<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q


(Mark One)

[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

                                       OR

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

Commission file number         0-14417
                       --------       ------------------------------------

                          FIRST LIBERTY FINANCIAL CORP.
             (Exact name of registrant as specified in its charter)

         Georgia                               58-1680650
(State of incorporation)           (I.R.S. Employer Identification No.)

201 Second Street, Macon, Georgia                       31201    
(Address of principal executive offices)             (Zip Code)

                                 (912) 743-0911
              (Registrant's telephone number, including area code)

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 
                                      ---  ---
Exhibit index appears on page 22.

There were 14,264,867 shares of common stock outstanding as of May 10, 1999.


                                       1

<PAGE>   2

                          FIRST LIBERTY FINANCIAL CORP.
                          Quarterly Report on Form 10-Q
                      For The Quarter Ended March 31, 1999

                                Table of Contents



PART I - FINANCIAL INFORMATION


Item                                                                   Page

1.  Financial Statements:                                              

      Consolidated Statements of Financial Condition                     3

      Consolidated Statements of Income and Comprehensive Income         4

      Consolidated Statements of Cash Flows                              6

      Notes to Consolidated Financial Statements                         7


2.  Management's Discussion and Analysis of Financial                  
      Condition and Results of Operations                               13


PART II - OTHER INFORMATION                                            

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

6.   (a)  Exhibits                                                      22
     (b)  Reports on Form 8-K                                           22

Signatures                                                              23


                                       2
<PAGE>   3


First Liberty Financial Corp. and Subsidiaries
Consolidated Statements of Financial Condition
(Unaudited)

<TABLE>
<CAPTION>
                                                        March 31         September 30
                                                          1999              1998
                                                       -----------       ------------
                                                       (dollars and shares in thousands)
<S>                                                    <C>               <C>        
Assets:
-------
Cash and due from banks                                $    43,442       $    39,253
Federal funds sold                                          17,589             2,071
Securities available-for-sale                              412,858           334,497
Loans available-for-sale, net                               74,580            70,346
Loans, net                                                 941,928           941,653
Accrued interest receivable                                  9,878            10,751
Premises and equipment, net                                 31,501            29,110
Real estate, net                                             1,901             2,239
Intangible assets                                           10,538            10,947
Mortgage servicing rights                                   22,722            13,822
Advances to attorneys for loans originated                  23,577            41,242
Other assets                                                 9,334             7,337
                                                       -----------       -----------
   Total assets                                        $ 1,599,848       $ 1,503,268
                                                       ===========       ===========

Liabilities and Stockholders' Equity:
Deposits:
    Demand                                             $   276,914       $   253,062
    Savings                                                159,039           153,808
    Time                                                   744,697           686,553
                                                       -----------       -----------
        Total deposits                                   1,180,650         1,093,423
Notes payable and other borrowed money                     249,335           244,345
Securities sold under agreements to repurchase              24,292            26,791
Checks payable on loans originated                           3,541             3,091
Other liabilities                                           13,658            13,414
                                                       -----------       -----------
   Total liabilities                                     1,471,476         1,381,064
                                                       -----------       -----------

Commitments and contingencies                                   --                --

Stockholders' equity:
  Common stock ($1.00 par value, 100,000 shares
     authorized, 13,634 and 13,574 shares issued,
     respectively, and 13,612 and 13,552 shares
     outstanding, respectively)                             13,634            13,574
  Additional paid-in capital                                39,016            38,797
  Retained earnings                                         75,704            68,482
  Accumulated other comprehensive income                       287             1,620
  Treasury stock at cost (22 shares)                          (269)             (269)
                                                       -----------       -----------

     Total stockholders' equity                            128,372           122,204
                                                       -----------       -----------
      Total liabilities and stockholders' equity       $ 1,599,848       $ 1,503,268
                                                       ===========       ===========
</TABLE>


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


                                       3
<PAGE>   4


First Liberty Financial Corp. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
(Unaudited)

<TABLE>
<CAPTION>
                                                      Three Months Ended       Six Months Ended
                                                     --------------------    --------------------
                                                           March 31                March 31
                                                       1999        1998        1999       1998
                                                     --------    --------    --------    --------
                                                        (in thousands, except per share data)
<S>                                                  <C>         <C>         <C>         <C>     
Interest Income:
Loans                                                $ 22,410    $ 23,106    $ 45,611    $ 46,373
Securities                                              5,659       4,877      11,523       9,673
Federal funds sold                                        169         156         371         364
                                                     --------    --------    --------    --------
  Total interest income                                28,238      28,139      57,505      56,410
                                                     --------    --------    --------    --------

Interest Expense:
Deposits                                               11,765      11,707      23,614      23,406
Short-term borrowings                                   1,495       2,807       3,964       5,011
Long-term borrowings                                    1,507         392       2,943       1,498
                                                     --------    --------    --------    --------
  Total interest expense                               14,767      14,906      30,521      29,915
                                                     --------    --------    --------    --------
  Net interest income                                  13,471      13,233      26,984      26,495
Provision for estimated losses on loans and leases        808       1,522       1,653       3,236
                                                     --------    --------    --------    --------
  Net interest income after provision for
    estimated losses on loans and leases               12,663      11,711      25,331      23,259
                                                     --------    --------    --------    --------

Noninterest Income:
Deposit account service charges                         1,839       1,683       3,811       3,549
Mortgage banking income                                 3,785         971       6,062       2,895
Gain (loss) on sale of investment securities              (51)         66         (51)         77
Other income                                            1,678       1,699       3,232       2,444
                                                     --------    --------    --------    --------
  Total non-interest income                             7,251       4,419      13,054       8,965
                                                     --------    --------    --------    --------
                                                       19,914      16,130      38,385      32,224
                                                     --------    --------    --------    --------

Noninterest Expense:
Compensation, taxes and benefits                        6,839       5,486      13,352      10,942
Occupancy and equipment                                 1,421       1,174       2,693       2,272
Advertising                                               305         298         611         600
Professional fees                                         224         287         414         589
Data processing                                           736         499       1,363         901
Federal deposit insurance premiums                        178         164         349         332
Amortization of intangible assets                         309         308         617         617
Other expenses                                          2,054       1,554       3,673       3,081
                                                     --------    --------    --------    --------
  Total non-interest expense                           12,066       9,770      23,072      19,334
                                                     --------    --------    --------    --------
  Income before income tax expense                      7,848       6,360      15,313      12,890
Income tax expense                                      2,724       2,165       5,509       4,748
                                                     --------    --------    --------    --------
  Net income                                            5,124       4,195       9,804       8,142
Other comprehensive loss, before tax:

  Unrealized gain (loss) on securities:
     Unrealized holding gain (loss) on
        securities arising during the period             (690)        (34)     (2,102)         49
     Less: reclassification adjustment for
        (gains) losses included in net income              51         (66)         51         (77)
                                                     --------    --------    --------    --------
Other comprehensive loss, before tax                     (639)       (100)     (2,051)        (28)
Income tax benefit related to items
   of other comprehensive loss                            224          35         718          10
                                                     --------    --------    --------    --------
Other comprehensive loss, net of tax                     (415)        (65)     (1,333)        (18)
                                                     --------    --------    --------    --------
Comprehensive income                                 $  4,709    $  4,130    $  8,471    $  8,124
                                                     ========    ========    ========    ========
</TABLE>


                                       4

<PAGE>   5


First Liberty Financial Corp. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
(Unaudited)

<TABLE>
<CAPTION>
                                                         Three Months Ended         Six Months Ended
                                                      -----------------------    ----------------------
                                                               March 31                 March 31
                                                        1999           1998        1999          1998
                                                      --------      ---------    --------      --------
<S>                                                   <C>            <C>          <C>           <C>     
Earnings Per Common Share:              
--------------------------
  Basic                                               $    .38      $     .31    $    .72      $    .61
  Diluted                                             $    .37      $     .31    $    .71      $    .60

Dividends Per Common Share:                           $   .095      $    .068    $    .19      $   .136
---------------------------

Average Number of Shares Outstanding:                                                           
-------------------------------------
  Basic                                                 13,578         13,363      13,601        13,356
  Diluted                                               13,860         13,632      13,837        13,612
</TABLE>


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


                                       5
<PAGE>   6



First Liberty Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

<TABLE>
<CAPTION>
Six Months Ended March 31,                                                            1999         1998
                                                                                    ---------    ---------
                                                                                    (dollars in thousands)
<S>                                                                                 <C>          <C>      
Operating Activities:
Cash flows from operating activities:
  Net income                                                                        $   9,804    $   8,142
     Adjustments to reconcile net income to cash provided by (used in)
     operating activities:
     Depreciation                                                                       1,455        1,174
     Amortization of loan fees, net                                                       553          150
     Provision for estimated losses on loans, real estate and mortgage servicing        1,609        3,298
  rights
     Amortization of intangibles                                                          617          617
     Gain on sale of loans and securities                                              (5,387)      (1,358)
     Loans available-for-sale:
        Disbursements                                                                (540,488)     (60,339)
        Purchases                                                                     (14,551)    (218,395)
        Sales                                                                         557,948      241,802
        Repayments                                                                      1,579          317
     Decrease in accrued interest receivable                                              873          475
     Decrease in accrued interest payable                                                (455)        (225)
     Other, net                                                                        (1,839)      (8,342)
                                                                                    ---------    ---------
        Total adjustments                                                               1,914      (40,826)
                                                                                    ---------    ---------
Net cash provided by (used in) operating activities                                    11,718      (32,684)
                                                                                    ---------    ---------

Investing Activities:
Cash flows from investing activities:
   Net (increase) decrease in federal funds sold                                      (15,518)      15,496
   Securities available-for-sale:
    Purchases                                                                        (203,900)    (158,208)
    Sales                                                                              23,044       11,622
    Maturities and principal payments                                                  99,660      110,804
  Net (increase) decrease in loans                                                       (211)         613
  Acquisition of mortgage servicing rights                                            (10,198)      (3,466)
  Purchases of premises and equipment                                                  (4,045)        (995)
  Proceeds from sales of real estate                                                      419        1,929
  Net (increase) decrease in advances to attorneys for loans originated                17,665      (23,896)
  Other, net                                                                           (2,588)       3,479
                                                                                    ---------    ---------
  Net cash used in investing activities                                               (95,672)     (42,622)
                                                                                    ---------    ---------

Financing Activities:
Cash flows from financing activities:
  Net increase in deposits                                                             87,227       44,895
  Proceeds from notes payable and other borrowed money                                324,500      155,604
  Repayments of notes payable and other borrowed money                               (319,510)    (111,002)
  Net decrease in securities sold under agreements to repurchase                       (2,499)      (1,585)
  Net increase in checks payable on loans originated                                      450        1,388
  Issuance of common stock                                                                279           70
  Dividends paid on stock                                                              (2,304)      (1,791)
                                                                                    ---------    ---------
  Net cash provided by financing activities                                            88,143       87,579
                                                                                    ---------    ---------
Net increase in cash and due from banks                                                 4,189       12,273
Cash and due from banks, beginning of period                                           39,253       39,323
                                                                                    ---------    ---------
Cash and due from banks, end of period                                              $  43,442    $  51,596
                                                                                    =========    =========

Supplemental Disclosures of Cash Flow Information:
Noncash investing and financing activities:
  Real estate foreclosed                                                            $     494    $   2,722
  Financing of sales of foreclosed real estate                                            381        1,099
  Dividends declared but not paid on common stock                                       1,293          852
  Mortgage loans securitized into mortgage-backed securities                               --       13,427
</TABLE>

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



                                       6
<PAGE>   7



                 FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.   Summary of Significant Accounting Policies

The accounting and reporting policies of First Liberty Financial Corp. and
Subsidiaries ("First Liberty" or "the Company") conform to generally accepted
accounting principles and to general practices within the savings and loan
industry. The interim consolidated financial statements included herein are
unaudited but reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of the consolidated financial position,
results of operations and cash flows for the interim periods presented. All
adjustments reflected in the interim financial statements are of a normal
recurring nature. Such financial statements should be read in conjunction with
the financial statements and notes thereto and the report of independent
accountants included in the Company's Form 10-K Annual Report for the fiscal
year ended September 30, 1998. The year end balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. The results of operations for the
three and six months ended March 31, 1999 are not necessarily indicative of the
results to be expected for the full year.

All references to numbers of shares, per share amounts, stock option data and
market prices have been restated to give retroactive effect to the three-for-two
stock split in the form of a stock dividend that was effective April 27, 1998.

All financial information has been retroactively restated to reflect the
Southland Bank Corporation merger that closed in June 1998 and was accounted for
utilizing the pooling-of-interests method of accounting.

On October 1, 1998, the Company adopted SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," which establishes new standards for
public companies to report information about operating segments in annual
financial statements and also requires that those companies report, in the
second year of application, selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. Management has been reviewing First Liberty's information systems to
ensure adequate data is available to provide these required disclosures in the
financial statements for the fiscal year ending September 30, 1999.

On January 1, 1999, the Company adopted SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise," which amends SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities," to require that after the
securitization of mortgage loans held-for-sale, an entity that engages in
mortgage banking activities classify the resulting mortgage-backed securities or
other retained interests based on its ability and intent to sell or hold those
investments. The adoption of

                                       7

<PAGE>   8


                 FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



SFAS No. 134 did not have a material impact on the Company's results of
operations or its financial condition.

Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year consolidated financial
statements' presentation.

2.  Comprehensive Income

On October 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. The purpose of reporting comprehensive
income is to present a measure of all changes in equity that result from
recognized transactions and other economic events of the period other than
investments by owners and distributions to owners. For the Company, the only
primary difference between net income and comprehensive income is the change in
unrealized gains and losses on securities available-for-sale. The Company has
displayed the components of comprehensive income in the accompanying
consolidated statements of income and comprehensive income. Comprehensive income
for the quarter and six months ended March 31, 1998 has been presented to
provide comparable information to the three and six months ended March 31, 1999,
as required.



                                       8
<PAGE>   9


                 FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


3.   Earnings Per Share

The following tables provide a reconciliation of the numerators and denominators
used in calculating basic and diluted earnings per share ("EPS") for the three
and six months ended March 31, 1999 and 1998 (in thousands, except per share
amounts).

<TABLE>
<CAPTION>
                                                                           For the Three Months Ended
                                                               March 31,                                 March 31,
                                                                 1999                                      1998
                                                Income          Shares       Per-Share     Income         Shares        Per-Share
                                              (Numerator)    (Denominator)    Amount     (Numerator)   (Denominator)     Amount
                                              -----------    -------------   ----------  -----------   -------------    ---------
<S>                                           <C>            <C>             <C>         <C>           <C>              <C>    
Basic:   
 Net income applicable to common              $    5,124         13,578       $  0.38    $    4,195        13,363        $  0.31
  stockholders                                ==========                      =======    ==========                      =======


Effect of Dilutive Securities:                                              
  Options                                                           282                                       269   
                                                                 ------                                    ------

Diluted:                                                                                                               
  Net income applicable to common                                                                                      
     Stockholders plus assumed                $    5,124         13,860       $  0.37    $    4,195        13,632        $  0.31
     conversions                              ==========         ======       =======    ==========        ======        =======
</TABLE>


         
<TABLE>
<CAPTION>
                                                                         For the  Six Months Ended
                                                               March 31,                                   March 31,
                                                                 1999                                        1998
                                                Income          Shares          Per-Share     Income        Shares        Per-Share
                                              (Numerator)    (Denominator)       Amount     (Numerator)  (Denominator)     Amount
                                              -----------    -------------      ---------   -----------  -------------    ---------
<S>                                           <C>            <C>                <C>         <C>          <C>              <C>    
Basic:
 Net income applicable to common              $    9,804         13,601         $  0.72      $  8,142       13,356        $  0.61
   stockholders                               ==========                        =======      ========                     =======

Effect of Dilutive Securities:                                                                                        
   Options                                                          236                                        256   
                                                                 ------                                     ------

Diluted:                         
  Net income applicable to common
     Stockholders plus assumed                $    9,804         13,837         $  0.71      $  8,142       13,612        $  0.60
     conversions                              ==========         ======         =======      ========       ======        =======
</TABLE>




Options to purchase 174,689 and 129,760 shares of common stock at an average
price of $21.29 and $21.57 per share were outstanding during the three and six
months ended March 31, 1999, respectively, but were not included in the
computation of diluted EPS because the options' exercise prices were greater
than the average market price of the common shares. The options, which expire at
various dates in 2008 and 2009, were still outstanding at March 31, 1999.



                                       9
<PAGE>   10


                 FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

4.  Mortgage Servicing Rights

Liberty Mortgage, the Company's mortgage banking subsidiary, recognizes mortgage
servicing rights (MSRs) as assets when loans (either originated or purchased
through correspondent relationships) are sold. The value of the MSRs is
determined by allocating total costs incurred between the loan and servicing
rights retained based on their relative fair values. Thus, the MSRs reduce the
basis in the loans originated or purchased and increase the gain (or reduce the
loss) on the sales of loans. The following table outlines the activity in MSRs
for the three and six month periods ended March 31 (dollars in thousands).


<TABLE>
<CAPTION>
                              Three Months Ended      Six Months Ended
                              -------------------    -------------------
                                    March 31              March 31
                              -------------------    -------------------
                                1999       1998        1999        1998
                              --------    -------    --------    -------
<S>                           <C>         <C>        <C>         <C>    
Balance beginning of period   $ 17,833    $ 6,396    $ 13,822    $ 6,571
Capitalized                      5,217      2,241      10,198      3,466

Sold                                --         --          --     (1,118)
Amortized                         (778)      (310)     (1,432)      (592)
Recovery of reserve                450         --         134         --
                              --------    -------    --------    -------
Balance end of period         $ 22,722    $ 8,327    $ 22,722    $ 8,327
                              ========    =======    ========    =======
</TABLE>



The estimated combined fair value of these assets exceeded the book value at
March 31, 1998. However a reserve of $0.75 million was required at March 31,
1999. When determining fair value the Company considers the date of origination,
the average note rate, average remaining term and estimated prepayment speed.
The fair value is calculated by estimating the present value of future net
servicing income.

5.  Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999 (October 1, 1999 for the Company). SFAS No. 133 requires all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether the derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. Due to the present limited use of derivative instruments,
Management anticipates the adoption of SFAS No. 133 will not have a significant
impact on the Company's results of operations or its financial position.


                                       10
<PAGE>   11


                 FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

6.  Subsequent Events

On April 1, 1999, the Company closed its merger with Vidalia Bankshares, Inc.
("VBI"). VBI operates two banking offices, both in Vidalia, Georgia, under the
name of First Community Bank. First Community has assets of approximately $63
million and deposits of approximately $57 million.

On April 28, 1999, the Company announced that it had agreed to be acquired by
BB&T Corporation of Winston-Salem, North Carolina. The transaction has been
approved by the directors of both companies. Based on BB&T's closing price of
$39 on April 26, 1999, First Liberty shareholders will receive .8525 BB&T shares
for each First Liberty share, worth $33.25. However, the final exchange ratio
will be determined based on the actual closing price during a specified period
prior to closing. The merger, which is subject to the approval of the First
Liberty shareholders and banking regulators, is expected to be completed in the
fourth quarter of calendar 1999.

7.  Changes in Stockholders' Equity

The following table summarizes the changes in the components of stockholder's
equity for the period shown (in thousands).

<TABLE>
<CAPTION>
                                                           Additional                   Other                         Total
                                               Common       Paid-in     Retained     Comprehensive     Treasury    Stockholders'
                                                Stock       Capital     Earnings        Income           Stock        Equity
                                               -------     ----------   --------     -------------     --------    -------------
<S>                                            <C>         <C>          <C>          <C>               <C>         <C>
Balance at September 30, 1998                  $13,574       $38,797     $68,482        $ 1,620        $ (269)        $122,204
Common stock dividends declared, $0.19
  per share                                                               (2,582)                                       (2,582)
Common stock issued for exercise of stock
  options--71,925 shares                            72           431                                                       503
Shares cancelled                                   (12)         (212)                                                     (224)
Net change in other comprehensive income                                                 (1,333)                        (1,333)
Net income                                                                 9,804                                         9,804
                                               -------       -------     -------        -------        ------         --------
Balance at March 31, 1999                      $13,364       $39,016     $75,704        $   287        $ (269)        $128,372
                                               =======       =======     =======        =======        ======         ========
</TABLE>
 
                                       11
<PAGE>   12



Report of Independent Accountants



To the Board of Directors
First Liberty Financial Corp.


We have reviewed the accompanying consolidated statement of financial condition
of First Liberty Financial Corp. and subsidiaries as of March 31, 1999 and the
related consolidated statements of income and comprehensive income and of cash
flows for the three-month and six-month periods ended March 31, 1999 and 1998.
These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.


                           PricewaterhouseCoopers LLP


Atlanta, Georgia
May 14, 1999


                                       12

<PAGE>   13


                 FIRST LIBERTY FINANCIAL CORP. AND SUBSIDIARIES
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
                             AND FINANCIAL CONDITION


Overview

First Liberty Financial Corp., headquartered in Macon, Georgia, is a savings and
loan holding company for First Liberty Bank ("Liberty Bank") which operates 37
banking offices in Middle, Coastal and South Georgia, and First Community Bank
of Vidalia in Vidalia, Georgia. Liberty Bank also owns and operates its
wholly-owned subsidiaries, Liberty Mortgage Corporation ("Liberty Mortgage"),
NewSouth Financial Services, Inc. ("NewSouth") and OFC Capital Corporation ("OFC
Capital"), collectively known as "the Company".

Forward-Looking Statements

From time to time, the Company may publish forward-looking statements, such as
the ones in the following paragraphs, relating to such matters as anticipated
financial performance, business prospects, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements.
Some of the risks and uncertainties that may affect the operations, performance,
development and results of the Company's business include but are not limited to
the following:

         a.   Deterioration in local economic conditions;

         b.   Deterioration in national or global economic conditions;

         c.   Significant changes in national or global markets;

         d.   Significant changes in laws and regulations affecting the
              financial services industry; and

         e.   Significant changes in local competition.


                                       13
<PAGE>   14


Results of Operations

The Company's consolidated net income for the quarter ended March 31, 1999 was
$5.1 million compared to $4.2 million for the quarter ended March 31, 1998. As
net interest income remained virtually unchanged, the increase of $929,000 was
primarily attributable to a decrease of $714,000 in the provision for estimated
losses on loans and leases and an increase of $2.8 million in mortgage banking
income. These factors were offset by an increase of $2.3 million in noninterest
expenses.

The Company's net income for the six months ended March 31, 1999 was $9.8
million compared to $8.1 million for the same period in 1998. The increase of
$1.7 million was primarily attributable to a decrease of 49% in the provision
for estimated losses on loans and leases, an increase of 109% in mortgage
banking income offset by an increase of 19% in noninterest expenses.

The Company's net income is most significantly affected by the difference
between interest income on its loan and investment portfolios and the interest
expense of its deposits and borrowings ("net interest income"). Net interest
income is affected by several factors, but is most affected by the volume of and
interest rates on interest-earning assets and interest-bearing liabilities. The
following tables reflect the effective yields and costs of funds for the six
months ended March 31, 1999 and 1998 (dollars in thousands):


<TABLE>
<CAPTION>
                                           Average Balance         Rate/Yield
                                      ------------------------    ------------
                                         1999          1998       1999    1998
                                      ----------    ----------    ----    ----
<S>                                   <C>           <C>           <C>     <C>  
Interest-Earning Assets:
------------------------
  Loans                               $1,007,962    $  977,067    9.05%   9.49%
  Mortgage-backed securities             323,126       229,752    6.07%   6.31%
  Investments                             68,611        82,856    6.08%   6.73%
                                      ----------    ----------    ----    ----
All interest-earning assets           $1,399,699    $1,289,675    8.22%   8.75%
                                      ==========    ==========    ----    ----

Interest-Bearing Liabilities:
----------------------------
  Savings deposits                    $   55,103        54,541    2.07%   2.49%
  Time deposits                          722,023       679,123    5.55%   5.76%
  Other deposits                         368,410       334,497    1.66%   1.93%
  Short-term borrowings                  166,327       185,521    4.78%   5.42%
  Long-term borrowings                   112,311        56,313    5.25%   5.33%
                                      ----------    ----------    ----    ----
All interest-bearing liabilities      $1,424,174    $1,309,995    4.30%   4.58%
                                      ==========    ==========    ----    ----

Interest rate spread                                              3.92%   4.17%
                                                                  ====    ====

Net interest income as a percentage
  of average earning assets                                       3.86%   4.11%
                                                                  ====    ====
</TABLE>

The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Company's interest income and expense during the periods
indicated. For each category, information is provided on changes attributable to
(1) changes in volume (changes in volume multiplied by the old rate), (2)
changes in rate (changes in rate multiplied by the old volume, and (3) changes
in rate/volume (changes in rate multiplied by changes in volume) (dollars in
thousands).



                                       14
<PAGE>   15




<TABLE>
<CAPTION>
                                   March 31, 1999 vs March 31, 1998
                               ----------------------------------------
                                         Increase / (Decrease)
                               ----------------------------------------
                                                Due To
                               ----------------------------------------
                                                     Rate/
                                Rate      Volume     Volume      Total
                               -------    -------    -------    -------
<S>                            <C>        <C>        <C>        <C>     
Changes in Interest Income:
---------------------------
  Loans                        $(2,160)   $ 1,466    $   (68)   $  (762)
  Mortgage-backed securities      (276)     2,946       (112)     2,558
  Investments                     (267)      (480)        46       (701)
                               -------    -------    -------    -------
Total interest income           (2,703)     3,932       (134)     1,095
                               -------    -------    -------    -------

Changes in Interest Expense:
----------------------------
  Savings deposits                (115)         7         (1)      (109)
  Time deposits                   (706)     1,235        (45)       484
  Other deposits                  (449)       327        (45)      (167)
  Short-term borrowings           (588)      (520)        61     (1,047)
  Long-term borrowings             (23)     1,490        (22)     1,445
                               -------    -------    -------    -------
Total interest expense          (1,881)     2,539        (52)       606
                               -------    -------    -------    -------
Net interest income            $  (822)   $ 1,393    $   (82)   $   489
                               =======    =======    =======    =======
</TABLE>


The Company's provision for estimated losses on loans and leases decreased by
47% and 49% for the three and six month periods ended March 31, 1999,
respectively, as compared to the same periods from 1998. Changes in the
allowance for estimated losses on loans and leases for the three and six month
periods ended March 31, 1999 and 1998 are as follows (dollars in thousands).


<TABLE>
<CAPTION>
                                            Three Months Ended    Six Months Ended
                                            ------------------  ------------------
                                                March  31,          March  31,
                                            ------------------  ------------------
                                              1999     1998      1999       1998
<S>                                         <C>       <C>       <C>        <C>    
Balance beginning of period                 $16,079   $15,133   $16,384    $14,389
Provision for estimated losses                  808     1,522     1,653      3,236
Charge-offs, net of recoveries               (1,087)     (837)   (2,237)    (1,807)
Acquired allowances                             518                 518           
                                            -------   -------   -------    -------
Balance end of period                       $16,318   $15,818   $16,318    $15,818
                                            =======   =======   =======    =======
Allowance for loan losses as a percentage
of:
  Non-performing loans                           --        --    141.58%    190.49%
  Loans held-for-investment                      --        --      1.70%      1.68%
</TABLE>


While the provision for estimated losses on loans and leases decreased,
Management believes the resultant allowance level to be adequate based on
internal reviews of nonperforming assets, delinquency trends, rated asset
levels, charge-off trends and the trend of outstanding loans. Management
currently anticipates future provisions for estimated losses on loans and leases
to be consistent with the recent level of net charge-offs and changes in the
outstanding balances, portfolio mix and asset quality. However this could
change if there are significant changes in any of the other factors noted above.

The table below sets forth First Liberty's nonperforming assets at the dates
indicated (dollars in thousands).



                                       15
<PAGE>   16



<TABLE>
<CAPTION>
                                 March 31   December 31    September 30    March 31
                                   1999         1998           1998          1998
                                 ---------  -----------    ------------    ---------
<S>                              <C>        <C>            <C>             <C>      
Non-accrual loans                $  11,526  $     8,958    $      8,736    $   8,304
Foreclosed real estate               1,901        2,056           2,239        3,557
Other repossessed assets               414          775             676          489
                                 ---------  -----------    ------------    ---------

Total non-performing assets      $  13,841  $    11,789    $     11,651    $  12,350
                                 =========  ===========    ============    =========

Total non-performing assets as
  a percentage of total assets         .87%         .74%            .78%          .83%
</TABLE>


The increase of $2.6 million in nonaccrual loans which occurred during the 1999
quarter consisted primarily of a single commercial relationship that is expected
to be resolved without loss to the Company during the June 1999 quarter.

Noninterest income increased by $2.8 million or 64% during the three months
ended March 31, 1999 as compared to the same quarter a year earlier. The
significant contributors to noninterest income are mortgage banking operations,
deposit account service charges and other income. Mortgage banking income,
consisting primarily of mortgage servicing fees, gain on sales of loans, reduced
by any impairment in and amortization of mortgage servicing rights, increased by
$2.8 million primarily due to an increase of $2.2 million in gain on sales of
mortgage loans. The gain on loan sales resulted from the continued record volume
of loan originations as Liberty Mortgage originated $237 million during the 1999
quarter compared to $191 million during the 1998 quarter. Additionally, during
the quarter ended March 31, 1999, an increase in mortgage interest rates
resulted in a recovery of approximately $0.5 million in the impairment reserve
for mortgage servicing rights ("MSR"). The impairment reserve for MSRs
fluctuates with the changes in mortgage interest rates and the size and
composition of the servicing portfolio. Therefore, the value of this asset can
be volatile during periods of rapidly changing rates. In order to help manage
this volatility and reduce concentration risk in MSRs, the Company is presently
planning a significant sale of MSRs during the second half of fiscal 1999, the
gain or loss on which cannot be determined at this time.

Noninterest income increased by $4.1 million or 46% during the six months ended
March 31, 1999 as compared to the same period one year earlier. This increase
resulted from an increase of 109% in mortgage banking income, an increase of 7%
in deposit account service charges and a 32% increase in other noninterest
income. The 1998 mortgage banking income includes a gain of $706,000 on sale of
loan servicing which was not repeated in 1999. Other noninterest income
increased by $788,000 primarily due to added volume at NewSouth, the Company's
consumer finance company, and the addition of OFC Capital, the leasing company,
which the Company acquired in August 1998.

Noninterest expense increased by $2.3 million or 24% for the quarter ended March
31, 1999 as compared to the quarter ended March 31, 1998. Compensation and
benefits increased by 25% due primarily to: an increase in the number of
NewSouth offices, OFC Capital compensation (which wasn't acquired until August
1998), an increase in expenses related to the Company's 


                                       16

<PAGE>   17

performance based compensation plan and an increase in temporary agency
expenses. Data processing expense increased by 47% reflecting continued costs to
upgrade systems to software and hardware which is compliant with Year 2000
requirements. Management expects data processing expenses will continue to
exceed prior year amounts through the remainder of fiscal 1999, although at a
slower rate than experienced in the March 31, 1999 quarter. Occupancy and
equipment expenses increased by 21% reflecting increased costs associated with
the new offices of NewSouth, the acquisition of OFC Capital and additional
depreciation expense on new equipment acquired during 1999 related to technology
upgrades and Year 2000 compliance. Other noninterest expenses increased by 36%
due primarily to additional NewSouth offices and the addition of OFC Capital.

For the six months ended March 31, 1999, noninterest expenses increased by $3.7
million or 19%. The increase resulted primarily from increases of 22%, 19%, 51%
and 19% in compensation and benefits, occupancy and equipment, data processing
and other expenses, respectively. The factors leading to these increases
parallel those factors described above for the quarterly increases.

Mortgage Banking Activities

Liberty Mortgage, the Company's mortgage banking subsidiary, recognizes mortgage
servicing rights (MSRs) as assets when loans (either originated or purchased
through correspondent relationships) are sold. The value of the MSRs is
determined by allocating total costs incurred between the loan and servicing
rights retained based on their relative fair values. Thus, the MSRs reduce the
basis in the loans originated or purchased and increase the gain (or reduce the
loss) on the sales of loans. During the quarters ended March 31, 1999 and 1998,
Liberty Mortgage recorded new MSRs of $5.2 million and $2.2 million,
respectively.

At March 31, 1999, an impairment reserve of $0.75 million was required based on
a valuation of the MSRs. This amount has declined from the December 31, 1998 and
September 30, 1998 requirements of approximately $1.5 million and $1.2 million,
respectively. The estimated aggregate fair value of these assets exceeded the
book value at March 31, 1998. When determining fair value the Company considers
the date of origination, the average note rate and the average remaining term
and estimated prepayment speeds. The fair value is calculated by estimating the
present value of future net servicing income. To the extent the actual or
estimates of prepayments increase, a decline in fair value may require an
increase in the impairment reserve.

Acquisitions

On April 1, 1999, the Company closed it merger with Vidalia Bankshares, Inc.
("VBI"). VBI operates two banking offices, both in Vidalia, Georgia, under the
name of First Community Bank. First Community has assets of approximately $65
million and deposits of approximately $59 million.

Liquidity

The Company's primary sources of funds are deposits, loan repayments, sales and
maturities of securities, loan sales, repurchase agreements, advances from the
Federal Home Loan Bank of 


                                       17

<PAGE>   18

Atlanta and various other borrowings. Deposits provide a source of funds that
are highly dependent on market and other conditions, while loan repayments are a
relatively stable source of funds. The liquidity of Liberty Bank's operation is
measured by the ratio of cash and short-term investments (as defined by federal
regulations) to the sum of withdrawable deposits and borrowings maturing within
one year. Federal regulations currently require institutions to maintain a
liquidity ratio of at least 4%. Liberty Bank complied with a liquidity ratio of
5.0% at March 31, 1999.

Capital Resources

Under current Office of Thrift Supervision ("OTS") guidelines, savings
institutions must satisfy three minimum capital requirements: core, tangible and
risk-based. At March 31, 1999, Liberty Bank's regulatory capital was 7.7% for
both core capital and tangible capital and 12.4% for risk-based capital. These
regulatory capital levels exceeded both the regulatory minimum levels and the
well-capitalized standards under the Prompt Corrective Action regulations
adopted by the FDIC. Failure to maintain well-capitalized status could result in
greater regulatory oversight or restrictions on Liberty Bank's activities.

Commitments

Commitments to originate or purchase loans are generally made at the market rate
prevailing at the time of issuance. The Company had open commitments to
originate or purchase residential mortgage loans of approximately $316 million
at March 31, 1999. Commitments to sell residential mortgage loans and
mortgage-backed securities for were approximately $146 million at March 31,
1999. The Company had no open futures contracts as interest rate hedges related
to loans available for sale or commitments to originate residential mortgage
Loans at March 31, 1999. Loans in process (which represent undisbursed loan
commitments related to construction loans) and unused lines of credit amounted
to $193 million at March 31, 1999.

Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (October 1, 1999 for
the Company). SFAS No. 133 requires all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether the derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Due to the present limited use of
derivative instruments, Management anticipates the adoption of SFAS No. 133 will
not have a significant impact on the Company's results of operations or its
financial position.

Year 2000 

First Liberty has initiated a company-wide program to identify and address
issues associated with the ability of its date-sensitive information, computer,
telephony, business systems and certain equipment to properly recognize the Year
2000 as a result of the century change on January 1, 

                                       18

<PAGE>   19

2000. The program is also designed to assess the readiness of other entities
with which First Liberty does business.

Inability to reach substantial Year 2000 compliance in First Liberty's systems
and integral third party systems could result in interruption of
telecommunications services, interruption or failure of First Liberty's ability
to service customers, failure of operating and other information systems and
failure of certain date-sensitive equipment. Such failures could result in
substantial claims by customers as well as loss of revenue due to service
interruption, delays in First Liberty's ability to service its customers
accurately and timely, and increased expenses associated with litigation,
stabilization of operations following such failures or execution of contingency
plans.

The Year 2000 program is being conducted by a management team that is
coordinating efforts of internal resources as well as third party providers and
vendors in identifying and making necessary changes to First Liberty's systems'
hardware, software and date-sensitive equipment. The program includes all
affiliates of First Liberty. Some of the changes that are necessary in First
Liberty's operations are being made as a part of ongoing systems' upgrades.

First Liberty's Year 2000 program has been divided into five phases: Awareness;
Assessment; Renovation; Validation; and Implementation. First Liberty monitors
its progress within these five phases based on the number of inventoried items
that have been addressed. Management's target date for completion of all phases
for its mission critical applications is June 30, 1999. Mission critical
applications include those that (1) directly affect delivery of primary services
to First Liberty's customers; (2) directly affect First Liberty revenue
recognition and collection; (3) would create noncompliance with any statutes or
laws; and (4) would require significant costs to address in the event of
noncompliance.

First Liberty has identified four main areas of focus for its Year 2000 program.
Each focus area includes the hardware, software, embedded chips, third party
vendors and suppliers as well as third party networks that are associated with
the identified systems.

The first focus area, Mission Critical Applications and Systems, consists of
software and hardware that comprise the core of First Liberty's financial and
customer servicing systems. Outside suppliers provide all hardware and most
software that comprise First Liberty's networks and core systems. These
components are being remediated by third party suppliers, contract staff and
internal staff. Testing of these components for Year 2000 compliance is being
performed by the vendors and First Liberty. As of March 31, 1999, the Awareness,
Assessment, Renovation and Validation phases for First Liberty's mission
critical applications were each approximately 95% to 100% complete, and the
remaining phase, Implementation, is approximately 35% to 40% complete.

The second focus area, Business Partners, Suppliers and Vendors, includes
notification and determination of Year 2000 status for each. These entities are
being asked to respond to a survey designed to evaluate each with regard to Year
2000 risk to First Liberty. As of March 31, 1999, the Awareness, Assessment,
Renovation and Validation phases were each approximately 95% to 100% complete.
The remaining phase, Implementation, is approximately 90% to 100% complete.


                                       19

<PAGE>   20

The third focus area, Risk Management, includes reviewing Corporate Borrowers
(Fund Takers), Funds Providers and Capital Market/Asset Management
counterparties for Year 2000 readiness. These entities are also being asked to
respond to a survey designed to evaluate each with regard to Year 2000 risk to
First Liberty. As of March 31, 1999, the Awareness, Assessment, Renovation and
Validation phases were each approximately 98% to 100% complete. The remaining
phase, Implementation, is approximately 90% to 100% complete.

Building and environmental systems, the fourth focus area, includes various
products and systems that are not used in support of network or customer support
functions. Building and environmental systems are primarily provided by third
parties and include building operations, copy machines, security systems, voice
telephone systems, printed forms, etc. As of March 31, 1999, the Awareness,
Assessment, Renovation and Validation phases were each approximately 98% to 100%
complete. The remaining phase, Implementation, is approximately 35% to 40%
complete.

As of March 31, 1999, for First Liberty's overall Year 2000 Project Plan, the
Awareness phase was approximately 98% to 100% complete, the Assessment phase was
approximately 98% to 100% complete, the Renovation phase was approximately 98%
to 100% complete, the Validation phase was approximately 85% to 95% complete and
the Implementation phase was approximately 35% to 40% complete.

Over the years, First Liberty has developed numerous contingency plans for
conducting its business operations in the event of crises including system
outages and natural disasters. As a part of its Year 2000 compliance efforts,
First Liberty is modifying its Corporate Contingency Plan to ensure that tested
contingency plans are in place for each of its critical applications in the
event that planned Year 2000 compliance testing activities for its mission
critical applications are not successful and in the event that a mission
critical application should fail as a result of the date roll-over to January 1,
2000. This effort is not limited to the risks posed by the potential Year 2000
failures of internal information systems and infrastructures, but also includes
the potential secondary impact on First Liberty of Year 2000 failures, including
potential systems failures of business partners and infrastructure service
providers. Major milestones for the contingency plan include assessments of
individual plans by March 31, 1999, and the completion of testing by June 30,
1999.

Expenses associated with First Liberty Financial Corp.'s Year 2000 compliance
for fiscal year 1999 are estimated to be between $400,000 and $600,000.
Additionally, First Liberty estimates the total cost of its capital investments
will be between $2 million and $3 million over the life of the project. First
Liberty intends to continually reassess the estimated costs and status of Year
2000 remediation efforts.

First Liberty currently anticipates that its mission critical applications will
be Year 2000 compliant by June 30, 1999. However, no assurance can be given that
unforeseen circumstances will not arise during the performance of the testing
and implementation phases that would adversely affect the Year 2000 compliance
of First Liberty's systems. Furthermore, the Year


                                       20
<PAGE>   21

2000 compliance status of integral third party suppliers and networks, which
could adversely impact First Liberty's mission critical applications, cannot be
fully known. As a result, First Liberty is unable to determine the impact that
any system interruption would have on its results of operations, financial
position and cash flows. However, such impact could be material.

Subsequent Events

On April 28, 1999, the Company announced that it had agreed to be acquired by
BB&T Corporation of Winston-Salem, North Carolina. The transaction has been
approved by the directors of both companies. Based on BB&T's closing price of
$39 on April 26, 1999, First Liberty shareholders will receive .8525 BB&T shares
for each First Liberty share, worth $33.25. However, the final exchange ratio
will be determined based on the actual closing price during a specified period
prior to closing. The merger, which is subject to the approval of the First
Liberty shareholders and banking regulators, is expected to be completed in the
fourth quarter of calendar 1999.

                                       21
<PAGE>   22


PART II - Other Information

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

         At the 1999 First Liberty Meeting of Stockholders held on January 27,
1999, there were 11,889,243 shares present in person or in proxy of the
13,556,629 shares of common stock entitled to vote at the Annual Meeting.

         Proposal 1 - Election of Directors. The stockholders elected C. Lee
Ellis, Robert F. Hatcher, Ken B. Lanier and Thomas H. McCook as directors of the
Company for a three-year term ending in 2002. There were no solicitations in
opposition to management's nominees. The director nominees received the
following votes:

<TABLE>
<CAPTION>
                                      Number of Votes
                                --------------------------
                                   For            Withheld 
                                ----------        --------
<S>                             <C>               <C>    
C. Lee Ellis                    11,767,597        121,646
Robert F. Hatcher               11,767,450        121,793
Ken B. Lanier                   11,767,247        121,996
Thomas H. McCook                11,767,597        121,646
</TABLE>


         Proposal 2 - Proposal to Increase First Liberty's Authorized Common
Stock. The stockholders approved a proposal to amend the articles of
incorporation to increase the authorized shares of First Liberty common stock
from 25,000,000 to 100,000,000. The votes were as follows:

<TABLE>
<CAPTION>
                                 Number of Votes
<S>                              <C>       
For                                10,963,587
Against                               890,196
Abstain                                35,460
</TABLE>

Item 6. Exhibits and Reports on Form 8-K

a)       Exhibits
         Exhibit 15        Awareness Letter of PricewaterhouseCoopers LLP
         Exhibit 27        Financial Data Schedule (for SEC use only)

b)       Reports on Form 8-K
         The Company did not file any reports on Form 8-K during the three
         months ended March 31, 1999.



                                       22
<PAGE>   23


                                   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.


                          FIRST LIBERTY FINANCIAL CORP.
                                  (Registrant)


DATE:   May 14, 1999                    /s/  David L. Hall          
        --------------------            ----------------------------
                                        David L. Hall
                                        Executive Vice President and
                                        Chief Financial Officer

DATE:   May 14, 1999                    /s/  Michael B. Smith
        --------------------            -----------------------------
                                        First Vice President and
                                        Controller


                                       23