



---

|(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.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19. 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 there have been $500,000 of dividends paid to the parent
company by the Bank.

F-29



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

19. Parent Company Financial Information (continued)

Balance Sheets

|                                       |  |                |        |      |  |   |        | 
|-------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                                       |  | December 31   
|                                       |  |               
|                                       |  | 2001           |        | 2000
|                                       |  |                |        |     
|                                       |  | (In thousands)
|Assets                                 |  |                |        |      |  |   |        | 
|Cash                                   |  | $              | 1,515  |      |  | $ | 161    | 
|Investment
securities held to maturity |  |                |       |      |  |   | 1,000  | 
|Accrued interest                       |  |                |       |      |  |   | 21     | 
|Investment in subsidiaries             |  |                | 12,733 |      |  |   | 12,391 | 
|Other assets                           |  |                | 434    |      |  |   | 481    | 
|                                       |  |                |        |      |  |   |        | 
|                                       |  | $              | 14,682 |      |  | $ | 14,054 | 
|                                       |  |                |        |      |  |   |        | 
|Liabilities and stockholders equity   |  |                |        |      |  |   |        | 
|Other liabilities                      |  | $              | 54     |      |  | $ | 77     | 
|Stockholders equity                   |  |                | 14,628 |      |  |   | 13,977 | 
|                                       |  |                |        |      |  |   |        | 
|                                       |  | $              | 14,682 |      |  | $ | 14,054 | 
|                                       |  |                |        |      |  |   |        | 

Statements of Earnings

|                                                                        |  |                        |      |      |  |   |     | 
|----------------------------------------------------------------------- |  | ---------------------- | ---- | ---- |  | - | --- | 
|                                                                        |  | Year ended December 31
|                                                                        |  |                       
|                                                                        |  | 2001                   |      | 2000
|                                                                        |  |                        |      |     
|                                                                        |  | (In thousands)        
|Interest income                                                         |  | $                      | 27   |      |  | $ | 63  | 
|Other income                                                            |  |                        | 23   |      |  |   | 187 | 
|Other expense                                                           |  |                        | 307  |      |  |   | 215 | 
|                                                                        |  |                        |      |      |  |   |     | 
|Earnings (loss) before income taxes                                     |  |                        | (257 | )    |  |   | 35  | 
|Income taxes (benefit)                                                  |  |                        | (108 | )    |  |   | 13  | 
|                                                                        |  |                        |      |      |  |   |     | 
|Earnings (loss) before equity in undistributed earnings of subsidiaries |  |                        | (149 | )    |  |   | 22  | 
|Equity in undistributed earnings of subsidiaries                        |  |                        | 834  |      |  |   | 655 | 
|                                                                        |  |                        |      |      |  |   |     | 
|Net earnings                                                            |  | $                      | 685  |      |  | $ | 677 | 
|                                                                        |  |                        |      |      |  |   |     | 

F-30



---



##### Table of Contents



Broadway Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

19. Parent Company Financial Information (continued

Statements of Cash Flows

|                                                                                |  |                                                  |       |                                       |      |                        |       |      |      |   |   | 
|------------------------------------------------------------------------------- |  | ------------------------------------------------ | ----- | ------------------------------------- | ---- | ---------------------- | ----- | ---- | ---- | - | - | 
|                                                                                |  |                                                  |       |                                       |      | Year ended December 31
|                                                                                |  |                                                  |       |                                       |      |                       
|                                                                                |  |                                                  |       |                                       |      | 2001                   |       | 2000
|                                                                                |  |                                                  |       |                                       |      |                        |       |     
|                                                                                |  |                                                  |       |                                       |      | (In thousands)        
|Cash flows from operating activities                                            |  |                                                  |       |                                       |      |                        |       |     
|Net earnings                                                                    |  | $                                                | 685   |                                       |      | $                      | 677   |     
|Adjustments to reconcile net earnings to cash provided by
operating activities: |  |                                                  |       |                                       |      |                        |       |     
|                                                                                |  | Equity in undistributed earnings of subsidiaries |       |                                       | (834 | )                      |       |      | (655 | )
|                                                                                |  | Decrease in interest receivable                  |       |                                       | 21   |                        |       |      |     |  
|                                                                                |  | Decrease (Increase) in other assets              |       |                                       | 47   |                        |       |      | (244 | )
|                                                                                |  | (Decrease) Increase in other liabilities         |       |                                       | (23  | )                      |       |      | 20   |  
|                                                                                |  | Other                                            |       |                                       | 161  |                        |       |      | (85  | )
|                                                                                |  |                                                  |       |                                       |      |                        |       |      |      |  
|                                                                                |  | Total adjustments                                |       |                                       | (628 | )                      |       |      | (964 | )
|                                                                                |  |                                                  |       |                                       |      |                        |       |     
|Net cash used in operating activities                                           |  |                                                  | 57    |                                       |      |                        | (287  | )   
|                                                                                |  |                                                  |       |                                       |      |                        |       |     
|Cash flows from investing activities                                            |  |                                                  |       |                                       |      |                        |       |     
|Proceeds
from maturities of investment securities held to maturity              |  |                                                  | 1,000 |                                       |      |                        |      |     
|                                                                                |  |                                                  |       |                                       |      |                        |       |     
|                                                                                |  |                                                  |       | Net cash used in investing activities |      |                        | 1,000 |      |      |   |  | 
|                                                                                |  |                                                  |       |                                       |      |                        |       |     
|Cash flows from financing activities                                            |  |                                                  |       |                                       |      |                        |       |     
|Dividend received from subsidiary                                               |  |                                                  | 500   |                                       |      |                        |      |     
|Stock repurchased                                                               |  |                                                  |      |                                       |      |                        | (236  | )   
|Dividends paid                                                                  |  |                                                  | (203  | )                                     |      |                        | (164  | )   
|                                                                                |  |                                                  |       |                                       |      |                        |       |     
|Net cash used in financing activities                                           |  |                                                  | (297  | )                                     |      |                        | (400  | )   
|                                                                                |  |                                                  |       |                                       |      |                        |       |     
|Net decrease in cash and cash equivalents                                       |  |                                                  | 1,354 |                                       |      |                        | (687  | )   
|Cash and cash equivalents, beginning of year                                    |  |                                                  | 161   |                                       |      |                        | 848   |     
|                                                                                |  |                                                  |       |                                       |      |                        |       |     
|Cash and cash equivalents, end of year                                          |  | $                                                | 1,515 |                                       |      | $                      | 161   |     
|                                                                                |  |                                                  |       |                                       |      |                        |       |     

F-31