| | **ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2001**
| | -----------------------------------------------------------------------------------------------------------------------------

**OR**

| | **TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For
the transition period from  to**
| | -------------------------------------------------------------------------------------------------------------------------

**COMMISSION FILE NUMBER: 0-24849**

**FIRST NILES FINANCIAL, INC.**

---

|**Delaware**(State or other jurisdiction of incorporationor organization) |  | **34-1870418**(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------- |  | --------------------------------------------------

|**55 North Main Street, Niles,  Ohio**(Address of principal executive offices) |  | **44446-5097**(Zip Code)
|------------------------------------------------------------------------------ |  | ------------------------











Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 contained herein, 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 the issuer's revenues for its most recent fiscal year: $6.2 million.

The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price of
such stock on the Nasdaq System as of March 14, 2002, was $16.9 million.  (The exclusion from such amount of the market value of
the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.)

As of March 14, 2002, there were issued and outstanding 1,514,968 shares of the Registrant's Common Stock.



PART II of Form 10-KSB -- Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 2001.PART III of Form 10-KSB -- Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held during April 2002.

**DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS**

This document, including information incorporated by reference, contains, and future
filings by First Niles Financial, Inc. on Form 10-QSB and Form 8-K and future oral and written
statements by First Niles and its management may contain, forward-looking statements about
First Niles and its subsidiary which we believe are within the meaning of the Private Securities
Litigation Reform Act of 1995.  These forward-looking statements include, without limitation,
statements with respect to anticipated future operating and financial performance, growth
opportunities, interest rates, cost savings and funding advantages expected or anticipated to be
realized by management.  Words such as "may," "could," "should," "would," "believe,"
"anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to
identify these forward-looking statements.  Forward-looking statements by First Niles and its
management are based on beliefs, plans, objectives, goals, expectations, anticipations, estimates
and intentions of management and are not guarantees of future performance.  First Niles
disclaims any obligation to update or revise any forward-looking statements based on the
occurrence of future events, the receipt of new information, or otherwise.  The important factors
we discuss below and elsewhere in this document, as well as other factors discussed under the
caption "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report to Stockholders (attached to this document as Exhibit 13) and
identified in our filings with the SEC and those presented elsewhere by our management from
time to time, could cause actual results to differ materially from those indicated by the forward-looking statements made in this document:

The following factors, many of which are subject to change based on various other factors
beyond our control, could cause our financial performance to differ materially from the plans,
objectives, expectations, estimates and intentions expressed in such forward-looking statements:

- the strength of the United States economy in general and the strength of the local
economies in which we conduct our operations;
- the effects of, and changes in, trade, monetary and fiscal policies and laws, including
interest rate policies of the Federal Reserve Board;
- inflation, interest rate, market and monetary fluctuations;
- the timely development of and acceptance of new products and services of Home
Federal and the perceived overall value of these products and services by users,
including the features, pricing and quality compared to competitors' products and
services;
- the willingness of users to substitute competitors' products and services for our
products and services;
- the success of Home Federal in gaining regulatory approval of its products and
services, when required;
- the impact of changes in financial services' laws and regulations (including laws
concerning taxes, banking, securities and insurance);
- the impact of technological changes;
- acquisitions;
- changes in consumer spending and saving habits; and
- our success at managing the risks involved in the foregoing.



**Item 1.   Description of Business**

**General**

First Niles Financial,  Inc., a Delaware corporation, was formed in July 1998 to act as the
holding company for Home Federal Savings and Loan Association of Niles upon the completion
of Home Federal's conversion from mutual to stock form.  First Niles received approval from the
Office of Thrift Supervision to acquire all of the common stock of Home Federal to be
outstanding upon completion of the conversion from mutual to stock form.  The conversion was
completed on October 26, 1998.  All references to First Niles or Home Federal, unless otherwise
indicated, on or before October 26, 1998, refer to Home Federal before its conversion from
mutual to stock form. References in this Form 10-KSB to "we", "us", and "our" refer to First
Niles and/or Home Federal as the context requires.

The business and management of First Niles consists of the business and management of
Home Federal.  At December 31, 2001, we had $96.1 million of assets and stockholders' equity
of $18.0 million (or 18.7% of total assets).  Our common stock is traded on The Nasdaq
SmallCap Market under the symbol "FNFI".

Home Federal is a federally chartered stock savings association headquartered in Niles,
Ohio.  Its deposits are insured up to applicable limits by the Federal Deposit Insurance
Corporation (the "FDIC") and are backed by the full faith and credit of the United States.

Our principal business is attracting retail deposits from the general public and investing
those funds primarily in permanent and construction loans secured by first mortgages on owner-occupied, one- to four-family residences.  We also originate, to a lesser extent, loans secured by
first mortgages on non-owner-occupied one- to four-family residences, permanent and
construction commercial and multi-family real estate loans, and consumer loans.  Excess funds
are generally invested in investment securities and mortgage-backed and related securities.

Our profitability depends primarily on net interest income, which is the difference
between interest and dividend income on interest-earning assets, and interest expense on
interest-bearing liabilities.  Interest-earning assets include principally loans, investment
securities, mortgage-backed and related securities and interest-earning deposits in other
institutions.  Net interest income is dependent upon the level of interest rates and the extent to
which such rates are changing.  Our profitability is also dependent, to a lesser extent, on the level
of noninterest income, provision for loan losses, noninterest expense and income taxes.  Our
operations and profitability are subject to changes in interest rates, applicable statutes and
regulations, and general economic conditions, as well as other factors beyond our control.

Our offices are located at 55 North Main Street, Niles, Ohio 44446-5097 and our
telephone number is (330) 652-2539.

**Market Area**

Our primary market area is Niles, Ohio.  Our primary lending area consists generally of
the area within a 30 mile radius of the City of Niles.  Although we may grant loans outside of this
30 mile radius upon the approval of our Board of Directors, we do not grant loans outside the
State of Ohio.

Trumbull County, where Home Federal is located, consists primarily of suburban and
rural communities with manufacturing and wholesale distribution activities serving as the basis
of the local economy.  Major employers in the area include General Motors Corp. and WCI Steel,
Inc.

Our market area has experienced a higher current unemployment rate than Ohio, but a
lower rate than the United States.  In December 2001, Trumbull County had an unemployment
rate of 5.3%, compared to an unemployment rate of 4.8% in Ohio, and 5.8% in the United States.
Unemployment has increased as the result of the closing of two manufacturing plants in our
market area.  Furthermore, the  population of Niles has remained relatively stagnant for the last
10 years, and is expected to remain relatively constant for the foreseeable future.

Our market area comprises a broad range of income and educational levels and
employment sectors.  In both Niles and Trumbull County, the services and manufacturing sectors
represent approximately equal shares of the business and employment base, followed by the
wholesale/retail sector.  The level of financial competition in both Niles and Trumbull County is
strong and dominated by commercial banks, with financial institutions of varying sizes and
characteristics operating in and around our market area.  These economic conditions and strong
competition have also resulted in reduced loan demand which, in turn, has resulted in a high
concentration of investment securities and mortgage-backed and related securities in our
portfolio compared to typical savings institutions.  In the event current economic and market
conditions persist or worsen, and loan demand remains weak, no assurances can be given that we
will be able to maintain or increase our mortgage loan portfolio, which could adversely affect our
operations and financial results.

**Lending Activities**

***General.***  Our primary lending activity is the origination of loans secured by first
mortgages on one- to four-family residential properties.  We also make permanent and
construction loans on multi-family and commercial properties, home equity lines of credit, and a
limited  number of other consumer and commercial business loans.  Our mortgage loans carry
either a fixed or an adjustable interest rate.  Mortgage loans are generally long-term and amortize
on a monthly basis with principal and interest due each month.  At December 31, 2001, our net
loan portfolio totaled $39.5 million, which constituted 41.1% of our total assets.

All loans that we originate are subject to ratification by the Board of Directors.
Commercial real estate loans and multi-family loans are generally reviewed by the Board before
we extend a lending commitment.  Unless we are aware of factors that may lead to an
environmental concern, we generally do not require any environmental study at the time a loan is

made.  If an environmental problem were discovered to exist after a loan has been originated and
the loan has become delinquent, we may choose not to foreclose on the property if the potential
environmental liability would render foreclosure imprudent.

Management is responsible for presenting to the Board information about the credit-worthiness of a borrower and the estimated value of the subject property.  Information relating to
credit-worthiness of a borrower generally consists of a summary of the borrower's credit history,
employment, employment stability, net worth and income.  The estimated value of the property
must be supported by an appraisal report prepared in accordance with our appraisal policy.

At December 31, 2001, the maximum amount we could have loaned to any one borrower
and the borrower's related entities was approximately $2.3 million.  At December 31, 2001, our
largest lending relationship to a single borrower or group of related borrowers consisted of three
purchased participation loans aggregating $2.3 million.  These loans were secured by an
apartment complex, a combination warehouse, office, and retail complex and a hotel currently
under construction.  Approximately $297,000 of this lending relationship was unfunded at
December 31, 2001.  This lending relationship was current and performing within its terms at
December 31, 2001.

Our second largest lending relationship at December 31, 2001 consisted of eleven loans
totaling $1.9 million.  Of the eleven loans, eight were for the construction or development of
residential housing, including condominiums, while three loans were secured by apartment rental
units and commercial office space.  Approximately $408,000 of this lending relationship was
unfunded at December 31, 2001.

Our third largest lending relationship consisted of a purchased participation loan for $1.0
million, secured by a condominium complex under construction in the greater Columbus, Ohio
area.  Approximately $616,000 of this loan was unfunded at December 31, 2001.

Our next largest lending relationship consisted of a purchased participation loan for
$993,000 secured by a warehouse located in Columbus, Ohio.

Our fifth largest lending relationship at December 31, 2001 totaled $975,000 and
consisted of a purchased participation loan secured by two separate apartment complexes in
Wooster, Ohio.  Each of the foregoing loans was current and performing in accordance with its
terms at December 31, 2001.

We had eight other lending relationships which exceeded $400,000 at December 31,
2001.  As of that date, all of these lending relationships were current and performing generally in
accordance with their loan terms.  One relationship, though performing in accordance with its
loan terms at December 31, 2001, was placed on nonaccrual status (*See* "Asset Quality -- Non-Performing Assets").

***Loan Portfolio Composition.*****  The following table sets forth information concerning the
composition of our loan portfolio in dollar amounts and in percentages as of the dates indicated.

The dollar amounts and percentages were calculated before deductions for loans in process,
deferred fees and discounts and allowances for losses.

|                            | December 31,          
|--------------------------- | ----------------------
|                            | 2001                  
|                            | Amount                
|                            | (Dollars in Thousands)
|Real Estate Loans:          |                       
|One- to four-family         | $26,587               
|Commercial                  | 5,993                 
|Multi-family                | 1,417                 
|Construction or development | 5,417                 
|Total real estate loans     | 39,414                
|                            |                       
|Other Loans:                |                       
|Consumer Loans:             |                       
|Home equity line of credit  | 1,612                 
|Other                       | 568                   
|Loans on Deposits           | 179                   
|Total consumer loans        | 2,359                 
|Commercial business loans   | 157                   
|Total other loans           | 2,516                 
|Total loans                 | 41,930                
|                            |                       
|Less:                       |                       
|Loans in process            | 1,705                 
|Deferred fees and discounts | 41                    
|Allowance for losses        | 676                   
|                            | 2,422                 
|Total loans receivable, net | $39,508               

The following table shows the composition of our loan portfolio by fixed- and adjustable-rate at the dates indicated.

|                            | December 31,          
|--------------------------- | ----------------------
|                            | 2001                  
|                            | Amount                
|                            | (Dollars in Thousands)
|Fixed-Rate Loans:           |                       
|Real estate:                |                       
|One- to four-family         | $18,345               
|Commercial                  | 895                   
|Multi-family                | 75                    
|Construction or development | 2,041                 
|Total real estate loans     | 21,356                
|                            |                       
|Consumer                    | 556                   
|Commercial business         | 157                   
|                            | 713                   
|Total fixed-rate loans      | 22,069                
|Adjustable-Rate Loans:      |                       
|Real estate:                |                       
|One- to four-family         | 8,242                 
|Commercial                  | 5,098                 
|Multi-family                | 1,342                 
|Construction or development | 3,376                 
|Total real estate loans     | 18,058                
|Consumer                    | 1,803                 
|Total adjustable-rate loans | 19,861                
|Total loans                 | 41,930                
|                            |                       
|Less:                       |                       
|Loans in process            | 1,705                 
|Deferred fees and discounts | 41                    
|Allowance for loan losses   | 676                   
|                            | 2,422                 
|Total loans receivable, net | $39,508               

The following schedule illustrates the contractual maturity of our real estate construction
and commercial business loan portfolios at December 31, 2001, before net items.  Loans that
have adjustable or renegotiable interest rates are shown as maturing in the period during which
the contract is due.  The schedule does not reflect the effects of possible prepayments or
enforcement of due-on-sale clauses.

|                                      | Real Estate Constructionor Development | CommercialBusiness  | Total  
|------------------------------------- | -------------------------------------- | ------------------- | -------
|                                      | Amount                                 | WeightedAverageRate | Amount 
|                                      | (Dollars in Thousands)                
|Due During PeriodsEnding December 31, |                                        |                     |        
|2002(1)                               | $    95                                | 8.25%               | $    --
|2003 to 2006                          | 1,806                                  | 7.14                | 97     
|After 2006                            | 3,516                                  | 7.85                | 60     
|Totals                                | $5,417                                 | 7.62%               | $   157

The total amount of loans in the above table due after December 31, 2002 which have
fixed interest rates is $3.7 million, while the total amount of loans due after such date which have
floating or adjustable interest rates is $1.9 million.

***One- to Four-Family Residential Real Estate Lending***.  Residential loan originations are
generated by our marketing efforts, present and walk-in customers, and referrals from real estate
brokers and builders.  We have focused our lending efforts primarily on the origination of loans
secured by first mortgages on owner-occupied, one- to four-family residences in our market area.
At December 31, 2001, one- to four-family residential mortgage loans totaled $26.6 million, or
63.4% of our gross loan portfolio.

Home Federal currently originates one- to four-family mortgage loans on either a fixed or
adjustable basis, as consumer demand dictates.  The pricing strategy for fixed-rate mortgage
loans revolves around setting interest rates that are competitive with other local financial
institutions. Adjustable-rate mortgage loans are generally offered with either one-year or three-year repricing periods.  Due to their wide availability and market rate sensitivity, we generally
use the one-year and three-year U.S. Treasury Security Constants plus a stated margin over such
indices for pricing of adjustable-rate mortgage loans.**** During the year ended December 31, 2001,
we originated $1.1 million of one- to four-family adjustable-rate mortgage loans and $6.6 million
of one- to four-family, fixed-rate mortgage loans.  We have not sold any mortgage loans.**** See
"Management's Discussion and Analysis of Financial Condition and Results of Operations -
Asset and Liability Management; Market Risk Analysis" in our Annual Report to Stockholders.

Fixed-rate loans secured by one- to four-family residences have maximum maturities of
30 years, and are fully amortizing, with payments due monthly.  These loans normally remain
outstanding, however, for a substantially shorter period of time because of refinancing and other
prepayments.  A significant change in the current level of interest rates could alter the average

life of a residential loan in our portfolio considerably.  Our one- to four-family loans are not
assumable, do not contain prepayment penalties and do not permit negative amortization of
principal.  Our real estate loans generally contain a "due on sale" clause allowing us to declare
the unpaid principal balance due and payable upon the sale of the security property.

Our one- to four-family residential adjustable-rate mortgage loans are fully amortizing
with contractual maturities of up to 30 years, and payments due monthly.  Our adjustable-rate
mortgage loans provide for specified minimum and maximum interest rates.  As a consequence
of using caps, the interest rates on these loans may not be as rate sensitive as our cost of funds.
Our adjustable-rate mortgage loans are generally not convertible into fixed-rate loans.

Adjustable-rate mortgage loans generally pose different credit risks than fixed-rate loans,
primarily because as interest rates rise, the borrower's payment rises, and thus, increases the
potential for default.  We have not experienced significant delinquencies concerning these loans.
See "- Asset Quality -- Non-Performing Assets" and "-Asset Quality -- Classified Assets."

As mentioned above, we have primarily concentrated our lending activities on the
origination of owner-occupied, one- to four-family residences.  In recent years we have also
focused our lending activities on loans secured by non-owner occupied, one-to four-family
residences.  Generally, these loans are underwritten using the same criteria as owner-occupied,
one- to four-family residential loans, but typically are originated at higher rates and lower loan-to-value ratios than owner-occupied loans.

We generally underwrite our one- to four-family loans based on the applicant's
employment, credit history, and appraised value of the subject property.  Presently, we lend up to
90% of the lesser of the appraised value or purchase price for one- to four-family loans.
Properties securing our one- to four-family loans are appraised by independent fee appraisers
approved and qualified by our Board of Directors.  We generally require our borrowers to obtain
title insurance and fire, property and flood insurance, if necessary, in an amount not less than the
value of the security property.

***Commercial and Multi-family Real Estate Lending*****.  We are engaged in commercial and
multi-family real estate lending.  These loans are secured primarily by small retail
establishments, small office buildings and other non-residential and multi-family residential
properties located in our market area.  We also purchase participation interests in loans originated
by other financial institutions.  At December 31, 2001, commercial real estate loans totaled $6.0
million or 14.3% of our gross loan portfolio and multi-family real estate loans totaled $1.4
million or 3.4% of our gross loan portfolio.

Our loans secured by commercial and multi-family real estate are originated with either a
fixed or adjustable interest rate.  The interest rate on adjustable-rate loans is based on a variety of
indices, which are generally determined upon negotiation with the borrower.  Loan-to-value
ratios on our commercial and multi-family loans typically do not exceed 80% of the appraised
value of the property securing the loan.  These loans typically require monthly payments and
have maximum maturities of 30 years.  While maximum maturities may extend to 30 years, loans
frequently have shorter maturities that generally range from 10 to 15 years.

Loans secured by commercial and multi-family real estate are granted based on the
income producing potential of the property and the financial strength of the borrower.  The net
operating income, which is the income derived from the operation of the property less all
operating expenses, must be sufficient to cover the payments related to the outstanding debt.  We
generally require personal guaranties of the borrowers in addition to the security property as
collateral for such loans.  Appraisals on properties securing commercial and multi-family real
estate loans are performed by independent fee appraisers approved by our Board of Directors.
See "- Loan Originations, Purchases and Repayments."

Loans secured by commercial and multi-family real estate properties are generally larger
and involve a greater degree of credit risk than one- to four-family residential mortgage loans
because they typically involve large balances to single borrowers or groups of related borrowers.
Because payments on loans secured by commercial and multi-family real estate properties are
often dependent on the successful operation or management of the properties, repayment of such
loans may be subject to adverse conditions in the real estate market or the economy.  If the cash
flow from the project is reduced, the borrower's ability to repay the loan may be impaired.  For
example, cash flow from the project is reduced if leases are not obtained or renewed.  See "-
Asset Quality -- Nonperforming Loans."

***Construction and Development Lending***.  We originate residential construction loans to
individuals as well as loans secured by building lots or raw land held for development.  Presently,
all of these loans are secured by property located within our market area.  We also purchase
participation interests in construction loans originated by other lenders.  At December 31, 2001,
we had $5.4 million in construction and development loans outstanding, representing 12.9% of
our gross loan portfolio.  At December 31, 2001, our largest construction lending relationship
consisted of a participation interest secured by a condominium complex under construction in the
greater Columbus, Ohio area.  Our participation interest totaled $1.0 million, with approximately
$616,000 unfunded at December 31, 2001.  This loan was performing in accordance with its
terms at December 31, 2001.

Construction loans to individuals for their residences generally are structured to be
converted to permanent loans at the end of the construction phase, which typically runs six
months.  These construction loans have rates and terms that match the one- to four-family loans
then offered by Home Federal, except that during the construction phase the borrower pays only
interest on the loan. Residential construction loans are generally underwritten pursuant to the
same guidelines used for originating permanent residential loans.

Loans secured by building lots or raw land held for development are generally granted
with terms of up to five years and are available at a fixed interest rate.  Payments on loans
secured by building lots are due monthly and amortized on a 20-year basis, resulting in a balloon
payment at maturity.  Payments on raw land held for development are due monthly, and are
interest only.  Loans secured by building lots or raw land for development are granted based on
both the financial strength of the borrower and the value of the underlying property.  At
December 31, 2001, we had $390,000 of loans secured by building lots and raw land.

Construction loans are obtained principally through continued business from builders
who have previously borrowed from Home Federal, as well as referrals from existing and walk-in customers.  The application process includes submission of accurate plans, specifications and
costs of the project to be constructed.  These items are used as a basis to determine the appraised
value of the subject property.  Loans are based on the lesser of current appraised value and/or the
cost of construction (land plus building).  We also conduct periodic inspections of the
construction project being financed.

There are uncertainties inherent in estimating construction costs and the market for the
project upon completion.  Accordingly, it is relatively difficult to evaluate accurately the total
loan funds required to complete a project, the related loan-to-value ratios and the likelihood of
success of the project.  Construction loans to borrowers other than owner-occupants also involve
many of the same risks discussed above regarding commercial real estate loans and tend to be
more sensitive to general economic conditions than many other types of loans.

***Other Lending***. We also originate consumer loans and a nominal amount of commercial
business loans.  Our consumer loan portfolio consists of home equity lines of credit and other
personal loans secured by first or second mortgages on residential real estate, and loans secured
by deposits.

The largest component of our consumer lending is home equity lines of credit, which we
began offering during 2001.  At December 31, 2001, our home equity line of credit portfolio
totaled $1.6 million, or 3.9% of our gross loan portfolio.  We are currently offering this product
with a ten year draw period followed by a ten year repayment period.  The minimum monthly
payment during the draw period is interest only.  The payments during the repayment period will
fully amortize the outstanding debt after ten years.  At December 31, 2001, we had $2.2 million
of unused credit available under our home equity line of credit program.

Our underwriting standards for home equity lines of credit generally include a
determination of the applicant's payment history on other debts and their ability to meet existing
obligations and payments on the proposed loan.  Although creditworthiness of the applicant is of
primary consideration, our underwriting process also includes an evaluation of the value of the
security property in relation to the proposed line of credit.  An individual home equity line of
credit, along with any other debt secured by the subject property, may not exceed 89.9% of the
appraised value of the property.  The appraised value of the property is generally determined
using county real estate tax appraisals.

The personal loans are offered at fixed rates of interest with terms not exceeding ten
years.  At December 31, 2001 these personal loans totaled $568,000, while loans on deposits
totaled $179,000.

Consumer loans may entail greater credit risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or are secured by rapidly
depreciable assets, such as automobiles.  In such cases, any repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment of the outstanding loan balance
as a result of the greater likelihood of damage, loss or depreciation.  In addition, consumer loan

collections are dependent on the borrower's continuing financial stability, and thus are more
likely to be affected by adverse personal circumstances.   Furthermore, the application of various
federal and state laws, including bankruptcy and insolvency laws, may limit the amount which
can be recovered on such loans.

**Loan Originations, Purchases and Repayments**

We originate loans through our marketing efforts, existing and walk-in customers and
referrals from real estate brokers and builders.  While we originate both adjustable-rate and
fixed-rate loans, our ability to originate loans is dependent upon the relative customer demand for
loans in our market.  Demand is affected by local competition and the interest rate environment.
During the last several years, our dollar volume of fixed-rate, one- to four-family loans has
exceeded the dollar volume of the same type of adjustable-rate loans.  Although our primary
business is the origination of one- to four-family mortgage loans, competition from other
financial institutions continues to limit the volume of loans we have been able to originate and
place in our portfolio.  As a result, we have purchased mortgage loans and investment and
mortgage-backed and related securities to supplement our portfolios.  We do not sell loans and
our loans are not originated according to secondary market guidelines.

In periods of economic uncertainty, the ability of financial institutions, including Home
Federal, to originate large dollar volumes of real estate loans may be substantially reduced or
restricted, with a resultant decrease in interest income.

The following table shows our loan origination, purchase and repayment activities for the
periods indicated.

|                                        | Year Ended December 31,
|--------------------------------------- | -----------------------
|                                        | 2001                   
|                                        | (In Thousands)         
|Originations by type:                   |                        
|Adjustable rate:                        |                        
|Real estate - one- to four-family       | $ 1,068                
|- commercial                            | 251                    
|- multi-family                          | ---                    
|Non-real estate - consumer              | 2,126                  
|Total adjustable-rate                   | 3,445                  
|Fixed rate:                             |                        
|Real estate - one- to four-family       | 6,574                  
|- commercial                            | 223                    
|- multi-family                          | ---                    
|- land and development                  | 106                    
|Non-real estate - consumer              | 279                    
|- commercial business                   | 40                     
|Total fixed-rate                        | 7,222                  
|Total loans originated                  | 10,667                 
|                                        |                        
|Purchases:                              |                        
|Real estate - one- to four-family       | 1,000                  
|- commercial                            | 500                    
|- multi-family                          | 1,000                  
|- land and development                  | ---                    
|Total loans purchased                   | 2,500                  
|Mortgage-backed and related securities  | 2,999                  
|Total purchased                         | 5,499                  
|                                        |                        
|Repayments:                             |                        
|Principal repayments                    | 12,534                 
|Total reductions                        | 12,534                 
|Increase (decrease) in other items, net | (164)                  
|Net increase (decrease)                 | $ 3,468                

When a borrower fails to make a payment on a loan on or before the default date, the loan
is considered 30 days past due.  At that time, we generally send out a delinquent notice to the
borrower.  All delinquent accounts are reviewed by our collection officer, and at his or her
discretion, we attempt to cause the delinquency to be cured by contacting the borrower. If the
loan becomes 60 days delinquent, the collection officer will generally send a personal letter to the
borrower requesting payment of the delinquent amount in full, or the establishment of an
acceptable repayment plan to bring the loan current within 90 days.  If the account becomes 90
days delinquent, and an acceptable repayment plan has not been agreed upon, the collection
officer will generally refer the account to legal counsel, with instructions to prepare a notice of
intent to foreclose.  The notice of intent to foreclose allows the borrower up to 30 days to bring
the account current.  During this 30 day period, the collection officer may accept a written

repayment plan from the borrower which would bring the account current within 90 days.  Once
the loan becomes 120 days delinquent, and an acceptable repayment plan has not been agreed
upon, the collection officer, after receiving consent from our Board of Directors, will turn over
the account to our legal counsel with instructions to initiate foreclosure.

***Delinquent Loans.*****  The following table sets forth our loan delinquencies by type,
number, amount and percentage of type at December 31, 2001.

|                            | Loans Delinquent For:  |                 
|--------------------------- | ---------------------- | ----------------
|                            | 30-89 Days             | 90 Days and Over
|                            | Number                 | Amount          
|                            | (Dollars in Thousands)
|Real Estate:                |                        |                 
|One- to four-family         | 16                     | $876            
|Commercial                  | ---                    | --              
|Multi-family                | ---                    | ---             
|onstruction or  development | ---                    | --              
|Consumer                    | 4                      | 59              
|Commercial                  | 1                      | 8               
|                            |                        |                 
|Total                       | 21                     | $943            

***Non-Performing Assets.***  The table below sets forth the amounts and categories of our
non-performing assets.  Loans are placed on non-accrual status when the collection of principal
and/or interest becomes doubtful.  For all years presented, we have had no troubled debt
restructurings which involve forgiving a portion of interest or principal on any loans or making
loans at a rate materially less than that of market rates.

|                                                | December 31,          
|----------------------------------------------- | ----------------------
|                                                | 2001                  
|                                                | (Dollars in Thousands)
|Non-accruing loans:                             |                       
|One- to four-family                             | $  92                 
|Commercial real estate                          | 461                   
|Construction or development                     | ---                   
|Land                                            | 95                    
|Total                                           | 648                   
|                                                |                       
|Accruing loans delinquent more than 90 days:    |                       
|One- to four-family                             | 673                   
|Multi-family                                    | ---                   
|Commercial real estate                          | 61                    
|Construction or development                     | ---                   
|Consumer                                        | 22                    
|Commercial business                             | ---                   
|Total                                           | 756                   
|                                                |                       
|Real Estate Owned                               | 53                    
|Total non-performing assets                     | $1,457                
|Total as a percentage of gross loans receivable | 3.47%                 

Except as discussed below, there were no nonperforming loans to any one borrower or
group of related borrowers that exceeded either individually or in the aggregate $250,000.

Included in the table above is a commercial real estate loan with an outstanding balance
of $461,000 at December 31, 2001.  This loan is secured by an individual commercial property
and was originated in December 1994 for $582,000, with a loan-to-value ratio of approximately
78%.  In February 2001, this loan was placed on non-accrual status.  The loan was subsequently
brought current and has been restructured.  The loan is currently performing in accordance with
its terms and management is continuing to monitor the loan.

For the year ended December 31, 2001, gross interest income which would have been
recorded had the non-accruing loans been current in accordance with their original terms
amounted to $45,000, none of which was included in interest income.

***Classified Assets.***  Federal regulations provide for the classification of loans and other
assets, such as debt and equity securities considered by the Office of Thrift Supervision to be of
lesser quality, as "substandard," "doubtful" or "loss."  An asset is considered "substandard" if it is
inadequately protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any.  "Substandard" assets include those characterized by the "distinct
possibility" that the insured institution will sustain "some loss" if the deficiencies are not

corrected.  Assets classified as "doubtful" have all of the weaknesses inherent in those classified
"substandard," with the added characteristic that the weaknesses present make "collection or
liquidation in full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable."  Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the establishment of a specific
loss reserve is unwarranted.

When an insured institution classifies problem assets as either substandard or doubtful, it
may establish general allowances for loan losses in an amount deemed prudent by management.
General allowances represent loss allowances which have been established to recognize the
inherent risk associated with lending activities, but unlike specific allowances, have not been
allocated to particular problem assets.  When an insured institution classifies problem assets as
"loss," it is required either to establish a specific allowance for losses equal to 100% of that
portion of the asset so classified or to charge off that particular amount.  An institution's
determination as to the classification of its assets and the amount of its valuation allowances is
subject to review by the Office of Thrift Supervision and the FDIC, which may order the
establishment of additional general or specific loss allowances.

In connection with the filing of our periodic reports with the Office of Thrift Supervision
and in accordance with our classification of assets policy, we regularly review the problem assets
in our portfolio to determine whether any assets require classification in accordance with
applicable regulations.  On the basis of management's review of our assets, at December 31,
2001, we had classified $669,000 of our assets as substandard, which represents 3.7% of
stockholders' equity and 0.7% of total assets.  No assets were classified as doubtful or as loss.

***Allowance for Loan Losses*.**  The allowance for loan losses is established through a
provision for loan losses which is based on management's evaluation of past loss experience,
current trends in the level of delinquent and specific problem loans, loan concentration to single
borrowers, adverse situations that may affect the borrower's ability to repay, the estimated value
of any underlying collateral, and current and anticipated economic conditions in our market area.
A significant portion of our loan portfolio is concentrated in one- to four-family mortgage loans
which, historically, has not led to any significant loan losses.  Management prepares quarterly
analyses of loans classified as substandard and non-performing, and evaluates these loans in
connection with its determination of the appropriate provision for loan losses to be recorded for
the period.  Management also analyzes borrowers with significant outstanding balances to
reevaluate credit risk, the quality of the loan and factors that may affect the borrowers' ability to
pay.  Accordingly, the allowance represents managements's estimate of losses inherent in our
loan portfolio as of a specified date.

Although management believes that it uses the best information available to determine
the allowance, unforeseen market conditions could result in adjustments and net earnings could
be significantly affected if circumstances differ substantially from the assumptions used in
making the final determination.  Future additions to our allowance will be the result of periodic
loan, property and collateral reviews and thus, cannot be predicted in advance.  At December 31,
2001, our total allowance for loan losses represented coverage of 48.1% of non-performing loans.

See Notes A and C of the Notes to Consolidated Financial Statements contained in our Annual
Report to Stockholders.

The following table sets forth an analysis of our allowance for loan losses.

|                                                                                                        | At and For the YearsEnded December 31,
|------------------------------------------------------------------------------------------------------- | --------------------------------------
|                                                                                                        | 2001                                  
|                                                                                                        | (In Thousands)                        
|                                                                                                        |                                       
|Balance at beginning of period                                                                          | $592                                  
|                                                                                                        |                                       
|Charge-offs: One- to four-family                                                                        | 37                                    
|Total charge-offs                                                                                       | 37                                    
|                                                                                                        |                                       
|Recoveries:                                                                                             | 1                                     
|Net (charge-offs) recoveries                                                                            | (36)                                  
|Additions charged to operations                                                                         | 120                                   
|Balance at end of period                                                                                | $676                                  
|                                                                                                        |                                       
|Ratio of net charge-offs (recoveries) during the period to  average loans outstanding during the period | 0.10%                                 
|                                                                                                        |                                       
|Ratio of net charge-offs (recoveries) during the period to  average non-performing loans                | 2.91%                                 

The distribution of our allowance for loan losses at the dates indicated is summarized as
follows:

|                                                                 | December 31,               
|---------------------------------------------------------------- | ---------------------------
|                                                                 | 2001                       
|                                                                 | Amount ofLoan LossAllowance
|                                                                 | (Dollars in Thousands)     
|                                                                 |                            
|One- to four-family                                              | $228                       
|Multi-family, commercial,real estate, constructionor development | 303                        
|Consumer and commercialbusiness                                  | 12                         
|Unallocated                                                      | 133                        
|Total                                                            | $676                       

**Investment Activities**

Home Federal must maintain sufficient levels of investments that qualify as liquid assets
to meet the safety and soundness requirement under Office of Thrift Supervision regulations.
Liquidity may increase or decrease depending upon the availability of funds and comparative
yields on investments in relation to the return on loans.  Historically, we have maintained liquid
assets at levels believed adequate to meet the requirements of normal operations, including
potential deposit outflows.  Cash flow projections are regularly reviewed and updated to assure
that adequate liquidity is maintained.

Federally chartered savings institutions have the authority to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of various federal agencies, certain
certificates of deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds.  Subject to various restrictions, federally chartered
savings institutions may also invest their assets in investment grade commercial paper and
corporate debt securities and mutual funds whose assets conform to the investments that a
federally chartered savings institution is otherwise authorized to make directly.  See "Regulation
- Federal Regulation of Savings Associations" for a discussion of additional restrictions on our
investment activities.

President Stephens, Vice President Swift , Vice President Safarek and Compliance
Officer Csontos have the basic responsibility for the management of our investment portfolio,
subject to the direction and guidance of the Board of Directors.  These officers consider various
factors when making decisions, including the marketability, maturity and tax consequences of the
proposed investment.  The maturity structure of investments will be affected by various market
conditions, including the current and anticipated slope of the yield curve, the level of interest
rates, the trend of new deposit inflows, and the anticipated demand for funds via deposit
withdrawals and loans.

The general objectives of our investment portfolio are to: (i) provide and maintain
liquidity within the guidelines prescribed by Office of Thrift Supervision regulations; (ii) provide
liquidity when loan demand is high and to assist in maintaining earnings when loan demand is
low; and (iii) maximize earnings while satisfactorily managing risk, including credit risk,
reinvestment risk, liquidity risk and interest rate risk.  See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Asset and Liability Management;
Market Risk Analysis" in our Annual Report to Stockholders.

Our investment securities consist primarily of a mutual funds and U.S. agency securities.
The mutual fund invest in assets that conform to the investments that a federally chartered
savings institution is authorized to make directly.  These funds offer professional management,
easy access to funds, continuous reinvestment and relatively low historical price volatility.
Currently, we are invested in one mutual fund.

The U.S. agency securities consist of different callable securities, issued by either the
Federal Home Loan Bank system, Fannie Mae or Freddie Mac.  These securities have original

maturities ranging from five to 15 years and original call periods ranging from three months to
three years.

Our mortgage-backed and related securities portfolio consists of securities issued under
government-sponsored agency programs.  We hold primarily collateralized mortgage obligations.  Collateralized mortgage obligations are special types of pass-through debt securities in which
the principal and interest payments on the underlying mortgages or mortgage-backed securities
are used to create classes with different maturities and, in some cases, amortization schedules, as
well as a residual interest, with each such class possessing different risk characteristics.

Our policy is to purchase only collateralized mortgage obligations that are in the first or
second repayment tranche (investment class) and are AAA rated.  The expected life of our
collateralized mortgage obligations is typically under five years at the time of purchase, although
the contractual life may exceed 20 years.  Premiums associated with collateralized mortgage
obligations purchased are not significant; therefore, the risk of significant yield adjustments
because of accelerated prepayments is limited.  Yield adjustments are encountered as interest
rates rise or decline, which in turn slows or increases prepayment rates and affects the average
lives of the collateralized mortgage obligations.  The purpose of our collateralized mortgage
obligation investment strategy is to: (i) assist in maintaining Home Federal's qualified thrift
lender status (see "Regulation - Qualified Thrift Lender"); (ii) generate high cash flow so as to
lessen liquidity and reinvestment risk; (iii) preserve asset quality; and (iv) generate additional
interest income.  At December 31, 2001, we held collateralized mortgage obligations totaling
$9.8 million, all of which were secured by underlying collateral issued under government agency-sponsored programs.  Most of our collateralized mortgage obligations and mortgage-backed
securities are currently classified as held to maturity.  We anticipate classifying as available for
sale all new purchases of securities.  At December 31, 2001, $3.8 million of our collateralized
mortgage obligations qualified as high risk mortgage securities under Office of Thrift
Supervision regulations.  These securities qualified as high-risk mortgage-related securities
because of the current low interest rate environment.  The low rate environment increases the
likelihood that the underlying mortgages will prepay, which causes the estimated life of the
securities, and therefore their market value, to become uncertain.  At the time of purchase none
of these securities qualified as high risks.

While mortgage-backed and related securities, such as collateralized mortgage
obligations, carry reduced credit risk as compared to conventional loans, mortgage-backed and
related securities remain subject to the risk that a fluctuating interest rate environment, along
with other factors such as the geographic distribution of the underlying mortgage loans, may alter
the prepayment rate of such mortgage loans and thus, affect both the prepayment speed, and
value, of such securities.

The following table sets forth the composition of our investment and mortgage-backed
and related securities portfolio at the dates indicated.  Our investment securities portfolio at
December 31, 2001, contained neither tax-exempt securities nor securities of any issuer with an
aggregate book value in excess of 10% of our retained earnings, excluding those issued by the
U.S. Government or its agencies and excluding our mutual fund investments.

|                                                                   | December 31,          
|------------------------------------------------------------------ | ----------------------
|                                                                   | 2001                  
|                                                                   | Book Value            
|                                                                   | (Dollars in Thousands)
|Investment securities:                                             |                       
|Mutual funds(1)                                                    | $ 5,123               
|Freddie Mac stock                                                  | 2,027                 
|U.S. agency securities                                             | 29,095                
|Federal Home Loan Bank stock                                       | 1,005                 
|Other                                                              | 15                    
|Total investment securities and Federal Home       Loan Bank stock | $37,265               
|                                                                   |                       
|Mortgage-backed and related securities:                            |                       
|Collateralized mortgage obligations                                | $ 9,768               
|Freddie Mac                                                        | 957                   
|Federal National Mortgage Association                              | 976                   
|                                                                   | 11,701                
|Unamortized discounts, net                                         | (15)                  
|Total mortgage-backed and related securities                       | $11,686               
|                                                                   |                       
|Other interest-earning investments:                                |                       
|Money market mutual fund                                           | $3,015                
|Interest-bearing deposits with banks                               | 1,300                 
|Federal funds sold                                                 | 765                   
|Total                                                              | $ 5,080               

The following table sets forth the contractual maturities of our U.S. agency and mortgage-backed and related securities at December 31, 2001.

|                                    | Due in          | December 31,2001BalanceOutstanding
|----------------------------------- | --------------- | ----------------------------------
|                                    | 6 Monthsor Less | 6 Monthsto 1 Year                 
|                                    | (In Thousands) 
|U.S. agency securities              | $  ---          | $  --                             
|                                    |                 |                                   
|Collateralized mortgage
obligations | ---             | ---                               
|                                    |                 |                                   
|Freddie Mac                         | ---             | ---                               
|                                    |                 |                                   
|FNMA National Mortgage
Association  | ---             | ---                               
|                                    |                 |                                   
|Total                               | $  ---          | $  ---                            
|                                    |                 |                                   
|Weighted average yield              | ---%            | ---%                              

**Sources of Funds**

***General.*****  Our sources of funds are deposits and borrowings, payment of principal and
interest on loans, interest earned on or maturation of other investment securities and short-term
investments, and funds provided from operations.

***Deposits*.**  We offer a variety of deposit accounts having a wide range of interest rates and
terms.  Our deposits consist of passbook and statement savings accounts, money market deposit
accounts, NOW accounts and certificate of deposit accounts currently ranging in terms from 91
days to five years.  We only solicit deposits from our market area and do not use brokers to
obtain deposits.  We primarily rely on competitive pricing policies, advertising and customer
service to attract and retain these deposits.  The flow of deposits is influenced significantly by
general economic conditions, changes in market interest rates, and competition.  Deposit
balances increased during 2001.

The variety of deposit accounts we offer has allowed us to be competitive in obtaining
funds and to respond with flexibility to changes in consumer demand.  We have become more
susceptible to short-term fluctuations in deposit flows, as customers have become more interest
rate conscious.  We endeavor to manage the pricing of our deposits in keeping with our
asset/liability management, liquidity and profitability objectives.  Based on our experience, we
believe that our savings and checking accounts are relatively stable sources of funds. Our ability
to attract and maintain certificates of deposit and the rates paid on these deposits, however, has
been and will continue to be significantly affected by market conditions.

The following table sets forth the deposit flows at Home Federal during the periods
indicated.

|                            | Years Ended December
31,
|--------------------------- | ------------------------
|                            | 2001                    
|                            | (Dollars in Thousands)  
|                            |                         
|Opening balance             | $52,194                 
|Deposits                    | 47,264                  
|Withdrawals                 | (44,336)                
|Interest credited           | 1,939                   
|                            |                         
|Ending balance              | $57,061                 
|                            |                         
|Net increase (decrease)     | $  4,867                
|                            |                         
|Percent increase (decrease) | 9.32%                   

The following table sets forth the dollar amount of savings deposits in the various types
of deposit programs we offered for the periods indicated.

|                                                   | December 31,          
|-------------------------------------------------- | ----------------------
|                                                   | 2001                  
|                                                   | Amount                
|                                                   | (Dollars in Thousands)
|                                                   |                       
|Transactions and Savings Deposits:                 |                       
|Passbook and statement savings accounts (2.25%)(1) | $18,504               
|NOW accounts (2.00%)(1)                            | 3,966                 
|Money market accounts (2.38%)(1)                   | 3,029                 
|                                                   |                       
|Total non-certificates                             | 25,499                
|                                                   |                       
|Certificates:                                      |                       
|2.01 -  4.00%                                      | 6,325                 
|4.01 -  6.00%                                      | 22,301                
|6.01 -  8.00%                                      | 2,936                 
|                                                   |                       
|Total certificates                                 | 31,562                
|Total deposits                                     | $ 57,061              

The following table shows rate and maturity information for our certificates of deposit as
of December 31, 2001.

|                                                 | 2.01-4.00% | 4.01-6.00% | 6.01-7.00% | Total   | Percent
|------------------------------------------------ | ---------- | ---------- | ---------- | ------- | -------
|                                                 |            |           
|Certificate accounts maturing in quarter ending: |            |            |            |         |        
|                                                 |            |            |            |         |        
|March 31, 2002                                   | $     ---  | $7,083     | $2,225     | $9,308  | 29.49% 
|June 30, 2002                                    | 2,283      | 5,003      | 356        | 8,242   | 26.11  
|September 30, 2002                               | 21         | 4,644      | ---        | 4,665   | 14.78  
|December 31, 2002                                | 2,397      | 2,035      | ---        | 4,432   | 14.04  
|March 31, 2003                                   | ---        | 1,972      | 53         | 2,025   | 6.41   
|June 30, 2003                                    | 1,024      | 188        | 302        | 1,514   | 4.80   
|September 30, 2003                               | ---        | 266        | ---        | 266     | 0.84   
|December 31, 2003                                | ---        | 239        | ---        | 239     | 0.76   
|March 31, 2004                                   | ---        | 245        | ---        | 245     | 0.78   
|June 30, 2004                                    | ---        | 125        | ---        | 125     | 0.40   
|September 30, 2004                               | ---        | 190        | ---        | 190     | 0.60   
|December 31, 2004                                | ---        | 311        | ---        | 311     | 0.99   
|Thereafter                                       | ---        | ---        | ---        | ---     | ---    
|                                                 |            |            |            |         |        
|Total                                            | $ 6,325    | $22,301    | $2,936     | $31,562 | 100.00%
|                                                 |            |            |            |         |        
|Percent of total                                 | 20.04%     | 70.66%     | 9.30%      | 100.00% |        

The following table indicates the amount of our certificates of deposit and other deposits
by time remaining until maturity as of December 31, 2001.

|                                            | Maturity        |                 
|------------------------------------------- | --------------- | ----------------
|                                            | 3 Monthsor Less | Over3 to 6Months
|                                            | (In Thousands) 
|                                            |                 |                 
|Certificates of deposit less than $100,000  | $6,930          | $5,222          
|                                            |                 |                 
|Certificates of deposit of $100,000 or more | 2,378           | 3,020           
|                                            |                 |                 
|Total certificates of deposit               | $9,308          | $8,242          

***Borrowings*.**  Although deposits are our primary source of funds, we utilize borrowings
when they are a less costly source of funds, and can be invested at a positive interest rate spread
or when we desire additional capacity to fund loan demand.  At December 31, 2001, we had
borrowings totaling $19.5 million.  The average balance of our borrowings during this period
was $15.8.  Our current borrowings consist of eleven different Federal Home Loan Bank
advances.  All eleven advances have a fixed interest rate initial term, followed by a period where
the advance converts to a variable rate, at the option of the Federal Home Loan Bank.  The fixed
initial terms range from three months to five years.  After the fixed interest rate period expire,
each advance converts to a variable rate equivalent to the three-month London Interbank Offered
Rate.  All the advances have an initial maturity of 10 years.  The advances can be prepaid without
penalty at the time of conversion from a fixed to a variable rate, and quarterly thereafter.  The

weighted average interest rate of the above FHLB advance is 4.58% at December 31,2001.  See
Note H of the Notes to Consolidated Financial Statements.

**Subsidiary and Other Activities**

As a federally chartered savings association, Home Federal is permitted by Office of
Thrift Supervision regulations to invest up to 2% of its total assets, or $1.9 million at December
31, 2001, in the stock of, or unsecured loans, to service corporation subsidiaries.   Home Federal
may invest an additional 1% of its assets in service corporations where such additional funds are
used for inner-city or community development purposes.  At December 31, 2001, Home Federal
had no subsidiaries.

In 1996, we acquired a 17.5% interest in an Ohio limited partnership formed to construct
multi-family housing units.  Under the terms of the limited partnership agreement, we have made
a total capital contribution to the partnership of $500,000 and are allocated tax losses and
affordable housing federal income tax credits.  See Note D of Notes to Consolidated Financial
Statements.

**Regulation**

***General****.*  Home Federal is a federally chartered savings association, the deposits of
which are federally insured by the FDIC and backed by the full faith and credit of the U.S.
Government.  Accordingly, we are subject to broad federal regulation and oversight extending to
all our operations.  We are a member of the Federal Home Loan Bank of Cincinnati and are
subject to certain limited regulation by the Board of Governors of the Federal Reserve System
("Federal Reserve Board").  As the savings and loan holding company of Home Federal, First
Niles is also subject to federal regulation and oversight.

***Federal Regulation of Savings Associations.***** The Office of Thrift Supervision has
extensive authority over the operations of savings associations.  As part of this authority, we are
required to file periodic reports with the Office of Thrift Supervision and are subject to periodic
examinations by the Office of Thrift Supervision and the FDIC.  When these examinations are
conducted by the Office of Thrift Supervision and the FDIC, the examiners may require us to
provide for higher general or specific loan loss reserves.

The Office of Thrift Supervision also has extensive enforcement authority over all
savings institutions and their holding companies, including Home Federal and First Niles.  This
enforcement authority includes, among other things, the ability to assess civil money penalties, to
issue cease-and-desist or removal orders and to initiate injunctive actions.

Our general permissible lending limit for loans-to-one-borrower is currently $2.3 million,
which is equal to the greater of $500,000 or 15% of unimpaired capital and surplus.  If the loans
are fully secured by certain readily marketable collateral, our lending limit for loans-to-one-borrower can be increased to 25% of unimpaired capital and surplus.  At December 31, 2001 our
lending limit under this restriction was $3.8 million.  We are in compliance with the loans-to-one-borrower limitation.

***Regulatory Capital Requirements.***  All federally insured savings institutions are
required to maintain minimum capital standards, including a tangible capital, a leverage ratio (or
core capital) and a risk-based capital requirement.  The capital regulations require tangible capital
of at least 1.5% of adjusted total assets, as defined by regulation.  At December 31, 2001 we had
tangible capital of $13.2 million, or 14.5% of adjusted total assets, which is approximately $11.8
million above the minimum requirement of 1.5% of adjusted total assets in effect on that date.

The capital standards also require core capital equal to at least 3% to 4% of adjusted total
assets, depending on an institution's supervisory rating.  Core capital generally consists of
tangible capital.  At December 31, 2001 we had core capital equal to $13.2 million, or 14.5% of
adjusted total assets, which is $9.5 million above the minimum leverage ratio requirement of 4%
as in effect on that date.

The Office of Thrift Supervision risk-based requirement requires savings associations to
have total capital of at least 8% of risk-weighted assets.  Total capital consists of core capital, as
defined above, and supplementary capital.  Supplementary capital consists of certain permanent
and maturing capital instruments that do not qualify as core capital and general valuation loan
and lease loss allowances up to a maximum of 1.25% of risk-weighted assets.  Supplementary
capital may be used to satisfy the risk-based requirement only to the extent of core capital.

In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet items, will be multiplied by a risk weight, ranging from 0% to 100%, based on the
risk inherent in the type of asset.  For example, the Office of Thrift Supervision has assigned a
risk weight of 50% for prudently underwritten permanent one- to four-family first lien mortgage
loans not more than 90 days delinquent and having a loan-to-value ratio of not more than 80% at
origination unless insured to such ratio by an insurer approved by Fannie Mae or Freddie Mac.

On December 31, 2001 we had total risk-based capital of approximately $14.6 million,
including $13.2 million in core capital and $1.4 million in qualifying supplementary capital, and
risk-weighted assets of $41.7 million, or total capital of 35.0% of risk-weighted assets.  This
amount was $11.3 million above the 8% requirement in effect on that date.

The Office of Thrift Supervision is authorized to impose capital requirements in excess of
these standards on individual associations on a case-by-case basis.  The Office of Thrift
Supervision and the FDIC are authorized and, under certain circumstances required, to take
certain actions against savings associations that fail to meet their capital requirements.  These
actions may include submission of a capital restoration plan and various limitations on an
institution's growth and operations, depending upon an institution's capital category.  In certain
cases the FDIC or the Office of Thrift Supervision may appoint a conservator or receiver for the
institution.

The Office of Thrift Supervision is also generally authorized to reclassify an institution
into a lower capital category and impose the restrictions applicable to such category if the
institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

The imposition by the Office of Thrift Supervision or the FDIC of any of these measures
on Home Federal may have a substantial adverse effect on its operations and profitability.

***Limitations on Dividends and Other Capital Distributions.***  Office of Thrift Supervision
regulations impose various restrictions on savings associations with respect to their ability to
make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account.  Office of Thrift Supervision
regulations also prohibit a savings association from declaring or paying any dividends or from
repurchasing any of its stock if, as a result, the regulatory capital of the association would be
reduced below the amount required to be maintained for the liquidation account established in
connection with its mutual to stock conversion.

Office of Thrift Supervision regulations provide that a savings association, such as Home
Federal, may make a capital distribution with prior notice to the Office of Thrift Supervision, in
an amount that does not exceed its net income for the calendar year-to-date plus retained net
income for the previous two calendar years (less any dividends previously paid).  The distribution
can be made provided the savings association has a regulatory rating in the two top examination
categories, is not of supervisory concern, and would remain well-capitalized, as defined in the
Office of Thrift Supervision prompt corrective action regulations, following the proposed
distribution.  All other institutions or those seeking to exceed the noted amounts must file an
application with the Office of Thrift Supervision before making the distribution.

***Qualified Thrift Lender Test.***All savings institutions are required to meet a qualified
thrift lender test to avoid certain restrictions on their operations.  This test requires a savings
institution to have at least 65% of its portfolio assets, as defined by regulation, in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling basis.  As an
alternative, the savings institution may maintain 60% of its assets in those assets specified in
Section 7701(a)(19) of the Internal Revenue Code.  Under either test, these assets primarily
consist of residential housing related loans and investments.  At December 31, 2001 we met the
test and have always met the test since it became effective.

Any savings institution that fails to meet the qualified thrift lender test must convert to a
national bank, unless it requalifies as a qualified thrift lender and remains a qualified thrift
lender.  If an institution has not yet requalified or converted to a national bank, its new
investments and activities are limited to those permissible for both a savings institution and a
national bank, and it is limited to national bank branching rights in its home state.  In addition,
the institution is immediately ineligible to receive any new Federal Home Loan Bank
borrowings.  If the institution has not requalified or converted to a national bank within three
years after the failure, it must sell all investments and stop all activities not permissible for a
national bank.  In addition, it must repay promptly any outstanding Federal Home Loan Bank
borrowings, which may result in prepayment penalties.  If any institution that fails the qualified
thrift lender test is controlled by a holding company, then within one year after the failure, the
holding company must register as a bank holding company and become subject to all restrictions
on bank holding companies.  See "- Holding Company Regulation."

***Holding Company Regulation.***First Niles is a unitary savings and loan holding
company subject to regulatory oversight by the Office of Thrift Supervision.  First Niles is
required to register and file reports with the Office of Thrift Supervision and is subject to
regulation and examination by the Office of Thrift Supervision.  In addition, the Office of Thrift
Supervision has enforcement authority over First Niles and its non-savings association
subsidiaries.

As a unitary savings and loan holding company, First Niles generally is not subject to
activity restrictions.  If First Niles acquires control of another savings association as a separate
subsidiary, it would become a multiple savings and loan holding company, and the activities of
First Niles and any of its subsidiaries (other than Home Federal or any other Savings Association
Insurance Fund-insured savings association) would generally become subject to additional
restrictions.

If Home Federal fails the qualified thrift lender test, within one year First Niles must
register as, and will become subject to, the significant activity restrictions applicable to bank
holding companies.

**Federal and State Taxation**

***Federal Taxation.*****In August 1996, legislation was enacted that repealed the percentage
of taxable income method used by many thrifts to calculate their bad debt reserve for federal
income tax purposes.  As a result, small thrifts must recapture that portion of the reserve that
exceeds the amount that could have been taken under the experience method for tax years
beginning after December 31, 1987.  Due to certain limitations as to allowable additions to the
bad debt reserve, Home Federal has not made additions to its allowance since 1987 and will not
be subject to federal income tax recapture.

In addition to the regular income tax, corporations, including savings institutions,
generally are subject to a minimum tax.  An alternative minimum tax is imposed at a minimum
tax rate of 20% on alternative minimum taxable income, which is the sum of a corporation's
regular taxable income (with certain adjustments) and tax preference items, less any available
exemption.  The alternative minimum tax is imposed to the extent it exceeds the corporation's
regular income tax and net operating losses can offset no more than 90% of alternative minimum
taxable income.

A portion of our reserves for losses on loans which are presented on the statement of
financial condition as retained earnings, may not, without adverse tax consequences, be utilized
for the payment of cash dividends or other distributions to a shareholder, including distributions
on redemption, dissolution or liquidation, or for any other purpose except to absorb bad debt
losses.  As of December 31, 2001, the portion of our reserves subject to this treatment for tax
purposes totaled approximately $2.5 million.

We file federal income tax returns on a fiscal year basis using the accrual method of
accounting.  First Niles intends to file a consolidated federal income tax return with Home
Federal for the year ended December 31, 2001.

The federal income tax returns of Home Federal for the last three years are open to
possible audit by the Internal Revenue Service.  No returns are being audited by the Internal
Revenue Service at the current time.  In the opinion of management, any examination of still
open returns, including returns of predecessors or entities merged into Home Federal, would not
result in a deficiency which could have a material adverse effect on the financial condition of
Home Federal.

***Ohio Taxation****.*  We are subject to the Ohio corporate franchise tax.  As a financial
institution, we compute our franchise tax based on our net worth.  Under this method, we will
compute our Ohio corporate franchise tax by multiplying our net worth, as specifically adjusted
pursuant to Ohio law, by the applicable tax rate, which is currently 1.3%.  First Niles is also
subject to the Ohio corporate franchise tax.  The tax imposed is the greater of the tax on net
worth, or the tax on net income.

***Delaware Taxation*****.  As a Delaware holding company, First Niles is exempted from
Delaware corporate income tax but is required to file an annual report with and pay an annual fee

to the State of Delaware.  First Niles is also subject to an annual franchise tax imposed by the
State of Delaware.

**Competition**

We face strong competition in originating real estate and other loans and in attracting
deposits.  Competition in originating real estate loans comes primarily from other savings
institutions, commercial banks, credit unions and mortgage bankers.  Other savings institutions,
commercial banks, credit unions and finance companies provide vigorous competition in
consumer lending.

We attract all of our deposits through Home Federal's one office in Niles, Ohio.
Competition for those deposits is principally from other savings institutions, commercial banks
and credit unions located in our market area, as well as mutual funds.  We compete for these
deposits by offering a variety of deposit accounts at competitive rates and superior service.

**Executive Officers of First Niles**

*William L. Stephens.*  Mr. Stephens, age 70,  serves as Chairman of the Board, President
and Chief Executive Officer of Home Federal and First Niles.  He has served in such capacities
for Home Federal since 1969 and for First Niles since its formation in October 1998.

*George J. Swift.*  Mr. Swift, age 79, is Vice President and Secretary of Home Federal and
First Niles.  He has served in such capacities with Home Federal since 1969 and for First Niles
since its formation in October 1998.

*Lawrence Safarek.*  Mr. Safarek, age 52, currently serves as Vice President and Treasurer
of Home Federal and First Niles.  He has served in such capacities with Home Federal since
1995 and for First Niles since its formation in October 1998.  Mr.  Safarek has been employed
with Home Federal in numerous other capacities since 1971.

**Employees**

At December 31, 2001, we had a total of 14 employees.  Our employees are not
represented by any collective bargaining group.****Management considers its employee relations to
be good.

**Item 2.  	Description of Property**

We conduct our business through Home Federal's only office located in Niles, Ohio,
which is owned by Home Federal.  We believe that our current facilities are adequate to meet the
present and foreseeable needs of Home Federal and First Niles.  The total net book value of
Home Federal's premises and equipment, including land, building and leasehold improvements
and furniture, fixtures and equipment, at December 31, 2001 was $348,000.  See Note E of Notes
to Consolidated Financial Statements.

We maintain an on-line data base with a service bureau servicing financial institutions.
The net book value of the data processing and computer equipment utilized by Home Federal at
December 31, 2001 was $16,000.

**Item 3.  	Legal Proceedings**

From time to time First Niles is involved as plaintiff or defendant in various legal actions
arising in the normal course of business.  Presently, First Niles is not involved in any legal
proceedings that are expected to have a material adverse impact on its consolidated financial
position.

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

No matter was submitted to a vote of securityholders, through the solicitation of proxies
or otherwise during the quarter ended December 31, 2001.



**Item 5.  	Market for Common Equity and Related Stockholder Matters**

Page 44 of First Niles' 2001 Annual Report to Stockholders attached to this document as
Exhibit 13 is incorporated herein by reference.

**Item 6.  Management's Discussion and Analysis or Plan of Operation**

Pages 4 to 14 of First Niles' 2001 Annual Report to Stockholders attached to this
document as Exhibit 13 is incorporated herein by reference.

**Item 7.  Financial Statements**

The following information appearing in First Niles 2001 Annual Report to Stockholders
attached hereto as Exhibit 13 is incorporated herein by reference.

|**Annual Report Section**                                                                                  | **Pages in Annual Report**
|---------------------------------------------------------------------------------------------------------- | --------------------------
|Report of Independent Auditors                                                                             | 15                        
|Consolidated Statements of Financial Condition  as of December 31, 2001 and 2000                           | 16                        
|Consolidated Statements of Income for the Years  Ended December 31, 2001 and 2000                          | 17                        
|Consolidated Statements of Changes in Shareholders' Equity  for the Years Ended December 31, 2001 and 2000 | 18                        
|Consolidated Statements of Cash Flows for the Years  Ended December 31, 2001 and 2001                      | 19                        
|Notes to Consolidated Financial Statements                                                                 | 20-43                     

With the exception of the aforementioned information, First Niles' Annual Report to
Stockholders for the year ended December 31, 2001, is not deemed filed as part of this Annual
Report on Form 10-KSB.

**Item 8.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure**

There has been no Current Report on Form 8-K filed within 24 months prior to the date
of the most recent financial statements reporting a change of accountants and/or reporting
disagreements on any matter of accounting principle or financial statement disclosure.



**Item 9.  Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act**

**Directors**

Information concerning Directors of First Niles is incorporated herein by reference from
the definitive proxy statement for the Annual Meeting of Stockholders to be held in April 2002,
except for information contained under the heading "Report of the Audit Committee," a copy of
which will be filed not later than 120 days after the close of the fiscal year.

**Executive Officers**

Information concerning Executive Officers of First Niles is contained under the caption
"Executive Officers of First Niles" in Part I of this Form 10-KSB, and is incorporated herein by
this reference.

**Compliance with Section 16(a)**

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires First Niles
directors and executive officers, and persons who own more than 10% of a registered class of its
equity securities, to file with the SEC initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of First Niles.  Officers, directors and
greater than 10% stockholders are required by SEC regulation to furnish First Niles with copies
of all Section 16(a) forms they file.

To First Niles' knowledge, based solely on a review of the copies of such reports
furnished to the company and written representations that no other reports were required, all
Section 16(a) filing requirements applicable to its officers, directors and greater than 10 percent
beneficial owners were complied with during the fiscal year ended December 31, 2001.

**Item 10.  Executive Compensation**

Information concerning executive compensation is incorporated herein by reference from
the definitive proxy statement for the Annual Meeting of Stockholders to be held in April 2002,
except for information contained under the heading "Report of the Audit Committee," a copy of
which will be filed not later than 120 days after the close of the fiscal year.

**Item 11.  Security Ownership of Certain Beneficial Owners and Management**

Information concerning security ownership of certain beneficial owners and management
is incorporated herein by reference from the definitive proxy statement for the Annual Meeting of
Stockholders to be held in April 2002, except for information contained under the heading
"Report of the Audit Committee," a copy of which will be filed not later than 120 days after the
close of the fiscal year.

**Item 12.  Certain Relationships and Related Transactions**

Information concerning certain relationships and related transactions is incorporated
herein by reference from the definitive proxy statement for the Annual Meeting of Stockholders
to be held in April 2002, except for information contained under the heading "Report of the
Audit Committee," a copy of which will be filed not later than 120 days after the close of the
fiscal year.

**Item 13.  Exhibits and Reports on Form 8-K**

**(a)  Exhibits**

See Index to Exhibits

**(b)  Reports on Form 8-K**

The Company did not file any Current Reports on Form 8-K during the quarter ended
December 31, 2001.



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                      |     | **FIRST NILES FINANCIAL, INC.**                                                                                                          
|--------------------- | --- | -----------------------------------------------------------------------------------------------------------------------------------------
|Date:  March 29, 2002 | By: | /s/ WILLIAM L. STEPHENSWilliam L. StephensChairman of the Board, President and  Chief Executive Officer*(Duly Authorized Representative)*

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has
been signed below by the following persons in the capacities and on the dates indicated.

|/s/ WILLIAM L. STEPHENSWilliam L. Stephens, Chairman of the Board,  President and Chief Executive Officer*(Principal Executive Officer)* |  | Date:  March 29, 2002
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------
|/s/ GEORGE J. SWIFTGeorge J. Swift, Vice President and Secretary*(Principal Financial and Operating Officer)*                            |  | Date:  March 29, 2002
|/s/ P. JAMES KRAMERP. James Kramer, Director                                                                                             |  | Date:  March 29, 2002
|/s/ WILLIAM S. EDDYWilliam S. Eddy, Director                                                                                             |  | Date:  March 29, 2002
|/s/ RALPH A. ZUZOLO, SR.Ralph A. Zuzolo, Sr., Director                                                                                   |  | Date:  March 29, 2002
|/s/ THOMAS G. MALEYThomas G. Maley, Controller*(Principal Accounting Officer)*                                                           |  | Date:  March 29, 2002



|ExhibitNumber | Document                                                                                                                                                                                                                                                                                                         
|------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3             | The Certificate of Incorporation and Bylaws, filed on July 10, 1998 as Exhibits 3.1
and 3.2, respectively, to Registrant's Registration Statement on Form SB-2 (File
No. 333-58883), are incorporated by reference.                                                                                              
|4             | Registrant's Specimen Stock Certificate, filed on  July 10, 1998 as Exhibit 4 to
Registrant's Registration Statement on Form SB-2 (File No. 333-58883), is
incorporated by reference.                                                                                                                            
|10.1          | Employment Agreement between Registrants operating bank subsidiary and
William L. Stephens, George J. Swift and Lawrence Safarek filed as Exhibits 10.1,
10.2 and 10.3 to Registrant's Report on Form 10-KSB for the fiscal year ended
December 31, 1998 (File No. 0-24849), is incorporated herein by reference.
|10.2          | Registrant's 1999 Stock Option and Incentive Plan, filed on November 12, 1999 as
Appendix A to  Registrant's  Proxy Statement on Schedule 14A (File No.
0-24849), is incorporated herein by reference.                                                                                                           
|10.3          | Registrant's 1999 Recognition and Retention Plan filed on November 12, 1999 as
Appendix B to  Registrant's  Proxy Statement on Schedule 14A (File No.
000-24849), is incorporated herein by reference.                                                                                                           
|13            | Annual Report to Stockholders                                                                                                                                                                                                                                                                                    
|21            | Subsidiaries of the Registrant filed as Exhibit 21 to Registrant's Report on Form
10-KSB for the fiscal year ended December 31, 1998 (File No. 0-24849), is
incorporated herein by reference.                                                                                                                    
|23            | Consent of Accountants