FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549



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

                     For the period ended December 31, 2001

                                       OR

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

               For the transition period from _______ to _______.


                         Commission file number 0-24848


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


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


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


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

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

                                 [X] Yes [ ] No

     The  number of shares of the  registrant's  common  stock  ($.01 par value)
outstanding as of December 31, 2001, was 1,162,320.


<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                December 31, 2001

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

<TABLE>
<CAPTION>
                                      INDEX

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

     Item 1.  Financial Statements

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

         Consolidated Statements of Income, (Unaudited) three months ended
         December 31, 2001, and December 31, 2000........................................ 5

         Consolidated Statement of Changes in Stockholders' Equity, (Unaudited)
         three months ended December 31, 2001............................................ 6

         Consolidated Statements of Cash Flows, (Unaudited) three months ended
         December 31, 2001, and December 31, 2000........................................ 7

         Notes to (Unaudited) Consolidated Financial Statements, December 31, 2001....... 9

     Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations........................................................... 15

Part II - Other Information

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

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

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

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

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

     Item 6.  Exhibits and Reports on Form 8-K........................................... 23

Signature................................................................................ 24
</TABLE>

                                  Page 2 of 24

<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                December 31, 2001

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

PART I - FINANCIAL INFORMATION

     Item 1 - Financial Statements

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

On June 30,  2000,  the Company  acquired by merger 100% of the common  stock of
Gilmer Financial Services,  Inc. ("Gilmer" or "the Gilmer  transaction") and its
wholly owned  subsidiary,  Gilmer  Savings  Bank,  F.S.B.  The  acquisition  was
accounted  for as a purchase  transaction.  Gilmer was merged into the Company's
wholly owned subsidiary,  First Federal Savings and Loan Association. 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 is 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.


                                  Page 3 of 24

<PAGE>

<TABLE>
<CAPTION>

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


                                                                           December 31, 2001   September 30, 2001
                                                                           -----------------   ------------------
                                                                              (Unaudited)
<S>                                                                            <C>                  <C>
                  ASSETS

Cash and due from banks                                                        $   1,761,340        $   2,013,647
Interest-bearing deposits with banks                                               2,348,318            2,824,364
Interest-earning time deposits with financial institutions                           600,000              600,000
Federal funds sold                                                                 2,497,781               86,242
Securities available-for-sale                                                        556,510            6,843,583
Securities held-to-maturity (fair value of $9,986,229 at December 31, 2001
         and $8,075,494 at September 30, 2001)                                     9,755,228            7,765,537
Mortgage-backed securities available-for-sale                                     21,744,717           27,352,449
Mortgage-backed securities held-to-maturity (fair
     value of $35,172,139 at December 31, 2001
     and $36,585,979 at September 30, 2001)                                       34,831,990           35,879,076
Loans receivable, net of allowance for credit losses of $721,390
     at December 31, 2001 and $769,225 at September 30, 2001                     122,680,933          115,847,396
Accrued interest receivable                                                        1,212,026            1,285,582
Federal Home Loan Bank stock, at cost                                              4,356,500            4,323,900
Premises and equipment                                                             2,628,265            2,656,988
Foreclosed assets, net                                                               333,241              259,498
Goodwill, net                                                                      2,170,381            2,170,381
Mortgage servicing rights                                                            143,981              174,128
Other assets                                                                       1,173,715            1,698,338
                                                                               -------------        -------------
     Total Assets                                                              $ 208,794,926        $ 211,781,109
                                                                               =============        =============

     LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
     Non-interest-bearing                                                      $   2,469,205        $   3,319,015
     Interest-bearing                                                            105,442,481          112,292,026
                                                                               -------------        -------------
         Total deposits                                                          107,911,686          115,611,041

     FHLB advances                                                                77,555,312           74,468,248
     Advances from borrowers for taxes and insurance                                  39,171            1,267,900
     Federal income taxes
           Current                                                                   312,558                    0
           Deferred                                                                  550,937              670,706
     Accrued expenses and other liabilities                                        4,148,825            1,849,333
                                                                               -------------        -------------
     Total liabilities                                                           190,518,489          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)                                 14,794,407           14,199,357
     Accumulated other comprehensive income                                          112,762              345,256
     Treasury stock, 722,172 shares at cost                                       (8,867,282)          (8,867,282)
                                                                               -------------        -------------

           Total stockholder's equity                                             18,276,437           17,913,881
                                                                               -------------        -------------
           Total liabilities and stockholders' equity                          $ 208,794,926        $ 211,781,109
                                                                               =============        =============

</TABLE>



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

                                  Page 4 of 23

<PAGE>

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

                                                              Three Months
                                                            Ended December 31,
                                                               (Unaudited)
                                                          2001              2000
                                                      -----------      -----------
<S>                                                   <C>              <C>
INTEREST INCOME
   Loans receivable:
     First Mortgage                                   $ 1,560,174      $ 1,656,335
     Consumer and other loans                             782,940          438,518
   Securities available-for-sale:
     Investment securities                                 83,827          198,352
     Mortgage-backed securities                           268,562          814,520
   Securities held-to-maturity:
     Investment securities                                155,079          394,790
     Mortgage-backed securities                           526,963           83,920
   Deposits with banks                                     16,811           33,259
                                                      -----------      -----------
       Total interest income                            3,394,356        3,619,694
                                                      -----------      -----------
INTEREST EXPENSE

   Deposits                                             1,214,415        1,441,400
   FHLB advances                                          683,010        1,268,842
   Interest expense other bank borrowings                       0                0
                                                      -----------      -----------
       Total interest expense                           1,897,425        2,710,242
                                                      -----------      -----------
       Net interest income before
          provision for loan losses                     1,496,931          909,452
   Provision for loan losses                                9,759           16,234
                                                      -----------      -----------
       Net interest income after
         provision for loan losses                      1,487,172          893,218
                                                      -----------      -----------
NONINTEREST INCOME
   Gain (loss) on sale of interest-earning assets         408,534           10,469
   Loan origination and commitment fees                    49,489           19,899
   Loan servicing fees                                    (36,121)          10,194
   Other                                                  116,468           88,883
                                                      -----------      -----------
       Total noninterest income                           538,370          129,445
                                                      -----------      -----------
NONINTEREST EXPENSE
   Compensation and benefits                              636,771          563,474
   Occupancy and equipment                                107,239          115,339
   SAIF deposit insurance premium                           5,194            5,324
   Foreclosed assets, net                                  14,996            2,986
   Goodwill                                                     0           39,212
   Other                                                  257,107          217,721
                                                      -----------      -----------
       Total noninterest expense                        1,021,307          944,056
                                                      -----------      -----------
Income (loss) before provision for income taxes         1,004,235           78,607

Income tax expense (benefit)                              351,069           29,555
                                                      -----------      -----------
NET INCOME (LOSS)                                     $   653,166      $    49,052
                                                      ===========      ===========

Earnings per common share and earnings  per
   common share - assuming dilution                   $       .58      $      . 04

</TABLE>


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

                                  Page 5 of 24


<PAGE>

<TABLE>
<CAPTION>


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


      THREE MONTHS ENDED
       December 31, 2001

                             Common Stock and                 Unrealized
                            Additional Paid in  Unallocated  Gain(loss) on                       Treasury
                                 Capital        ESOP Shares  AFS Securities Retained Earnings     Stock
                            ------------------ ------------- -------------- ----------------- --------------

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

Comprehensive income:
   Net Income                                                                      653,166
   Unrealized holding gains                                    (232,494)

Comprehensive income


Deferred compensation
   amortization

Payment of cash dividends                                                          (58,116)

Balance December 31, 2001     $ 12,492,147     $ (255,597)    $ 112,762       $ 14,794,407    $ (8,867,282)
                             =============     ==========     =========       ============    ============
<CAPTION>

      THREE MONTHS ENDED
       December 31, 2001


                             Comprehensive  Total Stockholders'
                                 Income           Equity
                             -------------  -------------------

<S>                            <C>           <C>
Balance September 30, 2001     $             $ 17,913,881

Comprehensive income:
   Net Income                    653,166
   Unrealized holding gains     (232,494)
                               ---------
Comprehensive income           $ 420,672          420,672
                               =========

Deferred compensation
   amortization

Payment of cash dividends                         (58,116)

Balance December 31, 2001                    $ 18,276,437
                                             ============
</TABLE>


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


                                  Page 6 of 24


<PAGE>

<TABLE>
<CAPTION>

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


                                                                          For the Three Months Ended
                                                                                 December 31,
                                                                           2001                 2000
                                                                       ------------          -----------
<S>                                                                    <C>                   <C>
Cash flows from operating activities:
     Net income                                                        $    653,164          $    49,052
     Adjustments to reconcile net income to net cash
        provided by operating activities:
         Amortization of deferred loan origination fees                       (681)              (1,486)
         Amortization of premiums and discounts on investment
            securities, mortgage-backed securities, and loans              (13,216)                  277
         Amortization of goodwill                                                 0               39,212
         Compensation charge related to release of ESOP shares                    0                4,975
         Depreciation                                                        37,207               47,707
         Provision for loan losses                                            9,759               16,234
         Stock dividends on FHLB stock                                     (32,600)             (67,500)
         Amortization of mortgage servicing rights                           72,967               27,913
         Net (gain) loss on sale of:
              Loans held for sale                                          (40,209)                (326)
              Foreclosed real estate                                          (309)                  188
              Other repossessed property                                    (6,218)              (2,300)
              Interest earning assets                                     (325,503)                    0
         Proceeds from loan sales                                         4,264,310              716,826
         Originations of loans held for sale                            (4,224,101)            (716,500)
         (Increase) decrease in
              Accrued interest receivable                                    73,556             (74,813)
              Other assets                                                  524,624            (370,666)
         Increase (decrease) in:
              Federal income tax payable                                    312,558               29,555
              Accrued expenses and other liabilities                      2,295,948            1,368,253
                                                                       ------------          -----------
Net cash provided (used) by operating activities                          3,601,256            1,066,601
                                                                       ------------          -----------
</TABLE>

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


                                  Page 7 of 24


<PAGE>

<TABLE>
<CAPTION>

                              EAST TEXAS FINANCIAL SERVICES, INC.
                             CONSOLIDATED STATEMENT OF CASH FLOWS
                                          (UNAUDITED)
                                                                                For the Three Months End
                                                                                       December 31,
                                                                                  2001               2000
                                                                             -------------      -------------
<S>                                                                          <C>                <C>
Cash flows from investing activities
     Net (increase) decrease in interest-earning time deposits                           0             98,000
     Net (increase) decrease in fed funds sold                                  (2,411,539)        (2,031,392)
     Proceeds from sale of corporate debt available-for-sale                     6,308,899                  0
     Purchase of mortgage-backed securities held-to-maturity                    (3,291,949)                 0
     Proceeds from maturities of securities held-to-maturity                    (2,000,000)         1,000,000
     Purchases of mortgage-backed securities
         available-for-sale                                                     (1,000,000)                 0
     Principal payments on mortgage-backed securities available-for-sale         6,562,852          1,119,535
     Principal payments on mortgage-backed securities held-to-maturity           4,358,852            356,143
     Proceeds from redemption of FHLB stock                                              0              1,900
     Net increase in loans                                                      (7,009,138)        (1,487,295)
     Proceeds from sale of foreclosed assets                                       103,133             42,254
     Acquisition costs related to foreclosed assets                                 (2,974)                 0
     Expenditures for premises and equipment                                        (8,484)           (15,861)
     Origination of mortgage servicing rights                                      (42,821)            (8,843)
                                                                             -------------      -------------
Net cash provided (used) by investing activities                                 1,566,831           (925,559)
                                                                             -------------      -------------
Cash flows from financing activities:
     Net increase (decrease) in:
         Deposits                                                               (7,699,355)         5,987,567
         Advances from borrowers                                                (1,226,033)        (1,250,548)
     Proceeds from advances from Federal Home Loan Bank                        242,000,000        237,558,000
     Payment of advances from Federal Home Loan Bank                          (238,912,936)      (242,376,900)
     Dividends paid to stockholders                                                (58,116)           (58,116)
                                                                             -------------      -------------
Net cash provided (used) by financing activities                                (5,896,440)          (139,997)
                                                                             -------------      -------------
Net increase (decrease) in cash and cash equivalents                              (728,353)             1,045

Cash and cash equivalents at beginning of the period                             4,838,011          2,204,723
                                                                             -------------      -------------
Cash and cash equivalents at end of the period                               $   4,109,658      $   2,205,768
                                                                             =============      =============
Supplemental disclosure:
     Cash paid for:
         Interest on deposits                                                $   1,037,841      $     776,207
         Interest on FHLB advances and other borrowed funds                        683,010          1,268,841
         Income taxes                                                                    0                  0

     Transfers from loans to real estate and other
        assets acquired through foreclosures                                       234,999             58,433

     Loans made to facilitate the sale of foreclosed assets                         61,613             54,600
</TABLE>


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


                                  Page 8 of 24


<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY


             NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2001

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



NOTE 1 - BASIS OF PRESENTATION

The  financial  statements  presented  in this report have been  prepared by the
Company  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission for interim  reporting and include all adjustments  which are, in the
opinion  of  management,   necessary  for  fair  presentation.  These  financial
statements  have  not  been  audited  by  an  independent  accountant.   Certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or  omitted  pursuant  to such  rules  and  regulations  for  interim
reporting.  The Company  believes that the  disclosures are adequate to make the
information not misleading.  However,  these financial statements should be read
in conjunction  with the financial  statement and notes thereto  included in the
Company's  Annual  Report on Form 10-KSB for the year ended  September 30, 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 ended December 31, 2001 and 2000,
has been computed based on net income divided by the weighted  average number of
common shares outstanding during the period. For the three months ended December
31, 2001 and 2000,  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  ended
December 31, 2001 and 2000, has been computed based on net income divided by the
weighted average number of common shares outstanding.  In addition,  it includes
the effects of all dilutive potential common shares that were outstanding during
the period.  For the three months ended December 31, 2001 and 2000, the weighted
average number of shares  outstanding for earnings per share - assuming dilution
totaled 1,124,142 and 1,110,497, shares respectively.

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

See Part II, Item 6 - Exhibits for a detailed  presentation  of the earnings per
share calculation for the three-month period ended December 31, 2001 and 2000.



                                  Page 9 of 24
<PAGE>


NOTE 3 - SECURITIES

The  carrying  values  and  estimated  market  values of  investment  securities
available-for-sale as of December 31, 2001, by type of security are as follows:

<TABLE>
<CAPTION>
                       Principal    Unamortized    Unearned     Unrealized     Carrying
                        Balance      Premiums      Discounts    Gain/(Loss)     Value
                       --------      --------      --------      --------      --------
  <S>                  <C>           <C>           <C>           <C>           <C>
  Municipal bonds       535,000             0         3,804        25,314       556,510
                       --------      --------      --------      --------      --------

  Total
  securities           $535,000      $      0      $  3,804      $ 25,314      $556,510
                       ========      ========      ========      ========      ========
</TABLE>



The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity as of December 31, 2001, are as follows:

<TABLE>
<CAPTION>
                                                      Gross            Gross          Estimated
                                    Amortized       Unrealized       Unrealized         Market
                                      Cost            Gains            Losses           Value
                                   ----------       ----------       ----------       ----------
  <S>                               <C>              <C>              <C>              <C>

  Corporate Debt                    6,274,670          150,081            6,882        6,417,869
                                   ----------       ----------       ----------       ----------

  U. S. government agency           3,480,558           87,802                0        3,568,360
                                   ----------       ----------       ----------       ----------

       Total securities            $9,755,228       $  237,883       $    6,882       $9,986,229
                                   ==========       ==========       ==========       ==========
</TABLE>



The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity  as of December 31,  2001,  by  contractual  maturity are shown
below:

<TABLE>
<CAPTION>
                                                                                   Estimated
                                                               Amortized             Market
                                                                  Cost               Value
                                                               ----------          ----------
              <S>                                              <C>                 <C>
              Due in one year or less                          $        0          $        0

              Due after one year through two                    1,000,000           1,045,780
              years

              Due after two years through three years             996,590           1,055,855

              Due after three years through six years           5,758,638           5,884,594

              Due after six years through ten years             2,000,000           2,000,000
                                                               ----------          ----------

                     Total securities                          $9,755,228          $9,986,229
                                                               ==========          ==========
</TABLE>



                                  Page 10 of 24
<PAGE>


The carrying values and estimated market values of  mortgage-backed  and related
securities  available-for-sale  as of December 31, 2001, by type of security are
as follows:

<TABLE>
<CAPTION>

                         Principal           Unamortized         Unearned          Unrealized           Carrying
                          Balance              Premiums          Discounts         Gain/(Loss)            Value
                        -----------          -----------         ---------         -----------         -----------
  <S>                   <C>                  <C>                  <C>             <C>                  <C>
  Fixed Rate            $ 2,220,029          $         0          $20,427         $    76,534          $ 2,276,136

  Adjustable Rate        19,219,470              122,208            2,102              69,005           19,468,581
                        -----------          -----------          -------          ----------          -----------

                        $21,499,499          $   122,208          $22,529         $   145,539          $21,744,717
                        ===========          ===========          =======          ==========          ===========
</TABLE>


The carrying values and estimated market values of  mortgage-backed  and related
securities  held-to-maturity as of December 31, 2001, by type of security are as
follows:

<TABLE>
<CAPTION>
                                                                                                             Estimated
                         Principal           Unamortized           Unearned             Carrying               Market
                          Balance              Premiums            Discounts              Value                Value
                        -----------          -----------          -----------          -----------          -----------
   <S>                  <C>                  <C>                  <C>                  <C>                  <C>
   Fixed Rate            25,152,405                    0               17,232           25,135,173           25,440,662

   Adjustable Rate        9,702,349               16,039               21,571            9,696,817            9,731,477
                        -----------          -----------          -----------          -----------          -----------

                        $34,854,754          $    16,039          $    38,803          $34,831,990          $35,172,139
                        ===========          ===========          ===========          ===========          ===========
</TABLE>


NOTE 4 - CURRENT ACCOUNTING ISSUES

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

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


                                  Page 11 of 24
<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.  Under the  guidelines  of this  Statement,  the
Company has until March 31, 2002 to complete its initial test for  impairment of
the 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 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.  The
Company plans to use treasury  stock for the exercise of options.  The following
is a summary of changes in options outstanding:

<TABLE>
<CAPTION>

     <S>                                                               <C>
     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 December 31, 2001 under stock option plan       148,779
                                                                       =======

Shares available for future grants                                      22,662
                                                                        ======
</TABLE>

During the three months ended  December  31,  2001,  no options were  exercised,
issued, or forfeited.


                                  Page 12 of 24

<PAGE>


NOTE 6 - PROFORMA EFFECTS OF SFAS NO. 142

SFAS No. 142 requires that all periods presented in the statement of income must
be adjusted to exclude  amortization expense (including any related tax effects)
recognized  in the periods  presented  related to goodwill.  The  following is a
condensed  income statement  showing  restatement of income for the three months
ended December 31,2000.

<TABLE>
<CAPTION>
                                                             Three Months Ended
                                                              December 31, 2000
                                                                (Unaudited)
                                                                -----------
                   <S>                                          <C>
                   Reported net income                          $    49,052
                   Add back: goodwill amortization                   39,212
                                                                 ----------

                   Adjusted net income                          $    88,264
                                                                 ==========

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

                   Adjust net income                             $     0.08
                                                                 ==========
</TABLE>

NOTE 7 - SUBSEQUENT EVENT

Subsequent to December 31, 2001, the Company  entered into a contract to add two
additional  drive-up  lanes and improve and expand its parking lot at its Gilmer
location.  The Company  expects that the project will  commence  sometime in the
first quarter of 2002 and will take approximately 70 days to complete. The total
cost  of the  contract  was  approximately  $220,000.  The  company  anticipates
additional  costs of  approximately  $50,000 to  purchase  new  drive-up  teller
equipment and an automatic teller machine.



                                  Page 13 of 24


<PAGE>

NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK

The  outstanding  advances from the FHLB  consisted of the following at December
31, 2001:

<TABLE>
<CAPTION>

           Maturity                  Balance                    Rate
      ------------------     ----------------------        --------------
 <S>        <C>                <C>                              <C>
           01/10/02           $   33,000,000.00                1.85%
           12/05/02           $    5,000,000.00                2.41%
           02/15/02           $       25,000.00                5.98%
           03/08/02           $    2,000,000.00                4.88%
           12/05/03           $    5,000,000.00                3.55%
           02/15/03           $      100,000.00                6.00%
           03/10/03           $    2,000,000.00                5.00%
           09/01/03           $      931,763.38                6.25%
           12/31/04           $      235,181.04                6.09%
           02/15/04           $      100,000.00                6.01%
           01/03/05           $       68,964.53                6.03%
           02/15/05           $      100,000.00                6.04%
           02/15/06           $      150,000.00                6.05%
           04/11/11           $    5,000,000.00                3.73%
           04/11/11           $    5,000,000.00                3.91%
           04/11/11           $    5,000,000.00                4.25%
           06/07/11           $    5,000,000.00                4.38%
           01/01/13           $      409,697.64                6.09%
           01/01/13           $      389,437.44                6.13%
           02/01/13           $      386,152.10                5.91%
           03/03/14           $      734,963.02                5.45%
           04/01/14           $      711,495.87                5.97%
           05/01/14           $      967,937.53                5.66%
           06/01/14           $      738,950.66                5.90%
           07/01/14           $      685,547.23                6.38%
           08/01/14           $      498,131.40                6.37%
           09/01/14           $      629,926.00                6.59%
           10/01/14           $      553,519.14                6.86%
           11/03/14           $    1,366,314.21                6.77%
           12/01/14           $      466,638.77                6.57%
           01/01/15           $      305,692.09                6.73%
                              -----------------

        Total Advances            77,555,312.05
                              =================
</TABLE>

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


                                  Page 14 of 24

<PAGE>

                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                December 31, 2001


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


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

GENERAL

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

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

On June 30, 2000, the Company completed the acquisition of Gilmer and its wholly
owned  subsidiary,  Gilmer Savings Bank, F.S.B. The Company acquired 100% of the
outstanding  stock of Gilmer.  The  transaction  was accounted for as a purchase
transaction.  The assets and  liabilities  of Gilmer were recorded at their fair
market  values as of June 30,  2000.  The  difference  in the net fair  value of
Gilmer's assets and liabilities and the purchase price was recorded as goodwill.

FINANCIAL CONDITION

Total assets were $208.8  million at December 31, 2001, a $2.9 million  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
decrease in investment securities available-for-sale,  a $5.6 million decline in
mortgage-backed  securities  available-for-sale,   a  $1.0  million  decline  in
mortgage-backed  securities  held-to-maturity,  a $476,000  decrease in interest
earning deposits with banks, and a $252,000 decrease in cash and due from banks.
The decreases  were partially  offset by $2.4 million  increase in federal funds
sold, and a $2.0 million increase in investment securities held-to-maturity.

At December 31, 2001,  loans-receivable  totaled $122.7 million,  an increase of
$6.8 million  compared to $115.8  million at September 30, 2001. The increase in
loans-receivable  was primarily the result of the Company's continued efforts to
expand its  origination  of consumer,  commercial,  and  commercial  real estate
loans.  For the quarter ended December 31, 2001, the Company  originated a total
of $15.8 million in consumer, commercial, and commercial real-estate loans.


                                  Page 15 of 24
<PAGE>


The  origination of consumer,  commercial,  and commercial  real estate loans is
primarily  conducted  through the  Company's  full service  banking  location in
Gilmer, Texas and the S. Broadway office in Tyler, Texas. The predominant method
for  originating  these  loans is  through  direct  contacts  with  existing  or
potential new customers.  However,  the Company has increased its origination of
indirect  automobile  loans through a network of dealers in the Tyler and Gilmer
markets.  Prior  to  purchasing  a loan  contract  from a  dealer,  the  Company
underwrites  each indirect loan in the same manner as its direct loans.  For the
quarter  ended  December 31, 2001,  the Company  originated  approximately  $4.6
million in loans through its indirect program.

Consumer and commercial loans (excluding commercial real estate loans) increased
to approximately  $25.7 million at December 31, 2001. The Company  continued its
policy  of  selling  the  majority  of its  one-to-four  family  loans  into the
secondary market during the quarter.

Federal  funds sold totaled  $2.5  million at December 31, 2001,  an increase of
$2.4 million from the $86,000 at September 30, 2001.  The  additional  balances,
which  are  held in a  "sweep"  account  arrangement  with the  Company's  major
correspondent bank, were funds held at the correspondent bank in anticipation of
funding year end tax payments of the  Company's  mortgage  loan  portfolio.  The
Company issues checks to various taxing entities on the last day of the calendar
year, when most property tax accounts are due. These funds remain in the account
for approximately two to three days after the end of the quarter.

Investment securities available-for-sale decreased by $6.3 million to a total of
$557,000 at December 31, 2001. The decrease was due to the sale of approximately
50% of the Company's corporate debt securities portfolio subsequent to September
30, 2001.  The Company  elected to sell the corporate  bonds in order to provide
liquidity  to fund  commercial  real  estate  loans and to 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 $9.8 million at December
31, 2001,  an increase of $2.0 million from the $7.8  reported at September  30,
2001.  The increase was the result of  additional  purchases of bonds during the
quarter ended December 31, 2001. 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  $6.3  million  of  corporate  debt
securities. All securities in the portfolio are fixed rate and term.

Mortgage-backed securities  available-for-sale totaled $21.7 million at December
31, 2001, a decrease of $5.6 from the $27.3 million at September  30, 2001.  The
decrease was the result of principal  repayments  on the bonds in the  portfolio
during the quarter.

Mortgage-backed  securities  held-to-maturity portfolio totaled $34.9 million at
December 31, 2001, a decrease of $1.0 million from the $35.9 million reported at
September  30,  2001.  The  decrease was  primarily  due to  principal  payments
received on the  portfolio  during the period,  which were  partially  offset by
additional purchases of securities during the quarter ended December 31, 2001.

Total deposits were $107.9 million at December 31, 2001, a $7.7 million decrease
from the $115.6  million  reported at  September  30,  2001.  The  decrease  was
primarily  the result of  declines  in  certificate  of deposit  balances as the
Company  elected not to pay higher  interest rates on renewing  certificates  of
deposits during the quarter.

The Company  reported  $77.6 million in borrowed  funds at December 31, 2001, an
increase of $3.1 million from the $74.5 million  reported at September 30, 2001.
The increase was primarily due to the Company's  decision to utilize  short-term
advances from the FHLB to fund loans and investments.


                                  Page 16 of 24

<PAGE>


Stockholder's  equity totaled $18.3 million at December 31, 2001, an increase of
$363,000 from the $17.9 million reported at September 30, 2001. The increase was
primarily attributable to a net increase in retained earnings of $595,000 during
the quarter.  The  increase in retained  earnings was due to the $653,000 in net
income less $58,000 in cash dividends paid during the quarter ended December 31,
2001

At December  31,  2001,  the  Company  reported a book value per share of $15.72
based on 1,162,320 net outstanding shares.

RESULTS OF OPERATIONS

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

COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000

General. Net income for the three months ended December 31, 2001 was $653,000 or
$.58 per share,  an increase of $604,000  from the  $49,000,  or $.04 per share,
reported  for the three months  ended  December  31,  2000.  The increase in net
income was  attributable  to a $594,000  increase in net  interest  income after
provision for loan losses and a $409,000 increase in non-interest  income, which
were  partially  offset by a  $322,000  increase  in income tax  expense,  and a
$77,000 increase in non-interest expense.

Net Interest  Income.  For the quarter  ended  December  31, 2001,  net interest
income  before  provision  for loan losses  totaled $1.5 million and increase of
$587,000 over the $909,000  reported for the quarter ended December 31, 2000. On
an  annualized  basis,  the $1.5 million in net interest  income for the current
quarter was approximately 3.00% of average  interest-earning assets and 2.85% of
average total assets.  For the quarter ended  December 31, 2000, the $909,000 in
net interest income before provisions for loan losses was approximately 1.91% of
average  interest-earning  assets and 1.81% of  average  total  assets.  Average
interest-earning  assets were  approximately  $200 million for the quarter ended
December 31, 2001, compared to $190.1 million for the quarter ended December 31,
2000.

Total interest  income was $3.4 million for the quarter ended December 31, 2001,
a decrease of $225,000  from the $3.6  million  reported  for the quarter  ended
December 31,  2000.  The  decrease  was  primarily  due to a decline in combined
interest on investment securities  available-for-sale  and investment securities
held-to-maturity   of   approximately   $354,000,   a  decline  in  interest  on
mortgage-backed  securities  available-for-sale  of  $546,000  and a decline  in
interest on  mortgage  loans of $96,000.  The  declines in interest  income were
partially offset by a $344,000 increase in interest income on consumer and other
loans and a $443,000 increase in mortgage-backed securities held-to-maturity.

Interest  income on  loans-receivable  was $2.3  million for the  quarter  ended
December 31, 2001,  an increase of $248,000  over the $2.1 million  reported for
the quarter ended  December 31, 2000. On an annualized  basis,  the $2.3 million
was approximately 7.86% of average loans-receivable balances outstanding for the
quarter ended December 31, 2001, compared to approximately 8.15% for the quarter
ended December 31, 2000.  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 and the higher yields on such loans  recorded over the
past 12 months.  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
$269,000 for the quarter ended  December 31, 2001,  compared to $815,000 for the
quarter  ended  December  31,  2000.  The  decrease  in  interest   income  from
mortgage-backed securities available-for-sale was primarily due to a decrease in
the balance in the  portfolio,  from $43.1 million at December 31, 2000 to $21.7
million at December 31, 2001. The decrease in the balance in the


                                  Page 17 of 24

<PAGE>

portfolio was the result of principal  payments on the existing  securities  and
approximately $8.9 million in securities that were sold during 2001. Prepayments
increased  throughout 2001 as interest rates decreased and borrowers  elected to
refinance  mortgage loans.  The Company elected to re-direct cash flow from this
portfolio into its loan and other investment  portfolio.  In addition,  interest
rates on the adjustable rate securities in the portfolio  decreased  during 2001
as  interest  rates  declined  and  accounted  for a portion of the  decrease in
interest income on the portfolio.

Interest income from the investment  securities  held-to-maturity  portfolio was
$155,000 for the quarter ended  December 31, 2001,  compared to $395,000 for the
quarter  ended  December 31, 2000.  The decline in the income from the portfolio
was the result of a decline in the balance in the  portfolio  from $25.0 million
at December  31, 2000 to $9.8  million at December  31,  2001.  A portion of the
securities in the  portfolio  had call options at the  discretion of the issuer,
primarily the FHLB system.  As interest  rates  declined in 2001, the securities
were called and the Company redirected cash flow into its lending operations.

Interest income from investment  securities  available-for-sale  was $84,000 for
the quarter  ended  December 31, 2001 compared to $198,000 for the quarter ended
December 31, 2000. The decrease was due primarily to a decline in the balance in
the portfolio from $8.0 million at December 31, 2000 to $2.5 million at December
31,  2001.  The decline in balances in the  portfolio  was due to the  Company's
decision to sell a portion of its corporate debt holdings.

Interest income on mortgage-backed securities  held-to-maturity totaled $527,000
for the quarter ended December 31, 2001, compared to the $84,000 for the quarter
ended December 31, 2000. The increase in interest  income was due to an increase
in the  balance in the  portfolio  as the  Company  directed  cash flow from its
mortgage-backed   securities   available-for-sale   portfolio   and   investment
securities held-to-maturity portfolio into this portfolio.

Interest paid to depositors  totaled $1.2 million for the quarter ended December
31, 2001, a decrease of $227,000 from the $1.4 million  reported for the quarter
ended  December 31, 2000. The decrease in interest  expense on deposit  accounts
was primarily  attributable to the overall decline in interest rates during 2001
and the decrease in rates on certificate of deposit accounts that matured during
the year.

Interest on FHLB advances was $683,000 for the quarter ended  December 31, 2001,
compared to $1.3 million for the quarter ended  December 31, 2000.  The decrease
in interest expense was a direct result of declining interest rates during 2001.
During 2001,  the Company held a large portion of its FHLB advance  portfolio in
short-term  advances.  As interest  rates  declined  during 2001,  the Company's
interest  expense on advances  decreased.  At December 31, 2001, the Company had
approximately  $33 million in a short-term  FHLB advance that re-priced every 28
days.  The  advance  had an  interest  rate of 1.85%.  Interest  expense on FHLB
advances  for the year  ending  September  30,  2002 will be  influenced  by the
Company's  ability to manage  this  funding  source.  If interest  rates  remain
unchanged,  the  Company  will  continue to benefit  from this low  cost-funding
source. If interest rates increase,  especially  short-term rates, the Company's
interest  expense on FHLB advances  will increase  unless the Company is able to
extend the term on all or a portion of this advance.

Provision for Loan Losses. The Company made $10,000 in provision for loan losses
for the quarter  ended  December 31,  2001,  compared to $16,000 for the quarter
ended  December 31, 2000. The provision for loan losses for both periods was the
result of the Company's decision to establish  additional reserves for losses in
its checking with overdraft privilege program. In 2000, the Company instigated a
program  designed to attract  additional  checking  accounts and to increase fee
income from new and current  checking  accounts.  The  program  allows  approved
checking  account  customers to overdraft  their account up to $500. The Company
agrees to not return the insufficient  checks but charges the customer the usual
insufficient  check charge fee. The Company reviews  overdraft  checking account
balances on a monthly basis to determine if,  additional  reserves for potential
losses in the program or any of its other checking accounts, is warranted.

Noninterest  Income.  Noninterest  income totaled $538,000 for the quarter ended
December 31, 2001 compared to $129,000 for the quarter ended  December 31, 2000,
a $409,000 increase.

The  increase  in  noninterest  income  was  primarily  the result of a $398,000
increase in gains on sales of interest-earning  assets. During the quarter ended
December 31, 2001, the Company elected to sell  approximately  $6 million of its
investment securities available-for-sale portfolio. The Company recorded gain on
the sale of the securities of


                                 Page 18 of 24

<PAGE>


approximately  $325,000.  The  remainder  of the  increase  in gains on sales of
interest-earning  assets  was due to  additional  gains on sales of  one-to-four
family  mortgage  loans into the secondary  market.  As interest  rates declined
during 2001,  the Company  elected to sell more of its  one-to-four  family loan
production than in 2000.

Loan  origination and commitment fees increased by $30,000 for the quarter ended
December 31, 2001,  compared to the quarter ended December 31, 2000. As interest
rates on mortgage  loans  declined  during  2001,  the Company  offered  certain
qualified  existing  mortgage loan customers the opportunity to modify the terms
of their loan. The offer was made to existing  customers  that were  considering
refinancing  their  loan  with  another  lender.  The  Company  charged a fee of
approximately   one  percent  of  the  loan   balance  with  a  maximum  fee  of
approximately  $1,500.  The  program  allowed  the loan  customer  to lower  the
interest  rate on their loan to a current  market  rate at a cost which was much
less than a total  refinance  of the loan.  The majority of the  customers  also
shortened  their loan terms to 180 months or less which  allowed  the Company to
retain the loans in portfolio.

Loan  servicing  fees  decreased by $46,000 from the quarter ended  December 31,
2000 to the quarter ended December 31, 2001. As interest rates on mortgage loans
declined  during 2001 and  customers  refinanced  or modified  their loans,  the
Company was required to amortize any remaining  balance in  originated  mortgage
servicing  rights on the loans which is an offset to the monthly  servicing fees
on the loans  sold.  The result was a net decline in loan  serving  fees for the
current quarter.

Other  non-interest  income totaled $116,000 for the three months ended December
31, 2001,  compared to $89,000 for the three months ended December 31, 2000. The
increase was due to additional  fee income from the Company's  free checking and
checking with overdraft privilege program.

Noninterest Expense.  Noninterest expense was $1.0 million for the quarter ended
December  31,  2001,  an increase of $77,000  from the  $944,000 for the quarter
ended December 31, 2000.

The increase was primarily  attributable  to a $73,000  increase in compensation
and  benefits  expense  due to  additional  employees  and  normal  compensation
increases.  In addition,  an increase in other operating  expenses accounted for
the increase in total non-interest expenses.

A $39,000  decrease in amortization of the goodwill created in the Gilmer merger
offset a portion of the decrease in  noninterest  expenses for the quarter ended
December  31, 2001,  compared to the quarter  ended  December  31,  2000.  Under
revised accounting requirements, the Company will no longer amortize goodwill in
a  periodic  basis  but will be  required  to test the  amount of  goodwill  for
possible impairment on an annual basis. See Note 4 Current Accounting Issues.

Provision for Income Taxes.  The Company  incurred federal income tax expense of
$351,000 or 35.0% or pre-tax  income for the quarter  ended  December  31, 2001,
compared to $30,000 or 37.6% or pre-tax  income for the quarter  ended  December
31, 2000.

ASSET QUALITY

At December 31, 2001, the Company's  non-performing  assets totaled $1.1 million
or .52% of total  assets,  compared to $1.6  million or .74% of total  assets at
September 30, 2001. At December 31, 2001,  non-performing  assets were comprised
of non-accruing  one- to four family loans,  consumer and other loans delinquent
more  than 90 days and  still  accruing,  foreclosed  one- to four  family,  and
foreclosed consumer and other loans.

Non-performing  loans at  December  31, 2001  equaled  $756,000 or .62% of loans
receivable,  compared to $1.3 million or 1.14% of loans  receivable at September
30, 2001.

Classified  assets totaled $2.6 million or 1.23% of total assets at December 31,
2001, compared to $2.7 million or 1.27% of total assets at September 30, 2001.


                                  Page 19 of 24
<PAGE>

Classified assets and non-performing assets differ in that classified assets may
include loans less than ninety (90) days delinquent.  Also, assets guaranteed by
government agencies such as the Veterans  Administration and the Federal Housing
Administration  are not  included  in  classified  assets  but are  included  in
non-performing  assets.  On the basis of management's  review of its assets,  at
December  31,  2001,  the  Company  had   classified   $2.3  million  assets  as
substandard,  $281,000  as  doubtful,  and  $148,000  as loss.  The  Company has
established  a specific  reserve  account  for 100% of the balance of the assets
classified as loss.

The Company's  allowance for loan losses totaled  $721,390 at December 31, 2001,
compared to $769,000 at September  30, 2001.  The allowance for loan losses as a
percentage  of loans  receivable  equaled  .58% at December 31, 2001 and .66% at
September 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

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

The  Association  uses its liquidity and capital  resources  principally to meet
ongoing   commitments  to  fund  maturing   certificates  of  deposit  and  loan
commitments,  maintain  liquidity  and pay operating  expenses.  At December 31,
2001,  the  Association  had  outstanding  commitments  to extend credit on $8.2
million in loans.

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

Total  stockholders'  equity  equaled  $18.3  million at December 31,  2001,  an
increase of $363,000 from the $17.9 million  reported at September 30, 2001. The
increase was  primarily the result of a $595,000  increase in retained  earnings
due to the  $653,000 in net income  reported  for the  three-month  period ended
December 31, 2001 less $58,000 in cash dividends. A decline, due to decreases in
the   value   of   investments   held   in  an   available-for-sale   accounting
classification,  in accumulated other comprehensive  income of $232,000 offset a
portion of the increase in retained earnings.

As of December 31, 2001,  the  Company's  reported  book value per share,  using
total stockholders' equity of $18.3 million (net of the cost of unallocated ESOP
and RRP  shares) and  1,162,320  outstanding  shares of common  stock (the total
issued shares including  unallocated ESOP and RRP shares, less treasury shares),
equaled $15.72 per share. Subsequent to the quarter ended December 31, 2001, the
Company  announced  its  intention  to pay a cash  dividend of $.05 per share on
February 20, 2002, to stockholders of record at February 6, 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  December  31,  2001,  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 December 31, 2001, the Association had tangible capital of $15.6 million,  or
7.53% 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.

                                  Page 20 of 24
<PAGE>


The capital standards also require Tier 1 capital equal to at least four percent
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 December 31, 2001, the Association had Tier 1 capital equal to $15.6 million,
or 7.53% 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 eight  percent 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
December 31, 2001, the  Association had no capital  instruments  that qualify as
supplementary capital and $574,000 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 December 31, 2001.

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  December  31,  2001,  First  Federal  had  total  capital  of $16.1  million
(including  $15.6 million in Tier 1 capital and $574,000 in loan loss  reserves)
and  risk-weighted  assets of $105.4  million,  or total  risk-based  capital of
15.22% of  risk-weighted  assets.  This amount was $7.7  million  above the 8.0%
requirement in effect on that date.

At December 31, 2001, 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.


                                  Page 21 of 24

<PAGE>


                       EAST TEXAS FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                                   FORM 10-QSB

                                DECEMBER 31, 2001


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



                           PART II - OTHER INFORMATION

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

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

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

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

     On January 23, 2002, the Company's Annual Stockholders' Meeting was held to
     elect directors and ratify the appointment of independent  auditors for the
     current  fiscal year. The following are the voting results of each of these
     matters submitted to stockholders.

     The election of M. Earl Davis             For               809,664
     as director for a three year term         Withheld          125,024
     ending January 2005.                      Abstain                 0
                                               Broker Non-Votes        0


     The election of James W. Fair             For               810,438
     and L. Lee Kidd                           Withheld          124,250
     as directors for a three year term        Abstain                 0
     ending January 2005                       Broker Non-Votes        0

     Ratification of the appointment of        For               930,188
     Bryant & Welborn, L.L.P. as               Against             3,500
     independent auditors for the              Abstain             1,000
     fiscal year ending
     September 30, 2002.

     The text of the  matters  referred  to in this  Item 4 is set  forth in the
     Proxy  Statement  dated  December  28,  2001,  previously  filed  with  the
     Securities and Exchange Commission.



                                  Page 22 of 24

<PAGE>

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  December 31, 2001,  the Company filed a report on
     Form 8-K on October 22,  2001,  to report the  issuance of a press  release
     dated October 22, 2001,  announcing a cash dividend for the quarter  ending
     September 31, 2001 and the annual stockholders' meeting.






                                  Page 23 of 24
<PAGE>


                                   SIGNATURES

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


                                   East Texas Financial Services, Inc.


Date: February 14, 2002            /s/ Gerald W. Free
                                   --------------------------------
                                   Gerald W. Free
                                   Vice Chairman, President and CEO
                                   (Principal Executive Officer)


Date: February 14, 2002            /s/ Derrell W. Chapman
                                   -----------------------
                                   Derrell W. Chapman
                                   Vice President/COO/CFO
                                   (Principal Financial and Accounting Officer)



                                  Page 24 of 24