UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                 -----------------------------------------------

                                   FORM 10-QSB


     [X]  QUARTERLY  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
          EXCHANGE ACT OF 1934

          For the quarterly period ended September 30, 1998

     [X]  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


                           FIRST NILES FINANCIAL, INC.
--------------------------------------------------------------------------------

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

         Delaware                                       34-1870418
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

55 North Main Street, Niles, Ohio                        44446
(Address of principal executive offices)               (Zip Code)

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

         Check whether the issuer (1) filed all reports  required 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 issuer was required to file such  reports),  and (2) has
been subject to such filing requirements for the past 90 days. Yes [ ] No [ X ]

         Shares of common  stock,  par value $.01 per share,  outstanding  as of
September 30, 1998: None

         Transitional Small business Disclosure Format (check one):
                                                                  Yes [ ] No [X]



<PAGE>



                                  INTRODUCTION

         In July 1998, Home Federal  Savings and Loan  Association of Niles (the
"Association")  incorporated First Niles Financial, Inc., a Delaware corporation
(the "Company") to facilitate the conversion of the  Association  from mutual to
stock form (the  "Conversion").  The Conversion  was  consummated on October 26,
1998, at which time the Company became the holding  company for the  Association
by acquiring all of the capital stock of the  Association in exchange for 50% of
the net Conversion proceeds and simultaneously therewith issued 1,754,411 shares
of its common stock to persons who  submitted  orders in the offering at a price
of $10.00 per share, for aggregate gross proceeds of $17,544,110.

         The only significant assets of the Company are the capital stock of the
Association,  the  Company's  loan to the  ESOP,  and the  remainder  of the net
Conversion  proceeds  retained  by the  Company.  Initially,  the  business  and
management  of the Company will consist of the  business and  management  of the
Association. Initially, the Company will neither own nor lease any property, but
will instead use the premises,  equipment and furniture of the  Association.  At
the present  time,  the Company does not intend to employ any persons other than
officers of the  Association,  and the Company will utilize the support staff of
the  Association  from  time to  time.  Additional  employees  will be  hired as
appropriate  to the extent the Company  expands or changes  its  business in the
future.  To date, the Company has not engaged in any business  activities  other
than those related to the Conversion.

         The accompanying  financial statements are of the Association since, as
of September 30, 1998, the Company had not yet issued any stock,  had no assets,
no  liabilities  and  had not  conducted  any  business  other  than  that of an
organizational  nature.  The  Association's   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  generally  accepted  accounting   principles.   However,   all
adjustments (consisting only of normal recurring accruals) which, in the opinion
of management, are necessary for a fair presentation of the financial statements
have been included.

         Interim Financial  Information required by Rule 10-01 of Regulation S-X
and Item 303 of  Regulation  S-B is included  in this Form 10-QSB  under Part I,
Item 1 below.

         The Company and the  Association  may from time to time make written or
oral  "forward-looking  statements",   including  statements  contained  in  the
Company's  filings with the Securities and Exchange  Commission  (including this
Quarterly  Report on Form 10-QSB and the Exhibits  hereto and  thereto),  in its
reports to stockholders and in other  communications  by the Company,  which are
made in good faith by the  Company  and the  Association  pursuant  to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.

         These forward-looking statements include statements with respect to the
Company's and the Association's beliefs, plans, objectives, goals, expectations,
anticipations,  estimates and intentions,  that are subject to significant risks
and  uncertainties,  and are subject to change based on various factors (some of
which are beyond the Company's and the Association's  control). The words "may",
"could",  "should",  "would",  "believe",  "anticipate",  "estimate",  "expect",
"intend", "plan" and similar

                                        2

<PAGE>



expressions are intended to identify forward-looking  statements.  The following
factors, among others, could cause the Company's and the Association's 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 the  Company and the  Association  conduct  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 the  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 the
Association's  products and services;  the success of the 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);  technological changes; acquisitions;
changes in consumer  spending and saving habits;  and the success of the Company
and the Association at managing the risks involved in the foregoing.

         The foregoing list of important  factors is not exclusive.  The Company
incorporates by reference those factors  included in the Company's  Registration
Statement on Form SB-2 (Reg. No. 333- 58883).  The Company does not undertake to
update any forward-looking statement,  whether written or oral, that may be made
from time to time by or on behalf of the Company or the Association.


                                        3

<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements


                  CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

                    HOME FEDERAL SAVINGS AND LOAN ASSOCIATION
                             OF NILES AND SUBSIDIARY

                    September 30, 1998 and December 31, 1997

                                 (In Thousands)

                                                     September 30,  December 31,
                                                         1998           1997
                                                     -------------  ------------
      ASSETS
      ------
Cash and cash equivalents:
  Noninterest bearing ..............................    $ 1,054        $   819
  Interest bearing .................................      6,200          4,057
                                                        -------        -------
      TOTAL CASH AND CASH EQUIVALENTS ..............      7,254          4,876

Securities available for sale - at market ..........     17,425         17,447
Securities to be held to maturity - at cost ........     11,552         12,359
Loans receivable, net of allowance for loan
  losses of $853 and $854 ..........................     36,219         36,744
Accrued interest receivable ........................          1              1
Federal Home Loan Bank stock, at cost ..............        312            294
Real estate investment - limited partnership,
  at equity ........................................        405            426
Prepaid expenses and other assets ..................        435             36
Prepaid federal income taxes .......................         33             20
Premises and equipment, at cost less accumulated
  depreciation .....................................        268            294
                                                        -------        -------
      TOTAL ASSETS .................................    $73,904        $72,497
                                                        =======        =======
      LIABILITIES
      -----------
Deposits ...........................................    $58,410        $57,854
Accrued interest payable ...........................        124            127
Accounts payable and other liabilities .............      1,359            798
Note payable .......................................        400            400
Deferred federal income tax liability ..............         26            155
                                                        -------        -------
      TOTAL LIABILITIES ............................     60,319         59,334

      EQUITY
      ------
Retained earnings substantially restricted .........     12,330         11,899
Net unrealized gains on securities available for
  sale, net of related tax effects of $651 and $646       1,255          1,264
                                                        -------        -------
      TOTAL EQUITY .................................     13,585         13,163
                                                        -------        -------
      TOTAL LIABILITIES AND EQUITY .................    $73,904        $72,497
                                                        =======        =======


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

                                       4
<PAGE>

                        CONSOLIDATED STATEMENTS OF INCOME

                    HOME FEDERAL SAVINGS AND LOAN ASSOCIATION
                             OF NILES AND SUBSIDIARY

                                 (In Thousands)


                                           Three Months Ended  Nine Months Ended
                                              September 30        September 30
                                           ------------------  -----------------
                                             1998      1997      1998      1997
                                           --------  --------  --------  -------
Interest income:
  Loans receivable:
    First mortgage loans .................  $  701   $   719    $2,167   $2,089
    Consumer and other loans .............      24        28        73       81
  Mortgage-backed and related securities .     186       141       568      475
Investments ..............................     237       262       722      920
Interest-bearing deposits ................      75        91       194      160
                                            ------   -------    ------   ------
      TOTAL INTEREST INCOME ..............   1,223     1,241     3,724    3,725
Interest expense:
  Deposits ...............................     606       618     1,824    1,811
  Borrowings .............................       8        11        26       36
                                            ------   -------    ------   ------
      TOTAL INTEREST EXPENSE .............     614       629     1,850    1,847
                                            ------   -------    ------   ------
      NET INTEREST INCOME ................     609       612     1,874    1,878
Provision for loan losses ................      --       246        20      246
                                            ------   -------    ------   ------
      NET INTEREST INCOME AFTER
        PROVISION FOR LOAN LOSSES ........     609       366     1,854    1,632
Noninterest income:
  Gain on sale of investments ............      --        --       461       --
  Service fees and other .................       6         6        20       21
                                            ------   -------    ------   ------
      TOTAL NONINTEREST INCOME ...........       6         6       481       21
Noninterest expense:
  Equity in loss of limited partnership ..      11         9        22       29
  General and administrative:
    Compensation and benefits ............     201       214     1,409      660
    Occupancy and equipment ..............      22        23        74       73
    Federal deposit insurance premiums ...       8        10        26       21
    Other operating expense ..............     116        86       256      253
                                            ------   -------    ------   ------
      TOTAL NONINTEREST EXPENSE ..........     358       342     1,787    1,036
                                            ------   -------    ------   ------
      INCOME BEFORE INCOME TAXES .........     257        30       548      617
Federal income taxes (credit) ............      65       (10)      117      148
                                            ------   -------    ------   ------
      NET INCOME .........................  $  192   $    40    $  431   $  469
                                            ======   =======    ======   ======


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

                                       5
<PAGE>

                        CONSOLIDATED STATEMENTS OF EQUITY

                    HOME FEDERAL SAVINGS AND LOAN ASSOCIATION
                             OF NILES AND SUBSIDIARY

                  Nine months ended September 30, 1998 and 1997

                                 (In Thousands)

<TABLE>
<CAPTION>
                                                 Retained    Accumulated Other     Total
                                                 Earnings  Comprehensive Income   Equity
                                                 --------  --------------------  --------
<S>                                               <C>            <C>             <C>     
Balance at January 1, 1997 ....................   $11,513        $   650         $ 12,163

Comprehensive income:
  Net income for the nine month period ........       469             --              469
                                                                            
Other comprehensive income:
  Unrealized gains on securities available for
    sale, net of related tax effects of $225 ..        --            319              319
                                                  -------        -------         --------
      COMPREHENSIVE INCOME ....................       469            319              788
                                                  -------        -------         --------
      BALANCE SEPTEMBER 30, 1997 ..............   $11,982        $   969         $ 12,951
                                                  =======        =======         ========
                                                                            
Balance at January 1, 1998 ....................   $11,899        $ 1,264         $ 13,163
                                                                            
Comprehensive income:
  Net income for the nine month period ........       431             --              431
                                                                            
Other comprehensive income:
  Unrealized gains on securities available for
    sale, net of related tax effects of $152 ..        --            295              295
  Less reclassification adjustments, net of                                 
    related tax effects of $157 ...............        --           (304)            (304)
                                                  -------        -------         --------
      COMPREHENSIVE INCOME ....................       431             (9)             422
                                                  -------        -------         --------
      BALANCE SEPTEMBER 30, 1998 ..............   $12,330        $ 1,255         $ 13,585
                                                  =======        =======         ========
</TABLE>

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

                                       6
<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                    HOME FEDERAL SAVINGS AND LOAN ASSOCIATION
                             OF NILES AND SUBSIDIARY

                  Nine months ended September 30, 1998 and 1997

                                 (In Thousands)


                                                                 September 30
                                                             -------------------
                                                               1998       1997
                                                             -------    --------
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income .............................................   $   431    $   469
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
      Deferred income taxes credit .......................      (124)      (104)
      Depreciation .......................................        37         33
      Amortization of discounts on investments and
        mortgage-backed and related securities ...........       (17)       (24)
      Gain on sale of securities available for sale ......      (461)        (4)
      Equity in loss of limited partnership ..............        21         29
      Provision for loan losses ..........................        20        246
      Income reinvested from liquid asset mutual funds ...        --       (510)
      Federal Home Loan Bank stock dividends .............       (18)       (14)
      Net increase in accrued interest receivable and
        prepaid expenses and other assets ................      (413)        (1)
      Net increase in accrued interest, accounts
        payable and other liabilities ....................       558         83
                                                             -------    -------
          NET CASH PROVIDED BY OPERATING ACTIVITIES ......        34        203

CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from sale of securities available for sale ....       470      4,819
  Proceeds from principal payments on mortgage-backed
    and related securities ...............................     7,393      7,326
  Purchase of mortgage-backed and related securities .....    (6,569)    (5,871)
  Net increase in interest-bearing deposits with banks ...    (2,143)    (2,563)
  Net (increase) decrease in loans .......................       505     (4,077)
  Additions to premises and equipment ....................       (11)       (62)
                                                             -------    -------
          NET CASH USED IN INVESTING ACTIVITIES ..........      (355)      (428)

CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase (decrease) in savings accounts ............       341       (227)
  Net increase in certificates of deposit ................       215        529
                                                             -------    -------
          NET CASH PROVIDED BY FINANCING ACTIVITIES ......       556        302
                                                             -------    -------
          NET INCREASE IN CASH ...........................       235         77

CASH AT BEGINNING OF PERIOD ..............................       819        656
                                                             -------    -------
CASH AT END OF PERIOD ....................................   $ 1,054    $   733
                                                             =======    =======
Cash paid during the period for:
  Interest on deposits ...................................   $ 1,825    $ 1,818
  Income taxes ...........................................   $   249    $   351


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

                                       7
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

                    HOME FEDERAL SAVINGS AND LOAN ASSOCIATION
                             OF NILES AND SUBSIDIARY

                     September 30, 1998 and 1997 (Unaudited)



NOTE A -- SIGNIFICANT ACCOUNTING POLICIES

     The accounting and reporting  policies followed by the Home Federal Savings
and Loan  Association (a mutual  association)  are in accordance  with generally
accepted  accounting  principles  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 generally  accepted  accounting
principles.  Management believes that all normal recurring  adjustments that are
necessary for a fair representation of interim period financial information have
been reflected in these financial statements.

     Comprehensive Income:

          Statement  of  Financial   Accounting  Standards  No.  130,  Reporting
     Comprehensive  Income,  is  effective  for  fiscal  years  beginning  after
     December  15,  1997.   This   statement   establishes   standards  for  the
     determination,  reporting and presentation of comprehensive  income and its
     components in financial statements.  The Association adopted this statement
     in  1998.  The only  component  of  comprehensive  income  included  in the
     financial statements is unrealized gains on securities available for sale.


                                        8

<PAGE>



Item 2. Management's Discussion and Analysis of Financial Condition and
        Results of Operations

General

         The profitability of Home Federal Savings and Loan Association of Niles
("Home  Federal" or the  "Association")  depends  primarily  on its net interest
income,  which  is the  difference  between  interest  and  dividend  income  on
interest-earning    assets,    principally    loans,    investment    securities
mortgage-backed  and related securities and  interest-earning  deposits in other
institutions,  and interest expense on interest-bearing  deposits.  Net interest
income is  dependent  upon the level of  interest  rates and the extent to which
such rates are changing.  Home Federal's  profitability also is dependent,  to a
lesser  extent,  on the  level of its  noninterest  income,  provision  for loan
losses, noninterest expense and income taxes.

         The  Association's  operations and profitability are subject to changes
in interest rates,  applicable  statutes and  regulations  and general  economic
conditions, as well as other factors beyond the Association's control.

Changes in Financial Condition

         The Association's  total assets increased by $1.4 million,  or 1.9%, to
$73.9  million at  September  30, 1998 from $72.5  million at December 31, 1997.
Cash  and  cash  equivalents  increased  $2.4  million  as a  result  of the net
repayment  of loans,  investment  securities,  and  mortgage-backed  and related
securities and an increase in deposits.  Loans receivable decreased $525,000 and
investment,  mortgage-backed  and  related  securities  decreased  $829,000.  In
addition,  prepaid  expenses and other assets increased  $399,000,  primarily in
connection  with the  Association's  conversion  from mutual to stock  form.  As
market  yields  dropped  and  the  yield  flattened  during  most of  1998,  the
Association built liquidity,  shortening the duration of its assets and lowering
its interest rate risk exposure.

         Total liabilities  increased $985,000 to $60.3 million at September 30,
1998. Deposits increased by $556,000, or 1.0%, in the first nine months of 1998.
Accounts payable and other liabilities  increased by $561,000, or 70.3%, for the
first nine months of 1998. The increase in accounts payable was primarily due to
the  accrual  of  a  $384,000   obligation  under  certain  executive   deferred
compensation  plans,  $288,000 of which was associated with a final installment,
lump sum payment to the plans.  Additionally,  escrow  accounts  associated with
conversion subscriptions totaled $234,000 at September 30, 1998.

         Total equity increased $422,000 to $13.6 million at September 30, 1998.
The increase in total  equity,  which  represented a 3.2% increase for the first
nine  months of 1998,  was  comprised  of  $431,000  in net  income and a $9,000
decrease in net unrealized gains on securities available for sale.


         The Association's nonperforming assets, consisting of nonaccruing loans
and loans  delinquent  more than 90 days,  totaled $1.2 million at September 30,
1998, or 1.7% of total assets compared to $1.7 million,  or 2.3% of total assets
as of December 31, 1997. The allowance for loan losses was $853,000 at September
30, 1998,  equivalent to 69.1% of non-performing assets and 2.3% of total loans.
See "Results of Operations - Provision for Loan Losses."

                                        9

<PAGE>



Results of Operations

         General.  For the three months and nine months ended September 30, 1998
Home  Federal  Savings  and Loan  Association  of  Niles  (Home  Federal  or the
"Association") recorded net income of $192,000 and $431,000, respectively. These
net income figures  resulted in an annualized  return on average assets of 1.05%
and 0.79% for the  three  and nine  month  periods  ended  September  30,  1998,
respectively.  The annualized return on retained earnings for the three and nine
months ended September 30, 1998 was 6.28% and 4.73%, respectively.

         Net Income. Net income increased by $152,000,  or 380.0%, for the three
months ended September 30, 1998, but decreased by $38,000,  or 8.1% for the nine
months ended September 30, 1998 as compared to the respective 1997 periods.  The
increase  in net  income  for the three  months  ended  September  30,  1998 was
primarily  due  to a  $246,000  reduction  in the  provision  for  loan  losses,
partially  offset by an  increase  in federal  income tax  expense of $75,000 as
compared to the same period one year prior.  The  decrease in net income for the
first  nine  months  of  1998  was  primarily  due  to a  $751,000  increase  in
noninterest  expense,  partially  offset  by a  $461,000  gain  on the  sale  of
investments and a decrease of $226,000 in the provision for loan losses compared
to the same nine month period in 1997.

         Net Interest  Income.  Net interest income decreased $3,000 to $609,000
for the  three  months  and  $4,000  to  $1,874,000  for the nine  months  ended
September  30, 1998,  compared to the same three and nine month periods in 1997.
Interest  income  decreased  $18,000 to  $1,223,000  for the three  months ended
September  30, 1998,  primarily  as a result of a 23 basis point  decline in the
yield on the Association's loan portfolio, as its adjustable-rate loan portfolio
adjusted  downward  and  borrowers   refinanced  existing  fixed-rate  loans  in
connection  with general lower market  interest  rates.  Interest income for the
nine months ended September 30, 1998 remained  relatively  unchanged compared to
the same nine month period in 1997;  however,  interest  income  earned on loans
increased  $70,000 for the nine month period in 1998 compared to the same period
in 1997, primarily as a result of a $1.4 million increase in the average balance
of the loan  portfolio.  This increase was more than offset by a $71,000 decline
in interest earned on other  interest-earning  assets  (consisting of investment
securities, mortgage-backed and related securities and interest-bearing deposits
with other institutions).  Interest on other interest-earning assets declined as
a result a $436,000  decline in the  average-balance  of these assets  resulting
from prepayments and maturities of the Association's  investment  securities and
mortgage-backed and related  securities,  as well as a 20 basis point decline in
the yield  earned on such  assets  as a result  of a general  decline  in market
interest rates.

         Interest  expense declined $15,000 to $614,000 for the three months and
increased  $3,000 to  $1,850,000  for the nine months ended  September 30, 1998,
compared  to the same three and nine  month  periods in 1997.  The  decrease  in
interest  expense for the three month  period was the result of a 14 basis point
decline  in the  average  rate  paid  on  interest-bearing  liabilities,  offset
slightly by a higher  outstanding  balance of  interest-bearing  liabilities  in
1998.

         Provision  for Loan Losses.  No provision  for loan losses was recorded
for the three months ended  September 30, 1998 compared to a $246,000  provision
for the same three month period in 1997. A $20,000 provision for loan losses was
recorded for the nine months  ended  September  30, 1998  compared to a $246,000
provision for the same nine month period in 1997.  The provision for loan losses
is a  result  of  management's  periodic  analysis  of  risks  inherent  in  the
Association's  loan  portfolio from time to time, as well as the adequacy of the
allowance for loan losses.

         It is the  Association's  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  the  Association's  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  Association's  allowance for
loan losses and make future additions to the allowance through the provision for
loan losses as economic conditions dictate.  Although the Association  maintains
its  allowance  for loan losses at a level which it  considers 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.

                                       10

<PAGE>



         Noninterest Income.  Noninterest income of $6,000 was unchanged for the
three  months ended  September  30, 1998 as compared to the same period in 1997.
Noninterest  income for the nine months  ended  September  30, 1998 was $481,000
compared to $21,000  for the same period in 1997.  This  $460,000  increase  was
primarily due to a gain on sale of investment securities.

         Noninterest  Expense.  Noninterest  expense increased $16,000, or 4.7%,
for the three months ended  September 30, 1998 as compared to the same period in
1997.  Noninterest  expense  increased  $751,000,  or 72.5%, for the nine months
ended  September 30, 1998,  as compared to the same period in 1997.  The primary
component of this increase was  compensation  and benefits,  which  increased by
$749,000,  or 113.5%, from the same nine month period in 1997. This increase was
primarily  attributable to a $435,000 bonus paid all employees in April 1998 and
a $288,000 lump-sum  contribution to executive  deferred  compensation  plans in
exchange for the suspension of further  contributions  to the  executives  under
such plans.

         Federal Income Taxes.  The provision for federal income taxes increased
by $75,000 in the three months ended September 30, 1998 and decreased by $31,000
for the nine months ended  September 30, 1998 as compared to the same periods in
1997.  For the three month period ended  September  30, 1998 the increase in the
provision  for federal  income  taxes as compared to the same period in 1997 was
primarily due to significantly  higher pre-tax income and a significant increase
in the  effective tax rate.  The  effective  tax rate  increased to 25.3% in the
current three month period compared to a federal income tax benefit level in the
same  period  one  year  prior.  Tax  credits  generated  by  the  Association's
investment  in a  limited  partnership  more  than  offset  federal  income  tax
liability in the 1997 period.

Liquidity and Capital Resources

         As of September  30, 1998 the  Association  had a regulatory  liquidity
ratio  of  11.06%,  noticeably  in  excess  of the  current  minimum  regulatory
requirement of 4.0%. Total cash and cash equivalents amounted to $7.2 million as
of September 30, 1998.

         Cash was generated by the Association's operating activities during the
first nine months of 1998 and 1997  primarily  as a result of net income in each
period.  The  adjustments  to  reconcile  net  income  to net cash  provided  by
operations  during  the  periods  presented  consisted  of  deferred  income tax
credits, depreciation, the amortization of discounts on investments and mortgage
backed and related  securities,  the gain on sale of  securities  available  for
sale, equity in loss of limited partnership,  provision for loan losses,  income
reinvested  from  liquid  asset  mutual  funds,  Federal  Home Loan  Bank  stock
dividends  and changes in various  receivable  accounts,  payable  accounts  and
prepaid expenses.  Investing  activities used net cash in each of the nine month
periods presented. The purchase of mortgage-backed and related securities and an
increase  in interest  bearing  deposits  with banks were the primary  investing
activities  undertaken in the nine month period ended  September  30, 1998.  The
aforementioned  two  items  plus  a net  increase  in  loans  were  the  primary
investment  activities  undertaken in the nine month period ended  September 30,
1997. The primary  financing  activity of the Association  consists of accepting
deposits from the public.  An increase in deposits provided funds in each of the
nine month periods presented.

         Home  Federal  is  required  to  maintain  minimum  regulatory  capital
sufficient to meet tangible,  core and risk-based  capital ratios of 1.5%,  3.0%
and 8.0%, respectively. As of September 30, 1998,

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<PAGE>



Home Federal significantly  exceeded its regulatory capital  requirements,  with
tangible,  core,  and risk-based  capital  ratios of 16.83%,  16.83% and 31.53%,
respectively.

Impact of Inflation and Changing Prices

         The financial  statements and related  financial data presented  herein
have been prepared in accordance with generally accepted  accounting  principles
which  generally  require the  measurement  of financial  position and operating
results  in terms of  historical  dollars,  without  considering  changes in the
relative  purchasing  power of money  over time due to  inflation.  The  primary
impact of inflation on our operations is reflected in increased operating costs.
Unlike most  industrial  companies,  virtually all of Home Federal's  assets and
liabilities are monetary in nature. As a result, interest rates generally have a
more  significant  impact on Home Federal's  performance than does the effect of
inflation.  Interest rates do not  necessarily  move in the same direction or in
the same  magnitude as the prices of goods and  services,  since such prices are
affected by inflation to a larger extent than interest rates.

Year 2000 Issues

         The  approaching  millennium is causing  organizations  of all types to
review their computer  systems for the ability to properly  accommodate the year
2000 ("Y2K").  When computer systems were first developed,  two digits were used
to designate the year in date calculations and "19" was assumed for the century.
As a result,  there is significant concern about the integrity of date sensitive
calculations  when the calendar  rolls over to January 1, 2000.  An older system
could interpret  01/01/00 as January 1, 1900 potentially  causing major problems
calculating  interest,  payment,  delinquency  or  maturity  dates.  An internal
committee of the Association, comprised of two officers and an outside director,
has  been  formed  to  address  the  potential  risk  that  Y2K  poses  for  the
Association.

         Financial  institution  regulators  recently have increased their focus
upon  Y2K   compliance   issues  and  have  issued   guidance   concerning   the
responsibilities  of senior  management  and  directors.  The Federal  Financial
Institutions  Examination Council has issued several  interagency  statements on
Y2K  Project   Management   Awareness.   These  statements   require   financial
institutions  to, among other things,  examine the Y2K issue on their customers,
suppliers and borrowers.  These  statements also require each federally  insured
regulated  financial  institution  to survey its exposure,  measure its risk and
prepare a plan to address  the Y2K  issue.  In  addition,  the  federal  banking
regulators have issued safety and soundness guidelines to be followed by insured
depository  institutions,  such as the Association,  to assure resolution of any
Y2K problems.  The federal  banking  agencies have asserted that Y2K testing and
certification is a key safety and soundness issue in conjunction with regulatory
examinations and, thus, that an institution's  failure to address  appropriately
the Y2K issue could result in supervisory action, including the reduction of the
institution's  supervisory  ratings,  the denial of applications for approval of
mergers or acquisitions, or the imposition of civil money penalties.

         Accurate data processing is essential to the  Association's  operations
and a lack of accurate  processing  by its vendors or by the  Association  could
have a significant  adverse impact on the Association's  financial condition and
results of operations.  The  Association has been assured by its data processing
service bureau that their computer  services will function properly on and after
January 1, 2000. If by the end of 1998 it appears that the Association's primary
data  processing  service  bureau will be unable to resolve the Y2K problem in a
timely manner,  a secondary data  processing  service  provider will be found to
complete the task. If such a contingency provider

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<PAGE>



cannot be found,  the  Association  will  identify  and  implement  those  steps
necessary to minimize the negative  impact of the Y2K problem.  The  Association
has also received Y2K updates from most of its material  non-information  system
providers,  including but not limited to security  cameras,  credit card and ATM
card  processors,   the  vault  alarm,   check  printers,   telephone   systems,
participation  loan servicers,  and institutions it invests through or with, and
based on these updates does not anticipate any significant  Y2K issues.  At this
time the expense  that Home Federal may incur in relation to handling Y2K issues
cannot be determined.

         In addition to expenses related to the  Association's  own systems,  it
could incur losses if loan  payments  are delayed due to Y2K problems  affecting
any of its  significant  borrowers  or  impairing  the payroll  systems of large
employers in its market area. The  Association has been  communicating  with its
vendors to assess their  progress in evaluating  their systems and  implementing
any corrective  measures  required by them to be prepared for the year 2000. The
Association has also sent Y2K readiness  request  letters to certain  borrowers.
These  borrowers  were  selected  based  on the  aggregate  amounts  owed to the
Association,  the type of loans outstanding, and the perceived Y2K risk based on
management's knowledge of the loan customers and their operations.  To date, the
Association  has not been advised by such parties that they do not have plans in
place to  address  and  correct  the  issues  associated  with the Y2K  problem;
however,  no  assurance  can be given as to the adequacy of such plans or to the
timeliness  of their  implementation.  Currently,  due to the types of borrowers
doing  business  with the  Association  and the  nature of its  loans  with such
borrowers,  the  Association  does  not  consider  the Y2K  issue as part of its
underwriting criteria.


                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings:

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

Item 2. Changes in Securities:

         On September 11, 1998,  the Company's  Registration  on Form SB-2 (File
No.333-58883)  covering  up to  2,645,000  shares of common  stock at $10.00 per
share to be issued in connection with the Company's  initial public offering was
declared effective.  The offering commenced on September 23, 1998 and terminated
on October 14,  1998.  The  offering  closed on October  26, 1998 and  1,754,411
shares of Company  stock,  par value  $0.01 per  share,  were sold at a price of
$10.00 per share. Charles Webb & Company, a division of Keefe, Bruyette & Woods,
Inc.  ("Webb")  acted as  Investment  Advisor to the Company and assisted in the
sale of the Company's common stock on a "best efforts" basis.

         Since the effective  date of the  registration  statement,  the Company
incurred  $588,000 in expenses in connection with the issuance and  distribution
of the  securities  registered.  $250,000  was paid to or on  behalf of Webb and
$338,000 represented other expenses of the offering.  No such payments were made
either  directly or  indirectly to directors or officers of the Company or their
associates, persons owning ten percent or more of any class of equity securities
of the Company, or to affiliates of the Company.


                                       13

<PAGE>



         In connection with the offering,  the Company  received $16.956 million
in proceeds  after  deducting  expenses.  The Company  intends to utilize $7.074
million of the net  proceeds  as working  capital.  Initially,  the  Company has
invested  those funds in short-term  liquid  assets.  The Company  loaned $1.404
million of the net proceeds to the  Employee  Stock  Ownership  Plan to purchase
Company common stock and $8.478 million of the net proceeds was used to purchase
all of the stock of the Company's wholly-owned subsidiary,  Home Federal Savings
and Loan  Association of Niles.  No direct or indirect  payments to directors or
officers  of the  Company  or their  associates,  or ten  percent  owners of the
Company,  or  affiliates  of the Company  were made by the Company  from the net
proceeds.


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 and Reports on Form 8-K:

         (a) The following exhibit is filed herewith:

                  EXHIBIT NO.                        DESCRIPTION
                  -----------                        -----------
                     27.1                       Financial Data Schedule

         (b) Reports on Form 8-K:

         No reports on Form 8-K were filed by the Registrant  during the quarter
ended September 30, 1998.

                                       14

<PAGE>



                                   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 16, 1998             By: /s/ William L. Stephens
                                           -------------------------------------
                                           William L. Stephens
                                           President and Chief Executive Officer
                                           (Duly Authorized Representative)


Date:    November 16, 1998             By: /s/ Lawrence Safarek
                                           -------------------------------------
                                           Lawrence Safarek
                                           Vice President and Treasurer
                                           (Principal Accounting Officer)

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