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 March 31, 2000

                                       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        (IRS Employer
               or organization)                    Identification No.)

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

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

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest  practicable date. As of April 30, 2000, the number of
shares of outstanding common stock was 18,715,609.

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


<PAGE>


                         PART I - FINANCIAL INFORMATION
<TABLE>
Item 1.  Financial Statements.

CITYFED FINANCIAL CORP.

STATEMENTS OF FINANCIAL CONDITION
March 31, 2000 and December 31, 1999
(Dollars in Thousands)
<CAPTION>
                                                    March 31, 2000    December 31,
                                                    --------------    ------------
                                                      (Unaudited)       1999
                                                      -----------       ----
ASSETS
------

<S>                                                 <C>               <C>
Cash                                                $         51      $         63
Investment securities at amortized cost
      (Market value $9,487 in 2000 and
      $9,430 in 1999)                                      9,495             9,444
Other assets                                                 145               145
                                                    ------------      ------------

TOTAL ASSETS                                        $      9,691      $      9,652
                                                    ============      ============

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------

LIABILITIES:
  Contingency reserve                               $      7,389      $      6,353
  Other liabilities                                        4,467             4,504
                                                    ------------      ------------
           Total liabilities                              11,856            10,857
                                                    ------------      ------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY:
   Preferred stock, 30,000,000 shares authorized:
     $2.10 cumulative convertible, Series B, $25
          par value, issued and outstanding:
          2,538,850 in 2000 and 1999                      63,471            63,471
     Series C Junior, cumulative, $.01 par value,
          liquidation preference $3.00 per share,
          shares issued and outstanding: 8,257,079
          in 2000 and 1999                                63,471            63,471
   Common stock, $.01 par value, 100,000,000
          issued:  18,914,609 in 2000 and 1999,
          outstanding: 18,715,609 in 2000 and 1999
   Additional paid-in capital                            108,868           108,868
   Accumulated deficit                                  (173,774)         (172,814)
   Treasury stock (199,000 shares of common stock)        (1,000)           (1,000)
                                                    ------------      ------------

      Total stockholders' deficiency                      (2,165)           (1,205)
                                                    ------------      ------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY      $      9,691      $      9,652
                                                    ============      ============
</TABLE>

See notes to financial statements.


                                       2
<PAGE>


CITYFED FINANCIAL CORP.

STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999
(Dollars in Thousands, Except Per Share Data)
(Unaudited)

                                                Three Months Ended
                                                ------------------
                                                      March 31,
                                                      ---------
                                               2000           1999
                                               ----           ----

INCOME:
  Interest on investments               $       132    $       113
  Other income                                   24              -
                                        -----------    -----------

   Total income                                 156            113
                                        -----------    -----------

EXPENSES:
  Compensation and employee benefits             35             35
  Other operating expenses                       44             29
                                        -----------    -----------

   Total expenses                                79             64
                                        -----------    -----------

INCOME FROM CONTINUING OPERATIONS                77             49

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

NET (LOSS) INCOME                       $    (  960)   $        49
                                        ===========    ===========


NET LOSS AVAILABLE FOR COMMON
STOCKHOLDERS

BASIC LOSS PER SHARE:
  From continuing operations            $     (0.11)   $     (0.11)
  From discontinued operations          $     (0.06)   $         -
  Net loss                              $     (0.17)   $     (0.11)

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

DIVIDENDS PER COMMON SHARE                        -              -

See notes to financial statements.


                                       3
<PAGE>


CITYFED FINANCIAL CORP.

STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
(Dollars in (Unaudited)

                                                              2000        1999
                                                              ----        ----

CASH FLOWS FROM OPERATING ACTIVITIES:
   Interest received                                      $    184    $    202
   Operating expenses                                         (117)       (120)
   Other income                                                 24           -
                                                          --------    --------

     Net cash provided by  operating activities                 91          82
                                                          --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Increase in investment securities                          (103)       (105)
                                                          --------    --------

     Net cash used in investing activities                    (103)       (105)
                                                          --------    --------

NET DECREASE IN CASH                                           (12)        (23)

CASH AT BEGINNING OF PERIOD                                     63          48
                                                          --------    --------

CASH AT END OF PERIOD                                     $     51    $     25
                                                          ========    ========

RECONCILIATION OF NET (LOSS) INCOME TO NET CASH PROVIDED BY
   OPERATING ACTIVITIES:
   Net (loss) income                                      $   (960)   $     49
   Loss from discontinued operations                         1,037           -
   Contingency reserve payments                                 (6)        (15)
   Decrease in accrued income and expense, net                  20          48
                                                          --------    --------

NET CASH PROVIDED BY OPERATING ACTIVITIES                 $     91    $     82
                                                          ========    ========


See notes to financial statements.


                                       4
<PAGE>


CITYFED FINANCIAL CORP.
NOTES TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 (UNAUDITED)

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

      As a result of the receivership of City Federal, the Company has undergone
      material  changes in the nature of its business and is no longer operating
      as a savings and loan holding  company.  At March 31, 2000,  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, 1999 ("1999 Form 10-KSB").  The interim statements
      reflect  all  adjustments  of a normal  recurring  nature that are, in the
      opinion of management,  necessary for a fair  presentation  of the results
      and financial position for the periods presented.

3.    In July 1989,  the Company's  Board of Directors  suspended the payment of
      dividends  on all three  currently  outstanding  series  of the  Company's
      stock. These include the Company's common stock, $0.01 par value per share
      ("Common Stock"), on which the Company had been paying quarterly dividends
      of one cent per share; the Series C, Junior  Preferred Stock,  Cumulative,
      $0.01 par value per share ("Series C Stock"), with a quarterly dividend of
      ten cents per share; and the $2.10 Cumulative Convertible Preferred Stock,
      Series B, $25.00 par value per share ("Series B Stock"),  with a quarterly
      dividend of $0.525 per share.  Dividends  on both series of the  Company's
      preferred  stock are cumulative.  At March 31, 2000,  dividends in arrears
      were $57.3 million and $35.5 million on the Company's  Series B and Series
      C Stock, respectively.


                                       5
<PAGE>


4.    COMMITMENTS AND CONTINGENCIES

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

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

      The OTS charged that CityFed was unjustly enriched and that its violations
      involved reckless disregard for the law or applicable regulations or prior
      order of  either  the  FHLBB or the OTS.  The  Notice  of  Charges  sought
      restitution  in an amount  not less  than  $118.4  million,  which the OTS
      alleged to be the regulatory capital  deficiency  reported by City Federal
      in the Fall of 1989.

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

      The 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 was 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.

      The  OTS  charged  that  the  individual  Respondents  had an  affirmative
      obligation to see that CityFed  complied  with its net worth  maintenance.
      OTS alleged that some of the Respondents (Messrs. Allen, Atherton, Hedden,
      Kellogg and Roessner) were unjustly  enriched through CityFed's payment of
      their legal expenses with CityFed assets, an allegation that refers to the
      advancement  by  CityFed,  pursuant to its  obligations  in its Bylaws and
      Restated  Certificate of  Incorporation,  of litigation  expenses to those
      Respondents in the RTC action in the United States  District Court for the
      District of New Jersey,  RESOLUTION TRUST CORPORATION V. ATHERTON, ET AL.,


                                       6
<PAGE>


      Civil Action No. 93-1811  (consolidated  with RESOLUTION TRUST CORPORATION
      V. SIMMONS,  ET AL.,  Civil Action No.  92-5261-B).  The Notice of Charges
      requested  that an order be entered by the  Director of the OTS  requiring
      the Respondents to make restitution, reimburse, indemnify or guarantee the
      OTS against loss in an amount not less than $400,000, which OTS alleged to
      be the amount of legal expenses CityFed paid on their behalf from April to
      December 1993.

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

      On February 1, 1996, the  Administrative Law Judge granted OTS' Motion for
      Partial  Summary  Disposition  and denied such  motions by CityFed and the
      Individual  Respondents.  The  Administrative  Law Judge ("ALJ") concluded
      that  CityFed's  retention of dividends and other funds  received from its
      former subsidiary,  City Federal,  constituted  "unjust enrichment" within
      the meaning of 12 U.S.C. Section 1818(b)(6),  giving rise to liability for
      restitution,   and  that  the  net  worth   maintenance   Stipulation  was
      enforceable by the OTS against CityFed.

      On August 20, 1997, then OTS Director Nicolas Retsinas  reversed the ALJ's
      recommendation  of summary  disposition  on the OTS net worth  maintenance
      claim against  CityFed.  The Director held that there were disputed issues
      of fact on that claim that precluded summary disposition,  and he remanded
      the case to the ALJ for further proceedings consistent with his decision.

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

      On October 26, 1994,  CityFed and the OTS entered into an Escrow Agreement
      with  CoreStates  Bank,  N.A. (now First Union  National Bank) pursuant to
      which CityFed  transferred  substantially all of its assets to First Union
      Bank for deposit into an escrow  account.  The Escrow  Agreement  provides
      CityFed  with  $15,000 per month for normal  business  expenses and allows
      CityFed to sell and purchase  securities in the escrow account.  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.

      CityFed,  OTS and the Federal Deposit Insurance  Corporation  ("FDIC") are
      engaged in ongoing settlement discussions and have reached an agreement in
      principle to settle the OTS claim.  The parties are  presently  engaged in
      documenting the settlement and in securing necessary approvals.

      As presently contemplated,  the settlement would become effective upon the
      issuance  of an  Order  by  the  OTS  accepting  an  offer  of  settlement
      ("Settlement"). The terms of the Settlement would include the following:


                                       7
<PAGE>

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

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

            o     CityFed  would  convey to the FDIC its  ownership  interest in
                  City  Federal  and  will  give  up  any  claims   against  its
                  receivership estate;

            o     The OTS would dismiss with  prejudice the OTS Action,  and the
                  OTS and the FDIC  would  give full and  complete  releases  to
                  CityFed and the Individual Respondents;

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

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

       CityFed  contemplates  that, if the  Settlement is finalized on the terms
       outlined above, CityFed will, as part of that Settlement,  relinquish its
       ownership  interest in City Federal.  Following the  Settlement,  CityFed
       intends  to  undergo  reorganization,   perhaps  involving  a  bankruptcy
       proceeding.  However,  under the  terms of the  Settlement  as  presently
       contemplated,  the Settlement may be declared null and void if bankruptcy
       proceedings are instituted by or against CityFed within a stipulated time
       period.  If the  Settlement  becomes null and void,  the OTS and the FDIC
       would have the right to  reinstate  all claims  against  CityFed  and the
       Individual  Respondents  and could seek to litigate  those  claims in the
       bankruptcy  court  or  elsewhere.   As  noted  above,   claims  based  on
       commitments  to maintain  the  capital of  federally  insured  depository
       institutions  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).

      While CityFed  believes that the Settlement  will become  effective on the
      terms  outlined  above,  there  can be no  assurance  that  it  will be so
      finalized and, in such event, CityFed will remain subject to the Temporary
      Order.

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

      FIRST  RTC  ACTION - On  December  7,  1992,  the RTC in its  capacity  as
      receiver for City Savings,  and the RTC in its corporate  capacity,  filed
      the First RTC Action in the N.J.  Court  against  CityFed  and against two
      former officers of City Federal. In its complaint in the First RTC Action,
      the RTC, in its corporate capacity, sought, INTER ALIA, to recover damages
      in excess of $12 million against CityFed  resulting from CityFed's alleged
      violation of the Stipulation to maintain the net worth of City Federal.

      In  connection  with the First RTC Action,  the RTC filed an Order to Show
      Cause with  Temporary  Restraints  Freezing  Assets of  Defendant  CityFed
      Financial  Corp.  ("Order to Show  Cause")  seeking an order from the N.J.
      Court  placing all assets of CityFed  under the control of the N.J.  Court
      and  related  relief  pending a hearing on a  preliminary  injunction.  On


                                       8
<PAGE>


      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 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


                                       9
<PAGE>


      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.

      If the proposed  Settlement  described  above is finalized,  the FDIC will
      release CityFed from all claims in the First RTC Action.

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

      SECOND  RTC  ACTION - On April  26,  1993,  the RTC,  in its  capacity  as
      receiver for City Savings,  filed the Second RTC Action in the N.J.  Court
      against John W. Atherton, Jr., Gordon E. Allen, Alfred J. Hedden, Peter R.
      Kellogg,  John Kean,  Gilbert G.  Roessner,  George E. Mikula and James P.
      McTernan,  all former  directors  and/or officers of City Federal.  In its
      initial  complaint  in the  Second RTC  Action,  the RTC sought to recover
      damages in excess of $130 million for alleged negligence, gross negligence
      and breach of fiduciary  duties by the  defendants in connection  with the
      Grand Harbor and Woodfield loans. Although the Second RTC Action was filed
      separately from the First RTC Action,  the N.J. Court consolidated the two
      actions for administrative purposes.

      On June 17, 1993, the RTC filed a First Amended  Complaint ("First Amended
      Complaint")  in the Second RTC Action that named as additional  defendants
      in the Second RTC Action  Victor A.  Pelson and  Marshall M.  Criser,  two
      former  directors of City  Federal.  With the exception of the addition of
      Messrs.  Pelson  and  Criser as  defendants,  the  substance  of the First
      Amended  Complaint 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


                                       10
<PAGE>


      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 January  14,  1997,  in the case
      captioned  ATHERTON V. FEDERAL DEPOSIT INSURANCE  CORPORATION,  117 S. Ct.
      666 (1997) ("Supreme Court Case"),  the Supreme Court of the United States
      vacated the Third Circuit's judgment and remanded the case.

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

      CityFed is aware that all of the  defendants in the Second RTC Action have
      settled with the RTC or FDIC. The  settlement  agreement for Victor Pelson
      includes a waiver by him of his indemnification  claim against CityFed for
      legal fees and  expenses and the amount of his  settlement  payment in the
      Second  RTC  Action,   but  only  if  the  OTS  and  CityFed   settle  the
      administrative  proceeding or final judgment is entered against CityFed in
      the  proceeding.  Mr.  Pelson agreed to pay 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  agreed to be
      made by Messrs. Kean, Criser,  Hedden and Roessner to the RTC or FDIC, and
      thus the amount of  indemnification  claim  assigned by them to the RTC or
      FDIC, are $1,200,000 for Mr. Kean,  $400,000 for Mr. Criser,  $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 made to the FDIC as well as for legal  fees and
      expenses  incurred by them in the Second RTC Action.  Mr.  Allen agreed to
      pay $250,000 to settle the Second RTC Action,  and Mr.  Kellogg  agreed to
      pay $3,000,000.  CityFed  understands  also that the FDIC has settled with
      George Mikula, James McTernan,  John W. Atherton, Jr., Richard Simmons and
      Michael DeFreytas for $5,000 each and they each have retained their rights
      to seek indemnification from CityFed for their settlement payments.

      If the proposed  Settlement  described  above is finalized,  the FDIC will
      assign  any  rights it  acquired  in the  settlements  described  above to
      CityFed. See "Indemnification Claims" below.


                                       11
<PAGE>


      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  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  with  respect to the First and Second  RTC  Actions.  On the
      advice of counsel to the special  committee,  CityFed advanced  reasonable
      defense costs to such former directors and officers in such Actions.

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

      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  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


                                       12
<PAGE>


      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 efforts to set aside the  Temporary  Order;  (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  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 March 31, 2000,  CityFed  received but has not paid bills totaling
      $4,359,000 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.

      If the proposed  Settlement  described  above is finalized,  the Temporary
      Order will be  dissolved,  and the Escrow  Agreement  will be  terminated.
      Following  the  Settlement,  CityFed  intends to  undergo  reorganization,
      perhaps  involving a bankruptcy  proceeding.  It is anticipated that these
      indemnification   claims   will  be   addressed   as  part  of  any   such
      reorganization.

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


                                       13
<PAGE>


      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.

      RIDDER  ACTION - On 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, filed a complaint
      against CityFed in the United States District Court in Newark, New Jersey.
      RIDDER, ET AL. V. CITYFED FINANCIAL CORP.,  Civil Action No. 93-1676.  The
      Ridder plaintiffs  sought  advancement of their legal expenses incurred in
      the defense of an action for fraud and breach of  fiduciary  duty  brought
      against  them  by  the  Resolution  Trust  Corporation,  RESOLUTION  TRUST
      CORPORATION  V.  FIDELITY AND DEPOSIT  COMPANY,  ET AL.,  Civil Action No.
      92-1003 (D.N.J.) ("F&D Action"). CityFed denied all liability.

      On December 29, 1999, the Ridder  Plaintiffs agreed to settle all of their
      claims against CityFed for a single lump sum payment by CityFed to them of
      $140,000.  That payment has been made. The Ridder plaintiffs have released
      CityFed from any further  liability  to them,  and all  litigation  by the
      Ridder Plaintiffs against CityFed has been dismissed with prejudice.

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

      CityFed's case is one of more than one hundred supervisory  goodwill cases
      currently  pending in the Court of Federal  Claims.  The Court has adopted
      case  management  procedures  to govern the priority and handling of these
      cases,  and  CityFed's  counsel is  participating  with other  plaintiffs'
      counsel in coordinated prosecution of these cases.

      The FDIC has intervened as a plaintiff in each  supervisory  goodwill case
      involving a closed  institutions where there is claimed to be a deficit in
      the receivership  estate.  CityFed's case is such a case, and the FDIC has
      intervened  as a plaintiff in  CityFed's  case.  The FDIC claims that,  as
      receiver,  it is the proper  party to assert  goodwill  claims,  since its
      receivership  claim likely exceeds any potential  goodwill  recovery.  The
      Court has permitted the FDIC to  participate  in the  prosecution  of such
      goodwill claims,  but not to the exclusion of other plaintiffs.  The Court
      has not yet determined whether the FDIC will be entitled to some or all of
      the recovery in such cases.


                                       14
<PAGE>


      CityFed's  supervisory  goodwill  case  remains  stayed,  pursuant  to the
      Court's case management  procedures,  while the Court completes  discovery
      and trials in other supervisory goodwill cases.

      If the proposed  Settlement  described  above is  finalized,  CityFed will
      assign to the FDIC all of CityFed's  interest in its supervisory  goodwill
      case,  will  cease to be a party to that  case,  and will have no right to
      share in the recovery in that case, should there be one.

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

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

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

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

      Several  defendants  have  requested  that CityFed  reimburse them for the
      settlement payments made by them under the settlement  agreement.  CityFed
      has not  responded to the request.  It is likely that CityFed will receive
      similar  requests  from the other  parties  to the  settlement.  CityFed's
      liability to the individuals  remains to be determined;  however,  CityFed
      has  included in its  contingency  reserve the full  settlement  amount of
      $790,000.

      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


                                       15
<PAGE>


      City Federal. Under the applicable provisions of the Internal Revenue Code
      of 1986, as amended ("Code"), and the regulations thereunder,  all members
      of the consolidated  group,  including CityFed,  are jointly and severally
      liable for any income  taxes owed by the group.  CityFed has not  included
      City  Federal and the  successor  institutions  in the Federal  income tax
      returns  CityFed  filed for its tax years  1991  through  1998.  CityFed's
      position is not free from challenge,  although  CityFed  believes that its
      position is reasonable under the current tax law.

      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 March 31, 2000,  the Company
      has a $7.4 million  contingency  reserve  representing the current minimum
      expenses  relating to pending  litigation  estimated  to be  incurred  and
      provisions   for   negotiated   settlement   amounts   relating  to  these
      contingencies.  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  also  includes  an amount to  reflect  the  proposed
      Settlement,  amounts for claims asserted for  indemnification  of expenses
      and  settlements in the Second RTC Action and the claims  described  above
      under  "Indemnification  Claims Relating to Deferred  Compensation Plans."
      The  reserve,  however,  does not  include  provisions  for  trial-related
      expenses or any other  potential  settlements or adverse  judgments as the
      Company is unable to make a reasonable  estimate of the amount or range of
      potential loss. The following is an analysis of the Company's  contingency
      reserve:

             Balance - December 31, 1999      $6,353,000

             Charges                               1,000
             Provision                         1,037,000
                                              ----------

             Balance - March 31, 2000         $7,389,000
                                              ==========

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


                                       16
<PAGE>


      receivership,  see Item 1.,  "Business" in CityFed's 1999 Form 10-KSB.  If
      the  proposed  settlement  relating to IN THE MATTER OF CITYFED  FINANCIAL
      CORPORATION,  OTS Order  No. AP 94-26  (June 2,  1994)  ("Settlement")  is
      finalized,  CityFed will convey its  interest,  if any, in City Federal to
      the  Federal  Deposit  Insurance  Corporation  and will  give up any claim
      against the receivership  estate of City Federal.  See Note 4 to the Notes
      to Financial  Statements for the Three Months Ended March 31, 2000 in this
      Form  10-QSB   ("Notes")  under  "In  the  Matter  of  CityFed   Financial
      Corporation" for further  information  regarding the proposed  Settlement.
      While CityFed  believes that the Settlement  will become  effective on the
      terms outlined, there can be no assurance that it will be so finalized.

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

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

Liquidity and Capital Resources

      At March 31, 2000,  CityFed had approximately  $9,691,000 in total assets,
      $11,856,000 in total liabilities and $2,165,000 in negative  stockholders'


                                       17
<PAGE>


      equity.  At December 31, 1999,  CityFed had  approximately  $9,652,000  in
      total assets,  $10,857,000 in total liabilities and $1,205,000 in negative
      stockholders'  equity.  However,  as  discussed in Note 4 to the Notes and
      under Item 1., "Business - Potential  Obligations of CityFed" in CityFed's
      1999 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 could reduce liquidity to
      a  level  that  would   jeopardize  the   continuation  of  the  Company's
      activities.  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 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. If the proposed  Settlement  is
      finalized,  CityFed  will no longer be  subject to the terms of the Escrow
      Agreement.

      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
            Sections  3(c)(1)  and  3(c)(7))  in  connection  with the  possible
            acquisition  of an  operating  business as evidenced by a resolution
            approved by CityFed's Board of Directors; and


                                       18
<PAGE>


                 (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)(10) 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 a
      contingency  reserve  which,  at March 31, 2000,  was  $7,389,000  and, at
      December 31, 1999, was $6,353,000.

      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 the
      proposed  Settlement,  the  settlements  in the  Second RTC Action and the
      settlements described under  "Indemnification  Claims Relating to Deferred
      Compensation  Plans" in Note 4 to the Notes),  or adverse  judgments.  See
      Note 4 to the Notes,  and Item 1.,  "Business - Potential  Obligations  of
      CityFed"  in  CityFed's  1999 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  of  pending  litigation  matters  (but  not any  trial-related
      expenses  or the  costs of any  other  potential  settlements  or  adverse
      judgments other than those relating to the proposed Settlement, the Second
      RTC  Action and the  settlements  described  in Note 4 to the Notes  under
      "Indemnification  Claims  Relating to Deferred  Compensation  Plans"),  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., now First Union Bank
      ("First Union"),  pursuant to which CityFed transferred  substantially all
      of its  assets to First  Union for  deposit  into an escrow  account to be
      maintained by First Union.  Pursuant to the Escrow Agreement,  First Union
      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
      First Union 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 First Union. The Escrow Agreement also provides
      that First Union 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.  First  Union  will  provide to the OTS a copy of all
      statements  regarding  the escrow  account  provided  to  CityFed.  If the
      proposed Settlement is finalized, CityFed will no longer be subject to the
      terms of the Escrow Agreement.


                                       19
<PAGE>


      Results of Operations

      CityFed  recorded income from  continuing  operations for the three months
      ended March 31, 2000 of $77,000.  This compares to income from  continuing
      operations  in the amount of $49,000 for the three  months ended March 31,
      1999.  No  addition to the  contingency  reserve was made during the three
      months  ended March 31, 1999 while an addition of  $1,037,000  was made in
      the quarter ended March 31, 2000.

      Interest on investments  was $132,000 for the three months ended March 31,
      2000  compared to $113,000  for the three  months ended March 31, 1999 due
      primarily to the higher yields realized. Operating expenses of $79,000 for
      the three months ended March 31, 2000 were higher than the $64,000 for the
      same  period  in 1999  due  primarily  to a higher  level of  professional
      service fees.

      CityFed's  contingency  reserve was established in 1989 and is intended to
      include  reserves  for  CityFed's  pending  litigation  expenses and legal
      expenses advanced to third parties.  See Note 4 to the Notes, and Item 1.,
      "Business - Potential  Obligations  of  CityFed"  in  CityFed's  1999 Form
      10-KSB  for a  description  of the  major  claims  that may  give  rise to
      expected future costs.  An additional  provision of $1,037,000 was made to
      the loss from discontinued  operations during the three months ended March
      31, 2000.  The  provision  increases  the reserve to cover claims from the
      settlements described in Note 4 to the Notes under "Indemnification Claims
      Relating to Deferred Compensation Plans" and the proposed Settlement, less
      legal expenses not expected to be incurred if the Settlement is finalized.
      Due to the addition to the reserve less a charge to the reserve of $1,000,
      the contingency reserve was increased from $6,353,000 at December 31, 1999
      to $7,389,000 at March 31, 2000.

      The basic loss per share from continuing operations of $0.11 and $0.11 for
      the  quarters  ended March 31, 2000 and 1999,  respectively,  is after the
      deduction of unpaid preferred dividends of $2,159,000 in both periods. The
      basic net loss per share of $0.17 in the  quarter  ended March 31, 2000 is
      after the $0.06 loss per share from  discontinued  operations and compares
      to the basic net loss per share of $0.11 in the  quarter  ended  March 31,
      1999 where no provision was made for discontinued operations. 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 the Notes for a description of currently pending litigation.

Item 2. Changes in Securities.

      None

Item 3. Defaults Upon Senior Securities.

      (a)  None.


                                       20
<PAGE>


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

      Beginning with the payment due on September 1, 1989,  CityFed has not paid
      any quarterly dividends on the Series B Stock.  Beginning on September 15,
      1989,  CityFed also has not paid any  quarterly  dividends on the Series C
      Stock.  Because CityFed has failed to pay at least six quarterly dividends
      on the Series B Stock, the holders of such stock have the exclusive right,
      voting separately as a class, to elect, and have elected, two directors of
      CityFed.  Until the aggregate deficiency is declared and fully paid on the
      Series B Stock  and the  Series  C  Stock,  CityFed  may not  declare  any
      dividends or make any other  distributions  on or redeem the Common Stock.
      Until the aggregate  deficiency is declared and fully paid on the Series B
      Stock,   CityFed  may  not  declare  any   dividends  or  make  any  other
      distributions  on or redeem the Series C Stock.  As of March 31, 2000, the
      aggregate deficiency on the Series B Stock was approximately $57.3 million
      and the aggregate deficiency on the Series C Stock was approximately $35.5
      million.

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

      None.

Item 5. Other Information.

      None.

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

      (a)  Exhibits

      11.  Statement Regarding the Computation of Per Share Loss.
      27.  Financial Data Schedule

      (b)  None


                                       21
<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:  May 12, 2000


                                       22