##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549





FORM 10-Q





(Mark One)



|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------

For the quarterly period ended June 30, 2012



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

For transition period
from            to

Commission file number 000-27464





BROADWAY
FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 95-4547287                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|4800 Wilshire Boulevard, Los Angeles, California               |  | 90010                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(323) 634-1700

(Registrants telephone number, including area code)





Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated, or a smaller reporting company. See the definition of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large Accelerated Filer |  |  ̈ |  | Accelerated Filer         |  |  ̈
|                        |  |   | 
|Non-Accelerated Filer   |  |  ̈ |  | Smaller Reporting Company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 1,744,565 shares of the Companys Common Stock, par value $0.01 per
share, were outstanding as of September 6, 2012.









---

##### Table of Contents

TABLE OF CONTENTS



|         |  |                       |  |                                                                                                                                                |  |  |    | 
|-------- |  | --------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|         |  |                       |  | Page                                                                                                                                           | 
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                                                                |  | 
|         |  |                       | 
|         |  | Item 1.               |  | Financial Statements                                                                                                                           |  |  |    | 
|         |  |                       | 
|         |  |                       |  | Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011                                                              |  |  | 1  | 
|         |  |                       | 
|         |  |                       |  | Consolidated Statements of Operations and Comprehensive Earnings (Loss) (unaudited) for the three and six
 months ended June 30, 2012 and 2011 |  |  | 2  | 
|         |  |                       | 
|         |  |                       |  | Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2012 and 2011                                              |  |  | 3  | 
|         |  |                       | 
|         |  |                       |  | Notes to Unaudited Consolidated Financial Statements                                                                                           |  |  | 4  | 
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                          |  |  | 25 | 
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                     |  |  | 33 | 
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                                        |  |  | 33 | 
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                                                |  | 
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                                              |  |  | 34 | 
|         |  |                       | 
|         |  | Item 1A.              |  | Risk Factors                                                                                                                                   |  |  | 34 | 
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                    |  |  | 34 | 
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                                                |  |  | 34 | 
|         |  |                       | 
|         |  | Item 4.               |  | Mine Safety Disclosures                                                                                                                        |  |  | 34 | 
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                                              |  |  | 34 | 
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                                       |  |  | 34 | 
|         |  |                       | 
|         |  | Signatures            |  |                                                                                                                                                |  |  | 35 | 
|         |  |                       | 
|         |  | Ex 31.1               |  | Section 302 Certification of CEO                                                                                                               |  |  |    | 
|         |  |                       | 
|         |  | Ex 31.2               |  | Section 302 Certification of CFO                                                                                                               |  |  |    | 
|         |  |                       | 
|         |  | Ex 32                 |  | Section 906 Certifications of CEO and CFO                                                                                                      |  |  |    | 



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets



|                                                                                                                                                                                                                                                                                                                                                                             |  |                                                  |         |   |                   |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------ | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                                                                                                                                                                                                                             |  | June 30, 
2012(Unaudited)                        |         |   | December 31, 2011 |  
|                                                                                                                                                                                                                                                                                                                                                                             |  | (Dollars in thousands, except per share amounts) |        
|Assets                                                                                                                                                                                                                                                                                                                                                                       |  |                                                  |         |   |                   |   |         |  
|Cash                                                                                                                                                                                                                                                                                                                                                                         |  | $                                                | 14,596  |   |                   | $ | 12,127  |  
|Federal funds sold                                                                                                                                                                                                                                                                                                                                                           |  |                                                  | 31,540  |   |                   |   | 19,470  |  
|                                                                                                                                                                                                                                                                                                                                                                             |  |                                                  |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                    |  |                                                  | 46,136  |   |                   |   | 31,597  |  
|Securities available-for-sale, at fair value                                                                                                                                                                                                                                                                                                                                 |  |                                                  | 15,705  |   |                   |   | 18,979  |  
|Loans receivable held for sale, net                                                                                                                                                                                                                                                                                                                                          |  |                                                  | 12,574  |   |                   |   | 12,983  |  
|Loans receivable, net of allowance of $17,856 and $17,299                                                                                                                                                                                                                                                                                                                    |  |                                                  | 295,363 |   |                   |   | 322,770 |  
|Accrued interest receivable                                                                                                                                                                                                                                                                                                                                                  |  |                                                  | 1,476   |   |                   |   | 1,698   |  
|Federal Home Loan Bank (FHLB) stock, at cost                                                                                                                                                                                                                                                                                                                                 |  |                                                  | 3,901   |   |                   |   | 4,089   |  
|Office properties and equipment, net                                                                                                                                                                                                                                                                                                                                         |  |                                                  | 2,772   |   |                   |   | 4,626   |  
|Real estate owned                                                                                                                                                                                                                                                                                                                                                            |  |                                                  | 3,530   |   |                   |   | 6,699   |  
|Bank owned life insurance                                                                                                                                                                                                                                                                                                                                                    |  |                                                  | 2,649   |   |                   |   | 2,609   |  
|Investment in affordable housing limited partnership                                                                                                                                                                                                                                                                                                                         |  |                                                  | 1,586   |   |                   |   | 1,675   |  
|Deferred tax assets                                                                                                                                                                                                                                                                                                                                                          |  |                                                  |        |   |                   |   | 850     |  
|Other assets                                                                                                                                                                                                                                                                                                                                                                 |  |                                                  | 5,239   |   |                   |   | 5,162   |  
|                                                                                                                                                                                                                                                                                                                                                                             |  |                                                  |         |   |                   |   |         |  
|Total assets                                                                                                                                                                                                                                                                                                                                                                 |  | $                                                | 390,931 |   |                   | $ | 413,737 |  
|                                                                                                                                                                                                                                                                                                                                                                             |  |                                                  |         |   |                   |   |         |  
|Liabilities and shareholders equity                                                                                                                                                                                                                                                                                                                                         |  |                                                  |         |   |                   |   |         |  
|Deposits                                                                                                                                                                                                                                                                                                                                                                     |  | $                                                | 270,047 |   |                   | $ | 294,686 |  
|Federal Home Loan Bank advances                                                                                                                                                                                                                                                                                                                                              |  |                                                  | 83,000  |   |                   |   | 83,000  |  
|Junior subordinated debentures                                                                                                                                                                                                                                                                                                                                               |  |                                                  | 6,000   |   |                   |   | 6,000   |  
|Other borrowings                                                                                                                                                                                                                                                                                                                                                             |  |                                                  | 5,000   |   |                   |   | 5,000   |  
|Advance payments by borrowers for taxes and insurance                                                                                                                                                                                                                                                                                                                        |  |                                                  | 705     |   |                   |   | 813     |  
|Other liabilities                                                                                                                                                                                                                                                                                                                                                            |  |                                                  | 6,516   |   |                   |   | 5,962   |  
|                                                                                                                                                                                                                                                                                                                                                                             |  |                                                  |         |   |                   |   |         |  
|Total liabilities                                                                                                                                                                                                                                                                                                                                                            |  |                                                  | 371,268 |   |                   |   | 395,461 |  
|                                                                                                                                                                                                                                                                                                                                                                             |  |                                                  |         |   |                   |   |         |  
|Shareholders Equity:                                                                                                                                                                                                                                                                                                                                                        |  |                                                  |         |   |                   |   |         |  
|Senior preferred cumulative and non-voting stock, $.01 par value, authorized, issued and outstanding 9,000 shares of Series D at
June 30, 2012 and December 31, 2011; liquidation preference of $9,956 at June 30, 2012 and $9,731 at December 31, 2011                                                                                                                      |  |                                                  | 8,963   |   |                   |   | 8,963   |  
|Senior preferred cumulative and non-voting stock, $.01 par value, authorized, issued and outstanding 6,000 shares of Series E at
June 30, 2012 and December 31, 2011; liquidation preference of $6,638 at June 30, 2012 and $6,488 at December 31, 2011                                                                                                                      |  |                                                  | 5,974   |   |                   |   | 5,974   |  
|Preferred non-cumulative and non-voting stock, $.01 par value, authorized 985,000 shares; issued and outstanding 55,199 shares of
Series A, 100,000 shares of Series B and 76,950 shares of Series C at June 30, 2012 and December 31, 2011; liquidation preference of $552 for Series A, $1,000 for Series B and $1,000 for Series C at June 30, 2012 and December 31,
2011 |  |                                                  | 3,657   |   |                   |   | 3,657   |  
|Preferred stock discount                                                                                                                                                                                                                                                                                                                                                     |  |                                                  | (798    | ) |                   |   | (994    | )
|Common stock, $.01 par value, authorized 8,000,000 shares at June 30, 2012 and December 31, 2011; issued 2,013,942
shares at June 30, 2012 and December 31, 2011; outstanding 1,744,565 shares at June 30, 2012 and December 31, 2011                                                                                                                                        |  |                                                  | 20      |   |                   |   | 20      |  
|Additional paid-in capital                                                                                                                                                                                                                                                                                                                                                   |  |                                                  | 10,864  |   |                   |   | 10,824  |  
|Accumulated deficit                                                                                                                                                                                                                                                                                                                                                          |  |                                                  | (6,015  | ) |                   |   | (7,295  | )
|Accumulated other comprehensive income, net of taxes of $400 at June 30, 2012 and December 31, 2011                                                                                                                                                                                                                                                                          |  |                                                  | 442     |   |                   |   | 571     |  
|Treasury stock-at cost, 269,377 shares at June 30, 2012 and December 31, 2011                                                                                                                                                                                                                                                                                                |  |                                                  | (3,444  | ) |                   |   | (3,444  | )
|                                                                                                                                                                                                                                                                                                                                                                             |  |                                                  |         |   |                   |   |         |  
|Total shareholders equity                                                                                                                                                                                                                                                                                                                                                   |  |                                                  | 19,663  |   |                   |   | 18,276  |  
|                                                                                                                                                                                                                                                                                                                                                                             |  |                                                  |         |   |                   |   |         |  
|Total liabilities and shareholders equity                                                                                                                                                                                                                                                                                                                                   |  | $                                                | 390,931 |   |                   | $ | 413,737 |  
|                                                                                                                                                                                                                                                                                                                                                                             |  |                                                  |         |   |                   |   |         |  

See accompanying notes to unaudited consolidated financial statements.



1



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Earnings (Loss)

(Unaudited)



|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------- |  | ------------------------------------------------ | ----- | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                        |  | Three Months EndedJune 30,                       |       |   | Six Months EndedJune 30, |  
|                                                        |  | 2012                                             |       |   | 2011                     |   |        | 2012 |  |   | 2011   |  
|                                                        |  | (Dollars in thousands, except per share amounts) |      
|Interest and fees on loans receivable                   |  | $                                                | 5,030 |   |                          | $ | 6,284  |      |  | $ | 10,360 |   |  | $ | 12,668 |  
|Interest on mortgage backed and other securities        |  |                                                  | 135   |   |                          |   | 182    |      |  |   | 283    |   |  |   | 363    |  
|Other interest income                                   |  |                                                  | 20    |   |                          |   | 10     |      |  |   | 36     |   |  |   | 19     |  
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total interest income                                   |  |                                                  | 5,185 |   |                          |   | 6,476  |      |  |   | 10,679 |   |  |   | 13,050 |  
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Interest on deposits                                    |  |                                                  | 880   |   |                          |   | 1,197  |      |  |   | 1,855  |   |  |   | 2,436  |  
|Interest on borrowings                                  |  |                                                  | 815   |   |                          |   | 851    |      |  |   | 1,648  |   |  |   | 1,840  |  
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total interest expense                                  |  |                                                  | 1,695 |   |                          |   | 2,048  |      |  |   | 3,503  |   |  |   | 4,276  |  
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Net interest income before provision for loan losses    |  |                                                  | 3,490 |   |                          |   | 4,428  |      |  |   | 7,176  |   |  |   | 8,774  |  
|Provision for loan losses                               |  |                                                  | 102   |   |                          |   | 3,434  |      |  |   | 1,061  |   |  |   | 4,674  |  
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Net interest income after provision for loan losses     |  |                                                  | 3,388 |   |                          |   | 994    |      |  |   | 6,115  |   |  |   | 4,100  |  
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Non-interest income:                                    |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Service charges                                         |  |                                                  | 143   |   |                          |   | 175    |      |  |   | 296    |   |  |   | 357    |  
|Net gains (losses) on mortgage banking activities       |  |                                                  | 4     |   |                          |   | 32     |      |  |   | (162   | ) |  |   | 7      |  
|Net gains (losses) on sales of REO                      |  |                                                  | (17   | ) |                          |   | (34    | )    |  |   | 395    |   |  |   | (49    | )
|Gain on sale of office properties and equipment         |  |                                                  | 2,523 |   |                          |   |       |      |  |   | 2,523  |   |  |   |       |  
|Gain on sale of securities                              |  |                                                  | 50    |   |                          |   |       |      |  |   | 50     |   |  |   |       |  
|Other                                                   |  |                                                  | 21    |   |                          |   | 26     |      |  |   | 45     |   |  |   | 65     |  
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total non-interest income                               |  |                                                  | 2,724 |   |                          |   | 199    |      |  |   | 3,147  |   |  |   | 380    |  
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Non-interest expense:                                   |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Compensation and benefits                               |  |                                                  | 1,538 |   |                          |   | 1,555  |      |  |   | 3,127  |   |  |   | 3,364  |  
|Occupancy expense, net                                  |  |                                                  | 297   |   |                          |   | 334    |      |  |   | 584    |   |  |   | 688    |  
|Information services                                    |  |                                                  | 239   |   |                          |   | 220    |      |  |   | 452    |   |  |   | 447    |  
|Professional services                                   |  |                                                  | 176   |   |                          |   | 292    |      |  |   | 284    |   |  |   | 460    |  
|Provision for losses on loans held-for-sale             |  |                                                  | 188   |   |                          |   | 6      |      |  |   | 186    |   |  |   | 26     |  
|Provision for losses on REO                             |  |                                                  | 331   |   |                          |   | 702    |      |  |   | 312    |   |  |   | 782    |  
|FDIC insurance                                          |  |                                                  | 216   |   |                          |   | 354    |      |  |   | 433    |   |  |   | 637    |  
|Office services and supplies                            |  |                                                  | 108   |   |                          |   | 140    |      |  |   | 217    |   |  |   | 282    |  
|Other                                                   |  |                                                  | 550   |   |                          |   | 514    |      |  |   | 969    |   |  |   | 933    |  
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total non-interest expense                              |  |                                                  | 3,643 |   |                          |   | 4,117  |      |  |   | 6,564  |   |  |   | 7,619  |  
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Earnings (loss) before income taxes                     |  |                                                  | 2,469 |   |                          |   | (2,924 | )    |  |   | 2,698  |   |  |   | (3,139 | )
|Income tax expense (benefit)                            |  |                                                  | 772   |   |                          |   | (1,202 | )    |  |   | 847    |   |  |   | (1,288 | )
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Net earnings (loss)                                     |  | $                                                | 1,697 |   |                          | $ | (1,722 | )    |  | $ | 1,851  |   |  | $ | (1,851 | )
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Other comprehensive income (loss), net of tax:          |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Unrealized gain (loss) on securities available for sale |  | $                                                | (86   | ) |                          | $ | 86     |      |  | $ | (79    | ) |  | $ | 71     |  
|Reclassification of net gains included in net earnings  |  |                                                  | (50   | ) |                          |   |       |      |  |   | (50    | ) |  |   |       |  
|Income tax effect                                       |  |                                                  |      |   |                          |   | (34    | )    |  |   |       |   |  |   | (28    | )
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Other comprehensive income (loss), net of tax           |  |                                                  | (136  | ) |                          |   | 52     |      |  |   | (129   | ) |  |   | 43     |  
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Comprehensive earnings (loss)                           |  | $                                                | 1,561 |   |                          | $ | (1,670 | )    |  | $ | 1,722  |   |  | $ | (1,808 | )
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Net earnings (loss)                                     |  | $                                                | 1,697 |   |                          | $ | (1,722 | )    |  | $ | 1,851  |   |  | $ | (1,851 | )
|Dividends and discount accretion on preferred stock     |  |                                                  | (285  | ) |                          |   | (283   | )    |  |   | (571   | ) |  |   | (566   | )
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Earnings (loss) available to common shareholders        |  | $                                                | 1,412 |   |                          | $ | (2,005 | )    |  | $ | 1,280  |   |  | $ | (2,417 | )
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Earnings (loss) per common share-basic                  |  | $                                                | 0.81  |   |                          | $ | (1.15  | )    |  | $ | 0.73   |   |  | $ | (1.39  | )
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Earnings (loss) per common share-diluted                |  | $                                                | 0.81  |   |                          | $ | (1.15  | )    |  | $ | 0.73   |   |  | $ | (1.39  | )
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Dividends declared per share-common stock               |  | $                                                |      |   |                          | $ |       |      |  | $ |       |   |  | $ |       |  
|                                                        |  |                                                  |       |   |                          |   |        |      |  |   |        |   |  |   |        |  

See accompanying notes to unaudited consolidated financial statements.



2



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                           |  |                           |         |   |      |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                           |  | Six Months Ended June 30, |        
|                                                                                           |  | 2012                      |         |   | 2011 |  
|                                                                                           |  | (Dollars in thousands)    |        
|Cash flows from operating activities:                                                      |  |                           |         |   |      |   |         |  
|Net earnings (loss)                                                                        |  | $                         | 1,851   |   |      | $ | (1,851  | )
|Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |  |                           |         |   |      |   |         |  
|Provision for loan losses                                                                  |  |                           | 1,061   |   |      |   | 4,674   |  
|Provision for losses on loans receivable held-for-sale                                     |  |                           | 186     |   |      |   | 26      |  
|Provision for losses on REO                                                                |  |                           | 312     |   |      |   | 782     |  
|Depreciation                                                                               |  |                           | 149     |   |      |   | 206     |  
|Net amortization of deferred loan origination (fees) costs                                 |  |                           | 58      |   |      |   | 20      |  
|Net amortization of premiums on mortgage-backed securities                                 |  |                           | 31      |   |      |   | 59      |  
|Amortization of investment in affordable housing limited partnership                       |  |                           | 89      |   |      |   |        |  
|Stock-based compensation expense                                                           |  |                           | 40      |   |      |   | 45      |  
|Earnings on bank owned life insurance                                                      |  |                           | (40     | ) |      |   | (44     | )
|Gain on sale of office properties and equipment                                            |  |                           | (2,523  | ) |      |   |        |  
|Gain on sale of securities                                                                 |  |                           | (50     | ) |      |   |        |  
|Net (gains) losses on sales of REO                                                         |  |                           | (395    | ) |      |   | 49      |  
|Net (gains) losses on sales of loans                                                       |  |                           |        |   |      |   | (11     | )
|Net change in:                                                                             |  |                           |         |   |      |   |         |  
|Accrued interest receivable                                                                |  |                           | 222     |   |      |   | 259     |  
|Deferred tax assets                                                                        |  |                           | 850     |   |      |   | (767    | )
|Other assets                                                                               |  |                           | (77     | ) |      |   | (1,543  | )
|Other liabilities                                                                          |  |                           | 279     |   |      |   | 790     |  
|                                                                                           |  |                           |         |   |      |   |         |  
|Net cash provided by operating activities                                                  |  |                           | 2,043   |   |      |   | 2,694   |  
|                                                                                           |  |                           |         |   |      |   |         |  
|Cash flows from investing activities:                                                      |  |                           |         |   |      |   |         |  
|Net change in loans receivable                                                             |  |                           | 23,626  |   |      |   | 10,136  |  
|Proceeds from sales and principal repayments of loans receivable held-for-sale             |  |                           | 223     |   |      |   | 14,243  |  
|Available-for-sale securities:                                                             |  |                           |         |   |      |   |         |  
|Sales, maturities, prepayments and calls                                                   |  |                           | 3,164   |   |      |   | 1,367   |  
|Held-to-maturity securities:                                                               |  |                           |         |   |      |   |         |  
|Maturities, prepayments and calls                                                          |  |                           |        |   |      |   | 1,042   |  
|Proceeds from sales of REO                                                                 |  |                           | 5,914   |   |      |   | 2,305   |  
|Investment in affordable housing limited partnership                                       |  |                           | (100    | ) |      |   | (286    | )
|Net redemption of Federal Home Loan Bank stock                                             |  |                           | 188     |   |      |   |        |  
|Proceeds from sale of office properties and equipment                                      |  |                           | 4,237   |   |      |   |        |  
|Additions to office properties and equipment                                               |  |                           | (9      | ) |      |   | (21     | )
|                                                                                           |  |                           |         |   |      |   |         |  
|Net cash provided by investing activities                                                  |  |                           | 37,243  |   |      |   | 28,786  |  
|                                                                                           |  |                           |         |   |      |   |         |  
|Cash flows from financing activities:                                                      |  |                           |         |   |      |   |         |  
|Net change in deposits                                                                     |  |                           | (24,639 | ) |      |   | (36,074 | )
|Proceeds from FHLB advances                                                                |  |                           | 13,500  |   |      |   | 7,000   |  
|Repayments on FHLB advances                                                                |  |                           | (13,500 | ) |      |   | (7,000  | )
|Reissuance of treasury stock                                                               |  |                           |        |   |      |   | 6       |  
|Net change in advance payments by borrowers for taxes and insurance                        |  |                           | (108    | ) |      |   | 471     |  
|                                                                                           |  |                           |         |   |      |   |         |  
|Net cash used in financing activities                                                      |  |                           | (24,747 | ) |      |   | (35,597 | )
|                                                                                           |  |                           |         |   |      |   |         |  
|Net change in cash and cash equivalents                                                    |  |                           | 14,539  |   |      |   | (4,117  | )
|Cash and cash equivalents at beginning of period                                           |  |                           | 31,597  |   |      |   | 21,978  |  
|                                                                                           |  |                           |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                                 |  | $                         | 46,136  |   |      | $ | 17,861  |  
|                                                                                           |  |                           |         |   |      |   |         |  
|Supplemental disclosures of cash flow information:                                         |  |                           |         |   |      |   |         |  
|Cash paid for interest                                                                     |  | $                         | 3,142   |   |      | $ | 3,912   |  
|                                                                                           |  |                           |         |   |      |   |         |  
|Cash paid for income taxes                                                                 |  | $                         |        |   |      | $ | 865     |  
|                                                                                           |  |                           |         |   |      |   |         |  
|Supplemental disclosures of non-cash investing and financing activities:                   |  |                           |         |   |      |   |         |  
|Transfers of loans receivable to REO                                                       |  | $                         | 2,662   |   |      | $ | 6,414   |  
|                                                                                           |  |                           |         |   |      |   |         |  
|Transfers of loans receivable held-for-sale to REO                                         |  | $                         |        |   |      | $ | 266     |  
|                                                                                           |  |                           |         |   |      |   |         |  
|Transfers of loans receivable held-for-sale to other assets                                |  | $                         |        |   |      | $ |        |  
|                                                                                           |  |                           |         |   |      |   |         |  

See accompanying notes to unaudited consolidated financial statements.



3



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

June 30, 2012

NOTE (1)  Basis of Financial Statement Presentation

The accompanying unaudited consolidated financial statements include Broadway Financial Corporation (the
Company) and its wholly owned subsidiary, Broadway Federal Bank, f.s.b. (the Bank). Also included in the unaudited consolidated financial statements is Broadway Service Corporation, a wholly owned subsidiary of the Bank. All
significant intercompany balances and transactions have been eliminated in consolidation.

The unaudited consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for quarterly reports on Form 10-Q. These unaudited
consolidated financial statements do not include all disclosures associated with the Companys consolidated annual financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2011 and, accordingly,
should be read in conjunction with such audited consolidated financial statements. In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included.
Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

Some items in the consolidated financial statements for the prior period were reclassified to conform to the current presentation.

NOTE (2)  Recently Issued Accounting Pronouncements

In May 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between
U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for
disclosing information about fair value measurements. The amendments in this guidance are effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of this standard did not have a material effect on the
Companys consolidated financial statements.

In June 2011, the FASB amended existing guidance and eliminated the option
to present the components of other comprehensive income as part of the statement of changes in shareholders equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate
consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. Early adoption is permitted. The adoption of this
amendment had no impact on the Companys consolidated financial statements as the prior presentation of comprehensive income was in compliance with this amendment.



4



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



NOTE (3)  Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed by dividing earnings (loss) available to common shareholders by the
weighted average number of shares of common stock outstanding for the period. Diluted earnings (loss) per common share is computed by dividing earnings (loss) available to common shareholders by the weighted average number of shares of common stock
outstanding for the period, increased for the dilutive effect of common stock equivalents.

The following table shows how the
Company computed basic and diluted earnings (loss) per common share for the three and six months ended June 30, 2012 and 2011.



|                                                            |  |                                          |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|----------------------------------------------------------- |  | ---------------------------------------- | --------- | - | --------------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                            |  | For the three months ended June 30,      |           |   | For the six months ended June 30, |  
|                                                            |  | 2012                                     |           |   | 2011                              |   |           | 2012 |  |   | 2011      |  
|                                                            |  | (Dollars in thousands, except per share) |          
|Basic                                                       |  |                                          |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Net earnings (loss)                                         |  | $                                        | 1,697     |   |                                   | $ | (1,722    | )    |  | $ | 1,851     |   |  | $ | (1,851    | )
|Less: Preferred stock dividends and accretion               |  |                                          | (285      | ) |                                   |   | (283      | )    |  |   | (571      | ) |  |   | (566      | )
|                                                            |  |                                          |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Earnings (loss) available to common shareholders            |  | $                                        | 1,412     |   |                                   | $ | (2,005    | )    |  | $ | 1,280     |   |  | $ | (2,417    | )
|                                                            |  |                                          |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Weighted average common shares outstanding                  |  |                                          | 1,744,565 |   |                                   |   | 1,744,216 |      |  |   | 1,744,565 |   |  |   | 1,744,091 |  
|                                                            |  |                                          |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Basic earnings (loss) per common share                      |  | $                                        | 0.81      |   |                                   | $ | (1.15     | )    |  | $ | 0.73      |   |  | $ | (1.39     | )
|                                                            |  |                                          |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Diluted                                                     |  |                                          |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Net earnings (loss)                                         |  | $                                        | 1,697     |   |                                   | $ | (1,722    | )    |  | $ | 1,851     |   |  | $ | (1,851    | )
|Less: Preferred stock dividends and accretion               |  |                                          | (285      | ) |                                   |   | (283      | )    |  |   | (571      | ) |  |   | (566      | )
|                                                            |  |                                          |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Earnings (loss) available to common shareholders            |  | $                                        | 1,412     |   |                                   | $ | (2,005    | )    |  | $ | 1,280     |   |  | $ | (2,417    | )
|                                                            |  |                                          |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Weighted average common shares outstanding                  |  |                                          | 1,744,565 |   |                                   |   | 1,744,216 |      |  |   | 1,744,565 |   |  |   | 1,744,091 |  
|Add: dilutive effects of assumed exercises of stock options |  |                                          | N/A       |   |                                   |   | N/A       |      |  |   | N/A       |   |  |   | N/A       |  
|                                                            |  |                                          |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Average shares and dilutive potential common shares         |  |                                          | 1,744,565 |   |                                   |   | 1,744,216 |      |  |   | 1,744,565 |   |  |   | 1,744,091 |  
|                                                            |  |                                          |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Diluted earnings (loss) per common share                    |  | $                                        | 0.81      |   |                                   | $ | (1.15     | )    |  | $ | 0.73      |   |  | $ | (1.39     | )
|                                                            |  |                                          |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  

Stock options for 227,075 shares of common stock were not considered in computing diluted earnings per
common share for the three and six months ended June 30, 2012 and 2011 because they were anti-dilutive.



5



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



NOTE (4)  Securities

The following table summarizes the amortized cost and fair value of the available-for-sale investment securities
portfolios at June 30, 2012 and December 31, 2011 and the corresponding amounts of unrealized gains which are recognized in accumulated other comprehensive income (loss) were as follows:



|                                    |  |                |        |  |                      |   |     |                       |  |   |            |  |  |   |        | 
|----------------------------------- |  | -------------- | ------ |  | -------------------- | - | --- | --------------------- |  | - | ---------- |  |  | - | ------ | 
|                                    |  | Amortized Cost |        |  | GrossUnrealizedGains |   |     | GrossUnrealizedLosses |  |   | Fair Value | 
|                                    |  | (In thousands) |       
|June 30, 2012:                      |  |                |        | 
|Residential mortgage-backed         |  | $              | 14,863 |  |                      | $ | 842 |                       |  | $ |           |  |  | $ | 15,705 | 
|U.S. Government and federal agency  |  |                |       |  |                      |   |    |                       |  |   |           |  |  |   |       | 
|                                    |  |                |        |  |                      |   |     |                       |  |   |            |  |  |   |        | 
|Total available-for-sale securities |  | $              | 14,863 |  |                      | $ | 842 |                       |  | $ |           |  |  | $ | 15,705 | 
|                                    |  |                |        |  |                      |   |     |                       |  |   |            |  |  |   |        | 
|December 31, 2011:                  |  |                |        |  |                      |   |     |                       |  |   |            |  |  |   |        | 
|Residential mortgage-backed         |  | $              | 17,008 |  |                      | $ | 902 |                       |  | $ |           |  |  | $ | 17,910 | 
|U.S. Government and federal agency  |  |                | 1,000  |  |                      |   | 69  |                       |  |   |           |  |  |   | 1,069  | 
|                                    |  |                |        |  |                      |   |     |                       |  |   |            |  |  |   |        | 
|Total available-for-sale securities |  | $              | 18,008 |  |                      | $ | 971 |                       |  | $ |           |  |  | $ | 18,979 | 
|                                    |  |                |        |  |                      |   |     |                       |  |   |            |  |  |   |        | 

The amortized cost and fair value of the investment securities portfolios are shown by contractual
maturity at June 30, 2012. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date,
primarily residential mortgage-backed securities, are shown separately.



|                            |  |                    |        |  |            |   |        | 
|--------------------------- |  | ------------------ | ------ |  | ---------- | - | ------ | 
|                            |  | Available-for-Sale |       
|Maturity                    |  | Amortized Cost     |        |  | Fair Value |  
|                            |  | (In thousands)     |       
|Within one year             |  | $                  |       |  |            | $ |       | 
|One to five years           |  |                    |       |  |            |   |       | 
|Five to ten years           |  |                    |       |  |            |   |       | 
|Beyond ten years            |  |                    |       |  |            |   |       | 
|Residential mortgage-backed |  |                    | 14,863 |  |            |   | 15,705 | 
|                            |  |                    |        |  |            |   |        | 
|Total                       |  | $                  | 14,863 |  |            | $ | 15,705 | 
|                            |  |                    |        |  |            |   |        | 

Securities pledged had a carrying amount of $1.6 million and $1.5 million, respectively, at June 30,
2012 and December 31, 2011, and were pledged to secure public deposits. At June 30, 2012 and December 31, 2011, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount
greater than 10% of shareholders equity. During the six months ended June 30, 2012, $1.0 million of U.S federal agency bonds were sold and the Company recognized a gain of $50 thousand. There were no sales of securities during the six
months ended June 30, 2011.

There were no securities with unrealized losses at June 30, 2012 and December 31,
2011. We evaluate securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the financial condition and near-term prospects of the
issuer, the length of time and the extent to which the fair value has been less than the cost, and our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In
analyzing an issuers financial condition, we consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers
financial condition.



6



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



NOTE (5)  Loans Receivable Held-for-Sale, Net

Loans receivable held-for-sale at June 30, 2012 and December 31, 2011 were as follows:



|                                          |  |                |        |   |                   |   |        |  
|----------------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------ | -
|                                          |  | June 30, 2012  |        |   | December 31, 2011 |  
|                                          |  | (In thousands) |       
|Five or more units residential            |  | $              | 6,289  |   |                   | $ | 6,395  |  
|Commercial real estate                    |  |                | 1,699  |   |                   |   | 1,712  |  
|Church                                    |  |                | 5,214  |   |                   |   | 5,550  |  
|Valuation allowance for unrealized losses |  |                | (628   | ) |                   |   | (674   | )
|                                          |  |                |        |   |                   |   |        |  
|Loans receivable, held for sale, net      |  | $              | 12,574 |   |                   | $ | 12,983 |  
|                                          |  |                |        |   |                   |   |        |  

Loans receivable held-for-sale, net, consisted of five or more units residential, commercial real estate
and church loans originated for sale and five or more units residential loans transferred from our loan portfolio. Non-performing loans receivable held-for-sale included in loans receivable held-for-sale, net, totaled $4.9 million, net of
charge-offs of $1.2 million and a $337 thousand valuation allowance, as of June 30, 2012 and totaled $5.2 million, net of charge-offs of $953 thousand and a $382 thousand valuation allowance, as of December 31, 2011. Restructured loans
receivable held-for-sale on which the borrowers have complied with the terms of their restructured agreements for a satisfactory period of time and certain performing loans receivable held-for-sale with delinquency or other weaknesses totaled $2.1
million, net of a $291 thousand valuation allowance, as of June 30, 2012 and December 31, 2011. During the six months ended June 30, 2012, there were no loans receivable held-for-sale transferred to REO. A loan receivable
held-for-sale secured by a church building, which had a carrying amount of $266 thousand, net of a charge-off of $292 thousand, was transferred to REO during the six months ended June 30, 2011.

Net lower of cost or market write-downs (recovery) on non-performing loans receivable held-for-sale totaled $187 thousand for the six
months ended June 30, 2012, compared to ($35) thousand for the same period in 2011. Additionally, during the first half of 2012, we decreased our valuation allowance by $1 thousand on loans held for sale that are still considered performing
loans compared to an increase of $61 thousand during the same period in 2011.

NOTE (6)  Loans Receivable

Loans at June 30, 2012 and December 31, 2011 were as follows:



|                               |  |                |         |   |                   |   |         |  
|------------------------------ |  | -------------- | ------- | - | ----------------- | - | ------- | -
|                               |  | June 30, 2012  |         |   | December 31, 2011 |  
|                               |  | (In thousands) |        
|Real estate:                   |  |                |         |   |                   |   |         |  
|One to four units              |  | $              | 73,834  |   |                   | $ | 76,682  |  
|Five or more units             |  |                | 98,326  |   |                   |   | 108,161 |  
|Commercial real estate         |  |                | 47,364  |   |                   |   | 54,259  |  
|Church                         |  |                | 86,506  |   |                   |   | 89,099  |  
|Construction                   |  |                | 1,038   |   |                   |   | 3,790   |  
|Commercial:                    |  |                |         |   |                   |   |         |  
|Sports                         |  |                | 1,731   |   |                   |   | 1,996   |  
|Other                          |  |                | 4,164   |   |                   |   | 4,900   |  
|Consumer:                      |  |                |         |   |                   |   |         |  
|Loan on savings                |  |                |        |   |                   |   | 821     |  
|Other                          |  |                | 131     |   |                   |   | 108     |  
|                               |  |                |         |   |                   |   |         |  
|Total gross loans receivable   |  |                | 313,094 |   |                   |   | 339,816 |  
|Less:                          |  |                |         |   |                   |   |         |  
|Loans in process               |  |                | 116     |   |                   |   | 202     |  
|Net deferred loan fees (costs) |  |                | (259    | ) |                   |   | (473    | )
|Unamortized discounts          |  |                | 18      |   |                   |   | 18      |  
|Allowance for loan losses      |  |                | 17,856  |   |                   |   | 17,299  |  
|                               |  |                |         |   |                   |   |         |  
|Loans receivable, net          |  | $              | 295,363 |   |                   | $ | 322,270 |  
|                               |  |                |         |   |                   |   |         |  



7



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



The following table presents the activity in the allowance for loan losses by portfolio
segment for the three and six months ended June 30, 2012 and 2011:



|                          |  |                                          |       |   |                   |   |       |                       |  |   |        |   |  |              |       |   |            |   |      |          |  |   |       |   |  |   |    |  |  |   |        |  
|------------------------- |  | ---------------------------------------- | ----- | - | ----------------- | - | ----- | --------------------- |  | - | ------ | - |  | ------------ | ----- | - | ---------- | - | ---- | -------- |  | - | ----- | - |  | - | -- |  |  | - | ------ | -
|                          |  | For the three months ended June 30, 2012 |      
|                          |  | One to fourunits                         |       |   | Five ormore units |   |       | Commercialreal estate |  |   | Church |   |  | Construction |       |   | Commercial |   |      | Consumer |  |   | Total |  
|                          |  | (In thousands)                           |      
|Beginning balance         |  | $                                        | 4,836 |   |                   | $ | 3,013 |                       |  | $ | 2,859  |   |  | $            | 6,494 |   |            | $ | 233  |          |  | $ | 231   |   |  | $ | 86 |  |  | $ | 17,752 |  
|Provision for loan losses |  |                                          | (135  | ) |                   |   | (116  | )                     |  |   | (234   | ) |  |              | 882   |   |            |   | (127 | )        |  |   | (168  | ) |  |   |   |  |  |   | 102    |  
|Recoveries                |  |                                          |      |   |                   |   |      |                       |  |   | 15     |   |  |              | 3     |   |            |   |     |          |  |   | 138   |   |  |   | 2  |  |  |   | 158    |  
|Loans charged off         |  |                                          |      |   |                   |   |      |                       |  |   |       |   |  |              | (156  | ) |            |   |     |          |  |   |      |   |  |   |   |  |  |   | (156   | )
|                          |  |                                          |       |   |                   |   |       |                       |  |   |        |   |  |              |       |   |            |   |      |          |  |   |       |   |  |   |    |  |  |   |        |  
|Ending balance            |  | $                                        | 4,701 |   |                   | $ | 2,897 |                       |  | $ | 2,640  |   |  | $            | 7,223 |   |            | $ | 106  |          |  | $ | 201   |   |  | $ | 88 |  |  | $ | 17,856 |  
|                          |  |                                          |       |   |                   |   |       |                       |  |   |        |   |  |              |       |   |            |   |      |          |  |   |       |   |  |   |    |  |  |   |        |  



|                          |  |                                        |       |   |                   |   |       |                       |  |   |        |   |  |              |       |   |            |   |      |          |  |   |       |   |  |   |     |   |  |   |        |  
|------------------------- |  | -------------------------------------- | ----- | - | ----------------- | - | ----- | --------------------- |  | - | ------ | - |  | ------------ | ----- | - | ---------- | - | ---- | -------- |  | - | ----- | - |  | - | --- | - |  | - | ------ | -
|                          |  | For the six months ended June 30, 2012 |      
|                          |  | One to fourunits                       |       |   | Five ormore units |   |       | Commercialreal estate |  |   | Church |   |  | Construction |       |   | Commercial |   |      | Consumer |  |   | Total |  
|                          |  | (In thousands)                         |      
|Beginning balance         |  | $                                      | 4,855 |   |                   | $ | 2,972 |                       |  | $ | 3,108  |   |  | $            | 5,742 |   |            | $ | 249  |          |  | $ | 247   |   |  | $ | 126 |   |  | $ | 17,299 |  
|Provision for loan losses |  |                                        | 201   |   |                   |   | (75   | )                     |  |   | (440   | ) |  |              | 1,861 |   |            |   | (143 | )        |  |   | (301  | ) |  |   | (42 | ) |  |   | 1,061  |  
|Recoveries                |  |                                        |      |   |                   |   |      |                       |  |   | 30     |   |  |              | 7     |   |            |   |     |          |  |   | 255   |   |  |   | 4   |   |  |   | 296    |  
|Loans charged off         |  |                                        | (355  | ) |                   |   |      |                       |  |   | (58    | ) |  |              | (387  | ) |            |   |     |          |  |   |      |   |  |   |    |   |  |   | (800   | )
|                          |  |                                        |       |   |                   |   |       |                       |  |   |        |   |  |              |       |   |            |   |      |          |  |   |       |   |  |   |     |   |  |   |        |  
|Ending balance            |  | $                                      | 4,701 |   |                   | $ | 2,897 |                       |  | $ | 2,640  |   |  | $            | 7,223 |   |            | $ | 106  |          |  | $ | 201   |   |  | $ | 88  |   |  | $ | 17,856 |  
|                          |  |                                        |       |   |                   |   |       |                       |  |   |        |   |  |              |       |   |            |   |      |          |  |   |       |   |  |   |     |   |  |   |        |  



|                          |  |                                          |       |   |                   |   |       |                       |  |   |        |  |  |              |       |   |            |   |    |          |  |   |       |   |  |   |        |   |  |   |        |  
|------------------------- |  | ---------------------------------------- | ----- | - | ----------------- | - | ----- | --------------------- |  | - | ------ |  |  | ------------ | ----- | - | ---------- | - | -- | -------- |  | - | ----- | - |  | - | ------ | - |  | - | ------ | -
|                          |  | For the three months ended June 30, 2011 |      
|                          |  | One to fourunits                         |       |   | Five ormore units |   |       | Commercialreal estate |  |   | Church |  |  | Construction |       |   | Commercial |   |    | Consumer |  |   | Total |  
|                          |  | (In thousands)                           |      
|Beginning balance         |  | $                                        | 3,977 |   |                   | $ | 2,622 |                       |  | $ | 3,530  |  |  | $            | 7,387 |   |            | $ | 54 |          |  | $ | 1,598 |   |  | $ | 1,823  |   |  | $ | 20,991 |  
|Provision for loan losses |  |                                          | 319   |   |                   |   | 419   |                       |  |   | 2,723  |  |  |              | (46   | ) |            |   | 14 |          |  |   | (60   | ) |  |   | 65     |   |  |   | 3,434  |  
|Recoveries                |  |                                          |      |   |                   |   |      |                       |  |   |       |  |  |              |      |   |            |   |   |          |  |   |      |   |  |   | 6      |   |  |   | 6      |  
|Loans charged off         |  |                                          | (67   | ) |                   |   | (149  | )                     |  |   |       |  |  |              | (144  | ) |            |   |   |          |  |   |      |   |  |   | (1,826 | ) |  |   | (2,186 | )
|                          |  |                                          |       |   |                   |   |       |                       |  |   |        |  |  |              |       |   |            |   |    |          |  |   |       |   |  |   |        |   |  |   |        |  
|Ending balance            |  | $                                        | 4,229 |   |                   | $ | 2,892 |                       |  | $ | 6,253  |  |  | $            | 7,197 |   |            | $ | 68 |          |  | $ | 1,538 |   |  | $ | 68     |   |  | $ | 22,245 |  
|                          |  |                                          |       |   |                   |   |       |                       |  |   |        |  |  |              |       |   |            |   |    |          |  |   |       |   |  |   |        |   |  |   |        |  



|                          |  |                                        |       |   |                   |   |       |                       |  |   |        |   |  |              |       |   |            |   |    |          |  |   |       |  |  |   |        |   |  |   |        |  
|------------------------- |  | -------------------------------------- | ----- | - | ----------------- | - | ----- | --------------------- |  | - | ------ | - |  | ------------ | ----- | - | ---------- | - | -- | -------- |  | - | ----- |  |  | - | ------ | - |  | - | ------ | -
|                          |  | For the six months ended June 30, 2011 |      
|                          |  | One to fourunits                       |       |   | Five ormore units |   |       | Commercialreal estate |  |   | Church |   |  | Construction |       |   | Commercial |   |    | Consumer |  |   | Total | 
|                          |  | (In thousands)                         |      
|Beginning balance         |  | $                                      | 4,579 |   |                   | $ | 2,469 |                       |  | $ | 3,493  |   |  | $            | 6,909 |   |            | $ | 74 |          |  | $ | 1,300 |  |  | $ | 1,634  |   |  | $ | 20,458 |  
|Provision for loan losses |  |                                        | (245  | ) |                   |   | 572   |                       |  |   | 3,369  |   |  |              | 477   |   |            |   | (6 | )        |  |   | 238   |  |  |   | 269    |   |  |   | 4,674  |  
|Recoveries                |  |                                        |      |   |                   |   |      |                       |  |   |       |   |  |              |      |   |            |   |   |          |  |   |      |  |  |   | 8      |   |  |   | 8      |  
|Loans charged off         |  |                                        | (105  | ) |                   |   | (149  | )                     |  |   | (609   | ) |  |              | (189  | ) |            |   |   |          |  |   |      |  |  |   | (1,843 | ) |  |   | (2,895 | )
|                          |  |                                        |       |   |                   |   |       |                       |  |   |        |   |  |              |       |   |            |   |    |          |  |   |       |  |  |   |        |   |  |   |        |  
|Ending balance            |  | $                                      | 4,229 |   |                   | $ | 2,892 |                       |  | $ | 6,253  |   |  | $            | 7,197 |   |            | $ | 68 |          |  | $ | 1,538 |  |  | $ | 68     |   |  | $ | 22,245 |  
|                          |  |                                        |       |   |                   |   |       |                       |  |   |        |   |  |              |       |   |            |   |    |          |  |   |       |  |  |   |        |   |  |   |        |  



8



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



The following table presents the balance in the allowance for loan losses and the
recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2012 and December 31, 2011:



|                                                |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 
|----------------------------------------------- |  | ----------------- | ------ |  | ----------------- | - | ------- | --------------------- |  | - | ------ |  |  | ------------ | ------ |  | ---------- | - | ----- | -------- |  | - | ----- |  |  | - | --- |  |  | - | ------- | 
|                                                |  | June 30, 2012     |       
|                                                |  | One tofour units  |        |  | Five ormore units |   |         | Commercialreal estate |  |   | Church |  |  | Construction |        |  | Commercial |   |       | Consumer |  |   | Total | 
|                                                |  | (In thousands)    |       
|Allowance for loan losses:                      |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 
|Ending allowance balance attributable to loans: |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 
|Individually evaluated for impairment           |  | $                 | 1,529  |  |                   | $ | 150     |                       |  | $ | 245    |  |  | $            | 1,734  |  |            | $ | 87    |          |  | $ |      |  |  | $ | 69  |  |  | $ | 3,814   | 
|Collectively evaluated for impairment           |  |                   | 3,172  |  |                   |   | 2,747   |                       |  |   | 2,395  |  |  |              | 5,489  |  |            |   | 19    |          |  |   | 201   |  |  |   | 19  |  |  |   | 14,042  | 
|                                                |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 
|Total ending allowance balance                  |  | $                 | 4,701  |  |                   | $ | 2,897   |                       |  | $ | 2,640  |  |  | $            | 7,223  |  |            | $ | 106   |          |  | $ | 201   |  |  | $ | 88  |  |  | $ | 17,856  | 
|                                                |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 
|Loans:                                          |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 
|Loans individually evaluated for impairment     |  | $                 | 14,001 |  |                   | $ | 2,285   |                       |  | $ | 7,730  |  |  | $            | 32,794 |  |            | $ | 292   |          |  | $ |      |  |  | $ | 70  |  |  | $ | 57,172  | 
|Loans collectively evaluated for impairment     |  |                   | 59,833 |  |                   |   | 96,041  |                       |  |   | 39,634 |  |  |              | 53,712 |  |            |   | 746   |          |  |   | 5,895 |  |  |   | 61  |  |  |   | 255,922 | 
|                                                |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 
|Total ending loans balance                      |  | $                 | 73,834 |  |                   | $ | 98,326  |                       |  | $ | 47,364 |  |  | $            | 86,506 |  |            | $ | 1,038 |          |  | $ | 5,895 |  |  | $ | 131 |  |  | $ | 313,094 | 
|                                                |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 
|                                                | 
|                                                |  | December 31, 2011 |       
|                                                |  | One tofour units  |        |  | Five ormore units |   |         | Commercialreal estate |  |   | Church |  |  | Construction |        |  | Commercial |   |       | Consumer |  |   | Total | 
|                                                |  | (In thousands)    |       
|Allowance for loan losses:                      |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 
|Ending allowance balance attributable to loans: |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 
|Individually evaluated for impairment           |  | $                 | 1,678  |  |                   | $ | 161     |                       |  | $ | 255    |  |  | $            | 1,683  |  |            | $ | 97    |          |  | $ |      |  |  | $ | 70  |  |  | $ | 3,944   | 
|Collectively evaluated for impairment           |  |                   | 3,177  |  |                   |   | 2,811   |                       |  |   | 2,853  |  |  |              | 4,059  |  |            |   | 152   |          |  |   | 247   |  |  |   | 56  |  |  |   | 13,355  | 
|                                                |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 
|Total ending allowance balance                  |  | $                 | 4,855  |  |                   | $ | 2,972   |                       |  | $ | 3,108  |  |  | $            | 5,742  |  |            | $ | 249   |          |  | $ | 247   |  |  | $ | 126 |  |  | $ | 17,299  | 
|                                                |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 
|Loans:                                          |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 
|Loans individually evaluated for impairment     |  | $                 | 13,246 |  |                   | $ | 3,837   |                       |  | $ | 7,396  |  |  | $            | 31,494 |  |            | $ | 302   |          |  | $ |      |  |  | $ | 70  |  |  | $ | 56,345  | 
|Loans collectively evaluated for impairment     |  |                   | 63,436 |  |                   |   | 104,324 |                       |  |   | 46,863 |  |  |              | 57,605 |  |            |   | 3,488 |          |  |   | 6,896 |  |  |   | 859 |  |  |   | 283,471 | 
|                                                |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 
|Total ending loans balance                      |  | $                 | 76,682 |  |                   | $ | 108,161 |                       |  | $ | 54,259 |  |  | $            | 89,099 |  |            | $ | 3,790 |          |  | $ | 6,896 |  |  | $ | 929 |  |  | $ | 339,816 | 
|                                                |  |                   |        |  |                   |   |         |                       |  |   |        |  |  |              |        |  |            |   |       |          |  |   |       |  |  |   |     |  |  |   |         | 



9



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



The following table presents information related to impaired loans by class of loans as
of and for the three and six months ended June 30, 2012 and 2011:



|                                    |  |                        |        |  |                                 |   |        |                                  |  |   |                           |  |  |                                    |        |  |                           |   |     |                                    |  |   |        |  |  |   |       | 
|----------------------------------- |  | ---------------------- | ------ |  | ------------------------------- | - | ------ | -------------------------------- |  | - | ------------------------- |  |  | ---------------------------------- | ------ |  | ------------------------- | - | --- | ---------------------------------- |  | - | ------ |  |  | - | ----- | 
|                                    |  | As of June 30, 2012    |        |  | Three Months EndedJune 30, 2012 |   |        | Six Months EndedJune 30, 2012    | 
|                                    |  | UnpaidPrincipalBalance |        |  | RecordedInvestment              |   |        | Allowancefor LoanLossesAllocated |  |   | AverageRecordedInvestment |  |  | Cash BasisInterestIncomeRecognized |        |  | AverageRecordedInvestment |   |     | Cash
BasisInterestIncomeRecognized | 
|                                    |  | (In thousands)         |       
|With no related allowance recorded: |  |                        |        |  |                                 |   |        |                                  |  |   |                           |  |  |                                    |        |  |                           |   |     |                                    |  |   |        |  |  |   |       | 
|One to four units                   |  | $                      | 10,216 |  |                                 | $ | 7,971  |                                  |  | $ |                          |  |  | $                                  | 8,009  |  |                           | $ | 34  |                                    |  | $ | 7,938  |  |  | $ | 74    | 
|Five or more units                  |  |                        | 1,438  |  |                                 |   | 1,327  |                                  |  |   |                          |  |  |                                    | 2,090  |  |                           |   | 2   |                                    |  |   | 2,422  |  |  |   | 8     | 
|Commercial real estate              |  |                        | 9,594  |  |                                 |   | 5,804  |                                  |  |   |                          |  |  |                                    | 5,853  |  |                           |   | 37  |                                    |  |   | 5,664  |  |  |   | 97    | 
|Church                              |  |                        | 25,696 |  |                                 |   | 21,652 |                                  |  |   |                          |  |  |                                    | 22,086 |  |                           |   | 134 |                                    |  |   | 21,627 |  |  |   | 262   | 
|Commercial:                         |  |                        |        |  |                                 |   |        |                                  |  |   |                           |  |  |                                    |        |  |                           |   |     |                                    |  |   |        |  |  |   |       | 
|Sports                              |  |                        | 4,000  |  |                                 |   |       |                                  |  |   |                          |  |  |                                    |       |  |                           |   |    |                                    |  |   |       |  |  |   |      | 
|Other                               |  |                        | 285    |  |                                 |   |       |                                  |  |   |                          |  |  |                                    |       |  |                           |   |    |                                    |  |   |       |  |  |   |      | 
|With an allowance recorded:         |  |                        |        |  |                                 |   |        |                                  |  |   |                           |  |  |                                    |        |  |                           |   |     |                                    |  |   |        |  |  |   |       | 
|One to four units                   |  |                        | 6,033  |  |                                 |   | 6,030  |                                  |  |   | 1,529                     |  |  |                                    | 5,989  |  |                           |   | 76  |                                    |  |   | 5,758  |  |  |   | 160   | 
|Five or more units                  |  |                        | 958    |  |                                 |   | 958    |                                  |  |   | 150                       |  |  |                                    | 960    |  |                           |   | 16  |                                    |  |   | 962    |  |  |   | 32    | 
|Commercial real estate              |  |                        | 1,926  |  |                                 |   | 1,926  |                                  |  |   | 245                       |  |  |                                    | 1,931  |  |                           |   | 24  |                                    |  |   | 1,936  |  |  |   | 48    | 
|Church                              |  |                        | 11,172 |  |                                 |   | 11,142 |                                  |  |   | 1,734                     |  |  |                                    | 10,748 |  |                           |   | 172 |                                    |  |   | 10,588 |  |  |   | 335   | 
|Construction                        |  |                        | 292    |  |                                 |   | 292    |                                  |  |   | 87                        |  |  |                                    | 294    |  |                           |   | 4   |                                    |  |   | 297    |  |  |   | 9     | 
|Commercial:                         |  |                        |        |  |                                 |   |        |                                  |  |   |                           |  |  |                                    |        |  |                           |   |     |                                    |  |   |        |  |  |   |       | 
|Other                               |  |                        | 70     |  |                                 |   | 70     |                                  |  |   | 69                        |  |  |                                    | 70     |  |                           |   | 1   |                                    |  |   | 70     |  |  |   | 2     | 
|                                    |  |                        |        |  |                                 |   |        |                                  |  |   |                           |  |  |                                    |        |  |                           |   |     |                                    |  |   |        |  |  |   |       | 
|Total                               |  | $                      | 71,680 |  |                                 | $ | 57,172 |                                  |  | $ | 3,814                     |  |  | $                                  | 58,030 |  |                           | $ | 500 |                                    |  | $ | 57,262 |  |  | $ | 1,027 | 
|                                    |  |                        |        |  |                                 |   |        |                                  |  |   |                           |  |  |                                    |        |  |                           |   |     |                                    |  |   |        |  |  |   |       | 
|                                    |  |                        |       
|                                    |  | As of June 30, 2011    |        |  | Three Months EndedJune 30, 2011 |   |        | Six Months EndedJune 30, 2011    | 
|                                    |  | UnpaidPrincipalBalance |        |  | RecordedInvestment              |   |        | Allowancefor LoanLossesAllocated |  |   | AverageRecordedInvestment |  |  | Cash BasisInterestIncomeRecognized |        |  | AverageRecordedInvestment |   |     | Cash
BasisInterestIncomeRecognized | 
|                                    |  | (In thousands)         |       
|With no related allowance recorded: |  |                        |        |  |                                 |   |        |                                  |  |   |                           |  |  |                                    |        |  |                           |   |     |                                    |  |   |        |  |  |   |       | 
|One to four units                   |  | $                      | 6,664  |  |                                 | $ | 5,330  |                                  |  | $ |                          |  |  | $                                  | 5,630  |  |                           | $ | 10  |                                    |  | $ | 5,767  |  |  | $ | 25    | 
|Five or more units                  |  |                        | 2,142  |  |                                 |   | 1,974  |                                  |  |   |                          |  |  |                                    | 1,720  |  |                           |   | 13  |                                    |  |   | 1,739  |  |  |   | 13    | 
|Commercial real estate              |  |                        | 5,795  |  |                                 |   | 5,156  |                                  |  |   |                          |  |  |                                    | 7,676  |  |                           |   | 16  |                                    |  |   | 8,369  |  |  |   | 36    | 
|Church                              |  |                        | 15,652 |  |                                 |   | 15,183 |                                  |  |   |                          |  |  |                                    | 15,609 |  |                           |   | 42  |                                    |  |   | 14,481 |  |  |   | 92    | 
|Construction                        |  |                        | 317    |  |                                 |   | 317    |                                  |  |   |                          |  |  |                                    | 319    |  |                           |   |    |                                    |  |   | 319    |  |  |   |      | 
|With an allowance recorded:         |  |                        |        |  |                                 |   |        |                                  |  |   |                           |  |  |                                    |        |  |                           |   |     |                                    |  |   |        |  |  |   |       | 
|One to four units                   |  |                        | 5,338  |  |                                 |   | 5,162  |                                  |  |   | 871                       |  |  |                                    | 4,063  |  |                           |   | 66  |                                    |  |   | 3,860  |  |  |   | 116   | 
|Five or more units                  |  |                        | 1,088  |  |                                 |   | 1,093  |                                  |  |   | 183                       |  |  |                                    | 1,043  |  |                           |   |    |                                    |  |   | 808    |  |  |   |      | 
|Commercial real estate              |  |                        | 6,769  |  |                                 |   | 6,769  |                                  |  |   | 3,400                     |  |  |                                    | 4,547  |  |                           |   | 25  |                                    |  |   | 4,268  |  |  |   | 57    | 
|Church                              |  |                        | 15,766 |  |                                 |   | 15,667 |                                  |  |   | 3,127                     |  |  |                                    | 15,058 |  |                           |   | 139 |                                    |  |   | 14,712 |  |  |   | 320   | 
|Commercial:                         |  |                        |        |  |                                 |   |        |                                  |  |   |                           |  |  |                                    |        |  |                           |   |     |                                    |  |   |        |  |  |   |       | 
|Sports                              |  |                        | 4,000  |  |                                 |   | 3,698  |                                  |  |   | 925                       |  |  |                                    | 3,698  |  |                           |   |    |                                    |  |   | 3,728  |  |  |   |      | 
|Other                               |  |                        | 285    |  |                                 |   | 285    |                                  |  |   | 285                       |  |  |                                    | 287    |  |                           |   |    |                                    |  |   | 247    |  |  |   |      | 
|Consumer:                           |  |                        |        |  |                                 |   |        |                                  |  |   |                           |  |  |                                    |        |  |                           |   |     |                                    |  |   |        |  |  |   |       | 
|Loan on savings                     |  |                        |       |  |                                 |   |       |                                  |  |   |                          |  |  |                                    | 889    |  |                           |   |    |                                    |  |   | 1,479  |  |  |   |      | 
|                                    |  |                        |        |  |                                 |   |        |                                  |  |   |                           |  |  |                                    |        |  |                           |   |     |                                    |  |   |        |  |  |   |       | 
|Total                               |  | $                      | 63,816 |  |                                 | $ | 60,634 |                                  |  | $ | 8,791                     |  |  | $                                  | 60,539 |  |                           | $ | 311 |                                    |  | $ | 59,777 |  |  | $ | 659   | 
|                                    |  |                        |        |  |                                 |   |        |                                  |  |   |                           |  |  |                                    |        |  |                           |   |     |                                    |  |   |        |  |  |   |       | 



10



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



The following table presents information related to impaired loans by class of loans as
of and for year ended December 31, 2011:



|                                    |  |                         |        |  |                             |   |        |                                  |  |   |                           |  |  |                                    |        |  |  |   |       | 
|----------------------------------- |  | ----------------------- | ------ |  | --------------------------- | - | ------ | -------------------------------- |  | - | ------------------------- |  |  | ---------------------------------- | ------ |  |  | - | ----- | 
|                                    |  | As of December 31, 2011 |        |  | Year EndedDecember 31, 2011 |  
|                                    |  | UnpaidPrincipalBalance  |        |  | RecordedInvestment          |   |        | Allowancefor LoanLossesAllocated |  |   | AverageRecordedInvestment |  |  | Cash
BasisInterestIncomeRecognized |       
|                                    |  | (In thousands)          |       
|With no related allowance recorded: |  |                         |        |  |                             |   |        |                                  |  |   |                           |  |  |                                    |        |  |  |   |       | 
|One to four units                   |  | $                       | 6,904  |  |                             | $ | 4,636  |                                  |  | $ |                          |  |  | $                                  | 5,329  |  |  | $ | 79    | 
|Five or more units                  |  |                         | 2,946  |  |                             |   | 2,871  |                                  |  |   |                          |  |  |                                    | 2,405  |  |  |   | 89    | 
|Commercial real estate              |  |                         | 9,105  |  |                             |   | 5,449  |                                  |  |   |                          |  |  |                                    | 9,724  |  |  |   | 386   | 
|Church                              |  |                         | 24,680 |  |                             |   | 20,560 |                                  |  |   |                          |  |  |                                    | 20,757 |  |  |   | 740   | 
|Commercial:                         |  |                         |        |  |                             |   |        |                                  |  |   |                           |  |  |                                    |        |  |  |   |       | 
|Sports                              |  |                         | 4,000  |  |                             |   |       |                                  |  |   |                          |  |  |                                    | 2,566  |  |  |   |      | 
|Other                               |  |                         | 285    |  |                             |   |       |                                  |  |   |                          |  |  |                                    | 243    |  |  |   | 10    | 
|Consumer:                           |  |                         |        |  |                             |   |        |                                  |  |   |                           |  |  |                                    |        |  |  |   |       | 
|Loan on savings                     |  |                         |       |  |                             |   |       |                                  |  |   |                          |  |  |                                    | 796    |  |  |   |      | 
|With an allowance recorded:         |  |                         |        |  |                             |   |        |                                  |  |   |                           |  |  |                                    |        |  |  |   |       | 
|One to four units                   |  |                         | 8,610  |  |                             |   | 8,610  |                                  |  |   | 1,678                     |  |  |                                    | 5,507  |  |  |   | 407   | 
|Five or more units                  |  |                         | 966    |  |                             |   | 966    |                                  |  |   | 161                       |  |  |                                    | 794    |  |  |   | 64    | 
|Commercial real estate              |  |                         | 1,947  |  |                             |   | 1,947  |                                  |  |   | 255                       |  |  |                                    | 1,963  |  |  |   | 97    | 
|Church                              |  |                         | 10,934 |  |                             |   | 10,934 |                                  |  |   | 1,683                     |  |  |                                    | 9,391  |  |  |   | 705   | 
|Construction                        |  |                         | 302    |  |                             |   | 302    |                                  |  |   | 97                        |  |  |                                    | 314    |  |  |   | 23    | 
|Commercial:                         |  |                         |        |  |                             |   |        |                                  |  |   |                           |  |  |                                    |        |  |  |   |       | 
|Other                               |  |                         | 70     |  |                             |   | 70     |                                  |  |   | 70                        |  |  |                                    | 54     |  |  |   | 6     | 
|                                    |  |                         |        |  |                             |   |        |                                  |  |   |                           |  |  |                                    |        |  |  |   |       | 
|Total                               |  | $                       | 70,749 |  |                             | $ | 56,345 |                                  |  | $ | 3,944                     |  |  | $                                  | 59,843 |  |  | $ | 2,606 | 
|                                    |  |                         |        |  |                             |   |        |                                  |  |   |                           |  |  |                                    |        |  |  |   |       | 

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due
to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for net charge-offs. Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans. Interest income that
would have been recognized for the six months ended June 30, 2012 had loans performed in accordance with their original terms was $2.3 million.

The following table presents the recorded investment in non-accrual loans by class of loans as of June 30, 2012 and December 31, 2011:



|                                 |  |                |        |  |                   |   |        | 
|-------------------------------- |  | -------------- | ------ |  | ----------------- | - | ------ | 
|                                 |  | June 30, 2012  |        |  | December 31, 2011 |  
|                                 |  | (In thousands) |       
|Loans receivable, held for sale: |  |                |        |  |                   |   |        | 
|Five or more units               |  | $              | 2,419  |  |                   | $ | 2,496  | 
|Commercial real estate           |  |                | 333    |  |                   |   | 338    | 
|Church                           |  |                | 2,455  |  |                   |   | 2,778  | 
|Loans receivable, net:           |  |                |        |  |                   |   |        | 
|One to four units                |  |                | 8,707  |  |                   |   | 7,974  | 
|Five or more units               |  |                | 1,902  |  |                   |   | 3,450  | 
|Commercial real estate           |  |                | 5,804  |  |                   |   | 5,449  | 
|Church                           |  |                | 22,758 |  |                   |   | 21,891 | 
|Construction                     |  |                | 292    |  |                   |   | 302    | 
|Consumer:                        |  |                |        |  |                   |   |        | 
|Other                            |  |                | 70     |  |                   |   | 70     | 
|                                 |  |                |        |  |                   |   |        | 
|Total non-accrual loans          |  | $              | 44,740 |  |                   | $ | 44,748 | 
|                                 |  |                |        |  |                   |   |        | 

There were no loans 90 days or more delinquent that were accruing interest as of June 30, 2012 or
December 31, 2011.



11



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



The following tables present the aging of the recorded investment in past due loans,
including loans held for sale, as of June 30, 2012 and December 31, 2011 by class of loans:



|                                 |  |                   |       |  |                   |   |       |                             |  |   |               |  |  |                         |        |  |  |   |         | 
|-------------------------------- |  | ----------------- | ----- |  | ----------------- | - | ----- | --------------------------- |  | - | ------------- |  |  | ----------------------- | ------ |  |  | - | ------- | 
|                                 |  | June 30, 2012     |      
|                                 |  | 30-59DaysPast Due |       |  | 60-89DaysPast Due |   |       | Greater than90 DaysPast
Due |  |   | TotalPast Due |  |  | Total LoansNot Past Due |       
|                                 |  | (In thousands)    |      
|Loans receivable, held for sale: |  |                   |       |  |                   |   |       |                             |  |   |               |  |  |                         |        |  |  |   |         | 
|Five or more units               |  | $                 |      |  |                   | $ |      |                             |  | $ | 2,419         |  |  | $                       | 2,419  |  |  | $ | 3,870   | 
|Commercial real estate           |  |                   |      |  |                   |   |      |                             |  |   | 333           |  |  |                         | 333    |  |  |   | 1,366   | 
|Church                           |  |                   |      |  |                   |   |      |                             |  |   | 2,455         |  |  |                         | 2,455  |  |  |   | 2,759   | 
|Loans receivable, net:           |  |                   |       |  |                   |   |       |                             |  |   |               |  |  |                         |        |  |  |   |         | 
|One to four units                |  |                   | 3,259 |  |                   |   |      |                             |  |   | 8,707         |  |  |                         | 11,966 |  |  |   | 61,868  | 
|Five or more units               |  |                   |      |  |                   |   | 498   |                             |  |   | 1,902         |  |  |                         | 2,400  |  |  |   | 95,926  | 
|Commercial real estate           |  |                   | 2,219 |  |                   |   | 833   |                             |  |   | 5,804         |  |  |                         | 8,856  |  |  |   | 38,508  | 
|Church                           |  |                   | 809   |  |                   |   | 382   |                             |  |   | 22,758        |  |  |                         | 23,949 |  |  |   | 62,557  | 
|Construction                     |  |                   |      |  |                   |   |      |                             |  |   | 292           |  |  |                         | 292    |  |  |   | 746     | 
|Commercial:                      |  |                   |       |  |                   |   |       |                             |  |   |               |  |  |                         |        |  |  |   |         | 
|Sports                           |  |                   |      |  |                   |   |      |                             |  |   |              |  |  |                         |       |  |  |   | 1,731   | 
|Other                            |  |                   |      |  |                   |   |      |                             |  |   |              |  |  |                         |       |  |  |   | 4,164   | 
|Consumer:                        |  |                   |       |  |                   |   |       |                             |  |   |               |  |  |                         |        |  |  |   |         | 
|Loan on savings                  |  |                   |      |  |                   |   |      |                             |  |   |              |  |  |                         |       |  |  |   |        | 
|Other                            |  |                   |      |  |                   |   |      |                             |  |   | 70            |  |  |                         | 70     |  |  |   | 61      | 
|                                 |  |                   |       |  |                   |   |       |                             |  |   |               |  |  |                         |        |  |  |   |         | 
|Total                            |  | $                 | 6,287 |  |                   | $ | 1,713 |                             |  | $ | 44,740        |  |  | $                       | 52,740 |  |  | $ | 273,556 | 
|                                 |  |                   |       |  |                   |   |       |                             |  |   |               |  |  |                         |        |  |  |   |         | 



|                                 |  |                   |       |  |                   |   |       |                             |  |   |               |  |  |                         |        |  |  |   |         | 
|-------------------------------- |  | ----------------- | ----- |  | ----------------- | - | ----- | --------------------------- |  | - | ------------- |  |  | ----------------------- | ------ |  |  | - | ------- | 
|                                 |  | December 31, 2011 |      
|                                 |  | 30-59DaysPast Due |       |  | 60-89DaysPast Due |   |       | Greater than90 DaysPast
Due |  |   | TotalPast Due |  |  | Total LoansNot Past Due |       
|                                 |  | (In thousands)    |      
|Loans receivable, held for sale: |  |                   |       |  |                   |   |       |                             |  |   |               |  |  |                         |        |  |  |   |         | 
|Five or more units               |  | $                 |      |  |                   | $ |      |                             |  | $ | 2,496         |  |  | $                       | 2,496  |  |  | $ | 3,899   | 
|Commercial real estate           |  |                   |      |  |                   |   |      |                             |  |   | 338           |  |  |                         | 338    |  |  |   | 1,374   | 
|Church                           |  |                   |      |  |                   |   |      |                             |  |   | 2,778         |  |  |                         | 2,778  |  |  |   | 2,772   | 
|Loans receivable, net:           |  |                   |       |  |                   |   |       |                             |  |   |               |  |  |                         |        |  |  |   |         | 
|One to four units                |  |                   | 921   |  |                   |   | 2,464 |                             |  |   | 7,974         |  |  |                         | 11,359 |  |  |   | 65,323  | 
|Five or more units               |  |                   | 1,324 |  |                   |   | 63    |                             |  |   | 3,450         |  |  |                         | 4,837  |  |  |   | 103,324 | 
|Commercial real estate           |  |                   | 2,247 |  |                   |   | 525   |                             |  |   | 5,449         |  |  |                         | 8,221  |  |  |   | 46,038  | 
|Church                           |  |                   | 2,647 |  |                   |   | 1,440 |                             |  |   | 21,891        |  |  |                         | 25,978 |  |  |   | 63,121  | 
|Construction                     |  |                   |      |  |                   |   | 264   |                             |  |   | 302           |  |  |                         | 566    |  |  |   | 3,224   | 
|Commercial:                      |  |                   |       |  |                   |   |       |                             |  |   |               |  |  |                         |        |  |  |   |         | 
|Sports                           |  |                   |      |  |                   |   |      |                             |  |   |              |  |  |                         |       |  |  |   | 1,996   | 
|Other                            |  |                   | 125   |  |                   |   |      |                             |  |   |              |  |  |                         | 125    |  |  |   | 4,775   | 
|Consumer:                        |  |                   |       |  |                   |   |       |                             |  |   |               |  |  |                         |        |  |  |   |         | 
|Loan on savings                  |  |                   |      |  |                   |   |      |                             |  |   |              |  |  |                         |       |  |  |   | 821     | 
|Other                            |  |                   |      |  |                   |   |      |                             |  |   | 70            |  |  |                         | 70     |  |  |   | 38      | 
|                                 |  |                   |       |  |                   |   |       |                             |  |   |               |  |  |                         |        |  |  |   |         | 
|Total                            |  | $                 | 7,264 |  |                   | $ | 4,756 |                             |  | $ | 44,748        |  |  | $                       | 56,768 |  |  | $ | 296,705 | 
|                                 |  |                   |       |  |                   |   |       |                             |  |   |               |  |  |                         |        |  |  |   |         | 



12



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



Troubled Debt Restructurings

The Company has allocated $2.9 million and $2.6 million of specific reserves for loans the terms of which have been modified in troubled
debt restructurings and were performing as of June 30, 2012 and December 31, 2011. At June 30, 2012, loans classified as a troubled debt restructuring totaled $40.4 million, of which $22.3 million were included in non-accrual loans
and $18.1 million were on accrual status. At December 31, 2011, loans classified as a TDR totaled $37.1 million, of which $19.4 million were included in non-accrual loans and $17.7 million were on accrual status. TDRs on accrual status are
comprised of loans that were accruing at the time of restructuring or loans that have complied with the terms of their restructured agreements for a satisfactory period of time, and for which the Bank anticipates full repayment of both principal and
interest. TDRs that are on non-accrual can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments as modified. As of June 30, 2012 and December 31, 2011, the Company
has no commitment to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the six months ended June 30, 2012, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one of the following: a
reduction of the stated interest rate of the loan or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk. Modifications involving a reduction of the stated interest rate of
the loan were for periods ranging from 1 year to 7 years. Modifications involving an extension of the maturity date were for 2 year and 7 year periods.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three and six months ended June 30, 2012:



|                       |  |                                 |   |  |                                                |   |       |                                                |  |   |                |  |  |                                                |    |  |                                                |   |       |  |  |   |       | 
|---------------------- |  | ------------------------------- | - |  | ---------------------------------------------- | - | ----- | ---------------------------------------------- |  | - | -------------- |  |  | ---------------------------------------------- | -- |  | ---------------------------------------------- | - | ----- |  |  | - | ----- | 
|                       |  | Three Months Ended June 30,2012 |   |  | Six Months Ended June 30,2012                  |  
|                       |  | NumberofLoans                   |   |  | Pre-ModificationOutstandingRecorded
Investment |   |       | Post-ModificationOutstandingRecordedInvestment |  |   | Numberof Loans |  |  | Pre-ModificationOutstandingRecorded
Investment |    |  | Post-ModificationOutstandingRecordedInvestment |  
|                       |  | (Dollars in thousands)          |  
|One to four units      |  |                                 | 1 |  |                                                | $ | 36    |                                                |  | $ | 36             |  |  |                                                | 1  |  |                                                | $ | 36    |  |  | $ | 36    | 
|Commercial real estate |  |                                 | 1 |  |                                                |   | 505   |                                                |  |   | 511            |  |  |                                                | 2  |  |                                                |   | 734   |  |  |   | 740   | 
|Church                 |  |                                 | 5 |  |                                                |   | 2,386 |                                                |  |   | 2,391          |  |  |                                                | 8  |  |                                                |   | 3,399 |  |  |   | 3,404 | 
|                       |  |                                 |   |  |                                                |   |       |                                                |  |   |                |  |  |                                                |    |  |                                                |   |       |  |  |   |       | 
|Total                  |  |                                 | 7 |  |                                                | $ | 2,927 |                                                |  | $ | 2,938          |  |  |                                                | 11 |  |                                                | $ | 4,169 |  |  | $ | 4,180 | 
|                       |  |                                 |   |  |                                                |   |       |                                                |  |   |                |  |  |                                                |    |  |                                                |   |       |  |  |   |       | 

The troubled debt restructurings described above increased the allowance for loan losses by $144 thousand
and $231 thousand for the three and six months ended June 30, 2012 and resulted in charge offs of $100 thousand during the three and six months ended June 30, 2012.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. The following table presents loans by class modified as troubled debt restructurings for
which there was a payment default within twelve months following the modification during the three and six months ended June 30, 2012:



|       |  |                                  |   |  |                                               |   |       |                |  |  |                                               |  |  |   |       | 
|------ |  | -------------------------------- | - |  | --------------------------------------------- | - | ----- | -------------- |  |  | --------------------------------------------- |  |  | - | ----- | 
|       |  | Three Months Ended June 30, 2012 |   |  | Six Months Ended June 30, 2012                |  
|       |  | Number ofLoans                   |   |  | Pre-ModificationOutstandingRecordedInvestment |   |       | Number ofLoans |  |  | Pre-ModificationOutstandingRecordedInvestment | 
|       |  | (Dollars in thousands)           |  
|Church |  |                                  | 4 |  |                                               | $ | 3,691 |                |  |  | 5                                             |  |  | $ | 3,791 | 
|       |  |                                  |   |  |                                               |   |       |                |  |  |                                               |  |  |   |       | 
|Total  |  |                                  | 4 |  |                                               | $ | 3,691 |                |  |  | 5                                             |  |  | $ | 3,791 | 
|       |  |                                  |   |  |                                               |   |       |                |  |  |                                               |  |  |   |       | 



13



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



The terms of certain other loans were modified during the six months ended June 30,
2012 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of June 30, 2012 of $1.2 million. The modification of these loans involved either a modification of the terms of a loan to
borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the
borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Companys internal underwriting policy.

Credit Quality Indicators

The Company categorizes loans into risk
categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other
factors. For one-to-four family residential, consumer and other smaller balance homogenous loans, a credit grade is established at inception, and generally only adjusted based on performance. Information about payment status is disclosed elsewhere.
The Company analyzes all other loans individually by classifying the loans as to credit risk. This analysis is performed at least on a quarterly basis. The Company uses the following definitions for risk ratings:



| |  |  | Special Mention. Loans classified as special mention have a potential weakness that deserves managements close attention. If left
uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institutions credit position at some future date.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of
the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the
deficiencies are not corrected.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loss.Loans classified as loss are considered uncollectible and of such little value that to continue to carry the loan as an active
asset is no longer warranted.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



14



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



Loans not meeting the criteria above that are analyzed individually as part of the above
described process are considered to be pass rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans as of June 30, 2012 and December 31, 2011 is as follows:



|                       |  |                |         |  |                 |   |        |             |  |   |          |  |  |      |     |  |  |   |   | 
|---------------------- |  | -------------- | ------- |  | --------------- | - | ------ | ----------- |  | - | -------- |  |  | ---- | --- |  |  | - | - | 
|                       |  | June 30, 2012  |        
|                       |  | Pass           |         |  | Special Mention |   |        | Substandard |  |   | Doubtful |  |  | Loss |    
|                       |  | (In thousands) |        
|One to four units      |  | $              | 60,832  |  |                 | $ | 2,140  |             |  | $ | 10,711   |  |  | $    | 151 |  |  | $ |  | 
|Five or more units     |  |                | 87,119  |  |                 |   | 5,715  |             |  |   | 5,348    |  |  |      | 144 |  |  |   |  | 
|Commercial real estate |  |                | 32,342  |  |                 |   | 2,766  |             |  |   | 12,189   |  |  |      | 67  |  |  |   |  | 
|Church                 |  |                | 36,937  |  |                 |   | 15,406 |             |  |   | 33,912   |  |  |      | 251 |  |  |   |  | 
|Construction           |  |                | 482     |  |                 |   | 264    |             |  |   | 292      |  |  |      |    |  |  |   |  | 
|Commercial:            |  |                |         |  |                 |   |        |             |  |   |          |  |  |      |     |  |  |   |   | 
|Sports                 |  |                |        |  |                 |   | 1,731  |             |  |   |         |  |  |      |    |  |  |   |  | 
|Other                  |  |                | 2,011   |  |                 |   | 2,055  |             |  |   | 98       |  |  |      |    |  |  |   |  | 
|Consumer:              |  |                |         |  |                 |   |        |             |  |   |          |  |  |      |     |  |  |   |   | 
|Other                  |  |                | 61      |  |                 |   |       |             |  |   | 70       |  |  |      |    |  |  |   |  | 
|                       |  |                |         |  |                 |   |        |             |  |   |          |  |  |      |     |  |  |   |   | 
|Total                  |  | $              | 219,784 |  |                 | $ | 30,077 |             |  | $ | 62,620   |  |  | $    | 613 |  |  | $ |  | 
|                       |  |                |         |  |                 |   |        |             |  |   |          |  |  |      |     |  |  |   |   | 



|                       |  |                   |         |  |                 |   |        |             |  |   |          |  |  |      |       |  |  |   |   | 
|---------------------- |  | ----------------- | ------- |  | --------------- | - | ------ | ----------- |  | - | -------- |  |  | ---- | ----- |  |  | - | - | 
|                       |  | December 31, 2011 |        
|                       |  | Pass              |         |  | Special Mention |   |        | Substandard |  |   | Doubtful |  |  | Loss |      
|                       |  | (In thousands)    |        
|One to four units      |  | $                 | 63,483  |  |                 | $ | 3,044  |             |  | $ | 9,846    |  |  | $    | 309   |  |  | $ |  | 
|Five or more units     |  |                   | 95,621  |  |                 |   | 7,450  |             |  |   | 4,939    |  |  |      | 151   |  |  |   |  | 
|Commercial real estate |  |                   | 36,098  |  |                 |   | 6,721  |             |  |   | 11,364   |  |  |      | 76    |  |  |   |  | 
|Church                 |  |                   | 37,532  |  |                 |   | 13,100 |             |  |   | 37,873   |  |  |      | 594   |  |  |   |  | 
|Construction           |  |                   | 500     |  |                 |   | 2,988  |             |  |   | 302      |  |  |      |      |  |  |   |  | 
|Commercial:            |  |                   |         |  |                 |   |        |             |  |   |          |  |  |      |       |  |  |   |   | 
|Sports                 |  |                   |        |  |                 |   | 1,996  |             |  |   |         |  |  |      |      |  |  |   |  | 
|Other                  |  |                   | 2,363   |  |                 |   | 2,369  |             |  |   | 168      |  |  |      |      |  |  |   |  | 
|Consumer:              |  |                   |         |  |                 |   |        |             |  |   |          |  |  |      |       |  |  |   |   | 
|Loan on savings        |  |                   | 821     |  |                 |   |       |             |  |   |         |  |  |      |      |  |  |   |  | 
|Other                  |  |                   | 108     |  |                 |   |       |             |  |   |         |  |  |      |      |  |  |   |  | 
|                       |  |                   |         |  |                 |   |        |             |  |   |          |  |  |      |       |  |  |   |   | 
|Total                  |  | $                 | 236,526 |  |                 | $ | 37,668 |             |  | $ | 64,492   |  |  | $    | 1,130 |  |  | $ |  | 
|                       |  |                   |         |  |                 |   |        |             |  |   |          |  |  |      |       |  |  |   |   | 

NOTE (7)  Junior Subordinated Debentures, Other Borrowings and Managements Capital Plan

On March 17, 2004, the Company issued $6.0 million of Floating Rate Junior Subordinated Debentures in a private
placement. The debentures mature in 10 years and interest is payable quarterly at a rate per annum equal to the 3-month LIBOR plus 2.54%. The interest rate is determined as of each March 17, June 17, September 17, and
December 17, and was 3.01% at June 30, 2012. The Company stopped paying interest on the debentures and the senior line of credit discussed below in September 2010. Under the cease and desist order applicable to the Company discussed in
Note 10, the Company is not permitted to make payments on its debt without prior notice to and receipt of written notice of non-objection from the Board of Governors of the Federal Reserve System, acting through the Federal Reserve Bank of San
Francisco, (the FRB). In addition, under the terms of the subordinated debentures, the Company is not allowed to make payments on the subordinated debentures if the Company is in default on any of its senior indebtedness, which term
includes the senior line of credit described below.



15



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



On February 28, 2010, the Company borrowed an aggregate of $5.0 million under its
$5.0 million line of credit with another financial institution, and invested all of the proceeds in the equity capital of the Bank. The interest rate on the line of credit adjusts annually, subject to a minimum of 6.00% and increases by an
additional 5% in the event of default. Borrowings under this line of credit are secured by the Companys assets, including the stock of the Bank. The full amount of this borrowing became due and payable on July 31, 2010. On April 7,
2011, the lender agreed to forbear from exercising its rights (other than increasing the interest rate by the default rate margin) pursuant to the line of credit agreement until January 1, 2012 subject to certain conditions. The lender has
informed the Company that it does not intend to extend the forbearance agreement. This senior line of credit has not been repaid and the Company is now in default under the line of credit agreement.

The Company is pursuing a comprehensive recapitalization plan to improve the Companys capital structure. To date, the Company has
entered into a written agreement with the U.S. Department of the Treasury pursuant to which the U.S. Treasury will exchange its holdings of the Companys Series D and Series E Fixed Rate Cumulative Perpetual Preferred Stock for common stock at
a discount of 50% of the liquidation amount, plus an undiscounted exchange of the accumulated but unpaid dividends on such preferred stock for common stock. The exchange by the U.S. Treasury is subject to various conditions, including the exchange
of the Companys other outstanding series of preferred stock at discounts of 50% of the aggregate liquidation values, the placement of at least $5 million of new common equity capital, and other conditions. The Exchange is expected to close
contemporaneously with the closing of the private placement and the other exchange transactions. In addition, the Company has entered into a written agreement with the holder of its Series A Perpetual Preferred Stock pursuant to which the holder
will exchange its holdings of Series A Preferred for common stock at a discount of 50% of the liquidation amount. This exchange is subject to various conditions, including the exchange of the Companys other outstanding series of preferred
stock, the placement of new common equity capital, and other conditions. The Company is in discussions with the holders of its Series B Perpetual Preferred Stock and Series C Noncumulative Perpetual Convertible Preferred Stock to exchange their
holdings for common stock at a discount of 50% of the liquidation amount. The Company has also proposed to the line of credit lender that it exchange a portion of the line of credit, which is currently in default, for common stock at 100% of the
face amount to be exchanged; to forgive the accrued interest on the entire amount of the line of credit to the date of the exchange; and to enter into a modified credit agreement for the remainder of the facility that would be outstanding after the
exchange.

As a condition to consummating these exchanges, the Company plans to concurrently complete private placements or
other sales of the Companys common stock aggregating $5 million, or $3.5 million if approved by the U.S. Department of the Treasury, or more in gross proceeds. The Company anticipates that these exchanges and placements and sales of common
stock would, if completed, result in the issuance of approximately 17.1 million new shares of the Companys common stock, which would constitute approximately 91% of the pro forma outstanding shares of the Companys common stock. The
17.1 million new shares of common stock exceed the Companys current unissued and authorized shares. The Company plans to seek shareholder approval to increase the Companys authorized shares, and issue a portion of such authorized
shares in the recapitalization.

There can be no assurance that managements capital plan will be achieved. If the
Company is unable to raise capital, management plans to continue to shrink assets, decrease nonperforming assets and implement strategies to increase earnings, such as the sale of the Banks headquarters building in the second quarter of 2012.
Failure to maintain capital sufficient to meet the higher capital requirements could result in further regulatory action, which could include the appointment of a conservator or receiver for the Bank. For further information relating to the cash
position and requirements of the Company, see Note 12  Going Concern.



16



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



NOTE (8)  Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of
the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a companys own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate fair value:

The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges
(Level 1 inputs) or matrix pricing, which is a mathematical technique to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities relationship to other benchmark
quoted securities (Level 2 inputs).

The fair value of non-performing loans receivable held-for-sale is generally based upon
the fair value of the collateral which is obtained from recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are
routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs
for determining fair value. Non-performing loans held for sale are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses.
For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments
are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of
the inputs for determining fair value. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at
lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the
income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in
a Level 3 classification of the inputs for determining fair value. Real estate owned is reviewed and evaluated on at least an annual basis for additional impairment and adjusted accordingly.



17



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



Assets Measured on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized below:



|                                                            |  |                                                           |   |  |                                           |   |        |                                         |  |   |       |  |  |   |        | 
|----------------------------------------------------------- |  | --------------------------------------------------------- | - |  | ----------------------------------------- | - | ------ | --------------------------------------- |  | - | ----- |  |  | - | ------ | 
|                                                            |  | Fair Value Measurements at June 30, 2012 Using            |  
|                                                            |  | Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) |   |  | SignificantOtherObservableInputs(Level 2) |   |        | SignificantUnobservableInputs(Level
 3) |  |   | Total | 
|                                                            |  | (In thousands)                                            |  
|Assets:                                                     |  |                                                           |   |  |                                           |   |        |                                         |  |   |       |  |  |   |        | 
|Securities available-for-sale - residential mortgage-backed |  | $                                                         |  |  |                                           | $ | 15,705 |                                         |  | $ |      |  |  | $ | 15,705 | 



|                                                                   |  |                                                           |   |  |                                           |   |        |                                         |  |   |       |  |  |   |        | 
|------------------------------------------------------------------ |  | --------------------------------------------------------- | - |  | ----------------------------------------- | - | ------ | --------------------------------------- |  | - | ----- |  |  | - | ------ | 
|                                                                   |  | Fair Value Measurements at December 31, 2011 Using        |  
|                                                                   |  | Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) |   |  | SignificantOtherObservableInputs(Level 2) |   |        | SignificantUnobservableInputs(Level
 3) |  |   | Total | 
|                                                                   |  | (In thousands)                                            |  
|Assets:                                                            |  |                                                           |   |  |                                           |   |        |                                         |  |   |       |  |  |   |        | 
|Securities available-for-sale - residential mortgage-backed        |  | $                                                         |  |  |                                           | $ | 17,910 |                                         |  | $ |      |  |  | $ | 17,910 | 
|Securities available-for-sale  U.S. government and federal agency |  |                                                           |  |  |                                           |   | 1,069  |                                         |  |   |      |  |  |   | 1,069  | 

There were no transfers between Level 1and Level 2 during the first six months of 2012 and 2011.



18



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



Assets Measured on a Non-Recurring Basis

The following table provides information regarding our assets measured at fair value on a non-recurring basis at the dates indicated. The
fair value measurement for all of these assets falls within Level 3 of the fair value hierarchy.



|                                                        |  |                 |        |  |                    |   |     |                 |  |   |                    |  |  |   |     | 
|------------------------------------------------------- |  | --------------- | ------ |  | ------------------ | - | --- | --------------- |  | - | ------------------ |  |  | - | --- | 
|                                                        |  | PrincipalAmount |        |  | ValuationAllowance |   |     | PrincipalAmount |  |   | ValuationAllowance | 
|                                                        |  | June 30, 2012   |        |  | December 31, 2011  |  
|                                                        |  | (In thousands)  |       
|Assets:                                                 |  |                 |        |  |                    |   |     |                 |  |   |                    |  |  |   |     | 
|Non-performing loans receivable held-for-sale (1):      |  |                 |        |  |                    |   |     |                 |  |   |                    |  |  |   |     | 
|Five or more units                                      |  | $               | 2,419  |  |                    | $ | 337 |                 |  | $ | 2,496              |  |  | $ | 382 | 
|Commercial real estate                                  |  |                 | 333    |  |                    |   |    |                 |  |   | 338                |  |  |   |    | 
|Church                                                  |  |                 | 2,456  |  |                    |   |    |                 |  |   | 2,778              |  |  |   |    | 
|Impaired loans carried at fair value of collateral (2): |  |                 |        |  |                    |   |     |                 |  |   |                    |  |  |   |     | 
|One to four units                                       |  |                 | 4,566  |  |                    |   | 369 |                 |  |   | 6,697              |  |  |   | 496 | 
|Five or more units                                      |  |                 | 1,006  |  |                    |   | 144 |                 |  |   | 1,025              |  |  |   | 151 | 
|Commercial real estate                                  |  |                 | 3,490  |  |                    |   |    |                 |  |   | 2,869              |  |  |   |    | 
|Church                                                  |  |                 | 13,366 |  |                    |   | 251 |                 |  |   | 13,706             |  |  |   | 553 | 
|Construction                                            |  |                 | 292    |  |                    |   | 87  |                 |  |   | 302                |  |  |   | 97  | 
|Other                                                   |  |                 | 70     |  |                    |   | 70  |                 |  |   | 70                 |  |  |   | 70  | 
|Real estate owned:                                      |  |                 |        |  |                    |   |     |                 |  |   |                    |  |  |   |     | 
|One to four units                                       |  |                 | 315    |  |                    |   |    |                 |  |   | 759                |  |  |   | 41  | 
|Commercial real estate                                  |  |                 | 234    |  |                    |   |    |                 |  |   | 3,374              |  |  |   | 248 | 
|Church                                                  |  |                 | 3,491  |  |                    |   | 510 |                 |  |   | 2,913              |  |  |   | 58  | 



|(1) | Includes $2.3 million and $2.7 million of loans held for sale that were carried at cost at June 30, 2012 and December 31, 2011 as the fair value of the
collateral on these loans exceeded the book value as a result of charge-offs.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes $20.3 million and $18.6 million of loans that were carried at cost at June 30, 2012 and December 31, 2011 as the fair value of the collateral on
these loans exceeded the book value as a result of charge-offs.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Collateral-dependent impaired loans and
non-performing loans held for sale are measured for impairment using the fair value of the collateral. To determine the fair value of collateral, the Company primarily relies on third party appraisals, which is generally obtained every six to nine
months. For one-to-four family residential loans, appraised values are based on comparative sales approach. A significant unobservable input in the sales approach is the adjustment for the differences between the comparable sales. At June 30,
2012, these adjustments ranged from an upward adjustment of 11% to a discount of 30%. For five or more units residential, commercial real estate and church loans, appraisers may use a single valuation approach or a combination of approaches such as
comparative sales, cost or income approach. At June 30, 2012, adjustments made on five or more units residential, commercial real estate and church loans valued using the comparable sales approach ranged from an upward adjustment of 11% to a
discount of 45%. A significant unobservable input in the income approach is the estimated income capitalization rate. At June 30, 2012, capitalization rates of 6.50% and 12% were utilized to determine the fair value of the underlying collateral
of two commercial real estate loans and a capitalization rate of 7% was utilized to determine the fair value of the underlying collateral of a church loan. The Companys calculation of net realizable value considers any liens in place on the
underlying collateral.

Real estate owned is measured at fair value less estimated costs to sell, The fair value of REO is
determined using a third party appraisal and is based on comparative sales, cost or income approach, or a combination of these approaches. A significant unobservable input in the sales approach is the adjustment for the differences between the
comparable sales. At June 30, 2012, these adjustments ranged from an upward adjustment of 34% to a discount of 37%. A significant unobservable input in the income approach is the estimated income capitalization rate. At June 30, 2012,
capitalization rates of 8% and 11.50% were utilized to determine the fair value of the underlying collateral of two church loans.



19



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



The following table provides information regarding gains (losses) recognized on assets
measured at fair value on a non-recurring basis for the three and six months ended June 30, 2012 and 2011.



|                                                       |  |                             |      |   |                           |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------ |  | --------------------------- | ---- | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                       |  | Three Months Ended June 30, |      |   | Six Months Ended June 30, |  
|                                                       |  | 2012                        |      |   | 2011                      |   |        | 2012 |  |   | 2011   |  
|                                                       |  | (In thousands)              |     
|Non-performing loans receivable held-for-sale, net (1) |  | $                           | (188 | ) |                           | $ | 35     |      |  | $ | (187   | ) |  | $ | 35     |  
|Impaired loans carried at fair value of collateral (2) |  |                             | 174  |   |                           |   | (2,948 | )    |  |   | (916   | ) |  |   | (5,060 | )
|Real estate owned (3)                                  |  |                             | (331 | ) |                           |   | (702   | )    |  |   | (312   | ) |  |   | (782   | )
|                                                       |  |                             |      |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Total                                                  |  | $                           | (345 | ) |                           | $ | (3,615 | )    |  | $ | (1,415 | ) |  | $ | (5,807 | )
|                                                       |  |                             |      |   |                           |   |        |      |  |   |        |   |  |   |        |  



|(1) | Gains (losses) are charged to provision for losses on loans receivable held-for-sale.
|--- | -------------------------------------------------------------------------------------

|(2) | Gains (losses) are charged against the allowance for loan losses.
|--- | -----------------------------------------------------------------

|(3) | Losses are charged against the allowance for loan losses in the case of a write-down upon the transfer of a loan to REO. Gains (losses) subsequent to the transfer of a
loan to REO are charged to provision for losses on REO.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fair Values of Financial Instruments

The carrying amounts and estimated fair values of financial instruments, at June 30, 2012 and December 31, 2011 were as follows:



|                                    |  |                |          |   |                                                |   |        |         |  |   |          |   |  |       |         |   |  |   |          |  
|----------------------------------- |  | -------------- | -------- | - | ---------------------------------------------- | - | ------ | ------- |  | - | -------- | - |  | ----- | ------- | - |  | - | -------- | -
|                                    |  |                |          |   | Fair Value Measurements at June 30, 2012 Using |  
|                                    |  | CarryingValue  |          |   | Level 1                                        |   |        | Level 2 |  |   | Level 3  |   |  | Total |        
|                                    |  | (In thousands) |         
|Financial Assets:                   |  |                |          |   |                                                |   |        |         |  |   |          |   |  |       |         |   |  |   |          |  
|Cash and cash equivalents           |  | $              | 46,136   |   |                                                | $ | 46,136 |         |  | $ |         |   |  | $     |        |   |  | $ | 46,136   |  
|Securities available-for-sale       |  |                | 15,705   |   |                                                |   |       |         |  |   | 15,705   |   |  |       |        |   |  |   | 15,705   |  
|Loans receivable held for sale, net |  |                | 12,574   |   |                                                |   |       |         |  |   |         |   |  |       | 12,574  |   |  |   | 12,574   |  
|Loans receivable, net               |  |                | 295,363  |   |                                                |   |       |         |  |   |         |   |  |       | 295,128 |   |  |   | 295,128  |  
|Federal Home Loan Bank stock        |  |                | 3,901    |   |                                                |   |       |         |  |   |         |   |  |       | N/A     |   |  |   | N/A      |  
|Accrued interest receivable         |  |                | 1,476    |   |                                                |   |       |         |  |   | 56       |   |  |       | 1,420   |   |  |   | 1,476    |  
|Financial Liabilities:              |  |                |          |   |                                                |   |        |         |  |   |          |   |  |       |         |   |  |   |          |  
|Deposits                            |  | $              | (270,047 | ) |                                                | $ |       |         |  | $ | (267,535 | ) |  | $     |        |   |  | $ | (267,535 | )
|Federal Home Loan Bank advances     |  |                | (83,000  | ) |                                                |   |       |         |  |   | (88,668  | ) |  |       |        |   |  |   | (88,668  | )
|Junior subordinated debentures      |  |                | (6,000   | ) |                                                |   |       |         |  |   |         |   |  |       | (5,463  | ) |  |   | (5,463   | )
|Other borrowings                    |  |                | (5,000   | ) |                                                |   |       |         |  |   |         |   |  |       | (4,554  | ) |  |   | (4,554   | )
|Accrued interest payable            |  |                | (1,664   | ) |                                                |   |       |         |  |   | (182     | ) |  |       | (1,482  | ) |  |   | (1,664   | )



|                                                      |  |                   |          |   |                     |   |          |  
|----------------------------------------------------- |  | ----------------- | -------- | - | ------------------- | - | -------- | -
|                                                      |  | December 31, 2011 |         
|                                                      |  | CarryingAmount    |          |   | EstimatedFair Value |  
|Financial Assets:                                     |  |                   |          |   |                     |   |          |  
|Cash and cash equivalents                             |  | $                 | 31,597   |   |                     | $ | 31,597   |  
|Securities available-for-sale                         |  |                   | 18,979   |   |                     |   | 18,979   |  
|Loans receivable held for sale, net                   |  |                   | 12,983   |   |                     |   | 12,983   |  
|Loans receivable, net                                 |  |                   | 322,770  |   |                     |   | 323,090  |  
|Federal Home Loan Bank stock                          |  |                   | 4,089    |   |                     |   | N/A      |  
|Accrued interest receivable                           |  |                   | 1,698    |   |                     |   | 1,698    |  
|Financial Liabilities:                                |  |                   |          |   |                     |   |          |  
|Deposits                                              |  | $                 | (294,686 | ) |                     | $ | (294,313 | )
|Federal Home Loan Bank advances                       |  |                   | (83,000  | ) |                     |   | (88,911  | )
|Junior subordinated debentures                        |  |                   | (6,000   | ) |                     |   | (5,319   | )
|Other borrowings                                      |  |                   | (5,000   | ) |                     |   | (4,434   | )
|Advance payments by borrowers for taxes and insurance |  |                   | (813     | ) |                     |   | (813     | )
|Accrued interest payable                              |  |                   | (1,302   | ) |                     |   | (1,302   | )



20



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



The methods and assumptions, not previously presented, used to estimate fair values are
described as follows:

(a) Cash and Cash Equivalents

The carrying amounts of cash and cash equivalents approximate fair values and are classified as Level 1.

(b) Loans receivable held for sale

The fair value of loans held for sale is estimated
based on quoted prices from third party sale analyses, existing sale agreements or appraisal reports adjusted by sales commission assumptions resulting in a Level 3 classification.

(c) Loans receivable

Fair values of loans, excluding loans held for sale, are estimated as
follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described
previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

(d) FHLB Stock

It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

(e) Deposits

The fair values disclosed
for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in
Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using discounted cash flow calculations that apply interest rates currently being offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits resulting in a Level 2 classification.

(f) Federal Home Loan Bank Advances

The fair values of the Federal Home Loan Bank advances are estimated using discounted cash flow analyses based on the current borrowing rates for similar
types of borrowing arrangements resulting in a Level 2 classification.

(g) Subordinated Debentures and Other Borrowings

The fair values of the Companys Subordinated Debentures and other borrowings are estimated using discounted cash flow analyses based on the current
borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

(h) Accrued Interest Receivable/Payable

The carrying amounts of accrued interest are classified the same as the related asset / liability.



21



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



NOTE (9)  Stock-based Compensation

In 2008, we adopted the 2008 Long-Term Incentive Plan (2008 LTIP), which is shareholder approved. The 2008
LTIP replaced the Companys 1996 Long-Term Incentive Plan (1996 LTIP) and 1996 Stock Option Plan (Stock Option Plan), which have expired and are no longer effective except as to outstanding awards. The 2008 LTIP permits
the grant of non-qualified and incentive stock options, stock appreciation rights, full value awards and cash incentive awards to the Companys non-employee directors and certain officers and employees for up to 351,718 shares of common stock.
Option awards are generally granted with an exercise price equal to the market price of the Companys common stock at the date of grant; those option awards have vesting periods ranging from immediate vesting to 5 years and have 10-year
contractual terms. The Company has a policy of using shares held as treasury stock to satisfy share option exercises. Currently, the Company has a sufficient number of treasury shares to satisfy expected share option exercises.

There were no options granted during the six months ended June 30, 2012 and 2011. The Company recorded $40 thousand of stock-based
compensation expense, net of tax, during the first half of 2012 compared to $45 thousand for the first half of 2011.

NOTE (10)  Regulatory Matters

The Bank is subject to regulatory capital requirements now administered by the Office of the Comptroller of the
Currency, or OCC, which is the statutory successor under the Dodd-Frank Act to the former Office of Thrift Supervision, or OTS. The capital requirements, which remain the same as when administered by the OTS, involve quantitative measures of assets,
liabilities, and certain off balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the OCC. Failure to meet capital requirements can result in
regulatory action.

Prompt corrective action regulations also administered by the OCC provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If only adequately capitalized, regulatory approval
is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

The Company and the Bank consented to the issuance to them of cease and desist orders by the OTS effective September 9, 2010 requiring, among other things, that the Company and the Bank take remedial
actions to improve the Banks loan underwriting and internal asset review procedures, to reduce the amount of its non-performing assets and to improve other aspects of the Banks business, as well as the Companys management of its
business and the oversight of the Companys business by the Board. The cease and desist orders, which are now administered by the OCC with respect to the Bank and the FRB with respect to the Company, require the Bank to attain, and thereafter
maintain, a Tier 1 (Core) Capital to Adjusted Total Assets ratio of at least 8% and a Total Risk-Based Capital to Risk-Weighted Assets ratio of at least 12%, both of which ratios are greater than the respective 5% and 10% levels for such ratios that
are generally required under OTS (now OCC) regulations. The cease and desist orders also prohibit the Bank from paying dividends to the Company, and prohibit the Company from paying dividends to its shareholders, without the prior written approval
of the OCC and the FRB, respectively. In addition, the Company is not permitted to incur, issue, renew, repurchase, make payments on or increase any debt or redeem any capital stock without prior notice to and receipt of written notice of
non-objection from the FRB.



22



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



The Bank met the minimum capital requirements at June 30, 2012 to conform to the
general regulatory definition of well-capitalized under the prompt corrective action regulations, as well as the higher capital standards under the cease and desist orders, however it cannot be considered well capitalized while under the
cease and desist order. The Bank did not meet the minimum capital requirements under the cease and desist order at December 31, 2011.

Actual and normally required capital amounts and ratios at June 30, 2012 and December 31, 2011, together with the higher capital requirements that the Bank is required to meet under the cease
and desist order applicable to it, are presented below.



|                                              |  |                        |        |  |                                      |  |       |                                                                |  |   |                                                |  |  |        |      |   |        |   |        |        |  |  |        |   |  |   |        |  |  |  |       |  
|--------------------------------------------- |  | ---------------------- | ------ |  | ------------------------------------ |  | ----- | -------------------------------------------------------------- |  | - | ---------------------------------------------- |  |  | ------ | ---- | - | ------ | - | ------ | ------ |  |  | ------ | - |  | - | ------ |  |  |  | ----- | -
|                                              |  | Actual                 |        |  | Required forCapital AdequacyPurposes |  |       | To Be WellCapitalized UnderPrompt CorrectiveAction Regulations |  |   | CapitalRequirementsunder Cease andDesist Order | 
|                                              |  | Amount                 |        |  | Ratio                                |  |       | Amount                                                         |  |   | Ratio                                          |  |  | Amount |      |   | Ratios |   |        | Amount |  |  | Ratios |  
|                                              |  | (Dollars in thousands) |       
|June 30, 2012:                                |  |                        |        | 
|Tangible Capital to adjusted total assets     |  | $                      | 33,478 |  |                                      |  | 8.57  | %                                                              |  | $ | 5,858                                          |  |  |        | 1.50 | % |        |   | N/A    |        |  |  | N/A    |   |  |   | N/A    |  |  |  | N/A   |  
|Tier 1(Core) Capital to adjusted total assets |  | $                      | 33,478 |  |                                      |  | 8.57  | %                                                              |  | $ | 15,621                                         |  |  |        | 4.00 | % |        | $ | 19,527 |        |  |  | 5.00   | % |  | $ | 31,243 |  |  |  | 8.00  | %
|Tier 1(Core) Capital to risk weighted assets  |  | $                      | 33,478 |  |                                      |  | 12.02 | %                                                              |  |   | N/A                                            |  |  |        | N/A  |   |        | $ | 16,705 |        |  |  | 6.00   | % |  |   | N/A    |  |  |  | N/A   |  
|Total Capital to risk weighted assets         |  | $                      | 37,136 |  |                                      |  | 13.34 | %                                                              |  | $ | 22,273                                         |  |  |        | 8.00 | % |        | $ | 27,842 |        |  |  | 10.00  | % |  | $ | 33,410 |  |  |  | 12.00 | %
|                                              |  |                        |        |  |                                      |  |       |                                                               
|December 31, 2011 :                           |  |                        |        |  |                                      |  |       |                                                                |  |   |                                                |  |  |        |      |   |        |   |        |        |  |  |        |   |  |   |        |  |  |  |       |  
|Tangible Capital to adjusted total assets     |  | $                      | 30,961 |  |                                      |  | 7.27  | %                                                              |  | $ | 6,396                                          |  |  |        | 1.50 | % |        |   | N/A    |        |  |  | N/A    |   |  |   | N/A    |  |  |  | N/A   |  
|Tier 1(Core) Capital to adjusted total assets |  | $                      | 30,961 |  |                                      |  | 7.27  | %                                                              |  | $ | 17,055                                         |  |  |        | 4.00 | % |        | $ | 21,319 |        |  |  | 5.00   | % |  | $ | 34,111 |  |  |  | 8.00  | %
|Tier 1(Core) Capital to risk weighted assets  |  | $                      | 30,961 |  |                                      |  | 10.31 | %                                                              |  |   | N/A                                            |  |  |        | N/A  |   |        | $ | 18,019 |        |  |  | 6.00   | % |  |   | N/A    |  |  |  | N/A   |  
|Total Capital to risk weighted assets         |  | $                      | 34,882 |  |                                      |  | 11.61 | %                                                              |  | $ | 24,026                                         |  |  |        | 8.00 | % |        | $ | 30,032 |        |  |  | 10.00  | % |  | $ | 36,039 |  |  |  | 12.00 | %

NOTE (11)  Income Taxes

The Company and its subsidiaries are subject to U.S. federal and state income taxes. Income tax expense is the total of
the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. 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 tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some
portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of cumulative losses in the current year and the
prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income and tax planning strategies. This analysis is updated quarterly. Based on this analysis, the Company determined that a full valuation allowance
against the deferred tax assets at June 30, 2012 was necessary; accordingly, the Company increased its valuation allowance to $8.0 million as of June 30, 2012, resulting in $0 net deferred tax asset. The Company had recorded a valuation
allowance of $8.2 million and net deferred tax assets of $850 thousand as of December 31, 2011. The decrease in net deferred tax assets from $850 thousand at December 31, 2011 to $0 at June 30, 2012 was due to the sale of the
headquarters building and the Companys inability to project future taxable income to be able to utilize its deferred tax assets.



23



---

##### Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2012



NOTE (12)  Going Concern

The Companys financial statements have been prepared assuming that the Company will continue as a going-concern,
which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. However, the Company has a tax sharing liability to the Bank which exceeds operating cash at the Company level. The
Company used its cash available at the holding company level to pay a substantial portion of this liability pursuant to the terms of the Tax Allocation Agreement between the Bank and the Company on March 30, 2012 and does not have cash
available to pay its operating expenses. Additionally, the Company is in default under the terms of a $5.0 million line of credit with another financial institution lender (see Note 7).

Due to the regulatory cease and desist order that is in effect, the Bank is not allowed to make distributions to the Company without
regulatory approval, and such approval is not likely to be given. Accordingly, the Company will not be able to meet its payment obligations within the foreseeable future unless the Company is able to secure new capital. These conditions raise
substantial doubt about the Companys ability to continue as a going concern.

Managements plan to address the
conditions described above is to raise additional equity capital for the Company and exchange senior securities for common equity (see Note 7). The Companys ability to continue as a going concern is dependent on the timely implementation and
success of this plan. There can be no assurance that managements plan will be achieved.



24



---

##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a
reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A should be read in
conjunction with the Consolidated Financial Statements and related Notes included in Part I Item 1, Financial Statements, of this Quarterly Report on Form 10-Q and our amended Annual Report on Form 10-K/A for the year ended
December 31, 2011.

Overview

Total assets decreased during the first six months of 2012 primarily due to a decrease in our loan portfolio, as loan repayments, foreclosures and charge-offs exceeded loan originations during the period.
The decrease in our loan portfolio consisted of a $9.8 million decrease in our five or more units residential real estate loan portfolio, a $6.9 million decrease in our commercial real estate loan portfolio, a $2.8 million decrease in our
one-to-four family residential real estate loan portfolio, a $2.6 million decrease in our church loan portfolio, a $2.8 million decrease in our construction loan portfolio, a $1.0 million decrease in our commercial loan portfolio, and a $798
thousand decrease in our consumer loan portfolio.

Total deposits decreased during the first six months of 2012, while FHLB
borrowings, subordinated debentures and other borrowings remained unchanged.

Our net earnings for the three and six months
ended June 30, 2012 were $1.7 million and $1.9 million, respectively, compared to net losses of ($1.7) million and ($1.9) million, respectively, for the same periods a year ago, representing an increase in net earnings of $3.4 million and $3.7
million, respectively. The increase from a net loss to net earnings was primarily due to a $2.5 million gain on the sale of our headquarters building, lower provision for loan losses, lower provision for losses on REO, and lower non-interest expense
for the three and six months ended June 30, 2012.

Results of Operations

Net Interest Income

For the second quarter of 2012, our net interest
income before provision for loan losses was $3.5 million, which represented a decrease of $938 thousand, or 21%, from the second quarter of 2011. The decrease in net interest income was primarily attributable to a decrease in average
interest-earning assets, combined with a decrease in net interest margin.

Average interest-earning assets for the second
quarter of 2012 decreased $64.4 million to $395.3 million from $459.7 million for the second quarter of 2011, which resulted in a $1.1 million reduction in interest income. The decline in average interest-earning assets, primarily loans receivable,
reflects our strategy throughout 2011 and 2012 to maintain our capital ratios above the required regulatory thresholds, in part by shrinking total assets. Additionally, the annualized yield on our average interest-earning assets decreased 39 basis
points to 5.25% for the second quarter of 2012, compared to the annualized yield of 5.64% for the same period a year ago. The 39 basis point decline in the annualized yield on our average interest-earning assets resulted in a decrease of $159
thousand in interest income. Continued higher levels of non-performing loans contributed to the decline in the annualized yield on our interest-earning assets.

Average interest-bearing liabilities for the second quarter of 2012 decreased $52.6 million to $376.7 million from $429.3 million for the second quarter of 2011. The decrease in average interest-bearing
liabilities resulted in a $209 thousand reduction in interest expense. The annualized cost of our average interest-bearing liabilities decreased 11 basis points to 1.80% for the second quarter of 2012 from 1.91% for the same period a year ago, and
resulted in a decrease of $144 thousand in interest expense.



25



---

##### Table of Contents

For the six months ended June 30, 2012, net interest income before provision for loan
losses totaled $7.2 million, down $1.6 million, or 18%, from $8.8 million of net interest income before provision for loan losses for the same period a year ago. The $1.6 million decrease in net interest income primarily resulted from a $71.2
million decrease in average interest-earning assets and a 14 basis point decrease in net interest margin.

Provision and Allowance for Loan
Losses

We record a provision for loan losses as a charge to earnings when necessary in order to maintain the allowance for
loan losses at a level sufficient, in managements judgment, to absorb losses inherent in the loan portfolio. At least quarterly, we conduct an assessment of the overall quality of the loan portfolio and general economic trends in the local
market. The determination of the appropriate level for the allowance is based on that review, considering such factors as historical loss experience for each type of loan, the size and composition of our loan portfolio, the levels and composition of
our loan delinquencies, non-performing loans and net loan charge-offs, the value of underlying collateral on problem loans, regulatory policies, general economic conditions, and other factors related to the collectability of loans in the portfolio.

The provision for loan losses for the second quarter of 2012 totaled $102 thousand, compared to $3.4 million for the same
period a year ago. The provision for loan losses decreased as a result of our loan portfolio shrinking by $14.0 million during the second quarter of 2012 and lower charge-offs. During the second quarter, we increased the general valuation allowance
on our church loan portfolio to reflect continued elevated delinquencies and lower valuations on collateral dependent church loans.

For the six months ended June 30, 2012, the provision for loan losses totaled $1.1 million compared to $4.7 million of provisions for the same period a year-ago. The decrease in loan loss provision
was primarily due to a $26.7 million decrease in our loan portfolio and a $2.1 million lower charge-offs.

At June 30,
2012 our allowance for loan losses was $17.9 million, or 5.70% of our gross loans receivable, compared to $17.3 million, or 5.09% of our gross loans, at year-end 2011. The ratio of the allowance for loan losses to NPLs, excluding loans held for
sale, increased to 45.17% at June 30, 2012, compared to 44.20% at year-end 2011. As of June 30, 2012, 67% of our NPLs had been written down to their adjusted fair value less estimated selling costs, by establishing specific reserves or
charged-off as necessary.

Loan charge-offs during the first six months of 2012 were $800 thousand, or 0.47% of average loans,
compared to $2.9 million, or 1.38% of average loans, during the first six months of 2011. Most of the $800 thousand of charge-offs were not reserved for at year-end 2011 and were primarily related to loans that became impaired during the first six
months of 2012 and with respect to which recent valuations of the underlying collateral reflected impairment losses. Charge-offs in church loans totaled $387 thousand and represented 49% of charge-offs during 2012. Charge-offs in one-to-four family
residential real estate loans totaled $355 thousand and represented 44% of charge-offs during 2012. Charge-offs in commercial real estate loans totaled $58 thousand and represented 7% of charge-offs during 2012.

Impaired loans at June 30, 2012 were $57.2 million, compared to $56.3 million at December 31, 2011. Specific reserves for
impaired loans were $3.8 million, or 6.67% of the aggregate impaired loan amount at June 30, 2012, compared to $3.9 million, or 7.00%, at December 31, 2011. Excluding specific reserves for impaired loans, our coverage ratio (general
allowance as a percentage of total non-impaired loans) was 5.49% at June 30, 2012, compared to 4.71% at December 31, 2011.

We performed an impairment analysis for all non-performing and restructured loans, and established specific loss allocations for impaired loans of $3.8 million at June 30, 2012. Of the $3.8 million
specific loss allocations at June 30, 2012, $920 thousand were related to $2.5 million of loans that are non-performing and with respect to which the recent valuation of the underlying collateral reflected a decrease in values. Additionally, we
recorded $2.9 million of specific loss allocations for impairment related to $18.0 million of accruing loans that were modified in troubled debt restructurings. On $16.4 million of impaired loans, the fair value of collateral less estimated selling
costs exceeded the recorded investment in the loan and did not require a specific loss allocation. The remaining $20.3 million of impaired loans had been written down to fair value after charge-offs of $12.9 million.



26



---

##### Table of Contents

Management believes that the allowance for loan losses is adequate to cover probable
incurred losses in the loan portfolio as of June 30, 2012, but there can be no assurance that actual losses will not exceed the estimated amounts. In addition, the OCC and the FDIC periodically review the allowance for loan losses as an
integral part of their examination process. These agencies may require an increase in the allowance for loan losses based on their judgments of the information available to them at the time of their examinations. The provisions for loan losses and
corresponding allowance for loan losses in these financial statements contained in Part 1, Item 1 of this Form 10-Q reflect judgments by the OCC made during its supervisory examination of our Bank completed in July 2012.

Non-interest Income

Non-interest income for the second quarter of 2012 totaled $2.7 million compared to $199 thousand for the second quarter of 2011. The $2.5
million increase from the second quarter of 2011 was primarily due to a $2.5 million gain on the sale of our headquarters building. During the quarter, non interest income also benefited from a $50 thousand gain on a sale of securities and lower net
losses on sales of REOs, which were partially offset by lower service charges for loan-related fees and retail banking fees.

For the six months ended June 30, 2012, non-interest income totaled $3.1 million compared to $380 thousand for the same period a
year ago. The increase primarily reflects the gain on the sale of our headquarters building and higher net gains on sales of REO, which were partially offset by lower service charges and higher losses on mortgage banking activities for the first six
months of 2012.

Non-interest Expense

Non-interest expense for the second quarter of 2012 totaled $3.6 million, compared to $4.1 million for the second quarter of 2011. Lower non-interest expense in the second quarter of 2012 was primarily
due to lower provision for losses on REO, lower professional services expense and lower FDIC insurance expense resulting from asset shrinkage.

For the six months ended June 30, 2012, non-interest expense totaled $6.6 million compared to $7.6 million for the same period a year ago. The decrease in non-interest expense during the first half
of 2012 primarily reflected lower provision for losses on REO, lower FDIC insurance expense, and lower compensation and benefits expense, occupancy expense and professional services expense, which were partially offset by higher provision for losses
on loans held for sale.

Income Taxes

The Companys effective income tax rate was 31.27% and 31.39 % for the three and six months ended June 30, 2012 compared to 41.11% and 41.03% for the three and six months ended
June 30, 2011. Income taxes for interim periods are computed by applying the projected annual effective income tax rate for the year to the year-to-date earnings plus discrete items (items incurred in the quarter). The projected effective tax
rate incorporates certain non-taxable federal and state income items and expected increases to the valuation allowance for projected deferred tax assets.

Financial Condition

Total Assets

Total assets were $390.9 million at June 30, 2012, which represented a decrease of $22.8 million, or 6%, from December 31, 2011.
During the first six months of 2012, net loans decreased by $27.4 million, loans held for sale decreased by $409 thousand, securities decreased by $3.3 million, REO decreased by $3.2 million, office properties and equipment decreased by $1.9 million
and deferred tax assets decreased by $850 thousand, while cash and cash equivalents increased by $14.5 million.



27



---

##### Table of Contents

Loan Portfolio

Our gross loan portfolio decreased by $26.7 million to $313.1 million at June 30, 2012 from $339.8 million at December 31, 2011, as loan repayments, foreclosures and charge-offs exceeded loan
originations during the first six months of 2012. The decrease in our loan portfolio primarily consisted of a $9.8 million decrease in our five or more units residential real estate loan portfolio, a $6.9 million decrease in our commercial real
estate loan portfolio, a $2.8 million decrease in our one-to-four family residential real estate loan portfolio, a $2.6 million decrease in our church loan portfolio, a $2.8 million decrease in our construction loan portfolio, a $1.0 million
decrease in our commercial loan portfolio, and a $798 thousand decrease in our consumer loan portfolio.

Loan originations for
the first six months of 2012 totaled $11.3 million, compared to $2.3 million for the first six months of 2011. Loan repayments for the first six months of 2012 totaled $34.7 million, compared to $12.8 million for the comparable period in 2011. The
increase in loan repayments was primarily attributable to a higher level of refinancings by borrowers who could take advantage of historically low interest rates and new financing opportunities in the stabilized commercial and single family markets.
Loans transferred to REO during the first six months of 2012 totaled $2.7 million, compared to $6.4 million during the first six months of 2011. There were no loans transferred to loans held for sale during the first six months of 2012, compared to
$1.1 million of loans transferred to loans held for sale during the first six months of 2011.

Loans held for sale decreased
from $13.0 million at December 31, 2011 to $12.6 million at June 30, 2012. The $409 thousand decrease during the first six months of 2012 was primarily due to loan repayments and charge-offs.

Deposits

Deposits
totaled $270.0 million at June 30, 2012, down $24.6 million, or 8%, from year-end 2011. During the first six months of 2012, core deposits (NOW, demand, money market and passbook accounts) decreased by $2.8 million and represented 35% and 33%
of total deposits at June 30, 2012 and December 31, 2011, respectively. Our certificates of deposit (CDs) decreased by $21.8 million during the first six months of 2012 and represented 65% and 67% of total deposits at
June 30, 2012 and December 31, 2011, respectively. Brokered deposits represented 1% and 3% of total deposits at June 30, 2012 and December 31, 2011, respectively.

Borrowings

Since year-end 2011, FHLB borrowings, subordinated debentures
and other borrowings remained unchanged at $83.0 million, $6.0 million, and $5.0 million, respectively. FHLB advances were 21% and 20% of total assets at June 30, 2012 and December 31, 2011, respectively. During the second quarter of 2012,
$13.5 million of FHLB advances were restructured which resulted in a decrease of the weighted average cost of advances from 3.09% at December 31, 2011 to 2.56% at June 30, 2012. See Liquidity for further information on subordinated
debentures and other borrowings.

Non-Performing Assets

Non-performing assets (NPAs) include non-accrual loans and real estate owned through foreclosure or deed in lieu of foreclosure (REO). NPAs at June 30, 2012 were $48.3
million, or 12.35% of total assets, compared to $51.4 million, or 12.43% of total assets, at December 31, 2011. At June 30, 2012, non-accrual loans were $44.7 million compared to $44.7 million at December 31, 2011. These loans consist
of delinquent loans that are 90 days or more past due and troubled debt restructurings (TDRs) that do not qualify for accrual status.

The non-accrual loans at June 30, 2012 included 34 church loans totaling $25.2 million, 22 one-to-four family residential real estate loans totaling $8.7 million, 14 commercial real estate loans
totaling $6.1 million, 9 five or more units residential real estate loans totaling $4.3 million, a land loan for $292 thousand, and a consumer loan for $70 thousand.



28



---

##### Table of Contents

During the first six months of 2012, REO decreased by $3.2 million to $3.5 million at
June 30, 2012, from $6.7 million at the end of 2011. At June 30, 2012, the Banks REO consisted of two one-to-four family residential properties, and eight commercial real estate properties, seven of which are church buildings. As
part of our efforts to reduce non-performing assets, we sold seven REO properties for total proceeds of $5.9 million, and recorded a corresponding net gain of $395 thousand, during the first six months of 2012.

Performance Ratios

The
annualized returns on average equity for the three and six months ended June 30, 2012 were 36.54% and 19.97%, compared to annualized loss on average equity of (21.41%) and (11.32%) for the three and six months ended June 30,
2011. The annualized returns on average assets for the three and six months ended June 30, 2012 were 1.69% and 0.91%, compared to annualized loss on average assets of (1.48%) and (0.78%) for the three and six months ended June 30,
2011. The efficiency ratios for the three and six months ended June 30, 2012 was 50.27% and 58.76%, compared to 73.68% and 74.40% for the three and six months ended June 30, 2011. The improvement in these ratios was primarily due to the
gain on the sale of our headquarters building.

Liquidity

The objective of liquidity management is to ensure that we have the continuing ability to fund operations and meet other obligations on a timely and cost-effective basis. The Banks sources of funds
include deposits, advances from the FHLB and other borrowings, proceeds from the sale of loans, mortgage-backed and investment securities, and principal and interest payments from loans and mortgage-backed and other investment securities. Primary
uses of funds include withdrawal of and interest payments on deposits, originations of loans, purchases of mortgage-backed and other investment securities, and payment of operating expenses.

Net cash inflows from operating activities totaled $2.0 million and $2.7 thousand during the first six months of 2012 and 2011,
respectively. Net cash inflows from operating activities for the first half of 2012 were primarily attributable to interest payments received on loans and securities.

Net cash inflows from investing activities totaled $37.2 million and $28.8 million during the first six months of 2012 and 2011, respectively. Net cash inflows from investing activities for the first half
of 2012 were attributable primarily to principal repayments on loans and securities, proceeds from the sale of the headquarters building and proceeds from sales of REOs.

Net cash outflows from financing activities totaled $24.7 million and $35.6 million during the first six months of 2012 and 2011, respectively. Net cash outflows from financing activities for the first
half of 2012 were attributable primarily to the net decrease in deposits.

When the Bank has more funds than required for
reserve requirements or short-term liquidity needs, the Bank sells federal funds to other financial institutions. Conversely, when the Bank has fewer funds than required, the Bank may borrow funds from the FHLB. The Bank is currently approved by the
FHLB to borrow up to $100.0 million to the extent the Bank provides qualifying collateral and hold sufficient FHLB stock. That approved limit and collateral requirement would have permitted the Bank, as of June 30, 2012, to borrow an additional
$17.0 million.

At times we maintain a portion of our liquid assets in interest-bearing cash deposits with other banks, in
overnight federal funds sold to other banks, and in securities available-for-sale that are not pledged. The Banks liquid assets at June 30, 2012 consisted of $46.1 million in cash and cash equivalents and $14.1 million in securities
available-for-sale that are not pledged, compared to $31.6 million in cash and cash equivalents and $17.4 million in securities available-for-sale that are not pledged at December 31, 2011.

The Company has a tax sharing liability to the Bank which exceeds operating cash at the Company level. The liability was partially
settled pursuant to the terms of the Tax Allocation Agreement between the Bank and the Company on March 30, 2012, which settlement consumed the Companys operating cash. Our ability to service our debt obligations and pay dividends and
holding company expenses is dependent primarily on the recapitalization plan discussed in Capital Resources. Holding company debt obligations, which are included in other borrowings, are described below.



29



---

##### Table of Contents

On March 17, 2004, the Company issued $6.0 million of Floating Rate Junior Subordinated
Debentures in a private placement. The debentures mature in 10 years and interest is payable quarterly at a rate per annum equal to the 3-month LIBOR plus 2.54%. The interest rate is determined as of each
March 17, June 17, September 17, and December 17, and was 3.10% at December 31, 2011. The Company stopped paying interest on the debentures and the senior line of credit discussed below in September 2010. As
disclosed previously, the Company is not permitted to make payments on any debts without prior notice to and receipt of written notice of non-objection from the FRB. In addition, under the terms of the subordinated debentures, the Company is not
allowed to make payments on the subordinated debentures if the Company is in default on any of its senior indebtedness, which term includes the senior line of credit described below.

On February 28, 2010, the Company borrowed an aggregate of $5.0 million under its $5.0 million line of credit with another financial
institution, and invested all of the proceeds in the equity capital of the Bank. Borrowings under this line of credit are secured by the Companys assets, including the stock of the Bank. The interest rate on the line of credit adjusts
annually, subject to a minimum of 6.00%, and increases by an additional 5% in the event of default. The full amount of this borrowing became due and payable on July 31, 2010. The Company does not have sufficient cash available to repay the
borrowing at this time and would require approval of the FRB to make any payment on this senior line of credit or to obtain a dividend from the Bank for such purpose. On April 7, 2011, the lender agreed to forbear from exercising its rights
(other than increasing the interest rate by the default rate margin) pursuant to the line of credit agreement until January 1, 2012 subject to certain conditions. The lender has informed the Company that it does not intend to extend the
forbearance agreement. This senior line of credit has not been repaid and the Company is now in default under the line of credit agreement.

Due to the current regulatory cease and desist order that is in effect, the Bank is not allowed to make distributions to the Company without regulatory approval, and such approval is not likely to be
given. Accordingly, the Company will not be able to meet its payment obligations within the foreseeable future unless the Company is able to secure new capital.

These conditions and the Companys operating losses raise substantial doubt about the Companys ability to continue as a going concern. These and related matters are discussed in Note 12
Going Concern of the Notes to Consolidated Financial Statements.

Capital Resources

On November 14, 2008, the Company issued 9,000 shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series
D, having a liquidation preference of $1,000 per share, together with a ten-year warrant to purchase 183,175 shares of Company common stock at $7.37 per share which was subsequently cancelled, to the U.S. Treasury Department for gross proceeds of
$9.0 million. The sale of the Series D Preferred Stock was made pursuant to the U.S. Treasury Departments TARP Capital Purchase Program.

On December 8, 2009, the Company issued 6,000 shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series E, having a liquidation preference of $1,000 per share, to the U.S.
Treasury Department for gross proceeds of $6.0 million. The sale of the Series E Preferred Stock was made pursuant to the U.S. Treasury Departments TARP Capital Purchase Program.

We are pursuing a comprehensive recapitalization plan to improve the Companys capital structure. To date, we have entered into
written agreements with:



| |  |  | The U.S. Treasury Department pursuant to which the U.S. Treasury will exchange the shares of our Series D and E Fixed Rate Cumulative Perpetual
Preferred Stock held by it for our common stock at a discount of 50% of the liquidation amount, plus an undiscounted exchange of the accumulated but unpaid dividends on such preferred stock for common stock, subject to various conditions, including
the exchange of the Companys other outstanding series of preferred stock at discounts of 50% of the aggregate liquidation values, the placement of at least $5 million of new common equity capital, and other conditions; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The holder of our Series A Perpetual Preferred Stock to exchange its holdings for common stock at a discount of 50% of the liquidation amount, subject
to various conditions, including the exchange of the Companys other outstanding series of preferred stock, the placement of new common equity capital, and other conditions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



30



---

##### Table of Contents

We are also in negotiations with the holders of our Series B Perpetual Preferred Stock and
Series C Noncumulative Perpetual Convertible Preferred Stock regarding exchange of their holdings for common stock on a similar basis as the exchange of the Series A Perpetual Preferred Stock, and we are in discussions with our senior bank lender
regarding the exchange of a portion of the $5 million outstanding amount borrowed under our line of credit, which is currently in default, for common stock at 100% of the face amount to be exchanged; the forgiveness of the accrued interest on the
entire amount of the line of credit to the date of the exchange; and the execution of a modified credit agreement for the remainder of the facility that would be outstanding after the exchange.

The conditions to each of the above proposed exchanges include, or are expected to include, requirements that the holders of each series
of our outstanding preferred stock concurrently exchange their preferred stock for our common stock on similar terms and that we concurrently complete private placements or other sales of new shares of common stock as discussed above, although we
intend to seek approval from the U.S. Treasury to reduce the minimum amount of common equity we raise to $3.5 million or more. Based on the agreements that we have executed, we anticipate that these exchanges and placements and sales of common stock
would, if completed, result in the issuance of approximately 17.1 million new shares of the Companys common stock, which would constitute approximately 91% of the pro forma outstanding shares of the Companys common stock. The
17.1 million new shares of common stock exceed the Companys current unissued and authorized shares. We plan to seek shareholder approval to increase the Companys authorized shares, and issue a portion of such shares in the
recapitalization.

In addition, we completed the sale of our Banks headquarters building during this quarter and are
working to decrease NPAs through proactive management and loan sales as part of our efforts to raise capital and increase earnings.

There can be no assurance our recapitalization plan will be achieved on the currently contemplated terms, or at all. If we are unable to raise capital, we plan to continue to shrink assets and implement
other strategies to increase earnings. Failure to maintain capital sufficient to meet the higher capital requirements could result in further regulatory action, which could include the appointment of a conservator or receiver for the Bank. The
Company or its creditors could also initiate bankruptcy proceedings.

Regulatory Capital

The capital regulations applicable to the Bank, which are now administered by the OCC, include three separate minimum capital
requirements. First, the tangible capital requirement mandates that the Banks shareholders equity, less intangible assets, be at least 1.50% of adjusted total assets as defined in the capital regulations. Second, the core capital
requirement currently mandates that core capital (tangible capital plus certain qualifying intangible assets) be at least 4.00% of adjusted total assets as defined in the capital regulations. Third, the risk-based capital requirement presently
mandates that core capital plus supplemental capital (as defined by the OCC) be at least 8.00% of risk-weighted assets as prescribed in the capital regulations. The capital regulations assign specific risk weightings to all assets and off-balance-
sheet items for this purpose.

The Bank was in compliance with all capital requirements in effect at June 30, 2012, and
met the generally applicable capital ratio standards necessary to be considered well-capitalized under the prompt corrective action regulations adopted pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991.
However, in March 2010, the Company and the Bank were determined to be in troubled condition by the OTS and they consented to the issuance to them of cease and desist orders by the OTS effective September 9, 2010, which orders
remain in effect and are now administered by the OCC. The cease and desist orders require the Bank to achieve and maintain higher levels of regulatory capital than normally required. Under the applicable regulations, the Bank is therefore precluded
from being considered to be more than adequately capitalized until such special capital requirements are terminated and the Company and the Bank are no longer considered to be in troubled condition.



31



---

##### Table of Contents

The Bank met the minimum capital requirements under the cease and desist order at
June 30, 2012. However, it did not meet the minimum capital requirements under the cease and desist order at March 31, 2012 and December 31, 2011. Actual and normally required capital amounts and ratios at June 30, 2012 and
December 31, 2011, together with the higher capital requirements that the Bank is required to meet under the cease and desist order applicable to it, are presented below.



|                                              |  |                        |        |  |                                      |  |       |                                                                |  |   |                                                |  |  |        |      |   |        |   |        |        |  |  |        |   |  |   |        |  |  |  |       |  
|--------------------------------------------- |  | ---------------------- | ------ |  | ------------------------------------ |  | ----- | -------------------------------------------------------------- |  | - | ---------------------------------------------- |  |  | ------ | ---- | - | ------ | - | ------ | ------ |  |  | ------ | - |  | - | ------ |  |  |  | ----- | -
|                                              |  | Actual                 |        |  | Required forCapital AdequacyPurposes |  |       | To Be WellCapitalized UnderPrompt CorrectiveAction Regulations |  |   | CapitalRequirementsunder Cease andDesist Order | 
|                                              |  | Amount                 |        |  | Ratio                                |  |       | Amount                                                         |  |   | Ratio                                          |  |  | Amount |      |   | Ratios |   |        | Amount |  |  | Ratios |  
|                                              |  | (Dollars in thousands) |       
|June 30, 2012:                                |  |                        |        | 
|Tangible Capital to adjusted total assets     |  | $                      | 33,478 |  |                                      |  | 8.57  | %                                                              |  | $ | 5,858                                          |  |  |        | 1.50 | % |        |   | N/A    |        |  |  | N/A    |   |  |   | N/A    |  |  |  | N/A   |  
|Tier 1(Core) Capital to adjusted total assets |  | $                      | 33,478 |  |                                      |  | 8.57  | %                                                              |  | $ | 15,621                                         |  |  |        | 4.00 | % |        | $ | 19,527 |        |  |  | 5.00   | % |  | $ | 31,243 |  |  |  | 8.00  | %
|Tier 1(Core) Capital to risk weighted assets  |  | $                      | 33,478 |  |                                      |  | 12.02 | %                                                              |  |   | N/A                                            |  |  |        | N/A  |   |        | $ | 16,705 |        |  |  | 6.00   | % |  |   | N/A    |  |  |  | N/A   |  
|Total Capital to risk weighted assets         |  | $                      | 37,136 |  |                                      |  | 13.34 | %                                                              |  | $ | 22,273                                         |  |  |        | 8.00 | % |        | $ | 27,842 |        |  |  | 10.00  | % |  | $ | 33,410 |  |  |  | 12.00 | %
|December 31, 2011 :                           |  |                        |        |  |                                      |  |       |                                                                |  |   |                                                |  |  |        |      |   |        |   |        |        |  |  |        |   |  |   |        |  |  |  |       |  
|Tangible Capital to adjusted total assets     |  | $                      | 30,961 |  |                                      |  | 7.27  | %                                                              |  | $ | 6,396                                          |  |  |        | 1.50 | % |        |   | N/A    |        |  |  | N/A    |   |  |   | N/A    |  |  |  | N/A   |  
|Tier 1(Core) Capital to adjusted total assets |  | $                      | 30,961 |  |                                      |  | 7.27  | %                                                              |  | $ | 17,055                                         |  |  |        | 4.00 | % |        | $ | 21,319 |        |  |  | 5.00   | % |  | $ | 34,111 |  |  |  | 8.00  | %
|Tier 1(Core) Capital to risk weighted assets  |  | $                      | 30,961 |  |                                      |  | 10.31 | %                                                              |  |   | N/A                                            |  |  |        | N/A  |   |        | $ | 18,019 |        |  |  | 6.00   | % |  |   | N/A    |  |  |  | N/A   |  
|Total Capital to risk weighted assets         |  | $                      | 34,882 |  |                                      |  | 11.61 | %                                                              |  | $ | 24,026                                         |  |  |        | 8.00 | % |        | $ | 30,032 |        |  |  | 10.00  | % |  | $ | 36,039 |  |  |  | 12.00 | %



32



---

##### Table of Contents

|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Not Applicable



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of
Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of the Companys
disclosure controls and procedures was performed under the supervision of the Companys Chief Executive Officer (CEO) and Chief Financial Officer (CFO) as of June 30, 2012. Based on that evaluation and due to the
material weaknesses identified below, the Companys CEO and CFO concluded that the Companys disclosure controls and procedures were not effective as of June 30, 2012.

The Companys external auditors identified certain material misstatements in the course of their audit of our consolidated financial
statements for the year ended December 31, 2011 and appropriate adjustments to the consolidated financial statements, resulting in an additional net loss of $677 thousand, were made prior to their issuance. The adjustments included corrections
of errors in the determination of specific allowances for impaired loans, errors in the calculation of the amortization of our investment in low-income housing projects and errors in the calculation of our income tax provision and the determination
of the valuation allowance on our deferred tax assets.

Subsequent to the issuance of our 2011 consolidated financial
statements and the filing of our Annual Report on Form 10-K on March 30, 2012, management became aware of certain additional errors in the preparation of our 2011 consolidated financial statements. The errors included failure in connection with
preparation of our financial statements to obtain and take into account certain appraisals of the values of properties securing impaired loans that had been ordered and received by the Bank prior to the issuance date of our financial statements and
failure to follow appropriate methods for calculating expected future payments on loans in connection with our discounted cash flow analysis for measuring impairment of loans deemed to be troubled debt restructurings. In addition, certain appraisals
received after year-end 2011 indicated that impairment losses that had been determined using values based on broker provided opinions of value (BPOs) understated the losses inherent in those loans. We have determined that these
additional errors also constituted material weaknesses in our system of internal controls over financial reporting.

Management, with the oversight of the Audit Committee, has taken and intends to take actions to address the material weaknesses
discovered in our internal control over financial reporting. These include implementation of changes in our accounting policies and procedures to assure that appropriate methods are used in determining the values of collateral dependent loans and
that all appraisals that have been ordered by the Bank to determine the values of properties securing our loans and REO are obtained and appropriately considered by accounting personnel in connection with preparation of our financial statements. In
addition, we have discontinued our former practice of obtaining and relying upon BPOs in connection with valuing properties securing our loans. Management further intends to consult with subject matter experts when appropriate to determine
appropriate loan valuation procedures or related accounting and regulatory requirements in situations not previously encountered by Bank accounting personnel and to institute second review procedures over financial reporting. The Audit Committee
will also increase its oversight of the financial reporting process.

Except as described above, there has been no change in
our internal control over financial reporting in our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



33



---

##### Table of Contents

PART II. OTHER INFORMATION



|        |  |                  
|------- |  | -----------------
|Item 1. |  | LEGAL PROCEEDINGS

OTS Investigation

In 2010, the OTS notified us that it had initiated a formal investigation of the activities of a former loan officer of the Bank whose employment was terminated in March 2010. In connection with the
investigation, the OTS issued subpoenas to the chief lending officer and chief executive officer requesting documents relating to our former loan officer and loans he originated while employed by the Bank. The subpoenas also contemplate taking oral
testimony from the officers. While the OTS did not inform us of the scope of its investigation, we believe the investigation includes, but may not be limited to, inquiry into whether documentation submitted in connection with loan applications for
loans originated by the loan officer contained inaccurate or deliberately falsified information and whether the loan officer received unauthorized direct or indirect benefits from payments made by the borrowers on such loans to loan brokers or other
persons associated with the lending process. All of the loans originated by the former loan officer have been reviewed by us and by the independent loan review firm we engaged to perform a general review of our loan portfolio pursuant to the C&D
issued to us by the OTS. We have taken the results of these loan reviews into account, along with all other relevant information known to us, in determining the amounts of our loan loss provisions and the level of our loan loss reserves that we
believe to be appropriate as of June 30, 2012.



|         |  |                                                             |  |                                                                                                                                
|-------- |  | ----------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------
|Item 1A. |  | RISK FACTORS                                               
|         | 
|         |  | Not Applicable                                             
|         | 
|Item 2.  |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|         | 
|         |  | None                                                       
|         | 
|Item 3.  |  | DEFAULTS UPON SENIOR SECURITIES                            
|         | 
|         |  | None                                                       
|         | 
|Item 4.  |  | MINE SAFETY DISCLOSURES                                    
|         | 
|         |  | Not Applicable                                             
|         | 
|Item 5.  |  | OTHER INFORMATION                                          
|         | 
|         |  | None                                                       
|         | 
|Item 6.  |  | EXHIBITS                                                   
|         |  |                                                            
|         |  | Exhibit 31.1                                               |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                             
|         |  |                                                            
|         |  | Exhibit 31.2                                               |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                             
|         |  |                                                            
|         |  | Exhibit 32                                                 |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



34



---

##### Table of Contents

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



|                      |  |  |  |     |  |                           
|--------------------- |  |  |  | --- |  | --------------------------
|Date: October 1, 2012 |  |  |  | By: |  | /s/ Wayne-Kent A. Bradshaw
|                      |  |  |  |     |  | Wayne-Kent A. Bradshaw    
|                      |  |  |  |     |  | Chief Executive Officer   
|                      |  |  | 
|Date: October 1, 2012 |  |  |  | By: |  | /s/ Samuel Sarpong        
|                      |  |  |  |     |  | Samuel Sarpong            
|                      |  |  |  |     |  | Chief Financial Officer   



35