SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC  20549
                      __________________________________

                                 FORM 10-QSB

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

      For the quarterly period ended MARCH 31, 1999

[ ]   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 0-25076


                        GILMER FINANCIAL SERVICES, INC.
(Exact name of small business issuer as specified in its charter)

            Delaware                                  75-2561513
(State or other jurisdiction                      (I.R.S. Employer
    of incorporation or                           Identification or
       organization)                                    Number)


                    218 W. Cass Street, Gilmer, Texas 75644
                   (Address of principal executive offices)

                                (903) 843-5525
                          (Issuer's telephone number)

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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.     Yes  [X]       No  [ ]

      Transitional Small Business Disclosure Format  (check one) :

                               Yes  [ ]       No  [X]

      State the number of Shares outstanding of each of the issuer's classes of
common equity, as of the latest date:

      As of May 17, 1999, there were 195,755 shares of the Registrant's common
stock $.01 par value issued and 192,236 shares outstanding.

<PAGE>

                          GILMER FINANCIAL SERVICES, INC
                CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                    AT MARCH 31, 1999 AND JUNE 30, 1998
                                  (UNAUDITED)

                                                      MARCH 31,      JUNE 30,
                                                        1999           1998
                                                   -------------  ------------
ASSETS
  Cash on hand and in banks                        $   595,806     $   221,885
  Interest bearing deposits                            765,009       1,428,078
  Investment securities                                      
    Available for sale                                 794,790         740,537
    Held to maturity                                       ---             980
  Mortgage-backed securities
    Available for sale                              10,677,068       6,173,964
    Held to maturity                                       ---       8,928,088
  Loans receivable, net                             24,590,569      24,210,781
  Accrued interest receivable                          425,898         409,466
  Real estate and other assets
    acquired in settlement of loans,net                123,217         104,561
  Federal Home Loan Bank stock, at cost                548,300         525,400
  Office properties and equipment, at cost             272,749         279,480
  Federal income taxes                                 (11,592)         76,015
  Prepaid expenses and other assets                    202,744          90,695  
                                                   -----------     -----------
      Total assets                                 $38,984,558     $43,189,930
                                                   ===========     ===========


LIABILITIES
  Deposits                                         $28,152,341     $28,796,905
  Accrued interest payable                              45,926          29,031
  Advances by borrowers for taxes and ins.             343,108         523,303
  Accounts payable and accrued expenses                230,870         187,114
  Advances from Federal Home Loan Bank               6,120,274       9,751,346
                                                   -----------     -----------
    Total liabilities                               34,892,519      39,287,699

STOCKHOLDERS' EQUITY
  Preferred Stock; $.01 par value;
    2,000,000 shares
    authorized; none  issued

  Common stock, $.01 par value, 
    2,000,000 shares
    authorized; 195,755 shares issued                    1,958           1,958
  Additional paid in capital                         1,622,943       1,624,968
  Retained earnings                                  2,647,303       2,458,370
  Less: Shares acquired by 
       Employee Stock Ownership Plan                   (90,045)       (101,790)
    Shares acquired by 
       Recognition and Retention Plan                  (21,553)        (30,273)
    Treasury Stock (3,519 shares, at cost)             (44,234)        (56,527)
  Accumulated other comprehensive income               (24,333)          5,525 
                                                   -----------     -----------
      Total stockholders' equity                     4,092,039       3,902,231 
                                                   -----------     -----------
      Total liabilities and stockholders' equity   $38,984,558     $43,189,930 
                                                   ===========     ===========


 See accompanying notes to the consolidated financial statements.

<PAGE>

                         GILMER FINANCIAL SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
                                   (UNAUDITED)


                                                     1999              1998
                                                -----------       -----------
INTEREST INCOME
  Loans                                         $   545,068       $   537,253
  Investment securities                              10,294             5,306
  Mortgage-backed securities                        164,980           232,746
  Other interest-earning assets                      24,992            15,492
                                                -----------       -----------
    Total interest income                           745,334           790,797

INTEREST EXPENSE 
  Deposits                                          350,025           385,318
  Interest on FHLB advances                         105,472           129,475
                                                -----------       -----------
    Total interest expense                          455,497           514,793

      Net interest income                           289,937           276,004

  Provision for loan losses                          10,500            10,500
                                                -----------       -----------
    Net interest income after provision for
    loan losses                                     279,337           265,504

NONINTEREST INCOME
  Gain on sale of interest-bearing assets                 0            10,283 
  Loan origination & commitment fees                  3,943            10,009
  Loan servicing fees                                21,319            16,935
  Income (loss) from real estate operations            (546)              (88)
  Mortgage servicing rights                           1,883             2,483 
  Other income                                       33,844            26,813
                                                -----------       -----------
    Total noninterest income                         60,443            66,435

NONINTEREST EXPENSE
  Compensation and benefits                         155,345           158,375
  Occupancy and equipment                             9,882            12,493
  Federal insurance premium                           5,826             4,432
  Other expense                                     107,961           225,996
                                                -----------       -----------
    Total noninterest expense                       279,014           401,296
                                                -----------       -----------
      Income before taxes                            60,766           (69,357)

INCOME TAX EXPENSE                                   18,702           (23,414)
                                                -----------       -----------
  Net income(loss)                              $    42,064       $   (45,943)
                                                ===========       =========== 
EARNINGS PER SHARE
 
  Basic                                         $       .23       $      (.25)
                                                ===========       ===========
  
  Diluted                                       $       .23       $      (.24)
                                                ===========       =========== 


See accompanying notes to consolidated financial statements.
<PAGE>

                         GILMER FINANCIAL SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND 1998
                                   (UNAUDITED)





                                                        1999           1998
                                                   -----------    -----------
INTEREST INCOME
  Loans                                            $ 1,678,731    $ 1,622,194
  Investment securities                                 30,893         15,322
  Mortgage-backed securities                           551,107        694,356
  Other interest-earning assets                         82,660         62,468
                                                   -----------    -----------
    Total interest income                            2,343,391      2,394,340

INTEREST EXPENSE 
  Deposits                                           1,089,887      1,188,411
  Interest on FHLB advances                            381,579        365,149
                                                   -----------    -----------
    Total interest expense                           1,471,466      1,553,560
                                                   -----------    -----------
      Net interest income                              871,925        840,780

  Provision for loan losses                             91,000        182,500
                                                   -----------    -----------
    Net interest income after provision for
    loan losses                                        780,925        658,280

NONINTEREST INCOME
  Gain on sale of interest-bearing assets                    0         10,601 
  Loan origination & commitment fees                    32,476         37,320
  Loan servicing fees                                   66,446         57,230
  Income (loss) from real estate operations             (3,895)           985 
  Mortgage servicing rights                             14,129          7,031 
  Other income                                         206,241         70,055
                                                   -----------    -----------
    Total noninterest income                           315,397        183,222

NONINTEREST EXPENSE
  Compensation and benefits                            447,929        447,729
  Occupancy and equipment                               33,147         32,959
  Federal insurance premium                             16,781         13,584
  Other expense                                        316,685        406,386
                                                   -----------    -----------
    Total noninterest expense                          814,542        900,658
                                                   -----------    -----------
      Income before taxes                              281,780        (59,156)

INCOME TAX EXPENSE                                      92,847        (19,946)
                                                   -----------    -----------
  Net income(loss)                                 $   188,933    $   (39,210)
                                                   ===========    =========== 
EARNINGS PER SHARE
 
  Basic                                            $      1.04    $      (.21)
                                                   ===========    ===========
  
  Diluted                                          $      1.02    $      (.21)
                                                   ===========    =========== 


See accompanying notes to consolidated financial statements.

<PAGE>

                         GILMER FINANCIAL SERVICES, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                    FOR THE NINE MONTHS ENDED MARCH 31, 1999
                                   (UNAUDITED)


                                                                     TOTAL
                                                                 STOCKHOLDERS'
                                                                     EQUITY
                                                                --------------
Balance at June 30, 1998                                        $ 3,902,231


Accrual of ESOP Plan Awards                                          11,745


Accrual of RRP Plan Awards                                            8,720


Treasury Shares Reissued for exercise of      
   stock options                                                     10,268

Net Income                                                          188,933
 

Other comprehensive income                                          (29,858)


Comprehensive income                                                159,075

                                                                -----------
Balance at March 31, 1999                                       $ 4,092,039
                                                                =========== 




See accompanying notes to consolidated financial statements.

<PAGE>

                         GILMER FINANCIAL SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND 1998
                                   (UNAUDITED)

                                                    1999                1998
                                                 ----------        -----------
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                      $ 188,933         $  (39,210)
  Adjustments to reconcile net income
   to net cash provided by operating activities
     Depreciation                                    18,315             18,315
     Gain on sale of real estate owned                   --                 --
     Provision of losses on loans and other
       real estate                                   91,000            182,500
    (Gain) Loss on sale of interest bearing assets       --            (10,601)
     Contribution to ESOP Plan                       11,745             11,745
     Contribution to RRP Plan                         8,720              8,720
     Change in assets and liabilities
       (Increase) decrease in mortgage
         servicing rights                            (6,037)            (7,031)
       (Increase) decrease in accrued 
         interest receivable                        (16,432)          (113,096)
       (Increase) decrease in prepaid
         expenses and other assets                 (112,049)           149,624
       (Decrease) increase in advances
         for taxes and insurance                   (180,195)          (118,538)
       (Decrease) increase in accrued
         interest payable                            16,895              2,372 
       (Decrease) increase in federal
         income taxes                                87,607             14,835
       (Decrease) increase in deferred
         loan fees                                     (310)              (831)
       (Decrease) increase in accounts
         payable & accrued expenses                  43,756             57,240
                                                 ----------        -----------
         Net cash provided by operating
         activities                                 151,948            156,044 

CASH FLOWS FROM INVESTING ACTIVITIES 
  Proceeds from sale of investment securities            --                 --
  Purchase of investment securities                (120,000)          (735,000)
  Capital expenditures                              (11,584)           (23,804)
  Purchase of FHLB stock                            (22,900)           (18,000)
  Proceeds from sales of mortgage loans           1,264,324          1,015,144 
  Loans originates, net of payments              (1,747,421)        (1,559,870)
  Sales proceeds from sale of real estate owned          --                 --
  Purchase of securities available for sale      (1,319,426)                -- 
  Sales proceeds from sale of mortgage-
    backed certificates available for sale          830,992                 --
  Principal paydown on mortgage-backed
    certificates                                  4,950,287          1,754,661
                                                 ----------        -----------
      Net cash provided by (used in)
      investing activities                        3,824,272            433,131 

CASH FLOWS FROM FINANCING ACTIVITIES
  Increase (Decrease) in deposits                  (644,564)            57,151  
  Net (decrease)increase in advances from FHLB   (3,631,072)            35,000 
  Reissuance of treasury shares                      10,268                 --
                                                 ----------        -----------
     Net cash provided by financing activities   (4,265,368)            92,151 
                                                 ----------        -----------
     Net increase (decrease) in cash
     and cash equivalents                          (289,148)           681,326  

CASH AND CASH EQUIVALENTS AT BEGIN OF PERIOD      1,649,963          1,896,897
                                                 ----------        -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD       $1,360,815        $ 2,578,223 
                                                 ==========        ===========


See accompany notes to consolidated financial statements.
<PAGE>

                         GILMER FINANCIAL SERVICES, INC.
                   NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The  accounting  and  reporting  policies  and  practices  of  Gilmer  Financial
Services,  Inc.  conform to  generally  accepted  accounting  principles  and to
prevailing practices within the savings and loan industry.

The unaudited  interim  financial  statements  were prepared in accordance  with
instructions  for Form 10-QSB and,  therefore,  do not  include  information  or
footnotes necessary for a complete  presentation of financial position,  results
of operations,  and cash flows in conformity with generally accepted  accounting
principles.  However,  all  adjustments  (consisting  only of  normal  recurring
adjustments)  which,  in the opinion of  management,  are  necessary  for a fair
presentation  of the financial  statements  have been  included.  The results of
operations  for the three and nine month  periods  ended March 31, 1999 and 1998
are not  necessarily  indicative  of the results  which may be  expected  for an
entire fiscal year.

The  OTS  has  adopted  a  regulation  which  requires  that,  for  purposes  of
calculating regulatory capital, unrealized gains or losses related to accounting
for certain  investments  in debt and equity  securities  under SFAS 115 are not
included in the Bank's regulatory capital. As a result of this rule at March 31,
1999,  the Bank's  core,  tangible  and  risk-based  capital  was  increased  by
approximately  $24,333 above the capital calculated in accordance with generally
accepted accounting principles.

Beginning July 1, 1998, the Company adopted the Financial  Accounting  Standards
Board issued  Statement of Financial  Accounting  Standards  No.130,  "Reporting
Comprehensive  Income"  (FAS 130).  This  statement  establishes  standards  for
reporting and display of  comprehensive  income and its components in a full set
of  general-purpose  financial  statements.  The new standard  requires that all
items  that  are  required  to  be  recognized  under  accounting  standards  as
components of comprehensive  income be reported in a financial statement that is
displayed   with   the  same   prominence   as   other   financial   statements.
Reclassification  of  financial  statements  for earlier  periods  provided  for
comparative  purposes is  required.  As a result of adopting  this FAS 130,  the
Company  reported  ($29,858)  in other  comprehensive  income for the nine month
period ended March 31, 1999.


NOTE 2 - RECOGNITION AND RETENTION PLAN

The Board of Directors of the Company adopted and obtained  stockholder approval
at the October 12, 1995 stockholder's  meeting, a Recognition and Retention Plan
(RRP) to enable the Company to provide officers and employees with a proprietary
interest in the Company as incentive to contribute to its success.  Officers and
employees of the Company who are selected by members of a committee appointed by
the Board of Directors of the Company will be eligible to receive benefits under
the RRP.

The Company has  available to award 7,830 shares of Company stock and on October
12, 1996, the Company  awarded 4,303 shares,  with the remainder  being reserved
for future award.  The shares granted are in the form of restricted  stock to be
earned  and  payable  over a  five-year  period  at the  rate of 20%  per  year,
effective on the date of stockholder ratification. Compensation in the amount of
the fair  market  value  of the  common  stock  at the date of the  grant to the
officer or employee will be recognized pro rata over the five years during which
the shares  are earned and  payable.  The  Company  initially  funded the RRP in
October 1995 by issuing 4303 shares of its  previously  authorized  but unissued
common stock.  In October  1996,  the company  repurchased  10,000 shares of its
outstanding  common  stock for  $125,700,  of these  shares  4,303  shares  were
contributed to the RRP to retire shares previously issued. During the year ended
June 30, 1997, the Company awarded an additional  1,200 shares and used Treasury
shares to fund the award.  During the quarter ended  December 31, 1998, the Bank
reissued treasury shares to fund 978 stock options exercised during the quarter.
The remaining  3,519 shares of stock  repurchased are held in treasury shares at
cost. RRP Plan expense totalled $8,720 for the nine month period ended March 31,
1999.

<PAGE>


                         GILMER FINANCIAL SERVICES, INC.
                   NOTES TO THE UNAUDITED FINANCIAL STATEMENTS


NOTE 3 - EARNINGS PER SHARE

Effective  with the quarter  ended  December 31, 1997,  the Company  adopted the
provisions of the  Statement of Financial  Accounting  Standards No. 128,  which
changes  the method of  computing  and  reporting  earnings  per share.  Amounts
previously  reported have been  restated to conform to the new  standard.  Basic
earnings per share for the three and nine month periods ended March 31, 1999 and
1998 have been computed by dividing net earnings by the weighted  average number
of  shares  outstanding.  Shares  controlled  by the ESOP are  accounted  for in
accordance  with Statement of Position 93-6 under which  unallocated  shares are
not  considered  in the  weighted  average  number of  shares  of  common  stock
outstanding.  Diluted  earnings per share have been  computed,  giving effect to
outstanding stock purchase options by application of the treasury stock method.


NOTE 4 - RECLASSIFICATIONS

Certain items previously reported have been reclassified to conform with current
period reporting form. The most significant  changes involve the adoption of the
Statement of Financial Accounting Standards No. 128, which changes the method of
computing  and  reporting  earnings  per  share as  described  in Note 3 and the
adoption of Statement of Financial  Accounting Standards No. 130, which requires
reporting and display of comprehensive income and its components.


<PAGE>


                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

General

     Gilmer  Financial  Services,  Inc.  was  formed  in July of 1994 and is the
holding company and owner of 100% of the common stock of Gilmer Savings Bank FSB
(Bank),  a federally  chartered  stock savings  institution and its wholly owned
subsidiary,  Gilstar Service Corporation (Gilstar),  which offers non-depository
investment  products.  In  this  discussion  and  analysis,   reference  to  the
operations  and financial  condition of the Company  includes the operations and
financial condition of the Bank and Gilstar.

     The Holding Company's  business currently consists of the operations of the
Bank. As a consumer-oriented  financial institution,  the Company offers a range
of banking  services to  residents of its primary  market  area.  The Company is
principally  engaged in the  business of  attracting  deposits  from the general
public and investing those deposits,  along with funds generated from operations
and borrowings, into mortgage,  commercial, and consumer loans. The Company also
invests in  mortgage  and  government  backed  securities  and  certificates  of
deposit.

     The Bank's results of operations are primarily affected by its net interest
income,  which is the difference  between  interest  income earned on its loans,
investment and mortgage-backed securities and other investments, and its cost of
funds  consisting  of interest  paid on deposits and borrowed  funds,  including
Federal  Home Loan Bank  advances.  Net income of the Bank is also  affected  by
non-interest  income,  such  as  loan  origination  and  commitment  fees,  loan
servicing  fees  and  other  income,   and   non-interest   expense,   including
compensation and benefits,  insurance premiums, losses on foreclosed real estate
and  provisions  for losses on loans.  The Bank's  net income  also is  affected
significantly  by  general  economic  conditions  and  competitive   conditions,
particularly  changes  in  market  interest  rates  and  actions  of  regulatory
authorities.

Financial Condition

     March 31, 1999  Compared to June 30,  1998.  Total  assets  decreased  $4.2
million from $43.2  million at June 30, 1998 to $39.0 million at March 31, 1999.
The decrease was primarily  attributable to $5.0 million in principal repayments
on mortgage backed securities,  partially offset by the purchase of $1.3 million
in mortgage-backed  securities, a $380,000 increase in net loans receivable, and
an increase of $112,000 in prepaid and other expenses.

     Cash and cash equivalents  decreased $289,000 from $1.6 million at June 30,
1998 to $1.4 million at March 31, 1999. The decrease was primarily  attributable
to principal repayments on federal home loan bank advances.

     Investment  securities  increased $53,000 from $742,000 at June 30, 1998 to
$795,000 at March 31, 1999.  The increase was due to the purchase of $120,000 of
municipal bonds and an increase in market value of available for sale investment
securities,  partially  offset by the  principal  repayment  of  $120,000 on two
Upshur County bonds that matured during the quarter.

     Mortgage-backed  securities  decreased  $4.4 million from $15.1  million at
June 30, 1998 to $10.7 million at March 31, 1999. The decrease was primarily due
to $4.9  million in  principal  repayments  on  mortgage-backed  securities  and
$800,000 in sales of  mortgage-backed  securities during the quarter,  partially
offset by  purchases  of $1.3  million  in  mortgage-backed  securities.  In the
quarter ended September 30, 1998, the Bank elected to move all of its securities
in the held to maturity category to the available for sale category, in order to
better manage its securities portfolio.

     Loans  receivable were $24.2 million at June 30, 1998, and $24.6 million at
March 31, 1999 an increase of  $380,000,  or 1.54%.  The  increase is  primarily
attributable to an increase in originations of consumer loans due to an increase
in home equity lending.

     Real estate and other  assets  acquired in  settlement  of loans  increased
$18,000  from  $105,000  at June 30, 1998 to  $123,000  at March 31,  1999.  The
increase was primarily due to the  foreclosure on real estate during the quarter
of $15,000, along with repossessed assets of $3,000.

<PAGE>

     Deposits  decreased  $645,000 from $28.8 million at June 30, 1998, to $28.2
million at March 31,  1999.  The  decrease  was due  primarily  to a decrease in
average rates paid on deposits.  Federal Home Loan Bank advances  decreased $3.7
million from $9.8  million at June 30, 1998,  to $6.1 million at March 31, 1999.
The  decrease  was due to the  repayment of advances  from funds  received  from
principal repayments on mortgage-backed securities.

     Advances by  borrowers  for taxes and  insurance  decreased  $180,000  from
$520,000 at June 30, 1998 to $340,000 at March 31, 1999.  The decrease is due to
the  majority of the  property  taxes being paid in the last quarter of calendar
1998.

     Total  stockholders'  equity increased  $190,000 to $4,092,000 at March 31,
1999 from  $3,902,000 at June 30, 1998. This increase was a result of a $189,000
increase  in net income,  a decrease in the  Employee  Stock  Ownership  Plan of
$12,000,  a decrease in the  Recognition  and  Retention  Plan of $8,700,  and a
decrease in treasury  shares of $12,000 due to the  reissuance  of stock to fund
stock  options  exercised,  offset by a $2,000  increase in  additional  paid in
capital  due to the cost  method  of  reissuing  treasury  shares  and a $30,000
increase in accumulated other comprehensive income.

     The Bank continued to exceed all of its regulatory capital  requirements at
March 31, 1999,  with tangible and core capital of $4.0 million (10.21% of total
adjusted assets) and risk-based capital of $4.3 million (18.89% of risk-weighted
assets).

Results of Operations

     The Company's  results of operations  depend  primarily on the level of its
net  interest  income and  non-interest  income  and the amount of  non-interest
expenses. Net interest income depends upon the volume of interest-earning assets
and interest-bearing liabilities and the interest rates earned or paid on them.

Comparison  of  Operating  Results for the Three Months Ended March 31, 1999 and
1998

     General.  Net income for the quarter  ended March 31, 1999 was $42,000,  an
increase of $88,000  from the quarter  ended March 31,  1998.  The  increase was
primarily  due to a decrease in other  expenses  related to the write off of the
dishonored cashiers check in the quarter ended March 31, 1998.
  
     Interest  Income.  Interest  income totaled  $745,000 for the quarter ended
March 31,  1999,  compared to $791,000  for the quarter  ended March 31, 1998, a
decrease  of  $46,000.  Interest  income  on loans  increased  $8,000  due to an
increase  in net loans  receivable,  interest  income on  investment  securities
increased $5,000, and interest income on other interest earning assets increased
$9,000 due to the increase in the average cash  balance,  partially  offset by a
$66,000  decrease in interest  income from  mortgage-backed  securities due to a
decrease in principal balance on mortgage-backed securities.

     Interest  Expense.  Interest expense  decreased  $59,000 primarily due to a
$35,000  decrease in interest  expense on deposits  due to a decrease in average
outstanding  balances  on deposits  and a decrease in the average  rates paid on
deposits,  along with a $24,000  decrease in interest on Federal  Home Loan Bank
advances  due to a decrease in  outstanding  balances on Federal  Home Loan Bank
advances.

     Provision  for Loan Losses.  The Company  maintains  an allowance  for loan
losses based upon  management's  periodic  evaluation of  non-performing  loans,
inherent risks in the loan portfolio,  economic  conditions and past experience.
The  provision  for the three  months ended March 31,  1999,  remained  constant
compared to the three months ended March 31, 1998.

     Non-Interest Income.  Non-interest income decreased $5,000 from $66,000 for
the quarter  ended  March 31,  1998 to $61,000  for the quarter  ended March 31,
1999. The decrease resulted  primarily from a $10,000 decrease from gain on sale
of  interest-bearing  assets,  partially  offset  by a $4,000  increase  in loan
origination and commitment fees.

     Non-Interest Expense. Non-interest expense decreased $122,000 from $401,000
for the quarter ended March 31, 1998, compared to $279,000 for the quarter ended
March 31, 1999.  The decrease was  primarily  due to $118,000  decrease in other
expense  due to the write off of the  $123,000  cashier's  check in the  quarter
ended  March  31,  1998,   partially  offset  by  a  $5,000  increase  in  other
miscellaneous expenses.

     Income  Taxes.  The  provision  for income  taxes  increased  $42,000  from
($23,000)  for the quarter ended March 31, 1998 to $19,000 for the quarter ended
March 31, 1999. The increase is due to an increase in net earnings before income
taxes of $130,000 for the quarter ended March 31, 1999.

Comparison  of  Operating  Results for the Nine Months  Ended March 31, 1999 and
1998

     General.  Net  income(loss)  for the nine  months  ended March 31, 1999 was
$189,000, an increase of $228,000 from the nine months ended March 31, 1998. The
increase  was  primarily  due  to  the  recovery  of  $123,000  relating  to the
dishonored  cashiers  check on which a  settlement  of  $145,000  was reached in
September  1998.  The  remaining  $22,000  was booked to the  general  valuation
allowance account as recovery on loans. The increase was also due to an increase
in net  interest  income of $30,000,  and a decrease in the  provision  for loan
losses of $92,000.
  
     Interest Income.  Interest income  decreased  $51,000 from $2.4 million for
the nine months  ended March 31, 1998 to $2.3  million for the nine months ended
March 31, 1999. Interest income on loans increased $56,000 due to an increase in
net  loans  receivable,  interest  income  on  investment  securities  increased
$16,000, and interest income on other interest-earning assets increased $21,000,
partially offset by a $144,000 decrease in interest income from  mortgage-backed
securities  due  to a  decrease  in the  principal  balance  on  mortgage-backed
securities.

     Interest  Expense.  Interest expense  decreased  $82,000 primarily due to a
$100,000  decrease in interest  expense on deposits due to a decrease in average
outstanding  balances on  deposits,  partially  offset by a $16,000  increase in
interest paid on advances due to an increase in outstanding balances on advances
for the nine months ended March 31, 1999.

     Provision  for Loan Losses.  The Company  maintains  an allowance  for loan
losses based upon  management's  periodic  evaluation of  non-performing  loans,
inherent risks in the loan portfolio,  economic  conditions and past experience.
The provision for the nine months ended March 31, 1999,  decreased  $92,000 from
$183,000 for the nine months ended March 31, 1998, to $91,000 for the nine month
period  ended  March 31,  1998.  The  primary  reason for the  decrease  was the
additional provisions were recorded in the nine months ended March 31, 1998 were
due to  loan  losses  on the  same  individual,  this  decrease  was  offset  by
additional specific reserves of $35,000 that were recorded to guard against loss
on slow pay and delinquent loans,  along with additional  reserves due to growth
in the consumer and commercial loan portfolio.

     Non-Interest  Income.  Non-interest income increased $132,000 from $183,000
for the nine months  ended March 31, 1998 to $315,000  for the nine months ended
March 31, 1999.  The increase  resulted  primarily  from a $136,000  increase in
other income due to the settlement of the dishonored  cashiers  check.  The Bank
received the face amount of the check,  $145,000,  of which,  $123,000  that was
charged off in the March 31, 1998 quarter was booked  directly to income and the
difference of $22,000 to recovery on loans.  Noninterest  income also  increased
due to an $7,000 increase in mortgage servicing rights and an increase of $9,000
in loan servicing fees,  partially offset by a $4,000 increase in loss from real
estate  operations  and a $10,000  decrease in gain on sale of  interest-bearing
assets.

     Non-Interest Expense.  Non-interest expense decreased $86,000 from $901,000
for the nine months  ended  March 31,  1998,  compared to $815,000  for the nine
months  ended March 31,  1999.  The  decrease  was  primarily  due to an $89,000
decrease in other expenses due to the write off of the dishonored cashiers check
in the March 31, 1998 quarter.

     Income  Taxes.  The  provision  for income taxes  increased  $113,000  from
($20,000)  for the nine  months  ended  March 31,  1998 to $93,000  for the nine
months ended March 31, 1999.  The increase is due to an increase in net earnings
before income taxes of $341,000 for the nine months ended March 31, 1999.


YEAR 2000 ISSUE

     Effective June 19, 1997, the Bank adopted a Year 2000 ("Y2K") Policy.  This
policy  implements  steps to assure any problems  relating to software  that has
been written to use a 2 digit field in the year  designation  of a date has been
corrected by year end 1998.  The twentieth  century is assumed to be the default
in such designations,  and will produce results that are wrong by 100 years when
the century is meant to be the twenty first century.

     Financial  institution  regulators recently have increased their focus upon
Y2K compliance issues and have issued guidance  concerning the  responsibilities
of  senior  management  and  directors.   The  Federal  Financial   Institutions
Examination Council ("FFIEC") has issued several  interagency  statements on Y2K
Project Management  Awareness.  These statements require financial  institutions
to,  among other  things,  examine  the Y2K  implications  of their  reliance on
vendors and with respect to data  exchange and the  potential  impact of the Y2K
issue on their  customers,  suppliers,  and  borrowers.  These  statements  also
require each federally regulated  financial  institution to survey its exposure,
measure its risk and prepare a plan to address the Y2K issue. Failure to address
appropriately  the Y2K issue could result in supervisory  action,  including the
reduction of the institution's  supervisory  ratings, or the imposition of civil
money penalties.

     The Company's operating,  processing and accounting operations are computer
reliant and could be  affected by the Y2K issues.  Both the Bank and the Company
are reliant on third-party  vendors for their data  processing  needs as well as
certain  other  significant  functions  and  services.  The Company is currently
working  with its third party  vendors in order to assess  their Y2K  readiness.
While no  assurance  can be given  that such  third  party  vendors  will be Y2K
compliant,  management believes that its mission critical vendors have taken the
appropriate steps to address the issues on a timely basis.

     The Company has formulated  five phases from the  regulatory  guidelines to
attain Y2K compliance. In the Awareness phase the Company formally established a
Y2K plan  headed by a senior  manager,  and a  project  team was  assembled  for
management  of the Y2K  project.  The project team created a plan of action that
included  strategies,  milestone dates, and budget estimates for Y2K compliance.
In the  Assessment  phase  the  Company  developed  strategies  to  achieve  the
objectives  of the Y2K plan,  and a Y2K  business  risk  assessment  was made to
quantify the extent of the  Company's  Y2K  exposure.  Systems were  prioritized
based on business impact and available alternatives.  The mission critical areas
supplied by vendors have been  researched to determine Y2K readiness.  The third
party systems that are not Y2K compliant are being  monitored for compliance and
the Company has identified  replacements  that are Y2K  compliant.  The Bank has
identified  all of our major  customers,  borrowers  with  balances in excess of
$250,000,  and sent letters to them to assess our risk and the Bank has received
responses  from all its  major  customers  and the  Bank's  risk  appears  to be
minimal.  In the  Renovation  phase  the  Company's  systems  revealed  that Y2K
upgrades  were  available  for some of its vendors and all of the  hardware  and
software  systems that  required an upgrade  have been  replaced and were tested
during the  validation  phase.  In the  Validation  phase the Company tested the
ability of the hardware and software to accurately  process date sensitive data.
The Company has completed testing each mission critical system.  The Company has
not  incurred  any Y2K  related  errors in its  testing to date.  The  Company's
validation  phase was completed by December 31, 1998,  for all mission  critical
systems. The Company implemented the renovated systems as of December 31, 1998.
  
     Although our service bureau has been tested for Year 2000  compliance,  the
Office of Thrift Supervision  requires that the Bank have a business  resumption
contingency plan to carry on the main bank activities in case its service bureau
is not up and running.  The Bank has completed the business  resumption plan and
submitted  the plan to an outside  firm to audit,  and  received a  satisfactory
rating.  The Bank has been  audited  by the Office of Thrift  Supervision  three
times,  with the most recent exam concluding in January 1999, for Y2K compliance
and received a satisfactory rating on all exams. While the Company currently has
no reason to believe that the cost of addressing the Y2K issues will  materially
affect the Bank's  operations,  no  assurance  can be made that the third  party
vendors,  on which the Company relies, will become Y2K compliant in a successful
and timely fashion.  Nevertheless, the Company does not believe that the cost of
addressing  the Y2K issues will be a material  event or  uncertainty  that would
cause reported financial information not to be necessarily  indicative of future
operating results or financial conditions. The total cost of the Y2K project for
the Company is estimated to be $44,000.  Expenses of approximately  $25,000 were
incurred and expensed by the Company through March 31, 1999.

<PAGE>



                          PART II. - OTHER INFORMATION



Item 1.     Legal Proceedings

            Not applicable.

Item 2.     Changes in Securities

            Not applicable.

Item 3.     Defaults Upon Senior Securities

            Not applicable.

Item 4.     Submission of Matters to Vote of Security Holders

            None.
  
Item 5.     Other Information

            None.

Item 6.     Exhibits and Reports on Form 8-K

            (a)  Exhibits:
                 Exhibit 27-Financial Data Schedule

            (b)  Reports on Form 8-K
                 Form 8K - Press Release.

























                                   SIGNATURES

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



                            GILMER FINANCIAL SERVICES, INC.

      Date: May 17, 1999              By: /s/ Gary P. Cooper
                                          --------------------------------------
                                              Gary P. Cooper
                                              Pres. and Chief Executive Officer
                                             (Principal Executive Officer)


      Date: May 17, 1999              By: /s/ Sheri Parish
                                          --------------------------------------
                                              Sheri Parish
                                              Vice President/Secretary/Treasurer
                                              (Principal Fin. & Acct. Officer)