FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549



     [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                       For the period ended March 31, 2000

                                       OR

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

              For the transition period from _______ to _______.


                         Commission file number 0-24848


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

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

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

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

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 of 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days.
                               [ X ] Yes [   ] No

         The number of shares of the registrant's  common stock ($.01 par value)
outstanding as of March 31, 2000, was 1,162,320.


<PAGE>
                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 March 31, 2000



                                      INDEX


Part I - Financial Information

     Item 1.  Financial Statements

         Consolidated Statements of Financial Condition, March 31, 2000
         (Unaudited) and September 30, 1999

         Consolidated  Statements  of Income,  (Unaudited)  three months and six
         months ended March 31, 2000 and March 31, 1999

         Consolidated Statement of Changes in Stockholders' Equity, (Unaudited)
         six months ended March 31, 2000

         Consolidated Statements of Cash Flows, (Unaudited) six months ended
         March 31, 2000, and March 31, 1999

         Notes to (Unaudited) Consolidated Financial Statements, March 31, 2000

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

Part II - Other Information

     Item 1.  Legal Proceedings

     Item 2.  Changes In Securities

     Item 3.  Defaults Upon Senior Securities

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

     Item 5.  Other Information

     Item 6.  Exhibits and Reports on Form 8-K

Signature Page
<PAGE>
                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 March 31, 2000


--------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION

     Item 1 - Financial Statements

East Texas Financial  Services,  Inc. (the "Company") was formed in September of
1994 for the  purpose  of  acquiring  all of the common  stock of First  Federal
Savings and Loan Association of Tyler (the  "Association"),  concurrent with its
conversion from the mutual to stock form of ownership. The Company completed its
initial public stock offering of 1,215,190 shares of $.01 par value common stock
on January 10,  1995.  The Company  utilized  approximately  one half of the net
stock  sale  proceeds  to  acquire  all  of  the  common  stock  issued  by  the
Association.  For additional  discussion of the Company's formation and intended
operations,  see the Form S-1 Registration  Statement (No.  33-83758) filed with
the Securities and Exchange  Commission and the Company's  annual report on Form
10-KSB  for the  fiscal  year  ended  September  30,  1999,  also filed with the
Commission.

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

Net income for the six months ended March 31, 1999 has been  restated to reflect
an adjustment by the Company's independent auditors at September 30, 1999. Other
non-interest  income was  decreased  by  $39,000  and  income  tax  expense  was
decreased by $13,260 to reflect the restatement.  The restatement was related to
the  recovery  of a  deficiency  judgement  against a borrower  filed in a prior
period.  The recovery was reported as other  non-interest  income during the six
month period  ending March 31, 1999 and was restated and added to the  Company's
general valuation allowance at the September 30, 1999 audit.
<PAGE>
<TABLE>
<CAPTION>
                                    EAST TEXAS FINANCIAL SERVICES, INC.
                               CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



                  ASSETS                                                 March 31, 2000    September 30, 1999
                                                                         --------------    ------------------
                                                                           (Unaudited)

<S>                                                                       <C>                <C>
Cash and due from banks                                                   $   1,384,331      $   1,019,937
Interest-bearing deposits with banks                                            418,408            974,627
Interest-earning time deposits with financial institutions                    1,485,000          2,461,617
Federal funds sold                                                                    0                  0
Investment securities available-for-sale                                      6,279,944          5,918,750
Mortgage-backed securities available-for-sale                                36,517,765         32,893,809
Investment securities held-to-maturity (estimated market
     value of $27,600,405 at March 31, 2000, and
     $29,948,866 at September 30, 1999)                                      28,492,766         30,481,413
Mortgage-backed securities held-to-maturity (estimated
     market value of $5,257,439 at March 31, 2000
     and $5,949,914 at September 30, 1999)                                    5,097,182          5,806,975
Loans receivable, net of allowance for credit losses of $277,899
     at March 31, 2000 and $270,039 at September 30, 1999                    70,668,125         67,250,334
Accrued interest receivable                                                   1,174,723          1,167,245
Federal Home Loan Bank stock, at cost                                         2,932,200          2,283,000
Premises and equipment                                                        2,575,221          2,607,213
Foreclosed real estate, net of allowance of $-0-                                      0                  0
Mortgage servicing rights                                                       255,152            266,010
Other assets                                                                    899,162            593,991
                                                                          -------------      -------------

     Total Assets                                                         $ 158,179,979      $ 153,724,921
                                                                          =============      =============



     LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
     Noninterest deposits                                                 $   1,992,223      $   2,021,914
     Interest-bearing deposits                                               81,102,901         85,517,925
                                                                          -------------      -------------
         Total deposits                                                      83,095,124         87,539,839

     FHLB advances                                                           57,777,064         45,057,877
     Notes payable to other banks                                                     0                  0
     Advances from borrowers for taxes and insurance                            348,204            823,755
     Federal income taxes
           Current                                                               (4,356)               -0-
           Deferred                                                              33,036            108,184
     Accrued expenses and other liabilities                                     507,070          1,775,938
                                                                          -------------      -------------
     Total liabilities                                                      141,756,142        135,305,593
                                                                          -------------      -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                       <C>                <C>
Stockholders' equity:
     Preferred stock, $0.01 par value, 500,000
        shares authorized, none outstanding
     Common stock, $0.01 par value, 5,500,000 shares authorized,
        1,884,492 shares issued and 1,162,320 outstanding                        18,845             18,845
     Additional paid-in-capital                                              12,397,167         12,397,167
     Deferred compensation - RRP shares                                         (38,794)           (96,985)
     Unearned employee stock ownership plan shares                             (442,059)          (442,059)
     Unrealized gain/(loss) available-for-sale securities (net)                (343,156)          (148,174)
     Retained earnings (substantially restricted)                            13,699,116         13,675,391
     Treasury stock, 722,172 shares at cost                                  (8,867,282)        (6,984,857)
                                                                          -------------      -------------

           Total stockholder's equity                                        16,423,837         18,419,328
                                                                          -------------      -------------

           Total liabilities and stockholders' equity                     $ 158,179,979      $ 153,724,921
                                                                          =============      =============

</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
<PAGE>
<TABLE>
<CAPTION>
                                          EAST TEXAS FINANCIAL SERVICES, INC.
                                           CONSOLIDATED STATEMENTS OF INCOME

                                                                 Three Months                     Six Months
                                                                Ended March 31,                 Ended March 31,
                                                                  (Unaudited)                     (Unaudited)
                                                            2000            1999             2000             1999
                                                        -----------      -----------      -----------      ----------
<S>                                                    <C>              <C>              <C>              <C>
INTEREST INCOME Loans receivable:
     First Mortgage                                    $ 1,171,733      $ 1,105,784      $ 2,315,129      $2,227,971
     Consumer and other loans                              164,101           83,109          333,491         159,118
   Securities available for sale:
     Investment securities                                  43,304           37,655          282,847          52,190
     Mortgage-backed securities                            639,370          312,272        1,217,326         576,592
   Securities held to maturity:
     Investment securities                                 556,421          417,734          936,541         885,040
     Mortgage-backed securities                             92,896          138,310          180,898         317,010
   Deposits with banks                                      11,194           50,913           34,815          83,996
                                                       -----------      -----------      -----------      ----------

       Total interest income                             2,679,019        2,145,777        5,301,047       4,301,917
                                                       -----------      -----------      -----------      ----------

INTEREST EXPENSE

   Deposits                                              1,016,244        1,045,721        2,037,824       2,129,252
   FHLB advances                                           835,214          305,619        1,563,556         556,837
   Interest Expense to other banks                           7,291                0           21,979               0
                                                       -----------      -----------      -----------      ----------

       Total interest expense                            1,858,749        1,351,340        3,623,359       2,686,089
                                                       -----------      -----------      -----------      ----------

       Net interest income before
          provision for loan losses                        820,270          794,437        1,677,688       1,615,828

   Provision for loan losses                                   402                0              402               0
                                                       -----------      -----------      -----------      ----------

       Net interest income after
         provision for loan losses                         819,868          794,437        1,677,286       1,615,828
                                                       -----------      -----------      -----------      ----------

NONINTEREST INCOME
   Gain(loss) on sale of interest-earning assets            10,974           28,589           23,182         105,065
   Loan origination and commitment fees                      7,824           23,450           19,783          47,058
   Loan servicing fees                                      16,415           18,950           31,332          29,733
   Gain on foreclosed real estate                             (445)          (2,068)            (855)            302
   Other                                                    22,903            5,787           44,128          21,249
                                                       -----------      -----------      -----------      ----------

       Total noninterest income                             57,671           74,708          117,570         203,407
                                                       -----------      -----------      -----------      ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                    <C>              <C>              <C>              <C>
NONINTEREST EXPENSE
   Compensation and benefits                               496,407          518,609        1,068,510       1,028,684
   Occupancy and equipment                                 131,885           68,687          260,196         114,891
   SAIF deposit insurance premium                           15,611           13,480           17,702          26,464
   Loss on foreclosed real estate                                0                0                0           2,069
   Other                                                   145,596          171,384          211,181         314,321
                                                       -----------      -----------      -----------      ----------

       Total noninterest expense                           789,499          772,160        1,557,589       1,486,429
                                                       -----------      -----------      -----------      ----------

Income (loss) before provision for income taxes             88,040           96,985          237,267         332,806

Income tax expense (benefit)                                35,237           39,606           90,705         125,396
                                                       -----------      -----------      -----------      ----------

NET INCOME (LOSS)                                      $    52,803      $    57,379      $   146,562      $  207,410
                                                       ===========      ===========      ===========      ==========


Earnings per common share                              $       .05      $       .04      $       .13      $      .15
Earnings per common share - assuming dilution                  .05              .04              .12             .15
</TABLE>

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

<PAGE>
<TABLE>
<CAPTION>
                                         EAST TEXAS FINANCIAL SERVICES, INC.
                              CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                                                     (UNAUDITED)

       SIX MONTHS ENDED
       March 31, 2000

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

Comprehensive income:
     Net Income                                                                            146,562
     Unrealized holding gains                                             (194,982)

Comprehensive income

Deferred compensation
     amortization                                58,191
Purchase of treasury stock
     at cost                                                                                           (1,882,425)
Payment of cash dividends                                                                 (122,837)
Balance March 31, 2000         $ 12,416,012   $ (38,794)  $ (442,059)   $ (343,156)    $ 13,699,116   $ (8,867,282)
                               ============   =========   ==========    ==========     ============   ============


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

Comprehensive income:
     Net Income                      146,562          146,562
     Unrealized holding gains
                                   ---------
Comprehensive income               $ 146,562
                                   =========

Deferred compensation
     amortization                                      58,191
Purchase of treasury stock
     at cost                                       (1,882,425)
Payment of cash dividends                            (122,837)
Balance March 31, 2000                             16,423,837
                                                   ==========

</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
<PAGE>
<TABLE>
<CAPTION>
                               EAST TEXAS FINANCIAL SERVICES, INC.
                              CONSOLIDATED STATEMENT OF CASH FLOWS
                                           (UNAUDITED)

                                                                      For the Six Months Ended
                                                                              March 31,
                                                                       2000            1999
                                                                   -----------      -----------
<S>                                                                <C>              <C>
Cash flows from operating activities:
     Net income                                                    $   146,562      $   233,150
     Adjustments to reconcile net income to net cash
        provided by operating activities:
         Amortization of deferred loan origination fees                 (2,113)          10,715
         Amortization of premiums and discounts on investment
            securities, mortgage-backed securities, and loans           24,220           78,783
         Amortization of deferred compensation                          58,191           58,191
         Compensation charge related to release of ESOP shares          33,075           55,921
         Depreciation                                                   74,292           45,780
         Deferred income taxes                                          25,298           60,838
         Stock dividends on FHLB stock                                 (80,400)         (31,582)
         Origination of mortgage servicing rights                      (20,426)         (86,422)
         Amortization of mortgage servicing rights                      31,284           38,939
         Net (gain) loss on sale of:
              Securities held to maturity                                    0                0
              Foreclosed real estate                                         0            2,069
              Fixed assets                                                   0                0
              Net loss on disposal of fixed assets                           0                0
              Other assets                                                   0                0
              Loans                                                     (2,188)         (18,642)
              Loans held for sale                                            0                0
         Net (gain) loss on disposal of fixed assets                       228                0
         Proceeds from loan sales                                    1,775,893        6,661,864
         Originations of loans held for sale                                 0                0
         Proceeds from sale of fixed assets                                  0                0
         (Increase) decrease in:
              Accrued interest receivable                               (7,478)          13,308
              Other assets                                            (305,171)         828,812
              Accrued loan loss                                              0            1,247
         Increase (decrease) in:
              Federal income tax payable                                (4,356)         (53,725)
              Accrued expenses and other liabilities                (1,294,166)        (861,459)
         Capitalized interest on time deposits                               0                0

Net cash provided (used) by operating activities                      (452,745)       7,037,787
                                                                   -----------      -----------

</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                      EAST TEXAS FINANCIAL SERVICES, INC.
                                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                                  (UNAUDITED)
                                                                                  For the Six Months End
                                                                                          March 31,
                                                                                  2000               1999
                                                                             -------------      -------------
<S>                                                                          <C>                <C>
Cash flows from investing activities
     Purchases of interest earning time deposits                                         0           (600,000)
     Net decrease (increase) in fed funds sold                                           0            129,187
     Proceeds from maturity of time deposits                                       976,617                  0
     Proceeds from maturities of obligations - U.S. Govt
        and agencies held to maturity                                            2,000,000         (4,997,656)
     Purchases of FHLB stock                                                      (568,800)          (597,500)
     Purchases of investment securities available-for-sale                        (485,930)        (3,073,051)
     Purchases of mortgage-backed securities available-for-sale                 (5,208,739)       (12,513,589)
     Principal payments on mortgage-backed securities available for sale         1,385,298          3,101,656
     Principal payments on mortgage-backed securities held to maturity             703,015          3,186,390
     Net originations and principal collections on loans                        (5,200,501)        (7,413,269)
     Capitalized acquisition cost related to foreclosed real estate                 (4,221)                 0
     Proceeds from sale of foreclosed real estate                                    6,325             32,432
         Expenditures for premises and equipment                                   (42,528)          (427,202)
                                                                             -------------      -------------

Net cash provided (used) by investing activities                                (6,439,464)       (15,447,602)
                                                                             -------------      -------------

Cash flows from financing activities:
     Net increase (decrease) in:
     Non-interest bearing deposits, savings, NOW accounts                          (29,691)         1,186,065
     Time deposits                                                              (4,415,024)          (753,203)
         FHLB Advances                                                         268,146,206        145,510,909
         Repayment of FHLB Advances                                           (255,427,019)      (133,549,323)
         Other borrowed money                                                    1,500,000                  0
         Repayment of other borrowed money                                      (1,500,000)                 0
         Advances from borrowers for taxes and insurance                          (475,551)          (520,554)
     Dividends paid to stockholders                                               (121,602)          (140,375)
     Purchase of treasury stock                                                 (1,882,425)          (729,831)
     Proceeds from sale of common stock                                                  0                  0
                                                                             -------------      -------------

Net cash provided (used) by financing activities                                 5,794,894         11,003,688
                                                                             -------------      -------------

Net increase (decrease) in cash and cash equivalents                              (191,825)         2,593,873

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

Cash and cash equivalents at end of the period                               $   1,802,739      $   4,290,931
                                                                             =============      =============

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                          <C>                <C>
Supplemental disclosure:
     Cash paid for:
         Interest on deposits                                                $     696,247      $   2,129,252
         Interest on FHLB advances and other borrowed funds                  $   1,585,535      $           0
         Income taxes                                                        $      59,764      $     145,257

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

     Loans charged off to loan loss reserves                                 $       2,231      $           0

     Recoveries credited to loan loss reserves                               $      10,091      $           0

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


             NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

                                 March 31, 2000


NOTE 1 - BASIS OF PRESENTATION

The  financial  statements  presented  in this report have been  prepared by the
Company  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission for interim  reporting and include all adjustments  which are, in the
opinion  of  management,   necessary  for  fair  presentation.  These  financial
statements  have  not  been  audited  by  an  independent  accountant.   Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or  omitted  pursuant  to such  rules  and  regulations  for  interim
reporting.  The Company  believes that the  disclosures are adequate to make the
information not misleading.  However,  these financial statements should be read
in conjunction  with the financial  statement and notes thereto  included in the
Company's  Annual  Report on Form 10-KSB for the year ended  September 30, 1999.
The financial data and results of operations for interim  periods  presented may
not necessarily reflect the results to be anticipated for the complete year.

NOTE 2 - EARNINGS PER SHARE

Earnings  per common  share for the three  months and six months ended March 31,
2000 and 1999,  has been  computed  based on net income  divided by the weighted
average  number of common shares  outstanding  during the period.  For the three
months  ended March 31, 2000 and 1999,  the  weighted  average  number of shares
outstanding totaled 1,096,007 and 1,335,051,  shares  respectively.  For the six
months  ended March 31, 2000 and 1999,  the  weighted  average  number of shares
outstanding totaled 1,152,678 and 1,362,176 shares respectively.

Earnings  per common  share - assuming  dilution,  for the three  months and six
months  ended March 31,  2000 and 1999,  has been  computed  based on net income
divided  by the  weighted  average  number  of  common  shares  outstanding.  In
addition,  it includes the effects of all dilutive  potential common shares that
were  outstanding  during the period.  For the three months ended March 31, 2000
and 1999,  the weighted  average number of shares  outstanding  for earnings per
share - assuming dilution totaled 1,096,007 and 1,348,110,  shares respectively.
For the six months ended March 31, 2000 and 1999, the weighted average number of
shares  outstanding for earnings per share - assuming dilution totaled 1,175,462
and 1,374,721 shares respectively.

For both  earnings per share and  earnings per common share - assuming  dilution
and as  prescribed  by the American  Institute of Certified  Public  Accountants
Statement of Position  93-6 ("SOP 93-6")  Employer's  Accounting  for  Employees
Stock Ownership Plans,  the weighted  average number of shares  outstanding does
not include unallocated Employee Stock Ownership Plan ("ESOP") shares.

See Part II, Item 6 - Exhibits for a detailed  presentation  of the earnings per
share  calculation for the three month and six month period ended March 31, 2000
and 1999.
<PAGE>
NOTE 3 - SECURITIES

The  carrying  values  and  estimated  market  values of  investment  securities
available-for-sale as of March 31, 2000, by type of security are as follows:
<TABLE>
<CAPTION>
                     Principal    Unamortized    Unearned      Unrealized      Carrying
                      Balance      Premiums     Discounts     Gain/(Loss)        Value
                      -------      --------     ---------     -----------        -----
<S>                 <C>            <C>         <C>            <C>              <C>
Fixed Rate          $6,500,000     $65,249     $  47,321      $  (237,984)     $6,279,944

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

                    $6,500,000     $65,249     $  47,321      $  (237,984)     $6,279,944
                    ----------     -------     ---------      -----------      ----------
</TABLE>
The  weighted  average  yield  on  the  investment  security  available-for-sale
portfolio was approximately 6.43% at March 31, 2000.

The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of March 31, 2000, are as follows:
<TABLE>
<CAPTION>
                                                      Gross          Gross        Estimated
                                      Amortized    Unrealized      Unrealized       Market
                                         Cost         Gains          Losses         Value
                                     -----------     --------     -----------     -----------
<S>                                  <C>             <C>          <C>             <C>
Debt securities:

      U. S. government agency         28,492,766            0         892,361      27,600,405
                                     -----------     --------     -----------     -----------

           Total debt securities     $28,492,766     $      0     $   892,361     $27,600,405
                                     -----------     --------     -----------     -----------
</TABLE>
The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of March 31, 2000, by contractual maturity are shown below:

<TABLE>
<CAPTION>
                                                                             Estimated
                                                           Amortized            Market
                                                             Cost               Value
                                                         ------------       ------------
<S>                                                       <C>                <C>
              Due in one year or less                     $ 3,998,835        $ 3,994,840

              Due after one year through two years          1,000,000            972,810

              Due after two years through three years       8,496,565          8,246,945

              Due after three years through six years      14,997,366         14,385,810
                                                         ------------       ------------

                     Total debt securities               $ 28,492,766       $ 27,600,405
                                                         ------------       ------------
</TABLE>
<PAGE>
As of March 31,  2000,  approximately  $24,500,000  of the  securities  had call
options exercisable at the discretion of the issuer.  Approximately $8.5 million
of the securities were immediately  callable.  The remainder had call dates that
varied between April 2000 and June 2001.

As of March 31, 2000,  the weighted  average yield on the  Company's  investment
security held-to-maturity  portfolio was approximately 6.08% while the Company's
overall investment portfolio, including securities held-to-maturity,  investment
securities  available-for-sale,  overnight  deposits and  interest  earning time
deposits with other financial institutions was approximately 6.12%.

The carrying values and estimated market values of  mortgage-backed  and related
securities  available-for-sale  as of March 31, 2000, by type of security are as
follows:
<TABLE>
<CAPTION>

                      Principal   Unamortized     Unearned       Unrealized        Carrying
                      Balance       Premiums     Discounts       Gain/(Loss)         Value
                    -----------     --------     ---------      ------------      -----------
<S>                 <C>             <C>          <C>            <C>               <C>
Fixed Rate          $ 5,984,187     $      0     $  51,928      $   (138,917)     $ 5,793,342


Adjustable Rate      30,653,583      215,020         1,148          (143,032)      30,724,423
                    -----------     --------     ---------      ------------      -----------

                    $36,637,770     $215,020     $  53,076      $   (281,949)     $36,517,765
                    -----------     --------     ---------      ------------      -----------
</TABLE>

The carrying values and estimated market values of  mortgage-backed  and related
securities  held-to-maturity  as of March 31,  2000,  by type of security are as
follows:
<TABLE>
<CAPTION>
                                                                              Estimated
                    Principal    Unamortized    Unearned      Carrying         Market
                      Balance      Premiums     Discounts       Value          Value
                    ----------     -------     ----------     ----------     ----------
<S>                 <C>            <C>         <C>            <C>            <C>
Fixed Rate          $   49,365     $     0     $        0     $   49,365     $   49,071

Adjustable Rate      5,012,051      40,700          4,934      5,047,817      5,208,368
                    ----------     -------     ----------     ----------     ----------

                    $5,061,416     $40,700     $    4,934     $5,097,182     $5,257,439
                    ----------     -------     ----------     ----------     ----------

</TABLE>

The overall yield on the Company's  mortgage-backed  securities portfolios as of
March 31, 2000, was approximately 6.77%.
<PAGE>
NOTE 4 - CURRENT ACCOUNTING ISSUES

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

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

NOTE 5 - STOCK OPTION AND INCENTIVE PLAN

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

Options to  purchase  shares of common  stock of the  Company  may be granted to
selected directors,  officers and key employees.  The number of shares of common
stock  reserved for issuance under the stock option plan was equal to 121,519 or
10% of the total number of common shares issued pursuant to the conversion.  The
option  exercise  price  cannot  be less  than  the  fair  market  value  of the
underlying  common  stock as of the date of the option  grant,  and the  maximum
option term cannot exceed ten years.  Awards generally vest at a rate of 20% per
year beginning at the date of the grant. The Company uses treasury stock for the
exercise  of  options.  The  following  is  a  summary  of  changes  in  options
outstanding:

Options outstanding
     Balance, September 30, 1995                                        103,411
           Granted                                                          -0-
           Exercised at $14.125 per share                                (2,090)
           Forfeited and expired                                            -0-
                                                                       --------
Balance, September 30, 1996                                             101,321
           Granted                                                          -0-
           Exercised at $14.125 per share                                (1,056)
           Forfeited and expired                                            -0-
                                                                       --------
      Balance, September 30, 1997                                       100,276
                                                                       ========


On March 25, 1998, the Company  completed a 3 for 2 stock split in the form of a
50%  dividend.  As a result of the  split,  the number of  outstanding  options,
option price,  options  exercisable at year end, and shares available for future
grants were adjusted as follows:
<PAGE>
Options outstanding
     Balance, September 30, 1997                                        150,411
         Granted                                                            -0-
         Exercised at $9.42 per share                                    (1,568)
         Forfeited and expired                                              -0-
                                                                       --------

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

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

Options exercisable at March 31, 2000 under stock option plan           116,258
                                                                       ========

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

During the six months ended March 31, 2000, no options were  exercised,  issued,
or forfeited.

NOTE 6 - ADVANCES FROM FEDERAL HOME LOAN BANK

The  outstanding  advances from the FHLB consisted of the following at March 31,
2000:

                  Maturity                Balance             Rate

                  04/04/2000           $  4,500,000           5.91%
                  04/04/2000           $    500,000           5.91%
                  04/04/2000           $    500,000           6.00%
                  04/10/2000           $    500,000           6.11%
                  04/11/2000           $  3,545,000           5.86%
                  04/11/2000           $ 36,944,000           5.86%
                  12/31/2004           $    249,384           6.09%
                  01/03/2005           $    102,778           6.03%
                  01/01/2013           $    452,709           6.09%
                  01/01/2013           $    430,208           6.13%
                  02/01/2013           $    426,786           5.91%
                  03/03/2014           $    931,971           5.45%
                  04/01/2014           $    898,411           5.97%
                  05/01/2014           $  1,223,721           5.66%
                  06/01/2014           $    932,031           5.90%
                  07/01/2014           $    861,369           6.38%
                  08/01/2014           $    625,453           6.37%
                  09/01/2014           $    789,265           6.59%
                  10/01/2014           $    691,880           6.86%
                  11/03/2014           $  1,707,030           6.77%
                  12/01/2014           $    583,477           6.57%
                  01/01/2015           $    381,590           6.73%

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

                                   FORM 10-QSB

                                 March 31, 2000




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

GENERAL

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

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

The Company has expanded its product  lines to include  commercial  and consumer
loans, debit and credit cards, an ATM machine and cards, safe deposit boxes, and
a full range of business and personal  checking and deposit  accounts.  With the
introduction  of new products and  services,  the Company  opened an  additional
full-service office located in South Tyler in 1999.

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

FINANCIAL CONDITION

Total assets were $158.2 million at March 31, 2000, a $4.5 million increase from
the $153.7  million  reported at September 30, 1999,  the Company's  most recent
fiscal year end.  The  increase in total assets was the result of a $3.6 million

<PAGE>
increase  in  mortgage-backed  securities  available-for-sale,  a  $3.4  million
increase in loans  receivable and a $361,000  increase in investment  securities
available-for-sale  and.  The  increases  were  partially  offset by a  $710,000
decline in mortgage-backed  securities held to maturity,  a 1.7 million decrease
in  investment   securities   held  to  maturity  and  a  $556,000   decline  in
interest-earning deposits with banks.

At March 31, 2000,  loans  receivable  totaled $70.7 million,  compared to $67.3
million at September 30, 1999.

The Company's commercial and consumer loan portfolio increased to $6.4 March 31,
2000 from $2.6 million at September  30, 1999.  The increase was a direct result
of the  company's  new South  Broadway  location  and it's focus on this type of
lending.

The increase in the mortgage-backed securities  available-for-sale portfolio was
primarily  the result of the  Company's  decision  to  continue  its  program of
borrowing  funds from the FHLB and investing  the proceeds into  mortgage-backed
and  similar  securities  in an  effort  to  achieve  a  positive  margin on the
transaction. At March 31, 2000, the portfolio totaled $36.5 million, compared to
$32.9 million at September 30, 1999. At March 31, 2000, the average yield on the
securities  in the  program was  approximately  6.71% while the cost of the FHLB
advance was approximately 5.86%,  resulting in a pre-tax interest rate margin of
85 basis points.

The  purpose of the  program is to  leverage a portion of the  Company's  excess
capital and to achieve a rate of return on the  difference in the rate earned on
the  securities  and the cost of the  advances.  The  success of the  program is
dependent  upon several  factors,  including the  Company's  ability to purchase
adjustable  rate  securities that will maintain a positive margin above the FHLB
advance  rates.   The  Company  borrows  funds  from  the  FHLB  with  terms  of
approximately  thirty  days  and  invests  in  mortgage-backed  securities  with
interest rate adjustment  frequencies  that vary between one month and one year.
The  Company  intends  to  maintain  the size of the plan at it  current  level.
Alternatively,  the Company may decrease the size of the program, depending upon
its ability to increase its loans receivable portfolio.

The investment security available-for-sale  portfolio consists of corporate debt
securities.  The  corporate  debt  securities  have a fixed  rate and term.  The
Company invests only in investment grade corporate debt with varying  maturities
and ratings. All corporate debt securities have maturities of less than or equal
to six years. The yield on the investment security available-for-sale  portfolio
was 6.43% at March 31, 2000.

At March 31, 2000, the investment securities  held-to-maturity portfolio totaled
$28.5  million,  compared to $30.5  million at September  30, 1999. At March 31,
2000, the overall yield on the portfolio was  approximately  6.08%,  compared to
6.07% at September 30, 1999. At March 31, 2000,  the  portfolio  contained  $4.0
million in securities with remaining terms until maturity of less than one year,
$1.0 million with  remaining  maturities  of one through two years,  8.5 million
with  remaining  maturities  of two through  three years and $15.0  million with
remaining maturities of three through six years.  Approximately $24.5 million of
the investment securities are callable at the discretion of the issuer.

The Company's mortgage-backed securities held-to-maturity portfolio totaled $5.1
million at March 31, 2000,  compared to $5.8 million at September 30, 1999.  The
decrease in  mortgage-backed  securities  held-to-maturity  was primarily due to

<PAGE>
principal payments received on the portfolio during the period and the Company's
decision  to  increase  its  loan  receivable  and  mortgage-backed   securities
available-for-sale  portfolio.  The weighted  average yield on the portfolio was
approximately 7.168% at March 31, 2000.

Total  deposits  were $83.1  million at March 31, 2000, a $4.4 million  decrease
from the $87.5  million  reported at September 30, 1999.  The Company's  cost of
deposits was approximately 5.05% at March 31, 2000.

The Company  reported  $57.8  million in borrowed  funds at March 31,  2000,  an
increase of $12.7 million from the $45.1 million reported at September 30, 1999.
Approximately  $36.9  million  of the  borrowed  funds  were  used to  invest in
mortgage-backed securities available-for-sale. The advances had a remaining term
of less  than 30 days and had an  interest  rate of  5.86%.  Approximately  $9.6
million  was used to fund 15 year  loans at an average  rate of 6.26%,  with the
remaining  $1.4  million in  advances  used to fund a portion  of the  Company's
commercial   real  estate  loan   portfolio  at  a  weighted   average  cost  of
approximately 6.04%.

Stockholders' equity totaled $16.4 million at March 31, 2000, a decrease of $2.0
million from the $18.4 million  reported at September 30, 1999. The decrease was
primarily attributable to a $1.9 million increase in treasury stock, the payment
of cash dividends in the amount of $123,000.  The decrease was partially  offset
by net income of $146,562  reported for the six months ended March 31, 2000, and
a $58,000 decrease in deferred compensation.

At March 31, 2000,  the Company  reported a book value per share of $14.13 based
on 1,162,320 net outstanding shares. During the six months ended March 31, 2000,
the Company  repurchased 132,100 shares of treasury stock at an average price of
$14.25 per share.  The result was an  increase  in the number of shares  held as
treasury stock to 722,172 at an average cost of $12.28 per share.

RESULTS OF OPERATIONS

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

COMPARISON OF THE THREE MONTHS ENDED March 31, 2000
         AND March 31, 1999

General.  Net income for the three  months  ended  March 31, 2000 was $52,805 or
$.05 per share, a decrease of $4,574 from the $57,379 or $.04 per share reported
for the three  months  ended  March 31,  1999.  The  decrease  in net income was
attributable to a $17,000 decline in noninterest  income and a $17,000  increase
in total  non-interest  expense.  The  decline  in  noninterest  income  and the
increase in noninterest  expense was partially  offset by a $26,000  increase in
net interest income and a $4,000 decrease in income tax expense.

Net Interest  Income.  For the quarter ended March 31, 2000, net interest income
before provision for loan losses totaled  $820,000,  an increase of $26,000 from
the $794,000  reported for the quarter  ended March 31, 1999.  On an  annualized
basis,  the $820,000 in net interest income was  approximately  2.15% of average

<PAGE>
interest earning assets and 2.06% of average total assets. For the quarter ended
March 31, 1999, the $794,000 in net interest income was  approximately  2.48% of
average  interest  earning  assets and 2.37% of average  total  assets.  Average
interest earning assets were approximately  $152.7 million for the quarter ended
March 31, 2000, compared to $128.2 million for the quarter ended March 31, 1999.

The increase in net interest income was primarily due to an increase in interest
earning  assets from $129.0  million at March 31, 1999 to 151.9 million at March
31, 2000.  Also,  the yield on the  Company's  average  interest-earning  assets
increased  from  6.68% for the  quarter  ended  March 31,  1999 to 7.02% for the
quarter  ended March 31, 2000.  The increase was  partially due to the Company's
decision to begin  offering  consumer and  commercial  loans and the increase in
volume of such loans. In addition, the overall rise in interest rates has helped
increase the yield on interest earnings assets.

Total interest  income was $2.7 million for the quarter ended March 31, 2000, an
increase of $500,000  from the $2.2  million  reported  for the same  quarter in
1999.  Interest  income on  loans-receivable  totaled  $1.3  million or 7.68% of
average loans  receivable  balances  outstanding for the quarter ended March 31,
2000.  For  the  three  months  ended  March  31,  1999,   interest   income  on
loans-receivable  was approximately 7.74% of average loans receivable  balances.
The increase in the Company's  consumer and  commercial  loan  portfolio  helped
increase the overall yield of the portfolio. At March 31, 2000, the $6.4 million
in the portfolio was approximately 9.04%.

For the quarter  ended March 31, 2000,  the $1.0 million in interest  expense on
deposits was, on an annualized  basis,  approximately  4.80% of average interest
costing  deposits,  compared  to 4.78%  for the  same  quarter  in  1999.  On an
annualized basis, the $1.9 million in total interest  expense,  reported for the
quarter  ended  March 31,  2000,  was  approximately  5.36% of average  interest
costing liabilities outstanding for the quarter. For the quarter ended March 31,
1999,  the $1.4 million in total  interest  expense was  approximately  4.84% of
average interest costing  liabilities.  The Company's  dependence upon wholesale
sources to fund loans and  securities  has had the  effect of  increasing  total
interest expense.

Interest  income from  mortgage-backed  securities  available-for  sale  totaled
$639,000 for the three months ended March 31, 2000, compared to $312,000 for the
three months ended March 31, 1999.  The increase in interest  income is a direct
result of the increase in the average balance  outstanding during the comparable
quarters from $20.8 to $36.9  million.  Interest  income from this  portfolio is
part of the  Company's  plan to  borrow  funds  from  the  FHLB  and  invest  in
mortgage-related  securities in an effort to achieve a margin on the  difference
in the investment  yield and the cost of the borrowings from the FHLB. The yield
on the  portfolio was  approximately  6.71% at March 31, 2000.  [See  "Financial
Condition"]

Interest income from investment  securities  available-for-sale  totaled $43,000
for the three  months  ended March 31,  2000,  compared to $38,000 for the three
months ended March 31, 1999.

Interest  income  from  the  investment  securities  held-to-maturity  portfolio
totaled $556,000 for the three months ended March 31, 2000, compared to $418,000
for the same  quarter  in 1999.  The  increase  was  primarily  the result of an
increase in the average balance  outstanding in the portfolio from $25.6 million
for the three months ended March 31, 1999 to $29.5  million for the three months
ended March 31, 2000.
<PAGE>
Interest income from the mortgage-backed  securities  held-to-maturity portfolio
totaled $93,000 for the three months ended March 31, 2000,  compared to $138,000
for the same  period  in 1999.  Continued  cash  flow  from  prepayments  on the
adjustable  rate  securities in the portfolio was redirected  into the Company's
lending operations and its investment securities  held-to-maturity  portfolio to
replace  matured or called  investment  securities.  The result was a decline in
interest income from the portfolio.

Interest  paid to  depositors  totaled  $1.0  million for the three months ended
March 31,  2000,  down  $30,000 from the $1.0 million for the three months ended
March 31,  1999.  Average  deposit  balances  declined  $4.5  million from $89.5
million  for the quarter  ended March 31, 1999 to $85.0  million for the quarter
ended March 31, 2000.

Interest on FHLB  advances  was  $835,000  for the three  months ended March 31,
2000,  compared to  $306,000  for the same period in 1999.  The  increase  was a
direct result of the continued  increase in total FHLB advances in the Company's
program to match fund 15 year loans and securities with advances.

Provision  For Loan Losses.  The Company made  provision for loan losses of $402
during the quarter ended March 31, 2000 and none for the quarter ended March 31,
1999. [See - "Asset Quality"]

Noninterest  Income.  Noninterest  income  totaled  $58,000 for the three months
ended March 31, 2000, compared to $75,000 for the same period in 1999, a $17,000
decrease.

The decrease in noninterest income was the result of a decline in gains on sales
of  interest  earning  assets  of  $18,000  as fewer  loans  were  sold into the
secondary market.

Noninterest Expenses. Noninterest expenses totaled $789.000 for the three months
ended March 31, 2000,  compared to $772,000 for the three months ended March 31,
1999.

The  increase in  noninterest  expense  was the result of a $63,000  increase in
occupancy  and  equipment  expense from $69,000 for the three months ended March
31, 1999 to $132,000 for the three months ended March 31, 2000.  The increase in
occupancy and equipment  expense was the result of the new  full-service  office
opened for  business  in April  1999.  At March 31,  2000 the new  location  had
approximately $6.4 million in loans outstanding and $3.7 million in deposits.

Provision For Income Taxes.  The Company  incurred federal income tax expense of
$35,000 or 40.0% of pre-tax  income for the three  months  ended March 31, 2000,
compared to $40,000 or 40.8% of pre-tax  income for the three months ended March
31, 1999.

COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 2000
         AND MARCH 31, 1999

General.  For the six months  ended March 31,  2000,  the Company  reported  net
income of $147,000 or $.13 per common share and $.12 per common share - assuming
dilution,  compared  to  $207,000  or $.15 per common  share and $.15 per common
share - assuming  dilution for the six months ended March 31, 1999. The decrease
in net income was attributable to an $86,000 decrease in noninterest  income and
a $71,000  increase in  noninterest  operating  expenses,  which were  partially
offset by a $61,000  increase in net interest  income after  provisions for loan
losses and a $35,000 decrease in income tax expense.
<PAGE>
Net  Interest  Income.  For the six months  ended March 31,  2000,  net interest
income after  provisions  for loan losses  totaled $1.7 million,  an increase of
$61,000 from the $1.6 million  reported for the six months ended March 31, 1999.
On an annualized basis, the $1.7 million in net interest income after provisions
for loan  losses  for the  current  period  was  approximately  2.24% of average
interest  earning  assets and 2.15% of average total assets.  For the six months
ended March 31, 1999, the $1.6 million in net interest  income after  provisions
for loan losses was  approximately  2.59% of average interest earning assets and
2.50%  of  average  total  assets.   Average   interest   earning   assets  were
approximately  $150.0 million for the six months ended March 31, 2000,  compared
to $123.8 million for the six months ended March 31, 1999.

Total  interest  income was $5.3  million or 7.07% of average  interest  earning
assets for the six months  ended March 31,  2000,  compared  to $4.3  million or
6.91% of average  interest  earning  assets for the six months  ended  March 31,
1999. The increase in total interest  income was primarily  attributable  to the
increase  in average  outstanding  balances  of  interest  earning  assets.  The
increase  in average  yield on  interest  earning  assets was a result of rising
interest  rates and the  increase in  commercial  and  consumer  loans at higher
yields.

Interest  income on loans  receivable  totaled  $2.6  million for the six months
ended March 31,  2000 an increase  from the $2.4  million  reported  for the six
months ended March 31, 1999. Average loans receivable balance increased to $69.0
million for the six months  ended March 31, 2000 from $61.4  million for the six
months ended March 31, 1999.  For the six months ended March 31, 2000,  the $2.6
million in interest income on loans receivable was approximately 7.68%, compared
to 7.77% for the six months ended March 31, 1999.

Interest income from mortgage-backed  securities available-for sale totaled $1.2
million for the six months  ended March 31,  2000,  compared to $577,000 for the
six months ended March 31, 1999.  Interest income from this portfolio is part of
the   Company's   program   to  borrow   funds  from  the  FHLB  and  invest  in
mortgage-related  securities  in an effort to achieve a  positive  margin on the
difference in the investment yield and the cost of the borrowings.  At March 31,
2000, the Company had approximately $36.3 million invested in the program.  [See
"Financial Condition"]

Interest income on investment securities  held-to-maturity  totaled $937,000 for
the six months  ended March 31,  2000,  compared to $885,000  for the six months
ended March 31,  1999.  The  increase in interest  income on the  portfolio  was
primarily the result of a $946,000 increase in the average balance  outstanding.
For the six months  ended March 31, 2000,  the  $937,000 in interest  income was
approximately  6.38% of the average balance  outstanding,  compared to 6.23% for
the $885,000 reported for the six months ended March 31, 1999.

Interest income on mortgage-backed securities  held-to-maturity was $181,000 for
the six months  ended March 31,  2000,  compared to $317,000  for the six months
ended  March 31,  1999.  The  decline in interest  income on the  portfolio  was
primarily  the result of a decline in the  average  balance  outstanding  in the
portfolio  from $9.3  million  for the six months  ended  March 31, 1999 to $5.5
million for the six months ended March 31,  2000.  The Company  redirected  cash
flow from the portfolio into its lending operations,  its investment  securities
available-for-sale  portfolio,  and its investment  securities  held-to-maturity
portfolio.   The  adjustable  rate  feature  of  the  underlying  loans  in  the
securities,  the higher coupon rates on such loans,  and lower rates of interest
on fixed interest  mortgage loans have caused  borrowers on the underlying loans
to seek out  opportunities to refinance their mortgages.  The result has been an
increase in the cash flow from the  portfolio,  which resulted in the decline in
the average balances in the portfolio.
<PAGE>
Interest  expense was $3.6 million for the six months  ended March 31, 2000,  an
increase of $937,000  from the $2.7  million  reported  for the six month period
ended  March 31,  1999.  An increase in average  interest  costing  liabilities,
including  advances from the FHLB,  from $107.8 million for the six months ended
March  31,  1999 to $134.7  million  for the six  months  ended  March 31,  2000
primarily  accounted for the increase in interest  expense.  The $3.6 million in
interest  expense  reported  for the six month  period  ended March 31, 2000 was
approximately 5.38% of average interest costing  liabilities,  compared to 4.98%
for the same period in 1999.

Noninterest  Income.  Noninterest  income was  $118,000 for the six months ended
March 31,  2000,  compared to $203,000  for the six months ended March 31, 1999.
The  decrease  was  directly  attributable  to fewer  gains on sales of interest
earning assets, and loan origination fees as mortgage lending activity decreased
with rising interest rates.  Losses on sales on interest  earning assets totaled
$23,000 for the six month period ended March 31, 2000,  compared to $105,000 for
the six months ended March 31, 1999.  Loan  origination and commitment fees were
$20,000 for the six months ended March 31, 2000, compared to $47,000 for the six
months ended March 31, 1999.

Noninterest  Expense.  Noninterest  expense was reported as $1.6 million for the
six month period ended March 31, 2000, a $71,000  increase from the $1.5 million
reported for the six months ended March 31, 1999.

The  increase  in  noninterest  expense  was  primarily  the result of a $39,000
increase in  compensation  and  benefits  expense  from $1.0 million for the six
months  ended March 31, 1999 to $1.1  million for the six months ended March 31,
2000. The increase in  compensation  and benefits  expense was  essentially  the
result of additional compensation for additional staff employed at the Company's
new office location.  Also,  additional  expenses associated with the funding of
the Company's  defined benefit pension plan and additional  expenses  associated
with the Company's  Employee Stock Ownership Plan accounted for a portion of the
increase.

Occupancy and equipment  expense totaled $260,000 for the six months ended March
31, 2000,  compared to $115,000  for the six months  ended March 31,  1999.  The
increase was attributable to additional  expenses associated with the opening of
the new full-service office.

Provision For Income Taxes.  The Company  incurred federal income tax expense of
$91,000 or 38.2% of pre-tax  income for the six  months  ended  March 31,  2000,
compared to $125,000 or 37.7% of pre-tax  income for the six months  ended March
31, 1999.

ASSET QUALITY

At March 31, 2000, the Company's  non-performing assets totaled $182,000 or .12%
of total  assets,  compared to $768,000 or .50% of total assets at September 30,
1999.  At March 31,  2000,  non-performing  assets were  comprised  of eight (8)
loans, the largest of which was $60,000, secured by a single family dwelling.

Non-performing  loans  at  March  31,  2000  equaled  $182,000  or .26% of loans
receivable,  compared to $768,000 or 1.14% of loans  receivable at September 30,
1999.

Classified  assets  totaled  $711,000 or .49% of total assets at March 31, 2000,
compared to $1.1 million or .71% of total assets at September 30, 1999.
<PAGE>
Classified assets and non-performing assets differ in that classified assets may
include loans less than ninety (90) days delinquent.  Also, assets guaranteed by
government agencies such as the Veterans  Administration and the Federal Housing
Administration  are not  included  in  classified  assets  but are  included  in
non-performing  assets.  All classified assets at March 31, 2000, were deemed to
be  "substandard".  No assets were  classified  "doubtful"  or "loss" as of such
date.

The Company's  allowance for loan losses  totaled  $277,899 at March 31, 2000, a
slight  increase from the $270,039 at September 30, 1999. The allowance for loan
losses as a percentage  of loans  receivable  equaled .39% at March 31, 2000 and
 .40% at September 30, 1999.

LIQUIDITY AND CAPITAL RESOURCES

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

The  Association  uses its liquidity and capital  resources  principally to meet
ongoing   commitments  to  fund  maturing   certificates  of  deposit  and  loan
commitments,  maintain liquidity and pay operating expenses.  At March 31, 2000,
the Association had outstanding  commitments to extend credit on $4.8 million of
real estate loans.

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

Total  stockholders'  equity equaled $16.4 million at March 31, 2000, a decrease
of $2.0  million from the $18.4  million  reported at  September  30, 1999.  The
decrease was the result of the $1.9 increase in treasury  stock and the $122,837
cash dividend  paid during the quarter.  The decrease was offset by the $146,562
net income  reported  for the three month  period  ended March 31,  2000,  and a
$58,191 decrease in deferred compensation.

As of March 31, 2000, the Company's  reported book value per share,  using total
stockholders'  equity of $16.4 million (net of the cost of unallocated  ESOP and
RRP shares) and 1,162,320  outstanding  shares of common stock (the total issued
shares including unallocated ESOP and RRP shares, less treasury shares), equaled
$14.13 per share.

Subsequent  to the quarter  ended March 31,  2000,  the  Company  announced  its
intention  to pay a cash  dividend  of  $.05  per  share  on May  24,  2000,  to
stockholders of record at May 9, 2000.

Under the Financial  Institutions  Reform,  Recovery and Enforcement Act of 1989
("FIRREA"),  Congress  imposed  a three  part  capital  requirement  for  thrift
institutions.  At March 31, 2000, the Association's  actual and required capital
amounts under each of the three requirements were as follows:

- Tangible Capital  (stockholders'  equity) was $15.5 million or 9.765% of total
assets, exceeding the minimum requirement of 1.5% by $13.1 million.

- Core  Capital  (Tangible  capital plus  certain  intangible  assets) was $15.5
million or 9.765% of total assets,  exceeding the minimum requirement of 4.0% by
$9.1 million.
<PAGE>
- Risk-based  Capital (Core  capital plus general loan and valuation  allowances
less an adjustment for  capitalized  mortgage  servicing  rights)  equaled $15.7
million of 23.984% of risk weighted assets, exceeding the minimum requirement of
8.0% of risk weighted assets by $10.5 million.

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


YEAR 2000 ISSUE

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

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

The  Company  has  undergone  three  examinations  from its  primary  regulatory
authority,  the OTS. The Company received satisfactory ratings on all exams. The
Company  experienced no known problems or business  interruptions as a result of
the century date change.

FORWARD-LOOKING STATEMENTS

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

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

<PAGE>
                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 MARCH 31, 2000


                           PART II - OTHER INFORMATION

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

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

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

     None

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

     None

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

     None

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

     None

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

        The following exhibits are filed herewith:

         Exhibit 11.0 - Computation of Earnings Per Share

         Exhibit 27.0 - Financial Data Schedule

      (b)  Reports on Form 8-K

         During the quarter ended March 31, 2000,  the Company filed a report on
         Form 8-K on February 7, 2000 to report the issuance of a press  release
         dated February 7, 2000,  announcing the Company's  intention to pay, on
         February 23,  2000,  a cash  dividend of $.05 per share for the quarter
         ended December 31, 1999, to stockholders of record on February 8, 2000.

         During the quarter ended March 31, 2000,  the Company filed a report on
         Form 8-K on February 7, 2000, to report the issuance of a press release
         dated  February 7, 2000,  announcing  the  Company's  earnings  for the
         quarter ended December 31, 1999.

<PAGE>

                                   SIGNATURES

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


                                    East Texas Financial Services, Inc.


Date:  May 9, 2000                 /s/ Gerald W. Free
                                   ------------------
                                   Gerald W. Free
                                   Vice Chairman, President and CEO
                                   (Principal Executive Officer)


Date:  May 9, 2000                 /s/  Derrell W. Chapman
                                   -----------------------
                                   Derrell W. Chapman
                                   Vice President/COO/CFO
                                   (Principal Financial and Accounting Officer)