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, 2002

                                       OR

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

               For the transition period from _______ to _______.


                         Commission file number 0-24848


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


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


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


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

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 of 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days.

                                [X] Yes     [ ] No

     The  number of shares of the  registrant's  common  stock  ($.01 par value)
outstanding as of March 31, 2002, was 1,162,320.


<PAGE>





                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 March 31, 2002


--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                      INDEX

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

     Item 1.  Financial Statements

         Consolidated Statements of Financial Condition, March 31, 2002
         (Unaudited) and September 30, 2001......................................................4

         Consolidated Statements of Income, (Unaudited) three months and six months ended
         March 31, 2002 and March 31, 2001.......................................................5

         Consolidated Statement of Changes in Stockholders' Equity, (Unaudited)
         six months ended March 31, 2002.........................................................6

         Consolidated Statements of Cash Flows, (Unaudited) six months ended
         March 31, 2002, and March 31, 2001......................................................7

         Notes to (Unaudited) Consolidated Financial Statements, March 31, 2002..................9

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

Part II - Other Information

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

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

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

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

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

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

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

</TABLE>


                                       2
<PAGE>






                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 March 31, 2002

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

PART I - FINANCIAL INFORMATION

     Item 1 - Financial Statements

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

On June 30,  2000,  the Company  acquired by merger 100% of the common  stock of
Gilmer Financial Services,  Inc. ("Gilmer" or "the Gilmer  transaction") and its
wholly owned  subsidiary,  Gilmer  Savings  Bank,  F.S.B.  The  acquisition  was
accounted  for as a purchase  transaction.  Gilmer was merged into the Company's
wholly owned  subsidiary,  First Federal Savings and Loan  Association of Tyler.
The assets and  liabilities of Gilmer were recorded at their fair market values.
The difference in the purchase price and the fair market value of the assets and
liabilities acquired was recorded as goodwill.

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

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


                                       3
<PAGE>




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

<TABLE>
<CAPTION>


                              ASSETS                                      March 31, 2002   September 30, 2001
                                                                         ---------------   -------------------
                                                                          (Unaudited)
<S>                                                                      <C>                 <C>
Cash and due from banks                                                  $   1,972,145       $   2,013,647
Interest-bearing deposits with banks                                         1,249,643           2,824,364
Interest-earning time deposits with financial institutions                     300,000             600,000
Federal funds sold                                                             426,595              86,242
Investment securities available-for-sale                                       527,508           6,843,583
Mortgage-backed securities available-for-sale                               22,554,703          27,352,449
Investment securities held-to-maturity (estimated market
         value of $9,790,540 at March 31, 2002, and
         $8,075,494 at September 30, 2001)                                   9,744,850           7,765,537
Mortgage-backed securities held-to-maturity (estimated
         market value of $30,972,950 at March 31, 2002
         and $36,585,979 at September 30, 2001)                             30,691,165          35,879,076
Loans receivable, net of allowance for credit losses of $723,424
         at March 31, 2002 and $769,225 at September 30, 2001              132,380,753         115,847,396
Accrued interest receivable                                                  1,301,126           1,285,582
Federal Home Loan Bank stock, at cost                                        4,388,700           4,323,900
Premises and equipment                                                       2,606,827           2,656,988
Foreclosed assets, net                                                         361,085             259,498
Goodwill, net                                                                2,170,381           2,170,381
Mortgage servicing rights                                                      123,148             174,128
Other assets                                                                   867,086           1,698,338
                                                                         -------------       -------------

         Total Assets                                                    $ 211,665,715       $ 211,781,109
                                                                         =============       =============

         LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
         Noninterest deposits                                            $   3,460,751       $   3,319,015
         Interest-bearing deposits                                         103,288,767         112,292,026
                                                                         -------------       -------------
             Total deposits                                                106,749,518         115,611,041

         FHLB advances                                                      83,120,947          74,468,248
         Advances from borrowers for taxes and insurance                       404,211           1,267,900
         Federal income taxes
              Current                                                          510,580                   0
              Deferred                                                         517,175             670,706
         Accrued expenses and other liabilities                              1,840,759           1,849,333
                                                                         -------------       -------------
         Total liabilities                                                 193,143,190         193,867,228
                                                                         -------------       -------------
Stockholders' equity:
         Preferred stock, $0.01 par value, 500,000
            shares authorized, none outstanding
         Common stock, $0.01 par value, 5,500,000 shares authorized,
            1,884,492 shares issued and 1,162,320 outstanding                   18,845              18,845
         Additional paid-in-capital                                         12,473,302          12,473,302
         Unearned employee stock ownership plan shares                        (255,597)           (255,597)
         Retained earnings (substantially restricted)                       15,106,032          14,199,357
         Accumulated other comprehensive income                                 47,225             345,256
         Treasury stock, 722,172 shares at cost                             (8,867,282)         (8,867,282)
                                                                         -------------       -------------

              Total stockholder's equity                                    18,522,525          17,913,881
                                                                         -------------       -------------

              Total liabilities and stockholders' equity                 $ 211,665,715       $ 211,781,109
                                                                         =============       =============
</TABLE>


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


                                       4
<PAGE>



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

                                                                Three Months                       Six Months
                                                               Ended March 31,                   Ended March 31,
                                                             2002             2001            2002             2001
                                                         -----------      -----------      -----------      -----------
<S>                                                      <C>              <C>              <C>              <C>

INTEREST INCOME
        Loans receivable:
             First Mortgage                              $ 1,597,670      $ 1,645,319      $ 3,157,844      $ 3,301,654
             Consumer and other loans                        867,946          498,543        1,650,886          937,061
        Securities available-for-sale:
             Investment securities                            42,346          165,417          126,173          363,769
             Mortgage-backed securities                      104,106          663,612          372,668        1,478,132
        Securities held-to-maturity:
             Investment securities                           154,181          347,660          309,260          742,450
             Mortgage-backed securities                      496,414          290,076        1,023,377          373,996
        Deposits with banks:                                  10,718           26,691           27,529           59,950
                                                         -----------      -----------      -----------      -----------

             Total interest income                         3,273,381        3,637,318        6,667,737        7,257,012
                                                         -----------      -----------      -----------      -----------

INTEREST EXPENSE

        Deposits                                           1,010,237        1,506,257        2,224,652        2,947,657
        FHLB advances                                        649,423        1,030,196        1,332,433        2,299,038
                                                         -----------      -----------      -----------      -----------

             Total interest expense                        1,659,660        2,536,453        3,557,085        5,246,695
                                                         -----------      -----------      -----------      -----------

             Net interest income before
                provision for loan losses                  1,613,721        1,100,865        3,110,652        2,010,317

        Provision for loan losses                            101,438            7,405          111,197           23,639
                                                         -----------      -----------      -----------      -----------

             Net interest income after
               provision for loan losses                   1,512,283        1,093,460        2,999,455        1,986,678
                                                         -----------      -----------      -----------      -----------

NONINTEREST INCOME
        Gain (loss) on sale of                                43,639          188,829          452,173          199,298
        interest-earning assets
        Loan origination and commitment fees                  33,506           22,756           82,995           42,655
        Loan servicing fees                                  (23,197)          20,723          (59,318)          30,917
        Other                                                 81,560           92,757          198,028          181,640
                                                         -----------      -----------      -----------      -----------

             Total noninterest income                        135,508          325,065          673,878          454,510
                                                         -----------      -----------      -----------      -----------

NONINTEREST EXPENSE
        Compensation and benefits                            653,324          573,566        1,290,095        1,137,040
        Occupancy and equipment                              114,668          109,364          221,907          224,703
        SAIF deposit insurance premium                         5,279            5,052           10,473           10,376
        Foreclosed assets, net                                20,235          (28,640)          35,231          (25,654)
        Goodwill amortization                                      0           39,206                0           78,418
        Other                                                274,267          252,507          531,374          470,228
                                                         -----------      -----------      -----------      -----------

             Total noninterest expense                     1,067,773          951,055        2,089,080        1,895,111
                                                         -----------      -----------      -----------      -----------

Income (loss) before provision for income                    580,018          467,470        1,584,253          546,077
taxes

Income tax expense (benefit)                                 210,277          176,271          561,346          205,826
                                                         -----------      -----------      -----------      -----------

NET INCOME (LOSS)                                        $   369,741      $   291,199      $ 1,022,907      $   340,251
                                                         ===========      ===========      ===========      ===========

Earnings per common share                                $      0.33      $      0.26      $      0.91      $      0.31
Earnings per common share - assuming                            0.32             0.26             0.90             0.31
dilution
</TABLE>

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


                                       5
<PAGE>


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


       SIX MONTHS ENDED
        March 31, 2002

                            Common Stock and                   Unrealized                                                  Total
                           Additional Paid in  Unallocated   Gain(loss) on    Retained       Treasury    Comprehensive Stockholders'
                                Capital        ESOP Shares   AFS Securities   Earnings        Stock          Income       Equity
                           ------------------  ------------  --------------  ------------  ------------- -------------  ------------
<S>                            <C>              <C>             <C>           <C>           <C>           <C>          <C>
Balance September 30, 2001    $ 12,492,147     $ (255,597)     $ 345,256     $ 14,199,357  $ (8,867,282) $             $ 17,913,881

Comprehensive income:
  Net Income                                                                    1,022,907                   1,022,907
  Unrealized holding losses                                     (298,031)                                    (298,031)
                                                                                                         ------------
Comprehensive income                                                                                     $    724,876       724,876
                                                                                                         ============

Deferred compensation
     amortization

Payment of cash dividends                                                        (116,232)                                 (116,232)

Balance March 31, 2002        $ 12,492,147     $ (255,597)     $  47,225     $ 15,106,032  $ (8,867,282)               $ 18,522,525
                              ============     ==========      =========     ============  ============                ============
</TABLE>


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

                                       6
<PAGE>



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

<TABLE>
<CAPTION>
                                                                      For the Six Months Ended
                                                                              March 31,
                                                                        2002             2001
                                                                    ------------     ------------
<S>                                                                 <C>              <C>
Cash flows from operating activities:
    Net income                                                      $ 1,022,907      $   340,251
    Adjustments to reconcile net income to net cash
       provided by operating activities:
          Amortization of deferred loan origination fees                 (1,808)          (3,809)
          Amortization of premiums and discounts on investment
             securities, mortgage-backed securities, and loans           (7,839)         (15,250)
          Amortization of goodwill                                            0           78,418
          Compensation charge related to release of ESOP shares               0            9,364
          Depreciation                                                   79,427           95,415
          Provision for loan losses                                     111,197           23,637
          Deferred income taxes                                               0          215,426
          Stock dividends on FHLB stock                                 (64,800)        (123,400)
          Amortization of mortgage servicing rights                     121,324           58,466
          Net (gain) loss on sale of:
                         Loans held for sale                            (56,327)          (8,235)
                         Fixed assets                                     8,287                0
                         Foreclosed assets                               19,943          (30,458)
                         Interest earning assets                       (325,503)        (171,884)
          Proceeds from loan sales                                    6,589,095        1,704,418
          Originations of loans held for sale                        (6,532,768)      (2,008,688)
          (Increase) decrease in
                         Accrued interest receivable                    (15,544)         119,602
                         Other assets                                   831,252         (471,862)
          Increase (decrease) in:
                         Federal income tax payable                     510,580          (31,275)
                         Accrued expenses and other liabilities          (8,851)        (597,672)

                                                                    -----------      -----------
Net cash provided (used) by operating activities                      2,280,572         (817,536)
                                                                    -----------      -----------
</TABLE>


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



                                       7
<PAGE>





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

                                                                         For the Six Months Ended
                                                                                 March 31,
                                                                         2002                2001
                                                                     -------------      -------------
<S>                                                                  <C>                <C>
Cash flows from investing activities
       Net (increase) decrease in interest-earning time deposits     $     300,000      $      98,000
       Net (increase) decrease in fed funds sold                          (340,353)        (1,278,227)
       Purchase of securities held-to-maturity                          (2,000,000)        (4,751,239)
       Proceeds from sale of securities available-for-sale               6,308,899          1,495,125
       Proceeds from maturities of securities available-for-sale            25,000             20,000
       Proceeds from maturities of securities held-to-maturity                   0         15,500,000
       Proceeds from sale of mortgage-backed securities                          0          3,961,253
       available-for-sale
       Purchases of mortgage-backed securities
           available-for-sale                                           (6,522,879)                 0
       Purchase of mortgage-backed securities held-to-maturity          (7,627,398)       (15,447,927)
       Principal payments on mortgage-backed securities                 11,177,578          2,141,344
       available-for-sale
       Principal payments on mortgage-backed securities held-to-        12,842,999            631,573
           maturity
       Proceeds from redemption of FHLB stock                                    0              1,900
       Net increase in loans                                           (16,946,517)        (3,167,669)
       Proceeds from sale of foreclosed assets                             182,240             82,772
       Proceeds from recovery of charged off loans                               0              9,644
       Acquisition costs related to foreclosed assets                       (2,974)            (2,151)
       Expenditures for premises and equipment                             (37,553)           (32,953)
       Origination of mortgage servicing rights                            (70,344)           (19,179)
                                                                     -------------      -------------

Net cash provided (used) by investing activities                        (2,711,302)          (757,734)

Cash flows from financing activities:
       Net increase (decrease) in:
       Deposits                                                         (8,861,523)        11,062,925
       Advances from borrowers                                            (860,437)          (889,952)
       Proceeds from advances from Federal Home Loan Bank              354,000,000        530,120,000
       Payment of advances from Federal Home Loan Bank                (345,347,301)      (537,473,556)
       Dividends paid to stockholders                                     (116,232)          (116,232)
                                                                     -------------      -------------

Net cash provided (used) by financing activities                        (1,185,493)         2,703,185
                                                                     -------------      -------------

Net increase (decrease) in cash and cash equivalents                    (1,616,223)         1,127,915

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

Cash and cash equivalents at end of the period                       $   3,221,788      $   3,332,638
                                                                     =============      =============

Supplemental disclosure:
       Cash paid for:
       Interest on deposits                                          $   1,499,090      $   1,571,080
       Interest on FHLB advances and other borrowed funds                1,332,433          2,286,009
       Income taxes                                                         25,380                  0

       Transfers from loans to real estate and other
          assets acquired through foreclosures                             415,923            269,147

       Loans made to facilitate the sale of foreclosed assets              128,187            119,435
</TABLE>


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


                                       8
<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY


             NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

                                 March 31, 2002

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


NOTE 1 - BASIS OF PRESENTATION

The  financial  statements  presented  in this report have been  prepared by the
Company  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission for interim  reporting and include all adjustments  which are, in the
opinion  of  management,   necessary  for  fair  presentation.  These  financial
statements  have  not  been  audited  by  an  independent  accountant.   Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or  omitted  pursuant  to such  rules  and  regulations  for  interim
reporting.  The Company  believes that the  disclosures are adequate to make the
information not misleading.  However,  these financial statements should be read
in conjunction  with the financial  statement and notes thereto  included in the
Company's  Annual  Report on Form 10-KSB for the year ended  September 30, 2001.
The financial data and results of operations for interim  periods  presented may
not necessarily reflect the results to be anticipated for the complete year.

NOTE 2 - EARNINGS PER SHARE

Earnings  per common  share for the three  months and six months ended March 31,
2002 and 2001,  has been  computed  based on net income  divided by the weighted
average  number of common shares  outstanding  during the period.  For the three
months and six months ended March 31, 2002 and 2001, the weighted average number
of shares outstanding totaled 1,123,979 and 1,110,416 shares respectively.

Earnings  per common  share - assuming  dilution,  for the three  months and six
months  ended March 31,  2002 and 2001,  has been  computed  based on net income
divided  by the  weighted  average  number  of  common  shares  outstanding.  In
addition,  it includes the effects of all dilutive  potential common shares that
were  outstanding  during the period.  For the three months ended March 31, 2002
and 2001,  the weighted  average number of shares  outstanding  for earnings per
share - assuming dilution totaled 1,150,703 and 1,110,416,  shares respectively.
For the six months ended March 31, 2002 and 2001, the weighted average number of
shares  outstanding for earnings per share - assuming dilution totaled 1,137,079
and 1,110,421 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 periods ended March 31, 2002
and 2001.

                                       9
<PAGE>



NOTE 3 - SECURITIES

The  carrying  values  and  estimated  market  values of  investment  securities
available-for-sale as of March 31, 2002, by type of security are as follows:


<TABLE>
<CAPTION>

                       Principal         Unamortized          Unearned           Unrealized          Carrying
                        Balance            Premiums           Discounts         Gain/(Loss)           Value
                     --------------     ---------------     --------------     ---------------    ---------------
<S>                <C>                <C>                 <C>                <C>                <C>
Municipal bonds    $       510,000    $              0    $         3,388    $         20,896   $        527,508
                     --------------     ---------------     --------------     ---------------    ---------------

                   $       510,000    $              0    $         3,388    $         20,896   $        527,508
                     --------------     ---------------     --------------     ---------------    ---------------
</TABLE>

The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of March 31, 2002, are as follows:

<TABLE>
<CAPTION>

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

      U. S. government agency       $     3,482,349    $        74,762    $         81,260    $     3,475,851

      Corporate Debt                      6,262,501             83,805              31,617          6,314,689
                                      --------------     --------------     ---------------     --------------

           Total debt securities    $     9,744,850    $       158,567    $        112,877    $     9,790,540
                                      --------------     --------------     ---------------     --------------
</TABLE>


The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of March 31, 2002, by contractual maturity are shown below:


<TABLE>
<CAPTION>

                                                                Estimated
                                                 Amortized        Market
                                                   Cost           Value
                                             --------------  ---------------
    <S>                                      <C>                <C>
    Due in one year through two years        $  1,000,000    $   1,035,000

    Due in two years through three years                         1,049,055
                                                  996,920

    Due in three years through six years                         5,787,745
                                                5,747,930

    Due after six years                         2,000,000        1,918,740
                                              ------------    -------------

           Total debt securities             $  9,744,850    $   9,790,540
                                              ------------    -------------
</TABLE>



                                       10
<PAGE>



The carrying values and estimated market values of  mortgage-backed  and related
securities  available-for-sale  as of March 31, 2002, by type of security are as
follows:

<TABLE>
<CAPTION>

                       Principal         Unamortized          Unearned          Unrealized           Carrying
                        Balance            Premiums           Discounts         Gain/(Loss)           Value
                     --------------     ---------------     --------------     --------------     ---------------

<S>                <C>                <C>                 <C>                <C>                <C>
Fixed Rate         $     1,376,095    $              0    $        10,190    $        40,030    $      1,405,935

Adjustable Rate         21,026,317             116,483              4,659             10,627          21,148,768
                     --------------     ---------------     --------------     --------------     ---------------

                   $    22,402,412    $        116,483    $        14,849    $        50,657    $     22,554,703
                     --------------     ---------------     --------------     --------------     ---------------
</TABLE>


The carrying values and estimated market values of  mortgage-backed  and related
securities  held-to-maturity  as of March 31,  2002,  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         $    21,549,406    $         34,133    $        18,329    $    21,565,210    $     21,767,928

Adjustable Rate          9,129,202              13,279             16,526          9,125,955           9,205,022
                     --------------     ---------------     --------------     --------------     ---------------

                   $    30,678,608    $         47,412    $        34,855    $    30,691,165    $     30,972,950
                     --------------     ---------------     --------------     --------------     ---------------
</TABLE>


NOTE 4 - CURRENT ACCOUNTING ISSUES


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

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


                                       11
<PAGE>

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

NOTE 5 - STOCK OPTION AND INCENTIVE PLAN

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

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


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

     Balance, September 30, 2000                                       151,776
         Granted                                                           -0-
         Exercised at $9.42 per share                                      -0-
         Forfeited and expired                                             -0-
                                                                       -------
     Balance, September 30, 2001                                       151,776
                                                                       =======


Options exercisable at March 31, 2002 under stock option plan          148,776
                                                                       =======

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


During the six months ended March 31, 2002, no options were  exercised,  issued,
or forfeited.


                                       12
<PAGE>


NOTE 6 - ADVANCES FROM FEDERAL HOME LOAN BANK

The outstanding advances from the FHLB consisted of the following at March 31,
2002:

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

        04/03/02        $ 2,500,000        1.88%

        04/04/02        $36,500,000        1.92%

        12/05/02        $ 5,000,000        2.41%

        12/05/03        $ 5,000,000        3.58%

        02/15/03        $   100,000        6.00%

        03/10/03        $ 2,000,000        2.78%

        03/10/03        $ 2,000,000        5.00%

        09/01/03        $   804,796        6.25%

        12/31/04        $   233,026        6.09%

        02/15/04        $   100,000        6.01%

        01/03/05        $    63,837        6.03%

        02/15/05        $   100,000        6.04%

        02/15/06        $   150,000        6.05%

        04/11/11        $ 5,000,000        3.91%

        04/11/11        $ 5,000,000        3.73%

        04/11/11        $ 5,000,000        4.25%

        06/07/11        $ 5,000,000        4.38%

        01/01/13        $   403,171        6.09%

        01/01/13        $   383,249        6.13%

        02/01/13        $   379,997        5.91%

        03/03/14        $   709,394        5.45%

        04/01/14        $   687,179        5.97%

        05/01/14        $   934,705        5.66%

        06/01/14        $   713,837        5.90%

        07/01/14        $   662,631        6.38%

        08/01/14        $   481,537        6.37%

        09/01/14        $   609,139        6.59%

        10/01/14        $   535,449        6.86%

        11/03/14        $ 1,321,821        6.77%

        12/01/14        $   451,395        6.57%

        01/01/15        $   295,784        6.73%
                        -----------
      Total Advances    $83,120,947
                        ===========



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


                                       13
<PAGE>


NOTE 7 - PROFORMA EFFECTS OF SFAS NO. 142

SFAS No. 142 requires  that all periods  presented in the  statements  of income
must be  adjusted to exclude  amortization  expense  (including  any related tax
effects) recognized in the periods presented related to goodwill.  The following
are condensed income statements showing  restatement of income for the three and
six months ended March 31,2001.

<TABLE>
<CAPTION>
                                                    Three Months     Six Months
                                                       Ended            Ended
                                                   March 31, 2001   March 31, 2001
                                                    (Unaudited)      (Unaudited)
                                                   --------------   --------------
     <S>                                            <C>              <C>
     Reported net income                            $    291,199     $   340,251
     Add back: goodwill amortization                      39,206          78,418

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

     Adjusted net income                            $    330,405     $   418,669
                                                     ===========     ===========

     Earnings per common share and
     earnings per common share - assuming dilution

           Reported net income                      $       0.26  $         0.31
           Goodwill amortization                            0.04            0.07
                                                     -----------     -----------


     Adjust Earnings per share                      $       0.30  $         0.38
                                                     ===========     ===========
</TABLE>




NOTE 8 - CHANGES IN ACCOUNTING ESTIMATE

During the quarter ended March 31, 2002, the Company  elected to make changes to
the assumptions and actuarial method for its Defined Benefit Plan. The valuation
interest rate was  increased  from 7.00% to 7.50%,  the  projected  compensation
increase  rate was  reduced  to 5.00%  from  6.00%,  and the  asset  method  for
actuarial  value of assets was  changed  to a 5-year  smoothing  method  from an
annual basis.  All of the changes were made in order to more closely reflect the
Company's future long-term  expectations.  The changes should have the effect of
reducing  fluctuations  in the net periodic  pension  cost and minimum  required
funding of the plan.  The changes  were  effective  for the plan year  beginning
October 1, 2001.

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


                                     14


<PAGE>


NOTE 9 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

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

<TABLE>
<CAPTION>

                                                                 Six Months Ended       Quarter Ended       Quarter Ended
                                                                  March 31, 2002        March 31, 2002     December 31,  2001
                                                                 -----------------     ----------------    ------------------
<S>                                                                     <C>                  <C>                  <C>
Dollars in Thousands
         Balance at beginning of period                                 $ 769                $ 721                $ 769

         Charge-offs:
            One-to-four family                                             (3)                  (3)                   0
            Consumer and other loans                                     (173)                (112)                 (61)
                                                                        -----                -----                -----
                Total charge-offs                                        (176)                (115)                 (61)
                                                                        -----                -----                -----

         Recoveries:
            One-to-four family                                              0                    0                    0
            Consumer and other loans                                       19                   16                    3
                                                                        -----                -----                -----
                Total recoveries                                           19                   16                    3
                                                                        -----                -----                -----


         Net (charge-offs)/recoveries                                    (157)                 (99)                 (58)

         Additions charged to income                                      111                  101                   10
                                                                        -----                -----                -----

         Balance at end of period                                       $ 723                $ 723                $ 721
                                                                        =====                =====                =====

         Ratio of net charge-offs/recoveries during the period to
            average loans outstanding during the period                 (0.12)%              (0.08)%              (0.04)%
                                                                        =====                =====                =====

         Ratio of net charge-offs/recoveries during the period to
            average non-performing assets                              (12.94)%              (9.09)%             (3.85)%
                                                                        =====                =====                =====
</TABLE>


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


<TABLE>
<CAPTION>

                                    March 31, 2002                    September 30, 2001
                             ------------------------------     -----------------------------
                                                 Percent                             Percent
                                                   of                                  of
                                                  Loans                               Loans
                                               Category to                         Category t
                              Amount of Loan      Total           Amount of Loan      Total
                              Loss Allowance      Loans           Loss Allowance      Loans
                             ------------------------------     -----------------------------
                                 (Dollars in Thousands)             (Dollars in Thousands)
   <S>                        <C>                    <C>          <C>                   <C>
   One-to-four family         $       113            0.12%        $        148          0.16%
   Consumer and other loans           248            0.66                  325          1.21
   Unallocated                        362             N/A                  296           N/A
                                 ---------      ----------           ----------    ----------
      Total                   $       723                         $        769
                                 =========                           ==========

</TABLE>



                                       15
<PAGE>



                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 March 31, 2002

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


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

GENERAL

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

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

FINANCIAL CONDITION

Total assets were $211.7 million at March 31, 2002, a $115,000 decrease from the
$211.8 million  reported at September 30, 2001, the Company's most recent fiscal
year end. The decrease in total assets was the result of a $6.3 million decrease
in  investment  securities  available-for-sale,   a  $5.2  million  decrease  in
mortgage-backed   securities   held-to-maturity,   a  $4.8  million  decline  in
mortgage-backed  securities  available-for-sale,  a  $1.6  million  decrease  in
interest-earning  deposits with banks, and an $831,000 decrease in other assets.
The  decreases  were  partially  offset  by a $16.5  million  increase  in loans
receivable,  a $1.9 million increase in investment  securities held to maturity,
and a $340,000 increase in federal funds sold.

At March 31, 2002, loans-receivable totaled $132.4 million, an increase of $16.5
million or 14.3% over the $115.8  million at September 30, 2001. The increase in
loans-receivable  was primarily the result of the Company's continued efforts to
increase the  origination of consumer,  commercial,  and commercial  real estate
loans.

The  origination of consumer,  commercial,  and commercial  real estate loans is
primarily  conducted  through the  Company's  full service  banking  location in
Gilmer, Texas and the S. Broadway office in Tyler, Texas. The Company originates
these loans through direct contacts with existing or potential new customers and
indirectly  through a network  of  automobile  dealers  in the Tyler and  Gilmer
markets.  Prior  to  purchasing  a loan  contract  from a  dealer,  the  Company
underwrites  each indirect loan in the same manner as its direct loans.  For the
six months ended March 31, 2002,  the Company  originated  approximately  $ 14.0
million in  one-to-four family  residential  loans, which included loans for the
purchase,  refinance, or, construction of one-to-four family  homes. The Company
originated  approximately  $32.8 million in consumer,  (including  home-equity),

                                       16
<PAGE>

commercial  and  commercial  real estate loans during the six months ended March
31, 2002. Approximately $9.9 million of the consumer,  commercial and commercial
real estate loans was originated on an indirect basis.

Investment  securities  available-for-sale  decreased  by $6.3 million from $6.8
million at September  30, 2001 to $528,000 at March 31,  2002.  The decrease was
the result of the Company's  decision to sell approximately 50% of its corporate
debt  securities  portfolio.  The Company elected to sell the corporate bonds in
order to provide  liquidity to fund loans and reduce the  Company's  exposure to
possible  downgrades  of  ratings  on  corporate  debt  in the  portfolio.  This
portfolio now consists of municipal  bonds,  primarily  issued by Upshur County,
where the Company's Gilmer office is located.

Investment securities held-to-maturity was reported as $9.7 million at March 31,
2002,  an increase of $1.9 million  from the $7.8 million  reported at September
30, 2001.  The increase was the result of  additional  purchases of bonds during
the six months ended March 31, 2002.  This portfolio  consists of  approximately
$3.5 million of debt issued by  governmental  agencies such as Federal  National
Mortgage  Corporation,  Federal Home Loan Mortgage  Corporation,  or the Federal
Home  Loan  Bank  System  and  approximately  $6.2  million  of  corporate  debt
securities. All securities in the portfolio are fixed rate and term.

Mortgage-backed securities available-for-sale totaled $22.6 million at March 31,
2002, a decrease of $4.8 million from the $27.4  million at September  30, 2001.
The  decrease  was  primarily  the  result of the  principle  repayments  on the
securities during the six months ended March 31, 2002.

Mortgage-backed  securities  held-to-maturity portfolio totaled $30.7 million at
March 31, 2002, an increase of $5.2 million from the $35.9  million  reported at
September 30, 2001. The increase was primarily due to the Company's  decision to
reinvest  funds in this  portfolio  from  cash  flow  from  its  mortgage-backed
securities  available-for-sale  portfolio.  The additional  securities purchased
were primarily adjustable rate.

Total  deposits were $106.7  million at March 31, 2002, a $8.9 million  decrease
from the $115.6  million  reported at  September  30,  2001.  The  decrease  was
primarily  the result of declines  in  certificates  of deposit  balances as the
Company  elected not to pay higher  interest rates on renewing  certificates  of
deposits during the period.

The Company  reported  $83.1  million in borrowed  funds at March 31,  2002,  an
increase of $8.6 million from the $74.5 million  reported at September 30, 2001.
The increase was  primarily due to the  Company's  decision to utilize  advances
from the FHLB to fund loans and investments.

Stockholder's  equity  totaled  $18.5  million at March 31, 2002, an increase of
$609,000 from the $17.9 million reported at September 30, 2001. The increase was
primarily  attributable to a net increase in retained earnings of $906,000 which
was partially offset by a decline in accumulated other  comprehensive  income of
$298,000.  The increase in retained  earnings was due to the $1.0 million in net
income less  $116,000 in cash  dividends  paid during the six months ended March
31, 2002.


RESULTS OF OPERATIONS

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

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2002
         AND MARCH 31, 2001

General.  Net income for the three  months  ended March 31, 2002 was $370,000 or
$.33 per share,  an increase of $79,000  from the  $291,000,  or $.26 per share,
reported for the three  months ended March 31, 2001.  The increase in net income
was  attributable to a $419,000  increase in net interest income after provision
for  loan  losses,  which  was  partially  offset  by  a  $190,000  decrease  in

                                       17
<PAGE>

noninterest income, a $117,000 increase in non-interest  expense,  and a $34,000
increase in income tax expense.

Net Interest  Income.  For the quarter ended March 31, 2002, net interest income
before  provision for loan losses totaled $1.6 million,  an increase of $513,000
over the $1.1  million  reported  for the quarter  ended March 31,  2001.  On an
annualized  basis,  the $1.6  million in net  interest  income  for the  current
quarter was approximately 3.21% of average  interest-earning assets and 3.07% of
average total assets.  For the quarter ended March 31, 2001, the $1.1 million in
net interest income before provisions for loan losses was approximately 2.28% of
average  interest-earning  assets and 2.17% of  average  total  assets.  Average
interest-earning  assets were approximately $200.8 million for the quarter ended
March 31, 2002, compared to $192.9 million for the quarter ended March 31, 2001.

Total  interest  income was $3.3 million for the quarter ended March 31, 2002, a
decrease of $364,000 from the $3.6 million  reported for the quarter ended March
31,  2001.  The  decrease  was  primarily  due  to  a  decline  in  interest  on
mortgage-backed securities available-for-sale of $560,000, a decline in combined
interest on investment securities  available-for-sale  and investment securities
held-to-maturity  of  approximately  $317,000,  and a  decline  in  interest  on
mortgage loans of $48,000. The declines in interest income were partially offset
by a $369,000  increase  in interest  income on  consumer  and other loans and a
$206,000 increase in income on mortgage-backed securities held-to-maturity.

Interest income on loans-receivable was $2.5 million for the quarter ended March
31, 2002,  compared to 2.1 million for the quarter  ended March 31, 2001.  On an
annualized  basis,  the  $2.5  million  was   approximately   7.73%  of  average
loans-receivable  balances  outstanding  for the quarter  ended March 31,  2002,
compared to  approximately  8.21% for the  quarter  ended  March 31,  2001.  The
increase in interest income on the loan portfolio was primarily the result of an
increase in consumer,  commercial and commercial real estate loan balances.  The
overall  decline  in  interest  rates  over the past 12 months and the number of
mortgage loans  refinanced by the Company  contributed to the decline in overall
yield on the loan portfolio.

Interest  income  from  mortgage-backed  securities  available-for-sale  totaled
$104,000  for the quarter  ended March 31,  2002,  compared to $664,000  for the
quarter ended March 31, 2001. The decrease in income was due to a decline in the
balance of the  portfolio  from $39.0 million at March 31, 2001 to $22.6 million
at March 31, 2002. The decline in the balance in the portfolio resulted from the
sale  of  securities,  principle  repayments,  and  the  Company's  decision  to
re-direct the cash flow into its loan portfolio.

Interest income from the investment  securities  held-to-maturity  portfolio was
$154,000  for the quarter  ended March 31,  2002,  compared to $348,000  for the
quarter ended March 31, 2001.  The decrease in income from the portfolio was due
to a decline in the  balance in the  portfolio  from $15.2  million at March 31,
2001 to $9.7 million at March 31, 2002.  At March 31, 2001,  the  portfolio  was
primarily  comprised of debt issued by Government  agencies such as FHLMC,  FNMA
and the Federal Home Loan Bank System and corporate debt securities.  The agency
securities had call options at the  discretion of the issuer.  As interest rates
declined in 2001, the issuer elected to call the bonds.  The Company  elected to
redirect  cash flow from the called  bonds into its  mortgage-backed  securities
held-to-maturity   portfolio,   its   investment   securities   held-to-maturity
portfolio,  and its loans receivable portfolio.  The result was a decline in the
average balance on the portfolio and a decrease in income from the portfolio.

Interest income on mortgage-backed securities  held-to-maturity totaled $496,000
for the quarter  ended March 31, 2002, an increase of $206,000 from the $290,000
reported for the quarter ended March 31, 2001. The increase was due primarily to
an increase in the balance in the portfolio from $19.1 million at March 31, 2001
to $30.7 million at March 31, 2002 as the Company invested excess cash flow into
adjusted rate mortgage securities.

Interest paid to depositors totaled $1.0 million for the quarter ended March 31,
2002,  a decrease of $496,000  from the $1.5  million  reported  for the quarter
ended March 31,  2001.  On an  annualized  basis,  the $1.0  million in interest
expense on deposits  was  approximately  3.76% for the  quarter  ended March 31,
2002,  compared to 5.47% for the quarter  ended March 31,  2001.  The decline in
interest  expense was  primarily  attributable  to a decline in  certificate  of
deposit  account  balances  as the Company  elected  not to pay higher  rates on
renewing  certificates  of deposit.  The Company relied more heavily on advances
from the FHLB.


                                       18
<PAGE>


Interest on FHLB  advances was  $649,000  for the quarter  ended March 31, 2002,
compared to $1.0 million for the quarter  ended March 31, 2001.  The decrease in
interest expense was a direct result of declining interest rates during 2001. At
March 31,  2001,  the  Company had  approximately  $35.0  million in  short-term
advances,  which re-priced  approximately  every 30 days. As short-term interest
rates  declined in 2001 and 2002,  the Company  benefited  from an overall lower
cost of borrowing as the rate of interest on the  short-term  advances  declined
substantially.  The  short-term  advances had an interest rate of 1.92% at March
31, 2002, compared to 5.12% at March 31, 2001.

Provision  for Loan  Losses.  The Company made  $101,000 in  provision  for loan
losses for the quarter ended March 31, 2002,  compared to $7,000 for the quarter
ended March 31, 2001.  The increase in provision  for loan losses was the result
of the Company's  decision to establish  additional  allowances for loan losses,
due to the increase in volume of consumer  and  commercial  lending.  See "Asset
Quality" and Note 9.

Noninterest  Income.  Noninterest  income totaled $136,000 for the quarter ended
March 31, 2002  compared to $325,000  for the quarter  ended March 31,  2001,  a
$189,000  decrease.  The decrease was primarily due to a decline in gains on the
sale of  interest-earning  assets from  $189,000 for the quarter ended March 31,
2001 to $44,000  for the  quarter  ended March 31,  2002.  In 2001,  the Company
elected to sell a significant  portion of the securities  acquired in the Gilmer
Savings Bank acquisition.  They were predominately  small balance securities and
generally  securities the Company would not normally hold in portfolio.  For the
quarter   ended  March  31,   2002,   the  $44,000  in  gains  on  the  sale  of
interest-earning  assets was the result of gains on the sale of  mortgage  loans
into the secondary market.

Also,  loan servicing  fees were reported as a negative  $23,000 for the quarter
ended March 31, 2002,  compared to $21,000 for the quarter ended March 31, 2001.
The  decrease in income was  primarily  due to the  amortization  of  previously
recognized mortgage servicing rights.

As mortgage interest rates declined in 2001 and 2002, loan customers  refinanced
their mortgages.  Any remaining balance in originated  mortgage servicing rights
associated  with the loan must be expensed at the time the loan is refinanced or
paid off.  The expense is an offset to monthly  serving  fees in the loans.  The
result was an overall decline in net loan servicing fee income.

Noninterest  Expense.  Noninterest  expense was $1.1 for the quarter ended March
31, 2002,  an increase of $117,000 from the $951,000 for the quarter ended March
31, 2001.  The increase in  noninterest  expense was  primarily the result of an
$80,000 increase in compensation and benefits  expense,  mainly  associated with
the  Company's  defined  benefit  pension plan and normal  increases in employee
compensation. In addition, net expenses associated with the Company's foreclosed
asset portfolio increased to $20,000 for the quarter ended March 31, 2002 from a
negative  $29,000 for the quarter ended March 31, 2001. The negative expense for
the  quarter  ended  March 31,  2001 was  primarily  due to gains on the sale of
foreclosed real estate.

Provision for Income Taxes.  The Company  incurred federal income tax expense of
$210,000  or 36.3% or  pre-tax  income for the  quarter  ended  March 31,  2002,
compared to $176,000 or 37.7% or pre-tax  income for the quarter ended March 31,
2001.


COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 2002
         AND MARCH 31, 2001

General.  For the six months  ended March 31,  2002,  the Company  reported  net
income of $1.0  million  or $.91 per common  share and $.90 per  common  share -
assuming  dilution,  compared to $340,000 or $.31 per common  share and $.31 per
common share - assuming  dilution  for the six months ended March 31, 2001.  The
increase in net income was due to a $1.0 million increase in net interest income
after provisions for loan losses and a $219,000 increase in noninterest  income.
The increases were partially offset by a $356,000 increase in income tax expense
and a $194,000 increase in noninterest expense.

Net  Interest  Income.  For the six months  ended March 31,  2002,  net interest
income before  provisions for loan losses  totaled $3.1 million,  an increase of
$1.1 from the $2.0 million  reported for the six months ended March 31, 2001. On
an annualized  basis, the $3.1 million in net interest income before  provisions
for loan  losses  for the  current  period  was  approximately  3.10% of average
interest  earning  assets and 2.95% of average total assets.  For the six months


                                       19
<PAGE>

ended March 31, 2001, the $2.0 million in net interest income before  provisions
for loan losses  was, on an  annualized  basis,  approximately  2.09% of average
interest  earning  assets and 1.99% of average  total assets.  Average  interest
earning assets were approximately  $201.1 million for the six months ended March
31, 2002, compared to $192.2 million for the six months ended March 31, 2001.

Total  interest  income was $6.7 million or 6.63%,  on an annualized  basis,  of
average  interest  earning  assets  for the six  months  ended  March 31,  2002,
compared to $7.3 million or 7.49% of average interest earning assets for the six
months ended March 31, 2001.  The  decrease  was  primarily  due to a decline in
interest on  mortgage-backed  securities  available-for-sale  of $1.1 million, a
decline in combined  interest on investment  securities  available-for-sale  and
investment securities  held-to-maturity of approximately $671,000, and a decline
in interest on mortgage loans of $144,000.  The declines in interest income were
partially offset by a $714,000 increase in interest income on consumer and other
loans and a $649,000 increase in mortgage-backed securities held-to-maturity.

Interest  income on loans  receivable  totaled  $4.8  million for the six months
ended March 31, 2002 an increase of $570,000 from the $4.2 million  reported for
the six months ended March 31, 2001. Average loans receivable balances increased
to $123.6  million for the six months  ended March 31, 2002 from $103.7  million
for the six months  ended  March 31,  2001.  For the six months  ended March 31,
2002,  the $4.8  million  in  interest  income on loans  receivable  was,  on an
annualized basis,  approximately 7.78% of average loans receivable,  compared to
8.17% for the six months ended March 31, 2001.  The increase in interest  income
on loans receivable was primarily  attributable to the increase in loan balances
outstanding  during the six months  ended  March 31,  2002,  compared to the six
months ended March 31, 2001. The increase in loans  receivable was the result of
the Company's continued focus on the origination of consumer and commercial real
estate loans. Consumer loans outstanding,  including home equity and improvement
loans,  increased  from  approximately  $18.1  million  at  March  31,  2001  to
approximately $44.1 million at March 31, 2002.

Interest  income from  mortgage-backed  securities  available-for  sale  totaled
$373,000 for the six months  ended March 31, 2002,  compared to $1.5 million for
the six months  ended  March 31,  2001.  The  decrease  in income was  primarily
attributable to a decrease in the balance in the portfolio from $39.0 million at
March 31, 2001 to $22.4 million at March 31, 2002 as the Company sold securities
in the  portfolio  and  redirected  cash flow  from  principle  payments  on the
securities to its loan and other investment portfolios.

Interest income on investment securities  held-to-maturity  totaled $309,000 for
the six months  ended March 31,  2002,  compared to $742,000  for the six months
ended March 31, 2001. The decrease was due primarily to a decline in the balance
in the  portfolio  from $15.2 million at March 31, 2001 to $9.8 million at March
31,  2002.  The decline in balances in the  portfolio  was due to the  Company's
decision to sell a portion of its corporate debt holdings in the current period.


Interest income on mortgage-backed securities  held-to-maturity was $1.0 million
for the six months ended March 31, 2002, compared to $374,000 for the six months
ended March 31,  2001.  The  increase in interest  income on the  portfolio  was
primarily the result of an increase in the balance  outstanding in the portfolio
from $19.0  million at March 31, 2001 to $30.7  million at March 31,  2002.  The
Company  redirected excess cash flow into this portfolio,  primarily to purchase
adjustable rate securities.

Interest  expense was $3.6  million for the six months  ended March 31,  2002, a
decrease of $1.6 million from the $5.2 million reported for the six-month period
ended March 31, 2001. The $3.6 million in interest  expense reported for the six
month period ended March 31, 2002 was  approximately  3.77% of average  interest
costing liabilities, compared to 5.74% for the same period in 2001.

Noninterest  Income.  Noninterest  income was  $674,000 for the six months ended
March 31,  2002,  compared to $455,000  for the six months ended March 31, 2001.
The  increase  was  attributable  to a  $253,000  increase  in gains on sales of
interest  earning  assets as the Company sold  securities  during the six months
ended  March 31,  2002.  In  addition,  the  Company  reported  $83,000  in loan
origination  and  commitment  fees,  an  increase  of $40,000  over the  $43,000
reported for the six months ended March 31, 2001.  The additional fee income was
due to the Company's  decision to sell, into the secondary  market,  most of the
one-to-four family  loans  originated  during 2001 and 2002.  The  increases  in
noninterest income were partially offset by a $90,000 decline in loan servicing

                                       20
<PAGE>

fees.  The decline in loan  serving fees was the result of the  amortization  of
previously  recorded  originated  mortgage servicing rights. With lower interest
rates many borrowers  refinanced  their mortgage loans during 2001 and 2002. For
any such loan on which the Company had previously recognized originated mortgage
income, the unamortized balance of the rights was charged against loan servicing
income.

Noninterest  Expense.  Noninterest  expense was reported as $2.1 million for the
six-month period ended March 31, 2002, a $194,000 increase from the $1.9 million
reported  for the six months ended March 31,  2001.  The increase was  primarily
attributable to a $153,000  increase in compensation and benefits expense due to
additional  employees and normal compensation  increases.  A $61,000 increase in
net expenses on foreclosed and repossessed assets accounted for a portion of the
increase in noninterest  expense. The increase in net expenses on foreclosed and
repossessed assets was primarily due to expenses associated with the disposition
of repossessed  automobiles from the Company's consumer loan portfolio and other
consumer installment loans.

A $78,000  decrease in amortization of goodwill offset a portion of the increase
in  noninterest  expense.  Under  revised  accounting  guidelines  for the  year
beginning  October 1, 2001, the Company is no longer required to  systematically
amortize goodwill recorded on the statement of financial  position.  The Company
now  monitors,  on at least an annual  basis,  the  balance of  goodwill  in the
financial  statements for any possible  impairment to the recorded  amount.  See
Note 4 and Note 7.

Provision For Income Taxes.  The Company  incurred federal income tax expense of
$561,000 or 35.4% of pre-tax  income for the six months  ended  March 31,  2002,
compared to $206,000 or 37.7% of pre-tax  income for the six months  ended March
31, 2001.

ASSET QUALITY

At March 31, 2002, the Company's  non-performing  assets  (non-performing  loans
plus foreclosed  assets) totaled $1.1 million or .51% of total assets,  compared
to $1.6  million or .74% of total assets at  September  30,  2001.  At March 31,
2002,  non-performing  assets were comprised of non-accruing  one-to-four family
loans,  consumer and other loans delinquent more than 90 days and still accruing
foreclosed one-to-four family, and foreclosed consumer and other loans.

Non-performing  loans  at  March  31,  2002  equaled  $713,000  or .54% of loans
receivable,  compared to $1.3 million or 1.14% of loans  receivable at September
30, 2001. The Company defines  non-performing  loans as any loan past due for 90
days or  more.  All  such  loans  are  accounted  for on a  nonaccrual  basis by
reserving  for 100% of the accrued  interest or placing the loan in a nonaccrual
status when the loan reaches 90 days  delinquent.  At March 31, 2002 the Company
had no loans which were  contractually past 90 days or more and for which it was
still  accruing  interest.  At March 31, 2002, the Company had no "troubled debt
restructurings" as defined in Statement of Financial Accounting Standards No. 15
"Accounting  by Debtors and Creditor for Troubled Debt  Restructurings",  or any
other loans for which the Company has information about possible credit problems
of  borrowers  that would  cause  management  to have  serious  doubts as to the
ability of such borrowers to comply with the preset loan repayment terms.

Classified  assets  totaled  $2.2  million or 1.03% of total assets at March 31,
2002, compared to $2.7 million or 1.27% of total assets at September 30, 2001.

Classified assets and non-performing assets differ in that classified assets may
include loans less than ninety (90) days delinquent.  Also, assets guaranteed by
government agencies such as the Veterans  Administration and the Federal Housing
Administration  are not  included  in  classified  assets  but are  included  in
non-performing assets. At March 31, 2002, $2.0 million of classified assets were
deemed to be substandard and $200,000 assets were classified as doubtful.


The  Company's  allowance  for loan losses  totaled  $723,000 at March 31, 2002,
compared to $769,000  September  30, 2001.  The  allowance  for loan losses as a
percentage  of loans  receivable  equaled  .55% at March  31,  2002 and 0.66% at
September 30, 2001.  The Company uses a methodology  for estimating the adequacy
of its allowance for loan loss that encompasses three separate  components.  The
first component is a historical  loss analysis of loans  segregated by different
loan categories.  A three-year rolling average of annual net gains and losses on
each  category of loans is calculated  and then summed  together to comprise the


                                       21
<PAGE>


first component.  The second component is an estimate of losses on the Company's
list of currently classified assets. A percentage,  generally ranging from 5% to
50% of each  classified  asset,  is  applied to the  balance  of the asset.  The
percentage  for each asset is combined to determine  the second  component.  The
third  component is an  unidentified  risk  component.  The Company  arbitrarily
establishes  a  percentage  of each  category  of net  loans as an  inherent  or
unidentified  risk. The percentages  range from .10% for  one-to-four  family to
..35% for consumer  loans.  The balance in each loan  category is reduced for any
loans  specifically  reviewed by the Company and any classified  assets,  before
applying the percentage  amounts.  At March 31, 2002, the individual  components
were calculated to be $151,000 for the historical  loss component,  $308,000 for
the  classified  asset  component,   and  $201,000  for  the  unidentified  risk
component, a total of $661,000. At September 20, 2001, the individual components
were calculated as $114,000 for the historical loss component,  $331,000 for the
classified asset component,  and $156,000 for the unidentified risk component, a
total of $601,000.

The increase in the  historical  loss component was a direct result of increased
losses on the Company's  consumer  installment  lending  program,  including its
indirect  auto-lending  program.  The decrease in the classified asset component
was the result of the $520,000 decline in classified assets. The increase in the
inherent risk component was due to the overall  increase in the loan  portfolio,
primarily consumer  installment loans, from $115.8 million at September 30, 2001
to $132.4 million at March 31, 2002.

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

At March 31,  2002,  the  Company had  $52,000 in  specific  loan loss  reserves
established,  compared to $142,000 at September  30,  2001.  The decrease in the
specific  reserve was due to a decrease in the balances of loans  exceeding  the
past due limits.

When combined,  the general allowance for loan losses estimate of $661,000,  and
the  $52,000 in  specific  loan loss  allowances  total  $713,000,  which is the
Company's estimate of an adequate total loan loss allowance calculation at March
31,  2002.  The  Company  reported an actual  combined  loan loss  allowance  of
$723,000 in the statement of financial position at March 31, 2002.

In general,  the Company  made no changes to its estimate of the adequacy of the
allowance for loan losses as a result of any actual  changes or expected  trends
in  non-performing  loans.  The Company believes that the overall quality of its
loan portfolio is good.

The Company anticipates that the general trend in the level of the allowance for
loan loss will be to increase the size of the allowance.  The Company expects to
continue  its focus on  increasing  the size of its  consumer,  commercial,  and
commercial real estate loan portfolios. The result would be an expected increase
in the estimated allowance for loan loss under the unidentified risk component.

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, 2002,
the Association had  outstanding  commitments to extend credit on  approximately
$8.8 million of loans.

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


                                       22
<PAGE>


Total stockholders'  equity equaled $18.5 million at March 31, 2002, an increase
of $609,000  million from the $17.9 million  reported at September 30, 2001. The
increase was  primarily the result of a $907,000  increase in retained  earnings
from the $1.0 million net income less the $116,000 in cash dividends paid during
the six months ended March 31, 2002. A $298,000  decrease in unrealized gains on
available-for  sale  securities   partially  offset  the  increase  in  retained
earnings.

As of March 31, 2002, the Company's  reported book value per share,  using total
stockholders'  equity of $18.5 million (net of the cost of unearned ESOP shares)
and  1,162,320  outstanding  shares of common  stock  (the total  issued  shares
including unearned ESOP shares, less treasury shares), equaled $15.94 per share.
Subsequent  to the quarter  ended March 31,  2002,  the  Company  announced  its
intention  to pay a cash  dividend  of  $.05  per  share  on May  22,  2002,  to
stockholders  of record at May 8, 2002.  During the six months  ended  March 31,
2002,  the  Company  paid cash  dividends  of $.10 per share,  which  equates to
approximately 11.0% of the $.91 in earnings per share reported. The Company paid
$.05 per share in cash dividends in the three months ended March 31, 2002, which
is approximately  15.2% of the $.33 in reported  earnings per share. The Company
reported an equity to assets ratio of approximately 8.75% at March 31, 2002.

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

The capital  regulations  require  tangible capital of at least 1.5% of adjusted
total assets (as defined by regulation).  Tangible  capital  generally  includes
common  stockholders'  equity and retained  income,  and certain  non-cumulative
perpetual  preferred  stock and related  income.  In  addition,  all  intangible
assets, other than a limited amount of purchased mortgage-servicing rights, must
be deducted from total capital for calculating compliance with this requirement.
At March 31, 2002, the Association had approximately  $2.2 million of intangible
assets  and other  required  regulatory  adjustments  that were  required  to be
deducted from total capital.

At March 31, 2002, the  Association  had tangible  capital of $15.7 million,  or
7.48% of adjusted total assets,  which is approximately  $12.5 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.

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

At March 31, 2002, the Association had Tier 1 capital equal to $15.7 million, or
7.48%  of  adjusted  total  assets,  which is $7.3  million  above  the  minimum
requirement for capital adequacy purposes of 4.0% as in effect on that date.

The OTS  risk-based  requirement  requires  savings  associations  to have total
capital of at least  8.0% of  risk-weighted  assets.  Total  risk-based  capital
consists  of  core  capital,   as  defined  above  and  supplementary   capital.
Supplementary  capital  consists  of  certain  permanent  and  maturing  capital
instruments  that do not qualify as core capital and general  valuation loan and
lease  loss  allowances  up to a  maximum  of  1.25%  of  risk-weighted  assets.
Supplementary capital may be used to satisfy the risk-based  requirement only to
the  extent of core  capital.  The OTS is also  authorized  to require a savings
association  to maintain an  additional  amount of total  capital to account for
concentration  of credit  risk and the risk of  non-traditional  activities.  At
March 31,  2002,  the  Association  had no capital  instruments  that qualify as
supplementary capital and $667,000 of general loss reserves, which was less than
1.25% of risk-weighted assets.

Certain  exclusions  from  capital  and assets are  required  to be made for the
purpose of  calculating  total  risk-based  capital.  First  Federal had no such
exclusions from capital and assets at March 31, 2002.


                                       23
<PAGE>

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

On March 31, 2002,  First  Federal had total risk based capital of $16.3 million
(including  $15.7 million in Tier 1 capital and $667,000 in loan loss  reserves)
and  risk-weighted  assets of $110.8  million,  or total  risk-based  capital of
14.75% of  risk-weighted  assets.  This amount was $7.5  million  above the 8.0%
requirement in effect on that date.

At March 31, 2002,  the  Association  was also  considered a "well  capitalized"
institution  under the prompt  corrective  action  requirements  of the  Federal
Deposit Insurance Corporation Improvement Act of 1991.

FORWARD-LOOKING STATEMENTS

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

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




                                       24
<PAGE>





                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                 MARCH 31, 2002


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

                           PART II - OTHER INFORMATION

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

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

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

Item 4.  Submissions Of Matters To A Vote Of Security Holders
         ----------------------------------------------------
     None

Item 5.  Other Information.
         ------------------
     None

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

        The following exhibits are filed herewith:

         Exhibit 11.0 - Computation of Earnings Per Share

      (b) Reports on Form 8-K

          During the quarter ended March 31, 2002, the Company filed a report on
          Form 8-K on January 30, 2002 to report the issuance of a press release
          dated January 29, 2002,  announcing the Company's intention to pay, on
          February 20,  2002, a cash  dividend of $.05 per share for the quarter
          ended  December 31,  2001,  to  stockholders  of record on February 6,
          2002.

          Also during the  quarter  ended March 31,  2002,  the Company  filed a
          report on Form 8-K on February 11,  2002,  to report the issuance of a
          press  release  dated  February 11,  2002,  announcing  the  Company's
          earnings for the quarter ended December 31, 2001.



                                       25
<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 15, 2002               /s/ Gerald W. Free
                                  --------------------------------------------
                                  Gerald W. Free
                                  Vice Chairman, President and CEO
                                  (Principal Executive Officer)


Date:  May 15, 2002               /s/  Derrell W. Chapman
                                  --------------------------------------------
                                  Vice President/COO/CFO
                                  (Principal Financial and Accounting Officer)


                                       26