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 March 31, 2003

                                       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 March 31, 2003, was 1,163,887.


<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 March 31, 2003

                                      INDEX

                                                                        Page No.

Part I - Financial Information

      Item 1.  Financial Statements

           Consolidated Statements of Financial Condition, March 31, 2003
           (Unaudited) and September 30, 2002 ...............................  4

           Consolidated Statements of Income, (Unaudited) six months ended
           March 31, 2003 and March 31, 2002 ................................  5

           Consolidated Statement of Changes in Stockholders' Equity,
           (Unaudited) six months ended March 31, 2003 ......................  6

           Consolidated Statements of Cash Flows, (Unaudited) six months ended
           March 31, 2003, and March 31, 2002 ...............................  7

           Notes to (Unaudited) Consolidated Financial Statements,
           March 31, 2003 ...................................................  9

      Item 2. Management's Discussion and Analysis of Financial Condition and
              Results of Operations ......................................... 16

      Item 3. Controls and Procedures ....................................... 25

Part II - Other Information

      Item 1.  Legal Proceedings ............................................ 26

      Item 2.  Changes In Securities ........................................ 26

      Item 3.  Defaults Upon Senior Securities .............................. 26

      Item 4.  Submission of Matters To a Vote of Security Holders........... 26

      Item 5.  Other Information ............................................ 26

      Item 6.  Exhibits and Reports on Form 8-K ............................. 26

Certifications .............................................................. 27


                                    2 of 29
<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 March 31, 2003

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.

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.


                                    3 of 29
<PAGE>

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

<TABLE>
<CAPTION>
                                     ASSETS                                       March 31, 2003   September 30, 2002
                                                                                  --------------   ------------------
                                                                                            (Unaudited)
<S>                                                                               <C>                 <C>
Cash and due from banks                                                           $   3,204,205       $   2,561,615
Interest-bearing deposits with banks                                                  5,568,825           2,883,189
Interest-earning time deposits with financial institutions                                    0             300,000
Federal funds sold                                                                    1,123,147             599,698
Investment securities available-for-sale                                                411,815             516,443
Investment securities held-to-maturity (estimated market value of $8,158,382
     at March 31, 2003, and $10,134,910 at September 30, 2002)                        7,702,687           9,723,716
Mortgage-backed securities available-for-sale                                         4,080,097          20,144,942
Mortgage-backed securities held-to-maturity (estimated market value of
     $56,964,203 at March 31, 2003 and $30,822,859 at September 30, 2002)            56,710,839          30,591,248
Loans receivable, net of allowance for credit losses of $822,572 at March
     31, 2003 and $756,566 at September 30, 2002                                    121,843,592         137,182,965
Accrued interest receivable                                                           1,149,251           1,324,440
Federal Home Loan Bank stock, at cost                                                 4,648,700           4,588,500
Premises and equipment                                                                2,807,033           2,868,435
Foreclosed assets, net                                                                  374,868             394,210
Goodwill, net                                                                         2,170,381           2,170,381
Mortgage servicing rights                                                               386,800             255,269
Cash value of life insurance owned                                                    3,677,046                   0
Other assets                                                                          2,386,012           1,605,326
                                                                                  -------------       -------------

Total Assets                                                                      $ 218,245,298       $ 217,710,377
                                                                                  =============       =============

<CAPTION>
                      LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                               <C>                 <C>
Liabilities:
       Noninterest deposits                                                       $   3,636,467       $   3,900,913
       Interest-bearing deposits                                                    108,973,445         103,567,616
                                                                                  -------------       -------------
           Total deposits                                                           112,609,912         107,468,529

       FHLB advances                                                                 82,416,020          86,312,294
       Advances from borrowers for taxes and insurance                                  240,809           1,033,717
       Federal income taxes
           Current                                                                      (53,308)            847,781
           Deferred                                                                     491,176             493,953
       Accrued expenses and other liabilities                                         2,636,848           2,271,637
                                                                                  -------------       -------------
           Total liabilities                                                        198,341,457         198,427,911
                                                                                  -------------       -------------
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 1,163,887 outstanding                                         18,845              18,845
       Additional paid-in-capital                                                    12,525,303          12,525,303
       Unearned employee stock ownership plan shares                                   (170,716)           (170,716)
       Retained earnings (substantially restricted)                                  16,645,095          16,035,441
       Accumulated other comprehensive income                                          (264,516)           (259,125)
       Treasury stock, 720,605 shares at cost                                        (8,850,170)         (8,867,282)
                                                                                  -------------       -------------

           Total stockholder's equity                                                19,903,841          19,282,466
                                                                                  -------------       -------------

Total liabilities and stockholders' equity                                        $ 218,245,298       $ 217,710,377
                                                                                  =============       =============
</TABLE>

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


                                    4 of 29
<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                            Three Months                  Six Months
                                                           Ended March 31,              Ended March 31,
                                                          2003          2002           2003          2002
                                                      -----------   -----------    -----------   -----------
<S>                                                   <C>           <C>            <C>           <C>
INTEREST INCOME
     Loans receivable:
       First Mortgage                                 $ 1,426,918   $ 1,597,670    $ 2,857,775   $ 3,157,844
       Consumer and other loans                           920,360       867,946      1,921,123     1,650,886
     Securities available-for-sale:
       Investment securities                               34,918        42,346         73,809       126,173
       Mortgage-backed securities                          14,340       104,106         68,613       372,668
     Securities held-to-maturity:
       Investment securities                              121,014       154,181        246,826       309,260
       Mortgage-backed securities                         456,844       496,414        850,305     1,023,377
     Deposits with banks:                                  41,423        10,718         71,169        27,529
                                                      -----------   -----------    -----------   -----------

           Total interest income                        3,015,817     3,273,381      6,089,620     6,667,737
                                                      -----------   -----------    -----------   -----------

INTEREST EXPENSE

     Deposits                                             834,331     1,010,237      1,711,333     2,224,652
     FHLB advances                                        609,526       649,423      1,262,543     1,332,433
                                                      -----------   -----------    -----------   -----------

       Total interest expense                           1,443,857     1,659,660      2,973,876     3,557,085
                                                      -----------   -----------    -----------   -----------
       Net interest income before provision for         1,571,960     1,613,721      3,115,744     3,110,652
         loan losses

     Provision for loan losses                            276,253       101,438        399,896       111,197
                                                      -----------   -----------    -----------   -----------

       Net interest income after  provision for
         loan losses                                    1,295,707     1,512,283      2,715,848     2,999,455
                                                      -----------   -----------    -----------   -----------

NONINTEREST INCOME
     Gain (loss) on sale of interest-earning assets       146,012        43,639        357,534       452,173
     Loan origination and commitment fees                  23,622        33,506         43,487        82,995
     Loan servicing fees                                   14,062       (23,197)        19,807       (59,318)
     Other                                                212,392        81,560        394,176       198,028
                                                      -----------   -----------    -----------   -----------

       Total noninterest income                           396,088       135,508        815,004       673,878
                                                      -----------   -----------    -----------   -----------

NONINTEREST EXPENSE
     Compensation and benefits                            732,087       653,324      1,477,254     1,290,095
     Occupancy and equipment                               89,064       114,668        195,748       221,907
     SAIF deposit insurance premium                         5,173         5,279          9,696        10,473
     Foreclosed assets, net                                24,235        20,235         91,747        35,231
     Other                                                379,673       274,267        614,544       531,374
                                                      -----------   -----------    -----------   -----------

       Total noninterest expense                        1,230,232     1,067,773      2,388,989     2,089,080
                                                      -----------   -----------    -----------   -----------

Income (loss) before provision for income taxes           461,563       580,018      1,141,863     1,584,253

Income tax expense (benefit)                              166,559       210,277        413,626       561,346
                                                      -----------   -----------    -----------   -----------

NET INCOME (LOSS)                                     $   295,004   $   369,741    $   728,237   $ 1,022,907
                                                      ===========   ===========    ===========   ===========


Earnings per common share                             $      0.26   $      0.33    $      0.64   $      0.91
Earnings per common share - assuming dilution                0.25          0.32           0.62          0.90
</TABLE>

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


                                    5 of 29
<PAGE>

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

<TABLE>
<CAPTION>
                                       Common         Additional        Retained
Balance at September 30, 2002           Stock      Paid-in Capital      Earnings    Treasury Stock
                                    --------------------------------------------------------------
<S>                                 <C>             <C>             <C>              <C>
                                    $      18,845   $  12,525,303   $  16,035,441    $  (8,867,282)
Comprehensive income:
   Net Income                                                       $     728,237
   Net change in unrealized gain
     (loss) on securities
     available-for-sale net of
     deferred taxes

     Total comprehensive income

Stock Options Exercised                                             $      (2,350)   $      17,112

Cash dividends of $0.10 per share                                   $    (116,233)
                                    -------------   -------------   -------------    -------------

Balance March 31, 2003              $      18,845   $  12,525,303   $  16,645,095    $  (8,850,170)
                                    =============   =============   =============    =============

<CAPTION>

                                    Net Unearned
                                    Employee Stock   Other Accumulated
                                    Ownership Plan     Comprehensive
Balance at September 30, 2002           Shares            Income            Total
                                  ---------------------------------------------------
<S>                               <C>                <C>                <C>
                                  $    (170,716)     $    (259,125)     $  19,282,466
Comprehensive income:
   Net Income                                                           $     728,237
   Net change in unrealized gain
     (loss) on securities
     available-for-sale net of
     deferred taxes                                  $      (5,391)     $      (5,391)
                                                                        -------------
     Total comprehensive income                                         $     722,846

Stock Options Exercised                                                 $      14,762

Cash dividends of $0.10 per share                                       $    (116,233)
                                  -------------      -------------      -------------

Balance March 31, 2003            $    (170,716)     $    (264,516)     $  19,903,841
                                  =============      =============      =============
</TABLE>

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


                                    6 of 29
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                             For the Six Months Ended
                                                                                                     March 31,
                                                                                               2003            2002
                                                                                          -------------    -------------
<S>                                                                                       <C>              <C>
Cash flows from operating activities:
     Net income                                                                           $     728,237    $   1,022,907
     Adjustments to reconcile net income to net cash provided by operating activities:
       Amortization of deferred loan origination fees                                            (4,888)          (1,808)
       Amortization of premiums and discounts on investment securities, mortgage-backed
           securities, and loans                                                                245,875           (7,839)
       Amortization of mortgage servicing rights                                                 52,558          121,324
       Depreciation                                                                              85,225           79,427
       Provision for loan losses                                                                399,896          111,197
       Stock dividends on FHLB stock                                                            (60,200)         (64,800)
       Increase in cash value of life insurance                                                 (77,046)               0
       Net (gain) loss on sale of:
           Loans held for sale                                                                 (173,445)         (56,327)
           Fixed assets                                                                          (3,090)           8,287
           Foreclosed assets                                                                     85,878           19,943
           Interest earning assets                                                                    0         (325,503)
       Proceeds from loan sales                                                              11,920,376        6,589,095
       Originations of loans held for sale                                                  (11,746,931)      (6,532,768)
       (Increase) decrease in
           Accrued interest receivable                                                          175,189          (15,544)
           Other assets                                                                        (780,686)         831,252
       Increase (decrease) in:
           Accrued expenses and other liabilities                                               365,211           (8,851)
           Federal income tax payable                                                          (901,089)         510,580

                                                                                          -------------    -------------
Net cash provided (used) by operating activities                                                311,070        2,280,572
                                                                                          -------------    -------------
</TABLE>

                                   (Continued)


                                    7 of 29
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                             For the Six Months Ended
                                                                                                     March 31,
                                                                                               2003            2002
                                                                                          -------------    -------------
<S>                                                                                       <C>              <C>
Cash flows from investing activities
     Net (increase) decrease in interest-earning time deposits                                  300,000          300,000
     Net (increase) decrease in fed funds sold                                                 (523,449)        (340,353)
Activity in securities available-for-sale
     Proceeds from sales                                                                              0        6,308,899
     Proceeds from maturities and calls                                                         100,000           25,000
     Purchases                                                                                        0       (2,000,000)
Activity in securities held-for-maturity
     Proceeds from maturities and calls                                                       2,000,000                0
Activity in mortgage-backed securities available-for-sale
     Principal payments                                                                      15,982,580       11,177,578
     Purchases                                                                                        0       (6,522,879)
Activity in mortgage-backed securities held-to-maturities
     Principal payments                                                                      22,130,222       12,842,999
     Purchases                                                                              (48,395,934)      (7,627,398)
Purchases of Bank Owned Life Insurance                                                       (3,600,000)               0
Net (increase)decrease in loans                                                              14,487,410      (16,946,517)
Proceeds from sale of foreclosed assets                                                         391,882          182,240
Proceeds from the sale of fixed assets                                                            3,090                0
Capitalized acquisition costs related to foreclosed assets                                      (14,388)          (2,974)
Expenditures for premises and equipment                                                         (10,898)         (37,553)
Origination of mortgage servicing rights                                                       (184,089)         (70,344)
                                                                                          -------------    -------------
Net cash provided (used) by investing activities                                              2,666,426       (2,711,302)
                                                                                          -------------    -------------

Cash flows from financing activities:
Net increase (decrease) in:
       Deposits                                                                               5,141,382       (8,861,523)
       Advances from borrowers                                                                 (792,908)        (860,437)
     Proceeds from advances from Federal Home Loan Bank                                     222,000,000      354,000,000
     Payment of advances from Federal Home Loan Bank                                       (225,896,274)    (345,347,301)
     Exercise  of Stock Options                                                                  14,762                0
     Dividends paid to stockholders                                                            (116,232)        (116,232)
                                                                                          -------------    -------------
Net cash provided (used) by financing activities                                                350,730       (1,185,493)
                                                                                          -------------    -------------

Net increase (decrease) in cash and cash equivalents                                          3,328,226       (1,616,223)

Cash and cash equivalents at beginning of the period                                          5,444,804        4,838,011
                                                                                          -------------    -------------

                                                                                          =============    =============
Cash and cash equivalents at end of the period                                            $   8,773,030    $   3,221,788
                                                                                          =============    =============

Supplemental disclosure:
     Cash paid for:
       Interest on deposits                                                               $     896,209    $   1,499,090
       Interest on FHLB advances and other borrowed funds                                     1,262,543        1,332,433
       Income taxes                                                                           1,314,716           25,380

     Transfers from loans to real estate and other assets acquired through
       foreclosures                                                                           1,023,077          415,923
     Loans made to facilitate the sale of foreclosed assets                                     216,736          128,187
     Transfer of foreclosed assets to fixed assets                                               12,925                0
</TABLE>

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


                                    8 of 29
<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

             NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

                                 March 31, 2003

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, 2002.
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 and the six months ended March
31, 2003 and 2002, 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 March 31, 2003 and 2002, the weighted average number of shares
outstanding totaled 1,137,138 and 1,123,979 shares, respectively. For the six
months ended March 31, 2003 and 2002, the weighted average number of shares
outstanding totaled 1,136,970 and 1,123,979 shares respectively.

Earnings per common share - assuming dilution, for the three months and six
months ended March 31, 2003 and 2002, 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 March 31, 2003
and 2002, the weighted average number of shares outstanding for earnings per
share - assuming dilution totaled 1,177,207 and 1,150,703 shares, respectively.
For the six months ended March 31, 2003 and 2002, the weighted average number of
share outstanding for earnings per share - dilution totaled 1,172,163 and
1,113,079 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 and six-month periods ended March 31, 2003
and 2002.


                                    9 of 29
<PAGE>

NOTE 3 - SECURITIES

The carrying values and estimated market values of investment securities
available-for-sale as of March 31, 2003, 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>
Municipal bonds  $     390,000                  -0-      $       1,774       $      23,589       $     411,815
                 -------------       -------------       -------------       -------------       -------------

                 $     390,000       $          -0-      $       1,774       $      23,589       $     411,815
                 -------------       -------------       -------------       -------------       -------------
</TABLE>

The amortized cost and estimated market values of investment securities
held-to-maturity as of March 31, 2003, are as follows:

<TABLE>
<CAPTION>
                                                          Gross               Gross             Estimated
                                    Amortized           Unrealized          Unrealized           Market
                                       Cost               Gains               Losses              Value
                                  -------------       -------------       -------------       -------------
<S>                               <C>                 <C>                 <C>                 <C>
Debt securities:

U. S. government agency           $   1,490,069       $      40,711       $          -0-      $   1,530,780

Corporate Debt                        6,212,618             414,984                  -0-          6,627,602
                                  -------------       -------------       -------------       -------------

      Total debt securities       $   7,702,687       $     455,695       $          -0-          8,158,382
                                  -------------       -------------       -------------       -------------
</TABLE>

The amortized cost and estimated market values of investment securities
held-to-maturity as of March 31, 2003, by contractual maturity are shown below:

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

      Due in one year through two years        $   1,000,000       $   1,006,562

      Due in two years through three years           998,719           1,062,656

      Due in three years through six years         2,557,554           2,683,125

      Due after six years                          3,146,414           3,406,039
                                               -------------       -------------

               Total debt securities           $   7,702,687       $   8,158,382
                                               -------------       -------------


                                    10 of 29
<PAGE>

The carrying values and estimated market values of mortgage-backed and related
securities available-for-sale as of March 31, 2003, 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          $     517,525       $          -0-      $         981       $      22,145       $     538,689

Adjustable Rate         3,486,122               6,139                 918              50,065           3,541,408
                    -------------       -------------       -------------       -------------       -------------

                    $   4,003,647       $       6,139       $       1,899       $      72,210       $   4,080,097
                    -------------       -------------       -------------       -------------       -------------
</TABLE>

The carrying values and estimated market values of mortgage-backed and related
securities held-to-maturity as of March 31, 2003, by type of security are as
follows:

<TABLE>
<CAPTION>
                                                                                                       Estimated
                       Principal         Unamortized          Unearned           Unrealized            Carrying
                        Balance            Premiums           Discounts          Gain/(Loss)            Value
                    -------------       -------------       -------------       -------------       -------------
<S>                 <C>                 <C>                 <C>                 <C>                 <C>
Fixed Rate          $  27,849,724       $     141,922       $       3,487       $  27,988,159       $  28,293,840

Adjustable Rate        28,025,548             697,133                   1          28,722,680          28,670,363
                    -------------       -------------       -------------       -------------       -------------

                    $  55,875,272       $     839,055       $       3,488       $  56,710,839       $  56,964,203
                    -------------       -------------       -------------       -------------       -------------
</TABLE>


                                    11 of 29
<PAGE>

NOTE 4 - 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 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 uses treasury stock for the
exercise of options. The following is a summary of changes in options
outstanding:

      Balance, September 30, 2001                                       151,776
           Granted                                                           -0-
           Exercised                                                         -0-
           Forfeited and expired                                             -0-
                                                                        -------

      Balance, September 30, 2002                                       151,776
           Granted                                                           -0-
           Exercised                                                      1,567
           Forfeited and expired                                             -0-
                                                                        -------

      Balance, March 31, 2003                                           150,209
                                                                        =======

Options exercisable at March 31, 2003 under stock option plan           148,710
                                                                        =======
Shares available for future grants                                       22,662
                                                                        =======


                                    12 of 29
<PAGE>

NOTE 5 - ADVANCES FROM FEDERAL HOME LOAN BANK

The outstanding advances from the FHLB consisted of the following at March 31,
2003:

        Maturity            Balance           Rate
      ------------      ---------------    ----------

        04/07/03         $   2,000,000       1.21%
        04/07/03         $  22,000,000       1.30%
        09/01/03         $     276,669       6.25%
        12/01/03         $   1,000,000       3.12%
        12/05/03         $   5,000,000       3.57%
        12/05/03         $   2,000,000       1.66%
        02/12/04         $   5,000,000       2.09%
        02/15/04         $     100,000       6.01%
        05/18/04         $   5,000,000       1.95%
        09/10/04         $   2,000,000       1.40%
        11/30/04         $   1,000,000       3.93%
        12/31/04         $     224,070       6.09%
        01/03/05         $      42,538       6.03%
        02/15/05         $     100,000       6.04%
        03/10/05         $   2,000,000       1.58%
        06/06/05         $   3,000,000       2.83%
        09/12/05         $   2,000,000       1.95%
        02/15/06         $     150,000       6.05%
        03/10/06         $   2,000,000       2.20%
        04/11/11         $   5,000,000       3.73%
        04/11/11         $   5,000,000       3.91%
        04/11/11         $   5,000,000       4.25%
        06/07/11         $   5,000,000       4.38%
        01/01/13         $     376,052       6.09%
        01/01/13         $     357,526       6.13%
        02/01/13         $     354,451       5.91%
        03/03/14         $     613,016       5.45%
        04/01/14         $     595,385       5.97%
        05/01/14         $     809,355       5.66%
        06/01/14         $     619,045       5.90%
        07/01/14         $     576,018       6.38%
        08/01/14         $     418,816       6.37%
        09/01/14         $     531,525       6.59%
        10/01/14         $     467,062       6.86%
        11/03/14         $   1,152,450       6.77%
        12/01/14         $     393,747       6.57%
        01/01/15         $     258,294       6.73%
                        --------------
                         $  82,416,020

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.


                                    13 of 29
<PAGE>

NOTE 6 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

The following table sets forth an analysis of the Company's allowance for loan
losses.

<TABLE>
<CAPTION>
                                             Six Months Ended    Three Months Ended     Three Months Ended
                                              March 31, 2003       March 31, 2003       December 31, 2002
                                              -------------         -------------         -------------
                                               (Dollars in           (Dollars in           (Dollars in
                                                Thousands)            Thousands)             Thousands)
<S>                                           <C>                   <C>                   <C>
Balance at beginning of period                $         757         $         775         $         757

Charge-offs:
   One- to four-family                                    0                     0                     0
   Consumer and other loans                            (411)                 (263)                 (148)
                                              -------------         -------------         -------------
       Total charge-offs                               (411)                 (263)                 (148)
                                              -------------         -------------         -------------

Recoveries:
   One- to four-family                                    0                     0                     0
   Consumer and other loans                              77                    35                    42
                                              -------------         -------------         -------------
       Total recoveries                                  77                    35                    42
                                              -------------         -------------         -------------


Net (charge-offs)/recoveries                           (334)                 (228)                 (106)

Additions charged to income                             400                   276                   124
                                              -------------         -------------         -------------

Balance at end of period                      $         823         $         823         $         775
                                              =============         =============         =============

Ratio of net charge-offs/recoveries
     during the period to average loans
     outstanding during the period                    (0.26)%               (0.18)%               (0.08)%
                                              =============         =============         =============

Ratio of net charge-offs/recoveries
     during the period to average
     non-performing assets                           (14.76)%               (8.85)%               (5.33)%
                                              =============         =============         =============
</TABLE>

The distribution of the Company's allowance for losses on loans at the dates
indicated is summarized as follows:

<TABLE>
<CAPTION>
                                           March 31, 2003                                 September 30, 2002
                           -------------------------------------------        --------------------------------------------
                                                             Percent                                            Percent
                                                               Of                                                  Of
                                             Gross          Loans In                             Gross           Loans
                                              Loan            Each                               Loan           In Each
                           Amount of         Amounts        Category           Amount of        Amounts         Category
                           Loan Loss           by            To Total          Loan Loss          by            To Total
                           Allowance        Category          Loans            Allowance        Category          Loans
                          ----------       ----------       ----------        ----------       ----------       ----------
                                    (Dollars in Thousands)                                (Dollars in Thousands)
<S>                       <C>              <C>                   <C>          <C>              <C>                   <C>
One- to four-family       $      113       $   48,124            38.41%       $      108       $   61,396            43.07%
Other residential                  0            3,510             2.80                 0            2,679             1.88
Home equity and
   Improvement                     4           14,367            11.47                 2           10,845             7.61
Non-residential                    0           16,844            13.45                 0           17,185            12.05
Construction                      14            5,982             4.78                 9            8,592             6.03
Commercial and
   Consumer                      186           36,449            29.09               272           41,845            29.36
Unallocated                      506                0                0               366                0             0.00
                          ----------       ----------       ----------        ----------       ----------       ----------
   Total                  $      823       $  125,276           100.00%       $      757       $  142,542           100.00%
                          ==========       ==========       ==========        ==========       ==========       ==========
</TABLE>


                                    14 of 29
<PAGE>

NOTE 7 - BANK OWNED LIFE INSURANCE

During the six months ended December 31, 2002, the Association elected to make
an investment in Bank Owned Life Insurance ("BOLI"). The BOLI purchase was made
with excess cash that was held by the Association that would have otherwise been
invested in securities. The purpose of the BOLI investment is to increase
earnings and thereby offset increased compensation and benefit expenses
associated with the Association's defined benefit pension plan, medical
insurance benefits, and other similar expenses. A total BOLI purchase of
approximately $3.6 million in premiums was invested with two separate life
insurance companies. The premiums are invested in the general assets of the life
insurance companies. Crediting rates are set by the life insurance companies and
are based on the overall performance of the assets under management by the
insurance company. Earnings on the policies are tax deferred for the life of the
insured under Internal Revenue Service guidelines. As part of the BOLI purchase,
the Association identified 17 key employees that were given an opportunity to
participate in the program. The $3.6 million in BOLI premiums were divided among
the 17 participants and life insurance contracts were purchased on the 17
individual employees. All participants in the program were given an opportunity
to decline to participate in the program. The Association is the owner and the
beneficiary of the life insurance contracts. As part of the BOLI program, the
Association expects to enter into separate death benefit agreements with the 17
employees. The death benefit agreements provide for a lump-sum payment to the
participant's beneficiary in the event of the death of the participant while
employed by the Association and, in certain instances, beyond the participant's
employment with the Association. The Association worked in conjunction with the
Meyer-Chatfield Company, a firm specializing in compensation and benefits
consulting, to design and implement the BOLI program. Meyer-Chatfield assisted
the Association in its due diligence efforts in analyzing prospective insurance
carriers and in the Association's efforts to comply with all regulatory and
legal aspects of the BOLI program. The Association also employed legal counsel
with expertise in compensation and benefit planning and BOLI transactions to
adopt board of director resolutions and draft the employee death benefit
agreements.


                                    15 of 29
<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 March 31, 2003



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 holding company for 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.

As previously disclosed in the Company's Form 10-KSB for the fiscal year ended
September 30, 2002, the Company has been notified by the OTS that the
Association has been deemed to be in "troubled condition" as a result of a lack
of compliance with regulatory requirements involving oversight of its interest
rate risk program. The Association was required to take a number of steps to
comply with the OTS directive. The Association is in the process of addressing
each of the deficiencies.

FINANCIAL CONDITION

Total assets were $218.2 million at March 31, 2003, a $535,000 increase from the
$217.7 million reported at September 30, 2002, the Company's most recent fiscal
year end. The increase in total assets was the result of a $26.1 million
increase in mortgage-backed securities held-to-maturity, a $3.7 million increase
in cash value of life insurance owned, and a $2.7 million increase in interest
bearing deposits with banks. [See Note 7 for a discussion of the cash value of
life insurance owned.] The increases were partially offset by a $16.1 million
decrease in mortgage-backed securities available-for-sale, a $15.3 million
decrease in loans receivable, and a $2.0 million decrease in investment
securities held-to-maturity.

The changes in the composition of the balance sheet were primarily related to an
increase in cash flow from the Company's mortgage loan portfolio and
mortgage-backed securities portfolio. With continued lower interest rates, the
Company continued to receive significant amounts of cash flow from these
portfolios as customers refinanced existing mortgage loans. Also, the Company
sold into the secondary market the majority of the loans it originated or
refinanced. With the cash flow from its mortgage-backed securities portfolio
increasing as the loans underlying those securities are refinanced, the Company
expects to continue to receive significant amounts of cash to reinvest.


                                    16 of 29
<PAGE>

The overall result could be a continued reduction in the Company's loan
portfolio balance outstanding and an increase in the investment portfolio or the
mortgage-backed securities portfolio at rates that are lower than those
currently in the portfolio.

At March 31, 2003, loans receivable totaled $121.8 million, a decrease of $15.3
million or 11.2% from the $137.2 million at September 30, 2002. The decrease in
loans receivable was primarily the result of the Company's decision to sell the
majority of its one- to four-family loans into the secondary market. In
addition, the Company elected to tighten the underwriting standards and
loan-to-value limits on its indirect auto lending program which decreased the
production of these type of loans.

Interest bearing deposits with banks increased to $5.6 million at March 31,
2003, a $2.7 million increase from the $2.9 million reported at September 30,
2002. The increase was due to the additional cash flow from the Company's loans
receivable and mortgage-backed securities portfolios as discussed above. The
Company expects to systematically reinvest any excess cash flow into various
investment and mortgage-backed securities.

Investment securities held-to-maturity were reported as $7.7 million at March
31, 2003, a decrease of $2.0 million from the $9.7 million reported at September
30, 2002. The decrease was the result of the maturity of securities during the
six months ended March 31, 2003. At March 31, 2003, this portfolio consisted of
approximately $1.5 million of debt issued by governmental agencies such as
Federal National Mortgage Corporation, Federal Home Loan Mortgage Corporation,
and the Federal Home Loan Bank System, and approximately $6.2 million of
corporate debt securities. All securities in the portfolio are fixed rate and
term.

Mortgage-backed securities available-for-sale totaled $4.1 million at March 31,
2003, a decrease of $16.1 million from the $20.1 million at September 30, 2002.
The decrease was primarily the result of principle repayments on the securities
during the six months ended March 31, 2003, due to the refinancing activity
previously discussed.

Mortgage-backed securities held-to-maturity portfolio totaled $56.7 million at
March 31, 2003, an increase of $26.1 million from the $30.6 million reported at
September 30, 2002. The increase was primarily due to additional securities
added to the portfolio, during the six months ended March 31, 2003.

Total deposits were $112.6 million at March 31, 2003, a $5.1 million increase
from the $107.5 million reported at September 30, 2002. The increase was
primarily the result of increases in certificate of deposit balances as the
Company paid competitive interest rates on renewing certificates of deposit
during the period.

The Company reported $82.4 million in borrowed funds at March 31, 2003, a
decrease of $3.9 million from the $86.3 million reported at September 30, 2002.
The decrease was primarily due to the Company's decision to reduce its reliance
on short term advances from the FHLB and to replace them with longer term
certificates of deposits.

Stockholder's equity totaled $19.9 million at March 31, 2003, an increase of
$621,000 from the $19.3 million reported at September 30, 2002. The increase was
primarily attributable to a net increase in retained earnings of $610,000. The
increase in retained earnings was due to the $728,000 in net income less
$116,000 in cash dividends paid during the six months ended March 31, 2003.

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.


                                    17 of 29
<PAGE>

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2003 AND MARCH 31, 2002

General. Net income for the three months ended March 31, 2003 was $295,000 or
$.26 per share and $.25 per share assuming - dilution, a decrease of $75,000
from the $370,000, or $.33 per share and $.32 per share - assuming dilution,
reported for the three months ended March 31, 2002. The decrease in net income
was attributable to a $217,000 decrease in net interest income after provision
for loan losses. Approximately $175,000 of the decline in net interest income
after provision for loan losses was attributable to additional provisions for
loan losses and $42,000 was due to a decline in net interest income before
provision for loan losses. The decrease in net income was also partially due to
a $119,000 increase in noninterest expense. Noninterest income increased by
$217,000 and income tax expense decreased by $44,000.

Net Interest Income. For the quarter ended March 31, 2003, net interest income
before provision for loan losses totaled $1.6 million, a decrease of $42,000
from the $1.6 million reported for the quarter ended March 31, 2002. On an
annualized basis, the $1.6 million in net interest income for the current
quarter was approximately 3.09% of average interest-earning assets and 2.88% of
average total assets. For the quarter ended March 31, 2002, the $1.6 million in
net interest income before provisions for loan losses was approximately 3.21% of
average interest-earning assets and 3.07% of average total assets. Average
interest-earning assets were approximately $203.3 million for the quarter ended
March 31, 2003, compared to $200.8 million for the quarter ended March 31, 2002.

Total interest income was $3.0 million for the quarter ended March 31, 2003,
compared to $3.3 million for the quarter ended March 31, 2002. The decrease in
total interest income was primarily due to a $171,000 decline in interest on
first mortgage loans receivable. The decline in interest on first mortgage loans
receivable was due to an overall decline in the balance in the portfolio as the
Company elected to sell the majority of its mortgage loan production during the
past year. Also, the decline in yields on the loans that were placed into the
mortgage loan portfolio during the year contributed to the overall decrease in
interest income on mortgage loans. However, interest on consumer and other loans
increased by $52,000 to $920,000 for the three months ended March 31, 2003 from
$868,000 for the three months ended March 31, 2002. The increase in interest
income on consumer and other loans was due to the increased balances in the
consumer and other loan portfolio during the past year. In addition, interest
rates on these types of loans are not as sensitive to overall movements in the
general level of interest rates, which allowed the Company to continue to
originate and place into the loan portfolio loans with higher yields than those
available on mortgage loans.

The decrease in total interest income was also due to a $129,000 decrease in
interest income on the Company's mortgage-backed securities portfolio. The
decline in income was due to a decrease in the average yield in the portfolio.
The Company placed excess cash flow into the portfolio at yields that were lower
than maturing or prepaying securities ands loans.

Interest income on loans receivable was $2.3 million for the quarter ended March
31, 2003, compared to $2.5 million for the quarter ended March 31, 2002. On an
annualized basis, the $2.3 million was approximately 7.44% of average loans
receivable balances outstanding for the quarter ended March 31, 2003, compared
to approximately 7.73% for the quarter ended March 31, 2002. The decrease in
total interest income on the loan portfolio was primarily the result of a
decrease in one- to four-family real estate loan balances, as previously
discussed. The overall decline in interest rates over the past 12 months and the
refinance of mortgage loans held in portfolio contributed to the decline in
overall yield on the loan portfolio.

Interest income from mortgage-backed securities available-for-sale totaled
$14,000 for the quarter ended March 31, 2003, compared to $104,000 for the
quarter ended March 31, 2002. The decrease in income was due to a decline in the
balance of the portfolio from $22.6 million at March 31, 2002 to $4.1 million at
March 31, 2003, as the Company directed cash flow from this portfolio into other
investments.

Interest income from the investment securities held-to-maturity portfolio was
$121,000 for the quarter ended March 31, 2003, compared to $154,000 for the
quarter ended March 31, 2002. The decrease in income from the portfolio was
primarily due to a decline in the balance of the portfolio.


                                    18 of 29
<PAGE>

Interest income on mortgage-backed securities held-to-maturity totaled $457,000
for the quarter ended March 31, 2003, a decrease of $39,000 from the $496,000
reported for the quarter ended March 31, 2002. The decrease was due primarily to
a decline of the overall yield of the portfolio, despite an increase in the
balance in the portfolio from $30.7 million at March 31, 2002 to $56.7 million
at March 31, 2003. As previously discussed, the Company received excessive
amounts of cash flow from its mortgage loans receivable and mortgage related
securities portfolios during the past year. The Company chose to reinvest the
majority of this excess cash flow into mortgage-backed securities
held-to-maturity. The new securities were at substantially lower, primarily
adjustable, rates than those previously held in the portfolio. The result was an
overall decline in the yield and an overall decrease in interest income on the
portfolio.

Interest paid to depositors totaled $834,000 for the quarter ended March 31,
2003, a decrease of $176,000 from the $1.0 million reported for the quarter
ended March 31, 2002. On an annualized basis, the $834,000 in interest expense
on deposits was approximately 3.07% of interest bearing deposits for the quarter
ended March 31, 2003.

Interest on FHLB advances was $610,000 for the quarter ended March 31, 2003,
compared to $649,000 for the quarter ended March 31, 2002. The decrease in
interest expense was primarily the result of declining interest rates during the
past year. At March 31, 2002, the Company had approximately $36.5 million in
advances which re-priced approximately every 30 days. As short-term interest
rates declined in 2002, the Company benefited from an overall lower cost of
borrowing as the rate of interest on the advances declined substantially. For
the three months ended March 31, 2003, the weighted average rate on FHLB
advances was approximately 2.95%.

Provision for Loan Losses. The Company made $276,000 in provision for loan
losses for the quarter ended March 31, 2003, compared to $101,000 for the
quarter ended March 31, 2002. The increase was directly related to the losses in
the Company's indirect automobile lending program. [See "Asset Quality"]

Noninterest Income. Non-interest income totaled $396,000 for the quarter ended
March 31, 2003, compared to $136,000 for the quarter ended March 31, 2002. The
increase was due to a $102,000 increase in gains on sales of interest earning
assets from $44,000 for the quarter ended March 31, 2002 to $146,000 for the
quarter ended March 31, 2003. The Company elected to sell the majority of its
one- to four-family loan production into the secondary market during 2002 and
2003. The result was an increase in gains on the sale of loans for the quarter
ended March 31, 2003, compared to the same period in 2002.

Other noninterest income was reported as $212,000 for the three months ended
March 31, 2003, an increase of $131,000 from the $82,000 reported for the three
months ended March 31, 2002. Approximately $47,000 of the increase was from
income earned on the Company's Bank Owned Life Insurance. [See "Note 7"] The
remainder of the increase was from other increases in loan fee income and other
miscellaneous fees.

Noninterest Expense. Noninterest expense was $1.2 million for the quarter ended
March 31, 2003, an increase of $119,000 from the $1.1 million for the quarter
ended March 31, 2002. The increase in noninterest expense was primarily the
result of a $79,000 increase in compensation and benefits expense, mainly
associated with the Company's defined benefit pension plan and normal increases
in employee compensation. The increase in defined benefit plan expense was due
to the performance of plan assets in 2000 and 2001 and the additional employees
gained in the Gilmer acquisition. Approximately two-thirds of the assets in the
defined benefit plan trust are invested in various equity mutual funds. As the
overall equity market declined in 2000 and 2001, the value of the assets in the
plan decreased. The result was, on an actuarial basis, an increase in the
pension plan expense to offset the decrease in the value of the plan assets. In
addition, other noninterest expense increased by $105,000 to $380,000 for the
three months ended March 31, 2003, compared to $274,000 for the three months
ended March 31, 2002. The increase in other noninterest expense was due to a
general increase for items such as legal expense, data processing expense, and
other expenses.

Provision for Income Taxes. The Company incurred federal income tax expense of
$167,000 or 36.1% or pre-tax income for the quarter ended March 31, 2003,
compared to $210,000 or 36.3% or pre-tax income for the quarter ended March 31,
2002.


                                    19 of 29
<PAGE>

COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 2003 AND MARCH 31, 2002

General. For the six months ended March 31, 2003, the Company reported net
income of $728,000 or $.64 per common share and $.62 per common share - assuming
dilution, compared to $1.0 million or $.91 per common share and $.90 per common
share - assuming dilution for the six months ended March 31, 2002. The decrease
in net income was due to a $284,000 decrease in net interest income after
provisions for loan losses and a $256,000 increase in noninterest expense. These
were partially offset by a $148,000 decrease in income tax expense and a $97,000
increase in noninterest income.

Net Interest Income. For the six months ended March 31, 2003, net interest
income before provisions for loan losses totaled $3.1 million, unchanged from
the $3.1 million reported for the six months ended March 31, 2002. On an
annualized basis, the $3.1 million in net interest income before provisions for
loan losses for the current period was approximately 3.05% of average interest
earning assets and 2.86% of average total assets. For the six months ended March
31, 2002, the $3.1 million in net interest income before provisions for loan
losses was, on an annualized basis, approximately 3.10% of average interest
earning assets and 2.95% of average total assets. Average interest earning
assets were approximately $204.4 million for the six months ended March 31,
2003, compared to $201.1 million for the six months ended March 31, 2002.

Total interest income was $6.1 million or 5.96%, on an annualized basis, of
average interest earning assets for the six months ended March 31, 2003,
compared to $6.7 million or 6.63% of average interest earning assets for the six
months ended March 31, 2002. The decrease was primarily due to a decline in
interest on mortgage-backed securities available-for-sale of $304,000, and a
decline in interest on mortgage loans of $300,000. The declines in interest
income were partially offset by a $270,000 increase in interest income on
consumer and other loans.

Interest income on loans receivable totaled $4.8 million for the six months
ended March 31, 2003 a decrease of $30,000 from the $4.8 million reported for
the six months ended March 31, 2002. The decrease in interest income on loans
receivable was due to a $300,000 decline in interest on first mortgage loans as
the balance in the Company's one- to four-family portfolio declined. The balance
in the one- to four-family portfolio declined as the Company elected to sell the
majority of its new loans into the secondary market. Interest on consumer and
other loans increased by $270,000 as the Company placed more of these loans into
the loan portfolio

Interest income from mortgage-backed securities available-for-sale totaled
$69,000 for the six months ended March 31, 2003, compared to $373,000 for the
six months ended March 31, 2002. The decrease in income was primarily
attributable to a decrease in the balance in the portfolio. The Company elected
to direct cash flow from this portfolio into its mortgage-backed securities
held-to-maturity portfolio.

Interest income on investment securities held-to-maturity totaled $247,000 for
the six months ended March 31, 2003, compared to $309,000 for the six months
ended March 31, 2002. The decrease was due primarily to a decline in the balance
in the portfolio.

Interest income on mortgage-backed securities held-to-maturity was $850,000 for
the six months ended March 31, 2003, compared to $1.0 million for the six months
ended March 31, 2002. The decrease in interest income on the portfolio was
primarily the result of a decline in the overall yield of the portfolio as the
Company redirected cash flow from its loan and other portfolios into this
portfolio at lower yields, primarily adjustable rate securities.

Interest expense was $3.0 million for the six months ended March 31, 2003, a
decrease of $583,000 from the $3.6 million reported for the six-month period
ended March 31, 2002. The decrease was due to a decline in the overall cost of
interest bearing deposits, which resulted from continued low interest rates in
2002 and 2003.

Noninterest Income. Noninterest income was $815,000 for the six months ended
March 31, 2003, compared to $674,000 for the six months ended March 31, 2002.
The increase was attributable to a $196,000 increase in other noninterest
income. The increase in other noninterest income was primarily due to a $77,000
increase in Bank Owned Life Insurance income and increases in loan fee income.


                                    20 of 29
<PAGE>

Noninterest Expense. Noninterest expense was reported as $2.4 million for the
six-month period ended March 31, 2003, a $300,000 increase from the $2.1 million
reported for the six months ended March 31, 2002. The increase was primarily
attributable to a $187,000 increase in compensation and benefits expense due to
additional employees and normal compensation increases. A $56,000 increase in
net expenses on foreclosed and repossessed assets accounted for a portion of the
increase in noninterest expense. The increase in net expenses on foreclosed and
repossessed assets was primarily due to expenses associated with the disposition
of repossessed automobiles from the Company's consumer loan portfolio and other
repossessed loans.

Provision For Income Taxes. The Company incurred federal income tax expense of
$414,000 or 36.2% of pre-tax income for the six months ended March 31, 2003,
compared to $561,000 or 35.4% of pre-tax income for the six months ended March
31, 2002.

ASSET QUALITY

At March 31, 2003, the Company's non-performing assets (non-performing loans
plus foreclosed assets) totaled $2.8 million or 1.27% of total assets, compared
to $1.6 million or .75% of total assets at September 30, 2002. At March 31,
2003, non-performing assets were comprised primarily of non-accruing one- to
four-family, consumer and other loans delinquent 90 days or more. It also
included three one- to four-family interim construction loans and one commercial
real estate loan that were past due 90 or more days and still accruing interest.
It also includes foreclosed one- to four-family and foreclosed consumer and
other loans.

Non-performing loans at March 31, 2003 equaled $2.4 million or 1.95% of loans
receivable, compared to $1.2 million or .90% of loans receivable at September
30, 2002. The increase in non-performing loans was primarily related to the
Company's one- to four-family portfolio. The Company attributes the increased
number of non-performing one- to four-family loans to a general decline in the
economy in its market area. At March 31, 2003, the Company had $490,000 of loans
that were contractually past due 90 days or more and for which it was still
accruing interest. At March 31, 2003, the Company had no "troubled debt
restructurings" as defined in Statement of Financial Accounting Standards No. 15
"Accounting by Debtors and Creditor for Troubled Debt Restructurings", or any
other loans for which the Company has information about possible credit problems
of borrowers that would cause management to have serious doubts as to the
ability of such borrowers to comply with the preset loan repayment terms.

Classified assets totaled $3.3 million or 1.5% of total assets at March 31,
2003, compared to $2.6 million or 1.2% of total assets at September 30, 2002.
The increase in classified assets was also due to an increase in past due one-
to four-family loans.

Classified assets and non-performing assets differ in that classified assets may
include loans less than 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. At March 31, 2003, $3.1 million of classified assets were
deemed to be substandard and $177,000 assets were classified as doubtful.

The Company's allowance for loan and lease losses was $823,00 at March 31, 2003,
which included $755,000 in general loan loss reserves, $57,000 in specific loan
loss reserves, and $11,000 checking account loss reserves. The total allowance
was $757,000 at September 30, 2002. The total allowance for loan losses as a
percentage of loans receivable equaled 0.67% at March 31, 2003 and 0.55% at
September 30, 2002.

The Company uses a methodology for estimating the adequacy of its general
allowance for loan losses that encompasses two separate components. The first
component is an estimate of losses on the Company's list of currently classified
assets. A percentage, generally ranging from 5% to 50% of each classified asset,
is applied to the balance of the asset. The percentage for each asset is
combined to determine the calculated allowance amount for this component. The
second component is a combined inherent risk and historical loss component. This
component recognizes the changes in the levels of loan balances and the
historical loss levels of various classes of the loan portfolio. The loan
portfolio is segregated into various classes of loans exhibiting similar risk
characteristics. Each of the classes of loans is multiplied by a risk factor to
determine the required allowance for the class of loans. The risk factor for
each class of loans is determined by analyzing actual historical losses on the
particular class of loans.


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<PAGE>

The historical loss analysis takes into account a period of time that is
indicative of the current risks associated with the class of the loan portfolio
being analyzed. The balance of loans in each class is reduced for any loans
specifically reviewed by the Company and any classified assets, before applying
the percentage amounts. The calculated allowance amount for each class is summed
together to achieve the estimated allowance for the inherent risk and historical
loss component. To determine a final estimate of the allowance for loan losses,
the classified asset and inherent risk and historical loss component are summed
together. The resulting calculated minimum allowance is compared to the actual
balance in the allowance at the end of the period analyzed. A shortfall in the
actual amount as compared to the calculated amount is charged against provision
for loan losses in the period analyzed in order to bring the allowance up to the
minimum calculated amount. Any excess in the actual allowance as compared to the
calculated amount may remain in the allowance or may be reduced by applying the
overage amount back against the provision for loan losses.

At March 31, 2003, the classified asset component was calculated at $322,000
while the inherent risk and historical loss component was calculated at
$438,000. At March 31, 2003, the Company had identified five separate components
of the loan portfolio that it deemed necessary to analyze individually under the
inherent risk and historical loss component. The five components were mortgage
loans, indirect auto loans, sub-prime indirect auto loans, unsecured and
miscellaneous collateral consumer loans, and all other non-mortgage loans.

The classified asset component increased by $3,000 during the six months ended
March 31, 2003 from approximately $319,000 at September 30, 2002 to $322,000 at
March 31, 2003. The inherent risk and historical loss component increased from
approximately $209,000 at September 30, 2002 to $438,000 at March 31, 2003. The
increase in the inherent risk component was directly related to additional
losses in the separate components, primarily associated with the Company's
indirect auto lending program. During the six months ended March 31, 2003, the
Company has experienced an increase in losses in the indirect lending program.
The losses are equally spread between the sub-prime portion of the portfolio and
the remainder of the indirect portfolio. The loss ratio for the sub-prime
indirect portfolio and the remainder of the indirect portfolio was approximately
2.00% for both portfolios for the six months ended March 31, 2003. These loss
rates were applied to the remaining balance in the indirect program to calculate
that portion of the minimum allowance for loan and lease losses. The result was
a significant increase in the calculated allowance for loan loss at March 31,
2003. The Company did not separate its loan portfolio for allowance for loan
loss analysis at September 30, 2002 in the same manner as March 31, 2003.
Therefore, no comparison of these specific components can be made at March 31,
2003. Nevertheless, the Company believes that the calculated allowance amounts
for its sub-prime indirect auto loan balances and its unsecured and
miscellaneous collateral loans have increased over the last six months as
evidenced by the actual experience of losses in its loan portfolio.

The Company believes that segregating its loan portfolio into specific
categories of loan for allowance analysis will provide a more accurate method
for estimating the adequacy of the allowance. Also, the Company has
significantly decreased the volume of its indirect auto loan program by
substantially tightening credit and loan to value limits on such loans. In
addition, the Company has placed additional restrictions on the types of
unsecured and miscellaneous collateral loans that its individual loan officers
can make.

The Company establishes a specific loan loss allowance of 100% of the
outstanding balance of loans that are severely past due and deemed unlikely to
be collected in a timely manner. Generally, the Company establishes a specific
reserve when a real estate secured loan is 180 days or more past due and when a
consumer loan is 120 days or more past due. The Company may establish a specific
reserve sooner than these general guidelines in the case of a bankruptcy. Also,
the Company may choose not to establish a specific reserve for loans that would
otherwise warrant doing so, if there is sufficient value supporting the loan
balance.

At March 31, 2003, the Company had $57,000 in specific loan loss reserves
established, compared to $71,000 at September 30, 2002.

The Company believes that the overall quality of its loan portfolio remains
good. However, the Company did record $400,000 in provision for loan losses
during the six months ended March 31, 2003, compared to $111,000 for the same
period in 2002. [See "Note 6".]


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<PAGE>

The Company anticipates that the general trend in the level of the allowance for
loan loss will be to remain in a range that is close to the current balance in
the allowance. By tightening loan-to-value and credit standards on its indirect
auto loan program and its unsecured and miscellaneous collateral consumer loans,
the Company believes that the balance in such loans will decline over time. The
result should be a reduction in the calculated amount of the allowance for loan
loss reserves for these specific components. However, the Company can not
predict the affect that outside factors such as economic conditions in the
Company's market and other factors may have on a borrower's ability to repay
their loans. In general, the estimated allowance for loan losses could increase
under the classified asset component if the Company experiences an increase in
its classified assets. The allowance could increase under the inherent risk and
historical loss component if the Company experiences additional losses on its
loan portfolio that are charged against the allowance for loan loss account.

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 Company 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 March 31, 2003, the Company
had outstanding commitments to extend credit on approximately $5.7 million of
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 $19.9 million at March 31, 2003, an increase
of $621,000 from the $19.3 million reported at September 30, 2002. The increase
was primarily the result of a $610,000 increase in retained earnings that
resulted from the $728,000 net income less $116,000 in cash dividends paid
during the six months ended March 31, 2003.

As of March 31, 2003, the Company's reported book value per share, using total
stockholders' equity of $19.9 million (net of the cost of unearned ESOP shares)
and 1,163,887 outstanding shares of common stock (the total issued shares
including unearned ESOP shares, less treasury shares), equaled $17.10 per share.
Subsequent to the quarter ended March 31, 2003, the Company announced its
intention to pay a cash dividend of $.05 per share on May 7, 2003, to
stockholders of record as of May 21, 2003. The Company paid $.10 per share in
cash dividends in the six months ended March 31, 2003, which is approximately
19.2% of the $0.26 in reported earnings per share. The Company reported an
equity to assets ratio of approximately 9.12% at March 31, 2003.

Federally insured savings associations, such as First Federal, are required to
maintain a minimum level of regulatory capital. The OTS has established capital
standards, including a tangible capital requirement, a leverage ratio (or core
capital) requirement and a risk-based capital requirement applicable to such
savings associations. These capital requirements must be generally as stringent
as the comparable capital requirements for national banks. The OTS is also
authorized to impose capital requirements in excess of these standards on
individual associations on a case-by-case basis.

The capital regulations require tangible capital of at least 1.5% of adjusted
total assets (as defined by regulation). Tangible capital generally includes
common stockholders' equity and retained income, and certain non-cumulative
perpetual preferred stock and related income. In addition, all intangible
assets, other than a limited amount of purchased mortgage-servicing rights, must
be deducted from total capital for calculating compliance with this requirement.
At March 31, 2003, First Federal had approximately $2.2 million of intangible
assets and other required regulatory adjustments that were required to be
deducted from total capital.

At March 31, 2003, First Federal had tangible capital of $17.3 million, or 8.02%
of adjusted total assets, which is approximately $14.1 million above the minimum
requirement of 1.5% of adjusted total assets in effect on that date.


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<PAGE>

The capital standards also require Tier 1 capital equal to at least 4.0% of
adjusted total assets. Tier 1 capital generally consists of tangible capital
plus certain intangible assets, including a limited amount of purchased credit
card receivables.

At March 31, 2003, First Federal had Tier 1 capital equal to $17.3 million, or
8.02% of adjusted total assets, which is $8.7 million above the minimum
requirement for capital adequacy purposes of 4.0% as in effect on that date.

The OTS risk-based requirement requires savings associations to have total
capital of at least 8.0% of risk-weighted assets. Total risk-based capital
consists of core capital, as defined above and supplementary capital.
Supplementary capital consists of certain permanent and maturing capital
instruments that do not qualify as core capital and general valuation loan and
lease loss allowances up to a maximum of 1.25% of risk-weighted assets.
Supplementary capital may be used to satisfy the risk-based requirement only to
the extent of core capital. The OTS is also authorized to require a savings
association to maintain an additional amount of total capital to account for
concentration of credit risk and the risk of non-traditional activities. At
March 31, 2003, First Federal had no capital instruments that qualify as
supplementary capital and $760,000 of loss reserves, which was less than 1.25%
of risk-weighted assets.

Certain exclusions from capital and assets are required to be made for the
purpose of calculating total risk-based capital. First Federal had no such
exclusions from capital and assets at March 31, 2003.

In determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet items, will be multiplied by a risk weight generally, ranging
from 0% to 100%, based on the risk inherent in the type of asset. For example,
the OTS has assigned a risk of 50% for prudently underwritten permanent one- to
four-family first lien mortgage loans not more than 90 days delinquent and
having a loan to value ratio of not more than 80% at origination unless insured
to such ratio by a insurer approved by Fannie Mae or Freddie Mac. For certain
assets, such as sub-prime indirect automobile lending, the OTS can require a
risk-weighting of greater than 100%. The OTS has assigned a risk weighting of
200% to the Company's sub-prime indirect automobile lending program. At March
31, 2003, the Company reported approximately $7.7 million in indirect automobile
loans that met the OTS definition of sub-prime.

On March 31, 2003, First Federal had total risk based capital of $18.1 million
(including $17.3 million in Tier 1 capital and $760,000 in loan loss reserves)
and risk-weighted assets of $127.1 million, or total risk-based capital of 14.2%
of risk-weighted assets. This amount was $7.9 million above the 8.0% requirement
in effect on that date.

At March 31, 2003, First Federal was also considered a "well capitalized"
institution under the prompt corrective action requirements of the Federal
Deposit Insurance Corporation Improvement Act of 1991.

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.


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<PAGE>

Item 3. Controls and Procedures.

      (a) Evaluation of Disclosure Controls and Procedures: An evaluation of the
Company's disclosure controls and procedures (as defined in Rule 13a-14(c) under
the Securities Exchange Act of 1934 (the "Act")) was carried out under the
supervision and with the participation of the Company's Chief Executive Officer,
Chief Financial Officer and several other members of the Company's senior
management within the 90-day period preceding the filing date of this quarterly
report. The Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures as currently in
effect are effective in ensuring that the information required to be disclosed
by the Company in the reports it files or submits under the Act is (i)
accumulated and communicated to the Company's management (including the Chief
Executive Officer and Chief Financial Officer) in a timely manner, and (ii)
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms.

      (b) Changes in Internal Controls: In the fiscal year ended September 30,
2002, there were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.


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<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 MARCH 31, 2003

                           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

      None

Item 5. Other Information.

      None

Item 6. Exhibits and Reports on Form 8-K

      (a)   The following exhibits are filed herewith:

            Exhibit 11.0 - Computation of Earnings Per Share

      (b)   Reports on Form 8-K

            During the quarter ended March 31, 2003, the Company filed a report
            on Form 8-K on January 31, 2003 to report the issuance of a press
            release dated January 31, 2003, announcing a cash dividend for the
            quarter ending December 31, 2002.


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<PAGE>

                                 CERTIFICATIONS

      I, Gerald W. Free, certify that:

      1. I have reviewed this quarterly report on Form 10-QSB of East Texas
Financial Services, Inc.;

      2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

      4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

            a) designed such disclosure controls and procedures to ensure that
      material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this quarterly report is
      being prepared;

            b) evaluated the effectiveness of the registrant's disclosure
      controls and procedures as of a date within 90 days prior to the filing
      date of this quarterly report (the "Evaluation Date"); and

            c) presented in this quarterly report our conclusions about the
      effectiveness of the disclosure controls and procedures based on our
      evaluation as of the Evaluation Date;

      5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

            a) all significant deficiencies in the design or operation of
      internal controls which could adversely affect the registrant's ability to
      record, process, summarize and report financial data and have identified
      for the registrant's auditors any material weaknesses in internal
      controls; and

            b) any fraud, whether or not material, that involves management or
      other employees who have a significant role in the registrant's internal
      controls; and

      6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ Gerald W. Free
-------------------------------------
Gerald W. Free
President and Chief Executive Officer


                                    27 of 29
<PAGE>

      I, Derrell W. Chapman, certify that:

      1. I have reviewed this quarterly report on Form 10-QSB of East Texas
Financial Services, Inc.;

      2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

      4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

            a) designed such disclosure controls and procedures to ensure that
      material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this quarterly report is
      being prepared;

            b) evaluated the effectiveness of the registrant's disclosure
      controls and procedures as of a date within 90 days prior to the filing
      date of this quarterly report (the "Evaluation Date"); and

            c) presented in this quarterly report our conclusions about the
      effectiveness of the disclosure controls and procedures based on our
      evaluation as of the Evaluation Date;

      5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

            a) all significant deficiencies in the design or operation of
      internal controls which could adversely affect the registrant's ability to
      record, process, summarize and report financial data and have identified
      for the registrant's auditors any material weaknesses in internal
      controls; and

            b) any fraud, whether or not material, that involves management or
      other employees who have a significant role in the registrant's internal
      controls; and

      6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ Derrell W. Chapman
-------------------------------------------------
Derrell W. Chapman
Executive Vice President, Chief Financial Officer
  and Chief Operating Officer


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<PAGE>

                                  CERTIFICATION
           (Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

          Each of the undersigned hereby certifies in his capacity as an officer
     of East Texas Financial Services, Inc. (the "Registrant") that the
     Quarterly Report of the Registrant on Form 10-QSB for the quarter ended
     March 31, 2003 fully complies with the requirements of Section 13(a) of the
     Securities Exchange Act of 1934 and that the information contained in such
     report fairly presents, in all material respects, the consolidated
     financial condition of the Registrant at the end of such period and the
     results of operations of the Registrant for such period.

Date: May 14, 2003             /s/ Gerald W. Free
                               -------------------------------------------------
                               Gerald W. Free
                               President and Chief Executive Officer


Date: May 14, 2003             /s/ Derrell W. Chapman
                               -------------------------------------------------
                               Derrell W. Chapman
                               Executive Vice President, Chief Financial Officer
                               and Chief Operating Officer


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