<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    December 31, 1997          
                               ---------------------------------

                                     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               31297       
----------------------------------------------------------------
(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 19.

There were 7,748,487 shares of Common Stock outstanding as of 
February 13, 1998.

                                           
                                Page 1 of 21

<PAGE>  2


                        FIRST LIBERTY FINANCIAL CORP.
                        -----------------------------
                       QUARTERLY REPORT ON FORM 10-Q
                       -----------------------------
                   FOR THE QUARTER ENDED DECEMBER 31, 1997
                   ---------------------------------------

                              Table of Contents


PART I - FINANCIAL INFORMATION
------------------------------

Item                                                                Page
----                                                                ----


1.  Financial Statements:

      Consolidated Statements of Financial Condition                  3

      Consolidated Statements of Income                               4

      Consolidated Statements of Cash Flows                           6

      Notes to Consolidated Financial Statements                      8

      Independent Accountants' Report                                11

2.  Management's Discussion and Analysis of Financial          
      Condition and Results of Operations                            12 


PART II - OTHER INFORMATION
---------------------------

4.  Submission of Matters to a Vote of Securities Holders            17

6.  Exhibits and Reports on Form 8-K                                 17

    Signatures                                                       18
  
    Index of Exhibits                                                19











                                      2

<PAGE>  3


First Liberty Financial Corp. and Subsidiaries  
----------------------------------------------
Consolidated Statements of Financial Condition
----------------------------------------------
(Unaudited)
-----------
                                                 December 31,     September 30,
                                                 ------------     -------------
                                                      1997             1997
-------------------------------------------------------------------------------
                                                      (dollars in thousands)
Assets:
-------
Cash and due from banks                           $   37,844        $   31,197
Federal funds sold and repurchase agreements           5,983            20,237
Securities available-for-sale, at market value       271,328           255,902
Loans available-for-sale, net at market value         36,646            29,560
Loans, net                                           854,540           864,044
Accrued interest receivable                            7,980             8,534
Premises and equipment, net                           24,408            24,789
Real estate, net                                       4,087             2,639
Intangible assets                                      8,819             9,098
Mortgage servicing rights                              6,396             6,571
Advances to attorneys for loans originated             9,174             8,106
Other assets                                           8,193             8,460
                                                  ----------        ----------
   Total assets                                   $1,275,398        $1,269,137
                                                  ==========        ==========

Liabilities and Stockholders' Equity:
-------------------------------------
Deposits                                          $  938,635        $  945,322
Notes payable and other borrowed money               193,688           194,637
Securities sold under agreements to repurchase
  and federal funds purchased                         32,357            19,815
Checks payable on loans originated                     1,446             1,709
Other liabilities                                     12,469            13,740
                                                  ----------        ----------
  Total liabilities                                1,178,595         1,175,223
                                                  ----------        ----------

Commitments and contingencies                              -                 -

Stockholders' equity:
Common stock ($1.00 par value, 37,500,000
   shares authorized, 7,781,997 and 7,763,972
   shares issued, respectively, and 7,748,487 and
   7,730,462 shares outstanding, respectively)         7,782             7,764
 Additional paid-in capital                           38,558            38,505
 Retained earnings                                    49,523            46,752
 Net unrealized gain on securities
   available-for-sale, net of taxes                    1,209             1,162
 Treasury stock at cost (33,510 shares)                 (269)             (269)
                                                  ----------        ----------
  Total stockholders' equity                          96,803            93,914
                                                  ----------        ----------
   Total liabilities and stockholders' equity     $1,275,398        $1,269,137
                                                  ==========        ==========


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 
---------------------------------
(Unaudited)
-----------
                                                        Three Months Ended
                                                      ----------------------
                                                           December 31,  
                                                      ----------------------
                                                      1997             1996
-----------------------------------------------------------------------------
                                (dollars in thousands, except per share data)
Interest Income:
----------------
Loans                                              $20,882          $18,965
Securities                                           4,302            3,996
Federal funds sold and repurchase agreements           157              386
                                                   -------          -------
  Total interest income                             25,341           23,347
                                                   -------          -------

Interest Expense:
-----------------
Deposits                                            10,584            9,357
Short-term borrowings                                2,063            1,995
Long-term borrowings                                 1,105            1,305
                                                   -------          -------
  Total interest expense                            13,752           12,657
                                                   -------          -------
Net interest income                                 11,589           10,690
Provision for estimated losses on loans              1,398              593
                                                   -------          -------
Net interest income after provision for
    estimated losses on loans                       10,191           10,097
                                                   -------          -------

Noninterest Income:
-------------------
Loan servicing fees                                    619              574 
Gain on sale of investment securities                    -               29
Gain on sale of loans and
  mortgage-backed securities                           599              418
Gain on sale of servicing                              706              333
Deposit account service charges                      1,660            1,453
Other income                                           570              272
                                                   -------          -------
Total noninterest income                             4,154            3,079
                                                   -------          -------
                                                    14,345           13,176
                                                   -------          -------

Noninterest Expense:
--------------------
Compensation, taxes and benefits                     4,710            4,191
Occupancy and equipment                                927              866
Advertising                                            288              399
Professional fees                                      269              623
Data processing                                        295              232
Federal deposit insurance premiums                     164              367
Amortization of intangible assets                      278              278
Net cost of operation of other real estate              29               59
Other expenses                                       1,289            1,243
                                                   -------          -------
  Total noninterest expense                          8,249            8,258
                                                   -------          -------
Income before income tax expense                     6,096            4,918
Income tax expense                                   2,472            1,952
                                                   -------          -------  
Net income                                           3,624            2,966
Dividends on preferred stock                             -              113
                                                   -------          -------
Net income applicable to common stockholders       $ 3,624          $ 2,853
                                                   =======          =======




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

                                      4

<PAGE>  5


First Liberty Financial Corp. and Subsidiaries
----------------------------------------------
Consolidated Statements of Income, continued 
--------------------------------------------
(Unaudited)
-----------
                                                        Three Months Ended
                                                     -------------------------
                                                           December 31,
                                                     -------------------------
                                                      1997             1996
------------------------------------------------------------------------------
                                               
Earnings Per Common Share:
--------------------------
  Basic                                            $   .47          $   .40
  Diluted                                          $   .46          $   .38

Dividends Per Common Share:                        $   .11          $   .10
---------------------------

Average Number of Shares Outstanding:
-------------------------------------
  Basic                                          7,735,619        7,115,862
  Diluted                                        7,908,540        7,763,136







































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)
-----------
                                                        Three Months Ended
                                                    -------------------------
                                                           December 31,
                                                    -------------------------
                                                      1997             1996
-----------------------------------------------------------------------------
                                                      (dollars in thousands)
Operating Activities:
---------------------
Cash flows from operating activities: 
  Net income                                      $  3,624        $   2,966
    Adjustments to reconcile net income
    to cash used in operations:
    Depreciation                                       499              475
    Amortization of loan fees (costs), net              57              (15)
    Provision for estimated losses
      on loans and real estate                       1,398              602
    Amortization of intangibles                        278              278
    Dividends received on stock                          -              (71)
    Gain on sales of loans, mortgage-
      backed and investment securities                (599)            (447)
  Loans available-for-sale:
    Disbursements                                  (28,749)         (30,892)
    Purchases                                      (66,857)         (36,126)
    Sales                                           89,191           58,460
    Repayments                                          43               43
  Decrease in accrued interest receivable              554              640
  Increase (decrease) in accrued interest payable     (176)             392
  Other, net                                        (1,403)          (4,631)
                                                  --------         --------
    Total adjustments                               (5,764)         (11,292)
                                                  --------         --------
      Net cash used in operating activities         (2,140)          (8,326)
                                                  --------         --------

Investing Activities:
---------------------
Cash flows from investing activities:
  Net decrease in federal funds sold
    and repurchase agreements                       14,254           24,835
  Investment securities available-for-sale:
    Purchases                                      (36,448)         (20,975)
    Sales                                                -            6,182
    Maturities                                      45,542           23,439
  Mortgage-backed securities available-for-sale:
    Purchases                                      (33,577)         (34,429)
    Sales                                                -              194
    Repayments                                      22,467           16,295
  Net increase in loans                             (6,325)         (32,258)
  Purchases of premises and equipment                 (383)            (862)
  Proceeds from sales of real estate                   375               21
  Net increase in advances to
    attorneys for loans originated                  (1,068)          (3,104)
                                                  --------         --------
    Net cash provided by
     (used in) investing activities                  4,837          (20,662)
                                                  --------         --------


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

                                      6

<PAGE>  7


First Liberty Financial Corp. and Subsidiaries 
----------------------------------------------
Consolidated Statements of Cash Flows, continued
------------------------------------------------
(Unaudited) 
-----------
 
                                                          Three Months Ended
                                                       ------------------------
                                                             December 31,
                                                       ------------------------
                                                        1997             1996
-------------------------------------------------------------------------------
                                                        (dollars in thousands)

Financing Activities: 
---------------------
Cash flows from financing activities:  
    Net increase (decrease) in deposits               (6,678)           8,524
    Notes payable and other borrowed money:
    Proceeds                                          50,500          153,000
    Repayments                                       (51,449)        (153,000)
  Net increase in securities sold
    under agreements to repurchase                    12,542           27,929
  Net decrease in checks payable
    on loans originated                                 (263)          (2,923)
  Issuance of common stock                                70               49
  Dividends paid on stock                               (772)            (637)
                                                    --------         --------
    Net cash provided by financing activities          3,950           32,942
                                                    --------         --------

Net increase in cash and due from banks                6,647            3,954
Cash and due from banks beginning of period           31,197           40,015
                                                    --------         --------
Cash and due from banks end of period               $ 37,844         $ 43,969
                                                    ========         ========
 
 
Supplemental Disclosures of
---------------------------
  Cash Flow Information:
  ----------------------
Cash paid during the year for:
  Interest                                          $ 13,928         $ 12,265
  Income taxes                                             -              300
Noncash investing and financing activities:
  Real estate foreclosed                            $  1,738         $    448
  Financing of sales of foreclosed
    real estate                                           52              386
  Dividends declared but not paid
    on preferred stock                                     -              113
  Dividends declared but not paid
    on common stock                                      852              713
  Mortgage loans securitized into
    mortgage-backed securities                        13,427                -


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






                                      7

<PAGE>  8


               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 practice 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, 1997.  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 months ended December 31, 1997 are not necessarily 
indicative of the results to be expected for the full year.

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


2.  Earnings Per Share
----------------------

In December 1997, the Company adopted Statement of Financial Accounting 
Standards ("SFAS") No. 128 "Earnings Per Share" which sets forth new rules 
concerning the calculation and presentation of earnings per share information
in financial statements.  SFAS No. 128 replaces primary earnings per share 
with basic earnings per share which excludes dilution and is computed by 
dividing net income by the weighted average number of common shares 
outstanding for the period.  SFAS No. 128 replaces fully diluted earnings per
share with diluted earnings per share which reflects the potential dilution 
that would occur if securities or other contracts to issue common stock were 
exercised.  Diluted earnings per share assumes (i) the exercise of all stock 
options below the market price at December 31 or the average market price for
the quarter and (ii) the conversion, if dilutive, of all convertible 
preferred stock as of the beginning of the year with the elimination of 
dividends declared.  Additionally, the earnings per share calculations for 
the quarter ended December 31, 1996 have been restated to reflect the 
adoption of SFAS No. 128. 


                                     8

<PAGE>  9


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

The following tables provide a reconciliation of the numerators and 
denominators used in calculating basic and diluted earnings per share for the
quarters ended December 31, 1997 and 1996.

                                     For the Quarter Ended December 31, 1997
                                     ---------------------------------------
                                        Income         Shares      Per-Share
                                        ------         ------      ---------
                                     (Numerator)   (Denominator)     Amount 
                                     -----------   -------------     ------
Basic Earnings Per Share:
Net income applicable
 to common stockholders               $3,623,829      7,735,619        $.47
                                                                       ====
Effect of Dilutive Securities:
Options                                                 172,921
                                      ----------     ----------
Diluted Earnings Per Share:
Net income applicable to common stock-
 holders plus assumed conversions     $3,623,829      7,908,540        $.46
                                      ==========     ==========        ====


                                     For the Quarter Ended December 31, 1996
                                     ---------------------------------------
                                        Income         Shares      Per-Share
                                        ------         ------      ---------
                                     (Numerator)   (Denominator)     Amount 
                                     -----------   -------------     ------

Net income                            $2,965,737
Less preferred stock dividend            112,763
                                      ----------
Basic Earnings Per Share:
Net income applicable
 to common stockholders                2,852,974     7,115,862        $.40
                                                                      ====
Effect of Dilutive Securities:
Options                                                108,610
Convertible preferred stock              112,763       538,664
                                      ----------    ----------
Diluted Earnings Per Share:
Net income applicable to common stock-
 holders plus assumed conversions     $2,965,737      7,763,136       $.38
                                      ==========     ==========       ====



3.  Sale of Servicing
---------------------

During the three months ended December 31, 1997, Liberty Mortgage Corporation
("Liberty Mortgage"), the Company's mortgage banking subsidiary, sold bulk 
loan servicing rights with aggregate principal balances of $92 million, 
compared to $24 million, a year earlier.  This resulted in recognizing a gain
on the sale of servicing of $706,000 for the three months ended December 31, 
1997 compared to $333,000 for the same period a year ago.  

        
           
                                     9

<PAGE> 10


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


4.  Mortgage Servicing Rights
-----------------------------

Liberty Mortgage invests in mortgage servicing rights ("MSRs") resulting from
loans originated or purchased through correspondent relationships.  The
investment in MSRs has the effect of reducing the basis in the loans purchased
or originated, and increasing the gain (or reducing the loss) on sales of 
loans.  The following table outlines the activity in MSRs for the three 
month periods ended December 31, 1997 and 1996 (dollars in thousands).

                                                Three Months Ended     
                                                ------------------ 
                                                    December 31,       
                                            --------------------------        
                                               1997             1996   
                                            --------------------------
      Capitalized                            $1,225           $  770
      Sold                                    1,118                -
      Amortized                                 282              329
      Reserved                                    -                8
      Net investment at December 31           6,396            6,565

The estimated combined fair value of these assets exceeded the book value at
December 31, 1997 and 1996.  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.  




























                                      10

<PAGE> 11  


Report of Independent Accountants 
---------------------------------



To the Board of Directors
First Liberty Financial Corp.


We have reviewed the accompanying consolidated financial statements of First
Liberty Financial Corp. and subsidiaries as of December 31, 1997 and for the
three-month period then ended.  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.


                                          /s/  Coopers & Lybrand L.L.P.


Atlanta, Georgia
February 12, 1998











<PAGE> 12


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

Overview
--------

First Liberty Financial Corp. is a unitary savings and loan holding company 
which owns and operates First Liberty Bank ("Liberty Bank") and its wholly 
owned subsidiaries, Liberty Mortgage Corporation ("Liberty Mortgage") and 
NewSouth Financial Services, Inc. ("NewSouth") collectively known as "the 
Company". 

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 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 was in compliance with its requirements at December 31,
1997. 

Capital Resources
-----------------

The Office of Thrift Supervision ("OTS") capital regulations include a core
capital requirement, a tangible capital requirement and a risk-based capital
requirement.  Subject to certain exceptions, each of these capital standards 
must be no less stringent than the capital standards applicable to national 
banks, although the risk-based capital requirement for savings institutions 
may deviate from the risk-based capital standards applicable to national 
banks to reflect interest rate risk or other risks if the deviations in the 
aggregate do not result in materially lower levels of capital being required 
of savings institutions than would be required of national banks.







                                      12

<PAGE> 13


The following table reflects Liberty Bank's compliance with its regulatory
capital requirements at December 31, 1997 (dollars in thousands):

       Actual for Liberty Bank          Regulatory Requirement
---------------------------------------------------------------
                             % of                      % of 
   Capital                 Adjusted                  Adjusted     Excess
 Requirement    Amount      Assets         Amount     Assets      Amount
--------------------------------------------------------------------------
  Tangible     $95,187       7.51%        $19,006      1.50%      $76,181
--------------------------------------------------------------------------
  Core         $96,450       7.60%        $38,050      3.00%      $58,400
--------------------------------------------------------------------------
  Risk-based  $107,171      11.61%        $73,824      8.00%      $33,347
--------------------------------------------------------------------------

The Federal Deposit Insurance Corporation Improvement Act of 1991  establishes
five classifications for institutions based upon the capital requirements.  
Each appropriate banking agency, such as the OTS for Liberty Bank, must 
establish by regulation the parameters of each such classification.  Based on
final regulations promulgated by the OTS, Liberty Bank is considered well-
capitalized.  Failure to maintain that status could result in greater 
regulatory oversight or restrictions on Liberty Bank's activities.


Commitments
-----------

Commitments to originate loans are generally made at the market rate prevailing
at the time of issuance.  The Company had open commitments to originate
residential mortgage loans of approximately $108 million, including $12 million
to be held in portfolio and $36 million on which the interest rate had not been
locked-in at December 31, 1997.  Commitments to sell residential mortgage loans
and mortgage-backed securities for mandatory delivery were approximately $62
million at December 31, 1997.  Also at December 31, 1997, the Company bought 
$2 million of optional commitments to sell residential mortgage loans.  Loans 
in process (which represent undisbursed loan commitments related to 
construction loans) and unused lines of credit amounted to $123 million at 
December 31, 1997. 


Results of Operations
---------------------

The Company's consolidated net income for the quarter ended December 31, 1997 
was $3.6 million compared to $3.0 million for the quarter ended December 31, 
1996.  Included in the Company's net income for 1996 were nonrecurring 
expenses relating to the Middle Georgia Bank ("MGB") merger which closed on 
November 15, 1996 totaling approximately $312,000, net of taxes.
  
The Company's net income is affected by the level of its non-interest income,
non-interest expense and the level of earnings of its mortgage banking
operations.  However, 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").  

                                     13

<PAGE> 14


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 three month periods ended December 31, 1997 and 1996 
(dollars in thousands):

                                      Average Balance          Rate/Yield
                                      ---------------          ----------
                                    Three Months Ended     Three Months Ended
                                    ------------------     ------------------
                                        December 31,           December 31,
                                        ------------           ------------
                                      1997        1996       1997       1996 
                                  ------------------------ -------------------
Interest-Earning Assets:
------------------------
  Loans                           $  884,645   $  815,229   9.44%       9.31%
  Securities                         266,701      244,359   6.45%       6.54%
  Federal funds sold and
    repurchase agreements             11,219       30,797   5.58%       5.01%
                                  ----------   ----------  -----       -----
All interest-earning assets       $1,162,565   $1,090,385   8.72%       8.57%
                                  ==========   ==========  -----       -----

Interest-Bearing Liabilities:
-----------------------------
  Deposits                        $  939,666   $  866,921   4.51%       4.32%
  Borrowings                         221,425      217,601   5.72%       6.07%
                                  ----------   ----------  -----       -----
All interest-bearing liabilities  $1,161,091   $1,084,522   4.74%       4.67%
                                  ==========   ==========  -----       -----

Interest rate spread              $    1,474   $    5,863   3.98%       3.90%
--------------------              ==========   ==========  =====       =====

Interest income as a percentage 
-------------------------------
  of average earning assets                                 3.99%       3.92%
  -------------------------                                =====       =====

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 from the three month
period ended December 31, 1997 to the three month period ended December 31, 
1996 (dollars in thousands):

                                   December 31, 1997 vs December 31, 1996 
                                -------------------------------------------- 
                                                    Due to                
                                --------------------------------------------
                                                         Rate/
                                   Rate      Volume     Volume      Total 
                                --------    --------   --------    --------
Changes in Interest Income:
---------------------------
  Loans                          $    278   $  1,615   $     24   $  1,917
  Securities                          (54)       365         (5)       306
  Federal funds sold and  
    repurchase agreements              44       (245)       (28)      (229)
                                ---------   --------   --------   --------
Total interest income                 268      1,735         (9)     1,994
                                ---------   --------   --------   --------

Changes in Interest Expense:
----------------------------
  Deposits                            408        785         34      1,227
  Borrowings                         (186)        57         (3)      (132)
                                ---------   --------   --------   --------
Total interest expense                222        842         31      1,095
                                ---------   --------   --------   --------

Net interest income             $      46    $   893    $   (40)  $    899 
                                =========    =======    =======   ========


                                      14

<PAGE> 15


The Company's provision for estimated loan losses was $1.4 million and $593,000
for the quarters ended December 31, 1997 and 1996, respectively.  Charge-offs,
net of recoveries, to the allowance for estimated loan losses were $941,000
during the three months ended December 31, 1997 compared to $481,000 for the 
same period a year earlier.  The allowance for estimated loan losses at 
December 31, 1997 was $12.4 million or 169% of nonperforming loans compared 
to $11.3 million or 183% of nonperforming loans at December 31, 1996.  
Management estimates the provision to be reflective of recurring portfolio 
risk and would anticipate that the level of future loan loss provisions would
continue with the level of loan growth. 

The table below summarizes nonperforming assets at December 31, 1997 and 1996.
Nonperforming assets consist of nonaccrual loans, real estate owned, other
repossessed assets, and loans with interest or principal past due 90 days or 
more which are still accruing (dollars in thousands).

                                                    December 31,       
                                         ---------------------------------
                                               1997             1996   
                                         --------------------------------- 
      Nonaccrual loans                       $ 7,314          $ 6,149
      Loans past due 90 days and accruing          -               25
      Foreclosed real estate                   4,760            3,531
      Other repossessed assets                   716              291
                                             -------          -------
        Total nonperforming assets           $12,790          $ 9,996
                                             =======          =======
      Total nonperforming assets as
        a percentage of total assets            1.00%             .82%
                                             =======          ======= 

Real estate owned before allowances for estimated losses increased to $4.7
million at December 31, 1997 from $3.3 million at September 30, 1997 reflecting
foreclosures of $1.7 million, gross sales of $424,000 and capital expenditures
of $114,000.  

Liberty Mortgage originated loans during the three months ended December 31, 
1997 totaling $101 million compared to $69 million during the same period a 
year earlier.

Liberty Mortgage invests in mortgage servicing rights ("MSRs") resulting from
loans originated or purchased through correspondent relationships.  The
investment in MSRs has the effect of reducing the basis in the loans purchased
or originated, and increasing the gain (or reducing the loss) on sales of 
loans.  The following table outlines thevity in MSRs for the three month 
periods ended December 31, 1997 and 1996 (dollars in thousands).
 
                                               Three Months Ended     
                                               ------------------
                                                    December 31,       
                                           ----------------------------
                                               1997             1996   
                                           ----------------------------
      Capitalized                            $1,225           $  770
      Sold                                    1,118                -
      Amortized                                 282              329
      Reserved                                    -                8
      Net investment at December 31           6,396            6,565


                                      15

<PAGE> 16


The estimated combined fair value of these assets exceeded the book value at
December 31, 1997 and 1996.  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 the
establishment of an impairment reserve. 

During the three months ended December 31, 1997, Liberty Mortgage sold bulk 
loan servicing rights with aggregate principal balances of $92 million, 
compared to $24 million, a year earlier.  This resulted in recognizing a gain
on the sale of servicing of $706,000 for the three months ended December 31, 
1997 compared to $333,000 for the same period a year ago.  

Noninterest income (net of gains on the sale of assets and MGB merger related
items in fiscal 1997) increased $456,000 or 19% for the quarter ended December
31, 1997 as compared to the same quarter a year earlier.  The increase was 
mainly in other income principally relating to a full quarter of operations 
at NewSouth in fiscal 1998 as compared to one month in fiscal 1997.

Noninterest expense (net of other real estate operations and MGB merger related
expenses in fiscal 1997) for the three months ended December 31, 1997 increased
$444,000 or 6% over the same period a year ago.  The significant variance was 
in salaries, again relating to the full quarter of operations at NewSouth.


Accounting for Income Taxes
---------------------------

The Company's effective income tax rate for the quarters ended December 31, 
1997 and 1996 was approximately 40%  The Company's management has determined 
that it is more likely than not that its deferred tax assets will be 
realized.  This is based on the existence of taxable income in the form of 
future reversals of existing taxable temporary differences and taxable income
in prior carryback years that is sufficient to allow realization of the tax 
benefit of the Company's existing deductible temporary differences.  The 
Company is not aware of any material uncertainties existing at December 31, 
1997 that may affect the realization of the Company's deferred tax assets.  
The Company evaluates the realizability of deferred tax assets quarterly by 
assessing the need for a valuation allowance.













   
                                      16

<PAGE> 17


PART II - OTHER INFORMATION
---------------------------


Item 4.    Submission of Matters to a Vote of Securities Holders
-------    -----------------------------------------------------

           There were no matters submitted to a vote of securities holders
           during the quarter ended December 31, 1997.

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

           (a)   Exhibits

           Exhibit 11 - Statements of Computation of Earnings Per Share
           Exhibit 15 - Awareness Letter of Coopers & Lybrand
           Exhibit 27 - Financial Data Schedule

           (b)   Reports Filed on Form 8-K

           None.





































                                      17

<PAGE> 18


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.
                        -----------------------------




DATE:      February 13, 1998                    /s/  David L. Hall          
      ----------------------------              ----------------------------
                                                David L. Hall
                                                Executive Vice President and
                                                Chief Financial Officer
                                                (Duly authorized, principal
                                                financial and accounting
                                                officer)









































                                      18

<PAGE> 19


                         FIRST LIBERTY FINANCIAL CORP.
                         -----------------------------

                              Index of Exhibits



The following exhibits are filed as part of the Report.  


Exhibit Number                  Description                             Page
--------------                  -----------                             ----


    11          Statements of Computation of Earnings Per Share          20
    15          Awareness Letter of Coopers & Lybrand                    21
    27          Financial Data Schedule









































                                      19