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 Quarterly Period Ended March 31, 2003
                          Commission File Number 0-4690


                        FINANCIAL INDUSTRIES CORPORATION
             (Exact Name of Registrant as specified in its charter)

                                Texas 74-2126975
        (State of Incorporation) (I.R.S. Employer Identification Number)


                      6500 River Place Blvd., Building One
                               Austin, Texas 78730
               (Address of principal executive offices) (Zip Code)

        Registrant's telephone number, including area code (512) 404-5000


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  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

        YES [X]         NO

Number of common  shares  outstanding,  $0.20 par value,  as of March 31,  2003:
9,605,939.

                                      - 1 -


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                           Forward-Looking Statements


Except for historical factual  information set forth in this Quarterly Report on
Form 10-Q of Financial  Industries  Corporation  (the  "Company" or "FIC"),  the
statements, analyses, and other information contained in this report relating to
trends in the Company's  operations and financial  results,  the markets for the
Company's products,  the future development of the Company's  business,  and the
contingencies and uncertainties to which the Company may be subject,  as well as
other  statements  including  words  such as  "anticipate,"  "believe,"  "path,"
"estimate,"   "expect,"  "intend"  and  other  similar  expressions   constitute
forward-looking statements under the Private Securities Litigation Reform Act of
1995. Such statements are made based upon management's  current expectations and
beliefs concerning the financial results, economic conditions and are subject to
known and unknown risks,  uncertainties  and other factors  contemplated  by the
forward-looking  statements.  Such  factors  include,  among other  things:  (1)
general economic  conditions and other factors,  including  prevailing  interest
rate levels and stock market performance, which may affect the ability of FIC to
sell its products,  the market value of FIC's investments and the lapse rate and
profitability of policies;  (2) FIC's ability to achieve  anticipated  levels of
operational efficiencies and cost-saving  initiatives;  (3) customer response to
new products,  distribution channels and marketing  initiatives;  (4) mortality,
morbidity  and  other  factors  which  may  affect  the  profitability  of FIC's
insurance  products;  (5) changes in the Federal income tax laws and regulations
which may affect the  relative tax  advantages  of some of FIC's  products;  (6)
increasing  competition in the sale of insurance and  annuities;  (7) regulatory
changes or actions, including those relating to regulation of insurance products
and insurance companies; (8) ratings assigned to FIC's insurance subsidiaries by
independent rating  organizations such as A.M. Best Company,  which FIC believes
are  particularly  important  to the  sale of  annuity  and  other  accumulation
products; and (9) unanticipated litigation. There can be no assurance that other
factors not currently  anticipated  by management  will not also  materially and
adversely affect FIC.

                                     - 2 -


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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES


                                      INDEX

                                                                        Page No.

Part I - Financial Information

Item 1. Financial Statements
Consolidated Balance Sheets
        March 31, 2003 and December 31, 2002................................. 4

Consolidated Statements of Income
         For the three month periods ended
         March 31, 2003 and March 31, 2002 (as restated)..................... 6

Consolidated Statements of Cash Flows
         For the three month periods ended
         March 31, 2003 and March 31, 2002 (as restated)......................8

Notes to Consolidated Financial Statements...................................10

Item 2. Management's Discussion and Analysis of
         Financial Conditions and Results of Operations......................19

Item 3. Quantitative and Qualitative Disclosures
        About Market Risk ...................................................34

Item 4. Controls and Procedures..............................................35


Part II

Other  Information...........................................................36

Signature  Page..............................................................38

Certifications.............................................................. 39

                                      - 3 -


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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

                                                  March 31          December 31
                                                   2003                2002
                                                (unaudited)

Investments:

Fixed maturities held to maturity,
at amortized cost (market value
approximates $22 and $1,069 at
March 31, 2003 and December 31, 2002,
respectively)                                   $        28         $     1,090

Fixed maturities available for sale,
at market value (amortized cost
of $528,441 and $479,433 at March 31,
2003 and December 31, 2002, respectively)           538,927             493,827

Trading securities, at market value                  20,075                   0

Equity securities, at market value (cost
approximates $6,348 and $6,381 at March 31,
2003 and December 31, 2002, respectively)             6,089               6,351

Policy loans                                         45,880              46,607

Mortgage loans                                            7                  17

Invested real estate                                 74,867              75,393

Short-term investments                              135,651             137,944

     Total investments                              821,524             761,229

Cash and cash equivalents                            16,745              24,975

Accrued investment income                             8,913               8,308

Agency advances and other receivables                20,524              19,728

Reinsurance receivables                              12,668              12,330

Due and deferred premiums                            11,534              11,981

Real estate occupied by Company                      19,597              19,702

Property and equipment, net                           1,454               1,367

Deferred policy acquisition costs                    77,139              77,210

Present value of future profits of
 acquired businesses                                 23,507              23,796

Other assets                                         14,865              15,739

Separate account assets                             326,649             334,637

     Total Assets                               $ 1,355,119         $ 1,311,002

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

                                      - 4 -


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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

                                                 March 31          December 31
                                                   2003                2002
                                                (unaudited)

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:

Policy liabilities and contractholder
 deposit funds:

Contractholder deposit funds                    $   557,305         $   557,466

Future policy benefits                              170,067             172,008

Other policy claims and benefits payable             15,687              17,035
                                                    743,059             746,509
Deferred federal income taxes                        22,743              25,814

Other liabilities                                    91,224              29,400

Separate account liabilities                        326,649             334,637

Total Liabilities                                 1,183,675           1,136,360

Commitments and Contingencies

Shareholders' equity:

Common stock, $.20 par value, 25,000
shares authorized in 2003 and 2002,
11,858 and 11,856 shares issued in
2003 and 2002,  9,606 and 9,601
shares outstanding in 2003 and 2002                   2,373               2,372

Additional paid-in capital                           66,558              66,541

Accumulated other comprehensive income                2,971               4,949

Retained earnings                                   121,781             123,046
                                                    193,683             196,908

Common treasury stock, at cost,
2,252 and 2,255 shares in
2003 and 2002                                       (22,239)            (22,266)

Total Shareholders' Equity                          171,444             174,642

Total Liabilities and Shareholders' Equity      $ 1,355,119        $  1,311,002

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


                                      - 5 -


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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands except per share data)

                                                    Three Months Ended March 31,
                                                     2003                2002
                                                                       RESTATED
    Revenues:                                             (unaudited)

 Premiums, net                                  $     7,939         $     9,915

 Earned insurance charges                            10,608              10,825

 Net investment income                                9,043              10,434

 Real estate income                                     288                 613

 Net realized investment gains                        1,629                   1

 Other                                                  259                 452
                                                     29,766              32,240

Benefits and expenses:

 Policyholder benefits and expenses                   9,843              10,868

 Interest expense on contractholders
  deposit funds                                       7,339               7,985

 Amortization of present value of
  future profits of acquired businesses               1,114               1,085

 Amortization of deferred policy
  acquisition costs                                   2,632               2,009

 Litigation settlement                                2,915                   0

 Operating expenses                                   7,869               9,087
                                                     31,712              31,034
(Loss) income before federal income tax
 and cumulative effect of change in
 accounting principle                                (1,946)              1,206

Provision for federal income taxes                     (681)                624

(Loss) income before cumulative effect
 of change in accounting principle                   (1,265)                582

Cumulative effect of change in
 accounting principle                                     0              10,429

Net (Loss) Income                               $    (1,265)        $    11,011

              The accompanying notes are an integral part of these
                            consolidated statements.

                                      - 6 -


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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands except per share data)

                                                   Three Months Ended March 31,
                                                     2003              2002
                                                                     RESTATED
Net (Loss) Income Per Share                               (unaudited)

Basic:

Weighted average shares outstanding                   9,602               9,500

Basic earnings per share:

(Loss) income per share before cumulative
 effect of change in accounting principle       $     (0.13)        $      0.06

Cumulative effect of change in
 accounting principle                                  0.00                1.10

Basic earnings per share                        $     (0.13)        $      1.16

Diluted:

Common stock and common stock equivalents             9,602               9,575

Diluted earnings per share:

(Loss) income per share before cumulative
 effect of change in accounting principle       $     (0.13)        $      0.06

Cumulative effect of change in
 accounting principle                                  0.00                1.09

Diluted earnings per share                      $     (0.13)        $      1.15

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

                                      - 7 -


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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

                                                   Three Months Ended March 31,
                                                     2003                2002
                                                                       RESTATED
                                                           (unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

Net (Loss) Income                               $    (1,265)         $   11,011

Adjustments to reconcile net income to
 net cash used in operating activities:

Amortization of present value of future
 profits of acquired business                         1,114               1,085

Amortization of deferred policy
 acquisition costs                                    2,632               2,009

Depreciation                                            855                 554

Cumulative effect of change in
 accounting principle                                     0             (10,429)

Realized gain on investments                         (1,629)                 (1)

Changes in assets and liabilities:

Increase in accrued investment income                  (605)              2,252)

(Increase) decrease in agent advances
and other receivables                                (1,134)                818

Decrease in due premiums                                447                 550

Increase in deferred policy acquisition
 costs                                               (2,376)             (2,335)

Decrease (increase) in other assets                     874              (3,478)

Increase (decrease) in policy liabilities
 and accruals                                           271              (4,243)

Increase in other liabilities                         2,214                 176

Decrease in deferred federal income taxes            (1,991)             (1,828)

Net activity from trading securities                (20,071)                  0

Other, net                                              545                  76

Net cash used in operating activities           $   (20,121)        $    (8,287)

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

                                      - 8 -


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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
                                 (in thousands)

                                                   Three Months Ended March 31,
                                                     2003                2002
                                                                       RESTATED
                                                           (unaudited)

  CASH FLOWS FROM INVESTING ACTIVITIES

Fixed maturities purchased                     $   (127,344)        $   (27,395)

Real estate capitalized                                 (84)             (3,374)

Change in policy loans                                  727                 868

Proceeds from calls, maturities and
 sales of fixed maturities                          140,712              31,276

Net decrease in short-term investments                2,293              10,020

Purchase and retirement of property
 and equipment                                         (227)                (87)

Net cash provided by investing activities            16,077              11,308

CASH FLOW FROM FINANCING ACTIVITIES

Cash dividends to shareholders                         (483)                  0

Contractholder fund deposits                         12,632              12,518

Contractholder fund withdrawals                     (16,353)            (12,548)

Issuance of capital stock                                18                 194

Purchase of treasury stock                                0                (460)

Net cash used in financing activities                (4,186)               (296)

Net (decrease) increase in cash                      (8,230)              2,725

Cash and cash equivalents, beginning of year         24,975               7,094

Cash and cash equivalents, end of period        $    16,745         $     9,819

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

                                      - 9 -


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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The financial  statements  included herein have been presented to conform to the
requirements  of Form 10-Q.  This  presentation  includes year end balance sheet
data which was  derived  from  audited  financial  statements.  The notes to the
financial  statements do not  necessarily  include all  disclosures  required by
generally accepted accounting principles (GAAP). The reader should refer to Form
10-K for the year ended December 31, 2002  previously  filed with the Securities
and Exchange  Commission for financial  statements  prepared in accordance  with
GAAP.  Management  believes the  financial  statements  reflect all  adjustments
necessary to present a fair  statement of interim  results.  Certain  prior year
amounts have been reclassified to conform with current year presentation.

The  consolidated   financial  statements  include  the  accounts  of  Financial
Industries   Corporation   ("FIC")  and  its  wholly-owned   subsidiaries.   All
significant intercompany items and transactions have been eliminated.

Other Comprehensive Income

The  following  is  a  reconciliation   of  the  change  in  accumulated   other
comprehensive income from December 31, 2002 to March 31, 2003 (in thousands):

                                Net
                                (unrealized)
                                gain                                    Total
                                (loss) on                               accu-
                                investments    Net                      mulated
                                in fixed       apprecia-                other
                                maturities     tion                     compre-
                                available      of equity                hensive
                                for sale       securities    Other      Income

Balance at December 31, 2002    $  6,601      $   (20)     $ (1,632)    $ 4,949

Current Period Change             (1,830)        (148)            0      (1,978)

Balance at March 31, 2003       $  4,771      $  (168)     $ (1,632)    $ 2,971


                                     - 10 -


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Earnings Per Share:

The following table reflects the calculation of basic and diluted earnings per
share:

March 31,                                           2003                2002
                                                                      Restated

(Amounts in thousands, except per share amounts)

BASIC:

Net (loss) income available to common
  shareholders                                     (1,265)              11,011

Weighted average common shares
  outstanding                                       9,602                9,500

Basic earnings per share                            (0.13)                1.16

DILUTED:

Net (loss) income available to common
  shareholders                                     (1,265)              11,011

Weighted average common shares
  outstanding                                       9,602                9,500

Common stock options                                    0                  318

Repurchase of treasury stock                            0                 (243)

Common stock and common stock
  equivalents                                       9,602                9,575

Diluted earnings per share                          (0.13)                1.15

Options to purchase  206,650 shares of common stock at prices ranging from $8.18
to $14.30  were  outstanding  at March 31,  2003,  but were not  included in the
computation of diluted  earnings per share because the inclusion would result in
an antidilutive  effect in periods where a loss from  continuing  operations was
incurred.

Stock Option Plans and Other Equity Incentive Plans

The Company follows the disclosure-only  provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock
Based  Compensation - Transition and Disclosure."  SFAS No. 123 allows companies
to follow existing accounting rules (APB 25) provided that pro forma disclosures
are made of what net  income  and  earnings  per share  would  have been had the
company  recognized  expense for stock-based awards based on their fair value at
date of grant.

                                     - 11 -


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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


For purpose of pro forma disclosures, the estimated fair value of the options is
amortized  to  expense  over the  options'  vesting  period.  Pro  forma  income
information is as follows (in thousands except for net income per share) for the
three months ended March 31:


                                                   2003                  2002
                                                            RESTATED

Net (loss) income as reported                   $    (1,265)        $    11,011

Pro forma compensation expense,
  net of tax benefits                                     0                  37

Pro forma net (loss) income                     $    (1,265)        $    10,974

Net (loss) income per share:

  Basic as reported                             $     (0.13)        $      1.16

  Diluted as reported                           $     (0.13)        $      1.15

  Basic - Pro Forma                             $     (0.13)        $      1.16

  Diluted - Pro Forma                           $     (0.13)        $      1.15


Dividends Declared

On  December  13,  2002,  the Board of  Directors  met to  review  and amend the
previously-adopted  dividend  policy of the  Company.  The  Board  adopted a new
policy whereby it anticipates the payment of a dividend on a semi-annual  basis;
however,  the new policy is designed to reflect a dividend  based on the results
of  operations,  capital  requirements  and  similar  financial  criteria of the
Company,  rather than on the market  price of the common  stock of the  Company.
Pursuant  to the new policy,  the Board  declared a dividend of $0.05 per common
share payable on January 24, 2003 to record holders as of January 3, 2003

Trading Securities

FIC's  trading  securities  consist  of  Collateralized   Mortgage   Obligations
("CMO's")  of the type which are  generally  referred to as  "inverse  floaters"
which have coupon  rates that vary in an inverse  relationship  with a specified
benchmark  rate. The value of FIC's trading  securities as of March 31, 2003 was
$20.1 million.  The change in the market value of trading  securities during the
period is included in net realized investment gains on the income statement. The
change in market  value  included in income  during the three months ended March
31, 2003 is $5,000.  FIC did not have any  trading  securities  at December  31,
2002.

New Accounting Pronouncements

During 2001, the Financial  Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards No. 143 ("SFAS 143"),  "Accounting for Asset
Retirement Obligations",  which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated  asset  retirement   costs.  SFAS  143  is  effective  for  financial
statements  issued for fiscal years  beginning after June 15, 2002, the adoption
of which did not  materially  affect FIC's results of  operations,  liquidity or
financial position.

                                     - 12 -


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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In May 2002,  the FASB issued SFAS No. 145,  "Rescission  of FAS Nos. 4, 44, and
64, Amendment of SFAS No.13, and Technical Corrections," as of April 2002. Among
other changes,  this Statement  rescinds FASB Statement No. 4, "Reporting  Gains
and  Losses  from   Extinguishment   of  Debt"  and  SFAS   Statement   No.  64,
"Extinguishments  of  Debt  Made to  Satisfy  Sinking-Fund  Requirements."  This
Statement  also  amends  other  existing  authoritative  pronouncements  to make
various technical corrections, clarify meanings, or describe their applicability
under changed  conditions.  SFAS No.145 is effective  for  financial  statements
issued for fiscal years  beginning after May 15, 2002, the adoption of which did
not  materially  affect  FIC's  results of  operations,  liquidity  or financial
position.

The American Institute of Certified Public  Accountants  ("AICPA") also recently
issued  Statement  of Position No. 01-06 ("SOP  01-06")  "Accounting  by Certain
Entities (Including Entities with Trade Receivables) That Lend to or Finance the
Activities  of Others."  The  guidance in SOP 01-06  relating to  financing  and
lending activities is explicitly  applicable to insurance  companies.  SOP 01-06
reconciles  and  conforms  the  accounting  and  financial   reporting  guidance
presently  contained in other  accounting  guidance.  SOP 01-06 is effective for
financial  statements issued for fiscal years beginning after December 15, 2001.
The  Company's  accounting  practices  for its  lending  activities  are already
consistent with the guidance  contained in SOP 01-06.  The adoption of SOP 01-06
did not have a significant effect on the Company's financial statements.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities,"  which  addresses  financial  accounting and
reporting for costs  associated  with exit or disposal  activities and nullifies
Emerging Issues Task Force ("EITF") Issue No. 94-3,  "Liability  Recognition for
Certain  Employee  Termination  Benefits  and  Other  Costs to Exit an  Activity
(including  Certain  Costs  Incurred  in a  Restructuring)."  SFAS  No.  146  is
effective for exit or disposal  activities that are initiated after December 31,
2002.  The adoption of SFAS No. 146 did not materially affect FIC's  results  of
operations, liquidity or financial position.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation - Transition and  Disclosure."  The statement amends SFAS No.123 to
provide alternative methods of transition for voluntary change to the fair value
based method of accounting for stock-based employee  compensation.  In addition,
SFAS No.  148  amends  the  disclosure  requirements  of SFAS No. 123 to require
prominent  disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported  results.  SFAS No. 148  prescribes  a specific  tabular
format for the pro forma disclosures required by SFAS No. 123 and requires their
disclosure  in  the  "Summary  of  Significant   Accounting   Policies"  or  its
equivalent.  In  addition,  SFAS No. 148  requires  inclusion of these pro forma
disclosures in financial reports for interim periods.  SFAS No. 148 is effective
for financial  statements  for fiscal years ending after  December 15, 2002. FIC
continues  to  account  for its stock  option  plans  under  APB 25 and  related
interpretations  as allowed by this  statement.  FIC has adopted the  disclosure
provisions of SFAS No. 148.

                                     - 13 -


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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  Including  Indirect  Guarantees of
Indebtedness  of Others" ("FIN 45"). FIN 45 elaborates on the  disclosures to be
made by a guarantor  in its interim and annual  financial  statements  about its
obligations under certain  guarantees that it has issued. It also clarifies that
a  guarantor  is required to  recognize,  at the  inception  of a  guarantee,  a
liability  for the fair  value  of the  obligation  undertaken  in  issuing  the
guarantee.  The initial  measurement  provisions  of FIN 45 are  applicable on a
prospective basis to guarantees issued or modified after December 31,  2002. The
disclosure  requirements  of  FIN  45  are  effective  for  years  ending  after
December 15, 2002. FIN 45 did not have a material effect on the Company.

In  January  2003,  the FASB  issued  Interpretation  No. 46  "Consolidation  of
Variable Interest Entities, an interpretation of ARB 51" ("FIN 46"). The primary
objectives of FIN 46 are to provide guidance on the  identification  of entities
for which  control is achieved  through  means other than through  voting rights
("variable  interest  entities" or "VIEs") and how to  determine  when and which
business enterprise should consolidate the VIE (the "primary beneficiary"). This
new model for  consolidation  applies to an entity which either  (1) the  equity
investors  (if any) do not have a  controlling  financial  interest  or  (2) the
equity  investment at risk is insufficient  to finance that entity's  activities
without receiving additional  subordinated financial support from other parties.
In addition,  FIN 46 requires  that both the primary  beneficiary  and all other
enterprises  with a  significant  variable  interest  in a VIE  make  additional
disclosures. FIN 46 is not expected to have a material effect on the Company.

In April 2003,  the FASB issued SFAS No. 149,  "Amendment  of  Statement  133 on
Derivative  Instruments and Hedging Activities".  This statement amends SFAS No.
133,  "Accounting  for  Derivative  Instruments  and  Hedging  Activities,"  for
decisions  made  (1) as  part of the  FASB's  Derivatives  Implementation  Group
process that effectively  required amendments to SFAS No. 133, (2) in connection
with  other  FASB  projects  dealing  with  financial  instruments,  and  (3) in
connection with  implementation  issues raised in relation to the application of
the definition of a derivative.  The adoption of SFAS No. 149 is not expected to
materially affect FIC's results of operations, liquidity or financial position.

                                     - 14 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Restatement

The  financial  statements  as of and for the three month period ended March 31,
2002 have been restated.  In the fourth quarter of 2002, the Company  identified
uncollectible  receivables  for which  adequate  allowance had not been made and
policyholder  benefits and expenses  that were  understated  due to an interface
error  between  the policy  administration  system and the general  ledger.  The
Company extended its  investigation to determine the years affected and expanded
the scope of its review to include other areas,  including  certain  adjustments
that were deemed not  material in prior years.  As a result of this review,  the
financial  statements  for  2001  and 2000  and  previously  reported  unaudited
quarterly financial data were restated for the following items:

     1.   Family  Life  (a  wholly  owned  subsidiary  of the  Company)  did not
          properly apply the accounting requirements of SFAS No. 87, "Employers'
          Accounting  for  Pensions,"  in  accounting  for its  defined  benefit
          pension plan.  The Company had accounted for its pension  expense on a
          cash  basis.  As a result,  the Company  had not  properly  recognized
          pension  expense or  benefit  and had not  recorded a prepaid  pension
          asset in years prior to January 1, 2000.

     2.   Agency  advances  and  other  receivables  had not been  analyzed  for
          collectibility and contained balances pertaining to agents that should
          have been written off.

     3.   Depreciation  on certain  property and equipment had not been recorded
          since purchase.

     4.   Certain lease  incentives had been recognized in income as received in
          1997 instead of being deferred and  recognized  over the lease period.
          Further,  certain other lease  termination  benefits had been deferred
          instead  of being  recognized  in income in the  period  the lease was
          terminated.

     5.   Deferred  acquisition cost  amortization for traditional life policies
          issued prior to January 1, 2002 had been calculated using amortization
          factors  which did not  properly  take into  account  the  pattern  of
          commission  expense  recognized on these policies,  which  understated
          amortization  of  these  costs  in early  years  of the  policies  and
          overstated amortization of these costs in later years of the policies.
          Also,  deferred  acquisition  cost  amortization  for  universal  life
          policies  issued  prior to January  1, 2002 was based on  undiscounted
          estimates of future gross profits,  which  overstated  amortization of
          these costs.

     6.   Present value of future profits  amortization ha not reflected certain
          adjustments that reduced the present value of future profits asset.

     7.   Certain death benefit and annuity benefit expenses incurred during the
          years  ended 1999,  2000,  2001 and 2002 were not  recorded  due to an
          interface error between the Company's policy administration system and
          its general ledger.

                                     - 15 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSULIDATED FINANCIAL STATEMENTS (UNAUDITED)

     8.   InterContinental  Life Corporation  ("ILCO") had been accounted for as
          an  investment  of the Company  under the equity  method of accounting
          prior to May 18,  2001 and  consolidated  after  that date upon  FIC's
          acquisition of ILCO's remaining  outstanding shares.  ILCO's financial
          statements also required adjustment for the following items:

          a.   ILCO had not recorded  dividend  and capital  gain  distributions
               prior to 1998 on its  investment  in one of its variable  annuity
               separate  accounts  (which   understated  ILCO  January  1,  2000
               retained  earnings)  and had not  recorded  unrealized  gains  or
               losses to adjust  the  carrying  value of its  investment  in the
               separate account to market value (which  understated ILCO January
               1, 2000 accumulated other comprehensive income).

          b.   Agency  advances and other  receivables  and other assets had not
               been  analyzed for  recoverability  and  contained  balances that
               should have been written off.

          c.   Certain  adjustments to reinsurance  recoverables that related to
               periods prior to January 1, 2000 were recorded during 2000.

          d.   ILCO did not properly apply the accounting  requirements  of SFAS
               No. 87,  "Employers'  Accounting for Pensions," in accounting for
               its defined  benefit  pension  plan.  ILCO had  accounted for its
               pension expense on a cash basis. As a result, the Company had not
               properly  recognized  pension  expense  or  benefit  and  had not
               recorded  a prepaid  pension  asset in years  prior to January 1,
               2000.

          e.   Certain  lease  incentives  had  been  recognized  in  income  as
               received in 1997 instead of being  deferred and  recognized  over
               the  lease  period.  Further,  certain  other  lease  termination
               benefits had been deferred  instead of being recognized in income
               in the period the lease was terminated.

          f.   An unreconciled  difference  between  suspense  account  balances
               included in the Company's  general  ledger and those  included in
               its policy  administration  system resulted in an unsupported net
               asset (included in other liabilities on the consolidated  balance
               sheet) that should have been written off.

     9.   The  negative  goodwill  recognized  as  a  result  of  the  Company's
          acquisition of the remaining common shares of ILCO on May 18, 2001 and
          related  amortization  of negative  goodwill  in 2001 was  adjusted to
          reflect the impact on ILCO of the above items.

     10. Deferred federal income tax balances were adjusted for the above items.

                                     - 16 -


<PAGE>



                       FINANCIAL INDUSTRIES CORPORATION AN
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


     Net income for the three  months  ended March 31, 2002 was  decreased  from
     amounts  previously  reported by $5,873,000 as a result of the restatement,
     as follows (in thousands except per share data):


                                             Three Months        Three Months
                                                 Ended              Ended
                                             March 31, 2002     March 31, 2002
                                             As Previously        As Restated
                                               Reported

Net income before cumulative effect of
change in accounting principle                  $     1,157         $       582

Cumulative effect of change in accounting
principle                                       $    15,727         $    10,429

Net income                                      $    16,884         $    11,011

Basic earnings per share:

Net income before cumulative effect of
change in accounting principle                  $      0.12         $      0.06

Cumulative effect of change in accounting
principle                                              1.66                1.10

Net income                                      $      1.78         $      1.16

Diluted earnings per share:

Net income before cumulative effect of
change in accounting principle                  $      0.12         $      0.06

Cumulative effect of change in accounting
principle                                              1.64                1.09

Net income                                      $      1.76         $      1.15

                                     - 17 -


<PAGE>


The change in net income for the three  months  ended  March 31, 2002 was due to
the following adjustments that increased (decreased) net income (in thousands):



                                                                   Three Months
                                                                       Ended
                                                                     March 31,
                                                                       2002

Premiums                                                            $         1

Policyholder benefits and expenses                                         (584)

Amortization of present value of future profits                             (15)

Amortization of deferred policy acquisition costs                           (86)

Provision for uncollectible receivables                                    (200)

Provision for deferred federal income taxes                                 309

Cumulative effect of change in accounting principle                      (5,298)

Net income                                                          $    (5,873)

                                     - 18 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


A summary  of the  effects  of the  restatement  on the  Company's  consolidated
balance sheet as of March 31, 2002 is as follows (in thousands):


                                                     As
                                                 Previously               As
                                                  Reported             Restated

ASSETS

Equity securities                               $        48         $     8,346

Invested real estate                                 64,029              67,049

   Total Investments                                739,454             750,772

Agency advances and other receivables                30,072              16,224

Property and equipment, net                           3,576                 798

Deferred policy acquisition costs                    81,191              77,952

Present value of future profits of
 acquired businesses                                 30,590              29,854

Other assets                                         17,553              18,676

Separate account assets                             388,480             380,714

   Total Assets                                 $ 1,359,257         $ 1,343,331

LIABILITIES AND SHAREHOLDERS' EQUITY

Deferred federal income taxes                        29,090              24,051

Other liabilities                                     9,283              17,322

   Total liabilities                              1,165,873           1,168,872


Accumulated other comprehensive income                 (441)             (2,424)

Retained earnings                                   148,345             131,403

   Total shareholders' equity
    before treasury               stock             215,741             196,816

   Total shareholders' equity                       193,384             174,459

   Total liabilities and share-
    holders' equity                             $ 1,359,257         $ 1,343,331

                                     - 19 -


<PAGE>


The consolidated  balance sheet as of March 31, 2002 was restated to reflect the
following:


     *    An increase of $8.3 million in FIC's  investments in equity securities
          to properly  reflect the market value of the  Company's  investment in
          the separate account;

     *    An increase  $3.0 million in invested  real estate  primarily due to a
          reclassification   of  certain  real  estate  expenditures  that  were
          classified as property and equipment;

                                     - 20 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

     *    A decrease of $13.8 million in agency  advances and other  receivables
          primarily  due to a  write-off  of  uncollectible  agent  balances,  a
          write-off  of a  reinsurance  receivable,  and a  write-off  of assets
          related  to  an  interface   error   between  the   Company's   policy
          administration system and its general ledger;


     *    A decrease of $2.8 million in property and equipment  primarily due to
          a  reclassification  of certain  amounts  classified  as property  and
          equipment  to invested  real estate and a write-off of assets that had
          not been depreciated since purchase;

     *    A decrease of $3.2 million in deferred policy acquisition costs due to
          a revision of the factors used to  calculate  Family  Life's  deferred
          policy acquisition costs;

     *    A decrease of $736,000 in present value of future  profits of acquired
          businesses due to an adjustment in the calculation of this asset;

     *    An increase of $1.1 million in other assets  primarily  related to the
          establishment of unrecorded pre- paid pension assets related to Family
          Life's and ILCO's pension plans;

     *    A  decrease  of $7.8  million  in  separate  account  assets  due to a
          reclassification of separate account assets to equity securities;

     *    A decrease  of $5.0  million in the  liability  for  deferred  federal
          income  taxes as a result  of the  restatement  adjustments  described
          herein;

     *    An increase of $8.0 million in other liabilities  primarily related to
          an unreconciled  difference between suspense account balances included
          in the  Company's  general  ledger  and those  included  in its policy
          administration system.

     *    A decrease of $2.0 million of accumulated other  comprehensive  income
          due to the  changes  in the  accounting  treatment  for  the  pre-paid
          pension asset and the separate account investment; and

     *    A  decrease  in  retained   earnings  of  $16.9  million  due  to  the
          restatement adjustments described herein.

                                     - 21 -


<PAGE>


Commitments and Contingencies

The Company and its subsidiaries are defendants in certain legal actions related
to the normal business  operations of the Company.  Management believes that the
resolution  of such  matters  will not have a material  impact on the  financial
statements.

Universal Life Litigation. On January 22, 2002, the Travis County District Court
in  Austin,  Texas  denied  certification  to a  proposed  nationwide  class  of
plaintiffs who purchased certain universal life insurance policies from INA Life
Insurance  Company (which was merged into Investors Life in 1992).  The lawsuit,
which was filed in 1996 as a  "vanishing  premium"  life  insurance  litigation,
initially alleged that the universal life insurance  policies sold to plaintiffs
by INA Life Insurance  Company utilized unfair sales  practices.  In April 2001,
the plaintiffs filed an amended  complaint,  so as to include various post- sale
allegations,  including  allegations related to the manner in which increases in
the cost of insurance were applied,  the  allocation of portfolio  yields to the
universal  life  policies and changes in the spread  between the earned rate and
the credited rate.  Plaintiffs' Motion for Class Certification was denied in its
entirety.

Litigation  Relating to the FIC/ILCO  Merger.  On the day that FIC and ILCO each
publicly  announced the formation of a special committee to evaluate a potential
merger,  two class action lawsuits were filed against ILCO, FIC and the officers
and  directors  of ILCO.  The action  allege  that a cash  consideration  in the
proposed merger is unfair to the shareholders of ILCO, that it would prevent the
ILCO  shareholders  from  realizing the true value of ILCO, and that FIC and the
named officers and directors had material conflicts of interest in approving the
transaction.  In their initial pleadings, the Plaintiffs sought certification of
the cases as class actions and the named  plaintiffs  as class  representatives,
and  among  other  relief,  requested  that  the  merger  be  enjoined  (or,  if
consummated,  rescinded  and set aside) and that the  defendants  account to the
class members for their damages.  The  defendants  believe that the lawsuits are
without  merit and intend to  vigorously  contest the  lawsuits.  Management  is
unable to  determine  the  impact,  if any,  that the  lawsuits  may have on the
results of operations of the Company.

Subsequent Events

As  previously  reported  in its  Annual  Report on Form 10-K for the year ended
December 31, 2002, the Company filed a lawsuit  against Roy F. Mitte  ("Mitte"),
The Roy F. and Joann Cole Mitte  Foundation (the  "Foundation")  and Joann Mitte
(collectively  referred  to  as  the  "Defendants").  Mitte  was  the  Chairman,
President  and  Chief   Executive   Officer  of  FIC  until  he  was  placed  on
administrative  leave  in  August,  2002.  The  administrative  leave,  and  the
subsequent  action by the Board of Directors in October,  2002 to terminate  the
employment  agreement  between  FIC and Mitte,  resulted  from an  investigation
conducted by the FIC Audit  Committee.  Subsequent to the filing of the lawsuit,
Mr. Mitte filed a  counterclaim  against the Company  alleging  that the Company
breached the employment  agreement between the Company and Mr. Mitte by refusing
to pay Mitte the  severance  benefits  and  compensation  provided for under the
employment agreement and amendment thereto.

                                     - 22 -


<PAGE>


On May 15,  2003,  the Company  entered  into a  settlement  agreement  with the
Defendants  and Scott Mitte (a director of the Company and the son of Roy Mitte)
(the  "Mitte  Parties").  Under the  terms of the  agreement  the Mitte  Parties
released the Company from any past, present or future claims which they may have
against the Company,  including  any claims which Roy Mitte may assert under the
employment  agreement.  In  addition,  the  Company  agreed to release the Mitte
Parties  from any past,  present or future  claims  which the  Company  may have
against the Mitte Parties.

The  settlement  provides for payments by the Company to Roy Mitte of $1 million
on June 1, 2003, $1 million on June 1, 2004 and $1 million on June 1, 2005, with
a provision  for  acceleration  of payments in the event of a change in control.
The settlement  agreement also includes provisions  whereby,  the Company agrees
(i) to use commercially  reasonable  efforts to locate a purchaser or purchasers
of specified  installments over a two year period of the 1,552,206 shares of FIC
common  stock owned by the  Foundation  during  future  periods set forth in the
settlement  agreement,  at a price of $14.64 per share,  (ii) to  purchase  (or,
alternatively,  locate a  purchaser)  on or before  June 1, 2003 of the 39,  820
shares of FIC common  stock  owned by Roy Mitte and the 35,502  shares of common
stock held in the ESOP account of Roy Mitte, at a price of $14.64 per share. The
agreement  also  includes  provisions  related  to the  continuation  of  health
insurance  of Roy and Joann Mitte and payment  for the  cancellation  of options
held by Roy Mitte to purchase 6,600 shares of FIC common stock.  The Company has
recognized  a charge of $2.9 million  (before tax) in the first  quarter of 2003
for  amounts  to be  paid  under  the  settlement  agreement,  representing  the
discounted amount of the non-interest bearing settlement.

As a condition of the obligations of the Company under the settlement agreement,
the  Mitte  Parties  agreed  to grant a limited  proxy to the  persons  named as
proxies by FIC in any proxy statement filed by FIC with the SEC. With respect to
the future shareholders  meetings, the proxy may be voted "for" all nominees for
the Board of Directors named on FIC's proxy statement, "against" any proposal by
a  person  other  than  FIC for the  removal  of any  members  of the  Board  of
Directors,  "withheld" as to nominees for the Board of Directors proposed by any
person other than FIC and "against" any proposal by any person other than FIC to
amend the bylaws or articles of FIC. The proxy also  extends to certain  matters
which may be proposed by FIC at the 2004 annual meeting of shareholders,  or any
later annual or special meeting,  regarding changes in the ownership  percentage
required in order for a shareholder  to call a special  meeting of  shareholders
and the elimination of cumulative voting. The granting of the proxy is generally
conditioned upon the performance of the scheduled purchases of the shares of FIC
common stock owned by the Foundation.

                                     - 23 -


<PAGE>


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

The  following   discussion  addresses  the  financial  condition  of  Financial
Industries  Corporation ("FIC") as of March 31, 2003, compared with December 31,
2002,  and its results of operations  for the three months ended March 31, 2003,
compared  with the same  period  last year.  This  discussion  should be read in
conjunction with Management's Discussion and Analysis included in FIC's 10-K for
the year ended December 31, 2002, to which the reader is directed for additional
information.

                                  Restatement

In this Item 2,  references  to results for the quarter ended March 31, 2002 are
to restated results. See the Notes to the Consolidated Financial Statements.


         Transactions Affecting Comparability of Results of Operations

In 2002,  net income and  earnings  per share were  affected  by the  cumulative
effect  of a change  in  accounting  principle  of $10.4  million.  This  amount
represents  the excess of fair value of net assets  acquired over cost as of the
beginning of 2002  related to the merger of  InterContinental  Life  Corporation
("ILCO") with and into a subsidiary of FIC on May 18, 2001. The Company recorded
this  cumulative  effect in  conjunction  with  adopting  Statement of Financial
Accounting Standards No. 141 ("SFAS 141"), "Business Combinations," in the first
quarter of 2002, as required by SFAS 141.

In the first quarter of 2003, net income was affected by a $2.9 million  expense
related to the settlement of the  litigation  between FIC, and Roy F. Mitte (the
former Chairman and Chief Executive Officer of the Company),  and the Roy F. and
Joann Cole Mitte  Foundation (see  "Subsequent  Events",  herein,  for a further
description of this settlement, referred to as the "Mitte Settlement").


       Results of Operations - Three Months Ended March 31, 2003 and 2002

For the  three-month  period  ended  March 31,  2003,  FIC's net loss was ($1.3)
million  (basic and  diluted  loss of ($0.13)  per common  share) on revenues of
$29.8  million as compared  to net income of $11.0  million  (basic  earnings of
$1.16 per common  share,  or  diluted  earnings  of $1.15 per  common  share) on
revenues of $32.2 million in the first three months of 2002.  Net income for the
first three months of 2002, before the cumulative effect of change in accounting
principle,  was $0.6  million  (basic and  diluted  earnings of $0.06 per common
share).

                                     - 24 -


<PAGE>


Revenues.

Premium revenues reported for traditional life insurance products are recognized
when due.  Premium income for the first three months of 2003, net of reinsurance
ceded,  was $7.9 million,  as compared to $9.9 million in the first three months
of 2002.  This source of revenues is related to the  traditional  life insurance
book of business of FIC's  insurance  subsidiaries.  The level of net  collected
premiums for  traditional  life insurance  products at Family Life for the three
months  ending March 31, 2003 was $5.8  million,  as compared to $7.4 million in
the same period in 2002. The decrease in net collected  premium is  attributable
to the decrease in the traditional life insurance book of business.

Income from  universal  life and annuity  charges for the first three  months of
2003 was $10.6 million, as compared to $10.8 million in the same period of 2002.
The face amount of in force  universal life policies was $5,210 million at March
31, 2002 as compared to $4,897 million at March 31, 2003.

Net  investment  income for the first three  months of 2003 was $9.0  million as
compared to $10.4 million in the same period of 2002. Net investment  income was
adversely  affected by the decline in the level of interest income received from
fixed income and short-term  investments.  This decline is attributable to lower
interest rates during the period.

Real estate income is primarily earned from the leases on the buildings at River
Place  Pointe,  an office  complex  in  Austin,  Texas  which is owned and being
developed by Investors Life. Real estate income was $288,000 for the three-month
period  ended March 31,  2003,  as  compared to $613,000  for the same period in
2002.  The decrease in real estate  income from the three months ended March 31,
2002 to the same period  ended March 31,  2003 is due to the  completion  of the
remainder of the  buildings  in River Place Pointe and the related  expenses and
depreciation of those buildings.

Net  realized  investment  gains were $1.6  million in the first three months of
2003, as compared to $0.001 million in the first three months of 2002.

Benefits and Expenses.

Policyholder  benefits and expenses  were $9.8 million in the first three months
of 2003,  as compared to $10.9  million in the first three  months of 2002.  The
decrease in policyholder  benefits and expenses was primarily  attributable to a
decrease in reserves of $1.8 million  offset by an increase in death benefits of
$0.8 million.

Interest expense on contract holders deposit funds was $7.3 million in the first
three months of 2003, as compared to $8.0 million in the same period of the year
2002. This expense is related to payment of interest to  policyholders  for cash
values  accumulated  in their  accounts.  This  decrease  was due primary to the
lowering of credited rates on these accounts

                                     - 25 -


<PAGE>


The costs related to acquiring new business,  including certain costs of issuing
policies and certain other variable selling expenses (principally  commissions),
are  deferred  policy  acquisition  costs  ("DAC").  The expense  related to the
amortization  of DAC was $2.6  million  in the first  three  months of 2003,  as
compared  to $2.0  million  in the first  three  months of 2002.  The amount not
capitalized  was  recorded  as an expense in the first  quarter.  See  "Critical
Accounting  Policies,  Deferred  Policy  Acquisition  Costs and Present Value of
Future  Profits  of  Acquired  Business"  herein  for a  further  discussion  of
capitalization of expenses related to acquiring new business.

In the first three months of 2003, the expense  related to the  amortization  of
present  value of future  profits  of  acquired  business  was $1.1  million  as
compared to $1.1 million in the first three months of 2002.

Operating  expenses  for the first three months of 2003 were $10.8  million,  as
compared  to $9.1  million  in the  first  three  months  of 2002.  The level of
operating  expenses for the three month period  ending March 31, 2003  included:
(i) expenses related to acquiring new business; (ii) $2.9 million related to the
Mitte Settlement (see "Subsequent  Events" for a further discussion of the Mitte
Settlement);  (iii) legal expenses related to litigation and proxy matters;  and
(iv) fees paid to Salomon  Smith  Barney  related to the matter set forth in the
Company's  Current  Report on Form 8-K filed with the  Securities  and  Exchange
Commission on January 28, 2003.

The  provision  for federal  income taxes was ($0.7)  million in the first three
months of 2003 as  compared to $0.6  million in the first three  months of 2002.
The  decrease was due to the decrease in income for the three month period ended
March 31, 2003 compared to the same period in 2002.

                         Liquidity and Capital Resources

Liquidity  describes the ability of a company to generate  sufficient cash flows
to meet  the cash  requirements  of  business  operations.  FIC is an  insurance
holding company whose principal assets consist of the outstanding  capital stock
of its insurance  subsidiaries - Family Life Insurance  Company  ("Family Life")
and Investors Life Insurance Company of North America  ("Investors  Life"). As a
holding company,  FIC's ability to meet its cash  requirements,  pay interest on
any debt,  pay expenses  related to its affairs and pay  dividends on its common
stock  substantially  depends upon dividends from its  subsidiaries.  Applicable
state  insurance laws generally  restrict the ability of insurance  companies to
pay cash dividends in excess of prescribed limitations without prior approval.

The ability of Family Life and Investors  Life to pay  shareholder  dividends is
and will continue to be subject to restrictions  set forth in the insurance laws
and regulations of Washington,  their domiciliary  state.  Washington limits how
and when Family Life and  Investors  Life can pay  shareholder  dividends by (a)
including  the "greater  of" standard for payment of dividends to  shareholders,
(b) requiring  that prior  notification  of a proposed  dividend be given to the
Washington Insurance  Commissioner and (c) requiring that cash dividends be paid
only from earned surplus.  Under the "greater of" standard, an insurer may pay a
dividend  in an amount  equal to the  greater  of : (i) 10% of the  policyholder
surplus or (ii) the insurer's net gain from  operations  for the previous  year.
Neither  Investors  Life nor  Family  Life paid any  dividends  during the first
quarter of 2003. For the three month period ended March 31, 2003, Investors Life
had  earned  surplus of $26.2  million  and a net loss from  operations  of $0.6
million,  and Family Life ad earned surplus of $2.2 million and a net gain from
operations of $0.1 million.

                                     - 26 -


<PAGE>


Sources of cash for FIC's  insurance  subsidiaries  consist of premium  payments
from  policyholders  and annuity  holders,  charges on policies  and  contracts,
investment income, and proceeds from the sale of investment assets.  These funds
are applied  primarily to provide for the payment of claims under  insurance and
annuity policies, payment of policy withdrawals, surrenders and loans, operating
expenses, taxes, investments in portfolio securities, and shareholder dividends.

FIC's cash and cash  equivalents at March 31, 2003 was $16.7 million as compared
to $25.0  million at December  31, 2002.  The $8.3 million  decrease in cash and
cash  equivalents  at March 31, 2003 from December 31, 2002 was due primarily to
reinvestment of cash into purchases of  intermediate-and  long-term bonds.  Cash
and cash  equivalents  at March 31, 2002 was $9.8 million.  The increase in cash
from March 31, 2002 to March 31, 2003 was primarily  attributable  to maturities
and early redemptions of fixed income investments which resulted in an increased
cash position pending reinvestments.

FIC's net cash flow used in operating activities was $20.1 million for the three
month  period  ending  March 31,  2003,  as  compared  to $8.3  million  used in
operating  activities for the same period in the year 2002. The increase in cash
used in operating  activities  of $11.8  million from 2002 to 2003 was primarily
attributable  to $20.1  million of net activity  from trading  securities in the
three-month  period ending March 31, 2003,  which was offset by changes in other
assets and policy liabilities and accruals.

Net cash flow  provided by investing  activities  was $16.1 million in the three
month period  ending March 31, 2003,  as compared to $11.3  million  provided by
investing  activities in the same period of 2002.  The $4.8 million  increase in
cash  provided by investing  activities  in 2003 from 2002 was due  primarily to
proceeds from calls, maturities and sales of fixed maturities.

Net cash flow used in financing  activities  was $4.2 million in the first three
months of 2003,  as compared to $0.3  million in the first three months of 2002.
The  increase  in  cash  used  in  financing   activities  of  $3.9  million  is
attributable  to a  dividend  to  shareholders  of $0.5  million,  as well as an
increase of contractholder fund withdrawals of $3.8 million.

A primary  liquidity  consideration  with respect to life  insurance and annuity
products  is the  risk of  early  policyholder  and  contractholder  withdrawal.
Deposit fund liabilities for universal life and annuity products as of March 31,
2003 were  $557.3  million,  as compared  to $557.5  million at March 31,  2002.
Individual life insurance  policies are less  susceptible to withdrawal than are
annuity contracts because  policyholders may incur surrender charges and undergo
a new underwriting  process in order to obtain a new insurance  policy. At March
31, 2003, the bulk of the liabilities for contractholder  deposit funds on FIC's
balance sheet, $415.9 million,  were related to insurance products,  as compared
to only $141.4 million of annuity product liabilities.

                                     - 27 -


<PAGE>


The cash  requirements of FIC, and its holding company  subsidiary,  Family Life
Corporation,  consist  primarily of its service of the  indebtedness  created in
connection  with FIC's  ownership  of Family  Life.  As of March 31,  2003,  the
investment   portfolio  of  Investors  Life  included  $21.5  million  of  notes
receivable  from  affiliates,  represented  by (i) a  loan  of  $30  million  by
Investors Life to Family Life  Corporation made in July 1993, in connection with
the prepayment of indebtedness which had been previously issued to Merrill Lynch
as part of the 1991  acquisition of Family Life by a wholly- owned subsidiary of
FIC, and (ii) a loan of $4.5 million by Investors  Life to Family Life Insurance
Investment  Company made in July 1993, in connection  with the same  transaction
described above.

The  provisions  of the notes owned by  Investors  Life  include  the  following
provisions:  (a) the $30 million note provides for quarterly principal payments,
in the amount of $1,336,458;  the final  quarterly  principal  payment is due on
September  12,  2006;  the  interest  rate on the  note is 9%,  and (b) the $4.5
million  note  provides  for  quarterly  principal  payments,  in the  amount of
$200,469;  the final quarterly  principal  payment is due on September 12, 2006;
the interest rate on the note is 9%.

Due to the merger of  InterContinental  Life Corporation (which owns 100% of the
outstanding  stock of Investors  Life) with a subsidiary of FIC on May 18, 2001,
this  indebtedness is not included as a liability on the consolidated  financial
statements of FIC. FIC's other liquidity  requirements relate principally to the
need  for  cash  flow to meet  operating  expenses,  as well as the  liabilities
associated with its insurance  subsidiaries'  various life insurance and annuity
products.

In 2002,  management  reviewed the Company's  liquidity to determine whether the
cash, cash equivalents and short term investments of the Company were sufficient
to meet the Company's needs for cash for operations,  capital  requirements  and
commitments.  Based  on such  review,  management  has  reduced  the  amount  of
dividends paid to shareholders,  discontinued  donations to the Roy F. and Joann
Cole Mitte Foundation, and implemented plans to streamline the operations of the
Company.  Because  of such  review  and  subsequent  initiatives  set  forth  by
management,  management  believes that the cash, cash equivalents and short term
investments of FIC and its  subsidiaries are sufficient to meet the needs of its
business  and to  satisfy  debt  service.  There are no trends,  commitments  or
capital asset  requirements  that are expected to have an adverse  effect on the
liquidity of FIC.


                                   Investments

As of March 31, 2003, FIC's invested assets, excluding separate accounts, $821.5
million,  compared  to $761.2  million at December  31,  2002.  The  increase is
primarily  attributable to a $20 million  increase in trading  securities and an
increase in fixed maturities  available for sale of $45.1 million.  There are no
significant  differences between the portfolio  composition as of March 31, 2003
as compared to December 31, 2002 other than the addition of trading  securities,
which compromise 2.44% of the investment portfolio at March 31, 2003 as compared
to 0% at December 31, 2003.

                                     - 28 -


<PAGE>


The assets held by FIC's life insurance subsidiaries must comply with applicable
state  insurance  laws  and  regulations.   In  selecting  investments  for  the
portfolios  of its  life  insurance  subsidiaries,  the  emphasis  is to  obtain
targeted  profit  margins,  while  minimizing the exposure to changing  interest
rates.   This  objective  is  implemented  by  selecting   primarily  short-  to
medium-term,  investment grade fixed income securities. In making such portfolio
selections,  the Company  generally  does not select new  investments  which are
commonly  referred to as "high  yield" or  "non-investment  grade".  The general
investment  objective of the Company emphasizes the selection of short to medium
term high quality fixed income  securities,  rated Baa-3  (investment  grade) or
better by Moody's Investors  Service,  Inc. FIC determines the allocation of our
assets  primarily  on the  basis of cash  flow and  return  requirements  of our
products and secondarily by the level of investment risk.

Another  key  element of the  Company's  investment  strategy  is to avoid large
exposure in other investment  categories which the Company believes carry higher
credit or liquidity risks,  including private placements,  partnerships and bank
participations.  These categories  accounted for only $22,094 of invested assets
as of March 31, 2003 and $26,049 of invested assets at December 31, 2002.

Fixed Maturity Securities

The Company's fixed maturity securities portfolio is predominately  comprised of
low  risk,  investment  grade,  available  for sale  publicly  traded  corporate
securities, mortgage-backed securities and United States Government bonds. As of
March 31, 2003,  the market  value of fixed  maturities  available  for sale was
$538.9  million  as  compared  to an  amortized  cost of  $528.4  million  or an
unrealized gain of $10.5 million. The increase reflects unrealized gains on such
investments  related to changes in interest rates  subsequent to the purchase of
such investments. At December 31, 2002, the market value of the fixed maturities
available for sale segment was $493.8  million as compared to an amortized  cost
of $479.4 million.

The investments of FIC's insurance  subsidiaries in  mortgage-backed  securities
included  collateralized  mortgage  obligations ("CMOs") of $223.2 million as of
March  31,  2003 as  compared  to $175.4  million  at  December  31,  2002,  and
mortgage-backed  pass-through  securities  of $66.8 million as of March 31, 2003
and  $29.6  million  at  December  31,  2002.   Mortgage-backed   pass-  through
securities,  sequential CMO's and support bonds,  which comprised  approximately
52.9% of the book value of FIC's  mortgage-backed  securities at March 31, 2003,
are sensitive to prepayment and extension  risks.  FIC's insurance  subsidiaries
have reduced the risk of prepayment  associated with mortgage-backed  securities
by investing in planned  amortization class ("PAC"),  target  amortization class
("TAC")  instruments  and scheduled  bonds.  These  investments  are designed to
amortize in a  predictable  manner by  shifting  the risk of  prepayment  of the
underlying  collateral to other investors in other tranches ("support  classes")
of the CMO. At March 31,  2003,  PAC and TAC  instruments  and  scheduled  bonds
represented  approximately  32.8%  of the book  value  of FIC's  mortgage-backed
securities.  Sequential and support classes  represented  approximately 14.3% of
the  book  value  of  FIC's  mortgage-backed   securities  at  March  31,  2003.
Additionally,  the insurance  subsidiaries make selected  investments in CMOs of
the inverse  floater  category.  Such  instruments,  which are subject to strict
quantitative  and qualitative  standards,  carry a higher current  interest rate

                                     - 29 -


<PAGE>


which  varies in an inverse  relationship  with a specified  benchmark  interest
rate.  The  investment  guidelines  do not permit the purchase of CMOs which are
interest only or principal only  instruments.  The prepayment  risk that certain
mortgage-backed  securities  are subject to is prevalent in periods of declining
interest  rates,  when  mortgages  may be repaid more rapidly than  scheduled as
individuals  refinance  higher rate  mortgages  to take  advantage  of the lower
current rates. As a result,  holders of  mortgage-backed  securities may receive
large prepayments on their investments which cannot be reinvested at an interest
rate comparable to the rate on the prepaying  mortgages.  For the year 2003, the
investment  objectives  of FIC's  insurance  subsidiaries  include a strategy of
reducing  the  concentration  in  short-term   investments  by  making  selected
investments in a variety of medium-term CMO instruments.

The securities  valuation office (SVO) of the National  Association of Insurance
Commissioners evaluates all public and private bonds purchased as investments by
insurance  companies.  The SVO assigns one of six investment  categories to each
security it reviews. Category 1 is the highest quality rating, and Category 6 is
the lowest. As of March 31, 2003, the majority of our bonds are investment grade
(Category  1  and  2).  The  Company's  fixed  maturities  portfolio  (including
short-term investments),  included only a non-material amount of debt securities
which,  in the annual  statements of the companies as filed with state insurance
departments, were designated by the SVO as "3" (medium quality) or below.

Trading Securities

FIC's  trading  securities  consist  of CMOs of the  type  which  are  generally
referred  to as  "inverse  floaters"  which  have  coupon  rates that vary in an
inverse relationship with a specified benchmark rate. The value of FIC's trading
securities  as of March 31,  2003 was $20.1  million.  The  change in the market
value of  trading  securities  during  the period is  included  in net  realized
investment gains on the income statement. The change in market value included in
income during the three months ended March 31, 2003 is $5,000.  FIC did not have
any trading securities at December 31, 2002.

Equity Securities

FIC's equity  securities  consist  primarily of its  investment  in the separate
account of  Investors  Life.  As of March 31,  2003,  the market  value of FIC's
equity securities was $6.1 million,  as compared to $6.4 million at December 31,
2002. The decrease is related to a decline in the value of the underlying  funds
in the separate account.

Policy Loans

Policy  loans  totaled  $45.9  million at March 31,  2003,  as compared to $46.6
million at December 31, 2002.

                                     - 30 -


<PAGE>


Mortgage Loans

As of March 31,  2003,  $7,000 was  invested in mortgage  loans,  as compared to
$17,000 at December  31, 2002.  The Company does not make new mortgage  loans on
commercial properties.

Real Estate

Invested  real estate at March 31,  2003 was $74.9  million as compared to $75.4
million at December 31, 2002. The real estate investment is primarily related to
the  development  of the River Place Pointe  project  ("River Place  Pointe") by
Investors  Life. In October 1998,  Investors Life purchased  River Place Pointe,
which  consisted  of two  adjoining  tracts of land  located  in  Austin,  Texas
totaling  47.995 acres.  The aggregate  purchase price for these tracts was $8.1
million.  Investors Life obtained a Site Development  Permit for the tracts from
the City of Austin  allowing  for the  construction  of seven  office  buildings
totaling  600,000  square  feet,  with  associated  parking,  drives and related
improvements.  Construction on the first section of the project,  which consists
of  four  office   buildings,   an  associated   parking  garage,   and  related
infrastructure  was completed  during 2000 and 2001.  Construction on the second
section of the project, which consists of three office buildings,  an associated
parking garage, and related infrastructure was completed in 2002.

As of  March  31,  2003,  Investors  Life  had  invested  $93.8  million  in the
construction of River Place Pointe,  of which $19.6 million is recorded on FIC's
balance  sheet as real estate  occupied by the  Company.  As of March 31,  2003,
226,039.5 rentable square feet of office space was leased to third party tenants
and 273,497  rentable  square feet was  available  for lease.  According  to the
Federal Deposit  Insurance  Corporation's  ("FDIC") National Edition of Regional
Outlook,  Fourth Quarter, 2002, the Austin office market vacancy rate (including
sublease space available) was 27.2% as of September 30, 2002, the highest in the
nation.

The Company views the River Place Pointe  investment as a long term  commitment.
Based on this assumption,  the Company has examined future anticipated cash flow
on the development and has determined that the investment is not impaired.

Short-term investments

FIC's short-term  investments  consist  primarily of U.S.  Government bonds. The
level of  short-term  investments  at March  31,  2003 was  $135.7  million,  as
compared to $137.9 million as of December 31, 2002.

                                     - 31 -


<PAGE>


                          Critical Accounting Policies

The  financial  statements  contain  a  summary  of  FIC's  critical  accounting
policies,  including a discussion of recently-issued  accounting pronouncements.
Certain of these  policies are  considered  to be important to the  portrayal of
FIC's  financial  condition,  since they require  management to make  difficult,
complex or  subjective  judgments,  some of which may relate to matters that are
inherently  uncertain.  These  policies  include  valuation of  investments  and
deferred  acquisition  costs and present value of future  profits.  For the year
2002, the Company's  critical  accounting  policies also included the cumulative
effect of accounting  changes  regarding  the goodwill  acquired from the merger
with ILCO.

Cumulative Effect of Accounting  Changes.  During the first quarter of 2002, the
Company  adopted  Statement of Financial  Accounting  Standards  (SFAS) No. 141,
"Business  Combinations." SFAS No. 141 eliminates the practice of amortizing and
deferring  excess of net assets  acquired  over costs and  requires  unallocated
negative goodwill to be recognized immediately. In accordance with the standard,
FIC ceased negative goodwill  amortization on January 1, 2002 and recognized the
unamortized  balance  of $10.4  million of  negative  goodwill  acquired  in the
Merger.

Investments.  The  Company's  investments  primarily  consist of fixed  maturity
securities,  which include bonds,  notes and redeemable  preferred stocks.  Fair
values of investments  in fixed  securities are based on quoted market prices or
dealer quotes. Fixed maturities  classified as "available for sale" are reported
at fair value, with unrealized investment gains and losses, net of income taxes,
credited or charged directly to shareholder's  equity.  Securities classified as
trading  are  reported  at fair value with  changes  in fair value  credited  or
charged directly to income.  Generally  accepted  accounting  principles require
that  investments  be  written  down to fair value  when  declines  in value are
considered other than temporary.  When such  impairments  occur, the decrease in
value is  reported  in net income as a realized  investment  loss and a new cost
basis is established.

Deferred  Policy  Acquisition  Costs  and  Present  Value of Future  Profits  of
Acquired Business. The costs of acquiring new business,  including certain costs
of issuing  policies and certain other variable  selling  expenses  (principally
commissions),  are included in deferred policy acquisition costs ("DAC"). DAC is
capitalized  and then  amortized  to  reflect  an  expense  in  relation  to the
projected stream of profits (for universal life and annuity  products) or to the
premium revenue (for traditional life products). Such projections require use of
certain assumptions, including interest margins, product loads, mortality rates,
persistency rates, and maintenance expense levels. Effective with respect to new
business  issued on and after January 1, 2002, the Company has  capitalized  DAC
based on an updated analysis of its cost structure and assumptions as to product
performance. Management periodically reviews the assumptions associated with the
amortization models prospectively.

                                     - 32 -


<PAGE>


Present  value of future  profits of acquired  business  ("PVFP")  are the costs
associated  with acquiring  blocks of insurance from other  companies or through
the  acquisition  of other  companies.  PVFP is  capitalized  and amortized in a
manner that matches these costs against the associated revenues.

For  a  further   discussion  of  accounting   standards,   see  New  Accounting
Pronouncements beginning on page 12, herein.


                                Subsequent Events

As  previously  reported  in its  Annual  Report on Form 10-K for the year ended
December 31, 2002, the Company filed a lawsuit  against Roy F. Mitte  ("Mitte"),
The Roy F. and Joann Cole Mitte  Foundation (the  "Foundation")  and Joann Mitte
(collectively  referred  to  as  the  "Defendants").  Mitte  was  the  Chairman,
President  and  Chief   Executive   Officer  of  FIC  until  he  was  placed  on
administrative  leave  in  August,  2002.  The  administrative  leave,  and  the
subsequent  action by the Board of Directors in October,  2002 to terminate  the
employment  agreement  between  FIC and Mitte,  resulted  from an  investigation
conducted by the FIC Audit  Committee.  Subsequent to the filing of the lawsuit,
Mr. Mitte filed a  counterclaim  against the Company  alleging  that the Company
breached the employment  agreement between the Company and Mr. Mitte by refusing
to pay Mitte the  severance  benefits  and  compensation  provided for under the
employment agreement and amendment thereto.

On May 15,  2003,  the Company  entered  into a  settlement  agreement  with the
Defendants  and Scott Mitte (a director of the Company and the son of Roy Mitte)
(the  "Mitte  Parties").  Under the  terms of the  agreement  the Mitte  Parties
released the Company from any past, present or future claims which they may have
against the Company,  including  any claims which Roy Mitte may assert under the
employment  agreement.  In  addition,  the  Company  agreed to release the Mitte
Parties  from any past,  present or future  claims  which the  Company  may have
against the Mitte Parties.

The  settlement  provides for payments by the Company to Roy Mitte of $1 million
on June 1, 2003, $1 million on June 1, 2004 and $1 million on June 1, 2005, with
a provision  for  acceleration  of payments in the event of a change in control.
The settlement  agreement also includes provisions  whereby,  the Company agrees
(i) to use commercially  reasonable  efforts to locate a purchaser or purchasers
of specified  installments over a two year period of the 1,552,206 shares of FIC
common  stock owned by the  Foundation  during  future  periods set forth in the
settlement  agreement,  at a price of $14.64 per share,  (ii) to  purchase  (or,
alternatively,  locate a  purchaser)  on or before  June 1, 2003 of the 39,  820
shares of FIC common  stock  owned by Roy Mitte and the 35,502  shares of common
stock held in the ESOP account of Roy Mitte, at a price of $14.64 per share. The
agreement  also  includes  provisions  related  to the  continuation  of  health
insurance  of Roy and Joann Mitte and payment  for the  cancellation  of options
held by Roy Mitte to purchase 6,600 shares of FIC common stock.  The Company has
recognized  a charge of $2.9 million  (before tax) in the first  quarter of 2003
for  amounts  to be  paid  under  the  settlement  agreement,  representing  the
discounted amount of the non- interest bearing settlement.

                                     - 33 -


<PAGE>


As a condition of the obligations of the Company under the settlement agreement,
the  Mitte  Parties  agreed  to grant a limited  proxy to the  persons  named as
proxies by FIC in any proxy statement filed by FIC with the SEC. With respect to
the future shareholders  meetings, the proxy may be voted "for" all nominees for
the Board of Directors named on FIC's proxy statement, "against" any proposal by
a  person  other  than  FIC for the  removal  of any  members  of the  Board  of
Directors,  "withheld" as to nominees for the Board of Directors proposed by any
person other than FIC and "against" any proposal by any person other than FIC to
amend the bylaws or articles of FIC. The proxy also  extends to certain  matters
which may be proposed by FIC at the 2004 annual meeting of shareholders,  or any
later annual or special meeting,  regarding changes in the ownership  percentage
required in order for a shareholder  to call a special  meeting of  shareholders
and the elimination of cumulative voting. The granting of the proxy is generally
conditioned upon the performance of the scheduled purchases of the shares of FIC
common stock owned by the Foundation.

A copy of the settlement agreement is attached hereto as an exhibit.


Item 3. Quantitative and Qualitative Disclosures About Market Risk

General. FIC's principal assets are financial instruments,  which are subject to
market  risks.  Market risk is the risk of loss arising from adverse  changes in
market  rates,  principally  interest  rates on fixed  rate  investments.  For a
discussion of the  Company's  investment  portfolio  and the  management of that
portfolio to reflect the nature of the underlying  insurance  obligations of the
Company's insurance  subsidiaries,  please refer to the information set forth in
"Management's  Discussion  and Analysis of Financial  Condition and Operations -
Investments".

The  following is a discussion of the Company's  primary  market risk  sensitive
instruments.  It should be noted that this  discussion has been developed  using
estimates  and  assumptions.  Actual  results may differ  materially  from those
described below.  Further,  the following  discussion does not take into account
actions that could be taken by management in response to the assumed  changes in
market rates. In addition, the discussion does not take into account other types
of risks that may be involved in the business operations of the Company, such as
the reinsurance recoveries on reinsurance treaties with third party insurers.

The primary market risk to the Company's  investment  portfolio is interest rate
risk.  The Company's  investment  portfolio  includes  $20.1 million of "inverse
floater" CMOs.  These contain a derivative  which is "embedded" in the financial
instrument.  Changes in the market value of the entire securities, including the
embedded derivatives,  are recorded in the income statement each period as these
securities have been classified as trading securities.

                                     - 34 -


<PAGE>


     Interest  Rate Risk The Company  manages the interest rate risk inherent in
our assets  relative to the  interest  rate risk  inherent  in our  liabilities.
Generally,  we manage  interest rate risk based on the application of a commonly
used model. The model projects the impact of interest rate changes on a range of
factors,  including duration and potential prepayment.  For example, assuming an
immediate  increase of 100 basis points in interest rates,  the net hypothetical
loss in fair market value  related to the financial  instruments  segment of the
Company's  balance  sheet is estimated to be $24.4 million at March 31, 2003 and
$16.6  million at December 31, 2002.  For  purposes of the  foregoing  estimate,
fixed  maturities,  including  fixed  maturities  available for sale and trading
securities, and short-term investments were taken into account. The market value
of such  assets was  $694.7 million  at March 31,  2003 and  $632.8  million at
December 31, 2002.

The fixed income  investments  of the Company  include  certain  mortgage-backed
securities.  The market value of such securities was $290.0 million at March 31,
2003 and $205.4 million at December 31, 2002.  Assuming an immediate increase of
100 basis points in interest rates, the net hypothetical loss in the fair market
value related to such mortgage-backed securities is estimated to be $9.9 million
at March 31, 2003 and $4.7 million at December 31, 2002.

Separate account assets have not been included,  since gains and losses on those
assets generally accrue to the policyholders.

The Company  generally does not use derivative  financial  instruments to manage
our  exposure  to  fluctuations  in  interest  rates.   However,  the  Company's
investments in inverse  floater CMO's at March 31, 2003  described  above have a
coupon rate which varies in an inverse  relationship with a specified  benchmark
rate.

The  hypothetical  effect of the interest rate risk on fair values was estimated
by applying a commonly  used model.  The model  projects  the impact of interest
rate changes on a range of factors, including duration and potential prepayment.


Item 4. Controls and Procedures

The chief  executive  officer and chief  financial  officer of the Company  have
evaluated the effectiveness of the Company's  disclosure controls and procedures
pursuant to Rule 13a-14 under the  Securities  Exchange Act of 1934 as of a date
within  90  days  prior  to the  filing  date  of  this  report.  Based  on that
evaluation,  such officers have concluded that the Company's disclosure controls
and procedures are effective to ensure that material information relating to the
Company and its  subsidiaries  is made known to such officers in a timely manner
for inclusion in the Company's periodic filings with the SEC.

                                     - 35 -


<PAGE>


There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their most recent  evaluation by the Company's chief executive officer and chief
financial officer.


                           Part II. Other Information

Item 1.  Legal Proceedings

The Company and its subsidiaries are defendants in certain legal actions related
to the normal business  operations of the Company.  Management believes that the
resolution  of such  legal  actions  will  not  have a  material  impact  on the
financial statements.

     Litigation  Relating to the FIC/ ILCO  Merger.  There have been no material
developments  since the  Company's  filing of its Annual Report on Form 10-K for
the year ended December 31, 2002.

     Litigation  Relating to Former  Chairman and CEO. For an update of material
developments which have occurred since the Company's filing of its Annual Report
on Form  10-K for the year  ended  December  31,  2002,  see  "Part I. - Item 2.
Management's  Discussion  and  Analysis of Financial  Conditions  and Results of
Operations - Subsequent Events".

     Other Litigation.  Additionally, FIC's insurance subsidiaries are regularly
involved in  litigation,  both as a defendant and as plaintiff.  The  litigation
naming  the  insurance   subsidiaries  as  defendant   ordinarily  involves  our
activities as a provider of insurance protection  products.  Management does not
believe that such litigation, either individually or in the aggregate, will have
a material  adverse  effect on the Company's  business,  financial  condition or
results of operations.


Item 2.  Changes in Securities and Use of Proceeds

         None


Item 3.  Defaults Upon Senior Securities

         None

                                     - 36 -


<PAGE>


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

         There were no matters  submitted to a vote of security  holders  during
         the first quarter of 2003.

Item 5.  Other Information

         None


Item 6.  Exhibits and Reports on Form 8-K

          (a)  Exhibits

               99.1 Certification of Chief Executive  Officer of FIC pursuant to
                    18 U.S.C. Section 1350.

               99.2 Certification of Chief Financial  Officer of FIC pursuant to
                    18 U.S.C. Section 1350.

               10.1 Compromise  Settlement  Agreement and Mutual  Release in the
                    litigation entitled Financial Industries  Corporation v. The
                    Roy F. and Joann Cole Mitte  Foundation,  Roy F. Mitte,  and
                    Joann  Cole  Mitte,  Civil  Action No. A03 CA 033 SS, in the
                    United  States  District  Court for the Western  District of
                    Texas, Austin Division.

          (b) Reports on Form 8-K

               (i)  On January 28, 2003, the  Registrant  filed a Current Report
                    on Form 8-K. The current report  referred to a press release
                    issued January 27, 2002 by the Company, which announced that
                    the Company had  retained  Salomon  Smith  Barney to explore
                    strategic alternatives for the Company, including continuing
                    the  business  plan of new  management,  consideration  of a
                    proposal to purchase some or all of FIC's outstanding stock,
                    the sale,  merger or  consolidation  of the Company,  or any
                    other   alternatives   that  Salomon   believed   should  be
                    considered.

               (ii) On February 3, 2003, the  Registrant  filed a Current Report
                    on Form 8-K. The current report  referred to a press release
                    issued  January 31,  2002 by the  Company,  which  announced
                    plans to implement new technology projects.

                                     - 37 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES

                                   SIGNATURES


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



FINANCIAL INDUSTRIES CORPORATION



    /s/ Eugene E. Payne
_____________________________________
Eugene E. Payne
President and Chief Executive Officer




    /s/ George M. Wise, III
_____________________________________
George M. Wise, III
Chief Financial Officer



Date:   May 15, 2003


                                     - 38 -


<PAGE>



                                  CERTIFICATION

I, Eugene E. Payne, Chief Executive Officer of Financial Industries  Corporation
("FIC"), certify that:

     1.   I have reviewed this quarterly report on Form 10-Q of FIC;

     2.   Based on my  knowledge,  this  quarterly  report  does not contain any
          untrue  statement of a material  fact or omit to state a material fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this quarterly report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this quarterly report,  fairly present in all
          material respects the financial  condition,  results of operations and
          cash flows of the Registrant as of, and for, the periods  presented in
          this quarterly report;

     4.   The Registrant's  other certifying  officers and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange  Act Rules  13a-14 and 15d-14) for the  Registrant
          and we have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the Registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               quarterly report is being prepared;

          b)   evaluated  the  effectiveness  of  the  Registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this quarterly report (the "Evaluation Date"); and

          c)   presented  in this  quarterly  report our  conclusions  about the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The Registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the Registrant's  auditors and the
          audit  committee  of  Registrant's  board  of  directors  (or  persons
          performing the equivalent function):

                                     - 39 -


<PAGE>


          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the Registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  Registrant's  auditors any material
               weaknesses in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  Registrant's
               internal controls; and

     6.   The  Registrant's  other  certifying  officers and I have indicated in
          this quarterly report whether or not there were significant changes in
          internal controls or in other factors that could significantly  affect
          internal   controls   subsequent  to  the  date  of  our  most  recent
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.



Date: May 15, 2003                              By:/s/ Eugene E. Payne
                                                ________________________________
                                                Eugene E. Payne
                                                Chief Executive Officer


                                     - 40 -


<PAGE>


                                  CERTIFICATION

I,  George M.  Wise,  III,  Chief  Financial  Officer  of  Financial  Industries
Corporation ("FIC"), certify that:

     1.   I have reviewed this quarterly report on Form 10-Q of FIC;

     2.   Based on my  knowledge,  this  quarterly  report  does not contain any
          untrue  statement of a material  fact or omit to state a material fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this quarterly report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this quarterly report,  fairly present in all
          material respects the financial  condition,  results of operations and
          cash flows of the Registrant as of, and for, the periods  presented in
          this quarterly report;

     4.   The Registrant's  other certifying  officers and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange  Act Rules  13a-14 and 15d-14) for the  Registrant
          and we have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the Registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               quarterly report is being prepared;

          b)   evaluated  the  effectiveness  of  the  Registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this quarterly report (the "Evaluation Date"); and

          c)   presented  in this  quarterly  report our  conclusions  about the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The Registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the Registrant's  auditors and the
          audit  committee  of  Registrant's  board  of  directors  (or  persons
          performing the equivalent function):

                                     - 41 -


<PAGE>


          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the Registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  Registrant's  auditors any material
               weaknesses in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  Registrant's
               internal controls; and

     6.   The  Registrant's  other  certifying  officers and I have indicated in
          this quarterly report whether or not there were significant changes in
          internal controls or in other factors that could significantly  affect
          internal   controls   subsequent  to  the  date  of  our  most  recent
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.



Date: May 15, 2003                              By:   /s/ George M. Wise, III
                                                   _____________________________
                                                   George M. Wise, III
                                                   Chief Financial Officer


                                     - 42 -