FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

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

     For the period ended December 31, 2000

                                       OR

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

     For the transition period from _______ to _______.


                         Commission file number 0-24848

                       EAST TEXAS FINANCIAL SERVICES, INC.
             (Exact name of registrant as specified in its charter)

              Delaware                                     75-2559089
     (State or other jurisdiction of                    (I.R.S. employer
     incorporation or organization                    identification number)

     1200 South Beckham, Tyler, Texas                        75701
     (Address of principal executive offices)              (Zip code)


                                 (903) 593-1767
              (Registrant's telephone number, including area code)

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 of 15(d) of the  Securities  Exchange  Act of 1934 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.

                   [X] Yes                      [_] No

         The number of shares of the registrant's  common stock ($.01 par value)
outstanding as of December 31, 2000, was 1,162,320.

<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                December 31, 2000



                                      INDEX

<TABLE>
<CAPTION>
                                                                                                   Page No.
                                                                                                   --------
<S>                                                                                                  <C>
Part I - Financial Information

     Item 1.  Financial Statements

         Consolidated Statements of Financial Condition, December 31, 2000
         (Unaudited) and September 30, 2000....................................................       4

         Consolidated Statements of Income, (Unaudited) three months ended
         December 31, 2000, and December 31, 1999..............................................       5

         Consolidated Statement of Changes in Stockholders' Equity, (Unaudited)
         three months ended December 31, 2000..................................................       6

         Consolidated Statements of Cash Flows, (Unaudited) three months ended
         December 31, 2000, and December 31, 1999..............................................       7

         Notes to (Unaudited) Consolidated Financial Statements, December 31, 2000.............       9

     Item 2.  Management's Discussion and Analysis of Financial Condition and
              Results of Operations............................................................      14

Part II - Other Information

     Item 1.  Legal Proceedings................................................................      21

     Item 2.  Changes In Securities............................................................      21

     Item 3.  Defaults Upon Senior Securities..................................................      21

     Item 4.  Submission of Matters To a Vote of Security Holders..............................      21

     Item 5.  Other Information................................................................      21

     Item 6.  Exhibits and Reports on Form 8-K.................................................      22

Signature

Page............................................................................................     23

</TABLE>


                                  Page 2 of 23


<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                December 31, 2000


PART I - FINANCIAL INFORMATION

     Item 1 - Financial Statements

East Texas Financial  Services,  Inc. (the "Company") was formed in September of
1994 for the  purpose  of  acquiring  all of the common  stock of First  Federal
Savings and Loan Association of Tyler (the  "Association"),  concurrent with its
conversion from the mutual to stock form of ownership. The Company completed its
initial public stock offering of 1,215,190 shares of $.01 par value common stock
on January 10,  1995.  The Company  utilized  approximately  one half of the net
stock  sale  proceeds  to  acquire  all  of  the  common  stock  issued  by  the
Association.

On June 30,  2000,  the Company  acquired by merger 100% of the common  stock of
Gilmer Financial Services,  Inc. ("Gilmer" or "the Gilmer  transaction") and its
wholly owned  subsidiary,  Gilmer  Savings  Bank,  F.S.B.  The  acquisition  was
accounted  for as a purchase  transaction.  Gilmer was merged into the Company's
wholly owned subsidiary,  First Federal Savings and Loan Association. The assets
and  liabilities  of Gilmer  were  recorded  at their fair  market  values.  The
difference  in the  purchase  price and the fair market  value of the assets and
liabilities  acquired is recorded as goodwill.  The  statement of income for the
period ended December 31, 1999 do not reflect income for Gilmer.

The financial  statements presented in this Form 10-QSB reflect the consolidated
financial  condition  and  results of  operations  of the Company and its wholly
owned subsidiary, First Federal Savings and Loan Association of Tyler.

                                  Page 3 of 23

<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>

                     ASSETS                                             December 31, 2000              September 30, 2000
                                                                        ------------------             ------------------
                                                                           (Unaudited)

<S>                                                                     <C>                            <C>
Cash and due from banks                                                 $        1,446,166             $        1,661,435
Interest-bearing deposits with banks                                               759,602                        543,288
Interest-earning time deposits with financial institutions                         991,000                      1,089,000
Federal funds sold                                                               2,396,214                        364,822
Investment securities available-for-sale                                         8,010,876                      7,916,597
Mortgage-backed securities available-for-sale                                   43,122,089                     44,012,663
Investment securities held-to-maturity (estimated market
      value of $24,867,235  at December 31, 2000, and
      $25,428,105 at September 30, 2000)                                        24,972,745                     25,970,113
Mortgage-backed securities held-to-maturity (estimated
      market value of $3,977,682 at December 31, 2000
      and $4,349,164 at September 30, 2000)                                      3,919,600                      4,279,132
Loans receivable, net of allowance for credit losses of $1,003,158
      at December 31, 2000 and $1,057,374 at September 30, 2000                103,474,091                    102,064,137
Accrued interest receivable                                                      1,623,653                      1,548,840
Federal Home Loan Bank stock, at cost                                            4,180,600                      4,115,000
Premises and equipment                                                           2,712,432                      2,744,278
Foreclosed assets, net                                                             130,081                         86,465
Goodwill, net                                                                    2,268,891                      2,313,491
Deferred tax asset                                                                 136,607                        255,233
Mortgage servicing rights                                                          239,611                        258,682
Other assets                                                                     1,362,536                        986,482
                                                                        ------------------             ------------------
      Total Assets                                                      $      201,746,794             $      200,209,658
                                                                        ==================             ==================



      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
      Noninterest-bearing                                               $        2,975,995             $        2,644,220
      Interest-bearing                                                         104,631,355                     98,975,563
                                                                        ------------------             ------------------
          Total deposits                                                       107,607,350                   101,619,783

      FHLB advances                                                             74,140,165                     78,959,065
      Advances from borrowers for taxes and insurance                              227,890                      1,478,438
      Federal income taxes
             Current                                                                29,555                              0
             Deferred                                                                    0                              0
      Accrued expenses and other liabilities                                     3,311,652                      1,943,399
                                                                        ------------------             ------------------
Total liabilities                                                              185,316,612                    184,000,685
                                                                        ------------------             ------------------

Stockholders' equity:
      Preferred stock, $0.01 par value, 500,000
         shares authorized, none outstanding
      Common stock, $0.01 par value, 5,500,000 shares authorized,
         1,884,492 shares issued and 1,162,320 outstanding                          18,845                         18,845
      Additional paid-in-capital                                                12,444,372                     12,444,372
      Unearned employee stock ownership plan shares                               (346,020)                      (346,020)
      Retained earnings (substantially restricted)                              13,723,045                     13,732,109
      Accumulated other comprehensive income                                      (542,778)                      (773,051)
      Treasury stock, 722,172 shares at cost                                    (8,867,282)                    (8,867,282)
                                                                        ------------------             ------------------

             Total stockholder's equity                                         16,430,182                     16,208,973
                                                                        ------------------             ------------------

             Total liabilities and stockholders' equity                 $      201,746,794             $      200,209,658
                                                                        ==================             ==================
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                  Page 4 of 23

<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.

                        CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                                          Three Months
                                                                      Ended December 31,
                                                                          (Unaudited)
                                                                  2000                  1999
                                                              -------------         -------------
INTEREST INCOME
   <S>                                                        <C>                   <C>
   Loans receivable:
     First Mortgage                                           $   1,656,335         $   1,143,396
     Consumer and other loans                                       438,518               169,390
   Securities available for sale:
     Investment securities                                          198,352                37,159
     Mortgage-backed securities                                     814,520               577,956
   Securities held to maturity:
     Investment securities                                          394,790               582,503
     Mortgage-backed securities                                      83,920                88,002
   Deposits with banks                                               33,259                23,621
                                                              -------------         -------------
       Total interest income                                      3,619,694             2,622,027
                                                              -------------         -------------

INTEREST EXPENSE

   Deposits                                                       1,441,400             1,021,580
   FHLB advances                                                  1,268,842               728,342
   Interest expense other bank borrowings                                 0                14,688
                                                              -------------         -------------
       Total interest expense                                     2,710,242             1,764,610
                                                              -------------         -------------

       Net interest income before
          provision for loan losses                                 909,452               857,417

   Provision for loan losses                                         16,234                     0
                                                              -------------         -------------

       Net interest income after
         provision for loan losses                                  893,218               857,417
                                                              -------------         -------------

NONINTEREST INCOME
   Gain(loss) on sale of interest-earning assets                     10,469                12,208
   Loan origination and commitment fees                              19,899                11,959
   Loan servicing fees                                               10,194                14,917
   Gain on foreclosed real estate                                   (2,798)                 (410)
   Other                                                             88,883                21,225
                                                              -------------         -------------

       Total noninterest income                                     126,647                59,899
                                                              -------------         -------------

NONINTEREST EXPENSE
   Compensation and benefits                                        563,474               587,853
   Occupancy and equipment                                          115,339                70,220
   SAIF deposit insurance premium                                     5,324                12,979
   Loss on foreclosed real estate                                       188                     0
   Goodwill                                                          39,212                     0
   Other                                                            217,721                97,038
                                                              -------------         -------------

       Total noninterest expense                                    941,258               768,090
                                                              -------------         -------------

Income (loss) before provision for income taxes                      78,607               149,226

Income tax expense (benefit)                                         29,555                55,468
                                                              -------------         -------------

NET INCOME (LOSS)                                             $      49,052         $      93,758
                                                              =============         =============


Earnings per common share and earnings  per
   common share - assuming dilution                           $         .04         $         .08
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                  Page 5 of 23

<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                   (UNAUDITED)

<TABLE>
<CAPTION>

       THREE MONTHS ENDED
        December 31, 2000
                                       Common Stock         Unallocated        Unrealized
                                      and  Additional           ESOP         Gain (loss) on      Retained
                                      Paid in Capital          Shares        AFS Securities      Earnings
                                      -----------------     ------------     --------------   --------------
<S>                                       <C>                 <C>              <C>              <C>
Balance September 30, 2000                $ 12,463,217        $(346,020)       $ (773,051)      $13,732,109

Comprehensive income:
     Net Income                                                                                      49,052
     Unrealized holding gains                                                     230,273

Comprehensive income


Deferred compensation
     amortization

Payment of cash dividends                                                                           (58,116)

Balance December 31, 2000                 $ 12,463,217        $(346,020)       $ (542,778)      $13,723,045
                                      =================     ============     =============    ==============

<CAPTION>

                                                                                 Total
                                        Treasury        Comprehensive         Stockholders'
                                         Stocks             Income               Equity
                                     --------------    -----------------    ---------------
<S>                                    <C>                    <C>             <C>
Balance September 30, 2000             $(8,867,282)       $         -         $ 16,208,973

Comprehensive income:
     Net Income                                                  49,052
     Unrealized holding gains                                   230,273
                                                       -----------------
Comprehensive income                                      $     279,325            279,325
                                                       =================

Deferred compensation
     amortization                                                                        -

Payment of cash dividends                                                          (58,116)

Balance December 31, 2000              $(8,867,282)                           $ 16,430,182
                                     ==============                         ===============
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                  Page 6 of 23

<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           For the Three Months Ended
                                                                                  December 31,
                                                                            2000                 1999
                                                                       ---------------------------------

Cash flows from operating activities:
<S>                                                                    <C>                   <C>
     Net income                                                        $     49,052          $    93,758
     Adjustments to reconcile net income to net cash
        provided by operating activities:
         Amortization of deferred loan origination fees                      (1,486)              (1,003)
         Amortization of premiums and discounts on investment
            securities, mortgage-backed securities, and loans                   277               13,017
         Amortization of deferred compensation                                    0               29,095
         Amortization of goodwill                                            39,212                    0
         Compensation charge related to release of ESOP shares                4,975               21,892
         Depreciation                                                        47,707               41,069
         Provision for loan losses                                           16,234                    0
         Deferred income taxes                                                    0               12,275
         Stock dividends on FHLB stock                                      (67,500)             (37,100)
         Amortization of mortgage servicing rights                           27,913               13,870
         Net (gain) loss on sale of:
              Loans                                                               0                 (548)
              Loans held for sale                                              (326)                   0
              Fixed assets                                                        0                    0
              Foreclosed real estate                                            188                    0
              Other repossessed property                                     (2,300)                   0
         Proceeds from loan sales                                           716,826              990,992
         Originations of loans held for sale                               (716,500)                   0
         (Increase) decrease in
              Accrued interest receivable                                   (74,813)                (156)
              Other assets                                                 (370,666)            (402,533)
         Increase (decrease) in:
              Federal income tax payable                                     29,555               43,193
              Accrued expenses and other liabilities                     (1,368,253)          (1,298,207)
                                                                       ------------          -----------
Net cash provided (used) by operating activities                         (1,066,601)            (480,386)
                                                                       ------------          -----------
</TABLE>


The accompanying notes are an integral part of the financial statements.

                                  Page 7 of 23

<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
                            For the Three Months End
                                  December 31,

<TABLE>
<CAPTION>
                                                                                         2000                       1999
                                                                                   ----------------           ---------------
Cash flows from investing activities
<S>                                                                                 <C>                        <C>
      Net (increase) decrease in interest-earning  time deposits                             98,000                  682,617
      Net (increase) decrease in fed funds sold                                          (2,031,392)                       0
      Purchases of securities available-for-sale                                                  0                 (485,930)
      Purchase of securities held-to-maturity                                                     0                        0
      Proceeds from maturities of securities held-to-maturity                             1,000,000                2,000,000
      Purchases of mortgage-backed securities
          available-for-sale                                                                      0               (5,208,739)
      Principal payments on mortgage-backed securities available for sale                 1,119,535                  760,792
      Principal payments on mortgage-backed securities held to maturity                     356,143                  533,085
      Purchases of FHLB stock                                                                     0                 (439,900)
      Proceeds from redemption of FHLB stock                                                  1,900                        0
      Net increase in loans                                                              (1,487,295)              (2,259,551)
      Proceeds from sale of foreclosed real estate                                           42,254                        0
      Acquisition costs related to foreclosed real estate                                         0                        0
      Proceeds from sales of fixed assets                                                         0                        0
      Expenditures for premises and equipment                                               (15,861)                 (35,339)
      Origination of mortgage servicing rights                                               (8,843)                 (11,661)
                                                                                   ----------------           --------------

Net cash provided (used) by investing activities                                           (925,559)              (4,464,626)
                                                                                   ----------------           --------------

Cash  flows from financing activities:
      Net increase (decrease) in:
           Deposits                                                                       5,987,567               (1,203,836)
           Advances from borrowers                                                       (1,250,548)                (713,155)
      Proceeds from note payable to bank                                                          0                1,500,000
      Principal payments on note payable to bank                                                  0                        0
      Proceeds from advances from Federal Home Loan Bank                                237,558,000              131,125,206
      Payment of advances from Federal Home Loan Bank                                  (242,376,900)            (121,710,399)
      Purchase of treasury stock at cost                                                          0               (1,882,425)
      Exercise of stock options                                                                   0                        0
      Dividends paid to stockholders                                                        (58,116)                 (64,103)
                                                                                   ----------------           --------------

Net cash provided (used) by financing activities                                           (139,997)               7,051,228
                                                                                   ----------------           --------------

Net increase (decrease) in cash and cash equivalents                                          1,045                2,106,276

Cash and cash equivalents at beginning of the period                                      2,204,723                1,994,564
                                                                                   ----------------           --------------

Cash and cash equivalents at end of the period                                     $      2,205,768           $    4,100,840
                                                                                   ================           ==============

Supplemental disclosure:
      Cash paid for:
           Interest on deposits                                                    $        776,207           $      612,398
           Interest on FHLB advances and other borrowed funds                             1,268,841                  743,030
           Income taxes                                                                           0                        0

      Transfers from loans to real estate and other
         assets acquired through foreclosures                                                58,433                    2,966

      Loans made to facilitate the sale of foreclosed assets                                 54,600                        0


</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements

                                  Page 8 of 23

<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

             NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2000


NOTE 1 - BASIS OF PRESENTATION

The  financial  statements  presented  in this report have been  prepared by the
Company  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission for interim  reporting and include all adjustments  which are, in the
opinion  of  management,   necessary  for  fair  presentation.  These  financial
statements  have  not  been  audited  by  an  independent  accountant.   Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or  omitted  pursuant  to such  rules  and  regulations  for  interim
reporting.  The Company  believes that the  disclosures are adequate to make the
information not misleading.  However,  these financial statements should be read
in conjunction  with the financial  statement and notes thereto  included in the
Company's  Annual  Report on Form 10-KSB for the year ended  September 30, 2000.
The financial data and results of operations for interim  periods  presented may
not necessarily reflect the results to be anticipated for the complete year.

NOTE 2 - EARNINGS PER SHARE

Earnings per common share for the three months ended December 31, 2000 and 1999,
has been computed based on net income divided by the weighted  average number of
common shares outstanding during the period. For the three months ended December
31, 2000 and 1999,  the weighted  average number of shares  outstanding  totaled
1,162,320.

Earnings  per  common  share - assuming  dilution,  for the three  months  ended
December 31, 2000 and 1999, has been computed based on net income divided by the
weighted average number of common shares outstanding.  In addition,  it includes
the effects of all dilutive potential common shares that were outstanding during
the period.  For the three months ended December 31, 2000 and 1999, the weighted
average number of shares  outstanding for earnings per share - assuming dilution
totaled 1,110,497 and 1,226,999, shares respectively.

For both  earnings per share and  earnings per common share - assuming  dilution
and as  prescribed  by the American  Institute of Certified  Public  Accountants
Statement of Position  93-6 ("SOP 93-6")  Employer's  Accounting  for  Employees
Stock Ownership Plans,  the weighted  average number of shares  outstanding does
not include unallocated Employee Stock Ownership Plan ("ESOP") shares.

See Part II, Item 6 - Exhibits for a detailed  presentation  of the earnings per
share calculation for the three month period ended December 31, 2000 and 1999.

                                  Page 9 of 23


<PAGE>


NOTE 3 - SECURITIES

The  carrying  values  and  estimated  market  values of  investment  securities
available-for-sale as of December 31, 2000, by type of security are as follows:

<TABLE>
<CAPTION>
                       Principal         Unamortized          Unearned           Unrealized          Carrying
                        Balance            Premiums           Discounts         Gain/(Loss)           Value
                     --------------     ---------------     --------------     ---------------    ---------------
<S>                  <C>                <C>                 <C>                <C>                <C>
Corporate debt       $   7,500,000      $       49,640      $     122,200      $      (2,730)     $    7,424,710
Municipal bonds            585,000                   0              6,500               7,666            586,166
                     --------------     ---------------     --------------     ---------------    ---------------
                     $   8,085,000      $       49,640      $     128,700      $        4,936     $    8,010,876
                     --------------     ---------------     --------------     ---------------    ---------------
</TABLE>

The  weighted  average  yield  on  the  investment  security  available-for-sale
portfolio was 6.41% for the quarter ended December 31, 2000.

The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of December 31, 2000, are as follows:

<TABLE>
<CAPTION>
                                                             Gross              Gross             Estimated
                                        Amortized         Unrealized          Unrealized           Market
                                          Cost               Gains              Losses              Value
                                      --------------     --------------     ---------------     --------------
Debt securities:
<S>                                      <C>                    <C>                <C>             <C>
      U. S. government agency            24,972,745             39,187             144,697         24,867,235
                                      --------------     --------------     ---------------     --------------

           Total debt securities         24,972,745             39,187             144,697         24,867,235
                                      --------------     --------------     ---------------     --------------
</TABLE>

The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity  as of December 31,  2000,  by  contractual  maturity are shown
below:

                                                                Estimated
                                             Amortized            Market
                                               Cost               Value
                                           --------------     ---------------

Due in one year or less                    $           0       $           0

Due after one year through two
years                                          4,000,000           3,988,760

Due after two years through three years
                                              18,973,331          18,913,635

Due after three years through six years
                                               1,999,414           1,964,840
                                           --------------     ---------------

       Total debt securities               $  24,972,745       $  24,867,235
                                           --------------     ---------------


As of December 31, 2000, all of the  securities had call options  exercisable at
the discretion of the issuer.

                                  Page 10 of 23

<PAGE>


As of December 31, 2000, the weighted average yield on the Company's  investment
security held-to-maturity  portfolio was approximately 6.08% while the Company's
overall investment portfolio, including securities held-to-maturity,  investment
securities  available-for-sale,  overnight  deposits and  interest  earning time
deposits with other financial institutions was approximately 6.14%.

The carrying values and estimated market values of  mortgage-backed  and related
securities  available-for-sale  as of December 31, 2000, by type of security are
as follows:

<TABLE>
<CAPTION>
                       Principal         Unamortized          Unearned          Unrealized           Carrying
                        Balance            Premiums           Discounts         Gain/(Loss)           Value
                     --------------     ---------------     --------------     --------------     ---------------
<S>                  <C>                <C>                 <C>                <C>                <C>
Fixed Rate           $   6,152,310      $        6,038      $      90,445      $      42,863      $    6,110,766

Adjustable Rate         37,876,753             227,089            222,329           (870,190)          37,011,323

                     --------------     ---------------     --------------     --------------     ---------------
                        44,029,063             233,127            312,774           (827,327)          43,122,089
                     --------------     ---------------     --------------     --------------     ---------------
</TABLE>

The carrying values and estimated market values of  mortgage-backed  and related
securities  held-to-maturity as of December 31, 2000, by type of security are as
follows:

<TABLE>
<CAPTION>
                                                                                                    Estimated
                       Principal         Unamortized          Unearned           Carrying             Market
                        Balance            Premiums           Discounts            Value              Value
                     --------------     ---------------     --------------     --------------     ---------------
<S>                  <C>                <C>                 <C>                <C>                <C>
Adjustable Rate          3,894,001              28,169              2,570          3,919,600           3,977,682
                     --------------     ---------------     --------------     --------------     ---------------

                     $   3,894,001      $       28,169      $       2,570      $   3,919,600      $    3,977,682
                     --------------     ---------------     --------------     --------------     ---------------
</TABLE>


The overall yield on the Company's  mortgage-backed  securities portfolios as of
December 31, 2000, was approximately 7.51%.

NOTE 4 - CURRENT ACCOUNTING ISSUES

SFAS No. 133 In June of 1998, the Financial  Accounting  Standards  Board issued
------------
Statement of  Financial  Accounting  Standards  (SFAS) No. 133,  Accounting  for
Derivative  Instruments  and  Hedging  Activities.   SFAS  No.  133  establishes
accounting  and reporting  standards  for  derivative  instruments  and requires
recognition of all  derivatives  in the statement of financial  position at fair
value.  The Company  currently does not invest in any derivative  instruments or
hedging activities as defined in this Statement.

The Statement is effective for fiscal years  beginning  after June 15, 1999. The
Company adopted the Statement as required.

NOTE 5 - STOCK OPTION AND INCENTIVE PLAN

 The 1995 Stock Option and Incentive Plan (the "Stock Option Plan") provides for
awards in the form of stock options,  stock appreciation  rights,  limited stock
appreciation rights, and restricted stock.

Options to  purchase  shares of common  stock of the  Company  may be granted to
selected directors,  officers and key employees.  The number of shares of common
stock  reserved for issuance under the stock option plan was equal to 182,278 or
10% of the total number of common shares issued pursuant to the conversion.  The
option exercise price

                                  Page 11 of 23

<PAGE>

cannot be less than the fair market value of the  underlying  common stock as of
the date of the option  grant,  and the maximum  option  term cannot  exceed ten
years.  Awards generally vest at a rate of 20% per year beginning at the date of
the grant.  The Company plans to use treasury stock for the exercise of options.
The following is a summary of changes in options outstanding:


     Balance, September 30, 1998                                       148,843
         Granted                                                           -0-
         Exercised at $9.42 per share                                  (1,567)
         Forfeited and expired                                             -0-
                                                                     ---------

     Balance, September 30, 1999                                       147,276
         Granted                                                         4,500
         Exercised at $9.42 per share                                      -0-
         Forfeited and expired                                             -0-
                                                                     ---------

     Balance, September 30, 2000                                       151,776
                                                                     =========

Options exercisable at December 31, 2000 under stock option plan       147,276
                                                                     =========

Shares available for future grants                                      22,662
                                                                     =========


During the three months ended  December  31,  2000,  no options were  exercised,
issued, or forfeited.

                                  Page 12 of 23

<PAGE>

NOTE 6 - ADVANCES FROM FEDERAL HOME LOAN BANK

The  outstanding  advances from the FHLB  consisted of the following at December
31, 2000:

       Maturity                     Balance                   Rate
------------------------     ----------------------          -------
      01/02/2001                $  22,000,000                 6.63%
      01/05/2001                $   1,000,000                 6.64%
      01/08/2001                $  35,700,000                 6.62%
      01/08/2001                $   3,190,000                 6.62%
      02/15/2001                $      20,000                 5.94%
      02/15/2002                $      25,000                 5.98%
      02/15/2003                $     100,000                 6.00%
      09/01/2003                $   1,420,300                 6.25%
      02/15/2004                $     100,000                 6.01%
      12/31/2004                $     243,481                 6.09%
      01/03/2005                $      88,721                 6.03%
      02/15/2005                $     100,000                 6.04%
      02/15/2006                $     150,000                 6.05%
      01/01/2013                $     434,834                 6.09%
      01/01/2013                $     413,267                 6.13%
      02/01/2013                $     409,884                 5.91%
      03/03/2014                $     843,535                 5.45%
      04/01/2014                $     814,596                 5.97%
      05/01/2014                $   1,108,957                 5.66%
      06/01/2014                $     845,444                 5.90%
      07/01/2014                $     782,597                 6.38%
      08/01/2014                $     568,410                 6.37%
      09/01/2014                $     717,908                 6.59%
      10/01/2014                $     629,949                 6.86%
      11/03/2014                $   1,554,516                 6.77%
      12/01/2014                $     531,154                 6.57%
      01/01/2015                $     347,612                 6.73%

Pursuant  to  collateral  agreements  with the  Federal  Home Loan Bank  (FHLB),
advances  are  secured by all stock and deposit  accounts in the FHLB,  mortgage
collateral, securities collateral, and other collateral.

                                  Page 13 of 23

<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                December 31, 2000



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

GENERAL

The principle business of the Company is that of a community-oriented  financial
institution  attracting deposits from the general public and using such deposits
to originate one- to four-family residential loans, commercial real estate, one-
to four-family construction,  multi-family, commercial and consumer loans. These
funds  have  also  been  used  to  purchase  mortgage-backed  securities,  U. S.
government and agency obligations and other permissible investments. The Company
also borrows  funds from the Federal  Home Loan Bank of Dallas  ("FHLB") to fund
loans and to purchase securities. The ability of the Company to attract deposits
is influenced by a number of factors, including interest rates paid on competing
investments,  account maturities and levels of personal income and savings.  The
Company's cost of funds is influenced by interest rates on competing investments
and general market rates of interest.  Lending  activities are influenced by the
demand for real estate loans and other types of loans, which is in turn affected
by the interest rates at which such loans are made, general economic  conditions
affecting  loan  demand,  the  availability  of funds  for  lending  activities,
economic conditions and changes in real estate values.

The  Company's  results of operations  are  dependent  primarily on net interest
income,  which is the  difference  between  the  income  earned  on its loan and
investment portfolios and the interest paid on deposits and borrowings.  Results
of operations  are also affected by the Company's  provision for loan losses and
the net gain  (loss) on sales of  interest  earning  assets and loan  fees.  The
Company's  results of  operations  are also  significantly  affected  by general
economic and  competitive  conditions,  particularly  changes in interest rates,
government policies and actions of regulatory authorities.

On June 30, 2000, the Company completed the acquisition of Gilmer and its wholly
owned  subsidiary,  Gilmer Savings Bank, F.S.B. The Company acquired 100% of the
outstanding  stock of Gilmer,  the  transaction  was accounted for as a purchase
transaction.  The assets and  liabilities  of Gilmer were recorded at their fair
market  values as of June 30,  2000.  The  difference  in the net fair  value of
Gilmer's  assets and liabilities  and the purchase price of  approximately  $5.4
million was recorded as goodwill.  The  statement  of financial  condition,  the
statement  of changes in  stockholder's  equity and the  statement of cash flows
reflect the acquisition of Gilmer.  The statement of income for the three months
ended  December 31, 1999  reflects  only  activity for the Company  prior to the
acquisition of Gilmer.

FINANCIAL CONDITION

Total assets were $201.8  million at December 31, 2000, a $1.6 million  increase
from the $200.2  million  reported at September  30, 2000,  the  Company's  most
recent  fiscal year end.  The  increase in total assets was the result of a $2.0
million  increase  in federal  funds  sold,  a $1.4  million  increase  in loans
receivable,  a $216,000 increase in  interest-earning  deposits with banks and a
$94,000 increase in investment securities available-for-sale. The increases were
partially  offset  by a  $997,000  decrease  in  investment  securities  held to
maturity, an $891,000 decline in mortgage-backed securities  available-for-sale,
and a $360,000 decline in mortgage-backed securities held to maturity.

At December 31, 2000,  loans-receivable  totaled $103.5 million, and increase of
$1.4 million  compared to $102.1  million at September 30, 2000. The increase in
loans-receivable was primarily the result of the Company's

                                  Page 14 of 23


<PAGE>

continued  efforts  to expand  its  origination  of  consumer,  commercial,  and
commercial  real estate  loans.  The increase in the  origination  of such loans
helped to offset a decline,  due to rising interest rates, in the volume of one-
to four-family loans originated.

For the quarter  ended  December  31,  2000,  the Company  originated a total of
approximately $5.0 million in consumer,  commercial,  and commercial real-estate
loans.  Approximately $800,000 of the loans originated were renewals of existing
loans.  The result was an increase in the balance of such loans  outstanding  to
$24.4  million at December 31, 2000,  compared to $22.4 million at September 30,
2000. The origination of consumer,  commercial, and commercial real estate loans
is primarily  conducted  through the Company's full service banking  location in
Gilmer, Texas and the S. Broadway office in Tyler, Texas. The predominant method
for  originating  these  loans is  through  direct  contacts  with  existing  or
potential new customers.  However,  the Company has increased its origination of
indirect  automobile  loans through a network of dealers in the Tyler and Gilmer
markets.  Prior  to  purchasing  a loan  contract  from a  dealer,  the  Company
underwrites  each  indirect  loan in the same  manner as its  direct  loans.  In
addition,  each dealer  maintains a reserve  account with the  Company.  For the
quarter ended December 31, 2000, the Company originated  approximately  $875,000
in automobile loans through its indirect program.

Federal  funds sold totaled  $2.4  million at December 31, 2000,  an increase of
$2.0 million from the $365,000 at September 30, 2000. The  additional  balances,
which  are  held in a  "sweep"  account  arrangement  with the  Company's  major
correspondent bank, were funds held at the correspondent bank in anticipation of
funding year end tax payments of the  Company's  mortgage  loan  portfolio.  The
Company issues checks to various taxing entities on the last day of the calendar
year, when most property tax accounts are due. The balance in federal funds sold
decreased  by  approximately  $2.0  million as the checks were  presented to the
correspondent bank for payment.

Investment securities available-for-sale increased by $94,000 to a total of $8.0
million at December 31, 2000. The increase was solely the result of increases in
the  mark-to-market  value of the securities in the portfolio from September 30,
2000 to December 31, 2000. This portfolio  consists of corporate debt securities
and municipal  bonds. All of the corporate debt securities have a fixed rate and
term and are non-callable.  The Company's  investment policy only allows for the
purchase of  investment-grade  securities.  All corporate debt securities have a
final maturity of eight years or less. The municipal bonds,  which comprise only
$585,000 of the portfolio,  are primarily  bonds issued by Upshur County,  where
the Company's Gilmer office is located.

Investment securities held-to-maturity was reported as $25.0 million at December
31, 2000, a decline of $997,000 from the $26.0 million reported at September 30,
2000.  The  decrease  was the result of bonds that matured or were called by the
issuer during the quarter.  This portfolio  consists  entirely of debt issued by
governmental  agencies such as Federal National  Mortgage  Corporation,  Federal
Home Loan Mortgage Corporation, or the Federal Home Loan Bank System. All of the
bonds in the portfolio are currently  callable at the  discretion of the issuer.
The Company expects,  with  anticipated  declining  interest rates,  much of the
portfolio  to be  called  by the  issuer  over  the  next  several  months.  The
additional  cash flow will provide a challenge  for the Company to reinvest in a
declining interest rate environment.

Mortgage-backed securities  available-for-sale totaled $43.1 million at December
31, 2000, a decrease of $891,000  from the $44.0  million at September 30, 2000.
The  decrease  was the  result  of  principal  repayments  on the  bonds  in the
portfolio during the quarter.

Mortgage-backed  securities  held-to-maturity  portfolio totaled $3.9 million at
December  31, 2000,  a decrease of $360,000  from the $4.3  million  reported at
September  30,  2000.  The  decrease was  primarily  due to  principal  payments
received on the portfolio during the period.

Total  deposits  were  $107.6  million at December  31,  2000,  an $6.0  million
increase from the $101.6  million  reported at September 30, 2000.  The increase
was primarily the result of additional  increases in  certificates of deposit as
the Company  elected to pay higher  interest  rates on such deposits  during the
quarter.

                                  Page 15 of 23

<PAGE>

The Company  reported  $74.1  million in borrowed  funds at December 31, 2000, a
decrease of $4.8 million from the $79.0 million  reported at September 30, 2000.
The decrease was  primarily due to the  Company's  decision to repay  short-term
advances  from  excess  cash  flow.  The  advances  are  primarily  used to fund
investments in  mortgage-backed  securities,  which are purchased by the Company
when the Company is unable to originate mortgage loans and place such loans into
the  portfolio.  In  addition,  the  Company  utilizes  such  advances  to  fund
commercial  real estate loans.  The Company is able to structure the advances to
mirror the terms of the loans. Also, the Company utilizes short-term advances to
provide needed liquidity.

Stockholder's  equity totaled $16.4 million at December 31, 2000, an increase of
$221,000 from the $16.2 million reported at September 30, 2000. The increase was
primarily   attributable   to  a  net   increase   in   unrealized   losses   on
available-for-sale  securities,  of approximately $230,000,  during the quarter.
Stockholder's  equity also  increased due to the $49,000 of net income  reported
for the quarter.  Both of these  increases were offset by the payment of $58,000
in cash dividends during the quarter.

At December  31,  2000,  the  Company  reported a book value per share of $14.14
based on 1,162,320 net outstanding shares.

RESULTS OF OPERATIONS

The Company's net income is dependent  primarily upon net interest  income,  the
difference or spread  between the average yield earned on loans and  investments
and the average rate paid on deposits,  as well as the relative  amounts of such
assets and liabilities.  The Company,  like other financial  intermediaries,  is
subject  to  interest  rate  risk  to  the  degree  that  its   interest-bearing
liabilities  mature or reprice at different times, or on a different basis, than
its interest earning assets.

COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999

General.  Net income for the three months ended December 31, 2000 was $49,000 or
$.04 per share,  a  decrease  of $45,000  from the  $94,000,  or $.08 per share,
reported  for the three months  ended  December  31,  1999.  The decrease in net
income was attributable to a $173,000 increase in non-interest expense which was
partially  offset  by a  $67,000  increase  in  non-interest  income,  a $36,000
increase in net interest income after  provision for loan losses,  and a $26,000
decline in income tax expense.

Net Interest  Income.  For the quarter  ended  December  31, 2000,  net interest
income  before  provision  for loan losses  totaled  $909,000,  and  increase of
$52,000 over the $857,000  reported for the quarter ended  December 31, 1999. On
an annualized basis, the $909,000 in net interest income for the current quarter
was approximately 1.91% of average  interest-earning assets and 1.81% of average
total  assets.  For the quarter  ended  December 31,  1999,  the $857,000 in net
interest  income before  provisions for loan losses was  approximately  2.27% of
average  interest-earning  assets and 2.19% of  average  total  assets.  Average
interest-earning  assets were approximately $190.1 million for the quarter ended
December 31, 2000, compared to $150.8 million for the quarter ended December 31,
1999.

Total interest  income was $3.6 million for the quarter ended December 31, 2000,
an increase of $998,000  over the $2.6 million  reported  for the quarter  ended
December 31, 1999.  The increase was  primarily  due to the increase in interest
earning assets, primarily as a result of the additional  interest-earning assets
acquired  in  the  Gilmer  merger,  and,  to  a  lesser  extent,  in  additional
interest-earning  assets  acquired  by the  Company  during the 12 months  ended
December 31, 2000.

Interest  income on  loans-receivable  was $2.1  million for the  quarter  ended
December 31, 2000. On an annualized  basis,  the $2.1 million was  approximately
8.15% or average  loans-receivable  balances  outstanding  for the quarter ended
December  31,  2000,  compared  to  approximately  7.74% for the  quarter  ended
December  31,  1999.  The increase in average  yield on the loan  portfolio  was
primarily  the result of the increase in consumer,  commercial,  and  commercial
real estate loan balances and the higher yields on such loans  recorded over the
past 12 months.

                                  Page 16 of 23

<PAGE>

Interest  income  from  mortgage-backed  securities  available-for-sale  totaled
$815,000 for the quarter ended  December 31, 2000,  compared to $578,000 for the
quarter  ended  December  31,  1999.  The  increase  in  interest   income  from
mortgage-backed  securities  available-for-sale was primarily due to an increase
in the balances in the  portfolio,  from $32.9  million at September 30, 2000 to
$43.1 million at December 31, 2000. The increase in the balance in the portfolio
was primarily the result of additional securities acquired in the Gilmer merger.
To a lesser extent the increase was due to  securities  purchased by the Company
during the 12 months ended December 31, 2000. The average yield on the portfolio
was  approximately  6.39% for the quarter ended  December 31, 2000,  compared to
approximately 6.60% for the quarter ended December 31, 1999.

Interest income from the investment  securities  held-to-maturity  portfolio was
$395,000 for the quarter ended  December 31, 2000,  compared to $583,000 for the
quarter  ended  December 31, 1999.  The decline in the income from the portfolio
was the result of a decline in the balance in the  portfolio  from $30.5 million
at September  30, 2000 to $25.0  million at December  31,  2000,  as the Company
redirected cash flow into its lending operations.

Interest  income  from  investment  securities  available-for-sale  increase  to
$198,000  for the quarter  ended  December 31, 2000 from $37,000 for the quarter
ended December 31, 1999, a $161,000 increase.  The increase was due primarily to
an increase in the balance in the  portfolio  from $5.9 million at September 30,
1999 to $8.0  million at  December  31,  2000.  The  increase in balances in the
portfolio  was  due to the  securities  acquired  in the  Gilmer  merger  and to
additional securities acquired by the Company.

Interest income on mortgage-backed  securities  held-to-maturity totaled $84,000
for the quarter ended  December 31, 2000, a  decrease of $4,000 from the $88,000
reported for the quarter ended December 31, 1999. The decline in interest income
was due to a decline in the balance in the  portfolio  as the  Company  directed
cash flow from the  portfolio  into it lending  operations  or other  investment
portfolios.

Interest paid to depositors  totaled $1.4 million for the quarter ended December
31,  2000,  and  increase of $420,000  from the $1.0  million  reported  for the
quarter  ended  December 31, 1999.  The increase in interest  expense on deposit
accounts was primarily attributable to the increase in deposit balances acquired
by the Company in the Gilmer  merger.  To a lesser extent,  additional  balances
acquired  by the  Company  during  the year  and  increasing  interest  rates on
certificate of deposit account  renewals during the past year contributed to the
increase in interest expense.

Interest on FHLB  advances was $1.3 million for the quarter  ended  December 31,
2000, compared to $728,000 for the quarter ended December 31, 1999. The increase
in interest  expense was a direct  result of an increase in average FHLB advance
balances  outstanding  from  approximately  $50.0  million for the quarter ended
December  31, 1999 to $76.5  million for the quarter  ended  December  31, 2000.
Increasing  interest rates during the past year also contributed to the increase
in  interest  expense.  During the past 12 months,  the  Company  increased  its
reliance  on short term  funding  from the FHLB to fund  loans and  investments.
Rising  interest  rates in 1999 and 2000  decreased cash flow from the Company's
investment  portfolios  and  reduced  cash  flow  from  prepayments  in the loan
portfolio.  The result was that the Company needed additional FHLB borrowings to
fund the loans and  investments.  As interest rates begin to decline in 2001 and
cash flow increases,  the Company will,  depending upon loan demand,  reduce its
reliance on short- term borrowings from the FHLB. However, the Company's goal is
to maintain total assets at around $200.0 million and fully utilize its existing
capital.  To the extent  that  excess  cash flow not  otherwise  invested in the
Company's  loan portfolio can be invested in securities at interest rates higher
than existing short term advance, the Company may continue to utilize borrowings
from the FHLB to fund assets.

Provision for Loan Losses. The Company made $16,000 in provision for loan losses
for the quarter ended December 31, 2000,  compared to none for the quarter ended
December 31, 1999.  The increase in provision  for loan losses was the result of
the  Company's  decision  to  establish  additional  reserves  for losses in its
checking with overdraft  privilege  program.  In 2000, the Company  instigated a
program  designed to attract  additional  checking  accounts and to increase fee
income from new and current  checking  accounts.  The  program  allows  approved
checking  account  customers to overdraft  their account up to $500. The Company
agrees to not return the insufficient  checks but charges the customer the usual
insufficient  check charge fee. The Company reviews  overdraft  checking account
balances on a monthly basis to determine if,  additional  reserves for potential
losses in the program or any of its other checking accounts, is warranted.

                                  Page 17 of 23

<PAGE>

Noninterest  Income.  Noninterest  income totaled $127,000 for the quarter ended
December 31, 2000 compared to $60,000 for the quarter ended December 31, 1999, a
$67,000 increase.

The increase was the result of a $68,000 increase in other  noninterest  income.
Additional  fee income  from the  Company's  free  checking  and  checking  with
overdraft  privilege  programs  introduced  in 2000  accounted  for  most of the
increase.  In  addition,  additional  fee income from the  transaction  accounts
acquired in the Gilmer  merger  accounted  for a portion of the  increase in fee
income for the current quarter.

Noninterest  Expense.  Noninterest  expense was $941,000  for the quarter  ended
December  31,  2000,  an increase of $173,000  from the $768,000 for the quarter
ended December 31, 1999.

The  increase  was  primarily  attributable  to a  $121,000  increase  in  other
operating  expenses.  The  $121,000  increase in other  operating  expenses  was
attributable  to a  $71,000  increase  in  franchise  tax  expense  paid  by the
Company's subsidiary, First Federal Savings and Loan Association of Tyler to the
state of Texas. In the quarter ended December 31, 1999, the Association received
approximately  $63,000 in one-time  refunds on  previously  filed  franchise tax
returns.  The refunds were due to a change in the  definition  of certain  items
included as income under state of Texas  franchise tax rules.  In addition,  the
increase in other operating  expenses was attributable to an additional  $18,000
in data processing expenses,  primarily due to the additional account processing
associated  with the  Gilmer  merger.  Also,  a $10,000  commission  paid to the
consultant  that  assisted the Company in designing  and  implementing  the free
checking and checking with overdraft  privilege programs accounted for a portion
of the  increase in other  operating  expenses.  Finally,  a $6,000  increase in
advertising  expenses  associated with initial  marketing  efforts in the Gilmer
market and a $6,000 increase in postage expense,  also as a result of additional
account  processing  with the Gilmer merger,  accounted for the remainder of the
increase in other operating expenses.

A $39,000  increase in amortization of the goodwill created in the Gilmer merger
also  accounted  for a portion of the increase in  noninterest  expenses for the
quarter  ended  December 31, 2000,  compared to the quarter  ended  December 31,
1999.  Occupancy  and  equipment  expenses  increased by $45,000 for the current
quarter, primarily due to additional expenses in the Gilmer operation.

The  increases  in  noninterest  expenses  were  partially  offset  by a $24,000
decrease in compensation  and benefits expense to $563,000 for the quarter ended
December 31, 2000, compared to $588,000 for the quarter ended December 31, 1999.
The decrease was due to the  elimination  of year-end  bonuses to employees that
were paid to  employees in the quarter  ended  December 31, 1999 and not paid in
the quarter ended December 31, 2000.

Provision for Income Taxes.  The Company  incurred federal income tax expense of
$30,000 or 37.6% or pre-tax  income for the quarter  ended  December  31,  2000,
compared to $55,000 or 37.2% or pre-tax  income for the quarter  ended  December
31, 1999.

ASSET QUALITY

At December 31, 2000, the Company's  non-performing  assets totaled  $874,000 or
0.43% of total  assets,  compared  to $1.0  million or 0.52% of total  assets at
September 30, 2000. At December 31, 2000,  non-performing  assets were comprised
of non-accruing  one- to four family loans,  consumer and other loans delinquent
more  than 90 days and  still  accruing,  foreclosed  one- to four  family,  and
foreclosed consumer and other loans.

Non-performing  loans at December  31, 2000  equaled  $874,000 or 0.84% of loans
receivable,  compared to $1.0 million or 0.97% of loans  receivable at September
30, 2000.

Classified  assets totaled $2.8 million or 1.41% of total assets at December 31,
2000, compared to $3.0 million or 1.49% of total assets at September 30, 2000.

Classified assets and non-performing assets differ in that classified assets may
include loans less than ninety (90) days delinquent.  Also, assets guaranteed by
government agencies such as the Veterans  Administration and the Federal Housing
Administration  are not  included  in  classified  assets  but are  included  in
non-performing assets. On

                                  Page 18 of 23

<PAGE>

the basis of  management's  review of its assets,  at  December  31,  2000,  the
Company had classified $2.6 million assets as substandard, $154,000 as doubtful,
and $127.000 as loss.

The  Company's  allowance  for loan losses  totaled $1.0 million at December 31,
2000,  a slight  decrease  from the $1.1  million at  September  30,  2000.  The
allowance for loan losses as a percentage of loans  receivable  equaled 0.97% at
December 31, 2000 and 1.04% at September 30, 2000.

LIQUIDITY AND CAPITAL RESOURCES

The Company's  principal sources of funds are deposits from customers,  advances
from  the  FHLB,  amortization  and  prepayment  of  loan  principal  (including
mortgage-backed  securities),  maturities  of  securities,  sales of  loans  and
operations.

The  Association  uses its liquidity and capital  resources  principally to meet
ongoing   commitments  to  fund  maturing   certificates  of  deposit  and  loan
commitments,  maintain  liquidity  and pay operating  expenses.  At December 31,
2000,  the  Association  had  outstanding  commitments  to extend credit on $4.2
million of real estate loans.

Management  believes that present levels of liquid assets are sufficient to meet
anticipated future loan commitments as well as deposit withdrawal demands.

Total  stockholders'  equity  equaled  $16.4  million at December 31,  2000,  an
increase of $221.000 from the $16.2 million  reported at September 30, 2000. The
increase  was  the  result  of  the  $230,000  net  gain  on  available-for-sale
securities  and net income of $49,000  reported for the three month period ended
December 31, 2000.  The  decrease was offset by the $58,000 cash  dividend  paid
during the quarter.

As of December 31, 2000,  the  Company's  reported  book value per share,  using
total stockholders' equity of $16.4 million (net of the cost of unallocated ESOP
and RRP  shares) and  1,162,320  outstanding  shares of common  stock (the total
issued shares including  unallocated ESOP and RRP shares, less treasury shares),
equaled $14.14 per share.

Subsequent to the quarter  ended  December 31, 2000,  the Company  announced its
intention  to pay a cash  dividend of $.05 per share on February  21,  2001,  to
stockholders of record at February 7, 2001.

Under the Financial  Institutions  Reform,  Recovery and Enforcement Act of 1989
("FIRREA"),  Congress  imposed  a three  part  capital  requirement  for  thrift
institutions.  At December  31,  2000,  the  Association's  actual and  required
capital amounts under each of the three requirements were as follows:

- Tangible Capital  (stockholders'  equity) was $13.8 million or 6.829% of total
assets, exceeding the minimum requirement of 1.5% by $10.8 million.

- Core  Capital  (Tangible  capital plus  certain  intangible  assets) was $13.8
million or 6.829% of total assets,  exceeding the minimum requirement of 4.0% by
$5.7 million.

- Risk-based  Capital (Core  capital plus general loan and valuation  allowances
less an adjustment for  capitalized  mortgage  servicing  rights)  equaled $14.8
million of 16.019% of risk weighted assets, exceeding the minimum requirement of
8.0% of risk weighted assets by $7.4 million.

At December 31,  2000,  the  Association  was  considered  a "well  capitalized"
institution  under the prompt  corrective  action  requirements  of the  Federal
Deposit Insurance Corporation Improvement Act of 1991.

                                  Page 19 of 23

<PAGE>

FORWARD-LOOKING STATEMENTS

When  used in this  Form  10-QSB  or  future  filings  by the  Company  with the
Securities and Exchange Commission, the Company's press releases or other public
or shareholder communications or in oral statements made with the approval of an
authorized  executive officer,  the words or phrases "will likely result",  "are
expected  to",  "will  continue",  "is  anticipated",   "estimate",   "project",
"believe"  or similar  expressions  are  intended to  identify  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995.  The Company  wishes to caution  readers not to place undue reliance on
any such forward-looking  statements,  which speak only as of the date made, and
to advise readers that various factors, including regional and national economic
conditions,  changes in levels of market interest rates, credit risks of lending
activities,  and competitive and regulatory factors,  could affect the Company's
financial  performance  and could cause the Company's  actual results for future
periods to differ materially from those anticipated or projected.

The Company does not undertake,  and specifically  disclaims any obligation,  to
publicly  release  the  result  of  any  revisions,  which  may be  made  to any
forward-looking   statements  to  reflect  the   occurrence  of  anticipated  or
unanticipated events or circumstances after the date of such statements.

                                  Page 20 of 23

<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                DECEMBER 31, 2000


                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

     There  are no  material  legal  proceedings  to which  the  Company  or the
     Association is a party or of which any of their  property is subject.  From
     time-to-time,  the  Association  is a party to  various  legal  proceedings
     incident to the conduct of its business.

Item 2.  Changes In Securities

     None

Item 3.  Defaults Upon Senior Securities

     None

Item 4.  Submissions Of Matters To A Vote Of Security Holders

     On January 24, 2001, the Company's Annual Stockholders' Meeting was held to
     elect directors and ratify the appointment of independent  auditors for the
     current  fiscal year. The following are the voting results of each of these
     matters submitted to stockholders.

     The election of Gerald W. Free                  For               698,178
     as director for a three year term               Withheld          131,277
     ending January 2004                             Abstain                 0
                                                     Broker Non-Votes        0

     The election of H. H. Richardson, Jr.           For               698,344
     and Jim M. Vaughn, M.D.                         Withheld          131,211
     as directors for a three year term              Abstain                 0
     ending January 2004                             Broker Non-Votes        0

     Ratification of the appointment of              For               815,605
     Bryant And Welborn, L.L.P. as                   Against            13,950
     independent auditors for the                    Abstain                 0
     fiscal year ending
     September 30, 2001.

     The text of the  matters  referred  to in this  Item 4 is set  forth in the
     Proxy  Statement  dated  December  28,  2000,  previously  filed  with  the
     Securities and Exchange Commission.

Item 5.  Other Information.

     None

                                  Page 21 of 23

<PAGE>

Item 6.  Exhibits and Reports on Form 8-K

     Exhibit 27.  The following exhibits are filed herewith:

         Exhibit 11.0 - Computation of Earnings Per Share

         Exhibit 27.0 - Financial Data Schedule

     (b)  Reports on Form 8-K

         During the quarter ended  December 31, 2000, the Company filed a report
         on Form 8-K on October  24,  2000,  to report the  issuance  of a press
         release  dated  October 24, 2000,  announcing  a cash  dividend for the
         quarter ending September 31, 2000 and the annual stockholders' meeting.


                                  Page 22 of 23

<PAGE>

                                   SIGNATURES

Pursuant to the  requirement  of the  Securities  and Exchange Act of 1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                               East Texas Financial Services, Inc.

Date:  February 14, 2001        /s/ Gerald W. Free
                               --------------------------------------------
                               Vice Chairman, President and CEO
                               (Principal Executive Officer)


Date:  February 14, 2001        /s/  Derrell W. Chapman
                               --------------------------------------------
                               Vice President/COO/CFO
                               (Principal Financial and Accounting Officer)


                                  Page 23 of 23