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, 2001

                                       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, 2001, was 1,162,320.


<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                  June 30, 2001

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

                                      INDEX

                                                                           Page
                                                                            No.

Part I - Financial Information

     Item 1.  Financial Statements

          Consolidated Statements of Financial Condition, June 30, 2001
          (Unaudited) and September 30, 2000...............................   4

          Consolidated Statements of Income, (Unaudited) three months and nine
          months ended June 30, 2001 and June 30, 2000.....................   5

          Consolidated Statement of Changes in Stockholders' Equity, (Unaudited)
          nine months ended June 30, 2001..................................   6

          Consolidated Statements of Cash Flows, (Unaudited) nine months ended
          June 30, 2001, and June 30, 2000.................................   7

          Notes to (Unaudited) Consolidated Financial Statements, June 30,
          2001.............................................................   9

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

Part II - Other Information

          Item 1. Legal Proceedings........................................  22
          Item 2. Changes In Securities....................................  22

          Item 3. Defaults Upon Senior Securities..........................  22

          Item 4. Submission of Matters To a Vote of Security Holders......  22

          Item 5. Other Information........................................  22

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

Signature Page.............................................................  23



                                  Page 2 of 23

<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                  June 30, 2001


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


PART I - FINANCIAL INFORMATION

     Item 1 - Financial Statements

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

On June 30, 2000, the Company acquired by merger 100% of the common stock of
Gilmer Financial Services, Inc. ("Gilmer" or "the Gilmer transaction") and its
wholly owned subsidiary, Gilmer Savings Bank, F.S.B. The acquisition was
accounted for as a purchase transaction. Gilmer was merged into the Company's
wholly owned subsidiary, First Federal Savings and Loan Association of Tyler.
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 was recorded as goodwill. The statements of income for the
three and nine month periods ended June 30, 2000 do not reflect income for
Gilmer.

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

Certain items from prior periods have been reclassified for comparability
purposes.




                                  Page 3 of 23

<PAGE>


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

<TABLE>
<CAPTION>
                          ASSETS                                                  June 30, 2001       September 30, 2000
                                                                                  -------------       ------------------
                                                                                   (Unaudited)

<S>                                                                               <C>                   <C>
Cash and due from banks                                                           $   1,658,492         $   1,661,435
Interest-bearing deposits with banks                                                  3,366,243               543,288
Interest-earning time deposits with financial institutions                              893,000             1,089,000
Federal funds sold                                                                       69,806               364,822
Investment securities available-for-sale                                              6,665,770             7,916,597
Mortgage-backed securities available-for-sale                                        32,235,991            44,012,663
Investment securities held-to-maturity (estimated market
     value of $8,841,958 at June 30, 2001, and
     $25,428,105 at September 30, 2000)                                               8,776,324            25,970,113
Mortgage-backed securities held-to-maturity (estimated
     market value of $29,261,434 at June 30, 2001
     and $4,349,164 at September 30, 2000)                                           29,140,745             4,279,132
Loans receivable, net of allowance for credit losses of $803,278
     at June 30, 2001 and $1,057,374 at September 30, 2000                          108,400,208           102,064,137
Accrued interest receivable                                                           1,389,170             1,548,840
Federal Home Loan Bank stock, at cost                                                 4,284,500             4,115,000
Premises and equipment                                                                2,677,796             2,744,278
Foreclosed assets, net                                                                  198,958                86,465
Goodwill, net                                                                         2,210,903             2,313,491
Deferred tax asset                                                                            0               255,233
Mortgage servicing rights                                                               201,694               258,682
Other assets                                                                            882,705               986,482
                                                                                  -------------         -------------

     Total Assets                                                                 $ 203,052,305         $ 200,209,658
                                                                                  =============         =============



     LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
     Noninterest deposits                                                         $   3,100,386         $   2,644,220
     Interest-bearing deposits                                                      109,139,888            98,975,563
                                                                                  -------------         -------------
         Total deposits                                                             112,240,274           101,619,783

     FHLB advances                                                                   70,384,926            78,959,065
     Advances from borrowers for taxes and insurance                                    950,903             1,478,438
     Federal income taxes
           Current                                                                      (11,523)                    0
           Deferred                                                                     552,040                     0
     Accrued expenses and other liabilities                                           1,489,275             1,943,399
                                                                                  -------------         -------------
Total liabilities                                                                   185,605,895           184,000,685
                                                                                  -------------         -------------

Stockholders' equity:
     Preferred stock, $0.01 par value, 500,000
        shares authorized, none outstanding
     Common stock, $0.01 par value, 5,500,000 shares authorized,
        1,884,492 shares issued and 1,162,320 outstanding                                18,845                18,845
     Additional paid-in-capital                                                      12,444,372            12,444,372
     Unearned employee stock ownership plan shares                                     (346,020)             (346,020)
     Retained earnings (substantially restricted)                                    14,036,446            13,732,109
     Accumulated other comprehensive income                                             160,049              (773,051)
     Treasury stock, 722,172 shares at cost                                          (8,867,282)           (8,867,282)
                                                                                  -------------         -------------

           Total stockholder's equity                                                17,446,410            16,208,973
                                                                                  -------------         -------------

           Total liabilities and stockholders' equity                             $ 203,052,305         $ 200,209,658
                                                                                  =============         =============
</TABLE>

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

                                  Page 4 of 23

<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                             Three Months                          Nine Months
                                                             Ended June 30,                       Ended June 30,
                                                              (Unaudited)                          (Unaudited)
                                                         2001               2000              2001              2000
                                                         ----               ----              ----              ----

INTEREST INCOME
<S>                                                   <C>               <C>               <C>               <C>
   Loans receivable:
     First mortgage                                   $ 1,620,343       $ 1,241,608       $ 4,921,997       $ 3,556,737
     Consumer and other loans                             542,392           173,537         1,479,453           507,028
   Securities available for sale:
     Investment securities                                157,581           206,167           521,350           489,014
     Mortgage-backed securities                           503,037           639,798         1,981,169         1,857,124
   Securities held to maturity:
     Investment securities                                176,105           447,488           918,555         1,384,029
     Mortgage-backed securities                           389,083            89,142           763,079           270,040
   Deposits with banks                                     43,848            13,671           103,798            48,486
                                                      -----------       -----------       -----------       -----------

       Total interest income                            3,432,389         2,811,411        10,689,401         8,112,458
                                                      -----------       -----------       -----------       -----------

INTEREST EXPENSE

   Deposits                                             1,512,345         1,032,272         4,460,002         3,070,096
   FHLB advances                                          842,283           941,269         3,141,321         2,504,825
   Interest expense to other banks                              0                 0                 0            21,979
                                                      -----------       -----------       -----------       -----------

       Total interest expense                           2,354,628         1,973,541         7,601,323         5,596,900
                                                      -----------       -----------       -----------       -----------
       Net interest income before
          provision for loan losses                     1,077,761           837,870         3,088,078         2,515,558

   Provision for loan losses                               17,691             4,043            41,330             4,445
                                                      -----------       -----------       -----------       -----------

       Net interest income after
         provision for loan losses                      1,060,070           833,827         3,046,748         2,511,113
                                                      -----------       -----------       -----------       -----------

NONINTEREST INCOME
   Gain(loss) on sale of
    interest-earning assets                                51,923             7,985           251,221            31,167
   Loan origination and commitment fees                    25,344            13,476            67,999            33,259
   Loan servicing fees                                      5,752            16,485            36,669            47,817
   Gain on foreclosed real estate                           1,220                 0            27,562              (855)
   Other                                                  101,358            39,211           282,998            83,339
                                                      -----------       -----------       -----------       -----------

       Total noninterest income                           185,597            77,157           666,449           194,727
                                                      -----------       -----------       -----------       -----------

NONINTEREST EXPENSE
   Compensation and benefits                              600,780           533,270         1,737,820         1,601,780
   Occupancy and equipment                                103,819            88,630           328,522           269,975
   SAIF deposit insurance premium                           5,195             4,433            15,571            22,135
   Loss on foreclosed real estate                             500                 0             1,188                 0
   Goodwill amortization                                   39,367                 0           117,785                 0
   Other                                                  244,427           146,573           714,655           436,605
                                                      -----------       -----------       -----------       -----------
       Total noninterest expense                          994,088           772,906         2,915,541         2,330,495
                                                      -----------       -----------       -----------       -----------

Income (loss) before provision for
  income taxes                                            251,579           138,078           797,656           375,345

Income tax expense (benefit)                              113,146            50,618           318,972           141,323
                                                      -----------       -----------       -----------       -----------

NET INCOME (LOSS)                                     $   138,433       $    87,460       $   478,684       $   234,022
                                                      ===========       ===========       ===========       ===========

Earnings per common share                             $       .12       $       .08       $       .43       $       .21
Earnings per common share - assuming dilution                 .12               .08               .43               .20
</TABLE>

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


                                  Page 5 of 23

<PAGE>


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


     NINE MONTHS ENDED
       June 30, 2001

<TABLE>
<CAPTION>
                                 Common Stock
                                     and                        Unrealized
                                  Additional     Unallocated    Gain (loss)                                              Total
                                   Paid in          ESOP          on AFS      Retained       Treasury   Comprehensive  Stockholders'
                                   Capital         Shares       Securities    Earnings        Stock        Income        Equity
                                   -------         ------       ----------    --------        -----        ------        ------
<S>                             <C>           <C>             <C>            <C>           <C>            <C>            <C>
Balance September 30, 2000      $ 12,463,217  $   (346,020)   $   (773,051)  $ 13,732,109  $ (8,867,282)  $            $ 16,208,973

Comprehensive income:
     Net Income                                                                   478,684                    478,684
     Unrealized holding gains                                      933,100                                   933,100
                                                                                                          ----------
Comprehensive income                                                                                      $1,411,784     1,411,784
                                                                                                          ==========

Deferred compensation
     amortization

Payment of cash dividends                                                        (174,347)                                (174,347)

Balance June 30, 2001           $ 12,463,217  $   (346,020)   $    160,049   $ 14,036,446  $ (8,867,282)              $ 17,446,410
                                ============  ============    ============   ============  =============              ============

</TABLE>


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


                                  Page 6 of 23

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                 For the Nine Months Ended
                                                                                         June 30,
                                                                                2001                   2000
                                                                            -----------------------------------

Cash flows from operating activities:
<S>                                                                         <C>                    <C>
     Net income                                                             $   478,684            $   234,022
     Adjustments to reconcile net income to net cash
       provided by operating activities:
         Amortization of deferred loan origination fees                          (6,802)                (2,899)
         Amortization of premiums and discounts on investment
           securities, mortgage-backed securities, and loans                   (165,121)                34,034
         Amortization of deferred compensation                                        0                 87,286
         Amortization of goodwill                                               117,785                      0
         Compensation charge related to release of ESOP shares                   15,075                 38,250
         Depreciation                                                           140,122                110,918
         Provision for loan losses                                               41,330                      0
         Deferred income taxes                                                  315,496                 25,298
         Stock dividends on FHLB stock                                         (169,500)              (174,900)
         Amortization of mortgage servicing rights                               89,501                 45,158
         Net (gain) loss on sale of:
              Loans                                                                   0                 (3,251)
              Loans held for sale                                               (30,448)                     0
              Fixed assets                                                            0                      0
              Foreclosed real estate                                            (18,826)                     0
              Other repossessed property                                        (12,950)                     0
              Interest earning assets                                          (188,260)                     0
         Net (gain) loss on disposal of fixed assets                                  0                    228
         Proceeds from loan sales                                             4,007,390              2,363,199
         Originations of loans held for sale                                 (4,305,192)                     0
         (Increase) decrease in
              Accrued interest receivable                                       159,670                (38,911)
              Other assets                                                     (103,777)              (667,846)
         Increase (decrease) in:
              Federal income tax payable                                         11,523                 (2,186)
              Accrued expenses and other liabilities                           (454,124)              (826,743)
                                                                            -----------            -----------
Net cash provided (used) by operating activities                                (78,424)             1,221,657
                                                                            -----------            -----------
</TABLE>

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


                                  Page 7 of 23

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                           For the Nine Months Ended
                                                                                                    June 30,
                                                                                           2001                 2000
                                                                                      -----------------------------------

Cash flows from investing activities
<S>                                                                                     <C>                   <C>
     Net cash used in acquisition activities                                                     0            (3,085,573)
     Net (increase) decrease in interest-earning  time deposits                            196,000             1,172,617
     Net (increase) decrease in fed funds sold                                             295,016                     0
     Purchases of securities available-for-sale                                                  0              (949,445)
     Purchase of securities held-to-maturity                                            (6,085,000)           (1,468,672)
     Proceeds from sale of securities available-for-sale                                 1,495,125                     0
     Proceeds from maturities of securities available-for-sale                              20,000                     0
     Proceeds from maturities of securities held-to-maturity                            23,500,000             4,000,000
     Proceeds from sale of mortgage-backed securities available-for-sale                 8,923,154                     0
     Purchases of mortgage-backed securities
         available-for-sale                                                                      0            (6,908,715)
     Purchase of mortgage-backed securities held-to-maturity                           (29,123,346)                    0
     Principal payments on mortgage-backed securities available-for-sale                 4,174,141             2,112,653
     Principal payments on mortgage-backed securities held to maturity                   4,192,770             1,108,807
     Principal payments on municipal bonds available-for-sale                               30,000                     0
     Purchases of FHLB stock                                                                     0              (992,500)
     Proceeds from redemption of FHLB stock                                                  1,900                     0
     Net increase in loans                                                              (6,065,825)          (10,232,495)
     Proceeds from sale of foreclosed real estate                                           92,766                 6,325
     Capitalized acquisition cost related to foreclosed real estate                              0                (4,221)
     Proceeds from recovery of charged off loans                                            15,570                     0
     Acquisition costs related to foreclosed real estate                                    (2,151)                    0
     Expenditures for premises and equipment                                               (73,640)              (44,894)
     Origination of mortgage servicing rights                                              (32,513)              (27,348)
                                                                                     -------------         -------------

Net cash provided (used) by investing activities                                         1,553,967           (15,313,461)
                                                                                     -------------         -------------

Cash flows from financing activities:
     Net increase (decrease) in:
         Deposits                                                                       10,620,491            (4,802,742)
         Advances from borrowers                                                          (527,535)             (233,429)
     Proceeds from note payable to bank                                                          0             1,500,000
     Principal payments on note payable to bank                                                  0            (1,500,000)
     Proceeds from advances from Federal Home Loan Bank                                665,810,000           429,257,606
     Payment of advances from Federal Home Loan Bank                                  (674,384,139)         (406,248,084)
     Purchase of treasury stock at cost                                                          0            (1,882,425)
     Exercise of stock options                                                                   0                     0
     Dividends paid to stockholders                                                       (174,348)             (180,593)
                                                                                     -------------         -------------

Net cash provided (used) by financing activities                                         1,344,469            15,910,333
                                                                                     -------------         -------------

Net increase (decrease) in cash and cash equivalents                                     2,820,012             1,818,529

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

Cash and cash equivalents at end of the period                                       $   5,024,735         $   3,813,093
                                                                                     =============         =============

Supplemental disclosure:
     Cash paid for:
         Interest on deposits                                                        $   2,359,277         $   1,336,577
         Interest on FHLB advances and other borrowed funds                              3,141,321             2,526,804
         Income taxes                                                                            0                76,553

     Transfers from loans to real estate and other
        assets acquired through foreclosures                                               357,696                 2,966

     Loans made to facilitate the sale of foreclosed assets                                135,200                     0

Acquisition activity:
     Fair value of noncash assets acquired                                                       0            32,841,706
     Fair value of liabilities assumed                                                           0            32,191,712
</TABLE>

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

                                  Page 8 of 23

<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

             NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

                                  June 30, 2001

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

NOTE 1 - BASIS OF PRESENTATION

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

NOTE 2 - EARNINGS PER SHARE

Earnings per common share for the three months and nine months ended June 30,
2001 and 2000, 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, 2001 and 2000, the weighted average number of shares
outstanding totaled 1,110,416 and 1,096,007, shares respectively. For the nine
months ended June 30, 2001 and 2000, the weighted average number of shares
outstanding totaled 1,110,416 and 1,135,707 shares respectively.

Earnings per common share - assuming dilution, for the three months and nine
months ended June 30, 2001 and 2000, 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, 2001 and
2000, the weighted average number of shares outstanding for earnings per share -
assuming dilution totaled 1,110,509 and 1,096,007, shares respectively. For the
nine months ended June 30, 2001 and 2000, the weighted average number of shares
outstanding for earnings per share - assuming dilution totaled 1,110,473 and
1,151,954 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, 2001
and 2000.


                                  Page 9 of 23


<PAGE>


NOTE 3 - SECURITIES

The carrying values and estimated market values of investment securities
available-for-sale as of June 30, 2001, 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   $  6,000,000   $   39,223   $   56,155   $  147,702   $ 6,130,770

Municipal bonds       535,000            0        5,069        5,069       535,000
                 -------------  -----------  -----------  -----------  ------------

                 $  6,535,000   $   39,223   $   61,224   $  152,771   $ 6,665,770
                 -------------  -----------  -----------  -----------  ------------
</TABLE>

The amortized cost and estimated market values of investment securities
held-to-maturity as of June 30, 2001, are as follows:

<TABLE>
<CAPTION>
                                                             Gross              Gross             Estimated
                                        Amortized         Unrealized          Unrealized           Market
                                          Cost               Gains              Losses              Value
                                      --------------     --------------     ---------------     --------------
Debt securities:
<S>                                   <C>                <C>                <C>                 <C>
      U. S. government agency             2,477,351             63,114                   0          2,540,465

      Corporate Debt                      6,298,973             16,811              14,291          6,301,493
                                      --------------     --------------     ---------------     --------------

           Total debt securities      $   8,776,324      $      79,925      $       14,291      $   8,841,958
                                      --------------     --------------     ---------------     --------------
</TABLE>

The amortized cost and estimated market values of investment securities
held-to-maturity as of June 30, 2001, by contractual maturity are shown below:

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

  Due after one year through two years       $   2,000,000      $    2,032,350

  Due after two years through three years          477,351             508,115

  Due after three years through six years        6,298,973           6,301,493
                                             --------------     ---------------

         Total debt securities               $   8,776,324      $    8,841,958
                                             --------------     ---------------


                                  Page 10 of 23


<PAGE>

The carrying values and estimated market values of mortgage-backed and related
securities available-for-sale as of June 30, 2001, 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           $   4,386,170      $        2,646      $      34,899      $      79,373      $    4,433,290

Adjustable Rate         27,668,399             141,573             17,625             10,354          27,802,701
                     --------------     ---------------     --------------     --------------     ---------------

                     $  32,054,569      $      144,219      $      52,524      $      89,727      $   32,235,991
                     --------------     ---------------     --------------     --------------     ---------------
</TABLE>


The carrying values and estimated market values of mortgage-backed and related
securities held-to-maturity as of June 30, 2001, 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           $  22,935,823      $       11,711      $      47,558      $  22,899,976      $   23,024,402

Adjustable Rate          6,244,897              20,226             24,354          6,240,769           6,237,032
                     --------------     ---------------     --------------     --------------     ---------------

                     $  29,180,720      $       31,937      $      71,912      $  29,140,745      $   29,261,434
                     --------------     ---------------     --------------     --------------     ---------------
</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.

SFAS NO. 140   In September 2000, SFAS No. 140 "Accounting for Transfers and
------------
Servicing of Financial Assets and Extinguishments of Liabilities" was issued to
amend and replace SFAS No. 125. SFAS No. 140 revises certain standards for
accounting for securitizations and other transfers of financial assets and
collateral, and also requires certain additional disclosures.

The statement is effective for transactions occuring after March 31, 2001. The
Company adopted the Statement as required.

NOTE 5 - STOCK OPTION AND INCENTIVE PLAN

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


                                  Page 11 of 23

<PAGE>

Options to purchase shares of common stock of the Company may be granted to
selected directors, officers and key employees. The number of shares of common
stock reserved for issuance under the stock option plan was equal to 182,278 or
10% of the total number of common shares issued pursuant to the conversion. The
option exercise price cannot be less than the fair market value of the
underlying common stock as of the date of the option grant, and the maximum
option term cannot exceed ten years. Awards generally vest at a rate of 20% per
year beginning at the date of the grant. The Company uses treasury stock for the
exercise of options. The following is a summary of changes in options
outstanding:

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

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

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


Options exercisable at June 30, 2001 under stock option plan     147,276
                                                                ========

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

During the nine months ended June 30, 2001, no options were exercised, issued,
or forfeited.



                                  Page 12 of 23

<PAGE>

NOTE 6 - ADVANCES FROM FEDERAL HOME LOAN BANK

The outstanding advances from the FHLB consisted of the following at June 30,
2001:

    Maturity             Call Date              Balance               Rate
------------------    ----------------    ---------------------      -------

    07/09/2001                            $        35,000,000        4.060%
    02/15/2002                            $            25,000        5.980%
    03/08/2002                            $         2,000,000        4.881%
    02/15/2003                            $           100,000        6.000%
    03/08/2003                            $         2,000,000        4.995%
    09/01/2003                            $         1,179,838        6.250%
    02/15/2004                            $           100,000        6.010%
    12/31/2004                            $           239,394        6.090%
    01/03/2005                            $            78,992        6.030%
    02/15/2005                            $           100,000        6.040%
    02/15/2006                            $           150,000        6.050%
    04/11/2011          07/09/2001        $         5,000,000        3.730%
    04/11/2011          04/09/2002        $         5,000,000        3.910%
    04/11/2011          04/09/2003        $         5,000,000        4.250%
    06/07/2011          06/07/2003        $         5,000,000        4.380%
    01/01/2013                            $           422,457        6.090%
    01/01/2013                            $           401,535        6.130%
    02/01/2013                            $           398,193        5.910%
    03/03/2014                            $           787,962        5.450%
    04/01/2014                            $           761,854        5.970%
    05/01/2014                            $         1,036,794        5.660%
    06/01/2014                            $           790,963        5.900%
    07/01/2014                            $           732,972        6.380%
    08/01/2014                            $           532,474        6.370%
    09/01/2014                            $           672,930        6.590%
    10/01/2014                            $           590,886        6.860%
    11/03/2014                            $         1,458,325        6.770%
    12/01/2014                            $           498,172        6.570%
    01/01/2015                            $           326,185        6.730%

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


                                  Page 13 of 23

<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                  June 30, 2001


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

GENERAL

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

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

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

FINANCIAL CONDITION

Total assets were $203.1 million at June 30, 2001, a $2.9 million increase from
the $200.2 million reported at September 30, 2000, the Company's most recent
fiscal year end. The increase in total assets was the result of a $24.8 million
increase in mortgage-backed securities held-to-maturity, a $6.3 million increase
in loans receivable, and a $2.8 million increase in interest-earning deposits
with banks. The increases were partially offset by a $17.2 decline in investment
securities held to maturity, a $11.8 million decline in mortgage-backed
securities available-for-sale and a $1.2 million decrease in investment
securities available-for-sale.

At June 30, 2001, loans-receivable totaled $108.4 million, and increase of $6.3
million compared to $102.1 million at September 30, 2000. The increase in
loans-receivable was primarily the result of the Company's continued efforts to
expand its origination of consumer, commercial, and commercial real estate
loans. For the nine months

                                  Page 14 of 23

<PAGE>

ended June 30, 2001, the Company originated approximately $22 million of these
types of loans.

The origination of consumer, commercial, and commercial real estate loans is
primarily conducted through the Company's full service banking location in
Gilmer, Texas and the S. Broadway office in Tyler, Texas. The predominant method
for originating these loans is through direct contacts with existing or
potential new customers. However, the Company has increased its origination of
indirect automobile loans through a network of dealers in the Tyler and Gilmer
markets. Prior to purchasing a loan contract from a dealer, the Company
underwrites each indirect loan in the same manner as its direct loans. In
addition, each dealer maintains a reserve account with the Company. At June 30,
2001, the Company had a total of approximately 220 indirect auto loans totaling
$2.2 million.

As interest rates declined during 2001, the Company made the decision to begin
selling all fixed rate and term mortgage loans into the secondary market. The
Company has established a minimum mortgage rate of 7.00% in order to hold such
loans in the portfolio. As mortgage rates fell below this level, the Company
elected to sell loans into the secondary market. In addition and in an attempt
to remain competitive in the market, the Company began offering its customers
the option of having their loan serviced locally by the Association or to have
the loan and the corresponding servicing sold to an investor. Loans originated
where the servicing will be retained by the Company are sold to FNMA. Loans
originated where the servicing and the loan is sold to a private investor are
priced at a lower interest rate, designed to compete with mortgage brokers in
the Company's markets.

Investment securities available-for-sale decreased by $1.2 million from $7.9
million at September 30, 2000 to $6.7 million at June 30, 2001. The decrease was
the result of the Company's decision to sell securities acquired in the Gilmer
merger and to reinvest in securities that better fit the Company's investment
strategy. This portfolio consists of corporate debt securities and municipal
bonds. All of the corporate debt securities have fixed rates and terms and are
non-callable. The Company's investment policy allows for the purchase of
investment-grade corporate bonds. All corporate debt securities have a final
maturity of four years or less. The municipal bonds, which comprise only
$535,000 of the portfolio, are primarily bonds issued by Upshur County, where
the Company's Gilmer office is located.

Investment securities held-to-maturity was reported as $8.8 million at June 30,
2001, a decline of $17.2 million from the $26.0 million reported at September
30, 2000. The decrease was the result of bonds that matured or were called by
the issuer during the period. The callable bonds consisted of debt issued by
governmental agencies such as Federal National Mortgage Corporation, or the
Federal Home Loan Bank System. The Company received a higher coupon rate for the
call feature of the bonds. The Company anticipated these bonds to be called as
interest rates declined in 2001. The remaining portfolio consists primarily of
corporate debt securities with fixed rates and terms and are non-callable.

Mortgage-backed securities available-for-sale totaled $32.2 million at June 30,
2001, a decrease of $11.8 million from the $44.0 million at September 30, 2000.
The decrease was primarily the result of the Company's decision to sell
securities acquired in the Gilmer merger to reinvest in securities that better
fit the Company's investment strategy. In addition, principle payback on the
bonds accounted for a portion of the decrease and the Company elected to place
new mortgage security purchases in a held-to-maturity classification.

Mortgage-backed securities held-to-maturity portfolio totaled $29.1 million at
June 30, 2001, an increase of $24.8 million from the $4.3 million reported at
September 30, 2000. The increase was primarily due to the Company's decision to
reinvest funds in this portfolio from its investment securities held-to-maturity
and mortgage-backed securities available-for-sale portfolio.

Total deposits were $112.2 million at June 30, 2001, a $10.6 million increase
from the $101.6 million reported at September 30, 2000. The increase was
primarily the result of additional certificates of deposit as the Company
elected to pay more competitive interest rates on such deposits during the
period.

The Company reported $70.4 million in borrowed funds at June 30, 2001, a
decrease of $8.6 million from the $79.0 million reported at September 30, 2000.
The decrease was primarily due to the Company's decision to repay short-term
advances from excess cash flow. The advances are primarily used to fund
investments in mortgage-backed

                                  Page 15 of 23
<PAGE>

securities, which are purchased by the Company when the Company is unable to
originate mortgage loans and place such loans into the portfolio. In addition,
the Company utilizes advances to fund commercial real estate loans. The Company
is able to structure the advances to match the terms of the loans. Also, the
Company utilizes short-term advances to provide needed liquidity.

Stockholder's equity totaled $17.4 million at June 30, 2001, an increase of $1.2
million from the $16.2 million reported at September 30, 2000. The increase was
primarily attributable to a net increase in accumulated other comprehensive
income of approximately $933,000, during the period. The increase was due to
increases in values of the Company's available-for-sale securities, as interest
rates declined during 2001. Stockholder's equity also increased due to the
$479,000 of net income reported for the nine month period. Both of these
increases were offset by the payment of $174,000 in cash dividends during the
period.


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, 2001 AND JUNE 30, 2000

General. Net income for the three months ended June 30, 2001 was $138,000 or
$.12 per share, an increase of $51,000 from the $87,000, or $.08 per share,
reported for the three months ended June 30, 2000. The increase in net income
was attributable to a $226,000 increase in net interest income after provision
for loan losses and a $108,000 increase in non-interest income, which were
partially offset by a $221,000 increase in non-interest expense and a $63,000
increase in income tax expense.

Net Interest Income. For the quarter ended June 30, 2001, net interest income
before provision for loan losses totaled $1.1 million, an increase of $240,000
over the $838,000 reported for the quarter ended June 30, 2000. On an annualized
basis, the $1.1 million in net interest income for the current quarter was
approximately 2.27% of average interest-earning assets and 2.12% of average
total assets. For the quarter ended June 30, 2000, the $838,000 in net interest
income before provisions for loan losses was approximately 2.16% of average
interest-earning assets and 2.09% of average total assets. Average
interest-earning assets were approximately $189.7 million for the quarter ended
June 30, 2001, compared to $155.6 million for the quarter ended June 30, 2000.

Total interest income was $3.4 million for the quarter ended June 30, 2001, an
increase of $621,000 over the $2.8 million reported for the quarter ended June
30, 2000. The increase was primarily due to an increase in interest earning
assets, primarily as a result of the additional interest-earning assets acquired
in the Gilmer merger. To a lesser extent, additional interest-earning assets
acquired by the Company during the 12 months ended June 30, 2001 accounted for
the increase in total interest income. On an annualized basis, the $3.4 million
in total interest income was approximately 7.24% of average interest-earning
assets. The $2.8 million in total interest income for the quarter ended June 30,
2000 was approximately 7.20% of average interest-earning assets. The increase in
the average yield on interest-earning assets was a direct result of the
additional consumer, commercial, and commercial real estate loans made by the
Company over the past year and the additional interest earning assets acquired
in the Gilmer merger.

Interest income on loans-receivable was $2.2 million for the quarter ended June
30, 2001. On an annualized basis, the $2.2 million was approximately 8.09% on
average loans-receivable balances outstanding for the quarter ended June 30,
2001, compared to approximately 7.48% for the quarter ended June 30, 2000. The
increase in average yield on the loan portfolio was primarily the result of the
increase in consumer, commercial and commercial real estate loan balances and
the higher yields on such loans recorded over the past 12 months.

                                  Page 16 of 23

<PAGE>

Interest income from mortgage-backed securities available-for-sale totaled
$503,000 for the quarter ended June 30, 2001, compared to $640,000 for the
quarter ended June 30, 2000. The decrease was due to the decline in the balance
of the portfolio as the Company directed cash flow to other portfolio. In
addition, declining interest rates in 2001 on the adjustable rate securities
accounted for a portion of the decrease.

Interest income from the investment securities held-to-maturity portfolio was
$176,000 for the quarter ended June 30, 2001, compared to $447,000 for the
quarter ended June 30, 2000. The decrease in income from the portfolio was due
to a decline in the balance in the portfolio from $28.0 million at June 30, 2000
to $8.8 million at June 30, 2001. At June 30, 2000, the portfolio was primarily
comprised of debt issued by Government agencies such as FHLMC, FNMA and the
Federal Home Loan Bank System. The debt had call options at the discretion of
the issuer. As interest rates decreased in 2001, a significant portion of the
portfolio was called by the issuer. The Company elected to redirect cash flow
from the called bonds into its mortgage-backed securities held-to-maturity
portfolio, its investment held-to-maturity portfolio, and its loans receivable
portfolio. The result was a decline in the average balance on the portfolio and
a decrease in income from the portfolio.

Interest income on mortgage-backed securities held-to-maturity totaled $389,000
for the quarter ended June 30, 2001, an increase of $300,000 from the $89,000
reported for the quarter ended June 30, 2000. The increase was due primarily to
an increase in the balance in the portfolio from $4.7 million at June 30, 2000
to $29.1 million at June 30, 2001.

Interest paid to depositors totaled $1.5 million for the quarter ended June 30,
2001, and increase of $480,000 from the $1.0 million reported for the quarter
ended June 30, 2000. The increase in interest expense on deposit accounts was
primarily attributable to the increase in deposit balances acquired by the
Company in the Gilmer merger. To a lesser extent, additional balances acquired
by the Company during the year and increasing interest rates on certificate of
deposit account renewals during the later half of 2000 contributed to the
increase in interest expense.

Interest on FHLB advances was $842,000 for the quarter ended June 30, 2001,
compared to $941,000 for the quarter ended June 30, 2000, primarily due to the
decline in outstanding balance and, to a lesser extent, a decline in the average
cost as interest rates declined on the adjustable portion of the borrowings.

Provision for Loan Losses. The Company made $18,000 in provision for loan losses
for the quarter ended June 30, 2001, compared to $4,000 for the quarter ended
June 30, 2000. The increase in provision for loan losses was the result of the
Company's decision to establish additional reserves for losses in its checking
with overdraft privilege program. In 2000, the Company instigated a program
designed to attract additional checking accounts and to increase fee income from
new and current checking accounts. The program allows approved checking account
customers to overdraft their account up to $500. The Company agrees to not
return the insufficient checks but charges the customer the usual insufficient
check charge fee. The Company reviews overdraft checking account balances on a
monthly basis to determine if additional reserves for potential losses in the
program or any of its other checking accounts, is warranted.

Noninterest Income. Noninterest income totaled $186,000 for the quarter ended
June 30, 2001 compared to $77,000 for the quarter ended June 30, 2000, a
$109,000 increase. The increase was primarily the result of a $62,000 increase
in other noninterest income. Additional fee income from the Company's free
checking and checking with overdraft privilege programs introduced in 2000 and
additional fee income from the transaction accounts acquired in the Gilmer
merger accounted for a portion of the increase in other noninterest income for
the current quarter. The increase was also the result of a $44,000 increase in
gains on sales of interest-earning assets. During the quarter ended June 30,
2001, the Company elected to sell a portion of its available-for-sale
mortgage-backed securities portfolio. The securities that were sold were
primarily securities acquired in the Gilmer merger.

Noninterest Expense. Noninterest expense was $994,000 for the quarter ended June
30, 2001, an increase of $221,000 from the $773,000 for the quarter ended June
30, 2000.

Other operating expenses increased by $98,000, primarily due to a credit from a
refund of prior Texas Franchise tax expense received in the quarter ended June
30, 2000. Compensation and benefits expenses increased by $68,000 for


                                  Page 17 of 23

<PAGE>

the quarter ended June 30, 2001, compared to the quarter ended June 30, 2000,
primarily as a result of the additional employees acquired in the Gilmer merger.
Also, a $39,000 increase in amortization of the goodwill created in the Gilmer
merger accounted for a portion of the increase in noninterest expenses for the
quarter.

Provision for Income Taxes. The Company incurred federal income tax expense of
$113,000 or 45.0% of pre-tax income for the quarter ended June 30, 2001,
compared to $51,000 or 36.7% or pre-tax income for the quarter ended June 30,
2000. The increase in the effective tax rate was primarily due to the
non-deductible nature of the amortization of the goodwill from the Gilmer
merger.

COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000

General. For the nine months ended June 30, 2001, the Company reported net
income of $479,000 or $.43 per common share and $.43 per common share - assuming
dilution, compared to $234,000 or $.21 per common share and $.20 per common
share - assuming dilution for the nine months ended June 30, 2000. The increase
in net income was due to a $536,000 increase in net interest income after
provisions for loan losses and a $472,000 increase in noninterest income. The
increases were partially offset by a $585,000 increase in noninterest expense
and a $178,000 increase in income tax expense.

Net Interest Income. For the nine months ended June 30, 2001, net interest
income before provisions for loan losses totaled $3.1 million, an increase of
$573,000 from the $2.5 million reported for the nine months ended June 30, 2000.
On an annualized basis, the $3.1 million in net interest income before
provisions for loan losses for the nine month period was approximately 2.19% of
average interest earning assets and 2.04% of average total assets. For the nine
months ended June 30, 2000, the $2.5 million in net interest income before
provisions for loan losses was, on an annualized basis, approximately 2.05% of
average interest earning assets and 1.92% of average total assets. Average
interest earning assets were approximately $187.9 million for the nine months
ended June 30, 2001, compared to $166.2 million for the nine months ended June
30, 2000.

Total interest income was $10.7 million or 7.59%, on an annualized basis, of
average interest earning assets for the nine months ended June 30, 2001,
compared to $8.1 million or 6.51% of average interest earning assets for the
nine months ended June 30, 2000. The increase in total interest income was
primarily attributable to the increase in average outstanding balances of
interest earning assets and, to a lesser extent, an increase in the yields on
loans as the Company originated commercial and consumer loans or acquired such
loans in the Gilmer transaction.

Interest income on loans receivable totaled $6.4 million for the nine months
ended June 30, 2001 an increase from the $4.1 million reported for the nine
months ended June 30, 2000. Loans receivable balances increased to $108.4
million at June 30, 2001 from $96.8 million at June 30, 2000. For the nine
months ended June 30, 2001, the $6.4 million in interest income on loans
receivable was, on an annualized basis, approximately 8.11% of average loans
receivable, compared to 7.58% for the nine months ended June 30, 2000.

Interest income from mortgage-backed securities available-for sale totaled $2.0
million for the nine months ended June 30, 2001 compared to $1.9 million for the
nine months ended June 30, 2000. The decrease was due to the decline in the
balance of the portfolio and due to declining interest rates.

Interest income on investment securities held-to-maturity totaled $919,000 for
the nine months ended June 30, 2001, compared to $1.4 million for the nine
months ended June 30, 2000. The decrease in interest income on the portfolio was
primarily the result of a decrease in the average balance outstanding as bonds
in the portfolio matured or were called at the option of the issuer.

Interest income on mortgage-backed securities held-to-maturity was $763,000 for
the nine months ended June 30, 2001, compared to $270,000 for the nine months
ended June 30, 2000. The increase in interest income on the portfolio was
primarily the result of an increase in the balance outstanding in the portfolio
from $4.7 million at June 30, 2000 to $29.1 million at June 30, 2001. The
Company redirected cash flow from its investment securities held-to-maturity
portfolio into this portfolio.

                                  Page 18 of 23

<PAGE>


Interest expense was $7.6 million for the nine months ended June 30, 2001, an
increase of $2.0 million from the $5.6 million reported for the nine month
period ended June 30, 2000. An increase in average interest costing liabilities,
including advances from the FHLB, from $154.4 million for the nine months ended
June 30, 2000 to $178.7 million for the nine months ended June 30, 2001,
accounted for most of the increase in interest expense. The $7.6 million in
interest expense reported for the nine month period ended June 30, 2001 was
approximately 5.67% of average interest costing liabilities, compared to 5.26%
for the same period in 2000.

Noninterest Income. Noninterest income was $666,000 for the nine months ended
June 30, 2001, compared to $195,000 for the nine months ended June 30, 2000. The
increase was attributable to a $220,000 increase in gains on sale of interest
earning assets. The additional gains were due to the Company's decision to sell
a portion of its bond portfolio acquired in the Gilmer merger. In addition,
other noninterest income increased by $200,000 due to increases in fee income
from the Company's consumer and commercial checking account products and
commissions from the sale of credit insurance on the Company's consumer loans.

Noninterest Expense. Noninterest expense was reported as $2.9 million for the
nine month period ended June 30, 2001, a $585,000 increase from the $2.3 million
reported for the nine months ended June 30, 2000.

The increase in noninterest expense was primarily the result of a $136,000
increase in compensation and benefits and a $59,000 increase in occupancy and
equipment as a result of the Gilmer merger. In addition, amortization of
goodwill from the Gilmer merger accounted for $118,000 of the increase. Also,
other noninterest expense increased by $278,000 primarily due to the franchise
tax refund previously received in the quarter ended June 30, 2000, a $51,000
increase in data processing expenses due to the Gilmer merger and other
noninterest expenses associated with the Gilmer acquisition.

Provision For Income Taxes. The Company incurred federal income tax expense of
$319,000 or 40.0% of pre-tax income for the nine months ended June 30, 2001,
compared to $141,000 or 37.7% of pre-tax income for the nine months ended June
30, 2000.

ASSET QUALITY

At June 30, 2001, the Company's non-performing assets totaled $1.1 million or
 .54% of total assets, compared to $1.0 million or .52% of total assets at
September 30, 2000. At June 30, 2001, non-performing assets were comprised of
non-accruing one- to four family loans, consumer and other loans delinquent more
than 90 days and still accruing foreclosed one- to four family, and foreclosed
consumer and other loans.

Non-performing loans at June 30, 2001 equaled $898,000 or .83% of loans
receivable, compared to $1.0 million or 0.97% of loans receivable at September
30, 2000.

Classified assets totaled $3.4 million or 1.65% of total assets at June 30,
2001, compared to $3.0 million or 1.49% of total assets at September 30, 2000.

Classified assets and non-performing assets differ in that classified assets may
include loans less than ninety (90) days delinquent. Also, assets guaranteed by
government agencies such as the Veterans Administration and the Federal Housing
Administration are not included in classified assets but are included in
non-performing assets. At June 30, 2001, $2.9 million of classified assets were
deemed to be substandard, $273,000 assets were classified as doubtful and
$151,000 were classified as loss.

The Company's allowance for loan losses totaled $803,278 at June 30, 2001,
compared to $1,057,374 September 30, 2000. The allowance for loan losses as a
percentage of loans receivable equaled 0.74% at June 30, 2001 and 1.04% at
September 30, 2000.

                                  Page 19 of 23

<PAGE>

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, 2001,
the Association had outstanding commitments to extend credit on approximately
$6.7 million of loans.

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

Total stockholders' equity equaled $17.4 million at June 30, 2001, an increase
of $1.2 million from the $16.2 million reported at September 30, 2000. The
increase was primarily the result of a $933,000 increase in accumulated other
comprehensive income as market values on the Company's available-for-sale
securities increased in a declining rate environment. In addition, retained
earnings increased by $304,000, which is the $479,000 in net income less the
cash dividends paid during the nine months ended June 30, 2001.

As of June 30, 2001, the Company's reported book value per share, using total
stockholders' equity of $17.4 million (net of the cost of unearned ESOP shares)
and 1,162,320 outstanding shares of common stock (the total issued shares
including unearned ESOP shares, less treasury shares), equaled $15.01 per share.

Subsequent to the quarter ended June 30, 2001, the Company announced its
intention to pay a cash dividend of $.05 per share on August 21, 2001, to
stockholders of record at August 7, 2001.

Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), Congress imposed capital requirements for thrift institutions. At
June 30, 2001, the Association's actual and required capital amounts under the
requirements were as follows:

- Tier 1 Capital was $14.5 million or 7.23% of total assets, exceeding the
minimum requirement of 4.0% by $6.5 million.

- Tier 1 Risk Based Capital was $14.5 million or 14.74% of total risk weighted
assets, exceeding the minimum requirement of 4.0% by $10.6 million.

- Total Risk-Based Capital equaled $15.3 million of 15.55% of risk weighted
assets, exceeding the minimum requirement of 8.0% of total risk weighted assets
by $7.4 million.

At June 30, 2001, 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 20 of 23

<PAGE>

FORWARD-LOOKING STATEMENTS

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

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








                                  Page 21 of 23

<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                  JUNE 30, 2001

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

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

     The following exhibits are filed herewith:

         Exhibit 11.0 - Computation of Earnings Per Share

     (b) Reports on Form 8-K

         During the quarter ended June 30, 2001, the Company filed a report on
         Form 8-K on April 24, 2001 to report the issuance of a press release
         dated May 23, 2001, announcing the Company's intention to pay, on May
         9, 2001, a cash dividend of $.05 per share for the quarter ended March
         31, 2001, to stockholders of record on May 9, 2001.



                                  Page 22 of 23

<PAGE>

                                   SIGNATURES
                                   ----------


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


                                   East Texas Financial Services, Inc.


Date:  August 10, 2001             /s/ Gerald W. Free
                                   --------------------------------------------
                                   Vice Chairman, President and CEO
                                   (Principal Executive Officer)


Date:  August 10, 2001             /s/  Derrell W. Chapman
                                   --------------------------------------------
                                   Vice President/COO/CFO
                                   (Principal Financial and Accounting Officer)



                                  Page 23 of 23