---

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|                                                                                         | Page No.
|---------------------------------------------------------------------------------------- | --------
|                                                                                         |         
|President's Message                                                                      | 1       
|                                                                                         |         
|Selected Consolidated Financial Information                                              | 2       
|                                                                                         |         
|Management's Discussion and Analysis of Financial     Condition and Results of Operation | 4       
|                                                                                         |         
|Consolidated Financial Statements                                                        | 16      
|                                                                                         |         
|Shareholder Information                                                                  | 46      
|                                                                                         |         
|Corporate Information                                                                    | 47      
|                                                                                         |         

---

March 15, 2003

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

---

|                                               | **December 31,**  
|---------------------------------------------- | ------------------
|                                               | **2002**          
|**Selected Financial Condition Data:**         | **(In thousands)**
|                                               |                   
|Total assets                                   | $100,635          
|Loans receivable, net                          | 40,205            
|Securities - held to maturity                  | 3,349             
|Securities - available for sale and FHLB stock | 45,787            
|Deposits                                       | 60,895            
|Total borrowings                               | 19,500            
|Shareholders' equity                           | 18,333            

|                                                    | **Years Ended December 31,**                
|--------------------------------------------------- | --------------------------------------------
|                                                    | **2002**                                    
|                                                    | **(In thousands, except per share
amounts)**
|**Selected Operations Data:**                       |                                             
|Total interest income                               | $5,754                                      
|Total interest expense                              | 2,592                                       
|Net interest income                                 | 3,162                                       
|Provision (recovery) for loan losses                | 78                                          
|Net interest income after provision for loan losses | 3,084                                       
|Fees and service charges                            | 30                                          
|Gain on sales of investment securities              | 165                                         
|Other non-interest income                           | 21                                          
|Total non-interest income                           | 216                                         
|Total non-interest expense                          | 1,908                                       
|Income before taxes and extraordinary item          | 1,392                                       
|Income tax provision                                | 410                                         
|Net income                                          | $   982                                     
|                                                    |                                             
|Earnings per share - basic and diluted              | $  0.71                                     
|Dividends per share                                 | $  0.53                                     

---

|                                                                                               | **Years Ended December 31,**
|---------------------------------------------------------------------------------------------- | ----------------------------
|                                                                                               | **2002**                    
|**Selected Financial Ratios and Other Data:**                                                  |                             
|**Performance Ratios:**                                                                        |                             
|Return on assets (ratio of net income to          average total assets)                        | 1.01%                       
|Return on equity (ratio of net income to          average equity)                              | 5.54                        
|Interest rate spread:                                                                          |                             
|Average during year                                                                            | 2.73                        
|End of year                                                                                    | 2.73                        
|Net interest margin (net interest income divided           by average interest-earning assets) | 3.33                        
|Ratio of operating expense to average total assets                                             | 1.91                        
|Ratio of average interest-earning assets to average          interest-bearing liabilities      | 1.22                        
|                                                                                               |                             
|**Quality Ratios:**                                                                            |                             
|Non-performing assets to total assets at end of year                                           | 1.51%                       
|Non-performing loans to loans receivable, net,          end of year                            | 3.78                        
|Allowance for loan losses to non-performing loans,          end of year                        | 50.18                       
|Allowance for loan losses to loans receivable, net,          end of year                       | 1.90                        
|                                                                                               |                             
|**Capital Ratios:**                                                                            |                             
|Equity to total assets at end of year                                                          | 18.21%                      
|Average equity to average assets                                                               | 18.21                       
|                                                                                               |                             
|**Other Data:**                                                                                |                             
|Book value per common share outstanding                                                        | $12.51                      
|Dividend payout ratio(1)                                                                       | 74.65%                      
|Number of full-service offices                                                                 | 1                           

---

---

---

---

---

|                                                                            |                                        |                                            | Year Ended December 31,       
|--------------------------------------------------------------------------- | -------------------------------------- | ------------------------------------------ | ------------------------------
|                                                                            |                                        |                                            | 2002                          
|                                                                            |                                        |                                            | Average
OutstandingBalance    
|                                                                            |                                        |                                            | (Dollars in Thousands)        
|                                                                            |                                        |                                            |                               
|**Interest-Earning Assets:**                                                |                                        |                                            |                               
|                                                                            | Loans receivable(1)                    | $40,616                                    | $2,807                        
|                                                                            | Mortgage-backed and related securities | 11,108                                     | 589                           
|                                                                            | Investment securities                  | 35,324                                     | 2,194                         
|                                                                            | FHLB stock                             | 1,023                                      | 47                            
|                                                                            | Interest-bearing deposits              | 6,803                                      | 117                           
|                                                                            |                                        | **Total interest-earning assets(1)**       | 94,874                        
|**Noninterest earnings assets**                                             | 3,124                                  |                                            |                               
|**Allowance for Loan Losses**                                               | (726)                                  |                                            |                               
|                                                                            |                                        |                                            | **Total Assets**              
|                                                                            |                                        |                                            |                               
|Interest-Bearing Liabilities:                                               |                                        |                                            |                               
|                                                                            | Savings deposits                       | $23,000                                    | 470                           
|                                                                            | Demand and NOW deposits                | 4,248                                      | 75                            
|                                                                            | Certificate accounts                   | 31,115                                     | 1,154                         
|                                                                            | Borrowings                             | 19,500                                     | 893                           
|****                                                                        |                                        | ******Total interest-bearing liabilities** | 77,863                        
|**Noninterest-bearing liabilities**                                         | 1,692                                  |                                            |                               
|**Total Liabilities**                                                       | 79,555                                 |                                            |                               
|**Equity**                                                                  | 17,717                                 |                                            |                               
|                                                                            |                                        |                                            | **Total Liabilities & Equity**
|                                                                            |                                        |                                            |                               
|Net interest income                                                         |                                        | $3,162                                     |                               
|**Net interest rate spread**                                                |                                        |                                            | 2.73%                         
|**Net earning assets**                                                      | $17,011                                |                                            |                               
|**Net yield on average interest-earning assets**                            |                                        |                                            | 3.33%                         
|**Average interest-earning assets to average interest-bearing liabilities** |                                        | 1.22x                                      |                               

---

|                                         | Years Ended December 31, 
|---------------------------------------- | -------------------------
|                                         | 2002 vs. 2001            
|                                         | Increase/(Decrease)Due to
|                                         | Volume                   
|                                         | (Dollars in Thousands)   
|Interest-earning assets:                 |                          
|Loans receivable                         | $499                     
|Mortgage-backed and related securities	. | (50)                     
|Investment securities and FHLB stock     | 172                      
|Interest-bearing deposits and other      | 228                      
|Total interest-earning assets            | 849                      
|                                         |                          
|Interest-bearing liabilities:            |                          
|Savings deposits                         | 51                       
|Demand and NOW deposits                  | 39                       
|Certificate accounts                     | 87                       
|Borrowings                               | 171                      
|Total interest-bearing liabilities       | 348                      
|                                         |                          
|Net interest income                      | $501                     

---

---

---

|                       | December 31, 2002  
|---------------------- | -------------------
|                       | Net Portfolio Value
|Changein Rate          | Amount             
|(Dollars in Thousands)
|                       |                    
|+300                   | $10,336            
|+200                   | 12,968             
|+100                   | 14,959             
|---                    | 15,287             
|-100                   | 14,500             
|-200                   | nm(1)              
|-300                   | nm(1)              

---

---

---

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

---

---

---

|                                                              |                                                                                    |                                                                           | December 31                               
|------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------------------------------------------
|                                                              |                                                                                    |                                                                           | 2002                                      
|ASSETS                                                       
|Cash and cash equivalents:                                    |                                                                                    |                                                                          
|                                                              | Noninterest bearing                                                                | $    1,542                                                                | $    1,167                                
|                                                              | Interest bearing                                                                   | 8,438                                                                     | 5,080                                     
|                                                              |                                                                                    | TOTAL CASH AND CASH EQUIVALENTS                                           | 9,980                                     
|                                                              |                                                                                    |                                                                           |                                           
|Securities:                                                   |                                                                                    |                                                                          
|                                                              | Available-for-sale - at market                                                     | 44,734                                                                    | 39,080                                    
|                                                              | Held-to-maturity - at cost                                                         | 3,349                                                                     | 8,866                                     
|Loans receivable                                              | 40,205                                                                             | 39,508                                                                   
|Accrued interest receivable                                   | 758                                                                                | 735                                                                      
|Federal Home Loan Bank stock, at cost (restricted)            | 1,053                                                                              | 1,005                                                                    
|Real estate investment - limited partnership, at equity       | 163                                                                                | 208                                                                      
|Prepaid expenses and other assets                             | 46                                                                                 | 108                                                                      
|Prepaid federal income taxes                                  | 13                                                                                 | 2                                                                        
|Premises and equipment, at cost less accumulated depreciation | 334                                                                                | 348                                                                      
|                                                              |                                                                                    | TOTAL ASSETS                                                              | $100,635                                  
|                                                              |                                                                                    |                                                                           |                                           
|LIABILITIES                                                  
|Deposits                                                      | $  60,895                                                                          | $  57,061                                                                
|Accrued interest payable                                      | 145                                                                                | 173                                                                      
|Accounts payable and other liabilities                        | 1,282                                                                              | 1,240                                                                    
|Federal Home Loan Bank advances                               | 19,500                                                                             | 19,500                                                                   
|Deferred federal income tax liability                         | 480                                                                                | 167                                                                      
|                                                              |                                                                                    | TOTAL LIABILITIES                                                         | 82,302                                    
|                                                              |                                                                                    |                                                                           |                                           
|STOCKHOLDERS' EQUITY                                         
|Stockholders' equity:                                         |                                                                                    |                                                                          
|                                                              | Preferred stock, $.01 par value, authorized 500,000 shares, none
outstanding       | -                                                                         | -                                         
|                                                              | Common stock, $.01 par value, authorized 6,000,000 shares;
issued 1,754,411 shares | 18                                                                        | 18                                        
|                                                              | Additional paid-in capital                                                         | 6,888                                                                     | 6,797                                     
|                                                              | Retained earnings                                                                  | 13,766                                                                    | 13,506                                    
|                                                              | Accumulated other comprehensive income:                                            |                                                                           |                                           
|                                                              |                                                                                    | Net unrealized gains on securities available for sale, net of
related tax |                                           
|                                                              |                                                                                    |                                                                           | effects of $1,037 in 2002 and $689 in 2001
|                                                              | Common stock purchased by the Employee Stock Ownership Plan                        | (819)                                                                     | (935)                                     
|                                                              | Treasury stock - 288,641shares in 2002 and 238,343 shares in
2001 at cost          | (3,533)                                                                   | (2,757)                                   
|                                                              |                                                                                    | TOTAL STOCKHOLDERS' EQUITY                                                | 18,333                                    
|                                                              |                                                                                    |                                                                           |                                           
|                                                              |                                                                                    | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                | $100,635                                  

---

|                          |                                        |                                        | Year Ended December 31
|------------------------- | -------------------------------------- | -------------------------------------- | ----------------------
|                          |                                        |                                        | 2002                  
|Interest income:          |                                        |                                       
|                          | Loans receivable:                      |                                        |                       
|                          |                                        | First mortgage loans                   | $    2,651            
|                          |                                        | Consumer and other loans               | 156                   
|                          | Mortgage-backed and related securities | 589                                    | 735                   
|                          | Investments                            | 2,241                                  | 2,131                 
|                          | Interest-bearing deposits              | 117                                    | 196                   
|                          |                                        | TOTAL INTEREST INCOME                  | 5,754                 
|Interest expense:         |                                        |                                       
|                          | Deposits                               | 1,699                                  | 2,163                 
|                          | Borrowings                             | 893                                    | 730                   
|                          |                                        | TOTAL INTEREST EXPENSE                 | 2,592                 
|                          |                                        |                                        |                       
|                          |                                        | NET INTEREST INCOME                    | 3,162                 
|                          |                                        |                                        |                       
|Provision for loan losses | 78                                     | 120                                   
|                          |                                        | NET INTEREST INCOME AFTER              |                       
|                          |                                        | PROVISION FOR LOAN LOSSES              | 3,084                 
|Noninterest income:       |                                        |                                       
|                          | Gain on sale of securities             | 165                                    | 277                   
|                          | Service fees and other                 | 51                                     | 38                    
|                          |                                        | TOTAL NONINTEREST INCOME               | 216                   
|Noninterest expense:      |                                        |                                       
|                          | Equity in loss of limited partnership  | 46                                     | 55                    
|                          | General and administrative:            |                                        |                       
|                          |                                        | Compensation and benefits              | 1,135                 
|                          |                                        | Occupancy and equipment                | 87                    
|                          |                                        | Federal deposit insurance premiums     | 10                    
|                          |                                        | State franchise taxes                  | 170                   
|                          |                                        | Other operating expense                | 460                   
|                          |                                        | TOTAL NONINTEREST EXPENSE              | 1,908                 
|                          |                                        |                                        |                       
|                          |                                        | INCOME BEFORE INCOME TAXES             | 1,392                 
|                          |                                        |                                        |                       
|Federal income taxes      | 410                                    | 315                                   
|                          |                                        |                                        |                       
|                          |                                        | NET INCOME                             | $     982             
|                          |                                        |                                        |                       
|                          |                                        | EARNINGS PER SHARE - BASIC AND DILUTED | $     0.71            

---

|                              |                     |                     |                      |                      | Common

Stock | Additional
Paid-In

Capital | Retained
Earnings | Net
Unrealized

Gains on

Securities

Available

for Sale | Common
Stock
Purchased

by the

Employee

Stock

Ownership

Plan | Unearned
Compen-

sation | Treasury
Stock | Total    
|----------------------------- | ------------------- | ------------------- | -------------------- | -------------------- | ------------- | --------------------------- | ----------------- | --------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------ | -------------- | ---------
|                              |                     |                     |                      |                      |               |                             |                   |                                                           |                                                                  |                          |                |          
|Balance January 1, 2001       | $        18         | $    6,748          | $  13,334            | $    1,429           | $    (1,052)  | $      (264)                | $    (1,455)      | $  18,758                                                
|                              |                     |                     |                      |                      |               |                             |                   |                                                           |                                                                  |                          |                |          
|Comprehensive income:         |                     |                     |                      |                      |               |                             |                   |                                                          
|                              | Net income          | -                   | -                    | 821                  | -             | -                           | -                 | -                                                         | 821                                                             
|                              | Other comprehensive |                     |                      |                      |               |                             |                   |                                                           |                                                                 
|                              |                     | income, net of tax: |                      |                      |               |                             |                   |                                                           |                                                                  |                         
|                              |                     |                     | Change in unrealized |                      |               |                             |                   |                                                           |                                                                  |                          |               
|                              |                     |                     |                      | gains on securities  |               |                             |                   |                                                           |                                                                  |                          |                |          
|                              |                     |                     |                      | of $(275), net of    |               |                             |                   |                                                           |                                                                  |                          |                |          
|                              |                     |                     |                      | reclassification     |               |                             |                   |                                                           |                                                                  |                          |                |          
|                              |                     |                     |                      | adjustment for gains |               |                             |                   |                                                           |                                                                  |                          |                |          
|                              |                     |                     |                      | included in net      |               |                             |                   |                                                           |                                                                  |                          |                |          
|                              |                     |                     |                      | income of $183       | -             | -                           | -                 | (92)                                                      | -                                                                | -                        | -              | (92)     
|Total comprehensive income    | -                   | -                   | 821                  | (92)                 | -             | -                           | -                 | 729                                                      
|                              |                     |                     |                      |                      |               |                             |                   |                                                           |                                                                  |                          |                |          
|Cash dividends-$.46 per share | -                   | -                   | (649)                | -                    | -             | -                           | -                 | (649)                                                    
|ESOP shares allocated to      |                     |                     |                      |                      |               |                             |                   |                                                          
|                              | employees           | -                   | 49                   | -                    | -             | 117                         | -                 | -                                                         | 166                                                             
|Purchase of shares for        |                     |                     |                      |                      |               |                             |                   |                                                          
|                              | treasury            | -                   | -                    | -                    | -             | -                           | -                 | (1,302)                                                   | (1,302)                                                         
|Shares issued for recognition |                     |                     |                      |                      |               |                             |                   |                                                          
|                              | and retention plan  | -                   | -                    | -                    | -             | -                           | 264               | -                                                         | 264                                                             
|                              |                     |                     |                      | BALANCE              |               |                             |                   |                                                           |                                                                  |                          |                |          
|                              |                     |                     |                      | DECEMBER 31, 2001    | 18            | 6,797                       | 13,506            | 1,337                                                     | (935)                                                            | -                        | (2,757)        | 17,966   
|                              |                     |                     |                      |                      |               |                             |                   |                                                           |                                                                  |                          |                |          
|Comprehensive income:         |                     |                     |                      |                      |               |                             |                   |                                                          
|                              | Net income          | -                   | -                    | 982                  | -             | -                           | -                 | -                                                         | 982                                                             
|                              | Other comprehensive |                     |                      |                      |               |                             |                   |                                                           |                                                                 
|                              |                     | income, net of tax: |                      |                      |               |                             |                   |                                                           |                                                                  |                         
|                              |                     |                     | Change in unrealized |                      |               |                             |                   |                                                           |                                                                  |                          |               
|                              |                     |                     |                      | gains on securities  |               |                             |                   |                                                           |                                                                  |                          |                |          
|                              |                     |                     |                      | of $567, net of      |               |                             |                   |                                                           |                                                                  |                          |                |          
|                              |                     |                     |                      | reclassification     |               |                             |                   |                                                           |                                                                  |                          |                |          
|                              |                     |                     |                      | adjustment for gains |               |                             |                   |                                                           |                                                                  |                          |                |          
|                              |                     |                     |                      | included in net      |               |                             |                   |                                                           |                                                                  |                          |                |          
|                              |                     |                     |                      | income of $109       | -             | -                           | -                 | 676                                                       | -                                                                | -                        | -              | 676      
|Total comprehensive income    | -                   | -                   | 982                  | 676                  | -             | -                           | -                 | 1,658                                                    
|                              |                     |                     |                      |                      |               |                             |                   |                                                           |                                                                  |                          |                |          
|Cash dividends-$.53 per share | -                   | -                   | (722)                | -                    | -             | -                           | -                 | (722)                                                    
|ESOP shares allocated to      |                     |                     |                      |                      |               |                             |                   |                                                          
|                              | employees           | -                   | 78                   | -                    | -             | 116                         | -                 | -                                                         | 194                                                             
|Purchase of shares for        |                     |                     |                      |                      |               |                             |                   |                                                          
|                              | treasury            | -                   | -                    | -                    | -             | -                           | -                 | (878)                                                     | (878)                                                           
|Exercised stock options       | -                   | 13                  | -                    | -                    | -             | -                           | 102               | 115                                                      
|                              |                     |                     |                      | BALANCE              |               |                             |                   |                                                           |                                                                  |                          |                |          
|                              |                     |                     |                      | DECEMBER 31, 2002    | $        18   | $    6,888                  | $  13,766         | $    2,103                                                | $      (819)                                                     | $             -          | $    (3,533)   | $  18,333

---

|                                     |                                                                                          |                                                           | Year Ended December 31                     
|------------------------------------ | ---------------------------------------------------------------------------------------- | --------------------------------------------------------- | -------------------------------------------
|                                     |                                                                                          |                                                           | 2002                                       
|CASH FLOWS FROM OPERATING ACTIVITIES |                                                                                          |                                                          
|                                     | Net income                                                                               | $     982                                                 | $     821                                  
|                                     | Adjustments to reconcile net income to net cash provided by operating activities:        |                                                           |                                            
|                                     |                                                                                          | Deferred income taxes                                     | (35)                                       
|                                     |                                                                                          | Depreciation                                              | 35                                         
|                                     |                                                                                          | Amortization of deferred loan fees and costs              | (14)                                       
|                                     |                                                                                          | Amortization of discounts and premiums on investments and |                                            
|                                     |                                                                                          |                                                           | mortgage-backed and related securities, net
|                                     |                                                                                          | Recognition and Retention Plan shares                     | -                                          
|                                     |                                                                                          | Gain on sale of securities                                | (165)                                      
|                                     |                                                                                          | ESOP shares allocated                                     | 195                                        
|                                     |                                                                                          | Equity in loss of limited partnership                     | 46                                         
|                                     |                                                                                          | Provision for loan losses                                 | 78                                         
|                                     |                                                                                          | Federal Home Loan Bank stock dividends                    | (48)                                       
|                                     |                                                                                          |                                                           | 1,047                                      
|                                     | (Increase) decrease in accrued interest receivable and prepaid expenses and other
assets | 31                                                        | (410)                                      
|                                     | Increase (decrease) in accrued interest, accounts payable and other liabilities          | 13                                                        | 57                                         
|                                     |                                                                                          | NET CASH PROVIDED BY OPERATING ACTIVITIES                 | 1,091                                      
|                                     |                                                                                          |                                                           |                                            
|CASH FLOWS FROM INVESTING ACTIVITIES |                                                                                          |                                                          
|                                     | Activity in available-for-sale securities:                                               |                                                           |                                            
|                                     |                                                                                          | Sales                                                     | 7,334                                      
|                                     |                                                                                          | Maturities, prepayments and calls                         | 13,226                                     
|                                     |                                                                                          | Purchases                                                 | (25,010)                                   
|                                     | Activity in held-to-maturity securities:                                                 |                                                           |                                            
|                                     |                                                                                          | Maturities, prepayments and calls                         | 5,530                                      
|                                     | Purchase of Federal Home Loan Bank stock                                                 | -                                                         | (586)                                      
|                                     | (Increase) decrease in interest-bearing deposits with banks                              | (3,358)                                                   | (2,216)                                    
|                                     | (Increase) decrease in loans                                                             | (760)                                                     | (3,864)                                    
|                                     | Additions to premises and equipment                                                      | (21)                                                      | (37)                                       
|                                     |                                                                                          | NET CASH USED IN INVESTING ACTIVITIES                     | (3,059)                                    
|                                     |                                                                                          |                                                           |                                            
|CASH FLOWS FROM FINANCING ACTIVITIES |                                                                                          |                                                          
|                                     | Purchases of treasury stock                                                              | (878)                                                     | (1,302)                                    
|                                     | Dividends paid                                                                           | (722)                                                     | (649)                                      
|                                     | Increase in savings accounts                                                             | 3,129                                                     | 1,238                                      
|                                     | Increase in certificates of deposit                                                      | 704                                                       | 3,629                                      
|                                     | Proceeds of Federal Home Loan Bank advances                                              | -                                                         | 14,500                                     
|                                     | Proceeds from options exercised                                                          | 110                                                       | -                                          
|                                     |                                                                                          | NET CASH PROVIDED BY FINANCING ACTIVITIES                 | 2,343                                      
|                                     |                                                                                          |                                                           |                                            
|                                     |                                                                                          | NET INCREASE IN CASH                                      | 375                                        
|CASH AT BEGINNING OF YEAR            | 1,167                                                                                    | 969                                                      
|                                     |                                                                                          | CASH AT END OF YEAR                                       | $1,542                                     
|Cash paid during the period for:     |                                                                                          |                                                          
|                                     |                                                                                          | Interest                                                  | $2,620                                     
|                                     |                                                                                          | Income taxes                                              | $     451                                  

---

---

---

---

---

|                                | 2002      | 2001     
|------------------------------- | --------- | ---------
|Basic weighted-average shares   | 1,375,218 | 1,430,473
|Diluted weighted-average shares | 1,399,128 | 1,430,473

---

---

|                                        |                                     | December 31, 2002
|--------------------------------------- | ----------------------------------- | -----------------
|                                        |                                     | Amortized
Cost   
|                                        |                                     | (In thousands)   
|                                        |                                     |                  
|FHLMC common stock                      | $       30                          | $1,771           
|Federal National Mortgage Association:  |                                     |                  
|                                        | Participation certificates          | 1,821            
|Federal Home Loan Mortgage Corporation: |                                     |                  
|                                        | Participation certificates          | 679              
|                                        | Collateralized mortgage obligations | 9,150            
|U.S. Agencies - callable:               |                                     |                  
|                                        | Due after one year to five years    | 2,000            
|                                        | Due after five to ten years         | 7,000            
|                                        | Due after ten years                 | 21,000           
|Other                                   | 15                                  | -                
|                                        |                                     |                  
|                                        | TOTALS                              | $41,695          
|                                        |                                     |                  
|                                        |                                     |                  
|                                        |                                     | December 31, 2001
|                                        |                                     | Amortized
Cost   
|                                        |                                     | (In thousands)   
|                                        |                                     |                  
|FHLMC common stock                      | $       30                          | $1,997           
|Asset management funds:                 |                                     |                  
|                                        | Income Trust                        | 5,168            
|Federal National Mortgage Association:  |                                     |                  
|                                        | Participation certificates          | 995              
|Federal Home Loan Mortgage Corporation: |                                     |                  
|                                        | Participation certificate           | 944              
|                                        | Collateralized mortgage obligations | 927              
|U.S. Agencies - callable:               |                                     |                  
|                                        | Due after five to ten years         | 9,000            
|                                        | Due after ten years                 | 19,975           
|Other                                   | 15                                  | -                
|                                        |                                     |                  
|                                        | TOTALS                              | $37,054          

---

|                                        |                                         | December 31, 2002                  
|--------------------------------------- | --------------------------------------- | -----------------------------------
|                                        |                                         | Amortized
Cost                     
|                                        |                                         | (In thousands)                     
|Mortgage-backed and related securities: |                                         |                                    
|                                        | Federal Home Loan Mortgage Corporation: |                                    
|                                        |                                         | Collateralized mortgage obligations
|                                        |                                         |                                    
|                                        | TOTALS                                  | $3,349                             
|                                        |                                         |                                    
|                                        |                                         |                                    
|                                        |                                         |                                    
|                                        |                                         | December 31, 2001                  
|                                        |                                         | Amortized
Cost                     
|                                        |                                         | (In thousands)                     
|Mortgage-backed and related securities: |                                         |                                    
|                                        | Federal National Mortgage Association   |                                    
|                                        |                                         | Collateralized mortgage obligations
|                                        | Federal Home Loan Mortgage Corporation: |                                    
|                                        |                                         | Participation certificates         
|                                        |                                         | Collateralized mortgage obligations
|                                        |                                         |                                    
|                                        | TOTALS                                  | $8,866                             

---

|                                            | December 31        
|------------------------------------------- | -------------------
|                                            | 2002               
|                                            | (In thousands)     
|Real estate mortgage (primarily one-to-four |                    
|                                            | family residential)
|Construction and development                | 1,404              
|Commercial real estate                      | 7,065              
|Consumer and other                          | 531                
|Home equity lines of credit                 | 2,154              
|Loans on deposits                           | 94                 
|                                            | 40,967             
|Less allowance for loan losses              | 762                
|                                            |                    
|TOTALS                                      | $40,205            

---

|                                  | December 31   
|--------------------------------- | --------------
|                                  | 2002          
|                                  | (In thousands)
|                                  |               
|Balance at beginning of year      | $676          
|Provision reflected in operations | 78            
|Less loans charged off            | -             
|Recovery                          | 8             
|                                  |               
|BALANCE AT END OF YEAR            | $762          

|               | 2002                      | 2001  
|-------------- | ------------------------- | ------
|               | (In thousands)           
|Balance Sheet: |                           |       
|               | Investment in real estate | $4,170
|               | Total assets              | 4,267 
|               | Mortgage payable          | 2,770 
|               | Partners' equity          | 755   
|               |                           |       
|Operations:    |                           |       
|               | Rental income             | 557   
|               | Net loss                  | 260   

---

|                                   | December 31   
|---------------------------------- | --------------
|                                   | 2002          
|                                   | (In thousands)
|                                   |               
|Land                               | $  32         
|Building and building improvements | 508           
|Furniture, equipment and vehicles  | 401           
|                                   | 941           
|Less accumulated depreciation      | 607           
|                                   |               
|TOTALS                             | $334          

|                                 | December 31   
|-------------------------------- | --------------
|                                 | 2002          
|                                 | (In thousands)
|                                 |               
|Savings and transaction accounts | $28,632       
|Certificates of deposit          | 32,263        
|                                 |               
|TOTALS                           | $60,895       

|                    | December 31   
|------------------- | --------------
|                    | 2002          
|                    | (In thousands)
|                    |               
|Within one year     | $23,819       
|One to two years    | 4,203         
|Two to three years  | 2,422         
|Three to four years | 27            
|Four to six years   | 1,792         
|                    |               
|TOTALS              | $32,263       

---

|                                             | Year Ended December 31
|-------------------------------------------- | ----------------------
|                                             | 2002                  
|                                             | (In thousands)        
|Income tax expense is summarized as follows: |                       
|                                             | Federal:              
|                                             |                       
|                                             |                       
|                                             |                       
|TOTALS                                       | $    410              

|                                         | Year Ended December 31             
|---------------------------------------- | -----------------------------------
|                                         | 2002                               
|                                         | (In thousands)                     
|                                         |                                    
|Federal taxes computed at statutory rate | $      473                         
|                                         | Increase (decrease) resulting from:
|                                         |                                    
|                                         |                                    
|                                         |                                    
|                                         |                                    
|FEDERAL INCOME TAX PROVISION             | $      410                         
|                                         |                                    
|Effective federal income tax rate        | 29.5%                              

|                          | December 31                                      
|------------------------- | -------------------------------------------------
|                          | 2002                                             
|                          | (In thousands)                                   
|Deferred tax liabilities: |                                                  
|                          | Federal Home Loan Bank stock dividends           
|                          | Unrealized gains on securities available for sale
|                          |                                                  
|                          |                                                  
|Deferred tax assets:      |                                                  
|                          | Deferred compensation                            
|                          | Allowance for loan losses                        
|                          | Imputed loan interest                            
|                          | ESOP                                             
|                          | Loan fees                                        
|                          |                                                  
|                          |                                                  
|                          |                                                  
|                          |                                                  

---

|Interest

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

---

|                                 | 2002    | 2001                           
|-------------------------------- | ------- | -------------------------------
|                                 | Shares  | Weighted-Average
Exercise Price
|                                 |         |                                
|Outstanding at beginning of year | 157,896 | $12.53                         
|Granted                          | -       | -                              
|Exercised                        | 8,772   | 12.53                          
|Forfeited                        | -       | -                              
|                                 |         |                                
|Outstanding at end of year       | 149,124 | $12.53                         
|                                 |         |                                
|Options exercisable at year-end  | 149,124 | $12.53                         

|Number outstanding                          | 149,124
|------------------------------------------- | -------
|Weighted-average exercise price             | $12.53 
|Weighted-average remaining contractual life | 8 years

---

|                            |             | 2002        | 2001 
|--------------------------- | ----------- | ----------- | -----
|                            |             |             |      
|Net earnings (in thousands) | As reported | $982        | $821 
|                            | Pro forma   | $982        | $647 
|                            |             |             |      
|Earnings per share:         |             |             |      
|                            | Basic       | As reported | $ .71
|                            | Pro forma   | $ .71       | $ .45
|                            |             |             |      
|                            | Diluted     | As reported | $ .71
|                            | Pro forma   | $ .71       | $ .45

---

---

---

|                                |                                    | December 31     
|------------------------------- | ---------------------------------- | ----------------
|                                |                                    | 2002            
|                                |                                    | Carrying
Amounts
|                                |                                    | (In thousands)  
|                                |                                    |                 
|Cash and equivalents            | $    9,980                         | $    9,980      
|Securities                      |                                    |                 
|                                | Available-for-sale                 | 44,734          
|                                | Held-to-maturity                   | 3,349           
|                                | Federal Home Loan Bank stock       | 1,053           
|Loans                           | 40,205                             | 41,329          
|Accrued interest receivable     | 758                                | 758             
|                                |                                    |                 
|Deposits:                       |                                    |                 
|                                | Checking, savings and money market | (28,632)        
|                                | Certificates of deposit            | (32,263)        
|Accrued interest payable        | (145)                              | (145)           
|Federal Home Loan Bank advances | (19,500)                           | (21,446)        

---

---

|                          | Actual                 | For Capital
Adequacy Purposes | To be "Well-
Capitalized" under

Prompt Corrective

Action Provisions
|------------------------- | ---------------------- | ----------------------------- | ---------------------------------------------------------------------
|                          | Amount                 | Ratio                         | Amount                                                               
|                          | (Dollars in thousands)
|                          |                        |                               |                                                                      
|Tangible capital          | $14,267                | 14.9%                         | ≥ $1,439                                                             
|                          |                        |                               |                                                                      
|Tier 1 core capital       | $14,267                | 14.9%                         | ≥ $3,838                                                             
|                          |                        |                               |                                                                      
|Tier 1 risk-based capital | $14,267                | 35.3%                         | *                                                                    
|                          |                        |                               |                                                                      
|Total risk-based capital  | $15,573                | 38.5%                         | ≥ $3,236                                                             
|                          |                        |                               |                                                                      
|                          |                        |                               |                                                                      
|**2001:**                 |                        |                               |                                                                      
|                          | Actual                 | For Capital
Adequacy Purposes | To be "Well-
Capitalized" under

Prompt Corrective

Action Provisions
|                          | Amount                 | Ratio                         | Amount                                                               
|                          | (Dollars in thousands)
|                          |                        |                               |                                                                      
|Tangible capital          | $13,177                | 14.5%                         | ≥ $1,366                                                             
|                          |                        |                               |                                                                      
|Tier 1 core capital       | $13,177                | 14.5%                         | ≥ $2,732                                                             
|                          |                        |                               |                                                                      
|Tier 1 risk-based capital | $13,177                | 31.6%                         | *                                                                    
|                          |                        |                               |                                                                      
|Total risk-based capital  | $14,612                | 35.0%                         | ≥ $3,334                                                             

---

|                                             |                                            | 2002        | 2001      
|-------------------------------------------- | ------------------------------------------ | ----------- | ----------
|                                             |                                            |             |           
|ASSETS                                       |                                            |            
|                                             |                                            |             |           
|Cash and cash equivalents:                   |                                            |            
|                                             | Noninterest bearing                        | $         9 | $       20
|                                             | Interest bearing                           | 983         | 3,009     
|                                             |                                            | 992         | 3,092     
|                                             |                                            |             |           
|Available-for-sale securities - at market    | 327                                        | -          
|Mortgage loan receivable                     | 298                                        | -          
|Account receivable from Home Federal Savings |                                            |            
|                                             | and Loan Association of Niles              | 220         | 268       
|Investment in Home Federal Savings and       |                                            |            
|                                             | Loan Association of Niles                  | 16,278      | 14,514    
|Accrued interest and prepaid expense         | 258                                        | 195        
|                                             | TOTAL ASSETS                               | $18,373     | $18,006   
|                                             |                                            |             |           
|LIABILITIES AND STOCKHOLDERS' EQUITY         |                                            |            
|                                             |                                            |             |           
|Accrued expenses                             | $       39                                 | $       40 
|Deferred federal income tax liability        | 1                                          | -          
|                                             | TOTAL LIABILITIES                          | 40          | 40        
|                                             |                                            |            
|Stockholders' equity                         | 18,333                                     | 17,966     
|                                             |                                            |             |           
|                                             | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $18,373     | $18,006   

---

|                                    |                                  | 2002       | 2001      
|----------------------------------- | -------------------------------- | ---------- | ----------
|                                    |                                  |            |           
|Revenue:                            |                                  |           
|                                    | Interest income                  | $       76 | $       16
|                                    | TOTAL REVENUE                    | 76         | 16        
|                                    |                                  |            |           
|General and administrative expenses | 240                              | 243       
|                                    | LOSS BEFORE INCOME TAX AND       |            |           
|                                    | EQUITY IN EARNINGS OF SUBSIDIARY | (164)      | (227)     
|                                    |                                  |            |           
|Income tax credit                   | (56)                             | (77)      
|                                    | LOSS BEFORE EQUITY IN            |            |           
|                                    | EARNINGS OF SUBSIDIARY           | (108)      | (150)     
|                                    |                                  |            |           
|Equity in earnings of subsidiary    | 1,090                            | 971       
|                                    |                                  |            |           
|                                    | NET INCOME                       | $     982  | $     821 

---

|                                                 |                                                      |                                   |                                                             |                                            | 2002        | 2001      
|------------------------------------------------ | ---------------------------------------------------- | --------------------------------- | ----------------------------------------------------------- | ------------------------------------------ | ----------- | ----------
|Cash flows from operating activities:            |                                                      |                                  
|                                                 | Net income for the period                            | $     982                         | $     821                                                  
|                                                 | Adjustments to reconcile net income to net cash      |                                   |                                                            
|                                                 |                                                      | provided by operating activities: |                                                             |                                           
|                                                 |                                                      |                                   | Undistributed income of consolidated subsidiary             | (1,090)                                    | (971)      
|                                                 |                                                      |                                   | Net decrease in due from subsidiary, accrued interest       |                                            |            
|                                                 |                                                      |                                   |                                                             | and prepaid expenses                       | 183         | 443       
|                                                 |                                                      |                                   | Increase (decrease) in accounts payable and accrued expense | (1)                                        | 2          
|                                                 |                                                      |                                   |                                                             | NET CASH PROVIDED BY                       |             |           
|                                                 |                                                      |                                   |                                                             | OPERATING ACTIVITIES                       | 74          | 295       
|                                                 |                                                      |                                   |                                                             |                                            |             |           
|Cash flows from investing activities:            |                                                      |                                  
|                                                 | Net increase in loans receivable                     | (298)                             | -                                                          
|                                                 | Purchase of securities available for sale            | (1,471)                           | -                                                          
|                                                 | Proceeds from sale of securities available-for-sale  | 1,147                             | -                                                          
|                                                 | Net (increase) decrease in interest bearing deposits | 2,027                             | (2,976)                                                    
|                                                 |                                                      |                                   |                                                             | NET CASH PROVIDED BY                       |             |           
|                                                 |                                                      |                                   |                                                             | (USED IN) INVESTING ACTIVITIES             | 1,405       | (2,976)   
|                                                 |                                                      |                                   |                                                             |                                            |             |           
|Cash flows from financing activities:            |                                                      |                                  
|                                                 | Exercise of options                                  | 110                               | -                                                          
|                                                 | Dividends paid                                       | (722)                             | (649)                                                      
|                                                 | Dividends received from subsidiary                   | -                                 | 4,500                                                      
|                                                 | Purchase of treasury stock                           | (878)                             | (1,302)                                                    
|                                                 |                                                      |                                   |                                                             | NET CASH PROVIDED BY                       |             |           
|                                                 |                                                      |                                   |                                                             | (USED IN) FINANCING ACTIVITIES             | (1,490)     | 2,549     
|                                                 |                                                      |                                   |                                                             |                                            |             |           
|                                                 |                                                      |                                   |                                                             | NET DECREASE IN CASH                       | (11)        | (132)     
|                                                 |                                                      |                                   |                                                             |                                            |             |           
|Cash and cash equivalents at beginning of period | 20                                                   | 152                              
|                                                 |                                                      |                                   |                                                             |                                            |             |           
|                                                 |                                                      |                                   |                                                             | CASH AND CASH EQUIVALENTS AT END OF PERIOD | $         9 | $       20
|                                                 |                                                      |                                   |                                                             |                                            |             |           
|Noncash transaction:                             |                                                      |                                  
|                                                 | Employee stock benefit plan transactions             | $     195                         | $     430                                                  

---

---

---

|                                         | **HIGH** | **LOW** | **CASH****DIVIDENDS****DECLARED**
|---------------------------------------- | -------- | ------- | ---------------------------------
|First Quarter (ended March 31, 2001)     | $12.875  | $10.875 | $0.11                            
|Second Quarter (ended June 30, 2001)     | $13.000  | $10.500 | $0.11                            
|Third Quarter (ended September 30, 2001) | $13.310  | $11.750 | $0.12                            
|Fourth Quarter (ended December 31, 2001) | $13.200  | $11.010 | $0.12                            
|                                         |          |         |                                  
|First Quarter (ended March 31, 2002)     | $14.600  | $12.800 | $0.13                            
|Second Quarter (ended June 30, 2002)     | $15.750  | $13.750 | $0.13                            
|Third Quarter (ended September 30, 2002) | $16.000  | $14.250 | $0.13                            
|Fourth Quarter (ended December 31, 2002) | $16.200  | $15.020 | $0.14                            

|**SHAREHOLDER AND GENERAL INQUIRIES**                                                                                         | **TRANSFER AGENT**
|----------------------------------------------------------------------------------------------------------------------------- | ------------------
|                                                                                                                             
|Lawrence Safarek, Vice President
First Niles Financial, Inc. 
55 North Main Street          
Niles, Ohio 44446
(330) 652-2539 |                   

---

---

|**COMPANY AND BANK ADDRESS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------
|55 North Main Street
Niles, Ohio  44446                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Telephone:	(330) 652-2539****
Fax:		(330) 652-0911
|**BOARD OF DIRECTORS** 


William L. Stephens

   *Chairman, President and Chief Executive*

      *Officer of First Niles Financial, Inc. and*

      *Home Federal Savings and Loan*

      *Association of Niles*
George J. Swift

   *Vice President and Secretary of First*

      *Niles Financial, Inc. and Home Federal*

      *Savings and Loan Association of Niles*
P. James Kramer

   *President, William Kramer & Son*
William Eddy

   *President, Clinic of Osteopathic*

      *Medicine, Inc.*
Ralph A. Zuzolo, Sr.

   *Partner, Law Firm of Zuzolo, Zuzolo*

      *& Zuzolo* |                                                   
|**INDEPENDENT AUDITORS**
 


Anness, Gerlach & Williams,

   a Professional Corporation

Certified Public Accountants

1275 Boardman-Canfield Road

Youngstown, Ohio 44513                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                   

---