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 June 30, 1999

                                       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)

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 [ ]


<PAGE>

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest  practicable  date. As of July 30, 1999, the number of
shares of outstanding common stock was 18,715,609.

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


                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

CITYFED FINANCIAL CORP.

STATEMENTS OF FINANCIAL  CONDITION
June 30, 1999 and December 31, 1998
(Dollars in Thousands)
                                                 JUNE 30, 1999     DECEMBER 31,
                                                  (UNAUDITED)          1998


ASSETS


CASH                                                $     37       $     48
INVESTMENT  SECURITIES - At amortized cost
 (Market Value June 30, 1999, $9,488;
   December 31, 1998, $9,460)                          9,517          9,453
OTHER ASSETS                                             155            154
                                                    --------       --------
TOTAL ASSETS                                        $  9,709       $  9,655
                                                    ========       ========


LIABILITIES AND STOCKHOLDERS' EQUITY


LIABILITIES:
  Contingency reserve                               $  6,587       $  6,615
  Other liabilities                                    4,421          4,444
                                                    --------       --------
           Total liabilities                          11,008         11,059
                                                    --------       --------


COMMITMENTS AND CONTINGENCIES


STOCKHOLDERS' EQUITY:
   Preferred stock, 30,000,000 shares authorized:
     $2.10 cumulative convertible, Series B, $25.00
          par value, issued and outstanding:          63,471         63,471
          2,538,850 in 1999 and 1998
     Series C Junior, cumulative, $.01 par value,
          liquidation preference $3.00 per share,
          shares issued and outstanding: 8,257,079        82             82
          in 1999 and 1998
   Common stock, $.01 par value, 100,000,000
      shares authorized, issued:  18,914,609 in
      1999 and 1998, outstanding: 18,715,609 in          188            188
      1999 and 1998
   Additional paid-in capital                        108,868        108,868
   Accumulated deficit                              (172,908)      (173,013)
   Treasury stock (199,000 shares of common stock)    (1,000)        (1,000)
                                                    --------       --------
      Total stockholders' deficit                     (1,299)        (1,404)
                                                    --------       --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY          $  9,709       $  9,655
                                                    ========       ========


See notes to financial statements.


                                       3
<PAGE>

CITYFED FINANCIAL CORP.

STATEMENTS  OF  OPERATIONS
Six Months Ended June 30, 1999 and 1998
(Dollars in Thousands, Except Per Share Data)
(Unaudited)

<TABLE>
<CAPTION>
                                              THREE MONTHS                 SIX MONTHS
                                                  ENDED                       ENDED
                                                JUNE 30,                    JUNE 30,

                                             1999        1998           1999         1998
                                             ----        ----           ----         ----
<S>                                      <C>         <C>            <C>          <C>
INCOME:

  Interest on investments                $    114    $    128       $    227     $    243
                                         --------    --------       --------     --------
   Total income                               114         128            227          243
                                         --------    --------       --------     --------


EXPENSES:

  Compensation and employee benefits           29          29             64           63
  Other operating expenses                     29          23             58           39
                                         --------    --------       --------     --------
   Total expenses                              58          52            122          102
                                         --------    --------       --------     --------


INCOME FROM CONTINUING OPERATIONS              56          76            105          141
LOSS FROM DISCONTINUED OPERATIONS               -           -              -            -
                                         --------    --------       --------     --------
NET INCOME                               $     56    $     76       $    105     $    141
                                         ========    ========       ========     ========


NET LOSS AVAILABLE FOR COMMON
  STOCKHOLDERS                           $ (2,103)   $ (2,083)      $ (4,212)    $ (4,176)


BASIC LOSS PER SHARE:
  From continuing operations             $  (0.11)   $  (0.11)      $  (0.23)    $  (0.22)
  From discontinued operations           $      -    $      -       $      -     $      -
  Net loss                               $  (0.11)   $  (0.11)      $  (0.23)    $  (0.22)

AVERAGE SHARES OUTSTANDING             18,715,609  18,715,609     18,715,609   18,715,288
DIVIDENDS PER COMMON SHARE                      -           -              -            -
</TABLE>

See notes to financial statements.


                                        4
<PAGE>

CITYFED FINANCIAL CORP.

STATEMENTS OF CASH FLOWS Six Months Ended June 30, 1999 and 1998 (Dollars in
Thousands) (Unaudited)



CASH FLOWS FROM OPERATING ACTIVITIES:

   Interest received                                    $    239     $    198
   Operating expenses                                       (174)        (139)
                                                        --------     --------
     Net cash provided by  operating activities               65           59
                                                        --------     --------


CASH FLOWS FROM INVESTING ACTIVITIES:

   Increase in investment securities                         (76)         (88)
   Other - net                                                 -           (2)
                                                        --------     --------
     Net cash used in investing activities                   (76)         (90)
                                                        --------     --------


NET DECREASE IN CASH                                         (11)         (31)
CASH AT BEGINNING OF PERIOD                                   48           66
                                                        --------     --------
CASH AT END OF PERIOD                                   $     37     $     35
                                                        ========     ========


RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
   OPERATING ACTIVITIES:

   Net income                                           $    105     $    141
   Loss from discontinued operations                           -            -
   Contingency reserve payments                              (31)         (15)
   Decrease in accrued income and expense, net                (9)         (67)
                                                        --------     --------
NET CASH PROVIDED BY OPERATING ACTIVITIES               $     65     $     59
                                                        ========     ========


See notes to financial statements.


                                        5
<PAGE>

CITYFED FINANCIAL CORP.
NOTES TO FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (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.  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 June 30, 1999,  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, 1998 ("1998 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 June 30, 1999, dividends in arrears were
     $53.3  million  and $33.0  million on the  Company's  Series B and Series C
     Stock, respectively.


                                        6
<PAGE>

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." 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



                                        7
<PAGE>


     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.  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.

     The  Notice  of  Charges  provides  that a hearing  will be held  before an
     administrative  law judge on the  question  of  whether  a final  cease and
     desist order should be issued against CityFed and the Respondents.  CityFed
     and the  Respondents  filed an answer in  response to the Notice of Charges
     and have filed motions for summary disposition of the OTS' claims.

     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.


                                       8
<PAGE>

     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.  Section 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.

     On August 20, 1997,  OTS Director  Nicolas  Retsinas  issued a Decision and
     Order granting CityFed's Motion for Interlocutory Review. Director Retsinas
     concluded that the ALJ had erred in recommending 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
     judgment,  and he  remanded  the  case to the ALJ for  further  proceedings
     consistent  with his  decision.  The Director  agreed with the ALJ that the
     5-year federal statute of limitations  applicable to "fines,  penalties and
     forfeitures" did not bar OTS'  restitution  claims.  However,  the Director
     reserved to a later date a decision on whether that statute  would bar OTS'
     civil money penalty claims. OTS has said it does not intend to pursue civil
     money penalty claims against  CityFed if it obtains an award of restitution
     in excess of CityFed's net worth.  Following the Director's  decision,  the
     Administrative  Law Judge has lifted the stay of  proceedings,  and CityFed
     and the OTS have begun to engage in discovery on the net worth  maintenance
     claim.

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

     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
     $9.1 million on June 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.  The  Temporary  Order  effectively
     prohibits   CityFed  from  advancing   litigation   expenses  or  providing


                                        9
<PAGE>

     indemnification  pursuant to its obligations  under its Bylaws and Restated
     Certificate of Incorporation.  See "Indemnification Claims" below. Although
     CityFed  attempted to have the Temporary  Order set aside in court,  it was
     unsuccessful.

     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").

     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.


                                       10
<PAGE>

     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 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.


                                       11
<PAGE>

     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 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.


                                       12
<PAGE>

     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
     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 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 FDIC  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.  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 have
     settled  with the RTC or FDIC or have been  dismissed  from the  Second RTC
     Action. The settlement agreement for Victor Pelson includes a waiver by him


                                       13
<PAGE>

     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  ("Roessner  Credit") 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,  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 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


                                       14
<PAGE>

     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, 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 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,  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 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  considering  what action to take in response to these  letters.
     CityFed  expects  that it may  receive  other,  similar  letters  demanding


                                       15
<PAGE>

     payment from other current or former directors and officers who were or are
     parties to one or more of the Cases.

     Through June 30,  1999,  CityFed  received but has not paid bills  totaling
     $4,368,000  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  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.

     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


                                       16
<PAGE>

     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 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 decision awarding  indemnification  to the Ridder
     plaintiffs. The petition for rehearing en banc was denied.


                                       17
<PAGE>

     On May 14, 1998, the Ridder Plaintiffs filed a motion asking the N.J. Court
     to issue a writ of execution.  They apparently  intended to use the writ of
     execution  to try to levy  on the  CityFed  assets  being  held in  escrow.
     CityFed  opposed this motion,  and filed a cross-motion to stay any further
     proceeding in the N.J.  Court  pending a resolution  of the  administrative
     proceedings,  a lifting of the Temporary  Order,  or approval by the OTS to
     make the  payments.  The OTS also sought leave of the N.J.  Court to file a
     brief as amicus curiae in opposition to the Ridder Plaintiffs' motion. At a
     hearing on June 29, 1998, the N.J. Court denied the OTS motion for leave to
     file as amicus  curiae.  On July 28, 1998, the N.J. Court denied the Ridder
     Plaintiffs'  motion for a writ of execution  but said they could refile the
     motion upon completion of the administrative  proceeding by the OTS against
     CityFed,  or upon decision by the U.S. Court of Appeals for the District of
     Columbia in an action brought by the Ridder Plaintiffs directly against OTS
     seeking to force OTS to permit the payments.  The U.S.  District  Court for
     the District of Columbia had ruled  against the Ridder  Plaintiffs  in that
     case,  stating that it lacked  jurisdiction to grant the relief sought, and
     the Ridder  Plaintiffs had appealed that ruling. On July 17, 1998, the U.S.
     Court of Appeals for the District of Columbia affirmed the District Court's
     holding that it lacked  jurisdiction to grant the relief sought (a petition
     to the U.S.  Supreme Court for a writ of certiorari was denied).  Following
     this  decision  by the  DC  Circuit,  the  N.J.  Court  denied  the  Ridder
     Plaintiffs'  motion  for a writ of  execution,  holding  that it too lacked
     jurisdiction to grant relief that would interfere with the operation of the
     Temporary Order. The N.J. Court stayed any further  proceedings in the case
     pending  conclusion  of the OTS  administrative  action or a lifting of the
     Temporary Order.  The Ridder  Plaintiffs have appealed this decision of the
     N.J. Court to the U.S. Court of Appeals for the Third Circuit.

     The Ridder  Plaintiffs  have  settled the F&D Action with the FDIC.  In the
     settlement, the Ridder Plaintiffs paid the FDIC $65,000, and the F&D Action
     has been dismissed.  As a result,  there is no longer any prospect that the
     Ridder  Plaintiffs  will  suffer  irreparable  harm  because of the alleged
     inability to pay for their legal  defense in the F&D Action.  Consequently,
     there would  appear to be no further  basis on which a court could enter an
     injunction  requiring  CityFed to advance  counsel fees and expenses to the
     Ridder Plaintiffs. Should the Ridder Plaintiffs request indemnification for
     the amount they paid to the FDIC or for legal fees and expenses incurred in
     the  defense  of the F&D  Action,  the  merits  of  their  request  will be
     evaluated under CityFed's  indemnification policy and under applicable law.
     The Ridder  Plaintiffs  have filed with the District  Court in New Jersey a
     motion for leave to file a  "Supplemental  Complaint" in which they purport
     to state a cause of action for  indemnification.  CityFed has opposed  this
     motion.

     "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


                                       18
<PAGE>

     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 over 100  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 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 been granted leave to intervene as a plaintiff in  supervisory
     goodwill cases involving closed institutions where there is claimed to be a
     deficit in the  receivership  estate,  including  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 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.

     Chief Judge Loren Smith of the Court of Federal  Claims has  established  a
     procedure  for  deciding   "common   issues"  which  cut  across   multiple
     supervisory  goodwill  cases.  One  such  issue  deals  with  the  right of
     investors and holding companies to assert claims as a result of supervisory
     goodwill  on the books of  depository  institutions  in which  they have as
     ownership  interest.  Judge  Smith's  decision on this issue may affect the
     Company's  right to assert a claim for the loss of supervisory  goodwill on
     the books of City Federal.

     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


                                       19
<PAGE>

     of  November  1,  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.

     TAX  LIABILITIES  - CityFed's  liability  for federal  income taxes for tax
     years through 1990 was calculated on the basis of CityFed's  inclusion in a
     consolidated   group  that   includes   City  Federal  and  the   successor
     institutions  created by the OTS to acquire the assets and  liabilities  of
     City Federal.  Under the applicable provisions of the Internal Revenue Code
     of 1986, as amended ("Code"), and the regulations  thereunder,  all members
     of the consolidated  group,  including  CityFed,  are jointly and severally
     liable for any income  taxes owed by the group.  CityFed  has not  included
     City  Federal and the  successor  institutions  in the  Federal  income tax
     returns  CityFed  filed  for its tax years  1991  through  1997.  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 June 30, 1999, the Company has a $6.6
     million  contingency  reserve  representing  the current  minimum  expenses
     relating to pending  litigation  estimated to be incurred and provision 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  reflects


                                       20
<PAGE>

     expected  costs to defend  against  the  claims and  negotiated  settlement
     amounts.   The  reserve,   however,   does  not  include   provisions   for
     trial-related  expenses  or any  other  potential  settlements  or  adverse
     judgments (other than amounts relating to the Ridder Action) 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, 1998                  $6,615,000


             Charges                                          28,000

             Provision                                             -
                                                          ----------

             Balance - June 30, 1999                      $6,587,000
                                                          ==========


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
     receivership, see Item 1., "Business" in CityFed's 1998 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
     six months ended June 30,  1999.  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


                                       21
<PAGE>

     outside legal counsel.  Currently,  CityFed 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 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 and, on
     February 12, 1999, an Order was issued  extending  the requested  exemption
     until February 12, 2000.

Liquidity and Capital Resources

     At  June  30,  1999,  CityFed  had  approximately   $9,709,000  in  assets,
     $11,008,000 in liabilities and $1,299,000 in negative stockholders' equity.
     At December  31,  1998,  CityFed had  approximately  $9,655,000  in assets,
     $11,059,000 in liabilities and $1,404,000 in negative stockholders' equity.
     However, as discussed in Note 4 to CityFed's  financial  statements for the
     six months  ended June 30,  1999 and under Item 1.,  "Business  - Potential
     Obligations of CityFed" in CityFed's  1998 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.  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.


                                       22
<PAGE>

     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.

     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

                  (b)  CityFed  may  invest in one or more money  market  mutual
            funds that limit their investments to "Eligible  Securities"  within
            the meaning of Rule 2a7(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  reserves
     for CityFed's pending  litigation  expenses,  which, at June 30, 1999, were
     $6,587,000 and, at December 31, 1998, were $6,615,000.

     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
     settlements in the Second RTC Action) 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 1998 Form 10KSB for a description of the major claims that may


                                       23
<PAGE>

     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 Ridder Action and the Second RTC 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 income from continuing operations for the six months ended
     June  30,  1999 of  $105,000.  This  compares  to  income  from  continuing
     operations  in the amount of  $141,000  for the six  months  ended June 30,
     1998. No addition to the contingency reserve was made during the six months
     ended June 30, 1999 or 1998.

     CityFed  recorded  income from  continuing  operations for the three months
     ended June 30, 1999 of $56,000. This compares to an income from  continuing
     operations  in the amount of $76,000  for the three  months  ended June 30,
     1998.

     Interest on investments was $227,000 for the six months ended June 30, 1999
     compared to $243,000 for the six months  ended June 30, 1998 due  primarily
     to the slightly lower level of interest  rates.  Total expenses of $122,000
     for the six months  ended June 30, 1999 were higher than the  $102,000  for
     the same period in 1998 due  primarily  to a higher  level of  professional
     service and escrow fees.

     Interest on  investments  was  $114,000 for the three months ended June 30,
     1999,  compared to $128,000  for the three  months  ended June 30, 1998 due
     primarily to the slightly lower level of interest rates.  Total expenses of
     $58,000 for the three months ended June 30, 1999 were more than the $52,000


                                       24
<PAGE>

     for  the  same  period  in  1998  due  primarily  to the  higher  level  of
     professional service and escrow 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.  The contingency  reserve also includes
     an  amount  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  1998 Form  10KSB for a
     description  of the  major  claims  that may give rise to  expected  future
     costs. No additional  provisions to the loss from  discontinued  operations
     were made  during  the six  months  ended June 30,  1999.  The  contingency
     reserve was reduced by charges of $28,000 from  $6,615,000  at December 31,
     1998 to $6,587,000 at June 30, 1999.

     The  basic  net loss per  share of $0.11  and  $0.23  for the three and six
     months ended June 30, 1999,  respectively,  compares to $0.11 and $0.22 for
     the three and six months ended June 30, 1998. In all periods, the basic 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 six months ended June
     30, 1999 for a description of currently pending litigation.

Item 2. Changes in Securities and Use of Proceeds.

     None

Item 3. Defaults Upon Senior Securities.

     (a) None.

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

     Beginning  with the payment due on September 1, 1989,  CityFed has not paid
     any quarterly  dividends on the Series B Stock.  Beginning on September 15,
     1989,  CityFed  also has not paid any  quarterly  dividends on the Series C
     Stock.  Because CityFed has failed to pay at least six quarterly  dividends
     on the Series B Stock,  the holders of such stock have the exclusive right,
     voting separately as a class, to elect, and have elected, two directors of


                                       25
<PAGE>

     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 June 30,  1999,  the
     aggregate  deficiency on the Series B Stock was approximately $53.3 million
     and the aggregate  deficiency on the Series C Stock was approximately $33.0
     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


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<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:  August 14, 1999


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