---

---

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|                                                   |                                     | **Page No.**
|-------------------------------------------------- | ----------------------------------- | ------------
|                                                   |                                     |             
|President's Message                                | 1                                  
|Selected Consolidated Financial Information        | 2                                  
|Management's Discussion and Analysis of Financial  |                                    
|                                                   | Condition and Results of Operations | 4           
|Report of Independent Certified Public Accountants | 15                                 
|Consolidated Financial Statements                  | 16                                 
|Notes to Consolidated Financial Statements         | 20                                 
|Stockholder Information                            | 44                                 
|Corporate Information                              | 45                                 

---

March 15, 2002

| | Sincerely,                                                                        
| | ----------------------------------------------------------------------------------
| |                                                                                   
| |                                                                                   
| |                                                                                   
| | WILLIAM L. STEPHENS*Chairman of the Board, President and**Chief Executive Officer*

---

|                                               | **December 31,**  
|---------------------------------------------- | ------------------
|                                               | **2001**          
|**Selected Financial Condition Data:**         | **(In thousands)**
|                                               |                   
|Total assets                                   | $96,107           
|Loans receivable, net                          | 39,508            
|Securities - held to maturity                  | 8,866             
|Securities - available for sale and FHLB stock | 40,085            
|Deposits                                       | 57,061            
|Total borrowings                               | 19,500            
|Shareholders' equity                           | 17,966            

|                                       |                                                     | **Years Ended December 31,**            
|-------------------------------------- | --------------------------------------------------- | ----------------------------------------
|                                       |                                                     | **2001**                                
|                                       |                                                     | **(In thousands, except share amounts)**
|**Selected Operations Data:**          |                                                     |                                         
|Total interest income                  | $5,915                                              | $5,372                                  
|Total interest expense                 | 2,893                                               | 2,186                                   
|                                       | Net interest income                                 | 3,022                                   
|Provision for loan losses              | 120                                                 | 30                                      
|                                       | Net interest income after provision for loan losses | 2,902                                   
|Fees and service charges               | 32                                                  | 32                                      
|Gain on sales of investment securities | 277                                                 | 8                                       
|Other non-interest income              | 6                                                   | 16                                      
|Total non-interest income              | 315                                                 | 56                                      
|Total non-interest expense             | 2,081                                               | 2,118                                   
|                                       | Income before taxes and extraordinary item          | 1,136                                   
|Income tax provision                   | 315                                                 | 287                                     
|                                       | Net income                                          | $   821                                 
|                                       |                                                     |                                         
|Earnings per share - basic and diluted | $0.57                                               | $0.54                                   

---

|                                              |                                                      |                                     | **Years Ended December 31,**
|--------------------------------------------- | ---------------------------------------------------- | ----------------------------------- | ----------------------------
|                                              |                                                      |                                     | **2001**                    
|**Selected Financial Ratios and Other Data:** |                                                     
|**Performance Ratios:**                       |                                                      |                                     |                             
|                                              | Return on assets (ratio of net income to             |                                     |                             
|                                              |                                                      | average total assets)               | 0.91%                       
|                                              | Return on equity (ratio of net income to             |                                     |                             
|                                              |                                                      | average equity)                     | 4.45                        
|                                              | Interest rate spread:                                |                                     |                             
|                                              |                                                      | Average during year                 | 2.55                        
|                                              |                                                      | End of year                         | 2.60                        
|                                              | Net interest margin (net interest income divided     |                                     |                             
|                                              |                                                      | by average interest-earning assets) | 3.41                        
|                                              | Ratio of operating expense to average total assets   | 2.25                                | 2.75                        
|                                              | Ratio of average interest-earning assets to average  |                                     |                             
|                                              |                                                      | interest-bearing liabilities        | 1.26                        
|                                              |                                                      |                                     |                             
|**Quality Ratios:**                           |                                                      |                                     |                             
|                                              | Non-performing assets to total assets at end of year | 1.50%                               | 1.00%                       
|                                              | Non-performing loans to loans receivable, net,       |                                     |                             
|                                              |                                                      | end of year                         | 3.55                        
|                                              | Allowance for loan losses to non-performing loans,   |                                     |                             
|                                              |                                                      | end of year                         | 48.15                       
|                                              | Allowance for loan losses to loans receivable, net,  |                                     |                             
|                                              |                                                      | end of year                         | 1.71                        
|                                              |                                                      |                                     |                             
|**Capital Ratios:**                           |                                                      |                                     |                             
|                                              | Equity to total assets at end of year                | 18.69%                              | 24.19%                      
|                                              | Average equity to average assets                     | 20.48                               | 24.30                       
|                                              |                                                      |                                     |                             
|**Other Data:**                               |                                                      |                                     |                             
|                                              | Book value per common share outstanding              | $11.85                              | $11.57                      
|                                              | Dividends declared per share                         | $  0.46                             | $  0.41                     
|                                              | Dividend payout ratio(3)                             | 80.70%                              | 75.93%                      
|                                              | Number of full-service offices                       | 1                                   | 1                           

---

---

---

---

---

|                                                                            | Year Ended December 31,  
|--------------------------------------------------------------------------- | -------------------------
|                                                                            | 2001                     
|                                                                            | AverageOutstandingBalance
|                                                                            | (Dollars in thousands)   
|Interest-Earning Assets:                                                    |                          
|Loans receivable(1)                                                         | $37,386                  
|Mortgage-backed and related securities                                      | 11,958                   
|Investment securities                                                       | 33,618                   
|FHLB stock                                                                  | 797                      
|Interest-bearing deposits                                                   | 4,746                    
|**Total interest-earning assets(1)**                                        | 88,505                   
|**Noninterest earnings assets**   ****                                      | 2,285                    
|**Allowance for Loan Losses**                                               | (645)                    
|**Total Assets**                                                            | $90,145                  
|                                                                            |                          
|**Interest-Bearing Liabilities:**                                           |                          
|Savings deposits                                                            | $21,217                  
|Demand and NOW deposits                                                     | 3,479                    
|Certificate accounts                                                        | 29,563                   
|Borrowings                                                                  | 15,758                   
|**Total interest-bearing liabilities**                                      | 70,017                   
|**Noninterest-bearing liabilities**                                         | 1,665                    
|**Total Liabilities**                                                       | 71,682                   
|**Equity**                                                                  | 18,463                   
|**Total Liabilities & Equity**                                              | $90,145                  
|                                                                            |                          
|**Net interest income**                                                     |                          
|**Net interest rate spread**                                                |                          
|**Net earning assets**                                                      | $18,488                  
|**Net yield on average interest-earning assets**                            |                          
|**Average interest-earning assets to average interest-bearing
liabilities** |                          

---

|                                       | Years Ended December 31,2001 vs. 2000
|-------------------------------------- | -------------------------------------
|                                       | Increase/(Decrease)Due to            
|                                       | Volume                               
|                                       | (Dollars in Thousands)               
|Interest-earning assets:               |                                      
|Loans receivable                       | $     19                             
|Mortgage-backed and related securities | (149)                                
|Investment securities                  | 1,011                                
|Interest-bearing deposits and other    | (134)                                
|Total interest-earning assets          | 747                                  
|                                       |                                      
|Interest-bearing liabilities:          |                                      
|Savings deposits                       | (52)                                 
|Demand and NOW deposits                | 9                                    
|Borrowings                             | 678                                  
|Certificate accounts                   | 109                                  
|                                       |                                      
|Total interest-bearing  liabilities    | 744                                  
|                                       |                                      
|Net interest income                    | $    3                               

---

---

---

|                       | December 31, 2001  
|---------------------- | -------------------
|                       | Net Portfolio Value
|Changein Rate          | Amount             
|(Dollars in thousands)
|                       |                    
|+300                   | $  8,149           
|+200                   | 13,681             
|+100                   | 15,139             
|---                    | 16,445             
|-100                   | 17,170             
|-200                   | n/m(1)             
|-300                   | n/m(1)             

---

---

> 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.

---

---

|                                                              | December 31,                                                                      
|------------------------------------------------------------- | ----------------------------------------------------------------------------------
|                                                              | 2001                                                                              
|ASSETS                                                        |                                                                                   
|Cash and cash equivalents:                                    |                                                                                   
|                                                              | Noninterest bearing                                                               
|                                                              | Interest bearing                                                                  
|                                                              |                                                                                   
|Securities:                                                   |                                                                                   
|                                                              | Available-for-sale - at market                                                    
|                                                              | Held-to-maturity - at cost                                                        
|Loans receivable                                              | 39,508                                                                            
|Accrued interest receivable                                   | 735                                                                               
|Federal Home Loan Bank stock, at cost                         | 1,005                                                                             
|Real estate investment - limited partnership, at equity       | 208                                                                               
|Prepaid expenses and other assets                             | 108                                                                               
|Prepaid federal income taxes                                  | 2                                                                                 
|Premises and equipment, at cost less accumulated depreciation | 348                                                                               
|                                                              |                                                                                   
|TOTAL ASSETS                                                  | $96,107                                                                           
|LIABILITIES                                                   |                                                                                   
|Deposits                                                      | $57,061                                                                           
|Accrued interest payable                                      | 173                                                                               
|Accounts payable and other liabilities                        | 1,240                                                                             
|Federal Home Loan Bank advances                               | 19,500                                                                            
|Deferred federal income tax liability                         | 167                                                                               
|TOTAL LIABILITIES                                             | 78,141                                                                            
|                                                              |                                                                                   
|STOCKHOLDERS' EQUITY                                          |                                                                                   
|Stockholders' equity:                                         |                                                                                   
|                                                              | Preferred stock, $.01 par value, authorized 500,000 shares, none outstanding      
|                                                              | Common stock, $.01 par value, authorized 6,000,000 shares; issued 1,754,411 shares
|                                                              | Additional paid-in capital                                                        
|                                                              | Retained earnings                                                                 
|                                                              | Accumulated other comprehensive income:                                           
|                                                              |                                                                                   
|                                                              |                                                                                   
|                                                              | Common stock purchased by the Employee Stock Ownership Plan                       
|                                                              | Unearned compensation                                                             
|                                                              | Treasury stock - 238,343 shares in 2001 and 132,663 shares in 2000 at cost        
|TOTAL STOCKHOLDERS' EQUITY                                    | 17,966                                                                            
|                                                              |                                                                                   
|                                                              |                                                                                   

---

|                                       | Year Ended December 31,               
|-------------------------------------- | --------------------------------------
|                                       | 2001                                  
|Interest income:                       |                                       
|                                       | Loans receivable:                     
|                                       |                                       
|                                       |                                       
|                                       | Mortgage-backed and related securities
|                                       | Investments                           
|                                       | Interest-bearing deposits             
|TOTAL INTEREST INCOME                  | 5,915                                 
|Interest expense:                      |                                       
|                                       | Deposits                              
|                                       | Borrowings                            
|TOTAL INTEREST EXPENSE                 | 2,893                                 
|                                       |                                       
|NET INTEREST INCOME                    | 3,022                                 
|                                       |                                       
|Provision for loan losses              | 120                                   
|NET INTEREST INCOME AFTER              |                                       
|PROVISION FOR LOAN LOSSES              | 2,902                                 
|                                       |                                       
|Noninterest income:                    |                                       
|                                       | Gain on sale of securities            
|                                       | Service fees and other                
|TOTAL NONINTEREST INCOME               | 315                                   
|Noninterest expense:                   |                                       
|                                       | Equity in loss of limited partnership 
|                                       | General and administrative:           
|                                       |                                       
|                                       |                                       
|                                       |                                       
|                                       |                                       
|                                       |                                       
|TOTAL NONINTEREST EXPENSE              | 2,081                                 
|                                       |                                       
|INCOME BEFORE INCOME TAXES             | 1,136                                 
|                                       |                                       
|Federal income taxes                   | 315                                   
|                                       |                                       
|NET INCOME                             | $    821                              
|                                       |                                       
|EARNINGS PER SHARE - BASIC AND DILUTED | $   0.57                              

---

|                                | Common

Stock       | AdditionalPaid-inCapital | RetainedEarnings     | NetUnrealizedGains onSecuritiesAvailablefor Sale | Common
StockPurchasedby theEmployeeStockOwnershipPlan | UnearnedCompensation | TreasuryStock | Total    
|------------------------------- | ------------------- | ------------------------ | -------------------- | ------------------------------------------------ | ----------------------------------------------------- | -------------------- | ------------- | ---------
|                                |                     |                          |                      |                                                  |                                                       |                      |               |          
|Balance, January 1, 2000        | $  18               | $  6,708                 | $  13,134            | $     656                                        | $  (1,159)                                            | $  (528)             | $     (319)   | $  18,510
|                                |                     |                          |                      |                                                  |                                                       |                      |               |          
|Comprehensive income:           |                     |                          |                      |                                                  |                                                       |                      |               |          
|                                | Net income          | -                        | -                    | 807                                              | -                                                     | -                    | -             | -        
|                                | Other comprehensive |                          |                      |                                                  |                                                       |                      |               |          
|                                |                     | income, net of tax:      |                      |                                                  |                                                       |                      |               |          
|                                |                     |                          | Change in unrealized |                                                  |                                                       |                      |               |          
|                                |                     |                          |                      | gains on securities                              |                                                       |                      |               |          
|                                |                     |                          |                      | of $788, net of                                  |                                                       |                      |               |          
|                                |                     |                          |                      | reclassification                                 |                                                       |                      |               |          
|                                |                     |                          |                      | adjustment for gains                             |                                                       |                      |               |          
|                                |                     |                          |                      | included in net                                  |                                                       |                      |               |          
|                                |                     |                          |                      | income of $5                                     | -                                                     | -                    | -             | 773      
|Total comprehensive income      | -                   | -                        | 807                  | 773                                              | -                                                     | -                    | -             | 1,580    
|                                |                     |                          |                      |                                                  |                                                       |                      |               |          
|Cash dividends - $.41 per share | -                   | -                        | (607)                | -                                                | -                                                     | -                    | -             | (607)    
|ESOP shares allocated to        |                     |                          |                      |                                                  |                                                       |                      |               |          
|                                |                     | employees                | -                    | 40                                               | -                                                     | -                    | 107           | -        
|Purchase of shares for treasury | -                   | -                        | -                    | -                                                | -                                                     | -                    | (1,136)       | (1,136)  
|Shares issued for recognition   |                     |                          |                      |                                                  |                                                       |                      |               |          
|                                | and retention plan  | -                        | -                    | -                                                | -                                                     | -                    | 264           | -        
|BALANCE                         |                     |                          |                      |                                                  |                                                       |                      |               |          
|DECEMBER 31, 2000               | 18                  | 6,748                    | 13,334               | 1,429                                            | (1,052)                                               | (264)                | (1,455)       | 18,758   
|Comprehensive income:           |                     |                          |                      |                                                  |                                                       |                      |               |          
|                                |                     | Net income               | -                    | -                                                | 821                                                   | -                    | -             | -        
|                                | Other comprehensive |                          |                      |                                                  |                                                       |                      |               |          
|                                |                     | income, net of tax:      |                      |                                                  |                                                       |                      |               |          
|                                |                     |                          | Change in unrealized |                                                  |                                                       |                      |               |          
|                                |                     |                          |                      | gains on securities of                           |                                                       |                      |               |          
|                                |                     |                          |                      | $(275), net of                                   |                                                       |                      |               |          
|                                |                     |                          |                      | reclassification                                 |                                                       |                      |               |          
|                                |                     |                          |                      | adjustment for gains                             |                                                       |                      |               |          
|                                |                     |                          |                      | included in net                                  |                                                       |                      |               |          
|                                |                     |                          |                      | income of $183                                   | -                                                     | -                    | -             | (92)     
|Total comprehensive income      | -                   | -                        | 821                  | (92)                                             | -                                                     | -                    | -             | 729      
|                                |                     |                          |                      |                                                  |                                                       |                      |               |          
|Cash dividends - $.46 per share | -                   | -                        | (649)                | -                                                | -                                                     | -                    | -             | (649)    
|ESOP shares allocated to        |                     |                          |                      |                                                  |                                                       |                      |               |          
|                                |                     | employees                | -                    | 49                                               | -                                                     | -                    | 117           | -        
|Purchase of shares for treasury | -                   | -                        | -                    | -                                                | -                                                     | -                    | (1,302)       | (1,302)  
|Shares issued for recognition   |                     |                          |                      |                                                  |                                                       |                      |               |          
|                                | and retention plan  | -                        | -                    | -                                                | -                                                     | -                    | 264           | -        
|BALANCE                         |                     |                          |                      |                                                  |                                                       |                      |               |          
|DECEMBER 31, 2001               | $  18               | $  6,797                 | $  13,506            | $  1,337                                         | $    (935)                                            | $       -            | $(2,757)      | $  17,966

---

|                                          | Year Ended December 31,                                                                 
|----------------------------------------- | ----------------------------------------------------------------------------------------
|                                          | 2001                                                                                    
|CASH FLOWS FROM OPERATING ACTIVITIES      |                                                                                         
|                                          | Net income                                                                              
|                                          | Adjustments to reconcile net income to net cash provided by operating activities:       
|                                          |                                                                                         
|                                          |                                                                                         
|                                          |                                                                                         
|                                          |                                                                                         
|                                          |                                                                                         
|                                          |                                                                                         
|                                          |                                                                                         
|                                          |                                                                                         
|                                          |                                                                                         
|                                          |                                                                                         
|                                          |                                                                                         
|                                          | 1,048                                                                                   
|                                          |                                                                                         
|                                          | (Increase) decrease in accrued interest receivable and prepaid expenses and other assets
|                                          | Increase (decrease) in accrued interest, accounts payable and other liabilities         
|NET CASH PROVIDED BY OPERATING ACTIVITIES | 695                                                                                     
|                                          |                                                                                         
|CASH FLOWS FROM INVESTING ACTIVITIES      |                                                                                         
|                                          | Activity in available-for-sale securities:                                              
|                                          |                                                                                         
|                                          |                                                                                         
|                                          |                                                                                         
|                                          | Activity in held-to-maturity securities:                                                
|                                          |                                                                                         
|                                          | Purchase of Federal Home Loan Bank stock                                                
|                                          | (Increase) decrease in interest-bearing deposits with banks                             
|                                          | (Increase) decrease in loans                                                            
|                                          | Additions to premises and equipment                                                     
|NET CASH PROVIDED BY                      |                                                                                         
|(USED IN) INVESTING ACTIVITIES            | (17,913)                                                                                
|                                          |                                                                                         
|CASH FLOWS FROM FINANCING ACTIVITIES      |                                                                                         
|                                          | Purchases of treasury stock                                                             
|                                          | Dividends paid                                                                          
|                                          | Increase (decrease) in savings accounts                                                 
|                                          | Increase in certificates of deposit                                                     
|                                          | Proceeds of Federal Home Loan Bank advances                                             
|                                          | Repayment of note payable                                                               
|NET CASH PROVIDED BY                      |                                                                                         
|(USED IN) FINANCING ACTIVITIES            | 17,416                                                                                  
|                                          |                                                                                         
|NET INCREASE (DECREASE) IN CASH           | 198                                                                                     
|CASH AT BEGINNING OF YEAR                 | 969                                                                                     
|                                          |                                                                                         
|CASH AT END OF YEAR                       | $1,167                                                                                  
|Cash paid during the period for:          |                                                                                         
|                                          | Interest                                                                                
|                                          | Income taxes                                                                            

---

---

---

---

---

|                                | 2001      | 2000     
|------------------------------- | --------- | ---------
|Basic weighted-average shares   | 1,430,473 | 1,501,955
|Diluted weighted-average shares | 1,430,473 | 1,501,955

---

---

|                                        |                                    | December 31, 2001   
|--------------------------------------- | ---------------------------------- | --------------------
|                                        | AmortizedCost                      | GrossUnrealizedGains
|                                        | (In thousands)                    
|FHLMC common stock                      | $     30                           | $1,997              
|Asset management funds:                
|                                        | Income Trust                       | 5,168               
|Federal National Mortgage Association: 
|                                        | Participation certificate          | 995                 
|Federal Home Loan Mortgage Corporation:
|                                        | Participation certificate          | 944                 
|                                        | Collateralized mortgage obligation | 927                 
|U.S. Agencies - callable:              
|                                        | Due after five to ten years        | 9,000               
|                                        | Due after ten years                | 19,975              
|Other                                   | 15                                 | -                   
|                                        |                                    |                     
|TOTALS                                  | $37,054                            | $2,339              

|                          |                                  | December 31, 2000   
|------------------------- | -------------------------------- | --------------------
|                          | AmortizedCost                    | GrossUnrealizedGains
|                          | (In thousands)                  
|FHLMC common stock        | $       34                       | $2,377              
|Asset management funds:  
|                          | Income Trust                     | 5,668               
|                          | GNMA Trust                       | 5,795               
|U.S. Agencies - callable: |                                  |                     
|                          | Due after one year to five years | 1,000               
|                          | Due after five to ten years      | 8,000               
|Other                     | 15                               | -                   
|                          |                                  |                     
|TOTALS                    | $20,512                          | $2,377              

---

|                                        |                                         |                                     | December 31, 2001   
|--------------------------------------- | --------------------------------------- | ----------------------------------- | --------------------
|                                        |                                         | AmortizedCost                       | GrossUnrealizedGains
|                                        | (In thousands)                         
|Mortgage-backed and related securities: |                                         |                                     |                     
|                                        | Federal National Mortgage Association   |                                     |                     
|                                        |                                         | collateralized mortgage obligations | $5,501              
|                                        | Federal Home Loan Mortgage Corporation: |                                     |                     
|                                        |                                         | Participation certificates          | 5                   
|                                        |                                         | Collateralized mortgage obligations | 3,360               
|                                        |                                         |                                     |                     
|                                        |                                         | TOTALS                              | $8,866              

|                                        |                                          |                                     | December 31, 2000   
|--------------------------------------- | ---------------------------------------- | ----------------------------------- | --------------------
|                                        |                                          | AmortizedCost                       | GrossUnrealizedGains
|                                        | (In thousands)                          
|Mortgage-backed and related securities: |                                          |                                     |                     
|                                        | Government National Mortgage Association |                                     |                     
|                                        |                                          | participation certificates          | $         2         
|                                        | Federal National Mortgage Association    |                                     |                     
|                                        |                                          | collateralized mortgage obligations | 8,107               
|                                        | Federal Home Loan Mortgage Corporation:  |                                     |                     
|                                        |                                          | Participation certificates          | 16                  
|                                        |                                          | Collateralized mortgage obligations | 4,776               
|Federal Home Loan Bank bond - due       |                                          |                                     |                     
|                                        | March 2001                               | 1,000                               | -                   
|                                        |                                          |                                     |                     
|                                        | TOTALS                                   | $13,901                             | $19                 

---

|                                            | December 31   
|------------------------------------------- | --------------
|                                            | 2001          
|                                            | (In thousands)
|Real estate mortgage (primarily one-to-four |               
|family residential)                         | $27,919       
|Construction and development                | 3,713         
|Commercial real estate                      | 6,016         
|Consumer and other                          | 716           
|Home equity lines of credit                 | 1,641         
|Loans on deposits                           | 179           
|                                            | 40,184        
|Less allowance for loan losses              | 676           
|                                            |               
|TOTALS                                      | $39,508       

---

|                                  | December 31   
|--------------------------------- | --------------
|                                  | 2001          
|                                  | (In thousands)
|                                  |               
|Balance at beginning of year      | $592          
|Provision reflected in operations | 120           
|Less loans charged off            | (37)          
|Recovery                          | 1             
|                                  |               
|Balance at end of year            | $676          

|               | 2001                      | 2000  
|-------------- | ------------------------- | ------
|               | (In thousands)           
|Balance Sheet: |                           |       
|               | Investment in real estate | $4,344
|               | Total assets              | 4,412 
|               | Mortgage payable          | 2,802 
|               | Partners' equity          | 937   
|               |                           |       
|Operations:    |                           |       
|               | Rental income             | 526   
|               | Net loss                  | 325   

---

|                                   | December 31   
|---------------------------------- | --------------
|                                   | 2001          
|                                   | (In thousands)
|                                   |               
|Land                               | $  32         
|Building and building improvements | 508           
|Furniture, equipment and vehicles  | 380           
|                                   | 920           
|Less accumulated depreciation      | 572           
|TOTALS                             | $348          

|                                 | December 31   
|-------------------------------- | --------------
|                                 | 2001          
|                                 | (In thousands)
|                                 |               
|Savings and transaction accounts | $25,499       
|Certificates of deposit          | 31,562        
|                                 |               
|TOTALS                           | $57,061       

|                   | December 31   
|------------------ | --------------
|                   | 2001          
|                   | (In thousands)
|                   |               
|Within one year    | $26,648       
|One to two years   | 4,044         
|Two to three years | 870           
|                   |               
|TOTALS             | $31,562       

---

|                                             | Year Ended December 31
|-------------------------------------------- | ----------------------
|                                             | 2001                  
|                                             | (In thousands)        
|Income tax expense is summarized as follows: |                       
|                                             | Federal:              
|                                             |                       
|                                             |                       
|                                             |                       

|                                         | Year Ended December 31         
|---------------------------------------- | -------------------------------
|                                         | 2001                           
|                                         | (In thousands)                 
|                                         |                                
|Federal taxes computed at statutory rate | $386                           
|Increase (decrease) resulting from:      |                                
|                                         | Limited partnership tax credits
|                                         | Dividends received deduction   
|                                         | Other                          
|                                         |                                
|                                         | FEDERAL INCOME TAX PROVISION   
|                                         |                                
|Effective federal income tax rate        | 27.7%                          

|                               | December 31                                      
|------------------------------ | -------------------------------------------------
|                               | 2001                                             
|                               | (In thousands)                                   
|Deferred tax liabilities:      |                                                  
|                               | Federal Home Loan Bank stock dividends           
|                               | Unrealized gains on securities available for sale
|TOTAL DEFERRED TAX LIABILITIES | (795)                                            
|Deferred tax assets:           |                                                  
|                               | Deferred compensation                            
|                               | Allowance for loan losses                        
|                               | Imputed loan interest                            
|                               | ESOP                                             
|                               | Loan fees                                        
|                               | TOTAL DEFERRED TAX ASSETS                        
|                               |                                                  
|                               | NET DEFERRED FEDERAL                             
|                               | INCOME TAX LIABILITY                             

---

|InterestRate  | Maturity       | Convertible toVariable Rate | Amount(in thousands)
|------------- | -------------- | --------------------------- | --------------------
|              |                |                             |                     
|5.01%         | December, 2010 | March, 2002                 | $  3,000            
|5.20%         | December, 2010 | December, 2003              | 2,000               
|4.60%         | January, 2011  | January, 2002               | 2,000               
|4.93%         | February, 2011 | February, 2004              | 2,000               
|4.71%         | February, 2011 | February, 2002              | 1,000               
|5.20%         | March, 2011    | March, 2006                 | 1,000               
|3.78%         | March, 2011    | June, 2001                  | 2,000               
|4.08%         | April, 2011    | April, 2002                 | 2,000               
|4.16%         | May, 2011      | May, 2002                   | 2,000               
|4.09%         | May, 2011      | May, 2002                   | 1,000               
|4.52%         | August, 2011   | August, 2004                | 1,500               
|Weighted -    |                |                             |                     
|average 4.58% |                |                             | $19,500             

---

|                                 | 2001    | 2000                          
|-------------------------------- | ------- | ------------------------------
|                                 | Shares  | Weighted-AverageExercise Price
|Outstanding at beginning of year | 157,896 | $12.53                        
|Granted                          | -       | -                             
|Exercised                        | -       | -                             
|Forfeited                        | -       | -                             
|Outstanding at end of year       | 157,896 | $12.53                        
|                                 |         |                               
|Options exercisable at year-end  | 157,896 | $12.53                        

| | Number outstanding                          | 157,896   
| | ------------------------------------------- | ----------
| | Weighted-average exercise price             |           
| | Weighted-average remaining contractual life | 9.89 years

---

|                            |             | 2001        | 2000
|--------------------------- | ----------- | ----------- | ----
|                            |             |             |     
|Net earnings (in thousands) | As reported | $821        | $807
|                            | Pro forma   | $647        | $633
|Earnings per share:         |             |             |     
|                            | Basic       | As reported | $.57
|                            |             | Pro forma   | $.45
|                            |             |             |     
|                            | Diluted     | As reported | $.57
|                            |             | Pro forma   | $.45

---

---

---

|                                | December 31                       
|------------------------------- | ----------------------------------
|                                | 2001                              
|                                | CarryingAmounts                   
|                                | (In thousands)                    
|                                |                                   
|Cash and equivalents            | $   6,247                         
|Securities:                    
|                                | Available-for-sale                
|                                | Held-to-maturity                  
|                                | Federal Home Loan Bank stock      
|Loans                           | 39,508                            
|Accrued interest receivable     | 735                               
|Deposits:                       |                                   
|                                | Checking, savings and money market
|                                | Certificates of deposit           
|Accrued interest payable        | (173)                             
|Federal Home Loan Bank advances | (19,500)                          

---

---

|                          | Actual                 | For CapitalAdequacy Purposes | To be "Well-Capitalized" underPrompt CorrectiveAction Provisions
|------------------------- | ---------------------- | ---------------------------- | ----------------------------------------------------------------
|                          | Amount                 | Ratio                        | Amount                                                          
|                          | (Dollars in thousands)
|                          |                        |                              |                                                                 
|Tangible capital          | $13,177                | 14.5%                        | ≥$1,366                                                         
|                          |                        |                              |                                                                 
|Tier 1 core capital       | $13,177                | 14.5%                        | ≥$2,732                                                         
|                          |                        |                              |                                                                 
|Tier 1 risk-based capital | $13,177                | 31.6%                        | *                                                               
|                          |                        |                              |                                                                 
|Total risk-based capital  | $14,612                | 35.0%                        | ≥$3,334                                                         

|                          | Actual                 | For CapitalAdequacy Purposes | To be "Well-Capitalized" underPrompt CorrectiveAction Provisions
|------------------------- | ---------------------- | ---------------------------- | ----------------------------------------------------------------
|                          | Amount                 | Ratio                        | Amount                                                          
|                          | (Dollars in thousands)
|                          |                        |                              |                                                                 
|Tangible capital          | $16,706                | 22.0%                        | ≥$1,138                                                         
|                          |                        |                              |                                                                 
|Tier 1 core capital       | $16,706                | 22.0%                        | ≥$3,035                                                         
|                          |                        |                              |                                                                 
|Tier 1 risk-based capital | $16,706                | 48.2%                        | *                                                               
|                          |                        |                              |                                                                 
|Total risk-based capital  | $18,115                | 52.2%                        | ≥$2,775                                                         

---

|                                             | 2001                          | 2000      
|-------------------------------------------- | ----------------------------- | ----------
|ASSETS                                       |                               |           
|                                             |                               |           
|Cash and cash equivalents:                   |                               |           
|                                             | Noninterest bearing           | $       20
|                                             | Interest bearing              | 3,009     
|                                             |                               |           
|Account receivable from Home Federal Savings |                               |           
|                                             | and Loan Association of Niles | 268       
|Investment in Home Federal Savings and      
|                                             | Loan Association of Niles     | 14,514    
|Accrued interest and prepaid expense         | 195                           | 118       
|                                             | TOTAL ASSETS                  | $18,006   
|                                             |                               |           
|LIABILITIES AND STOCKHOLDERS' EQUITY         |                               |           
|                                             |                               |           
|Accrued expense                              | $       40                    | $       39
|TOTAL LIABILITIES                            | 40                            | 39        
|                                             |                               |           
|Stockholders' equity                         | 17,966                        | 18,758    
|                                             |                               |           
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   | $18,006                       | $18,797   

---

|                                    | 2001            | 2000                            
|----------------------------------- | --------------- | --------------------------------
|                                    |                 |                                 
|Revenue:                            |                 |                                 
|                                    | Interest income | $   16                          
|                                    |                 | TOTAL REVENUE                   
|                                    |                 |                                 
|General and administrative expenses | 243             | 323                             
|                                    |                 | LOSS BEFORE INCOME TAX AND      
|                                    |                 | EQUITY IN EARNINGS OF SUBSIDIARY
|                                    |                 |                                 
|Income tax credit                   | (77)            | (98)                            
|                                    |                 | LOSS BEFORE EQUITY IN           
|                                    |                 | EARNINGS OF SUBSIDIARY          
|                                    |                 |                                 
|Equity in earnings of subsidiary    | 971             | 998                             
|                                    |                 |                                 
|                                    |                 | NET INCOME                      

---

|                                                 |                                                      |                                             |                                                             |                                            | 2001              | 2000    
|------------------------------------------------ | ---------------------------------------------------- | ------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------ | ----------------- | --------
|Cash flows from operating activities:            |                                                      |                                            
|                                                 | Net income for the period                            | $      821                                  | $      807                                                 
|                                                 | Adjustments to reconcile net income to net cash      |                                             |                                                            
|                                                 |                                                      | provided by (used in) operating activities: |                                                             |                                           
|                                                 |                                                      |                                             | Undistributed income of consolidated subsidiary             | (971)                                      | (998)            
|                                                 |                                                      |                                             | Net decrease in due from subsidiary, accrued interest       |                                            |                  
|                                                 |                                                      |                                             |                                                             | and prepaid expenses                       | 443               | 216     
|                                                 |                                                      |                                             | Increase (decrease) in accounts payable and accrued expense | 2                                          | (38)             
|                                                 |                                                      |                                             |                                                             | NET CASH PROVIDED BY                       |                   |         
|                                                 |                                                      |                                             |                                                             | (USED IN) OPERATING ACTIVITIES             | 295               | (13)    
|                                                 |                                                      |                                             |                                                             |                                            |                   |         
|Cash flows from investing activities:            |                                                      |                                            
|                                                 | Purchase of securities available for sale            | -                                           | (880)                                                      
|                                                 | Proceeds from sale of securities available-for-sale  | -                                           | 880                                                        
|                                                 | Net (increase) decrease in interest bearing deposits | (2,976)                                     | 1,405                                                      
|                                                 |                                                      |                                             |                                                             | NET CASH PROVIDED BY                       |                   |         
|                                                 |                                                      |                                             |                                                             | (USED IN) INVESTING ACTIVITIES             | (2,976)           | 1,405   
|                                                 |                                                      |                                             |                                                             |                                            |                   |         
|Cash flows from financing activities:            |                                                      |                                            
|                                                 | Dividends paid                                       | (649)                                       | (607)                                                      
|                                                 | Dividends received from subsidiary                   | 4,500                                       | 6,500                                                      
|                                                 | Purchase of treasury stock                           | (1,302)                                     | (1,136)                                                    
|                                                 | Payment of note payable                              | -                                           | (6,000)                                                    
|                                                 |                                                      |                                             |                                                             | NET CASH PROVIDED BY                       |                   |         
|                                                 |                                                      |                                             |                                                             | (USED IN) FINANCING ACTIVITIES             | 2,549             | (1,243) 
|                                                 |                                                      |                                             |                                                             |                                            |                   |         
|                                                 |                                                      |                                             |                                                             | NET INCREASE (DECREASE) IN CASH            | (132)             | 149     
|                                                 |                                                      |                                             |                                                             |                                            |                   |         
|Cash and cash equivalents at beginning of period | 152                                                  | 3                                          
|                                                 |                                                      |                                             |                                                             |                                            |                   |         
|                                                 |                                                      |                                             |                                                             | CASH AND CASH EQUIVALENTS AT END OF PERIOD | $              20 | $    152
|                                                 |                                                      |                                             |                                                             |                                            |                   |         
|Noncash transaction:                             |                                                      |                                            
|                                                 | Employee stock benefit plan transactions             | $    430                                    | $    411                                                   

---

---

---

|                                         | **HIGH** | **LOW** | **CASH****DISTRIBUTIONS****DECLARED**
|---------------------------------------- | -------- | ------- | -------------------------------------
|First Quarter (ended March 31, 2000)     | $12.75   | $10.13  | $0.10                                
|Second Quarter (ended June 30, 2000)     | $10.44   | $  8.25 | $0.10                                
|Third Quarter (ended September 30, 2000) | $10.44   | $  8.69 | $0.10                                
|Fourth Quarter (ended December 31, 2000) | $11.75   | $10.00  | $0.11                                
|                                        
|First Quarter (ended March 31, 2001)     | $12.88   | $10.88  | $0.11                                
|Second Quarter (ended June 30, 2001)     | $13.00   | $10.50  | $0.11                                
|Third Quarter (ended September 30, 2001) | $13.31   | $11.75  | $0.12                                
|Fourth Quarter (ended December 31, 2001) | $13.20   | $11.01  | $0.12                                

|**STOCKHOLDER AND GENERAL INQUIRIES**                                                                                      | **TRANSFER AGENT**                                                                                                                                                
|-------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                          
|Lawrence Safarek, Vice President

 First Niles Financial, Inc.

 55 North Main Street

 Niles, Ohio 44446

 (330) 652-2539 | Fifth Third Bank

Corporate Trust Services

Mail Drop 10AT66

38 Fountain Square Plaza

Cincinnati, Ohio 45202

(800) 837-2755 (toll free)

(513) 579-5320 (local)

---

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|COMPANY AND BANK ADDRESS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|55 North Main Street

Niles, Ohio  44446                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 
|BOARD OF DIRECTORS
 

WILLIAM L. STEPHENS*Chairman, President and Chief Executive**Officer of First Niles Financial, Inc. and**Home Federal Savings and Loan**Association of Niles*
GEORGE J. SWIFT*Vice President and Secretary of First**Niles Financial, Inc. and Home Federal**Savings and Loan Association of Niles*
P. JAMES KRAMER*President, William Kramer & Son*
WILLIAM S. EDDY*President, Clinic of Osteopathic Medicine, Inc.*
RALPH A. ZUZOLO, SR.*Partner, Law Firm of Zuzolo, Zuzolo**& Zuzolo* | 
|INDEPENDENT AUDITORS
 

ANNESS, GERLACH & WILLIAMS,

  a Professional Corporation

Certified Public Accountants

1275 Boardman-Canfield Road

Youngstown, Ohio 44513                                                                                                                                                                                                                                                                                                                                            | 

---