UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
        ----------------------------------------------------------------



                                    FORM 10-Q


       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED DECEMBER 31, 1997



                           File Commission No. 0-27304
                           --------------------------- 

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


                                    Illinois
--------------------------------------------------------------------------------
         (State or other jurisdiction of incorporation or organization)
                    

                                   37-1345386
--------------------------------------------------------------------------------
                      (I.R.S. Employer Identification No.)


        114 West Broadway
         Sparta, Illinois                                          62286
--------------------------------------------------------------------------------
(Address of principal executive office)                          (Zip Code)


       Registrant's telephone number, including area code: (618) 443-2166
--------------------------------------------------------------------------------

         (Former name,  former  address and former fiscal year, if changed since
last report)

         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 [ ]

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date: There were 4,177,673
shares of the Bank's common stock outstanding as of February 6, 1998.
<PAGE>


                     CHARTER FINANCIAL, INC. AND SUBSIDIARY

                                      INDEX



PART I            FINANCIAL INFORMATION                                         


Item 1.           Financial Statements

                  -  Consolidated Balance Sheets                                

                  -  Consolidated Statements of Income                          

                  -  Consolidated Statement of Stockholders'
                           Equity                                               

                  -  Consolidated Statements of Cash Flows                      

                  -  Notes to Consolidated Financial Statements                 


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


PART II           OTHER INFORMATION                                             


SIGNATURES                                                                      



<PAGE>
<TABLE>
<CAPTION>
                                 Charter Financial, Inc. and Subsidiary

                                      Consolidated Balance Sheets

                                December 31, 1997 and September 30, 1997
                                              (Unaudited)

                                                                      December 31,       September 30,
                                                                          1997                1997
                                                                     -------------      -------------
<S>                                                                  <C>                <C>
                       Assets
Cash ...........................................................     $   2,144,964      $   1,342,727
Interest-bearing deposits ......................................         6,711,203          4,954,102
Investment securities, net .....................................        60,456,584         61,813,779
Mortgage-backed securities, net ................................        13,875,365         14,605,919
Loans receivable, net ..........................................       283,365,630        287,649,998
Accrued interest receivable ....................................         2,597,451          2,693,331
Real estate acquired by foreclosure, net .......................           476,916            670,274
Office properties and equipment, at cost
    less accumulated depreciation ..............................         5,660,281          5,862,896
Prepaid expenses and other assets ..............................           858,295            765,415
Income taxes receivable ........................................              --              280,655
Cost in excess of fair value of net
    assets acquired ............................................         5,373,903          5,497,576
Core deposit intangible ........................................           863,378            895,813
                                                                     -------------      -------------
                                                                     $ 382,383,970      $ 387,032,485
                                                                     =============      =============

            Liabilities and Stockholders' Equity

Deposits .......................................................       271,945,538        275,979,748
Accrued interest on deposits ...................................           679,046            783,851
Borrowed money .................................................        48,263,779         50,317,037
Advance payments by borrowers for taxes
    and insurance ..............................................           537,738            313,840
Income taxes payable ...........................................           636,364               --
Deferred tax liability, net ....................................           193,911            210,831
Accrued expenses and other liabilities .........................           687,507          1,009,882
                                                                     -------------      -------------

                                      Total liabilities ........       322,943,883        328,615,189
                                                                     -------------      -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                 Charter Financial, Inc. and Subsidiary

                                      Consolidated Balance Sheets

                                December 31, 1997 and September 30, 1997
                                              (Unaudited)

                                                                      December 31,       September 30,
                                                                          1997                1997
                                                                     -------------      -------------
<S>                                                                  <C>                <C>                          
Stockholders' Equity:
  Common stock, $0.10 par value per share:
    8,000,000 shares authorized; 4,389,373 and
    4,365,823 issued at December 31, 1997 and at
    September 30, 1997, respectively ...........................           438,937            436,582
  Additional paid-in capital ...................................        30,823,290         30,592,730
  Retained earnings - substantially restricted .................        33,806,875         33,137,223
  Unrealized gain (loss) on securities available for sale, net .           297,360            326,291
  Unamortized restricted stock awards ..........................        (1,158,773)        (1,222,368)
  Unearned ESOP shares .........................................        (1,150,464)        (1,236,024)
  Treasury stock, at cost: 215,700 shares at
    December 31, 1997 and September 30, 1997,
    respectively ...............................................        (3,617,138)        (3,617,138)
                                                                     -------------      -------------
                                      Total stockholders' equity        59,440,087         58,417,296
                                                                     -------------      -------------

                                                                     $ 382,383,970      $ 387,032,485
                                                                     =============      =============

</TABLE>

See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                        Charter Financial, Inc. and Subsidiary

                          Consolidated Statements of Income

                              For the three months ended
                              December 31, 1997 and 1996
                                     (Unaudited)


                                                         For the Three Months Ended
                                                                 December 31,
                                                          --------------------------
                                                             1997           1996
                                                          ----------     ----------
<S>                                                       <C>            <C>
Interest income:
        Loans receivable ............................     $6,138,506     $5,692,505
        Mortgage-backed securities...................        242,999       260,710
        Investments .................................        983,699      1,144,441
        Other .......................................         43,943         58,285
                                                          ----------     ----------
            Total interest income ...................      7,409,147      7,155,941
                                                          ----------     ----------

Interest expense:
        Deposits ....................................      3,219,983      2,953,551
        Borrowed money ..............................        732,778        926,767
                                                          ----------     ----------
            Total interest expense ..................      3,952,761      3,880,318
                                                          ----------     ----------
            Net interest income .....................      3,456,386      3,275,623

Provision for losses on  loans ......................         75,000        111,250
                                                          ----------     ----------
        Net interest income  after provision
         for losses on loans ........................      3,381,386     3,164,373
                                                          ----------     ----------
Noninterest income:
        Late charges and other loan fees.............        144,539       127,461
        Gain on sale of  investment securities ......        103,091        55,595
        Deposit account fees.........................        264,652       244,704
        Commissions and fees ........................         37,285        50,032
        Other .......................................        118,024       140,001
                                                          ----------     ----------
            Total noninterest income ................        667,591       617,793
                                                          ----------     ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                        Charter Financial, Inc. and Subsidiary

                          Consolidated Statements of Income

                              For the three months ended
                              December 31, 1997 and 1996
                                     (Unaudited)
                                     (continued)


                                                         For the Three Months Ended
                                                              December 31,
                                                          --------------------------
                                                             1997           1996
                                                          ----------     ----------
<S>                                                       <C>            <C>
Noninterest expense:
        Compensation and  employee benefits .........      1,166,618        803,437
        Office buildings and equipment ..............        229,499        215,597
        Data processing .............................        150,269        120,830
        Advertising .................................         50,397         55,796
        Deposit insurance premiums...................         40,531           --
        Other .......................................        515,297        518,540
        Provision for losses  and expenses
          on real estate  acquired by foreclosure ...         52,599         55,221
        Amortization of  cost in excess of fair value
          of net assets acquired.....................        123,673        80,833
                                                          ----------     ----------

            Total noninterest expense................      2,328,883     1,850,254
                                                          ----------     ----------

            Income before income taxes ..............      1,720,094      1,931,912

Income taxes ........................................        730,432        772,357
                                                          ----------     ----------

            Net income ..............................     $  989,662     $1,159,555
                                                          ==========     ==========
Earnings per share:
        Basic .......................................     $     0.25     $     0.29
                                                          ==========     =========
        Diluted .....................................     $     0.23     $     0.28
                                                          ==========     =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                               Charter Financial, Inc. and Subsidiary

                                           Consolidated Statement of Stockholders' Equity

                                                Three Months Ended December 31, 1997
                                                             (Unaudited)


                                                                                                Unrealized
                                                                                                gain (loss)
                                                                             Retained          on securities           Unamortized
                                                        Additional          earnings,         available for           restricted  
                                        Common           paid-in          substantially       sale, net, of              stock 
                                         stock           capital            restricted       applicable taxes            awards  
                                      ---------       ------------       ------------             -------               ----------
<S>                                   <C>             <C>                <C>                     <C>                   <C>         
Balance, September 30, 1997 ....      $ 436,582       $ 30,592,730       $ 33,137,223            $326,291              $(1,222,368)

Net income .....................           --                 --              989,662               --                      --   

Exercise of stock options ......          2,715            153,347               --                 --                      --   

Shares cancelled ...............           (360)           (87,199)              --                 --                      --   

Amortization of unearned
         ESOP shares ...........           --              164,412               --                 --                      --   

Amortization of restricted
         stock awards ..........           --                 --                 --                 --                      63,595

Dividends declared on
         common stock ..........           --                 --             (320,010)              --                      --   

Change in unrealized gain
         (loss) on securities
         available for sale, net           --                 --                 --               (28,931)                  --   
                                      ---------       ------------       ------------             -------               ----------

Balance, December 31, 1997 .....      $ 438,937       $ 30,823,290       $ 33,806,875             297,360               (1,158,773)
                                      =========       ============       ============             =======              =========== 

</TABLE>
<PAGE>
<TABLE>
                                    <CAPTION>
                      Charter Financial, Inc. and Subsidiary

                  Consolidated Statement of Stockholders' Equity

                       Three Months Ended December 31, 1997
                                    (Unaudited)
                                    (continued)





                                       Unearned                              Total    
                                         ESOP          Treasury         stockholders' 
                                        shares          stock              equity   
                                      ----------       ----------       ------------
<S>                                   <C>             <C>               <C>
Balance, September 30, 1997 ....      $(1,236,024)    $ (3,617,138)     $ 58,417,296

Net income .....................            --               --              989,662

Exercise of stock options ......            --               --              156,062

Shares cancelled ...............            --               --              (87,559)

Amortization of unearned
         ESOP shares ...........          85,560             --              249,972

Amortization of restricted
         stock awards ..........            --               --               63,595

Dividends declared on
         common stock ..........            --               --             (320,010)

Change in unrealized gain
         (loss) on securities
         available for sale, net            --               --              (28,931)
                                      ----------       ----------       ------------

Balance, December 31, 1997 .....      (1,150,464)      (3,617,138)        59,440,087
                                      ==========       ==========         ==========

</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                               Charter Financial, Inc. and Subsidiary
                                                Consolidated Statements of Cash Flows
                                            Three months ended December 31, 1997 and 1996
                                                             (Unaudited)

                                                                                              December 31,       December 31,
                                                                                                 1997               1996
                                                                                            ------------       ------------
<S>                                                                                         <C>                <C>           
Cash flows from operating activities:
          Net income .................................................................      $    989,662       $  1,159,555
          Adjustments to reconcile net income to net cash
             provided by operating activities:
                Depreciation and amortization:
                    Office properties and equipment ..................................           212,786             66,585
                    Discounts related to purchase accounting .........................           (17,078)           (13,381)
                    Cost in excess of fair value of net assets acquired ..............           123,673             80,833
                    Fees, discounts and premiums .....................................          (426,017)          (555,636)
                    Stock plans ......................................................           313,567             84,127
                Decrease in accrued interest receivable ..............................            95,880            465,848
                Decrease in accrued interest on deposits .............................          (104,805)           (55,219)
                Provision for losses on loans ........................................            75,000            111,250
                Net change in income taxes ...........................................           917,019            722,715
                Gain on sale of investment securities ................................          (103,091)           (55,595)
                Net change in other assets and other liabilities .....................          (483,536)        (1,998,145)
                                                                                            ------------       ------------
                    Net cash provided by operating activities ........................         1,593,060             12,937
                                                                                            ------------       ------------
Cash flows from investing activities:
          Principal repayment on:
                Loans receivable .....................................................        27,287,981         24,702,202
                Mortgage-backed securities ...........................................           653,818            832,981
                Investment securities ................................................           297,870            605,451
          Proceeds from sale of:
                Loans receivable .....................................................           695,773            708,358
                Investment securities ................................................         1,104,063          3,048,750
          Maturity of investment securities ..........................................         2,170,000         10,405,000
          Purchase of:
                Loans receivable .....................................................              --             (313,929)
                Investment securities ................................................        (2,084,017)        (6,101,263)
          Cash invested in loans receivable ..........................................       (23,313,561)       (21,561,562)
          Proceeds from sales of real estate acquired by foreclosure, net ............           211,318               --
          Proceeds from sales of office properties and equipment .....................              --              130,976
          Purchase of office properties and equipment ................................           (10,171)          (125,581)
                                                                                            ------------       ------------
                    Net cash provided by investing activities ........................         7,013,074         12,331,383
                                                                                            ------------       ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                               Charter Financial, Inc. and Subsidiary
                                                Consolidated Statements of Cash Flows
                                            Three months ended December 31, 1997 and 1996
                                                             (Unaudited)
                                                             (continued)
  
                                                                                              December 31,       December 31,
                                                                                                 1997               1996
                                                                                            ------------       ------------
<S>                                                                                         <C>                <C>   
Cash flows from financing activities:
          Increase (decrease) in deposits ............................................        (4,034,210)         9,351,216
          Repayments of FHLB Advances ................................................           (57,224)        (1,447,838)
          Decrease in securities sold under agreements to repurchase, net ............             3,966            (72,491)
          Repayments of ESOP indebtedness ............................................              --             (576,000)
          Decrease in other borrowings, net ..........................................        (2,000,000)       (14,400,000)
          Increase (decrease) in advance payments by borrowers for taxes and insurance           223,898           (490,345)
          Exercise of stock options ..................................................            68,503               --
          Dividends paid .............................................................          (251,729)          (234,537)
                                                                                            ------------       ------------
                    Net cash used in financing activities ............................        (6,046,796)        (7,869,995)
                                                                                            ------------       ------------
                    Net increase in cash and cash equivalents ........................         2,559,338          4,474,325
Cash and cash equivalents, beginning of period .......................................         6,296,829          8,968,422
                                                                                            ------------       ------------
Cash and cash equivalents, end of period .............................................      $  8,856,167       $ 13,442,747
                                                                                            ============       ============

Supplemental disclosure of cash flow information:
                Interest paid                                                              $   4,057,565       $  3,935,537
                Taxes paid                                                                             -            125,500
                Loans transferred to real estate acquired by foreclosure                         212,324            333,403
                Interest credited to deposits                                                  1,960,439          1,715,074
                                                                                           =============       ============ 
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
                     Charter Financial, Inc. and Subsidiary

                   Notes to Consolidated Financial Statements

(1)      Basis of Presentation
         The  accompanying  unaudited  consolidated  financial  statements  were
           prepared  in  accordance  with   instructions   for  Form  10-Q  and,
           therefore,  do not include  information for footnotes necessary for a
           complete  presentation of financial position,  results of operations,
           and cash  flows in  conformity  with  generally  accepted  accounting
           principles.  The following  material under the heading  "Management's
           Discussion  and  Analysis  of  Financial  Condition  and  Results  of
           Operations"  is written  with the  presumption  that the users of the
           interim  consolidated  financial statements have read, or have access
           to, the Company's latest audited  consolidated  financial  statements
           and notes thereto, together with Management's Discussion and Analysis
           of Financial  Condition and Results of Operations as of September 30,
           1997 and for the  three  year  period  then  ended.  Therefore,  only
           material changes in financial condition and results of operations are
           discussed in the remainder of Part I.

         All adjustments  (consisting only of normal recurring  accruals) which,
           in the opinion of management,  are necessary for a fair  presentation
           of the  consolidated  financial  statements have been included in the
           results of operations  for the three month period ended  December 31,
           1997 and 1996.  For  information  on  earnings  per share  data - see
           footnote 5.

         Operating  results for the three month period  ended  December 31, 1997
           are not  necessarily  indicative  of the results that may be expected
           for the fiscal year ending September 30, 1998.

(2)      Principles of Consolidation
         The accompanying  unaudited  consolidated  financial statements include
           the  accounts of Charter  Financial,  Inc.,  Charter  Bank,  S.B. and
           Sparta First Service Corporation.  All significant intercompany items
           have been eliminated.

(3)      Earnings Per Share
         During the  quarter  ended  December  31,  1997,  the  Company  adopted
           Statement of Financial  Accounting  Standards No. 128,  "Earnings Per
           Share" ("SFAS No. 128").  The Statement  required  restatement of all
           prior-period  earnings per share ("EPS") data presented.  It replaces
           the  presentation  of primary EPS with basic EPS, and  requires  dual
           presentation  of basic  and  diluted  EPS on the  face of the  income
           statement.  Basic EPS is  computed by dividing  income  available  to
           common  stockholders by the weighted  average number of common shares
           outstanding  for the  period.  Diluted  EPS  reflects  the  potential
           dilution that could occur if  securities or other  contracts to issue
           common  stock were  exercised  or converted  into common  stock.  The
           following table presents the computation of EPS.

                                   (Continued)
<PAGE>
                     Charter Financial, Inc. and Subsidiary

                   Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>


                                                              Three Months
                                                              December 31,
                                                        -------------------------
                                                           1997           1996
                                                        ----------     ----------
<S>                                                     <C>            <C>
BASIC EPS:
Income available to common shareholders ...........     $  989,662     $1,159,555
                                                        ==========     ==========

Average common shares outstanding .................      3,984,963      4,042,849
                                                        ==========     ==========

Basic EPS .........................................           0.25           0.29
                                                        ==========     ==========

DILUTED EPS:
Income available to common shareholders ...........        989,662      1,159,555
                                                        ==========     ==========

Average common shares outstanding .................      3,984,963      4,042,849
Dilutive potential common shares outstanding
    due to common stock options ...................        272,076        147,247
                                                        ----------     ----------

Average number of common shares
   and dilutive potential common shares outstanding      4,257,039      4,190,096
                                                        ==========     ==========

Diluted EPS .......................................           0.23           0.28
                                                        ==========     ==========
</TABLE>


(4)      Business Combination
         OnNovember 20,  1997,  Magna Group,  Inc. and Charter  Financial,  Inc.
           jointly  announced that they had entered into a definitive  agreement
           for Magna to acquire  Charter.  The  acquisition is anticipated to be
           completed in the second  calendar  quarter of 1998 and is subject to,
           among other things,  regulatory  approval and the vote of the Charter
           shareholders.

                                   (Continued)
<PAGE>



                     Charter Financial, Inc. and Subsidiary

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


         The following  discussion reviews the consolidated  financial condition
and the results of operations of the Company and Subsidiary at and for the three
month period ended December 31, 1997.

Financial Condition

Assets

         Total assets decreased  approximately $4.6 million,  or 1.2%, to $382.4
million at December 31, 1997 from $387.0  million at September 30, 1997. For the
three  months ended  December  31, 1997 loans  receivable,  net  decreased  $4.3
million,  or 1.5%, to $283.4  million from $287.6 million at September 30, 1997.
The decrease in assets and loans  receivable was primarily  attributable  to the
$27.3  million  repayment and  prepayment of loans which  decrease was partially
offset by the $23.3 million in loan orginations.

         Investment securities decreased $1.4 million, or 2.2%, to $60.5 million
at December 31, 1997 from $61.8 million at September 30, 1997. This decrease was
primarily due to the maturity of $2.2 million of investment securities, the sale
of $1.1 million of investment  securities  held as available  for sale,  and the
$298,000 in investment  security  principal  repayments.  These  decreases  were
partially  offset by the $2.1 million purchase of investment  securities  during
the three months ended December 31, 1997.

         Mortgage-backed  securities decreased  approximately $731,000, or 5.0%,
to $13.9  million at December 31, 1997 from $14.6 million at September 30, 1997.
The decrease in mortgage-backed  securities resulted from $654,000 in repayments
and prepayments.

Liabilities

         Deposits  decreased  approximately  $4.0  million,  or 1.5%,  to $271.9
million at December  31, 1997 from $276.0  million at September  30,  1997.  The
decrease resulted primarily from a $2.7 million decline in demand deposits and a
$2.8 million  decrease in money  market  accounts.  The  decrease was  partially
offset by a $1.4 million increase in certificates of deposit.






                                   (Continued)
<PAGE>



                     Charter Financial, Inc. and Subsidiary

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


         Borrowed money decreased by $2.1 million,  or 4.1%, to $48.3 million at
December 31, 1997 from $50.3  million at September  30, 1997.  The  repayment of
short term advances from the FHLB was funded by investment  security  maturities
and sales and excess loan repayments.

Results of Operations

         The Company's net income decreased $170,000,  or 14.7%, to $990,000 for
the three months ended  December 31, 1997 from $1.2 million for the three months
ended  December  31,  1996.  Return on  average  assets  and  return on  average
stockholders' equity were 1.03% and 6.71%,  respectively,  for the first quarter
of fiscal  year 1998  compared to 1.21% and 8.10%,  respectively,  for the first
quarter of fiscal year 1997.

Interest Income

         Interest income totaled $7.4 million for the quarter ended December 31,
1997,  as compared to $7.2 million for the quarter  ended  December 31, 1996, an
increase of $253,000,  or 3.5%. The increase resulted primarily from an increase
of $5.3 million in average interest-earning assets as well as an increase in the
average yield on  interest-earning  assets to 8.12% from 7.96%.  The increase in
average  interest-earning assets resulted primarily from the acquisition of Home
Federal  Savings  in January  1997.  The  increase  in  average  yield  resulted
primarily from a change in the asset portfolio mix.

         Interest  income on loans  receivable  totaled  $6.1  million  and $5.7
million for the three months ended December 31, 1997 and 1996, respectively. The
increase of $446,000,  or 7.8%,  resulted primarily from the increase in average
loans receivable of $12.5 million as well as an increase in the average yield on
loans receivable to 8.60% from 8.34%.

         The  income  on  the  mortgage-backed  securities  portfolio  decreased
$18,000,  or 6.8%, to $243,000 for the quarter ended  December 31, 1997 compared
to $261,000 for the quarter  ended  December 31, 1996.  The decrease in interest
income on the mortgage-backed  securities was primarily the result of a decrease
in the average  mortgage-backed  securities  outstanding  of $2.1 million  which
decrease  is  partially   offset  by  an  increase  in  the  average   yield  on
mortgage-backed securities to 6.95% from 6.51%.





                                   (Continued)
<PAGE>



                     Charter Financial, Inc. and Subsidiary

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


         Interest  income on  investment  securities  decreased by $161,000,  or
14.0%,  to $984,000  for the three months  ended  December  31, 1997,  from $1.1
million for the same period in fiscal year 1997. The decrease resulted primarily
from the decrease in average yield on investment securities to 6.45% from 7.06%,
as well as the $3.9 million decrease in average investments.

         Other interest income decreased $14,000, or 24.6%, for the three months
ended  December  31, 1997 to $44,000  from $58,000 for the same period in fiscal
year 1997.  The  decrease  was  primarily  the  result of a decrease  in average
interest-bearing  assets of $1.3  million as well as a decrease  in the  average
yield to 4.05% from 4.11%.

Interest Expense

         Interest expense  increased  $72,000,  or 1.9%, to $4.0 million for the
quarter  ended  December 31, 1997 compared to $3.9 million for the quarter ended
December 31, 1996. The increase in interest expense resulted  primarily from the
$6.2 million increase in average interest-bearing  liabilities. The average cost
of deposits  increased to 4.75% from 4.64% and average deposits  increased $16.8
million.  These increases were partially  offset by the decrease in average cost
of borrowed money to 5.64% from 5.93%, as well as the $10.6 million  decrease in
average borrowed money.

Net Interest Income

         Net interest income totaled $3.5 million and $3.3 million for the three
months ended December 31, 1997 and 1996, respectively, reflecting an increase of
$181,000,  or 5.5%.  The  increase  reflects  the  impact of a more  significant
increase in the level of higher yielding  interest-earning assets as compared to
the increase in average interest-bearing liabilities.

Provision for Losses on Loans

         During the three months ended  December 31, 1997 and 1996,  $75,000 and
$111,000,  respectively,  were added to the allowance for loan losses.  The loan
portfolio is regularly  reviewed by management,  including  problem  loans,  and
changes in the relative  makeup of the portfolio to determine  whether any loans
require  classification  or the  establishment  of  additional  reserves.  Total
nonperforming  loans  increased  to $1.9  million at December 31, 1997 from $1.5
million at  September  30, 1997.  Management  determined  that the  allowance at
December 31, 1997 was adequate to absorb potential losses. At December 31, 1997,
the allowance for loans losses totaled approximately $2.2 million, or 113.68% of
nonperforming loans.

                                   (Continued)
<PAGE>



                     Charter Financial, Inc. and Subsidiary

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


Noninterest Income

         The principal  sources of noninterest  income includes late charges and
other loan fees,  deposit  account fees, and commissions and fees from brokerage
activities.  During the first  quarter of fiscal year 1998,  noninterest  income
included a gain on sale of  investment  securities  of  $103,000  as compared to
$56,000  for the same  period in fiscal  year 1997.  Noninterest  income for the
quarter ended December 31, 1997 increased $50,000, or 8.1%, to $668,000 compared
to $618,000 for the same period in fiscal year 1997.

Noninterest Expense

         Noninterest  expense  totaled  $2.3  million  and $1.9  million for the
quarters ended December 31, 1997 and 1996, respectively, an increase of $479,000
or 25.9%.

         Compensation and employee benefits  increased  $363,000,  or 45.2%, for
the three months  ended  December 31, 1997 as compared to the three months ended
December 31, 1996.  The principal  reason for the increase in  compensation  and
employee  benefits is due to the increased cost of stock plans,  including a new
management  recognition  plan that was initiated  during the quarter ended March
31, 1997,  as well as an increase in the number of employees  that resulted from
the acquisition of Home Federal Savings Bank ("Home Federal") in January 1997.

         Office building and equipment expenses  increased $14,000,  or 6.4%, to
$229,000 for the three months ended December 31, 1997,  compared to $216,000 for
the same period in fiscal year 1997.  The increase  resulted  primarily from the
acquisition of Home Federal that occurred in January 1997.

         For the three months ended December 31, 1997, data processing increased
$29,000,  or 24.4%, to $150,000 from $121,000 for the same period in fiscal year
1997.  The  increase  resulted  primarily  from the  increase in cost due to the
acquisition  that occurred in January 1997. The entity  acquired,  Home Federal,
was converted to the Bank's  in-house data processing  system  subsequent to the
acquisition.   The  increased  expenses  reflect  additional  cost  of  expanded
operations.

         Deposit insurance premiums were $41,000 for the first quarter of fiscal
year 1998. Due to the Deposit  Insurance Funds Act of 1996 and the result of the
recapitalization  of SAIF, the Bank did not expense any insurance premium during
the first quarter of fiscal year 1997. The current annual assessment rate on the
SAIF deposits is .0648%.



                                   (Continued)

<PAGE>



                     Charter Financial, Inc. and Subsidiary

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


         Amortization  of cost in excess of fair  value of net  assets  acquired
increased $43,000, or 53.0%, to $124,000 for the three months ended December 31,
1997,  compared to $81,000 for the three  months ended  December  31, 1996.  The
increase is the result of the acquisition of Home Federal in January 1997.

Income Taxes

         Income taxes decreased  $42,000 for the three months ended December 31,
1997 as compared to December 31, 1996.  The decrease was primarily the result of
a decrease in income  before income  taxes.  The  effective  income tax rate was
42.5% and 40.0% at December 31, 1997 and 1996, respectively. The increase in the
effective  tax rate is  primarily  the  result  of  increases  in  nondeductible
expenses.

Nonperforming Assets

         The   following   table  sets  forth   information   with   respect  to
nonperforming  assets.  Nonaccrual loans are those loans on which the accrual of
interest has ceased. Generally,  loans are placed on nonaccrual status when they
are  more  than  90  days  contractually  delinquent,  and  in  the  opinion  of
management,  collection of additional interest is unlikely.  Other nonperforming
assets  represent   property  acquired  through   foreclosure  or  repossession.
Foreclosed property is carried at fair value less estimated selling cost.

         Nonperforming  residential  real estate of $1.3 million at December 31,
1997 increased $463,000,  or 56.0%, from the level of nonperforming  residential
real estate at  September  30,  1997.  The  increase  was  primarily  due to the
increased  deliquency  rate  in the  purchased  loans  portfolio.  Nonperforming
consumer loans  decreased  $49,000,  or 16.9%,  to $240,000 at December 31, 1997
from $289,000 at September 30, 1997.

         At December 31, 1997, the Company had $380,000 in nonaccrual commercial
real  estate  loans  of  which  $195,000  was  classified  as  loss  due  to the
anticipated  foreclosure  of a commercial  business.  An adequate  allowance for
losses has been established for this loan.







                                   (Continued)
<PAGE>
<TABLE>
<CAPTION>
                                                        December 31,    September 30,
                                                            1997           1997
                                                           ------        ------
                                                              (In Thousands)
<S>                                                        <C>           <C>
Loans accounted for on a nonaccrual basis:
         Residential real estate ...................       $1,290        $  827
         Commercial real estate ....................          380           381
         Consumer ..................................          240           289
         Commercial business .......................         --            --
                                                           ------        ------
                  Total ............................        1,910         1,497
Total real estate acquired through
         foreclosure ...............................          477           670
                                                           ------        ------
         Total nonperforming assets ................       $2,387        $2,167
                                                           ======        ======
Total nonperforming assets to
         total assets ..............................         0.62%         0.56%
                                                           ======        ======
</TABLE>

         At December 31, 1997, the Company had $380,000 of impaired  loans.  The
Company  applies the  recognition  criteria of  impaired  loans to  multi-family
residential  loans,   commercial  real  estate  loans,   agriculture  loans  and
restructured  loans  that are on  nonaccrual  status or  internally  classified.
Specifically,  a loan is considered impaired when it is probable a creditor will
be unable to collect all amounts due, both principal and interest,  according to
the contractual terms of the loan agreement.  At December 31, 1997, the $380,000
of impaired loans had reserves of $195,000.

Liquidity and Capital Resources

         Total  stockholders'  equity at December 31, 1997 was $59.4 million, an
increase of approximately $1.0 million, or 1.8%, from $58.4 million at September
30, 1997. The increase is largely attributable to $990,000 in net income for the
three months ended December 31, 1997.

         The Company's primary sources of funds include deposits,  principal and
interest  payments  on  loans,   investments  and  mortgage-backed   securities,
maturities of investments and  mortgage-backed  securities,  borrowings from the
Federal Home Loan Bank and repurchase agreements. While maturities and scheduled
repayments on loans,  mortgage-backed securities and investments are predictable
sources of funds, deposit flows and prepayments are greatly influenced by market
interest  rates and  competition.  The Company's most liquid assets are cash and
interest-bearing  deposits.  At December 31, 1997 and  September  30, 1997,  the
Company's  cash and  interest-bearing  deposits  totaled  $8.9  million and $6.3
million,   respectively.  The  Company's  other  sources  of  liquidity  include
investment  securities  classified  as available  for sale and the proceeds from
Federal Home Loan Bank  advances  which totaled  approximately  $34.9 million at
December 31, 1997.

         As of December  31, 1997,  the Bank  exceeded  all  regulatory  capital
requirements.  The Bank's  required,  actual,  and excess  capital  levels as of
December 31, 1997 are as follows:



                                   (Continued)

<PAGE>



                     Charter Financial, Inc. and Subsidiary

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

<TABLE>
<CAPTION>

                                    Required                    Actual                   Excess of
                             ---------------------     ------------------------        Actual Over
                                             % of                         % of          Regulatory
                                 Amount     Assets         Amount        Assets         Requirement
                             ------------    -----     ------------      ------        ------------
<S>                          <C>             <C>       <C>               <C>           <C>
Tier 1 (Core) Capital
Leverage Ratio               $ 11,467,014    3.00%     $ 47,900,600      12.53%        $ 36,433,586

Tier 1 Risk-Based
Capital Ratio                   8,698,381    4.00%       47,900,600      22.03%          39,202,219

Tier 2 Risk-Based
Capital Ratio                 17,396,762     8.00%       49,644,804      22.83%          32,248,042
</TABLE>


         At December 31, 1997, the Bank was required to maintain  minimum levels
of liquid assets by FDIC regulations.  The Bank's liquidity policy, which varies
from time to time depending upon economic conditions and deposit flows, is based
upon a percentage of deposits and short-term  borrowings and is currently 5.00%.
The Bank  historically  has  maintained  a level of  liquid  assets in excess of
requirements.  The Bank  adjusts its  liquidity  levels in order to meet funding
needs for deposit outflows, payment of real estate taxes on mortgage loan escrow
accounts,  repayment of borrowings,  when applicable, and loan commitments.  The
Bank  also  adjusts  liquidity  as  appropriate  to  meet  its   asset/liability
management objectives.

Accounting Developments

         Also in February  1997,  the FASB issued  SFAS No. 129,  Disclosure  of
Information  about Capital  Structure.  SFAS No. 129 applies to all entities and
establishes  standards  for  disclosing  information  about an entity's  capital
structure. SFAS No. 129 is effective for financial statements for periods ending
after  December 15, 1997. The adoption of SFAS No. 129 is not expected to have a
material impact on the Company's consolidated financial statements.

         In June 1997,  the FASB issued SFAS No.  130,  Reporting  Comprehensive
Income.  SFAS No.  130  establishes  standards  for  reporting  and  display  of
comprehensive  income  and  its  components  in a full  set of  general  purpose
financial statements.  It does not, however, specify when to recognize or how to
measure  items  that make up  comprehensive  income.  SFAS No. 130 was issued to
address concerns over the practice of reporting elements of comprehensive income
directly in equity.



                                   (Continued)

<PAGE>


                     Charter Financial, Inc. and Subsidiary

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


         SFAS No. 130  requires  all items that are  required  to be  recognized
under accounting  standards as components of comprehensive income be reported in
a financial  statement  that is  displayed  in equal  prominence  with the other
financial  statements.  It does not require a specific format for that financial
statement but requires that an enterprise  display an amount  representing total
comprehensive income for the period in that financial statement. Enterprises are
required to classify  items of "other  comprehensive  income" by their nature in
the financial  statement and display the balance of other  comprehensive  income
separately in the equity section of a statement of financial  position.  It does
not require per share amounts of comprehensive income to be disclosed.

         SFAS No. 130 is  applicable  to all entities that provide a full set of
financial statements consisting of a statement of financial position, results of
operations and cash flows.

         SFAS No. 130 is effective for both interim and annual periods beginning
after December 15, 1997. Earlier application is permitted. Comparative financial
statements  provided  for earlier  periods are  required to be  reclassified  to
reflect the provisions of this statement. Publicly traded enterprises that issue
condensed  financial  statements  for interim  periods are  required to report a
total for comprehensive  income in those financial  statements.  The adoption of
SFAS  No.  130 is not  expected  to  have a  material  impact  on the  Company's
consolidated financial statements.

Impact of Inflation and Changing Prices

         The  unaudited  consolidated  financial  statements  and  related  data
presented  herein  have been  prepared in  accordance  with  generally  accepted
accounting  principles,  which require the measurement of financial position and
operating results in terms of historical dollars without  considering the change
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the  increased  cost of the  Company's  operations.
Unlike most industrial  companies,  nearly all the assets and liabilities of the
Company are monetary.  As a result,  interest rates have a greater impact on the
Company's  performance  than do the  effects  of  general  levels of  inflation.
Interest  rates do not  necessarily  move in the same  direction  or to the same
extent as the price of goods and services.


                                   (Continued)

<PAGE>




                           Part II - Other Information


Item 1.   Legal Proceedings

          From time to time, the Company is involved as a plaintiff or defendant
in  various  legal  actions  incident  to its  business.  None of these  actions
individually  or in the  aggregate  is believed to be material to the  financial
condition of the Company.


Item 2.   Changes in Securities

          Not applicable


Item 3.   Defaults upon Senior Securities

          Not applicable


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

          None

Item 5.   Subsequent Event

          None


Item 6.   Other Information

         On May 9, 1995,  Charter Bank (the Bank) entered into an agreement with
FTA Card Services,  Inc. (FTA) wherein FTA would provide third-party  processing
and servicing to the Bank for credit cards to the Bank's customers.  FTA billed,
collected and  administered  payment on said card program on behalf of the Bank.
On November 8, 1996, FTA notified Charter Bank that FTA was withdrawing from the
credit  card  business  and that a  deficiency  existed in the  Bank's  clearing
account.  According to FTA, the deficiency was due to FTA's poor bookkeeping and
internal  controls.  FTA's  president  accepted  full  responsibility  for  said
deficiency  and that he would  provide to the Bank a viable plan for taking care
of said  deficiency.  At least  nine  other  financial  institutions  were  also
involved.   The  Bank  has  determined  its  share  of  said  deficiency  to  be
approximately  $330,000  although  FTA  estimates  the Bank's  deficiency  to be
approximately $142,000. The Bank, to date, has established a reserve of $158,000
for potential losses.  The Bank is pursuing its options regarding  collection of
this deficiency from FTA and its president. The Bank will continue to review its
reserve as more information and facts become available.



                                   (Continued)
<PAGE>

         On November 20, 1997,  Magna Group,  Inc. and Charter  Financial,  Inc.
jointly announced that they had entered into a definitive agreement for Magna to
acquire  Charter.  The  acquisition is anticipated to be completed in the second
calendar  quarter of 1998 and is subject  to,  among  other  things,  regulatory
approval and the vote of the Charter shareholders.


Item 7.   Exhibits and Reports

          None



<PAGE>





                                   SIGNATURES



         Under 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.


                                          CHARTER FINANCIAL, INC.


Date:  2/11/98                            s/s John A. Becker
                                          ------------------
                                          John A. Becker
                                          Chairman of the Board and President


Date:  2/11/98                            /s/ Michael R. Howell
                                          ---------------------
                                          Michael R. Howell
                                          Executive Vice President and Treasurer
                                          (Chief Financial Officer)