EMPLOYMENT AGREEMENT


      THIS  EMPLOYMENT  AGREEMENT  ("Agreement")  is made and entered into as of
this 26th day of October  1998,  by and between  HOME  FEDERAL  SAVINGS AND LOAN
ASSOCIATION OF NILES, 55 North Main Street, Niles, Ohio (hereinafter referred to
as the  "Association"  whether in mutual or stock form), and WILLIAM L. STEPHENS
(the "Employee").

      WHEREAS,  the  Employee  is  currently  serving  as  President  and  Chief
Executive Officer of the Association; and

      WHEREAS,  the  Association  has adopted a plan of  conversion  whereby the
Association  will convert to capital stock form as the subsidiary of First Niles
Financial,  Inc.  (the  "Holding  Company"),  subject  to  the  approval  of the
Association's  members and the Office of Thrift Supervision (the  "Conversion");
and

      WHEREAS,  the Board of Directors of the Association  believes it is in the
best interests of the Association to enter into this Agreement with the Employee
in order to assure  continuity of management of the Association and to reinforce
and encourage the continued attention and dedication of the Employee; and

      WHEREAS,  the Board of  Directors  of the  Association  has  approved  and
authorized  the execution of this  Agreement with the Employee to take effect as
stated in Section 4 hereof;

      NOW,  THEREFORE,  in  consideration of the foregoing and of the respective
covenants  and  agreements  of the  parties  herein  contained,  it is AGREED as
follows:

      1.  EMPLOYMENT.  The Employee is employed as President and Chief Executive
Officer of the Association.  As President and Chief Executive Officer,  Employee
shall render administrative and management services as are customarily performed
by persons situated in similar executive capacities, and shall have other powers
and duties as may from time to time be  prescribed  by the Board,  provided that
such duties are consistent  with the Employee's  position as President and Chief
Executive  Officer.  The Employee  shall continue to devote his best efforts and
substantially all his business time and attention to the business and affairs of
the Association and its subsidiaries and affiliated companies.

      2.    COMPENSATION.

            (a) SALARY.  The  Association  agrees to pay the Employee during the
term of this  Agreement  a salary  established  by the Board of  Directors.  The
salary  hereunder as of the  Commencement  Date (as defined in Section 4 hereof)
shall be $142,440  per year.  The  Employee's  salary  shall be payable not less
frequently  than  monthly  and not  later  than  the  tenth  day  following  the
expiration of the month in question.  The amount of the Employee's  salary shall
be reviewed by the Board of Directors  not less often than  annually,  beginning
not later  than the date one year  after the  Commencement  Date (as  defined in
Section 4 hereof).  Any adjustments in salary or other  compensation shall in no
way limit or reduce  any other  obligation  of the  Association  hereunder.  The
Employee's  salary in effect hereunder from time to time shall not thereafter be
reduced.


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            (b)  DISCRETIONARY  BONUSES.  The  Employee  shall  be  entitled  to
participate  in an  equitable  manner with all other  executive  officers of the
Association in discretionary  bonuses as authorized and declared by the Board of
Directors of the Association to its executive  employees.  No other compensation
provided for in this  Agreement  shall be deemed a substitute for the Employee's
right to  participate  in such  bonuses  when and as  declared  by the  Board of
Directors.

            (c)  EXPENSES.  During  the term of his  employment  hereunder,  the
Employee  shall be entitled to receive prompt  reimbursement  for all reasonable
expenses incurred by him in performing  services  hereunder,  in accordance with
the Association's  policies and procedures,  provided that the Employee properly
accounts therefor in accordance with Association policy.

      3.    BENEFITS.

            (a)  PARTICIPATION  IN RETIREMENT AND EMPLOYEE  BENEFIT  PLANS.  The
Employee  shall be entitled  while  employed  hereunder to  participate  in, and
receive benefits under, all plans relating to pension,  thrift,  profit-sharing,
group life  insurance,  medical  coverage,  education,  cash bonuses,  and other
retirement or employee benefits or combinations thereof, that are maintained for
the  benefit  of the  Association's  executive  employees  or for its  employees
generally.

            (b) FRINGE  BENEFITS.  The Employee shall be eligible while employed
hereunder  to  participate  in, and receive  benefits  under,  any other  fringe
benefit plans which are or may become applicable to the Association's  executive
employees or to its employees generally.

      4. TERM. The term of employment  under this Agreement shall be a period of
three  years  commencing  on the  date  of  completion  of the  Conversion  (the
"Commencement  Date"),  subject  to  earlier  termination  as  provided  herein.
Beginning  on the  first  anniversary  of the  Commencement  Date,  and on  each
anniversary  thereafter,  the term of employment  under this Agreement  shall be
extended  for a period of one year in  addition  to the  then-remaining  term of
employment  under this Agreement,  unless either the Association or the Employee
gives  contrary  written notice to the other not less than 90 days in advance of
the date on which the term of employment under this Agreement would otherwise be
extended,  PROVIDED that such term will not be  automatically  extended  unless,
prior thereto, the Board of Directors of the Association  explicitly reviews and
approves the extension.  Reference  herein to the term of employment  under this
Agreement shall refer to both such initial term and such extended terms.

      5.  VACATIONS.  The Employee  shall be  entitled,  without loss of pay, to
absent himself  voluntarily  from the  performance of his employment  under this
Agreement, all such voluntary absences to count as vacation time, provided that:

            (a) the Employee shall be entitled to an annual vacation of not less
than four (4) weeks per year;

            (b) the  timing of  vacations  shall be  scheduled  in a  reasonable
manner by the Employee and the Association; and


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            (c) solely at the Employee's  request,  the Board of Directors shall
be  entitled  to grant to the  Employee  a leave or  leaves of  absence  with or
without  pay at such  time or times and upon such  terms and  conditions  as the
Board, in its discretion, may determine.

      6.  TERMINATION OF EMPLOYMENT; DEATH.

            (a)  The   Association's   Board  of  Directors  may  terminate  the
Employee's  employment at any time,  but any  termination  by the  Association's
Board of Directors  other than  termination  for cause,  shall not prejudice the
Employee's right to compensation or other benefits under this Agreement.  If the
employment of the Employee is involuntarily  terminated,  other than for "cause"
as provided in this  Section  6(a) or pursuant to any of Sections  6(d)  through
6(g), or by reason of death or disability as provided in Sections 6(c) or 7, the
Employee  shall  be  entitled  to  (i)  his  then  applicable   salary  for  the
then-remaining  term of the Agreement as calculated in accordance with Section 4
hereof,  payable in such manner and at such times as such salary would have been
payable to the  Employee  under  Section 2 had he  remained in the employ of the
Association, and (ii) health insurance benefits as maintained by the Association
for the benefit of its senior  executive  employees or its  employees  generally
over the  then-remaining  term of the Agreement as calculated in accordance with
Section 4 hereof.

      The terms  "termination" or  "involuntarily  terminated" in this Agreement
shall refer to the termination of the employment of Employee without his express
written consent, other than retirement. In addition, a material diminution of or
interference  with the  Employee's  duties,  responsibilities  and  benefits  as
President and Chief  Executive  Officer of the  Association  shall be deemed and
shall constitute an involuntary  termination of employment to the same extent as
express notice of such  involuntary  termination.  Any of the following  actions
shall constitute such diminution or interference  unless consented to in writing
by the Employee:  (1) a change in the  principal  workplace of the Employee to a
location outside of a 30 mile radius from the Association's  headquarters office
as of the date  hereof;  (2) a material  demotion  of the  Employee,  a material
reduction in the number or seniority of other Association personnel reporting to
the Employee,  or a material  reduction in the frequency  with which,  or in the
nature of the matters with respect to which, such personnel are to report to the
Employee, other than as part of a Association- or Holding Company-wide reduction
in staff;  (3) a material adverse change in the salary,  perquisites,  benefits,
contingent  benefits or vacation time which had previously  been provided to the
Employee,  other than as part of an overall program  applied  uniformly and with
equitable  effect to all members of the senior  management of the Association or
the Holding Company; and (4) a material permanent increase in the required hours
of work or the workload of the Employee.

      In case  of  termination  of the  Employee's  employment  for  cause,  the
Association  shall pay the Employee his salary through the date of  termination,
and the Association shall have no further  obligation to the Employee under this
Agreement. For purposes of this Agreement, termination for "cause" shall include
termination for personal dishonesty, incompetence, willful misconduct, breach of
a fiduciary  duty  involving  personal  profit,  intentional  failure to perform
stated duties,  willful  violation of any law,  rule, or regulation  (other than
traffic  violations or similar  offenses) or final  cease-and-desist  order,  or
material  breach  of  any  provision  of  this  Agreement.  Notwithstanding  the
foregoing,  the Employee  shall not be deemed to have been  terminated for cause
unless and until there  shall have been  delivered  to the  Employee a copy of a
resolution, duly adopted by the

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affirmative  vote of not less than a majority  of the entire  membership  of the
Board of Directors of the  Association at a meeting of the Board called and held
for such purpose (after reasonable notice to the Employee and an opportunity for
the  Employee,  together  with the  Employee's  counsel,  to be heard before the
Board),  stating  that in the good faith  opinion of the Board the  Employee was
guilty of conduct  constituting  "cause" as set forth above and  specifying  the
particulars thereof in detail.

            (b) The Employee's  employment may be voluntarily  terminated by the
Employee at any time upon 90 days written notice to the Association or upon such
shorter  period as may be agreed  upon  between  the  Employee  and the Board of
Directors of the Association.  In the event of such voluntary  termination,  the
Association  shall be  obligated  to continue to pay the Employee his salary and
benefits  only through the date of  termination,  at the time such  payments are
due, and the Association shall have no further  obligation to the Employee under
this Agreement.

            (c) In the event of the  death of the  Employee  during  the term of
employment  under this  Agreement and prior to any  termination  hereunder,  the
Employee's estate, or such person as the Employee may have previously designated
in writing,  shall be entitled to receive from the Association the salary of the
Employee  through  the last day of the  calendar  month in which his death shall
have occurred, and the term of employment under this Agreement shall end on such
last day of the month.

            (d) If the Employee is suspended and/or temporarily  prohibited from
participating  in the conduct of the  Association's  affairs by a notice  served
under Section 8(e)(3) or (g)(1) of the Federal  Deposit  Insurance Act ("FDIA"),
12 U.S.C. ss. 1818(e)(3) and (g)(1),  the  Association's  obligations under this
Agreement  shall  be  suspended  as of the date of  service,  unless  stayed  by
appropriate  proceedings.  If the  charges  in the  notice  are  dismissed,  the
Association  may in its  discretion  (i)  pay  the  Employee  all or part of the
compensation  withheld while its obligations under this Agreement were suspended
and  (ii)  reinstate  in  whole or in part  any of its  obligations  which  were
suspended.

            (e) If the Employee is removed and/or  permanently  prohibited  from
participating  in the conduct of the  Association's  affairs by an order  issued
under  Section  8(e)(4)  or (g)(1) of the FDIA,  12 U.S.C.  ss.  1818(e)(4)  and
(g)(1),  all obligations of the Association under this Agreement shall terminate
as of the  effective  date of the order,  but vested  rights of the  contracting
parties shall not be affected.

            (f) If the  Association is in default (as defined in Section 3(x)(1)
of the FDIA),  all  obligations  under this Agreement  shall terminate as of the
date of default,  but this  provision  shall not affect any vested rights of the
contracting parties.

            (g) All obligations under this Agreement shall be terminated, except
to the extent  determined  that  continuation of this Agreement is necessary for
the continued operation of the Association: (i) by the Director of the Office of
Thrift  Supervision  (the  "Director")  or his or her designee,  at the time the
Federal  Deposit  Insurance   Corporation   ("FDIC")  or  the  Resolution  Trust
Corporation  ("RTC")  enters into an  agreement to provide  assistance  to or on
behalf of the Association under the authority  contained in Section 13(c) of the
FDIA; or (ii) by the Director or his or her  designee,  at the time the Director
or his or her designee approves a supervisory merger to

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resolve problems related to operation of the Association or when the Association
is  determined  by the  Director  to be in an unsafe or unsound  condition.  Any
rights of the parties that have already vested,  however,  shall not be affected
by any such action.

            (h) In the event the Association  purports to terminate the Employee
for cause,  but it is determined by a court of competent  jurisdiction  or by an
arbitrator pursuant to Section 16 that cause did not exist for such termination,
or if in any event it is  determined  by any such court or  arbitrator  that the
Association  has  failed  to make  timely  payment  of any  amounts  owed to the
Employee under this Agreement,  the Employee shall be entitled to  reimbursement
for all reasonable  costs,  including  attorneys' fees,  incurred in challenging
such  termination or collecting  such amounts.  Such  reimbursement  shall be in
addition to all rights to which the  Employee is otherwise  entitled  under this
Agreement.

      7.  DISABILITY.  If the Employee  shall become  disabled as defined in the
Association's then current disability plan or if the Employee shall be otherwise
unable to serve as President and Chief Executive Officer,  the Employee shall be
entitled to receive group and other disability  income benefits of the type then
provided by the Association for other executive employees.

      8. CERTAIN REDUCTION OF PAYMENTS BY THE ASSOCIATION.

            (a)  Notwithstanding  any other provision of this Agreement,  if the
value and  amounts of benefits  under this  Agreement,  together  with any other
amounts  and the value of benefits  received  or to be received by the  Employee
would cause any amount to be  nondeductible  by the  Association  or the Holding
Company for federal  income tax  purposes  pursuant to Section 280G of the Code,
then amounts and benefits under this  Agreement  shall be reduced (not less than
zero)  to the  extent  necessary  so as to  maximize  amounts  and the  value of
benefits to the Employee  without causing any amount to become  nondeductible by
the Association or the Holding Company  pursuant to or by reason of such Section
280G.  The Employee  shall  determine  the  allocation of such  reduction  among
payments and benefits to the Employee.

            (b) Any payments made to the Employee pursuant to this Agreement, or
otherwise,  are subject to and conditioned  upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.

      9. NO  MITIGATION.  The  Employee  shall not be required  to mitigate  the
amount of any salary or other payment or benefit  provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation  earned by
the Employee as the result of  employment  by another  employer,  by  retirement
benefits after the date of termination or otherwise.

      10.  NO ASSIGNMENTS.

            (a) This  Agreement is personal to each of the parties  hereto,  and
neither party may assign or delegate any of its rights or obligations  hereunder
without  first  obtaining  the  written  consent of the other  party;  provided,
however,  that the  Association  will require any  successor or assign  (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or

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substantially  all of the  business  and/or  assets  of the  Association,  by an
assumption  agreement in form and substance  satisfactory  to the  Employee,  to
expressly  assume and agree to perform this  Agreement in the same manner and to
the same extent that the Association  would be required to perform it if no such
succession  or  assignment  had taken place.  For purposes of  implementing  the
provisions of this Section 10(a), the date on which any such succession  becomes
effective shall be deemed the Date of Termination.

            (b) This  Agreement and all rights of the Employee  hereunder  shall
inure to the benefit of and be enforceable by the Employee's  personal and legal
representatives,  executors,  administrators,  successors,  heirs, distributees,
devisees and legatees.  If the Employee should die while any amounts would still
be payable to the Employee  hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other designee
or if there is no such designee, to the Employee's estate.

      11.  NOTICE.  For the  purposes of this  Agreement,  notices and all other
communications  provided for in the  Agreement  shall be in writing and shall be
deemed to have been duly given when  personally  delivered  or sent by certified
mail, return receipt requested,  postage prepaid. All notices to the Association
shall be sent to its home  office,  directed  to the  attention  of the Board of
Directors of the  Association,  with a copy to the Secretary of the Association.
All  notices  to the  Employee  shall be sent to the home or other  address  the
Employee has most recently provided in writing to the Association.

      12.  AMENDMENTS.  No  amendments or additions to this  Agreement  shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.  The parties  hereto agree to amend this  Agreement to comply with any
required provisions of 12 C.F.R. ss. 563.39(b), as the same may be amended.

      13. PARAGRAPH HEADINGS.  The paragraph headings used in this Agreement are
included solely for  convenience and shall not affect,  or be used in connection
with, the interpretation of this Agreement.

      14.  SEVERABILITY.  The  provisions  of this  Agreement  shall  be  deemed
severable and the  invalidity  or  unenforceability  of any provision  shall not
affect the validity or enforceability of the other provisions hereof.

      15.  GOVERNING  LAW. This  Agreement  shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Ohio.

      16. ARBITRATION. Any dispute or controversy arising under or in connection
with this  Agreement  shall be settled  exclusively by arbitration in accordance
with the rules of the American Arbitration  Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction.


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      IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.

      THIS  AGREEMENT  CONTAINS  A BINDING  ARBITRATION  PROVISION  WHICH MAY BE
ENFORCED BY THE PARTIES.


                              HOME FEDERAL SAVINGS AND LOAN
                              ASSOCIATION OF NILES



                              By:  /s/ Ralph A. Zuzolo, Sr.
                                   ------------------------
                                   Ralph A. Zuzolo, Sr.



                              EMPLOYEE


                              /s/ William L. Stephens
                              -----------------------
                              William L. Stephens






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