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 June 30, 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 June 30, 1999, was 1,392,853.
<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                  June 30, 1999



                                      INDEX


Part I - Financial Information

     Item 1.  Financial Statements

         Consolidated Statements of Financial Condition, June 30, 1999
         (Unaudited) and September 30, 1998

         Consolidated  Statements of Income,  (Unaudited)  three months and nine
         months ended June 30, 1999, and June 30, 1998

         Consolidated Statement of Changes in Stockholders' Equity, (Unaudited)
         nine months ended June 30, 1999

         Consolidated Statements of Cash Flows, (Unaudited) nine months ended
         June 30, 1999, and June 30, 1998

         Notes to (Unaudited) Consolidated Financial Statements, June 30, 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

                                  JUNE 30, 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                                             June 30, 1999    September 30, 1998
                                                                     -------------    ------------------
                                                                      (Unaudited)
<S>                                                                  <C>                <C>
Cash and due from banks                                              $     700,340      $     592,363
Interest-bearing deposits with banks                                     2,995,408          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                                 3,509,689                  0
Mortgage-backed securities available-for-sale                           32,839,921         12,810,165
Investment securities held-to-maturity (estimated market
     value of $31,856,963 at June 30, 1999, and
     $30,115,954 at September 30, 1998)                                 31,996,016         29,766,844
Mortgage-backed securities held-to-maturity (estimated
     market value of $6,499,597 at June 30, 1999
     and $11,088,555 at September 30, 1998)                              6,380,517         10,940,500
Loans receivable, net of allowance for credit losses of $231,971
     at June 30, 1999 and $233,180 at September 30, 1998                63,309,037         61,119,047
Accrued interest receivable                                              1,156,568            978,378
Federal Home Loan Bank stock, at cost                                    2,138,800            789,100
Premises and equipment                                                   2,643,508          2,273,067
Foreclosed real estate, net of allowance of $-0-                                 0             34,500
Mortgage servicing rights                                                  268,071            216,879
Other assets                                                               638,086          1,303,120
                                                                     -------------      -------------

     Total Assets                                                    $ 151,135,578      $ 124,017,462
                                                                     =============      =============

     LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
     Demand deposits                                                 $   1,887,603      $   1,528,374
     Savings and NOW deposits                                           13,714,731         10,504,973
     Time deposits                                                      72,098,938         74,610,310
                                                                     -------------      -------------
           Total deposits                                               87,701,272         86,643,657

     FHLB advances                                                      42,282,763         14,945,852
     Advances from borrowers for taxes and insurance                       582,951            844,188
     Federal income taxes
           Current                                                         (37,562)               -0-
           Deferred                                                         99,305             31,618
     Accrued expenses and other liabilities                                646,622          1,168,453
                                                                     -------------      -------------
           Total liabilities                                           131,275,351        103,633,768
                                                                     -------------      -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                   EAST TEXAS FINANCIAL SERVICES, INC.
                              CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                               (continued)

                                                                     June 30, 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                                   (126,080)          (213,366)
     Unearned employee stock ownership plan shares                        (543,564)          (543,564)
     Unrealized gain/(loss) available-for-sale securities (net)            (15,406)           (64,974)
     Retained earnings (substantially restricted)                       13,730,902         13,661,392
     Treasury stock, 491,639 shares at cost                             (5,524,094)        (4,794,263)
                                                                     -------------      -------------

           Total stockholder's equity                                   19,860,227         20,383,694
                                                                     -------------      -------------

           Total liabilities and stockholders' equity                $ 151,135,578      $ 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                      Nine Months
                                                              Ended June 30,                   Ended June 30,
                                                               (Unaudited)                       (Unaudited)
                                                          1999            1998              1999             1998
                                                     -----------      -----------      -----------      -----------
<S>                                                  <C>              <C>              <C>              <C>
INTEREST INCOME Loans receivable:
     First Mortgage                                  $ 1,099,806      $ 1,137,446      $ 3,327,777      $ 3,424,340
     Consumer and other loans                            101,023           60,995          260,141          131,083
   Securities available for sale:
     Investment securities                                 4,030           11,546           56,220           41,859
     Mortgage-backed securities                          416,196          145,433          992,788          314,507
   Securities held to maturity:
     Investment securities                               564,969          422,663        1,450,009        1,223,087
     Mortgage-backed securities                          115,175          243,422          432,185          839,190
Deposits with banks                                       31,185           58,664          115,181          190,550
                                                     -----------      -----------      -----------      -----------

       Total interest income                           2,332,384        2,080,169        6,634,301        6,164,616
                                                     -----------      -----------      -----------      -----------


INTEREST EXPENSE

   Deposits                                            1,051,220        1,096,740        3,180,472        3,325,875
   FHLB advances                                         475,237          167,030        1,032,074          350,878
                                                     -----------      -----------      -----------      -----------

       Total interest expense                          1,526,457        1,263,770        4,212,546        3,676,753
                                                     -----------      -----------      -----------      -----------

       Net interest income before
          provision for loan losses                      805,927          816,399        2,421,755        2,487,863

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

       Net interest income after
         provision for loan losses                       805,927          816,399        2,421,755        2,487,863
                                                     -----------      -----------      -----------      -----------
NONINTEREST INCOME
   Gain(loss) on sale of interest-earning assets          22,437           37,230          127,502          100,675
   Loan origination and commitment fees                   17,930           14,245           64,988           56,015
   Loan servicing fees                                    23,667           19,874           53,400           68,798
   Gain on foreclosed real estate                           (352)          (6,911)             (50)          (6,351)
   Other                                                  16,543           13,692           76,792           35,330
                                                     -----------      -----------      -----------      -----------

       Total noninterest income                           80,225           78,130          322,632          254,467
                                                     -----------      -----------      -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                         EAST TEXAS FINANCIAL SERVICES, INC.
                                          CONSOLIDATED STATEMENTS OF INCOME
                                                    (continued)

                                                               Three Months                      Nine Months
                                                              Ended June 30,                   Ended June 30,
                                                               (Unaudited)                       (Unaudited)
                                                          1999            1998              1999             1998
                                                     -----------      -----------      -----------      -----------
<S>                                                  <C>              <C>              <C>              <C>
NONINTEREST EXPENSE
   Compensation and benefits                             543,784          463,006        1,572,468        1,415,800
   Occupancy and equipment                               195,827           47,084          310,718          140,843
   SAIF deposit insurance premium                        (27,533)          14,417           (1,069)          42,862
   Loss on foreclosed real estate                              0                0            2,069                0
   Other                                                  88,250          173,060          402,571          470,015
                                                     -----------      -----------      -----------      -----------

       Total noninterest expense                         800,328          697,567        2,286,757        2,069,520
                                                     -----------      -----------      -----------      -----------

Income (loss) before provision for income taxes           85,824          196,962          457,630          672,810

Income tax expense (benefit)                              36,974           73,913          175,630          247,662
                                                     -----------      -----------      -----------      -----------

NET INCOME (LOSS)                                    $    48,850      $   123,049      $   282,000      $   425,148
                                                     ===========      ===========      ===========      ===========



Earnings per common share                            $       .04      $       .09      $       .21      $       .29
Earnings per common share - assuming dilution                .04              .08              .21              .28

</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)
                                                          NINE MONTHS ENDED
                                                            June 30, 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                                                                                     282,000
     Unrealized holding gains                                                       49,568


Comprehensive income

Deferred compensation
     amortization                                      87,286
Purchase of treasury stock
     at cost                                                                                                       (729,831)
Payment of cash dividends                                                                           212,490
Balance June 30, 1999             $ 12,338,469      $(126,080)     $(543,564)     $(15,406)     $13,730,902     $(5,524,094)
                                  ============      =========      =========      ========      ===========     ===========

<CAPTION>
                                                     Total
                               Comprehensive      Stockholder'
                                    Income          Equity
                                    ------          ------
                                  <C>            <C>
Balance September 30, 1998        $              $20,383,694
Comprehensive income:
     Net Income                     282,000          282,000
     Unrealized holding gains        49,568           49,568
                                  ---------

Comprehensive income              $ 331,568
                                  =========
Deferred compensation
     amortization                    87,286
Purchase of treasury stock
     at cost                                        (729,831)
Payment of cash dividends                            212,490
Balance June 30, 1999                             19,860,227
                                                  ==========
</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 Nine Months Ended
                                                                               June 31,
                                                                       1999             1998
                                                                   -----------      -----------
<S>                                                                <C>              <C>
Cash flows from operating activities:
     Net income                                                    $   282,000      $   425,148
     Adjustments to reconcile net income to net cash
        provided by operating activities:
         Amortization of deferred loan origination fees                  5,042            3,660
         Amortization of premiums and discounts on investment
            securities, mortgage-backed securities, and loans          118,528          100,344
         Amortization of deferred compensation                          87,286           87,286
         Compensation charge related to release of ESOP shares          50,319           94,014
         Depreciation                                                   83,647           72,410
         Deferred income taxes                                          39,381          (81,255)
         Stock dividends on FHLB stock                                 (56,100)         (41,800)
         Origination of mortgage servicing rights                     (106,128)         (80,916)
         Amortization of mortgage servicing rights                      54,936           32,592
         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                                                    (21,374)         (19,759)
              Loans held for sale                                            0                0
         Proceeds from loan sales                                    8,751,313        6,805,150
         Originations of loans held for sale                                 0                0
         Proceeds from sale of fixed assets                                  0                0
         (Increase) decrease in:
              Accrued interest receivable                             (178,190)         (51,399)
              Other assets                                             665,034         (490,540)
              Accrued loan loss                                          1,208                0
         Increase (decrease) in:
              Federal income tax payable                               (37,562)          89,741
              Accrued expenses and other liabilities                  (521.831)        (733,960)
         Capitalized interest on time deposits                               0                0

Net cash provided (used) by operating activities                     9,219,578        6,214,605
                                                                   -----------      -----------

</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 Nine Months End
                                                   June 30,

                                                                                 1999               1998
                                                                             -------------      -------------
<S>                                                                          <C>                <C>
Cash flows from investing activities
     Purchases of interest earning time deposits                             $    (600,000)     $   (295,617)
     Net decrease (increase) in fed funds sold                                     129,187           753,847
     Purchases of obligations - U.S. Govt. and agencies
        held to maturity                                                       (11,986,719)      (15,031,688)
     Proceeds from maturity of time deposits                                             0           295,573
     Proceeds from sale of securities held to maturity                                   0                 0
     Proceeds from maturities of obligations - U.S. Govt
        and agencies held to maturity                                            9,725,000         9,000,000
     Proceeds from sale of obligations of U.S. Govt
        and agencies held to maturity                                                    0                 0
     Proceeds from redemption of FHLB stock                                                          270,100
     Purchases of FHLB stock                                                    (1,293,600)                0
     Purchases of investment securities available-for-sale                      (3,561,793)                0
     Purchases of mortgage-backed securities available-for-sale                (24,545,208)       (7,598,697)
     Purchases of mortgage-backed securities held to maturity                            0                 0
     Principal payments on mortgage-backed securities available for sale         4,571,801         1,686,740
     Principal payments on mortgage-backed securities held to maturity           4,544,859         5,601,036
     Net originations and principal collections on loans                       (10,977,321)      (11,615,043)
     Capitalized acquisition cost related to foreclosed real estate                      0            (2,737)
     Proceeds from sale of foreclosed real estate                                   32,432             2,594
     Proceeds from sale of fixed assets                                                  0                 0
     Expenditures for premises and equipment                                      (454,202)           (3,700)
                                                                             -------------      ------------

Net cash provided (used) by investing activities                               (34,415,564)      (16,937,592)
                                                                             -------------      ------------

Cash flows from financing activities: Net increase (decrease) in:
         Non-interest bearing deposits, savings, NOW accounts                    3,568,987         1,174,753
                Time deposits                                                   (2,511,372)       (2,051,617)
         FHLB Advances                                                         250,300,669        77,701,500
         Repayment of FHLB Advances                                           (222,963,758)      (69,574,472)
         Advances from borrowers for taxes and insurance                          (261,237)         (266,052)
     Dividends paid to stockholders                                               (208,782)         (177,111)
     Purchase of treasury stock                                                   (729,831)                0
     Proceeds from sale of common stock                                                  0                 0
                                                                             -------------      ------------

Net cash provided (used) by financing activities                                27,194,676         6,807,001
                                                                             -------------      ------------

Net increase (decrease) in cash and cash equivalents                             1,998,690        (3,915,986)

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

Cash and cash equivalents at end of the period                               $   3,695,748      $  3,015,147
                                                                             =============      ============

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                      EAST TEXAS FINANCIAL SERVICES, INC.
                                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                                  (UNAUDITED)
                                            For the Nine Months End
                                                   June 30,
                                                 (continued)

                                                                                 1999               1998
                                                                             -------------      -------------
<S>                                                                          <C>                <C>
Supplemental disclosure:
     Cash paid for:
         Interest on deposits                                                $   1,671,547      $  1,652,209
         Income taxes                                                        $     149,969      $      4,589

     Transfers from loans to real estate
        acquired through foreclosures                                        $           0      $    244,229

     Loans charged off to loan loss reserves                                 $       1,280      $     39,181

     Recoveries credited to loan loss reserves                               $          72      $          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

                                  June 30, 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 nine months ended June 30,
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 June 30,  1999 and 1998,  the  weighted  average  number of shares
outstanding totaled 1,311,317 and 1,441,868,  shares respectively.  For the nine
months  ended June 30,  1999 and 1998,  the  weighted  average  number of shares
outstanding totaled 1,346,919 and 1,441,868 shares respectively.

Earnings  per common  share - assuming  dilution,  for the three months and nine
months  ended  June 30,  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 June 30, 1999 and
1998, the weighted  average number of shares  outstanding for earnings per share
assuming dilution totaled 1,338,365 and 1,499,546, shares respectively.  For the
nine months ended June 30, 1999 and 1998, the weighted  average number of shares
outstanding  for earnings per share - assuming  dilution  totaled  1,365,419 and
1,495,531, 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 nine month periods ended June 30, 1999
and 1998.
<PAGE>
NOTE 3 - SECURITIES

The  carrying  values  and  estimated  market  values of  investment  securities
available-for-sale as of June 30, 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             $3,500,000        $69,089        $ 13,602         $   (45,798)        $3,509,689

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

                       $3,500,000        $69,089        $ 13,602         $   (45,798)        $3,509,689
                       ----------        -------        --------         -----------         ----------
</TABLE>
The  weighted  average  yield  on  the  investment  security  available-for-sale
portfolio was 6.06% for the quarter ended June 30, 1999.

The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of June 30, 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                 $ 1,499,930        $  6,111        $         0        $ 1,506,041

      U. S. government agency
                                      30,496,086          50,246            195,410         30,350,922
                                     -----------        --------        -----------        -----------
           Total debt
           securities                $31,996,016        $ 56,357        $   195,410        $31,856,963
                                     -----------        --------        -----------        -----------
</TABLE>
<PAGE>
The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of June 30, 1999, by contractual maturity are shown below:
<TABLE>
<CAPTION>
                                                                       Estimated
                                                   Amortized            Market
                                                      Cost               Value
                                                  -----------        -----------

<S>                                               <C>                <C>
 Due in one year or less                          $ 5,509,478        $ 5,544,534

 Due after one year through two
 years                                              3,995,467          4,016,768

 Due after two years through three years            1,000,000            989,530

 Due after three years through five years          21,491,071         21,306,131
                                                  -----------        -----------

         Total debt securities                    $31,996,016        $31,856,963
                                                  -----------        -----------
</TABLE>
As of June  30,  1999,  approximately  $22,500,000  of the  securities  had call
options  exercisable  at the  discretion  of the issuer.  Such call dates varied
between September 1999 and June 2001.

As of June 30, 1999,  the weighted  average  yield on the  Company's  investment
security held-to-maturity  portfolio was approximately 6.00% 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 5.90%.

The carrying values and estimated market values of  mortgage-backed  and related
securities  available-for-sale  as of June 30, 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        $     9,306        $    (16,224)        $ 1,452,802

Adjustable Rate         31,082,565            267,392              1,517              38,679          31,387,119
                       -----------        -----------        -----------        ------------         -----------

                       $32,560,897        $   267,392        $    10,823        $     22,455         $32,839,921
                                          -----------        -----------        -----------         ------------
</TABLE>
<PAGE>
The carrying values and estimated market values of  mortgage-backed  and related
securities  held-to-maturity  as of June 30,  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             $  363,836        $     0        $      179        $  363,657        $  363,881


Adjustable Rate         5,968,914         55,350             7,404         6,016,860         6,135,716
                       ----------        -------        ----------        ----------        ----------

                       $6,332,750        $55,350        $    7,583        $6,380,517        $6,499,597
                       ----------        -------        ----------        ----------        ----------
</TABLE>
The overall yield on the Company's  mortgage-backed  securities portfolios as of
June 30, 1999, was approximately 5.91%.

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.

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.
<PAGE>
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. The Company adapted the statement as required.

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

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

NOTE 5 - STOCK OPTION AND INCENTIVE PLAN

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

Options to  purchase  shares of common  stock of the  Company  may be granted to
selected directors,  officers and key employees.  The number of shares of common
stock  reserved for issuance under the stock option plan was equal to 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>
<PAGE>
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 June 30, 1999 under stock option plan           86,807
                                                                      =======

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

During the nine months ended June 30, 1999, no options were  exercised,  issued,
or forfeited.

NOTE 6 - ADVANCES FROM FEDERAL HOME LOAN BANK

The  outstanding  advances from the FHLB  consisted of the following at June 30,
1999:
<TABLE>
<CAPTION>

                  Maturity                     Balance                   Rate
                  --------                     -------                   ----
<S>                                         <C>                          <C>
                  07/06/1999                $    1,959,759               4.85%
                  07/06/1999                $    8,000,000               4.85%
                  07/06/1999                $    3,000,000               4.85%
                  07/06/1999                $   22,270,000               4.85%
                  12/31/2004                $      255,024               6.09%
                  01/03/2005                $      116,215               6.03%
                  01/01/2013                $      469,788               6.09%
                  01/01/2013                $      446,389               6.13%
                  02/01/2013                $      442,958               5.91%
                  03/03/2014                $    1,026,861               5.45%
                  04/01/2014                $      988,197               5.97%
                  05/01/2014                $    1,346,772               5.66%
                  06/01/2014                $    1,024,800               5.90%
                  07/01/2014                $      936,000               6.38%
</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

                                  June 30, 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 $151.1 million at June 30, 1999, a $27.1 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 $20.0  million
increase  in  mortgage-backed  securities  available-for-sale,  a  $3.5  million
increase in investment securities available-for-sale, a $2.2 million increase in
investment   securities   held-to-maturity,   a   $2.5   million   increase   in
interest-earning  deposits  with  banks  and a $2.2  million  increase  in loans
receivable.  The increases  were partially  offset by a $4.6 million  decline in
mortgage-backed securities held to maturity.

At June 30, 1999,  loans  receivable  totaled $63.3  million,  compared to $61.1
million at September 30, 1998.  The increase in loans  receivable  was primarily
the result of the  Company's  decision  to continue to place all of it's 15 year
and shorter maturity mortgage loans into portfolio.  In addition,  the Company's
commercial and consumer loan portfolio  increased by approximately  $2.0 million
from  September  1998 to June 1999.  The increase was a result of the  Company's
decision , in April 1999, to begin offering consumer and commercial loans.

The Company  continued to offer home equity  loans and as of June 30, 1999,  the
Company had approximately $3.6 million in home equity and home improvement 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 June 30, 1999, the portfolio totaled $32.8 million, compared to
$12.8 million at September 30, 1998. At June 30, 1999,  the average yield on the
securities  in the  program was  approximately  5.72% while the cost of the FHLB
advance was approximately 4.85%,  resulting in a pre-tax interest rate spread of
87 basis points.

Subject to favorable interest rates, the Company intends to continue the plan of
borrowing funds 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 6.06% at June 30, 1999.
<PAGE>
At June 30, 1999, the investment securities  held-to-maturity  portfolio totaled
$32.0  million,  compared to $29.8  million at September  30, 1998.  At June 30,
1999, the overall yield on the portfolio was  approximately  6.00%,  compared to
6.01% at September 30, 1998.  At June 30, 1999,  the  portfolio  contained  $5.5
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 $21.5  million with
remaining maturities of three through five years. Approximately $22.5 million of
the investment  securities are callable at the discretion of the issuer, and the
call dates range from September 1999 to June 2001.

The Company's mortgage-backed securities held-to-maturity portfolio totaled $6.3
million at June 30, 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 6.96% at June 30, 1999.

Total deposits were $87.7 million at June 30, 1999, a $1.1 million increase from
the $86.6 million reported at September 30, 1998. The Company's cost of deposits
was  approximately  4.90% at June  30,  1999,  and the  overall  cost of  funds,
including FHLB advances, was approximately 4.94%.

The Company  reported  $42.2  million in  borrowed  funds at June 30,  1999,  an
increase of $27.3 million from the $14.9 million reported at September 30, 1998.
Approximately  $32.8  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 4.85%.  Approximately  $7.7 million was used to fund
the wholesale loan arbitrage of 15 year loans at an average rate of 5.06%,  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  $19.8  million at June 30,  1999,  a decrease of
$620,000 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  $212,000  and a $50,000  decrease  in net
unrealized losses on securities  available-for-sale.  The decrease was partially
offset by net income of $282,000  reported  for the nine  months  ended June 30,
1999, and a $87,000 decrease in deferred compensation.

At June 30, 1999, the Company reported a book value per share of $14.26 based on
1,392,853 net  outstanding  shares.  During the nine months ended June 30, 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 $11.24 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 JUNE 30, 1999
         AND JUNE 30, 1998

General. Net income for the three months ended June 30, 1999 was $48,850 or $.04
per share,  a decrease of $74,199 from the  $123,049 or $.09 per share  reported
for the three  months  ended  June 30,  1998.  The  decrease  in net  income was
attributable  to a $10,000  decline in net interest  income after  provision for
loan losses and a $103,000 increase in total non-interest  expense.  The decline
in net interest  income and the increase in  noninterest  expense was  partially
offset by a $2,000  increase  in  noninterest  income and a $37,000  decrease in
income tax expense.

Net Interest  Income.  For the quarter ended June 30, 1999, net interest  income
before  provision for loan losses totaled  $806,000,  a decrease of $10,000 from
the $816,000  reported for the quarter  ended June 30,  1998.  On an  annualized
basis,  the  $806,000  in net  interest  income  for  the  current  quarter  was
approximately  2.44% of  average  interest  earning  assets and 2.34% of average
total assets.  For the quarter ended June 30, 1998, the $816,000 in net interest
income was  approximately  2.83% of average interest earning assets and 2.74% of
average total assets.  Average interest earning assets were approximately $137.4
million for the quarter ended June 30, 1999,  compared to $115.4 million for the
quarter ended June 30, 1998.

The  decline in net  interest  income,  despite the fact that  average  interest
earning  assets  increased by  approximately  $16.7  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 7.08% for the quarter ended
June 30, 1998 to 6.79% for the quarter  ended June 30, 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 June 30,  1999,  the $1.1  million in  interest
expense on deposits was, on an annualized basis,  approximately 4.81% of average
interest costing deposits, compared to 4.99% for the same quarter in 1998. On an
annualized basis, the $1.5 million in total interest  expense,  reported for the
quarter ended June 30, 1999, was approximately 5.01% of average interest costing
liabilities  outstanding  for the quarter.  For the quarter ended June 30, 1998,
the $1.3 million in total interest  expense was  approximately  5.08% of average
interest costing liabilities.
<PAGE>
Total  interest  income was $2.3 million for the quarter ended June 30, 1999, an
increase of $252,000  from the $2.1  million  reported  for the same  quarter in
1998.  Interest  income on  loans-receivable  totaled  $1.2  million or 7.68% of
average loans  receivable  balances  outstanding  for the quarter ended June 30,
1999.   For  the  three  months  ended  June  30,  1998,   interest   income  on
loans-receivable  was approximately 7.80% of average loans receivable  balances.
The  Company  recently  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 lower interest rates. The loans are
funded with a combination  of long-term  amortizing and short term advances from
the  FHLB.  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
$417,000 for the three months ended June 30, 1999,  compared to $145,000 for the
three months ended June 30,  1998.  The increase in interest  income is a direct
result of the increase in the average balance  outstanding during the comparable
quarters from $9.6 to $27.5 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  5.72% at June 30, 1999.  [See  "Financial
Condition"]

Interest  income  from  the  investment  securities  held-to-maturity  portfolio
totaled $565,000 for the three months ended June 30, 1999,  compared to $423,000
for the same  quarter  in 1998.  The  increase  was  primarily  the result of an
increase in the average balance  outstanding in the portfolio from $27.1 million
for the three months  ended June 30, 1998 to $29.5  million for the three months
ended June 30, 1999.

Interest income from the mortgage-backed  securities  held-to-maturity portfolio
totaled $115,000 for the three months ended June 30, 1999,  compared to $243,000
for the same  period  in 1998.  Continued  cash  flow  from  prepayments  on the
adjustable  rate  securities in the portfolio was redirected  into the Company's
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.

Interest paid to depositors totaled $1.1 million for the three months ended June
30, 1999, down $46,000 from the $1.1 million for the three months ended June 30,
1998.  Average  deposit  balances  declined  $403,000 from $87.8 million for the
quarter  ended June 30, 1998 to $87.4  million  for the  quarter  ended June 30,
1999.

Interest on FHLB advances was $475,000 for the three months ended June 30, 1999,
compared to  $167,000  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.

Provision For Loan Losses. The Company made no provision for loan losses for the
quarter  ended June 30,  1999 or for the  quarter  ended June 30,  1998.  [See -
"Asset Quality"]
<PAGE>
Noninterest  Income.  Noninterest  income  totaled  $80,000 for the three months
ended June 30,  1999,  compared to $78,000 for the same period in 1998, a $2,000
increase.

The increase was primarily the result of a $4,000  increase in loan  origination
and commitment fees and a $4,000 increase in loan servicing fees. Gains on sales
of interest  earnings assets declined to $22,000 for the three months ended June
30, 1999,  from  $37,000 for the three  months ended June 30, 1998.  Fewer loans
were sold into the secondary  market as the Company  implemented  its program of
portfolioing all 15-year and shorter loans.

Noninterest Expenses. Noninterest expenses totaled $800.000 for the three months
ended June 30,  1999,  compared to $698,000  for the three months ended June 30,
1998.

The  increase in  noninterest  expense was the result of an $81,000  increase in
compensation  and benefits expense from $463,000 for the three months ended June
30, 1998 to $544,000 for the three months ended June 30, 1999. Also, there was a
$149,000  increase in occupancy and equipment expense from $47,000 for the three
months ended June 30, 1998 to $196,000 for the three months ended June 30, 1999.
The  increase  in both  compensation  and  benefits  expense and  occupancy  and
equipment expense were the result of additional compensation for the staffing of
a new  full-service  office opened for business  during the current year.  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.  The Company estimates that the additional expenses associated
with the  opening of the new office and  expenses  associated  with  introducing
additional  banking  products  are  approximately  $35,000  per month.  Based on
projected  net  interest  income  margins and  noninterest  income,  the Company
believes that the new office  location will become  profitable at  approximately
$15 million in assets.  At June 30, 1999 the new location had  approximately  $3
million in assets and commitments to loan an additional $4 million.

Provision For Income Taxes.  The Company  incurred federal income tax expense of
$37,000 or 42.9% of pre-tax  income for the three  months  ended June 30,  1999,
compared to $74,000 or 37.5% of pre-tax  income for the three  months ended June
30, 1998.

COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 1999
         AND JUNE 30, 1998

General.  For the nine months  ended June 30,  1999,  the Company  reported  net
income of $282,000 or $.21 per common share and $.21 per common share - assuming
dilution,  compared  to  $425,000  or $.29 per common  share and $.28 per common
share - assuming  dilution for the nine months ended June 30, 1998. The decrease
in net income was attributable to a $66,000 decline in net interest income after
provisions  for loan  losses and a $217,000  increase in  noninterest  operating
expenses,  which were  partially  offset by a $68,000  increase  in  noninterest
income and a $72,000 decrease in income tax expense.
<PAGE>
Net  Interest  Income.  For the nine months  ended June 30,  1999,  net interest
income after  provisions  for loan losses  totaled $2.4  million,  a decrease of
$66,000 from the $2.5 million  reported for the nine months ended June 30, 1998.
On an annualized basis, the $2.4 million in net interest income after provisions
for loan  losses  for the  current  period  was  approximately  2.44% of average
interest  earning assets and 2.35% of average total assets.  For the nine months
ended June 30, 1998,  the $2.5 million in net interest  income after  provisions
for loan losses was  approximately  2.87% of average interest earning assets and
2.78% of average total assets on an annualized  basis.  Average interest earning
assets were  approximately  $132.1  million  for the nine months  ended June 30,
1999, compared to $115.4 million for the nine months ended June 30, 1998.

Total  interest  income was $6.6 million or 6.69%,  on an annualized  basis,  of
average  interest  earning  assets  for the nine  months  ended  June 30,  1999,
compared to $6.2  million or 7.12% of average  interest  earning  assets for the
nine  months  ended June 30,  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  $3.6 million for the nine months
ended June 30,  1999,  unchanged  from the $3.6  million  reported  for the nine
months  ended June 30, 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 increased to $62.2 million for the nine
months ended June 30, 1999 from $59.4 million for the nine months ended June 30,
1998.  For the nine months  ended June 30,  1999,  the $3.6  million in interest
income on loans receivable,  on an annualized basis, was approximately  7.65% of
average loans  receivable,  compared to 7.98% for the nine months ended June 30,
1998.

Interest  income from  mortgage-backed  securities  available-for  sale  totaled
$993,000 for the nine months  ended June 30, 1999,  compared to $315,000 for the
nine months ended June 30, 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
June 30,  1999,  the Company had  approximately  $32.8  million  invested in the
program. [See "Financial Condition"]

Interest income on investment securities  held-to-maturity  totaled $1.5 million
for the nine months ended June 30,  1999,  compared to $1.2 million for the nine
months ended June 30, 1998. The increase in interest income on the portfolio was
the result of a $4.8 million increase in the average balance outstanding, as the
Company  diverted  excess cash flow into these  securities.  For the nine months
ended June 30, 1999, the $1.5 in interest  income,  on an annualized  basis, was
approximately  6.26% of the average balance  outstanding,  compared to 6.26% for
the $1.2 million reported for the nine months ended June 30, 1998.
<PAGE>
Interest income on mortgage-backed securities  held-to-maturity was $432,000 for
the nine months  ended June 30,  1999,  compared to $839,000 for the nine months
ended  June 30,  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 $15.3  million for the nine  months  ended June 30, 1998 to $8.7
million for the nine months ended June 30,  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 $4.2 million for the nine months  ended June 30, 1999,  an
increase of $536,000  from the $3.7  million  reported for the nine month period
ended June 30,  1998.  An  increase  in average  interest  costing  liabilities,
including  advances from the FHLB,  from $96.4 million for the nine months ended
June  30,  1998 to  $115.8  million  for the nine  months  ended  June 30,  1999
primarily  accounted for the increase in interest  expense.  The $4.2 million in
interest  expense reported for the nine month period ended June 30, 1999 was, on
an  annualized   basis,   approximately   4.85%  of  average   interest  costing
liabilities,  compared to the $37 million or 5.09% of average  interest  costing
liabilities for the same period in 1998.

Noninterest  Income.  Noninterest  income was $323,000 for the nine months ended
June 30, 1999, compared to $254,000 for the nine months ended June 30, 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  $128,000 for the nine month
period ended June 30, 1999,  compared to $101,000 for the nine months ended June
30, 1998. Loan  origination and commitment fees were $65,000 for the nine months
ended June 30,  1999,  compared to $56,000  for the nine  months  ended June 30,
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 nine month period ended June 30, 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 $15,000  decline in loan
servicing  fees from  $69,000 for the nine months ended June 30, 1998 to $53,000
for the nine months  ended June 30,  1999.  The decline in loan  servicing  fees
resulted as the Company  charged-off  previously recorded  origination  mortgage
servicing rights income as loans sold and serviced were refinanced.

Noninterest  Expense.  Noninterest  expense was reported as $2.3 million for the
nine month period ended June 30, 1999, a $217,000 increase from the $2.1 million
reported for the nine months ended June 30, 1998.
<PAGE>
The  increase  in  noninterest  expense was  primarily  the result of a $157,000
increase in  compensation  and  benefits  expense from $1.4 million for the nine
months  ended June 30, 1998 to $1.6  million for the nine months  ended June 30,
1999.  The  increase  in  compensation  and  benefits  expense was 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 $311,000 for the nine months ended June
30, 1999,  compared to $141,000  for the nine months  ended June 30,  1998.  The
increase was attributable to additional  expenses associated with the opening of
the new full-service office.

Provision For Income Taxes.  The Company  incurred federal income tax expense of
$176,000  or 38.4% of pre-tax  income for the nine months  ended June 30,  1999,
compared to $248,000 or 36.8% of pre-tax  income for the nine months  ended June
30, 1998.

ASSET QUALITY

At June 30, 1999, the Company's  non-performing  assets totaled $387,000 or .26%
of total  assets,  compared to $228,000 or .18% of total assets at September 30,
1998. At June 30, 1999,  non-performing  assets were  comprised of fourteen (14)
loans, the largest of which was $104,000, secured by a single family dwelling.

Non-performing  loans  at June  30,  1999  equaled  $387,000  or  .61% of  loans
receivable,  compared to $228,000 or .37% of loans  receivable  at September 30,
1998.

Classified  assets  totaled  $596,000 or .39% of total  assets at June 30, 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 June 30, 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 June 30, 1999, a
slight  decrease from the $233,000 at September 30, 1998. The allowance for loan
losses as a  percentage  of loans  receivable  equaled .37% at June 30, 1999 and
 .38% at 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.

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
<PAGE>
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 June 30, 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 June 30, 1999,
the Association had outstanding  commitments to extend credit on $5.2 million of
real estate loans.

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

Total stockholders' equity equaled $19.9 million at June 30, 1999, a decrease of
$523,000 from the $20.4 million reported at September 30, 1998. The decrease was
the result of the  $730,000  increase in treasury  stock and the  $212,000  cash
dividend  paid during the  quarter.  The decrease was offset by the $282,000 net
income  reported  for the nine  month  period  ended June 30,  1999,  an $87,000
decrease in deferred  compensation,  and a $50,000 increase in unrealized losses
on available-for-sale securities.

As of June 30, 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
$14.26 per share.

Subsequent  to the  quarter  ended June 30,  1999,  the  Company  announced  its
intention  to pay a cash  dividend  of $.05 per share on  August  25,  1999,  to
stockholders of record at August 11, 1999.

Under the Financial  Institutions  Reform,  Recovery and Enforcement Act of 1989
("FIRREA"),  Congress  imposed  a three  part  capital  requirement  for  thrift
institutions.  At June 30, 1999, the  Association's  actual and required capital
amounts under each of the three requirements were as follows:

- Tangible  Capital  (stockholders'  equity) was $17.8 million or 11.8% of total
assets, exceeding the minimum requirement of 1.5% by $15.5 million.

- Core  Capital  (Tangible  capital plus  certain  intangible  assets) was $17.9
million or 11.8% of total assets,  exceeding the minimum  requirement of 4.0% by
$11.8 million.

- Risk-based  Capital (Core  capital plus general loan and valuation  allowances
less an adjustment for  capitalized  mortgage  servicing  rights)  equaled $18.0
million of 30.9% of risk weighted assets,  exceeding the minimum  requirement of
8.0% of risk weighted assets by $13.4 million.

At  June  30,  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  three  examinations  from its  primary  regulatory
authority,  the OTS.  The Company  received  satisfactory  ratings on all exams.
During the  remainder  of 1999,  the Company will focus its Year 2000 efforts on
customer  awareness  and  liquidity  planning.  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
June 30, 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

                                  JUNE 30, 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 June 30, 1999,  the Company filed a report on
         Form 8-K on May 4, 1999,  to report  the  issuance  of a press  release
         dated April 30, 1999, announcing the Company's intention to pay, on May
         26, 1999, a cash dividend of $.05 per share for the quarter ended March
         31, 1999, to stockholders of record on May 12, 1999.
<PAGE>

         During the quarter  ended June 30, 1999,  the Company filed a report on
         Form 8-K on May 4, 1999,  to report  the  issuance  of a press  release
         dated April 30, 1999, announcing the Company's earnings for the quarter
         ended March 31, 1999.

         During the quarter  ended June 30, 1999,  the Company filed a report on
         Form 8-K on June 10, 1999,  to report the  issuance of a press  release
         dated June 9, 1999,  announcing the Company's  intention to rescind the
         stock repurchase  program  announced January 29, 1999 and to announce a
         new 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:  August 11, 1999             /s/ Gerald W. Free
                                   ------------------
                                   Vice Chairman, President and CEO
                                   (Principal Executive Officer)


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