--------------------------------------------------------------------------------
1999 ANNUAL REPORT
--------------------------------------------------------------------------------
















                           FIRST NILES FINANCIAL, INC.
                                   NILES, OHIO


<PAGE>





TABLE OF CONTENTS






                                                                        Page No.
                                                                        --------

President's Message......................................................  1
Selected Consolidated Financial Information..............................  2
Management's Discussion and Analysis of Financial
  Condition and Results of Operation.....................................  4
Disclosure Regarding Forward-Looking Statements.......................... 13
Consolidated Financial Statements........................................ 15
Stockholder Information.................................................. 43
Corporate Information.................................................... 44












<PAGE>




                    [FIRST NILES FINANCIAL, INC. LETTERHEAD]








                                            March 15, 2000


To Our Stockholders:

     It is my  pleasure to present the Annual  Report to  Stockholders  of First
Niles  Financial,  Inc.  The past year has once  again  been one of  significant
challenge.  The approach of the new millennium kept us and the industry occupied
and  challenged  for much of 1999 as we went through  extensive  preparation  to
ensure the integrity of our data  processing  systems.  Our staff worked hard in
assuring uninterrupted service to our customers during this past year.

     Providing  value to our  stockholders  was a new, but welcome  challenge in
1999,  our first complete year as a public  company.  We feel this challenge was
met with full  dedication and attention.  During the spring of 1999 we announced
the repurchase of up to 5.0% of our outstanding shares in the open market.  This
repurchase,  totaling 87,720 shares,  was completed during the fourth quarter of
1999. During 1999 we paid quarterly dividends to stockholders totaling $0.37 per
share  for the  year.  In  addition  shortly  after  one year  since the date of
becoming  a public  company,  we also paid a  special  capital  distribution  to
stockholders  in the  amount  of  $6.00  per  share.  All of the  dividends  and
distributions  paid  by the  Company  to our  stockholders  to  date  have  been
accounted  for by the  Company as a return of  capital,  rather  than as taxable
dividends.  Our  company's  strong  financial  condition  provided  us with this
tremendous  opportunity  and still  leaves  First Niles with ample  capital.  At
December 31, 1999,  stockholders' equity totaled approximately $18.5 million, or
23.0% of total assets.

     Your Board,  management and employees are committed to building stockholder
value,  while continuing our commitment to the customers and community we serve.
As always, we are dedicated to making your investment in First Niles a rewarding
one. Thank you for your past support and faith in our future.


                                       Sincerely,

                                       /s/ William L. Stephens

                                       WILLIAM L.  STEPHENS
                                       CHAIRMAN OF THE BOARD, PRESIDENT AND CEO



<PAGE>


<TABLE>
<CAPTION>
                   SELECTED CONSOLIDATED FINANCIAL INFORMATION



                                                                                      December 31,
                                                                         ----------------------------------------
                                                                           1999           1998            1997
                                                                           ----           ----            ----
Selected Financial Condition Data:                                                   (In Thousands)
----------------------------------
<S>                                                                      <C>            <C>              <C>
Total assets ........................................................    $80,418        $86,724          $72,497
Loans receivable, net ...............................................     36,863         36,132           36,744
Securities - held to maturity .......................................     17,255         12,432           12,359
Securities - available for sale and FHLB stock ......................     16,855         20,068           17,741
Deposits ............................................................     54,545         54,837           57,854
Total borrowings ....................................................      6,000            300              400
Stockholders' equity ................................................     18,510         29,923           13,163

</TABLE>

<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
                                                                             ------------------------------------------
                                                                              1999               1998             1997
                                                                              ----               ----             ----
                                                                                            (In Thousands)
Selected Operations Data:
-------------------------
<S>                                                                          <C>               <C>              <C>
Total interest income .................................................      $ 5,425           $ 5,221          $ 5,002
Total interest expense ................................................        1,999             2,435            2,476
                                                                             -------           -------          -------
   Net interest income ................................................        3,426             2,786            2,526
Provision (recovery) for loan losses ..................................           65              (103)             700
                                                                             -------           -------          -------
  Net interest income after provision for loan losses .................        3,361             2,889            1,826
Fees and service charges ..............................................           26                19               18
Gain on sales of investment securities ................................          116               461                4
Other non-interest income .............................................            6                 7                5
                                                                             -------           -------          -------
Total non-interest income .............................................          148               487               27
Total non-interest expense ............................................        2,086             2,290            1,380
                                                                             -------           -------          -------
  Income before taxes and extraordinary item ..........................        1,423             1,086              473
Income tax provision ..................................................          411               276               87
                                                                             -------           -------          -------
  Net income ..........................................................      $ 1,012           $   810          $   386
                                                                             =======           =======          =======

Earnings per share - basic and diluted ................................      $  0.63                NM               NA
Dividends per share ...................................................      $  0.37(1)             --               NA
</TABLE>

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

(1)    Does not reflect  the $6.00 per share  capital  distribution  paid by the
       Company to  stockholders  on the common  stock  during the quarter  ended
       December 31, 1999.

NM - Not meaningful.
NA - Not applicable.


                                        2

<PAGE>



<TABLE>
<CAPTION>
                                                                                     Years Ended December 31,
                                                                             -------------------------------------
                                                                              1999             1998           1997
                                                                              ----             ----           ----
<S>                                                                           <C>              <C>            <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
-----------------------------------------

PERFORMANCE RATIOS:
  Return on assets (ratio of net income to
    average total assets) ...............................................     1.19%            1.06%          0.54%
  Return on equity (ratio of net income to
    average equity) .....................................................     3.60             4.99           3.05
  Interest rate spread:
    Average during year .................................................     2.85             2.68           2.78
    End of year .........................................................     2.61             2.54           2.82
  Net interest margin (net interest income divided
     by average interest-earning assets) ................................     4.10             3.68           3.56
  Ratio of operating expense to average total assets ....................     2.40             2.94           1.86
  Ratio of average interest-earning assets to average
    interest-bearing liabilities ........................................     1.53             1.31           1.22

QUALITY RATIOS:
  Non-performing assets to total assets at end of year ..................     1.03%            1.10%          2.29%
  Non-performing loans to loans receivable, net,
    end of year .........................................................     2.24             2.64           4.52
  Allowance for loan losses to non-performing loans,
    end of year .........................................................    66.46            82.09          51.38
  Allowance for loan losses to loans receivable, net,
    end of year .........................................................     1.49             2.17           2.32

CAPITAL RATIOS:
  Equity to total assets at end of year .................................    23.02%(1)        34.50%         18.16%
  Average equity to average assets ......................................    33.08            21.30          17.72

OTHER DATA:
  Book value per common share outstanding ...............................   $10.70(1)        $17.06             NA
  Dividends declared per share ..........................................   $ 0.37(2)            --             NA
  Dividend payout ratio(3) ..............................................    58.73%(2)           --             NA
  Number of full-service offices ........................................        1                1             1
</TABLE>

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

(1)    Reflects  the  effect of the  special  capital  distribution  paid by the
       Company to  stockholders in the amount of $6.00 per share during December
       1999.

(2)    Does not reflect the special capital  distribution paid by the Company to
       stockholders in the amount of $6.00 per share during December 1999.

(3)    Dividends per share divided by earnings per common share and common share
       equivalent.


                                        3

<PAGE>



                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

GENERAL

     On October 26, 1998,  Home Federal  Savings and Loan  Association  of Niles
converted  from the mutual to stock form of ownership,  and First Niles acquired
100% of the stock of Home  Federal.  First Niles has no  significant  operations
outside  those of Home Federal.  All  references to First Niles prior to October
26, 1998, except where otherwise indicated,  are to Home Federal.  References in
this Annual  Report to "we",  "us",  and "our" refer to First Niles  and/or Home
Federal as the context requires.

     Home  Federal  was   established   in  Niles,   Ohio  in  1897.  We  are  a
community-oriented  financial institution serving primarily the Niles, Ohio area
through  our one office  located  in Niles.  We provide  financial  services  to
individuals,  families and small businesses.  Our principal business consists of
attracting  retail  deposits from the general  public and investing  those funds
primarily in permanent and construction loans secured by first mortgages on one-
to four-family  residences.  We also originate  permanent and construction loans
secured by first mortgages on commercial and multi-family real estate. To a much
lesser extent, we originate consumer and commercial business loans.  Competition
from other financial  institutions has, however,  limited the volume of loans we
have been able to originate and place in our portfolio.  As a result, our excess
funds are invested in short-term,  lower-yielding investment and mortgage-backed
and related securities.

     The  level of  financial  competition  in our  market  area is  strong  and
dominated by commercial banks, with financial  institutions of varying sizes and
characteristics.  In addition, Home Federal operates a single office in the city
of Niles,  which is projected to experience a continuing  decrease in population
and no meaningful  increase in households over the next several years. Niles and
Trumbull County have per capita income and median household income significantly
lower  than  that of the State of Ohio and the  United  States  averages  and in
December 1999, Trumbull County also had an unemployment rate higher than that of
the State of Ohio and the United States.  These  economic  conditions and strong
competition have resulted in reduced loan demand which, in turn, has resulted in
a high concentration of investment  securities and  mortgage-backed  and related
securities in our portfolio  compared to typical  savings  institutions.  In the
event current economic and market conditions  persist or worsen, and loan demand
remains weak, we can not give any assurances that we will be able to maintain or
increase  our  mortgage  loan  portfolio,   which  could  adversely  affect  our
operations and financial results.

FINANCIAL CONDITION

     Assets  totaled  $80.4  million at December  31,  1999,  a decrease of $6.3
million,  or 7.3%, from total assets of $86.7 million at December 31, 1998. Cash
and cash equivalents  decreased $9.2 million,  or 53.6%, which is reflected in a
$1.6 million increase in  mortgage-backed  and related securities and investment
securities, a $731,000 increase in net loans receivable, and a $292,000 decrease
in total  deposits.  The  remaining  decrease in cash and cash  equivalents  was
primarily attributable to an $11.4 million reduction in total equity,  including
a $10.1 million  return of capital  distribution  to  stockholders  in December,
1999. The reduction in cash and cash equivalents,  as well as total equity,  was
also affected by share repurchases and cash dividends. An increase in borrowings
of $5.7 million also contributed  funds to the capital  management  transactions
just described.


                                        4

<PAGE>



     The loan  portfolio  increased  $731,000,  or 2.0%,  to  $36.9  million  at
December 31, 1999,  compared to the prior year.  The  increase,  though  modest,
occurred  despite a rising  interest  rate  environment.  During the year,  real
estate loans increased by $294,000.  Specifically,  loans secured by residential
properties  increased  $1.1  million,  commercial  real estate  loans  increased
$590,000,  partially offset by a $1.5 million decrease in loans for construction
or development.

     Deposits  totaled  $54.5  million at December 31,  1999,  compared to $54.8
million at December  31,  1998,  representing  a $292,000,  or 0.5%  decrease in
deposits.  During the year ended  December  31,  1999,  certificates  of deposit
decreased  $754,000.  Passbook,  statement  savings  accounts  and money  market
deposit  accounts  increased  by  a  collective  $134,000,  while  NOW  accounts
increased  $328,000  during the year ended  December 31,  1999.  The decrease in
deposits,  though modest, was primarily  attributable to strong competition from
local financial institutions and the strength in the equity markets.

     Accounts payable and other liabilities  remained  unchanged at $1.2 million
at December 31, 1999 as compared to December 31, 1998.  Notes payable  increased
to $6.0 million at December 31, 1999 from  $300,000 at December 31, 1998. A loan
in the amount of $6.0 million was obtained  from another  financial  institution
during the last  quarter of 1999 as a means of  facilitating  the $10.1  million
return of capital  paid to  stockholders  during the last  quarter of 1999.  The
$300,000 note payable at December 31, 1998 was paid off during 1999.

     Total  equity at  December  31, 1999 was $18.5  million,  or 23.0% of total
assets. This compares to total equity of $29.9 million, or 34.5% of total assets
at December 31, 1998.  A return of capital  distribution  in the amount of $10.1
million,  a $434,000  increase in shares  acquired  by stock  benefit  plans,  a
$319,000  increase in treasury shares and a $930,000  decrease in net unrealized
gains on securities  available for sale, partially offset by a $425,000 increase
in retained earnings, account for the change in total stockholders' equity.

RESULTS OF OPERATIONS

     GENERAL. Our results of operations depend primarily on net interest income,
which is determined by (i) the  difference  between rates of interest we earn on
interest-earning assets, consisting primarily of mortgage loans, mortgage-backed
and  related  securities  and  other  investments,  and  the  rates  we  pay  on
interest-bearing  liabilities,  consisting primarily of deposits and borrowings,
and   (ii)  the   relative   amounts   of  our   interest-earning   assets   and
interest-bearing  liabilities.  The level of non-interest  income,  such as fees
received from customer  deposit  account  service  charges and gains on sales of
investments,  and the level of  non-interest  expense,  such as federal  deposit
insurance  premiums,  salaries and benefits,  office  occupancy  costs, and data
processing costs, also affect our results of operations. Finally, our results of
operations  may  also  be  affected   significantly   by  general  economic  and
competitive   conditions,   particularly   changes  in  market  interest  rates,
government  policies  and actions of  regulatory  authorities,  all of which are
beyond our control.

     NET  INCOME.  We  recorded  net  income of  $1,012,000  for the year  ended
December 31, 1999, an increase of $202,000 or 24.9% from the year ended December
31, 1998. The increase in net income was primarily due to a $640,000 increase in
net interest income, and a $204,000 reduction in non-interest expense, partially
offset by a $168,000  increase in the provision  for loan losses,  a decrease of
$345,000 in gain on sales of investment  securities,  and a $135,000 increase in
the provision for income taxes.


                                        5

<PAGE>



     Our return on assets was 1.19% for the year ended  1999,  compared to 1.06%
for the year ended 1998. Return on equity was 3.60% for 1999,  compared to 4.99%
for 1998.  Average  equity to average assets was 33.08% for the year ended 1999,
compared to 21.30% for the year ended 1998,  reflecting the effect of becoming a
stock  company  during late 1998.  During 1999 we paid  regular  quarterly  cash
dividends on common stock totaling $587,000, or $0.37 per share,  representing a
dividend  payout ratio,  dividends  declared per share divided by net income per
share, of approximately 58.7%. Additionally,  during the fourth quarter of 1999,
we paid a return of capital  distribution of $10.1 million,  or $6.00 per share.
The $0.37 per share and the $6.00 per share distributions paid by the Company to
stockholders  during  1999  were  accounted  for by the  Company  as a return of
capital,  rather  than  as  taxable  dividends.  We did not  declare  or pay any
dividends, or make any capital distributions during 1998.

     NET INTEREST INCOME. Net interest income increased $640,000, or 23.0%, from
$2.8  million  last year to $3.4  million for the year ended  December 31, 1999.
Total interest  income  increased  $204,000,  or 3.9%, from $5.2 million to $5.4
million. Most of this increase is attributable to a $7.9 million increase in the
overall  average  balance of the  investment  and  mortgage-backed  and  related
securities  portfolio  resulting from the investment of the conversion  proceeds
received during October 1998.

     Total interest expense decreased $436,000, or 17.9%, from $2.4 million last
year to $2.0 million for the year ended December 31, 1999. An overall decline in
the rate paid on  deposits  and a slight  decline  in the  aggregate  balance of
deposits at Home Federal  were the primary  reasons for the decrease in interest
expense.  The rate paid on our  certificate  of deposit  accounts  exhibited the
largest  decline,  declining to a 4.72% average rate for the year ended December
31, 1999 from 5.32% for the same period in 1998. Additionally,  the average rate
on savings  deposits  and NOW  accounts  declined  52 basis  points and 54 basis
points,  respectively.  Our overall cost of funds  declined to 3.65% during 1999
from 4.21% during 1998.

     Our net  interest  rate  spread  during  1999 was 2.85%,  a 17 basis  point
increase  from 1998.  Net  interest  margin  increased to 4.10% during 1999 from
3.68% in 1998,  an increase  of 42 basis  points.  The  primary  reasons for the
increase in interest rate spread and net interest margin during 1999 as compared
to 1998 was an  increase  in the  ratio of  average  interest-earning  assets to
average interest-bearing liabilities to 1.53x from 1.31x and the decrease in the
cost of funds as mentioned above.

     See the  tables  below  captioned  "Average  Balances,  Interest  Rates and
Yields" and  "Rate/Volume  Analysis of Net  Interest  Income" for more  detailed
information regarding our net interest income.

                                        6

<PAGE>



AVERAGE BALANCES, INTEREST RATES AND YIELDS

     The  following  table  presents for the periods  indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates.  No tax equivalent  adjustments  were made.
All average balances are computed using monthly average balances.

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                    ---------------------------------------------------------------------------
                                                                   1999                                     1998
                                                    -------------------------------------    ----------------------------------

                                                      Average       Interest                   Average       Interest
                                                    Outstanding      Earned/      Yield/     Outstanding     Earned/     Yield/
                                                      Balance         Paid         Rate        Balance         Paid       Rate
                                                    -----------     --------      ------     -----------     --------    ------
                                                                              (Dollars in Thousands)
<S>                                                  <C>             <C>            <C>        <C>            <C>         <C>
Interest-Earning Assets:
  Loans receivable(1).........................       $37,562         $2,855         7.60%      $37,317        $3,074      8.24%
  Mortgage-backed and related securities......        15,391            993         6.45        12,467           767      6.15
  Investment securities.......................        22,858          1,190         5.20        17,908           941      5.25
  FHLB stock..................................           326             23         7.06           306            22      7.19
  Interest-bearing deposits...................         7,320            364         4.97         7,761           417      5.37
                                                     -------         ------                    -------        ------
    Total interest-earning assets(1)..........        83,457          5,425         6.50        75,759         5,221      6.89
                                                                                                              ------

Non-interest earnings assets..................         2,252                                     1,372
Allowance for loan losses.....................          (720)                                     (854)
                                                     -------                                   -------
    Total Assets .............................       $84,989                                   $76,277
                                                     =======                                   =======

Interest-Bearing Liabilities:
  Savings deposits............................       $24,324            613         2.52%      $25,858           787      3.04%
  Demand and NOW deposits.....................         3,143             78         2.49         3,069            93      3.03
  Certificate accounts........................        26,550          1,254         4.72        28,545         1,520      5.32
  Borrowings..................................           690             54         7.78           385            35      9.09
                                                     -------         ------                    -------        ------
    Total interest-bearing liabilities........        54,707          1,999         3.65        57,857         2,435      4.21
                                                                     ------                                   ------

Non-interest-bearing liabilities..............         2,167                                     2,171
                                                     -------                                   -------
    Total Liabilities.........................        56,874                                    60,028
Stockholders' equity..........................        28,115                                    16,249
                                                     -------                                   -------
    Total Liabilities and
        Stockholders' Equity..................       $84,989                                   $76,277
                                                     =======                                   =======

Net interest income...........................                       $3,426                                   $2,786
                                                                     ======                                   ======
Net interest rate spread .....................                                      2.85%                                 2.68%
Net earning assets............................       $28,750                                   $17,902
                                                     =======                                   =======
Net yield on average interest-earning
  assets......................................                                      4.10%                                 3.68%
Average interest-earning assets to average
  interest-bearing liabilities................                        1.53x                                    1.31x

</TABLE>

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

(1)    Calculated  net of  deferred  loan  fees,  loan  discounts  and  loans in
       process. Includes non-accrual loans.


                                        7

<PAGE>



RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

     The  following  table  presents  the dollar  amount of changes in  interest
income and interest expense for major components of interest-earning  assets and
interest-bearing  liabilities.  It distinguishes  between the changes related to
outstanding  balances  and that due to the changes in interest  rates.  For each
category   of   interest-earning   assets  and   interest-bearing   liabilities,
information is provided on changes  attributable to (i) changes in volume (i.e.,
changes  in  volume  multiplied  by old rate) and (ii)  changes  in rate  (i.e.,
changes in rate multiplied by old volume).  For purposes of this table,  changes
attributable  to both rate and volume,  which  cannot be  segregated,  have been
allocated  proportionately  to the  change  due to volume  and the change due to
rate.

<TABLE>
<CAPTION>
                                                                           Years Ended December 31,
                                                                                1999 vs. 1998
                                                              ----------------------------------------------
                                                                  Increase/(Decrease)
                                                                        Due to                       Total
                                                              --------------------------           Increase
                                                              Volume              Rate            (Decrease)
                                                                  (Dollars in Thousands)
<S>                                                           <C>                 <C>                <C>
Interest-earning assets:
  Loans receivable.........................................   $   20              $(239)             $(219)
  Mortgage-backed and related securities...................      187                 39                226
  Investment securities and FHLB stock.....................      259                 (9)               250
  Interest-bearing deposits and other......................      (21)               (32)               (53)
                                                              ------             ------             ------

    Total interest-earning assets..........................    $ 445              $(241)             $ 204
                                                               =====              =====               -----

Interest-bearing liabilities:
  Savings deposits.........................................   $  (45)             $(129)             $(174)
  Demand and NOW deposits..................................        2                (17)               (15)
  Borrowings...............................................       23                 (4)                19
  Certificate accounts.....................................     (102)              (164)              (266)
                                                              ------             ------             ------
    Total interest-bearing  liabilities....................    $(122)             $(314)             $(436)
                                                               =====              =====              -----

Net interest income........................................                                          $ 640
                                                                                                      =====
</TABLE>

     PROVISION  FOR LOAN LOSSES.  The net  provision for loan losses was $65,000
for the year ended  December 31, 1999  compared to a net credit to operations of
$103,000 for the year ended December 31, 1998. The increase in the net provision
for loan  losses  of  $168,000  from  year to year was  primarily  related  to a
significant  increase in charge-offs in 1999 as compared to 1998. During 1999 we
charged off  $300,000,  with  $291,000  attributable  to the  bankruptcy  of one
borrower, whose loans were collateralized by residential rental real estate. The
properties  collateralizing  these  loans were  disposed  of through  bankruptcy
auction.  During 1998, we  experienced  a net recovery of $33,000.  Our level of
nonperforming  loans,  consisting of nonaccruing loans and loans delinquent more
than 90 days,  decreased  by $129,000  to  $826,000  at  December  31, 1999 from
$955,000 at December 31, 1998. Our nonperforming loans totaled 2.2% of net loans
receivable  at December 31, 1999,  compared to 2.6% of net loans  receivable  at
December 31, 1998.  Our  allowance  for loan losses was $549,000 at December 31,
1999,  representing  66.5%  of  non-performing  loans  and  1.5%  of  net  loans
receivable.  At December 31, 1998,  the  allowance for loan losses was $784,000,
representing 82.1% of non-performing loans and 2.2% of net loans receivable.  We
did not have any real estate owned or other  non-performing  assets on our books
at December 31, 1999 and 1998.


                                        8

<PAGE>



     It is our policy to provide  valuation  allowances for estimated  losses on
loans based upon past loss experience, current trends in the level of delinquent
and specific problem loans, loan  concentrations  to single  borrowers,  adverse
situations that may affect the borrower's  ability to repay, the estimated value
of any underlying collateral, and current and anticipated economic conditions in
our market area.  Accordingly,  the calculation of the adequacy of the allowance
for loan losses is not based directly on the level of non-performing assets.

     We will  continue to monitor our  allowance for loan losses and make future
additions to the  allowance  through the  provision  for loan losses as economic
conditions  dictate.  Although we maintain  our  allowance  for loan losses at a
level which we  consider  to be adequate to provide for losses,  there can be no
assurance  that  future  losses  will  not  exceed  estimated  amounts  or  that
additional provisions for loan losses will not be required in future periods. In
addition, our determination as to the amount of the allowance for loan losses is
subject to review by the Office of Thrift  Supervision  and the Federal  Deposit
Insurance Corporation, as part of their examination process, which may result in
the establishment of an additional allowance.

     NON-INTEREST INCOME. Non-interest income decreased $339,000 to $148,000 for
the year ended December 31, 1999,  compared to $487,000 the prior year.  Gain on
sale of investments was the primary  contributor to non-interest  income in each
period.  During 1999, gain on sale of investments totaled $116,000,  compared to
$461,000 in 1998.  This decrease was the result of a difference in the number of
shares of Freddie Mac stock sold in each period and the average  price  realized
from the sales. During 1999, the company sold 2,000 shares of Freddie Mac common
stock at an average  price of $59.45,  resulting  in a gain per share of $58.47.
During  1998,  the company  sold 9,728  shares of Freddie Mac common stock at an
average price of $48.37 per share,  resulting in a gain per share of $47.39. The
cost basis per share of Freddie  Mac stock in both  periods was $0.98 per share.
Service  fees and other  non-interest  income  totaled  $32,000 in 1999,  $6,000
higher than in 1998.

     NON-INTEREST EXPENSE. Non-interest expense decreased $204,000, or 8.9%, for
the  year  ended  December  31,  1999  compared  to the  same  period  in  1998.
Compensation and benefits, our largest non-interest expense, decreased $411,000,
or 24.3%, in 1999 as compared to 1998. This decrease was primarily  attributable
to special bonuses totaling $435,000 paid to Home Federal employees in 1998, and
a $288,000 lump-sum  contribution to executive  deferred  compensation  plans in
exchange for the  suspension of further annual  contributions  to the executives
under such plans.  Partially offsetting these special compensation items in 1998
was $263,000 in compensation  expense  attributable to the  establishment of the
Company's  Recognition  and  Retention  Plan during  1999.  Legal and audit fees
increased to $194,000 in 1999 from $27,000 in 1998, a difference of $167,000, or
627%.  The  increase  in legal and audit fees was  attributable  to the costs of
regulatory  reporting  associated with being a public  company,  fees associated
with  the  $10.1  million  special  return  of  capital   distribution  paid  to
stockholders  and the  establishment  of the  Company's  stock-based,  incentive
compensation plans.

     FEDERAL  INCOME  TAXES.  The  provision  for federal  income taxes  totaled
$411,000 for the year ended December 31, 1999, an increase of $135,000, or 48.9%
from the $276,000  provision for 1998. The increase in the provision for federal
income taxes was primarily due to pre-tax income being  $337,000  higher in 1999
than in 1998.  Additionally,  the effective tax rate increased to 28.9% for 1999
compared to 25.4% for 1998.

ASSET AND LIABILITY MANAGEMENT; MARKET RISK ANALYSIS

     As stated above, we derive our income primarily from the excess of interest
collected over interest paid. The rates of interest we earn on assets and pay on
liabilities generally are established contractually for a period of time. Market
interest rates change over time.  Accordingly,  our results of operations,  like

                                        9

<PAGE>



those of many financial institutions,  are impacted by changes in interest rates
and the  interest  rate  sensitivity  of our  assets and  liabilities.  The risk
associated  with  changes in  interest  rates and our  ability to adapt to these
changes is known as interest rate risk and is Home  Federal's  most  significant
market risk.

     Our  operations  are also  affected  by our level of income  and  expenses.
Non-interest  income  includes  service  charges  and  fees  and gain on sale of
investments.  Non-interest expenses primarily include compensation and benefits,
occupancy and equipment expenses, deposit insurance premiums and data processing
expenses.  Our results of operations are also significantly  affected by general
economic and  competitive  conditions,  particularly  changes in market interest
rates, government legislation and regulation and monetary and fiscal policy.

     In an attempt  to manage our  exposure  to  changes in  interest  rates and
comply with  applicable  regulations,  we monitor Home  Federal's  interest rate
risk. In monitoring  interest rate risk we continually analyze and manage assets
and liabilities based on their payment streams and interest rates, the timing of
their maturities, and their sensitivity to actual or potential changes in market
interest rates.

     An asset or liability is interest  rate  sensitive  within a specific  time
period if it will  mature or  reprice  within  that time  period.  If our assets
mature or reprice more rapidly or to a greater extent than our liabilities, then
the market value of our portfolio  equity and our net interest income would tend
to increase  during periods of rising interest rates and decrease during periods
of falling  interest  rates.  Conversely,  if our assets  mature or reprice more
slowly or to a lesser extent than our liabilities,  then the market value of our
portfolio  equity and our net  interest  income  would tend to  decrease  during
periods of rising interest rates and increase during periods of falling interest
rates.  Our policy has been to address the  interest  rate risk  inherent in the
historical savings institution business of originating long-term loans funded by
short-term  deposits by  maintaining  sufficient  liquid assets for material and
prolonged changes in interest rates. We believe that our liquidity  position and
capital levels, which are well in excess of regulatory  requirements,  assist us
in reasonably limiting the effects of our interest rate risk exposure.

     Our Board of Directors is responsible for reviewing our asset and liability
position.  The Board meets  quarterly to review  interest  rate risk and trends,
liquidity and capital ratios and related regulatory  requirements.  In addition,
the Board reviews  simulations of the effect of interest rates on Home Federal's
capital,  net  interest  income  and net  income  under  various  interest  rate
scenarios.  Management  of Home  Federal is  responsible  for  implementing  the
policies and  decisions of the Board of Directors  with respect to our asset and
liability goals and strategies.

     To manage the interest rate risk,  we attempt to originate  adjustable-rate
loans;  however,  due to the low interest rate environment over the past several
years,  customer  demand for fixed-rate  loans has been strong.  At December 31,
1999, adjustable-rate mortgage loans totaled $19.3 million or 49.9% of our total
gross loan portfolio.  We also maintain a large portfolio of liquid assets which
includes investment  securities.  Maintaining liquid assets,  however,  tends to
reduce  potential net income because liquid assets usually provide a lower yield
than other  interest-earning  assets. Despite these strategies we are still more
vulnerable  to increases in interest  rates than to decreases in interest  rates
given current market interest rate levels, as illustrated in the table below.

     In order to encourage  institutions to reduce their interest rate risk, the
Office of Thrift Supervision  adopted a rule incorporating an interest rate risk
component  into the  risk-based  capital  rules.  This  procedure  for measuring
interest rate risk was developed by the Office of Thrift  Supervision to replace
the "gap" analysis,  which is the difference between interest-earning assets and
interest-bearing  liabilities  that  mature or reprice  within a  specific  time
period.  Net  portfolio  value is the present  value of expected cash flows from
assets, liabilities and off-balance sheet contracts. The calculation is intended
to illustrate the change in net

                                       10

<PAGE>



portfolio value that will occur upon an immediate change in interest rates of at
least 200 basis points with no effect given to any steps that  management  might
take to counter the effect of that interest rate movement.

     The following  table sets forth the change in Home  Federal's net portfolio
value at December 31, 1999, based on internal assumptions, that would occur upon
an immediate  change in interest  rates,  with no effect given to any steps that
management might take to counteract that change.


                                      December 31, 1999
          ---------------------------------------------------------------------
                                                  Net Portfolio Value as % of
                  Net Portfolio Value            Portfolio Value of Total Asset
          -------------------------------------  ------------------------------
 Change                              Percentage
in Rate    Amount         Change       Change      NPV Ratio      BP Change
-------   --------      ---------    ----------    ---------      ---------
             (Dollars in Thousands)

 +300     $18,859       $(3,199)       (14.5)%       25.69%         (241)
 +200      20,173        (1,885)        (8.5)        26.77          (133)
 +100      21,215          (843)        (3.8)        27.54           (56)
  ---      22,058           ---          ---         28.10           ---
 -100      22,831           773          3.5         28.60            50
 -200      23,453         1,395          6.3         28.97            87
 -300      24,048         1,990          9.0         29.33           123

     In the above table,  the first column on the left  presents the basis point
increments of yield curve shifts.  The second column presents the overall dollar
amount of net  portfolio  value at each  basis  point  increment.  The third and
fourth  columns  present Home  Federal's  actual  position in dollar  change and
percentage  change in net  portfolio  value at each basis point  increment.  The
remaining  columns  present  Home  Federal's  percentage  change and basis point
change in its net portfolio  value as a percentage  of portfolio  value of total
assets.

     Computations of prospective  effects of hypothetical  interest rate changes
are based on numerous  assumptions,  including interest rates, loan prepayments,
deposit decay rates,  and the market values of certain  assets under the various
interest  rate  scenarios  and should not be relied upon as indicative of actual
results.  Certain  shortcomings are inherent in the method of analysis presented
in  the  computation  of  net  portfolio  value.  Although  certain  assets  and
liabilities  may have similar  maturities or periods  within which they reprice,
they may react  differently to changes in market  interest  rates.  The interest
rates on certain  types of assets and  liabilities  may  fluctuate in advance of
changes in market  interest  rates,  while interest rates on other types may lag
behind  changes in market  rates.  In the event of a change in  interest  rates,
prepayments and early withdrawal levels could deviate  significantly  from those
assumed in making the calculations set forth above.

LIQUIDITY AND COMMITMENTS

     Home  Federal's  primary  sources  of funds are  deposits,  repayments  and
prepayments of loans and securities and interest income.  Although  maturity and
scheduled  amortization  of loans  and  securities  are  relatively  predictable
sources of funds,  deposit flows and  prepayments  on loans and  securities  are
influenced  significantly  by general  interest rates,  economic  conditions and
competition. Historically, we have been able to generate sufficient cash through
our deposits and have only utilized borrowings to a limited degree.


                                       11

<PAGE>



     Liquidity   management  is  an  ongoing  and  long-term   function  of  our
asset/liability  management  strategy.  Excess funds  generally  are invested in
interest-bearing  overnight  deposits  at other  financial  institutions  and in
short-term  investment  securities.  If we require  funds  beyond our ability to
generate deposits,  additional  sources of funds are available.  Our most liquid
assets  are cash and cash  equivalents.  At  December  31,  1999,  cash and cash
equivalents totaled $7.9 million compared to $17.1 million at December 31, 1998.
We monitor and review  liquidity  regularly  and maintain a $2.0 million line of
credit with a commercial bank which can be accessed immediately.

     At December 31, 1999, the total loan  origination  commitments  outstanding
amounted to $914,000.  At the same date, the unadvanced  portion of construction
loans was $1.4 million.  Certificates of deposit scheduled to mature in one year
or less at December 31, 1999,  totaled $22.3  million.  We had no investment and
mortgage-related  securities scheduled to mature in one year or less at December
31, 1999. Based on historical experience,  we believe that a significant portion
of maturing  deposits  will  remain  with us. We  believe,  based on our current
balance  sheet  structure and our ability to acquire funds from the Federal Home
Loan Bank of Cincinnati and other sources, that our liquidity is adequate.

CAPITAL

     Total  equity was $18.5  million at December  31,  1999,  or 23.0% of total
assets on that date. Consistent with our goals to operate a sound and profitable
financial  organization,  we  actively  seek to  maintain  a "well  capitalized"
institution in accordance  with regulatory  standards.  As of December 31, 1999,
Home  Federal  exceeded  all  capital  requirements  of  the  Office  of  Thrift
Supervision. Our regulatory capital ratios at December 31, 1999 were as follows:
Tier I (leverage) capital,  28.2%; Tier I risk-based  capital,  54.8%; and Total
risk-based capital,  57.1%. The regulatory capital requirements to be considered
well capitalized are 5.0%, 6.0%, and 10.0%, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

     SFAS NO. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
AS AMENDED BY SFAS NO. 137,  ACCOUNTING FOR DERIVATIVE  INSTRUMENTS  AND HEDGING
ACTIVITIES - Deferral of the Effective  Date of FASB  Statement No. 133 requires
derivative  instruments  be  carried  at fair value on the  balance  sheet.  The
statement  continues to allow  derivative  instruments  to used to hedge various
risks and sets forth specific criteria to determine when hedge accounting can be
used. The statement  also provides for offsetting  changes in fair value or cash
flows of both the  derivative and the hedged asset or liability to be recognized
in earnings in the same period;  however, any changes in fair value or cash flow
that represent the ineffective  portion of a hedge are required to be recognized
in earnings and cannot be deferred. For derivative instruments not accounted for
as hedges, changes in fair value are required to be recognized in earnings. This
statement, as amended, is effective for quarterly and annual reporting beginning
January 1, 2001.  Management  does not believe that  adoption of this  statement
will have a material impact on the Company's  financial condition and results of
operations.

IMPACT OF INFLATION AND CHANGING PRICES

     The  financial  statements  and  related  data  presented  herein have been
prepared in accordance  with  generally  accepted  accounting  principles  which
require the measurement of financial  position and operating results in terms of
historical dollars without  considering changes in the relative purchasing power
of money over time due to  inflation.  The primary  impact of  inflation  on our
operations is reflected in increased  operating  costs.  Unlike most  industrial
companies,   virtually  all  of  the  assets  and  liabilities  of  a  financial
institution are monetary in nature. As a result, interest rates generally have a
more  significant  impact on a  financial  institution's  performance  than does

                                       12

<PAGE>



inflation.  Interest rates do not  necessarily  move in the same direction or to
the same extent as the prices of goods and services.


                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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


                                       13

<PAGE>


                   [LETTERHEAD OF ANNESS GERLACH & WILLIAMS]

               Report of Independent Certified Public Accountants



Board of Directors
First Niles Financial, Inc.
Niles, Ohio


     We have audited the consolidated statements of financial condition of First
Niles  Financial,  Inc. and subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of income,  stockholders' equity, and cash flows
for each of the two years in the period ended December 31, 1999. These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the consolidated  financial  position of First Niles
Financial,  Inc.  and  subsidiary  as of  December  31,  1999 and 1998,  and the
consolidated  results  of its  operations  and its cash flows for the years then
ended in conformity with generally accepted accounting principles.


                              /s/ Anness, Gerlach & Williams



Youngstown, Ohio
January 24, 2000



                                       15



<PAGE>

<TABLE>
<CAPTION>
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                        (In thousands, except share data)

                                                                                      December 31
                                                                                      -----------
                                                                                    1999        1998
                                                                                    ----        ----
                                        ASSETS
<S>                                                                               <C>         <C>
Cash and cash equivalents:
  Noninterest bearing                                                             $  1,610    $    995
  Interest bearing                                                                   6,338      16,129
                                                                                  --------    --------
                                                TOTAL CASH AND CASH EQUIVALENTS      7,948      17,124
Securities:
  Available for sale - at market                                                    16,515      19,751
  Held to maturity - at cost                                                        17,255      12,432
Loans receivable                                                                    36,863      36,132
Accrued interest receivable                                                            356         282
Federal Home Loan Bank stock, at cost                                                  340         317
Real estate investment-limited partnership, at equity                                  340         383
Prepaid expenses and other assets                                                      163          47
Prepaid federal income taxes                                                           222          --
Deferred income tax benefit                                                            171          --
Premises and equipment, at cost less accumulated depreciation                          245         256
                                                                                  --------    --------

                                                                   TOTAL ASSETS   $ 80,418    $ 86,724
                                                                                  ========    ========

                                    LIABILITIES
Deposits                                                                          $ 54,545    $ 54,837
Accrued interest payable                                                               129         110
Accounts payable and other liabilities                                               1,234       1,236
Note payable                                                                         6,000         300
Federal income tax payable                                                              --          46
Deferred federal income tax liability                                                   --         272
                                                                                  --------    --------
                                                              TOTAL LIABILITIES     61,908      56,801

                              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;
    1,754,411 shares issued                                                             18          18
  Additional paid-in capital                                                         6,708      16,897
  Retained earnings, substantially restricted                                       13,134      12,709
  Accumulated other comprehensive income:
    Net unrealized gains on securities available for sale, net of related tax
      effects of $338 in 1999 and $817 in 1998                                         656       1,586
  Common stock purchased by the Employee Stock Ownership Plan                       (1,159)     (1,287)
  Unearned compensation                                                               (528)         --
  Treasury stock - 24,563 shares - at cost                                            (319)         --
                                                                                  --------    --------
                                                     TOTAL STOCKHOLDERS' EQUITY     18,510      29,923

                                     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 80,418    $ 86,724
                                                                                  ========    ========
</TABLE>

THE  ACCOMPANYING NOTES ARE AN INTEGRAL PART
 OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

                                       16

<PAGE>

<TABLE>
<CAPTION>
                        CONSOLIDATED STATEMENTS OF INCOME

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                                 (In thousands)

                                                                           Year Ended December 31
                                                                           ----------------------
                                                                             1999          1998
                                                                             ----          ----
<S>                                                                        <C>            <C>
Interest income:
  Loans receivable:
    First mortgage loans                                                   $ 2,745        $ 2,967
    Consumer and other loans                                                   110            107
  Mortgage-backed and related securities                                       993            767
  Investments                                                                1,213            963
  Interest-bearing deposits                                                    364            417
                                                                           -------        -------
                                              TOTAL INTEREST INCOME          5,425          5,221

Interest expense:
  Deposits                                                                   1,945          2,400
  Borrowings                                                                    54             35
                                                                           -------        -------
                                             TOTAL INTEREST EXPENSE          1,999          2,435
                                                                           -------        -------
                                                NET INTEREST INCOME          3,426          2,786

Provision for (recoveries of) loan losses                                       65           (103)
                                                                           -------        -------
                                          NET INTEREST INCOME AFTER
                                          PROVISION FOR LOAN LOSSES          3,361          2,889

Noninterest income:
  Gain on sale of  securities                                                  116            461
  Service fees and other                                                        32             26
                                                                           -------        -------
                                           TOTAL NONINTEREST INCOME            148            487

Noninterest expense:
  Equity in loss of limited partnership                                         43             43
  General and administrative:
    Compensation and benefits                                                1,278          1,689
    Occupancy and equipment                                                     86             89
    Federal deposit insurance premiums                                          33             35
    Other operating expense                                                    646            434
                                                                           -------        -------
                                          TOTAL NONINTEREST EXPENSE          2,086          2,290
                                                                           -------        -------

                                         INCOME BEFORE INCOME TAXES          1,423          1,086

Federal income taxes                                                           411            276
                                                                           -------        -------

                                                         NET INCOME        $ 1,012        $   810
                                                                           =======        =======
                             EARNINGS PER SHARE - BASIC AND DILUTED        $   .63            N/A
                                                                           =======        =======
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.


                                       17

<PAGE>

<TABLE>
<CAPTION>
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                 For the years ended December 31, 1999 and 1998

                                 (In thousands)

                                                                                Net     Common Stock
                                                                             Unrealized  Purchased
                                                                              Gains on  by Employees
              `                                         Additional           Securities    Stock
                                               Common    Paid-in   Retained   Available   Ownership  Unearned   Treasury
                                                Stock    Capital   Earnings   for Sale      Plan   Compensation   Stock    Total
                                                -----    -------   --------   --------      ----   ------------   -----    -----
<S>                                          <C>       <C>        <C>        <C>        <C>        <C>        <C>        <C>
Balance, January 1, 1998                     $     --  $     --   $ 11,899   $  1,264   $     --   $     --   $     --   $ 13,163

Reorganization to common stock form
   and issuance of 1,754,411  shares               18    16,884         --         --     (1,404)        --         --     15,498

Comprehensive income:
    Net income                                     --        --        810         --         --         --         --        810
    Other comprehensive income, net
      of tax:
        Change in unrealized gains and
          losses on securities of $626,
          net of reclassification
          adjustment for gains included
          in net income of $304                    --        --         --        322         _-         --         --        322
                                             --------  --------   --------   --------   --------   --------   --------   --------
   Total comprehensive income                      --        --        810        322         --         --         --      1,132
ESOP shares allocated to employees                 --        13         --         --        117         --         --        130
                                             --------  --------   --------   --------   --------   --------   --------   --------

Balance, December 31, 1998                         18    16,897     12,709      1,586     (1,287)        --         --     29,923

Comprehensive income:
    Net income                                     --        --      1,012         --         --         --         --      1,012
    Other comprehensive income, net
      of tax:
        Change in unrealized gains and
          losses on securities of $1,007,
          net of reclassification
          adjustment for gains included
          in net income of $77                     --        --         --       (930)        --         --         --       (930)
                                             --------  --------   --------   --------   --------   --------   --------   --------
  Total comprehensive income                       --        --      1,012       (930)        --         --         --         82
Cash dividends - $.37 per share                    --        --       (587)        --         --         --         --       (587)
Return of capital distribution - $6
    per share                                      --   (10,131)        --         --         --         --         --    (10,131)
ESOP shares allocated to employees                 --        43         --         --        128         --         --        171
Purchase of shares for  treasury                   --        --         --         --         --         --     (1,211)    (1,211)
Shares issued for recognition and
    retention plan                                 --      (101)        --         --         --       (528)       892        263
                                             --------  --------   --------   --------   --------   --------   --------   --------

BALANCE DECEMBER 31, 1999                    $     18  $  6,708   $ 13,134   $    656   ($ 1,159)  ($   528)  ($   319)  $ 18,510
                                             ========  ========   ========   ========   ========   ========   ========   ========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

                                       18
<PAGE>


<TABLE>
<CAPTION>
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                                 (In thousands)
                                                                                     Year Ended December 31
                                                                                     ----------------------
                                                                                        1999         1998
                                                                                        ----         ----
<S>                                                                                  <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                        $  1,012      $    810
   Adjustments to reconcile net income to net cash provided by
      (used in) operating activities:
        Deferred income taxes                                                              36           (49)
        Depreciation                                                                       43            49
        Amortization of deferred loan fees and costs                                        1            --
        Amortization of discounts and premiums on investments and
          mortgage-backed and related securities,  net                                     (7)          (22)
        Recognition and Retention Plan shares                                             263            --
        Gain on sale of securities                                                       (116)         (461)
        ESOP shares allocated                                                             170           130
        Equity in loss of limited partnership                                              43            43
        Provision for (recoveries of) loan losses                                          65          (103)
        Federal Home Loan Bank stock dividends                                            (23)          (23)
        Net increase in accrued interest receivable and
           prepaid expenses and other assets                                             (411)         (272)
        Net increase (decrease)  in accrued interest, accounts payable
           and other liabilities                                                          (29)          467
                                                                                     --------      --------
                                       NET CASH PROVIDED BY OPERATING ACTIVITIES        1,047           569

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from sale of securities available for sale                                  5,908           471
   Purchase of securities available for sale                                           (3,984)       (1,827)
   Proceeds from principal payments on mortgage-backed
      and related securities                                                            6,121         9,490
   Purchase of mortgage-backed and related securities                                 (10,918)       (9,540)
   Net (increase) decrease  in interest-bearing deposits with banks                     9,791       (12,072)
   Net (increase) decrease in loans                                                      (797)          715
   Additions to premises and equipment                                                    (32)          (11)
                                                                                     --------      --------
                                                            NET CASH PROVIDED BY
                                                  (USED IN) INVESTING ACTIVITIES        6,089       (12,774)

CASH FLOWS FROM FINANCING ACTIVITIES
   Issuance of common stock - net                                                          --        15,498
   Return of capital distribution                                                     (10,131)           --
   Purchase of treasury stock                                                          (1,211)           --
   Dividends paid                                                                        (587)           --
   Net increase (decrease)  in savings accounts                                           461        (1,609)
   Net decrease in certificates of deposit                                               (753)       (1,408)
   Proceeds of note payable                                                             6,000            --
   Repayment of note payable                                                             (300)         (100)
                                                                                     --------      --------
                                                            NET CASH PROVIDED BY
                                                   (USED IN)FINANCING ACTIVITIES       (6,521)       12,381
                                                                                     --------      --------

                                                            NET INCREASE IN CASH          615           176
CASH AT BEGINNING OF YEAR                                                                 995           819
                                                                                     --------      --------

                                                            CASH AT END OF YEAR      $  1,610      $    995
                                                                                     ========      ========
Cash paid during the period for:
   Interest                                                                          $  1,980      $  2,451
   Income taxes                                                                      $    642      $    259

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

                                       19

<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     On July 6, 1998,  the Board of Directors  of Home Federal  Savings and Loan
Association  of Niles  (the  "Association")  adopted a Plan of  Conversion  (the
"Plan")  whereby the  Association  would convert to the stock form of ownership,
followed by the  issuance  of all of the  Association's  outstanding  stock to a
newly formed  holding  company,  First Niles  Financial,  Inc. (the  "Company").
Pursuant to the Plan,  the  Company  offered  common  shares for sale to certain
depositors of the Association  and members of the community.  The conversion was
completed on October 26, 1998, and resulted in the issuance of 1,754,411  common
shares of the Company which,  after  consideration of offering expenses totaling
approximately $643,000, and share purchases by the Employee Stock Ownership Plan
("ESOP") totaling $1,404,000,  resulted in net equity proceeds of $15.5 million.
Condensed  financial  statements  of the Company are presented in Note N. Future
references are made either to the Company or the Association as applicable.

     The Company is a savings and loan  holding  company  whose  activities  are
primarily  limited  to holding  the stock of the  Association.  The  Association
conducts a general banking business in Niles,  Ohio which consists of attracting
deposits from the general public and applying those funds to the  origination of
loans for residential,  consumer and nonresidential  purposes. The Association's
profitability  is significantly  dependent on its net interest income,  which is
the difference  between interest income generated from  interest-earning  assets
(i.e. loans and  investments) and the interest expense paid on  interest-bearing
liabilities (i.e.  customer deposits and borrowed funds). Net interest income is
affected by the relative amount of interest-earning  assets and interest-bearing
liabilities and the interest  received or paid on these  balances.  The level of
interest  rates  paid  or  received  by the  Association  can  be  significantly
influenced by a number of environmental  factors,  such as governmental monetary
policy, that are outside of management's control.

     The consolidated  financial  information presented herein has been prepared
in accordance with generally accepted accounting principles ("GAAP") and general
accounting  practices  within the  financial  services  industry.  In  preparing
consolidated  financial  statements  in  accordance  with  GAAP,  management  is
required to make estimates and assumptions  that affect the reported  amounts of
assets and liabilities  and the disclosure of contingent  assets and liabilities
at the date of the  financial  statements  and revenues and expenses  during the
reporting  period.  Actual results could differ from such estimates.  A material
estimate that is particularly susceptible to significant change in the near term
relates to the determination of the allowance for loan losses.

     The following is a summary of  significant  accounting  policies which have
been  consistently  applied in the  preparation  of the  accompanying  financial
statements.

Principles of Consolidation:

     The consolidated  financial  statements include the accounts of the Company
and the Association at December 31, 1999 and 1998, for the year 1999 and for the
period  October 26, 1998 through  December 31, 1998.  Prior to October 26, 1998,
the consolidated financial statements are those of the Association.



                                       20
<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investment Securities and Mortgage-Backed and Related Securities:

     The Company  accounts for  investment  securities and  mortgage-backed  and
related  securities  in  accordance  with  Statement  of  Financial   Accounting
Standards  ("SFAS") No. 115,  "Accounting  for Certain  Investments  in Debt and
Equity  Securities."  SFAS No. 115 requires that  investments  be categorized as
held-to-maturity,  trading  or  available  for sale.  Securities  classified  as
held-to-maturity  are carried at cost only if the  Association  has the positive
intent and ability to hold these securities to maturity.  Trading securities and
securities  designated  as  available  for sale are  carried  at fair value with
resulting   unrealized  gains  or  losses  recorded  to  operations  or  equity,
respectively.  At December  31, 1999 and 1998,  the  Company's  equity  accounts
reflected net  unrealized  gains of $656,000 and  $1,586,000,  respectively,  on
securities  designated as available for sale.  Realized gains or losses on sales
of securities are recognized using the specific identification method.

Loans Receivable:

     Loans held in portfolio  are stated at the  principal  amount  outstanding,
adjusted  for the  allowance  for loan losses and unearned  income.  Interest is
accrued  as  earned,  unless  the  collectibility  of  the  loan  is  in  doubt.
Uncollectible  interest on loans that are contractually past due is charged off,
or an allowance is established based on management's  periodic  evaluation.  The
allowance is  established  by a charge to interest  income equal to all interest
previously  accrued,  and income is  subsequently  recognized only to the extent
that cash payments are received until, in management's  judgment, the borrower's
ability to make periodic interest and principal payments has returned to normal,
in  which  case  the  loan  is  returned  to  accrual  status.  If the  ultimate
collectibility  of the loan is in  doubt,  in whole  or in  part,  all  payments
received on nonaccrual loans are applied to reduce principal until such doubt is
eliminated.

     Loans held for sale are identified at origination  and carried at the lower
of cost or market, determined in the aggregate. In computing cost, deferred loan
origination fees are deducted from the principal balance of the related loan. At
December 31, 1999 and 1998, there were no loans identified as held for sale.

Loan Origination Fees and Costs:

     The Association  accounts for loan origination fees and costs in accordance
with SFAS No. 91,  "Accounting for Nonrefundable  Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases."  Pursuant to
the provisions of SFAS No. 91, all loan  origination fees received net of direct
origination  costs,  are  deferred  and  amortized  to interest  income over the
contractual  lives of the loans using the level-yield  method,  giving effect to
actual  loan  prepayments.  Additionally,  SFAS  No.  91  generally  limits  the
definition  of loan  origination  costs  to the  direct  costs  attributable  to
originating a loan.




                                       21

<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Allowance for Losses on Loans:

     It  is  the  Association's  policy  to  provide  valuation  allowances  for
estimated losses on loans based on past loss  experience,  current trends in the
level of delinquent and specific problem loans,  loan  concentrations  to single
borrowers,  adverse  situations that may affect the borrower's ability to repay,
the estimated  value of any underlying  collateral  and current and  anticipated
economic  conditions in the primary  market area.  When the collection of a loan
becomes doubtful,  or otherwise  troubled,  the Association  records a loan loss
provision  equal  to the  difference  between  the fair  value  of the  property
securing the loan and the loan's carrying  value.  Major loans and major lending
areas are  reviewed  periodically  to determine  potential  problems at an early
date.  The  allowance  for loan losses is  increased  by charges to earnings and
decreased by charge-offs (net of recoveries).

     The  Association  accounts for impaired  loans in accordance  with SFAS No.
114,  "Accounting  by Creditors for Impairment of a Loan." SFAS No. 114 requires
that impaired loans be measured based upon the present value of expected  future
cash  flows  discounted  at  the  loan's  effective  interest  rate  or,  as  an
alternative,  at the  loan's  observable  market  price  or  fair  value  of the
collateral.

     A loan is defined  under SFAS No. 114 as  impaired  when,  based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the  contractual  terms of the loan  agreement.  In
applying  the  provisions  of  SFAS  No.  114,  the  Association  considers  its
investment  in one to  four-family  residential  loans and consumer  installment
loans to be homogeneous and therefore excluded from separate  identification for
evaluation  of  impairment.  With  respect to the  Association's  investment  in
commercial  real estate loans,  and its evaluation of impairment  thereof,  such
loans are  collateral  dependent  and,  as a result,  are carried as a practical
expedient at the lower of cost or fair value.

     Loans  which  are more  than  ninety  days  delinquent  are  considered  to
constitute  more  than a  minimum  delay  in  repayment  and are  evaluated  for
impairment under SFAS No. 114 at that time.

     At December 31, 1999 and 1998, the  Association  identified one loan with a
carrying  value of $263,000 and  $648,000,  respectively,  which was  considered
impaired due to delinquent  payments.  Accrual of interest on this loan has been
suspended. All payments received are applied to principal.  Contractual interest
not  recognized  for 1999 and 1998 was $63,000  and  $75,000,  respectively.  No
portion of the  allowance  for losses of loans is  attributable  to the impaired
loan.





                                       22

<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Premises and Equipment:

     Premises and equipment are recorded at cost and include  expenditures which
extend the useful  lives of  existing  assets.  Maintenance,  repairs  and minor
renewals are expensed as incurred.  For  financial  reporting,  depreciation  is
provided on the straight-line and accelerated  methods over the estimated useful
lives of the  assets,  estimated  to be forty to fifty years for  buildings  and
three to ten years for furniture and equipment.

Federal Income Taxes:

     The Company  accounts for federal  income  taxes  pursuant to SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 established financial accounting and
reporting  standards  for the  effects  of income  taxes  that  result  from the
Association's  activities  within the current and previous  years. In accordance
with SFAS No. 109, a deferred tax liability or deferred tax asset is computed by
applying the current statutory tax rates to net taxable or deductible  temporary
differences  between  the tax basis of an asset or  liability  and its  reported
amount in the financial statements that will result in net taxable or deductible
amounts in future  periods.  Deferred tax assets are recorded only to the extent
that  the  amount  of  net  deductible  temporary  differences  or  carryforward
attributes may be utilized against current period earnings, carried back against
prior years' earnings, offset against taxable temporary differences reversing in
future  periods,  or utilized to the extent of  management's  estimate of future
taxable income. A valuation allowance is provided for deferred tax assets to the
extent that the value of net deductible  temporary  differences and carryforward
attributes  exceeds  management's  estimates of taxes payable on future  taxable
income.  Deferred  tax  liabilities  are  provided  on the  total  amount of net
temporary differences taxable in the future.

     Deferral of income  taxes  results  primarily  from  deferred  compensation
accruals,  Federal Home Loan Bank stock dividends,  and book/tax  differences in
the allowance for loan losses.

Cash and Cash Equivalents:

     For purposes of reporting  cash flows,  cash includes  noninterest  bearing
cash which includes cash on hand and amounts due from correspondent banks.

Earnings Per Share:

     Basic earnings per share is computed based upon the weighted-average shares
outstanding  during the year less  weighted-average  shares in the ESOP that are
unallocated  and not  committed  to be released.  Diluted  earnings per share is
computed  taking into  consideration  common  shares  outstanding  and potential
dilutive common shares to be issued under the Corporation's stock option plan.

     Earnings per share is not presented  for 1998 as the Company  completed its
conversion to stock form in October 1998.


                                       23
<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

     A reconciliation  of the  weighted-average  common shares  outstanding on a
basic and diluted basis for 1999 is as follows:

     Basic weighted-average shares                1,600,492

     Effective of diluted shares:
         Stock options                                  127
                                                  ---------
     Diluted weighted-average shares              1,600,619
                                                  =========

     Subsequent to December 31, 1999, the Company has acquired  69,100 shares of
stock for the treasury at a cost of $740,000.

Comprehensive Income:

     The Company  adopted SFAS No. 130,  "Reporting  Comprehensive  Income," for
reporting periods as of January 1, 1997. The Statement establishes standards for
reporting and presentation of comprehensive  income and its components in a full
set of general-purpose financial statements. It requires that all items that are
required  to  be  recognized  under   accounting   standards  as  components  of
comprehensive income be reported in a financial statement that is presented with
the same  prominence as other financial  statements.  SFAS No. 130 requires that
companies (i) classify terms of other comprehensive  income by their nature in a
financial   statement  and  (ii)  display  the  accumulated   balance  of  other
comprehensive  income separately from retained  earnings and additional  paid-in
capital in the equity section of the statement of financial condition.

Recent Accounting Pronouncements:

     SFAS  No.  133,   "Accounting   for  Derivative   Instruments  and  Hedging
Activities," as amended by SFAS No. 137, "Accounting for Derivative  Instruments
and Hedging  Activities -- Deferral of the Effective  Date of FASB Statement No.
133,"  requires  derivative  instruments be carried at fair value on the balance
sheet.  The statement  continues to allow  derivative  instruments to be used to
hedge various  risks and sets forth  specific  criteria to determine  when hedge
accounting can be used.  The statement  also provides for offsetting  changes in
fair  value  or cash  flows  of both  the  derivative  and the  hedged  asset or
liability to be recognized in earnings in the same period;  however, any changes
in fair value or cash flow that represent the ineffective portion of a hedge are
required to be  recognized  in earnings and cannot be deferred.  For  derivative
instruments  not accounted for as hedges,  changes in fair value are required to
be  recognized  in  earnings.  This  statement,  as amended,  is  effective  for
quarterly and annual reporting  beginning  January 1, 2001.  Management does not
believe  that  adoption  of this  statement  will have a material  impact on the
Company's financial condition and results of operations.




                                       24


<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998


NOTE  B - INVESTMENTS SECURITIES

     The amortized cost and estimated  fair values of investment  securities are
summarized as follows:

<TABLE>
<CAPTION>
                                                                 December 31
                                           -----------------------------------------------------
                                                     1999                        1998
                                           -----------------------      ------------------------
                                                        Estimated                     Estimated
                                           Amortized       Fair         Amortized        Fair
                                             Cost          Value           Cost          Value
                                           ---------    ---------       ---------     ---------
                                                                (In thousands)
<S>                                        <C>            <C>            <C>            <C>
Available for sale securities:
  FHLMC common stock                       $    36        $ 1,788        $    39        $ 2,577
  Asset management funds:
    Income Trust                             5,668          5,342          5,668          5,624
    ARMS                                     4,006          3,840          4,006          3,872
    GNMA Trust                               5,795          5,530          5,795          5,837
  Corporate bonds:
    Due within one year                         --             --          1,271          1,271
    Due after one to ten years                  --             --            555            555
  Other                                         15             15             15             15
                                           -------        -------        -------        -------

                             TOTALS        $15,520        $16,515        $17,349        $19,751
                                           =======        =======        =======        =======
</TABLE>

     The amortized cost, gross  unrealized  gains,  gross unrealized  losses and
estimated fair values for securities held to maturity are summarized as follows:

<TABLE>
<CAPTION>
                                                                      December 31, 1999
                                                   ------------------------------------------------------
                                                                     Gross         Gross        Estimated
                                                   Amortized      Unrealized     Unrealized       Fair
                                                      Cost           Gains          Loss          Value
                                                      ----           -----          ----          -----
                                                                         (In thousands)
<S>                                                 <C>            <C>            <C>            <C>
Held to maturity securities:
  Mortgage-backed and related securities:
    Government National Mortgage Association
       participation certificates                   $    12        $    --        $    --        $    12
    Federal National Mortgage Association
      collateralized mortgage obligations             9,900             --            248          9,652
    Federal Home Loan Mortgage Corporation:
       Participation certificates                        34              2              6             30
       Collateralized mortgage obligations            6,309             --            221          6,088
  Federal Home Loan Bank bond - due
         March, 2001                                  1,000             --             14            986
                                                    -------        -------        -------        -------

                             TOTALS                 $17,255        $     2        $   489        $16,768
                                                    =======        =======        =======        =======

</TABLE>


                                       25
<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998


NOTE B - INVESTMENTS  SECURITIES (CONTINUED)

<TABLE>
<CAPTION>
                                                                         December 31, 1998
                                                    -----------------------------------------------------
                                                                     Gross          Gross       Estimated
                                                    Amortized      Unrealized    Unrealized       Fair
                                                      Cost           Gains          Loss          Value
                                                      ----           -----          ----          -----
                                                                         (In thousands)
<S>                                                 <C>            <C>            <C>            <C>
Held to maturity securities:
  Mortgage-backed and related securities:
    Government National Mortgage Association
       participation certificates                   $    27        $    --        $     1        $    26
    Federal National Mortgage Association
      collateralized mortgage obligations             6,292              9             22          6,279
    Federal Home Loan Mortgage Corporation:
       Participation certificates                        60              1              7             54
       Collateralized mortgage obligations            6,053             21             19          6,055
                                                    -------        -------        -------        -------

                             TOTALS                 $12,432        $    31        $    49        $12,414
                                                    =======        =======        =======        =======
</TABLE>

NOTE C - LOANS RECEIVABLE

         The composition of the loan portfolio is as follows:

                                                           December 31
                                                   ---------------------------
                                                     1999               1998
                                                     ----               ----
                                                         (In thousands)
Real estate mortgage (primarily one-to
  four-family residential)                         $27,879             $26,735
Construction and development                         2,490               3,930
Commercial real estate                               5,631               5,041
Consumer and other                                   1,336               1,128
Loans on deposits                                       76                  82
                                                   -------             -------
                                                    37,412              36,916
Less allowance for loan losses                         549                 784
                                                   -------             -------

                             TOTALS                $36,863             $36,132
                                                   =======             =======



                                       26
<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998



NOTE C - LOANS RECEIVABLE (CONTINUED)

     In the ordinary  course of business,  the  Association has granted loans to
some of the officers, directors and their related interests. Related party loans
are  made  on  substantially  the  same  terms,  including  interest  rates  and
collateral,  as those  prevailing  at the time of comparable  transactions  with
unrelated  persons and do not involve  more than normal risk of  collectibility.
The  aggregate  dollar amount of these loans was  approximately  $1.2 million at
December 31, 1999 and 1998.  During the year ended  December 31, 1999,  loans of
$27,000 were made to  officers,  directors  and their  related  interests  while
principal  repayments  of  approximately  $47,000  were  received  from  related
parties.

     The   Association's   lending   efforts   have   historically   focused  on
one-to-four-family  residential real estate loans and construction  loans, which
comprise  approximately  $27.9  million,  or 75%, of the total loan portfolio at
December 31, 1999, and $26.7 million,  or 72% of the total portfolio at December
31, 1998.  Historically,  such loans have been conservatively  underwritten with
cash  down  payments   sufficient  to  provide  the  Association  with  adequate
collateral coverage in the event of default.  Nevertheless,  the Association, as
with any lending institution,  is subject to the risk that real estate values or
economic  conditions could deteriorate in its primary lending areas within Ohio,
thereby impairing collateral values.  However,  management is of the belief that
real estate values and economic conditions in the Association's  primary lending
areas are presently stable.


     The activity in the allowance for loan losses is summarized as follows:

                                                         December 31
                                                   ---------------------
                                                    1999           1998
                                                    ----           ----
                                                       (In thousands)

Balance at beginning of  year                      $ 784          $ 854
Provision (credit) reflected in operations            65           (103)
Less loans charged off                              (300)           (21)
Recovery                                              --             54
                                                   -----          -----

Balance at end of year                             $ 549          $ 784
                                                   =====          =====





                                       27

<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998



NOTE D - REAL ESTATE INVESTMENT - LIMITED PARTNERSHIP

     The  Association  holds an  interest  in a  limited  partnership  formed to
construct and operate multi-family housing units. Due to the ability to exercise
significant control over operations, the Association accounts for the investment
in the  limited  partnership  using the  equity  method.  Under the terms of the
limited partnership agreement,  the Association has a total capital contribution
of $500,000 and is allocated tax losses and  affordable  housing  federal income
tax credits based upon that investment.

     The Association  funded its partnership  capital  contribution  through the
proceeds of a $500,000  term note payable to a bank in five annual  installments
of $100,000  beginning  November,  1997.  The  interest is payable  semiannually
through  November,  2001,  at a fixed  rate  of  8.875%.  The  note  payable  is
collateralized  by ten membership  shares of the limited  partnership.  The note
balance of $300,000 was paid in full in November, 1999.

     Condensed financial information for the entire partnership is summarized as
of and for the years ended December 31, 1999 and 1998 as follows:

                                      1999          1998
                                      ----          ----
                                        (In thousands)
Balance Sheet:
  Investment in real estate         $4,747         $4,945
  Total assets                       4,858          5,086
  Mortgage payable                   2,851          2,874
  Partners' equity                   1,552          1,927

Operations:
  Rental income                        439            512
  Net loss                             357            222




                                       28

<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998



NOTE E - PREMISES AND EQUIPMENT

     Premises and equipment are summarized as follows:

                                               December 31
                                            -----------------
                                            1999         1998
                                            ----         ----
                                              (In thousands)

Land                                        $ 32         $ 32
Buildings                                    359          359
Furniture, equipment and vehicles            373          381
                                            ----         ----
                                             764          772
Less accumulated depreciation                519          516
                                            ----         ----

                             TOTALS         $245         $256
                                            ====         ====


NOTE F - DEPOSITS

     Substantially all deposit amounts are interest bearing. The type of deposit
accounts are summarized as follows:

                                                   December 31
                                            ------------------------
                                              1999            1998
                                              ----            ----
                                                  (In thousands)

Savings and transaction accounts            $28,116         $27,655
Certificates of deposit                      26,429          27,182
                                            -------         -------

                             TOTALS         $54,545         $54,837
                                            =======         =======

     Deposits in excess of $100,000 are not federally  insured.  At December 31,
1999 and 1998, the aggregate amount of individual deposits in excess of $100,000
was $8,067,000 and $6,318,000, respectively.

     Scheduled maturities of certificates of deposit are as follows:

                                          December 31
                                   -----------------------
                                     1999            1998
                                     ----            ----
                                        (In thousands)

Within one year                    $22,582         $22,649
One to two years                     3,387           3,841
Two to three years                     460             692
                                   -------         -------

                    TOTALS         $26,429         $27,182
                                   =======         =======


                                       29

<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998


NOTE G - FEDERAL INCOME TAXES
                                                     Year Ended December 31
                                                     ----------------------
                                                      1999          1998
                                                      ----          ----
                                                         (In thousands)
Income tax expense is summarized as follows:
     Federal:
        Current                                      $ 375         $ 325
        Deferred                                        36           (49)
                                                     -----         -----

                             TOTALS                  $ 411         $ 276
                                                     =====         =====

     The  provision  for  federal  income  taxes on  earnings  differ  from that
computed at the statutory rate of 34% is as follows:

                                                 Year Ended December 31
                                                 ----------------------
                                                   1999           1998
                                                   ----           ----
                                                      (In thousands)

Federal taxes computed at statutory rate         $ 483          $ 369
Increase (decrease) resulting from:
  Limited partnership tax credits                  (86)           (89)
  Dividends received deduction                      (5)            (4)
  Other                                             19             --
                                                 -----          -----

       FEDERAL INCOME TAX PROVISION              $ 411          $ 276
                                                 =====          =====

Effective federal income tax rate                 28.9%          25.4%
                                                  ====           ====

     The composition of the Company's net deferred tax liability is as follows:

<TABLE>
<CAPTION>
                                                                      December 31
                                                                  ---------------------
                                                                   1999           1998
                                                                   ----           ----
                                                                      (In thousands)
<S>                                                               <C>            <C>
Taxes (payable) refundable on temporary differences
  at the expected statutory rate:
     Deferred tax liabilities:
        Federal Home Loan Bank stock dividends                    ($ 79)         ($ 72)
        Unrealized gains on securities available for sale          (338)          (817)
                                                                  -----          -----
     TOTAL DEFERRED TAX LIABILITIES                                (417)          (889)
     Deferred tax assets:
        Deferred compensation                                       351            351
        Allowance for loan losses                                   186            266
        Imputed loan interest                                        46             --
        Other                                                         5             --
                                                                  -----          -----
          TOTAL DEFERRED TAX ASSETS                                 588            617
                                                                  -----          -----

     NET DEFERRED FEDERAL
     INCOME TAX BENEFIT (LIABILITY)                               $ 171          ($272)
                                                                  =====          =====
</TABLE>

                                       30

<PAGE>


                TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998



NOTE G - FEDERAL INCOME TAXES (CONTINUED)

     The Association  was previously  allowed a special bad debt deduction based
on a  percentage  of  earnings,  generally  limited to 8% of  otherwise  taxable
income,  or the amount of qualifying and  nonqualifying  loans  outstanding  and
subject to certain  limitations  based on  aggregate  loans and savings  account
balances at the end of the  calendar  year.  If the amounts  that  qualified  as
deductions  for federal  income tax purposes  are later used for purposes  other
than  for  bad  debt  losses,  including  distributions  in  liquidation,   such
distributions  will be  subject  to  federal  income  taxes at the then  current
corporate  income tax rate.  Retained  earnings at December 31,  1999,  includes
approximately  $2.5  million  for  which  federal  income  taxes  have  not been
provided.  The amount of the unrecognized deferred tax liability relating to the
cumulative  percentage  of earnings  bad debt  deduction  totaled  approximately
$863,000 at December 31, 1999.


NOTE H - NOTE PAYABLE

     In  conjunction  with the  payment of the $10.1  million  return of capital
distribution  to  stockholders,  the Company  borrowed $6.0 million from another
financial  institution  in  December,  1999.  The note bears  interest at 7.50%,
requires  interest  payable  monthly and principal  payments of  $1,177,000  and
$2,250,000  during  the first and second  quarters  of 2000,  respectively.  The
remaining  principal balance of $2,573,000 is scheduled to be repaid at $857,667
per year on January 15,  2001,  2002 and 2003.  The lending  agreement  contains
covenants  pertaining to compliance with various financial ratios and limitation
on the  redemption  of its stock beyond  existing  commitments.  At December 31,
1999,  management believes the Company is in compliance with all loan covenants.
The Company's  borrowings at December 31, 1998 were  comprised of a note payable
related to the Company's investment in a limited partnership (see Note D).


NOTE I - STOCKHOLDERS' EQUITY

     In April 1999,  the Board of Directors  authorized  the repurchase of up to
87,720 shares of its common stock in the open market or private transaction. The
repurchased shares are to be held in the treasury and used for general corporate
purposes  including use in the Company's benefit plans.  During 1999 the Company
purchased 87,720 shares at a total cost of $1,211,000.

     In December,  1999, the  stockholders  approved various plans providing for
common  stock-based  awards to employees and non-employee  directors.  The plans
permit  the  granting  of stock  options,  stock  appreciation  rights and stock
awards.  Awards  were  granted to  recognize  prior  service  and retain  future
services.  The purchase price of stock options is set at the market price on the
date of the grant and expire in ten years for qualified options and 15 years for
non-qualified options from the date of the grant.



                                       31


<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998



NOTE I - STOCKHOLDERS' EQUITY (CONTINUED)

Recognition and Retention Plan:

     On December 15, 1999 the Company issued 63,157 shares of its treasury stock
to satisfy the award to officers,  directors and employees under the Recognition
and Retention  Plan.  Approximately  one-third of the shares awarded vested with
plan  participants  in 1999  resulting  in an  annual  charge of  $263,000.  The
remaining shares are presented as unearned compensation in stockholders' equity.

Stock Option Plan:

     The Board of Directors  adopted a Stock  Option Plan that  provided for the
issuance of 175,440 shares of authorized, but unissued shares of common stock at
fair value at the date of grant. During 1999, the Corporation granted options to
purchase 157,896 shares at an exercise price of $12.53 per share.

     The Company  accounts for its stock option plan in accordance with SFAS No.
123,   "Accounting  for  Stock-Based   Compensation,"   which  contains  a  fair
value-based method for valuing  stock-based  compensation that entities may use,
which  measures  compensation  cost at the grant date based on the fair value of
the award.  Compensation is then  recognized  over the service period,  which is
usually  the vesting  period.  Alternatively,  SFAS No. 123 permits  entities to
continue to account  for stock  options and  similar  equity  instruments  under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to  Employees."  Entities  that  continue to account for stock options using APB
Opinion No. 25 are  required to make pro forma  disclosures  of net earnings and
earnings per share, as if the fair value-based  method of accounting  defined in
SFAS No. 123 has been applied as discussed below.

                                                                  1999
                                                                  ----

  Net earnings (in thousands)             As reported            $1,012
                                                                 ======
                                          Pro forma              $  838
                                                                 ======
  Earnings per share:
      Basic                               As reported            $  .63
                                                                 ======
                                          Pro forma              $  .52
                                                                 ======

      Diluted                             As reported            $  .63
                                                                 ======
                                          Pro forma              $  .52
                                                                 ======

     The fair value of each option grant is estimated on the date of grant using
the   modified   Black-Scholes   options-pricing   model   with  the   following
weighted-average  assumptions used for grants in fiscal 1999:  dividend yield of
3.0%,  expected  volatility  of 20.0%,  a  risk-free  interest  rate of 7.0% and
expected lives of ten and fifteen years.



                                       32

<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998


NOTE I - STOCKHOLDERS' EQUITY (CONTINUED)

     A summary of the status of the  Company's  stock option plan as of December
31, 1999 and changes during the period is as follows:

                                                          Weighted-Average
                                               Shares      Exercise Price
                                               ------      --------------

   Outstanding at beginning of year                --         $   --
   Granted                                    157,896          12.53
   Exercised                                       --             --
   Forfeited                                       --             --
                                              -------         ------

   Outstanding at end of year                 157,896         $12.53
                                              =======         ======

   Options exercisable at year-end             52,632         $12.53
                                              =======         ======
   Weighted average fair value of
      options granted during the year                         $ 3.86
                                                              ======

         The following  information  applies to options  outstanding at December
31, 1999:

   Number outstanding                                     157,896
   Weighted-average exercise price                        $12.53
   Weighted-average remaining contractual life             11.89 years


NOTE J  -  EMPLOYEE RETIREMENT AND DEFERRED COMPENSATION PLANS

     In conjunction with its  reorganization  to stock form in 1998, the Company
implemented  an  Employee  Stock  Ownership  Plan  ("ESOP").  The ESOP  provides
retirement benefits for all employees who have completed one year of service and
have  attained the age of 21. The Company  accounts  for the ESOP in  accordance
with  Statement of Position  ("SOP") 93-6,  "Employers'  Accounting for Employee
Stock Ownership Plans." The ESOP borrowed $1,403,000 from the Company to acquire
the shares to be allocated to the participants. SOP 93-6 requires the measure of
compensation  expense  recorded by  employers to equal the average fair value of
ESOP shares allocated to participants  during a fiscal year. The shares released
to  participant  accounts are based upon the principal and interest  payments of
the underlying debt. As shares are committed to be released, the Company reports
compensation  expense  equal to the current  market  price of the shares and the
shares  become  outstanding  for  earnings  per share  computation.  The expense
recognized for ESOP  contribution  totaled  $170,000 and $130,000 for years 1999
and 1998,  respectively.  Dividends paid on  unallocated  shares are used to pay
debt service.  During 1999, the ESOP purchased  65,618 shares on the open market
using the $6 per share  return of capital  payment.  The shares  purchased  with
unallocated  share funds were added to the original  unallocated  shares and are
being  released with the original  shares.  At December 31, 1999,  the ESOP held
170,173  unallocated  shares with a fair market value of  $2,212,000  and 31,412
allocated shares.  The cost of the original  unallocated  shares at December 31,
1999 and 1998 is $1,159,000 and $1,287,000,  respectively, which is presented as
common stock  purchased by the Employee Stock  Ownership  Plan in  stockholders'
equity.


                                       33
<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998



NOTE J - EMPLOYEE RETIREMENT AND DEFERRED COMPENSATION PLANS
   (CONTINUED)

     The  Directors of the  Association  had approved a  non-qualified  deferred
compensation  plan for certain  officers which  provided for monthly  retirement
benefits  of  specified  amounts for each  executive.  The  agreements  had been
subject to annual  renewal,  however,  the Directors  elected to terminate  this
agreement  at the  conclusion  of the  plan  year  ended  August  31,  1998.  In
conjunction with the termination,  the officers were provided with an additional
twenty-four  months  of  vesting,  the  cost  of  which  was  included  in  1998
operations. Accrued deferred compensation amounts are payable in a lump sum upon
the executive's death, disability,  voluntary resignation, or termination by the
Association without cause.  Deferred  compensation  expense was $384,000 for the
year ended December 31, 1998.

     In  November   1998,   the  Board  of   Directors   voted  to  terminate  a
noncontributory  defined benefit  pension plan covering all eligible  employees.
The termination was effective January 31, 1999 and all participants  became 100%
vested in the  benefits  accrued.  The  termination  did not  result in  further
liability to the Company.  Plan assets  consisted  of  fully-insured  retirement
income life  insurance  policies and cash deposit  accounts.  At plan year ended
August 31, 1998, the plan asset values were $1,049,000,  which  approximated the
actuarially  computed  value of vested  and  nonvested  benefits.  Pension  cost
totaled $33,000 for the year ended December 31, 1998.


NOTE K - COMMITMENTS AND CONTINGENCIES

     The Association is a party to financial  instruments with off-balance sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
customers including  commitments to extend credit. Such commitments  involve, to
varying  degrees,  elements  of credit and  interest-rate  risk in excess of the
amount  recognized  in the  statement  of  financial  position.  The contract or
notional  amounts of the  commitments  reflect  the extent of the  Association's
involvement in such financial instruments.

     The Association's exposure to credit loss in the event of nonperformance by
the other party to the financial  instrument for commitments to extend credit is
represented  by the  contractual  notional  amount  of  those  instruments.  The
Association uses the same credit policies in making  commitments and conditional
obligations as those utilized for on-balance-sheet instruments.



                                       34
<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998



NOTE K - COMMITMENTS AND CONTINGENCIES (CONTINUED)

     At December  31, 1998,  the  Association  had  outstanding  commitments  of
approximately $2.3 million to originate fixed and variable rate residential real
estate loans. The average interest rate of loan commitments was 7.9% at December
31, 1999. In the opinion of management, the outstanding loan commitments equaled
or exceeded  prevalent market interest rates and such loans were underwritten in
accordance with normal underwriting policies, and all commitments will be funded
via cash flow from operations and existing excess liquidity.

     From time to time, and in the ordinary course of business,  the Association
becomes a party to matters of  litigation.  In the opinion of the  Association's
counsel,  there are no claims,  asserted or unasserted,  the resolution of which
would  have a  material  affect  on  the  Association's  consolidated  financial
statements.


NOTE L - FAIR VALUES OF FINANCIAL INSTRUMENTS

     The following  table shows carrying  values and the related  estimated fair
values of financial  instruments at December 31, 1999 and 1998.  Items which are
not financial instruments are not included.

<TABLE>
<CAPTION>

                                                              December 31
                                         --------------------------------------------------
                                                   1999                       1998
                                         -----------------------     ----------------------
                                                       Estimated                  Estimated
                                          Carrying       Fair        Carrying        Fair
                                          Amounts        Value        Amounts        Value
                                          -------        -----        -------        -----
                                                           (In thousands)
<S>                                      <C>           <C>           <C>           <C>
Cash and equivalents                     $  7,948      $  7,948      $ 17,124      $ 17,124
Securities:
  Available for sale                       16,515        16,515        19,751        19,751
  Held to maturity                         17,255        16,768        12,432        12,414
  Federal Home Loan Bank stock                340           340           317           317
Loans                                      36,863        36,504        36,132        36,479
Accrued interest receivable                   356           356           282           282
Deposits:
  Checking, savings and money market      (28,116)      (28,116)      (27,655)      (27,655)
  Certificates of deposit                 (26,429)      (26,409)      (27,182)      (27,254)
Accrued interest payable                     (129)         (129)         (110)         (110)
Note payable                               (6,000)       (5,909)         (300)         (300)

</TABLE>


                                       35

<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998



NOTE L - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

     For  purposes  of the  above  disclosures  of  estimated  fair  value,  the
following  assumptions  were  used:  the  estimated  fair  value  for  cash  and
equivalents,  accrued  interest  and  note  payable  (1998)  was  considered  to
approximate  cost;  the estimated  fair value for securities was based on quoted
market values for the individual  securities or for equivalent  securities;  the
estimated  fair  value  for  loans  was  based  on  estimates  of the  rate  the
Association  would  charge for  similar  loans at  December  31,  1999 and 1998,
respectively,  applied over estimated payment periods;  the estimated fair value
for demand and savings deposits was based on their carrying value; the estimated
fair value for  certificates  of deposit was based on  estimates of the rate the
Company  would  pay  on  such   obligations  at  December  31,  1999  and  1998,
respectively,  applied for the time period until maturity; the fair value of the
note payable at December,  1999 was determined with reference to rates in effect
for similar  lending  arrangements;  and the estimated fair value of commitments
was not  material.  It was not  practicable  to estimate the fair value of a 17%
partnership interest in a non-traded real estate investment;  that investment is
carried at equity of  $340,000  and  $383,000  at  December  31,  1999 and 1998,
respectively.

     While these estimates of fair values are based on management's  judgment of
appropriate factors,  there is no assurance that, if the Company had disposed of
such items at  December  31,  1999 or 1998,  the  estimated  fair  values  would
necessarily  have been  achieved at that date,  since  market  values may differ
depending on various  circumstances.  The estimated  fair values at December 31,
1999 and 1998,  should not  necessarily  be  considered  to apply at  subsequent
dates.


NOTE M - REGULATORY CAPITAL

     The Association is subject to minimum capital  requirements  promulgated by
the  Office of Thrift  Supervision  ("OTS").  Failure  to meet  minimum  capital
requirements   can  initiate  certain   mandatory  -  and  possibly   additional
discretionary - actions by regulators  that, if undertaken,  could have a direct
material effect on the Company's  financial  statements.  Under capital adequacy
guidelines  and the  regulatory  framework  for prompt  corrective  action,  the
Association  must meet specific  capital  guidelines  that involve  quantitative
measures of the Association's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory  accounting  practices.  The  Association's
capital amounts and classifications are also subject to qualitative judgments by
the regulators  about  components,  risk  weightings,  and other  factors.  Such
minimum  capital  standards  generally  require the  maintenance  of  regulatory
capital  sufficient  to meet each of three tests,  hereinafter  described as the
tangible capital  requirement,  the core capital  requirement and the risk-based
capital  requirement.  The  tangible  capital  requirement  provides for minimum
tangible capital (defined as  stockholders'  equity less all intangible  assets)
equal to 1.5% of adjusted total assets.  The core capital  requirement  provides
for minimum core capital  (tangible  capital plus certain  forms of  supervisory
goodwill and other  qualifying  intangible  assets)  generally  equal to 4.0% of
adjusted total assets except for those associations with the highest examination
rating and acceptable levels of risk.



                                       36

<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998



NOTE M - REGULATORY CAPITAL (CONTINUED)

     The risk-based capital  requirement  currently provides for the maintenance
of core capital plus general loan loss allowances equal to 8.0% of risk-weighted
assets. In computing  risk-weighted assets, the Association multiplies the value
of  each  asset  on  its   statement  of   financial   condition  by  a  defined
risk-weighting  factor,  e.g.,  one-to  four-family  residential  loans  carry a
risk-weighted factor of 50%.

     During  the  calendar  year  1999,  the  Association  was  notified  by its
regulator  that it was  categorized as  "well-capitalized"  under the regulatory
framework for prompt corrective action. To be categorized as "well-capitalized,"
the  Association  must  maintain  minimum  capital  ratios  as set  forth in the
following table.

     As of December 31, 1999 and 1998,  management believes that the Association
met all capital adequacy requirements to which it was subject.

<TABLE>
<CAPTION>

1999:                                                                                To be "well-
                                                                                  capitalized" under
                                                         For capital               prompt corrective
                                 Actual                 adequacy purposes         action provisions
                          -------------------        ----------------------       ------------------
                           Amount       Ratio          Amount      Ratio           Amount      Ratio
                           ------       -----          ------      -----           ------      -----
                                                     (Dollars in thousands)
<S>                       <C>           <C>            <C>           <C>            <C>           <C>
Tangible capital          $22,207       28.2%        =>$1,181      =>1.5%         =>$3,932     => 5.0%

Core capital              $22,207       28.2%        =>$3,150      =>4.0%         =>$4,725     => 6.0%

Risk-based capital        $23,161       57.1%        =>$3,243      =>8.0%         =>$4,053     =>10.0%

</TABLE>

<TABLE>
<CAPTION>
1998:                                                                                To be "well-
                                                                                  capitalized" under
                                                         For capital               prompt corrective
                                 Actual                 adequacy purposes         action provisions
                          -------------------        ----------------------       ------------------
                           Amount       Ratio          Amount      Ratio           Amount      Ratio
                           ------       -----          ------      -----           ------      -----
                                                     (Dollars in thousands)
<S>                        <C>          <C>             <C>          <C>             <C>           <C>
Tangible capital           $21,159      27.0%         =>$1,177     =>1.5%          =>$3,923     => 5.0%

Core capital               $21,159      27.0%         =>$3,139     =>4.0%          =>$4,708     => 6.0%

Risk-based capital         $22,758      55.3%         =>$3,291     =>8.0%          =>$4,115     =>10.0%

</TABLE>


                                       37

<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998



NOTE M - REGULATORY CAPITAL (CONTINUED)

     The Association's  management  believes that, under the current  regulatory
capital  regulations,  the Association will continue to meet its minimum capital
requirements in the foreseeable  future.  However,  events beyond the control of
the Association,  such as increased  interest rates or a downturn in the economy
in the  primary  market  area,  could  adversely  affect  future  earnings  and,
consequently,   the  ability  to  meet   future   minimum   regulatory   capital
requirements.

     The Association is subject to regulations  imposed by the OTS regarding the
amount  of  capital  distributions  payable  to  the  Company.   Generally,  the
Association's  payment of dividends is limited,  without prior OTS approval,  to
net  earnings  for the current  calendar  year plus the two  preceding  calendar
years, less capital distributions paid over the comparable time period.  Insured
institutions  are  required  to file an  application  with  the OTS for  capital
distributions in excess of this limitation.






















                                       38


<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998



NOTE N - CONDENSED FINANCIAL STATEMENTS OF FIRST NILES, FINANCIAL,  INC.

     The  following  condensed  financial  statements  summarize  the  financial
position of First Niles  Financial,  Inc. as of December 31, 1999 and 1998,  and
the  results  of its  operations  and its cash  flows  for the year 1999 and the
period October 26, 1998 (date operations commenced) through December 31, 1998.


                           First Niles Financial, Inc.
                        STATEMENT OF FINANCIAL CONDITION
                           December 31, 1999 and 1998
                                 (In thousands)

                                                       1999           1998
                                                       ----           ----

ASSETS

Cash and cash equivalents:
  Noninterest bearing                                $     3         $    15
  Interest bearing                                     1,438           5,404
                                                     -------         -------
                                                       1,441           5,419
Account receivable from Home Federal Savings
   and Loan Association of Niles                         263              --
Securities available for sale                             --           1,826
Investment in Home Federal Savings and
  Loan Association of Niles                           22,863          22,745
Accrued interest and prepaid expense                      20              20
                                                     -------         -------

                             TOTAL ASSETS            $24,587         $30,010
                                                     =======         =======
LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable to Home Federal Savings and
  Loan Association of Niles                          $    --         $    82
Accrued expense                                           77               5
Note payable                                           6,000              --
                                                     -------         -------
                        TOTAL LIABILITIES              6,077              87

Stockholders' equity                                  18,510          29,923
                                                     -------         -------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $24,587         $30,010
                                                     =======         =======



                                       39

<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998



NOTE N - CONDENSED FINANCIAL STATEMENTS OF FIRST NILES FINANCIAL, INC.
  (CONTINUED)


                           First Niles Financial, Inc.
                          CONDENSED STATEMENT OF INCOME
               For the year ended December 31, 1999 and the period
     October 26, 1998 (date operations commenced) through December 31, 1998
                                 (In thousands)

                                                1999            1998
                                                ----            ----
Revenue:
  Interest income                            $   321          $    61
                                             -------          -------
                       TOTAL REVENUE             321               61

General and administrative expenses              375               60
                                             -------          -------
     INCOME (LOSS) BEFORE INCOME TAX
AND EQUITY IN EARNINGS OF SUBSIDIARY             (54)               1

Income tax                                        18               --
                                             -------          -------
         INCOME (LOSS) BEFORE EQUITY
           IN EARNINGS OF SUBSIDIARY             (36)               1

Equity in earnings of subsidiary               1,048              272
                                             -------          -------

                          NET INCOME         $ 1,012          $   273
                                             =======          =======











                                       40


<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998


NOTE N - CONDENSED FINANCIAL STATEMENTS OF FIRST NILES FINANCIAL, INC.
    (continued)

<TABLE>
<CAPTION>
                           First Niles Financial, Inc.
                        CONDENSED STATEMENT OF CASH FLOWS
              For the year ended December 31, 1999 and the period
     October 26, 1998 (date operations commenced) through December 31, 1998
                                 (In thousands)

                                                                          1999              1998
                                                                          ----              ----
<S>                                                                    <C>               <C>
Cash flows provided by (used in) operating activities:
  Net income for the period                                            $  1,012          $    273
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Undistributed income of consolidated subsidiary                    (1,048)             (272)
      Amortization of premium on securities available for sale               20                 1
      Net (increase) decrease in due from subsidiary, accrued
         interest and prepaid expenses                                       89               (20)
      Increase in accounts payable and accrued expense                       72                87
                                                                       --------          --------
               NET CASH PROVIDED BY OPERATING ACTIVITIES                    145                69

Cash flows provided by (used in) investing activities:
  Investment in subsidiary                                                   --            (8,451)
  Purchase of securities available for sale                              (3,984)           (1,827)
  Proceeds for sale of securities available for sale                      5,790                --
  Net (increase) decrease in interest bearing deposits                    3,966            (5,404)
                                                                       --------          --------
               NET CASH PROVIDED BY
               (USED IN) INVESTING ACTIVITIES                             5,772           (15,682)

 Cash flows provided by (used in) financing activities:
   Dividends paid                                                          (587)               --
   Return of capital distribution                                       (10,131)               --
   Purchase of treasury stock                                            (1,211)               --
   Proceeds of note payable                                               6,000                --
   Issuance of common stock - net                                            --            15,498
   Proceeds from subsidiary for Employee Stock
      Ownership Plan shares                                                  --               130
                                                                       --------          --------
               NET CASH PROVIDED BY
               (USED IN) FINANCING ACTIVITIES                            (5,929)           15,628
                                                                       --------          --------

               NET INCREASE IN CASH                                          12                15

Cash and cash equivalents at beginning of period                             15                --
                                                                       --------          --------

               CASH AND CASH EQUIVALENTS AT END OF PERIOD              $      3          $     15
                                                                       ========          ========

Noncash transaction:
    Employee stock benefit plan transactions                           $    434          $     --
                                                                       ========          ========
</TABLE>

                                       41

<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

                           December 31, 1999 and 1998



NOTE O - CORPORATE REORGANIZATION AND CONVERSION TO STOCK FORM

     On July 6, 1998,  the  Association's  Board of Directors  adopted a Plan of
Conversion whereby the Association would convert to the stock form of ownership,
followed by the issuance of all of the Association's outstanding common stock to
a newly formed holding company, First Niles Financial, Inc.

     On October 26, 1998, the Association  completed its conversion to the stock
form of ownership, and issued all of the Association's outstanding common shares
to the Company.

     In connection with the conversion,  the Company sold 1,754,411  shares at a
price of $10.00  per share  which,  after  consideration  of  offering  expenses
totaling  approximately  $643,000,  and shares  purchased  by the ESOP  totaling
$1,404,000, resulted in net equity proceeds of approximately $15.5 million.

     At the date of the conversion,  the  Association  established a liquidation
account in an amount equal to retained  earnings  reflected in the  statement of
financial  condition used in the conversion  offering circular.  The liquidation
account will be maintained for the benefit of eligible  savings  account holders
who maintained  deposit  accounts in the Association  after  conversion.  In the
event of a complete  liquidation (and only in such event), each eligible savings
account holder will be entitled to receive a liquidation  distribution  from the
liquidation  account  in the  amount of the then  current  adjusted  balance  of
deposit  accounts held,  before any  liquidation  distribution  may be made with
respect to common  stock.  Except  for the  repurchase  of stock and  payment of
dividends by the Association,  the existence of the liquidation account will not
restrict the use or application of such retained  earnings.  The Association may
not declare,  pay a cash dividend on, or repurchase any of its common stock,  if
the effect thereof would cause retained  earnings to be reduced below either the
amount  required  for  the  liquidation   account  or  the  regulatory   capital
requirements for Savings Association Insurance Fund (SAIF) insured institutions.











                                       42
<PAGE>



                           FIRST NILES FINANCIAL, INC.
                             STOCKHOLDER INFORMATION
================================================================================


ANNUAL MEETING

The  annual  meeting  of  stockholders  will be held at 2:00  P.M.  local  time,
WEDNESDAY,  APRIL 19,  2000,  at the main office of First  Niles,  located at 55
North Main Street, Niles, Ohio.

COMMON STOCK AND DIVIDENDS

First Niles Financial,  Inc.'s common stock trades on The Nasdaq SmallCap Market
under the symbol "FNFI".  At December 31, 1999,  there were 1,754,411  shares of
common  stock  issued,  1,729,849  shares of common  stock  outstanding  and 502
stockholders of record.

The table  below  presents  the  quarterly  range of high and low sales of First
Niles' common stock since becoming a public company on October 26, 1998, as well
as the amount of cash  distributions  declared  during the stated  periods.  The
price  information set forth in the table below was provided by the Nasdaq Stock
Market. A $6.00 per share return of capital  distribution was paid on the common
stock during the quarter ended December 31, 1999. The $6.00 capital distribution
and the  dividends  paid by the Company to date have been  accounted  for by the
Company as a return of capital.


                                               High        Low    Dividends Paid
                                               ----        ---    --------------
Fourth Quarter (since October 26, 1998)      $12.000    $  9.750        $ ---
First Quarter (ended March 31, 1999)         $11.250     $10.250        $0.07
Second Quarter (ended June 30, 1999)         $13.875     $10.750        $0.10
Third Quarter (ended September 30, 1999)     $15.750     $13.250        $0.10
Fourth Quarter (ended December 31, 1999)     $21.000     $11.750        $6.10

Dividend  payment  decisions  are made  after  considering  a variety of factors
including earnings,  financial condition,  market  considerations and regulatory
restrictions.  Restrictions on dividend  payments are described in Note M of the
Notes to Consolidated Financial Statements included in this Annual Report.


 STOCKHOLDER AND GENERAL INQUIRIES              TRANSFER AGENT

 LAWRENCE SAFAREK, VICE PRESIDENT               FIFTH THIRD BANK
 FIRST NILES FINANCIAL, INC.                    CORPORATE TRUST SERVICES
 55 NORTH MAIN STREET                           MAIL DROP 10AT66
 NILES, OHIO 44446                              38 FOUNTAIN SQUARE PLAZA
 (330) 652-2539                                 CINCINNATI, OHIO 45263
                                                (800) 837-2755 (TOLL FREE)
                                                (513) 579-5320 (LOCAL)

ANNUAL REPORT ON FORM 10-KSB

Copies of the Company's  Annual Report on Form 10-KSB filed with the  Securities
and Exchange  Commission  can be obtained,  without cost, by writing or calling:
First Niles Financial,  Inc. Investor Relations,  Attn:  Lawrence Safarek,  Vice
President  and  Treasurer,  55 North  Main  Street,  Niles,  Ohio  44446;  (330)
652-2539.

                                       43

<PAGE>


                           FIRST NILES FINANCIAL, INC.
                              CORPORATE INFORMATION
================================================================================


<TABLE>
<CAPTION>

<S>                                               <C>
COMPANY AND BANK ADDRESS

55 North Main Street                              Telephone:           (330) 652-2539
Niles, Ohio  44446                                Fax:                 (330) 652-0911


BOARD OF DIRECTORS                                     EXECUTIVE OFFICERS

WILLIAM L. STEPHENS                                    WILLIAM L. STEPHENS
  CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE                CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
  OFFICER OF FIRST NILES FINANCIAL, INC. AND             OFFICER OF FIRST NILES FINANCIAL, INC. AND
  HOME FEDERAL SAVINGS AND LOAN                          HOME FEDERAL SAVINGS AND LOAN
  ASSOCIATION OF NILES                                   ASSOCIATION OF NILES

GEORGE J. SWIFT                                        GEORGE J. SWIFT
  VICE PRESIDENT AND SECRETARY OF FIRST NILES            VICE PRESIDENT AND SECRETARY OF FIRST NILES
  FINANCIAL, INC. AND HOME FEDERAL SAVINGS               FINANCIAL, INC. AND HOME FEDERAL SAVINGS
  AND LOAN ASSOCIATION OF NILES                          AND LOAN ASSOCIATION OF NILES

P. JAMES KRAMER                                        LAWRENCE SAFAREK
  PRESIDENT, WILLIAM KRAMER & SON                        VICE PRESIDENT AND TREASURER OF FIRST NILES
                                                         FINANCIAL, INC. AND HOME FEDERAL SAVINGS
HORACE L. MCLEAN                                         AND LOAN ASSOCIATION OF NILES
  PRESIDENT, MCLEAN ENGINEERING, INC.

RALPH A. ZUZOLO, SR.
  PARTNER, LAW FIRM OF ZUZOLO, ZUZOLO
  & ZUZOLO

INDEPENDENT AUDITORS                                   SPECIAL COUNSEL

ANNESS, GERLACH & WILLIAMS,                            SILVER, FREEDMAN & TAFF, L.L.P.
  a Professional Corporation                           1100 New York Avenue, N.W.
Certified Public Accountants                           Seventh Floor, East Tower
1275 Boardman-Canfield Road                            Washington, D.C.  20005
Youngstown, Ohio 44513

</TABLE>



                                       44