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 December 31, 1999

                                       OR

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

              For the transition period from _______ to _______.


                         Commission file number 0-24848


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

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

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

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

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


         The number of shares of the registrant's  common stock ($.01 par value)
outstanding as of December 31, 1999, was 1,162,320.
<PAGE>
                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                December 31, 1999

                                      INDEX



Part I - Financial Information

     Item 1.  Financial Statements

         Consolidated Statements of Financial Condition, December 31, 1999
         (Unaudited) and September 30, 1999 .................................. 4

         Consolidated Statements of Income, (Unaudited) three months ended
         December 31, 1999, and December 31, 1998............................. 5

         Consolidated Statement of Changes in Stockholders' Equity, (Unaudited)
         three months ended December 31, 1999................................. 6

         Consolidated Statements of Cash Flows, (Unaudited) three months ended
         December 31, 1999, and December 31, 1998............................. 7

         Notes to (Unaudited) Consolidated Financial Statements,
         December 31, 1999 ................................................... 9

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

Part II - Other Information

     Item 1.  Legal Proceedings ..............................................22

     Item 2.  Changes In Securities ..........................................22

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

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

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

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

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

                                  Page 2 of 23
<PAGE>
                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                December 31, 1999

PART I - FINANCIAL INFORMATION

     Item 1 - Financial Statements

East Texas Financial  Services,  Inc. (the "Company") was formed in September of
1994 for the  purpose  of  acquiring  all of the common  stock of First  Federal
Savings and Loan Association of Tyler (the  "Association"),  concurrent with its
conversion from the mutual to stock form of ownership. The Company completed its
initial public stock offering of 1,215,190 shares of $.01 par value common stock
on January 10,  1995.  The Company  utilized  approximately  one half of the net
stock  sale  proceeds  to  acquire  all  of  the  common  stock  issued  by  the
Association.  For additional  discussion of the Company's formation and intended
operations,  see the Form S-1 Registration  Statement (No.  33-83758) filed with
the Securities and Exchange  Commission and the Company's  annual report on Form
10-KSB  for the  fiscal  year  ended  September  30,  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 three months ended  December 31, 1998 was 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 at December 31,
1998 and was restated and added to the Company's general valuation  allowance at
the September 30, 1999 audit.

                                  Page 3 of 23
<PAGE>
<TABLE>
<CAPTION>
                       EAST TEXAS FINANCIAL SERVICES, INC.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                                                  December 31, 1999   September 30, 1999
                                                                  -----------------   ------------------
                                                                       (Unaudited)
<S>                                                                  <C>                <C>
                  ASSETS

Cash and due from banks                                              $   1,163,132      $   1,019,937
Interest-bearing deposits with banks                                     2,937,708            974,627
Interest-earning time deposits with financial institutions               1,779,000          2,461,617
Federal funds sold                                                               0                  0
Investment securities available-for-sale                                 6,402,048          5,918,750
Mortgage-backed securities available-for-sale                           37,328,454         32,893,809
Investment securities held-to-maturity (estimated market
     value of $27,704,425  at December 31, 1999, and
     $29,948,866 at September 30, 1999)                                 28,487,720         30,481,413
Mortgage-backed securities held-to-maturity (estimated
     market value of $5,354,295 at December 31, 1999
     and $5,949,914 at September 30, 1999)                               5,270,500          5,806,975
Loans receivable, net of allowance for credit losses of $270,084
     at December 31, 1999 and $270,039 at September 30, 1999            68,497,448         67,250,334
Accrued interest receivable                                              1,167,089          1,167,245
Federal Home Loan Bank stock, at cost                                    2,760,800          2,283,000
Premises and equipment                                                   2,601,483          2,607,213
Foreclosed real estate, net of allowance of $-0-                             2,966                  0
Mortgage servicing rights                                                  263,800            266,010
Other assets                                                               993,557            593,991
                                                                     -------------      -------------

     Total Assets                                                    $ 159,655,705      $ 153,724,921
                                                                     =============      =============
     LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
     Noninterest deposits                                            $   3,927,984      $   2,021,914
     Interest-bearing deposits                                          82,408,019         85,517,925
                                                                     -------------      -------------
         Total deposits                                                 86,336,003         87,539,839

     FHLB advances                                                      54,472,684         45,057,877
     Notes payable to other banks                                        1,500,000                  0
     Advances from borrowers for taxes and insurance                       110,600            823,755
     Federal income taxes
           Current                                                          43,193                -0-
           Deferred                                                        120,458            108,184
     Accrued expenses and other liabilities                                477,731          1,775,938
                                                                     -------------      -------------
           Total liabilities                                           143,060,669        135,305,593
                                                                     -------------      -------------

Stockholders' equity:
     Preferred stock, $0.01 par value, 500,000
        shares authorized, none outstanding
     Common stock, $0.01 par value, 5,500,000 shares authorized,
        1,884,492 shares issued and 1,162,320 outstanding                   18,845             18,845
     Additional paid-in-capital                                         12,397,167         12,397,167
     Deferred compensation - RRP shares                                    (67,889)           (96,985)
     Unearned employee stock ownership plan shares                        (442,059)          (442,059)
     Unrealized gain/(loss) available-for-sale securities (net)           (148,174)          (148,174)
     Retained earnings (substantially restricted)                       13,704,428         13,675,391
     Treasury stock, 722,172 shares at cost                             (8,867,282)        (6,984,857)
                                                                     -------------      -------------

           Total stockholder's equity                                   16,595,036         18,419,328
                                                                     -------------      -------------

           Total liabilities and stockholders' equity                $ 159,655,705      $ 153,724,921
                                                                     =============      =============

</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                  Page 4 of 23
<PAGE>
<TABLE>
<CAPTION>
                       EAST TEXAS FINANCIAL SERVICES, INC.

                        CONSOLIDATED STATEMENTS OF INCOME

                                                              Three Months
                                                           Ended December 31,
                                                              (Unaudited)
                                                         1999             1998
                                                     ----------------------------
<S>                                                  <C>              <C>
INTEREST INCOME
   Loans receivable:
     First Mortgage                                  $ 1,143,396      $ 1,122,187
     Consumer and other loans                            169,390           76,009
   Securities available for sale:
     Investment securities                                37,159           14,535
     Mortgage-backed securities                          577,956          264,320
   Securities held to maturity:
     Investment securities                               582,503          467,306
     Mortgage-backed securities                           88,002          178,700
   Deposits with banks                                    23,621           33,083
                                                     -----------      -----------

       Total interest income                           2,622,027        2,156,140
                                                     -----------      -----------

INTEREST EXPENSE

   Deposits                                            1,021,580        1,083,531
   FHLB advances                                         728,342          251,218
   Interest expense other bank borrowings                 14,688                0
                                                     -----------      -----------

       Total interest expense                          1,764,610        1,334,749
                                                     -----------      -----------

       Net interest income before
          provision for loan losses                      857,417          821,391

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

       Net interest income after
         provision for loan losses                       857,417          821,391
                                                     -----------      -----------

NONINTEREST INCOME
   Gain(loss) on sale of interest-earning assets          12,208           76,476
   Loan origination and commitment fees                   11,959           23,608
   Loan servicing fees                                    14,917           10,783
   Gain on foreclosed real estate                           (410)           2,370
   Other                                                  21,225           15,462
                                                     -----------      -----------

       Total noninterest income                           59,899          128,699
                                                     -----------      -----------

NONINTEREST EXPENSE
   Compensation and benefits                             587,853          510,075
   Occupancy and equipment                               112,561           72,605
   SAIF deposit insurance premium                          2,091           12,984
   Loss on foreclosed real estate                              0            2,069
   Other                                                  65,585          116,536
                                                     -----------      -----------

       Total noninterest expense                         768,090          714,269
                                                     -----------      -----------

Income (loss) before provision for income taxes          149,226          235,821

Income tax expense (benefit)                              55,468           85,790
                                                     -----------      -----------

NET INCOME (LOSS)                                    $    93,758      $   150,031
                                                     ===========      ===========


Earnings per common share and earnings  per
   common share - assuming dilution                  $       .08      $       .11
</TABLE>

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

                                  Page 5 of 23
<PAGE>
                       EAST TEXAS FINANCIAL SERVICES, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                   (UNAUDITED)

THREE MONTHS ENDED
December 31, 1999
<TABLE>
<CAPTION>

                                     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                                                                                              93,758
     Unrealized holding gains

Comprehensive income


Deferred compensation
     amortization                                       29,096

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

Payment of cash dividends                                                                                   (64,721)

Balance December 31, 1999            $12,416,012      $(67,889)      $(442,059)        $(148,174)       $13,704,428   $ (8,867,282)
                                     ===========      ========       =========         =========        ===========   ============

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

Comprehensive income:
     Net Income                            93,758               93,758
     Unrealized holding gains
                                         --------
Comprehensive income                     $ 93,758
                                         ========

Deferred compensation
     amortization                                               29,096

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

Payment of cash dividends                                      (64,721)

Balance December 31, 1999                                   16,595,036
                                                            ==========
</TABLE>

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

                       Page 6 of 23
<PAGE>
<TABLE>
<CAPTION>
                       EAST TEXAS FINANCIAL SERVICES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
                                                                               For the Three Months Ended
                                                                                       December 31,
                                                                                  1999               1998
                                                                             -------------      -------------
<S>                                                                          <C>                <C>
Cash flows from operating activities:
     Net income                                                              $      93,758      $     175,771
     Adjustments to reconcile net income to net cash
        provided by operating activities:
         Amortization of deferred loan origination fees                             (1,003)            (1,830)
         Amortization of premiums and discounts on investment
            securities, mortgage-backed securities, and loans                       13,017             39,270
         Amortization of deferred compensation                                      29,095             29,095
         Compensation charge related to release of ESOP shares                      21,892             14,590
         Depreciation                                                               41,069             23,095
         Deferred income taxes                                                      12,275             16,946
         Stock dividends on FHLB stock                                             (37,100)           (14,500)
         Origination of mortgage servicing rights                                  (11,661)           (57,636)
         Amortization of mortgage servicing rights                                  13,870             24,784
         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                                                                   (548)           (18,841)
              Loans held for sale                                                        0                  0
         Proceeds from loan sales                                                  990,992          4,443,332
         Originations of loans held for sale                                             0                  0
         Proceeds from sale of fixed assets                                              0                  0
         (Increase) decrease in:
              Accrued interest receivable                                             (156)            39,320
              Other assets                                                        (402,533)           728,223
              Accrued loan loss                                                          0                  0
         Increase (decrease) in:
              Federal income tax payable                                            43,193             84,550
              Accrued expenses and other liabilities                            (1,298,207)          (885,063)
         Capitalized interest on time deposits                                           0                  0

Net cash provided (used) by operating activities                                  (492,047)         4,643,175
                                                                             -------------      -------------

</TABLE>

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

                                  Page 7 of 23
<PAGE>
                       EAST TEXAS FINANCIAL SERVICES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                               For the Three Months Ended
                                                                                       December 31,
                                                                                  1999               1998
                                                                             -------------      -------------
<S>                                                                          <C>                <C>
Cash flows from investing activities
     Net decrease (increase) in fed funds sold                                           0            129,187
     Proceeds from maturity of time deposits                                       682,617                  0
     Proceeds from maturities of obligations - U.S. Govt
        and agencies held to maturity                                            2,000,000          5,225,000
     Purchases of FHLB stock                                                      (439,900)          (340,600)
     Purchases of investment securities available-for-sale                        (485,930)                 0
     Purchases of mortgage-backed securities available-for-sale                 (5,208,739)        (8,005,395)
     Principal payments on mortgage-backed securities available for sale           760,792          1,414,236
     Principal payments on mortgage-backed securities held to maturity             533,085          1,463,129
     Net originations and principal collections on loans                        (2,259,551)        (4,013,234)
     Proceeds from sale of foreclosed real estate                                        0             32,432
         Expenditures for premises and equipment                                   (35,339)          (175,906)
                                                                             -------------      -------------

Net cash provided (used) by investing activities                                (4,452,965)        (4,271,151)
                                                                             -------------      -------------

Cash flows from financing activities: Net increase (decrease) in:
         Non-interest bearing deposits, savings, NOW accounts                    1,906,070          2,087,281
           Time deposits                                                        (3,109,906)          (971,398)
         FHLB Advances                                                         131,125,206         53,762,000
         Repayment of FHLB Advances                                           (121,710,399)       (46,908,498)
         Other borrowed money                                                    1,500,000                  0
         Repayment of other borrowed money                                               0                  0
         Advances from borrowers for taxes and insurance                          (713,155)          (784,431)
     Dividends paid to stockholders                                                (64,103)           (71,968)
     Purchase of treasury stock                                                 (1,882,425)                 0
     Proceeds from sale of common stock                                                  0                  0
                                                                             -------------      -------------

Net cash provided (used) by financing activities                                 7,051,288          7,112,986
                                                                             -------------      -------------


Net increase (decrease) in cash and cash equivalents                             2,106,276          7,485,010

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

Cash and cash equivalents at end of the period                               $   4,100,840      $   9,182,068
                                                                             =============      =============
Supplemental disclosure:
     Cash paid for:
         Interest on deposits                                                $     612,398      $     555,881
         Interest on FHLB advances and other borrowed funds                  $     743,030      $     251,218
         Income taxes                                                        $           0      $      60,707

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

     Loans charged off to loan loss reserves                                 $           0      $           0

     Recoveries credited to loan loss reserves                               $          45      $           0
</TABLE>

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

                                  Page 8 of 23
<PAGE>
                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

             NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999

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

NOTE 1 - BASIS OF PRESENTATION

The  financial  statements  presented  in this report have been  prepared by the
Company  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission for interim  reporting and include all adjustments  which are, in the
opinion  of  management,   necessary  for  fair  presentation.  These  financial
statements  have  not  been  audited  by  an  independent  accountant.   Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or  omitted  pursuant  to such  rules  and  regulations  for  interim
reporting.  The Company  believes that the  disclosures are adequate to make the
information not misleading.  However,  these financial statements should be read
in conjunction  with the financial  statement and notes thereto  included in the
Company's  Annual  Report on Form 10-KSB for the year ended  September 30, 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 ended December 31, 1999 and 1998,
has been computed based on net income divided by the weighted  average number of
common shares outstanding during the period. For the three months ended December
31, 1999 and 1998,  the weighted  average number of shares  outstanding  totaled
1,162,320 and 1,464,056, shares respectively.

Earnings  per  common  share - assuming  dilution,  for the three  months  ended
December 31, 1999 and 1998, has been computed based on net income divided by the
weighted average number of common shares outstanding.  In addition,  it includes
the effects of all dilutive potential common shares that were outstanding during
the period.  For the three months ended December 31, 1999 and 1998, the weighted
average number of shares  outstanding for earnings per share - assuming dilution
totaled 1,226,999 and 1,394,533, 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 period ended December 31, 1999 and 1998.

                                  Page 9 of 23
<PAGE>
NOTE 3 - SECURITIES

The  carrying  values  and  estimated  market  values of  investment  securities
available-for-sale as of December 31, 1999, by type of security are as follows:
<TABLE>
<CAPTION>
                                         Principal          Unamortized          Unearned            Unrealized            Carrying
                                          Balance             Premiums           Discounts           Gain/(Loss)            Value
                                         ----------          ----------          ----------          ----------           ----------
<S>                                      <C>                 <C>                 <C>                 <C>                  <C>
Fixed Rate                               $6,500,000          $   70,414          $   50,927          $ (117,439)          $6,402,048

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

                                         $6,500,000          $   70,414          $   50,927          $ (117,439)          $6,402,048
                                         ----------          ----------          ----------          ----------           ----------
</TABLE>

The  weighted  average  yield  on  the  investment  security  available-for-sale
portfolio was 6.43% for the quarter ended December 31, 1999.

The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
                                                    Gross        Gross        Estimated
                                    Amortized     Unrealized    Unrealized      Market
                                      Cost          Gains        Losses         Value
                                   -----------   -----------   -----------   -----------
<S>                                <C>           <C>           <C>           <C>
Debt securities:

      U. S. government agency       28,487,720           820       784,115    27,704,425
                                   -----------   -----------   -----------   -----------

           Total debt securities   $28,487,720   $       820   $   784,115   $27,704,425
                                   -----------   -----------   -----------   -----------
</TABLE>
<PAGE>
The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity  as of December 31,  1999,  by  contractual  maturity are shown
below:

                                                                      Estimated
                                                      Amortized         Market
                                                        Cost            Value
                                                     -----------     -----------
Due in one year or less                              $ 3,997,721     $ 3,992,030


Due after one year through two                                 0               0
years

Due after two years through three years
                                                       3,992,659       3,914,680

Due after three years through six years
                                                      20,497,340      19,797,715
                                                     -----------     -----------

       Total debt securities                         $28,847,720     $27,704,425
                                                     -----------     -----------

As of December 31, 1999,  approximately  $24,500,000  of the securities had call
options  exercisable  at the  discretion  of the issuer.  Such call dates varied
between September 1999 and June 2001.

                                  Page 10 of 23
<PAGE>
As of December 31, 1999, 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 5.99%.

The carrying values and estimated market values of  mortgage-backed  and related
securities  available-for-sale  as of December 31, 1999, by type of security are
as follows:
<TABLE>
<CAPTION>
                    Principal     Unamortized     Unearned       Unrealized       Carrying
                     Balance        Premiums      Discounts      Gain/(Loss)       Value
                  ------------   ------------   ------------    ------------    ------------
<S>               <C>            <C>            <C>             <C>             <C>
Fixed Rate        $  6,316,177   $          0   $     59,648    $    (31,593)   $  6,224,936

Adjustable Rate     30,946,099        234,151          1,258         (75,474)     31,103,518
                  ------------   ------------   ------------    ------------    ------------

                  $ 37,262,276   $    234,151   $     60,906    $   (107,067)   $ 37,328,454
                  ------------   ------------   ------------    ------------    ------------
</TABLE>

The carrying values and estimated market values of  mortgage-backed  and related
securities  held-to-maturity as of December 31, 1999, by type of security are as
follows:

                                                                       Estimated
                   Principal   Unamortized   Unearned     Carrying       Market
                    Balance     Premiums     Discounts     Value         Value
                  ----------   ----------   ----------   ----------   ----------

Fixed Rate        $   70,968   $        0   $        0   $   70,968   $   70,691

Adjustable Rate    5,160,377       44,877        5,722    5,199,532    5,283,604
                  ----------   ----------   ----------   ----------   ----------

                  $5,231,345   $   44,877   $    5,722   $5,270,500   $5,354,295
                  ----------   ----------   ----------   ----------   ----------

The overall yield on the Company's  mortgage-backed  securities portfolios as of
December 31, 1999, was approximately 6.45%.

NOTE 4 - CURRENT ACCOUNTING ISSUES

SFAS No. 130 In June of 1997, the Financial  Accounting  Standards  Board issued
Statement  of  Financial   Accounting  Standards  (SFAS  )  No.  130,  Reporting
Comprehensive  Income.  SFAS No. 130  establishes  standards  for  reporting and
displaying  comprehensive income and its components in general purpose financial
statements.  Comprehensive  income  includes net income and several  other items
that  current  accounting  standards  require  to be  recognized  outside of net
income.

SFAS No. 130 requires companies to display comprehensive income in its financial
statements,  to classify items of comprehensive  income by their nature in their
financial statements and to display accumulated balances of comprehensive income
in stockholders'  equity  separately from retained earnings and addition paid-in
capital.

The Statement is effective for fiscal years  beginning  after December 31, 1997.
The Company adopted the Statement as required.

                                  Page 11 of 23
<PAGE>
SFAS No. 131 In June of 1997, the Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting  Standards  (SFAS) No. 131,  Disclosure About
Segments of and  Enterprise  and Related  Information.  The  Statement  requires
entities  to report  certain  information  about their  operating  segments in a
complete  set of  financial  statements.  It  requires  them to  report  certain
enterprise-wide  information  about their  products and services,  activities in
different  geographic  regions  and their  reliance on major  customers,  and to
disclose certain segment information in their interim financial statements.

The Statement is effective for fiscal years  beginning  after December 15, 1997.
The Company  has  determined  that it has no  reporting  obligations  under this
statement. The Company adopted the Statement as required.

SFAS No. 132 In February  of 1998,  the  Financial  Accounting  Standards  Board
issued  Statement of Financial  Accounting  Standard (SFAS) No. 132,  Employers'
Disclosures  about  Pensions  and Other  Postretirement  Benefits.  SFAS No. 132
revises current  disclosures  for employers'  disclosures for pensions and other
postretirement  benefit plans. It standardizes  the disclosure  requirements for
these plans to the extent possible, and it requires additional information about
changes in the  benefit  obligations  and the fair value of plan assets that are
expected  to  enhance  financial  analysis.  It does not change  measurement  or
recognition standards for these plans.

SFAS No. 132 is effective for fiscal years  beginning  after  December 15, 1997.
The Company  anticipates  changing the  disclosure  requirements  of its defined
benefit  pension  plan as a result of the  statement.  The  Company has no other
postretirement benefit plans. The Company adapted the statement as required.

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

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

NOTE 5 - STOCK OPTION AND INCENTIVE PLAN

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

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

Options outstanding

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


                                  Page 12 of 23
<PAGE>
On March 25, 1998, the Company  completed a 3 for 2 stock split in the form of a
50%  dividend.  As a result of the  split,  the number of  outstanding  options,
option price,  options  exercisable at year end, and shares available for future
grants were adjusted as follows:

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 December 31, 1999 under stock option plan        116,258
                                                                       ========

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

During the three months ended  December  31,  1999,  no options were  exercised,
issued, or forfeited.
<PAGE>

NOTE 6 - ADVANCES FROM FEDERAL HOME LOAN BANK

The  outstanding  advances from the FHLB  consisted of the following at December
31, 1999:

         Maturity                    Balance                   Rate
         --------                    -------                   ----

         01/03/2000                $ 2,000,000                 5.30%
         01/13/2000                $37,612,000                 5.78%
         01/13/2000                $ 3,246,000                 5.78%
         12/31/2004                $   251,292                 6.09%
         01/03/2005                $   107,325                 6.03%
         01/01/2013                $   458,488                 6.09%
         01/01/2013                $   435,684                 6.13%
         02/01/2013                $   432,257                 5.91%
         03/03/2014                $   962,863                 5.45%
         04/01/2014                $   927,657                 5.97%
         05/01/2014                $ 1,263,791                 5.66%
         06/01/2014                $   962,247                 5.90%
         07/01/2014                $   888,833                 6.38%
         08/01/2014                $   645,341                 6.37%
         09/01/2014                $   814,132                 6.59%
         10/01/2014                $   713,452                 6.86%
         11/03/2014                $ 1,760,158                 6.77%
         12/01/2014                $   601,711                 6.57%
         01/01/2014                $   389,453                 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 13 of 23
<PAGE>
                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                December 31, 1999

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

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

GENERAL

The principle business of the Company is that of a community-oriented  financial
institution  attracting deposits from the general public and using such deposits
to originate  one- to  four-family  residential  loans and, to a lesser  extent,
commercial  real  estate,  one-  to  four-family   construction,   multi-family,
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 $159.7  million at December 31, 1999, a $6.0 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 $4.4
million increase in mortgage-backed  securities  available-for-sale,  a $483,000
increase in investment securities available-for-sale, a $2.0 million increase in
interest-earning  deposits  with  banks  and a $1.2  million  increase  in loans
receivable.  The  increases  were  partially  offset by a  $537,000  decline  in
mortgage-backed  securities  held to  maturity  and a 2.3  million  decrease  in
investment securities held to maturity.

At December 31, 1999, loans receivable totaled $68.5 million,  compared to $67.3
million at September 30, 1999.  The increase in loans  receivable  was partially
the result of the Company's decision to continue to place all of it's 15

                                  Page 14 of 23
<PAGE>
year and shorter  maturity  mortgage  loans into  portfolio.  In  addition,  the
Company's  commercial and consumer loan portfolio increased to $4.4 December 31,
1999 from $2.6 million at September 30, 1999.

The Company  continued  to offer home equity  loans and as of December 31, 1999,
the Company had  approximately  $4.1 million in home equity and home improvement
loans outstanding.

The increase in the mortgage-backed securities  available-for-sale portfolio was
primarily  the result of the  Company's  decision  to  continue  its  program of
borrowing  funds from the FHLB and investing  the proceeds into  mortgage-backed
and  similar  securities  in an  effort  to  achieve  a  positive  margin on the
transaction. At December 31, 1999, the portfolio totaled $37.3 million, compared
to $32.9 million at September 30, 1999. At December 31, 1999,  the average yield
on the securities in the program was  approximately  6.39% while the cost of the
FHLB  advance was  approximately  5.78%,  resulting in a pre-tax  interest  rate
margin of 61 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 will be
dependent  upon several  factors,  including the  Company's  ability to purchase
adjustable  rate  securities that will maintain a positive margin above the FHLB
advance  rates.   The  Company  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.
Subject to favorable interest rates, 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 invoice  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 December 31, 1999.

At December 31,  1999,  the  investment  securities  held-to-maturity  portfolio
totaled  $28.5  million,  compared to $30.5  million at September  30, 1999.  At
December 31, 1999, the overall yield on the portfolio was  approximately  6.08%,
compared to 6.07% at September  30, 1999.  At December 31, 1999,  the  portfolio
contained $4.0 million in securities with remaining terms until maturity of less
than one year, $4.0 million with remaining maturities of two through three years
and  $20.5  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,  and the call dates range from  September 1999 to June
2001.

The Company's mortgage-backed securities held-to-maturity portfolio totaled $5.2
million at December  31, 1999,  compared to $5.8 million at September  30, 1999.
The decrease in mortgage-backed securities held-to-maturity was primarily due to
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 6.86% at December 31, 1999.

Total deposits were $86.3 million at December 31, 1999, a $1.2 million  decrease
from the $87.5  million  reported at September 30, 1999.  The Company's  cost of
deposits was approximately 4.92% at December 31, 1999.

The Company  reported  $54.5 million in borrowed  funds at December 31, 1999, an
increase of $9.8 million from the $45.1 million  reported at September 30, 1999.
Approximately  $37.3  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  5.78%.  Approximately  $9.9
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%.

                                  Page 15 of 23
<PAGE>
Stockholders'  equity  totaled $16.6 million at December 31, 1999, a decrease of
$1.8 million from the $18.4 million reported at September 30, 1999. The decrease
was primarily  attributable to the $1.9 million  increase in treasury stock, the
payment of cash  dividends in the amount of $65,000.  The decrease was partially
offset by net income of $93,758 reported for the three months ended December 31,
1999, and a $29,000 decrease in deferred compensation.

At December  31,  1999,  the  Company  reported a book value per share of $14.28
based on  1,162,320  net  outstanding  shares.  During  the three  months  ended
December 31, 1999, 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 December 31, 1999
         AND December 31, 1998

General.  Net income for the three months ended December 31, 1999 was $93,758 or
$.08 per  share,  a  decrease  of $56,273  from the  $150,031  or $.11 per share
reported  for the three months  ended  December  31,  1998.  The decrease in net
income was attributable to a $69,000 decline in noninterest income and a $54,000
increase in total non-interest  expense.  The decline in net interest income and
the increase in noninterest  expense was partially  offset by a $36,000 decrease
in income tax expense.

Net Interest  Income.  For the quarter  ended  December  31, 1999,  net interest
income before provision for loan losses totaled $857,000, an increase of $36,000
from the $821,000  reported  for the quarter  ended  December  31,  1998.  On an
annualized  basis,  the $857,000 in net interest  income for the current quarter
was approximately  2.27% of average interest earning assets and 2.19% of average
total  assets.  For the quarter  ended  December 31,  1998,  the $821,000 in net
interest income was  approximately  2.66% of average interest earning assets and
2.56%  of  average  total  assets.   Average   interest   earning   assets  were
approximately  $150.8 million for the quarter ended December 31, 1999,  compared
to $123.4 million for the quarter ended December 31, 1998.

The increase in net interest  income was due to an increase in average  interest
earning  assets from $134.0  million at  Setember  30, 1999 to 150.8  million at
December 31, 1999. The yield on the Company's  average  interest-earning  assets
declined  from 6.99% for the quarter  ended  December  31, 1998 to 5.69% for the
quarter ended December 31, 1999. The decrease was partially due to the Company's
decision to continue its program of borrowing  funds from the FHLB and investing
in short-term  adjustable  rate  securities at yields lower than that for loans.
The result was that overall yields on interest  earning assets  declined but the
volume in the program  offset the decline in yield.  As a result,  net  interest
income  increased.  Also,  the  overall  yield on  interest  earning  assets has
declined as cash flow from interest  earning assets has been reinvested at lower
interest rates.

Interest  rates on the  Company's  primary  source  of  funds,  certificates  of
deposit,  have not decreased as rapidly.  Continued  competition for deposits in
the  Company's  market  has  compelled  the  Company to  continue  to pay higher
interest  rates in order to maintain  current  deposit  levels.  For the quarter
ended December 31, 1999,  the $1.0 million in interest  expense on deposits was,
on  an  annualized  basis,  approximately  4.87%  of  average  interest  costing
deposits,  compared  to 5.00% for the same  quarter  in 1998.  On an  annualized
basis,  the $1.8  million in total  interest  expense,  reported for the quarter
ended December 31, 1999, was  approximately  5.24% of average  interest  costing
liabilities  outstanding  for the quarter.  For the quarter  ended  December 31,
1998,  the $1.3 million in total  interest  expense was  approximately  5.00% of
average interest costing liabilities.

                                  Page 16 of 23
<PAGE>

Total interest  income was $2.6 million for the quarter ended December 31, 1999,
an increase of $466,000  from the $2.2 million  reported for the same quarter in
1998.  Interest  income on  loans-receivable  totaled  $1.3  million or 7.74% of
average loans receivable balances outstanding for the quarter ended December 31,
1999.  For the  three  months  ended  December  31,  1998,  interest  income  on
loans-receivable  was approximately 7.82% of average loans receivable  balances.
In 1999, the Company  implemented a wholesale funded loan program.  The program,
designed  to  leverage a portion of the  Company's  excess  capital,  allows the
Company to portfolio  15-year  loans with lower  interest  rates.  The loans are
funded with a combination  of long-term  amortizing and short term advances from
the FHLB.  As a result,  the Company was able to increase  its loans  receivable
portfolio  and maintain  interest  income from loans  receivable  despite  lower
mortgage  rates.  The growth was at marginal  yields at less than the average in
the  portfolio  and  the  result  was a  decline  in the  average  yield  on the
portfolio. However, the goal of the program was to increase overall net interest
income.  The increase in the Company's  consumer and  commercial  loan portfolio
helped offset the decline in the overall yield of the portfolio. At December 31,
1999, the $4.4 million in such portfolio was approximately 8.75%.

Interest  income from  mortgage-backed  securities  available-for  sale  totaled
$578,000 for the three months ended December 31, 1999,  compared to $264,000 for
the three months ended December 31, 1998.  The increase in interest  income is a
direct  result of the  increase in the average  balance  outstanding  during the
comparable  quarters  from $16.1 to $35.1  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  6.39% at December 31, 1999.  [See
"Financial Condition"]

Interest  income  from  the  investment  securities  held-to-maturity  portfolio
totaled  $583,000  for the three months  ended  December  31, 1999,  compared to
$467,000 for the same quarter in 1998.  The increase was primarily the result of
an increase in the  average  balance  outstanding  in the  portfolio  from $27.1
million for the three  months ended  December 31, 1998 to $29.5  million for the
three months ended December 31, 1999.

Interest income from the mortgage-backed  securities  held-to-maturity portfolio
totaled  $88,000 for the three  months  ended  December  31,  1999,  compared to
$179,000 for the same period in 1998.  Continued  cash flow from  prepayments on
the  adjustable  rate  securities  in the  portfolio  was  redirected  into  the
Company's  lending  operations  and its investment  securities  held-to-maturity
portfolio to replace matured or called investment  securities.  The result was a
decline in interest income from the portfolio.

Interest  paid to  depositors  totaled  $1.0  million for the three months ended
December 31, 1999, down $62,000 from the $1.1 million for the three months ended
December 31, 1998.  Average  deposit  balances  declined $3.2 million from $87.2
million for the quarter ended December 30, 1998 to $84.0 million for the quarter
ended December 31, 1999.

Interest on FHLB  advances was $728,000 for the three months ended  December 31,
1999,  compared to  $251,000  for the same period in 1998.  The  increase  was a
direct result of the continued  increase in total FHLB advances in the Company's
program to match fund 15 year loans and securities with advances.

Provision For Loan Losses. The Company made no provision for loan losses for the
quarter ended December 31, 1999 or for the quarter ended December 31, 1998. [See
- "Asset Quality"]

Noninterest  Income.  Noninterest  income  totaled  $60,000 for the three months
ended  December  31,  1999,  compared to $129,000 for the same period in 1998, a
$69,000 decrease.

The decrease in noninterest income was the result of a decline in gains on sales
of  interest  earning  assets  of  $64,000  as fewer  loans  were  sold into the
secondary market. The decision to sell fewer loans into the secondary market was
a direct  result of the  Company's  decision,  in January  1999,  to fund loans,
otherwise sellable into the secondary market,  with FHLB advances and place such
loans into portfolio.

                                  Page 17 of 23
<PAGE>

Noninterest Expenses. Noninterest expenses totaled $768.000 for the three months
ended  December  31,  1999,  compared to  $714,000  for the three  months  ended
December 31, 1998.

The  increase in  noninterest  expense was the result of an $78,000  increase in
compensation  and  benefits  expense  from  $510,000  for the three months ended
December  31, 1998 to $588,000  for the three  months  ended  December 31, 1999.
Also,  there was a $49,000  increase in  occupancy  and  equipment  expense from
$73,000 for the three months  ended  December 31, 1998 to $113,000 for the three
months ended December 31, 1999. The increase in both  compensation  and benefits
expense  and  occupancy  and  equipment  expense  were the result of  additional
compensation for the staffing of a new  full-service  office opened for business
in April 1999.  Additional expenses associated with the funding of the Company's
defined  benefit  pension  plan  and  additional  expenses  associated  with the
Company's  Employee Stock Ownership Plan accounted for a portion of the increase
in compensation and benefits expense.  At December 31, 1999 the new location had
approximately $4.4 million in loan.

Provision For Income Taxes.  The Company  incurred federal income tax expense of
$55,000 or 37.0% of pre-tax income for the three months ended December 31, 1999,
compared  to  $86,000  or 36.4% of pre-tax  income  for the three  months  ended
December 31, 1998.

ASSET QUALITY

At December 31, 1999, the Company's  non-performing  assets totaled  $296,000 or
 .19% of total assets,  compared to $768,000 or .50% of total assets at September
30, 1999. At December 31, 1999, non-performing assets were comprised of fourteen
(14)  loans,  the  largest of which was  $240,000,  secured  by a single  family
dwelling.

Non-performing  loans at  December  31, 1999  equaled  $293,000 or .43% of loans
receivable,  compared to $768,000 or 1.14% of loans  receivable at September 30,
1999.

Classified assets totaled $776,000 or .49% of total assets at December 31, 1999,
compared to $1.1 million or .71% of total assets at September 30, 1999.

Classified assets and non-performing assets differ in that classified assets may
include loans less than ninety (90) days delinquent.  Also, assets guaranteed by
government agencies such as the Veterans  Administration and the Federal Housing
Administration  are not  included  in  classified  assets  but are  included  in
non-performing  assets.  All classified assets at December 31, 1999, were deemed
to be "substandard".  No assets were classified  "doubtful" or "loss" as of such
date.

The Company's allowance for loan losses totaled $270,084 at December 31, 1999, 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 December 31, 1999 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 December 31,
1999,  the  Association  had  outstanding  commitments  to extend credit on $1.4
million of real estate loans.

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

                                  Page 18 of 23
<PAGE>

Total  stockholders'  equity  equaled  $16.6  million at December  31,  1999,  a
decrease of $1.8 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
$64,721 cash  dividend  paid during the quarter.  The decrease was offset by the
$93,758 net income  reported for the three month period ended December 31, 1999,
and a $19,397 decrease in deferred compensation.

As of December 31, 1999,  the  Company's  reported  book value per share,  using
total stockholders' equity of $16.6 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 $14.28 per share.

Subsequent to the quarter  ended  December 31, 1999,  the Company  announced its
intention  to pay a cash  dividend of $.05 per share on February  23,  2000,  to
stockholders of record at February 8, 2000.

Under the Financial  Institutions  Reform,  Recovery and Enforcement Act of 1989
("FIRREA"),  Congress  imposed  a three  part  capital  requirement  for  thrift
institutions.  At December  31,  1999,  the  Association's  actual and  required
capital amounts under each of the three requirements were as follows:

- Tangible Capital  (stockholders' equity) was $17.8 million or 11.143% of total
assets, exceeding the minimum requirement of 1.5% by $15.4 million.

- Core  Capital  (Tangible  capital plus  certain  intangible  assets) was $17.8
million or 11.143% of total assets, exceeding the minimum requirement of 4.0% by
$11.4 million.

- Risk-based  Capital (Core  capital plus general loan and valuation  allowances
less an adjustment for  capitalized  mortgage  servicing  rights)  equaled $18.1
million of 27.539% of risk weighted assets, exceeding the minimum requirement of
8.0% of risk weighted assets by $12.8 million.

At December 31,  1999,  the  Association  was  considered  a "well  capitalized"
institution  under the prompt  corrective  action  requirements  of the  Federal
Deposit Insurance Corporation Improvement Act of 1991.

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


                                  Page 19 of 23
<PAGE>

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 20 of 23


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

                                   FORM 10-QSB

                                DECEMBER 31, 1999

                           PART II - OTHER INFORMATION

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

Item 1.  Legal Proceedings

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

Item 2.  Changes In Securities

     None

Item 3.  Defaults Upon Senior Securities

     None

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

     On January 26, 2000, the Company's Annual Stockholders' Meeting was held to
     elect directors and ratify the appointment of independent  auditors for the
     current  fiscal year. The following are the voting results of each of these
     matters submitted to stockholders.

     The election of Jack W. Flock                   For               772,835
     and Charles R. Halstead                         Withheld          127,802
     as directors for a three year term              Abstain                 0
     ending January 2003.                            Broker Non-Votes        0

     Ratification of the appointment of              For               772,887
     Bryant And Welborn, L.L.P. as                   Against           127,750
     independent auditors for the                    Abstain                 0
     fiscal year ending
     September 30, 2000.

     The text of the  matters  referred  to in this  Item 4 is set  forth in the
     Proxy  Statement  dated  December  22,  1999,  previously  filed  with  the
     Securities and Exchange Commission.

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

                                  Page 21 of 23
<PAGE>
     (b)  Reports on Form 8-K

         During the quarter ended  December 31, 1999, the Company filed a report
         on Form 8-K on  November  6, 1999,  to report the  issuance  of a press
         release  dated  November  16, 1999,  announcing  the  Company's  merger
         agreement with Gilmer Financial Services, Inc.

         During the quarter ended  December 31, 1999, the Company filed a report
         on Form 8-K on November  26,  1999,  to report the  issuance of a press
         release dated  November 26, 1999,  announcing the completion of a stock
         repurchase.

         During the quarter ended  December 31, 1999, the Company filed a report
         on Form 8-K on December  16,  1999,  to report the  issuance of a press
         release dated December 16, 1999,  announcing the Company's earnings for
         the year ended September 30, 1999.

                                  Page 22 of 23
<PAGE>

                                   SIGNATURES

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

                                             East Texas Financial Services, Inc.

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


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

                                  Page 23 of 23