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, 2000

                                       OR

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

               For the transition period from _______ to _______.


                         Commission file number 0-24848


                       East Texas Financial Services, Inc.
              -----------------------------------------------------
             (Exact name of registrant as specified in its charter)

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

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


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

           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, 2000, was 1,162,320.


<PAGE>




                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                  June 30, 2000

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

                                      INDEX

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

      Item 1.  Financial Statements

           Consolidated Statements of Financial Condition, June 30, 2000
           (Unaudited) and September 30, 1999..................................................................  4

           Consolidated Statements of Income, (Unaudited) three months and nine months ended
           June 30, 2000 and June 30, 1999.....................................................................  5

           Consolidated Statement of Changes in Stockholders' Equity, (Unaudited)
           nine months ended June 30, 2000.....................................................................  6

           Consolidated Statements of Cash Flows, (Unaudited) nine months ended
           June 30, 2000, and June 30, 1999....................................................................  7

           Notes to (Unaudited) Consolidated Financial Statements, June 30, 2000...............................  9

      Item 2.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations............................................................................... 15

Part II - Other Information

      Item 1.  Legal Proceedings............................................................................... 23

      Item 2.  Changes In Securities........................................................................... 23

      Item 3.  Defaults Upon Senior Securities................................................................. 23

      Item 4.  Submission of Matters To a Vote of Security Holders............................................. 23

      Item 5.  Other Information............................................................................... 23

      Item 6.  Exhibits and Reports on Form 8-K................................................................ 23

Signature Page................................................................................................. 25
</TABLE>


                                        2

<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                  June 30, 2000

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

PART I - FINANCIAL INFORMATION

      Item 1 - Financial Statements

East Texas Financial  Services,  Inc. (the "Company") was formed in September of
1994 for the  purpose  of  acquiring  all of the common  stock of First  Federal
Savings and Loan Association of Tyler (the  "Association"),  concurrent with its
conversion from the mutual to stock form of ownership. The Company completed its
initial public stock offering of 1,215,190 shares of $.01 par value common stock
on January 10,  1995.  The Company  utilized  approximately  one half of the net
stock  sale  proceeds  to  acquire  all  of  the  common  stock  issued  by  the
Association.  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,  1999,  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.

On June 30,  2000 the Company  acquired  by merger  100% of the common  stock of
Gilmer Financial Services,  Inc. and it's wholly owned subsidiary Gilmer Savings
Bank,  F.S.B.  ("Gilmer")  The  acquisition  was  accounted  for  as a  purchase
transaction.  The Statement of Financial Condition  reflects,  at June 30, 2000,
the acquisition of Gilmer. The assets and liabilities of Gilmer were recorded at
their fair market  values.  The  difference  in the purchase  price and the fair
market value of the assets and liabilities acquired is recorded as goodwill. The
statements  of income for the three and nine months ended June 30, 2000 and June
30,  1999 do not  reflect  income of Gilmer for those  periods.  Income from the
acquired assets and liabilities will be accounted for prospectively.  See Note 7
for a discussion of the "proforma"  affects of the  acquisition on the Company's
financial statements.

Net income for the nine months ended June 30, 1999 has been  restated to reflect
an adjustment by the Company's independent auditors at September 30, 1999. Other
non-interest  income was  decreased  by  $39,000  and  income  tax  expense  was
decreased by $13,260 to reflect the restatement.  The restatement was related to
the  recovery  of a  deficiency  judgement  against a borrower  filed in a prior
period. The recovery was reported as other  non-interest  income during the nine
month period  ending June 30, 1999 and was  restated and added to the  Company's
general valuation allowance at the September 30, 1999 audit.

                                       3
<PAGE>


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

<TABLE>
<CAPTION>

                ASSETS                                                      June 30, 2000              September 30, 1999
                                                                            --------------             ------------------
                                                                             (Unaudited)

<S>                                                                     <C>                            <C>
Cash and due from banks                                                 $        1,007,891             $        1,019,937
Interest-bearing deposits with banks                                             2,805,202                        974,627
Interest-earning time deposits with financial institutions                       1,289,000                      2,461,617
Federal funds sold                                                                       0                              0
Investment securities available-for-sale                                         7,691,011                      5,918,750
Mortgage-backed securities available-for-sale                                   45,286,010                     32,893,809
Investment securities held-to-maturity (estimated market
      value of $26,986,744 at June 30, 2000, and
      $29,948,866 at September 30, 1999)                                        27,967,369                     30,481,413
Mortgage-backed securities held-to-maturity (estimated
      market value of $4,801,441 at June 30, 2000
      and $5,949,914 at September 30, 1999)                                      4,688,000                      5,806,975
Loans receivable, net of allowance for credit losses of $1,099,200
      at June 30, 2000 and $270,039 at September 30, 1999                       96,841,766                     67,250,334
Accrued interest receivable                                                      1,582,211                      1,167,245
Federal Home Loan Bank stock, at cost                                            4,048,700                      2,283,000
Premises and equipment                                                           2,786,262                      2,607,213
Foreclosed real estate and repossessed property, net                                77,160                              0
Goodwill                                                                         2,435,579                              0
Mortgage servicing rights                                                          272,620                        266,010
Other assets                                                                     1,604,817                        593,991
                                                                        ------------------             ------------------

                Total Assets                                            $      200,383,598             $      153,724,921
                                                                        ==================             ==================



      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
      Noninterest deposits                                              $        3,600,439             $        2,021,914
      Interest-bearing deposits                                                101,980,220                     85,517,925
                                                                        ------------------             ------------------
          Total deposits                                                       105,580,659                     87,539,839

      FHLB advances                                                             76,315,782                     45,057,877
      Advances from borrowers for taxes and insurance                            1,131,268                        823,755
      Federal income taxes
             Current                                                               (73,703)                             0
             Deferred                                                                    0                        108,184
      Accrued expenses and other liabilities                                     1,523,691                      1,775,938
                                                                        ------------------             ------------------
                Total liabilities                                              184,477,697                    135,305,593
                                                                        ------------------             ------------------

Stockholders' equity:
      Preferred stock, $0.01 par value, 500,000
         shares authorized, none outstanding
      Common stock, $0.01 par value, 5,500,000 shares authorized,
         1,884,492 shares issued and 1,162,320 outstanding                          18,845                         18,845
      Additional paid-in-capital                                                12,397,167                     12,397,167
      Deferred compensation - RRP shares                                            (9,698)                       (96,985)
      Unearned employee stock ownership plan shares                               (442,059)                      (442,059)
      Accumulated Other Comprehensive Income (loss)                               (919,532)                      (148,174)
      Retained earnings (substantially restricted)                              13,728,460                     13,675,391
      Treasury stock, 722,172 shares at cost                                    (8,867,282)                    (6,984,857)
                                                                        ------------------             ------------------

             Total stockholder's equity                                         15,905,901                     18,419,328
                                                                        ------------------             ------------------

             Total liabilities and stockholders' equity                 $      200,383,598             $      153,724,921
                                                                        ==================             ==================
</TABLE>


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

                                        4
<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                               Three Months                           Nine Months
                                                               Ended June 30,                        Ended June 30,
                                                                (Unaudited)                           (Unaudited)
                                                           2000               1999               2000             1999
                                                 -------------------------------------     --------------------------------
<S>                                                    <C>                <C>                <C>                <C>
INTEREST INCOME
   Loan Receivable:
      First Mortgage                                   $ 1,241,608        $ 1,099,806        $ 3,556,737        $ 3,327,777
      Consumer and other loans                             173,537            101,023            507,028            260,141
   Securities available for sale:
      Investment securities                                206,167              4,030            489,014             56,220
      Mortgage-backed securities                           639,798            416,196          1,857,124            992,788
   Securities held to maturity:
      Investment securities                                447,488            564,969          1,384,029          1,450,009
      Mortgage-backed securities                            89,142            115,175            270,040            432,185
   Deposits with banks                                      13,671             31,185             48,486            115,181
                                                       -----------        -----------        -----------        -----------

        Total interest income                            2,811,411          2,332,384          8,112,458          6,634,301
                                                       -----------        -----------        -----------        -----------

INTEREST EXPENSE

   Deposits                                              1,032,272          1,051,220          3,070,096          3,180,472
   FHLB advances                                           941,269            475,237          2,504,825          1,032,074
    Interest Expense to other banks                              0                  0             21,979                  0
                                                       -----------        -----------        -----------        -----------

        Total interest expense                           1,973,541          1,526,457          5,596,900          4,212,546
                                                       -----------        -----------        -----------        -----------

        Net interest income before
           provision for loan losses                       837,870            805,927          2,515,558          2,421,755

   Provision for loan losses                                 4,043                  0              4,445                  0
                                                       -----------        -----------        -----------        -----------

        Net interest income after
          provision for loan losses                        833,827            805,927          2,511,113          2,421,755
                                                       -----------        -----------        -----------        -----------

NONINTEREST INCOME
   Gain(loss) on sale of interest-earning assets             7,985             22,437             31,167            127,502
   Loan origination and commitment fees                     13,476             17,930             33,259             64,988
   Loan servicing fees                                      16,485             23,667             47,817             53,400
   Gain on foreclosed real estate                                0               (352)              (855)               (50)
   Other                                                    39,211             16,543             83,339             37,792
                                                       -----------        -----------        -----------        -----------

        Total noninterest income                            77,157             80,225            194,727            283,632
                                                       -----------        -----------        -----------        -----------

NONINTEREST EXPENSE
   Compensation and benefits                               533,270            543,784          1,601,780          1,572,468
   Occupancy and equipment                                 126,006            195,827            386,202            310,718
   SAIF deposit insurance premium                            4,433            (27,533)            22,135             (1,069)
   Loss on foreclosed real estate                                0                  0                  0              2,069
   Other                                                   109,197             88,250            320,378            402,571
                                                       -----------        -----------        -----------        -----------

        Total noninterest expense                          772,906            800,328          2,330,495          2,286,757
                                                       -----------        -----------        -----------        -----------

Income (loss) before provision for income taxes            138,078             85,824            375,345            418,630

Income tax expense (benefit)                                50,618             36,974            141,323            162,370
                                                       -----------        -----------        -----------        -----------

NET INCOME (LOSS)                                      $    87,460        $    48,850        $   234,022        $   256,260
                                                       ===========        ===========        ===========        ===========


Earnings per common share                              $       .08        $       .04        $       .21        $       .19
Earnings per common share - assuming dilution                  .08                .04                .20                .19
</TABLE>


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

                                        5
<PAGE>


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


        NINE MONTHS ENDED
          June 30, 2000
<TABLE>
<CAPTION>

                                                                             Unrealized
                              Common Stock       Unearned      Unallocated  Gain(loss)on
                              and Additional        RRP           ESOP          AFS         Retained       Treasury
                              Paid in Capital     Shares         Shares      Securities     Earnings         Stock
                              ---------------  -------------  ------------  ------------  -------------  --------------
<S>                            <C>               <C>          <C>           <C>           <C>            <C>
Balance September 30, 1999     $ 12,416,012      $ (96,985)   $ (442,059)   $ (148,174)   $ 13,675,391   $ (6,984,857)

Comprehensive income:
     Net Income                                                                                234,022
     Unrealized holding gains                                                 (771,358)

Comprehensive income

Deferred compensation
     amortization                                   87,287

Purchase of treasury stock
     at cost                                                                                               (1,882,425)

Payment of cash dividends                                                                     (180,953)

Balance June 30, 2000          $ 12,416,012       $ (9,698)   $ (442,059)   $ (919,532)   $ 13,728,460   $ (8,867,282)
                              ==============  =============  ============  ============  ============== ==============
</TABLE>

<TABLE>
<CAPTION>


                                                        Total
                                Comprehensive       Stockholders'
                                    Income             Equity
                              -----------------    ---------------
<S>                           <C>                   <C>
Balance September 30, 1999    $                     $ 18,419,328

Comprehensive income:
     Net Income                       234,022
     Unrealized holding gains        (771,358)
                              ----------------
Comprehensive income               $ (537,336)          (537,336)
                              ================
Deferred compensation
     amortization                                         87,287

Purchase of treasury stock
     at cost                                          (1,882,425)

Payment of cash dividends                               (180,953)

Balance June 30, 2000                                 15,905,901
                                                  ===============
</TABLE>





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

                                       6
<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                          For the Nine Months Ended
                                                                                  June 30,
                                                                           2000               1999
                                                                       ------------------------------
<S>                                                                    <C>                <C>
Cash flows from operating activities:
      Net income                                                       $   234,022        $   256,260
      Adjustments to reconcile net income to net cash
         provided by operating activities:
           Amortization of deferred loan origination fees                   (2,899)             5,042
           Amortization of premiums and discounts on investment
              securities, mortgage-backed securities, and loans             34,034            118,528
           Amortization of deferred compensation                            87,286             87,286
           Compensation charge related to release of ESOP shares            38,250             50,319
           Depreciation                                                    110,918             83,647
           Deferred income taxes                                            25,298             39,381
           Stock dividends on FHLB stock                                  (174,900)           (56,100)
           Origination of mortgage servicing rights                        (27,348)          (106,128)
           Amortization of mortgage servicing rights                        45,158             54,936
           Net (gain) loss on sale of:
                Securities held to maturity                                      0                  0
                Foreclosed real estate                                           0              2,069
                Fixed assets                                                     0                  0
                Net loss on disposal of fixed assets                             0                  0
                Other assets                                                     0                  0
                Loans                                                       (3,251)           (21,374)
                Loans held for sale                                              0                  0
           Net (gain) loss on disposal of fixed assets                         228                  0
           Proceeds from loan sales                                      2,363,199          8,751,313
           Originations of loans held for sale                                   0                  0
           Proceeds from sale of fixed assets                                    0                  0
           (Increase) decrease in:
                Accrued interest receivable                                (38,911)          (178,190)
                Other assets                                              (667,846)           665,034
                Accrued loan loss                                                0              1,208
           Increase (decrease) in:
                Federal income tax payable                                  (2,186)           (50,822)
                Accrued expenses and other liabilities                    (826,743)          (521,831)
           Capitalized interest on time deposits                                 0                  0
                                                                       -----------        -----------
Net cash provided (used) by operating activities                         1,194,309          9,180,578
                                                                       -----------        -----------
</TABLE>

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


                                7
<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                                For the Nine Months End
                                                                                                        June 30,
                                                                                             2000                      1999
                                                                                   -------------------------------------------------
<S>                                                                                     <C>                      <C>
Cash flows from investing activities
      Net cash  used in acquisition activities                                           (3,085,573)                       0
      Purchases of interest earning time deposits                                                 0                 (600,000)
      Net decrease (increase) in fed funds sold                                                   0                  129,187
      Purchases of obligations - U.S. Govt. and agencies
         held to maturity                                                                (1,468,672)             (11,986,719)
      Proceeds from maturity of time deposits                                             1,172,617                        0
      Proceeds from maturities of obligations - U.S. Govt.
         and agencies held to maturity                                                    4,000,000                9,725,000
      Purchases of FHLB stock                                                              (992,500)              (1,293,600)
      Purchases of investment securities available-for-sale                                (949,445)              (3,561,793)
      Purchases of mortgage-backed securities available-for-sale                         (6,908,715)             (24,545,208)
      Principal payments on mortgage-backed securities available for sale                 2,112,653                4,571,801
      Principal payments on mortgage-backed securities held to maturity                   1,108,807                4,544,859
      Net originations and principal collections on loans                               (10,232,495)             (10,938,321)
      Capitalized acquisition cost related to foreclosed real estate                         (4,221)                       0
      Proceeds from sale of foreclosed real estate                                            6,325                   32,432
      Expenditures for premises and equipment                                               (44,894)                (454,202)
                                                                                   ----------------           --------------

Net cash provided (used) by investing activities                                        (15,286,113)             (34,376,564)
                                                                                   ----------------           --------------


Cash flows from financing activities:
     Net increase (decrease) in:
           Non-interest bearing deposits, savings, NOW accounts                           1,028,624                3,568,987
           Time deposits                                                                 (5,831,366)              (2,511,372)
           FHLB Advances                                                                429,257,606              250,300,669
           Repayment of FHLB Advances                                                  (406,248,084)            (222,963,758)
           Other borrowed money                                                           1,500,000                        0
           Repayment of other borrowed money                                             (1,500,000)                       0
           Advances from borrowers for taxes and insurance                                 (233,429)                (261,237)
      Dividends paid to stockholders                                                       (180,593)                (208,782)
      Purchase of treasury stock                                                         (1,882,425)                (729,831)
      Proceeds from sale of common stock                                                          0                        0
                                                                                   ----------------           --------------

Net cash provided (used) by financing activities                                         15,910,333               27,194,676
                                                                                   ----------------           --------------


Net increase (decrease) in cash and cash equivalents                                      1,818,529                1,998,690

Cash and cash equivalents at beginning of the period                                      1,994,564                1,697,058
                                                                                   ----------------           --------------

Cash and cash equivalents at end of the period                                     $      3,813,093           $    3,695,748
                                                                                   ================           ==============

Supplemental disclosure:
      Cash paid for:
           Interest on deposits                                                    $      1,336,577           $    1,671,547
           Interest on FHLB advances and other borrowed funds                      $      2,526,804           $    1,032,074
           Income taxes                                                            $         76,553           $      149,969

      Transfers from loans to real estate
         acquired through foreclosures                                             $          2,966           $            0

      Loans charged off to loan loss reserves                                      $          3,184           $        1,280

      Recoveries credited to loan loss reserves                                    $         10,191           $           72
      Acquisition activity:
           Fair value of noncash assets acquired                                   $     32,841,706           $            0
           Fair value of liabilities assumed                                       $     32,191,712           $            0
</TABLE>

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

                                        8

<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY


             NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

                                  June 30, 2000

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


NOTE 1 - BASIS OF PRESENTATION

The  financial  statements  presented  in this report have been  prepared by the
Company  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission for interim  reporting and include all adjustments  which are, in the
opinion  of  management,   necessary  for  fair  presentation.  These  financial
statements  have  not  been  audited  by  an  independent  accountant.   Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or  omitted  pursuant  to such  rules  and  regulations  for  interim
reporting.  The Company  believes that the  disclosures are adequate to make the
information not misleading.  However,  these financial statements should be read
in conjunction  with the financial  statement and notes thereto  included in the
Company's  Annual  Report on Form 10-KSB for the year ended  September 30, 1999.
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,
2000 and 1999,  has been  computed  based on net income  divided by the weighted
average  number of common shares  outstanding  during the period.  For the three
months  ended June 30,  2000 and 1999,  the  weighted  average  number of shares
outstanding totaled 1,096,007 and 1,311,317,  shares respectively.  For the nine
months  ended June 30,  2000 and 1999,  the  weighted  average  number of shares
outstanding totaled 1,135,707 and 1,346,919 shares respectively.

Earnings  per common  share - assuming  dilution,  for the three months and nine
months  ended  June 30,  2000 and 1999,  has been  computed  based on net income
divided  by the  weighted  average  number  of  common  shares  outstanding.  In
addition,  it includes the effects of all dilutive  potential common shares that
were outstanding during the period. For the three months ended June 30, 2000 and
1999, the weighted average number of shares outstanding for earnings per share -
assuming dilution totaled 1,096,007 and 1,338,365, shares respectively.  For the
nine months ended June 30, 2000 and 1999, the weighted  average number of shares
outstanding  for earnings per share - assuming  dilution  totaled  1,151,954 and
1,365,419 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 period ended June 30, 2000
and 1999.

                                       9

<PAGE>


NOTE 3 - SECURITIES

The  carrying  values  and  estimated  market  values of  investment  securities
available-for-sale as of June 30, 2000, by type of security are as follows:
<TABLE>
<CAPTION>

                            Principal            Unamortized           Unearned             Unrealized             Carrying
                             Balance              Premiums             Discounts            Gain/(Loss)             Value
                        -----------------    -----------------     ----------------     ------------------     -----------------
<S>                        <C>                   <C>                <C>                   <C>                     <C>
Corporate debt             $7,500,000            $60,084            $  97,693             $  (350,777)            $7,111,614

Municipal bonds               585,000                  0                    0                  (5,603)               579,397
                           ----------            -------            ---------             -----------             ----------

                           $8,085,000            $60,084            $  97,693             $  (356,380)            $7,691,011
                           ----------            -------            ---------             -----------             ----------
</TABLE>



The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of June 30, 2000, are as follows:

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

  U. S. government agency              $27,967,369            $988            $(981,613)            $26,986,744
                                       -----------            ----            ---------             -----------

        Total debt securities          $27,967,369            $988            $(981,613)            $26,986,744
                                       -----------            ----            ---------             -----------
</TABLE>


The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of June 30, 2000, by contractual maturity are shown below:
<TABLE>
<CAPTION>

                                                                                     Estimated
                                                             Amortized                Market
                                                                Cost                  Value
                                                          -----------------      -----------------
<S>                                                          <C>                    <C>
              Due in one year or less                        $ 1,999,950            $ 2,000,527

              Due after one year through two years             2,000,000              1,950,816

              Due after two years through three years         13,500,514             13,070,825

              Due after three years through six years         10,466,905              9,964,576
                                                             -----------            -----------

                       Total debt securities                 $27,967,369            $26,986,744
                                                             -----------            -----------
</TABLE>



As of June  30,  2000,  approximately  $25,500,000  of the  securities  had call
options exercisable at the discretion of the issuer. Approximately $13.5 million
of the securities were immediately  callable.  The remainder had call dates that
varied between July 2000 and June 2001.

                                       10
<PAGE>

The carrying values and estimated market values of  mortgage-backed  and related
securities  available-for-sale  as of June 30, 2000,  by type of security are as
follows:
<TABLE>
<CAPTION>

                           Principal             Unamortized             Unearned              Unrealized              Carrying
                            Balance                Premiums              Discounts             Gain/(Loss)              Value
                        -----------------      -----------------      ----------------      ------------------     -----------------
<S>                        <C>                    <C>                 <C>                     <C>                      <C>
Fixed Rate                 $ 9,667,438            $ 32,105            $    53,006             $   (244,015)            $ 9,402,522


Adjustable Rate             37,163,864             250,825                 15,698               (1,515,503)             35,883,488
                           -----------            --------            -----------             ------------             -----------

                           $46,831,302            $282,930            $    68,704             $ (1,759,518)             45,286,010
                           -----------            --------            -----------             ------------             -----------
</TABLE>



The carrying values and estimated market values of  mortgage-backed  and related
securities  held-to-maturity  as of June 30,  2000,  by type of security  are as
follows:
<TABLE>
<CAPTION>
                                                                                                                 Estimated
                           Principal           Unamortized             Unearned             Carrying               Market
                            Balance              Premiums              Discounts              Value                 Value
                        -----------------    ---------------      ----------------      -----------------      -----------------
<S>                        <C>                   <C>                <C>                   <C>                   <C>
Fixed Rate                 $    3,250            $     0            $        0            $    3,250            $    3,010

Adjustable Rate             4,652,373             36,523                 4,146             4,684,750             4,798,431

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

                           $4,655,623            $36,523            $    4,146            $4,688,000            $4,801,441
                           ----------            -------            ----------            ----------            ----------
</TABLE>



NOTE 4 - CURRENT ACCOUNTING ISSUES


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

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

NOTE 5 - STOCK OPTION AND INCENTIVE PLAN

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

Options to  purchase  shares of common  stock of the  Company  may be granted to
selected directors,  officers and key employees.  The number of shares of common
stock  reserved for issuance under the stock option plan was equal to 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 generally vest at a rate of 20% per
year beginning at the date of the grant. The Company uses treasury stock for the
exercise  of  options.  The  following  is  a  summary  of  changes  in  options
outstanding:

                                       11
<PAGE>


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
                                                                  =======

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:

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
           Granted                                                    -0-
           Exercised at $9.42 per share                           (1,567)
           Forfeited and expired                                      -0-
                                                                ---------

      Balance, September 30, 1999                                 147,276
                                                                  =======

Options exercisable at June30, 2000 under stock option plan       116,258
                                                                =========

Shares available for future grants                                 27,162
                                                                 ========

During the nine months ended June 30, 2000, no options were  exercised,  issued,
or forfeited.

                                       12


<PAGE>



NOTE 6 - ADVANCES FROM FEDERAL HOME LOAN BANK

The  outstanding  advances from the FHLB  consisted of the following at June 30,
2000:

               Maturity                Balance                 Rate
              ----------            -----------               ------
              07/06/2000            $ 6,100,000               6.68%
              07/11/2000            $36,277,000               6.54%
              07/11/2000            $ 3,600,000               6.54%
              07/11/2000            $ 1,700,000               6.59%
              07/27/2000            $ 8,000,000               6.66%
              07/27/2000            $ 1,000,000               6.67%
              07/27/2000            $ 1,000,000               6.70%
              07/27/2000            $ 5,526,400               6.70%
              02/15/2001            $    20,000               5.94%
              02/15/2002            $    25,000               5.98%
              02/17/2003            $   100,000               6.00%
              09/01/2000            $ 1,653,383               6.25%
              02/16/2004            $   100,000               6.01%
              12/31/2004            $   247,446               6.09%
              01/03/2005            $    98,163               6.03%
              02/15/2005            $   100,000               6.04%
              02/15/2006            $   150,000               6.05%
              01/01/2013            $   446,841               6.09%
              01/01/2013            $   424,647               6.13%
              02/01/2013            $   421,235               5.91%
              03/03/2014            $   901,796               5.45%
              04/01/2014            $   869,828               5.97%
              05/01/2014            $ 1,184,572               5.66%
              06/01/2014            $   902,501               5.90%
              07/01/2014            $   834,517               6.38%
              08/01/2014            $   606,008               6.37%
              09/01/2014            $   764,946               6.59%
              10/01/2014            $   670,779               6.86%
              11/03/2014            $ 1,655,064               6.77%
              12/01/2014            $   565,645               6.57%
              01/01/2015            $   370,012               6.73%


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

                                       13

<PAGE>

NOTE 7 - PRO FORMA SUMMARY FINANCIAL INFORMATION

On June 30, 2000,  the Company  completed its  acquisition  of Gilmer  Financial
Services,  Inc.  (GFSI) and its wholly owned  subsidiary,  Gilmer  Savings Bank,
exchanging $26.10 in cash for each share of GFSI common stock  outstanding.  The
total cost of the acquisition  was  approximately  $5.4 million.  At the date of
acquisition,  GFSI had approximately  $35.1 million in assets,  $22.9 million in
deposits,  and 3.0  million  in  shareholders'  equity.  Pursuant  to the merger
agreement,  Gilmer Financial Services,  Inc was merged into the Company's wholly
owned subsidiary,  First Federal Savings and Loan Association of Tyler, Inc. The
combined entity now operates as one institution  under the name of First Federal
Savings and Loan. The Company utilized short-term advances from the Federal Home
Loan Bank to fund the transaction  and accounted for the  acquisition  under the
purchase  method of accounting.  Under  purchase  accounting  rules,  the assets
acquired and the  liabilities  assumed  were  adjusted to their  estimated  fair
value.  Goodwill  amounting  to $2.4  million  related to this  transaction  was
recorded and will be amortized on a straight line basis over fifteen years.  The
results of operations  of GFSI are not  reflected in the Company's  consolidated
statements of income at June 30, 2000, because the acquisition took place at the
end of the period.

The following (unaudited) pro forma consolidated results of operations have been
prepared as if the acquisition of GFSI had occurred at October 1, 1999 and 1998,
respectively:

                                                          Nine Months
                                                         Ended June 30,
                                                          (Unaudited)
                                                    2000                1999
                                                    ----                ----

Revenue                                      $   10,533,359      $   9,427,529

Net Income (loss)                                  (685,708)            18,278

Net Income (loss) per share - basic                   (0.60)              0.01

Net Income (loss) per share - diluted                 (0.60)              0.01

The pro forma  information is presented for  informational  purposes only and is
not necessarily indicative of the results of operations that actually would have
been achieved had the  acquisition  been  consummated as of that time, nor is it
intended to be a projection of future results.

                                       14
<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                  June 30, 2000

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


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

GENERAL

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

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

The Company has recently  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 in 1999.

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

FINANCIAL CONDITION

Total assets were $200.4 million at June 30, 2000, a $46.7 million increase from
the $153.7  million  reported at September 30, 1999,  the Company's  most recent
fiscal year end. The increase in total assets was the result of a $29.6  million
increase  in loans  receivable,  a $12.4  million  increase  in  mortgage-backed
securities available-for-sale,

                                       15


<PAGE>

a $1.8 million increase in investment securities available-for-sale,  and a $1.8
million  increase in Federal Home Loan Bank stock.  The increases were partially
offset by a $2.5 million decline in investment securities held-to-maturity and a
$1.1 million decline in  mortgage-backed  securities  held-to-maturity.  The net
increase in total assets was primarily the result of the acquisition of Gilmer.

At June 30, 2000,  loans-receivable  totaled  $96.8  million,  compared to $67.3
million at September 30, 1999.  The increase in loans  receivable  was primarily
the  result of an  additional  $21.5  million  in loans  acquired  in the Gilmer
transaction.  The additional  increase in loans-receivable of approximately $8.1
million  was the  result  of  continued  efforts  of the  Company  to  originate
commercial and consumer loans and, to a lesser extent,  its traditional  one- to
four-family lending products.

At June 30, 2000,  the  Company's  commercial  and consumer  loan  portfolio was
approximately  $16.1 million,  including  approximately $6.0 million acquired in
the Gilmer transaction.  The Company had reported  approximately $2.6 million in
such loans outstanding at September 30, 1999. The Company will continue to focus
its efforts on  increasing  its  commercial  and  consumer  loan  portfolio,  in
addition to traditional one- to four-family loans.

The $12.4 million increase in mortgage-backed securities  available-for-sale was
primarily the result of the Gilmer  transaction.  The  securities  acquired were
primarily  adjustable  rate  securities.   The  remainder  of  the  increase  in
mortgage-backed  securities  available-for-sale  was the result of the Company's
decision to continue its program of borrowing  funds from the FHLB and investing
the proceeds into mortgage-backed securities and similar securities in an effort
to achieve a positive margin on the transaction.

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 is
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  borrows  funds  from  the  FHLB  with  terms  of
approximately  thirty  days  and  invests  in  mortgage-backed  securities  with
interest rate adjustment  frequencies  that vary between one month and one year.
The  Company  intends  to  maintain  the size of the plan at it  current  level.
Alternatively,  the Company may decrease the size of the program, depending upon
its ability to increase its loans receivable portfolio.

The investment  securities  available-for-sale  portfolio  consists of corporate
debt securities and municipal  bonds.  Both portfolios have fixed interest rates
and terms and various  maturity dates of not greater than 10 years from June 30,
2000.  The increase in the  portfolio was primarily due to $500,000 in corporate
debt  securities  and  $585,000  in  municipal  bonds  acquired  in  the  Gilmer
transaction.   The  additional  increase  was  from  corporate  debt  securities
purchased  by the Company  subsequent  to September  30, 1999.  The Company only
invests in  investment  grade debt with  varying  maturities  and  ratings.  The
municipal bonds acquired in the Gilmer  transaction  were  predominantly  exempt
from federal income taxes.

Approximately  $598,000 of the  additional  FHLB stock was acquired from Gilmer.
The  additional  $1.2  million  was  acquired  by  the  Company  as it  borrowed
additional  funds from the FHLB. The level of borrowing from the FHLB determines
the amount of FHLB stock that the Company must hold.

At June 30, 2000,  the  investment  securities  held-to-maturity  totaled  $28.0
million,  compared to $30.5  million at September  30, 1999.  The decline in the
portfolio  was due to the company's  decision to redirect  proceeds from matured
securities in the portfolio to its lending operations.

The Company's mortgage-backed securities held-to-maturity portfolio totaled $4.7
million at June 30, 2000,  compared to $5.8 million at September  30, 1999.  The
decline in the portfolio was primarily due to principal payments received on the
portfolio during the period and the Company's decision to redirect such proceeds
to  the  loans  receivable  and  mortgage-backed  securities  available-for-sale
portfolios.

                                  16
<PAGE>

Total deposits were $105.6  million at June 30, 2000, an $18.1 million  increase
from the $87.5 million  reported at September 30, 1999. The increase in deposits
was primarily due to the $22.9 million in deposits  acquired from Gilmer,  which
was partially  offset by a $4.8 million  decline in deposits prior to the Gilmer
acquisition.  The decline in deposits was  primarily the result of the Company's
decision to not pay the highest rates in the market for  certificate  of deposit
accounts.  As a result,  balances in  certificate of deposit  accounts  declined
during the nine months ended June 30, 2000.

The Company  reported  $76.3 million in advances from the FHLB at June 30, 2000,
an increase of $31.3  million from the $45.1  million  reported at September 30,
1999.  Approximately  $8.1 million of the increase was acquired from Gilmer. The
difference  was the  result  of  additional  borrowings  from  the  FHLB to fund
security purchases and loans.

Stockholder's  equity totaled $15.9 million at June 30, 2000, a decrease of $2.5
million from the $18.4 million  reported at September 30, 1999. The decrease was
primarily attributable to a $1.9 million increase in treasury stock, the payment
of cash dividends of $180,953,  and a $771,000  increase in unrealized losses on
available-for-sale  securities.  The decrease was partially offset by net income
of  $234,000  reported  for the nine  months  ended June 30,  2000 and a $87,000
decrease in deferred compensation.

At June 30, 2000, the Company reported a book value per share of $13.68 based on
1,162,320 net  outstanding  shares.  During the nine months ended June 30, 2000,
the Company  repurchased 132,100 shares of treasury stock at an average price of
$14.25 per share.  The result was an  increase  in the number of shares  held as
treasury stock to 722,172 at an average cost of $12.28 per share.

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, 2000
           AND JUNE 30, 1999

General. Net income for the three months ended June 30, 2000 was $87,460 or $.08
per share,  an increase of $38,600  from the $48,850 or $.04 per share  reported
for the three  months  ended  June 30,  1999.  The  increase  in net  income was
attributable  to a $27,900  increase in net interest  income after provision for
loan losses and a $27,400 decrease in total non-interest  expense.  The increase
in net interest  income and the decrease in  noninterest  expense was  partially
offset by a $3,000  decrease in net  interest  income and a $13,600  increase in
income tax expense.

Net Interest  Income.  For the quarter ended June 30, 2000, net interest  income
before provision for loan losses totaled  $838,000,  an increase of $31,900 from
the $806,000  reported for the quarter  ended June 30,  1999.  On an  annualized
basis,  the $838,000 in net interest income was  approximately  2.16% of average
interest earning assets and 2.09% of average total assets. For the quarter ended
June 30, 1999, the $806,000 in net interest  income was  approximately  2.44% of
average  interest  earning  assets and 2.34% of average  total  assets.  Average
interest earning assets were approximately  $155.6 million for the quarter ended
June 30, 2000, compared to $132.1 million for the quarter ended June 30, 1999.

The increase in net interest income was primarily due to an increase in interest
earning  assets to  $157.9  million  at June 30,  1999 from  $149.1  million  at
September 30, 1999. The yield on the Company's average  interest-earning  assets
was  approximately  7.12% for the quarter ended June 30, 2000.  The increase was
partially  due  to  the  Company's  decision  to  begin  offering  consumer  and
commercial  loans and the  increase in volume of such loans.  In  addition,  the
overall  rise in  interest  rates has  helped  increase  the  yield on  interest
earnings assets.

                                       17

<PAGE>

Total  interest  income was $2.8 million for the quarter ended June 30, 2000, an
increase of $479,000  from the $2.3  million  reported  for the same  quarter in
1999.  Interest  income on  loans-receivable  totaled  $1.4  million or 7.48% of
average loans  receivable  balances  outstanding  for the quarter ended June 30,
2000. For the quarter ended June 30, 1999,  interest income on  loans-receivable
was approximately 7.68% of average loans receivable balances.

For the quarter  ended June 30, 2000,  the $1.0  million in interest  expense on
deposits was, on an annualized  basis,  approximately  4.96% of average interest
costing  deposits.  On an annualized  basis,  the $2.0 million in total interest
expense,  reported for the quarter ended June 30, 2000, was approximately  5.40%
of  average  interest  costing  liabilities  outstanding  for the  quarter.  The
Company's dependence upon wholesale sources to fund loans and securities has had
the effect of increasing total interest expense.

Interest  income from  mortgage-backed  securities  available-for  sale  totaled
$640,000 for the three months ended June 30, 2000,  compared to $416,000 for the
three months ended June 30,  1999.  The increase in interest  income is a direct
result of the increase in the average  balance  outstanding  to $36.7 million at
June 30, 2000. 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 7.11% at June 30, 2000. [See "Financial Condition"]

Interest income from investment securities  available-for-sale  totaled $206,000
for the three  months  ended  June 30,  2000,  compared  to $4,000 for the three
months  ended  June 30,  1999.  The  increase  was  attributable  to  additional
purchases of corporate  debt  securities by the Company in an effort to increase
the yield on the portfolio

Interest  income  from  the  investment  securities  held-to-maturity  portfolio
totaled $447,000 for the three months ended June 30, 2000,  compared to $565,000
for the same  quarter  in 1999.  The  decrease  was  primarily  the  result of a
decrease in the average  balance  outstanding  in the portfolio and a decline in
the  yield on the  portfolio  as  higher  yielding  securities  matured  and was
replaced with lower yields.

Interest income from the mortgage-backed  securities  held-to-maturity portfolio
totaled  $89,000 for the three months ended June 30, 2000,  compared to $115,000
for the same  period  in 1999.  Continued  cash  flow  from  prepayments  on the
adjustable  rate  securities in the portfolio was redirected  into the Company's
lending  operations or to replace matured or called investment  securities.  The
result was a decline in interest income from the portfolio.

Interest paid to depositors totaled $1.0 million for the three months ended June
30, 2000, down $19,000 from the $1.1 million for the three months ended June 30,
1999. A decline in the average balance on deposits accounted for the decrease in
interest  expense,  despite an overall  increase in the average cost of funds as
interest rates increased.

Interest on FHLB advances was $941,000 for the three months ended June 30, 2000,
compared to  $475,000  for the same period in 1999.  The  increase  was a direct
result of the continued increase in total FHLB advances in the Company's program
to match fund 15 year loans and securities with advances and to borrow funds for
consumer and commercial loan funding.

Provision For Loan Losses.  The Company made provision for loan losses of $4,000
during the quarter  ended June 30, 2000 and none for the quarter  ended June 30,
1999. [See - "Asset Quality"]

Noninterest  Income.  Noninterest  income  totaled  $77,000 for the three months
ended June 30,  2000,  compared to $80,000 for the same period in 1999, a $3,000
decrease.

The  decrease in  noninterest  income was  primarily  the result of a decline in
gains on sales of  interest  earning  assets of $14,000 as fewer loans were sold
into the secondary  market and a $7,000  decline in loan  servicing  fees as the
yield on servicing such loans decreased.  The declines was partially offset by a
$23,000 increase in other noninterest income. Such increase was primarily due to
additional  fee  income  generated  from  the  Company's  introduction  of "free
checking" and "checking with overdraft privilege" products in 2000.


                                       18
<PAGE>

Noninterest Expenses. Noninterest expenses totaled $773.000 for the three months
ended June 30,  2000,  compared to $800,000  for the three months ended June 30,
1999.

The  decrease  in  noninterest  expense  was  primarily  the result of a $69,000
decrease in occupancy and  equipment  expense from $196,000 for the three months
ended June 30,  1999 to  $126,000  for the three  months  ended  June 30,  2000.
Initial  expenses  associated  with the opening of the new  full-service  office
opened for business in April 1999,  accounted for the extra expense in 1999. The
decrease  was offset by a $32,000  increase  in SAIF  insurance  premiums  and a
$21,000 increase in other noninterest expenses.

Provision For Income Taxes.  The Company  incurred federal income tax expense of
$51,000 or 36.7% of pre-tax  income for the three  months  ended June 30,  2000,
compared to $37,000 or 43.1% of pre-tax  income for the three  months ended June
30, 1999.


COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 2000
           AND JUNE 30, 1999

General.  For the nine months  ended June 30,  2000,  the Company  reported  net
income of $234,000 or $.21 per common share and $.20 per common share - assuming
dilution,  compared  to  $256,000  or $.19 per common  share and $.19 per common
share - assuming  dilution for the nine months ended June 30, 1999. The decrease
in net income was attributable to an $89,000 decrease in noninterest  income and
a $44,000  increase in  noninterest  operating  expenses,  which were  partially
offset by a $90,000  increase in net interest  income after  provisions for loan
losses and a $21,000 decrease in income tax expense.

Net  Interest  Income.  For the nine months  ended June 30,  2000,  net interest
income after  provisions  for loan losses  totaled $2.5 million,  an increase of
$90,000 from the $2.4 million  reported for the nine months ended June 30, 1999.
On an annualized basis, the $2.5 million in net interest income after provisions
for loan  losses  for the  current  period  was  approximately  2.18% of average
interest  earning  assets and 2.12% of average  total assets.  Average  interest
earning assets were approximately  $153.5 million for the nine months ended June
30, 2000.

Total  interest  income was $8.1  million or 7.05% of average  interest  earning
assets for the nine months ended June 30, 2000.  The increase in total  interest
income,  from $6.6  million  for the nine  months  ended  June 30,  1999 to $8.1
million for the nine months ended June 30, 2000, was primarily  attributable  to
an increase in average outstanding  balances of interest earning assets.  Rising
interest  rates and an increase in  commercial  and  consumer  loans,  at higher
yields, also contributed to the increase.

Interest  income on loans  receivable  totaled  $4.1 million for the nine months
ended June 30,  2000 an increase  from the $3.6  million  reported  for the nine
months ended June 30, 1999.  Average loans receivable balance increased to $71.5
million for the nine months ended June 30, 2000.  For the nine months ended June
30,  2000,  the  $4.1  million  in  interest  income  on  loans  receivable  was
approximately 7.58%.

Interest income from mortgage-backed  securities available-for sale totaled $1.9
million for the nine months  ended June 30,  2000,  compared to $993,000 for the
nine months ended June 30, 1999.  Interest income from this portfolio is part of
the   Company's   program   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.  The increase
in income was a result of an increase in the size of the program.

Interest income on investment securities  held-to-maturity  totaled $1.4 million
for the nine months ended June 30,  2000,  compared to $1.5 million for the nine
months ended June 30, 1999. The decrease in interest income on the portfolio was
primarily  the result of a decrease in the  average  yield on the  portfolio  as
maturing investments were replaced with lower yielding investments.


                                       19
<PAGE>

Interest income on mortgage-backed securities  held-to-maturity was $270,000 for
the nine months  ended June 30,  2000,  compared to $432,000 for the nine months
ended  June 30,  1999.  The  decline in  interest  income on the  portfolio  was
primarily  the result of a decline in the  average  balance  outstanding  in the
portfolio to $5.2  million for the nine months ended June 30, 2000.  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 income on investment securities available-for-sale totaled $489,000 for
the nine  months  ended June 30,  2000,  compared to $56,000 for the nine months
ended June 30, 2000.  The  increase  was a direct  result of the increase in the
average size of the portfolio to $6.2 million for the nine months ended June 30,
2000. The portfolio consists primarily of corporate debt securities.

Interest  expense was $5.6 million for the nine months  ended June 30, 2000,  an
increase  of $1.4  million  from the $4.2  million  reported  for the nine month
period ended June 30, 1999. An increase in average interest costing liabilities,
including  advances from the FHLB,  to $142.0  million for the nine months ended
June 30, 2000 primarily accounted for the increase in interest expense. The $5.6
million in interest  expense  reported  for the nine month period ended June 30,
2000 was approximately 5.26% of average interest costing liabilities.

Noninterest  Income.  Noninterest  income was $195,000 for the nine months ended
June 30, 2000, compared to $284,000 for the nine months ended June 30, 1999. The
decrease was directly  attributable to fewer gains on sales of interest  earning
assets,  and loan origination  fees as mortgage lending activity  decreased with
rising  interest  rates.  Losses on sales on  interest  earning  assets  totaled
$31,000 for the nine month period ended June 30, 2000,  compared to $128,000 for
the nine months ended June 30, 1999.  Loan  origination and commitment fees were
$33,000 for the nine  months  ended June 30,  2000,  compared to $65,000 for the
nine months  ended June 30,  1999.  The declines in loan fee income and gains on
sales of loans were partially offset by a $46,000 increase in other  noninterest
income.  The increase was due to additional fee income from new checking account
products introduced by the Company in 2000.

Noninterest  Expense.  Noninterest  expense was reported as $2.3 million for the
nine month period ended June 30, 2000, a $44,000  increase from the $2.3 million
reported for the nine months ended June 30, 1999.


The  increase  in  noninterest  expense  was  primarily  the result of a $30,000
increase in compensation and benefits expense for the nine months ended June 30,
2000.  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 $386,000 for the nine months ended June
30, 2000,  compared to $311,000  for the nine months  ended June 30,  1999.  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
$141,000  or 37.7% of pre-tax  income for the nine months  ended June 30,  2000,
compared to $162,000 or 38.8% of pre-tax  income for the nine months  ended June
30, 1999.


                                       20
<PAGE>

ASSET QUALITY

At June 30, 2000,  the Company's  non-performing  assets totaled $1.1 million or
 .55% of total assets,  compared to $768,000 or .50% of total assets at September
30, 1999.

Non-performing  loans at June 30, 2000  equaled  $1.0  million or 1.06% of loans
receivable,  compared to $768,000 or 1.14% of loans  receivable at September 30,
1999.

Classified  assets  totaled  $2.5  million or 1.23% of total  assets at June 30,
2000, compared to $1.1 million or .71% of total assets at September 30, 1999.

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.

The  Company's  allowance for loan losses  totaled  $1,099,200 at June 30, 2000,
compared to $270,039 at September  30, 1999.  The allowance for loan losses as a
percentage  of loans  receivable  equaled  1.14%  at June  30,  2000 and .40% at
September 30, 1999.

LIQUIDITY AND CAPITAL RESOURCES

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

The  Association  uses its liquidity and capital  resources  principally to meet
ongoing   commitments  to  fund  maturing   certificates  of  deposit  and  loan
commitments,  maintain liquidity and pay operating  expenses.  At June 30, 2000,
the Association had outstanding  commitments to extend credit on $4.4 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 $15.9 million at June 30, 2000, a decrease of
$2.5 million from the $18.4 million reported at September 30, 1999. The decrease
was the result of the $1.9 increase in treasury  stock,  a $771,358  increase in
unrealized  losses on securities  available  for sale,  and the $180,953 in cash
dividends  paid. The decrease was offset by the $234,000 net income reported for
the three month period ended June 30, 2000,  and a $87,287  decrease in deferred
compensation.

As of June 30, 2000,  the Company's  reported book value per share,  using total
stockholders'  equity of $15.9 million (net of the cost of unallocated  ESOP and
RRP shares) and 1,162,320  outstanding  shares of common stock (the total issued
shares including unallocated ESOP and RRP shares, less treasury shares), equaled
$13.68 per share.

Subsequent  to the  quarter  ended June 30,  2000,  the  Company  announced  its
intention  to pay a cash  dividend  of $.05 per share on  August  23,  2000,  to
stockholders of record at August 8, 2000.

Under the Financial  Institutions  Reform,  Recovery and Enforcement Act of 1989
("FIRREA"),  Congress imposed capital requirements for thrift  institutions.  At
June 30, 2000, the Association's  actual and required capital amounts under each
of the requirements were as follows:

- Core  Capital  (Tangible  capital plus  certain  intangible  assets) was $13.5
million or 6.77% of total assets,  exceeding the minimum  requirement of 4.0% by
$5.5 million.

                                       21

<PAGE>

- Risk-based  Capital (Core  capital plus general loan and valuation  allowances
less an adjustment for  capitalized  mortgage  servicing  rights)  equaled $14.6
million or 11.41% of risk weighted assets,  exceeding the minimum requirement of
8.0% of risk weighted assets by $4.4 million.

At  June  30,  2000,  the  Association  was  considered  a  "well   capitalized"
institution  under the prompt  corrective  action  requirements  of the  Federal
Deposit Insurance Corporation Improvement Act of 1991.

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.


                                       22
<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                  JUNE 30, 2000
--------------------------------------------------------------------------------

                           PART II - OTHER INFORMATION

Item 1.    Legal Proceedings
           -----------------
      There  are no  material  legal  proceedings  to which the  Company  or the
      Association is a party or of which any of their property is subject.  From
      time-to-time,  the  Association  is a party to various  legal  proceedings
      incident to the conduct of its business.

Item 2.    Changes In Securities
           ---------------------
      None

Item 3.    Defaults Upon Senior Securities
           -------------------------------
      None

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


                                       23
<PAGE>

       (b)  Reports on Form 8-K

           During the quarter ended June 30, 2000, the Company filed a report on
           Form 8-K on April 28, 2000, to report the issuance of a press release
           dated April 28, 2000,  announcing the Company's  intention to pay, on
           May 24, 2000, a cash dividend of $.05 per share for the quarter ended
           March 31, 2000, to stockholders of record on May 9, 2000.

           Durning the quarter  ended June 30, 2000,  the Company filed a report
           on Form 8-K on April 28,  2000,  to report  the  issuance  of a press
           release dated April 28, 2000,  announcing the Company's  earnings for
           the quarter ending June 30, 2000.

           During the quarter ended June 30, 2000, the Company filed a report on
           Form 8-K on June 30, 2000 to report the  issuance of a press  release
           dated June 30, 2000,  announcing the completion of its acquisition of
           Gilmer Financial Services, Inc.


                                       24


<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 21, 2000               /s/ Gerald W. Free
                                     --------------------------------
                                     Vice Chairman, President and CEO
                                     (Principal Executive Officer)


Date:  August 21, 2000               /s/  Derrell W. Chapman
                                     -----------------------
                                     Vice President/COO/CFO
                                    (Principal Financial and Accounting Officer)

                                       25