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U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

FORM 10-KSB

(Mark One)

|/x/ | Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- | ------------------------------------------------------------------------------

For the fiscal year ended December 31, 2000

|/ / | Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- | ----------------------------------------------------------------------------------

For the transition period from to

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Broadway Financial Corporation(Name of Small Business Issuer in its Charter)

Delaware(State or Other Jurisdiction of
Incorporation or Organization)

95-4547287(I.R.S. Employer Identification No.)4800 Wilshire Boulevard, Los Angeles, California(Address of Principal Executive Offices)

90010(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 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 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: $12,285,000.

State
the aggregate market value of the voting stock held by non-affiliates: $6,591,654, based on the average bid and asked prices of such stock as of March 09, 2001 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: 901,333 shares of Common Stock at March 09, 2001.

Transitional
Small Business Disclosure Format (check one): Yes / /  No /x/

DOCUMENTS
INCORPORATED BY REFERENCE

Portions
of the definitive Proxy Statement for the Registrant's 2001 annual Meeting of Shareholders are incorporated by reference into Part III.

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BROADWAY FINANCIAL CORPORATION    ANNUAL REPORT ON FORM 10-KSB

|PART I
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|         |  | General                                                                                                         |  | 26
|-------- |  | --------------------------------------------------------------------------------------------------------------- |  | --
|         |  | Bad Debt Reserve                                                                                                |  | 26
|         |  | California Tax                                                                                                  |  | 27
|Item 2   |  | DESCRIPTION OF PROPERTY                                                                                         |  | 27
|Item 3   |  | LEGAL PROCEEDINGS                                                                                               |  | 28
|Item 4   |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             |  | 28
|PART II 
|Item 5   |  | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                        |  | 28
|Item 6   |  | MANAGEMENT DISCUSSION AND ANALYSIS                                                                              |  | 29
|         |  | General                                                                                                         |  | 29
|         |  | Interest Rate Sensitivity                                                                                       |  | 29
|         |  | Net Portfolio Value                                                                                             |  | 30
|         |  | Market Risk                                                                                                     |  | 31
|         |  | Year 2000 Compliance                                                                                            |  | 33
|         |  | Average Balance Sheet                                                                                           |  | 34
|         |  | Rate/Volume Analysis                                                                                            |  | 35
|         |  | Comparison of Operating Results for the Years Ended December 31, 2000 and December 31, 1999                     |  | 35
|         |  | General                                                                                                         |  | 35
|         |  | Interest Income                                                                                                 |  | 36
|         |  | Interest Expense                                                                                                |  | 36
|         |  | Provision for Loan Losses                                                                                       |  | 37
|         |  | Non-Interest Income                                                                                             |  | 37
|         |  | Non-Interest Expense                                                                                            |  | 38
|         |  | Income Taxes                                                                                                    |  | 38
|         |  | Comparison of Financial Condition at December 31, 2000 And December 31, 1999                                    |  | 39
|         |  | Liquidity and Capital Resources                                                                                 |  | 39
|         |  | Impact of Inflation and Changing Prices                                                                         |  | 40
|         |  | Recent Accounting Pronouncements                                                                                |  | 40
|Item 7   |  | FINANCIAL STATEMENTS OF BROADWAY FINANCIAL CORPORATION                                                          |  | 40
|Item 8   |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                            |  | 41
|PART III
|Item 9   |  | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT |  | 41
|Item 10  |  | EXECUTIVE COMPENSATION                                                                                          |  | 41
|Item 11  |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                                  |  | 41
|Item 12  |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                  |  | 41
|Item 13  |  | EXHIBITS, LISTS AND REPORTS ON FORM 8-K                                                                         |  | 42

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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. 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, 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) federal and state regulation of the Company's lending operations or other regulatory actions; (4) the actions
undertaken by both current and potential new competitors; (5) the possibility of adverse trends in the residential and non-residential real estate markets; and (6) other
risks and uncertainties detailed in this Form 10-KSB, including MD&A.

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PART I

Item 1. DESCRIPTION OF BUSINESS



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 and BankSmart, Inc. ("BankSmart"), each of which are direct subsidiaries 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, telephone number (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.



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 four 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.

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, primarily into 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 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 and
principal and interest payments on loans.

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, 2000, the Bank was classified as "well-capitalized" under applicable OTS and FDIC capital regulations.

1

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BankSmart provides retail services to communities served by Broadway Federal. BankSmart's principal business consists of providing retail copy and postal
services to the general public in the areas surrounding Broadway Federal's branch locations. Banksmart's services were marketed under the name of "SmartCopy" and included postal/copy centers located
in two of the Bank's branches. SmartCopy provided mailbox rental, printing, desktop publishing, office supplies, money wiring services, package mailing services, stamps and business cards. At
December 31, 2000, the Company decided to close the SmartCopy postal/copy centers because they were not profitable. An accrual of $171,000 for the
estimated exit costs of this activity is included in the current year's earnings. The Company anticipates completing its exit of this activity by March 31, 2001.



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 its primary source of funds, as these 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 its assets in loans secured by residential real estate primarily located in Broadway Federal's primary
market area of Mid-City and South Central Los Angeles; (iii) primarily retaining in its portfolio adjustable-rate mortgage loans ("ARMs") 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, branching 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.



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. 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

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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 the fact
that the deposit needs and preferences of its 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 accounts. Management believes that this results in Broadway Federal realizing a substantially higher interest rate spread and
margin than many other savings institutions.

With
respect to its lending activities, Broadway Federal also tailors its business strategy to the communities it serves. Broadway Federal's loan originations consist primarily of
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 and 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 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.



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, 2000,
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 it's 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, 2000, Broadway Federal had one loan held for sale with a principal balance of $59,000. The loan was a
single-family loan with a fixed interest rate.

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, 2000, Broadway Federal's gross loan portfolio totaled $129.2 million, of which approximately 28.75% was secured by one-
to four-family residential properties, 54.69% was secured by multi-family properties and 15.13% was secured by non-residential properties, with approximately 66% of such
non-residential properties being

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church properties. At that same date, approximately 61.50% of Broadway Federal's one- to four-family mortgage loans, 99.50% of its multi-family residential mortgage loans, and
92.12% of its non-residential mortgage loans had adjustable rates.

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

|                                  |                 | December 31,       |        
|--------------------------------- | --------------- | ------------------ | -------
|
|
|
|Real Estate:                      |                 |                    |        
|                                  | Residential:    |                    |        
|                                  |                 | One- to Four-Units |        
|                                  |                 | Five or More Units |        
|                                  | Non-residential |                    |        
|Loans Secured by Savings Accounts |                 |                    | 1,139  
|Other                             |                 |                    | 720    
|                                  |                 |                    |        
|Gross Loans                       |                 |                    | 129,241
|                                  |                 |                    |        
|                                  | Plus:           |                    |        
|Premiums on Loans Purchased       |                 |                    | 10     
|                                  | Less:           |                    |        
|Allowance for Loan Losses         |                 |                    | 1,421  
|Loans in Process                  |                 |                    | 25     
|Deferred Loan Fees, net           |                 |                    | 764    
|Unamortized Discounts             |                 |                    | 167    
|                                  |                 |                    |        
|                                  |                 |                    | 126,874
|                                  | Less:           |                    |        
|Loans Held for Sale               |                 |                    | 59     
|                                  |                 |                    |        
|Total Loans Held for Investment   |                 | $                  | 126,815
|                                  |                 |                    |        

Loan Maturity.The following table sets forth the contractual maturities of Broadway Federal's gross loans at
December 31, 2000. The table does not reflect the effect of scheduled principal

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repayments. Principal repayments on loans totaled $13.8 million and $18.4 million for the years ended December 31, 2000 and 1999, respectively.

|                  |                  | December 31, 2000        
|----------------- | ---------------- | -------------------------
|
|
|Amounts Due:      |                  |                          
|                  | One year or less |                          
|                  | After one year:  |                          
|                  |                  | After one to three years 
|                  |                  | After three to five years
|                  |                  | After five to ten years  
|                  |                  | After ten to twenty years
|                  |                  | More than twenty years   
|                  |                  |                          
|                  |                  | Total due after one year 
|                  |                  |                          
|Total Amounts Due |                  | $                        
|                  |                  |                          

The
following table sets forth the dollar amount of gross loans receivable at December 31, 2000 which are contractually due after December 31, 2001, and whether such
loans have fixed interest rates or adjustable interest rates.

|                   |                             | December 31, 2000
|------------------ | --------------------------- | -----------------
|
|
|Real Estate Loans: |                             |                  
|                   | One- to four-units          |                  
|                   | Five or more units          |                  
|                   | Non-residential real estate |                  
|Other              |                             |                  
|                   |                             |                  
|                   |                             | Total            
|                   |                             |                  

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, 2000, Broadway Federal had one fixed rate loan
secured by a single family property totaling $59,000 that was categorized as held for sale. Typically, Broadway Federal 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 Earnings. The Company evaluates servicing assets for impairment in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 125, which require that the servicing assets be carried at the lower of capitalized cost or fair value.

Broadway
Federal retains the right to service most loans sold and receives monthly loan servicing fees 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

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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, 2000 and 1999, Broadway Federal was servicing $21.8 million and $18.1 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, among other factors. Broadway Federal did not purchase any loans during the years ended December 31, 2000 and 1999.

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,
|------------------------------------- | --------------------------------- | -------------------------------------
|
|
|Gross Loans:                          |                                   |                                      
|                                      | Beginning Balance:                |                                      
|Loans Originated:                     |                                   |                                      
|                                      | One- to Four-Units                |                                      
|                                      | Five or More Units                |                                      
|                                      | Non-residential                   |                                      
|                                      | Loans Secured by Savings Accounts |                                      
|Other                                 |                                   |                                      
|                                      |                                   |                                      
|                                      |                                   | Total Loans Originated               
|Less:                                 |                                   |                                      
|Transfer to real estate owned ("REO") |                                   |                                      
|Principal Repayments                  |                                   |                                      
|Sales of Loans                        |                                   |                                      
|                                      |                                   |                                      
|                                      |                                   | $                                    
|                                      |                                   |                                      

The
decrease in loans originated in 2000 compared with 1999 was the result of the Bank's decision to focus on improving its loan origination process, which included the realignment
and training of staff. As a result, the Bank's objective was to maintain its loan portfolio at levels consistent with 1999.

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, 2000, 38.50% were fixed-rate loans and 61.50% 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 ("12-MTA"). Broadway Federal currently offers loans with interest rates that adjust both monthly 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

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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, 2000 and 1999 Broadway
Federal had approximately $26.2 million and $26.3 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,
2000. At December 31, 1999, Broadway Federal had one loan with an outstanding balance of $103,000 in negative amortization status.

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,
2000, the introductory rate offered by Broadway Federal on ARMs that adjust monthly was 8.464%, which was equal to the fully indexed COFI rate at that date (which was the COFI rate of 5.589%
plus a margin of 2.875%). For ARMs that adjust annually, the introductory rate offered by Broadway Federal at December 31, 2000 was equal to the fully-indexed rate based on the Treasury,
which was 5.780% at that date plus a margin of 2.50%. As of December 31, 2000, the fully indexed rates on ARMs that adjust annually and those that adjust monthly were 2.500% and 2.875%,
respectively, above the Treasury and COFI. Broadway Federal's annual ARMs adjust by a maximum of 2.00% per adjustment. There is no adjustment limit on
the monthly ARMs, other than on election by the borrower to limit the payment increase to 7.50% annually, which could result in negative amortization on the loan. Both annual and monthly
ARMs 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, 2000, Broadway Federal charged fees of up to 4.00% of the original loan amount for its one- to four-family ARMs.

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. Origination fees charged on fixed-rate loans were up to 3.00% of the original loan
amount at December 31, 2000.

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 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

7

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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, 2000, multi-family lending represented 54.69% of the Bank's gross loan portfolio, compared to 52.83% at December 31, 1999.

There
was a decrease in multi-family loan originations in 2000 compared to 1999 as a result of the Bank's decision to maintain its loan portfolio at levels consistent with 1999 and to
improve its loan origination process.

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 an approved independent appraiser and title insurance is required on all loans.

When
evaluating the qualifications of the borrower for a multi-family loan, Broadway Federal considers, among other things, the financial resources and income level of the borrower,
the borrower's experience in owning or managing similar property, and Broadway Federal's lending experience with the borrower. 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, 2000 was a loan totaling $1,563,000. The loan is secured by a 27-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 33-unit property
located in Downey. At December 31, 2000, this loan had an outstanding balance of $1,043,000, and was performing according to its terms. At December 31, 2000, 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.

8

---

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 $19.5 million in
non-residential real estate loans at December 31, 2000, $1.1 million and $3.6 million were originated in 2000 and 1999, 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 ARM's 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 1987. It is secured by church property located in Inglewood, California and had an
outstanding balance at December 31, 2000 of $697,000. This loan is currently performing according to its terms.

The
second largest non-residential real estate loan in Broadway Federal's portfolio was originated in 1989. It is secured by church property located in Los Angeles,
California, and had an outstanding balance at December 31, 2000 of $622,000. This loan is currently performing according to its terms. At December 31, 2000, 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 loans than for residential or 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 $13.0 million and $13.9 million at December 31, 2000 and 1999, 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 Company'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

9

---

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, 2000, loans secured by savings accounts represented $1.1 million, or 0.88%, 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 Board of Directors establishes the lending policies of Broadway Federal.
The Loan Committee, which is comprised of the Senior Vice President-Chief Loan Officer and at least three members of the Board of Directors, one of whom is the President and Chief
Executive Officer, is primarily responsible for developing, implementing and monitoring the lending policies of Broadway Federal and reviewing properties offered as security.

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 below $275,000, 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 $275,000 to $599,999, the new loan must be approved by two Loan Committee members, which may include the Senior Vice President-Chief Loan
Officer and the President; if the total of the borrower's existing loans and the loan under consideration is from $600,999 up to $999,999, the new loan must be approved by three Loan Committee
members; 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 by one or two Management Loan Committee members be reviewed the following month by the two outside directors on the Loan Committee.

For
all loans originated by Broadway Federal, upon receipt of a loan application from a prospective borrower, a credit report is ordered and certain other information is verified by
an independent credit agency and, if necessary, additional financial information is requested. An appraisal of the real estate intended to secure the proposed loan is required, which appraisal is
performed by 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 and the Board of Directors perform a monthly review of all delinquent
loans. 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.

10

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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 its estimated fair value less the costs estimated to be necessary to sell the property.

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

Broadway
Federal 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

11

---

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, 1999, 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, 2000, Broadway Federal had $1.6 million of loans classified as "Substandard," of which the largest had a principal balance of $521,000 and was secured by
a multi-family property. At December 31, 2000, no loans were classified as "Doubtful". However, four loans were classified as "Loss". As of December 31, 2000, 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, 2000, the largest loan
designated as "Special Mention" had a principal balance of $500,000 and was secured by a non-residential property.

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.

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

December 31,2000

199960-89 Days

90 Days or More

60-89 Days

90 Days or MoreNumber
of
Loans

Principal Balance of Loans

Number of Loans

Principal Balance of Loans

Number
of
Loans

Principal Balance of Loans

Number
of
Loans

Principal Balance of Loans(Dollars in thousands)One- to four family



$


3

$
164



$


8

$
550Multi-family
















3


730Non-residential
















1


115Total



$


3

$
164



$


12

$
1,395Delinquent loans to totalGross loans




0.00
%



0.10
%



0.00
%



1.06
%


Non-Performing Assets.Non-performing assets, consisting of
non-accrual loans and REO, decreased from $1.9 million at December 31, 1999 to $632,000 at December 31, 2000. The $1.3 million decrease resulted from a $800,000
decrease in non-accrual loans and a $500,000 decrease in REO. As a percentage of total assets, non-performing assets were 0.38% at December 31, 2000, as compared to
1.15% at December 31, 1999. The allowance for loan losses was 224.84% of non-performing loans at December 31, 2000, as compared to 103.15% at December 31, 1999.

The
following table includes information regarding Broadway Federal's non-performing assets at the dates indicated. For the years ended December 31, 2000 and 1999,
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 $24,000 and
$110,000, respectively, as compared with the respective amounts actually received on non-accrual loans of $9,000 and $29,000. Broadway Federal had no commitments to lend additional funds
to borrowers whose loans were on non-accrual status at

12

---

December 31, 2000. No accruing loans were contractually past due by 90 days or more at December 31, 2000.

At December 31,2000

1999(Dollars in thousands)Non-accrual loans:Residential real estate:One- to four-family

$
164

$
550Multi-family





730Non-residential


468


115Total non-performing loans


632


1,395REO





515Total non-performing assets

$
632

$
1,910Allowance for loan losses as a percentage of gross loans


1.10
%

1.09
%Allowance for loan losses as a percentage of total non-performing loans


224.84
%

103.15
%Allowance for losses as a percentage of total non-performing assets(1)


224.84
%

84.87
%Non-performing loans as a percentage of gross loans


0.49
%

1.06
%Non-performing assets as a percentage of total assets


0.38
%

1.15
%Net charge-offs to average loans


0.29
%

0.01
%Impaired loans as a percentage of gross loans


0.36
%

0.91
%


---

At
December 31, 2000, Broadway Federal's total recorded investment in impaired loans was $468,000. The balance was fully reserved at December 31, 2000. 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 earnings. During the year ended
December 31, 2000, Broadway Federal's average investment in impaired loans was $615,000, and its interest income recorded on impaired loans during this period totaled $11,000. Impaired loans,
which are performing under their contractual terms, are reported as performing loans and cash payments are allocated to principal and interest in accordance with the terms of the loan.

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). 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

13

---

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.

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, 2000, Broadway Federal had no REO, compared to $515,000 at December 31, 1999.

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

December 31,2000

1999(In thousands)Allowance for loan losses:Balance at beginning of year

$
1,439

$
1,151Charge-offs:One- to four-family


134


12Multi-family


244


Other





Total charge-offs(1)


378


12Provision charged to earnings


360


300Balance at end of year

$
1,421

$
1,439Allowance for REOBalance at beginning of year


182


136Provision for losses





60Charge-offs(1)


(182
)

(14
)Balance at end of year

$


$
182


---

14

---

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 for the Allowance for Loan Losses at December 31, |      
|------------------------------- |  | ------------------------------------------------------------ | -----
|
|
|
|One- to four-family             |  | $                                                            | 118  
|Multi-family                    |  |                                                              | 414  
|Non-residential                 |  |                                                              | 229  
|Other                           |  |                                                              | 550  
|Unallocated                     |  |                                                              | 111  
|                                |  |                                                              |      
|Total allowance for loan losses |  | $                                                            | 1,421
|                                |  |                                                              |      



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. Additionally, Broadway Federal must maintain minimum levels of investments that qualify as liquid assets under OTS
regulations. See "RegulationFederal Home Loan Bank System" and "Liquidity." Historically, Broadway Federal has maintained liquid assets above the minimum OTS
requirements and at levels management believes to be adequate to support its normal daily activities.

The
investment policy of the Company attempts 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, including certificates of deposit, mortgage-backed securities issued by the FHLMC, the FNMA, the Government National Mortgage Association ("GNMA"),
and municipal obligations that have a rating which exceeds or is the equivalent of an "A" rating as determined by Standard and Poor's Ratings Group or Moody's Investors Service. Bankers acceptances
from any one issuer are limited to 10% of the Company's capital and commercial paper is limited to 1% of the Company'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, 2000 and 1999, the
Company had investment and mortgage-backed securities in the aggregate amount of $21.4 million and $23.8 million, respectively, with fair values of $21.3 million and
$23.2 million, respectively. All investment and mortgage-backed securities were categorized as held-to-maturity at December 31, 2000 and 1999.

15

---

The following table sets forth information regarding the carrying and fair values of the Company's investment and mortgage-backed securities at the dates indicated.

|                                                |                   | At December 31,           
|----------------------------------------------- | ----------------- | --------------------------
|
|
|
|Investment and mortgage-backed securities:      |                   |                           
|                                                | Held to maturity: |                           
|                                                |                   | Mortgage-Backed Securities
|                                                |                   | Federal Agency debentures 
|                                                |                   |                           
|Total investment and mortgage-backed securities |                   | $                         
|                                                |                   |                           

The
table below sets forth certain information regarding the carrying value, weighted average yields and contractual maturities of the Company's investments and mortgage-backed
securities as of December 31, 2000.

|                 |                            | At December 31, 2000 |  
|---------------- | -------------------------- | -------------------- | -
|
|
|
|Securities       |                            |                      |  
|                 | Held to maturity:          |                      |  
|                 | Mortgage-Backed Securities |                      | $
|                 | Federal Agency debentures  |                      |  
|                 |                            |                      |  
|Total securities |                            | $                    | 
|                 |                            |                      |  



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. As of December 31, 2000, out-of-state deposits totaled $14.7 million or
10.38% of Broadway Federal's total deposit portfolio. Further, Broadway Federal generally has not solicited deposit accounts by increasing the rates of

16

---

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.

The
following table presents the deposit activity of Broadway Federal for the periods indicated.

For the Year Ended December 31,2000

1999(In thousands)Deposits

$
290,584

$
289,023Withdrawals


287,984


285,440Net deposits


2,600


3,583Interest credited on deposits


5,010


4,403Total increase in deposits

$
7,610

$
7,986


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, |        
|------------------------------------ |  | ----------------------- | -------
|
|
|
|Money market deposits                |  | $                       | 4,463  
|Passbook deposits                    |  |                         | 28,159 
|NOW and other demand deposits        |  |                         | 17,786 
|                                     |  |                         |        
|Total                                |  |                         | 50,408 
|                                     |  |                         |        
|Time Deposits:                       |  |                         |        
|Three months or less                 |  |                         | 2,567  
|Over three months through six months |  |                         | 10,576 
|Over six through twelve months       |  |                         | 19,890 
|Over one to three years              |  |                         | 14,885 
|Over three to five years             |  |                         | 5,901  
|Over five to ten years               |  |                         | 315    
|Certificates over $100,000           |  |                         | 30,508 
|                                     |  |                         |        
|Time Deposits                        |  |                         | 84,642 
|                                     |  |                         |        
|Total Deposits                       |  | $                       | 135,050
|                                     |  |                         |        

17

---

The
following table presents, by various rate categories, the amounts of certificate accounts outstanding at the dates indicated and the periods to maturity of the time deposits
outstanding at December 31, 2000.

|                                           |                | Period to Maturity at December 31, 2000
|------------------------------------------ | -------------- | ---------------------------------------
|
|
|Certificate Accounts Less Than $100,000:   |                |                                        
|                                           | 0 to 4.00%     |                                        
|                                           | 4.01 to 5.00%  |                                        
|                                           | 5.01 to 6.00%  |                                        
|                                           | 6.01 to 7.00%  |                                        
|                                           | 7.01 to 10.00% |                                        
|                                           |                |                                        
|                                           |                | Total                                  
|                                           |                |                                        
|Certificate Accounts $100,000 and Greater: |                |                                        
|                                           | 0 to 4.00%     |                                        
|                                           | 4.01 to 5.00%  |                                        
|                                           | 5.01 to 6.00%  |                                        
|                                           | 6.01 to 7.00%  |                                        
|                                           | 7.01 to 10.00% |                                        
|                                           |                |                                        
|                                           |                | Total                                  
|                                           |                |                                        
|                                           |                |                                        
|                                           |                |                                        

The
following table presents the amount and weighted average rate of time deposits equal to or greater than $100,000 at December 31, 2000, maturing within the next twelve
months.

For the Year Ended
December 31, 2000Amount

Weighted
Average Rate(Dollars in thousands)Three months or less

$
24,275

5.34
%Over three through six months


21,567

5.93
%Over six through 12 months


21,248

5.95
%Over 12 months


24,366

5.90
%Total

$
91,456

5.77
%


Borrowings.From time to time Broadway Federal has obtained advances from the FHLB and may 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 the FHLB. At December 31, 2000 and 1999 Broadway Federal had $10.0 million and
$16.9 million, respectively, outstanding advances from the FHLB and no other borrowings. Broadway Federal's outstanding advances at December 31, 2000 were secured by mortgage loans.

18

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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 31,2000

1999(Dollars in thousands)FHLB advances:Average balance outstanding

$
13,678

$
12,286Maximum amount outstanding at any month-end period

$
18,450

$
18,800Balance outstanding at end of period

$
10,000

$
16,900Weighted average interest rate during the period


5.91
%

4.70
%Weighted average interest rate at end of period


6.67
%

5.60
%




At December 31, 2000, Broadway Federal had 47 full-time employees and 25 part-time employees. Broadway Federal believes that it
has good relations with its employees and none are represented by a collective bargaining group.



The Company'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 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 an property damage.

19

---





General.The Company is registered with the OTS as a savings and loan holding company and is subject to regulation and
examination as such 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.

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.



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 ("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
0.31%. During 2000, Broadway Federal's assessment rate was 0.03%.

20

---



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, 2000 and 1999, Broadway Federal's general valuation allowance included in supplementary capital was $936,000 and $1,047,000, 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.

21

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Following is a reconciliation of Broadway Federal's equity capital to the minimum Federal regulatory capital requirements as of December 31, 2000 and December 31, 1999:

|                                  |  | As of December 31 |       
|--------------------------------- |  | ----------------- | ------
|
|
|
|Equity Capital-Broadway Federal   |  | $                 | 12,530
|Additional supplementary capital: |  |                   |       
|General valuation allowance       |  |                   |      
|Assets required to be deducted    |  |                   | (196  
|                                  |  |                   |       
|Regulatory capital amounts        |  |                   | 12,334
|Minimum requirement               |  |                   | 2,494 
|                                  |  |                   |       
|Excess over requirement           |  | $                 | 9,840 
|                                  |  |                   |       

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." The PCA provisions expand the powers and duties of the OTS and the FDIC and expressly authorize, or in many cases direct, regulatory intervention at an earlier stage
than was previously the case.

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, 2000, Broadway Federal was a well-capitalized institution.

The
table below presents Broadway Federal's capital ratios at December 31, 2000 and 1999:

ActualAmount

Ratios(Dollars in thousands)December 31, 2000:Leverage/Tangible Ratio

$
12,334

7.42
%Tier I Risk-based ratio

$
12,334

12.33
%Total Risk based ratio

$
13,270

13.26
%December 31, 1999:Leverage/Tangible Ratio

$
11,497

6.97
%Tier I Risk-based ratio

$
11,497

9.24
%Total Risk based ratio

$
12,544

10.08
%


22

---

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.



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, 2000, the maximum amount that Broadway Federal could lend to any one borrower (including related persons and entities) under the current loans to one borrower limit
was $1.65 million. At December 31, 2000, the largest aggregate amount of loans that Broadway Federal had outstanding to any one borrower was $1.5 million.



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).



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

23

---

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, 2000, the liquidity ratio for Broadway Federal was 17.24%, which exceeded the new
requirement. Broadway Federal's liquidity includes its investments in investment and mortgage-backed securities.



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.



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, 2000, Broadway Federal was in compliance with its QTL test requirements.



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

24

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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.



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-regulation 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.



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 uniform rules require that institutions adopt and maintain comprehensive written policies for real estate lending. The policies must reflect consideration of the Interagency
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 Interagency 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

25

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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.



On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act (the "G-L-B Act"), that is expected to have
far-reaching impacts on 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 will have 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 unless the customer has been given the opportunity to object and has not objected to such disclosure. Financial
institutions, however, will be required to comply with state laws if they are more protective of customer privacy than the G-L-B Act.

The
G-L-B Act makes significant revisions to the FHLB System. The G-L-B Act imposes new capital requirements on the Federal Home Loan
Banks and authorizes them to issue two classes of stock with differing dividend rates and redemption requirements. The G-L-B Act deletes the current requirement that the
Federal Home Loan Banks annually contribute $300 million to pay interest on certain government obligations in favor of a 2% of net earning formula. 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.



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 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

26

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reserve method of accounting for bad debt, under which additions to reserves are based on the institution's 6 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.



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 five branch offices. Broadway Federal's loan origination and service operations are also conducted from one of
its branch offices. Broadway Federal's administrative and corporate operations are conducted from the Company's corporate facility located at 4800 Wilshire Boulevard, Los Angeles, which also houses
it's fifth branch office. Broadway Federal closed its branch office at 3555 West Slauson, Los Angeles in June 1999 and all deposits were consolidated into Broadway Federal's Inglewood branch.

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.

|Location                       |  | Leased or
Owned |  | Original
Date
Leased or
Acquired |  | Date
of Lease
Expiration |  | Net Book Value
of Property or
Leasehold
Improvements at
December 31, 2000
|------------------------------ |  | --------------- |  | -------------------------------- |  | ------------------------ |  | -------------------------------------------------------------------------
|Administrative/Branch Office:  |  |                 |  |                                  |  |                          |  |                                                                          
|4800 Wilshire Blvd.            |  | Owned           |  | 1997                             |  |                         |  | $                                                                        
|Los Angeles, CA                |  |                 |  |                                  |  |                          |  |                                                                          
|Branch Offices:                |  |                 |  |                                  |  |                          |  |                                                                          
|4835 West Venice Blvd.(2)      |  | Building Owned  |  | 1965                             |  | 2013                     |  | $                                                                        
|Los Angeles, CA                |  | on Leased Land  |  |                                  |  |                          |  |                                                                          
|10920 S. Central Ave.(3)       |  | Leased          |  | 1998                             |  | (3)                      |  | $                                                                        
|Los Angeles, CA                |  |                 |  |                                  |  |                          |  |                                                                          
|Branch Office/Loan Origination |  |                 |  |                                  |  |                          |  |                                                                          
|and Service Center:            |  |                 |  |                                  |  |                          |  |                                                                          
|170 N. Market Street           |  | Owned           |  | 1996                             |  |                         |  | $                                                                        
|Inglewood, CA                  |  |                 |  |                                  |  |                          |  |                                                                          
|4429 West Adams Blvd.(1)       |  |                 |  |                                  |  |                          |  |                                                                          
|Los Angeles, CA                |  | Owned           |  | 1993                             |  |                         |  | $                                                                        
|4001 South Figueroa Street     |  |                 |  |                                  |  |                          |  |                                                                          
|Los Angeles, CA                |  | Owned           |  | 1996                             |  |                         |  | $                                                                        

---

27

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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, 2001, 901,333 shares of Common Stock were outstanding and held by approximately 425
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.

4th Quarter

3rd Quarter

2nd Quarter

1st Quarter2000High

$815/16

$95/16

$89/16

$73/4Low

$63/4

$7

$61/4

$45/81999High

$7

$75/8

$7

$83/4Low

$45/8

$51/8

$6

$61/2


During
2000 and 1999, 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. Thirty days' prior notice to the OTS is required before any capital distribution is made. On December 21, 2000, in accordance with OTS regulations, Broadway Federal requested approval
to declare and pay a $500,000 cash dividend to the Company. OTS approval was granted on January 17, 2001. The dividend declaration date was January 31, 2001 and 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.

28

---

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, 2000, a total of 55,199 shares of Preferred Stock are outstanding.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS



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 principal business is serving as the holding company for Broadway Federal and BankSmart. Prior to the completion of the Conversion, the Company had no assets or
liabilities and did not conduct any business other than that of an organizational nature.

The
Company's and Broadway Federal's results of operations are dependent primarily on its net interest income, 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. Broadway Federal also generates recurring
non-interest income such as
transactional fees on its loan and deposit portfolios. The Company's operating results are affected by the amount of the Bank's general and administrative expenses, which consist principally of
employee compensation and benefits, occupancy expenses and federal deposit insurance premiums and by its periodic provisions for loan losses. 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. As of and for the year ended December 31,
2000, the operations of BankSmart are insignificant to the operations of the Company.

For
the years ended December 31, 2000 and 1999, the Company recorded net earnings of $677,000, or $0.74 per diluted common share, and $358,000, or $0.35 per diluted common
share, respectively. At December 31, 2000 and 1999, respectively, the Company had total consolidated assets of $167.9 million and $166.3 million; total deposits of
$141.6 million and $134.0 million; and stockholders' equity of $14.0 million and $13.8 million, representing 8.33% and 8.30% of assets. Each of the Bank's regulatory
capital ratios exceeded regulatory requirements at December 31, 2000 and 1999, with tangible and core capital each at 7.42% and 6.97% and risk-based capital at 13.26% and 10.08%,
respectively.

The
southern California economy and real estate markets in the Company's lending area have remained strong during the year. The Company's level of non-performing assets
declined from December 31, 1999, both in total dollar amount and as a percentage of total assets. The Company includes non-accrual loans 90 days or more past due and REO in
determining its level of non-performing assets. At December 31, 2000, the Company reported $489,000 in non-performing assets compared to $1.9 million at
December 31, 1999.

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. During a period of falling interest rates, the net
earnings of an institution whose interest rate sensitive assets maturing or repricing during such period exceeds the

29

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amount of interest rate sensitive liabilities maturing or repricing during the period may, absent offsetting factors, be adversely affected due to its interest-earning assets repricing to a lesser
extent than its interest-bearing liabilities. Conversely, during a period of rising interest rates, the net earnings of an institution may, also absent offsetting factors, increase as it is able to
invest in higher yielding interest-earning assets at a more rapid rate than its interest-bearing liabilities reprice. For extended time periods, however, an institution with a large portfolio of
ARMs may not be protected from increases in interest rates since ARMs generally have periodic and lifetime interest rate caps. Additionally, Broadway Federal's ARMs are
predominantly tied to the COFI, which is a "lagging"
market index, whereas its deposit costs are not. Rapid increases in interest rates could therefore have a negative impact on Broadway Federal's earnings. Declining interest rates have, in general,
benefited Broadway Federal primarily due to the effect of the lagging market index which has resulted in the interest income earned on loans declining at a slower rate than interest expense paid on
deposits. This effect of the lagging index, however, has been partially offset by the increase in refinancings of portfolio loans to lower yielding loans.

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 semi-annually and indexed to the COFI and the Treasury.

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.

Net Portfolio Value.Net portfolio value ("NPV") is the difference between the present value of expected future cash
flows of the Company's assets and liabilities under various interest rate scenarios. The present value of these cash flows is calculated by discounting them using the interest rates for that scenario.

The
following tables present Broadway Federal's NPV as of December 31, 2000 and 1999. 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 affect Broadway Federal's interest-earning assets and interest-bearing
liabilities. Actual results may vary.

30

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|Net Portfolio Value as of December 31, 2000 | 
|------------------------------------------- | 
|
|
|300                                         | 
|200                                         | 
|100                                         | 
|Zero                                        | 
|(100)                                       | 
|(200)                                       | 
|(300)                                       | 

|Net Portfolio Value as of December 31, 2000 | 
|------------------------------------------- | 
|
|
|300                                         | 
|200                                         | 
|100                                         | 
|Zero                                        | 
|(100)                                       | 
|(200)                                       | 
|(300)                                       | 

---

The
above table suggests that in the event of a 200 basis point change in interest rates at December 31, 2000 and 1999, Broadway Federal would experience a (2)% and an (8)%
decrease, respectively, in NPV in a rising rate environment and a (6)% decrease and a 4% increase, respectively, in NPV in a declining rate environment.

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

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, 2000 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, 2000. 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. Similarly, substantially all the Company's investment securities portfolio is
comprised of callable government agency securities.

31

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Expected Maturity Date

|                                   |                         | Fiscal Year Ended December 31, 2000
|---------------------------------- | ----------------------- | -----------------------------------
|
|
|Interest Earnings Assets:          |                         |                                    
|Loans receivable(1)(2)(3)          |                         |                                    
|                                   | Fixed                   |                                    
|                                   |                         | Average interest rate              
|                                   | Adjustable              |                                    
|                                   |                         | Average interest rate              
|Investment securities(4)           |                         | $                                  
|                                   | Average interest rate   |                                    
|Mortgage backed securities(5)(6)   |                         |                                    
|                                   | Fixed                   |                                    
|                                   |                         | Average interest rate              
|                                   | Adjustable              |                                    
|                                   |                         | Average interest rate              
|Interest bearing deposits          |                         | $                                  
|                                   | Average interest rate   |                                    
|FHLB stock                         |                         | $                                  
|                                   |                         | Average interest rate              
|Total interest earning assets      |                         | $                                  
|Interest Bearing Liabilities:      |                         |                                    
|Savings accounts                   |                         |                                    
|                                   | NOW accounts(7)         |                                    
|                                   |                         | Average interest rate              
|                                   | Passbook accounts(8)    |                                    
|                                   |                         | Average interest rate              
|                                   | Certificate accounts(9) |                                    
|                                   |                         | Average interest rate              
|                                   | Money Market funds(10)  |                                    
|                                   |                         | Average interest rate              
|Federal Home Loan Bank advances    |                         |                                    
|                                   | Fixed rate borrowing    |                                    
|                                   |                         | Average interest rate              
|Total interest bearing liabilities |                         | $                                  

32

---

---



Year 2000 Compliance.On and subsequent to December 31, 1999, the Company experienced no problems relative to
the Y2K issue that had a material adverse impact on the Company's financial condition, results of operations or liquidity. The Company will continue to monitor its significant vendors with respect to
Y2K problems they may encounter as those issues may adversely effect the Company's ability to continue operations. The Company does not believe at this time that any potential problems relative to the
Y2K issue will materially impact the Company in the future. However, no assurance can be given that this will be the case.

33

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Average Balance Sheet.The following table sets forth certain information relating to the Company's average balance
sheets for the years ended December 31, 2000 and 1999. 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.

|                                                                 |              | For the Year Ended December 31, |        
|---------------------------------------------------------------- | ------------ | ------------------------------- | -------
|
|
|
|Assets                                                           |              |                                 |        
|Interest-earning assets:                                         |              |                                 |        
|Interest-earning deposits                                        |              | $                               | 155    
|Federal Funds sold and other short-term investments              |              |                                 | 896    
|Investment securities(1)                                         |              |                                 | 10,633 
|Loans receivable(2)(3)                                           |              |                                 | 127,437
|Mortgage-backed securities(1)                                    |              |                                 | 11,878 
|FHLB stock                                                       |              |                                 | 1,278  
|                                                                 |              |                                 |        
|Total interest-earning assets                                    |              |                                 | 152,277
|                                                                 |              |                                 |        
|Non-interest-earning assets                                      |              |                                 | 12,068 
|                                                                 |              |                                 |        
|                                                                 | Total assets |                                 | $      
|                                                                 |              |                                 |        
|Liabilities and Retained Earnings                                |              |                                 |        
|Interest-bearing liabilities:                                    |              |                                 |        
|Money market deposits                                            |              | $                               | 4,463  
|Passbook deposits                                                |              |                                 | 28,159 
|NOW and other demand deposits                                    |              |                                 | 17,786 
|Certificate accounts                                             |              |                                 | 84,642 
|                                                                 |              |                                 |        
|Total deposits                                                   |              |                                 | 135,050
|FHLB advances                                                    |              |                                 | 13,678 
|                                                                 |              |                                 |        
|Total interest-bearing liabilities                               |              |                                 | 148,728
|                                                                 |              |                                 |        
|Non-interest-bearing liabilities                                 |              |                                 | 1,595  
|Retained earnings                                                |              |                                 | 14,022 
|                                                                 |              |                                 |        
|Total liabilities and retained earnings                          |              | $                               | 164,345
|                                                                 |              |                                 |        
|Net interest rate spread(4)                                      |              |                                 |        
|Net interest margin(5)                                           |              |                                 |        
|Ratio of interest-earning assets to Interest-bearing liabilities |              |                                 |        
|Return on average assets                                         |              |                                 |        
|Return on average equity                                         |              |                                 |        
|Average equity to average assets ratio                           |              |                                 |        

---

34

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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, 2000
compared to Year ended
December 31, 1999 |      | Year ended December 31, 1999
compared to Year ended
December 31, 1998 |  
|--------------------------------------------------- |  | --------------------------------------------------------------------- | ---- | --------------------------------------------------------------------- | -
|
|
|
|Interest-earning assets:                            |  |                                                                       |      |                                                                       |  
|Interest-earning deposits                           |  | $                                                                     |     |                                                                       | $
|Federal funds sold and other Short term investments |  |                                                                       | 6    |                                                                       |  
|Investment securities, net                          |  |                                                                       | 34   |                                                                       |  
|Loans receivable, net                               |  |                                                                       | 558  |                                                                       |  
|Mortgage backed securities, net                     |  |                                                                       | (134 | )                                                                     |  
|FHLB stock                                          |  |                                                                       | 10   |                                                                       |  
|                                                    |  |                                                                       |      |                                                                       |  
|Total interest-earning assets                       |  |                                                                       | 474  |                                                                       |  
|                                                    |  |                                                                       |      |                                                                       |  
|Interest-bearing liabilities:                       |  |                                                                       |      |                                                                       |  
|Money market deposits                               |  |                                                                       | (8   | )                                                                     |  
|Passbook deposits                                   |  |                                                                       | (10  | )                                                                     |  
|NOW and other demand deposits                       |  |                                                                       | 3    |                                                                       |  
|Certificate accounts                                |  |                                                                       | 211  |                                                                       |  
|FHLB advances                                       |  |                                                                       | 65   |                                                                       |  
|                                                    |  |                                                                       |      |                                                                       |  
|Total interest-bearing liabilities                  |  |                                                                       | 261  |                                                                       |  
|                                                    |  |                                                                       |      |                                                                       |  
|CHANGE IN NET INTEREST INCOME                       |  | $                                                                     | 213  |                                                                       | $
|                                                    |  |                                                                       |      |                                                                       |  

Comparison of Operating Results for the Years Ended December 31, 2000 and December 31, 1999



The Company recorded net earnings of $677,000 or $0.74 per diluted common share, for the year ended December 31, 2000, compared to net earnings of
$358,000 or $0.35 per diluted common share, for the year ended December 31, 1999. During the year ended December 31, 2000, net earnings were

35

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negatively impacted by the pretax accrual of estimated exit costs of $171,000 as a result of the decision to close the Company's SmartCopy operations and a pretax loss of $58,000 from savings
operations. Offsetting these charges was a pretax gain from casualty insurance reimbursement of $178,000. During the year ended December 31, 1999, net earnings were negatively impacted by
$762,000 in pretax savings operations losses and litigation settlement costs, offset by a pretax gain from casualty insurance reimbursement of $680,000. Net earnings adjusted to exclude these
non-core items were $706,000 and $407,000 for the years ended December 31, 2000 and 1999, respectively. The net earnings for 2000 were
also impacted by the net effect of offsetting factors, which included higher net interest income, higher provision for loan losses, lower non-interest income and lower
non-interest expense.



Interest income increased by $925,000, or 8.14%, from $11.4 million for the year ended December 31, 1999 to $12.3 million for the same
period in 2000. This increase was primarily the result of an increase in average interest-earning assets of $5.6 million, to $152.3 million for the year ended December 31, 2000
from $146.6 million for the same period a year ago. The increase in average interest-earning assets resulted from Broadway Federal's focus on increasing its loan and investment
portfolios.

The
average yield on such assets increased from 7.75% during the year ended December 31, 1999 to 8.07% during the year ended December 31, 2000. Interest income from
loans, which accounted for approximately 88% of total interest income in 2000, increased by $966,000, or 9.87%, due to a $6.9 million, or 5.70%, increase in the average balance of loans and a
32-basis point increase in the average yield on such loans from 8.12% during 1999 to 8.44% during 2000. Interest income from mortgage-backed securities decreased $117,000, or 13.49%, from
$867,000 in 1999 to $750,000 in 2000, primarily due to a $2.2 million, or 15.44%, decrease in the average balance of mortgage-backed securities, offset by a 14-basis point increase
in the average yield on such securities from 6.17% during 1999 to 6.31% during 2000. Interest income from investment securities increased $24,000 or 3.88%, from $619,000 in 1999 to $643,000 in 2000,
primarily due to a $552,000, or 5.48% increase in the average balance of investment securities to $10.6 million during 2000, from $10.1 million during 1999, offset by a
9-basis point decrease in the average yield on investment securities to 6.05% during 2000 from 6.14% during 1999.

Other
interest income increased $52,000 or 58.43% from $89,000 in 1999 to $141,000 in 2000, primarily due to an increase in income from the Company's average investments in FHLB
stock, federal funds sold and other short-term investments. The average balance of FHLB stock increased $199,000 or 18.40% and the average yield on such stock increased
162-basis points, from 5.19% in 1999 to 6.81% in 2000. The average balance of federal funds sold and other short-term investments increased $171,000 or 23.50% and the average
yield on such investments increased 146-basis points, from 3.45% in 1999 to 4.91% in 2000.



Interest expense includes interest on savings deposits and on borrowings. Interest expense increased $756,000, or 15.07%, for the year ended
December 31, 2000, to $5.8 million, from $5.0 million for the
same period a year ago. This increase was primarily the result of an increase in average interest-bearing liabilities of $5.3 million, to $148.7 million for the year ended
December 31, 2000 from $143.4 million for the same period a year ago. Interest on savings deposits, which accounted for approximately 86% of interest expense in 2000, increased by
$525,000 or 11.83%, due to a $3.9 million, or 2.97%, and a 29-basis point increase in the average cost of deposits from 3.38% for 1999 to 3.67% for 2000.

36

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Net interest spread ("NIS"), which represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities, decreased from
4.25% at December 31, 1999 to 4.19% at December 31, 2000. This 6-basis point decrease in NIS primarily results from higher cost of deposits and borrowings, offset by slightly
higher yields on interest-earning assets between 1999 and 2000. Management continues to take steps that are intended to stabilize core earnings, which include (i) increasing loan originations,
specifically multi-family originations, which have higher yields and larger margins over the stated index; (ii) increasing the level of non-interest bearing checking deposits; and
(iii) attempting to hold deposit rates on jumbo and other certificate accounts to levels which are less than or equal to related Federal Home Loan Bank borrowing rates.



The provision for loan losses increased by $60,000, or 20.0%, from $300,000 for the year ended December 31, 1999 to $360,000 for the year ended
December 31, 2000. The higher provision results from management's ongoing analysis of the Company's allowance for loan losses, which in turn is impacted by the level of charge-offs
during the period. For the year ended December 31, 2000 loan charge-offs totaled $378,000, as compared to $12,000 for the same period in 1999. The increase in the provision during
2000 was also impacted by the slight increases in the secured multi-family and unsecured loan portfolios as compared to the prior year. These loans are generally viewed as exposing the lender to a
greater risk of loss than one-to-four family residential loans.

Total
non-performing assets, consisting of non-accrual loans and REO, decreased by $1.3 million, from $1.9 million at December 31, 1999 to
$632,000 at December 31, 2000. The decrease consisted of a $800,000 decrease in non-accrual loans, coupled with a $500,000 decrease in REO. As a percentage of total assets,
non-performing assets were 1.15% at December 31, 1999, compared to 0.38% at December 31, 2000. The allowance for loan losses was 103.15% of non-performing loans
at December 31, 1999, compared to 224.84% at December 31, 2000. Non-accrual loans at December 31, 2000 included three loans totaling $164,000 secured by
one- to four-unit properties and three unsecured loans for $468,000. Management considers the level of non-performing assets, the regional economic conditions and
relevant real estate values and other factors when assessing the adequacy of the allowance for loan losses. The southern California economy and real estate markets in the Company's primary lending
area continued to be strong during 2000, and management considers the level of allowance for loan
losses at December 31, 2000 to be adequate. However, even though the local economy and real estate markets were strong during 2000, there can be no assurance that non-performing
assets will not increase and that the Company will not have to establish additional loss provisions based upon future events.



Non-interest income decreased by $430,000, or 36.32%, to $754,000 for the year ended December 31, 2000, from $1.2 million for the
same period a year ago. The decrease is due to a number of offsetting factors. Loss on sale of mortgage loans decreased $48,000, from a $164,000 loss in 1999 to a $116,000 loss in 2000. The losses
were due to fluctuations in market interest rates, resulting in a diminution in the value of such assets. Gain on casualty insurance reimbursement decreased from $680,000 in 1999 to $178,000 in 2000.
Insurance proceeds received in 2000 consisted of $171,000 relating to recovery of savings losses that occurred in 1999 and $7,000 in property damage reimbursements that occurred in 2000. Insurance
proceeds received in 1999 related to casualty insurance reimbursements from the 1992 destruction of the Company's headquarters. Income from service charges increased during 2000 to $588,000 compared
to $501,000 in 1999, primarily due to an increase in service fees collected on customer deposit accounts.

37

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Non-interest expense decreased by $904,000, or 13.64%, to $5.7 million for the year ended December 31, 2000, from $6.6 million
for the same period a year ago. The decrease in non-interest expense was primarily due to decreases in advertising and promotional expenses, professional services, net real estate
operations and other expenses, which primarily include decreases in branch losses, litigation settlements and other non-interest expenses. These decreases were primarily offset by an
increase in occupancy expense.

Professional
services include audit, legal and other consulting expenses. Professional services decreased by $157,000 or 35.36% for the year ended December 31, 2000, as
compared to the same period a year ago, primarily due to lower legal costs incurred in 2000 compared to 1999.

For
the year ended December 31, 2000, real estate operations, net decreased $164,000 to $(87,000), compared to $77,000 during the same period in the prior year. The decrease in
expenses between 1999
and 2000 primarily resulted from the sale of REO properties for amounts in excess of their carrying values.

Other
non-interest expense decreased $843,000, or 61.18%, from $1.4 million in 1999 to $535,000 in 2000. The decrease was primarily due to a $427,000 decrease in
branch losses and a $237,000 decrease in litigation settlement costs. Branch losses decreased by $427,000 to $103,000 for the year ended December 31, 2000. The decrease in branch losses
resulted from improvements in internal controls, oversight and monitoring. Specifically, the Company has enhanced internal controls, increased internal audits of the Savings department, improved
deposit account opening procedures, including enhanced credit and background reviews of new customers, increased monitoring and senior level review of large transactions, coordinated efforts with
outside vendors to increase security oversight, enhanced credit and background reviews of new hires, and utilized independent security consultants to review and recommend security and internal control
initiatives.

Litigation
settlement expenses decreased $237,000 during the year ended December 31, 2000 as the Company settled or paid all known legal claims in 1999 for which it reasonably
believed that a liability might exist. See "  Legal Proceedings". Other non-interest expense decreased by $128,000 from $406,000 in 1999 to $278,000 in 2000. The decrease
resulted primarily from a $139,000 loss in 1999 on loans previously classified as held-for-sale that were reclassified as portfolio loans. The losses were due to fluctuations
in market interest rates resulting in a diminution in the value of such assets.

Occupancy
expense, net increased $222,000, or 18.66% from $1.1 million in 1999 to $1.4 million in 2000. The increase was primarily attributable to an increase in
depreciation expense caused by the addition of the Exposition Park savings branch in August 1999, an increase in equipment lease expenses for SmartCopy and the accrual of equipment lease
termination costs for the Company's SmartCopy operations. The equipment lease termination costs of $136,000 was included in 2000 as part of the estimated exit costs from the SmartCopy operations. The
Company decided to close the copy/postal stores that operated in two of the Bank's branch lobbies because they were not profitable. The SmartCopy operations incurred an after-tax loss of
$198,000 in 2000. The Company anticipates completing its exit of this activity by March 31, 2001.



Income taxes increased by $264,000, to $507,000 for the year ended December 31, 2000, from $243,000 for the same period in 1999. The Company's effective
tax rate was approximately 42.82% and 40.43%, respectively, for 2000 and 1999.

38

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Total assets at December 31, 2000 were $168.0 million, as compared to $166.3 million at December 31, 1999, an increase of
$1.7 million, or 1.02%. Net loans receivable, including loans held-for-sale, decreased $2.4 million to $126.9 million at December 31, 2000, as
compared to $129.3 million at December 31, 1999. The decrease in net loans resulted from $17.0 million in loan originations, offset primarily by $13.8 million in principal
repayments and $5.5 million in loan sales. Investment and mortgage-backed securities decreased $2.4 million, from $23.8 million at December 31, 1999 to $21.4 million
at December 31, 2000. The decrease in investment and mortgage-backed securities resulted from the principal reductions on mortgage-backed securities during the year. Office properties and
equipment decreased $176,000, to $6.3 million at December 31, 2000, primarily as a result of depreciation expense.

Total
liabilities at December 31, 2000 were $154.0 million, as compared to $152.5 million at December 31, 1999. The $1.5 million increase is
primarily attributable to a $7.6 million increase in savings deposits, and a $736,000 increase in other liabilities offset by a $6.9 million decrease in advances from the FHLB.

Total
capital at December 31, 2000 was $14.0 million, as compared to $13.8 million at December 31, 1999, representing an increase of $176,000. Capital
increased due to net earnings of $677,000 for the year, a $113,000 increase in the Employee Stock Ownership Plan ("ESOP"), a $46,000 increase in retained earnings, offset by $210,000 in cash dividends
paid, a $236,000 increase in Treasury stock and a $214,000 decrease to additional paid-in capital. The decrease in additional paid-in capital results from an adjustment to
properly reflect compensation expense relative to the ESOP in accordance with Statement of Position 93-6 ("SOP 93-6"),"Employers' Accounting for
Employee Stock Option Plans."



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 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. 12.87% and 14.86% for the years ended December 31,
2000 and 1999, respectively. The relatively high liquidity ratio results from the fact that Conversion proceeds, which the Company has not yet invested into Bank loans, are held as investments in
treasury securities and federal agency obligations, which are included in the liquidity ratio under OTS regulations. Management's goal is to reduce the liquidity ratio to a range of 10% to 12% 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, 2000 and 1999, FHLB advances totaled
$10.0 million and $16.9 million, respectively. During the years ended December 31, 2000 and 1999, 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.

The
Company's cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities and financing activities. Cash flows provided by
operating activities were $4.4 million and $1.5 million for the years ended December 31, 2000 and 1999,

39

---

respectively. Loans originated for sale, net of refinances, totaled $3.1 million and $11.5 million for the years ended December 31, 2000 and 1999, respectively. Proceeds from the
sale of loans receivable held-for-sale totaled $5.4 million and $11.4 million for the years ended December 31, 2000 and 1999, respectively. Net cash used
in investing activities consists primarily of disbursements for loan originations and purchases of loans and investments, offset by principal collections on loans and proceeds from the sale, maturity
or redemption of investments. Disbursements on loans originated and purchased were $14.4 million and $39.4 million for the years ended December 31, 2000 and 1999, respectively.
Proceeds from loan principal repayments were $13.8 million and $18.4 million for the years ended December 31, 2000 and 1999, respectively. Purchases of investment securities and
mortgage-backed securities held to maturity were $-0- and $9.1 million for the years ended December 31, 2000 and 1999, respectively. Proceeds from the sale, maturity or
redemption and principal payments of mortgage-backed and investment securities were $2.3 million and $5.9 million for the years ended December 31, 2000 and 1999, respectively.
Capital expenditures for office properties and equipment for the years ended December 31, 2000 and 1999 totaled $199,000 and $1.6 million, respectively. Net cash provided by financing
activities was derived from an increase in savings deposits and advances from the FHLB. The net increase in savings deposits for the year totaled $7.6 million. The net decrease in advances from
the FHLB for the year totaled $6.9 million.

At
December 31, 2000, the Company had no outstanding commitments to originate loans or to purchase loans. The Company 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, 2000, totaled $66.1 million. If a
significant portion of the maturing certificates is not renewed at maturity, the Company's other sources of liquidity include FHLB advances, principal and
interest payments on loans, proceeds from loan sales and other borrowings, such as repurchase transactions. The Company could also choose to pay higher rates to maintain maturing deposits, which could
result in an increased cost of funds. Historically, the Company 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 Company.



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.



For a discussion on recent accounting pronouncements, see Footnote 2 of the Notes to the Consolidated Financial Statements.

Item 7. FINANCIAL STATEMENTS OF BROADWAY FINANCIAL CORPORATION

See Index to Financial Statements of Broadway Financial Corporation on Page F-1 and the Consolidated Financial Statements of Broadway Financial Corporation
beginning on Page F-2.

40

---

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 2001 Annual Meeting of Shareholders (the
"Company's 2001 Proxy Statement").

Item 10. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to the Company's 2001 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 2001 Proxy Statement, under the caption "Voting Securities and
Principal Holders Thereof".

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

41

---

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



|Exhibit
Number |  |                                                                                                                                                                                                                                   
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Form of Certificate of Incorporation of the Company (contained in Exhibit 2.1)                                                                                                                                                    
|3.2            |  | Form of Bylaws of the Company (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 the Company, 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                                                                                                                                                            
|10.7           |  | Broadway Financial Corporation Long Term Incentive Plan                                                                                                                                                                           
|16.1           |  | Letter on Change in Certifying Accountant (filed by Registrant as part of Form 8-K on November 25, 1998)                                                                                                                          
|21.1           |  | Subsidiaries of the Company (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                                                                                                                                                                                                               

---

None

42

---



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:                           

Date:
March 27, 2001

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

|                                                                                                              |  |                     
|------------------------------------------------------------------------------------------------------------- |  | --------------------
|                                                                                                              |  |                     
|/s/PAUL C. HUDSONPaul C. Hudson Chief Executive Officer, President
and Director
(Principal Executive Officer) |  | Date: March 27, 2001
|/s/BOB ADKINSBob Adkins Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)  |  | Date: March 27, 2001
|/s/ELBERT T. HUDSONElbert T. Hudson Chairman of the Board                                                     |  | Date: March 27, 2001
|/s/KELLOGG CHANKellogg Chan Director                                                                          |  | Date: March 27, 2001
|/s/DR. WILLIS K. DUFFYDr. Willis K. Duffy Director                                                            |  | Date: March 27, 2001
|                                                                                                              |  |                     

43

---

|/s/ROSA M. HILLRosa M. Hill Director         |  | Date: March 27, 2001
|-------------------------------------------- |  | --------------------
|/s/A. ODELL MADDOXA. Odell Maddox Director   |  | Date: March 27, 2001
|/s/LYLE A. MARSHALLLyle A. Marshall Director |  | Date: March 27, 2001
|/s/LARKIN TEASLEYLarkin Teasley Director     |  | Date: March 27, 2001
|/s/DANIEL A. MEDINADaniel A. Medina Director |  | Date: March 27, 2001

44

---



Broadway Financial Corporation and Subsidiaries        Consolidated Financial Statements        Years ended December 31, 2000 and 1999

Contents

|Report of Independent Auditors                             |  | F-2
|---------------------------------------------------------- |  | ---
|Audited Consolidated Financial Statements:                 |  |    
|Consolidated Balance Sheets                                |  | F-3
|Consolidated Statements of Earnings                        |  | F-4
|Consolidated Statements of Changes in Stockholders' Equity |  | F-5
|Consolidated Statements of Cash Flows                      |  | F-6
|Notes to Consolidated Financial Statements                 |  | F-7

F-1

---

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, 2000 and 1999, and the related
consolidated statements of 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, 2000 and 1999, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in
the United States of America.



Los
Angeles, California
February 9, 2001

F-2

---



Broadway Financial Corporation and Subsidiaries    Consolidated Balance Sheets

|                                     |                                                                                                                                                                                                | December 31                                |                  
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -----------------
|
|Assets                               |                                                                                                                                                                                                |                                            |                  
|                                     | Cash                                                                                                                                                                                           |                                            | $                
|                                     | Federal funds sold                                                                                                                                                                             |                                            |                  
|                                     | Investment securities held-to-maturity (fair value of $10,557,000 at December 31, 2000 and $10,302,000 at December 31, 1999)                                                                   |                                            |                  
|                                     | Mortgage-backed securities held-to-maturity (fair value of $10,740,000 at December 31, 2000 and $12,852,000 at December 31, 1999)                                                              |                                            |                  
|                                     | Loans receivable, net                                                                                                                                                                          |                                            |                  
|                                     | Loans receivable held for sale, at lower of cost or fair value                                                                                                                                 |                                            |                  
|                                     | Accrued interest receivable                                                                                                                                                                    |                                            |                  
|                                     | Real estate acquired through foreclosure, net                                                                                                                                                  |                                            |                  
|                                     | Federal Home Loan Bank stock, at cost                                                                                                                                                          |                                            |                  
|                                     | Office properties and equipment, net                                                                                                                                                           |                                            |                  
|                                     | Other assets                                                                                                                                                                                   |                                            |                  
|                                     |                                                                                                                                                                                                |                                            |                  
|                                     |                                                                                                                                                                                                |                                            | Total assets     
|                                     |                                                                                                                                                                                                |                                            |                  
|Liabilities and stockholders' equity |                                                                                                                                                                                                |                                            |                  
|                                     | Deposits                                                                                                                                                                                       |                                            | $                
|                                     | Advances from Federal Home Loan Bank                                                                                                                                                           |                                            |                  
|                                     | Advance payments by borrowers for taxes and insurance                                                                                                                                          |                                            |                  
|                                     | Deferred income taxes                                                                                                                                                                          |                                            |                  
|                                     | Other liabilities                                                                                                                                                                              |                                            |                  
|                                     |                                                                                                                                                                                                |                                            |                  
|                                     |                                                                                                                                                                                                |                                            | Total liabilities
|                                     | 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, 2000 and 1999, respectively |                                            |                  
|                                     | Common stock, $.01 par value, authorized 3,000,000 shares; issued and outstanding 901,333 and 932,494 shares at December 31, 2000 and 1999, respectively                                       |                                            |                  
|                                     | Additional paid-in capital                                                                                                                                                                     |                                            |                  
|                                     | Retained earningssubstantially restricted                                                                                                                                                     |                                            |                  
|                                     | Treasury stock60,402 and 29,241 shares, at cost at December 31, 2000 and 1999, respectively                                                                                                   |                                            |                  
|                                     | Unearned ESOP shares                                                                                                                                                                           |                                            |                  
|                                     |                                                                                                                                                                                                |                                            |                  
|                                     |                                                                                                                                                                                                | Total stockholders' equity                 |                  
|                                     |                                                                                                                                                                                                |                                            |                  
|                                     |                                                                                                                                                                                                | Total liabilities and stockholders' equity |                  
|                                     |                                                                                                                                                                                                |                                            |                  

See accompanying Notes to Consolidated Financial Statements.

F-3

---



Broadway Financial Corporation and Subsidiaries    Consolidated Statements of Earnings

|                                                        |                                                | Year ended December 31                               |           
|------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------------- | ----------
|
|Interest on loans receivable                            |                                                | $                                                    | 10,751,000
|Interest on investment securities held-to-maturity      |                                                |                                                      | 643,000   
|Interest on mortgage-backed securities held-to-maturity |                                                |                                                      | 750,000   
|Other interest income                                   |                                                |                                                      | 141,000   
|                                                        |                                                |                                                      |           
|                                                        |                                                | Total interest income                                |           
|Interest on deposits                                    |                                                |                                                      | 4,963,000 
|Interest on borrowings                                  |                                                |                                                      | 809,000   
|                                                        |                                                |                                                      |           
|                                                        |                                                | Total interest expense                               |           
|                                                        |                                                | Net interest income before provision for loan losses |           
|Provision for loan losses                               |                                                |                                                      | 360,000   
|                                                        |                                                |                                                      |           
|Net interest income after provision for loan losses     |                                                |                                                      | 6,153,000 
|Non-interest income:                                    |                                                |                                                      |           
|                                                        | Service charges                                |                                                      |           
|                                                        | Loss on sale of loans receivable held for sale |                                                      |           
|                                                        | Gain on casualty insurance reimbursement       |                                                      |           
|                                                        | Other                                          |                                                      |           
|                                                        |                                                |                                                      |           
|                                                        |                                                | Total non-interest income                            |           
|                                                        |                                                |                                                      |           
|Non-interest expense:                                   |                                                |                                                      |           
|                                                        | Compensation and benefits                      |                                                      |           
|                                                        | Occupancy expense, net                         |                                                      |           
|                                                        | Advertising and promotional expense            |                                                      |           
|                                                        | Professional services                          |                                                      |           
|                                                        | Real estate operations, net                    |                                                      |           
|                                                        | Contracted security services                   |                                                      |           
|                                                        | Telephone and postage                          |                                                      |           
|                                                        | Stationary, printing and supplies              |                                                      |           
|                                                        | Other                                          |                                                      |           
|                                                        |                                                |                                                      |           
|                                                        |                                                | Total non-interest expense                           |           
|                                                        |                                                |                                                      |           
|Earnings before income taxes                            |                                                |                                                      | 1,184,000 
|Income taxes                                            |                                                |                                                      | 507,000   
|                                                        |                                                |                                                      |           
|                                                        |                                                | Net earnings                                         |           
|                                                        |                                                | Dividends paid on preferred stock                    |           
|                                                        |                                                |                                                      |           
|Earnings available to common shareholders               |                                                | $                                                    | 649,000   
|                                                        |                                                |                                                      |           
|Earnings per sharebasic                                |                                                | $                                                    | 0.74      
|                                                        |                                                |                                                      |           
|Earnings per sharediluted                              |                                                | $                                                    | 0.74      
|                                                        |                                                |                                                      |           

See accompanying Notes to Consolidated Financial Statements.

F-4

---



Broadway Financial Corporation and Subsidiaries    Consolidated Statements of Changes in Stockholders' Equity

|                              |                                                   | Preferred
Stock               |       | Common
Stock |        | Additional
Paid-in
Capital |           | Retained
Earnings
(Substantially
Restricted) |           | Treasury
Stock |           | Unearned
ESOP
Shares |          | Total
Stockholders'
Equity |           
|----------------------------- | ------------------------------------------------- | ----------------------------- | ----- | ------------ | ------ | -------------------------- | --------- | -------------------------------------------- | --------- | -------------- | --------- | -------------------- | -------- | -------------------------- | ----------
|Balance, at December 31, 1998 |                                                   | $                             | 1,000 |              | 10,000 |                            | 9,633,000 |                                              | 4,664,000 |                | (318,000  | )                    | (437,000 | )                          | 13,553,000
|                              | Net earnings for the year ended December 31, 1999 |                               |       |             |        |                           |           |                                             |           | 358,000        |           |                     |          |                           |           
|                              | Cash dividends paid2% common stock               |                               |       |             |        |                           |           |                                             |           | (185,000       | )         |                     |          |                           |           
|                              | Cash dividends paid5% preferred stock            |                               |       |             |        |                           |           |                                             |           | (28,000        | )         |                     |          |                           |           
|                              | Allocation of Employee Stock Ownership Shares     |                               |       |             |        |                           |           | 41,000                                       |           |               |           |                     |          | 62,000                     |           
|                              |                                                   |                               |       |              |        |                            |           |                                              |           |                |           |                      |          |                            |           
|                              |                                                   | Balance at December 31, 1999  |       |              | 1,000  |                            | 10,000    |                                              | 9,674,000 |                | 4,809,000 |                      | (318,000 | )                          | (375,000  
|                              | Net earnings for the year ended December 31, 2000 |                               |       |             |        |                           |           |                                             |           | 677,000        |           |                     |          |                           |           
|                              | Treasury stock acquired                           |                               |       |             |        |                           |           |                                             |           |               |           | (236,000             | )        |                           |           
|                              | Cash dividends paid2% common stock               |                               |       |             |        |                           |           |                                             |           | (136,000       | )         |                     |          | -                          |           
|                              | Cash dividends paid5% preferred stock            |                               |       |             |        |                           |           |                                             |           | (28,000        | )         |                     |          | -                          |           
|                              | Allocation of Employee Stock Ownership Shares     |                               |       |             |        |                           |           | (214,000                                     | )         |               |           |                     |          | 113,000                    |           
|                              |                                                   |                               |       |              |        |                            |           |                                              |           |                |           |                      |          |                            |           
|                              |                                                   | Balance, at December 31, 2000 |       | $            | 1,000  |                            | 10,000    |                                              | 9,460,000 |                | 5,322,000 |                      | (554,000 | )                          | (262,000  
|                              |                                                   |                               |       |              |        |                            |           |                                              |           |                |           |                      |          |                            |           

See accompanying Notes to Consolidated Financial Statements.

F-5

---



Broadway Financial Corporation and Subsidiaries    Consolidated Statements of Cash Flows

|                                                                                              |                                                                                                | Year ended December 31,           |                                          
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | --------------------------------- | -----------------------------------------
|
|Cash flows from operating activities                                                          |                                                                                                |                                   |                                          
|Net earnings                                                                                  |                                                                                                | $                                 | 677,000                                  
|Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: |                                                                                                |                                   |                                          
|                                                                                              | Depreciation                                                                                   |                                   |                                          
|                                                                                              | Amortization of premium on loans purchased                                                     |                                   |                                          
|                                                                                              | Amortization of net deferred loan origination fees                                             |                                   |                                          
|                                                                                              | Amortization of discounts and premiums on investment securities and mortgage-backed securities |                                   |                                          
|                                                                                              | Amortization of deferred compensation                                                          |                                   |                                          
|                                                                                              | Gain on sale of real estate acquired through foreclosure                                       |                                   |                                          
|                                                                                              | Loss on sale of loans receivable held for sale                                                 |                                   |                                          
|                                                                                              | Gain on sale of office properties and equipment                                                |                                   |                                          
|                                                                                              | Provision for loan losses                                                                      |                                   |                                          
|                                                                                              | Provision for write-downs and losses on real estate                                            |                                   |                                          
|                                                                                              | Lower of cost or fair value adjustment on loans                                                |                                   |                                          
|                                                                                              | Loans originated for sale, net of refinances                                                   |                                   |                                          
|                                                                                              | Proceeds from sale of loans receivable held for sale                                           |                                   |                                          
|                                                                                              | Changes in operating assets and liabilities:                                                   |                                   |                                          
|                                                                                              |                                                                                                | Accrued interest receivable       |                                          
|                                                                                              |                                                                                                | Deferred income tax liability     |                                          
|                                                                                              |                                                                                                | Increase in income tax liability  |                                          
|                                                                                              |                                                                                                | Equipment lease termination costs |                                          
|                                                                                              |                                                                                                | Other assets                      |                                          
|                                                                                              |                                                                                                | Other liabilities                 |                                          
|                                                                                              |                                                                                                |                                   |                                          
|                                                                                              |                                                                                                |                                   | Total adjustments                        
|                                                                                              |                                                                                                |                                   |                                          
|                                                                                              |                                                                                                |                                   | Net cash provided by operating activities
|Cash flows from investing activities                                                          |                                                                                                |                                   |                                          
|Loans originated, net of refinances                                                           |                                                                                                |                                   | (14,387,000                              
|Principal repayment on loans                                                                  |                                                                                                |                                   | 13,808,000                               
|Proceeds from sale of office properties and equipment                                         |                                                                                                |                                   |                                         
|Purchases of investment securities held-to-maturity                                           |                                                                                                |                                   |                                         
|Purchases of mortgage-backed securities held-to-maturity                                      |                                                                                                |                                   |                                         
|Proceeds from maturities and repayments of investment securities held-to- maturity            |                                                                                                |                                   |                                         
|Proceeds from maturities and repayments of mortgage-backed securities held-to-maturity        |                                                                                                |                                   | 2,342,000                                
|Federal Home Loan Bank stock dividend                                                         |                                                                                                |                                   | (87,000                                  
|Capital expenditures for office properties and equipment                                      |                                                                                                |                                   | (199,000                                 
|Proceeds from sale of real estate acquired through foreclosure                                |                                                                                                |                                   | 956,000                                  
|                                                                                              |                                                                                                |                                   |                                          
|Net cash provided (used in) investing activities                                              |                                                                                                |                                   | 2,433,000                                
|Cash flows from financing activities                                                          |                                                                                                |                                   |                                          
|Net increase in deposits                                                                      |                                                                                                | $                                 | 7,610,000                                
|(Decrease) increase in advances from the Federal Home Loan Bank                               |                                                                                                |                                   | (6,900,000                               
|Dividends paid                                                                                |                                                                                                |                                   | (164,000                                 
|Acquisition of Treasury stock                                                                 |                                                                                                |                                   | (236,000                                 
|Increase (decrease) in advance payments by borrowers for taxes and insurance                  |                                                                                                |                                   | 2,000                                    
|                                                                                              |                                                                                                |                                   |                                          
|Net cash provided by financing activities                                                     |                                                                                                |                                   | 312,000                                  
|                                                                                              |                                                                                                |                                   |                                          
|Net increase (decrease) in cash and cash equivalents                                          |                                                                                                |                                   | 7,132,000                                
|Cash and cash equivalents at beginning of year                                                |                                                                                                |                                   | 3,135,000                                
|                                                                                              |                                                                                                |                                   |                                          
|Cash and cash equivalents at end of year                                                      |                                                                                                | $                                 | 10,267,000                               
|Supplemental disclosures of cash flow information                                             |                                                                                                |                                   |                                          
|Cash paid for interest                                                                        |                                                                                                | $                                 | 5,625,000                                
|                                                                                              |                                                                                                |                                   |                                          
|Cash paid for income taxes                                                                    |                                                                                                | $                                 | 260,000                                  
|                                                                                              |                                                                                                |                                   |                                          
|Supplemental disclosure of non-cash investing and financing activities                        |                                                                                                |                                   |                                          
|Transfer of loans to real estate acquired through foreclosure                                 |                                                                                                | $                                 | 332,000                                  
|Transfer of loans from loans receivable HFS to loans receivable                               |                                                                                                | $                                 |                                         

See accompanying Notes to Consolidated Financial Statements

F-6

---



Broadway Financial Corporation and Subsidiaries    Notes to Consolidated Financial Statements    December 31, 2000 and 1999

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, 2000, the Bank operated five retail
banking offices, including a loan center, 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.



The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, the Bank and BankSmart, Inc. 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
2000 presentation.

These
consolidated financial statements have been prepared in conformity with generally accepted accounting principles. 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.



Accounting standards establish requirements to disclose financial information about reportable segments in annual financial statements and require reporting of
selected information about those segments in interim reports to stockholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers.

The
Company's management considers its operations to be segregated into two operating segments(i) banking, through the Bank and (ii) retail services,
through BankSmart, Inc. ("BankSmart"). BankSmart includes two postal/copy centers that operate inside the Bank's Exposition Park and Midtown branches. These centers operate under the name
SmartCopy.

As
of December 31, 2000 and 1999, the operations of BankSmart are insignificant to the operations of the Company and are therefore not considered to be a separate reportable
segment.

F-7

---



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.



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 Company'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 Company 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
Company, 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 Company 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.

F-8

---



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.



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 Company 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.



The Company 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 Earnings. The
Company 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.



The Company purchases or participates in loans originated by other institutions. The determination to purchase loans is based upon the Company's investment
needs and market opportunities. Subject to regulatory restrictions applicable to savings institutions, the Company'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 Company's underwriting policies, which require consideration of the financial condition of the borrower and the appraised value of the
property, among other factors. Premiums paid on the purchase of loans are recognized against income using the interest method over the estimated life of the loans, adjusted for prepayments.



Real estate acquired through foreclosure represents real estate received in satisfaction of real estate secured loans and is 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

---



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 48 yearsFurniture, fixtures and equipment

3 to 15 yearsLeasehold improvements

Shorter of the estimated useful lives of the assets, or the terms of the respective leases, not to exceed 15 years.




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.



The Series A preferred stock is non-convertible, non-cumulative, non-redeemable and nonvoting perpetual preferred
stock, with a par value of $0.01 per share. At December 31, 2000 and 1999 there were 55,199 shares outstanding.



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.



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. Earnings per share for all periods presented
have been adjusted to reflect the 8% stock dividend distributed to stockholders in August 1998.



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

---

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 Company's market risk arises primarily from interest rate risk inherent in the Company'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 Company's loans reprice based on the Eleventh District Cost of Funds Index (COFI). The repricing of COFI tends to lag market interest rates. The
Company closely monitors the pricing sensitivity of its financial instruments.



In January 1997 the Company adopted 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.



Generally accepted accounting principles 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.



In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires recognition of all derivative instruments in the statement
of financial position as either assets or liabilities and the measurement of derivative instruments at fair value. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. As amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement No. 133.", and SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment to

F-11

---

FASB Statement No. 133." SFAS No. 133 established accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 required recognition of all
derivative instruments in the statement of financial position as either assets or liabilities and the measurement of derivative instruments at fair value. As amended by SFAS Nos. 137 and 138, SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 on January 1, 2001 did not have a material effect on the Company's
consolidated results of operations or financial condition, as the Company does not hold any derivative instruments.

In
March 2000, the Financial Accounting Standards Board issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation.". This
Interpretation clarifies issues relating to APB Opinion No. 25, "Accounting for Stock Issued to Employees". FASB Interpretation No. 44 contains information relating to (a) the
definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting
consequences of various modifications to the term of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination.
FASB Interpretation No. 44 was effective July 1, 2000. The effects of applying this Interpretation are recognized on a prospective basis from July 1, 2000. The implementation of
FASB Interpretation No. 44 did not have a material impact on the Company's consolidated results of operations or financial condition.

In
September 2000, the financial Accounting Standards Board issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, a replacement of FASB Statement No. 125." SFAS No. 140 supercedes and replaces the guidance in FASB No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain
disclosures. SFAS No. 140 provides accounting and reporting standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS
No. 140 is effective for disclosures in financial statements issued subsequent to December 15, 2000, and for transactions entered after March 31, 2001. Management anticipates
adoption of SFAS No. 140 will not have a material impact on the Company's financial statements.

F-12

---

3. Investment Securities Held-to-Maturity

At December 31, 2000 and 1999, all of the Company's investment securities are classified as held-to-maturity based on the
Company's intent and ability to hold the securities to maturity. All investment securities are callable by the issuer.

The
following table provides a summary of investment securities held-to-maturity with a comparison of carrying and fair values:

Carrying
Value

Gross
Unrealized
Gain

Gross
Unrealized
Loss

Fair
ValueDecember 31, 2000:FHLB debentures

$
5,623,000

$


$
48,000

$
5,575,000FNMA debentures


5,000,000





18,000


4,982,000$
10,623,000

$


$
66,000

$
10,557,000December 31, 1999:FHLB debentures

$
5,623,000

$


$
184,000

$
5,439,000FNMA debentures


5,000,000





137,000


4,863,000$
10,623,000

$


$
321,000

$
10,302,000


The
remaining contractual maturities for investment securities held-to-maturity at December 31, 2000 are as follows:

Contractual MaturityOne Through
Five Years

After
Five Years

TotalDecember 31, 2000:FHLB debentures

$
5,623,000

$


$
5,623,000FNMA debentures


5,000,000





5,000,000$
10,623,000

$


$
10,623,000


At
December 31, 2000 and 1999, the Company had accrued interest receivable on investment securities held-to-maturity of $154,000 and $172,000,
respectively. During the years ended December 31, 2000 and 1999, the Company had no sales of investment securities.

4. Mortgage-backed Securities Held-to-Maturity

At December 31, 2000 and 1999, 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.

F-13

---

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

|                  |  | Carrying
Value |            | Gross
Unrealized Gain |   | Gross
Unrealized
Loss |  | Fair
Value
|----------------- |  | -------------- | ---------- | --------------------- | - | --------------------- |  | ----------
|December 31, 2000 |  |                |            |                       |   |                       |  |           
|FNMA              |  | $              | 6,713,000  |                       | $ | 16,000                |  | $         
|GNMA              |  |                | 3,334,000  |                       |   |                      |  |           
|FHLMC             |  |                | 701,000    |                       |   | 13,000                |  |           
|                  |  |                |            |                       |   |                       |  |           
|                  |  | $              | 10,748,000 |                       | $ | 29,000                |  | $         
|                  |  |                |            |                       |   |                       |  |           
|December 31, 1999 |  |                |            |                       |   |                       |  |           
|FNMA              |  | $              | 8,147,000  |                       | $ |                      |  | $         
|GNMA              |  |                | 3,862,000  |                       |   |                      |  |           
|FHLMC             |  |                | 1,201,000  |                       |   |                      |  |           
|                  |  |                |            |                       |   |                       |  |           
|                  |  | $              | 13,210,000 |                       | $ |                      |  | $         
|                  |  |                |            |                       |   |                       |  |           

The
remaining contractual maturities for mortgage-backed securities held-to-maturity at December 31, 2000 are as follows:

Contractual MaturityWithin
One Year

After
Five Years

TotalDecember 31, 2000FNMA

$


$
6,713,000

$
6,713,000GNMA





3,334,000


3,334,000FHLMC





701,000


701,000$


$
10,748,000

$
10,748,000


At
December 31, 2000 and 1999, the Company had accrued interest receivable on mortgage-backed securities held-to-maturity of $72,000 and $81,000,
respectively. During the years ended December 31, 2000 and 1999, the Company had no sales of mortgage-backed securities.

F-14

---

5. Loans Receivable, Net

The following is a summary of loans receivable, net:

December 312000

1999Held for investment:Real estate:Residential:One to four units

$
37,094,000

$
39,552,000Five or more units


70,677,000


67,381,000Non-residential


19,552,000


21,240,000Loans secured by deposit accounts


1,139,000


877,000Other


720,000


379,000129,182,000


129,429,000Plus:Premium on loans purchased


10,000


14,000Less:Loans in process


25,000


143,000Allowance for loan losses


1,421,000


1,439,000Deferred loan fees, net


764,000


807,000Unamortized discounts


167,000


183,000Loans receivable, net

$
126,815,000

$
126,871,000Loans receivable held for sale:Residential:One to four units

$
59,000

$
162,000Five or more units





2,296,000Loans receivable held for sale

$
59,000

$
2,458,000Weighted average interest rate


8.46
%

7.81
%


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

2000

1999Balance at beginning of year

$
1,439,000

$
1,151,000Provision for loan losses


360,000


300,000Charge-offs


(378,000
)

(12,000
)Balance at end of year

$
1,421,000

$
1,439,000


The
Bank had no recoveries during the years ended December 31, 2000 and 1999.

At
December 31, 2000 and 1999, the Bank had accrued interest receivable on loans of $824,000 and $760,000, respectively.

The
Bank serviced loans for others totaling $21.8 million and $18.1 million at December 31, 2000 and 1999, respectively.

At
December 31, 2000 and 1999, the Bank had loans to senior officers and directors amounting to $805,000 and $681,000, respectively. In the opinion of management, the terms of
these loans are based upon the normal market for such loans.

F-15

---

The following is a summary of the Bank's non-accrual loans by loan type at December 31, 2000 and 1999:

December 312000

1999Residential real estate

$
164,000

$
1,280,000Other


325,000


115,000Total non-accrual loans

$
489,000

$
1,395,000


The
Bank had no restructured loans or accruing loans, that are contractually past due 90 days or more at December 31, 2000 and 1999.

The
gross amount of interest income that would have been recorded during the years ended December 31, 2000 and 1999, if non-accrual loans had been current in
accordance with their original terms, was $24,000 and $110,000, respectively. For the years ended December 31, 2000 and 1999, $9,000 and $29,000, 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, 2000 and 1999.

At
December 31, 2000 and 1999, the total recorded investment in impaired loans was approximately $468,000 and $1.2 million, respectively. Of these amounts, $468,000 and
$681,000 had a related impairment allowance totaling $468,000 and $308,000 at December 31, 2000 and 1999, respectively. Provisions for losses and any related recoveries related to impaired
loans are recorded as part of the allowance for loan losses. During the years ended December 31, 2000 and 1999, the Bank's average investment in impaired loans was at $615,000 and
$1.2 million, respectively, and interest income recorded on impaired loans during these periods totaled $11,000 and $83,000 respectively, none of which was recorded utilizing the accrual basis
method of accounting. At December 31, 2000, all impaired loans were measured using the fair value of the collateral held. At December 31, 2000, all impaired loans were unsecured fully
reserved lines of credit, as compared to impaired loans secured by multi-family residential real estate at December 31, 1999.

Substantially
all of the Bank's real estate loans are secured by properties located in Southern California. At December 31, 2000 and 1999, approximately 83% and 85%,
respectively, of the loan portfolio consisted of loans secured by residential real estate. In addition, approximately 15% and 16% of the loan portfolio at December 31, 2000 and 1999,
respectively, was secured by non-residential real estate. Loans secured by church real estate represented 66% and 62% of nonresidential real estate loans at December 31, 2000 and
1999, respectively.

6. Real Estate Acquired through Foreclosure, Net

The following is a summary of real estate acquired through foreclosure, net:

December 312000

1999Real estate acquired through foreclosure:One to four residential units

$


$
432,000Land





265,000


697,000Less: valuation allowance





182,000Real estate acquired through foreclosure, net

$


$
515,000


F-16

---

Activity
in the allowance for losses on real estate acquired through foreclosure during the years ended December 31, 2000 and 1999, is summarized as follows:

2000

1999Balance at beginning of year

$
182,000

$
136,000Provision for losses





60,000Charge-offs


(182,000
)

(14,000
)Balance at end of year

$


$
182,000


Real
estate operations, net, are summarized as follows:

2000

1999Net loss from operations of foreclosed real estate

$
(22,000
)
$
(30,000
)Net gain on sales of foreclosed real estate


109,000


13,00087,000


(17,000
)Provision for losses





(60,000
)Real estate operations, net

$
87,000

$
(77,000
)


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, 2000 and 1999, of $1,316,000 and
$1,229,000, respectively.

8. Office Properties and Equipment, net

Office properties and equipment consist of the following:

December 312000

1999Land

$
1,918,000

$
1,918,000Office buildings and improvements


3,986,000


3,865,000Furniture, fixtures and equipment


1,595,000


1,532,0007,499,000


7,315,000Less accumulated depreciation


(1,142,000
)

(782,000
)Office properties and equipment, net

$
6,357,000

$
6,533,000


During
the years ended December 31, 2000 and 1999, depreciation expense totaled $375,000 and $395,000, respectively.

F-17

---

9. Deposits

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

|                         |                                             | December 31
|------------------------ | ------------------------------------------- | -----------
|
|
|Balance by account type: |                                             |            
|                         | NOW account and other demand deposits       |            
|                         | Non-interest bearing demand deposits        |            
|                         | Money market deposits                       |            
|                         | Passbook                                    |            
|                         | Fixed index                                 |            
|                         | Negotiable time deposits ($100,000 or more) |            
|                         |                                             |            
|                         |                                             |            
|                         |                                             |            

---

*Weighted
average interest rate.

The
aggregate amount of time deposits equal to or exceeding $100,000 totaled $46,327,000 and $35,997,000 at December 31, 2000 and 1999, respectively.

During
the years ended December 31, 2000 and 1999 the weighted average interest rate on total deposits was 3.68% and 3.38%, respectively. At December 31, 2000 and 1999,
the weighted average interest rate on total deposits was 4.15% and 3.39%, respectively.

Deposit
account maturities at December 31, 2000, are summarized as follows:

Maturity

Amount2001

$
67,090,0002002


11,496,0002003


7,643,0002004


1,991,000Thereafter


3,236,000$
91,456,000


10. Advances from the Federal Home Loan Bank

There were $10.0 million and $16.9 million in borrowings outstanding with the FHLB as of December 31, 2000 and 1999, respectively. The
outstanding borrowings at December 31, 2000 and 1999 had weighted average interest rates of 6.67% and 5.60%, respectively. Pursuant to collateral agreements with the FHLB, advances are secured
by loans totaling $26.1 million and $28.5 million as of December 31, 2000 and 1999, respectively, and by mortgage-backed securities totaling $3.2 million and $3.6 as of
December 31, 2000 and 1999, respectively. Available borrowing capacity with the FHLB approximates $26.6 million and $27.5 million as of December 31, 2000 and 1999,
respectively.

F-18

---

The maturities of FHLB advances are as follows (in thousands):

Year Ending December 31,2001

$
3,0002002


2,5002003


4,500$
10,000


11. Income Taxes

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

2000

1999Current taxes:Federal income

$
606,000

$
407,000State franchise


104,000


3,000710,000


410,000Deferred taxes:Federal income


(224,000
)

(185,000
)State franchise


21,000


18,000(203,000
)

(167,000
)$
507,000

$
243,000


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:

2000

1999Computed "expected" federal taxes

$
403,000

$
204,000Increases to taxes resulting from:California franchise tax, net of federal income tax


82,000


14,000Other


22,000


25,000$
507,000

$
243,000


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.

Retained
earnings at December 31, 2000 and 1999 is substantially restricted for tax purposes and includes $3,013,000 in all periods, for which no provision for federal income
tax has been made. If in the future, this tax bad debt reserve is used for any purpose other than to absorb bad debt losses, federal income taxes may be imposed at the then applicable rates.

F-19

---

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, 2000 and
1999, are presented below:

|                                     |                                            | 2000 |            | 1999     |  
|------------------------------------ | ------------------------------------------ | ---- | ---------- | -------- | -
|Deferred tax assets:                 |                                            |      |            |          |  
|                                     | Loan valuation allowances deferred for tax |      | $          | 757,000  |  
|                                     | Accrued liabilities                        |      |            | 110,000  |  
|                                     | Lower of cost or market adjustment         |      |            | 69,000   |  
|                                     | State income taxes                         |      |            | 46,000   |  
|                                     | Allowance for loss                         |      |            | 15,000   |  
|                                     | Other                                      |      |            | 52,000   |  
|                                     |                                            |      |            |          |  
|Net deferred tax assets              |                                            |      | 1,049,000  |          |  
|                                     |                                            |      |            |          |  
|Deferred tax liabilities:            |                                            |      |            |          |  
|                                     | Basis difference on fixed assets           |      |            | (439,000 | )
|                                     | Deferred loan fees                         |      |            | (501,000 | )
|                                     | FHLB stock dividend                        |      |            | (465,000 | )
|                                     | Other                                      |      |            | (46,000  | )
|                                     |                                            |      |            |          |  
|Total gross deferred tax liabilities |                                            |      | (1,451,000 | )        |  
|                                     |                                            |      |            |          |  
|Net deferred tax liability           |                                            | $    | (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, 2000, the Company had a net current tax payable of $99,000. At December 31, 1999, the Company had a net current tax receivable of $351,000.

12. Employee Benefit Plans



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 2000 and 1999, the Bank's contribution amounted to
$42,000 and $32,000, respectively.

F-20

---



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, an officer or employee 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, 2000 and 1999 was immaterial.



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, 2000 and 1999
was immaterial. The table below reflects the RRP and PEP activity for the periods indicated:

|                                 |  | Stock Programs
|-------------------------------- |  | --------------
|
|
|Outstanding at January 1, 2000   |  | 5,757         
|Granted                          |  | 3,950         
|Exercised                        |  |              
|Forfeited                        |  |              
|                                 |  |               
|Outstanding at December 31, 2000 |  | 9,707         
|                                 |  |               
|Outstanding at January 1, 1999   |  | 6,501         
|Granted                          |  |              
|Exercised                        |  |              
|Forfeited                        |  | (744          
|                                 |  |               
|Outstanding at December 31, 1999 |  | 5,757         
|                                 |  |               

---

*At
date of grant.

F-21

---



As part of the conversion, an Employee Stock Ownership Plan (ESOP) was established 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 62,488 shares of the common stock of the
Company issued in the conversion. The loan will be repaid principally from the Bank's discretionary contributions to the ESOP, net of dividends paid, over a period of 10 years. At
December 31, 2000 and 1999, the outstanding balance of unallocated shares was $262,000 and $375,000, 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, 2000 and 1999 was $52,000 and $49,000, respectively.

During
the year ended December 31, 2000 and 1999, 39,347 and 32,382 shares, respectively, were allocated, leaving an unallocated balance of 28,246 and 35,211 shares at
December 31, 2000 and 1999, respectively, after giving effect to an 8% stock dividend received from the Company in 1998. The fair value of unallocated ESOP shares totaled $215,000 and $169,000
at December 31, 2000 and 1999, respectively.



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 10 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, 2000 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

F-22

---

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, 2000 none had been exercised.

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

Stock Option PlansLTIP

Stock Option Plan

TotalShares

Exercise
Price

Shares

Exercise
Price

Shares

PriceOutstanding at January 1, 2000

38,446

$
11.00

17,264

$
11.00

55,710

$
11.00Granted

24,003


8.69

3,500


8.69

27,503


8.69Exercised














Expired or canceled














Outstanding at December 31, 2000

62,449

$
10.11

20,764

$
10.61

83,213

$
10.24Outstanding at January 1, 1999

43,909

$
11.00

17,264

$
11.00

61,173

$
11.00Granted











Exercised











Expired or canceled

(5,463
)

11.00




11.00

(5,463
)

11.00Outstanding at December 31, 1999

38,446

$
11.00

17,264

$
11.00

55,710

$
11.00


The following table summarizes information about the stock options outstanding at December 31, 2000 and 1999:

|                  |  |   |       | Options Outstanding |        | Options Exercisable
|----------------- |  | - | ----- | ------------------- | ------ | -------------------
|
|December 31, 2000 |  |   |       |                     |        |                    
|LTIP              |  | $ | 11.00 |                     | 38,446 |                    
|                  |  |   | 8.69  |                     | 24,003 |                    
|Stock Option Plan |  | $ | 11.00 |                     | 17,264 |                    
|                  |  |   | 8.69  |                     | 3,500  |                    
|December 31, 1999 |  |   |       |                     |        |                    
|LTIP              |  | $ | 11.00 |                     | 38,446 |                    
|Stock Option Plan |  | $ | 11.00 |                     | 17,264 |                    

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.

F-23

---

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 yearsApproximate 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 2000 and 1999
would have been as follows:

2000

1999Proforma net earnings

$
611,000

$
312,000Proforma diluted earnings per share


0.66


0.31Net earnings as reported


677,000


358,000Diluted earnings per share as reported


0.74


0.35


13. Commitments and Contingent Liabilities



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 $296,000 in 2000 and $165,000 in 1999. Annual minimum lease commitments attributable to long-term
leases at December 31, 2000 are as follows:

|                         |      | Premises |         | Equipment |   | Total  
|------------------------ | ---- | -------- | ------- | --------- | - | -------
|Year ending December 31: |      |          |         |           |   |        
|                         | 2001 |          | $       | 42,000    |   | $      
|                         | 2002 |          |         | 42,000    |   |        
|                         | 2003 |          |         | 42,000    |   |        
|                         | 2004 |          |         | 42,000    |   |        
|                         | 2005 |          |         | 42,000    |   |        
|Thereafter through 2012  |      |          | 251,000 |           |   |       
|                         |      |          |         |           |   |        
|                         |      | $        | 461,000 |           | $ | 180,000
|                         |      |          |         |           |   |        

F-24

---

The Bank had commitments to originate loans of approximately $1.1 million and $3.6 million, respectively, at December 31, 2000 and 1999. Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since certain commitments are expected to expire without being drawn, the total commitment amounts do not necessarily represent future cash requirements. The
Bank had no commitments to sell or purchase loans at December 31, 2000. At December 31, 1999 the Bank had $161,000 in commitments to sell and no commitments to purchase loans.



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 Office of Thrift Supervision (OTS)
promulgated thereunder (Capital Regulations) established three capital requirementsa "leveraged 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, 2000 and 1999, the Bank was in
compliance with such capital requirements.

The
leverage limit adopted by the OTS Director under the Capital Regulations requires a savings institution to maintain "core capital" of not less than 4% of adjusted total assets,
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.

F-25

---

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, 2000 and 1999, 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.

The
table below presents the Bank's capital ratios as compared to the requirements under FDICIA at December 31, 2000 and 1999:

Actual

Minimum For Capital Adequacy Purposes

Minimum Amount Required to be Well CapitalizedAmount

Ratio

Amount

Ratio

Amount

Ratio(Dollars in thousands)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
%December 31, 1999:Leverage/Tangible Ratio

$
11,497

6.97
%
$
6,600

4.0
%
$
8,251

5.0
%Tier I Risk-based ratio

$
11,497

9.24
%
$
4,979

4.0
%
$
7,468

6.0
%Total Risk-based ratio

$
12,544

10.08
%
$
9,957

8.0
%
$
12,447

10.0
%


F-26

---

The
table below presents the Bank's capital ratios as compared to the requirements under FIRREA at December 31, 2000 and 1999:

Tangible Capital

Core Capital

Risk-Based CapitalAmount

Ratio

Amount

Ratio

Amount

Ratio(Dollars in thousands)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
%December 31, 1999:Actual

$
11,497

6.97
%
$
11,497

6.97
%
$
12,544

10.08
%Required


2,475

1.50
%

6,600

4.00
%

9,957

8.00
%Excess

$
9,022

5.47
%
$
4,897

2.97
%
$
2,587

2.08
%


15. Restructuring

As of December 31, 2000 the Company decided to close the SmartCopy postal/copy centers because they were not profitable. Included in the current year's
earnings 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. Since December 31, 2000 there has been $5,000 in cash charges and $3,000 in non-cash charges to this accrued liability. The Company anticipates
completing 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. In cases where quoted market prices are not available, fair values are estimated based upon discounted cash flows.
Those techniques are significantly affected by the assumptions utilized, including the assumed discount rates and estimates of future cash flows. In this regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in an immediate sale or other disposition of the instrument. All components of accrued interest
receivable and payable are presumed to have approximately equal book and fair values because the periods over which such 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.

F-27

---

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, 2000 and 1999.

December 31, 2000

Carrying
Value

Fair
ValueAssets:Cash and cash equivalents

$
10,267,000

$
10,267,000Investment securities


10,623,000


10,557,000Mortgage-backed securities


10,748,000


10,740,000Loans receivable


126,815,000


131,318,000Loans receivable held for sale


59,000


59,000Federal Home Loan Bank stock


1,316,000


1,316,000Liabilities:Deposits


141,594,000


141,578,000Federal Home Loan Bank advances


10,000,000


10,156,000


December 31, 1999

Carrying
Value

Fair
ValueAssets:Cash and cash equivalents

$
3,135,000

$
3,135,000Investment securities


10,623,000


10,302,000Mortgage-backed securities


13,210,000


12,852,000Loans receivable


126,871,000


123,956,000Loans receivable held for sale


2,458,000


2,458,000Federal Home Loan Bank stock


1,229,000


1,229,000Liabilities:Deposits


133,984,000


134,220,000Federal Home Loan Bank advances


16,900,000


16,900,000


17. Earnings Per Share

For the years ended December 31, 2000 and 1999, basic earnings per share are computed based on earnings available to common stockholders and the
weighted average number of shares for each respective year.

The
Company's stock-based compensation awards were considered outstanding as of the grant date for purposes of computing diluted EPS at December 31, 2000 and 1999. The dilutive
effect of stock awards
and options is calculated under the treasury stock method using the average market price during the period these shares and options were outstanding.

F-28

---

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

|                                                                   |  | Year ended December 31,
|------------------------------------------------------------------ |  | -----------------------
|
|
|Net earnings                                                       |  | $                      
|Less: Preferred stock dividends                                    |  |                        
|                                                                   |  |                        
|Earnings per common share-basic                                    |  |                        
|Earnings available to common stockholders                          |  | $                      
|Effect of dilutive securities                                      |  |                        
|Stock Programs                                                     |  |                        
|Stock Option Programs                                              |  |                        
|                                                                   |  |                        
|Earnings per common share-diluted                                  |  |                        
|Earnings available to common stockholders plus assumed conversions |  | $                      
|                                                                   |  |                        

The
effect of stock programs and stock option programs are excluded from the calculation of Earnings per common sharediluted as the inclusion of such options would have
an anti-dilutive effect.

F-29

---

18. Unaudited Quarterly Financial Data

|2000                                 |                   | First
Quarter |       | Second
Quarter |   | Third
Quarter |      | Fourth
Quarter |       | Year
|------------------------------------ | ----------------- | ------------- | ----- | -------------- | - | ------------- | ---- | -------------- | ----- | ----
|Interest income                      |                   | $             | 3,067 |                | $ | 3,055         |      | $              | 3,025 |     
|Interest expense                     |                   |               | 1,390 |                |   | 1,377         |      |                | 1,447 |     
|Net interest income                  |                   |               | 1,677 |                |   | 1,678         |      |                | 1,578 |     
|Provision for loan losses            |                   |               | 90    |                |   | 90            |      |                | 90    |     
|Income before taxes                  |                   |               | 281   |                |   | 384           |      |                | 519   |     
|Net earnings (loss)                  |                   |               | 167   |                |   | 228           |      |                | 282   |     
|Basic earnings (loss) per share      |                   |               | .17   |                |   | .24           |      |                | .32   |     
|Diluted earnings (loss) per share(1) |                   |               | .17   |                |   | .24           |      |                | .32   |     
|Market range:                        |                   |               |       |                |   |               |      |                |       |     
|                                     | High market price |               |       | 7.75           |   |               | 8.56 |                |       | 9.31
|                                     | Low market price  |               |       | 4.63           |   |               | 6.25 |                |       | 7.00

|1999                                 |                   | First
Quarter |       | Second
Quarter |   | Third
Quarter |      | Fourth
Quarter |       | Year
|------------------------------------ | ----------------- | ------------- | ----- | -------------- | - | ------------- | ---- | -------------- | ----- | ----
|Interest income                      |                   | $             | 2,642 |                | $ | 2,746         |      | $              | 2,974 |     
|Interest expense                     |                   |               | 1,140 |                |   | 1,197         |      |                | 1,339 |     
|Net interest income                  |                   |               | 1,502 |                |   | 1,549         |      |                | 1,635 |     
|Provision for loan losses            |                   |               | 75    |                |   | 75            |      |                | 75    |     
|Income before taxes                  |                   |               | 148   |                |   | (112          | )    |                | 542   |     
|Net earnings (loss)                  |                   |               | 87    |                |   | (65           | )    |                | 320   |     
|Basic earnings (loss) per share      |                   |               | .09   |                |   | (.08          | )    |                | .34   |     
|Diluted earnings (loss) per share(1) |                   |               | .09   |                |   | (.08          | )    |                | .33   |     
|Market range:                        |                   |               |       |                |   |               |      |                |       |     
|                                     | High market price |               |       | 8.75           |   |               | 7.00 |                |       | 7.63
|                                     | Low market price  |               |       | 6.50           |   |               | 6.00 |                |       | 5.13

---

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. 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 no dividends paid to the parent company by the Bank or Banksmart, Inc.

F-30

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December 312000

1999(In thousands)AssetsCash

$
161

$
848Investment securities held-to-maturity


1,000


1,000Accrued interest


21


21Investment in subsidiaries


12,391


11,752Other assets


481


237$
14,054

$
13,858Liabilities and stockholders' equityOther liabilities

$
77

$
57Stockholders' equity


13,977


13,801$
14,054

$
13,858




Year ended December 312000

1999(In thousands)Interest income

$
63

$
71Other income


187


Other expense


215


218Income tax (benefit) expense


13


(62
)Earnings before equity in undistributed earnings of subsidiaries


22


(85
)Equity in undistributed earnings of subsidiaries


655


443Net earnings

$
677

$
358


F-31

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|                                                                                |                                                  | Year ended December 31                |     
|------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------- | ----
|
|
|Cash flows from operating activities                                            |                                                  |                                       |     
|Net earnings                                                                    |                                                  | $                                     | 677 
|Adjustments to reconcile net earnings to cash provided by operating activities: |                                                  |                                       |     
|                                                                                | Equity in undistributed earnings of subsidiaries |                                       |     
|                                                                                | Increase in other assets                         |                                       |     
|                                                                                | Increase in other liabilities                    |                                       |     
|                                                                                | Other                                            |                                       |     
|                                                                                |                                                  |                                       |     
|Total adjustments                                                               |                                                  |                                       | (964
|                                                                                |                                                  |                                       |     
|Net cash used in operating activities                                           |                                                  |                                       | (287
|                                                                                |                                                  |                                       |     
|Cash flows from investing activities                                            |                                                  |                                       |     
|                                                                                | Investment in Banksmart, Inc.                    |                                       |     
|                                                                                |                                                  |                                       |     
|                                                                                |                                                  | Net cash used in investing activities |     
|                                                                                |                                                  |                                       |     
|Cash flows from financing activities                                            |                                                  |                                       |     
|Stock repurchased                                                               |                                                  |                                       | (236
|Dividends paid                                                                  |                                                  |                                       | (164
|                                                                                |                                                  |                                       |     
|Net cash used in financing activities                                           |                                                  |                                       | (400
|                                                                                |                                                  |                                       |     
|Net decrease in cash and cash equivalents                                       |                                                  |                                       | (687
|Cash and cash equivalents, beginning of year                                    |                                                  |                                       | 848 
|                                                                                |                                                  |                                       |     
|Cash and cash equivalents, end of year                                          |                                                  | $                                     | 161 
|                                                                                |                                                  |                                       |     

F-32

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