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, 2002

                                       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, 2002, was 1,162,320.


<PAGE>

<TABLE>
<CAPTION>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                  June 30, 2002

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


                                      INDEX

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

      Item 1.  Financial Statements

           Consolidated Statements of Financial Condition, June 30, 2002
           (Unaudited) and September 30, 2001 ..................................................... 4

           Consolidated Statements of Income, (Unaudited) three months and nine months ended
           June 30, 2002 and June 30, 2001......................................................... 5

           Consolidated Statement of Changes in Stockholders' Equity, (Unaudited)
           nine months ended June 30, 2002......................................................... 6

           Consolidated Statements of Cash Flows, (Unaudited) nine months ended
           June 30, 2002, and June 30, 2001........................................................ 7

           Notes to (Unaudited) Consolidated Financial Statements, June 30, 2002................... 9

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

Part II - Other Information

      Item 1.  Legal Proceedings...................................................................25

      Item 2.  Changes In Securities...............................................................25

      Item 3.  Defaults Upon Senior Securities.....................................................25

      Item 4.  Submission of Matters To a Vote of Security Holders.................................25

      Item 5.  Other Information...................................................................25

      Item 6.  Exhibits and Reports on Form 8-K....................................................25

Signature Page.....................................................................................26

</TABLE>

                                  Page 2 of 26

<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                  June 30, 2002

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


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 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 26

<PAGE>

<TABLE>
<CAPTION>


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



                                   ASSETS                                        June 30, 2002     September 30, 2001
                                                                                 -------------       -------------
                                                                                  (Unaudited)
     <S>                                                                         <C>                 <C>
     Cash and due from banks                                                     $   1,932,882       $   2,013,647
     Interest-bearing deposits with banks                                              194,222           2,824,364
     Interest-earning time deposits with financial institutions                        300,000             600,000
     Federal funds sold                                                                      0              86,242
     Investment securities available-for-sale                                          503,389           6,843,583
     Mortgage-backed securities available-for-sale                                  22,913,329          27,352,449
     Investment securities held-to-maturity (estimated market
                value of $10,016,762 at June 30, 2002, and
                $8,075,494 at September 30, 2001)                                    9,734,337           7,765,537
     Mortgage-backed securities held-to-maturity (estimated
                market value of $32,012,353 at June 30, 2002
                and $36,585,979 at September 30, 2001)                              31,399,823          35,879,076
     Loans receivable, net of allowance for credit losses of $727,943
                at June 30, 2002 and $769,225 at September 30, 2001                139,900,384         115,847,396
     Accrued interest receivable                                                     1,393,932           1,285,582
     Federal Home Loan Bank stock, at cost                                           4,518,700           4,323,900
     Premises and equipment                                                          2,616,935           2,656,988
     Foreclosed assets, net                                                            336,222             259,498
     Goodwill, net                                                                   2,170,381           2,170,381
     Mortgage servicing rights                                                         108,339             174,128
     Other assets                                                                    1,054,688           1,698,338
                                                                                 -------------       -------------

                Total Assets                                                     $ 219,077,563       $ 211,781,109
                                                                                 =============       =============

                LIABILITIES AND STOCKHOLDERS' EQUITY

     Liabilities:
                Noninterest deposits                                             $   3,755,302       $   3,319,015
                Interest-bearing deposits                                          102,917,971         112,292,026
                                                                                 -------------       -------------
                    Total deposits                                                 106,673,273         115,611,041

                FHLB advances                                                       89,714,994          74,468,248
                Advances from borrowers for taxes and insurance                        771,866           1,267,900
                Federal income taxes
                     Current                                                           769,417                   0
                     Deferred                                                          515,083             670,706
                Accrued expenses and other liabilities                               1,670,343           1,849,333
                                                                                 -------------       -------------
                Total liabilities                                                  200,114,976         193,867,228
                                                                                 -------------       -------------
     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                                          12,473,302          12,473,302
                Unearned employee stock ownership plan shares                         (255,597)           (255,597)
                Retained earnings (substantially restricted)                        15,550,154          14,199,357
                Accumulated other comprehensive income                                  43,165             345,256
                Treasury stock, 722,172 shares at cost                              (8,867,282)         (8,867,282)
                                                                                 -------------       -------------

                     Total stockholder's equity                                     18,962,587          17,913,881
                                                                                 -------------       -------------

                     Total liabilities and stockholders' equity                  $ 219,077,563       $ 211,781,109
                                                                                 =============       =============
</TABLE>


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


                                  Page 4 of 26

<PAGE>

<TABLE>
<CAPTION>

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

                                                               Three Months                          Nine Months
                                                              Ended June 30,                        Ended June 30,
                                                          2002               2001               2002                2001
                                                      ------------       ------------       ------------       ------------
<S>                                                   <C>                <C>                <C>                <C>
INTEREST INCOME
         Loans receivable:
              First Mortgage                          $  1,605,417       $  1,620,343       $  4,763,261       $  4,921,997
              Consumer and other loans                     981,884            542,392          2,632,770          1,479,453
         Securities available-for-sale:
              Investment securities                         40,479            157,581            166,652            521,350
              Mortgage-backed securities                   183,626            503,037            556,294          1,981,169
         Securities held-to-maturity:
              Investment securities                        154,628            176,105            463,888            918,555
              Mortgage-backed securities                   427,240            389,083          1,450,617            763,079
         Deposits with banks:                                7,662             43,848             35,191            103,798
                                                      ------------       ------------       ------------       ------------

              Total interest income                      3,400,936          3,432,389         10,068,673         10,689,401
                                                      ------------       ------------       ------------       ------------

INTEREST EXPENSE

         Deposits                                          933,262          1,512,345          3,157,913          4,460,002
         FHLB advances                                     681,464            842,283          2,013,897          3,141,321
                                                      ------------       ------------       ------------       ------------

              Total interest expense                     1,614,726          2,354,628          5,171,810          7,601,323
                                                      ------------       ------------       ------------       ------------

              Net interest income before
                 provision for loan losses               1,786,210          1,077,761          4,896,863          3,088,078

         Provision for loan losses                          64,490             17,691            175,688             41,330
                                                      ------------       ------------       ------------       ------------

              Net interest income after
                provision for loan losses                1,721,720          1,060,070          4,721,175          3,046,748
                                                      ------------       ------------       ------------       ------------

NONINTEREST INCOME
         Gain (loss) on sale of interest-earning assets     55,147             51,923            507,320            251,221
         Loan origination and commitment fees               31,174             25,344            114,169             67,999
         Loan servicing fees                               (15,696)             5,752            (75,014)            36,669
         Other                                             118,706            101,358            316,734            282,998
                                                      ------------       ------------       ------------       ------------

              Total noninterest income                     189,331            184,377            863,209            638,887
                                                      ------------       ------------       ------------       ------------

NONINTEREST EXPENSE
         Compensation and benefits                         712,168            600,780          2,002,263          1,737,820
         Occupancy and equipment                           105,969            103,819            327,876            328,522
         SAIF deposit insurance premium                      4,726              5,195             15,199             15,571
         Foreclosed assets, net                             36,766               (720)            71,997            (26,374)
         Goodwill amortization                                   0             39,367                  0            117,785
         Other                                             264,975            244,427            796,349            714,655
                                                      ------------       ------------       ------------       ------------

              Total noninterest expense                  1,124,604            992,868          3,213,684          2,887,979
                                                      ------------       ------------       ------------       ------------

Income (loss) before provision for income taxes            786,447            251,579          2,370,700            797,656

Income tax expense (benefit)                               284,209            113,146            845,555            318,972
                                                      ------------       ------------       ------------       ------------

NET INCOME (LOSS)                                     $    502,238       $    138,433       $  1,525,145       $    478,684
                                                      ============       ============       ============       ============


Earnings per common share                             $       0.45       $       0.12       $       1.36       $       0.43
Earnings per common share - assuming dilution                 0.44               0.12               1.34               0.43

</TABLE>

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


                                  Page 5 of 26


<PAGE>

<TABLE>
<CAPTION>


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


       NINE MONTHS ENDED
         June 30, 2002
                            Common Stock and                Unrealized
                            Additional paid in Unallocated  Gain(loss)on                   Treasury Comprehensive Total Stockholders
                               Capital         ESOP Shares  AFS Securities Retained Earnings Stock     Income           Equity
                           ---------------------------------------------------------------------------------------------------------

<S>                            <C>          <C>           <C>             <C>             <C>          <C>            <C>
Balance September 30, 2001      $12,492,147  $(255,597)  $ 345,256         $14,199,357     $(8,867,282)$               $17,913,881

Comprehensive income:
     Net Income                                                              1,525,145                  1,525,145
     Unrealized holding losses                            (302,091)                                      (302,091)
                                                                                                       ----------
Comprehensive income                                                                                   $1,223,054        1,223,054
                                                                                                       ==========
Deferred compensation
     amortization

Payment of cash dividends                                                     (174,348)                                   (174,348)

Balance June 30, 2002           $12,492,147  $(255,597)   $ 43,165         $15,550,154     $(8,867,282)                $18,962,587
                                =========== =========== ===========        ===========      ===========                 ===========
</TABLE>

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

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

                                                                          For the Nine Months Ended
                                                                                   June 30,
                                                                            2002              2001
                                                                         -----------       -----------
<S>                                                                      <C>               <C>
Cash flows from operating activities:
     Net income                                                          $ 1,525,145       $   478,684
     Adjustments to reconcile net income to net cash
        provided by operating activities:
            Amortization of deferred loan origination fees                    (3,767)           (6,802)
            Amortization of premiums and discounts on investment
               securities, mortgage-backed securities, and loans               3,523          (165,121)
            Amortization of goodwill                                               0           117,785
            Compensation charge related to release of ESOP shares                  0            15,075
            Depreciation                                                     124,990           140,122
            Provision for loan losses                                        175,688            41,330
            Deferred income taxes                                                  0           315,496
            Stock dividends on FHLB stock                                    (97,916)         (169,500)
            Amortization of mortgage servicing rights                        170,314            89,501
            Net (gain) loss on sale of:
                             Loans held for sale                             (77,291)          (30,448)
                             Fixed assets                                      8,287                 0
                             Foreclosed assets                                52,501           (31,776)
                             Interest earning assets                        (325,503)         (188,260)
            Proceeds from loan sales                                       9,265,325         4,007,390
            Originations of loans held for sale                           (9,188,034)       (4,305,192)
            (Increase) decrease in
                             Accrued interest receivable                    (108,350)          159,670
                             Other assets                                    643,500          (103,777)
            Increase (decrease) in:
                             Federal income tax payable                      769,417            11,523
                             Accrued expenses and other liabilities         (178,990)         (454,124)

                                                                         -----------       -----------
Net cash provided (used) by operating activities                           2,758,839           (78,424)
                                                                         -----------       -----------
</TABLE>

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

                                  Page 7 of 26

<PAGE>

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

                                                                                         For the Nine Months Ended
                                                                                                  June 30,
                                                                                        2002                     2001
                                                                                -------------------      --------------------
<S>                                                                           <C>                   <C>
Cash flows from investing activities
         Net (increase) decrease in interest-earning time deposits            $            300,000  $             196,000
         Net (increase) decrease in fed funds sold                                          86,242                295,016
         Purchase of securities held-to-maturity                                        (2,000,000)            (6,085,000)
         Proceeds from sale of securities available-for-sale                             6,308,899              1,495,125
         Proceeds from maturities of securities available-for-sale                          25,000                 20,000
         Proceeds from maturities of securities held-to-maturity                                 0             23,500,000
         Proceeds from sale of mortgage-backed securities available-for-sale                     0              8,923,154
         Purchases of mortgage-backed securities
             available-for-sale                                                         (8,569,474)                     0
         Purchase of mortgage-backed securities held-to-maturity                       (11,627,398)           (29,123,346)
         Principal payments on mortgage-backed securities available-for-sale            12,862,253              4,174,141
         Principal payments on mortgage-backed securities held-to-maturity              16,134,753              4,192,770
         Principal payments on municipal bond available-for-sale                           20,000                 30,000
         Purchases of FHLB stock                                                           (97,100)                     0
         Proceeds from redemption of FHLB stock                                                  0                  1,900
         Net increase in loans                                                         (24,780,787)            (6,065,825)
         Proceeds from sale of foreclosed assets                                           433,717                 92,766
         Proceeds from recovery of charged off loans                                             0                 15,570
         Acquisition costs related to foreclosed assets                                     (6,699)                (2,151)
         Expenditures for premises and equipment                                           (93,224)               (73,640)
         Origination of mortgage servicing rights                                         (104,525)               (32,513)
                                                                                -------------------      --------------------

Net cash provided (used) by investing activities                                       (11,108,343)             1,553,967

Cash flows from financing activities:
         Net increase (decrease) in:
              Deposits                                                                  (8,937,768)            10,620,491
              Advances from borrowers                                                     (496,034)              (527,535)
         Proceeds from advances from Federal Home Loan Bank                            486,500,000            665,810,000
         Payment of advances from Federal Home Loan Bank                              (471,253,254)          (674,384,139)
         Dividends paid to stockholders                                                   (174,348)              (174,348)
                                                                                -------------------   --------------------

Net cash provided (used) by financing activities                                         5,638,596              1,344,469
                                                                                -------------------   --------------------

Net increase (decrease) in cash and cash equivalents                                    (2,710,908)             2,820,012

Cash and cash equivalents at beginning of the period                                     4,838,011              2,204,723
                                                                                -------------------   --------------------

Cash and cash equivalents at end of the period                                $          2,127,103  $           5,024,735
                                                                                ===================   ====================

Supplemental disclosure:
         Cash paid for:
              Interest on deposits                                            $          1,933,869  $           2,359,277
              Interest on FHLB advances and other borrowed funds                         2,013,897              3,141,321
              Income taxes                                                                  50,760                      0

         Transfers from loans to real estate and other
            assets acquired through foreclosures                                           604,321                357,696

         Loans made to facilitate the sale of foreclosed assets                            240,460                135,200
</TABLE>


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

                                  Page 8 of 26
<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY


             NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

                                  June 30, 2002

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


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, 2001.
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,
2002 and 2001,  has been  computed  based on net income  divided by the weighted
average  number of common shares  outstanding  during the period.  For the three
months and nine months ended June 30, 2002 and 2001, the weighted average number
of shares outstanding totaled 1,123,979 and 1,110,416 shares, respectively.

Earnings  per common  share - assuming  dilution,  for the three months and nine
months  ended  June 30,  2002 and 2001,  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, 2002 and
2001, the weighted average number of shares outstanding for earnings per share -
assuming dilution totaled 1,149,373 and 1,110,509 shares, respectively.  For the
nine months ended June 30, 2002 and 2001, the weighted  average number of shares
outstanding  for earnings per share - assuming  dilution  totaled  1,138,547 and
1,110,473 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, 2002
and 2001.

                                  Page 9 of 26

<PAGE>


NOTE 3 - SECURITIES

The  carrying  values  and  estimated  market  values of  investment  securities
available-for-sale as of June 30, 2002, by type of security are as follows:

<TABLE>
<CAPTION>

                        Principal             Unamortized             Unearned              Unrealized              Carrying
                         Balance                Premiums              Discounts             Gain/(Loss)              Value
                    -----------------      -----------------      ----------------      ------------------     -----------------
<S>               <C>                    <C>                    <C>                    <C>                    <C>
Municipal bonds   $          490,000     $                0     $           2,858      $           16,247     $          503,389
                    -----------------      -----------------     -----------------      -----------------      -----------------

                  $          490,000     $                0     $           2,858      $           16,247      $         503,389
                    -----------------      -----------------      ----------------      -----------------      -----------------
</TABLE>

The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of June 30, 2002, 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           $        3,484,222    $           90,148     $              -0-     $        3,574,370

       Corporate Debt                             6,250,115               226,443                 34,166              6,442,392
                                           -----------------     -----------------      -----------------      -----------------

             Total debt securities       $        9,734,337    $          316,591     $           34,166     $       10,016,762
                                           -----------------     -----------------      -----------------      -----------------
</TABLE>


The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of June 30, 2002, by contractual maturity are shown below:



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

        Due in one year through two years         $ 1,000,000      $ 1,035,000

        Due in two years through three years          997,317        1,058,825

        Due in three years through six years        5,737,020        5,907,317

        Due after six years                         2,000,000        2,015,620
                                                  -----------      -----------

                 Total debt securities            $ 9,734,337      $10,016,762
                                                  -----------      -----------



                                 Page 10 of 26


<PAGE>


The carrying values and estimated market values of  mortgage-backed  and related
securities  available-for-sale  as of June 30, 2002,  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           $   962,556      $         0      $     5,447      $    33,307      $   990,416

Adjustable Rate       21,801,776          109,500            4,210           15,847       21,922,913
                     -----------      -----------      -----------      -----------      -----------

                     $22,764,332      $   109,500      $     9,657      $    49,154      $22,913,329
                     -----------      -----------      -----------      -----------      -----------
</TABLE>


The carrying values and estimated market values of  mortgage-backed  and related
securities  held-to-maturity  as of June 30,  2002,  by type of security  are as
follows:

<TABLE>
<CAPTION>
                      Principal       Unamortized       Unearned         Carrying          Market
                       Balance          Premiums        Discounts          Value            Value
                     -----------      -----------      -----------      -----------      -----------

<S>                  <C>              <C>              <C>              <C>              <C>
Fixed Rate           $22,623,269      $    29,611      $    15,066      $22,637,814      $23,139,041

Adjustable Rate        8,763,584           11,668           13,243        8,762,009        8,873,312
                     -----------      -----------      -----------      -----------      -----------

                     $31,386,853      $    41,279      $    28,309      $31,399,823      $32,012,353
                     -----------      -----------      -----------      -----------      -----------
</TABLE>


NOTE 4 - CURRENT ACCOUNTING ISSUES


In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, Business Combinations.  This
statement addresses financial accounting and reporting for business combinations
and superseded APB Opinion No. 16, Business Combinations, and FASB Statement No.
38, Accounting for Preacquisition  Contingencies of Purchased  Enterprises.  All
business  combinations  in the scope of this  Statement  are to be accounted for
using one method,  the purchase  method.  This Statement does not change many of
the provisions of Opinion 16 and Statement 38 related to the  application of the
purchase  method.  The  provisions  of  this  Statement  apply  to all  business
combinations  initiated  after June 30, 2001. This Statement also applies to all
business combinations accounted for using the purchase method for which the date
of acquisition is July 1, 2001, or later.  The Company adopted this Statement as
of October 1, 2001, the beginning of its current fiscal year.

In June 2001, the FASB also issued SFAS No. 142,  Goodwill and Other  Intangible
Assets. This Statement addresses financial accounting and reporting for acquired
goodwill  and other  intangible  assets  and  superceded  APB  Opinion  No.  17,
Intangible  Assets.  It  addresses  how  intangible  assets  that  are  acquired
individually  or with a group of assets  (but not those  acquired  in a business
combination)  should  be  accounted  for  in  financial  statements  upon  their
acquisition.  This Statement  also  addresses how goodwill and other  intangible
assets should be accounted for after they have been initially  recognized in the
financial statements. Intangible assets acquired in a business combination shall
be  recognized  as an asset  apart from  goodwill  (goodwill  is measured as the
excess of the cost of an acquired entity over the net amounts assigned to assets
acquired and liabilities  assumed) if the asset does not arise from  contractual
or legal  rights.  If an asset does not arise from  contractual  or other  legal
rights,  it shall be  recognized  as an asset apart from  goodwill only if it is
separable,  that is,  capable of being  separated  or divided  from the acquired
enterprise and sold, transferred,  licensed, rented, or exchanged (regardless of
whether there is an intent to do so).

                                 Page 11 of 26

<PAGE>


Goodwill  will not be  amortized  but must be  tested  for  impairment  at least
annually at the reporting  unit level.  Any impairment of the amount of goodwill
reported  must be expensed  through the income  statement in the period that the
impairment  is  discovered.  This  Statement  is  required  to be applied to all
goodwill and other intangible assets  recognized in its financial  statements at
that date. Impairment losses for goodwill and indefinite-lived intangible assets
that arise due to the initial  application of this Statement  (resulting  from a
transitional  impairment  test)  are  reported  as  resulting  from a change  in
accounting  principle.  Goodwill and intangible  assets  acquired after June 30,
2001, are subject immediately to the nonamortization and amortization provisions
of this Statement. The Company adopted this Statement as of October 1, 2001, the
beginning  of its fiscal  year.  During the quarter  ended March 31,  2002,  the
Company  completed its initial test for  impairment of the goodwill  recorded in
the  statement of financial  position.  The Company  utilized the services of an
independent  consulting  firm to test  goodwill  recorded  in the  statement  of
financial  position  for  possible  impairment.  Based upon the  analysis of the
independent consulting firm and its own analysis, the Company has concluded that
no  impairment  of the goodwill  exists as of the most recent  fiscal  year-end,
September 30, 2001. As a result,  the Company did not make any adjustment to the
amount of goodwill recorded in the statement of financial position.

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 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, 1999                              147,276
           Granted                                               4,500
           Exercised                                               -0-
           Forfeited and expired                                   -0-
                                                               -------
      Balance, September 30, 2000                              151,776
           Granted                                                 -0-
           Exercised                                               -0-
           Forfeited and expired                                   -0-
                                                               -------
      Balance, September 30, 2001                              151,776
                                                               =======

Options exercisable at June 30, 2002 under stock option plan   148,779
                                                               =======

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

During the nine months ended June 30, 2002, no options were  exercised,  issued,
or forfeited.

                                 Page 12 of 26

<PAGE>



NOTE 6 - ADVANCES FROM FEDERAL HOME LOAN BANK

The  outstanding  advances from the FHLB  consisted of the following at June 30,
2002:

        Maturity                   Balance                            Rate
       ----------          ------------------------             ---------------
        07/01/02               $      42,000,000                      1.89%
        07/05/02               $       1,000,000                      1.92%
        12/02/02               $       1,000,000                      2.09%
        12/05/02               $       5,000,000                      2.41%
        02/15/03               $         100,000                      6.00%
        03/10/03               $       2,000,000                      2.78%
        03/10/03               $       2,000,000                      5.00%
        09/01/03               $         675,835                      6.25%
        12/01/03               $       1,000,000                      3.12%
        12/05/03               $       5,000,000                      3.57%
        02/15/04               $         100,000                      6.01%
        11/30/04               $       1,000,000                      3.93%
        12/31/04               $         230,838                      6.09%
        01/03/05               $          58,632                      6.03%
        02/15/05               $         100,000                      6.04%
        02/15/06               $         150,000                      6.05%
        04/11/11               $       5,000,000                      3.73%
        04/11/11               $       5,000,000                      3.91%
        04/11/11               $       5,000,000                      4.25%
        06/07/11               $       5,000,000                      4.38%
        01/01/13               $         396,545                      6.09%
        01/01/13               $         376,965                      6.13%
        02/01/13               $         373,751                      5.91%
        03/03/14               $         684,428                      5.45%
        04/01/14               $         663,422                      5.97%
        05/01/14               $         902,247                      5.66%
        06/01/14               $         689,302                      5.90%
        07/01/14               $         640,231                      6.38%
        08/01/14               $         465,315                      6.37%
        09/01/14               $         588,815                      6.59%
        10/01/14               $         517,776                      6.86%
        11/03/14               $       1,278,308                      6.77%
        12/01/14               $         436,492                      6.57%
        01/01/15               $         286,094                      6.73%
                              ------------------------
     Total Advances            $      89,714,994




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 26


<PAGE>


NOTE 7 - PROFORMA EFFECTS OF SFAS NO. 142

SFAS No. 142 requires  that all periods  presented in the  statements  of income
must be  adjusted to exclude  amortization  expense  (including  any related tax
effects) recognized in the periods presented related to goodwill.  The following
are condensed income statements showing  restatement of income for the three and
nine months ended June 30, 2001.


                                             Three Months     Nine Months
                                                Ended            Ended
                                            June 30, 2001    June 30, 2001
                                             (Unaudited)      (Unaudited)
                                             -----------      -----------
        Reported net income                  $   138,433      $   478,684
        Add back: goodwill amortization           39,367          117,785
                                             -----------      -----------

        Adjusted net income                  $   177,800      $   596,469
                                             ===========      ===========

        Earnings per common share
        and earnings per common share -
        assuming dilution
              Reported net income            $      0.12      $      0.43
              Goodwill amortization                 0.04             0.11
                                             -----------      -----------


        Adjusted Earnings per share          $      0.16      $      0.54
                                             ===========      ===========




NOTE 8 - CHANGES IN ACCOUNTING ESTIMATE

During the nine months ended June 30, 2002, the Company  elected to make changes
to the  assumptions  and  actuarial  method for its Defined  Benefit  Plan.  The
valuation  interest  rate was  increased  from  7.00% to  7.50%,  the  projected
compensation increase rate was reduced to 5.00% from 6.00%, and the asset method
for actuarial value of assets was changed to a 5-year  smoothing  method from an
annual basis.  All of the changes were made in order to more closely reflect the
Company's future long-term  expectations.  The changes should have the effect of
reducing  fluctuations  in the net periodic  pension  cost and minimum  required
funding of the plan.  The changes  were  effective  for the plan year  beginning
October 1, 2001.

For the fiscal year  beginning  October 1, 2001,  the  Company's  estimated  net
periodic pension cost under the previous  actuarial  assumptions and methods was
approximately  $291,000.  Under  the  revised  assumptions,  the  estimated  net
periodic  pension cost is  approximately  $238,000.  On an after-tax  basis, the
change in net income in the current  fiscal year due to the change in accounting
estimate is approximately $35,000.


                                 Page 14 of 26

<PAGE>



NOTE 9 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

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

<TABLE>
<CAPTION>
                                                             Nine Months Ended         Quarter Ended
                                                               June 30, 2002           June 30, 2002
                                                            --------------------    --------------------
                                                                         Dollars in Thousands
<S>                                                               <C>                      <C>
Balance at beginning of period                                    $   769                  $   723

Charge-offs:
   One-to-four family                                                  (3)                      (0)
   Consumer and other loans                                          (251)                     (77)
                                                                  -------                  -------
       Total charge-offs                                             (254)                     (77)
                                                                  -------                  -------

Recoveries:
   One-to-four family                                                   0                        0
   Consumer and other loans                                            37                       18
                                                                  -------                  -------
       Total recoveries                                                37                       18
                                                                  -------                  -------


Net (charge-offs)/recoveries                                         (217)                     (59)

Additions charged to income                                           176                       64
                                                                  -------                  -------

Balance at end of period                                          $   728                  $   728
                                                                  =======                  =======

Ratio of net charge-offs/recoveries during the period to
   average loans outstanding during the period                      (0.16)%                  (0.04)%
                                                                  =======                  =======

Ratio of net charge-offs/recoveries during the period to
   average non-performing assets                                   (14.48)%                  (4.92)%
                                                                  =======                  =======
</TABLE>





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

<TABLE>
<CAPTION>
                                              June 30, 2002                      September 30, 2001
                                      ------------------------------      ----------------------------------
                                                           Percent                              Percent
                                                           of Loans                             of Loans
                                                           Category                             Category
                                      Amount of Loan       to Total        Amount of Loan       to Total
                                      Loss Allowance        Loans          Loss Allowance        Loans
                                      ------------------------------       ------------------------------
                                        (Dollars in Thousands)                 (Dollars in Thousands)

        <S>                           <C>                   <C>              <C>                   <C>
        One-to-four family            $   113               0.11%            $   148               0.16%
        Consumer and other loans          246               0.59                 325               1.21
        Unallocated                       369                N/A                 296                N/A
                                      -------             ------             -------
           Total                      $   728                                $   769
                                      =======                                =======
</TABLE>



                                 Page 15 of 26

<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                  June 30, 2002

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


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

GENERAL

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

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

FINANCIAL CONDITION

Total  assets were $219.1  million at June 30, 2002,  a $7.3  increase  from the
$211.8 million  reported at September 30, 2001, the Company's most recent fiscal
year end.  The  increase  in total  assets  was the  result  of a $24.1  million
increase  in  loans  receivable  and  a  $2.0  million  increase  in  investment
securities  held-to-maturity.  The  increases  were  partially  offset by a $6.3
million  decrease in investment  securities  available-for-sale,  a $4.4 million
decrease in mortgage-backed securities  available-for-sale,  and a $4.5 decrease
in mortgage-backed securities held-to-maturity.

At June 30, 2002, loans receivable totaled $139.9 million,  an increase of $24.1
million or 20.8% over the $115.8  million at September 30, 2001. The increase in
loans receivable was primarily the result of the Company's  continued efforts to
increase the  origination of consumer,  commercial,  and commercial  real estate
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 Company originates
these loans through direct contacts with existing or potential new customers and
indirectly  through a network  of  automobile  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.  For the
nine months  ended June 30, 2002,  the Company  originated  approximately  $23.3
million in one-to-four  family  residential  loans, which included loans for the
purchase,  refinance,  or construction of one-to-four  family homes. The Company
originated  or  renewed  approximately  $50.4  million  in  consumer  (including
home-equity), commercial and commercial real estate loans during the nine months
ended June 30, 2002, of which  approximately  $14.6 million was originated on an
indirect basis.

                                 Page 16 of 26

<PAGE>


Investment  securities  available-for-sale  decreased  by $6.3 million from $6.8
million at September 30, 2001 to $503,000 at June 30, 2002. The decrease was the
result of the Company's decision to sell approximately 50% of its corporate debt
securities  portfolio.  The Company elected to sell the corporate bonds in order
to provide liquidity to fund loans and reduce the Company's exposure to possible
downgrades of ratings on corporate  debt in the  portfolio.  This  portfolio now
consists  of  municipal  bonds,  primarily  issued by Upshur  County,  where the
Company's Gilmer office is located.

Investment securities held-to-maturity were reported as $9.7 million at June 30,
2002,  an increase of $2.0 million  from the $7.8 million  reported at September
30, 2001.  The increase was the result of  additional  purchases of bonds during
the nine months ended June 30, 2002.  This portfolio  consists of  approximately
$3.5 million of debt issued by  governmental  agencies such as Federal  National
Mortgage Corporation,  Federal Home Loan Mortgage  Corporation,  and the Federal
Home  Loan Bank  System,  and  approximately  $6.2  million  of  corporate  debt
securities. All securities in the portfolio are fixed rate and term.

Mortgage-backed securities  available-for-sale totaled $22.9 million at June 30,
2002, a decrease of $4.4 million from the $27.4  million at September  30, 2001.
The decrease was primarily the result of principle  repayments on the securities
during the nine months ended June 30, 2002, resulting from refinancing activity.

Mortgage-backed  securities  held-to-maturity portfolio totaled $31.4 million at
June 30, 2002, a decrease of $4.5  million  from the $35.9  million  reported at
September 30, 2001. The decrease was primarily due to principle  payments on the
securities in the portfolio, resulting from refinancing activity.

Total  deposits were $106.7  million at June 30, 2002, an $8.9 million  decrease
from the $115.6  million  reported at  September  30,  2001.  The  decrease  was
primarily  the result of  declines  in  certificate  of deposit  balances as the
Company elected not to match competitive interest rates on renewing certificates
of deposit during the period.

The Company  reported  $89.7  million in  borrowed  funds at June 30,  2002,  an
increase of $15.2 million from the $74.5 million reported at September 30, 2001.
The increase was primarily  due to the Company's  decision to utilize short term
advances  from  the  FHLB to fund  loans  and  investments  and to fund  deposit
withdrawals.   The  advances  were  at  interest  rates  that  were  lower  than
certificates of deposit.

Stockholder's equity totaled $19.0 million at June 30, 2002, an increase of $1.1
million from the $17.9 million  reported at September 30, 2001. The increase was
primarily  attributable  to a net increase in retained  earnings of $1.4 million
which was  partially  offset by a decline  in  accumulated  other  comprehensive
income,  primarily  unrealized  gains  on  available-for-sale   securities,   of
$302,000.  The increase in retained  earnings was due to the $1.5 million in net
income less  $174,000 in cash  dividends  paid during the nine months ended June
30, 2002.


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, 2002
           AND JUNE 30, 2001

General.  Net income for the three  months  ended June 30, 2002 was  $502,000 or
$.45 per share and $.44 per  share-assuming  dilution,  an  increase of $364,000
from the  $138,000,  or $.12 per  share  and $.12 per  share-assuming  dilution,
reported for the three  months  ended June 30, 2001.  The increase in net income
was  attributable to a $662,000  increase in net interest income after provision
for  loan  losses  and a $5,000  increase  in  non-interest  income  which  were
partially offset by a $132,000 increase in non-interest  expense, and a $171,000
increase in income tax expense.


                                 Page 17 of 26

<PAGE>


Net Interest  Income.  For the quarter ended June 30, 2002, net interest  income
before  provision for loan losses totaled $1.8 million,  an increase of $708,000
over the $1.1  million  reported  for the  quarter  ended June 30,  2001.  On an
annualized  basis,  the $1.8  million in net  interest  income  for the  current
quarter was approximately 3.47% of average  interest-earning assets and 3.32% of
average total assets.  For the quarter ended June 30, 2001,  the $1.1 million in
net interest income before provisions for loan losses was approximately 2.27% of
average  interest-earning  assets and 2.12% of  average  total  assets.  Average
interest-earning  assets were approximately $205.8 million for the quarter ended
June 30, 2002, compared to $189.7 million for the quarter ended June 30, 2001.

Total  interest  income was $3.4  million for the quarter  ended June 30,  2002,
unchanged from the $3.4 million  reported for the quarter ended June 30, 2001. A
$439,000 increase in interest income on consumer and other loans was offset by a
$319,000   decrease   in   interest   income   on   mortgage-backed   securities
available-for-sale   and  a   $117,000   decrease   in   investment   securities
available-for-sale.

Interest income on loans  receivable was $2.6 million for the quarter ended June
30, 2002,  compared to $2.2 million for the quarter  ended June 30, 2001.  On an
annualized  basis,  the $2.6 million was  approximately  7.60% of average  loans
receivable balances outstanding for the quarter ended June 30, 2002, compared to
approximately  8.09% for the quarter ended June 30, 2001.  The increase in total
interest income on the loan portfolio was primarily the result of an increase in
consumer,  commercial  and  commercial  real estate loan  balances.  The overall
decline in interest  rates over the past 12 months and the refinance of mortgage
loans held in portfolio  contributed to the decline in overall yield on the loan
portfolio.

Interest  income  from  mortgage-backed  securities  available-for-sale  totaled
$184,000  for the quarter  ended June 30,  2002,  compared  to $503,000  for the
quarter ended June 30, 2001.  The decrease in income was due to a decline in the
balance of the portfolio from $32.2 million at June 30, 2001 to $22.9 million at
June 30, 2002.  The decline in the balance in the  portfolio  resulted  from the
sale  of  securities,  principle  repayments,  and  the  Company's  decision  to
re-direct cash flow into its loan portfolio.

Interest income from the investment  securities  held-to-maturity  portfolio was
$155,000  for the quarter  ended June 30,  2002,  compared  to $176,000  for the
quarter  ended June 30, 2001.  The decrease in income from the portfolio was due
to a decline  in the  average  yield on the  portfolio.  At June 30,  2001,  the
portfolio was primarily  comprised of debt issued by Government agencies such as
FHLMC, FNMA and the Federal Home Loan Bank System and corporate debt securities.
The agency  securities  had call  options at the  discretion  of the issuer.  As
interest  rates  declined  in 2001,  the issuer  elected to call the bonds.  The
Company  elected to  redirect  a portion of the cash flow from the called  bonds
into its  mortgage-backed  securities  held-to-maturity  portfolio and its loans
receivable portfolio. During the latter part of 2001 and the first part of 2002,
the  Company  re-invested  additional  cash flow into  this  portfolio  at lower
interest  rates.  These two  factors  resulted  in a decrease in income from the
portfolio.

Interest income on mortgage-backed securities  held-to-maturity totaled $427,000
for the quarter  ended June 30,  2002,  an increase of $38,000 from the $389,000
reported for the quarter ended June 30, 2001.  The increase was due primarily to
an increase in the balance in the portfolio  from $29.1 million at June 30, 2001
to $31.4 million at June 30, 2002 as the Company  invested excess cash flow into
the portfolio.

Interest  paid to  depositors  totaled  $933,000 for the quarter  ended June 30,
2002,  a decrease of $579,000  from the $1.5  million  reported  for the quarter
ended June 30, 2001. On an annualized basis, the $933,000 in interest expense on
deposits was approximately  3.50% for the quarter ended June 30, 2002,  compared
to 5.39% for the quarter  ended June 30, 2001.  The decline in interest  expense
was  attributable to a decline in interest bearing deposit account balances from
$109.1  million at June 30, 2001 to $102.9 million at June 30, 2002. The overall
decline in the level of interest  rates during 2001 and 2002  contributed to the
decrease in the overall cost of funds.  In addition,  the Company elected not to
match competitive  rates on renewing  certificate of deposit accounts and relied
more heavily on lower rate advances from the FHLB.

Interest on FHLB  advances  was  $682,000  for the quarter  ended June 30, 2002,
compared  to $842,000  for the  quarter  ended June 30,  2001.  The  decrease in
interest  expense was primarily  result of declining  interest rates during 2001
and 2002.  At June 30,  2001,  the Company had  approximately  $35.0  million in
advances which  re-priced  approximately  every 30 days. As short-term  interest
rates  declined in 2001 and 2002,  the Company  benefited  from


                                 Page 18 of 26

<PAGE>

an overall  lower cost of  borrowing  as the rate of  interest  on the  advances
declined  substantially.  In  addition,  the  Company  increased  the  level  of
borrowings  that reprice every 30 days to $42.0 million as of June 30, 2002. The
advances had an interest rate of approximately  1.89% at June 30, 2002, compared
to 4.06% at June 30, 2001.

Provision for Loan Losses. The Company made $64,000 in provision for loan losses
for the quarter  ended June 30, 2002,  compared to $18,000 for the quarter ended
June 30, 2001.  The increase in provision  for loan losses was the result of the
Company's decision to establish additional allowances for loan losses, primarily
due to the increase in volume of consumer and  commercial  lending.  [See "Asset
Quality" and "Note 9".]

Noninterest  Income.  Noninterest  income totaled $189,000 for the quarter ended
June 30, 2002 compared to $184,000 for the quarter ended June 30, 2001, a $5,000
increase.  The increase was  primarily  due to an increase in other  noninterest
income from  $101,000  for the quarter  ended June 30, 2001 to $119,000  for the
quarter ended June 30, 2002. The increase in other noninterest income was due to
additional  income from commissions  earned on the sale of credit life insurance
on consumer loans originated and additional fee income from  insufficient  check
charges.  Also, gains on sales of  interest-earning  assets and loan origination
and  commitment  fees  increased by a combined  total of $9,000,  as the Company
originated more one-to-four family loans during the current year. Loan servicing
fees were  reported as a negative  $16,000 for the quarter  ended June 30, 2002,
compared to $6,000 for the quarter  ended June 30, 2001.  The decrease in income
was  primarily  due to the  amortization  of  previously  recognized  originated
mortgage servicing rights. As mortgage interest rates declined in 2001 and 2002,
loan customers  refinanced their mortgages.  Any remaining balance in originated
mortgage  servicing rights associated with the loan was expensed at the time the
loan is refinanced or paid off. The expense is an offset to monthly serving fees
in the  loans.  The result was an  overall  decline  in net loan  servicing  fee
income.

Noninterest Expense.  Noninterest expense was $1.1 million for the quarter ended
June 30, 2002,  an increase of $132,000  from the $993,000 for the quarter ended
June 30, 2001. The increase in noninterest expense was primarily the result of a
$111,000 increase in compensation and benefits  expense,  mainly associated with
the  Company's  defined  benefit  pension plan and normal  increases in employee
compensation.  The  increase  in defined  benefit  plan  expense  was due to the
performance of plan assets in 2000 and 2001 and the additional  employees gained
in the Gilmer acquisition. Approximately two-thirds of the assets in the defined
benefit plan trust are invested in various  equity mutual funds.  As the overall
equity  market  declined  in 2000 and 2001,  the value of the assets in the plan
decreased.  The result was, on an  actuarial  basis,  an increase in the pension
plan expense to offset the  decrease in the value of the plan assts.  [See "Note
8".] In addition,  net expenses  associated with the Company's  foreclosed asset
portfolio  increased by $37,000 for the quarter ended June 30, 2002 compared the
quarter ended June 30, 2001.  The increase in expenses on foreclosed  assets was
directly  attributable to the increase in repossessed  consumer loan collateral,
primarily  autos.  The increase in  repossessed  consumer  loan  collateral  was
primarily due to the increase in the size of the Company's indirect auto lending
program. At June 30, 2002, the Company had approximately 980 indirect auto loans
totaling  $15.3  million,  compared to  approximately  146 loans  totaling  $2.2
million at June 30,  2001.  The  increases  in  compensation  and  benefits  and
expenses on foreclosed  assets were  partially  offset by a $39,000  decrease in
goodwill amortization. [See "Note 4" and "Note 7".]

Provision for Income Taxes.  The Company  incurred federal income tax expense of
$284,000  or 36.1% or  pre-tax  income  for the  quarter  ended  June 30,  2002,
compared to $113,000 or 45.0% or pre-tax  income for the quarter  ended June 30,
2001.  The  decrease in the  effective  tax rate was due to the  elimination  of
goodwill amortization as of October 1, 2001, the beginning of the current fiscal
year.  During the  quarter of June 30,  2001,  the Company  expensed  $39,000 in
goodwill amortization which was not deductible for federal income tax.


COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 2002
           AND JUNE 30, 2001

General.  For the nine months  ended June 30,  2002,  the Company  reported  net
income of $1.5  million or $1.36 per common  share and $1.34 per common  share -
assuming  dilution,  compared to $479,000 or $.43 per common  share and $.43 per
common share - assuming  dilution  for the nine months ended June 30, 2001.  The
increase in net income was due to a $1.7 million increase in net interest income
after provisions for loan losses and a $224,000 increase in noninterest  income.
The increases were partially offset by a $527,000 increase in income tax expense
and a $326,000 increase in noninterest expense.


                                 Page 19 of 26

<PAGE>

Net  Interest  Income.  For the nine months  ended June 30,  2002,  net interest
income before  provisions for loan losses  totaled $4.9 million,  an increase of
$1.8 from the $3.1 million  reported for the nine months ended June 30, 2001. On
an annualized  basis,  the $4.9 million in net interest income before  provision
for loan  losses  for the  current  period  was  approximately  3.21% of average
interest  earning assets and 3.07% of average total assets.  For the nine months
ended June 30, 2001,  the $3.1 million in net interest  income before  provision
for loan losses  was, on an  annualized  basis,  approximately  2.19% of average
interest  earning  assets and 2.04% of average  total assets.  Average  interest
earning assets were approximately  $203.1 million for the nine months ended June
30, 2002, compared to $187.9 million for the nine months ended June 30, 2001.

Total interest  income was $10.1 million or 6.61%,  on an annualized  basis,  of
average  interest  earning  assets  for the nine  months  ended  June 30,  2002,
compared to $10.7 million or 7.59%, on an annualized  basis, of average interest
earning  assets  for the nine  months  ended June 30,  2001.  The  decrease  was
primarily   due  to  a  decline  in  interest  on   mortgage-backed   securities
available-for-sale of $1.4 million, a decline in combined interest on investment
securities  available-for-sale  and investment  securities  held-to-maturity  of
approximately $809,000, and a decline in interest on mortgage loans of $159,000.
The declines in interest income were partially offset by a $1.2 million increase
in  interest  income on  consumer  and other  loans and a $688,000  increase  in
mortgage-backed securities held-to-maturity.

Interest  income on loans  receivable  totaled  $7.4 million for the nine months
ended June 30, 2002 an increase of $1.0 million  from the $6.4 million  reported
for the nine months  ended June 30,  2001.  Average  loans  receivable  balances
increased to $127.7  million for the nine months ended June 30, 2002 from $105.2
million for the nine months ended June 30, 2001.  For the nine months ended June
30, 2002,  the $7.4 million in interest  income on loans  receivable  was, on an
annualized basis,  approximately 7.72% of average loans receivable,  compared to
8.11% for the nine months ended June 30, 2001.  The increase in interest  income
on loans receivable was primarily  attributable to the increase in loan balances
outstanding  during the nine months  ended June 30,  2002,  compared to the nine
months ended June 30, 2001.  The increase in loans  receivable was the result of
the Company's  continued focus on the origination of consumer,  commercial,  and
commercial  real estate loans at interest rates which are generally  higher than
those for one-to-four family loans.  Consumer loans outstanding,  including home
equity and improvement loans increased from approximately  $20.9 million at June
30, 2001 to approximately $46.6 million at June 30, 2002.

Interest  income  from  mortgage-backed  securities  available-for-sale  totaled
$556,000 for the nine months  ended June 30, 2002,  compared to $2.0 million for
the nine  months  ended June 30,  2001.  The  decrease  in income was  primarily
attributable to a decrease in the balance in the portfolio from $32.2 million at
June 30, 2001 to $22.9  million at June 30, 2002 as the Company sold  securities
in the  portfolio  and  redirected  cash flow  from  principle  payments  on the
securities to its loan and other investment portfolios.

Interest income on investment securities available-for-sale totaled $167,000 for
the nine months  ended June 30,  2002,  compared to $521,000 for the nine months
ended June 30, 2001.  The decrease was due primarily to a decline in the balance
in the  portfolio  from $6.7  million at June 30,  2001 to  $503,000 at June 30,
2002. The decline in balances in the portfolio was due to the Company's decision
to sell a portion of its corporate debt holdings in the current period.

Interest income on mortgage-backed securities  held-to-maturity was $1.5 million
for the nine months  ended June 30,  2002,  compared  to  $763,000  for the nine
months ended June 30, 2001. The increase in interest income on the portfolio was
primarily the result of an increase in the balance  outstanding in the portfolio
from $29.1  million at June 30,  2001 to $31.4  million  at June 30,  2002.  The
Company redirected excess cash flow into this portfolio.

Interest  expense was $5.2  million for the nine months  ended June 30,  2002, a
decrease  of $2.4  million  from the $7.6  million  reported  for the nine month
period ended June 30, 2001.  The decrease in interest  expense was primarily due
to the overall  decline in market  rates of interest in 2001 and 2002.  The $5.2
million in interest  expense  reported  for the nine month period ended June 30,
2002 was approximately 3.68% of average interest costing  liabilities,  compared
to 5.67% for the same period in 2001.

Provision For Loan Losses.  The Company reported  $176,000 in provision for loan
losses for the nine months ended June 30, 2002, an increase of $134,000 over the
$41,000 reported for the nine months ended June 30, 2001. The


                                 Page 20 of 26

<PAGE>

increase in provision for loan losses was the result of the  Company's  decision
to establish  additional  allowance  for loan losses.  [See "Asset  Quality" and
"Note 9".]

Noninterest  Income.  Noninterest  income was $863,000 for the nine months ended
June 30, 2002, compared to $639,000 for the nine months ended June 30, 2001. The
increase was  attributable to a $256,000  increase in gains on sales of interest
earning  assets  primarily  from the sale of  securities  during the nine months
ended  June 30,  2002.  In  addition,  the  Company  reported  $114,000  in loan
origination  and  commitment  fees,  an  increase  of $46,000  over the  $68,000
reported for the nine months ended June 30, 2001. The additional origination and
commitment  fee income  was due to the  increase  in the  number of  one-to-four
family loans  originated in the current year. For the nine months ended June 30,
2002, the Company originated approximately 227 one-to-four family loans totaling
$25.1 million,  compared to 164 loans totaling $16.2 million for the nine months
ended June 30, 2001. The increases in noninterest  income were partially  offset
by a $112,000  decline in loan servicing  fees. The decline in loan serving fees
was the result of the amortization of previously  recorded  originated  mortgage
servicing  rights.  With lower interest rates many  borrowers  refinanced  their
mortgage  loans during 2001 and 2002. For any such loan on which the Company had
previously recognized originated mortgage income, the unamortized balance of the
originated mortgage servicing rights was charged against loan servicing income.

Noninterest  Expense.  Noninterest  expense was reported as $3.2 million for the
nine-month period ended June 30, 2002, a $326,000 increase from the $2.9 million
reported  for the nine months ended June 30,  2001.  The increase was  primarily
attributable to a $264,000  increase in compensation and benefits expense due to
additional employees,  normal compensation  increases,  and expenses association
with the Company's defined benefit pension plan. The increase in defined benefit
plan expense was due to the  performance of plan assets in 2000 and 2001 and the
additional employees gained in the Gilmer acquisition.  Approximately two-thirds
of the assets in the defined  benefit plan trust are invested in various  equity
mutual funds.  As the overall equity market declined in 2000 and 2001, the value
of the assets in the plan decreased.  The result was, on an actuarial  basis, an
increase in the pension  plan expense to offset the decrease in the value of the
plan assets.  [See "Note 8".] A $98,000  increase in net expenses on  foreclosed
and  repossessed  assets  accounted for a portion of the increase in noninterest
expense.  The increase in net expenses on foreclosed and repossessed  assets was
primarily  due to  expenses  associated  with  the  disposition  of  repossessed
automobiles  and other consumer  installment  loans from the Company's  consumer
loan portfolio.

A $118,000 decrease in amortization of goodwill offset a portion of the increase
in  noninterest  expense.  Under  revised  accounting  guidelines  for the  year
beginning  October 1, 2001, the Company is no longer required to  systematically
amortize goodwill recorded on the statement of financial  position.  The Company
now  monitors,  on at least an annual  basis,  the  balance of  goodwill  in the
financial  statements for any possible  impairment to the recorded amount.  [See
"Note 4" and "Note 7".]

Provision For Income Taxes.  The Company  incurred federal income tax expense of
$846,000  or 35.7% of pre-tax  income for the nine months  ended June 30,  2002,
compared to $319,000 or 40.0% of pre-tax  income for the nine months  ended June
30, 2001.  The decrease in the effective tax rate was due to the  elimination of
goodwill amortization as of October 1, 2001, the beginning of the current fiscal
year.  During nine months ended June 30, 2001, the Company expensed  $118,000 in
goodwill amortization which was not deductible for federal income tax.


ASSET QUALITY

At June 30, 2002, the Company's non-performing assets (non-performing loans plus
foreclosed  assets)  totaled $1.3 million or .60% of total  assets,  compared to
$1.6 million or .74% of total assets at  September  30, 2001.  At June 30, 2002,
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,  2002  equaled  $984,000  or  .70% of  loans
receivable,  compared to $1.3 million or 1.14% of loans  receivable at September
30, 2001. The Company defines  non-performing  loans as any loan past due for 90
days or  more.  All  such  loans  are  accounted  for on a  nonaccrual  basis by
reserving  for 100% of the accrued  interest or placing the loan in a nonaccrual
status when the loan reaches 90 days  delinquent.  At June 30, 2002, the Company
had no loans which were  contractually past due 90 days or more and for which it
was still accruing


                                 Page 21 of 26

<PAGE>

interest. At June 30, 2002, the Company had no "troubled debt restructurings" as
defined in Statement of Financial  Accounting  Standards No. 15  "Accounting  by
Debtors and Creditor for Troubled Debt  Restructurings",  or any other loans for
which the Company has  information  about possible  credit problems of borrowers
that would cause  management  to have  serious  doubts as to the ability of such
borrowers to comply with the preset loan repayment terms.

Classified assets totaled $2.2 million or .98% of total assets at June 30, 2002,
compared to $2.7 million or 1.27% of total assets at September 30, 2001.

Classified assets and non-performing assets differ in that classified assets may
include  loans  less  than  90  days  delinquent.  Also,  assets  guaranteed  by
government agencies such as the Veterans  Administration and the Federal Housing
Administration  are not  included  in  classified  assets  but are  included  in
non-performing  assets. At June 30, 2002, $2.0 million of classified assets were
deemed to be substandard and $196,000 assets were classified as doubtful.

The Company's allowance for loan and lease losses was $728,000 at June 30, 2002,
which included $656,000 in general loan loss reserves,  $53,000 in specific loan
loss reserves,  and $19,000 checking account loss reserves.  The total allowance
was $769,000 at September  30, 2001.  The total  allowance  for loan losses as a
percentage  of  loans  receivable  equaled  .52% at June 30,  2002 and  0.66% at
September 30, 2001.

The  Company  uses a  methodology  for  estimating  the  adequacy of its general
allowance for loan loss that encompasses  three separate  components.  The first
component is an historical  loss analysis of loans  segregated by different loan
categories.  A three-year rolling average of annual net gains and losses on each
category of loans is calculated  and then summed  together to comprise the first
component.  The second  component is an estimate of losses on the Company's list
of currently  classified assets. A percentage,  generally ranging from 5% to 50%
of each classified asset, is applied to the balance of the asset. The percentage
for each  asset is  combined  to  determine  the  second  component.  The  third
component  is  an  unidentified  risk  component.   The  Company  establishes  a
percentage  of each category of net loans as an inherent or  unidentified  risk.
The percentages range from .10% for one-to-four  family to .35% for consumer and
commercial  loans.  The  balance in each loan  category is reduced for any loans
specifically  reviewed by the Company and any classified assets, before applying
the  percentage  amounts.  At June 30,  2002,  the  individual  components  were
calculated to be $151,000 for the historical  loss  component,  $288,000 for the
classified asset component,  and $217,000 for the unidentified risk component, a
total of  $656,000.  At September  20,  2001,  the  individual  components  were
calculated  as $114,000  for the  historical  loss  component,  $331,000 for the
classified asset component,  and $156,000 for the unidentified risk component, a
total of $601,000.

The increase in the  historical  loss component was a direct result of increased
losses on the Company's  consumer  installment  lending  program,  including its
indirect auto lending  program.  The decrease in the classified  asset component
was the result of the decline in classified assets. The increase in the inherent
risk  component  was due to the  overall  increase  in the net  loan  portfolio,
primarily consumer  installment loans, from $115.8 million at September 30, 2001
to $139.9 million at June 30, 2002.

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

At June 30,  2002,  the  Company  had  $53,000 in  specific  loan loss  reserves
established,  compared to $142,000 at September  30,  2001.  The decrease in the
specific  reserve was due to a decrease in the  balance of loans  exceeding  the
past due limits.

In general,  the Company  made no changes to its estimate of the adequacy of the
allowance for loan losses as a result of any actual  changes or expected  trends
in  non-performing  loans.  The Company believes that the overall quality of its
loan portfolio is good.  However,  the Company did record  $176,000 in provision
for loan losses during the nine months ended June 30, 2002,  compared to $41,000
for the same period in 2001. [See "Note 9".]


                                 Page 22 of 26

<PAGE>


The Company anticipates that the general trend in the level of the allowance for
loan loss will be to increase the size of the allowance.  The Company expects to
continue  its focus on  increasing  the size of its  consumer,  commercial,  and
commercial real estate loan portfolios. The result would be an expected increase
in the estimated  allowance for loan loss under the unidentified risk component.
In addition,  the  estimated  reserve for loan losses could  increase  under the
average annual loan loss component if the Company continues to incur charge-offs
on its consumer-loan portfolio.

LIQUIDITY AND CAPITAL RESOURCES

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

The Company uses its liquidity and capital resources principally to meet ongoing
commitments  to fund  maturing  certificates  of deposit  and loan  commitments,
maintain liquidity and pay operating expenses. At June 30, 2002, the Company had
outstanding  commitments  to extend  credit on  approximately  $11.1  million of
loans.

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

Total  stockholders'  equity equaled $19.0 million at June 30, 2002, an increase
of $1.1  million from the $17.9  million  reported at  September  30, 2001.  The
increase  was  primarily  the  result of a $1.4  million  increase  in  retained
earnings  that  resulted  from the $1.5 million net income less $174,000 in cash
dividends  paid during the nine months ended June 30, 2002. A $302,000  decrease
in  unrealized  gains on  available-for-sale  securities  partially  offset  the
increase in retained earnings.

As of June 30, 2002,  the Company's  reported book value per share,  using total
stockholders'  equity of $19.0 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 $16.31 per share.
Subsequent  to the  quarter  ended June 30,  2002,  the  Company  announced  its
intention  to pay a cash  dividend  of $.05 per share on  August  28,  2002,  to
stockholders of record as of August 14, 2002.  During the nine months ended June
30, 2002,  the Company paid cash  dividends of $.15 per share,  which equates to
approximately  11.4% of the $1.36 in earnings  per share  reported.  The Company
paid $.05 per share in cash  dividends  in the three months ended June 30, 2002,
which is  approximately  11.6% of the $.45 in reported  earnings per share.  The
Company  reported an equity to assets ratio of  approximately  8.66% at June 30,
2002.

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

The capital  regulations  require  tangible capital of at least 1.5% of adjusted
total assets (as defined by regulation).  Tangible  capital  generally  includes
common  stockholders'  equity and retained  income,  and certain  non-cumulative
perpetual  preferred  stock and related  income.  In  addition,  all  intangible
assets, other than a limited amount of purchased mortgage-servicing rights, must
be deducted from total capital for calculating compliance with this requirement.
At June 30, 2002,  First  Federal had  approximately  $2.2 million of intangible
assets  and other  required  regulatory  adjustments  that were  required  to be
deducted from total capital.

At June 30, 2002, First Federal had tangible capital of $16.2 million,  or 7.47%
of adjusted total assets, which is approximately $13.0 million above the minimum
requirement of 1.5% of adjusted total assets in effect on that date.


                                 Page 23 of 26

<PAGE>


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

At June 30, 2002,  First Federal had Tier 1 capital equal to $16.2  million,  or
7.47%  of  adjusted  total  assets,  which is $7.5  million  above  the  minimum
requirement for capital adequacy purposes of 4.0% as in effect on that date.

The OTS  risk-based  requirement  requires  savings  associations  to have total
capital of at least  8.0% of  risk-weighted  assets.  Total  risk-based  capital
consists  of  core  capital,   as  defined  above  and  supplementary   capital.
Supplementary  capital  consists  of  certain  permanent  and  maturing  capital
instruments  that do not qualify as core capital and general  valuation loan and
lease  loss  allowances  up to a  maximum  of  1.25%  of  risk-weighted  assets.
Supplementary capital may be used to satisfy the risk-based  requirement only to
the  extent of core  capital.  The OTS is also  authorized  to require a savings
association  to maintain an  additional  amount of total  capital to account for
concentration of credit risk and the risk of non-traditional activities. At June
30, 2002, First Federal had no capital instruments that qualify as supplementary
capital  and  $721,000  of  loss   reserves,   which  was  less  than  1.25%  of
risk-weighted assets.

Certain  exclusions  from  capital  and assets are  required  to be made for the
purpose of  calculating  total  risk-based  capital.  First  Federal had no such
exclusions from capital and assets at June 30, 2002.

In determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet items, will be multiplied by a risk weight, ranging from 0% to
100%, based on the risk inherent in the type of asset. For example,  the OTS has
assigned a risk of 50% for prudently  underwritten  permanent one-to-four family
first lien mortgage loans not more than 90 days  delinquent and having a loan to
value ratio of not more than 80% at origination  unless insured to such ratio by
a insurer approved by Fannie Mae or Freddie Mac.

On June 30, 2002,  First  Federal had total risk based  capital of $16.9 million
(including  $16.2 million in Tier 1 capital and $721,000 in loan loss  reserves)
and risk-weighted assets of $118.3 million, or total risk-based capital of 14.3%
of risk-weighted assets. This amount was $7.5 million above the 8.0% requirement
in effect on that date.

At June 30,  2002,  First  Federal  was  also  considered  a "well  capitalized"
institution  under the prompt  corrective  action  requirements  of the  Federal
Deposit Insurance Corporation Improvement Act of 1991.

FORWARD-LOOKING STATEMENTS

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

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


                                 Page 24 of 26

<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                  JUNE 30, 2002
--------------------------------------------------------------------------------

                           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, 2002,  the Company filed a report on
          Form 8-K on May 8,  2002 to report  the  issuance  of a press  release
          dated May 7, 2002,  announcing the Company's  earnings for the quarter
          ended  March 31,  2002.  The  release  also  announced  the  Company's
          intention to pay, on May 22,  2002, a cash  dividend of $.05 per share
          for the quarter ended March 31, 2002, to stockholders of record on May
          8, 2002.


                                 Page 25 of 26

<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 9, 2002               /s/ Gerald W. Free
-----  --------------               --------------------------------------------
                                    Vice Chairman, President and CEO
                                    (Principal Executive Officer)


Date: August 9, 2002                /s/ Derrell W. Chapman
--------------------                --------------------------------------------
                                    Executive Vice President/COO/CFO
                                    (Principal Financial and Accounting Officer)




                                  CERTIFICATION
                                  -------------

Each of the undersigned  hereby  certifies in his capacity as an officer of East
Texas Financial Services,  Inc. (the "Company") that the Quarterly Report of the
Company on Form 10-QSB for the period  ended June 30, 2002 fully  complies  with
the  requirements  of Section 13 (a) of the Securities  Exchange Act of 1934 and
that the information  contained in such report fairly presents,  in all material
respects,  the financial  condition of the Company at the end of such period and
the results of operations of the Company for such period.



Date: August 9, 2002


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




                                   /s/ Derrell W. Chapman
                                   -------------------------------------------
                                   Executive Vice President/COO/CFO
                                   (Principal Financial and Accounting Officer)




                                 Page 26 of 26