UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

[Mark one]

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

For the quarterly period ended September 30, 1996

                                       OR

[ ]               TRANSITION REPORT PURSUANT TO 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       (I.R.S. Employer
 or organization)                                    Identification No.)

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


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

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

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, 1996, the number of
shares of outstanding common stock was 18,714,646.

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



<PAGE>





                         PART I - FINANCIAL INFORMATION


Item 1.  Financial Statements.

CITYFED FINANCIAL CORP.

<TABLE>
<CAPTION>

STATEMENTS  OF  FINANCIAL  CONDITION
September  30, 1996 and  December 31, 1995
(Dollars in Thousands)
                                                                            September 30, 1996      December 31,
                                                                               (Unaudited)                1995

ASSETS
<S>                                                                               <C>               <C>  
CASH                                                                                 $      30        $      14
INVESTMENT SECURITIES - At amortized cost (Market Value:                                 8,894            8,836
    September 30, 1996, $8,865; December 31, 1995, $8,833)
OTHER ASSETS                                                                               160              152
                                                                                     ---------        ---------

TOTAL ASSETS                                                                         $   9,084        $   9,002
                                                                                     =========        =========

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
     Contingency reserve                                                             $   6,822       $    3,987
     Other liabilities                                                                   4,306            2,879
                                                                                     ---------          -------

        Total liabilities                                                               11,128            6,866
                                                                                     ---------         --------

STOCKHOLDERS' EQUITY:
     Preferred stock, 30,000,000 shares authorized:
         $2.10 cumulative convertible, Series B, $25.00 par value,
         issued and outstanding: 2,539,400 in 1996 and 1995                             63,485           63,485
         Series C Junior, cumulative, $.01 par value, liquidation                       
         preference $3.00 per share, shares issued and outstanding:
         8,257,079 in 1996 and 1995                                                         82               82
     Common stock, $.01 par value, 100,000,000 shares authorized,
          issued: 18,913,646 in 1996 and 1995, outstanding:
            18,714,646 in 1996 and 1995                                                    188              188
     Additional paid-in capital                                                        108,854          108,854
     Accumulated deficit                                                              (173,653)        (169,473)
     Treasury stock (199,000 shares of common stock)                                    (1,000)          (1,000)
                                                                                     ---------        --------- 

        Total stockholders' equity                                                      (2,044)           2,136
                                                                                    ----------          -------

TOTAL LIABILITIES AND STOCKHOLDERS'
   EQUITY                                                                            $   9,084        $   9,002
                                                                                     =========        =========

See notes to financial statements.

</TABLE>


                                     - 2 -
<PAGE>

<TABLE>
<CAPTION>

CITYFED FINANCIAL CORP.

STATEMENTS OF OPERATIONS
Nine months ended September 30, 1996 and 1995
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
                                                               Three Months Ended             Nine Months Ended
                                                                 September 30,                  September 30,
                                                                 -------------                  -------------
                                                             1996            1995          1996            1995

<S>                                                         <C>             <C>           <C>             <C>     
INCOME:
Interest on investments                                     $    119        $    131      $    355        $    397
Other                                                             -               -              1              61
                                                            --------        --------      --------        --------

Total income                                                     119             131           356             458
                                                            --------        --------      --------        --------

EXPENSES:
Compensation and employee benefits                                30              30            91              92
Other operating expenses                                          18              71            95             118
                                                            --------        --------      --------        --------

Total expenses                                                    48             101           186             210
                                                            --------        --------      --------        --------

INCOME FROM CONTINUING OPERATIONS                                 71              30           170             248

LOSS FROM DISCONTINUED OPERATIONS                               (200)           (500)       (4,350)         (1,200)
                                                            --------        --------      --------        --------

NET LOSS                                                    $   (129)       $   (470)     $ (4,180)       $   (952)
                                                            ========        ========      ========        ======== 


NET LOSS AVAILABLE FOR COMMON STOCKHOLDERS
                                                             $(2,288)       $ (2,629)     $(10,657)       $ (7,429)

LOSS PER SHARE:
   From continuing operations                                $ (0.11)       $  (0.11)      $ (0.34)       $  (0.33)
   From discontinued operations                              $ (0.01)       $  (0.03)      $ (0.23)       $  (0.07)
   Net loss                                                  $ (0.12)       $  (0.14)      $ (0.57)       $  (0.40)

AVERAGE SHARES OUTSTANDING                                 18,714,646      18,714,646    18,714,646      18,714,646

DIVIDENDS PER COMMON SHARE                                         -               -             -               -

See notes to financial statements.

</TABLE>

                                     - 3 -
<PAGE>


<TABLE>
<CAPTION>

CITYFED FINANCIAL CORP.

STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1996 and 1995
(Dollars in Thousands)
(Unaudited)
                                                                    1996              1995

<S>                                                                <C>                <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
   Interest received                                               $   323            $   436
   Operating expenses                                                 (278)              (455)
   Other income                                                          1                 61
                                                                   -------            -------

     Net cash provided by operating activities                          46                 42
                                                                   -------            -------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Increase in investment securities                                   (26)               (89)
   Other - net                                                          (4)                -
                                                                   --------           -------

     Net cash used in investing activities                             (30)               (89)
                                                                   --------           -------

NET INCREASE (DECREASE) IN CASH                                         16                (47)

CASH AT BEGINNING OF PERIOD                                             14                 52
                                                                   -------            -------

CASH AT END OF PERIOD                                              $    30            $     5
                                                                   =======            =======

RECONCILIATION OF NET INCOME TO NET CASH
   PROVIDED BY OPERATING ACTIVITIES:
   Net loss                                                        $(4,180)           $  (952)
   Loss from discontinued operations                                 4,350              1,200
   Contingency reserve payments                                        (98)              (131)
   Accrued income and expense                                          (26)               (75)
                                                                   -------            ------- 

NET CASH PROVIDED BY OPERATING ACTIVITIES                          $    46            $    42
                                                                   =======            =======

See notes to financial statements.

</TABLE>


                                     - 4 -
<PAGE>


CITYFED FINANCIAL CORP.

NOTES TO  FINANCIAL  STATEMENTS  FOR THE NINE MONTHS  ENDED  SEPTEMBER  30, 1996
(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 (the "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.  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, 1996,  the  Company's  business  activities
         consisted primarily of attempting to resolve outstanding 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.  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, 1995 ("1995 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 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
         Convertible  Preferred  Stock,  Series  B,  $25.00  par value per share
         ("Series B Stock"),  with a quarterly dividend of 52.5 cents per share.
         Dividends  on  both  series  of  the  Company's   preferred  stock  are
         cumulative.  At  September  30,  1996,  dividends in arrears were $38.7

                                     - 5 -
<PAGE>

         million and $23.9 million on the Company's Series B and Series C Stock,
         respectively.

4.       COMMITMENTS AND CONTINGENCIES

         NOTICE OF CHARGES  AND  HEARING  FOR CEASE AND  DESIST  ORDER TO DIRECT
         RESTITUTION  AND OTHER  APPROPRIATE  RELIEF AND NOTICE OF ASSESSMENT OF
         CIVIL  MONEY  PENALTIES  - On June 2, 1994,  the OTS issued a Notice of
         Charges and Hearing  for Cease and Desist  Order to Direct  Restitution
         and Other  Appropriate  Relief and Notice of  Assessment of Civil Money
         Penalties  ("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
         ("Respondents"),  who are  current  or former  directors  and,  in some
         cases,  officers of CityFed and of CityFed's  former  subsidiary,  City
         Federal.

         In the Notice of Charges,  the OTS alleges that CityFed  "engaged in an
         unsafe or unsound  practice,  violated a written agreement entered into
         with the agency  and  violated  a  condition  imposed in writing by the
         agency"  by  "failing  to cause  the net  worth of City  Federal  to be
         maintained   at  the  levels   required  by  the   applicable   capital
         requirements."  The "written  agreement" and the "condition  imposed in
         writing" alleged by the OTS refer, respectively,  to the Stipulation of
         CityFed Financial Corp., dated December 4, 1984  ("Stipulation"),  that
         CityFed provided to the Federal Savings and Loan Insurance  Corporation
         ("FSLIC") in connection with the approval by the Federal Home Loan Bank
         Board  ("FHLBB") of CityFed's  acquisition  of City Federal in December
         1984, and to FHLBB Resolution No. 84-664, dated November 21, 1984, that
         approved  CityFed's  acquisition of City Federal on the condition that,
         among other things,  CityFed provide the Stipulation to the FSLIC.  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  alleges that  CityFed "has been and  continues to be
         unjustly  enriched in connection  with" the  violations  alleged by the
         OTS, and that such violations "involve a reckless disregard for the law
         or any applicable regulations or prior order of either the FHLBB or the
         OTS." The  Notice of Charges  requests  that an order be entered by the
         Director of the OTS requiring CityFed to make  restitution,  reimburse,
         indemnify or guarantee  the OTS against loss in an amount not less than
         $118.4 million, which the OTS alleges represents the regulatory capital
         deficiency reported by City Federal in the fall of 1989.

         In the Notice of Charges,  the OTS also  assesses 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."

                                     - 6 -
<PAGE>


         The amount of the civil money penalty  assessed  against CityFed in the
         Notice of Charges is $2,649,600.

         With respect to the Respondents, the Notice of Charges alleges that the
         Respondents, as directors of CityFed, "had an affirmative obligation to
         see that CityFed  complied with the net worth  maintenance  obligation"
         and that,  "by failing to direct CityFed to cause the net worth of City
         Federal to be  maintained  at the  levels  required  by the  applicable
         capital  requirements,  the [Respondents]  violated a written agreement
         entered into with the agency,  violated a condition  imposed in writing
         by the agency" and "engaged in an unsafe or unsound act." The Notice of
         Charges alleges that some of the Respondents (Messrs.  Allen, Atherton,
         Hedden,  Kellogg and  Roessner)  "have been and continue to be unjustly
         enriched in  connection  with their  violations by the 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  (see  "Indemnification  Claims"
         below),  of litigation  expenses to such Respondents in connection with
         the action by the RTC against such  Respondents  and other  current and
         former  directors and/or officers of CityFed and/or City Federal in the
         United  States  District  Court for the  District of New Jersey  ("N.J.
         Court"),  captioned  RESOLUTION TRUST CORPORATION V. ATHERTON,  ET AL.,
         Civil Action No.  93-1811 (GEB)  (consolidated  with  RESOLUTION  TRUST
         CORPORATION  V.  SIMMONS,  ET AL.,  Civ.  Action No.  92-5261-B  (GEB))
         ("Second RTC Action").  CityFed had made such advancement of litigation
         expenses in accordance  with the agreement  between CityFed and the RTC
         entered  into  as  of  December  14,  1992  ("Expense  Agreement"),  in
         connection  with the action the RTC filed  against  CityFed,  captioned
         RESOLUTION TRUST  CORPORATION V. CITYFED FINANCIAL CORP., ET AL., Civil
         Action No. 92-5261-A (GEB) ("First RTC Action"), in the N.J. Court. The
         Notice of Charges  requests that an order be entered by the Director of
         the OTS  requiring  the  Respondents  to make  restitution,  reimburse,
         indemnify or guarantee  the OTS against loss in an amount not less than
         $400,000, which the OTS alleges represents the amount of legal expenses
         CityFed paid on their behalf from April to December  1993 in connection
         with the Second RTC Action.

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

         The Notice of Charges  states that the civil money  penalties  assessed
         against CityFed and the  Respondents  must be paid to the United States
         Department of the Treasury within 60 days of the issuance of the Notice
         of Charges.  The Notice of Charges also seeks reimbursement for the OTS
         from CityFed and the Respondents for all costs and expenses  associated
         with  the   investigation   and   prosecution  of  the   administrative
         enforcement  action  commenced  by the filing of the Notice of Charges.

                                     - 7 -
<PAGE>


         CityFed and the  Respondents  requested a hearing on the  assessment of
         civil money  penalties  against them, and such hearing will be combined
         with the  hearing  on the  other  matters  set  forth in the  Notice of
         Charges.  During the pendency of such hearing,  the civil money penalty
         assessments  will  not be a final  order  of the OTS  and  will  not be
         enforceable against CityFed or the Respondents.

         On November 30, 1995,  the OTS issued an Amended  Notice of Charges and
         Hearing  for Cease and  Desist  Order to Direct  Restitution  and Other
         Appropriate  Relief and Notice of Assessment  of Civil Money  Penalties
         ("Amended  Notice  of  Charges")  that is  identical  to the  Notice of
         Charges except that the Amended Notice of Charges  includes a reference
         to a federal  statutory  provision  not  referred  to in the  Notice of
         Charges  that the OTS  asserts  provides  an  additional  basis for the
         issuance  of  a  Cease  and  Desist  Order  against   CityFed  and  the
         Respondents.

         On February 1, 1996,  the  Administrative  Law Judge ("ALJ")  presiding
         over  the  OTS's  administrative  proceeding  against  CityFed  and the
         Respondents  issued a  Prehearing  Order  granting the OTS's Motion for
         Partial  Summary  Disposition  with  respect  to  CityFed  and  denying
         CityFed's   Motion  for  Partial  Summary   Disposition  of  the  OTS's
         Assessment  of Civil Money  Penalties and  CityFed's  Cross-Motion  for
         Summary Adjudication. The Prehearing Order also denied the Respondents'
         Motion for Partial Summary  Disposition.  In the Prehearing  Order, the
         ALJ  concluded  that  CityFed's  retention of dividends and other funds
         received from its former subsidiary, City Federal,  constitutes "unjust
         enrichment"  within the meaning of 12 U.S.C.  * 1818(b)(6) and that the
         Stipulation  CityFed  provided to the FSLIC in December 1984  regarding
         maintenance  of the net worth of City Federal is enforceable by the OTS
         against CityFed.

         On March 27, 1996,  CityFed filed a motion for  reconsideration  of the
         ALJ's  Prehearing  Order. On April 26, 1996, the OTS filed a memorandum
         in opposition to CityFed's motion for reconsideration. On May 29, 1996,
         the ALJ denied CityFed's motion for reconsideration.  On June 12, 1996,
         CityFed moved for  interlocutory  review by the Acting  Director of the
         OTS of the conclusions in the Prehearing  Order. If the Acting Director
         were to affirm the conclusions in the Prehearing  Order,  CityFed would
         intend to seek review of that  decision in the United  States  Court of
         Appeals and, if necessary, to seek from the Supreme Court of the United
         States a review of any  adverse  decision  from the  Court of  Appeals.
         However,  following the Acting Director's decision, it may be necessary
         to have the  matter  progress  to a hearing  and a final  order  before
         review by the Court of Appeals is possible.  If the  conclusions in the
         Prehearing Order are not ultimately  reversed,  CityFed may be required
         to turn over to the OTS all or substantially all of CityFed's assets.

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

                                     - 8 -
<PAGE>


         TEMPORARY  ORDER TO CEASE AND  DESIST - Also on June 2,  1994,  the OTS
         issued a  Temporary  Order  to Cease  and  Desist  ("Temporary  Order")
         against CityFed. The Temporary Order required CityFed to post, by 12:00
         noon on the seventh  calendar day  following  service of the  Temporary
         Order,  $9,000,000  as  security  for  the  payment  of the  amount  of
         restitution  and  reimbursement  sought  by the  OTS in its  Notice  of
         Charges.  As CityFed's  total assets were $9.2 million on September 30,
         1994, the amount sought by the OTS represented substantially all of the
         assets of CityFed.

         The  Temporary  Order also  requires  CityFed to "cease and desist from
         directly or indirectly  causing the use, sale,  transfer or encumbrance
         of funds or other assets of any nature  whatsoever in which CityFed has
         a legal or beneficial  interest,  whether directly or through any other
         person or entity,  except as provided in" the Temporary Order. However,
         CityFed may pay ordinary  and  reasonable  operating  expenses of up to
         $15,000  per  month  and  may,  subject  to  certain  limitations,  pay
         reasonable  and  necessary  legal fees and expenses in its own defense.
         CityFed is also required to furnish  certain  financial  information to
         the  OTS  pursuant  to  the  Temporary   Order.   The  Temporary  Order
         effectively  prohibits  CityFed from advancing  litigation  expenses or
         providing  indemnification pursuant to its obligations under its Bylaws
         and Restated Certificate of Incorporation. See "Indemnification Claims"
         below.

         On  June  9,  1994,  CityFed  filed  a  Complaint  for  Injunctive  and
         Declaratory  Relief,  an Application for a Temporary  Restraining Order
         and  Preliminary  Injunction and a supporting  Memorandum of Points and
         Authorities  and other  related  papers in the United  States  District
         Court for the District of Columbia  ("D.C.  Court") in a case captioned
         CITYFED FINANCIAL CORP. V. OFFICE OF THRIFT SUPERVISION AND JONATHAN L.
         FIECHTER,  Case No.  1:94CV01273 (HHG)  ("Injunction  Action").  In the
         Injunction Action,  CityFed sought a temporary restraining order and an
         injunction  against the Temporary Order that would set aside,  limit or
         suspend the enforcement,  operation and  effectiveness of the Temporary
         Order.

         The D.C.  Court held a hearing on motions  pending  before it on August
         15, 1994. On September 8, 1994,  the D.C. Court issued an Order denying
         CityFed's and the intervening Respondents' motions to set aside, or, in
         the  alternative,   modify  the  Temporary   Order.   CityFed  and  the
         intervening  Respondents  filed notices of appeal from the D.C. Court's
         Order  to the  United  States  Court of  Appeals  for the  District  of
         Columbia  Circuit ("D.C.  Circuit"),  and the  intervening  Respondents
         filed a motion in the D.C. Circuit for an expedited appeal and an order
         enjoining the enforcement of the Temporary Order during the pendency of
         the appeal. The D.C. Circuit denied the intervening Respondents' motion
         for injunction on October 21, 1994. The caption of the case in the D.C.
         Circuit  is  CITYFED  FINANCIAL  CORP.,  ET AL.  V.  OFFICE  OF  THRIFT
         SUPERVISION, ET AL., Nos. 94-5254 and 5255 ("D.C. Appeal").

                                     - 9 -
<PAGE>


         On  October  26,  1994,  CityFed  and the OTS  entered  into an  Escrow
         Agreement    ("Escrow    Agreement")   with   CoreStates   Bank,   N.A.
         ("CoreStates") pursuant to which CityFed transferred  substantially all
         of its assets to  CoreStates  for deposit into an escrow  account to be
         maintained by CoreStates.  Pursuant to the Escrow Agreement, CoreStates
         executes a wire transfer of $15,000 from the escrow  account to CityFed
         on the first business day of every month. The Escrow Agreement provides
         that CityFed may sell and purchase  securities  in the escrow  account,
         and  that  CoreStates  will  be paid a fee of  $2,500  per  year,  plus
         reimbursement for out of pocket expenses,  for serving as escrow agent.
         CityFed's assets in the escrow account continue to be invested in money
         market instruments with a maturity of one year or less and money market
         mutual funds.  Withdrawals or disbursements from the escrow account are
         not permitted without the written  authorization of the OTS, other than
         for (1) the $15,000 monthly  transfer to CityFed,  (2) the disbursement
         of funds on account of purchases of  securities  by CityFed and (3) the
         payment  of the  escrow  fee and  expenses  to  CoreStates.  The Escrow
         Agreement  also  provides  that  CoreStates  will  restrict  the escrow
         account  in such a manner  as to  implement  the  terms  of the  Escrow
         Agreement  and to prevent a change in status or  function of the escrow
         account unless authorized by CityFed and the OTS in writing. CoreStates
         will provide to the OTS a copy of all  statements  regarding the escrow
         account provided to CityFed.

         On July 11,  1995,  the D.C.  Circuit  affirmed  the denial by the D.C.
         Court of the motions by CityFed and the  intervening  Respondents for a
         temporary  restraining  order and an  injunction  against the Temporary
         Order.

         The Crime Control Act of 1990 provides that commitments to maintain the
         capital of  federally  insured  depository  institutions,  such as City
         Federal,  are  afforded a priority  over  other  unsecured  claims in a
         bankrupt  corporation's  estate  to the  extent  provided  in 11 U.S.C.
         Section  507(a).  Thus,  if  CityFed  is held  liable for the amount of
         capital that would have been required to cause City Federal to meet its
         regulatory capital requirements,  a claim based on such liability would
         have priority over other unsecured  claims against  CityFed's estate in
         bankruptcy to the extent provided in such section.

         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.

         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

                                     - 10 -

<PAGE>


         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"). Pursuant to the Expense Agreement,  CityFed had been
         giving a monthly  accounting of such  expenditures  to the RTC, and the
         RTC had the right to apply to the N.J.  Court in the  First RTC  Action
         for an appropriate Order to prohibit such expenditures.

         CityFed agreed in the Expense  Agreement to give the RTC written notice
         prior to making any  payment  of  extraordinary  expenses  of more than
         $5,000 and of any payment on behalf of CityFed (other than with respect
         to the First RTC Action and the Ridder  Action) and/or on behalf of any
         individual  or  individuals  with  respect to whom CityFed is obligated
         under its Bylaws to make such  payment  for defense  costs,  attorneys'
         fees and/or  disbursements  with respect to any other  then-pending  or
         threatened,   or  subsequently   initiated  or  threatened,   civil  or
         administrative  investigation,  action or  proceeding.  The RTC had the
         right to make an  application to the N.J. Court to prohibit the payment
         of such  extraordinary  expenses of more than  $5,000 and such  defense
         costs, attorneys' fees and/or disbursements.

         By its terms, the Expense  Agreement  remained in full force and effect
         until (a) it was terminated by mutual  agreement of CityFed and the RTC
         in writing,  (b) it was terminated by an order of the N.J. Court or (c)
         the N.J.  Court  entered a final order with  respect to the RTC's claim
         against CityFed in the First RTC Action regarding the Stipulation.

         On  September  30,  1993,  CityFed  was  advised  by 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  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


                                     - 11 -
<PAGE>


         Action from  October 1993  through  June 1994.  The Orders  staying the
         First RTC Action did not affect the Expense Agreement,  except that the
         Orders  provided that the Expense  Agreement  would  terminate upon the
         effective  date of any order issued by the OTS, or of any consent order
         or agreement  between the OTS and CityFed,  that  addressed the subject
         matter of the Expense  Agreement.  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 provides 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  results  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.

         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.  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.  As a result of such  consolidation,  the claims in the First
         and Second RTC Actions relating to the Grand Harbor and Woodfield loans
         are proceeding and being considered together.

         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.
         Criser, two former directors of City Federal. With the exception of the


                                     - 12 -
<PAGE>


         addition of Messrs.  Pelson and Criser as defendants,  the substance of
         the First Amended  Complaint is 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,  seeks 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 December 12,
         1995, several of the defendants in the Second RTC Action filed with the
         Supreme  Court of the United States a petition for a writ of certiorari
         for the Supreme Court to review the Third Circuit's decision.  On April
         15,  1996,   the  Supreme  Court  granted  the  petition  for  writ  of
         certiorari.  On November 4, 1996, the Supreme Court heard oral argument
         in this case  ("Supreme  Court  Case"). A decision in the Supreme Court
         Case is expected in the next few months.

         On January 29, 1994, several of the defendants in the Second RTC Action
         filed a motion  to  dismiss  the Port  Liberte  claims  ("Port  Liberte
         Motion")  contained in the Second Amended  Complaint on the ground that
         such claims are barred by the statute of  limitations.  The N.J.  Court
         denied the Port Liberte Motion by order entered May 3, 1994.

         On June 2,  1994,  several of the  defendants  in the Second RTC Action
         filed Answers  ("Answers") to the RTC's Second Amended  Complaint.  The
         Answers  denied many of the  allegations  made by the RTC in the Second
         Amended  Complaint.  The  Answers  also  included  several  affirmative
         defenses. On September 9, 1994, the N.J. Court granted the RTC's motion
         to strike the affirmative defenses.

         On January 2, 1996, the Federal Deposit Insurance Corporation ("FDIC"),
         the statutory  successor to the RTC,  filed a Third  Amended  Complaint
         ("Third Amended Complaint") in the Second RTC Action. The Third Amended
         Complaint  alleges  that the  defendants  in the  Second RTC Action are

                                     - 13 -
<PAGE>



         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 is 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.  The hearing on
         that  motion  that had been  set for  April  15,  1996,  was  postponed
         indefinitely  in light of a number of  settlements  in the  Second  RTC
         Action.

         CityFed  is aware that all of the  defendants  in the Second RTC Action
         other than John W. Atherton, Jr. 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, but only
         if the OTS and CityFed  settle the  administrative  proceeding or final
         judgment is entered against  CityFed in the  proceeding.  Mr. Pelson is
         paying the RTC $650,000 to settle the Second RTC Action. 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 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,  $250,000 for Mr.
         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 make 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. Because of their settlements with the
         RTC or FDIC, Messrs. Criser, Hedden,  Roessner,  Allen and Kellogg have
         withdrawn  as  petitioners  in the  Supreme  Court  Case,  leaving  Mr.
         Atherton as the sole remaining  petitioner.  CityFed  understands  also
         that the FDIC has settled with George Mikula,  James McTernan,  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.

         For  further  information  regarding   indemnification  claims  against
         CityFed, see "Indemnification Claims" below.

         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

                                     - 14 -
<PAGE>



         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 may also have further indemnification  responsibilities
         to the extent damages are assessed against such a person.

         As  described  above,  CityFed  and  several  former  directors  and/or
         officers of City Federal have been named as defendants  or  respondents
         in the First and Second RTC Actions and in the Notice of Charges.  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 have not been named in the
         First or Second RTC Actions,  was  established to consider this request
         for  indemnification  and  advancement  of  expenses.  On the advice of
         counsel to the  special  committee,  CityFed  has  advanced  reasonable
         defense costs to such former directors and officers.

         In addition to the First and Second RTC Actions, the Notice of Charges,
         the Ridder Action 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 has 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.

         Because of the Temporary Order and the Escrow Agreement, CityFed is not
         continuing  to  advance   expenses  in  connection   with  any  of  the
         indemnification  and advancement  requests referred to above. It is not
         yet clear whether,  as a result of the Third Circuit's  decision in the
         Ridder   Action   discussed   below,    CityFed   will   be   required,
         notwithstanding  the  existence of the  Temporary  Order and the Escrow
         Agreement,  to advance expenses to the defendants in the Ridder Action,
         and to current or former  officers,  directors and employees of CityFed
         who are or were parties in other actions or proceedings,  including the
         Second RTC Action,  the Injunction Action, the D.C. Appeal, the Supreme

                                     - 15 -
<PAGE>



         Court Case, and  proceedings  relating to the Notice of Charges and the
         Temporary  Order.  It is also not yet  clear  whether  CityFed  will be
         required to make payments of legal fees and expenses to the individuals
         who have  settled  with the RTC or FDIC in the  Second RTC Action or to
         make  payments  to the RTC or FDIC in  respect  of the  indemnification
         claims  assigned to the RTC or FDIC by some of the individuals who have
         settled  with the RTC or FDIC.  For more  information  regarding  these
         settlements and assignments of indemnification  rights, see "Second RTC
         Action" above.

         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 Injunction Action and D.C. Appeal;  (3) the
         Supreme Court Case: and (4) the administrative  enforcement  proceeding
         brought by the OTS against CityFed and the Respondents.  In the letter,
         the Outside Directors  demanded that,  pursuant to CityFed's Bylaws and
         Restated Certificate of Incorporation, and in light of the Order issued
         in the Ridder  Action  described  below,  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  is
         currently 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, 1996,  CityFed  received but has not paid bills
         totaling  $4,242,000 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.  Although  CityFed has not paid
         these bills,  it accrues the amounts  billed  under the caption  "Other
         Liabilities"  on its Statement of Financial  Condition as the bills are
         received.

         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. CityFed
         also does not know whether the RTC or FDIC will request  payment on the
         indemnification  claims  assigned to it by individuals who have settled
         with the RTC or FDIC in the  Second RTC  Action,  as  described  above.
         Thus,  it is not possible for CityFed to estimate with any accuracy the
         probable amount or range of liability  relating to current or potential

                                     - 16 -
<PAGE>



         indemnification  claims  pursuant to  CityFed's  Bylaws,  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.

         See  Item  2.,  "Management's   Discussion  and  Analysis  or  Plan  of
         Operation"  for a  description  of the  contingency  reserves,  and the
         charges and additional  reserves posted in the three month period ended
         September 30, 1996, relating to the matters described in this Note 4.

         RIDDER ACTION - On or about April 19, 1993, Willem Ridder,  John Hurst,
         Lyndon Merkle and Gregory DeVany,  former  employees of City Collateral
         and Financial Services,  Inc., a subsidiary of City Federal,  commenced
         the Ridder  Action by filing a  complaint  against  CityFed in the N.J.
         Court. (A substantially  similar  complaint was previously filed in the
         United States  District Court for the Northern  District of California.
         CityFed   challenged   jurisdiction  and  the  plaintiffs   voluntarily
         dismissed  that action.  The  complaint was  thereafter  refiled in New
         Jersey.) The plaintiffs seek advancement and  indemnification  of their
         legal costs and expenses incurred in conjunction with an action brought
         against them by the RTC in the N.J. Court, RESOLUTION TRUST CORPORATION
         V.  FIDELITY AND DEPOSIT  COMPANY,  ET AL.,  Civil  Action No.  92-1003
         (D.N.J.)  ("F&D  Action"),  plus damages in an  unspecified  amount for
         physical and  emotional  distress,  oppression,  fraud and malice.  The
         complaint  in the Ridder  Action  does not  include a request for a sum
         certain.  On June 7, 1993,  CityFed filed its answer to the  complaint,
         denying that plaintiffs are entitled to any recovery.  Although certain
         of the parties have exchanged  documents,  formal discovery has not yet
         commenced in the Ridder Action. However,  plaintiffs filed a motion for
         summary judgment or, in the alternative,  for a preliminary  injunction
         as to their claims for advancement of expenses and indemnification.

         The N.J. Court denied the motion;  however, on appeal the Third Circuit
         overturned  the decision of the N.J.  Court.  Pursuant to its order and
         judgment,  which were entered  February 9, 1995, the Third Circuit held

                                     - 17 -
<PAGE>


         that the plaintiffs were entitled to receive advances of their costs of
         defense  under  CityFed's  Bylaws as a matter of law. The Third Circuit
         directed the N.J.  Court to issue an  injunction  requiring  CityFed to
         advance  plaintiffs'  defense costs incurred in connection with the F&D
         Action in an amount to be agreed upon by the parties or, if the parties
         are unable to reach agreement, in an amount determined to be reasonable
         by the N.J. Court upon  additional  proceedings.  On February 23, 1995,
         CityFed  filed a  petition  requesting  that the  Third  Circuit  grant
         rehearing on issues relating to the relief granted. In particular,  the
         petition  requested  that the  Third  Circuit  reconsider  the grant of
         injunctive  relief on the basis that the  Temporary  Order  effectively
         precludes  CityFed  from paying the costs of defense to its current and
         former officers and directors. In addition, the petition requested that
         the Third Circuit require  plaintiffs to post security if an injunction
         is issued in  plaintiffs'  favor.  On March 22, 1995, the Third Circuit
         denied  CityFed's  petition for  rehearing.  On July 3, 1995,  the N.J.
         Court entered an Order ("Ridder Order") in the Ridder Action, directing
         CityFed to remit  immediately  to the  plaintiffs  in the Ridder Action
         $437,400,  which  represents  legal  fees  incurred  by the  plaintiffs
         through December 31, 1994 in the Ridder Action and as defendants in the
         F&D Action, plus interest in the amount of $13,955.13. The Ridder Order
         also  provides a procedure for the payment by CityFed of the legal fees
         incurred  by the Ridder  plaintiffs  in the  Ridder  Action and the F&D
         Action from January 1, 1995, forward.

         Because of the Temporary Order,  CityFed is unable unilaterally to make
         the payment  required by the Ridder  Order.  On July 13, 1995,  CityFed
         submitted the Ridder Order to the OTS and  requested the  permission of
         the OTS to pay the  amounts  CityFed is  directed  to pay in the Ridder
         Order, as well as permission to pay to the Ridder plaintiffs the sum of
         $601.84 in court costs,  which  CityFed had been directed to pay to the
         plaintiffs  in a May 4, 1995  Order of the N.J.  Court.  On August  18,
         1995,  the OTS issued a Decision and Order ("OTS  Order")  denying this
         request by  CityFed.  On August 2, 1995,  CityFed  appealed  the Ridder
         Order to the Third Circuit,  arguing that the N.J. Court had abused its
         discretion by ordering CityFed to make a payment CityFed could not make
         because of the Temporary  Order. On August 29, 1995,  CityFed asked the
         Third  Circuit to stay the Ridder  Order  pending  the appeal  from the
         Ridder Order, but the Third Circuit denied the request.  The appeal was
         then fully  briefed by the  parties  and argued to a panel of the Third
         Circuit on March 22, 1996.  On April 18, 1996,  the Third Circuit ruled
         in CityFed's  favor,  vacating the Ridder Order and directing  that the
         matter be returned to the N.J. Court for further proceedings. Among the
         options available to the N.J. Court, noted the Third Circuit,  were the
         possibility of staying any payment order pending  completion of the OTS
         administrative  proceedings or conditioning  any payment  obligation on
         CityFed's  ability to obtain OTS approval.  The Third Circuit also said
         the N.J.  Court  might  consider  reducing  the payment  obligation  to
         judgment and permitting OTS to intervene in the proceedings.  On May 1,
         1996, the Ridder plaintiffs  petitioned the Third Circuit for rehearing
         en banc,  claiming  that the Third  Circuit  panel's  April  18,  1996,
         decision  conflicts  with the  February 9, 1995,  Third  Circuit  panel

                                     - 18 -
<PAGE>



         decision awarding  indemnification to the Ridder plaintiffs.  The Third
         Circuit denied the Petition for Rehearing on May 20, 1996. Although the
         matter is remanded to the N.J. Court for further action, the N.J. Court
         has yet to take any action.

         In 1996, CityFed included $853,000 in its contingency  reserve relating
         to the  Ridder  Action.  See  Item  2.,  "Management's  Discussion  and
         Analysis or Plan of Operation - Liquidity  and Capital  Resources."  In
         the event that CityFed  advances such amounts to the  plaintiffs and it
         is  ultimately   determined   that   plaintiffs  are  not  entitled  to
         indemnification,  CityFed may be required to look solely to plaintiffs'
         unsecured undertakings for repayment of any advances.

         "SUPERVISORY  GOODWILL" ACTION - 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." The action is captioned  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.  CityFed filed this action under the rule of the
         Court of Federal  Claims  that  permits  the  filing of a  "Preliminary
         Complaint"  when a plaintiff  lacks access to information  necessary to
         fully state its claim.  CityFed  believes that, as of December 7, 1989,
         City Federal had  substantial  amounts of  supervisory  goodwill on its
         books as a result of various  acquisitions  by City Federal of troubled
         depository  institutions  before that date,  but without  access to the
         records  of City  Federal,  CityFed  is unable  to state in detail  the
         nature or amount of its goodwill  claim.  CityFed's  goodwill  suit was
         stayed (as were all Court of Federal Claims supervisory goodwill cases)
         pending the United States Supreme Court's review of the decision of the
         United  States  Court of  Appeals  for the  Federal  Circuit in another
         supervisory goodwill case, WINSTAR CORP. V. UNITED STATES, 64 F.3d 1531
         (Fed.  Cir.  1995)  ("Winstar").  On July 1, 1996,  the  United  States
         Supreme  Court  affirmed  the  decision of the  Federal  Circuit in the
         Winstar case, holding that the loss of supervisory goodwill and capital
         credits as a result of the Financial Institutions Reform,  Recovery and
         Enforcement Act of 1989 constituted breaches of contract with the three
         institutions  involved in that consolidated  appeal.  The United States
         Supreme  Court  remanded  those  cases to the  United  States  Court of
         Federal Claims for a determination of damages.

         CityFed's  case  is one of 122  supervisory  goodwill  cases  currently
         pending  in the Court of Federal  Claims.  The Court has  adopted  case
         management  procedures  to expedite  the handling of these cases in the
         wake  of  the  Supreme  Court's  ruling,   and  CityFed's   counsel  is
         participating with other plaintiffs' counsel in coordinated prosecution
         of these cases.  The Government has indicated that it may challenge the
         existence  of a contract  in cases  other than  those  involved  in the
         Winstar  appeal,  and it has said it will interpose  other defenses and
         counterclaims,  such  as  statute  of  limitations,  standing,  lack of
         proximate causation, fraudulent inducement, and failure to maintain net

                                     - 19 -
<PAGE>


         worth.  The  Chief  Judge  of the  Court  of  Federal  Claims  has  now
         re-assigned  all of these cases to himself and is  delegating  to other
         judges on the court responsibility for various issues.

         The FDIC has moved to  substitute  itself as plaintiff  in  supervisory
         goodwill cases involving closed  institutions where there is claimed to
         be a deficit in the receivership  estate. It has filed such a motion in
         CityFed's  case.  The FDIC claims that,  as successor  receiver (to the
         RTC) for these  institutions,  it is the proper  party to assert  these
         claims,  since its claim as  insurer of  accounts  likely  exceeds  any
         potential  recovery.  CityFed's  counsel and counsel for other goodwill
         plaintiffs  are currently  preparing a joint brief in opposition to the
         FDIC's motion.

         CityFed has now received from the Government  "core documents" for each
         of the  transactions  thought to have generated  supervisory  goodwill.
         CityFed's  counsel is presently  analyzing these documents to determine
         whether  it now  has  sufficient  documentation  to  file  its  Amended
         Complaint.

         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 Board of Directors received the report of special counsel to
         the Compensation Committee.

         Pursuant  to  an  agreement  dated  as of  December  15,  1993  ("Funds
         Agreement"),  among Mr. Roessner, the RTC as receiver for City Federal,
         and Donaldson,  Lufkin & Jenrette Securities  Corporation  ("DLJ"), the
         RTC in January 1994 transferred $933,623.44 to an investment account at
         DLJ  in  Mr.  Roessner's  name.  CityFed  believes  such  funds,  which
         represent a percentage of Mr. Roessner's  deferred  compensation  claim
         against  City  Federal,  serve to reduce the  amount of Mr.  Roessner's
         claim against CityFed.

         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

                                     - 20 -
<PAGE>



         Corporation  Law and the Bylaws of CityFed,  CityFed  agreed to pay 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.

         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
         1991,  1992, 1993, 1994 and 1995 tax years.  CityFed's  position is not
         free from  challenge,  although  CityFed  believes that its position is
         reasonable under the current tax law.

                                     - 21 -

<PAGE>



         CONTINGENCY  RESERVE - As noted  above,  the  Company  is  subject to a
         number  of loss  contingencies  for  which it is  currently  unable  to
         reasonably  assess the  probability  or range of loss. At September 30,
         1996, the Company had a $6,822,000 contingency reserve representing the
         current   estimate  of  the  minimum   expenses   relating  to  pending
         litigation.  These costs are  difficult to project and will be affected
         by whether these matters are settled or whether the actions  proceed to
         trial.  The  reserve  reflects  expected  costs to defend  against  the
         claims.  The  reserve,   however,   does  not  include  provisions  for
         trial-related   expenses   (other   than  with   respect   to  the  OTS
         administrative  proceeding  relating  to the Notice of Charges  and the
         Temporary  Order),  settlements  (other  than  negotiated  settlements,
         including  settlements  in the Second RTC Action) or adverse  judgments
         (other than amounts relating to the Ridder Action) as CityFed is unable
         to make a reasonable estimate of the amount or range of potential loss.
         The following is an analysis of CityFed's contingency reserve:

          Balance - December 31, 1995                       $3,987,000

          Charges                                            1,515,000
          Provision                                          4,350,000
                                                            ----------
          Balance - September 30, 1996                      $6,822,000
                                                            ==========

                                     - 22 -
<PAGE>


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
         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.

         Because  City  Federal was placed in  receivership,  CityFed's  current
         interest in City Federal is a claim against the receivership estate for
         the proceeds,  if any, of the receivership  estate of City Federal that
         remain after all creditors,  including the RTC, have been paid. Receipt
         of any payment for such claim is remote.  For a fuller  description  of
         the  receivership,  see Item 1.,  "Business"  in  CityFed's  1995  Form
         10-KSB.

         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  CityFed's  financial
         statements  for the nine months ended  September  30, 1996. 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 two small offices 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 only has
         one full-time employee and one small 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

                                     - 23 -
<PAGE>


         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 and, on February 21, 1996, an Order
         was issued extending the requested exemption until February 21, 1997.

Liquidity and Capital Resources

         At September 30, 1996, CityFed had $9,084,000 in assets, $11,128,000 in
         total liabilities and $2,044,000 in negative  stockholders'  equity. At
         December 31, 1995,  CityFed had  $9,002,000  in assets,  $6,866,000  in
         total liabilities and $2,136,000 in stockholders'  equity.  However, as
         discussed  in Note 4 to  CityFed's  financial  statements  for the nine
         months  ended  September  30,  1996  and  under  Item 1.,  "Business  -
         Potential  Obligations  of CityFed" in CityFed's  1995 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
         litigation and administrative expenses over the next twelve months, any
         substantial indemnification expense, settlement or judgment (including,
         without limitation,  any obligation to currently advance legal expenses
         in the Cases or the Ridder  Action)  could reduce  liquidity to a level
         that would  jeopardize the  continuation  of the Company's  activities.
         However, as a result of additions to the contingency  reserve,  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.

         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

                                     - 24 -
<PAGE>


         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.  Under the terms of the
         Escrow Agreement (defined below),  changes in these investment policies
         require the approval of the Board of Directors of CityFed and the OTS.

         Under the terms of the 1940 Act  Order,  CityFed  may not  purchase  or
         otherwise acquire any additional  securities other than securities that
         are  rated  investment  grade  or  higher  by a  nationally  recognized
         statistical  rating  organization  or,  if  unrated,  deemed  to  be of
         comparable  quality  under  guidelines  approved by CityFed's  Board of
         Directors, subject to two exceptions:

                           (a) CityFed may make an equity  investment in issuers
                  that are not  investment  companies as defined in Section 3(a)
                  of the 1940 Act  (including  issuers  that are not  investment
                  companies  because  they are  covered by a specific  exclusion
                  from the  definition of investment  company under Section 3(c)
                  of the 1940 Act other than Section 3(c)(1)) in connection with
                  the possible acquisition of an operating business as evidenced
                  by a resolution approved by CityFed's Board of Directors; and

                           (b)  CityFed  may invest in one or more money  market
                  mutual  funds  that  limit  their   investments  to  "Eligible
                  Securities" within the meaning of Rule 2a-7(a)(5)  promulgated
                  under the 1940 Act.

         The financial  statements of CityFed at December 31, 1989, for the year
         then ended, and for subsequent  periods reflect that CityFed  maintains
         reserves for CityFed's pending litigation expenses, which, at September
         30, 1996, were $6,822,000 and, at December 31, 1995, were $3,987,000.

         The litigation  costs included in the reserves are difficult to project
         and will be  affected by whether  these  matters are settled or whether
         the actions will proceed to trial.  The reserves reflect expected costs
         to  defend  the  claims  up to,  but not  including,  the  costs of any
         trial-related  expenses (except as described below).  The reserves also
         do not include  the costs of any  settlements  (other  than  negotiated
         settlements,  including  settlements in the Second RTC Action described
         in Note 4 to CityFed's  financial  statements for the nine months ended
         September 30, 1996) or adverse  judgments,  except that the contingency
         reserve now also includes  amounts  relating to the Ridder Action.  See
         Note 4 to the Notes to Financial  Statements  in this Form 10-QSB,  and
         Item 1.,  "Business - Potential  Obligations  of CityFed" in  CityFed's
         1995 Form 10-KSB for a  description  of the major  claims that may give
         rise to  expected  future  costs.  Although  management  believes  that
         CityFed's  current level of reserves are  sufficient to cover the costs

                                     - 25 -
<PAGE>



         of pending  litigation  matters (but not any trial-related  expenses or
         the costs of any potential  settlements or adverse judgments other than
         those  relating  to the Second RTC  Action and the Ridder  Action),  no
         assurances can be given that the reserves 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.

         On  October  26,  1994,  CityFed  and the OTS  entered  into an  Escrow
         Agreement    ("Escrow    Agreement")   with   CoreStates   Bank,   N.A.
         ("CoreStates") pursuant to which CityFed transferred  substantially all
         of its assets to  CoreStates  for deposit into an escrow  account to be
         maintained by CoreStates.  Pursuant to the Escrow Agreement, CoreStates
         executes a wire transfer of $15,000 from the escrow  account to CityFed
         on the first business day of every month. The Escrow Agreement provides
         that CityFed may sell and purchase  securities  in the escrow  account,
         and  that  CoreStates  will  be paid a fee of  $2,500  per  year,  plus
         reimbursement for out of pocket expenses,  for serving as escrow agent.
         CityFed's assets in the escrow account continue to be invested in money
         market instruments with a maturity of one year or less and money market
         mutual funds.  Withdrawals or disbursements from the escrow account are
         not permitted without the written  authorization of the OTS, other than
         for (1) the $15,000 monthly  transfer to CityFed,  (2) the disbursement
         of funds on account of purchases of  securities  by CityFed and (3) the
         payment  of the  escrow  fee and  expenses  to  CoreStates.  The Escrow
         Agreement  also  provides  that  CoreStates  will  restrict  the escrow
         account  in such a manner  as to  implement  the  terms  of the  Escrow
         Agreement  and to prevent a change in status or  function of the escrow
         account unless authorized by CityFed and the OTS in writing. CoreStates
         will provide to the OTS a copy of all  statements  regarding the escrow
         account provided to CityFed.

Results of Operations

         CityFed  recorded a net loss for the three months ended  September  30,
         1996 of $129,000.  The loss for the three months  ended  September  30,
         1996 was after the  addition of $200,000  to the  contingency  reserve.
         This  compares  to a net loss in the amount of  $470,000  for the three
         months ended  September  30, 1995.  The loss for the three months ended
         September   30,  1995  was  after  the  addition  of  $500,000  to  the
         contingency reserve.

         CityFed recorded income from continuing operations for the three months
         ended  September  30,  1996 of  $71,000.  This  compares to income from
         continuing  operations  in the amount of $30,000  for the three  months
         ended September 30, 1995.

         Interest  on  investments  was  $119,000  for the  three  months  ended
         September  30, 1996  compared to $131,000  for the three  months  ended
         September 30, 1995 due primarily to the lower level of interest  rates.
         Total  operating  expenses  of  $48,000  for  the  three  months  ended
         September  30, 1996 were less than the  $101,000 for the same period in
         1995 due primarily to a lower level of professional service fees.

                                     - 26 -
<PAGE>



         CityFed  recorded a net loss for the nine months  ended  September  30,
         1996 of  $4,180,000.  This  compares  to a net  loss in the  amount  of
         $952,000 for the nine months ended September 30, 1995. The loss for the
         nine months ended  September  30, 1996 is  primarily  the result of the
         addition  of  $4,350,000  to  the  contingency  reserve,   largely  for
         indemnification  claims arising from negotiated  settlements by certain
         defendants in the Second RTC Action (see Note 4). The loss for the nine
         months ended September 30, 1995 was after the addition of $1,200,000 to
         the contingency  reserve.  Interest on investments was $355,000 for the
         nine months ended  September 30, 1996 compared to $397,000 for the nine
         months  ended  September  30,  1995 due to the lower  level of interest
         rates.

         The net loss per share of $0.12 and $0.57 for the three and nine months
         ended September 30, 1996, respectively, compares to $0.14 and $0.40 for
         the three and nine months ended September 30, 1995. In all periods, the
         net  loss  per  share  is  after  the  deduction  of  unpaid  preferred
         dividends.  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.

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

         See Note 4 to CityFed's financial  statements for the nine months ended
         September 30, 1996 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 $.525  per share on March 1, June 1,
         September  1 and  December  1 of each year.  CityFed's  Series C Junior
         Preferred,  cumulative,  Stock,  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

                                     - 27 -
<PAGE>


         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, 1996,  the  aggregate
         deficiency  on the Series B Stock was  approximately  $38.7 million and
         the aggregate  deficiency on the Series C Stock was approximately $23.9
         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

         11       Statement Regarding the Computation of Per Share Loss.

         27       Financial Data Schedule, September 30, 1996

         (b)      Reports on Form 8-K

         None

                                     - 28 -
<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 13, 1996

                                     - 29 -
<PAGE>


                                  Exhibit Index


Exhibit


11        Statement Regarding the Computation of Per Share Loss

27        Financial Data Schedule, September 30, 1996