UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

[Mark One]

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

For the quarterly period ended September 30, 2001

                                       OR

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

For the transition period from ____________ to ______________

Commission file number 0-13311

                             CityFed Financial Corp.
                             -----------------------
        (Exact name of small business issuer as specified in its charter)

              Delaware                                          22-2527684
              --------                                          ----------
 (State or other jurisdiction of incorporation      (IRS Employer Identification
              or organization)                                   No.)

                        PO Box 3126, Nantucket, MA 02584
                        --------------------------------
                    (Address of principal executive offices)

                                 (508) 228-2366
                           (Issuer's telephone number)

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of October 31, 2001, the number of
shares of outstanding common stock was 18,715,609.

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


<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

CITYFED FINANCIAL CORP.

STATEMENTS OF FINANCIAL CONDITION
September 30, 2001 and December 31, 2000
(Dollars in Thousands)
                                                     September 30,  December 31,
                                                          2001          2000
                                                      (Unaudited)       ----
                                                      -----------

ASSETS

Cash                                                  $         1     $      8
Investment securities at amortized cost
    (Market value $6,171 in 2001 and $6,219
     in 2000)                                               6,163         6,216
Other assets                                                   52            2
                                                      -----------     ----------
TOTAL ASSETS                                          $     6,216     $   6,226
                                                      ===========     ==========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

LIABILITIES:
  Accrued expenses                                   $         48     $      64
  Other liabilities                                         7,417         7,417
                                                     ------------     ----------
         Total liabilities                                  7,465         7,481
                                                     ------------     ----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY:
    Preferred stock, 30,000,000 shares authorized:
       $2.10 cumulative convertible, Series B, $25
              par value, issued and outstanding:
              2,538,850 in 2001 and 2000                   63,471        63,471
       Series C Junior, cumulative, $.01 par value,
              liquidation preference $3.00 per
              share, shares issued and outstanding:
              8,257,079 in 2001 and 2000                       82            82
    Common stock, $.01 par value, 100,000,000 shares
        authorized, issued: 18,914,609 in 2001
        and 2000, outstanding: 18,715,609 in 2001 and
        2000                                                  188           188
    Additional paid-in capital                            108,868       108,868
    Accumulated deficit                                  (172,858)     (172,864)
    Treasury stock (199,000 shares of common stock)        (1,000)       (1,000)
                                                       -----------    ----------

         Total stockholders' deficiency                    (1,249)       (1,255)
                                                       -----------    ----------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY            $ 6,216     $   6,226
                                                       ===========    ==========

See notes to financial statements.


                                       2
<PAGE>

<TABLE>
<CAPTION>

CITYFED FINANCIAL CORP.

STATEMENTS OF OPERATIONS
Nine months ended September 30, 2001 and 2000
(Dollars in Thousands, Except Per Share Data)
(Unaudited)

                                                       Three Months Ended              Nine months ended
                                                         September 30,                  September 30,
                                                   2001             2000           2001            2000
                                                   ----             ----           ----            ----
<S>                                           <C>               <C>           <C>                <C>
INCOME:
   Interest on investments                      $     72        $    105      $    243        $    360
   Other income                                       -               -              -              24
                                                --------        --------      --------        --------

     Total income                                     72             105           243             384
                                                --------        --------      --------        --------

EXPENSES:
   Compensation and employee benefits                 43              41            129             127
   Other operating expenses                           27              25            108             142
                                                --------        --------      ---------        --------

     Total expenses                                   70              66            237             269
                                                --------         -------      ---------        --------

INCOME FROM CONTINUING OPERATIONS                      2              39              6             115

LOSS FROM DISCONTINUED OPERATIONS                      -               -              -          (1,037)
                                                --------        --------      ---------         --------

NET (LOSS) INCOME                               $      2        $     39      $      6          $(  922)
                                                ========        ========      =========         ========


NET LOSS AVAILABLE FOR COMMON
  STOCKHOLDERS                                  $(2,157)        $(2,120)      $(6,470)          $(7,398)
                                                ========        ========      =========         ========

BASIC AND DILUTED LOSS PER SHARE:
   From continuing operations                    $ (0.12)        $ (0.11)        $ (0.35)        $ (0.34)
   From discontinued operations                    $  -            $  -            $  -          $ (0.06)
                                                   ------          ------          ------        --------
   Net loss                                      $ (0.12)        $ (0.11)        $ (0.35)        $ (0.40)
                                                 ========        ========        ========        ========

AVERAGE SHARES OUTSTANDING                     18,715,609      18,715,609      18,715,609      18,715,609

DIVIDENDS PER COMMON SHARE                             -               -               -               -

See notes to financial statements.


                                                       3
</TABLE>
<PAGE>



CITYFED FINANCIAL CORP.

STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2001 and 2000
(Dollars in Thousands)
(Unaudited)


                                                               2001        2000
                                                               ----        ----
CASH FLOWS FROM OPERATING ACTIVITIES:
     Interest received                                     $   205    $    568
     Operating expenses                                       (303)       (360)
     Settlement payment                                         -       (3,169)
     Other income                                               -           24
                                                            -------    --------

       Net cash used in operating activities                   (98)     (2,937)
                                                            -------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Decrease in investment securities                          91       2,880
     Other - net                                                -           (2)
                                                            -------    --------

       Net cash provided by investing activities                91       2,878
                                                            -------    --------

NET DECREASE IN CASH                                            (7)        (59)

CASH AT BEGINNING OF PERIOD                                      8          63
                                                            -------    --------

CASH AT END OF PERIOD                                      $     1     $     4
                                                           =======     ========

RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
        USED IN OPERATING ACTIVITIES:
     Net income (loss)                                     $     6     $   (922)
     Loss from discontinued operations                           -        1,037
     Settlement payment                                          -       (3,169)
     Increase in other assets                                  (50)          (5)
     (Increase) decrease in accrued income and expense, net    (54)         122
                                                           -------      -------

NET CASH USED IN OPERATING ACTIVITIES                      $   (98)     $(2,937)
                                                           =======      =======


See notes to financial statements.


                                       4

<PAGE>


CITYFED FINANCIAL CORP.
NOTES TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 (UNAUDITED)

1.       Until  December 8, 1989,  CityFed  Financial  Corp.  (the  "Company" or
         "CityFed")  was  a  unitary  savings  and  loan  holding  company  that
         conducted its business  primarily through its ownership of City Federal
         Savings  Bank ("City  Federal")  and its  subsidiaries.  On December 7,
         1989,  the Office of Thrift  Supervision  ("OTS") of the United  States
         Department of the Treasury declared City Federal insolvent,  ordered it
         closed  and  appointed  the  Resolution  Trust  Corporation  ("RTC") as
         receiver of City  Federal.  A new federal  mutual  savings  bank,  City
         Savings Bank, F.S.B. ("City Savings"),  was created, which acquired all
         deposits and  substantially  all of the assets and  liabilities of City
         Federal.  CityFed no longer  controls  City  Federal and has no control
         over City Savings.

         As a result  of the  receivership  of City  Federal,  the  Company  has
         undergone  material  changes  in the nature of its  business  and is no
         longer  operating as a savings and loan holding  company.  At September
         30, 2001,  the Company's  business  activities  consisted  primarily of
         attempting to resolve  outstanding  indemnification  claims against the
         Company and the management of investments.

         As a  result  of  the  receivership  of  City  Federal,  the  financial
         statements  of CityFed at December 31,  1989,  for the year then ended,
         and for subsequent periods,  reflect CityFed's interest in City Federal
         as discontinued operations. The financial statements have been prepared
         assuming the Company  will  continue as a going  concern.  As discussed
         above and in Note 4, substantially all of the operations of the Company
         have  been  discontinued  and the  Company  is  subject  to a number of
         commitments and  contingencies  that raise  substantial doubt about its
         ability to continue as a going concern.  Except as indicated in Note 4,
         the  financial  statements  do not include any  adjustments  that might
         result from the outcome of these  uncertainties which may be determined
         in the near term.  Currently,  CityFed is not  conducting  an operating
         business. At the present time, management has invested,  and intends to
         invest, CityFed's assets on a short-term basis.

2.       The  financial  statements  should  be read  in  conjunction  with  the
         financial  statements and notes thereto  included in the Company's Form
         10-KSB for the year ended December 31, 2000 ("2000 Form  10-KSB").  The
         interim statements reflect all adjustments of a normal recurring nature
         that  are,  in  the  opinion  of  management,   necessary  for  a  fair
         presentation  of the results  and  financial  position  for the periods
         presented.

3.       In July 1989, the Company's Board of Directors suspended the payment of
         dividends on all three  currently  outstanding  series of the Company's
         stock.  These include the Company's  common stock,  $0.01 par value per
         share ("Common Stock"),  on which the Company had been paying quarterly
         dividends of one cent per share;  the Series C, Junior Preferred Stock,
         Cumulative,  $0.01  par  value per share  ("Series  C  Stock"),  with a
         quarterly  dividend  of ten cents per share;  and the $2.10  Cumulative

                                       5
<PAGE>

         Convertible  Preferred  Stock,  Series  B,  $25.00  par value per share
         ("Series  B Stock"),  with a  quarterly  dividend  of $0.525 per share.
         Dividends  on  both  series  of  the  Company's   preferred  stock  are
         cumulative.  At  September  30,  2001,  dividends in arrears were $65.3
         million and $40.5 million on the Company's Series B and Series C Stock,
         respectively.

4.       COMMITMENTS AND CONTINGENCIES

         INDEMNIFICATION  CLAIMS - The Bylaws of CityFed,  inter alia,  obligate
         CityFed to indemnify,  to the fullest extent authorized by the Delaware
         General  Corporation  Law, any person who is made or  threatened  to be
         made a party to or becomes  involved in an action by reason of the fact
         that  he or  she  is or  was  an  employee  of  CityFed  or  one of its
         subsidiaries,  and to pay on his or her  behalf  expenses  incurred  in
         defending such an action prior to the final disposition of such action;
         provided that  expenses  incurred by an officer or director may be paid
         in advance only if such person  delivers an  undertaking  to CityFed to
         repay such amounts if it ultimately  is  determined  that the person is
         not entitled to be indemnified  under CityFed's Bylaws and the Delaware
         General  Corporation Law. These undertakings are generally not secured.
         Consequently,  CityFed may become  obligated to indemnify  such persons
         for their expenses  incurred in connection  with any such action and to
         advance  legal  expenses  incurred by such  persons  prior to the final
         disposition  of any such  action.  In addition  to any amounts  paid on
         behalf of such person for expenses  incurred in connection with such an
         action, CityFed also may have further indemnification  responsibilities
         to the  extent  damages  are  assessed  against  such a person  and for
         settlement amounts.

         As  described  below,  CityFed  and  several  former  directors  and/or
         officers of City Federal were named as defendants or respondents in the
         First and Second  RTC  Actions  and in the  Notice of Charges  (as such
         terms  are  defined  below).  Many of  these  former  directors  and/or
         officers of City Federal have  requested  CityFed to indemnify them and
         to advance expenses to them in connection with these matters. A special
         committee of CityFed's  Board of Directors,  comprised of directors who
         were not named in the First or Second RTC Actions,  was  established to
         consider this request for  indemnification  and advancement of expenses
         with  respect  to the First and Second  RTC  Actions.  On the advice of
         counsel to the  special  committee,  CityFed  has paid a portion of the
         defendant's reasonable defense costs on behalf of such former directors
         and officers in such connection with the First and Second RTC Actions.

         In addition to the First and Second RTC Actions,  the Notice of Charges
         and the  "Indemnification  Claims  Relating  to  Deferred  Compensation
         Plans" (described  below),  CityFed is currently aware of several other
         legal  actions  and  matters  with  respect to which  current or former
         officers,  directors or employees of CityFed or its former subsidiaries
         have requested that CityFed advance expenses and indemnify them. Except
         for the  indemnification  requests  relating  to the  Notice of Charges
         (which  CityFed's Board of Directors has not yet  considered),  CityFed
         had  generally  agreed to advance  expenses  in  connection  with these
         requests,   except  where  certain  preconditions  to  advancement  and
         indemnification   have  not  been   met  or   where   advancement   and
         indemnification may not be warranted under applicable law.


                                       6
<PAGE>

         CityFed is not continuing to advance expenses in connection with any of
         the indemnification and advancement requests referred to above. CityFed
         may be required to make payments of legal fees and expenses  (including
         settlement amounts) to the individuals who have settled with the RTC or
         Federal  Deposit  Insurance  Corporation  ("FDIC")  in the  Second  RTC
         Action. For more information  regarding these settlements,  see "Second
         RTC Action" below.

         CityFed  received a letter dated June 21,  1995,  from  Skadden,  Arps,
         Slate,  Meagher & Flom ("Skadden"),  which is counsel for Gordon Allen,
         Marshall  Criser,  Edwin Halkyard,  Peter Kellogg,  William Liffers and
         Victor Pelson ("Outside Directors"),  who are or were parties to one or
         more of the following  matters  (collectively,  the  "Cases"):  (1) the
         Second RTC Action; (2) the efforts to set aside the Temporary Order (as
         defined below);  (3) the Supreme Court Case (as defined below); and (4)
         the  administrative  enforcement  proceeding brought by the OTS against
         CityFed  and the  Individual  Respondents  (as defined  below).  In the
         letter,  the Outside  Directors  demanded  that,  pursuant to CityFed's
         Bylaws and  Restated  Certificate  of  Incorporation,  CityFed  pay all
         outstanding  invoices from Skadden for legal  services  rendered to the
         Outside Directors in connection with the Cases. The letter states that,
         if CityFed refuses to make the payments demanded, the Outside Directors
         will consider taking  appropriate legal action to enforce their rights.
         CityFed  received a similar  letter  from  Venable,  Baetjer,  Howard &
         Civiletti,  counsel  for John  Kean,  who was a party to the Second RTC
         Action,  as well as from Alfred J.  Hedden,  Gilbert G.  Roessner,  and
         Gordon  Allen,  who were or are  parties  to the  Cases.  CityFed  also
         received  similar letters in connection with the deferred  compensation
         matters  described  below.  See  "Indemnification  Claims  Relating  to
         Deferred  Compensation  Plans."  CityFed is considering  what action to
         take in response to these letters.  CityFed expects that it may receive
         other,  similar letters  demanding payment from other current or former
         directors  and  officers  who were or are parties to one or more of the
         Cases.

         Through September 30, 2001,  CityFed received,  but has not paid, bills
         totaling  $3,397,000 in the  aggregate for legal  services and expenses
         rendered in connection with the defense of current and former directors
         and officers of CityFed in the Cases.  These  amounts have been accrued
         for and are included in Other Liabilities in the September 30, 2001 and
         the December 30, 2000 financial statements.

         On May 19,  2000,  CityFed  finalized  with  the  OTS  and  the  FDIC a
         settlement ("Settlement") that settled the action described below under
         "In the  Matter of  CityFed  Financial  Corporation."  Pursuant  to the
         Settlement, the Temporary Order was dissolved, and the Escrow Agreement
         (as described below) was terminated.  Following the Settlement, CityFed
         may  reorganize,  perhaps  involving  a  bankruptcy  proceeding.  It is
         anticipated that these  indemnification  claims will be addressed prior
         to or as part of any such reorganization.

         CityFed does not know whether all current or former officers, directors
         or  employees  of CityFed or its  former  subsidiaries  who are or were
         involved in actions or proceedings will request  advancement or payment
         of legal expenses and  indemnification  or, if requested,  whether they
         will be entitled to advancement of expenses or  indemnification.  Also,
         CityFed  does not know  whether  amounts  claimed to date by current or

                                       7
<PAGE>

         former  officers and directors  might change.  Thus, it is not possible
         for CityFed to estimate with any accuracy the probable  amount or range
         of liability  relating to current or potential  indemnification  claims
         arising under CityFed's  Bylaws or state statutes,  although the amount
         of such claims could be material.

         Certain  insurance   policies  may  provide  coverage  to  CityFed  for
         indemnification  payments made by CityFed.  These policies,  subject to
         certain  exclusions,  limitations  and loss  participation  provisions,
         provide coverage to CityFed for amounts that it may be obligated to pay
         to indemnify its current and former directors and officers, and in some
         cases also provide  coverage to the  directors  and officers of CityFed
         directly  for  covered  losses   resulting  from  claims  made  against
         CityFed's  directors and officers for certain  wrongful acts. Under the
         insurance policies,  CityFed would be required, prior to any payment by
         the insurers to it, to absorb a retention  amount equal to the first $4
         million of each  covered loss unless it is unable to do so by reason of
         insolvency.

         The  insurers  have  denied  coverage  with  respect to the claims made
         against the directors and officers in the First and Second RTC Actions.
         Consequently,  CityFed may not be  reimbursed  by the  insurers for any
         expenses advanced or indemnification payments made to these individuals
         in the First and Second RTC Actions.

         CityFed is in the process of making offers of  settlement  with respect
         to the claims of certain of its, and its former subsidiaries',  current
         and  former  officers,  directors  and  employees  who have  previously
         requested indemnification from CityFed. Negotiations are ongoing.

         IN THE MATTER OF CITYFED FINANCIAL CORPORATION,  OTS Order No. AP 94-26
         (June 2,  1994) - On June 2,  1994,  the  Office of Thrift  Supervision
         issued a Notice of Charges  ("Notice of Charges")  against  CityFed and
         against  Gordon E. Allen,  John W.  Atherton,  Jr.,  Edwin M. Halkyard,
         Alfred J. Hedden,  Peter R. Kellogg,  William A. Liffers and Gilbert G.
         Roessner  ("Individual   Respondents"),   who  are  current  or  former
         directors  or officers of CityFed and of CityFed's  former  subsidiary,
         City Federal.

         The OTS charged that  CityFed  failed to maintain the net worth of City
         Federal  at levels  required  by  applicable  capital  requirements  in
         violation  of a  stipulation  dated  December 4, 1984  ("Stipulation").
         CityFed had provided the  Stipulation  to the Federal  Savings and Loan
         Insurance  Corporation  in connection  with the approval by the Federal
         Home Loan Bank Board ("FHLBB") of CityFed's acquisition of City Federal
         in December 1984. FHLBB Resolution No. 84-664, dated November 21, 1984,
         approved  CityFed's  acquisition of City Federal on the condition that,
         among other  things,  CityFed  provide the  Stipulation  to the Federal
         Savings and Loan Insurance Corporation.  The Stipulation provided that,
         as long as CityFed controlled City Federal, CityFed would cause the net
         worth of City Federal to be maintained at a level  consistent with that
         required by regulations and would infuse  sufficient  additional equity
         capital, in a form satisfactory to the regulators, to effect compliance
         with the capital requirement.

         The Notice of  Charges  sought  restitution  in an amount not less than
         $118.4  million,  which the OTS  alleged to be the  regulatory  capital
         deficiency reported by City Federal in the fall of 1989.

                                       8
<PAGE>

         The OTS also  sought  a civil  money  penalty  against  CityFed  on the
         grounds  that  CityFed  allegedly  "knowingly"  committed  the  alleged
         violations  described  above and  allegedly  "knowingly  or  recklessly
         caused a  substantial  loss to City  Federal."  The amount of the civil
         money  penalty  assessed  against  CityFed in the Notice of Charges was
         $2,649,600.

         The OTS charged  that the  Individual  Respondents  had an  affirmative
         obligation to see that CityFed complied with its net worth maintenance.
         The OTS alleged that some of the Individual Respondents (Messrs. Allen,
         Atherton,  Hedden, Kellogg and Roessner) were unjustly enriched through
         CityFed's  payment of their legal  expenses  with  CityFed  assets,  an
         allegation that refers to the  advancement by CityFed,  pursuant to its
         obligations in its Bylaws and Restated Certificate of Incorporation, of
         litigation  expenses to those Individual  Respondents in the RTC action
         in the United  States  District  Court for the  District  of New Jersey
         ("N.J. Court"), RESOLUTION TRUST CORPORATION V. ATHERTON, ET AL., Civil
         Action No. 93-1811  (consolidated  with RESOLUTION TRUST CORPORATION V.
         SIMMONS,  ET AL.,  Civil Action No.  92-5261-B).  The Notice of Charges
         requested that an order be entered by the Director of the OTS requiring
         the Individual Respondents to make restitution, reimburse, indemnify or
         guarantee  the OTS  against  loss in an amount not less than  $400,000,
         which the OTS alleged to be the amount of legal  expenses  CityFed paid
         on their behalf from April to December 1993.

         In the Notice of Charges,  the OTS also  assessed a civil money penalty
         against the  Individual  Respondents on the grounds that they allegedly
         "violated a condition  imposed in writing and/or a written  agreement."
         The amount of civil money  penalties  assessed  against the  Individual
         Respondents was $51,750 each.

         Also on June 2,  1994,  the OTS issued a  Temporary  Order to Cease and
         Desist ("Temporary Order") against CityFed.  The Temporary Order sought
         to "freeze"  CityFed's assets by placing them in various respects under
         the  control  of  the  OTS.  CityFed  and  several  of  the  Individual
         Respondents  attempted to have the Temporary  Order set aside in court,
         but that attempt was unsuccessful.

         On  October  26,  1994,  CityFed  and the OTS  entered  into an  Escrow
         Agreement with  CoreStates  Bank,  N.A. (now First Union National Bank)
         pursuant to which CityFed  transferred  substantially all of its assets
         to First  Union Bank for  deposit  into an escrow  account.  The Escrow
         Agreement  provided  CityFed with $15,000 per month for normal business
         expenses  and allowed  CityFed to sell and purchase  securities  in the
         escrow account. Although the Escrow Agreement was terminated, CityFed's
         assets  continue  to be  invested in money  market  instruments  with a
         maturity of one year or less and money market mutual funds.

         The terms of the Settlement generally included the following:

         o   CityFed paid to the FDIC, as receiver for City Federal, $3,169,115;

         o   CityFed  assigned  to the FDIC  all of  CityFed's  interest  in its
             goodwill claim (see "Supervisory Goodwill Action" below);

                                       9
<PAGE>

         o   CityFed conveyed to the FDIC its ownership interest in City Federal
             and gave up any claims against its receivership estate;

         o   The OTS dismissed with prejudice the Notice of Charges, and the OTS
             and the FDIC gave full and  complete  releases  to CityFed  and the
             Individual Respondents;

         o   CityFed  and the  Individual  Respondents  gave  full and  complete
             releases to the OTS and the FDIC; and

         o   The OTS dissolved the Temporary  Order and  authorized  First Union
             Bank to  release  to CityFed  all of its  assets  remaining  in the
             escrow account following payment of the settlement proceeds.

         For  further  information  regarding  the  Stipulation,  see "First RTC
         Action" below.

         FIRST RTC ACTION - On  December  7, 1992,  the RTC in its  capacity  as
         receiver for City Savings, and the RTC in its corporate capacity, filed
         the First RTC Action in the N.J. Court against  CityFed and against two
         former  officers of City  Federal.  In its  complaint  in the First RTC
         Action,  the RTC, in its  corporate  capacity,  sought,  inter alia, to
         recover damages in excess of $12 million against CityFed resulting from
         CityFed's  alleged  violation  of the  Stipulation  to maintain the net
         worth of City Federal (RESOLUTION TRUST CORPORATION V. SIMMONS, ET AL.,
         Civil Action No. 92-5261-B ("First RTC Action")).

         In connection with the First RTC Action, the RTC filed an Order to Show
         Cause with Temporary  Restraints  Freezing Assets of Defendant  CityFed
         Financial Corp.  ("Order to Show Cause") seeking an order from the N.J.
         Court placing all assets of CityFed under the control of the N.J. Court
         and related  relief pending a hearing on a preliminary  injunction.  On
         January  5,  1993,  CityFed  and  the  RTC  entered  into  the  Expense
         Agreement, effective as of December 14, 1992, whereby the RTC agreed to
         refrain from seeking the relief  sought in its Order to Show Cause.  In
         the Expense  Agreement,  the RTC further agreed that CityFed could make
         payments  of  ordinary  and  reasonable  business  expenses,  including
         aggregate  compensation and employee  benefits in amounts not to exceed
         those paid in 1991 for John W. Atherton,  Jr., as President of CityFed,
         and for CityFed's corporate  secretary,  directors' fees and reasonable
         expenses in connection  with  attendance at meetings of CityFed's Board
         of  Directors,  reasonable  and  necessary  fees for  outside  auditing
         services,  taxes,  transfer  fees, and rent and utilities for CityFed's
         offices in Florida and Massachusetts,  reasonable corporate legal fees,
         and reasonable defense costs,  attorneys' fees and/or  disbursements in
         connection with the First RTC Action and,  relating only to the defense
         of CityFed,  with respect to the action  originally filed in the United
         States District Court for the Northern District of California captioned
         Ridder,  et al. v. CityFed  Financial  Corp.,  C92-4649-BAC,  which was
         dismissed  without  prejudice and refiled in the N.J.  Court  captioned
         Ridder,  et al. v. CityFed  Financial  Corp.,  (Case No. 93-1676) (HLS)
         ("Ridder  Action").  The Ridder Action has been settled and the Expense
         Agreement was terminated.


                                       10
<PAGE>

         On  September  30,  1993,  CityFed was advised by the OTS staff that it
         intended  to  recommend   that  the  OTS  initiate  an   administrative
         enforcement  proceeding  against CityFed.  The OTS staff reaffirmed its
         intention to  recommend  that the OTS  initiate  such a  proceeding  in
         meetings between the OTS staff and  representatives of CityFed in April
         1994. In light of this, and at the request of the RTC and CityFed,  the
         N.J.  Court entered  several  successive  orders  staying the First RTC
         Action from October  1993 through June 1994.  In light of the filing by
         the OTS of the Notice of Charges on June 2, 1994,  the RTC and  CityFed
         agreed to (1) a  Consent  Order  Dismissing  Claims  Against  Defendant
         CityFed  Financial  Corp.  Without  Prejudice,  which  provided for the
         dismissal  without  prejudice of the RTC's claim against CityFed in the
         First RTC Action,  and which was entered as an Order of the N.J.  Court
         on July 19, 1994; and (2) a Tolling Agreement, effective as of July 11,
         1994,  pursuant to which CityFed and the RTC agreed (a) to toll, during
         the pendency of the OTS' proceeding against CityFed, the running of the
         statute of limitations  with respect to the claims the RTC had asserted
         against  CityFed  in the First  RTC  Action  and (b) that,  if the OTS'
         proceeding  against  CityFed  resulted  in  a  determination  that  the
         Stipulation was void and/or  unenforceable  as a matter of law, or that
         CityFed did not violate the Stipulation, the RTC would be bound by such
         determination.

         Pursuant to the Settlement,  the FDIC released  CityFed from all claims
         in the First RTC Action.

         The RTC also  sought,  in its  complaint  in the First RTC  Action,  to
         recover  damages in excess of $130 million from two former  officers of
         City Federal resulting from their alleged negligence, gross negligence,
         breach of  fiduciary  duty and other  duties  and  other  wrongful  and
         improper   conduct  while  serving  as  officers  of  City  Federal  in
         connection  with  the  approval,  funding,  management,  oversight  and
         workout of two large  acquisition,  development and construction  loans
         for two projects located in Florida,  Grand Harbor ("Grand Harbor") and
         Woodfield Country Club Estates ("Woodfield"). On February 9, 1993, upon
         motion of CityFed in the First RTC Action,  the N.J.  Court  entered an
         order severing the RTC's claims  against  CityFed from the RTC's claims
         against the two former officers of City Federal.

         SECOND RTC ACTION - On April 26,  1993,  the RTC,  in its  capacity  as
         receiver  for City  Savings,  filed the  Second  RTC Action in the N.J.
         Court against John W. Atherton, Jr., Gordon E. Allen, Alfred J. Hedden,
         Peter R. Kellogg, John Kean, Gilbert G. Roessner,  George E. Mikula and
         James P. McTernan, all former directors and/or officers of City Federal
         (RESOLUTION  TRUST  CORPORATION  V.  ATHERTON ET AL.,  Civil Action No.
         93-1811) ("Second RTC Action").  In its initial complaint in the Second
         RTC Action, the RTC sought to recover damages in excess of $130 million
         for alleged negligence, gross negligence and breach of fiduciary duties
         by the  defendants  in  connection  with the Grand Harbor and Woodfield
         loans.  Although  the Second RTC Action was filed  separately  from the
         First RTC  Action,  the N.J.  Court  consolidated  the two  actions for
         administrative purposes.

         On June 17,  1993,  the RTC  filed a First  Amended  Complaint  ("First
         Amended  Complaint")  in the Second RTC Action that named as additional
         defendants  in the Second RTC Action  Victor A. Pelson and  Marshall M.

                                       11
<PAGE>

         Criser, two former directors of City Federal. With the exception of the
         addition of Messrs.  Pelson and Criser as defendants,  the substance of
         the First Amended Complaint was identical to the complaint filed by the
         RTC on April 26, 1993.

         On November 15, 1993,  the N.J. Court granted the motions of several of
         the  defendants  to dismiss the RTC's First  Amended  Complaint  to the
         extent it alleged a cause of action for simple negligence.  On December
         15, 1993, the RTC filed a Second  Amended  Complaint  ("Second  Amended
         Complaint")  in the Second RTC Action,  alleging  gross  negligence and
         breach of duty against the defendants named in the Second RTC Action in
         connection  with the Grand  Harbor  and  Woodfield  loans,  and also in
         connection  with the Port Liberte loan ("Port  Liberte"),  a large real
         estate  development  loan in New Jersey that had not been  mentioned in
         the First RTC Action or in the initial  complaint or the First  Amended
         Complaint in the Second RTC Action. The Second Amended Complaint,  with
         the addition of allegations  regarding Port Liberte,  sought damages in
         excess  of $200  million  (as  compared  to $130  million  in the First
         Amended Complaint).

         The RTC filed an  interlocutory  appeal with the United States Court of
         Appeals for the Third Circuit ("Third  Circuit") from the N.J.  Court's
         November  15, 1993 Orders in the Second RTC Action that  dismissed  the
         RTC's  First  Amended  Complaint  to the  extent it  alleged a cause of
         action for  simple  negligence.  On June 23,  1995,  the Third  Circuit
         reversed the N.J.  Court's  November  15, 1993  Orders.  On January 14,
         1997,  in the case  captioned  ATHERTON V.  FEDERAL  DEPOSIT  INSURANCE
         CORPORATION,  117 S. Ct. 666 (1997) ("Supreme Court Case"), the Supreme
         Court of the United  States  vacated the Third  Circuit's  judgment and
         remanded the case.

         On January 2, 1996, the FDIC, as statutory  successor to the RTC, filed
         a Third Amended Complaint ("Third Amended Complaint") in the Second RTC
         Action.  The Third Amended Complaint alleged that the defendants in the
         Second  RTC  Action  were  liable  for  negligence  as  well  as  gross
         negligence  and breach of fiduciary  duty under federal  common law. In
         all other  respects,  the Third Amended  Complaint was identical to the
         Second Amended Complaint.  On February 14, 1996, some of the defendants
         in the Second RTC Action  filed a motion to dismiss  the Third  Amended
         Complaint.

         CityFed  is aware that all of the  defendants  in the Second RTC Action
         have settled with the RTC or FDIC. The settlement  agreement for Victor
         Pelson  includes a waiver by him of his  indemnification  claim against
         CityFed for legal fees and  expenses  and the amount of his  settlement
         payment  in the Second  RTC  Action,  which  occurred  pursuant  to the
         Settlement.  Mr.  Pelson  agreed to pay the RTC  $650,000 to settle the
         Second RTC  Action  and to forgo  indemnification  from  CityFed  under
         certain  circumstances.  Such circumstances  occurred and Mr. Pelson is
         not seeking  indemnification.  The settlement agreements for John Kean,
         Marshall  Criser,  Alfred  Hedden and Gilbert  Roessner  include (1) an
         assignment   by  them  to  the   RTC  or  FDIC  of   their   respective
         indemnification  claims against  CityFed for  settlement  payments they
         make to the RTC or  FDIC to  settle  the  Second  RTC  Action,  and (2)
         retention by them of their  respective  indemnification  claims against
         CityFed for legal fees and expenses  incurred in the Second RTC Action.
         The  settlement  payments  agreed to be made by Messrs.  Kean,  Criser,
         Hedden  and  Roessner  to the RTC or  FDIC,  and  thus  the  amount  of
         indemnification  claim  assigned  by  them  to  the  RTC or  FDIC,  are
         $1,200,000  for Mr.  Kean,  $400,000 for Mr.  Criser,  $265,000 for Mr.

                                       12
<PAGE>

         Hedden and $335,000 for Mr. Roessner. The RTC agreed to allow a $70,000
         credit  toward  the  amount  to be paid by Mr.  Roessner  as a means of
         resolving  Mr.  Roessner's  claim  against the RTC for lost earnings on
         deferred  compensation  amounts Mr.  Roessner claims were withheld from
         him by the RTC. In their  settlements  with the FDIC,  Gordon Allen and
         Peter  Kellogg  retained  their  rights  to seek  indemnification  from
         CityFed for  settlement  payments  they made to the FDIC as well as for
         legal fees and expenses incurred by them in the Second RTC Action.  Mr.
         Allen  agreed to pay  $250,000  to settle the Second RTC Action and Mr.
         Kellogg agreed to pay  $3,000,000.  CityFed  understands  also that the
         FDIC has settled with George Mikula, James McTernan,  John W. Atherton,
         Jr.,  Richard  Simmons and Michael  DeFreytas  for $5,000 each and they
         each have retained  their rights to seek  indemnification  from CityFed
         for their settlement payments.

         Pursuant to the Settlement, the FDIC assigned any rights it acquired in
         the  settlements  described  above  to  CityFed.  See  "Indemnification
         Claims" above.

         "SUPERVISORY GOODWILL" ACTION - The United States Supreme Court held in
         UNITED STATES V. WINSTAR  CORP.,  518 U.S. 839, 116 S. Ct. 2432 (1996),
         that  the  loss by a  financial  institution  of  supervisory  goodwill
         carried on its books as a consequence of earlier  supervisory  mergers,
         as  a  result  of  the  Financial  Institutions  Reform,  Recovery  and
         Enforcement Act of 1989,  could  constitute a breach of contract by the
         United States. On August 7, 1995, CityFed,  acting in its own right and
         as  shareholder  of City  Federal,  filed a civil  action in the United
         States Court of Federal Claims seeking  damages for loss of supervisory
         goodwill  on its  books as a result  of  various  acquisitions  by City
         Federal of troubled depository  institutions.  CITYFED FINANCIAL CORP.,
         IN ITS OWN RIGHT AND IN ITS  CAPACITY AS  SHAREHOLDER  OF CITY  FEDERAL
         SAVING BANK,  BEDMINSTER,  NEW JERSEY V. UNITED STATES OF AMERICA,  No.
         95-508c.

         Pursuant  to  the  Settlement,  CityFed  assigned  to the  FDIC  all of
         CityFed's  interest in its  supervisory  goodwill case,  ceased to be a
         party to that case,  and has no right to share in the  recovery in that
         case, should there be one.

         CLAIM  OF  A  FORMER  DIRECTOR  AND  OFFICER  -  As  a  result  of  the
         receivership  of City  Federal,  City Federal  failed to pay Gilbert G.
         Roessner, a former director and officer of CityFed, the amounts owed to
         him under various deferred  compensation  arrangements City Federal had
         with  him.  He claims  that  CityFed  is  responsible  for this  amount
         (approximately  $1.1 million as of November  1989).  On April 30, 1991,
         special  counsel to the  Compensation  Committee of CityFed's  Board of
         Directors recommended to the full Board that no payments be made to Mr.
         Roessner currently,  but that the Board keep Mr. Roessner's claim under
         advisement,  to be reconsidered in light of then existing circumstances
         and any additional  evidence provided by Mr. Roessner in support of his
         claim.  The full  Board of  Directors  received  the  report of special
         counsel to the Compensation Committee.

         Pursuant to Mr.  Roessner's  settlement with the RTC as discussed under
         "Second RTC Action"  above,  CityFed  believes Mr.  Roessner's  current
         deferred  compensation  claim  is in the  amount  of  $169,365.60  plus
         accrued interest thereon, if any.

                                       13
<PAGE>

         INDEMNIFICATION  CLAIMS  RELATING TO DEFERRED  COMPENSATION  PLANS - In
         September  1990,  the RTC, as receiver  for City  Federal  (and the new
         Federal  mutual savings bank created to acquire all of the deposits and
         substantially  all of the assets  and  indebtedness  of City  Federal),
         caused an action to be filed in the N.J.  Court  seeking  the return of
         approximately  $3.1 million (since reduced to $1.9 million) in deferred
         compensation  paid by City Federal to certain  officers,  directors and
         employees  of City  Federal,  some of whom are or were  also  officers,
         directors  or employees  of CityFed.  Pursuant to the Delaware  General
         Corporation Law and the Bylaws of CityFed, CityFed paid the defendants'
         legal fees in connection with their defense of the litigation.

         A  settlement  agreement,  under  which  the  defendants  were  to  pay
         $790,000,  was  entered  into by the  parties  in June  1993 (of  which
         $114,000  was in the  form of  promissory  notes  from  two  defendants
         payable over four years). This settlement agreement concluded the case.

         Several  defendants have requested that CityFed  reimburse them for the
         settlement  payments  made  by them  under  the  settlement  agreement.
         CityFed has not  responded  to the  request.  It is likely that CityFed
         will receive similar requests from the other parties to the settlement.
         CityFed's  liability  to  the  individuals  remains  to be  determined;
         however,  CityFed  has accrued  $745,000  related to this matter in its
         other liabilities.

         TAX LIABILITIES - CityFed's  liability for federal income taxes for tax
         years through 1990 was  calculated on the basis of CityFed's  inclusion
         in a  consolidated  group that  includes City Federal and the successor
         institutions  created by the OTS to acquire the assets and  liabilities
         of City  Federal.  Under  the  applicable  provisions  of the  Internal
         Revenue  Code  of  1986,  as  amended  ("Code"),  and  the  regulations
         thereunder,  all members of the consolidated group,  including CityFed,
         are  jointly  and  severally  liable for any  income  taxes owed by the
         group.  CityFed  has  not  included  City  Federal  and  the  successor
         institutions  in the Federal  income tax returns  CityFed filed for its
         tax  years  1991  through  2000.  CityFed's  position  is not free from
         challenge,  although  CityFed  believes that its position is reasonable
         under the current tax law.

         OTHER  LIABILITIES  - At  September  30, 2001 and  December  31,  2000,
         CityFed has accrued in its other  liabilities  $4,020,000  representing
         the  indemnification  claims for the  settlements  described  above for
         which  indemnification  claims  either have been made or are  expected.
         Also included in other  liabilities  at September 30, 2001 and December
         31, 2000 is $3,397,000  representing  litigation  expenses incurred for
         which indemnification claims either have been made or are expected.

Item 2.  Management's Discussion and Analysis or Plan of Operation.

General

         On December 7, 1989,  the Office of Thrift  Supervision  appointed  the
         Resolution  Trust  Corporation  ("RTC") as  receiver  for City  Federal
         Savings Bank ("City Federal"), the sole subsidiary of CityFed Financial
         Corp. ("CityFed" or the "Company").  A new federal mutual savings bank,
         City Savings Bank, F.S.B. ("City Savings"), was created, which acquired

                                       14
<PAGE>

         all deposits and  substantially  all of the assets and  liabilities  of
         City  Federal.  CityFed  no longer  controls  City  Federal  and has no
         control over City Savings.

         As a result of this  action,  the  financial  statements  of CityFed at
         December 31, 1989, for the year then ended, and for subsequent  periods
         reflect CityFed's interest in City Federal as discontinued operations.

         As a result of the  Settlement,  CityFed  conveyed  all its interest in
         City Federal to the Federal Deposit  Insurance  Corporation and gave up
         any claim against the receivership  estate of City Federal.  See Note 4
         to the  Notes  to  Financial  Statements  for  the  Nine  months  ended
         September 30, 2001 in this Form 10-QSB  ("Notes")  under "In the Matter
         of CityFed Financial Corporation" for further information regarding the
         Settlement.

         Since the receivership of City Federal, CityFed has been, and currently
         is, in the  process  of  determining  its  liabilities,  including  its
         contingent  liabilities  described in Note 4 to the Notes.  To maintain
         the  principal  value of its  existing  assets  while  this  process is
         ongoing,  CityFed has invested  substantially  all of its funds in high
         grade money market  instruments with a maturity of one year or less and
         money market mutual funds. Since the receivership of City Federal,  the
         operating  expenses of CityFed  have  consisted  of the salaries of the
         employees of CityFed,  the expenses of the small office  maintained  by
         CityFed and the related office operating expenses, expenses relating to
         the audit of its financial statements by its independent auditors,  and
         expenses  of its  outside  legal  counsel.  Currently,  CityFed has one
         full-time employee and one office.

         Due to the nature of its assets at and  subsequent to December 8, 1989,
         CityFed may be deemed to fall within the  definition of an  "investment
         company"  under the  Investment  Company Act of 1940, as amended ("1940
         Act"), from that date to the present. To resolve any question regarding
         its current status under the 1940 Act,  CityFed filed an application on
         October 19,  1990 with the  Division of  Investment  Management  of the
         Securities and Exchange  Commission  ("SEC") for an order  exempting it
         from  certain  provisions  of  the  1940  Act  and  certain  rules  and
         regulations  thereunder.  This application was amended on September 23,
         1993,  January 18, 1994 and March 1, 1994. The  application was granted
         under  Sections  6(c) and (e) of the 1940 Act on March 15, 1994.  Under
         the order granting the application ("1940 Act Order"),  CityFed was not
         required to register as an  investment  company.  However,  CityFed and
         other persons in their  transactions  and  relations  with CityFed are,
         under the terms of the 1940 Act Order,  subject to  Sections  9, 17(a),
         17(d),  17(e),  17(f), 36 through 45 and 47 through 51 of the 1940 Act,
         and the rules  thereunder,  as if CityFed were a registered  investment
         company,  except  insofar as permitted by the 1940 Act Order.  The 1940
         Act Order  exempted  CityFed  from having to register as an  investment
         company  until the  earlier  of March 15,  1995 or such time as CityFed
         would no longer be required to register as an  investment  company.  On
         February  28,  1995,  an  Order  was  issued  extending  the  requested
         exemption  until  February 28, 1996, on February 21, 1996, an order was
         issued  extending the requested  exemption  until February 21, 1997, on
         February  12,  1997,  an  Order  was  issued  extending  the  requested
         exemption  until  February 12, 1999, on February 12, 1999, an Order was
         issued  extending the requested  exemption  until February 12, 2000, on
         February 9, 2000, an order was issued extending the requested exemption
         until  February 9, 2001 and,  on February 6, 2001,  an Order was issued
         extending the requested exemption until February 6, 2002.

                                       15
<PAGE>

Liquidity and Capital Resources

         At September 30, 2001,  CityFed had  approximately  $6,216,000 in total
         assets,  $7,465,000  in total  liabilities  and  $1,249,000 in negative
         stockholders'  equity. At December 31, 2000,  CityFed had approximately
         $6,226,000  in  total  assets,  $7,481,000  in  total  liabilities  and
         $1,255,000 in negative  stockholders' equity.  However, as discussed in
         Note 4 to the Notes and  under  Item 1.,  "Description  of  Business  -
         Potential  Obligations  of CityFed" in CityFed's  2000 Form  10-KSB,  a
         number of claims have been asserted against  CityFed.  If the claimants
         under some or all of these claims are successful,  their claims against
         CityFed could greatly exceed CityFed's assets. Consequently,  CityFed's
         assets are currently  being invested short term, and expenses have been
         reduced  to a level  that  management  believes  is  commensurate  with
         CityFed's current activities pending resolution of these claims.

         While CityFed's liquidity is expected to be sufficient to meet expected
         litigation and administrative expenses over the next twelve months, any
         substantial  indemnification  expense,  settlement  or  judgment  could
         reduce  liquidity to a level that would  jeopardize the continuation of
         CityFed's  activities.  However,  as a  result  of  accruals  to  other
         liabilities to reflect the items described under Item 1.,  "Description
         of Business - Potential  Obligations of CityFed" in CityFed's 2000 Form
         10-KSB,  CityFed  currently has a negative net worth and it is unlikely
         that  CityFed  will be able to  achieve  a  positive  net  worth in the
         foreseeable future. Although management believes that CityFed's current
         level of accruals are  sufficient,  no assurances can be given that the
         amounts  established will be adequate,  that any ultimate resolution of
         the claims will not result in  substantial  amounts  being  incurred or
         that further claims will not be asserted.

         As discussed  above,  since the  receivership of City Federal,  CityFed
         initially  marshaled its assets and has been,  and currently is, in the
         process  of  determining  its  liabilities.  To  maintain  the value of
         CityFed's  existing  assets while this process is ongoing,  CityFed has
         invested in income  producing  instruments.  Funds are invested so that
         they are convertible into cash in a reasonably short time with minimal,
         if any, loss of principal.

         Since the  receivership of City Federal,  CityFed has invested and will
         continue to invest  substantially  all its funds in  securities  with a
         maturity  of one year or less.  These  consist  of U.S.  government  or
         agency  securities,  commercial  paper,  bank  certificates of deposit,
         money market mutual funds and corporate  debt  obligations.  Repurchase
         agreements may only be entered into using U.S. government securities as
         collateral.  Non-governmental  or agency investments are purchased only
         if  they  are  rated  in  one  of  the  two  highest  categories  by an
         established rating agency. Investments in the corporate debt securities
         of any one issuer are limited to $2,500,000.

                                       16
<PAGE>

         Under the terms of the 1940 Act Order:

              (1) CityFed may not purchase or otherwise  acquire any  securities
            other than short-term U.S.  government  securities,  certificates of
            deposit,  commercial  paper rated A-1/P-1,  and shares of registered
            money  market  funds;   except  that  CityFed  may  acquire   equity
            securities of an issuer that is not an investment company as defined
            in section 3(a) of the 1940 Act or is relying on an  exclusion  from
            the definition of investment  company under section 3(c) of the 1940
            Act other than section  3(c)(1) or 3(c)(7),  in connection  with the
            acquisition  of an  operating  business as evidenced by a resolution
            approved by CityFed's board of directors.

              (2)  CityFed  may not  hold  itself  out as being  engaged  in the
            business of investing,  reinvesting,  owning, holding, or trading in
            securities.

              (3)  CityFed's  Form  10-KSB,  Form  10-QSB and annual  reports to
            shareholders  must state that an  exemptive  order has been  granted
            pursuant to Sections  6(c) and 6(e) of the 1940 Act and that CityFed
            and other persons, in their transactions and relations with CityFed,
            are subject to Sections 9, 17(a), 17(d), 17(e), 17(f), 36 through 45
            and 47 through 51 of the 1940 Act, and the rules  thereunder,  as if
            CityFed  were a registered  investment  company,  except  insofar as
            permitted by the 1940 Act Order.

              (4)  Notwithstanding  Sections 17(a) and 17(d) of the 1940 Act, an
            affiliated person (as defined in Section 2(a)(3) of the 1940 Act) of
            CityFed  may  engage  in  a  transaction  that  otherwise  would  be
            prohibited by these sections with CityFed:

                  (a) if  such  proposed  transaction  is  first  approved  by a
              bankruptcy  court  on  the  basis  that  (i)  the  terms  thereof,
              including the consideration to be paid or received, are reasonable
              and fair to CityFed,  and (ii) the participation of CityFed in the
              proposed  transaction will not be on a basis less  advantageous to
              CityFed than that of other participants; and

                  (b) in connection  with each such  transaction,  CityFed shall
              inform  the  bankruptcy  court of (i) the  identity  of all of its
              affiliated  persons  who  are  parties  to,  or have a  direct  or
              indirect financial  interest in, the transaction;  (ii) the nature
              of the  affiliation;  and (iii) the  financial  interests  of such
              persons in the transaction.

         Results of Operations

         CityFed recorded income from continuing  operations for the nine months
         ended  September  30,  2001 of $6,000.  This  compares  to income  from
         continuing  operations  in the amount of  $115,000  for the nine months
         ended  September  30,  2000.  There  was  no  loss  from   discontinued

                                       17
<PAGE>

         operations  during the three or nine months ended September 30, 2001 or
         for the three months ended  September 30, 2000,  while there was a loss
         from discontinued operations of $1,037,000 during the nine months ended
         September 30, 2000.

         CityFed recorded income from continuing operations for the three months
         ended  September  30,  2001 of $2,000.  This  compares  to income  from
         continuing  operations  in the amount of $39,000  for the three  months
         ended  September  30,  2000.  There  was  no  loss  from   discontinued
         operations during the three months ended September 30, 2000 or 2001.

         Interest  on  investments  was  $243,000  for  the  nine  months  ended
         September  30,  2001  compared to  $360,000  for the nine months  ended
         September 30, 2000 due to the lower amount of funds  invested and lower
         interest  rates.  In 2000,  CityFed  received a distribution of $24,000
         from CX Partners,  L.P., see Item 1., "Description of Business - Boesky
         Settlement" in CityFed's  2000 Form 10-KSB.  Total expenses of $237,000
         for the nine  months  ended  September  30,  2001  were  less  than the
         $269,000 for the same period in 2000 due  primarily to a lower level of
         professional service fees.

         Interest  on  investments  was  $72,000  for  the  three  months  ended
         September  30,  2001,  compared to $105,000  for the three months ended
         September 30, 2000 due primarily to the lower level of interest  rates.
         Total  operating  expenses  of  $70,000  for  the  three  months  ended
         September 30, 2001 were very similar to the $66,000 for the same period
         in 2000.

         At December  31,  2000,  CityFed  has accrued in its other  liabilities
         $4,020,000  representing  the  indemnification  claims for  settlements
         described above under Note 4. Also included in its other liabilities at
         December  31,  2000  is  $3,397,000  representing  litigation  expenses
         incurred for which indemnification  claims either have been made or are
         expected.  There has been no change in these other  liabilities  during
         the nine months ended September 30, 2001.

         The basic (and  diluted) loss per share from  continuing  operations of
         $0.12 and $0.11 for the  quarters  ended  September  30, 2001 and 2000,
         respectively,  is after the deduction of unpaid preferred  dividends of
         $2,158,600 in both  periods.  The basic (and diluted) loss per share of
         $0.40 in the nine months  ended  September  30, 2000 is after the $0.06
         loss per share from  discontinued  operations and compares to the basic
         (and  diluted)  loss  per  share of  $0.35  in the  nine  months  ended
         September   30,  2001  where  there  was  no  loss  from   discontinued
         operations. In both nine-month periods, the loss is after the deduction
         of unpaid  preferred  dividends of  $6,476,000.  No preferred or common
         dividends  have been paid since the second quarter of 1989 and none are
         expected to be paid until CityFed's situation changes significantly.


                                       18
<PAGE>

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

         See  Note  4 to  the  Notes  for a  description  of  currently  pending
         litigation.

Item 2. Changes in Securities.

         None.

Item 3. Defaults Upon Senior Securities.

         (a)  None.

         (b) CityFed's $2.10 Cumulative  Convertible  Preferred Stock, Series B,
         par value  $25.00  per share  ("Series B Stock"),  is  required  to pay
         quarterly  dividends  at a rate of $0.525 per share on March 1, June 1,
         September  1 and  December 1 of each year.  CityFed's  Series C, Junior
         Preferred  Stock,  Cumulative,  par value  $0.01 per share  ("Series  C
         Stock"),  is required to pay quarterly dividends at a rate of $0.10 per
         share on March 15, June 15,  September 15 and December 15 of each year.
         The  dividends  on both  the  Series  B and  the  Series  C  Stock  are
         cumulative.  The  Series C Stock is junior to the Series B Stock in the
         payment of dividends.

         Beginning  with the payment due on September  1, 1989,  CityFed has not
         paid any  quarterly  dividends  on the  Series B  Stock.  Beginning  on
         September 15, 1989,  CityFed also has not paid any quarterly  dividends
         on the Series C Stock.  Because  CityFed has failed to pay at least six
         quarterly  dividends  on the Series B Stock,  the holders of such stock
         have the exclusive right,  voting  separately as a class, to elect, and
         have elected, two directors of CityFed.  Until the aggregate deficiency
         is  declared  and fully  paid on the  Series B Stock  and the  Series C
         Stock,  CityFed  may  not  declare  any  dividends  or make  any  other
         distributions  on or redeem  the  Common  Stock.  Until  the  aggregate
         deficiency  is declared  and fully paid on the Series B Stock,  CityFed
         may not declare any  dividends  or make any other  distributions  on or
         redeem the Series C Stock.  As of  September  30, 2001,  the  aggregate
         deficiency  on the Series B Stock was  approximately  $65.3 million and
         the aggregate  deficiency on the Series C Stock was approximately $40.5
         million.

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

         None.

Item 5. Other Information.

         None.

Item 6. Exhibits and Reports on Form 8-K.

         (a)  Exhibits


                                       19
<PAGE>

         11.  Statement Regarding the Computation of Per Share Loss.

         (b)  None.


                                       20
<PAGE>


                                   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.


                                     CITYFED FINANCIAL CORP.

                                     By: /s/ John W. Atherton, Jr.
                                         --------------------------
                                         John W. Atherton, Jr.
                                         President, Chief Executive Officer
                                             and Treasurer (Principal Executive
                                             and Financial Officer)

Date:  November 14, 2001




<PAGE>


                                                                      Exhibit 11


                             CityFed Financial Corp.
              Statement Regarding the Computation of Per Share Loss




                                                           Nine months ended
                                                              September 30,

                                                         2001           2000
                                                         ----           ----
 Computation of Loss Per Share:


 Weighted average number of shares outstanding          18,715,609   18,715,609

 Loss applicable to common stock:1

   From continuing operations                          $(6,470,000) $(6,361,000)

   From discontinued operations                        $         -  $(1,037,000)
                                                       -----------  ------------

   Net loss                                            $(6,470,000) $(7,398,000)
                                                       ============ ============

 Basic and diluted loss per share:

   From continuing operations                               $(0.35)      $(0.34)

   From discontinued operations                             $(  - )      $(0.06)
                                                            -------      -------

   Net loss                                                 $(0.35)      $(0.40)
                                                            =======      =======


--------
1 Losses applicable to Common Stock are net of preferred stock dividends for the
nine months ended September 30, 2001 and 2000 in the amount of $6,476,000.