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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-QSB



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|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------



For the quarterly period ended September 30, 2005



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------



For the transition period from  to
.



Commission File Number: 0-24849



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FIRST NILES FINANCIAL, INC.

(Exact name of small business issuer as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 34-1870418                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|55 North Main Street, Niles, Ohio                              |  | 44446                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



Issuers
telephone number, including area code: (330) 652-2539



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Check whether the issuer (1) filed all reports to be filed by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No ̈



Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



Shares of
common stock, par value $.01 per share, outstanding as of November 3, 2005: 1,384,553



Transitional Small business Disclosure Format (check one):    Yes ̈No  x



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PART I - FINANCIAL INFORMATION



Item 1. Financial Statements



CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

(In thousands, except share data)



|                                                                                   |  |                    |        |   |                   |   |        |  
|---------------------------------------------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | -
|                                                                                   |  | September 30, 2005 |        |   | December 31, 2004 |  
|                                                                                   |  | (Unaudited)        |        |   |                   |  
|ASSETS                                                                             |  |                    |        |   |                   |   |        |  
|Cash and cash equivalents:                                                         |  |                    |        |   |                   |   |        |  
|Noninterest bearing                                                                |  | $                  | 1,180  |   |                   | $ | 1,075  |  
|Interest bearing                                                                   |  |                    | 2,779  |   |                   |   | 5,103  |  
|                                                                                   |  |                    |        |   |                   |   |        |  
|Total cash and equivalents                                                         |  |                    | 3,959  |   |                   |   | 6,178  |  
|Securities available for sale - at market                                          |  |                    | 27,876 |   |                   |   | 29,639 |  
|Securities to be held to maturity - at cost                                        |  |                    | 18,104 |   |                   |   | 18,148 |  
|Loans receivable, net of allowance for loan losses of $742 and $743                |  |                    | 46,841 |   |                   |   | 42,966 |  
|Accrued interest receivable                                                        |  |                    | 603    |   |                   |   | 579    |  
|Federal Home Loan Bank stock, at cost                                              |  |                    | 1,181  |   |                   |   | 1,141  |  
|Real estate investment, limited partnership - at equity                            |  |                    | 98     |   |                   |   | 113    |  
|Real estate owned                                                                  |  |                    | 35     |   |                   |   | 51     |  
|Prepaid expenses and other assets                                                  |  |                    | 412    |   |                   |   | 60     |  
|Prepaid federal income tax                                                         |  |                    | 112    |   |                   |   | 65     |  
|Deferred federal income tax asset                                                  |  |                    | 219    |   |                   |   |       |  
|Premises and equipment, at cost less accumulated depreciation                      |  |                    | 341    |   |                   |   | 289    |  
|                                                                                   |  |                    |        |   |                   |   |        |  
|TOTAL ASSETS                                                                       |  | $                  | 99,781 |   |                   | $ | 99,229 |  
|                                                                                   |  |                    |        |   |                   |   |        |  
|LIABILITIES                                                                        |  |                    |        |   |                   |   |        |  
|Deposits                                                                           |  | $                  | 60,326 |   |                   | $ | 61,458 |  
|Accrued interest payable                                                           |  |                    | 142    |   |                   |   | 130    |  
|Accounts payable and other liabilities                                             |  |                    | 714    |   |                   |   | 667    |  
|Federal Home Loan Bank advances                                                    |  |                    | 22,500 |   |                   |   | 20,500 |  
|Deferred federal income tax liability                                              |  |                    |       |   |                   |   | 61     |  
|                                                                                   |  |                    |        |   |                   |   |        |  
|TOTAL LIABILITIES                                                                  |  |                    | 83,682 |   |                   |   | 82,816 |  
|                                                                                   |  |                   
|SHAREHOLDERS EQUITY                                                               |  |                    |        |   |                   |   |        |  
|Preferred stock, $.01 par value, authorized 500,000 shares; none outstanding       |  |                    |       |   |                   |   |       |  
|Common stock, $.01 par value, authorized 6,000,000 shares; 1,754,411 shares issued |  |                    | 18     |   |                   |   | 18     |  
|Paid in capital                                                                    |  |                    | 6,951  |   |                   |   | 6,951  |  
|Retained earnings                                                                  |  |                    | 14,510 |   |                   |   | 14,316 |  
|Net unrealized gains on securities available for sale                              |  |                    | 306    |   |                   |   | 814    |  
|Common stock purchased by the Employee Stock Ownership Plan                        |  |                    | (503   | ) |                   |   | (503   | )
|Treasury stock - 369,858 shares and 369,858 shares                                 |  |                    | (5,183 | ) |                   |   | (5,183 | )
|                                                                                   |  |                    |        |   |                   |   |        |  
|TOTAL SHAREHOLDERS EQUITY                                                         |  |                    | 16,099 |   |                   |   | 16,413 |  
|                                                                                   |  |                    |        |   |                   |   |        |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                         |  | $                  | 99,781 |   |                   | $ | 99,229 |  
|                                                                                   |  |                    |        |   |                   |   |        |  



SEE
ACCOMPANYING NOTES



2



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CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

(In thousands, except share data)

(Unaudited)



|                                                    |  |                                 |       |                               |   |       |  |      |       |  |   |      
|--------------------------------------------------- |  | ------------------------------- | ----- | ----------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|                                                    |  | Three Months Ended September 30 |       | Nine Months EndedSeptember 30
|                                                    |  | 2005                            |       | 2004                          |   | 2005  |  | 2004
|Interest income:                                    |  |                                 |       |                               |   |       |  |      |       |  |   |      
|First mortgage loans                                |  | $                               | 664   |                               | $ | 623   |  | $    | 1,968 |  | $ | 1,802
|Consumer and other loans                            |  |                                 | 37    |                               |   | 35    |  |      | 104   |  |   | 105  
|Mortgage-backed and related securities              |  |                                 | 147   |                               |   | 210   |  |      | 494   |  |   | 696  
|Investments                                         |  |                                 | 339   |                               |   | 362   |  |      | 969   |  |   | 1,029
|Interest-bearing deposits                           |  |                                 | 32    |                               |   | 15    |  |      | 105   |  |   | 48   
|                                                    |  |                                 |       |                               |   |       |  |      |       |  |   |      
|TOTAL INTEREST INCOME                               |  |                                 | 1,219 |                               |   | 1,245 |  |      | 3,640 |  |   | 3,680
|                                                    |  |                                 |       |                              
|Interest expense:                                   |  |                                 |       |                               |   |       |  |      |       |  |   |      
|Deposits                                            |  |                                 | 311   |                               |   | 254   |  |      | 875   |  |   | 778  
|Borrowings                                          |  |                                 | 252   |                               |   | 232   |  |      | 724   |  |   | 692  
|                                                    |  |                                 |       |                               |   |       |  |      |       |  |   |      
|TOTAL INTEREST EXPENSE                              |  |                                 | 563   |                               |   | 486   |  |      | 1,599 |  |   | 1,470
|                                                    |  |                                 |       |                               |   |       |  |      |       |  |   |      
|NET INTEREST INCOME                                 |  |                                 | 656   |                               |   | 759   |  |      | 2,041 |  |   | 2,210
|                                                    |  |                                 |       |                              
|Provision for loan losses                           |  |                                 |      |                               |   |      |  |      |      |  |   |     
|                                                    |  |                                 |       |                               |   |       |  |      |       |  |   |      
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                                 | 656   |                               |   | 759   |  |      | 2,041 |  |   | 2,210
|                                                    |  |                                 |       |                              
|Noninterest income:                                 |  |                                 |       |                               |   |       |  |      |       |  |   |      
|Gain on sale of securities                          |  |                                 | 77    |                               |   | 65    |  |      | 478   |  |   | 216  
|Service fees and other income                       |  |                                 | 7     |                               |   | 9     |  |      | 32    |  |   | 23   
|                                                    |  |                                 |       |                               |   |       |  |      |       |  |   |      
|TOTAL NONINTEREST INCOME                            |  |                                 | 84    |                               |   | 74    |  |      | 510   |  |   | 239  
|                                                    |  |                                 |       |                              
|Noninterest expense:                                |  |                                 |       |                               |   |       |  |      |       |  |   |      
|Equity in loss of limited partnership               |  |                                 | 5     |                               |   | 5     |  |      | 15    |  |   | 17   
|Compensation and benefits                           |  |                                 | 246   |                               |   | 253   |  |      | 748   |  |   | 758  
|Occupancy and equipment                             |  |                                 | 27    |                               |   | 23    |  |      | 75    |  |   | 71   
|Federal deposit insurance premiums                  |  |                                 | 2     |                               |   | 2     |  |      | 6     |  |   | 7    
|Legal and audit                                     |  |                                 | 26    |                               |   | 15    |  |      | 151   |  |   | 82   
|Franchise taxes                                     |  |                                 | 48    |                               |   | 47    |  |      | 145   |  |   | 142  
|Other operating expense                             |  |                                 | 80    |                               |   | 71    |  |      | 237   |  |   | 235  
|                                                    |  |                                 |       |                               |   |       |  |      |       |  |   |      
|TOTAL NONINTEREST EXPENSE                           |  |                                 | 434   |                               |   | 416   |  |      | 1,377 |  |   | 1,312
|                                                    |  |                                 |       |                               |   |       |  |      |       |  |   |      
|INCOME BEFORE INCOME TAXES                          |  |                                 | 306   |                               |   | 417   |  |      | 1,174 |  |   | 1,137
|                                                    |  |                                 |       |                              
|Federal income taxes                                |  |                                 | 87    |                               |   | 128   |  |      | 351   |  |   | 345  
|                                                    |  |                                 |       |                               |   |       |  |      |       |  |   |      
|NET INCOME                                          |  | $                               | 219   |                               | $ | 289   |  | $    | 823   |  | $ | 792  
|                                                    |  |                                 |       |                               |   |       |  |      |       |  |   |      
|EARNINGS PER SHARE                                  |  | $                               | 0.17  |                               | $ | 0.22  |  | $    | 0.63  |  | $ | 0.61 
|                                                    |  |                                 |       |                               |   |       |  |      |       |  |   |      
|DILUTED EARNINGS PER SHARE                          |  | $                               | 0.16  |                               | $ | 0.22  |  | $    | 0.62  |  | $ | 0.60 
|                                                    |  |                                 |       |                               |   |       |  |      |       |  |   |      



SEE ACCOMPANYING NOTES.



3



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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

(In thousands)

(Unaudited)



|                                             |  |                                 |      |   |      |   |      |  
|-------------------------------------------- |  | ------------------------------- | ---- | - | ---- | - | ---- | -
|                                             |  | Nine Months Ended September 30, |     
|                                             |  | 2005                            |      |   | 2004 |  
|Net income                                   |  | $                               | 823  |   |      | $ | 792  |  
|Other comprehensive income:                  |  |                                 |      |   |      |   |      |  
|Unrealized gains (losses) on securities:     |  |                                 |      |   |      |   |      |  
|Unrealized gains (losses) arising for period |  |                                 | (638 | ) |      |   | (151 | )
|Related income tax                           |  |                                 | (217 | ) |      |   | (51  | )
|                                             |  |                                 |      |   |      |   |      |  
|                                             |  |                                 | (421 | ) |      |   | (100 | )
|Reclassification adjustment:                 |  |                                 |      |   |      |   |      |  
|                                             |  |                                
|Gain included in net income                  |  |                                 | (133 | ) |      |   | (217 | )
|Related income tax                           |  |                                 | 46   |   |      |   | 74   |  
|                                             |  |                                 |      |   |      |   |      |  
|                                             |  |                                 | (87  | ) |      |   | (143 | )
|Other comprehensive income                   |  |                                 | (508 | ) |      |   | (243 | )
|                                             |  |                                 |      |   |      |   |      |  
|COMPREHENSIVE INCOME                         |  | $                               | 315  |   |      | $ | 549  |  
|                                             |  |                                 |      |   |      |   |      |  



SEE ACCOMPANYING NOTES.



4



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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

(In thousands)

(Unaudited)



|                                                                                                            |  |                                 |        |   |      |   |         |  
|----------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                                            |  | Nine Months Ended September 30, |       
|                                                                                                            |  | 2005                            |        |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                        |  |                                 |        |   |      |   |         |  
|                                                                                                            |  |                                
|Net income                                                                                                  |  | $                               | 823    |   |      | $ | 792     |  
|                                                                                                            |  |                                
|Adjustments to reconcile net income to net cash provided by operating activities                            |  |                                 |        |   |      |   |         |  
|Deferred income taxes                                                                                       |  |                                 | (17    | ) |      |   | (6      | )
|Depreciation                                                                                                |  |                                 | 22     |   |      |   | 21      |  
|Amortization of deferred loan fees and costs                                                                |  |                                 | (31    | ) |      |   | (15     | )
|Amortization of discounts and premiums investments and mortgage-backed and related securities               |  |                                 | 28     |   |      |   | 55      |  
|Gain on sale of securities                                                                                  |  |                                 | (478   | ) |      |   | (217    | )
|Equity in loss of limited partnership                                                                       |  |                                 | 15     |   |      |   | 17      |  
|Loss on sale of fixed asset                                                                                 |  |                                 |       |   |      |   | 13      |  
|Provision for loan losses                                                                                   |  |                                 |       |   |      |   |        |  
|Federal Home Loan Bank stock dividends                                                                      |  |                                 | (41    | ) |      |   | (34     | )
|                                                                                                            |  |                                 |        |   |      |   |         |  
|                                                                                                            |  |                                 | 321    |   |      |   | 626     |  
|Net increase in accrued interest receivable, prepaid expenses and other assets                              |  |                                 | (407   | ) |      |   | (136    | )
|Net increase (decrease) in accrued interest, accounts payable and other liabilities                         |  |                                 | 59     |   |      |   | 99      |  
|                                                                                                            |  |                                 |        |   |      |   |         |  
|NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                                                         |  |                                 | (27    | ) |      |   | 589     |  
|                                                                                                            |  |                                
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                        |  |                                 |        |   |      |   |         |  
|                                                                                                            |  |                                
|Proceeds from sale of securities available for sale                                                         |  |                                 | 151    |   |      |   | 1,625   |  
|Purchase of securities available for sale                                                                   |  |                                 | (4,500 | ) |      |   | (12,000 | )
|Purchase of securities held to maturity                                                                     |  |                                 |       |   |      |   | (12,000 | )
|Proceeds from maturity of securities available for sale                                                     |  |                                 | 2,000  |   |      |   | 19,000  |  
|Proceeds from maturity of securities held to maturity                                                       |  |                                 |       |   |      |   | 2,000   |  
|Proceeds from principal payments on mortgage-back and related securities - held to maturity                 |  |                                 | 45     |   |      |   | 118     |  
|Proceeds from principal payments on mortgage-backed and related securities - available for sale             |  |                                 | 3,447  |   |      |   | 7,870   |  
|Net increase (decrease) in interest-bearing deposits with banks                                             |  |                                 | 2,325  |   |      |   | (1,690  | )
|Net increase in loans                                                                                       |  |                                 | (3,845 | ) |      |   | (2,770  | )
|Proceeds from sale of Intrieve stock                                                                        |  |                                 | 344    |   |      |   |        |  
|Sale of fixed asset                                                                                         |  |                                 |       |   |      |   | 4       |  
|Additions to premises                                                                                       |  |                                 | (74    | ) |      |   | (40     | )
|                                                                                                            |  |                                 |        |   |      |   |         |  
|NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                                                         |  |                                 | (107   | ) |      |   | 2,117   |  
|                                                                                                            |  |                                
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                        |  |                                 |        |   |      |   |         |  
|                                                                                                            |  |                                
|Net decrease in savings accounts, money market deposit accounts and negotiable order of withdrawal accounts |  |                                 | (1,920 | ) |      |   | (818    | )
|Net increase (decrease) in certificates of deposits                                                         |  |                                 | 788    |   |      |   | (648    | )
|Purchase of Treasury shares                                                                                 |  |                                 |       |   |      |   | (1,199  | )
|Cash dividends paid on common stock                                                                         |  |                                 | (629   | ) |      |   | (587    | )
|Proceeds from Federal Home Loan Bank Advances                                                               |  |                                 | 2,000  |   |      |   |        |  
|Incentive stock options exercised                                                                           |  |                                 |       |   |      |   | 679     |  
|                                                                                                            |  |                                 |        |   |      |   |         |  
|NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                                         |  |                                 | 239    |   |      |   | (2,573  | )
|                                                                                                            |  |                                 |        |   |      |   |         |  
|NET INCREASE IN CASH                                                                                        |  |                                 | 105    |   |      |   | 133     |  
|                                                                                                            |  |                                
|CASH AT BEGINNING OF PERIOD                                                                                 |  |                                 | 1,075  |   |      |   | 860     |  
|                                                                                                            |  |                                 |        |   |      |   |         |  
|CASH AT END OF PERIOD                                                                                       |  | $                               | 1,180  |   |      | $ | 993     |  
|                                                                                                            |  |                                 |        |   |      |   |         |  
|Cash paid during the period for:                                                                            |  |                                 |        |   |      |   |         |  
|Interest                                                                                                    |  | $                               | 1,588  |   |      | $ | 1,479   |  
|Income taxes                                                                                                |  | $                               | 417    |   |      | $ | 365     |  



SEE
ACCOMPANYING NOTES



5



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NOTES TO FINANCIAL STATEMENTS

FIRST NILES FINANCIAL, INC. AND SUBSIDIARY

September 30, 2005 and 2004 (Unaudited)



NOTE A  SIGNIFICANT ACCOUNTING POLICIES



The accounting and reporting policies followed by First Niles Financial, Inc. (First
Niles) and its wholly owned subsidiary, Home Federal Savings and Loan Association of Niles (the Association) are in accordance with accounting principles generally accepted in the United States of America and conform to general
practices within the savings and loan industry.



The accompanying unaudited
financial statements were prepared in accordance with instructions for Form 10-QSB and, therefore do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity
with accounting principles generally accepted in the United States of America. Management believes that all normal recurring adjustments that are necessary for a fair presentation of interim period financial information have been reflected in these
financial statements. The results of operations for the interim periods discussed herein are not necessarily indicative of the results that may be expected for a full year. These interim financial statements should be read in conjunction with the
consolidated financial statements and Notes included in the First Niles Financial, Inc. Annual Report on Form 10-KSB for the year ended December 31, 2004.



NOTE B  STOCK CONVERSION



On October 26, 1998, First Niles began trading as a public company on the Nasdaq SmallCap Market. First Niles issued 1,754,411 shares, $.01 par value common stock,
at $10.00 per share, raising $15.5 million, net of shares acquired by the newly formed Employee Stock Ownership Plan (the ESOP) and net of the costs of the conversion. Home Federal Savings and Loan Association of Niles converted to a
federal stock savings and loan association and simultaneously received proceeds of $8.5 million in exchange for all of its common stock to First Niles. This transaction was accounted for using historical cost in a manner similar to that in a pooling
of interests.



NOTE C  EARNINGS PER
SHARE



Basic earnings per share is computed by dividing net income by the
weighted-average shares outstanding, during the period, less weighted-average shares in the ESOP that are unallocated and not committed to be released. Diluted earnings per share reflect the potential effect of stock options and is calculated using
the treasury stock method. At September 30, 2005, the market price of First Niles stock exceeded the exercise price of all outstanding options; the resulting dilution, is presented in the following table, as rounded to the nearest whole cent.



6



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The following table sets forth the computation of earnings per share for the three and nine month periods ended
September 30, 2005 and September 30, 2004 (income in thousands):



|                                                |  |                                  |           |                                 |   |           |  |      |           |  |   |          
|----------------------------------------------- |  | -------------------------------- | --------- | ------------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                                |  | Three Months Ended September 30, |           | Nine Months Ended September 30,
|                                                |  | 2005                             |           | 2004                            |   | 2005      |  | 2004
|Net income                                      |  | $                                | 219       |                                 | $ | 289       |  | $    | 823       |  | $ | 792      
|Earnings applicable to basic earnings per share |  | $                                | 219       |                                 | $ | 289       |  | $    | 823       |  | $ | 792      
|Average common shares                           |  |                                  | 1,384,553 |                                 |   | 1,386,192 |  |      | 1,384,553 |  |   | 1,390,092
|Less average unallocated ESOP shares            |  |                                  | 64,226    |                                 |   | 81,264    |  |      | 68,347    |  |   | 85,614   
|Average common shares outstanding - basic       |  |                                  | 1,320,327 |                                 |   | 1,304,927 |  |      | 1,316,206 |  |   | 1,304,479
|                                                |  |                                  |           |                                 |   |           |  |      |           |  |   |          
|Average common shares outstanding - diluted     |  |                                  | 1,329,747 |                                 |   | 1,320,223 |  |      | 1,327,328 |  |   | 1,318,207
|                                                |  |                                  |           |                                 |   |           |  |      |           |  |   |          
|Earnings per share - basic                      |  | $                                | 0.17      |                                 | $ | 0.22      |  | $    | 0.63      |  | $ | 0.61     
|                                                |  |                                  |           |                                 |   |           |  |      |           |  |   |          
|diluted                                         |  | $                                | 0.16      |                                 | $ | 0.22      |  | $    | 0.62      |  | $ | 0.60     
|                                                |  |                                  |           |                                 |   |           |  |      |           |  |   |          



Item 2. Managements
Discussion and Analysis



Executive Overview



First Niles Financial, Inc., a Delaware corporation, was formed in July 1998 to act as the
holding company for Home Federal Savings and Loan Association of Niles upon the completion of Home Federals conversion from mutual to stock form. The conversion was completed on October 26, 1998. References in this Form 10-QSB to
we, us, and our refer to First Niles and/or Home Federal as the context requires.



Our principal business consists of attracting retail deposits from the general public and investing those funds primarily in permanent and construction loans secured by
first mortgages on owner-occupied, one-to-four family residences. We also originate, to a lesser extent, loans secured by first mortgages on non-owner-occupied one-to-four family residences, permanent and construction commercial and multi-family
real estate loans, and consumer loans. Excess funds are generally invested in investment securities and mortgage-backed and related securities. Additionally, we borrow funds from the Federal Home Loan Bank (FHLB) and reinvest the
proceeds in investment securities at favorable interest rate spreads.



Short-term market interest rates generally increased during the third quarter of 2005, continuing a trend that started several quarters prior. As a result, the yield curve continued to flatten, as long term interest rates have not risen
near as much as short-term rates during this time period. This interest rate environment is likely to have a negative impact on our results of operations, as our interest-bearing liabilities generally are priced in relation to short-term market
interest rates, while our interest-earning assets generally are priced in relation to long-term interest rates. As a



7



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result, our spread has decreased over the past several quarters. If this trend continues, we expect our spread to
decrease even further. Additionally, if both short-term and long-term interest rates increase to a similar degree, our spread may still decrease because our interest-bearing liabilities reprice faster than our interest-earning assets.



In order to diminish the effect of the interest rate environment, described above, management
has gradually been shortening the average life of our investment portfolio and generally focused new purchases of securities into single step, U.S. agency securities with maturities of six years or less. Typically, these securities have a fixed
interest rate for periods ranging from two to three years and are callable by the issuer, at various intervals, during this time. After this initial fixed interest rate period, the security is either called, or if not, the interest rates rises
significantly, and the security is no longer callable. Management has generally limited its purchases of such securities to those with interest steps of a least 200 basis points. More recently, some callable U.S. agency securities, with maturities
of five years or less, have also been purchased, as interest rates on such securities have risen considerably over the past year.



The following discussion compares our consolidated financial condition at September 30, 2005 to December 31, 2004 and the results of operations for the three
and nine month periods ended September 30, 2005 with the same periods ended September 30, 2004. This discussion should be read in conjunction with the consolidated financial statements and footnotes included herein.



Comparison of Financial Condition at September 30, 2005 and December 31, 2004



Total assets increased by $552,000, or 0.6%, to $99.8 million at
September 30, 2005 from $99.2 million at December 31, 2004. This increase was primarily reflected in a $3.9 million increase in net loans receivable and a $351,000 increase in prepaid expenses and other assets, partially offset by a $2.2
million decrease in cash and cash equivalents and a $1.8 million decrease in total investment securities. Prepaid expenses increased due to a new interest bearing contractual arrangement with a provider of check clearing services.



Cash and cash equivalents and investment securities decreased primarily as a result of the
growth in our loan portfolio and to a lesser extent, net deposit withdrawals during this period.



The aforementioned increase in assets was primarily related to a $866,000 increase in total liabilities, partially offset by a $314,000 decrease in shareholders equity. During the period, we borrowed an
additional $2.0 million from the FHLB and invested the proceeds in investment securities. These additional borrowings were partially offset by a $1.1 million decrease in deposits during this nine month time period. The decrease in deposits was
comprised of a $1.9 million aggregate decrease in savings accounts and negotiable order of withdrawal (NOW) accounts partially offset by a $788,000 increase in certificates of deposit. This deposit shift is not unexpected, given the fact
that savings account and NOW account interest rates have remained unchanged during this time, while rates offered on certificates of deposits have increased noticeably during this time period.



8



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Shareholders equity at September 30, 2005 was $16.1 million, a $314,000, or 1.9% decrease from
December 31, 2004. The decrease in shareholders equity was primarily the result of a $508,000 decrease in net unrealized gains on securities available for sale, partially offset by a $194,000 increase in retained earnings. Book value per
share was $11.63 at September 30, 2005, compared to $11.85 at December 31, 2004. The dividend paid during the first nine months of 2005 totaled $629,000 and was equivalent to $0.16 per common share, per quarter. At both, September 30,
2005 and December 31, 2004, there were 1,384,553 shares of common stock outstanding.



Nonperforming loans, consisting of nonaccruing loans and accruing loans delinquent more than 90 days totaled $724,000 at September 30, 2005, or 0.7% of total assets, compared to $791,000 or 0.8% of total assets
as of December 31, 2004. The allowance for loan losses was $742,000 at September 30, 2005, representing coverage of 102.5% of non-performing loans and 97.8% of nonperforming assets. The allowance for loan losses at September 30, 2005
represented 1.6% of net loans receivable. At December 31, 2004, the allowance for loan losses was $743,000 and represented coverage of 93.9% of nonperforming loans, 88.2% on nonperforming assets and 1.7% of net loans receivable. Management
believes that the current level of the allowance for loan losses remains adequate to absorb losses resulting from uncollectible loans. At September 30, 2005 we had $35,000 in real estate owned as the result of foreclosure. At December 31,
2004 we had $51,000 in real estate owned as the result of foreclosure.



Results of Operations



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



Results of Operations for the Three-Month Period Ended September 30, 2005 as Compared to September 30, 2004



Net Income.For the three months ended September 30, 2005, First Niles
recorded net income of $219,000 as compared to $289,000 in the comparative 2004 period, a decrease of $70,000, or 24.2%. This net income resulted in an annualized return on



9



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average assets of 0.87% as compared 1.18% for the comparative period one year ago. The annualized return on
shareholders equity for the three months ended September 30, 2005 was 5.34% compared to 7.31% for the three months ended September 30, 2004. Basic earnings per share and diluted earnings per share for the three months ended
September 30, 2005 was $0.17 and $0.16, respectively, as compared to $0.22 for both measures of earnings per share in the third quarter of 2004.



Net Interest Income.Net interest income decreased by $103,000, or 13.6%, for the three month period ended September 30, 2005 as compared to the
respective 2004 period. For the three months ended September 30, 2005 our interest rate spread was 2.28% as compared to 2.81% for the same period one year prior. The net interest margin for the current period was 2.68% as compared to 3.17% for
the same period one year ago. The major factor leading to the contraction in net interest rate spread and net interest margin was the sustained increase in short term market interest rates over the past year which impacted the liability side of the
balance sheet, specifically certificates of deposit, to a greater extent than the asset side of our balance sheet.



For the three months ended September 30, 2005, total interest income decreased by $26,000, or 2.1%, as compared to the same period in 2004. Specifically, income on
loans receivable increased $43,000 on a comparative period basis, primarily due to higher average balances. Interest from interest-bearing deposits was $17,000 higher on a comparative period basis, reflecting the rise in short-term market interest
rates over the past year. Interest income on investment securities, mortgage-backed and related securities decreased a collective $86,000 for the three month period ended September 30, 2005 as compared to the same period in 2004, primarily due
to a shortening of targeted maturities for new purchases by management and lower average balances. Overall, the average yield on interest earning assets declined 23 basis points, from 5.19% during the third quarter of 2004 to 4.96% for the third
quarter of 2005.



The Company maintained its level of borrowings from the FHLB
at $22.5 million during the third quarter. The proceeds from all borrowings were initially reinvested into investment securities (leverage strategy). This strategy was undertaken at a net interest rate spread and net interest margin lower than those
related to core operations. The interest rate spread and net interest margin on the leverage strategy was approximately 67 basis points as of September 30, 2005. This leverage strategy requires a negligible amount of administrative expense and
is the primary reason that such an activity can be undertaken at a reduced interest rate spread and net interest margin as compared to core operations, while making a significant contribution to net income.



Eleven of our thirteen FHLB Advances are convertible at the option of the FHLB on a specified
date and quarterly thereafter to a variable rate based on 3-month LIBOR. At the time of conversion, or quarterly thereafter, each advance may be prepaid without



10



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penalty. At September 30, 2005, $18.5 million of the FHLB advances were eligible for conversion at the next
quarterly conversion date. At that time, none of the advances are expected to be converted, since the variable rate index on ten of the eleven advances was below the current fixed rate of the advance and in one case the variable rate was only
slightly higher than the current fixed rate. During the past several quarters, as a strategy to mitigate the interest rate risk associated with such conversions in a rising interest rate environment, we have shortened the expected life and increased
the cash flow of our investment portfolio by reducing and laddering the maturity structure of our callable U.S. Agency security portfolio.



During the fourth quarter of 2005, $5.0 million of U.S. Agency step securities are expected to be called. If these securities are not called, the coupon interest rate on
the securities will rise by a weighted average of 215 basis points, from 2.85% to 5.00%.



During the three months ended September 30, 2005, total interest expense increased by $77,000, or 15.8%, as compared to the same period in 2004. Total interest on deposits increased $57,000, or 22.4%, from period
to period. The average interest rate on deposits for the quarter, which comprised 72.8% of total interest bearing liabilities at September 30, 2005, increased to 2.05%, 37 basis points higher than for the same period one year ago.



The weighted average interest rate paid on savings and NOW account deposits was unchanged
at 0.74% in each period. However, the average rate paid on certificates of deposit increased from 2.45% during the third quarter of 2004 to 2.98% during the third quarter of 2005. This increase was reflective of rising market interest rates as well
as the rates offered by local competitors. The average interest rate on FHLB advances, which comprise the remaining portion of interest bearing liabilities, declined to 4.45% for the three months ended September 30, 2005 from 4.51% for the same
period one year ago. Interest expense on FHLB Advances increased to $252,000 for the three months ended September 30, 2005 from $232,000 for the same period of the prior year, due to higher average balances. The overall cost of funds for the
quarter ended September 30, 2005 was 2.68%, a 30 basis point increase from the same quarter one year ago.



Provision for Loan Losses. For the three months ended September 30, 2005 there was no provision for loan losses, unchanged from the comparative period in 2004. The provision for loan losses is a result of
managements periodic analysis of risks inherent in our loan portfolio from time to time, as well as the adequacy of the allowance for loan losses. It is our policy to provide valuation allowances for estimated losses on loans based upon past
loss experience, current trends in the level of delinquent and specific problem loans, loan concentrations to single borrowers, adverse situations that may affect the borrowers ability to repay, the estimated value of any underlying
collateral, and current and anticipated economic conditions in our market area. Accordingly, the calculation of the adequacy of the allowance for loan losses is not based directly on the level of non-performing assets.



Management will continue to monitor the allowance for loan losses and make future additions
to the allowance through the provision for loan losses as economic conditions dictate. Although we



11



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



Noninterest Income.Noninterest income of $84,000 for the three months
ended September 30, 2005 was $10,000 higher than during the same period in 2004. This increase was essentially the result of a $12,000 increase in gain on sale of investment securities in the current quarter as compared to previous comparative
quarter. Service fees and other income decreased $2,000 on a period to period comparative basis.



Noninterest Expense.Noninterest expense increased $18,000, or 4.3%, for the three months ended September 30, 2005 as compared to the same period in 2004. Legal and audit expense increased
$11,000 on a comparative period basis. Other operating expense increased $9,000 on a quarter to quarter comparative period basis.



Federal Income Taxes.The provision for federal income taxes decreased by $41,000 in the three months ended September 30, 2005 as compared to
the same period in 2004, resulting in an income tax provision of $87,000. The decrease in the provision for federal income taxes as compared to the same period in 2004 was primarily due to a $111,000 decrease in pre-tax income from period to period.
The effective tax rate in the current three month period was 28.4%, as compared to 30.7% one year prior. The above effective tax rates differ from the statutory rate of 34% primarily due to our ownership interest in a low income housing tax credit
program. The tax credits from this program are expected to last through 2006.



Results of Operations for the Nine-Month Periods Ended September 30, 2005 as Compared to September 30, 2004



Net Income.First Niles recorded net income of $823,000 for the nine months ended September 30, 2005, as compared to $792,000 for the nine months ended
September 30, 2004, an increase of $31,000, or 3.9%. The increase in net income was comprised of a $271,000 increase in noninterest income partially offset by a $169,000 decrease in net interest income, a $65,000 increase in noninterest
expense, and a $6,000 increase in federal income tax expense. Our annualized return on average assets for the nine-month period ended September 30, 2005 was 1.10%, compared to 1.07% for the same period one year ago. Our annualized return on
average shareholders equity was 6.71% for the nine months ended September 30, 2005 as compared to 6.54% for the same period one year ago. Earnings per share, on a basic and diluted basis, for the nine months ended September 30, 2005 was
$0.63 and $0.62, respectively as compared to $0.61 and $0.60, respectively, for the same nine month period in 2004.



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Net Interest Income.Net interest income decreased by $169,000, or 7.6% for the nine months ended
September 30, 2005 as compared to the respective 2004 period. For the nine months ended September 30, 2005, total interest income decreased by $40,000 and total interest expense increased by $129,000 as compared to the same period in 2004.
For the nine months ended September 30, 2005, the interest rate spread was 2.36% as compared to 2.65% for the nine months ended September 30, 2004. For the nine months ended September 30, 2005 the net interest margin was 2.77% as
compared to 3.03% for the nine months ended September 30, 2004. For the nine months ended September 30, 2005 the yield on interest earning assets was 4.95% as compared to 5.05% for the nine months ended September 30, 2004, a decline
of 10 basis points. The overall cost of funds was 2.59% for the nine months ended September 30, 2005 as compared to 2.40% for the same period in 2004, an increase of 19 basis points. The primary reason for the decrease in net interest income
was a sustained increase in short term market interest rates during the period, which increased our cost of funds, specifically on certificates of deposit, and resulted in a narrowing of our net interest margin. During the first nine months of 2005
the average rate paid on our certificates of deposit was 2.81% as compared to 2.50% for the 2004 comparative period.



Provision for Loan Losses.The Company had no provision for loan losses for the nine months ended September 30, 2005, unchanged from the nine months ended
September 30, 2004.



Noninterest Income.Noninterest income
totaled $510,000 for the nine months ended September 30, 2005 as compared to $239,000 for the same period in 2004. Most of this increase was attributable to a $262,000 increase in gain on sale of investment securities in the current period as
compared to the prior comparative period and is generally due to the sale of our stock in Intrieve Incorporated, which was acquired by Harland Financial Solutions, Inc. Intrieve, Incorporated, which was owned by numerous financial institutions,
including the Association, was also the primary data processing service provider to the Association. Harland Financial Solutions, Inc. will continue as the primary data service provider to the Association.



Noninterest Expense.Noninterest expense increased $65,000, or 5.0%, for the
nine months ended September 30, 2005 as compared to the same period one year earlier. This increase was primarily attributable to a $69,000 increase in legal and audit expense primarily due to the Companys exploration of strategic
alternatives that may be utilized to minimize or eliminate the costs associated with the implementation and maintenance of compliance with Sarbanes Oxley, Section 404.



13



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Federal Income Taxes.The provision for federal income taxes increased by $6,000 for the nine months ended
September 30, 2005 as compared to the same period in 2004. The increase in the provision for federal income taxes was primarily due to an increase in pre-tax income of $37,000. The effective tax rate was 29.9% for the nine month period ended
September 30, 2005 compared to 30.3% in the same period one year earlier. The above effective tax rates differ from the statutory rate of 34% primarily due to our ownership interest in a low income housing tax credit program. The tax credits
from this program are expected to last through 2006.



Liquidity and Capital
Resources



Our main source of funds are deposits, and loan and securities
repayments. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and loan prepayments are more influenced by interest rates, general economic conditions and competition. Safe and sound banking practices
require us to maintain cash and eligible investments at levels that assure our ability to meet demands for deposit withdrawals and the repayment requirements of short-term borrowings, if any. We believe that sufficient funds are available for us to
meet our current liquidity needs. Total cash and cash equivalents amounted to $4.0 million at September 30, 2005.



We use our capital resources to meet ongoing commitments to fund various types of deposit withdrawals, to invest in securities, to fund existing and future loan
commitments, to maintain liquidity, and to meet operating expenses. At September 30, 2005, we had outstanding commitments to extend credit or purchase securities totaling $5.7 million, including $2.0 million of unused consumer lines of credit.



Home Federal is required to maintain minimum regulatory capital sufficient to
meet tangible, core and risk-based capital ratios of 1.5%, 4.0% and 8.0%, respectively. As of September 30, 2005, Home Federal significantly exceeded its regulatory capital requirements, with tangible, core, and risk-based capital ratios of
14.89%, 14.89% and 36.52%, respectively.



Off-Balance Sheet Arrangements



We are a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of our customers. These financial instruments consist of unfunded loan and investment security purchase commitments. Our unfunded loan commitments consist of unfunded mortgage loans,
construction loans and home equity lines of credit, which extend for terms of approximately 30 days, 180 days and up to ten years, respectively. Our investment security purchase commitments are generally 30 days or less.



The credit risk in issuing unfunded loan commitments is essentially the same as the credit
risk associated with loan products that have been funded. An unfunded loan and



14



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investment security purchase commitment involves, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the balance sheets. Our exposure to credit loss in the event of nonperformance by the other party to the instrument is represented by the contractual notional amount of the instrument.



Since certain commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily reflect future cash requirements. We use the same credit policies in making commitments to extend credit as we do for on-balance sheet instruments. Collateral held for commitments to extend credit varies but may
include unimproved and improved real estate, certificates of deposit or personal property.



The following table summarized our off-balance sheet financial instruments whose contract amounts represent credit risk as of September 30, 2005:



|                                                      |  |   |            
|----------------------------------------------------- |  | - | -----------
|Unfunded mortgage loans, including construction loans |  | $ | 2.7 million
|Home equity lines of credit                           |  | $ | 2.0 million
|Investment security purchase commitments              |  | $ | 1.0 million



Cautionary Forward-looking
Statements



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



15



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



| |  |  | the strength of the United States economy in general and the strength of the local economies in which we conduct operations;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the financial markets interest rate and monetary fluctuations particularly the relative relationship of short-term interest rates to long-term interest rates;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timely development of and acceptance of new products and services of Home Federal and the perceived overall value of these products and services by users, including the
features, pricing and quality compared to competitors products and services;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the willingness of users to substitute competitors products and services for our products and services;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | the impact of changes in financial services laws and regulations (including laws concerning taxes, accounting, banking, securities and insurance);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the impact of technological changes;
| | - |  | ------------------------------------



| |  |  | acquisitions;
| | - |  | -------------



| |  |  | changes in consumer spending and saving habits; and
| | - |  | ---------------------------------------------------



| |  |  | our success at managing the risks involved in the foregoing.
| | - |  | ------------------------------------------------------------



Item 3. Controls and Procedures



An evaluation of the Companys disclosure controls and procedures (as defined in Section 13a-15(e) of the Securities Exchange Act of 1934 (the
Exchange Act) as of September 30, 2005, was carried out under the supervision and with the participation of the Companys Chief Executive Officer, Principal Financial Officer and several other members of the Companys
senior management. The Companys Chief Executive Officer and Principal Financial Officer concluded that the Companys disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be
disclosed by the Company in the reports it files or submits under the Exchange Act is (i) accumulated and communicated to the Companys management (including the Chief Executive Officer and Principal Financial Officer) in a timely manner
to allow decisions regarding disclosure and (ii) recorded processed, summarized and reported within the time periods specified in the SECs rules and forms. There have been no changes in our internal control over financial reporting (as
defined in 13a-15(f) of the Act) that occurred during the quarter ended September 30, 2005, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



16



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The Company intends to continually review and evaluate the design and effectiveness of its disclosure
controls and procedures and to improve its controls and procedures over time and to correct any deficiencies that it may discover in the future. The goal is to ensure that senior management has timely access to all material non-financial information
concerning the Companys business. While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure
controls and procedures.



17



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PART II - OTHER INFORMATION



Item 1. Legal Proceedings:



There are no matters required to be reported under this item.



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds



| | (a) | There are no matters required to be reported under this item.
| | --- | -------------------------------------------------------------



| | (b) | There are no matters required to be reported under this item.
| | --- | -------------------------------------------------------------



| | (c) | There are no matters required to be reported under this item.
| | --- | -------------------------------------------------------------



Item 3. Defaults Upon Senior Securities:



There are no matters required to be reported under this item.



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



There are no matters required to be reported under this item.



Item 5. Other Information:



There are no matters required to be reported under this item.



Item 6. Exhibits



See attached exhibit index



18



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SIGNATURES



In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



|                        |  |                             |  |                                      
|----------------------- |  | --------------------------- |  | -------------------------------------
|                        |  | FIRST NILES FINANCIAL, INC.
|                        |  | Registrant                 
|                        |  |                            
|Date: November 14, 2005 |  | By:                         |  | /s/ William L. Stephens              
|                        |  |                             |  | William L. Stephens                  
|                        |  |                             |  | President and Chief Executive Officer
|                        |  |                             |  | (Duly Authorized Representative)     
|                        |  |                            
|Date: November 14, 2005 |  | By:                         |  | /s/ Thomas G. Maley                  
|                        |  |                             |  | Thomas G. Maley                      
|                        |  |                             |  | Controller                           
|                        |  |                             |  | (Principal Accounting Officer)       



19



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INDEX TO EXHIBITS



|       |  |                                                                                                                                                                                                                                                                                          
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Document                                                                                                                                                                                                                                                                                 
|3      |  | The Certificate of Incorporation and Bylaws, filed on July 10, 1998 as Exhibits 3.1 and 3.2, respectively, to Registrants Registration Statement on Form SB-2 (File No.333-58883), are
incorporated by reference.                                                                       
|       | 
|4      |  | Registrants Specimen Stock Certificate, filed on July 10, 1998 as Exhibit 4 to Registrants Registration Statement on Form SB-2 (File No.333-58883), are incorporated by
reference.                                                                                                     
|       | 
|10.1   |  | Employment Agreement between Registrants operating bank subsidiary and William L. Stephens and Lawrence Safarek filed as Exhibits 10.1 and 10.3 to Registrants Report on Form 10-KSB for
the fiscal year ended December 31, 1998 (File No.0-24849), is incorporated herein by reference.
|       | 
|10.2   |  | Registrants 1999 Stock Option and Incentive Plan, filed on November 12, 1999 as Appendix A to Registrants Proxy Statement on Schedule 14A (FILE No. 0-24849), is incorporated
herein by reference.                                                                                     
|       | 
|10.3   |  | Registrants 1999 Recognition and Retention Plan filed on November 12, 1999 as Appendix B to Registrants Proxy Statement on Schedule 14A (FILE No. 0-24849), is incorporated herein
by reference.                                                                                       
|       | 
|11     |  | Statement re computation of earnings per share (see Note C of the Notes to Financial Statements included in this Form 10-QSB).                                                                                                                                                           
|       | 
|31.1   |  | Rule 13a-14(a) Certification for the Registrants Chief Executive Officer.                                                                                                                                                                                                               
|       | 
|31.2   |  | Rule 13a-14(a) Certification for the Registrants Chief Financial Officer.                                                                                                                                                                                                               
|       | 
|32     |  | Section 1350 Certifications by Registrants Chief Executive Officer and Chief Financial Officer                                                                                                                                                                                          



20