CITYFED FINANCIAL CORP, 10KSB, 1999-03-31

CITYFED FINANCIAL CORP
10KSB, 1999-03-31
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-KSB

(Mark One)

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

For the fiscal year ended December 31, 1998

[ ] 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
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CityFed Financial Corp.
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(Name of small business issuer in its charter)

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

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

Issuer's telephone number: (508)228-2366
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Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: (1) Common Stock,
par value $0.01 per share ("Common Stock"), (2) $2.10 Cumulative Convertible
Preferred Stock Series B, par value $25.00 per share ("Series B Stock"), and (3)
Series C, Junior Preferred Stock, par value $0.01 per share ("Series C Stock").

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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
---

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.( X )
---

State issuer's revenues for its most recent fiscal year: $542,000 for the year
ended December 31, 1998.

The aggregate market value of voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of March 23,
1999 was $368,611. The market value of the registrant's Series C Stock is based
on the bid price for such stock on December 29, 1996 of $0.01. The market value
of the registrant's Common Stock is based on the bid price on August 13, 1990 of
$0.01. The market value of the registrant's Series B Stock is based on the March
23, 1999 bid price of $0.05. All prices are as reported by the National
Quotation Bureau, Inc.

The number of shares outstanding of the registrant's Common Stock, as of
February 28, 1999, was 18,715,609.

Transactional Small Business Disclosure Format (check one): Yes ; No X
--

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PART I

ITEM 1. DESCRIPTION OF BUSINESS.

GENERAL

CityFed Financial Corp. ("CityFed") was incorporated in Delaware in 1984. On
December 7, 1989, the Office of Thrift Supervision ("OTS") appointed the
Resolution Trust Corporation ("RTC") as receiver for City Federal Savings Bank
("City Federal"), the sole subsidiary of CityFed. A new federal mutual savings
bank, City Savings Bank, F.S.B. ("City Savings"), was created that 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 has been 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 Federal Deposit Insurance Corporation "FDIC"), the statutory
successor to the RTC, have been paid. Receipt of any payment for such claim is
remote.

Since the receivership of City Federal, CityFed has been, and currently is, in
the process of determining its liabilities, including its contingent liabilities
described below. 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. See
"Current Activities" below. Since the receivership of City Federal, the
operating expenses of CityFed have consisted of the salaries of the employees of
CityFed (see Item 10., "Executive Compensation - Executive Compensation"),
office expenses (see Item 2., "Description of Property"), 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 small office.

INADVERTENT INVESTMENT COMPANY

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

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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.

BOESKY SETTLEMENT

In March 1986, CityFed, as a limited partner, invested $5,016,430 in Ivan F.
Boesky & Company, L.P., now known as CX Partners, L.P. ("CX"). The assets of CX
are now being administered by a liquidating trustee. In December 1989, CityFed,
along with other limited partners of CX and others, entered into an agreement
("Master Agreement") concerning the distribution of certain assets of CX. On
January 9, 1990, CityFed received the amount of $5,016,430 from CX. This amount
was CityFed's initial investment in CX. CityFed received further distributions
of $494,008 on December 8, 1991, $198,731 during November, 1993, $46,952 in
December 1994, $44,013 in March 1995 and $37,981 in December 1996. CityFed is
obligated to return all of the $5,016,430, the $494,008, the $198,731, the
$46,952, the $44,013, the $37,981 and future amounts received from CX to the
extent that the claims of creditors of CX cannot be satisfied out of CX's
remaining assets. CityFed is not aware of any threatened claims that would be of
such a magnitude that could not be expected to be satisfied out of CX's
remaining assets. Because of the uncertainty regarding future payments, CityFed
is treating them on a cash basis for financial reporting purposes.

Under the terms of the Master Agreement, most of the limited partners of CX
(including CityFed) share with each other in any recoveries from CX or its
affiliates, Seemala Partners, L.P. and Marabill Partners, L.P., in respect of
those partners' investments in such entities.

CityFed and certain other limited partners of CX entered into an agreement that
became effective September 30, 1991, settling their claims against certain
defendants in litigation then pending in the United States District Court for
the Southern District of New York (87 Civ. 1865 (MP)). In connection with this
settlement, CityFed received $221,401 on October 7, 1991.

In March 1995, CityFed also received $16,682 representing its interest in the
amount allocated to the CX-related claims in the Milken Global Settlement.

POTENTIAL OBLIGATIONS OF CITYFED

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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.

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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.

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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 indemnification pursuant to its obligations

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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.

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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

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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 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

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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 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.

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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 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

12
<PAGE>

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, 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.

13
<PAGE>

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 December 31, 1998, CityFed received but has not paid bills totaling
$4,300,000 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.

14
<PAGE>

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

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

15
<PAGE>

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.

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.

As of December 31, 1998, CityFed included approximately $804,000 in its
contingency reserve relating to the Ridder Action.

The Ridder Plaintiffs have agreed with the FDIC to settle the F&D Action. In the
settlement, the Ridder Plaintiffs will pay the FDIC $65,000, and the F&D Action
will be dismissed. As a result, there is no longer any prospect that the Ridder
Plaintiffs will suffer irreparable harm because of 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 FDIC action, the merits

16
<PAGE>

of their request will be evaluated under CityFed's indemnification policy and
under applicable law.

"SUPERVISORY GOODWILL" ACTION On August 7, 1995, CityFed, acting in its own
right and as shareholder of City Federal, filed a civil action in the United
States Court of Federal Claims seeking damages for loss of "supervisory
goodwill." The action is captioned CITYFED FINANCIAL CORP., IN ITS OWN RIGHT AND
IN ITS CAPACITY AS SHAREHOLDER OF CITY FEDERAL SAVING BANK, BEDMINSTER, NEW
JERSEY V. UNITED STATES OF AMERICA, No. 95-508c. CityFed filed this action under
the rule of the Court of Federal Claims that permits the filing of a
"Preliminary Complaint" when a plaintiff lacks access to information necessary
to fully state its claim. CityFed believes that, as of December 7, 1989, City
Federal had substantial amounts of supervisory goodwill on its books as a result
of various acquisitions by City Federal of troubled depository institutions
before that date, but without access to the records of City Federal, CityFed is
unable to state in detail the nature or amount of its goodwill claim. CityFed's
goodwill suit was stayed (as were all Court of Federal Claims supervisory
goodwill cases) pending the United States Supreme Court's review of the decision
of the United States Court of Appeals for the Federal Circuit in another
supervisory goodwill case, WINSTAR CORP. V. UNITED STATES, 64 F. 3d 1531 (Fed.
Cir. 1995) ("Winstar"). On July 1, 1996, the United States Supreme Court
affirmed the decision of the Federal Circuit in the Winstar case, holding that
the loss of supervisory goodwill and capital credits as a result of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 constituted
breaches of contract with the three institutions involved in that consolidated
appeal. The United States Supreme Court remanded those cases to the United
States Court of Federal Claims for a determination of damages.

CityFed's case is one of 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.

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<PAGE>

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 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.

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<PAGE>

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.

CURRENT ACTIVITIES

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 its funds in money market instruments with a maturity of one year or
less. These consist of United States government or agency securities, commercial
paper, bank certificates of deposit, one or more 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. Investment in any one of the money market funds is
limited to 5% of CityFed's assets. Investment in the corporate debt securities
of any one issuer is limited to $2,500,000. Under the terms of the Escrow
Agreement, changes in these investment policies require the approval of the
Board of Directors of CityFed and the OTS.

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

(a) CityFed may make an equity investment in issuers that are
not investment companies as defined in Section 3(a) of the 1940 Act
(including issuers that are not investment companies because they are
covered by a specific exclusion from the definition of investment
company under Section 3(c) of the 1940 Act other than Section 3(c)(1)
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 2a-7(a)(10) promulgated under the 1940 Act.

ITEM 2. DESCRIPTION OF PROPERTY.

CityFed rents, on a month to month basis, space at 35 Old South Road, Nantucket,
MA 02584 at a cost of $800 per month.

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<PAGE>

See Item 1., "Description of Business - Current Activities" for a description of
CityFed's current investment policies.

ITEM 3. LEGAL PROCEEDINGS.

See Item 1., "Description of Business - Potential Obligations of CityFed" for
information regarding the Notice of Charges, the Temporary Order, the First RTC
Action, the Second RTC Action and the Ridder Action, which information is
incorporated herein by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

For the period January 1 through May 29, 1990, the high and low sales prices of
CityFed's Common Stock and Series B Stock on the NASDAQ National Market System
are listed below. The prices represent actual transactions between dealers. On
May 29, 1990, CityFed's Common Stock and Series B Stock were delisted from
NASDAQ at the request of CityFed. The Series C Stock was delisted from NASDAQ at
the end of 1989. CityFed also requested that the London Stock Exchange delist
CityFed's Common Stock and such stock was delisted. Thus, at present, there is
no public trading market for the Common Stock, the Series C Stock or the Series
B Stock. Consequently, set forth below (except as otherwise noted) are the high
and low bid prices of such securities during the reported periods as reported by
the National Quotation Bureau. Such prices reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.

1990 First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Common Stock 1/8 - 1/32 1/8 - 1/32 (1) .01(1) (1)
Series B Stock 3/8 -1/4 7/16 -1/4 (2) (2) .05 -.05 (3)
Series C 1/32 - 1/16 (5) .02 - .02 .02 - .005 .01 -.01
Stock(3)

1991 First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Common Stock (1) (1) (1) (1)
Series B Stock .05-.20 (3)(4) (2) (2) (2)
Series C Stock .10 (5) .10 (5) .10 (5) .10 (5)

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<PAGE>

1992 First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Common Stock (1) (1) (1) (1)
Series B Stock (2) (2) (2) (2)
Series C Stock .10 (5) .10 (5) .10 (5) (7)

1993 First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Common Stock (1) (1) (1) (1)
Series B Stock (2) (2) (2) (2)
Series C Stock (7) .11 (5)(7) .11 (5) .11 (5)

1994 First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Common Stock (1) (1) (1) (1)
Series B Stock (2) (2) (2) (2)
Series C Stock .11 (5) .11 (5) .11 (5) .11 (5)

1995 First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Common Stock (1) (1) (1) (1)
Series B Stock (2) (2) (2) (2)
Series C Stock .11 (5) .11 (5) .11 (5) .01 -.01

1996 First Quarter(8) Second Quarter Third Quarter Fourth Quarter
---------------- -------------- ------------- --------------

Common Stock (1) (1) (1) .50-.50 (9)
Series B Stock (2) (2) (2) (2)
Series C Stock .51-.51 (5) .01-.01 .01-.01 .01-.01

1997 First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Common Stock (1) (1) (1) (1)
Series B Stock (2) (2) (2) (2)
Series C Stock .10-.10 (5) .10-.10 (5) .10-.10 (5) .10-.10 (5)

1998 First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Common Stock (1) (1) (1) (1)
Series B Stock (11) (11) .05-.05 (10) .05-.05 (10)
Series C Stock .10-.10 (5) .10-.10 (5) .10-.10 (5) .10-.10 (5)

</TABLE>

- - -------------------

(1) No sales prices or bid or asked quotations are available after May 30,
1990, except for the bid price of $0.01 on August 13, 1990. and the price
noted in footnote 9.
(2) No sales prices are available after May 29, 1990. No bid or asked
quotations are available between May 31, 1990 and September 28, 1990 or
after March 18, 1991.

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<PAGE>

(3) The high and low bid prices reported were supplied by the National
Quotation Bureau.
(4) The last available bid and asked prices were on March 18, 1991.
(5) Asked price only supplied by National Quotation Bureau.
(6) No bid or asked prices are available between February 6 and March 30, 1990
(7) No bid or asked prices are available between October 1, 1992 and June 21,
1993.
(8) Excludes January 8, 1996.
(9) Although the bid prices shown are as reported by the National Quotation
Bureau, they appear to be in error.
(10) Bid price only supplied by National Quotation Bureau.
(11) No bid or asked price reported by National Quotation Bureau.

The approximate number of holders of record of Common Stock as of February 28,
1999 was 9,800.

The Series B Stock is required to pay quarterly dividends at a rate of $.525 per
share on March 1, June 1, September 1 and December 1 of each year. The 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 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 December 31, 1998,
the aggregate deficiency on the Series B Stock was $50,650,057 and the aggregate
deficiency on the Series C Stock was $31,376,900.

CityFed does not anticipate being able to pay any dividends on its Series B
Stock, its Series C Stock or its Common Stock for the foreseeable future.
CityFed has not paid any dividends on its Common Stock since the second quarter
of 1989.

CityFed has not sold any securities without registering such sales under the
Securities Act of 1933 during 1996, 1996, 1997 or 1998.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998, CityFed had $9,655,000 in assets, $11,059,000 in total
liabilities and ($1,404,000) in stockholders' equity compared to $9,433,000 in
assets, $11,142,000 in total liabilities and ($1,709,000) in stockholders'
equity at December 31, 1997. However, as discussed in Note 8 to CityFed's

22
<PAGE>

financial statements and under Item 1., "Description of Business - Potential
Obligations of CityFed," 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. See Item 1., "Description of
Business - Current Activities."

While CityFed's liquidity is expected to be sufficient to meet expected
litigation and administrative expenses over the next twelve months, any
substantial indemnification expense, settlement or judgment (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 CityFed's activities. See Item 1., "Description of Business -
Potential Obligations of CityFed." However, as a result of additions to the
contingency reserve, CityFed currently has a negative net worth and it is
unlikely that CityFed will be able to achieve a positive net worth in the
foreseeable future.

During the period from 1990 through 1998, CityFed maintained reserves for
CityFed's pending litigation expenses that, at December 31, 1998, were
$6,615,000. The provision for the reserves is included in the loss from
discontinued operations in the financial statements. No addition was added to
the reserves for the twelve months ended December 31, 1998 and charges in the
amount of $85,000 were made against the reserves during this same period.

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 against 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 settlement in the
Second RTC Action) or adverse judgments, except that the contingency reserve now
also includes amounts relating to the Ridder Action. See Item 1., "Description
of Business - Potential Obligations of CityFed - Ridder Action" and " - Second
RTC Action." See also Item 1., "Description of Business - Potential Obligations
of CityFed" for a description of the other 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 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.

23
<PAGE>

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.

CityFed's interest in City Federal is reflected as discontinued operations in
the financial statements. See Item 1., "Description of Business - General."

CURRENT OPERATIONS

CityFed is not presently conducting an operating business. At the present time,
management has invested, and intends in the future to invest, CityFed's assets
on a short term basis.

CityFed currently derives its income by investing its assets in money market
instruments with a maturity of one year or less. See Item 1., "Description of
Business - Current Activities" for a description of CityFed's current investment
policy. At December 31, 1998, CityFed had invested $9,453,000.

RESULTS FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER
31, 1997

CityFed recorded income of $305,000 from continuing operations for the year
ended December 31, 1998 compared to a net income from continuing operations of
$276,000 for the year ended December 31, 1997. CityFed had no loss from
discontinued operations in 1998 or 1997.

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 now also includes $804,000 relating to
the Ridder Action. See Item 1., "Description of Business - Potential Obligations
of CityFed - Ridder Action." CityFed's 1998 and 1997 results of operations
reflect no additional provisions to the loss from discontinued operations. The
contingency reserve decreased from $6,700,000 at December 31, 1997 to $6,615,000
at December 31, 1998.

Interest on investments was $542,000 for the year ended December 31, 1998
compared to $535,000 for the year ended December 31, 1997 due to the slightly
higher level of invested funds during 1998.

Operating expenses of $237,000 for the year ended December 31, 1998 were less
than the $259,000 level for the year ended December 31, 1997. This occurred

24
<PAGE>

primarily as a result of the lower levels of professional services expenses, and
state taxes included in other operating expenses, which decreased from $102,000
for the year ended December 31, 1997 to $80,000 for the year ended December 31,
1998.

The basic loss per share from continuing operations of $0.45 and $0.45 for the
years ended December 31, 1998 and 1997, respectively, is after the deduction of
unpaid preferred dividends of $8,636,000 in 1997 and $8,634,000 in 1998. 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. There was no basic loss per share from discontinued operations
for the years ended December 31, 1998 and 1997, leaving the total basic loss per
share for those periods at $0.45 for both years.

RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER
31, 1996

CityFed recorded income of $276,000 from continuing operations for the year
ended December 31, 1997 compared to a net income from continuing operations of
$229,000 for the year ended December 31, 1996. CityFed had no loss from
discontinued operations in 1997 compared to a loss of $4,350,000 from
discontinued operations in 1996.

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 now also includes $838,000 relating to
the Ridder Action. See Item 1., "Description of Business - Potential Obligations
of CityFed - Ridder Action." CityFed's 1997 and 1996 results of operations
reflect additional provisions of $0 and $4,350,000, respectively, in the loss
from discontinued operations. The contingency reserve decreased from $6,734,000
at December 31, 1996 to $6,700,000 at December 31, 1997.

Interest on investments was $535,000 for the year ended December 31, 1997
compared to $478,000 for the year ended December 31, 1996 due to the higher
level of interest rates during 1997. In 1997, CityFed received no distribution
from CX as compared to a distribution of $38,000 in 1996. See Item 1.,
"Description of Business - Boesky Settlement."

Operating expenses of $259,000 for the year ended December 31, 1997 were less
than the $288,000 level for the year ended December 31, 1996. This occurred
primarily as a result of the lower levels of professional services expenses, and
state taxes included in other operating expenses, which decreased from $133,000
for the year ended December 31, 1996 to $102,000 for the year ended December 31,
1997.

The basic loss per share from continuing operations of $0.45 and $0.45 for the
years ended December 31, 1997 and 1996, respectively, is after the deduction of
unpaid preferred dividends of $8,636,000 in each year. 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. The basic loss per
share from discontinued operations for the years ended December 31, 1997 and

25
<PAGE>

1996 were $0.00 and $0.23, respectively, bringing the total basic loss per share
for those periods to $0.45 and $0.68, respectively.

26
<PAGE>

ITEM 7. FINANCIAL STATEMENTS.

Deloitte & Touche Deloitte & Touche LLP
Two Hilton Court
P.O. Box 319
INDEPENDENT AUDITORS' REPORT Parsippany, New Jersey 07054-0319
Telephone: (973) 683-7000
The Board of Directors of Facsimile: (973) 683-7459
CityFed Financial Corp.:

We have audited the accompanying statements of financial condition of CityFed
Financial Corp. (the "Company") as of December 31, 1998 and 1997, and the
related statements of operations, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express (or disclaim) an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our report.

The Office of Thrift Supervision ("OTS") of the United States Department of the
Treasury declared City Federal Savings Bank ("City Federal"), a wholly-owned
subsidiary of the Company, insolvent and ordered it closed on December 7, 1989.
The Resolution Trust Corporation was appointed Receiver to handle all matters
related to City Federal. Operations of City Federal, which accounted for
substantially all of the Company's operations, have been reflected as
discontinued operations in the accompanying financial statements.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1 and 8,
substantially all of the operations of the Company have been discontinued and
the Company is subject to a number of commitments and contingencies which raise
substantial doubt about its ability to continue as a going concern. Except as
indicated in Note 8, the financial statements do not include any adjustments
that might result from the outcome of these uncertainties.

Because of the possible material effects of the uncertainties referred to in the
preceding paragraph, we are unable to express, and we do not express, an opinion
on the financial statements.

/s/ Deloitte & Touche LLP

March 29, 1999

- - ---------------
Deloitte Touche
Tohmatsu
- - ---------------

27
<PAGE>

CITYFED FINANCIAL CORP.

STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
================================================================================
(DOLLARS IN THOUSANDS)
1998 1997
---- ----
ASSETS
- - ------

CASH $ 48 $ 66

INVESTMENT SECURITIES AT AMORTIZED COST
(Market Value $9,460 in 1998 and $9,211 in 9,453 9,204
1997) (Note 3)

OTHER ASSETS 154 163
-------- --------

TOTAL ASSETS $ 9,655 $ 9,433
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------

LIABILITIES:

Contingency reserve (Notes 2 and 8) $ 6,615 $ 6,700

Other liabilities 4,444 4,442
-------- --------

Total liabilities 11,059 11,142
-------- --------

COMMITMENTS AND CONTINGENCIES (Note 8)

STOCKHOLDERS' EQUITY (Notes 5 and 6):

Preferred stock, 30,000,000 shares authorized:
$2.10 cumulative convertible, Series B, $25
par value, issued and outstanding:
2,538,850 in 1998 and 2,539,400 in 1997 63,471 63,485

28
<PAGE>

Series C Junior, cumulative, $.01 par value,
liquidation preference $3.00 per share,
shares issued and outstanding: 8,257,079 82 82
in 1998 and 1997

Common stock, $.01 par value, 100,000,000
shares authorized, issued: 18,914,609 in
1998 and 18,913,646 in 1997, outstanding:
18,715,609 in 1998 and 18,714,646 in 1997 188 188

Additional paid-in capital 108,868 108,854

Accumulated deficit (173,013) (173,318)

Treasury stock (199,000 shares of common stock) (1,000) (1,000)
-------- ---------

Total stockholders' equity (deficit) (1,404) (1,709)
-------- ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,655 $ 9,433
======== =======

See notes to financial statements.

29
<PAGE>

CITYFED FINANCIAL CORP.

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
================================================================================
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1998 1997 1996
---- ---- ----

INCOME:

Interest on investments $ 542 $ 535 $ 478

Other (Note 3) - - 39
---------- ---------- ---------

Total income 542 535 517
---------- ---------- ---------

EXPENSES:

Compensation and employee
benefits 157 157 155

Other operating expenses 80 102 133
---------- ---------- ---------

Total expenses 237 259 288
---------- ---------- ---------

INCOME FROM CONTINUING
OPERATIONS 305 276 229

LOSS FROM DISCONTINUED
OPERATIONS (Note 2) - - (4,350)
---------- ---------- ----------

NET INCOME (LOSS) $ 305 $ 276 $ (4,121)
========== ========== ==========

NET LOSS AVAILABLE FOR
COMMON STOCKHOLDERS $ (8,329) $(8,360) $ (12,757)

30
<PAGE>

BASIC LOSS PER SHARE:

From continuing operations $ (0.45) $ (0.45) $ (0.45)

From discontinued operations $ - $ - $ (0.23)

Net loss $ (0.45) $ (0.45) $ (0.68)

AVERAGE SHARES OUTSTANDING 18,715,416 18,714,646 18,714,646

DIVIDENDS PER COMMON SHARE - - -

See notes to financial statements.

31
<PAGE>

CITYFED FINANCIAL CORP.

STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
================================================================================
(DOLLARS IN THOUSANDS)

Additional
Preferred Common Paid-in Accumulated Treasury
Stock Stock Capital Deficit Stock Total

--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

BALANCE,
DECEMBER 31, 1995 $ 63,567 $ 188 $ 108,854 $(169,473) $(1,000) $2,136

Net loss - - - (4,121) - (4,121)
-------- ------- -------- --------- ------- --------

BALANCE,
DECEMBER 31, 1996 63,567 188 108,854 (173,594) (1,000) (1,985)
-------- ------- --------- ---------- -------- --------

Net income - - - 276 - 276
-------- ------- -------- --------- ------- -------

BALANCE,
DECEMBER 31, 1997 63,567 188 108,854 (173,318) (1,000) (1,709)
-------- ------- --------- ---------- -------- --------

Conversion of (14) - 14 - - -
Preferred Stock

Net income - - - 305 - 305
-------- ------- -------- --------- ------- -----

BALANCE,
DECEMBER 31, 1998 $63,553 $ 188 $108,868 $(173,013) $(1,000) $(1,404)
======== ====== ========= =========== ======== ========
</TABLE>

See notes to financial statements.

32
<PAGE>

CITYFED FINANCIAL CORP.

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
================================================================================
(DOLLARS IN THOUSANDS)

1998 1997 1996
---- ---- ----

CASH FLOWS FROM OPERATING ACTIVITIES:

Interest received $ 511 $ 397 $ 439

Operating expenses (309) (261) (367)

Other income - - 39
------ -------- -------

Net cash provided by operating activities 202 136 111
------ -------- -------

CASH FLOWS FROM INVESTING ACTIVITIES:

Increase in investment securities (218) (155) (36)

Other - net (2) - (4)
------ -------- -------

Net cash used in investing activities (220) (155) (40)
------ -------- -------

NET (DECREASE) INCREASE IN CASH (18) (19) 71

CASH AT BEGINNING OF YEAR 66 85 14
------ -------- -------

CASH AT END OF YEAR $ 48 $ 66 $ 85
====== ======== =======

RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:

Net income (loss) $ 305 $ 276 $(4,121)

33
<PAGE>

Loss from discontinued operations - - 4,350

Contingency reserve payments (74) (10) (102)

Accrued income and expense (29) (130) (16)
------- ------- ------

NET CASH PROVIDED BY OPERATING ACTIVITIES $ 202 $ 136 $ 111
======= ======= ======

See notes to financial statements.

34
<PAGE>

CITYFED FINANCIAL CORP.

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Company Description and Basis of Presentation - Until December 8, 1989, CityFed
Financial Corp. (the "Company" or "CityFed"), was a unitary savings and loan
holding company that conducted its business primarily through its ownership of
City Federal Savings Bank ("City Federal") and its subsidiaries. On December 7,
1989, the Office of Thrift Supervision (the "OTS") of the United States
Department of the Treasury declared City Federal insolvent, ordered it closed
and appointed the Resolution Trust Corporation ("RTC") as receiver of City
Federal. Operations of City Federal, which accounted for substantially all of
the Company's operations, have been reflected as discontinued operations in the
accompanying financial statements. 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
December 31, 1998, the Company's business activities consisted primarily of
attempting to resolve outstanding claims against the Company and the management
of investments.

The financial statements have been prepared assuming the Company will continue
as a going concern. As discussed above and in Note 8, 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 8, 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.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts in the financial statements. Actual results could differ
from these estimates.

Cash - Cash includes cash on hand and in banks, excluding certificates of
deposit and money market accounts.

Investment Securities - In accordance with Statement of Financial Accounting
Standard No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," management classifies debt and equity securities, at acquisition,
into one of three categories: held to maturity, available for sale, or trading.
Held to maturity securities are those debt securities that CityFed has the
intent and ability to hold to maturity and are reported at amortized cost. Due
to the short term nature of CityFed's investment securities, all investment
securities, both in 1998 and 1997, are classified as held to maturity and,
therefore, all investment securities are stated at cost and adjusted for
premiums and discounts, which are amortized using the straight-line method,
which does not differ materially from the interest method.

35
<PAGE>

Basic Loss Per Share - Effective December 31, 1997, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." This standard changes the previous standards for computing earnings per
share (EPS).

As required by this statement, the Company computed basic loss per share by
dividing net income, after consideration of payment of preferred dividends of
$8,634,000 in 1998 and $8,636,000 in 1997 and 1996, by the weighted average
number of common shares outstanding during each period.

2. DISCONTINUED OPERATIONS

On December 7, 1989, the OTS declared City Federal insolvent and ordered it
closed. The RTC was appointed receiver to handle all matters related to City
Federal. Operations of City Federal, which accounted for substantially all of
the Company's operations, have been reflected as discontinued operations. The
Company has recognized losses from discontinued operations of City Federal only
to the extent of its investment in and advances to the former subsidiary savings
and loan (determined on a basis consistent with generally accepted accounting
principles). At December 31, 1998 and 1997, the Company's statement of financial
condition does not include any assets or liabilities of City Federal. However,
as discussed in Note 8, there exists a claim asserting that the Company should
assume certain liabilities of City Federal relating to deferred compensation
arrangements with the Company's former Chairman.

The loss from discontinued operations for 1996 of $4,350,000 results from an
increase in the contingency reserve (see Note 8). There was no loss from
discontinued operations in 1997 and 1998.

36
<PAGE>

3. INVESTMENT SECURITIES

A summary of investment securities at December 31, 1998 and 1997, which are all
due within one year, is as follows (dollars in thousands)

1998

-------------------------------------------------
PRINCIPAL CARRYING MARKET
AMOUNT COST VALUE VALUE

Corporate securities:

Ford Motor Credit Co. $1,300 $1,296 $ 1,299 $ 1,299

Associates Corp. of NA 380 385 380 380

JP Morgan & Co. 1,000 1,001 1,000 1,000

Wachovia Bank of N. C. 1,500 1,505 1,501 1,502

Bank of New York 500 499 500 500

Minnesota Mining &
Manufacturing Co. 500 502 501 501

Merrill Lynch 300 302 300 301

International Bank for
Reconstruction and
Development 500 509 503 504

Bankers Trust Co. 400 400 400 401

Merrill Lynch 900 900 900 901

Exxon Capital Corp. 1,000 1,008 1,005 1,006

Pitney Bowes 250 252 251 252

Chase Manhattan Bank 500 502 501 501

CoreStates Bank, N.A.

37
<PAGE>

Money Market Funds 204 204 204 204

Accrued Interest -- -- 208 208
-------- --------- ---------- ---------

Total $9,234 $9,265 $ 9,453 $ 9,460
======== ========= ========== =========

1997

-------------------------------------------------
PRINCIPAL CARRYING MARKET
AMOUNT COST VALUE VALUE

Corporate securities:

Ford Motor Credit Co. $ 500 $ 499 $ 500 $ 499

Ford Motor Credit Co. 1,000 997 997 997

Associates Corp. of NA 958 959 958 958

Wal-Mart Stores, Inc. 500 499 500 500

CIT Group Holdings 750 750 750 750

Bankers Trust Co. 1,000 1,000 1,000 1,001

Travelers Group Inc. 500 499 500 500

Associates Corp. of NA 250 250 250 250

NBD Bank N.A. 1,000 1,004 1,003 1,004

Associates Corp. of NA 500 506 502 503

Merrill Lynch 1,000 959 974 978

Bankers Trust Co. 1,000 1,000 1,000 1,001

CoreStates Bank, N.A.

Money Market Funds 93 93 93 93

Accrued Interest -- -- 177 177
-------- --------- ---------- ---------

Total $ 9,051 $ 9,015 $ 9,204 $ 9,211
========= ========= ========== ==========

38
<PAGE>

In 1994, CityFed transferred substantially all of its investment securities to
CoreStates Bank, N.A. ("CoreStates") for deposit into an escrow account to be
maintained by CoreStates. Certain restrictions exist under the related escrow
agreement (see Note 8 "Temporary Order to Cease and Desist").

During 1986, CityFed invested, as a limited partner, in the limited partnership
of CX Partners, L.P., formerly known as Ivan F. Boesky & Company, L.P. ("CX"),
the assets of which are now being administered by a liquidating trustee. This
limited partnership investment was carried at its net realizable value during
1989. In December 1989, CityFed, along with other limited partners of the
limited partnership and others, entered into an agreement concerning the
distribution of certain assets of the limited partnership. In January 1990,
CityFed received an amount from the limited partnership equal to its initial
investment in the limited partnership ($5,017,000). CityFed subsequently
received further distributions, including a distribution of $38,000 in 1996
which is included in other income. In March 1995, CityFed also received $16,682
representing its interest in the amount allocated to the CX-related claims in
the Milken Global Settlement. Because of the uncertainty regarding future
payments, CityFed is treating them on a cash basis for financial reporting
purposes. CityFed is obligated to return all amounts received from the limited
partnership to the extent that claims of creditors of the limited partnership
cannot be satisfied out of the limited partnership's remaining assets. Based
upon consultation with counsel to the limited partnership, CityFed is not aware
of any pending or threatened claims that could not be expected to be satisfied
out of the limited partnership's remaining assets.

4. INCOME TAXES

The Company was the parent company of an affiliated group of corporations that
filed consolidated income tax returns. On December 7, 1989, the OTS appointed
the RTC as receiver for City Federal. A new federal mutual savings bank, City
Savings Bank, F.S.B. ("City Savings"), was created by the OTS. City Savings
acquired all deposits and substantially all of the assets and liabilities of
City Federal. CityFed's liability for Federal income taxes for the tax years
through 1990 were calculated on the basis of CityFed's inclusion in a
consolidated group that includes City Federal and the successor institution
created by the OTS to acquire the assets and liabilities of City Federal. For
its tax years 1991 through 1997, CityFed has filed its Federal income tax
returns on a separate Company basis, which excludes City Federal and the
successor institution. (See Note 8).

At December 31, 1998, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $21,043,000 that expire in various
years through 2010. Operating loss carryforwards for New Jersey, Massachusetts
and Florida state tax purposes, which expire in various years through 2009, were
approximately $2,779,000, $1,370,000 and $993,000, respectively, at December 31,
1998.

39
<PAGE>

Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and operating loss
carryforwards. The tax effect of significant items comprising the Company's net
deferred tax asset as of December 31, 1998 and 1997 are as follows:

1998 1997

Deferred tax assets:

Operating loss carryforwards $ 7,439,331 $ 8,810,432

Contingency reserve 4,423,600 4,464,364
------------- -------------

Total deferred tax assets 11,862,931 13,274,796
------------- -------------

Deferred tax liabilities:

Fixed asset depreciation - -
------------- -----------

Total deferred tax liabilities - -
------------- -----------

Net deferred tax asset before
valuation allowance 11,862,931 13,274,796

Valuation allowance 11,862,931 13,274,796
------------- -------------

Net deferred tax asset $ - $ -
============= =============

There was a $1,411,865 and a $1,423,000 decrease in the valuation allowance for
the years ended December 31, 1998 and 1997, respectively.

5. STOCKHOLDERS' EQUITY

Each share of $2.10 Cumulative Convertible Preferred Stock, Series B is entitled
to a cumulative dividend of $2.10 per annum when and as declared by the Board of
Directors and will have priority over dividends on the common stock and Series C
Junior Preferred Stock. Each share is convertible to 1.752 shares of common

40
<PAGE>

stock. The Series B Preferred Stock is entitled to a liquidation preference of
$25.00 per share.

Each share of Series C Junior Preferred Stock is entitled to a cumulative
dividend of $.40 per annum when and as declared by the Board of Directors and
will have priority over dividends on the common stock. The Series C Junior
Preferred is entitled to a liquidation preference of $3.00 per share plus all
accrued and unpaid dividends and will rank junior to the Company's outstanding
$2.10 Cumulative Convertible Preferred Stock, Series B with respect to dividends
and the distribution of assets upon liquidation, dissolution or winding up of
the Company. At the option of the Company, the Series C Junior Preferred Stock
may be redeemed at any time for $3.00 per share plus all accrued and unpaid
dividends.

The Company suspended dividend payments in July of 1989. At December 31, 1998,
cumulative unpaid dividends totaled $50.7 million ($19.95 per share) and $31.4
million ($3.80 per share) for the Series B and C preferred stock, respectively.

6. STOCK OPTION AND DEFERRED COMPENSATION PLANS

The Company had a stock option plan (the "Plan"), which was terminated in 1990,
that called for 1,910,000 shares of common stock to be reserved for issuance
pursuant to options that may be granted under the Plan. Under the terms of the
Plan, options were granted at not less than the fair market value of the shares
at the date of grant, and could not have a maximum term of more than ten years.
Options were exercisable to such extent and at such time during the term thereof
as determined by the Board of Directors at the date of the grant. As of December
31, 1998, no options remained outstanding.

City Federal maintained a Deferral Agreement Deferred Compensation Plan pursuant
to which it administered a deferral agreement with the Company's former
Chairman, Gilbert G. Roessner. Under this plan, Mr. Roessner could convert
deferred compensation into stock units, each stock unit representing one
hypothetical share of the Company's common stock. The conversion price was based
on the fair market value of the common stock. Unless otherwise elected, the
stock units were payable in monthly installments after termination of service.
Distributions were in the form of shares of common stock or, in certain
circumstances, cash. Each stock unit outstanding at August 5, 1985 represented
one hypothetical share of common stock and 0.592 shares of Series C Junior
Preferred Stock. As a result of the receivership of City Federal, the Company no
longer receives funds from City Federal in connection with the distribution to
Mr. Roessner of common stock under the plan. Accordingly, the Company has not
included the stock units that may be issued under this plan in its 1998, 1997
and 1996 net loss per share calculations. See Note 8 for claim of Mr. Roessner
against the Company relating to this plan and other deferred compensation
arrangements for which the Company has not recorded a liability in the
accompanying financial statements.

The Company maintained an Amended Directors' Deferred Compensation Plan under
which it entered into deferral agreements with certain officers and directors
which also provided for the conversion of deferred compensation into stock
units. In December 1989, all participating officers and directors received

41
<PAGE>

complete distributions of their interests in this plan. As discussed in Note 8,
the RTC, as receiver for City Federal, caused an action to be filed seeking the
return of such distributions, which action has been settled.

The Company has reserved 948,000 shares of common stock to fund the obligations
under both the Amended Directors' Deferred Compensation Plan and the Deferral
Agreement Deferred Compensation Plan. Information with respect to compensation
converted to stock units under these plans is as follows:

Deferred
Compensation
Stock Per Balance
Units Share (000's)

Balance, December 31, 1998,
1997 and 1996 159,869 $ 4.472 $ 715
============ ========== ==========

7. PENSION PLANS

The Company, through City Federal, had an ESOP (a defined contribution plan)
with a Minimum Benefit Retirement Plan (the "Floor Plan") and a Thrift and
Profit Sharing Plan (a qualified plan under Section 401(k) of the Internal
Revenue Code). On December 7, 1989, City Federal was declared insolvent by the
OTS and ordered closed. The RTC has been appointed receiver to handle all
matters related to City Federal including these plans. The Company does not
provide any retirement benefits for its employee.

8. 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.

42
<PAGE>

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.

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

43
<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.

44
<PAGE>

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.

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

45
<PAGE>

46
<PAGE>

against CityFed resulting from CityFed's alleged violation of the Stipulation to
maintain the net worth of City Federal.

47
<PAGE>

Action from October 1993 through June 1994. The Orders staying the First RTC
Action did not affect the Expense Agreement, except that the Orders provided
that the Expense Agreement would terminate upon the effective date of any order
issued by the OTS, or of any consent order or agreement between the OTS and
CityFed, that addressed the subject matter of the Expense Agreement. In light of
the filing by the OTS of the Notice of Charges on June 2, 1994, the RTC and
CityFed agreed to (1) a Consent Order Dismissing Claims Against Defendant
CityFed Financial Corp. Without Prejudice, which provides for the dismissal
without prejudice of the RTC's claim against CityFed in the First RTC Action,
and which was entered as an Order of the N.J. Court on July 19, 1994; and (2) a
Tolling Agreement, effective as of July 11, 1994, pursuant to which CityFed and
the RTC agreed (a) to toll, during the pendency of the OTS' proceeding against
CityFed, the running of the statute of limitations with respect to the claims
the RTC had asserted against CityFed in the First RTC Action and (b) that, if
the OTS' proceeding against CityFed results in a determination that the
Stipulation was void and/or unenforceable as a matter of law, or that CityFed
did not violate the Stipulation, the RTC would be bound by such determination.

48
<PAGE>

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).

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.

49
<PAGE>

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.

50
<PAGE>

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

Through December 31, 1998, CityFed received but has not paid bills totaling
$4,300,000 in the aggregate for legal services and expenses rendered in

51
<PAGE>

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.

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

52
<PAGE>

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.

53
<PAGE>

As of December 31, 1998, CityFed included approximately $804,000 in its
contingency reserve relating to the Ridder Action.

"SUPERVISORY GOODWILL" Action On August 7, 1995, CityFed, acting in its own
right and as shareholder of City Federal, filed a civil action in the United
States Court of Federal Claims seeking damages for loss of "supervisory
goodwill." The action is captioned CITYFED FINANCIAL CORP., IN ITS OWN RIGHT AND
IN ITS CAPACITY AS SHAREHOLDER OF CITY FEDERAL SAVING BANK, BEDMINSTER, NEW
JERSEY V. UNITED STATES OF AMERICA, No. 95-508c. CityFed filed this action under
the rule of the Court of Federal Claims that permits the filing of a
"Preliminary Complaint" when a plaintiff lacks access to information necessary
to fully state its claim. CityFed believes that, as of December 7, 1989, City
Federal had substantial amounts of supervisory goodwill on its books as a result
of various acquisitions by City Federal of troubled depository institutions

54
<PAGE>

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.

55
<PAGE>

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.

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 December 31, 1998, the Company has a $6.6
million contingency reserve (see Note 2) 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 expected
costs to defend against the claims and negotiated settlement amounts. The

56
<PAGE>

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, 1995 $ 3,987,000

Charges (1,603,000)

Provision 4,350,000
------------------

Balance - December 31, 1996 6,734,000

Charges (34,000)

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

Balance - December 31, 1997 6,700,000
------------------

Charges (85,000)

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

Balance - December 31, 1998 $ 6,615,000
==================

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

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<PAGE>
PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

DIRECTORS

The current directors of CityFed are as follows:

Positions Held Director
Name With CityFed Age (1) Since (2)
---- -------------- ------- ---------

Class I-Term Expired 1994

Gordon E. Allen Director 72 1984

John W. Atherton, Jr. Director, 55 1987
Chairman,
President, Chief
Executive Officer
and Treasurer

Class II-Term Expired 1992

Peter R. Kellogg Director 56 1984

Class III-Term Expired 1993

Edwin M. Halkyard Director 64 1988

Directors Elected by the
Holders of Series B Stock

Richard N. Morash Director 56 1991

58
<PAGE>

Stephen L. Ranzini Director 33 1991

- - ----------------------------------

(1) At January 31, 1999.
(2) All directors serve until their successors have been elected and qualify.

The following is certain biographical information regarding the current
directors:

Mr. Allen was, until his retirement in 1986, President, Chief Operating Officer
and a director of Cluett, Peabody & Co., Inc., New York, New York, an apparel
manufacturing, sales and distribution company.

Mr. Atherton was elected Vice President of CityFed upon its formation in 1984,
Vice Chairman in April 1986 and President and Chief Executive Officer on
February 1, 1989. On April 18, 1990, Mr. Atherton was also elected Treasurer of
CityFed and, on July 16, 1991, was elected Chairman. He was President of City
Federal from January 1986 until December 8, 1989 and its Chairman and Chief
Executive Officer from February 1, 1989 until December 8, 1989. From November
1987 through February 1, 1989, he was Deputy Chief Executive Officer of City
Federal and, from March 1984 through November 1987, he was Chief Operating
Officer of City Federal. From March 1984 through December 1985, he was Vice
Chairman of City Federal. Prior to that time, he was an Executive Vice President
of City Federal.

Mr. Halkyard was Senior Vice President-Human Resources and a member of the
Management Committee of Allied-Signal, Inc., Morris Township, New Jersey, an
advanced technology company, from 1979 until his retirement in 1990. He is
currently a Distinguished Lecturer in Management in the College of Business
Administration, University of South Carolina. Mr. Halkyard is also a director of
Bally Manufacturing Corporation.

Mr. Kellogg is Senior Managing Director and Chief Executive Officer of Spear,
Leeds & Kellogg, New York, New York, a specialist firm on the New York Stock
Exchange. Mr. Kellogg is a member of the New York Stock Exchange and the
American Stock Exchange. He is President of IAT Reinsurance Syndicate, Ltd., a
Bermuda insurance company, and, until its liquidation in 1986, President and a
director of Interstate Air Taxi, Inc., New York, New York, a commuter airline
service. Mr. Kellogg is a director of First Options of Chicago, Inc., an options
clearing firm, Interstate/Johnson Lane, Inc., a publicly-traded regional
brokerage firm, and The Ziegler Companies, Inc., a publicly-traded regional
brokerage firm.

Mr. Morash has been a private investor in the real estate and securities markets
since October 1987. From December 1984 through October 1987, he was President,
Chief Executive Officer and Director of Yankee Bank for Finance & Savings,
F.S.B. in Boston, Massachusetts. This bank was put into receivership and was
liquidated in October 1987. From February 1983 through December 1984, he was
Director of Corporate Finance/Banking for Mosley, Hallgarten, Estabrook &

59
<PAGE>

Weeden, Inc., a broker-dealer located in New York, New York, where he was
responsible for the origination and sale of investment banking products to banks
and thrifts. He also managed new equity and debt financings for commercial banks
and thrifts, including mutual to stock conversions. From 1978 through 1983, he
served in various positions with First National Bank of New Jersey, Totowa, New
Jersey. His last position at that bank was Executive Vice President, where he
was responsible for all commercial, mortgage and consumer lending functions and
all activities of a 38 branch network for this $1.5 billion commercial bank.

Mr. Ranzini has been Chairman (since November 1997) and, since July 1988,
President and Chief Executive Officer of University Bancorp Inc. (formerly known
as Newberry Bancorp Inc.), the holding company for University Bank ("Bank"),
formerly known as The Newberry State Bank, in Newberry, Michigan. Mr. Ranzini is
also a director of University Bancorp, Inc. In November, 1994, he became the
President of the Bank, in December 1995, he became Senior Vice President -
Mortgage Banking of the Bank, in November 1997, he became President and Chief
Executive Officer of the Bank, and, in January 1994, became a director of the
Bank. Mr. Ranzini is also Director and Treasurer of Michigan BIDCO, a community
development lending organization (May 1993 to present) and a Director of
Municipal Bankers Corp., an investment company listed on the Toronto Stock
Exchange (July 1997 to present).

EXECUTIVE OFFICERS

CityFed has no current executive officers, other than John W. Atherton, Jr. All
executive officers are appointed annually by the Board and serve for one-year
terms.

See Item 1., "Description of Business" concerning the receivership of City
Federal.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

To the best of CityFed's knowledge, all directors, officers and more than 10%
beneficial owners of CityFed have filed all reports on Forms 3, 4 and 5 required
to be filed by them for the year ended December 31, 1998.

ITEM 10. EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

Mr. Atherton received an annual salary of $100,000 during 1998 and continues to
be paid at the same rate in 1999. The Board approved an additional payment to
him of $35,000 in December 1998.

CityFed does not have employment agreements with any of its officers.

The following table sets forth information concerning the compensation paid or
accrued by CityFed for CityFed's one officer whose aggregate compensation
exceeded $100,000 in 1998.

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<PAGE>

Annual Compensation
-------------------------------------
Name and Principal Other Annual
Position Year Salary($) Bonus($) Compensation ($)
--------------------------- ---- --------- -------- ----------------

John W. Atherton, Jr. 1998 100,000 35,000 15,922 (1)

Chairman, Director, 1997 100,000 35,000 14,989 (1)

President, Chief Executive 1996 100,000 35,000 13,871 (1)
Officer and Treasurer

- - -------------------------------

(1) Represents amounts paid for Mr. Atherton's health insurance and for life
insurance for which Mr. Atherton may designate the beneficiary.

DIRECTORS' COMPENSATION

Directors of CityFed receive a meeting fee of $1,000 for each meeting attended.
The Board held four meetings during 1998. No remuneration is paid for telephone
meetings. Directors of CityFed who are compensated as officers of CityFed do not
receive separate compensation for service on the Board of Directors of CityFed.

STOCK OPTION PLAN AND 1987 LONG-TERM PERFORMANCE INCENTIVE PLAN

On September 18, 1990, the Board of Directors of CityFed terminated CityFed's
Stock Option Plan and 1987 Long-Term Performance Incentive Plan ("1987 Plan").
Consequently, CityFed cannot grant any further options under either plan. No
options remain outstanding under either plan.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Securities Ownership of Certain Beneficial Owners

The following table sets forth information with respect to those persons known
to CityFed to own, or who may be deemed to own, beneficially more than five
percent of any class of voting stock of CityFed (Common Stock, Series B Stock or
Series C Stock) as of February 28, 1999. Except as otherwise noted, each
beneficial owner listed has sole investment and voting power with respect to the
stock indicated. Information contained in the table is based on reports filed
with or information otherwise supplied to CityFed by the listed beneficial
owners.

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<PAGE>

Number of Shares
Beneficially Percent
Name and Address of Beneficial Owner Owned of Class
- - ------------------------------------ ---------------- --------

Lehigh Financial Corp. 1,365,000(1) 7.29 percent of
950 Stuyvesant Avenue the Common Stock
Union, New Jersey 07083

Glenn F. Woo 1,776,435(2) 7.25 percent of
10 Exchange Place the Common Stock
Jersey City, New Jersey 07302 and 5.09 percent
of the Series C
Stock

Joseph L. Ranzini 445,800(3) 17.56 percent of
209 East Portage Avenue the Series B
Sault Ste. Marie, Michigan 49783 Stock
and
Stephen L. Ranzini
959 Maiden Lane
Ann Arbor, Michigan 48105

James R. Connacher 452,550 1.59 percent of
514 St. Clair Avenue East the Common Stock
Toronto, Ontario, Canada M4 and 6.12 percent
of the Series B
Stock

Frank A. Constantini 452,550 1.59 percent of
41 Glen Road the Common Stock
Toronto, Ontario, Canada M4 and 6.12 percent
of the Series B
Stock

Peter T. Hyland 450,050 1.59 percent of
129 Oarfield Avenue the Common Stock
Toronto, Ontario, Canada M4 and 6.12 percent
of the Series B
Stock

Philadelphia Bourse, Inc. 1,756,292 21.27 percent of
Suite 120 the Series C
4601 Forbes Boulevard Stock
Lanham, Maryland 20706-4313

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<PAGE>

- - -------------------------------

(1) Represents shares of Common Stock. This information is based on the most
recent Schedule 13D filed by Lehigh Financial Corp. dated January 23, 1989.
(2) Includes 1,356,323 shares of Common Stock and 420,112 shares of Series C
Stock purchased by Mr. Woo on November 20, 1990. This information is based
on the Schedule 13D filed by Mr. Woo on February 25, 1991.
(3) 126,970 of such shares of Series B Stock are held by Joseph L. Ranzini and
318,830 of such shares of Series B Stock are held by Stephen L. Ranzini,
the son of Joseph L. Ranzini. Mr. Joseph L. Ranzini has the sole power to
vote and direct the voting of, and the sole power to dispose and direct the
disposition of, the shares held by him. Mr. Stephen L. Ranzini has the sole
power to vote and direct the voting of, and the sole power to dispose and
direct the disposition of, the shares held by him. This information is
based on an amended Schedule 13D filed by Messrs. Ranzini on February 28,
1995.

SECURITIES OWNERSHIP OF MANAGEMENT

The following table sets forth information concerning the shares of Common
Stock, Series C Stock and Series B Stock beneficially owned by each director of
CityFed, and by all officers and directors as a group, as of February 28, 1999.
Except as otherwise noted, each beneficial owner listed has sole investment and
voting powers with respect to the stock indicated.

Common Stock
- - ------------

Number of Shares Percent
Name Beneficially Owned of Class
---- ------------------ --------

Gordon E. Allen 2,243 (1)
John W. Atherton, Jr. 31,105 (2) (1)
Edwin M. Halkyard 2,500 (3) (1)
Peter R. Kellogg 8,824 (4) (1)
Richard N. Morash 97,502 (1)
Stephen L. Ranzini 0 0

All Directors and Officers as 142,174 (2) (1)
a Group
(6 Persons)

- - ----------------------------

(1) Less than 1.0%.
(2) Includes 19,169 shares held by Mr. Atherton's wife and 7,168 shares held
in custodial accounts for Mr. Atherton's children with respect to which
Mrs. Atherton is custodian.
(3) Held jointly with Mr. Halkyard's wife.
(4) Held by a trust of which Mr. Kellogg is trustee.

63
<PAGE>

Series C Stock
- - --------------

Number of Shares Percent
Name Beneficially Owned of Class
---- ------------------ --------

Gordon E. Allen 119 (1)
John W. Atherton, Jr. 4,402 (2) (1)
Edwin M. Halkyard 0 0
Peter R. Kellogg 379,888 (3) 4.60
Richard N. Morash 49,511 (1)
Stephen L. Ranzini 0 0

All Directors and Officers as 433,920 5.26
a Group
(6 Persons)

- - ----------------------------

(1) Less than 1.0%.
(2) Includes 4,402 shares held in custodial accounts for Mr. Atherton's
children with respect to which Mr. Atherton's wife is custodian.
(3) Includes 379,888 shares held by two trusts of which Mr. Kellogg is a
trustee. This information is based on the Schedule 13D filed by Mr.
Kellogg on February 14, 1991.

Series B Stock
- - --------------

Number of Shares Percent
Name Beneficially Owned of Class
---- ------------------ --------

Gordon E. Allen 0 0
John W. Atherton, Jr. 150 (1)
Edwin M. Halkyard 0 0
Peter R. Kellogg 0 0
Richard N. Morash 0 0
Stephen L. Ranzini 445,800 (2) 17.56

All Directors and Officers as 445,950 (2) 17.56
a Group
(6 Persons)

64
<PAGE>
- - ----------------------------

(1) Less than 1.0%.
(2) 126,970 of such shares of Series B Stock are held by Joseph L. Ranzini,
the father of Stephen L. Ranzini. This information is based on an
amended Schedule 13D filed by Messrs. Ranzini dated February 28, 1995.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The bylaws of CityFed obligate CityFed to indemnify, to the fullest extent
authorized by the Delaware General Corporation Law, its directors and officers
and to advance expenses to such persons in certain circumstances. See Item 1.,
"Description of Business - Potential Obligations of CityFed - Indemnification
Claims."

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

(3) Articles of Incorporation and Bylaws.

3.1 Restated Certificate of Incorporation, as amended. Incorporated
herein by reference to Exhibit 3.1 of CityFed's Annual Report on Form
10-KSB for the year ended December 31, 1995.

3.2 Bylaws, as amended. Incorporated herein by reference to Exhibit
3.2 of CityFed's Annual Report on Form 10-KSB for the year ended
December 31, 1995.

(10) Material Contracts.

10.1 Stipulation of CityFed Financial Corp. dated December 4, 1984.
Incorporated herein by reference to Exhibit 10.1 of CityFed's Annual
Report on Form 10-KSB for the year ended December 31, 1995.

10.2 Settlement Agreement dated as of the 14th day of December 1992
between CityFed Financial Corp. and the Resolution Trust Corporation.
Incorporated herein by reference to Exhibit 10.5 of CityFed's Annual
Report on Form 10-K for the year ended December 31, 1992.

10.3 Agreement dated as of December 14, 1992 between CityFed
Financial Corp. and the Resolution Trust Corporation. Incorporated

65
<PAGE>

herein by reference to Exhibit 10.3 of CityFed's Annual Report on
Form 10-KSB for the year ended December 31, 1994.

10.4 Escrow Agreement dated October 26, 1995 among CoreStates Bank,
N.A., CityFed Financial Corp. and the Office of Thrift Supervision.
Incorporated herein by reference to Exhibit 10.4 of CityFed's Annual
Report on Form 10-KSB for the year ended December 31, 1994.

(11) Statement regarding computation of per share earnings (loss).

(27) Financial data schedule.

(b) Reports on Form 8-K.

None.

66
<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

CITYFED FINANCIAL CORP.

Date: March 29, 1999 By:/s/ John W. Atherton, Jr.
-------------------------

John W. Atherton, Jr.
President, Chief Executive Officer and
Treasurer (Principal Executive and
Financial Officer)

In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

/s/ Gordon E. Allen March 17, 1999
- - --------------------------
Gordon E. Allen
Director

/s/ John W. Atherton, Jr. March 29, 1999
- - --------------------------
John W. Atherton, Jr.
Chairman, President, Chief Executive
Officer, Treasurer and
Director (Principal Executive,
Financial and Accounting Officer)

/s/ Edwin M. Halkyard March 17, 1999
- - --------------------------
Edwin M. Halkyard
Director

/s/ Peter R. Kellogg March 15, 1999
- - --------------------------
Peter R. Kellogg
Director

/s/ Richard N. Morash March 16, 1999
- - --------------------------
Richard N. Morash
Director

/s/ Stephen L. Ranzini March 22, 1999
- - --------------------------
Stephen L. Ranzini
Director

67
<PAGE>

EXHIBIT INDEX

Exhibit
-------

3.1 Restated Certificate of Incorporation, as amended. Incorporated
herein by reference to Exhibit 3.1 of CityFed's Annual Report on
Form 10-KSB for the year ended December 31, 1995.

3.2 Bylaws, as amended. Incorporated herein by reference to Exhibit
3.2 of CityFed's Annual Report on Form 10-KSB for the year ended
December 31, 1995.

10.1 Stipulation of CityFed Financial Corp. dated December 4, 1984.
Incorporated herein by reference to Exhibit 10.1 of CityFed's
Annual Report on Form 10-KSB for the year ended December 31,
1995.

10.2 Settlement Agreement dated as of the 14th day of December
1992 between CityFed Financial Corp. and the Resolution Trust
Corporation. Incorporated herein by reference to Exhibit 10.5 of
CityFed's Annual Report on Form 10-K for the year ended December
31, 1992.

10.3 Agreement dated as of December 14, 1992 between CityFed Financial
Corp. and the Resolution Trust Corporation. Incorporated herein
by reference to Exhibit 10.3 of CityFed's Annual Report on Form
10-KSB for the year ended December 31, 1994.

10.4 Escrow Agreement dated October 26, 1995 among CoreStates Bank,
N.A., CityFed Financial Corp. and the Office of Thrift
Supervision. Incorporated herein by reference to Exhibit 10.4 of
CityFed's Annual Report on Form 10-KSB for the year ended
December 31, 1994.

11 Statement regarding the computation of basic per share earnings
(loss).

27 Financial data schedule.

EXHIBIT 11

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

For the Years Ended December 31, 1998, 1997, and 1996

Year Ended
December 31,
-----------------------------------------
1998 1997 1996
---- ---- ----

Computation of Basic Loss Per
Share:

Weighted average number of shares 18,715,416 18,714,646 18,714,646
========== ========== ==========
outstanding

Loss applicable to common stock:1

From Continuing Operations $(8,329,000) $(8,360,000) $ (8,407,000)
============ ============ =============

Net Loss $(8,329,000) $(8,360,000) $(12,757,000)
============ ============ =============

Basic loss per share:

From Continuing Operations $(0.45) $(0.45) $(0.45)
======= ======= =======

Net Loss $(0.45) $(0.45) $(0.68)
======= ======= =======

- - --------
1 Losses applicable to common stock are net of preferred stock dividends for
the years ended December 31, 1998, 1997, and 1996 in the amount of $8,634,000,
$8,636,000, and $8,636,000, respectively

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> $48
<SECURITIES> 9,453
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10
<DEPRECIATION> 9
<TOTAL-ASSETS> 9,655
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
63,553
<COMMON> (64,957)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,655
<SALES> 0
<TOTAL-REVENUES> 542
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 237
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 305
<INCOME-TAX> 0
<INCOME-CONTINUING> 305
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 305
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)

</TABLE>