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, 1999

                                       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, 1999, was 1,392,853.
<PAGE>
                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 MARCH 31, 1999



                                      INDEX

                                           

Part I - Financial Information

   Item 1.  Financial Statements

      Consolidated Statements of Financial Condition, March 31, 1999
      (Unaudited) and September 30, 1998........................................

      Consolidated Statements of Income, (Unaudited) three months and six months
      ended March 31, 1999, and March 31, 1998..................................

      Consolidated Statement of Changes in Stockholders' Equity, (Unaudited)
      six months ended March 31, 1999...........................................

      Consolidated Statements of Cash Flows, (Unaudited) six months ended
      March 31, 1999, and March 31, 1998........................................

      Notes to (Unaudited) Consolidated Financial Statements, March 31, 1999....

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

Part II - Other Information

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

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

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

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

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

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

Signature Page..................................................................
<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 MARCH 31, 1999



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.  For additional  discussion of the Company's formation and intended
operations,  see the Form S-1 Registration  Statement (No.  33-83758) filed with
the Securities and Exchange  Commission and the Company's  annual report on Form
10-KSB  for the  fiscal  year  ended  September  30,  1998,  also filed with the
Commission.

The financial  statements presented in this Form 10-QSB reflect the consolidated
financial  condition  and  results of  operations  of the Company and its wholly
owned subsidiary, First Federal Savings and Loan Association of Tyler.
<PAGE>
<TABLE>
<CAPTION>
                                   EAST TEXAS FINANCIAL SERVICES, INC.
                              CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                  ASSETS                                            March 31, 1999    September 30, 1998
                                                                    --------------    ------------------
                                                                      (Unaudited)
<S>                                                                  <C>                <C>          
Cash and due from banks ........................................     $     960,755      $     592,363
Interest-bearing deposits with banks ...........................         3,330,176          1,104,695
Interest-earning time deposits with financial institutions .....         2,559,617          1,959,617
Federal funds sold .............................................                 0            129,187
Investment securities available-for-sale .......................         3,036,307                  0
Mortgage-backed securities available-for-sale ..................        22,145,577         12,810,165
Investment securities held-to-maturity (estimated market
     value of $27,045,150 at March 31, 1999, and
     $30,115,954 at September 30, 1998) ........................        27,015,739         29,766,844
Mortgage-backed securities held-to-maturity (estimated
     market value of $7,782,809 at March 31, 1999
     and $11,088,555 at September 30, 1998) ....................         7,743,937         10,940,500
Loans receivable, net of allowance for credit losses of $231,933
     at March 31, 1999 and $233,180 at September 30, 1998 ......        61,760,054         61,119,047
Accrued interest receivable ....................................           965,070            978,378
Federal Home Loan Bank stock, at cost ..........................         1,386,600            789,100
Premises and equipment .........................................         2,700,269          2,273,067
Foreclosed real estate, net of allowance of $-0- ...............                 0             34,500
Mortgage servicing rights ......................................           264,362            216,879
Other assets ...................................................           474,308          1,303,120
                                                                     -------------      -------------

     Total Assets ..............................................     $ 134,342,771      $ 124,017,462
                                                                     =============      =============


     LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
     Demand deposits ...........................................     $   1,455,359      $   1,528,374
     Savings and NOW deposits ..................................        11,764,053         10,504,973
     Time deposits .............................................        73,857,107         74,610,310
                                                                     -------------      -------------
           Total deposits ......................................        87,076,519         86,643,657

     FHLB advances .............................................        26,907,438         14,945,852
     Advances from borrowers for taxes and insurance ...........           323,634            844,188
     Federal income taxes
           Current .............................................           (53,725)               -0-
           Deferred ............................................            34,408             31,618
     Accrued expenses and other liabilities ....................           306,994          1,168,453
                                                                     -------------      -------------
           Total liabilities ...................................       114,595,268        103,633,768
                                                                     -------------      -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                   EAST TEXAS FINANCIAL SERVICES, INC.
                              CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                               (continued)

                                                                    March 31, 1999    September 30, 1998
                                                                    --------------    ------------------
                                                                      (Unaudited)
<S>                                                                  <C>                <C>          
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 1,392,853 outstanding ......            18,845             18,845
     Additional paid-in-capital ................................        12,319,624         12,319,624
     Deferred compensation - RRP shares ........................          (164,874)          (213,366)
     Unearned employee stock ownership plan shares .............          (543,564)          (543,564)
     Unrealized gain/(loss) available-for-sale securities (net)           (110,129)           (64,974)
     Retained earnings (substantially restricted) ..............        13,751,695         13,661,392
     Treasury stock, 491,639 shares at cost ....................        (5,524,094)        (4,794,263)
                                                                     -------------      -------------

           Total stockholder's equity ..........................        19,747,503         20,383,694
                                                                     -------------      -------------

           Total liabilities and stockholders' equity ..........     $ 134,342,771      $ 124,017,462
                                                                     =============      =============
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
<PAGE>
<TABLE>
<CAPTION>
                                      EAST TEXAS FINANCIAL SERVICES, INC.
                                       CONSOLIDATED STATEMENTS OF INCOME

                                                             Three Months                   Six Months
                                                            Ended March 31,               Ended March 31,
                                                              (Unaudited)                  (Unaudited)
                                                         1999            1998           1999            1998
                                                     -----------      ----------     ----------     ----------
<S>                                                  <C>              <C>            <C>            <C>       
INTEREST INCOME Loans receivable:
     First Mortgage ............................     $ 1,105,784      $1,152,062     $2,227,971     $2,286,895
     Consumer and other loans ..................          83,109          40,783        159,118         70,088
   Securities available for sale:
     Investment securities .....................          37,655          15,104         52,190         30,313
     Mortgage-backed securities ................         312,272         104,684        576,592        169,074
   Securities held to maturity:
     Investment securities .....................         417,734         406,515        885,040        800,424
     Mortgage-backed securities ................         138,310         281,066        317,010        595,768
   Deposits with banks .........................          50,913          54,923         83,996        131,885
                                                     -----------      ----------     ----------     ----------

       Total interest income ...................       2,145,777       2,055,137      4,301,917      4,084,447
                                                     -----------      ----------     ----------     ----------

INTEREST EXPENSE

   Deposits ....................................       1,045,721       1,105,465      2,129,252      2,229,135
   FHLB advances ...............................         305,619         121,675        556,837        183,848
                                                     -----------      ----------     ----------     ----------

       Total interest expense ..................       1,351,340       1,227,140      2,686,089      2,412,983
                                                     -----------      ----------     ----------     ----------

       Net interest income before
          provision for loan losses ............         794,437         827,998      1,615,828      1,671,464

   Provision for loan losses ...................               0               0              0              0
                                                     -----------      ----------     ----------     ----------

       Net interest income after
         provision for loan losses .............         794,437         827,998      1,615,828      1,671,464
                                                     -----------      ----------     ----------     ----------

NONINTEREST INCOME
   Gain(loss) on sale of interest-earning assets          28,589          42,008        105,065         63,445
   Loan origination and commitment fees ........          23,450          18,807         47,058         41,770
   Loan servicing fees .........................          18,950          26,621         29,733         48,924
   Gain on foreclosed real estate ..............          (2,068)            560            302            560
   Other .......................................           5,787          10,926         60,249         21,638
                                                     -----------      ----------     ----------     ----------

       Total noninterest income ................          74,708          98,922        242,407        176,337
                                                     -----------      ----------     ----------     ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                      EAST TEXAS FINANCIAL SERVICES, INC.
                                       CONSOLIDATED STATEMENTS OF INCOME
                                                  (continued)

                                                             Three Months                   Six Months
                                                            Ended March 31,               Ended March 31,
                                                              (Unaudited)                  (Unaudited)
                                                         1999            1998           1999            1998
                                                     -----------      ----------     ----------     ----------
<S>                                                  <C>              <C>            <C>            <C>       
NONINTEREST EXPENSE
   Compensation and benefits ...................         518,609         460,684      1,028,684        952,794
   Occupancy and equipment .....................          68,687          45,513        114,891         93,759
   SAIF deposit insurance premium ..............          13,480          14,299         26,464         28,446
   Loss on foreclosed real estate ..............               0               0          2,069              0
   Other .......................................         171,384         157,288        314,321        296,954
                                                     -----------      ----------     ----------     ----------

       Total noninterest expense ...............         772,160         677,784      1,486,429      1,371,953
                                                     -----------      ----------     ----------     ----------

Income (loss) before provision for income taxes           96,985         249,135        371,806        475,848

Income tax expense (benefit) ...................          39,606          91,340        138,656        173,749
                                                     -----------      ----------     ----------     ----------

NET INCOME (LOSS) ..............................     $    57,379      $  157,795     $  233,150     $  302,099
                                                     ===========      ==========     ==========     ==========

Earnings per common share ......................     $       .04      $      .11     $      .17     $      .21
Earnings per common share - assuming dilution ..             .04             .11            .17            .20

</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
<PAGE>
<TABLE>
<CAPTION>
                                                              EAST TEXAS FINANCIAL SERVICES, INC.
                                                   CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                                                          (UNAUDITED)

SIX MONTHS ENDED
March 31, 1999


                                    Common Stock        Unearned      Unallocated       Unrealized
                                   and Additional          RRP            ESOP        Gain(loss) on       Retained       Treasury 
                                   Paid in Capital       Shares          Shares       AFS Securities      Earnings         Stock 
                                   ---------------       ------          ------       --------------      --------         ----- 
<S>                                  <C>               <C>             <C>              <C>              <C>             <C> 
Balance September 30, 1998          $  12,338,469     $   (213,366)   $ (543,564)      $   (64,974)     $13,661,392     $(4,794,263)

Comprehensive income:
     Net income                                                                                             233,150                 
     Unrealized holding gains                                                              (45,155)                                 
                                                                                                                                    
Comprehensive income                                                                                                                
                                                                                                                                    

Deferred compensation
   amortization                                              48,492                                                                 

Purchase of treasury stock
   at cost                                                                                                                 (729,831)
(729,831)

Payment of cash dividends                                                                                  (140,375)                
Accrued dividends - RRP stock                                                                                (2,472)
(2,472)

Balance March 31, 1999              $  12,338,469      $  (164,874)   $ (543,564)      $  (110,129)     $13,751,695     $(5,524,094)
                                    =============      ============   ===========      ============     ===========     =========== 
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                       EAST TEXAS FINANCIAL SERVICES, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                   (UNAUDITED)

<S>                                 <C>                <C>                                 
Balance September 30, 1998          $                  $20,383,694      
                                                                            
Comprehensive income:                                                       
     Net income                           233,150          233,150         
     Unrealized holding gains             (45,155)         (45,155)           
                                    -------------                           
Comprehensive income                $     187,995                        
                                    =============                           
                                                                            
Deferred compensation                                                       
   amortization                                             48,492               
                                                                            
Purchase of treasury stock                                                  
   at cost                                                (729,831)                                                                
                             
Payment of cash dividends                                 (140,375)           
Accrued dividends - RRP stock                               (2,472) 
                                                                            
Balance March 31, 1999                                 $19,747,503        
                                                       ===========
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
<PAGE>
<TABLE>
<CAPTION>
                               EAST TEXAS FINANCIAL SERVICES, INC.
                               CONSOLIDATED STATEMENT OF CASH FLOWS
                                           (UNAUDITED)


                                                                     For the Six Months Ended
                                                                             March 31,
                                                                       1999              1998
                                                                   ------------     ------------ 
<S>                                                                <C>              <C>        
Cash flows from operating activities:
     Net income ..............................................     $   233,150      $   302,099
     Adjustments to reconcile net income to net cash
        provided by operating activities:
         Amortization of deferred loan origination fees ......          10,715            2,071
         Amortization of premiums and discounts on investment
            securities, mortgage-backed securities, and loans           78,783           64,514
         Amortization of deferred compensation ...............          58,191           58,191
         Compensation charge related to release of ESOP shares          55,921           60,547
         Depreciation ........................................          45,780           48,881
         Deferred income taxes ...............................          60,838           14,299
         Stock dividends on FHLB stock .......................         (31,582)         (30,300)
         Origination of mortgage servicing rights ............         (86,422)         (49,826)
         Amortization of mortgage servicing rights ...........          38,939           20,143
         Net (gain) loss on sale of:
              Securities held to maturity ....................               0                0
              Foreclosed real estate .........................           2,069                0
              Fixed assets ...................................               0                0
              Net loss on disposal of fixed assets ...........               0            3,889
              Other assets ...................................               0                0
              Loans ..........................................         (18,642)         (13,619)
              Loans held for sale ............................               0                0
         Proceeds from loan sales ............................       6,661,864        4,199,237
         Originations of loans held for sale .................               0                0
         Proceeds from sale of fixed assets ..................               0                0
         (Increase) decrease in:
              Accrued interest receivable ....................          13,308          (41,749)
              Other assets ...................................         828,812          120,627
              Accrued loan loss ..............................           1,247                0
         Increase (decrease) in:
              Federal income tax payable .....................         (53,725)         (33,820)
              Accrued expenses and other liabilities .........        (861,459)        (915,453)
         Capitalized interest on time deposits ...............               0                0

Net cash provided (used) by operating activities .............       7,037,787        3,809,731
                                                                   -----------      -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                      EAST TEXAS FINANCIAL SERVICES, INC.
                                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                                  (UNAUDITED)

                                                                                 For the Six Months Ended
                                                                                         March 31,
                                                                                   1999             1998
                                                                             --------------     -------------- 
<S>                                                                          <C>                <C>          
Cash flows from investing activities
     Purchases of interest earning time deposits .......................     $    (600,000)     $    (99,617)
     Net decrease (increase) in fed funds sold .........................           129,187            (1,379)
     Purchases of obligations - U.S. Govt. and agencies
        held to maturity ...............................................        (4,997,656)       (8,530,438)
     Proceeds from maturity of time deposits ...........................                 0           197,573
     Proceeds from sale of securities held to maturity .................                 0                 0
     Proceeds from maturities of obligations - U.S. Govt ...............
        and agencies held to maturity ..................................         7,725,000         6,500,000
     Proceeds from sale of obligations of U.S. Govt ....................
        and agencies held to maturity ..................................                 0                 0
     Purchases of FHLB stock ...........................................          (597,500)                0
     Purchases of investment securities available-for-sale .............        (3,073,051)                0
     Purchases of mortgage-backed securities available-for-sale ........       (12,513,589)       (5,559,986)
     Purchases of mortgage-backed securities held to maturity ..........                 0                 0
     Principal payments on mortgage-backed securities available for sale         3,101,656           815,511
     Principal payments on mortgage-backed securities held to maturity .         3,186,390         3,885,016
     Net originations and principal collections on loans ...............        (7,413,269)       (8,438,910)
     Capitalized acquisition cost related to foreclosed real estate ....                 0                 0
     Proceeds from sale of foreclosed real estate ......................            32,432                 0
     Proceeds from sale of fixed assets ................................                 0                 0
     Expenditures for premises and equipment ...........................          (427,202)             (352)
                                                                             -------------      ------------

Net cash provided (used) by investing activities .......................       (15,447,602)      (11,235,382)
                                                                             -------------      ------------

Cash flows from financing activities: Net increase (decrease) in:
         Non-interest bearing deposits, savings, NOW accounts ..........         1,186,065          (319,856)
         Time deposits .................................................          (753,203)         (323,416)
         FHLB Advances .................................................       145,510,909        45,273,500
         Repayment of FHLB Advances ....................................      (133,549,323)      (38,442,612)
         Advances from borrowers for taxes and insurance ...............          (520,554)         (486,725)
     Dividends paid to stockholders ....................................          (140,375)         (104,538)
     Purchase of treasury stock ........................................          (729,831)                0
     Proceeds from sale of common stock ................................                 0                 0
                                                                             -------------      ------------

Net cash provided (used) by financing activities .......................        11,003,688         5,596,353
                                                                             -------------      ------------

Net increase (decrease) in cash and cash equivalents ...................         2,593,873        (1,829,298)

Cash and cash equivalents at beginning of the period ...................         1,697,058         6,931,133
                                                                             -------------      ------------

Cash and cash equivalents at end of the period .........................     $   4,290,931      $  5,101,835
                                                                             =============      ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                      EAST TEXAS FINANCIAL SERVICES, INC.
                                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                                  (UNAUDITED)

                                                                                 For the Six Months Ended
                                                                                         March 31,
                                                                                   1999             1998
                                                                             --------------     -------------- 
<S>                                                                          <C>                <C>          
Supplemental disclosure:
     Cash paid for:
         Interest on deposits ..........................................     $   2,129,252      $  1,114,472
         Income taxes ..................................................     $     145,257      $          0

     Transfers from loans to real estate
        acquired through foreclosures ..................................     $           0      $    207,229

     Loans charged off to loan loss reserves ...........................     $           0      $     36,744

     Recoveries credited to loan loss reserves .........................     $           0      $          0
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements
<PAGE>
                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY


             NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 1999


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, 1998.
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 six months ended March 31,
1999 and 1998,  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, 1999 and 1998,  the  weighted  average  number of shares
outstanding totaled 1,335,051 and 1,441,868,  shares  respectively.  For the six
months  ended March 31, 1999 and 1998,  the  weighted  average  number of shares
outstanding totaled 1,362,176 and 1,441,868 shares respectively.

Earnings  per common  share - assuming  dilution,  for the three  months and six
months  ended March 31,  1999 and 1998,  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, 1999
and 1998,  the weighted  average number of shares  outstanding  for earnings per
share - assuming dilution totaled 1,348,110 and 1,496,037,  shares respectively.
For the six months ended March 31, 1999 and 1998, the weighted average number of
shares  outstanding for earnings per share - assuming dilution totaled 1,374,721
and 1,493,398, 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, 1999
and 1998.
<PAGE>
NOTE 3 - SECURITIES

The  carrying  values  and  estimated  market  values of  investment  securities
available-for-sale as of March 31, 1999, 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 ....     $3,000,000     $73,545     $  2,620      $   (34,618)     $3,036,307

Adjustable Rate              0           0            0                0               0
                    ----------     -------     --------      -----------      ----------

                    $3,000,000     $73,545     $  2,620      $   (34,618)     $3,036,307
                    ----------     -------     --------      -----------      ----------
</TABLE>
The  weighted  average  yield  on  the  investment  security  available-for-sale
portfolio was 5.91% for the quarter ended March 31, 1999.

The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of March 31, 1999, 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. Treasury ...........     $ 2,501,494     $ 4,248     $ 2,338     $ 2,503,404


      U. S. government agency ..      24,514,245      82,108      54,607      24,541,746
                                     -----------     -------     -------     -----------

           Total debt securities     $27,015,739     $86,356     $56,945     $27,045,150
                                     -----------     -------     -------     -----------
</TABLE>
The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of March 31, 1999, by contractual maturity are shown below:
<TABLE>
<CAPTION>
                                                                      Estimated
                                                     Amortized          Market
                                                        Cost             Value
                                                    -----------      ----------- 
<S>                                                 <C>              <C>        
Due in one year or less ......................      $ 6,519,862      $ 6,550,651
Due after one year through two years .........        3,994,352        4,048,820
Due after two years through three years ......        1,000,000          992,841
Due after three years through five years .....       15,501,525       15,452,838
                                                    -----------      -----------

        Total debt securities ................      $27,015,739      $27,045,150
                                                    -----------      -----------
</TABLE>
<PAGE>
As of March 31, 1999,  each of the  securities  due after three and through five
years had call options  exercisable at the  discretion of the issuer.  Such call
dates varied between April 1999 and June 2001.

As of March 31, 1999,  the weighted  average yield on the  Company's  investment
security held-to-maturity  portfolio was approximately 5.99% while the Company's
overall investment portfolio, including securities held-to-maturity,  investment
securities  available-for-sale,  overnight  deposits and  interest  earning time
deposits with other financial institutions was approximately 5.86%.

The carrying values and estimated market values of  mortgage-backed  and related
securities  available-for-sale  as of March 31, 1999, 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 ....     $ 1,478,332     $      0     $  11,748      $    (16,363)     $ 1,450,221


Adjustable Rate      20,576,089      236,949         1,800          (115,882)      20,695,356
                    -----------     --------     ---------      ------------      -----------

                    $22,054,421     $236,949     $  13,548      $   (132,245)     $22,145,577
                    -----------     --------     ---------      ------------      -----------
</TABLE>
The carrying values and estimated market values of  mortgage-backed  and related
securities  held-to-maturity  as of March 31,  1999,  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 ....     $  886,719       $     0     $      632     $  886,087        $  887,938

Adjustable Rate      6,804,501        61,648          8,299      6,857,850         6,894,871
                    ----------       -------     ----------     ----------        ----------

                    $7,691,220       $61,648     $    8,931     $7,743,937        $7,782,809
                    ----------       -------     ----------     ----------        ----------

</TABLE>

The overall yield on the Company's  mortgage-backed  securities portfolios as of
March 31, 1999, was approximately 6.07%.

NOTE 4 - CURRENT ACCOUNTING ISSUES

SFAS No. 130 In June of 1997, the Financial  Accounting  Standards  Board issued
Statement  of  Financial   Accounting  Standards  (SFAS  )  No.  130,  Reporting
Comprehensive  Income.  SFAS No. 130  establishes  standards  for  reporting and
displaying  comprehensive income and its components in general purpose financial
statements.  Comprehensive  income  includes net income and several  other items
that  current  accounting  standards  require  to be  recognized  outside of net
income.
<PAGE>
SFAS No. 130 requires companies to display comprehensive income in its financial
statements,  to classify items of comprehensive  income by their nature in their
financial statements and to display accumulated balances of comprehensive income
in stockholders'  equity  separately from retained earnings and addition paid-in
capital.

The Statement is effective for fiscal years  beginning  after December 31, 1997.
The Company adopted the Statement as required.

SFAS No. 131 In June of 1997, the Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting  Standards  (SFAS) No. 131,  Disclosure About
Segments of and  Enterprise  and Related  Information.  The  Statement  requires
entities  to report  certain  information  about their  operating  segments in a
complete  set of  financial  statements.  It  requires  them to  report  certain
enterprise-wide  information  about their  products and services,  activities in
different  geographic  regions  and their  reliance on major  customers,  and to
disclose certain segment information in their interim financial statements.

The Statement is effective for fiscal years  beginning  after December 15, 1997.
The Company  has  determined  that it has no  reporting  obligations  under this
statement. The Company adopted the Statement as required.

SFAS No. 132 In February  of 1998,  the  Financial  Accounting  Standards  Board
issued  Statement of Financial  Accounting  Standard (SFAS) No. 132,  Employers'
Disclosures  about  Pensions  and Other  Postretirement  Benefits.  SFAS No. 132
revises current  disclosures  for employers'  disclosures for pensions and other
postretirement  benefit plans. It standardizes  the disclosure  requirements for
these plans to the extent possible, and it requires additional information about
changes in the  benefit  obligations  and the fair value of plan assets that are
expected  to  enhance  financial  analysis.  It does not change  measurement  or
recognition standards for these plans.

SFAS No. 132 is effective for fiscal years  beginning  after  December 15, 1997.
The Company  anticipates  changing the  disclosure  requirements  of its defined
benefit  pension  plan as a result of the  statement.  The  Company has no other
postretirement benefit plans.

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

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

NOTE 5 - STOCK OPTION AND INCENTIVE PLAN

The 1995 Stock Option and Incentive Plan (the "Stock Option Plan")  provides for
awards in the form of stock options,  stock appreciation  rights,  limited stock
appreciation rights, and restricted stock.
<PAGE>
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 121,519 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  vest at a rate of 20% per year
beginning at the date of the grant.  The Company plans to use treasury stock for
the  exercise  of  options.  The  following  is a summary  of changes in options
outstanding:
<TABLE>
<CAPTION>
<S>                                                                      <C>    
Options outstanding
     Balance, September 30, 1995                                         103,411
           Granted                                                           -0-
           Exercised at $14.125 per share                                (2,090)
           Forfeited and expired                                             -0-
Balance, September 30, 1996                                              101,321
           Granted                                                           -0-
           Exercised at $14.125 per share                                (1,056)
           Forfeited and expired                                             -0-
      Balance, September 30, 1997                                        100,276
                                                                         =======
</TABLE>
On March 25, 1998, the Company  completed a 3 for 2 stock split in the form of a
50%  dividend.  As a result of the  split,  the number of  outstanding  options,
option price,  options  exercisable at year end, and shares available for future
grants were adjusted as follows:
<TABLE>
<CAPTION>
<S>                                                                      <C>    
Options outstanding
     Balance, September 30, 1997                                         150,411
         Granted                                                             -0-
         Exercised at $9.42 per share                                    (1,568)
         Forfeited and expired                                               -0-
     Balance, September 30, 1998                                         148,843
                                                                         =======

Options exercisable at December 31, 1998 under stock option plan          86,807
                                                                        ========

Shares available for future grants                                        27,162
</TABLE>

During the six months ended March 31, 1999, no options were  exercised,  issued,
or forfeited.
<PAGE>
NOTE 6 - ADVANCES FROM FEDERAL HOME LOAN BANK

The  outstanding  advances from the FHLB consisted of the following at March 31,
1999:
<TABLE>
<CAPTION>
          Maturity                         1998                    Rate
          --------                         ----                    ----
<S>                                 <C>                             <C>  
          04/06/1999                $         682,909               4.90%
          04/26/1999                $      22,403,000               4.88%
          12/31/2004                $         256,847               6.09%
          01/03/2005                $         120,561               6.03%
          01/01/2013                $         475,310               6.09%
          01/01/2013                $         451,619               6.13%
          02/01/2013                $         448,192               5.91%
          03/03/2014                $       1,060,000               5.45%
          04/01/2014                $       1,009,000               5.97%
</TABLE>

Pursuant  to  collateral  agreements  with the  Federal  Home Loan Bank  (FHLB),
advances  are  secured by all stock and deposit  accounts in the FHLB,  mortgage
collateral, securities collateral, and other collateral.
<PAGE>
                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 MARCH 31, 1999




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

GENERAL

The principle business of the Company is that of a community-oriented  financial
institution  attracting deposits from the general public and using such deposits
to originate  one- to  four-family  residential  loans and, to a lesser  extent,
commercial  real estate,  one- to  four-family  construction,  multi-family  and
consumer  loans.  These  funds have also been used to  purchase  mortgage-backed
securities,  U. S.  government  and  agency  obligations  and other  permissible
securities.  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.

The Company has expanded its product  lines to include  commercial  and consumer
loans, debit and credit cards, an ATM machine and cards, safe deposit boxes, and
a full range of business and personal  checking and deposit  accounts.  With the
introduction  of new products and  services,  the Company  opened an  additional
full-service office located in South Tyler.

The start-up costs  associated with the new product lines and the expansion will
be  significant  and the Company does not anticipate the new branch office to be
profitable immediately.  However,  management believes that the long-term future
of the Company is dependent upon the success of this change.
<PAGE>
FINANCIAL CONDITION

Total assets were $134.3  million at March 31, 1999,  a $10.3  million  increase
from the $124.0  million  reported at September  30, 1998,  the  Company's  most
recent  fiscal year end.  The  increase in total assets was the result of a $9.3
million  increase  in  mortgage-backed  securities  available-for-sale,  a  $3.0
million increase in investment securities  available-for-sale and a $2.7 million
increase in  interest-earning  deposits with banks. The increases were partially
offset by a $2.8 million decline in investment securities held-to-maturity and a
$3.2 million decline in mortgage-backed securities held to maturity.

At March 31, 1999,  loans  receivable  totaled $61.8 million,  compared to $61.1
million at September 30, 1998.  The increase in loans  receivable was the result
of a change in  Company  policy  to place  into  portfolio  15 year  fixed  rate
mortgage loans with interest rates below 7.00%.  The Company had previously sold
such loans into the secondary  market.  The loans  consist  primarily of 15 year
fixed rate mortgages funded with a combination of long term amortizing and short
term advances from the FHLB. The loan arbitrage is monitored on a monthly basis.
The Company  anticipates  continuing  the program as long as the  interest  rate
spread remains  favorable.  The Company continued its policy of selling all one-
to  four-family  loans with terms of  greater  than 15 years into the  secondary
market.

The Company  continued to offer home equity loans for up to 80% of the borrowers
equity in the property, the maximum allowed by Texas law. Loan terms of up to 15
years  are  offered  at  interest  rates,  depending  upon the size of the loan,
ranging from 8.00% to 9.50%. As of March 31, 1999, the Company had approximately
$2.7 million in home equity loans outstanding.

The increase in the mortgage-backed securities  available-for-sale portfolio was
primarily  the result of the  Company's  decision  to  continue  its  program of
borrowing  funds from the FHLB and investing  the proceeds into  mortgage-backed
and  similar  securities  in an  effort  to  achieve  a  positive  margin on the
transaction. At March 31, 1999, the portfolio totaled $22.1 million, compared to
$12.8 million at September 30, 1998. At March 31, 1999, the average yield on the
securities  in the  program was  approximately  5.71% while the cost of the FHLB
advance was approximately 4.88%,  resulting in a pre-tax interest rate spread of
83 basis points.

Subject to favorable interest rates, the Company intends,  over the next several
quarters,  to borrow an additional $20.0 million from the Federal Home Loan Bank
("FHLB") and invest the proceeds in adjustable rate  mortgage-backed  securities
to be held in an available-for-sale  accounting  classification.  The purpose of
the  program is to  leverage a portion of the  Company's  excess  capital and to
achieve a rate of return on the  difference in the rate earned on the securities
and the cost of the advances.  The success of the program will be dependent upon
several  factors,  including the Company's  ability to purchase  adjustable rate
securities  that will maintain a positive  margin above the FHLB advance  rates.
The  Company  intends  to  primarily  borrow  funds  from the FHLB with terms of
approximately thirty days and invest in mortgage-backed securities with interest
rate adjustment frequencies that vary between one month and one year.

The investment security available-for-sale  portfolio consists of corporate debt
securities.  The  corporate  debt  securities  have a fixed  rate and term.  The
Company invests only in investment grade corporate debt with varying  maturities
and ratings. All corporate debt securities have maturities of less than or equal
to five years. The yield on the investment security available-for-sale portfolio
was 5.91% for the quarter ended March 31, 1999.
<PAGE>
At March 31, 1999, the investment securities  held-to-maturity portfolio totaled
$27.0  million,  compared to $29.8  million at September  30, 1998. At March 31,
1999, the overall yield on the portfolio was  approximately  5.99%,  compared to
6.01% at September 30, 1998. At March 31, 1999,  the  portfolio  contained  $6.5
million in securities with remaining terms until maturity of less than one year,
$4.0 million with  remaining  maturities of one through two years,  $1.0 million
with  remaining  maturities  of two through  three years and $15.5  million with
remaining  maturities  of  three  through  five  years.  Each of the  investment
securities with remaining  maturities of three through five years is callable at
the  discretion of the issuer,  and the call dates range from April 1999 to June
2001.

The Company's mortgage-backed securities held-to-maturity portfolio totaled $7.7
million at March 31, 1999,  compared to $10.9 million at September 30, 1998. The
decrease in  mortgage-backed  securities  held-to-maturity  was primarily due to
principal payments received on the portfolio during the period.  Continued lower
long-term  interest  rates could  continue to  influence  borrower  decisions to
refinance  the  adjustable   rate  mortgage   loans   underlying  the  Company's
mortgage-backed  securities  held-to-maturity  portfolio.  The result would be a
continued decrease in the balances reported in this asset category. The weighted
average yield on the portfolio was approximately 7.08% at March 31, 1999.

Total  deposits were $87.1  million at March 31, 1999, a $433,000  increase from
the $86.6 million reported at September 30, 1998. The Company's cost of deposits
was  approximately  4.84% at March  31,  1999,  and the  overall  cost of funds,
including FHLB advances, was approximately 4.88%.

The Company  reported  $26.9  million in borrowed  funds at March 31,  1999,  an
increase of $12.0 million from the $14.9 million reported at September 30, 1998.
Approximately  $22.4  million  of the  borrowed  funds  were  used to  invest in
mortgage-backed securities available-for-sale as part of the Company's wholesale
funded arbitrage program.  The advance had a remaining term of less than 30 days
and had an interest rate of 4.88%.  Approximately  $2.8 million was used to fund
the wholesale loan arbitrage of 15 year loans at an average rate of 5.50%,  with
the  remaining  $1.7 million in advances used to fund a portion of the Company's
commercial   real  estate  loan   portfolio  at  a  weighted   average  cost  of
approximately 6.05%.

Stockholders'  equity  totaled  $19.7  million at March 31,  1999, a decrease of
$636,000 from the $20.4 million reported at September 30, 1998. The decrease was
primarily  attributable to the $730,000  increase in treasury stock, the payment
of cash  dividends  in the amount of  $140,000,  and a $45,000  increase  in net
unrealized losses on securities  available-for-sale.  The decrease was partially
offset by net income of  $233,000  reported  for the six months  ended March 31,
1999, and a $49,000 decrease in deferred compensation.

At March 31, 1999,  the Company  reported a book value per share of $14.18 based
on 1,392,853 net outstanding shares. During the six months ended March 31, 1999,
the Company  repurchased  71,203 shares of treasury stock at an average price of
$10.25 per share.  The result was an  increase  in the number of shares  held as
treasury stock to 491,639 at an average cost of $11.236 per share.
<PAGE>
RESULTS OF OPERATIONS

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

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998

General.  Net income for the three  months  ended  March 31, 1999 was $57,000 or
$.04 per share,  a decrease  of  $101,000  from the  $158,000  or $.11 per share
reported for the three  months ended March 31, 1998.  The decrease in net income
was attributable to a $34,000 decline in net interest income after provision for
loan losses, a $94,000  increase in total  non-interest  expense,  and a $24,000
decrease in noninterest  income. The decrease in net income was partially offset
by a $52,000 decrease in income tax expense.

Net Interest  Income.  For the quarter ended March 31, 1999, net interest income
before  provision for loan losses totaled  $794,000,  a decrease of $34,000 from
the $828,000  reported for the quarter  ended March 31, 1998.  On an  annualized
basis,  the  $794,000  in net  interest  income  for  the  current  quarter  was
approximately  2.48% of  average  interest  earning  assets and 2.37% of average
total assets. For the quarter ended March 31, 1998, the $828,000 in net interest
income was  approximately  2.84% of average interest earning assets and 2.75% of
average total assets.  Average interest earning assets were approximately $128.2
million for the quarter ended March 31, 1999, compared to $116.7 million for the
quarter ended March 31, 1998.

The  decline in net  interest  income,  despite the fact that  average  interest
earning  assets  increased by  approximately  $11.5  million,  was primarily the
result of continued  period of minimal  differences  in short term and long term
interest  rates.  Cash flow  from the  Company's  interest  earning  assets  has
increased over the past several  quarters as mortgage  borrowers have elected to
refinance their mortgages. In addition, scheduled maturities and call options of
the investment  securities  portfolios have also provided additional  challenges
for reinvesting cash flow in this current interest rate environment.  The result
has been,  despite growth in  interest-earning  assets, a yield on the Company's
average  interest-earning  assets that declined from 7.05% for the quarter ended
March 31,  1998 to 6.68% for the  quarter  ended March 31, 1999 as the cash flow
has been reinvested at lower interest rates.

Interest  rates on the  Company's  primary  source  of  funds,  certificates  of
deposit, have not decreased as rapidly as interest rates have fallen.  Continued
competition  for deposits in the  Company's  market has compelled the Company to
continue  to pay higher  interest  rates in order to  maintain  current  deposit
levels.  For the quarter  ended  March 31,  1999,  the $1.0  million in interest
expense on deposits was, on an annualized basis,  approximately 4.78% of average
interest costing deposits, compared to 4.82% for the same quarter in 1998. On an
annualized basis, the $1.4 million in total interest  expense,  reported for the
quarter  ended  March 31,  1999,  was  approximately  4.84% of average  interest
costing liabilities outstanding for the quarter. For the quarter ended March 31,
1998,  the $1.2 million in total  interest  expense was  approximately  4.97% of
average interest costing liabilities.
<PAGE>
Total interest  income was $2.2 million for the quarter ended March 31, 1999, an
increase of $91,000 from the $2.1 million reported for the same quarter in 1998.
Interest  income on  loans-receivable  totaled  $1.2 million or 7.74% of average
loans receivable balances  outstanding for the quarter ended March 31, 1999. For
the three months ended March 31, 1998, interest income on  loans-receivable  was
approximately  7.86% of average loans  receivable  balances.  During the quarter
ended  March 31,  1999,  the Company  implemented  a  wholesale  loan  arbitrage
program.  The program,  designed to leverage a portion of the  Company's  excess
capital, allows the Company to portfolio 15 year loans with rates below 7.00% as
well as  continuing  to place into  portfolio  mortgage  loans with an  original
maturity  of less than or equal to 15 years and with  interest  rates of greater
than or equal to 7.00%.  As a result,  the Company has been able to increase its
loans  receivable  portfolio and maintain  interest income from loans receivable
despite lower  mortgage  rates.  The growth has been at marginal  yields at less
than the  average  in the  portfolio  and the  result  has been a decline in the
average yield on the portfolio.  However, the goal of the program is to increase
overall net interest income.

Interest  income from  mortgage-backed  securities  available-for  sale  totaled
$312,000 for the three months ended March 31, 1999, compared to $105,000 for the
three months ended March 31, 1998.  The increase in interest  income is a direct
result of the  increase in the average  balance  outstanding  from $7.5 to $20.8
million.  Interest  income from this  portfolio is part of the Company's plan to
borrow  funds  from the FHLB and  invest in  mortgage-related  securities  in an
effort to achieve a margin on the  difference  in the  investment  yield and the
cost  of  the  borrowings  from  the  FHLB.  The  yield  on  the  portfolio  was
approximately 5.71% at March 31, 1999. [See "Financial Condition"]

Interest  income  from  the  investment  securities  held-to-maturity  portfolio
totaled $418,000 for the three months ended March 31, 1999, compared to $407,000
for the same  quarter  in 1998.  The  increase  was  primarily  the result of an
increase in the average balance  outstanding in the portfolio from $25.6 million
for the three months ended March 31, 1998 to $25.8  million for the three months
ended March 31, 1999.  Despite the fact that the average  yield on the portfolio
declined  from  6.35% for the  quarter  ended  March  31,  1998 to 6.00% for the
quarter  ended March 31, 1999.  The decline in the yield on the  portfolio was a
result of maturing or called  investment  securities that were replaced at lower
yields.

Interest income from the mortgage-backed  securities  held-to-maturity portfolio
totaled $138,000 for the three months ended March 31, 1999, compared to $281,000
for the same  period  in 1998.  Continued  prepayments  on the  adjustable  rate
securities  in the  portfolio  caused the average  balance in the  portfolio  to
decline to $9.3 million for the quarter  ended March 31, 1999 from $15.3 million
for the quarter ended March 31, 1998. The Company  redirected the cash flow from
the  portfolio  into  its  lending  operations  and  its  investment  securities
held-to-maturity  portfolio to replace matured or called investment  securities.
The result was a decline in  interest  income from the  portfolio,  as well as a
decline in the average yield on the  portfolio  from 7.35% for the quarter ended
March 31, 1998 to 7.15% for the quarter ended March 31, 1999.

Interest  paid to  depositors  totaled  $1.0  million for the three months ended
March 31,  1999,  down  $60,000 from the $1.1 million for the three months ended
March 31,  1998.  Average  deposit  balances  declined  $2.1  million from $89.5
million  for the quarter  ended March 31, 1998 to $87.4  million for the quarter
ended March 31, 1999.
<PAGE>
Interest on FHLB  advances  was  $306,000  for the three  months ended March 31,
1999,  compared to  $122,000  for the same period in 1998.  The  increase  was a
direct result of the continued  increase in total FHLB advances in the Company's
wholesale  investment  security  arbitrage and its program to match fund 15 year
loans with advances.

Total interest expense as a percentage of average  interest costing  liabilities
was approximately  4.84% for the three months ended March 31, 1999,  compared to
4.97% for the three months ended March 31, 1998.

Provision For Loan Losses. The Company made no provision for loan losses for the
quarter  ended March 31, 1999 or for the quarter  ended March 31,  1998.  [See -
"Asset Quality"]

Noninterest  Income.  Noninterest  income  totaled  $75,000 for the three months
ended March 31, 1999, compared to $99,000 for the same period in 1998, a $24,000
decrease.

The decrease was primarily the result of a decline in gains on sales of interest
earning assets to $29,000 for the current quarter from the $42,000  reported for
the same quarter in 1998. The decrease was  attributable to fewer mortgage loans
being sold into the secondary  market as the Company  implemented its program of
placing  all 15 year  and  shorter  loans  into  portfolio.  Additionally,  loan
servicing  fees  declined to $19,000  for the quarter  ended March 31, 1999 from
$27,000 for the quarter ended March 31, 1998.  Despite the fact that the balance
of loans  serviced  increased from March 31, 1998 to March 31, 1999, the Company
was forced to  write-off  previously  recorded  origination  mortgage  servicing
rights  income  due to  increased  refinancing  activity.  In  comparison,  loan
origination  fees increased to $23,000 for the three months ended March 31, 1999
from  $19,000  for the three  months  ended March 31,  1998.  The  increase  was
attributable to an increase in lending activity for the current quarter compared
to the same quarter in 1998.

Noninterest Expenses. Noninterest expenses totaled $772,000 for the three months
ended March 31, 1999,  compared to $678,000 for the three months ended March 31,
1998.

The  increase  in  noninterest  expense  was  partially  the result of a $58,000
increase in compensation and benefits expense from $461,000 for the three months
ended March 31,  1998 to $519,000  for the three  months  ended March 31,  1999.
Also,  there was a $23,000  increase in occupancy and equipment from $46,000 for
the three  months  ended March 31, 1998 to $69,000  for the three  months  ended
March 31, 1999.  The  increase in both  compensation  and  benefits  expense and
occupancy  and  equipment  expense  was  essentially  the  result of  additional
compensation for the staffing of a new  full-service  office opened for business
during the  current  quarter.  Also,  additional  expenses  associated  with the
funding of the Company's  defined benefit  pension plan and additional  expenses
associated  with the Company's  Employee  Stock  Ownership  Plan accounted for a
portion of the increase in compensation and benefits expense.

Provision For Income Taxes.  The Company  incurred federal income tax expense of
$40,000 or 40.8% of pre-tax  income for the three  months  ended March 31, 1999,
compared to $91,000 or 36.7% of pre-tax  income for the three months ended March
31, 1998.
<PAGE>
COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998

General.  For the six months  ended March 31,  1999,  the Company  reported  net
income of $233,000 or $.17 per common share and $.17 per common share - assuming
dilution,  compared  to  $302,000  or $.21 per common  share and $.20 per common
share - assuming  dilution for the six months ended March 31, 1998. The decrease
in net income was attributable to a $56,000 decline in net interest income after
provisions  for loan  losses and a $114,000  increase in  noninterest  operating
expenses,  which were  partially  offset by a $66,000  increase  in  noninterest
income and a $35,000 decrease in income tax expense.

Net  Interest  Income.  For the six months  ended March 31,  1999,  net interest
income after  provisions  for loan losses  totaled $1.6  million,  a decrease of
$56,000 from the $1.7 million  reported for the six months ended March 31, 1998.
On an annualized basis, the $1.6 million in net interest income after provisions
for loan  losses  for the  current  period  was  approximately  2.59% of average
interest  earning  assets and 2.50% of average total assets.  For the six months
ended March 31, 1998, the $1.7 million in net interest  income after  provisions
for loan losses was  approximately  2.91% of average interest earning assets and
2.87%  of  average  total  assets.   Average   interest   earning   assets  were
approximately  $124.6 million for the six months ended March 31, 1999,  compared
to $114.7 million for the six months ended March 31, 1998.

Total  interest  income was $4.3  million or 6.91% of average  interest  earning
assets for the six months  ended March 31,  1999,  compared  to $4.1  million or
7.12% of average  interest  earning  assets for the six months  ended  March 31,
1998. The increase in total interest  income is  attributable to the increase in
average  outstanding  balance of interest earning assets. The decline in average
yield on interest  earning assets was a result of continued lower interest rates
and a continued  narrowing  of the  difference  in short and long term  interest
rates. Cash flow from the Company's interest earning assets are being redeployed
in lower  yielding  assets  in the  current  interest  rate and the  result is a
decline in the average yield on the Company's interest earning asset portfolio.

Interest  income on loans  receivable  totaled  $2.4  million for the six months
ended March 31,  1999,  unchanged  from the $2.4  million  reported  for the six
months ended March 31, 1998.  The  continued  level of interest  income on loans
receivable,  despite a decline  in the  average  yield on the  portfolio,  was a
direct  result of the increase in balances  outstanding  in the portfolio as the
Company continued its policy of placing into portfolio the majority of the loans
it originates.  Average loans receivable  balance increased to $61.4 million for
the six months ended March 31, 1999 from $59.2  million for the six months ended
March 31, 1998.  For the six months  ended March 31,  1999,  the $2.4 million in
interest income on loans receivable was approximately  7.77%,  compared to 7.97%
for the six months ended March 31, 1998.

Interest  income from  mortgage-backed  securities  available-for  sale  totaled
$577,000 for the six months  ended March 31, 1999,  compared to $169,000 for the
six months ended March 31, 1998.  Interest income from this portfolio is part of
the Company's program,  begun in June of 1997, to borrow funds from the FHLB and
invest in mortgage-related  securities in an effort to achieve a positive margin
on the difference in the  investment  yield and the cost of the  borrowings.  At
March 31, 1999,  the Company had  approximately  $22.1  million  invested in the
program. [See "Financial Condition"]

Interest income on investment securities  held-to-maturity  totaled $885,000 for
the six months  ended March 31,  1999,  compared to $800,000  for the six months
ended March 31, 1998.  The increase in interest  income on the portfolio was the
result of a $4.3 million increase in the average balance outstanding,  despite a
<PAGE>
decline in the  overall  yield on the  portfolio  as  maturing  securities  were
reinvested  at lower  yields.  For the six  months  ended  March 31,  1999,  the
$885,000  in interest  income was  approximately  6.23% of the  average  balance
outstanding,  compared  to 6.65% for the  $800,000  reported  for the six months
ended March 31, 1998.

Interest income on mortgage-backed securities  held-to-maturity was $317,000 for
the six months  ended March 31,  1999,  compared to $596,000  for the six months
ended  March 31,  1998.  The  decline in interest  income on the  portfolio  was
primarily  the result of a decline in the  average  balance  outstanding  in the
portfolio  from $15.2  million  for the six months  ended March 31, 1998 to $9.3
million for the six months ended March 31,  1999.  The Company  redirected  cash
flow from the portfolio into its lending operations,  its investment  securities
available-for-sale  portfolio,  and its investment  securities  held-to-maturity
portfolio.   The  adjustable  rate  feature  of  the  underlying  loans  in  the
securities,  the higher coupon rates on such loans,  and lower rates of interest
on fixed interest  mortgage loans have caused  borrowers on the underlying loans
to seek out  opportunities to refinance their mortgages.  The result has been an
increase in the cash flow from the  portfolio,  which resulted in the decline in
the average balances in the portfolio.

Interest  expense was $2.7 million for the six months  ended March 31, 1999,  an
increase of $273,000  from the $2.4  million  reported  for the six month period
ended  March 31,  1998.  An increase in average  interest  costing  liabilities,
including  advances  from the FHLB,  from $95.8 million for the six months ended
March  31,  1998 to $107.8  million  for the six  months  ended  March 31,  1999
primarily  accounted for the increase in interest  expense.  The $2.7 million in
interest  expense  reported  for the six month  period  ended March 31, 1999 was
approximately 4.98% of average interest costing  liabilities,  compared to 5.04%
for the same period in 1998.

Noninterest  Income.  Noninterest  income was  $242,000 for the six months ended
March 31,  1999,  compared to $176,000  for the six months ended March 31, 1998.
The increase in income was directly attributable to additional gains on sales of
interest earning assets, additional loan origination fees, and other income. The
increase in other income was a result of a one time  collection  of a deficiency
judgment on a previously  foreclosed real estate owned property of approximately
$30,000.

Gains on sales on interest  earning  assets  totaled  $105,000 for the six month
period ended March 31, 1999,  compared to $63,000 for the six months ended March
31, 1998.  Loan  origination and commitment fees were $47,000 for the six months
ended March 31,  1999,  compared  to $42,000 for the six months  ended March 31,
1998. The increases were directly attributable to additional lending activity of
the  Company  during the  current  period and to the fact that  during the first
three months of the six month period ended March 31, 1999, the Company sold more
loans into the secondary market than during the comparable period in 1998.

Offsetting  the increases in  noninterest  income was a $19,000  decline in loan
servicing  fees from  $49,000 for the six months ended March 31, 1998 to $30,000
for the six months ended March 31, 1999.  The decline in loan  servicing fees is
attributable  to  the  Company's  election  to  write-off   previously  recorded
origination  mortgage  servicing rights income as loans serviced were refinanced
with shorter maturities.
<PAGE>
Noninterest  Expense.  Noninterest  expense was reported as $1.5 million for the
six month period ended March 31, 1999, a $114,000 increase from the $1.4 million
reported for the six months ended March 31, 1998.

The  increase  in  noninterest  expense  was  primarily  the result of a $76,000
increase in compensation  and benefits  expense from $953,000 for the six months
ended March 31, 1998 to $1.0  million for the six months  ended March 31,  1999.
The increase in compensation  and benefits expense was essentially the result of
additional  compensation  for  additional  staff  employed at the  Company's new
office location.  Also,  additional  expenses associated with the funding of the
Company's defined benefit pension plan and additional  expenses  associated with
the  Company's  Employee  Stock  Ownership  Plan  accounted for a portion of the
increase.

Occupancy and equipment  expense totaled $115,000 for the six months ended March
31,  1999,  compared to $94,000 for the six months  ended  March 31,  1998.  The
increase was attributable to additional  expenses associated with the opening of
a new full-service office.

Provision For Income Taxes.  The Company  incurred federal income tax expense of
$139,000 or 37.3% of pre-tax  income for the six months  ended  March 31,  1999,
compared to $174,000 or 36.5% of pre-tax  income for the six months  ended March
31, 1998.

ASSET QUALITY

At March 31, 1999, the Company's  non-performing assets totaled $329,000 or .25%
of total  assets,  compared to $228,000 or .18% of total assets at September 30,
1998. At March 31, 1999,  non-performing  assets were  comprised of sixteen (16)
loans, the largest of which was $133,000, secured by a single family dwelling.

Non-performing  loans  at  March  31,  1999  equaled  $329,000  or .53% of loans
receivable,  compared to $228,000 or .37% of loans  receivable  at September 30,
1998.

Classified  assets  totaled  $598,000 or .44% of total assets at March 31, 1999,
compared to $570,000 or .46% of total assets at September 30, 1998.

Classified assets and non-performing assets differ in that classified assets may
include loans less than ninety (90) days delinquent.  Also, assets guaranteed by
government agencies such as the Veterans  Administration and the Federal Housing
Administration  are not  included  in  classified  assets  but are  included  in
non-performing  assets.  All classified assets at March 31, 1999, were deemed to
be  "substandard".  No assets were  classified  "doubtful"  or "loss" as of such
date.

The Company's  allowance for loan losses  totaled  $232,000 at March 31, 1999, a
slight  decrease from the $233,000 at September 30, 1998. The allowance for loan
losses as a percentage  of loans  receivable  equaled .38% at March 31, 1999 and
September 30, 1998.

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.
<PAGE>
Current  Office of Thrift  Supervision  regulations  require the  Association to
maintain, at a minimum, cash and eligible investments,  in an amount of not less
than 4.0% of net withdrawable  savings accounts and borrowings payable on demand
or in one year or less.  Liquid assets  include cash on hand,  unpledged  demand
deposits,  certain time deposits,  and, U. S Government and agency  obligations.
The Association  maintains a liquid asset ratio above the minimum required level
of the Office of Thrift Supervision. At March 31, 1999, the Association's liquid
asset ratio equaled 36.6%.

The  Association  uses its liquidity and capital  resources  principally to meet
ongoing   commitments  to  fund  maturing   certificates  of  deposit  and  loan
commitments,  maintain liquidity and pay operating expenses.  At March 31, 1999,
the Association had outstanding  commitments to extend credit on $4.7 million of
real estate loans.

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

Total  stockholders'  equity equaled $19.7 million at March 31, 1999, a decrease
of $636,000 from the $20.4 million  reported at September 30, 1998. The decrease
was the result of the $730,000 increase in treasury stock, a $45,000 increase in
unrealized  losses  on  available-for-sale  securities,  and the  $140,000  cash
dividend  paid during the  quarter.  The decrease was offset by the $233,000 net
income  reported for the six month  period  ended March 31, 1999,  and a $49,000
decrease in deferred compensation.

As of March 31, 1999, the Company's  reported book value per share,  using total
stockholders'  equity of $19.7 million (net of the cost of unallocated  ESOP and
RRP shares) and 1,392,853  outstanding  shares of common stock (the total issued
shares including unallocated ESOP and RRP shares, less treasury shares), equaled
$14.18 per share.

Subsequent  to the quarter  ended March 31,  1999,  the  Company  announced  its
intention  to pay a cash  dividend  of  $.05  per  share  on May  26,  1999,  to
stockholders of record at May 12, 1999.

Under the Financial  Institutions  Reform,  Recovery and Enforcement Act of 1989
("FIRREA"),  Congress  imposed  a three  part  capital  requirement  for  thrift
institutions.  At March 31, 1999, the Association's  actual and required capital
amounts under each of the three requirements were as follows:

- Tangible  Capital  (stockholders'  equity) was $18.9 million or 14.0% of total
assets, exceeding the minimum requirement of 1.5% by $16.9 million.

- Core  Capital  (Tangible  capital plus  certain  intangible  assets) was $18.9
million or 14.0% of total assets,  exceeding the minimum  requirement of 4.0% by
$13.5 million.

- Risk-based  Capital (Core  capital plus general loan and valuation  allowances
less an adjustment for  capitalized  mortgage  servicing  rights)  equaled $18.9
8.0% of risk weighted assets by $14.6 million.

At  March  31,  1999,  the  Association  was  considered  a  "well  capitalized"
institution  under the prompt  corrective  action  requirements  of the  Federal
Deposit Insurance Corporation Improvement Act of 1991.
<PAGE>
YEAR 2000 ISSUE

The Year 2000 or Century  Date  Change  issue is a result of  computer  programs
being written using two digits rather than four digits to define the  applicable
year. A computer system's  inability to recognize the date "00" as the year 2000
of if the system  recognized  the date "00" as the year 1900,  could result in a
system failure or miscalculations causing disruptions of operations. The Company
outsources its primary computer processing functions.

The  Company has  established  a  management  committee  to identify  all of its
systems  potentially  affected by the year 2000 and to ensure that reprogramming
of affected  systems is completed.  The committee is responsible for testing all
company  computer  systems and  ensuring  that all third party  computer  system
vendors complete Year 2000 remediation.

The  Company  has  undergone  two  examinations  from  its  primary   regulatory
authority,  the OTS.  The  Company  received  satisfactory  ratings on both such
exams.  During  the  remainder  of 1999,  the  Company  will focus its Year 2000
efforts on  customer  awareness.  The Company  will be involved in training  its
employees to answer customer  inquiries about Year 2000 issues and will continue
to advise its customers about the Company's ongoing efforts.

The  Company  believes  that the risk that the  major  data  processing  service
provider  will not be Year 2000  compliant is low. The Company has also received
correspondence  from all other third party software providers that indicate that
all of such software will be Year 2000 compliant.

The Company has budgeted  approximately $25,000 for its Year 2000 program. As of
March 31,  1999,  the  Company has  expensed or is aware of future  expenditures
totaling approximately $10,000.

FORWARD-LOOKING STATEMENTS

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

The Company does not undertake,  and specifically  disclaims any obligation,  to
publicly  release  the  result  of  any  revisions,  which  may be  made  to any
forward-looking   statements  to  reflect  the   occurrence  of  anticipated  or
unanticipated events or circumstances after the date of such statements.
<PAGE>
                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 MARCH 31, 1999


                           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

         Exhibit 27.0 - Financial Data Schedule

     (b)  Reports on Form 8-K

         During the quarter ended March 31, 1999,  the Company filed a report on
         Form 8-K on January 29, 1999, to report the issuance of a press release
         dated January 29, 1999,  announcing the Company's  intention to pay, on
         February 24,  1999,  a cash  dividend of $.05 per share for the quarter
         ended  December 31,  1998,  to  stockholders  of record on February 10,
         1999.

         During the quarter ended March 31, 1999,  the Company filed a report on
         Form 8-K on January 29, 1999, to report the issuance of a press release
         dated  January 29,  1999,  announcing  the  Company's  earnings for the
         quarter ended December 31, 1998.

         During the quarter ended March 31, 1999,  the Company filed a report on
         Form 8-K on January 29, 1999, to report the issuance of a press release
         dated January 29, 1999,  announcing  the Company's 5% stock  repurchase
         program.
<PAGE>

                                   SIGNATURES

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


                                   East Texas Financial Services, Inc.


Date:  May 11, 1999                /s/ Gerald W. Free
                                   ------------------
                                   Vice Chairman, President and CEO
                                   (Principal Executive Officer)


Date:  May 11, 1999                /s/  Derrell W. Chapman
                                   -----------------------
                                   Vice President/COO/CFO
                                   (Principal Financial and Accounting Officer)