Page 2

     United  States  Securities  and  Exchange  Commission
     Washington,  D.C.  20549

     FORM  10-KSB
(Mark  one)
[X]     ANNUAL  REPORT  UNDER  SECTION  13  OR  15(D) OF THE SECURITIES EXCHANGE
     ACT  OF  1934
For  the  Fiscal  Year  Ended  December  31,  2001.

[   ]     TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE  ACT  OF  1934
     For  the  Transition  Period  From              to              .

                        Commission file number: 33-67312

                           FIRST ALLIANCE CORPORATION
                  --------------------------------------------
                 (Name of small business issuer in its charter)

        Kentucky                                  61-1242009
..--------------------------             -------------------------------------
 (State  of  incorporation)           (I.R.S.  Employer Identification  number)


2285  Executive  Drive, Suite 308 Lexington, KY                     40505
-----------------------------------------------                   ----------
   (Address  of  principal  executive  offices)                    Zip  Code


Issuers  telephone  number        859-299-7656


          Securities  registered  pursuant to Section 12(b) of the Exchange Act:
                               Title of Each Class
                               -------------------
                                      None

     Securities  registered  pursuant  to  section  12(g)  of  the Exchange Act:
                               Title of Each Class
                       ----------------------------------
                       Class A Common Stock, No Par Value

Check  whether  the issuer (1) filed all reports required to be filed by Section
13  or  15(d) of the Exchange Act of 1934 during the past 12 months, and (2) has
been  subject to such filing requirements for the past 90 days.  Yes [X]  No[  ]

Check  if there is no disclosure of delinquent filers in response to Item 405 of
Regulation  S-B  is  not  contained  in  this  form,  and  no disclosure will be
contained,  to  the  best  of  registrant's  knowledge,  in  definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or  any  amendment  to  this  form  10-KSB  [X]

State  issuer's  revenues  for  its  most  recent  fiscal  year:  $5,582,327

State  the  aggregate  market value of the voting equity held by non-affiliates:
Of the 5,561,455 shares of common stock of the registrant issued and outstanding
as  of  March  1, 2002, 4,370,955 shares are held by non-affiliates.  Because of
the  absence  of  an  established  trading  market  for  the  common  stock, the
registrant is unable to calculate the aggregate market value of the voting stock
held  by  non-affiliates  as  of  a  specified  date  within  the  past 60 days.

State the number of shares outstanding of each of the issuer's classes of common
stock,  as  of  the  latest  practical  date.
Common  Stock,  No  Par  Value:  5,561,455  shares  as  of  March  1,  2002

     Documents  Incorporated  by  Reference

Portions of the Proxy Statement for the Annual Meeting of Shareholders scheduled
to  be  held  June  7,  2002  are  incorporated  by  reference  into  Part  III.

Certain  Exhibits  to  the  Company's prior filing of Form 10-K for 1995 and the
Registration  Statement  on  Form S-1, Amendment Number 4, File Number 33-67312,
which was declared effective on March 4, 1994 are incorporated by reference into
Part  III.

Transitional  Small  Business  Disclosure  Format (check one): Yes [  ]  No [X ]


                                        1
<PAGE>

                                   FORM 10-KSB
                   For the Fiscal Year Ended December 31, 2001

                                TABLE OF CONTENTS

Part  I.

Item  1.     Description  of  Business                                        3
Item  2.     Description  of  Property                                        9
Item  3.     Legal  Proceedings                                               9
Item  4.     Submission  of  Matters  to  a  Vote  of  Security  Holders     10

Part  II.

Item  5.     Market  for  Common  Equity  and Related Stockholder Matters     10
Item  6.     Management's  Discussion  and  Analysis or Plan of Operation     10
Item  7.     Financial  Statements                                            17
Item  8.     Changes  In  and  Disagreements  With Accountants
             on Accounting and Financial  Disclosure                          41

Part  III.

Item  9.     Directors,  Executive  Officers,  Promoters  and
             Control  Persons; Compliance  With  Section  16(a)
             of  the  Exchange  Act                                           41
Item  10.     Executive  Compensation                                         41
Item  11.     Security  Ownership  of  Certain Beneficial Owners
              and Management.                                                 41
Item  12.     Certain  Relationships  and  Related  Transactions              41
Item  13.     Exhibits  and  Reports  on  Form  8-K                           41
Signatures                                                                    43



                                        2
<PAGE>

PART  I

Item  1.     Description  of  Business

General

First  Alliance  Corporation  ("the Company") was organized on February 16, 1993
for  the  purpose of forming, owning and managing life insurance companies.  The
Company  registered with the Securities and Exchange Commission and the Kentucky
Department  of  Financial  Institutions  a  $12,500,000  public  stock offering.

On  October  28,  1995,  the  Company  completed the public stock offering.  The
company  raised  total  capital of $13,750,000 which includes a 10% over-sale of
$1,250,000  contemplated  in  the  public  filing.  Six  million  dollars of the
proceeds  of  the  stock  sale  were  used  to  capitalize  the  life  insurance
subsidiary, First Alliance Insurance Company ("FAIC").  Three million dollars of
the  proceeds could be used to capitalize the venture capital company based on a
schedule  as  determined  by  the Company's Board of Directors.  During 1997 and
1996,  $316,000  and  during  1999,  $127,500  of  the  proceeds was used in the
capitalization  of  the Company's wholly owned venture capital subsidiary, First
Kentucky  Capital  Corporation  ("FKCC").

In  February 1999 the Company commenced an offering of 200,000 shares of class A
common  stock  no  par  value  for  $2.50  per  share.  The  offering  relied on
exemptions  from  registration provided by Section 4(2) of the Securities Act of
1933  and Rule 506 of Regulation D promulgated thereunder and related exemptions
at the state level.  Additionally, these securities are restricted from transfer
for  thirty months from the date of purchase.  The Company offered the shares of
common  stock directly to potential subscribers on a direct participation basis.
During  2000  the Company completed the sale of 200,000 shares that raised total
proceeds  of  $500,000  and  incurred  offering  cost  of  $55,608.

In  August  2001  the Company commenced an offering of 500,000 shares of class A
common stock no par value for $3.00 per share.  The securities are exempted from
registration  in  reliance  on Rule 506 of Regulation D of the Securities Act of
1933  and related exemptions at the state level.  Additionally, these securities
are  restricted  from transfer for thirty months from the date of purchase.  The
Company  offered the shares of common stock directly to potential subscribers on
a direct participation basis.  At December 31, 2001, the Company had sold 38,800
shares  that  raised  total  proceeds  of $116,400 and incurred offering cost of
$37,903.

First  Alliance  Corporation

The Company is a holding company that engages in the business of life insurance,
annuities,  and  accident  and health insurance through First Alliance Insurance
Company  ("FAIC") and Benefit Capital Life Insurance Company ("BCLIC"), from the
date of its acquisition on December 31, 1999 through the date of its disposition
effective  February  28,  2001,  (herein  collectively,  the  "Life  Insurance
Subsidiaries").  FAIC  has contracted with the Company to provide administrative
and  data  processing  services  for insurance operations.  The Company provides
accounting  services  for First American Capital Corporation ("FACC") of Topeka,
Kansas  and  its  subsidiaries.  The  Company  owns approximately 9.7% of FACC's
outstanding  common  shares.  The  Company  provides underwriting and accounting
services  for  Mid-American  Alliance  Corporation  ("MAAC")  of Jefferson City,
Missouri  and  its insurance subsidiaries, of which it owns approximately 11.9%.
Investment  income  provides additional income to the Company.   The Company has
service  agreements  with Integrity Capital Corporation ("ICC") of Indianapolis,
Indiana  and  Mid-Atlantic  Capital  Corporation  ("MACC")  of  Charleston, West
Virginia  and  owns  9.75%  of  ICC  and  9.75  %  of  MACC.

First  Kentucky  Capital  Corporation

The  Company  funded  its  wholly owned venture capital subsidiary with $316,000
during 1996 and 1997.  During 1999, FAC provided additional capital of $127,500.
FKCC  provides  capital  for Kentucky-based business for both start-up companies
and  expansion  of  existing  business.  During  1996  and 1997, FKCC made three
venture  capital  investments  and  one  investment  was  made  during  1999.

FKCC  purchased  newly  issued  common  stock  of  MAC,  Lexington,  Kentucky,
representing  a  51%  interest,  for  $50,000  on April 12, 1996.  MAC purchased
receivables  from  medical  providers at a discount.  On December 31,

                                        3
<PAGE>

1997,  FKCC  entered into an agreement to sell its interest in MAC for $8,000 in
cash  and notes receivable of $147,049. Due to the uncertainty of collectibility
of  the  notes,  the Company has a valuation allowance of $6,616 at December 31,
2001.  The  unpaid balance on this agreement was $6,616 at December 31, 2001 and
2000.

On  June  16,  1999,  FKCC  executed a commitment to purchase three units of the
Prosperitas  Investment  Partners, LP ("Prosperitas") for $450,000.  Prosperitas
is  a venture capital fund based in Louisville, Kentucky.  An initial payment of
$22,500,  which  represents  5%  of  the  total  investment,  was  paid upon the
execution  of  the  subscription  agreement.  Upon receipt by Prosperitas of the
Small  Business Investment Company ("SBIC") license from the U.S. Small Business
Association,  an  additional  $127,500 was invested.  The investment at December
31,  2001  was  $300,000  with the remaining amount of the commitment due on the
fourth  anniversary  of  the  investment.

KYWIDE  Insurance  Management,  Inc.

On  March  21, 2001, FAIC purchased 500 shares of common stock, representing all
of  the  outstanding shares of common stock of KYWIDE Insurance Management, Inc.
("KIM"),  for  $1.00.  The  seller  retained the right to purchase 400 shares of
common  stock of KIM at a price of $1.00 per share if and when KIM meets certain
operating  criteria  within  18 months after the closing date.  During 2001, KIM
achieved  one  of the operating criteria and is eligible to purchase 100 shares.
KIM  is  an insurance agency licensed by the Kentucky Department of Insurance to
solicit life, accident, health, annuities, property and casualty insurance.  KIM
was  purchased  to  market  life insurance products of FAIC through the existing
clientele  of  the property and casualty insurance agencies contracted with KIM.

Alliance  Insurance  Management,  Inc.

During  2001  Alliance  Insurance Management, Inc. ("AIM") was formed by FAC for
the purpose of selling life and health insurance products of insurance companies
other  than  FAIC.  AIM  began  operations  in December 2001.  AIM will focus on
products  that  cannot  be  marketed  by  FAIC due to the competitive nature and
inherent  costs  associated  with  certain  types  of insurance.  These products
include  low  cost  term  insurance and health insurance.  The ultimate focus of
management  is to provide a variety of products to our customers.  AIM will also
market  the  current  products of FAIC.  When FAIC can competitively offer these
products and bear the burden of the excessive costs, AIM will solely market FAIC
products.

First  Computer  Services,  LLC

During  2001,  the  Company purchased a 50% interest in First Computer Services,
LLC  ("FCS")  which  is jointly owned with FACC.  FCS owns computer hardware and
software  that will operate a Company policy administration, underwriting, claim
processing  and  accounting  system.  This  system  will  be  used  for  policy
administration  for new products and existing policies will be converted to this
system  in  the  future.

First  Alliance  Insurance  Company

On  May  17,  1995,  FAIC  received a Certificate of Authority from the Kentucky
Department  of  Insurance  ("KDI").  On  November  1, 1995, insurance operations
commenced.  Under  generally  accepted accounting principles, FAIC has more than
$8,275,187  of  capital and surplus and is wholly owned by the Company.  FAIC is
also licensed to transact life and annuity business in Indiana, Kansas, Ohio and
Tennessee.  Currently,  FAIC  markets its products only in Kentucky and Indiana.
FAIC  has  contracted  with  the  Company  to  provide  administrative  and data
processing services.  As discussed in the following paragraph, the only expenses
to be directly incurred by FAIC are direct agency expenses including commissions

Benefit  Capital  Life  Insurance  Company

On  December  30,  1999, FAIC, a subsidiary of the Company, acquired 100% of the
common  stock  of  Benefit  Capital  Life Insurance Company from an unaffiliated
insurance holding company (the BCLIC Acquisition).  Benefit Capital was licensed
in  the  state  of  Louisiana  only  and  had  statutory  capital and surplus of
approximately  $413,000.  Effective  February  28,  2001, BCLIC was sold and the
2001  operating  results  included  in the consolidated statements of operations
were  revenues  of  $15,364  and  benefits,  losses  and  expenses  of  $20,789.

                                        4
<PAGE>

Administration

Effective  November  1,  1995, the Company entered into a service agreement with
FAIC  to  provide  personnel,  facilities,  and  services  to FAIC.  FAIC has no
employees.  The  services  to be performed pursuant to the service agreement are
underwriting,  claim  processing,  accounting,  processing  and  servicing  of
policies,  and  other services necessary to carry on FAIC's business.  Under the
agreement  FAIC paid monthly fees based on life and annuity premiums received by
FAIC.  The  percentages  were  25  percent of first-year premiums; 20 percent of
second-year  premiums;  15  percent  of  third-year  premiums;  10  percent  of
fourth-year  premiums  and  5  percent of premiums in years five and thereafter.
FAIC  retained  direct  agency  expenses  such  as agent training and licensing,
agency meeting expenses, and other directly related expenditures.  On January 1,
2001,  the  existing service agreement was terminated and a new agreement became
effective.  Under  the agreement effective January 1, 2001, FAIC pays the actual
costs  of  incurred expenses plus a markup of 15%.  The services to be performed
are  the  same  under  each agreement.  Pursuant to the terms of the agreements,
FAIC  had  incurred expenses of $2,178,155, $847,530, and $821,562 for the years
ended  December  31,  2001,  2000  and  1999,  respectively.

Products  of  FAIC

The  primary  insurance product currently marketed by FAIC is a modified payment
whole  life  insurance policy with a flexible premium deferred annuity rider.  A
modified  payment  whole  life  insurance policy requires premium payments to be
made  for  a certain number of years after which the policyholder is entitled to
full policy benefits.  Typical premium paying periods for modified payment whole
life  insurance  polices  are  ten,  fifteen  and twenty years.  FAIC's product,
marketed  as  the "Alliance 2000," combines both a ten and twenty payment period
based  on  the  issue  age  of  the  insured.  Issue ages from zero to 20 and 66
through  80  are ten-pay polices and issue ages from age 21 to 65 are twenty-pay
policies.  Premium  payments  are  split  between the life insurance and annuity
based  on  percentages  established  in  the product design.  First-year premium
payments are allocated 100% to life insurance and renewal payments are split 50%
to  life  and  50%  to  annuity.  The  product is sold in premium units with the
ability  to  purchase  either  fractional  or multiple units.  At the end of the
required  premium  paying  period,  the  policyholder  may continue to make full
premium  payments  into  the  annuity  rider  to  provide  greater  annuity
accumulations.

The  initial  product  was  designed  to  provide  predetermined  life insurance
benefits based on the age of the insured.  The base coverage decreases each year
until  an  ultimate  benefit  amount  is  attained.  The  annuity rider does not
contain  any  fees  or  loads.  Surrender  charges in the annuity are based on a
regressive  scale which starts at 10% in the first year and decreases by 1% each
year until after the tenth policy year whereupon there are no surrender charges.

This product is the result of a modification of FAIC's initial insurance product
that  was  introduced  in November of 1995.  The initial insurance product was a
twenty-pay  ordinary life policy with a flexible premium deferred annuity rider.
For  issue  ages zero to 50, there was an annual income protection benefit rider
(decreasing  term  rider).

FAIC  also  offers  credit  life and accident and health insurance products (see
"Credit  Insurance  Agreement"  below) as well as a ten-year term life insurance
policy,  preneed  insurance  products  and  a  single  premium  deferred annuity
product.

Product  Marketing  and  Sales

FAIC markets its primary insurance product through captive agents; approximately
32  captive  agents  are  licensed  to  sell  this  product.  FAIC uses the same
face-to-face  marketing  techniques  for  this as the Company did for its public
stock  offering.  The  marketing  plan  is  designed  in its entirety around the
Company's  stockholder  base,  which  provides  an excellent referral system for
product  sales.


                                        5
<PAGE>

During  2001  the Company designed and began selling preneed insurance products.
These  products are sold primarily to persons over the age of 50 and are sold be
agents who are affiliated with funeral homes.  The primary product being sold is
a single premium life product.  The Company also sells products with 3, 5 and 10
years payment terms.  There are 47 agents licensed to sell the preneed products.

FAIC  also  markets  credit  life  and  disability  insurance  products to banks
throughout  the  state of Kentucky.  Marketing of these products is accomplished
through  an  agreement  with  the  Kentucky  Bankers  Association  (KBA).  A
representative  of  the  KBA  promotes  FAIC's credit insurance products through
banks  that  are  members  of the KBA.  Marketing of these products commenced in
December  of  1998.  There  are approximately 460 agents licensed to sell credit
insurance.

FAIC  is  licensed  to  market  its  products  in the states of Indiana, Kansas,
Kentucky,  Ohio  and  Tennessee.  Marketing  in  Indiana  began  in  late  1998.
Marketing  in  Kansas,  Ohio  and  Tennessee  may  not begin until a substantial
policyholder  base  is  established  in  Kentucky  and  Indiana.

Credit  Insurance  Agreement

On  November  1, 1998, FAIC entered into a credit insurance agreement with North
Central  Life Insurance Company of St. Paul, Minnesota ("North Central").  Under
the  terms of the agreement, FAIC reinsures 100% of all credit life and accident
and  health  insurance it writes in Kentucky.  FAIC receives a ceding commission
equal  to  2 1/2% (two and a half percent) of credit insurance premiums written,
plus  100%  of commissions paid to agents.  Additionally, North Central provides
all  policy administration.  During 2001, 2000 and 1999, FAIC received $544,126,
$520,018  and  $230,129,  respectively,  of  ceding  commissions pursuant to the
agreement.  FAIC  remains  primarily liable in the event North Central is unable
to  meet  its  obligations  under the terms of the reinsurance agreement.  North
Central  is  rated  A+  (Superior)  by  A.M.  Best  Company.

Insurance  In  Force

The  following  table  provides  information  concerning  the  Life  Insurance
Subsidiaries'  volume  of  life  insurance
coverage  in  force  for  each  of  the  last  three  years.
<TABLE>
<CAPTION>
Year ended December 31
(Dollars in Thousands)                                2001      2000      1999
                                                    --------  --------  --------
<S>                                                 <C>       <C>       <C>
Beginning of period                                 $229,279  $195,895  $119,863
Acquired business of Benefit Capital                  17,327
New business issued during the period:
  Individual                                          79,186    58,027    79,466
  Credit Life                                         34,950    36,091    10,310
                                                    --------  --------  --------
Total                                               $343,415  $290,013  $226,966

Terminations during period
  Sale of Benefit Capital                             15,231
  Individual                                          39,426    36,663    26,852
  Credit Life                                         26,227    24,071     4,219
                                                    --------  --------  --------
In-force end of period                              $262,531  $229,279  $195,895
                                                    ========  ========  ========
Reinsurance ceded at end of period                  $103,441  $ 86,207  $ 69,947
</TABLE>

Reinsurance

Consistent  with  the  general  practice  of  the  life insurance industry, FAIC
reinsures a portion of the coverage provided by the life insurance products they
offer.  The  maximum  amount  of  risk  that  FAIC  retains on its ordinary life
products  is  $50,000  on  any one insured.  The remaining coverage is reinsured
with  Business  Men's  Assurance  Company  of  America,  located in Kansas City,
Missouri.  Additional  reinsurance  is  provided  for  the  10-year term product
through  Optimum  Re Insurance Company of Dallas, Texas.  The retention limit on
the  10-year  term  product is $50,000.  All credit life and accident and health
insurance  written  by  FAIC is 100% reinsured with North Central Life Insurance
Company  of  St.  Paul,  Minnesota.  At  December  31,  2001, FAIC has reinsured
$76,320,000  of  ordinary  life  insurance coverage.  The company also reinsures
$27,121,000  of  credit  life  insurance  and  $64,897,000  of  accidental death
benefits.  To the extent that the reinsurance companies are unable to meet their
obligations  under  the  reinsurance  agreements,  the Company remains primarily
liable  for  the  entire  amount  at  risk.

Underwriting

FAIC  follows  underwriting procedures designed to assess and quantify insurance
risks  before  issuing life insurance policies.  Such procedures require medical
examinations (including blood tests, where permitted) of applicants

                                        6
<PAGE>
for  policies  of  life  insurance  in  excess  of  certain policy limits. These
requirements  are  graduated according to the applicant's age and vary by policy
type.  FAIC  also  relies upon medical records and upon each applicant's written
application  for insurance, which is generally prepared under the supervision of
a  trained  agent.

Evaluating  the  impact  of  future Acquired Immune Deficiency Syndrome ("AIDS")
claims  under life insurance policies issued is extremely difficult, in part due
to  the  insufficiency  and conflicting data regarding the number of persons now
infected  with  the  AIDS  virus,  uncertainty as to the speed at which the AIDS
virus  has  and  may  spread through the general population, and advancements in
medical  treatment  options.  FAIC  has  implemented,  where  legally permitted,
underwriting procedures designed to assist in the detection of the AIDS virus in
applicants.

Investments

The Company derives a substantial portion of its revenue from investments.  FAIC
maintains  diversified  investment  portfolios  that  are held primarily to fund
future  policyholder  obligations.  State  insurance  laws  impose  certain
restrictions  on  the  nature  and extent of investments by insurance companies.
FAIC made substantial investments in equity securities during 2000.  Neither the
Company nor its subsidiaries owned any collateralized mortgage-backed securities
as  of December 31, 2001 that would be included in the high-risk classification.

Competition

The  life  insurance  industry  is  extremely  competitive.  There  are numerous
insurance  companies  which are substantially larger, have substantially greater
financial  resources, offer more diversified product lines and have larger sales
organizations  than  FAIC.  Competition  is  also encountered from the expanding
number of banks and other financial intermediaries that sell competing products.
FAIC  must compete with other insurers to attract and retain qualified agents to
market  FAIC's  products.

Governmental  Regulation

FAIC  is  subject  to  comprehensive  regulation in the states in which they are
authorized  to  conduct business.  The laws of such states establish supervisory
agencies  with  broad administrative powers to: (i) grant and revoke licenses to
transact  business;  (ii)  regulate  and  supervise  trade  practices and market
conduct; (iii) establish guaranty associations; (iv) license agents; (v) approve
policy  forms;  (vi)  approve  premium  rates  for some lines of business; (vii)
establish  reserve  requirements;  (viii)  prescribe  the  form  and  content of
required financial statements and reports; (ix) determine the reasonableness and
adequacy  of statutory capital and surplus; and (x) regulate the type and amount
of  permitted  investments.  The  Kentucky  Department  of  Insurance  also
periodically  examines  the  business  and  accounts  of  FAIC.

FAIC also can be required, under the solvency or guaranty laws of most states in
which  they  do  business,  to pay assessments (up to prescribed limits) to fund
policyholder  losses  or  liabilities  of  other insurance companies that become
insolvent.  These  assessments  may  be deferred or foregone under most guaranty
laws  if  they  would  threaten  an insurer's financial strength and, in certain
instances,  may  be  offset against future premium or intangible property taxes.

Kentucky  has  enacted  legislation  which  regulates  insurance holding company
systems,  including  acquisitions,  extraordinary  dividends, terms of affiliate
transactions,  and other related matters.  Under the Kentucky statutes, FAIC may
not  during any year pay dividends on their common stock to their parent company
in  excess  of the lesser of the net gain from operations for the preceding year
or  10%  of  their capital and surplus at the end of the preceding year, without
the  consent  of  the Kentucky Commissioner of Insurance.  For 2001, the maximum
amount of dividends that FAIC could pay, without the Commissioner's approval, is
$61,514.

The  National  Association of Insurance Commissioners ("NAIC") has taken several
steps  to  address  public  concerns  regarding  insurer  solvency.  These steps
included  implementing  a  state  certification  program  designed  to  promote
uniformity among the insurance laws of the various states and developing insurer
reporting  requirements  that  focus  on  asset  quality,  capital  adequacy,
profitability,  asset/liability  matching,  and  liquidity.  These  requirements
include  establishment  of  asset  valuation  reserves  ("AVR")  and  interest
maintenance  reserves  ("IMR"),  risk-based  capital ("RBC") rules to assess the
capital  adequacy  of  an  insurer, and a revision to the Standard Valuation Law
("SVL")

                                        7
<PAGE>

that specifies minimum reserve levels and requires cash flow testing in
which projected cash inflows from assets are compared to projected cash outflows
for  liabilities  to  determine  reserve  adequacy.

FAIC's  AVR,  as  of  December  31,  2001,  2000  and  1999  is shown in Item 6.
"Management's  Discussion  and  Analysis  or  Plan  of  Operations."

RBC  provides  a  means  of  establishing  the  capital  standards for insurance
companies to support their overall business operations with regard to their size
and risk profile.  The four categories of major risk involved in the formula are
[i]  asset  risk - the risk with respect to the insurer's assets; [ii] insurance
risk  -  the  risk of adverse insurance experience with respect to the insurer's
liabilities  and  obligations; [iii] interest rate risk - the interest risk with
respect  to  the insurer's business; and [iv] business risk - all other business
risk.  A  company's  RBC  is  calculated  by  applying factors to various asset,
premium  and  reserve  items,  with  higher factors for those items with greater
underlying  risk  and  lower  for  less  risky items.  RBC standards are used by
regulators  to set in motion appropriate regulatory actions relating to insurers
that  show  signs  of  weak  or  deteriorating conditions.  They also provide an
additional  standard for minimum capital, below which companies would, be placed
in conservatorship.  Based on RBC computations as of December 31, 2001, FAIC has
capital  levels  which  are  at  least  400%  of  the  minimum  requirements.

Action  taken by the NAIC in these and other areas may have a significant impact
on  the  regulation  of insurance companies during the next several years. Given
their  comparatively  small size, it may be expected that FAIC would be affected
by  more  stringent  regulatory  policy,  both  under  existing laws and any new
regulatory  initiatives.  Such  effects  could  include  curtailment  or
discontinuance  of  insurance  underwriting  in  one  or  more  states, mandated
increases  in  capital  and  surplus,  and/or  other  effects.

Federal  Income  Taxation

FAIC  is  taxed  under  the  life  insurance  company provisions of the Internal
Revenue Code of 1986, as amended (the "Code").  Under the Code, a life insurance
company's  taxable  income  incorporates  all  income, including life and health
premiums,  investment  income,  and  certain  decreases  in  reserves.  The Code
currently  establishes  a maximum corporate tax rate of 35%.  The Code currently
requires  capitalization  and  amortization  over  a  five or ten year period of
certain policy acquisition costs incurred in connection with the sale of certain
insurance  products.  These  provisions  apply  to  life,  health,  and  annuity
business. Certain proposals to make additional changes in the federal income tax
laws,  including  increasing  marginal  tax  rates,  and  regulations  affecting
insurance  companies or insurance products, continue to be considered at various
times  in  the  United  States Congress and by the Internal Revenue Service. The
Company  currently cannot predict whether any additional changes will be adopted
in  the  foreseeable  future  or,  if adopted, whether such measures will have a
material  effect  on  its  operations.

Reserves

In  accordance  with  applicable insurance laws, the Life Insurance Subsidiaries
have  established  and  carry  as  liabilities  actuarial reserves to meet their
policy  obligations.  Life insurance reserves, when added to interest thereon at
certain  assumed  rates and premiums to be received on outstanding policies, are
required to be sufficient to meet policy obligations. The actuarial factors used
in  determining  reserves  in the statutory basis financial statements are based
upon  statutorily-prescribed  mortality  and interest rates. Reserves maintained
for  health  insurance include the unearned premiums under each policy, reserves
for  claims  that  have  been reported but not yet paid, and reserves for claims
that  have  been  incurred  but  have  not  been  reported.

The reserves carried in the financial statements included elsewhere in this Form
10-KSB  are  calculated on the basis of accounting principles generally accepted
in  the  United States and differ from the reserves specified by the laws of the
various  states  and  carried  in the financial statements of the Life Insurance
Subsidiaries  prepared  on  the basis of statutory accounting principles.  These
differences  arise  from the use of different mortality and morbidity tables and
interest  assumptions,  the  introduction  of lapse assumptions into the reserve
calculation,  and  the  use of the level premium reserve method on all insurance
business.  See  Note  2  of  the  Notes to Consolidated Financial Statements for
certain  additional  information  regarding reserve assumptions under accounting
principles  generally  accepted  in  the  United  States.

                                        8
<PAGE>

Financial  Information  Relating  to  Industry  Segments

Financial  information related to specific segments of the Company's business is
presented  below.  All  sales  of  life  insurance  by  FAIC  and  BCLIC  are to
unaffiliated customers.  BCLIC's financial information is included from December
31,  1999  through  February  28,  2001.
<TABLE>
<CAPTION>
                                          Years ended December 31,
                                              2001          2000          1999
                                         ------------  ------------  ------------
<S>                                      <C>            <C>           <C>
Premiums earned, net of reinsurance:
  Life and annuity insurance operations  $  4,679,692   $ 3,711,547   $ 3,329,812
                                         ============  ============   ============
Revenues:
  Life and annuity insurance operations  $  5,484,519   $ 4,235,693   $ 3,882,532
  Venture capital operations                      884             -        30,923
  Corporate operations                         96,924       245,280       199,834
                                         ------------   -----------   ------------
                                         $  5,582,327   $ 4,480,973   $ 4,113,289
                                         ============   ===========   ============
Income (loss) before income taxes:
  Life and annuity insurance operations  $    556,993   $   873,928   $ 1,045,750
  Venture capital operations                      (96)            -        30,923
  Corporate operations                       (274,391)     (672,810)     (681,655)
                                          ------------  ------------  ------------
                                         $    282,506   $   201,118   $   395,018
                                         ============   ===========   ============
Assets:
  Life and annuity insurance operations  $ 22,435,019   $19,163,645   $16,729,347
  Venture capital operations                  309,635       208,766       208,766
  Corporate operations                      1,151,023     1,712,838     2,125,589
                                         ------------   -----------   ------------
                                         $ 23,895,677   $21,085,249   $19,063,702
                                         ============   ===========   ============
</TABLE>

Employees

As  of  March  15,  2002  there  were  21  full-time  employees.

Item  2.  Description  of  Property

The  Company  leases  approximately  6,100 square feet located at 2285 Executive
Drive, Lexington, Kentucky.  The lease expires on January 31, 2002.  Annual rent
expense  for  the  year ended December 31, 2001, 2000 and 1999 totaled $101,208,
$91,268  and  $87,386,  respectively.  Currently,  the  Company policy is not to
invest in real estate or real estate mortgages, although a change in such policy
would  not  require  a  vote  of  security  holders.

Item  3.  Legal  Proceedings

There  are  no legal proceedings pending against the Company or its subsidiaries
or  of  which  any of their property is the subject. There are no proceedings in
which  any director, officer, affiliate or shareholder of the Company, or any of
their  associates,  is a party adverse to the Company or any of its subsidiaries
or  has  a  material interest adverse to the Company or any of its subsidiaries.

                                        9
<PAGE>
Item  4.  Submission  of  Matters  to  a  Vote  of  Security  Holders

No  matter was submitted during the fourth quarter of the fiscal year covered by
this  Form  10-KSB  to  a  vote  of  the Company's security holders, through the
solicitation  of  proxies  or  otherwise.

PART  II

Item  5.  Market  for  Common  Equity  and  Related  Stockholder Matters

          (a.)  Market  Information

Trading of the Company's common stock is limited and sporadic and an established
public  market  does  not  exist.

Recent  Sales  of  Unregistered  Securities

In  August  2001  the Company commenced an offering of 500,000 shares of class A
common stock no par value for $3.00 per share.  The securities are exempted from
registration  in  reliance  on Rule 506 of Regulation D of the Securities Act of
1933  and related exemptions at the state level.  Additionally, these securities
are  restricted  from transfer for thirty months from the date of purchase.  The
shares  of  common  stock  were  offered  directly to potential subscribers on a
direct  participation  basis  by the Company.  At December 31, 2001, the Company
had  sold  38,800  shares  that  raised  total proceeds of $116,400 and incurred
offering  cost  of  $37,903.

           (b.)  Holders

As of March 1, 2002, there are approximately 5,500 shareholders of the Company's
outstanding  common  stock.

           (c.)  Dividends

The Company has not paid any cash dividends since inception (February 16, 1993).
The Board of Directors of the Company has not adopted a dividend payment policy;
however,  dividends  must  necessarily  depend  upon  the Company's earnings and
financial  condition,  applicable legal restrictions, and other factors relevant
at  the time the Board of Directors considers a dividend policy.  Cash available
for dividends to shareholders of the Company must initially come from income and
capital  gains  earned  on its investment portfolio, management service fees and
dividends  paid  by FAIC.  Provisions of the Kentucky Insurance Code relating to
insurance  holding  companies subject transactions between the Company and FAIC,
including  dividend payments by FAIC, to certain standards generally intended to
prevent  such  transactions  from  adversely  affecting  the  adequacy  of  life
insurance  subsidiaries'  capital  and surplus available to support policyholder
obligations.  See  Item  1. "Description of Business - Governmental Regulation."
In  addition,  under  the Kentucky Business Corporation Act, the Company may not
pay dividends if, after giving effect to a dividend, it would not be able to pay
its  debts  as  they  become due in the usual course of business or if its total
liabilities  would  exceed  its  total  assets.

During  2001  the  Company paid a 5% stock dividend that included a $335 payment
for  fractional  shares.

Item  6.  Management's  Discussion  and  Analysis  or  Plan  of  Operation

The  Company  makes  forward-looking statements from time to time and desires to
take  advantage of the "safe harbor" which is afforded such statements under the
Private  Securities  Litigation  Reform Act of 1995 when they are accompanied by
meaningful  cautionary statements identifying important factors that could cause
actual  results  to  differ  materially  from  those  in  the  forward-looking
statements.

The  statements  contained in the following Management's Discussion and Analysis
or Plan of Operation, statements contained in future filings with the Securities
and Exchange Commission and publicly disseminated press releases, and statements
which  may  be made from time to time in the future by management of the Company
in  presentations  to shareholders, prospective investors, and others interested
in  the  business and financial affairs of the Company, which are not historical
facts,  are forward-looking statements that involve risks and uncertainties that
could  cause  actual  results  to  differ materially from those set forth in the
forward-looking  statements.  Any  projections  of  financial  performances  or
statements  concerning  expectations  as  to  future  developments should not be
construed  in

                                       10
<PAGE>
any  manner  as  a  guarantee  that  such results or developments will, in fact,
occur.  There  can  be  no  assurance that any forward-looking statement will be
realized  or  that  actual results will not be significantly different from that
set  forth  in  such  forward-looking  statement.  In  addition to the risks and
uncertainties of ordinary business operations, the forward-looking statements of
the  Company  referred  to  above  are  also subject to risks and uncertainties.
The  Company  operates  in  a  highly  competitive business environment, and its
operations  could be negatively affected by matters discussed under the caption,
"Competition",  on  page  6  of  this  Form  10-KSB.

The  following  discussion  should  be read in conjunction with the consolidated
financial  statements  and  the  notes  thereto.

During  2001  net income decreased $89,340 compared to 2000 results and loss per
share  increased  148%  to  a loss per share of $.03 compared to a $.01 loss per
share  in  the  prior  year  while  equity  per  share decreased 8% to $1.69.  A
significant portion of the loss is attributable to marketing cost related to the
cost  of  entering new markets that were expensed and not capitalized.  Also the
decline  in interest rates reduced the amount of investment income that could be
earned  on  bond  and  cash  investments.

Acquisitions

Benefit  Capital  Life  Insurance  Company

On  December  30,  1999, FAIC, a subsidiary of the Company, acquired 100% of the
common  stock  of  Benefit  Capital  Life Insurance Company from an unaffiliated
insurance  holding company (the BCLIC Acquisition).  Benefit Capital is licensed
in  the  state  of  Louisiana  only  and  had  statutory  capital and surplus of
approximately  $413,000.  The aggregate purchase price for the BCLIC Acquisition
was  approximately  $636,000 (including net cost associated with the acquisition
of  approximately $54,000).  The BCLIC acquisition was financed with the working
capital  of FAIC and 25,000 shares of Company stock valued at $62,500. The BCLIC
Acquisition  was accounted for as a purchase.  BCLIC's results of operations are
included in the consolidated statements from the date of acquisition to the date
of  disposal.  A  capital  contribution  of  $37,000  was  made  during  2000.

Dispositions

Purchase  of  FAC  Stock  and  Sale  of  Benefit  Capital Life Insurance Company

On  June 27, 2000, the Company purchased 132,000 shares of FAC common stock from
Chris  Haas ("Haas"), former Chairman of the Board of the Company, for $2.49 per
share for an aggregate purchase price of  $328,680 and entered into an agreement
with  Haas  to  exchange  all  the outstanding common capital stock of BCLIC for
268,000  shares of FAC common stock.  FAC purchased BCLIC from FAIC for $670,000
cash and FAC exchanged BCLIC for 268,000 shares of FAC stock.  The sale of BCLIC
to Haas was completed on March 5, 2001.  BCLIC's 2001 operating results included
in  the  consolidated  statements  of  operations  were  revenues of $15,364 and
benefits,  losses,  and  expenses  of  $20,789

Consolidated  Financial  Condition

Significant  changes  in the consolidated balance sheet of 2001 compared to 2000
reflect  the  operations  of  the  Company,  the  sale  of  BCLIC  and  capital
transactions  discussed  below.

At  December  31,  2001, the Company's available-for-sale fixed maturities had a
fair  value  of  $8,894,904  and  amortized  cost  of  $8,530,517.  The
available-for-sale portfolio consists of fixed maturities and equity securities.
This  portfolio  is reported at fair value with unrealized gains and losses, net
of applicable deferred taxes, reflected as a separate component in shareholders'
equity.  The  Company's  fixed  maturities portfolio decreased approximately .2%
during  2001 and decreased approximately 4% in 2000, on an amortized cost basis.
The  net  change  for 2001 was immaterial.  The 2000 decrease resulted primarily
from  repositioning  funds  into  the  equities markets.  Moody's rating service
rated  all  of  the  Company's  fixed  maturities  portfolio  Aaa  to  Baa2.

The  Company's investment in equity securities decreased $843,941 and $1,032,388
during  2001  on  a  cost  and  fair value basis, respectively, after increasing
$2,785,730  and  $1,724,214 on a cost and fair value basis, respectively in
                                       11
<PAGE>

2000  As  of December 31, 2001 there were $1,224,670 of net unrealized losses in
equity  securities,  as compared to a $1,036,223 unrealized loss at December 31,
2000. One security accounted for $212,081 and $190,639 of such unrealized losses
at  December  31,  2001  and  2000,  respectively.

As  more  extensively  discussed  under  Consolidated Results of Operations, the
Company  realized net capital gains and (losses) from its investments during the
three-year period ended December 31, 2001.  Management believes these pretax net
gains and (losses) which total ($186,872), ($146,418) and $205 during 2001, 2000
and  1999,  respectively,  are  more  than  would have been obtained from a more
conservative  investment  strategy  involving  only investment grade bonds.  Net
capital  gains  or (losses) for a given period are not necessarily indicative of
those  for  future  periods.

At  December 31, 2001 and 2000 the Company held notes receivable of $770,280 and
$569,788,  net  of a valuation allowance of $116,616 and $149,698, respectively.
At  December  31, 2001, the Company had $4,159 of notes receivable that had been
non-income  producing  for  the  twelve  months  prior  to  December  31,  2001.

The  decrease  of $85,000 in other invested assets during 2001 resulted from the
Company's additional investment in a venture capital limited partnership and the
sale  of  an  8% interest in a limited liability company that specializes in the
placement  of  rated  and  hard  to  place  life  insurance  products.

The  Company  has  maintained  significant cash and short-term balances over the
past  several  years,  principally  to  hedge  against the uncertainty of future
interest  rates.

Deferred  policy  acquisition  costs increased $1,354,137 net of amortization of
$1,235,457  during  2001.  Policy  acquisition expenses related to new insurance
sales  totaled  $2,589,594  and  were  capitalized  during  2001.

Total  policy  liabilities as of December 31, 2001 and 2000 were $11,972,326 and
$9,406,470, respectively.  Approximately 40% of the 2001 total consist of future
policy  benefit  and  unearned  premium  reserves  while  policyholder  deposit
liabilities  represent  57%  of  the  total.

Policyholder  deposits  liabilities  as  of  December  31,  2001  and  2000 were
$7,358,247  and  $4,859,854,  respectively.

Shown  below is a progression of the Company's policyholder deposit activity for
the  year  ended  December  31,
2001.
<TABLE>
<CAPTION>
Year ended December 31, 2001                    Total       Annuity      Other
                                             ----------   ----------   ---------
<S>                                          <C>          <C>          <C>
Beginning Balance                            $4,859,854   $4,629,330   $230,524
Deposits                                      2,255,118    2,195,548     59,570
Benefit Capital deposits                        (42,725)           -    (42,725)
Withdrawals                                    (276,545)    (226,903)   (49,642)
Interest credited                               562,545      550,593     11,952
                                             -----------  -----------  ---------
Ending Balance                               $7,358,247   $7,148,568   $209,679
                                             ==========   ==========   =========
</TABLE>
The  growth  in  policyholder  deposit liabilities has resulted from the annuity
rider  deposits  that  begin  in  the  second  policy  year.

The  Company  has  a relatively low effective federal income tax rate, which can
fluctuate  significantly  due  to  the  application  of  Statement  of Financial
Accounting  Standards  ("SFAS")  No.109, "Accounting for Income Taxes." The most
significant  provision  under  SFAS  No.109  affecting  the  Company  is  the
disallowance  of  the  small  life  insurance  company  deduction when computing
deferred  taxes.  The  small  life insurance deduction allows the Life Insurance
Subsidiaries  to  reduce  their  taxable  income  by  60% before computing their
current  provision for tax. By disallowing this, deduction in the computation of
deferred  taxes,  SFAS  No.109 significantly increases the deferred taxes on the
Life  Insurance  Subsidiaries'  temporary  differences. Thus, when a significant
increase  or  decrease  occurs  in  the Company's net temporary differences, the
related  deferred  tax  is  computed using the 35% federal tax rate, whereas tax
will  actually be paid on these net liabilities (when realized) at a lower rate.
The  Company's gross deferred federal income tax liabilities and assets are more
fully  discussed  in  Note  9  to  the  Consolidated  Financial  Statements. All
operating  deferred  tax  assets of the Company are realizable by offset against
existing  deferred  tax liabilities.


                                       12
<PAGE>
 Capital deferred tax assets must be offset
against  future  capital gains. The Company believes such gains will materialize
and  the  deferred  tax  assets  will  be  realized. The deferred tax assets are
offset,  to  some  extent, by valuation allowances related to the Company and to
the  Life Insurance Subsidiaries.  The Company's valuation allowance is designed
to  reduce  deferred  tax  assets  to their estimated ultimate realizable value.

Consolidated  Results  of  Operations

The  primary source of revenue for the Company is life insurance premium income.
Premium  payments  are  classified  as  first-year, renewal and single.  Renewal
premiums  are  any  premium  payments made after the first year the policy is in
force.

Shown  below  is the Company's premium income for the three years ended December
31,  2001,  2000  and  1999,  respectively.

<TABLE>
<CAPTION>
Premium Income                                 2001         2000         1999
                                           -----------   ----------   -----------
<S>                                        <C>           <C>          <C>
First-year                                 $ 2,451,037   $1,432,658   $1,886,288
Renewal                                      2,412,681    2,440,347    1,543,799
Single - Credit insurance                      873,535      806,064      368,727
                                           -----------   ----------   -----------
  Gross premium income                     $ 5,737,253   $4,679,069   $3,798,814
Reinsurance premium ceded                   (1,057,561)    (967,522)    (469,002)
                                           ------------  -----------  -----------
  Net premium income                       $ 4,679,692   $3,711,547   $3,329,812
                                           ===========   ==========   ===========
</TABLE>
During 2001, first-year premium income increased $1,018,379 from 2000 levels due
to an increase in new sales, however, 2002 sales are expected to decrease due to
ending  the  sale of FAIC's founders product.  Reinsurance premiums are a direct
reduction  of  premium  income.  Credit  insurance  is  100%  reinsured.  The
reinsurance  premiums  related  to  credit insurance were $873,535, $806,064 and
$368,727  in  2001,  2000  and  1999,  respectively.

Net  investment  income  for 2001 was $738,239, an increase of $29,864 over 2000
results.  This increase is primarily due to a larger investment base from FAIC's
operations and lower investment expense.  Net investment income in 2000 and 1999
was $708,375 and $659,309, respectively.  Investment yields have declined due to
a  decline  in  the  yields  available  on  bonds.

Net realized investment losses which total $186,872 during 2001 from the sale of
bonds  and  common stock and losses recognized on notes receivable are more than
would  have been obtained from a more conservative investment strategy involving
only  investment  grade  bonds.  During 2000 and 1999, realized investment gains
and  losses  were  $146,418  loss  and $205 gain, respectively, from the sale of
bonds  and  common  stocks.

Service fee revenue and other income totaled $357,687 in 2001 which represents a
$150,219  increase  over  2000  results  of  $207,469.  The  Company  provides
accounting support to Mid-American Alliance Corporation and its subsidiaries Mid
American Century Life Insurance Company and Security Alliance Insurance Company,
First  American  Capital  Corporation  and  its  subsidiary  First  Life America
Corporation, Integrity Capital Corporation and Mid-Atlantic Capital Corporation.
Fees related to these accounting services were $300,364, $173,825 and $95,531 in
2001,  2000  and  1999,  respectively.

The  Company  incurred a $6,419 loss from its share of the net operating loss of
FCS.

The  increase  in  life  insurance  policy reserves was $1,114,526, $754,517 and
$870,582  in  2001,  2000  and  1999, respectively.  Life insurance reserves are
established  to  provide  for  the  payment of policyholder benefits.  Actuaries
consider  factors such as premiums, interest, mortality and life expectancy when
calculating  reserve  factors.  Typically,  these  reserve factors increase as a
policy  reaches  another  anniversary,  creating  a  larger  reserve.

Commissions  to  insurance  agents,  excluding  commissions  to credit insurance
agents,  totaled  $1,467,048,  $1,132,622 and $1,304,124 in 2001, 2000 and 1999,
respectively.  In  December  1998,  FAIC began selling credit insurance.  During
2001,  2000  and  1999, commission on the sale of credit insurance was $522,288,
$499,867  and  $220,838.  Commissions  are paid to agents on first-year, renewal
and  single  premium  payments.  First-year  commission  percentages  are
significantly  greater  than  renewal commission percentages.  When new premiums
written  increase


                                       13
<PAGE>

from  year  to  year  and existing policies renew, commission
expense  increases.  During  2001,  the increase in the sale of credit insurance
and  an  increase  in  first-year ordinary life premium income, accounts for the
$356,847  increase  in  commission  expense  in  2001  over  2000.

Death  claims  during  2001,  2000  and  1999,  net  of  reinsurance ceded, were
$117,655,  $187,484  and  $122,135,  respectively.

Annuity  premiums  received  are  recorded  as  liabilities  rather than income,
pursuant  to  Statement of Financial Accounting Standard No. 97, "Accounting and
Reporting  by  Insurance Enterprises for Certain Long-Duration Contracts and for
Realized  Gains  and Losses from the Sale of Investments."  Interest is incurred
and  credited to the annuity fund balances.  As policies renew, the annuity fund
balance  increases  which also increases the base on which interest is earned by
the  policyholder.  The  growth  in  the  annuity  fund balance accounts for the
increase  in  interest  expense  between  years.  Interest expense was $574,754,
$340,672  and  $200,107  for  2001,  2000  and  1999,  respectively.

Certain  costs  related  to  the  acquisition  of  life  insurance  policies are
capitalized and amortized over the premium-paying period of the policies.  These
costs,  which  are  referred  to  as  deferred policy acquisition costs, include
commissions  and  other  costs of acquiring life insurance, which vary with, and
are  primarily  related  to,  the  production  of  new insurance contracts.  The
capitalized cost will be amortized over the life of the associated policies.  In
2001,  2000  and 1999, $2,589,594, $1,281,288 and $1,655,160 of these costs were
capitalized.  Amortization  of  deferred  policy  acquisition  costs  totaled
$1,235,457,  $660,311  and  $760,468  for  2001,  2000  and  1999, respectively.

Selling,  administrative  and general insurance expenses increased $129,360 in a
comparison  of  2001  to  2000.  These expenses relate to the administration and
issuance  of  life  insurance  policies.  This  increase can be attributed to an
increase  in  sales  and  processing costs.  Selling, administrative and general
insurance  expenses  totaled  $676,248,  $546,888 and $363,166 in 2001, 2000 and
1999,  respectively.  Salaries,  wages and employee benefits totaled $1,752,360,
$1,059,711  and  $1,102,195  in 2001, 2000 and 1999, respectively.  The $692,649
increase in 2001 was primarily attributable to an increase in marketing salaries
and  salaries  related  to  the  service  business.

Professional  fees  increased $8,938 during 2001 compared to 2000.  Professional
fees  include  accounting,  actuarial, consulting, and legal fees.  Professional
fees  totaled  $204,975,  $196,037  and  $107,708  for  2001,  2000  and  1999,
respectively.

Income  tax  expense  for  2001  totaled  $431,727.  Federal  income  taxes  are
calculated  based  on  the  earnings  of FAIC.  Certain items included in income
reported  for  financial  statements  are not included in taxable income for the
current year, resulting in deferred income taxes.  Of the $431,727 amount above,
deferred  income  taxes  totaled $431,453 and taxes currently payable were $274.
In  2000  total income tax expense was $260,999, of which $225,431 was deferred.
In  1999  total income tax expense was $254,540, of which $230,783 was deferred.

                                       14
<PAGE>

Statutory  Insurance  Information

For  insurance  regulatory  and  rating  purposes,  FAIC reports on the basis of
statutory  accounting  principles ("SAP").  A.M. Best Company ("Best") has given
First  Alliance  Insurance  Company  a  rating  of  NR-1  (insufficient  data).

To  provide  a  more  detailed understanding of First Alliance operations, shown
below  are  SAP  basis  assets,  asset valuation reserves, statutory capital and
surplus,  net  income  and  net  operating  income  for First Alliance Insurance
Company  for  the  five  years  ended  December  31,  2001.

<TABLE>
<CAPTION>


                           Asset     Statutory             Net          Asset
Year ended                Valuation   Capital    Net      Operating   Valuation
December 31    Assets     Reserves     and      Income    Income       Reserves
                            [1]      Surplus                             [1]
---------- -----------  --------  ---------- ----------- ---------- -----------
<S>        <C>          <C>       <C>        <C>         <C>        <C>
2001       $16,570,910  $ 12,215  $4,467,627 $ (803,962) $(872,517) $    12,215
2000       $14,003,366  $  9,971  $5,564,827 $   61,514  $ 181,789  $     9,971
1999       $12,312,179  $ 43,635  $6,460,894 $  100,989  $ 100,989  $    43,635
1998       $ 9,865,490  $ 10,115  $6,306,783 $  107,578  $ 107,578  $    10,115
1997       $ 8,185,820  $  9,649  $6,227,997 $  194,977  $194,977   $     9,649
</TABLE>

[1]  Asset  Valuation Reserves are statutory liabilities that act as contingency
     reserves  in  the  event  of extraordinary  losses  on  invested  assets
     and  as a buffer for policyholders' surplus  to  reduce  the  impact of
     realized  and  unrealized  investment  losses.

During  2001,  statutory  capital  and  surplus  and  asset  valuation  reserves
decreased  by  approximately  $1,094,956.  This decrease resulted primarily from
$357,587  of net unrealized losses and a statutory net loss of $803,962.  During
2000,  statutory  capital  and surplus and asset valuation reserves decreased by
approximately  $929,731.  This  decrease resulted primarily from $891,779 of net
unrealized  losses, $100,989 shareholder dividend offset by $61,514 of statutory
net  income.  During  1999,  statutory  capital  and surplus and asset valuation
reserves  increased by approximately $187,631.  This increase resulted primarily
from  $100,989  of  statutory income, $24,696 of unrealized investment gains and
$62,500  of  additional  surplus  paid  in.  During  1998, statutory capital and
surplus  and  asset valuation reserves increased by approximately $79,252.  This
increase  resulted  primarily  from  $107,578  of statutory net income offset by
$28,326  of  unrealized  investment  losses.

Statutory  capital  and  surplus,  specifically the component called surplus, is
used  to fund the expansion of an insurance company's first-year individual life
and  accident  and  health  sales.  The  first-year  commission and underwriting
expenses  on  such sales will normally consume a very high percentage of, if not
exceed,  first-year  premiums.  Accordingly, a statutory loss may occur on these
sales  the  first  year  of  the  policy.

Cash  Flow  And  Liquidity

During  2001,  the  Company  generated  $703,889  of  positive  cash  flow  from
operations  compared to $819,857 in 2000 and $595,304 in 1999. The increases for
the  three  years  can  be  attributed  primarily  to  increased life and health
insurance  premiums  received  and  annuity  deposits.

Cash  used  by  investment activities during 2001 of $903,736 resulted primarily
from  a  decision  to  increase  the  investments  in  available-for-sale  fixed
maturities  and  other  invested  assets  and decrease the investments in equity
securities  and  the  sale  of BCLIC.  Cash used by investment activities during
2000  of  $3,370,739  resulted  primarily  from  a  decision  to  increase  the
investments  in  equity  securities, notes receivable and other invested assets.
Cash  provided  by  financing  activities  in  2001  includes an increase in net
policyholder deposits of $1,979,552 and net proceeds of $78,497 from the sale of
common  stock  of  the  Company.  Cash  provided by financing activities in 2000
includes an increase in net policyholder deposits of $1,284,394 and a net use of
cash  of  $229,168  from  the  purchase and sale of common stock of the Company.
Cash  provided  by  financing  activities  in  1999  includes an increase in net
policyholder  deposits  of $1,067,309 and $130,847 from the sale and purchase of
common  stock  of  the  Company

The  Company  is  subject to various market risks. However, the most significant
such  risks  relate  to  fluctuations  in interest rates and in prices of equity
securities.  Regarding interest rates, the value of the Company's fixed-maturity
investment  portfolio  will increase or decrease in an inverse relationship with
fluctuations  In  interest  rates  while  net

                                       15
<PAGE>

investment  income  earned  on  newly-acquired  fixed-maturities  increases  or
decreases  in  direct  relationship  with  interest rate changes. From an income
perspective,  the  Company  is exposed to rising interest rates which could be a
significant  risk,  as  FAIC's  annuity business is subject to variable interest
rates. The Life insurance company's life insurance policy liabilities bear fixed
rates. From a liquidity perspective, the Company's fixed rate policy liabilities
have been relatively insensitive to interest rate fluctuations. Accordingly, the
Company  believes  gradual  increases  in  interest  rates  do  not  present  a
significant  liquidity  exposure  for the life insurance policies. Historically,
the  Company  has  maintained  conservative  durations  in  its  fixed-maturity
portfolio.  At  December  31,  2001  cash  and  fixed-maturity  investments with
maturities  of  less  than  five  years equaled more than one hundred percent of
total  policy liabilities. Notwithstanding the foregoing, if interest rates rise
significantly  in  a  short  time frame, there can be no assurance that the life
insurance industry, including the Company, would not experience increased levels
of  surrenders  and reduced sales, and thereby be materially adversely affected.

The  Company  has  not  successfully  managed  the risk of equity security price
fluctuations  during  the last two years.  In addition to the measures described
above,  FAIC  complies  with the NAIC promulgated Standard Valuation Law ("SVL")
which  specifies  minimum  reserve levels and prescribes methods for determining
them,  with  the intent of enhancing solvency.  Upon meeting certain test, which
FAIC  met  during  2001  and  2000, the SVL also requires the Company to perform
annual  cash  flow  testing  for  FAIC.  This testing is designed to ensure that
statutory  reserve  levels  will  maintain  adequate  protection in a variety of
potential interest rate scenarios. The Actuarial Standards Board of the American
Academy  of  Actuaries  also  requires  cash  flow  testing  as  a basis for the
actuarial  opinion  on  the adequacy of the reserves which is a required part of
the  annual  statutory  reporting  process.

Cash  flow  testing  projects  cash  inflows  from  assets and cash outflows for
liabilities  in  various  assumed  economic and yield curve scenarios. This is a
dynamic  process,  whereby  the  performance  of  the  assets and liabilities is
directly  related  to  the  scenario  assumptions. (An example would involve the
credited  interest  rate  on  annuity products and how such rates vary depending
upon  projected  earnings  rates, which are based upon asset performance under a
particular  economic  scenario.)

The  Company's  marketing  plan  could  be modified to emphasize certain product
types  and  reduce others.  New business levels could be varied in order to find
the  optimum  level.  Management  believes that the Company's current liquidity,
current  bond  portfolio  maturity  distribution  and  positive  cash  flow from
operations give it substantial resources to administer its existing business and
fund  growth  generated by direct sales. The Company will service other expenses
and  commitments  by: (1) Service fee income from FAIC and affiliated companies,
(2)  Dividends  from  FAIC, which are limited by law to the lesser of prior year
net  operating  income  or  10%  of  prior  year-end  capital and surplus unless
specifically  approved by the controlling insurance department and (3) corporate
borrowings,  if  necessary.


                                       16
<PAGE>

Item  7.     Financial  Statements


        INDEX  TO  CONSOLIDATED  FINANCIAL  STATEMENTS
            AND  FINANCIAL  STATEMENT  SCHEDULES





                                                                          Page
Consolidated  Financial  Statements                                      Numbers
                                                                          ------

Independent  Auditors'  Report                                                18

Consolidated  Balance  Sheets  as  of  December  31,  2001  and  2000         19

Consolidated  Statements  of  Operations  for  the  years  ended
     December  31,  2001,  2000  and  1999                                    21

Consolidated  Statement  of  Changes  in  Shareholders'  Equity  for  the
 years ended  December  31,  2001,  2000  and  1999                           22

Consolidated  Statements  of  Cash  Flows  for  the  years  ended
     December  31,  2001,  2000  and  1999                                    23

Notes  to  Consolidated  Financial  Statements                                25


                                       17
<PAGE>
                          Independent Auditors' Report



Board  of  Directors  and  Shareholders
First  Alliance  Corporation


We  have  audited the accompanying consolidated balance sheets of First Alliance
Corporation  (a  Kentucky  corporation) and subsidiaries as of December 31, 2001
and  2000,  and  the  related  consolidated statements of operations, changes in
shareholders'  equity,  and cash flows for each of the three years in the period
ended  December  31, 2001.  These financial statements are the responsibility of
the  Company's management.  Our responsibility is to express an opinion on these
financial  statements  based  on  our  audits.

     We  conducted  our  audits  in accordance with auditing standards generally
accepted  in the United States of America.  Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audit  provides  a
reasonable  basis  for  our  opinion.

     In  our opinion, the financial statements referred to above present fairly,
in  all material respects, the consolidated financial position of First Alliance
Corporation  and  subsidiaries  as  of  December  31,  2001  and  2000,  and the
consolidated  results  of  their operations and their cash flows for each of the
three  years in the period ended December 31, 2001, in conformity with generally
accepted  accounting  principles  accepted  in  the  United  States  of America.


                                                  /s/ KERBER, ECK & BRAECKEL LLP


Springfield,  Illinois
March  20,  2002


                                       18
<PAGE>
<TABLE>
<CAPTION>
                               FIRST ALLIANCE CORPORATION

                               CONSOLIDATED BALANCE SHEETS


                                                                          December 31,
                                                                        2001         2000
ASSETS                                                                -----------  -----------
<S>                                                                   <C>          <C>
Investments:
  Available-for-sale fixed maturities, at fair value
    (amortized cost, $8,530,517 and $8,548,507
    in 2001 and 2000, respectively)                                   $ 8,894,904  $ 8,734,400
  Equity securities (cost of $2,324,377 and $3,168,318
    in 2001 and 2000, respectively)                                     1,099,707    2,132,095
  Policy loans                                                             81,911      100,687
  Notes receivable (net of $116,616 and $149,698
    valuation allowance in 2001 and 2000, respectively)                   770,280      569,788
  Other invested assets                                                   425,000      510,000
                                                                      -----------   ----------
Total investments                                                      11,271,802   12,046,970

Cash and cash equivalents                                               5,902,785    4,044,915
Investment in related parties                                             371,276      237,500
Receivables from related parties                                           48,038       35,675
Accrued investment income                                                 182,220      144,074
Premiums receivable                                                       131,638      136,069
Advances to agents                                                         88,828       36,382
Reinsurance recoverable                                                 1,026,524      714,561
Deferred policy acquisition costs                                       4,718,225    3,364,088
Value of insurance acquired                                                     -       57,224
Goodwill                                                                        -      151,027
Office furniture and equipment, less accumulated depreciation
  of $129,027 and $116,975 in 2001 and 2000, respectively)                125,121       45,580
Federal income tax recoverable                                                143            -
Other assets                                                               29,220       71,184
                                                                      -----------  -----------
Total assets                                                          $23,895,820  $21,085,249
                                                                      ===========  ===========

See notes to consolidated financial statements.
</TABLE>


                                       19
<PAGE>

<TABLE>
<CAPTION>

                                  FIRST ALLIANCE CORPORATION

                           CONSOLIDATED BALANCE SHEETS (continued)


                                                                         December 31,
                                                                       2001           2000
                                                                  -------------   ------------
<S>                                                               <C>             <C>

LIABILITIES AND SHAREHOLDERS' EQUITY
Policy and contract liabilities:
  Annuity contract liabilities                                    $   7,148,568   $ 4,629,330
  Life policy reserves (net of reinsurance
     ceded reserves of $478,506 and $340,172
     in 2001 and 2000, respectively)                                  4,791,633     4,379,730
  Unearned premium reserves                                             466,135       358,981
  Policy and contract claims                                             57,301       108,889
  Policyholder dividend deposits                                              -        42,726
  Policyholder premium deposits                                         209,679       187,798
  Deposits on pending policy applications                               193,313       276,287
  Unearned revenue                                                       63,263        77,010
  Reinsurance premiums payable                                           66,901        56,349
                                                                     ----------    -----------
Total policy and contract liabilities                                12,996,793    10,117,100

Commissions, salaries, wages and benefits payable                       269,100       175,191
Payables to related parties                                             124,881             -
Accrued expenses and other liabilities                                   98,461        55,232
Federal income taxes payable:
  Current                                                                     -        11,583
  Deferred                                                              995,292       575,826
                                                                     ----------    -----------
Total liabilities                                                    14,484,527    10,934,932

Shareholders' equity:
Common stock, no par value, 8,000,000 shares
  authorized; 5,561,455 and 5,527,360 shares issued
  and outstanding at December 31, 2001 and 2000                         556,146       552,736
Additional paid in capital                                           13,466,445    12,628,272
Accumulated other comprehensive income                                 (559,183)     (561,217)
Retained earnings - deficit                                          (4,052,115)   (2,469,474)
                                                                  --------------  ------------
Total shareholders' equity                                            9,411,293    10,150,317
                                                                  --------------  ------------
Total liabilities and shareholders' equity                        $  23,895,820   $21,085,249
                                                                  =============   ============

See notes to consolidated financial statements.
</TABLE>

                                       20
<PAGE>

<TABLE>
<CAPTION>

                                            FIRST ALLIANCE CORPORATION

                                       CONSOLIDATED STATEMENTS OF OPERATIONS


                                                           Years ended December 31,
                                                         2001          2000          1999
                                                      ----------    ----------    ------------
<S>                                                   <C>           <C>           <C>
REVENUES
  Premium income                                      $ 5,737,253   $ 4,679,069   $ 3,798,814
  Premiums ceded                                       (1,057,561)     (967,522)     (469,002)
                                                      ------------  ------------  ------------
    Net premiums earned                                 4,679,692     3,711,547     3,329,812

  Net investment income                                   738,239       708,375       659,309
  Net realized investment gain (loss)                    (186,872)     (146,418)          205
  Service fee revenue                                     300,364       173,825        95,531
  Decrease in equity of unconsolidated subsidiary          (6,419)            -             -
  Other income                                             57,323        33,644        28,432
                                                       -----------   -----------   -----------
    Total revenue                                       5,582,327     4,480,973     4,113,289

BENEFITS AND EXPENSES
  Death claims                                            327,977       220,219       330,270
  Death claims ceded                                     (208,538)      (32,735)     (208,135)
    Net death claims                                      119,439       187,484       122,135
  Increase in policy reserve                            1,114,526       754,517       870,582
  Policyholder surrender values                           174,765       201,006        49,408
  Interest credited on annuities
         and premium deposit fund                         562,544       340,672       200,107
  Commissions                                           1,467,048     1,132,622     1,304,124
  Policy acquisition costs deferred                    (2,589,594)   (1,281,288)   (1,655,160)
  Amortization expense:
    Deferred policy acquisition costs                   1,235,457       660,311       760,468
    Value of insurance acquired                               681         4,087             -
    Goodwill                                      -         7,949             -
  Selling, administrative and general expense             676,248       546,888       363,166
  Salaries, wages and employee benefits                 1,752,360     1,059,711     1,102,195
  Professional fees                                       204,975       196,037       107,708
  Advisory board and directors fees                       102,437        69,876        87,430
  Rent expense                                            101,208        91,268        87,386
  Depreciation expense                                     36,710        20,547        15,708
  Interest expense                                         10,426             -             -
  Other expenses                                          330,591       288,168       303,014
                                                       -----------    ----------    ----------
    Total benefits and expenses                         5,299,821     4,279,855     3,718,271
                                                       -----------    ----------    ----------
INCOME FROM OPERATIONS                                    282,506       201,118       395,018
                                                      -----------    -----------    ----------
Federal income taxes                                      431,727       260,999       254,540
                                                      -----------    -----------    ----------
NET INCOME (LOSS)                                    $   (149,221)  $   (59,881)  $    40,478
                                                    ==============  ============  ============
NET INCOME (LOSS) PER COMMON SHARE -
  BASIC AND DILUTED                                         (0.03)        (0.01)         0.02
                                                    ==============  ============  ============
See notes to consolidated financial statements.
</TABLE>


                                       21
<PAGE>

<TABLE>
<CAPTION>

                                            FIRST ALLIANCE CORPORATION

                                            CONSOLIDATED STATEMENTS OF
                                          CHANGES IN SHAREHOLDERS' EQUITY


                                                             Years ended December 31,
<S>                                                     <C>          <C>           <C>
                                                            2001        2000          1999
                                                        ----------  ------------   ------------
COMMON STOCK:
  Balance, beginning of year                               552,736   $   564,318   $   562,069
  Sale of shares in private placement (38,800, 74,525
    and 150,475 in 2001, 2000 and 1999, respectively)        3,880         7,453        15,047
  Company stock acquired (268,000, 190,350 and
    127,980 shares in 2001, 2000 and 1999, respectively)   (26,800)      (19,035)      (12,798)
  Stock dividend 263,295 shares @ 3.00 per share            26,330             -             -
                                                        -----------   -----------   -----------
  Balance, end of year                                $    556,146       552,736       564,318

ADDITIONAL PAID-IN CAPITAL:
  Balance, beginning of year                            12,628,272    12,466,943    12,180,353
  Sale of shares in private placement (38,800, 74,525
    and 150,475 in 2001, 2000 and 1999, respectively)      112,520       178,859       361,140
  Cost of public offering                                  (37,903)       (1,050)      (54,558)
  Company stock acquired (268,000, 190,350 and
    127,980 shares in 2001, 2000 and 1999, respectively)         -       (16,480)      (19,992)
  Stock dividend 263,295 shares @ 3.00 per share           763,556             -             -
                                                        ----------   ------------   -----------
  Balance, end of year                                  13,466,445    12,628,272    12,466,943

ACCUMULATED OTHER COMPREHENSIVE INCOME:
  Balance, beginning of year                              (561,217)      (64,149)       97,469
  Net unrealized gain (loss)
    on available-for-sale securities,
    net of reclassification adjustment (see below)           2,034      (497,068)     (161,618)
                                                         ----------    ----------    ----------
  Balance, end of year                                    (559,183)     (561,217)      (64,149)

RETAINED EARNINGS (DEFICIT):
  Balance, beginning of year                            (2,469,474)   (2,030,679)   (2,013,165)
  Net income (loss)                                       (149,221)      (59,881)      140,478
  Company stock acquired (268,000, 190,350 and
    127,980 shares in 2001, 2000 and 1999, respectively)  (643,200)     (378,914)     (157,992)
  Stock dividend 263,295 shares @ 3.00 per share          (789,885)            -             -
  Cash dividend 111.65 fractional shares @ 3.00 per share     (335)            -             -
                                                        -----------   -----------  ------------
  Balance, end of year                                  (4,052,115)   (2,469,474)   (2,030,679)
                                                        -----------   -----------  ------------
TOTAL SHAREHOLDERS' EQUITY                             $  9,411,293   $10,150,317  $10,936,433
                                                       ============   ===========  ============
DISCLOSURE OF RECLASSIFICATION AMOUNT:
  Unrealized holding gain (loss) arising during period     (104,084)     (350,650)    (161,823)
  Less: reclassification adjustment for gain (loss)
    included in net income                                 (106,118)     (146,418)         205
                                                         -----------  ------------ ------------
  Net unrealized gain (loss) on securities             $      2,034   $  (497,068) $  (161,618)

See notes to consolidated financial statements.
</TABLE>

                                       22
<PAGE>

<TABLE>
<CAPTION>

                                                FIRST ALLIANCE CORPORATION

                                          CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                             Years ended December 31,
<S>                                                     <C>         <C>           <C>
                                                           2001          2000          1999
                                                        ----------  -----------  -------------
OPERATING ACTIVITIES:
Net income (loss)                                      $ (149,221)  $   (59,881)  $   140,478
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
  Increase in policy reserves                           1,428,363       413,401     1,240,096
  Increase (decrease) in claim liabilities                (51,588)       66,790        22,000
  (Increase) decrease in reinsurance recoverable         (311,963)      338,603      (370,932)
  Interest credited on annuities and premium deposits     561,790       340,672       183,734
  Provision for depreciation                               36,710        20,547        15,708
  Amortization of goodwill                                      -         7,949             -
  Increase in deferred policy acquisition costs, net   (1,354,137)     (620,977)     (894,692)
  Amortization of value of insurance acquired                 681         4,087             -
  Amortization of premium and accretion of discount        22,336        20,708        23,883
  Net realized investment (gain) loss                      14,730       146,418          (205)
  Increase in policy loans                                (20,687)      (68,493)       (5,587)
  (Increase) decrease in receivables from related parties (12,363)      (21,472)        6,293
  Increase in accrued investment income                   (47,853)       (8,592)      (21,207)
  (Increase) decrease in federal income tax recoverable      (143)        7,985        (7,985)
  (Increase) decrease in premiums receivable                2,510       (54,379)      (31,915)
  (Increase) decrease in advances to agents               (52,446)        6,616        14,678
  (Increase) decrease in other assets                      39,137         3,634       (39,458)
  Increase (decrease) in deposits on pending policy
  applications                                            (82,974)       43,129        16,593
  Decrease in unearned revenue                            (13,747)       (9,868)      (17,221)
  Increase (decrease) in reinsurance premium payable       10,552        (5,101)       (3,733)
  Increase in commissions, salaries, wages and benefits    93,909        41,809        68,641
  Increase in payables to related parties                 124,881             -             -
  Increase (decrease) in accrued expenses
  and other liabilities                                    45,613       (34,537)       57,607
  Increase (decrease) in federal income taxes payable     (11,583)       11,583       (32,258)
  Increase in deferred federal income tax liability       431,385       229,226       230,786
                                                      ------------  ------------  ------------
Net cash provided by operating activities                 703,892       819,857       595,304

INVESTING ACTIVITIES:
  Purchase of available-for-sale fixed maturities      (2,508,464)   (2,790,071)   (4,031,911)
  Sale of available-for-sale fixed maturities           1,386,823     3,084,201     1,789,689
  Purchase of common stock                                      -    (5,136,342)     (362,588)
  Sale of common stock                                    681,118     2,237,945             -
  Purchase of limited partnership interest               (150,000)            -      (150,000)
  Purchase of limited liability company interest           (5,000)     (360,000)            -
  Sale of subsidiary net of cash disposed                (232,850)       (3,720)     (200,092)
  (Increase) decrease in notes receivable                 182,590      (466,624)      118,472
  Short term investments disposed                               -       200,000             -
  Purchase of investments in unconsolidated affiliates   (133,776)     (112,500)            -
  Purchase of furniture and equipment, net               (124,177)      (23,628)       (3,723)
                                                       -----------  ------------  ------------
Net cash used in investing activities                    (903,736)   (3,370,739)   (2,840,153)
</TABLE>


                                       23
<PAGE>

<TABLE>
<CAPTION>

                                         FIRST ALLIANCE CORPORATION

                             CONSOLIDATED STATEMENTS OF CASH FLOWS  (continued)


                                                         Years ended December 31,
<S>                                                  <C>            <C>           <C>
                                                          2001          2000          1999
                                                     ------------   -----------   ------------
FINANCING ACTIVITIES:
  Deposits on annuity contracts, net                 $  1,968,645   $ 1,295,669   $ 1,057,423
  Policyholder premium deposits (withdrawals), net         10,684       (10,813)        9,886
  Policyholder dividend deposits, net                         223          (462)            -
  Proceeds from sale of company stock                     116,400       186,312       376,187
  Cost of stock offering                                  (37,903)       (1,050)      (54,558)
  Dividends paid                                             (335)            -             -
  Repurchase of company stock                                   -      (414,430)     (190,782)
                                                     -------------   -----------  ------------
Net cash provided by financing activities               2,057,714     1,055,226     1,198,156
                                                     -------------   -----------  ------------
Increase (decrease) in cash and cash equivalents        1,857,870    (1,495,656)   (1,046,693)

Cash and cash equivalents, beginning of year            4,044,915     5,540,571     6,587,264
                                                      ------------  ------------  ------------
CASH AND CASH EQUIVALENTS, END OF YEAR                $ 5,902,785   $ 4,044,915   $ 5,540,571
                                                      ===========   ===========   ============

NONCASH INVESTING AND FINANCING ACTIVITIES:
  Exchange of 8% equity investment in Ken Belsky &
  Associates, LLC for a note receivable of $350,000   $  350,000              -             -
                                                      ===========   ===========   ============
  Common stock dividend                               $  789,885             -             -
                                                      ==========    ===========   ============
See notes to consolidated financial statements.
</TABLE>

                                       24
<PAGE>

                           FIRST ALLIANCE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.  NATURE  OF  OPERATIONS

First Alliance Corporation (the "Company") was incorporated on February 16, 1993
for  the  primary  purpose  of  forming,  owning  and  managing  life  insurance
companies.  On  March  4,  1994, the Company's registration statement filed with
the  Securities and Exchange Commission and the Kentucky Department of Financial
Institutions  for  a  $12,500,000  public  stock  offering, which included a 10%
"over-sale"  provision (additional sales of $1,250,000), was declared effective.
The  Company  completed  its  public stock offering on October 28, 1995, raising
total  capital  of  $13,750,000.

The  Company  had  two  wholly-owned  insurance  subsidiaries,  First  Alliance
Insurance  Company  ("FAIC")  domiciled  in  Kentucky  and  Benefit Capital Life
Insurance  Company  ("BCLIC") domiciled in Louisiana, prior to the sale of BCLIC
that  was  effective  February  28, 2001.  FAIC was incorporated on December 29,
1994 and initially capitalized with $3,000,000 on January 10, 1995.  The Company
made  an  additional  $3,000,000  capital  contribution  on May 15, 1995 and the
Kentucky Department of Insurance ("KDI") granted FAIC a Certificate of Authority
on May 17, 1995.  Insurance operations commenced on November 1, 1995.  BCLIC was
purchased  December 30, 1999 and had capital and surplus of $480,501 at the date
of  purchase.  Operating  results  of  BCLIC  are  included  in  the  financial
statements  from  the  date  of  acquisition  through  February  28,  2001.

FAIC's  initial  product  was a twenty pay ordinary life insurance policy with a
flexible  premium  deferred  annuity rider and a decreasing term rider for issue
ages  0  to  50.  During  1997, the Company modified the insurance product being
marketed.  The  revised  product  offers a life insurance policy with an annuity
rider  similar  to  the  initial  product,  however the annual income protection
benefit  rider  was  eliminated  and death benefits on the base policy modified.
Additionally, the split between life and annuity premiums and the premium paying
period  were  changed.  In the first year, the full premium is allocated to life
insurance with all renewal premium payments being split half to life and half to
annuity.  Depending on the issue age, the premium paying period is either ten or
twenty  years.

The  product  is being sold in premium units with the ability to purchase either
fractional  or  multiple  units.  If  a  greater  accumulated  annuity  value is
desired,  the  policyholder may continue to make the premium payments, after the
completion  of  the  premium-paying  period, with the entire payment funding the
annuity.  Other  products  currently being marketed by FAIC are a single premium
deferred  annuity,  a  ten-year  term policy, preneed and credit life and credit
accident  and  health.  FAIC  is licensed and sells its product in the states of
Indiana, Kansas, Kentucky, Ohio and Tennessee.  Currently, the products are only
marketed  in  Kentucky  and  Indiana.

The  Company  has  a  wholly  owned  venture  capital subsidiary, First Kentucky
Capital  Corporation  ("FKCC"),  which was capitalized with $224,000 during 1996
and commenced operations on April 12, 1996.  Additional capital contributions of
$127,500  and  $92,000  were  made  during  1999  and  1997, respectively.  FKCC
provides  capital  for Kentucky based businesses for both start-up companies and
for  expansion  of existing businesses.  Investments may take the form of loans,
guarantees, commitments, equity, or joint venture agreements, or any combination
thereof.

On  June  16,  1999,  FKCC  executed a commitment to purchase three units of the
Prosperitas  Investment  Partners, LP ("Prosperitas") for $450,000.  Prosperitas
is  a venture capital fund based in Louisville, Kentucky.  An initial payment of
$22,500,  which  represents  5%  of  the  total  investment,  was  paid upon the
execution  of  the  subscription  agreement.  Upon receipt by Prosperitas of the
Small  Business Investment Company ("SBIC") license from the U.S. Small Business
Association,  an  additional  $127,500 was invested. An additional investment of
$150,000  was  made  during  2001.   The  investment  at  December  31, 2001 was
$300,000  with  the  remaining  amount  of  the  commitment  due  on  the fourth
anniversaries  of  the initial capital contribution, however the general partner
has  the  right  to  accelerate  or  delay  capital  calls.

2.  SIGNIFICANT  ACCOUNTING  POLICIES

Basis  of  Presentation

The  accompanying  consolidated  financial  statements  have  been  prepared  in
accordance  with  generally accepted accounting principles ("GAAP") which differ
from  statutory  accounting practices prescribed or permitted by the KDI and the
Louisiana  Department  of  Insurance  ("LDI").

                                       25
<PAGE>

                        FIRST ALLIANCE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Principles  of  Consolidation

The  accompanying  consolidated  financial  statements  include the accounts and
operations  of  the  Company,  FAIC,  FKCC,  AIM, KIM and BCLIC from its date of
acquisition  December  31,  1999 through date of disposition, February 28, 2001.
All  intercompany  accounts  and  transactions  are eliminated in consolidation.

Reclassifications

Certain reclassifications have been made in the prior years financial statements
to  conform  to  current  year  classifications.  These reclassifications had no
effect  on  previously  reported  net  income  or  shareholder  equity.

Managements  Estimates

The  preparation  of  financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect  amounts  reported  in  the  financial statements and accompanying notes.
Actual  results  could  differ  from  those  estimates.

Investments

The  Company  classifies all of its fixed maturity and equity securities, except
equity  securities of related parties as available-for-sale.  Available-for-sale
securities  are  carried  at fair value with unrealized gains and losses, net of
applicable deferred taxes, reported in other comprehensive income.  Policy loans
are  carried  at  unpaid  balances.  Notes  receivable  are  carried  at  unpaid
principal  balance,  net of allowance for uncollectible amounts.  Other invested
assets  are carried at cost.  Cash and cash equivalents consist of highly liquid
investments  with maturities of three months or less at the date of purchase and
are  also  carried  at  cost  which approximates fair value.  Realized gains and
losses  on  sales  of  investments  are recognized in operations on the specific
identification basis.  Interest and dividends earned on investments are included
in  net  investment  income.

Investments  in  related  parties  are  carried at cost except the investment in
First Computer Services, LLC ("FCS") is carried on an equity basis (see Note 7).

Office  Furniture  and  Equipment

Office furniture and equipment is recorded at cost less accumulated depreciation
using  principally  the  200% declining balance method over the estimated useful
life  of  the  respective  assets.  Accumulated  depreciation  was  $129,027 and
$116,975  at  December  31,  2001  and  2000,  respectively.

Office  Lease

The  Company  leases  approximately  6,100 square feet located at 2285 Executive
Drive, Lexington, Kentucky.  The lease expires on January 31, 2002.  Annual rent
expense  for  the years ended December 31, 2001, 2000 and 1999 totaled $101,208,
$91,268  and  $87,386,  respectively.

Deferred  Policy  Acquisition  Costs

Commissions  and  other  costs of acquiring life insurance, which vary with, and
are  primarily  related  to, the production of new insurance contracts have been
deferred  to  the  extent  recoverable  from  future  policy  revenues and gross
profits.  The  acquisition  costs  are  amortized  over  the life of the related
policies  using  assumptions  consistent  with  those  used  in computing policy
reserves.

Goodwill  and  Value  of  Insurance  Acquired

Goodwill  represents the excess of the purchase price of purchased subsidiaries,
over  amounts  assigned  (based  on  estimated  fair  values  at  the  date  of
acquisition)  to  the  identifiable  net assets acquired.  Goodwill is amortized
over 20 years.  At December 31, 2001 there is no accumulated amortization due to
the  sale  of  BCLIC.  At December 31, 2000 accumulated amortization was $7,949.

                                       26
<PAGE>

                 FIRST ALLIANCE CORPORATION

          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


Value  of  insurance acquired is recorded at the estimated value assigned to the
insurance  in force of the purchased subsidiary at the date of acquisition.  The
assigned value is amortized over the expected remaining life of the insurance in
force.   At  December  31,  2001 there is no accumulated amortization due to the
sale  of  BCLIC.   At  December  31,  2000  accumulated amortization was $4,087.

Life  Policy  Reserves

The  liabilities  for  future  policy  benefits  on the Company's life insurance
products  are  computed using the net level premium method and assumptions as to
investment  yields,  mortality,  withdrawals  and other assumptions, modified as
necessary  to  reflect anticipated trends and to include provisions for possible
unfavorable  deviations.  The  assumptions  utilized  were  7.25% for investment
yields, 1975-1980 select and ultimate tables for mortality, and Linton BA tables
for  withdrawal  rates.

Annuity  Contract  Liabilities

Annuity contract liabilities are computed using the retrospective deposit method
and  consist  of  policy  account  balances, before deducting surrender charges,
which  accrue  to  the  benefit  of policyholders.  Premiums received on annuity
contracts  are  recognized  as  an  increase  in a liability rather than premium
income.  Interest  credited  on  annuity  contracts is recognized as an expense.

Liability  for  Policy  Claims

Policy  claim  liabilities  are based on known liabilities plus estimated future
liabilities  developed  from  trends  of  historical  data  applied  to  current
exposures.

Policyholder  Deposits

Policyholder  deposits  consist  primarily  of  premium  and  dividend deposits.
Policyholder  premium  deposits  represent  premiums received for the payment of
future  premiums  on  existing  policyholder contracts.  Interest is credited on
these  deposits  at  the  rate of 6%.  The premium deposits are recognized as an
increase  in  a  liability  rather  than  premium income.  Policyholder dividend
deposits  represent dividends paid to policyholders of BCLIC that have been left
with  the  company to earn interest.  Interest was credited on these deposits at
the  rate  of  4%.  Interest  credited  on  premium  and  dividend  deposits  is
recognized  as  an  expense.

Participating  Insurance

FAIC's  former  subsidiary,  BCLIC, had $6,106,000 of participating insurance in
force at December 31, 2000.  Participating insurance represents 40.1% of BCLIC's
inforce  at December 31, 2000, and 2.8% of all insurance inforce at December 31,
2000,  and  91.5% of BCLIC's premium income at December 31, 2000 and 1.3% of all
premium  income at December 31, 2000.  Participating dividends are determined at
the  discretion  of  the board of directors.  No dividends were paid during 2001
and  2000.

Premiums

Life  insurance premiums for limited payment contracts are recorded according to
Statement  of  Financial  Accounting
Standard  (SFAS)  No. 97, "Accounting and Reporting by Insurance Enterprises for
Certain  Long-Duration Contracts and for Realized Gains and Losses from the Sale
of  Investments."  Any  gross  premium  in excess of net premium is deferred and
recognized  in  income  in  a  constant  relationship  with  insurance in force.

Federal  Income  Taxes

The  Company uses the liability method of accounting for income taxes.  Deferred
income  taxes are provided for cumulative temporary differences between balances
of  assets  and  liabilities  determined  under  generally  accepted  accounting
principles  and  balances  determined  for  tax  reporting  purposes.

                                       27
<PAGE>

                         FIRST ALLIANCE CORPORATION

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


Reinsurance

Estimated reinsurance receivables are reported as assets and are recognized in a
manner  consistent  with  the  liabilities  related  to the underlying reinsured
contracts,  in  accordance  with  Statement  of  Financial  Accounting Standards
("SFAS")  No.  113,  "Accounting and Reporting for Reinsurance of Short-Duration
and  Long-Duration  Contracts."

Common  Stock

Common  stock  has  no  par  value  and  a  stated  value  of  $.10  per  share.

Earnings  Per  Share

Net  income  (loss) per common share for basic and diluted earnings per share is
based  upon  the weighted average number of common shares outstanding during the
year.  The  weighted  average outstanding common shares was 5,450,168, 5,602,062
and  5,645,035  during  2001,  2000  and  1999,  respectively.

Comprehensive  Income

As  of  January  1,  1998, the Company adopted Statement of Financial Accounting
Standards  ("SFAS")  No.  130,  "Reporting  Comprehensive  Income". SFAS No. 130
establishes  new rules for the reporting and display of comprehensive income and
its  components;  however,  the  adoption of this statement had no impact on the
Company's  net  income  or  total  shareholders'  equity.  SFAS No. 130 requires
unrealized gains and losses on the Company's available-for-sale securities to be
included  in  other  comprehensive  income.

3.  ACQUISITION  OF  BENEFIT  CAPITAL  LIFE  INSURANCE  COMPANY

On  December  30,  1999, FAIC, a subsidiary of the Company, acquired 100% of the
common  stock  of  Benefit  Capital  Life Insurance Company from an unaffiliated
insurance  holding company ("the BCLIC Acquisition").  The BCLIC Acquisition was
accounted  for  as  a  purchase.  Results  of  operations  are  included  in the
consolidated  statements  from the date of acquisition through February 28,2001.

The  aggregate  purchase  price  for  the  BCLIC  Acquisition  was approximately
$636,000  (including  net  cost associated with the acquisition of approximately
$54,000).  The  BCLIC  acquisition was financed with the working capital of FAIC
and 25,000 shares of Company stock valued at $62,500.  A capital contribution of
$37,000  was  made  during  2000.

4.  PURCHASE  OF  FAC  STOCK  AND SALE OF BENEFIT CAPITAL LIFE INSURANCE COMPANY

On  June 27, 2000, the Company purchased 132,000 shares of FAC common stock from
Chris  Haas ("Haas"), former Chairman of the Board of the Company, for $2.49 per
share for an aggregate purchase price of  $328,680 and entered into an agreement
with  Haas  to  exchange  all  the outstanding common capital stock of BCLIC for
268,000  shares of FAC common stock.  FAC purchased BCLIC from FAIC for $670,000
cash and FAC exchanged BCLIC for 268,000 shares of FAC stock.  The sale of BCLIC
to Haas was completed on March 5, 2001.  BCLIC's 2001 operating results included
in  the  consolidated  statements  of  operations  were  revenues of $15,364 and
benefits,  losses,  and  expenses  of  $20,789.

                                       28
<PAGE>

                       FIRST ALLIANCE CORPORATION

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

5.  INVESTMENTS

The  amortized cost and fair value of investments in fixed maturities and equity
securities  at  December  31,  2001,  2000  and  1999 are summarized as follows:

Investments
<TABLE>
<CAPTION>
                                                          Gross        Gross
                                            Amortized    Unrealized   Unrealized     Fair
                                                Cost        Gains       Losses       Value
                                             ----------  -----------  ----------  -----------
<S>                                           <C>         <C>          <C>          <C>
'December 31, 2001:
Fixed maturities
  U.S. government bonds                       $4,430,590  $   281,899  $         -  $4,712,489
  Municipal bonds                                749,887       18,699            -     768,586
  Corporate bonds                              3,350,040       86,211       22,422   3,413,829
                                              ----------  -----------  ----------  -----------
Total                                         $8,530,517  $   386,809  $    22,422  $8,894,904
                                              ----------  -----------  ----------  -----------
Equity securities                             $2,324,377  $       763  $ 1,225,433  $1,099,707
                                              ==========  ===========  ===========  ==========
December 31, 2000:
Fixed maturities
  U.S. government bonds                       $5,292,461  $   171,427  $     9,621  $5,454,267
  Municipal bonds                                749,771        4,647          476     753,942
  Corporate bonds                              2,506,275       23,445        3,529   2,526,191
                                              ----------  -----------  ----------  -----------
Total                                         $8,548,507  $   199,519  $    13,626  $8,734,400
                                              ----------  -----------  ----------  -----------
Equity securities                             $3,168,318  $   147,725  $ 1,183,948  $2,132,095
                                              ==========  ===========  ===========  ==========

December 31, 1999
Fixed maturities
  U.S. government bonds                       $5,290,951  $     1,119  $    70,633  $5,221,437
  Municipal bonds                                779,662        1,365       16,345     764,682
  Corporate bonds                              2,826,484          277       38,272   2,788,489
                                              ----------  -----------  ----------  -----------
Total                                         $8,897,097  $     2,761  $   125,250  $8,774,608
                                              ----------  -----------  ----------  -----------
Equity securities                             $  382,588  $    46,899  $    21,606  $  407,881
                                              ==========  ===========  ===========  ==========

</TABLE>

The  amortized  cost and fair value of fixed maturities at December 31, 2001, by
contractual  maturity,  are  shown  below.  Actual  maturities  may  differ from
contractual  maturities  because certain borrowers may have the right to call or
prepay  obligations.
<TABLE>
<CAPTION>
                                           Amortized      Fair
                                             Cost        Value
                                          ------------  ------------
<S>                                       <C>           <C>
Due in one year or less                   $1,182,553  $1,210,718
Due after one year through five years      5,624,121   5,954,188
Due after five years through ten years       776,331     804,908
Due after ten years                          947,512     925,090
                                          ----------  ----------
                                          $8,530,517  $8,894,904
                                          ==========  ===========
</TABLE>

The  fair  values for investments in fixed maturities are based on quoted market
prices.

Included in investments are securities which have a fair value of $13,971,484 at
December  31,  2001  which  are  on  deposit  with  the  KDI.

                                       29
<PAGE>

                        FIRST ALLIANCE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


5.  INVESTMENTS  (CONTINUED)

The Company limits credit risk by emphasizing investment grade securities and by
diversifying  its  investment  portfolio  among  government, states, municipals,
political  subdivisions  and  corporate bonds.  As a result, management believes
that  significant  concentrations  of  credit  risk  do  not  exist.

At  December  31, 2001, the Company had $4,159 of notes receivable that had been
non-income  producing  for  the  twelve  months  prior  to  December  31,  2001.

On  March  31,  1997, the Company purchased 200,000 shares of Paradise Plus USA,
Inc.  and  200,000  shares  of  Paradise  Plus Holding Company, Inc. for a total
investment  of  $20,000  or $.05 per share.  Each company is offering a total of
700,000  shares  of  its  no  par value common stock through a private placement
stock  offering.  As  these shares represent organizer shares and are restricted
under  Rule  144  of the Act, the common stock investments have been recorded at
cost.  In  addition,  the  Company  executed  a $100,000 promissory note bearing
interest  at  an annual rate of 8.5% with Paradise Plus Holding Company, Inc. on
March 5, 1997.   A valuation allowance of $143,082 was established.  At December
31,  2000,  the unpaid principal balance on this note was $144,334.  During 2001
the  note  was  written  off  as  uncollectible.

Effective  June  14,  2001  the  Company  sold  an 8% interest in KBA to KBA for
$350,000.  Under  the terms of the sale, KBA issued a 12% promissory note in the
amount  of  the  sale  price.  The note is interest only until May 1, 2002.  The
interest  rate on the note decreases to 10% effective May 1, 2002.  The note and
accrued  interest  are to be paid in thirty-six equal monthly payments beginning
June  1,  2002  and  the  balance  is  due May 31, 2005.  The thirty-six monthly
payments  are  based  on  a  sixty  month-amortization  schedule.

On  May  2,  2000,  the  Company  entered  into an agreement with Ken Belsky and
Associates,  LLC  to  provide  a  credit  facility  of  600,000 at a 10% rate of
interest to KBA.  Advances under the credit facility may be made as follows: (i)
$300,000  as  of the closing date through March 31, 2001 and (ii) $300,000 as of
the  satisfaction  of  the  funding  conditions  through March 31, 2001, funding
conditions  were  met on March 10, 2000.  Upon the Company's advance to Borrower
of  the  first  $100,000,  Borrower  will  issue  a  one percent (1%) membership
interest  in Borrower to the Company and upon the Company's advance to borrow of
any  amount in excess of $300,000, Borrower will issue an additional one percent
(1%)  membership  interest  in  Borrower to the Company.  Principal and interest
under  the credit facility shall be due and payable as follows: monthly payments
of  interest  only on the outstanding balance of the loans through March 1, 2001
and  then  principal  and  interest will be payable in thirty (30) equal monthly
installments beginning April 1, 2001.  Prior to June 14, 2001, $250,000 had been
loaned  pursuant  to  the  agreement.

On June 14, 2001, the Company and KBA agreed to terminate the original agreement
for  the  Company  to  provide  a credit facility to KBA and to amend and modify
KBA's  $250,000  note.  The  Company  loaned  KBA an additional $50,000 bringing
total  loans to borrower to $300,000.  No payments of principal or interest will
be  due  on  the loan until April 1, 2002.  Interest shall accrue on the note at
the  rate  of 12% per annum through February 28, 2002.  The interest rate on the
note  decreases  to  10%  effective  March 1, 2002.  Beginning April 1, 2002 the
adjusted  principal  balance due plus accrued and unpaid interest are to be paid
in thirty-six equal monthly payments and the balance is due March 31, 2005.  The
thirty-six  monthly  payments  are based on a sixty-month amortization schedule.

Gross  gains  of  $9,548,  $4,773  and  $205  were  realized  on  the  sale  of
available-for-sale  fixed  maturity  investments  during  2001,  2000  and 1999,
respectively and gross losses of $3,749 and $38,524 were realized on the sale of
available-for-sale  fixed maturity investments during 2001 and 2000.  There were
no  realized  investment  losses  during  1999.

Gross  gains  of  $75,977 and $115,587 and gross losses of $228,782 and $228,254
were  realized  on  the sale of available-for-sale equity securities during 2001
and  2000,  respectively.  There  were no realized investment gains or losses on
the  sale  of  available-for-sale  equity  securities  during  1999.

As  of  December  31, 2001, 2000 and 1999, the Company had recorded an allowance
for  uncollectible  accounts  on  notes  receivable  of  $116,616,  $149,698 and
$149,698.


                                       30
<PAGE>
                        FIRST ALLIANCE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


5.  INVESTMENTS  (CONTINUED)

The  following  are  the  components  of  net  investment  income:

Net  Investment  Income
<TABLE>
<CAPTION>
                                                  Years ended December 31,
                                                 2001       2000       1999
                                               --------  ---------  ----------
<S>                                            <C>        <C>        <C>
Fixed maturities                               $525,291   $588,308   $339,448
Equity securities                                10,691     15,153        286
Notes receivables                                77,956     17,043     18,801
Short-term and other investments                144,844    138,328    319,624
                                               --------  ---------  ----------
Gross investment income                         758,782    758,832    678,159
Investment expenses                             (20,543)   (50,457)   (18,850)
                                               ---------  ---------  ---------
Net investment income                          $738,239   $708,375   $659,309
                                               ========   ========  =========
</TABLE>


6.  CONCENTRATIONS  OF  CREDIT  RISK

Credit  risk  is  limited  by  emphasizing  investment  grade  securities and by
diversifying  the  investment portfolio among government, special revenue public
utility  and  corporate  bonds.  The Company has not experienced any significant
losses  in  such  investments  and believes it is not exposed to any significant
credit  risk.   The  Company  and  its  subsidiaries  maintain  cash balances at
several  financial  institutions.  The  Federal  Deposit  Insurance  Corporation
insures  accounts  up  to  $100,000  at  each  institution.  Uninsured  balances
aggregate  $720,709  at  December 31, 2001.  The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant credit
risk  on  cash  and  cash  equivalents.

7.  INVESTMENTS  IN  AND  RECEIVABLES  FROM  RELATED  PARTIES

The  Company  holds  investments  in related parties of $371,276 and $237,500 at
December  31,  2001  and  2000,  respectively.  Of  these  amounts, $262,500 and
$237,500  represent  organizer shares purchased in the initial private placement
of  the  respective  entity  at December 31, 2001 and 2000, respectively.  These
investments  are  restricted  under  Rule  144  of the Act.  There are no quoted
market  prices  for these investments.  These investments are carried at cost in
the  accompanying  consolidated  balance  sheets.  The  remaining  $108,776  at
December  31,  2001  represents  the  Company's  investment  in  First  Computer
Services,  LLC  ("FCS").  The company uses the equity method to account for this
investment.  The Company also had receivables from these entities of $48,038 and
$35,675  at  December  31,  2001  and  2000,  respectively.

On  August  8, 1996, the Company purchased 525,000 shares of the common stock of
First  American Capital Corporation ("FACC") of Topeka, Kansas, for $52,500.  On
January 15, 1999, FACC completed its public stock offering raising total capital
of  $14,562,000.  The proceeds of the public offering were used to form a Kansas
domiciled  life  insurance company, First Life America Corporation.  The Company
owns  9.7%  of  the  outstanding  common stock of FACC at December 31, 2001.  At
December  31,  2001  and  2000, the Company had accounts receivable from FACC of
$18,022  and  $18,047,  respectively.

On  August  8, 1996, the Company purchased 725,000 shares of the common stock of
Mid-American  Alliance  Corporation  ("MAAC")  of  Jefferson City, Missouri, for
$72,500.  MAAC  has raised total capital of $10,832,840 from the sale of private
placement  shares  and  through  a  $16,000,000 Missouri intrastate public stock
offering.  The  Company owns approximately 11.9% of the outstanding common stock
of  MAAC at December 31, 2001   On December 31, 1997, MAAC acquired Mid American
Century  Life  Insurance Company ("MACLIC"), a Missouri domiciled life insurance
company.  These shares are not registered under the Securities Act of 1933, they
are  subject  to  restrictions  on  transferability  and  resale  and may not be
transferred  or  resold  except  as permitted under the act and applicable state
securities  laws,  pursuant  to  registration  or  exemption  therefrom.  Scott
Engebritson,  Company Vice-Chairman, is Chief Executive Officer and President of
MAAC.  Thomas Evans, Company Secretary and Treasurer, is Assistant Secretary and
Treasurer  of  MAAC.  At  December  31,  2001 and 2000, the Company had accounts
receivable  from  MAAC  of  $10,963  and  $10,119,  respectively.

                                       31
<PAGE>

                        FIRST ALLIANCE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


7.  INVESTMENTS  IN  AND  RECEIVABLES  FROM  RELATED  PARTIES  (CONTINUED)

On  June  12,  2000, the Company purchased, through a private placement, 585,000
shares  of  no  par  value Class A common stock of Integrity Capital Corporation
("ICC")  of  Indianapolis,  Indiana  for $58,500.  At December 31, 2001, ICC had
raised  $860,000  from  the sale of private placement shares and $2,215,730 from
its  public  offering.  After  ICC's  private placement and public offerings are
complete,  the  Company will own approximately 9.75% of the common stock.  These
shares  are not registered under the Securities Act of 1933, they are subject to
restrictions  on transferability and resale and may not be transferred or resold
except as permitted under the Act and applicable state securities laws, pursuant
to  registration  or  exemption  therefrom.  Michael Fink, Company President, is
Chairman  of the Board of ICC and Thomas Evans, Company Secretary and Treasurer,
is  Secretary  and  Treasurer of ICC.  At December 31, 2001 and 2000 the Company
had  accounts  receivable  from  ICC  of  $5,027  and  $573,  respectively.

On  July  6,  2000,  the Company purchased, through a private placement, 540,000
shares  of no par value Class A common stock of Mid-Atlantic Capital Corporation
("MCC")  of Charleston, West Virginia for $54,000.  At December 31, 2001 MCC had
raised  $850,000  from  the sale of private placement shares and $1,120,100 from
its  public  offering.  After  MCC's  private placement and public offerings are
complete,  the  Company will own approximately 9.75% of the common stock.  These
shares  are not registered under the Securities Act of 1933, they are subject to
restrictions  on transferability and resale and may not be transferred or resold
except as permitted under the Act and applicable state securities laws, pursuant
to  registration  or  exemption  therefrom.  Michael  Fink, Company President is
Co-Chairman  of the Board of MCC.  At December 31, 2001 and 2000 the Company had
accounts  receivable  from  MCC  of  $8,000  and  $2,782,  respectively.

On  August 16, 2001, the Company purchased, through a private placement, 250,000
shares  of  no  par  value  Class  A  common  stock of Arkansas Security Capital
Corporation  ("ASCC") of Springdale, Arkansas for $25,000.  At December 31, 2001
ASCC  had raised $240,000 from the sale of private placement shares.  ASCC plans
to  conduct  another  private placement of $600,000 in March of 2002.  ASCC then
plans  to register an Arkansas intrastate public offering of $12,000,000.  These
shares  are not registered under the Securities Act of 1933, they are subject to
restrictions  on transferability and resale and may not be transferred or resold
except as permitted under the Act and applicable state securities laws, pursuant
to  registration  or  exemption  therefrom.  Scott  Engebritson,  Company
Vice-Chairman  is  Chairman  of  the  Board  of  ASCC.

During  2001,  the  Company purchased a 50% interest in First Computer Services,
LLC  ("FCS").  FCS  owns  the  computer  hardware  and  software that operates a
Company  policy  administration,  underwriting, claim processing, and accounting
system.  Mike  Fink,  President  of  the  Company is Vice President of FCS.  The
Company  uses  the  equity method to account for this investment, which is owned
jointly  by  the Company and First American Capital Corporation.  As of December
31,  2001,  the  carrying value of the FCS investment was $108,776.  This amount
represents  an initial investment of $115,195 reduced by a net operating loss of
$6,419.  At  December  31,  2001,  FCS  had assets of  $217,552, no liabilities,
equity  of  $217,552,  and  a  net  loss  from  operations  of  $12,838.

8.  VENTURE  CAPITAL  SUBSIDIARY  INVESTMENTS

FKCC  purchased  newly  issued  common  stock  of  MAC,  Lexington,  Kentucky,
representing  a  51%  interest,  for  $50,000  on April 12, 1996.  MAC purchased
receivables  from  medical  providers at a discount.  On December 31, 1997, FKCC
entered  into  an  agreement  to sell its interest in MAC for $8,000 in cash and
notes  receivable  of $147,049.  Due to the uncertainty of collectability of the
notes,  the Company has a valuation allowance of $6,616 at December 31, 2001 and
2000.  The  unpaid balance on this agreement was $6,616 at December 31, 2001 and
2000.

On  June  16,  1999, First Kentucky Capital Corporation executed a commitment to
purchase  three units of the Prosperitas Investment Partners, LP ("Prosperitas")
for  $450,000.  Prosperitas  is  a  venture  capital  fund  based in Louisville,
Kentucky.  An  initial  payment of $22,500, which represents five percent of the
total investment, was paid upon the execution of the subscription agreement.  On
November  29,  1999  a  payment  of  $127,500 was made and on January 31, 2001 a
$150,000  payment  was made.  The total investment at December 31, 2001 and 2000
was $300,000 and $150,000, respectively.  The remaining amount of the commitment
is  due  on  the fourth anniversary of the initial capital contribution, however
the  general  partner  has  the  right  to  accelerate  or  delay capital calls.


                                       32
<PAGE>

                        FIRST ALLIANCE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

9.  FEDERAL  INCOME  TAXES

The Company files a consolidated federal income tax return with FKCC and AIM but
does  not  file  a  consolidated  return  with  FAIC.  FAIC  is  taxed as a life
insurance  company  under  the  provisions  of the Internal Revenue Code and was
required  to  file a separate tax return for its initial six years of existence.
Federal  income tax expense for the years ended December 31, 2001, 2000 and 1999
consisted  of  the  following:
<TABLE>
<CAPTION>

                                                                    Years ended December 31,
<S>                                                           <C>          <C>       <C>
                                                                 2001      2000      1999
                                                              -----------  --------  --------
Current                                                       $       274  $ 35,568  $ 23,757
Deferred                                                          431,453   225,431   230,783
                                                              -----------  --------  --------
Federal income tax expense                                    $   431,727  $260,999  $254,540
                                                              ===========  ========  =========
</TABLE>

Federal  income  tax  expense  differs  from the amount computed by applying the
statutory  federal  income  tax  rate  of  35%  as  follows:
<TABLE>
<CAPTION>
                                                                    Years ended December 31,
                                                                   2001      2000       1999
                                                               ---------  ---------  ---------
<S>                                                             <C>       <C>        <C>
Federal income tax expense (benefit) at statutory rate          $ 98,877  $ 68,380   $134,306
Small life insurance company deduction                                 -   (72,666)   (60,672)
Increase in valuation allowance                                   99,432   243,596    180,759
Surtax exemptions                                                      -    (9,626)   (10,802)
Other                                                            233,418    31,315     10,949
                                                               ---------  ---------  ---------
Federal income tax expense                                     $ 431,727  $260,999   $254,540
                                                               =========  =========  =========
</TABLE>
Deferred  federal  income  taxes  reflect  the  impact  of temporary differences
between  the  amount  of assets and liabilities for financial reporting purposes
and  such  amounts  as  measured  by  tax  laws  and  regulations.

Significant  components  of  the  Company's  net  deferred  tax liability are as
follows:

<TABLE>
<CAPTION>
                                                                          December 31,
                                                                       2001           2000
                                                                  --------------  ------------
<S>                                                               <C>             <C>
Deferred tax liability:
  Deferred policy acquisition                                     $   1,306,311   $   882,152
  Due and deferred premiums                                              46,581        46,929
                                                                  -------------   ------------
Total deferred tax liability                                          1,352,892       929,081

Deferred tax asset:
  Policy reserves and contract liabilities                               10,943        20,283
  Unearned revenue                                                       22,142        24,700
  Reinsurance premiums                                                   23,415        19,159
  Net unrealized investment losses                                      301,100       289,113
  Net operating loss carry forward                                    1,680,824     1,581,392
  Alternative minimum tax credit carry forward                           44,846        44,846
                                                                  -------------   ------------
Total deferred tax asset                                              2,083,270     1,979,493
Valuation allowance                                                  (1,725,670)   (1,626,238)
                                                                  --------------  ------------
Net deferred tax asset                                                  357,600       353,255
                                                                  -------------   ------------
Net deferred tax liability                                        $     995,292   $   575,826
                                                                  =============   ============
</TABLE>

The  Company  has net operating loss carry forwards of approximately $4,804,481,
expiring  in 2009 through 2021.  These net operating loss carry forwards are not
available  to  offset  FAIC  income.  FAIC  has  alternative  minimum  tax


                                       33
<PAGE>

                        FIRST ALLIANCE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



9.  FEDERAL  INCOME  TAXES  (CONTINUED)

credit carry forwards of $44,846, which have no expiration date.  Federal income
taxes  paid  during  2000  and  1999 were $16,000 and $26,000, respectively.  No
federal  income  tax  was  paid  during  2001.

10.   SHAREHOLDERS'  EQUITY  AND  STATUTORY  ACCOUNTING  PRACTICES

The  insurance  subsidiary  is  domiciled  in  Kentucky  and  prepares  its
statutory-basis  financial  statements  in  accordance with statutory accounting
practices  ("SAP")  prescribed  or  permitted  by  the  Kentucky  Department  of
Insurance.   Currently,  "prescribed"  statutory  accounting  practices  include
state  insurance laws, regulations, and general administrative rules, as well as
the  National  Association  of  Insurance  Commissioners  ("NAIC")  Accounting
Practices  and  Procedures  Manual  and  a  variety  of other NAIC publications.
"Permitted"  statutory  accounting  practices encompass all accounting practices
that  are  not  prescribed;  such  practices may differ from state to state, may
differ  from  company  to  company within a state, and may change in the future.
Effective  January  1,  2001,  the  Kentucky  Department  of  Insurance required
companies  domiciled  in  the  State  of  Kentucky prepare their statutory basis
financial  statements  in  accordance  with  the  NAIC  Accounting Practices and
Procedures manual - version effective January 1, 2001, subject to any deviations
prescribed  or  permitted  by  the  State  of  Kentucky  insurance commissioner.
Accounting  changes  adopted to conform to the provisions of the NAIC Accounting
Practices  and  Procedures  manual  -  version  effective  January  I, 2001, are
reported  as  changes  in  accounting principles and an adjustment to unassigned
funds  (surplus).  The  cumulative effect of the change in accounting principles
was  $45,828.

Net income for 2001, 2000 and 1999 and capital and surplus at December 31, 2001,
2000  and  1999  for  the  Company's  insurance  operations as reported in these
financial  statements  prepared  in  accordance with GAAP as compared to amounts
reported  in  accordance with SAP prescribed or permitted by the KDI and LDI are
as  follows:
<TABLE>
<CAPTION>
                                         GAAP                    SAP
                                ----------------------  ------------------------
                                             Capital                  Capital
                                  Net          and          Net         and
                                  Income     Surplus       Income      Surplus
                                --------  -----------   ----------  ------------
<S>                             <C>       <C>           <C>         <C>
          2001                  $125,266  $  8,292,869  $(803,962)  $  4,467,627

          2000                  $612,929  $  8,275,892  $  83,479   $  5,564,827

          1999                  $791,210  $  8,154,804  $ 100,989   $  6,460,894
</TABLE>
FAIC carried its investment in BCLIC at cost after deduction for amortization of
goodwill  and  other  intangibles,  and  adjustments  for  subsequent  operating
results.  The  admitted  value  of  FAIC's  investment in BCLIC was $670,000 and
$635,757  at  December  31,  2000  and  1999,  respectively.

Principal  differences  between  GAAP and SAP include: a) costs of acquiring new
policies  are  deferred  and  amortized  for GAAP; b) value of insurance inforce
acquired is established as an asset for GAAP; c) benefit reserves are calculated
using  more realistic investment, mortality and withdrawal assumptions for GAAP;
d)  deferred  income  taxes  are provided for GAAP; e) assets and liabilities of
acquired  companies  are  adjusted to their fair values at acquisition, with the
amount  of  the  purchase price in excess of the fair value recorded as goodwill
under  GAAP;  f)  statutory  asset  valuation  reserves and interest maintenance
reserves  are  not  required for GAAP;  and g) available-for-sale fixed maturity
investments are reported at fair value with unrealized gains and losses reported
as  a  separate  component  of  shareholders'  equity  for  GAAP.

Statutory  restrictions  limit the amount of dividends which may be paid by FAIC
to  the  Company.  Generally,  dividends,  in excess of the lesser of (a) 10% of
statutory  shareholder's  surplus  as  of  the  preceding  December  31,  or (b)
statutory  net  operating  income for the preceding year may not be paid without
prior  regulatory  approval.  In  addition,  FAIC  must  maintain  the  minimum
statutory capital and surplus, $1,250,000, required for life insurance companies
domiciled  in  Kentucky.

                                       34
<PAGE>

                        FIRST ALLIANCE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


10.  SHAREHOLDERS'  EQUITY  AND  STATUTORY  ACCOUNTING  PRACTICES  (CONTINUED)

The  KDI  and  LDI  impose  minimum  risk-based  capital ("RBC") requirements on
insurance  enterprises  that  were  developed  by  the  NAIC.  The  formulas for
determining  the amount of RBC specify various weighing factors that are applied
to  financial  balances  or  various  levels  of activity based on the perceived
degree  of  risk.  Regulatory compliance is determined by ratio (the "Ratio") of
the  enterprises  regulatory  total adjusted capital, as defined by the NAIC, to
its  authorized  control  level  RBC, as defined by the NAIC.  Enterprises below
specific  trigger points or ratios are classified within certain levels, each of
which requires specified corrective action.  FAIC and BCLIC have a Ratio that is
in  excess of the minimum RBC requirements; accordingly, FAIC and BCLIC meet the
RBC  requirements.

11.  REINSURANCE

To  minimize  the  risk of claim exposure, FAIC reinsures all amounts of risk on
any  one  life  in excess of $50,000 for individual life insurance.  Credit life
and  accident  and  health  benefits  and  accidental  death  benefits  are 100%
reinsured.  All amounts of risk in excess of FAIC's retention on individual life
insurance,  except  for  term  insurance  is  ceded  to Business Men's Assurance
Company  ("BMA").  At  December  31,  2001 and 2000, FAIC ceded $103,441,209 and
$78,308,236  of  insurance  inforce and received reserve credits of $478,506 and
$340,172  respectively.  Pursuant  to  the terms of the agreement with BMA, FAIC
pays  no  reinsurance premiums on first year individual business.  However, SFAS
No. 113 requires the unpaid premium to be recognized as a first year expense and
amortized  over the estimated life of the reinsured policies.  FAIC records this
unpaid  premium  as  "Reinsurance  premiums payable" in the accompanying balance
sheet and recognized as  "Reinsurance premiums ceded" in the accompanying income
statement.  At  December 31, 2001, and 2000, the unpaid reinsurance premiums net
of  amortization  totaled  $66,901 and $56,349, respectively.  During 2001, 2000
and  1999, FAIC paid $1,048,594,  $969,589 and $472,735 of reinsurance premiums,
respectively.

BCLIC  reinsured 50% of the risk to $10,000 and 100% of the risk over $10,000 on
any  one  life.  At  December  31,  2000  and  1999,  BCLIC ceded $7,898,481 and
$8,612,671  of  reinsurance in force and received reserve credits of $11,477 and
$13,158.

To  the  extent  that  the  reinsurance  companies  are  unable  to  meet  their
obligations  under  the  reinsurance  agreements,  the Company remains primarily
liable  for  the  entire  amount  at  risk.

12.  RELATED  PARTY  TRANSACTIONS

Effective  November  1,  1995, the Company entered into a service agreement with
FAIC to provide personnel, facilities, and services to FAIC.  The services to be
performed  pursuant to the service agreement are underwriting, claim processing,
accounting,  processing  and servicing of policies, and other services necessary
to  facilitate  FAIC's business.  The agreement was in effect until December 31,
2000,  at  which  time  a  new  management  and  administration agreement became
effective.  Under the agreement in effect for 2000, FAIC paid monthly fees based
on  life  and  annuity  premiums  delivered by FAIC.  The percentages are 25% of
first  year  premiums;  20% of second year premiums; 10% of third year premiums;
and  5%  of  premiums  in  years  four and thereafter.  FAIC will retain general
insurance  expenses  related  to  its  sales  agency, such as agent training and
licensing,  agency  meeting  expenses, and agent's health insurance.   Under the
agreement effective January 1, 2001, FAIC pays actual cost plus a markup of 15%.
The services to be performed are the same under each agreement.  Pursuant to the
terms of the agreements, FAIC had incurred expenses of $2,178,155, $847,530, and
$821,562  for  the  years  ended December 31, 2001, 2000 and 1999, respectively.

The  Company  entered  into  service  agreements  with  FACC  and MAAC effective
September  1,  1996.  Pursuant  to  the  terms  of  the  agreements, the Company
provides,  data  processing,  accounting  and reporting services in return for a
$2,000  per  month  service  fee  from  each  company.

In  December  of  1998, the Company contracted with FACC to provide underwriting
and  accounting  services  for  FLAC and FACC.  The agreement dated September 1,
1996  between  the Company and FACC was terminated with the execution of the new
agreement. Under the terms of the management agreement, the FACC pays fees based
on a percentage of delivered premiums of FLAC.  The percentages are five and one
half  percent  (5.5%)  for  first  year


                                       35
<PAGE>


                        FIRST ALLIANCE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

12.  RELATED  PARTY  TRANSACTIONS  (CONTINUED)

premiums; four percent (4%) of second year premiums; three percent (3%) of third
year premiums; two percent (2%) of fourth year premiums and one percent (1%) for
year  five  and one percent (1%) for years six through ten for ten year policies
and one-half percent (.5%) in years six through twenty for twenty year policies.

In  February  1999,  the  MAAC  fees  increased  to  $3,000  per  month and upon
completion  of  the  their  public stock offering effective April 2000, the fees
decreased  to  $1,000  per  month.

The  Company  entered  into  a service agreement with MACLIC effective April 14,
2000.  Pursuant  to  the  terms  of  the  agreements,  the Company provides data
processing,  accounting,  reporting  services,  policy  underwriting  and  issue
services,  policy  owner  services  and  claims processing in return for fees of
$2,500  per  month  plus  an amount equal to the policy fees collected on MACLIC
insurance  policies.

Effective  October  1,  2000,  the  Company  contracted  with  MAAC  to  provide
accounting  services  to  Security  Alliance  Insurance  Company  ("SAIC"),  a
subsidiary  of  MACLIC.  Under the terms of the service agreement MAAC pays fees
of  $500  per  month  for all months except March, June, September and December,
$750  per  month  for the months of March, June and September and $1,000 for the
month  of  December.

The  Company  entered into service agreements with Integrity Capital Corporation
effective  March  1, 2001 and Mid-Atlantic Capital Corporation on April 1, 2001.
Pursuant  to  the terms of the agreements, the Company provides data processing,
accounting  and  reporting services in return for a $4,000 per month service fee
from  each  entity.

During 2001, the Company purchased a 50% interest in FCS.  FCS owns the computer
hardware  and  software  that  operates  a  Company  policy  administration,
underwriting,  claim  processing,  and  accounting system. The Company's initial
investment in  FCS was $115,195. FACC owns the remaining 50% of FCS.(See Note 7)
<TABLE>
<CAPTION>

                           Service Fees                     Accounts Receivable
               ------------------------------------        ---------------------
Related Party    Years ended December 31,                      December 31,
                    2001         2000         1999              2001     2000
               ----------    ----------     -------        ---------    --------
<S>            <C>           <C>            <C>              <C>        <C>
FACC           $  142,785    $  117,246   $  60,531          $18,022     $18,047
MAAC               19,858        22,500      35,000           10,963      10,119
MACLIC             61,721        34,079           -            6,026       4,154
ICC                40,000             -           -            5,027           -
MCC                36,000             -           -            8,000           -
               ----------    ----------   ---------          -------    --------
Total          $  300,364    $  173,825   $  95,531          $48,038     $32,320
               ==========    ==========   =========          =======     =======
</TABLE>
13.  FAIR  VALUES  OF  FINANCIAL  INSTRUMENTS

The  fair  values of financial instruments, and the methods and assumptions used
in  estimating  their  fair  values,  are  as  follows:

Fixed  Maturities

Fixed  maturities  are  carried  at  fair value in the accompanying consolidated
balance  sheets.  The  fair  value of fixed maturities is based on quoted market
prices.  At  December  31, 2001 and 2000, the fair value of fixed maturities was
$8,894,904  and  $8,734,400,  respectively.


                                       36
<PAGE>

                        FIRST ALLIANCE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


13.  FAIR  VALUES  OF  FINANCIAL  INSTRUMENTS  (CONTINUED)

Equity  Securities

The fair values of equity securities are based on market prices where available.
Equity  securities  are  carried  at  fair  value  in the accompanying financial
statements.  At  December  31, 2001 and 2000 the fair value of equity securities
was  $1,099,077  and  $2,132,095,  respectively.

Cash  and  Cash  Equivalents

The  carrying  values of cash and cash equivalents approximate their fair value.
At  December  31, 2001 and 2000, the fair value of cash and cash equivalents was
$5,902,785  and  $4,044,915,  respectively.

Notes  Receivable

The  carrying  amount  of  notes  receivable  approximates their fair value.  At
December  31,  2001 and 2000 the fair value of notes receivable was $770,280 and
$569,788,  respectively.

Policy  Loans

The  carrying  value of policy loans approximates their fair value.  At December
31,  2001  and  2000,  the  fair value of policy loans was $81,911 and $100,687,
respectively.

Other  Invested  Assets

The  carrying  value of other invested assets approximates their fair value.  At
December  31, 2001 and 2000 the fair value of other invested assets was $425,000
and  $510,000,  respectively.

Investments  in  Related  Parties

The  Company  holds  investments  in related parties of $262,500 and $237,500 at
December 31, 2001 and 2000, respectively.  These investments represent organizer
shares purchased in the initial private placement of the respective entities and
are  restricted  under  Rule  144  of the Act.  Accordingly, there are no quoted
market  prices  for these investments.  These investments are carried at cost in
the accompanying consolidated balance sheets. The remaining $108,776 at December
31,  2001  represents  the  Company's investment in First Computer Services, LLC
("FCS").  The  company  uses  the  equity method to account for this investment.
(See Note 7)

Investment  Contracts

The carrying value of investment-type fixed annuity contracts approximates their
fair  value.  At  December  31, 2001 and 2000, the fair value of investment-type
fixed  annuity  contracts  were  $7,148,568  and  $4,629,330,  respectively.

14.  STOCK  COMPENSATION  PLAN

The  Company  adopted  a  stock  compensation plan on June 7, 1999.  The maximum
number  of shares to be awarded under the plan is 500,000.  Participants are any
employee,  director,  officer,  consultant  or  advisor  of  the  Company or its
subsidiaries  or  who  derive  more  than  50% of their annual income from those
entities  ("Insurance Agents").  Stock may be granted under the plan for present
or  past  services  rendered,  future  services to be rendered, or as bonuses in
recognition  of past service or performance.  The stock acquired pursuant to the
plan is non-transferable for a period of two years from the date of acquisition.
At  December  31,  2001  no  grant  had  been  made  under  the  plan.

                                       37
<PAGE>

                        FIRST ALLIANCE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


15.  COMPREHENSIVE  INCOME

In  1999,  the  Financial  Accounting  and  Standards  Board issued Statement of
Financial  Accounting  Standard  ("SFAS")  No.  130,  "Reporting  Comprehensive
Income."  SFAS 130 requires the detail of comprehensive income for the reporting
period  be disclosed in the financial statements.  Comprehensive income consists
of net income or loss for the current period adjusted for income, expenses gains
and  losses  that  are  reported as a separate component of shareholders' equity
rather  than in the statement of operations.  The financial statements have been
prepared  in  accordance  with  SFAS  130.

The  components  of  comprehensive income along with the related tax effects are
presented  for  2001,  2000  and  1999  as  follows:

<TABLE>
<CAPTION>
                                                           2001        2000        1999
                                                        ---------   ----------  ----------
<S>                                                     <C>         <C>         <C>
Unrealized gain on available-for-sale securities:
  Unrealized holding gains/(losses) during the period   $(160,129)  $(791,227)  $(244,669)
    Tax benefit (expense)                                  56,045     269,017      83,186
                                                        ---------   ----------  ----------
                                                         (104,084)   (522,210)   (161,483)
Less:
  Adjustment for gains realized in net income              87,022           -         205
    Tax benefit (expense)                                 (30,458)          -         (70)
    Tax rate adjustment                                    (8,503)          -           -
                                                        ---------   ----------  ----------
                                                           48,061           -         135
Plus:
  Adjustment for losses realized in net income            237,198      38,093           -
    Tax benefit (expense)                                 (83,019)    (12,951)          -
                                                        ---------   ----------  ----------
                                                          154,179      25,142           -
                                                        ---------   ----------  ----------
Other comprehensive income                              $   2,034   $(497,068)  $(161,618)
                                                        =========   ==========  ==========

Net income (loss)                                       $(149,221)  $ (59,881)  $ 140,478
  Other comprehensive income (loss) net of tax effect       2,034    (497,068)   (161,618)
                                                        ---------   ----------  ----------
Comprehensive income/(loss)                             $(147,187)  $(556,949)  $ (21,140)
                                                        =========   ==========  ==========
Net income/(loss) per common share - basic
  and diluted                                           $   (0.03)  $   (0.10)  $       -
                                                        =========   ==========  ==========
</TABLE>

                                       38
<PAGE>


                        FIRST ALLIANCE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


16.  SEGMENT  INFORMATION

 SFAS  No.  131,  "Disclosures  about  Segments  of  an  Enterprise  and Related
Information",  became  effective  for 1998 and superseded SFAS No. 14.  SFAS No.
131  requires  a  "management approach" (how management internally evaluates the
operating  performance  of  its  business units) in the presentation of business
segments.  The  segment  data  that follows has been prepared in accordance with
SFAS  No.  131 which is consistent with prior year presentation.  The operations
of  the  Company  and its subsidiaries have been classified into three operating
segments  as  follows:  life  and  annuity insurance operations, venture capital
operations,  and  corporate  operations.  Segment information as of December 31,
2001,  2000  and  1999  and  for  the  years  then  ended  is  as  follows:
<TABLE>
<CAPTION>

                                                    2001          2000          1999
                                                  -----------   -----------   -----------
<S>                                               <C>           <C>           <C>
Revenues:
  Life and annuity insurance operations           $ 5,484,519   $ 4,235,693   $ 3,882,532
  Venture capital operations                              884             -        30,923
  Corporate operations                                 96,924       245,280       199,834
                                                   -----------   -----------   -----------
    Total                                         $ 5,582,327   $ 4,480,973   $ 4,113,289
                                                  ===========   ===========   ============
Income (loss) before income taxes:
  Life and annuity insurance operations           $   556,993   $   873,928   $ 1,045,750
  Venture capital operations                              (96)            -        30,923
  Corporate operations                               (274,391)     (672,810)     (681,655)
                                                   -----------   -----------   -----------
    Total                                         $   282,506   $   201,118   $   395,018
                                                  ===========   ===========   ============
Assets:
  Life and annuity insurance operations           $22,435,019   $19,163,645   $16,729,347
  Venture capital operations                          309,635       208,766       208,766
  Corporate operations                              1,151,023     1,712,838     2,125,589
                                                   -----------   -----------   -----------
    Total                                         $23,895,677   $21,085,249   $19,063,702
                                                  ===========   ===========   ============
Depreciation and amortization expense:
  Life and annuity insurance operations           $ 1,236,658   $   675,783   $   760,468
  Venture capital operations                                -             -             -
  Corporate operations                                 36,190        17,111        15,708
                                                   -----------   -----------   -----------
    Total                                         $ 1,272,848   $   692,894   $   776,176
                                                  ===========   ===========   ============
</TABLE>

17.  PRIVATE  PLACEMENT  OFFERING

In  February 1999 the Company commenced an offering of 200,000 shares of class A
common stock no par value for $2.50 per share.  The securities are exempted from
registration  in  reliance  on Rule 506 of Regulation D of the Securities Act of
1933  and related exemptions at the state level.  Additionally, these securities
are  restricted  from transfer for thirty months from the date of purchase.  The
shares  of  common  stock  were  offered  directly to potential subscribers on a
direct  participation  basis  by the Company.  The Company completed the sale of
200,000  shares  that  raised  total  proceeds of $500,000 and incurred offering
cost,  including  commissions,  of  $55,608.

In  August  2001  the Company commenced an offering of 500,000 shares of class A
common stock no par value for $3.00 per share.  The securities are exempted from
registration  in  reliance  on Rule 506 of Regulation D of the Securities Act of
1933  and related exemptions at the state level.  Additionally, these securities
are  restricted  from transfer for thirty months from the date of purchase.  The
Company  offered the shares of common stock directly to potential subscribers on
a direct participation basis.  At December 31, 2001, the Company had sold 38,800
shares  that  raised  total  proceeds  of  $116,400  and incurred offering cost,
including  commissions,  of  $37,903.

                                       39
<PAGE>

                        FIRST ALLIANCE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


18.  COMMITMENTS

On  June  16,  1999, First Kentucky Capital Corporation executed a commitment to
purchase  three units of the Prosperitas Investment Partners, LP ("Prosperitas")
for  $450,000.  Prosperitas  is  a  venture  capital  fund  based in Louisville,
Kentucky.  An  initial  payment of $22,500, which represents five percent of the
total investment, was paid upon the execution of the subscription agreement.  On
November  29,  1999  a  payment  of  $127,500 was made and on January 31, 2001 a
$150,000  payment  was made.  The total investment at December 31, 2001 and 2000
was $300,000 and $150,000, respectively.  The remaining amount of the commitment
is  due  on  the fourth anniversary of the initial capital contribution, however
the  general  partner  has  the  right  to  accelerate  or  delay capital calls.

At  June  14,  2001  the  agreement  to  provide  a  credit  facility to KBA was
terminated  and  the  loan  was  restructured  (see  Note  5).

On  June  21,  2000, the Company agreed to purchase 100,000 shares of its common
stock  from  Stephen  T.  Haas  and  Tracy M. Hoggard for $1.50 per share for an
aggregate  purchase price of $150,000, over a period not to exceed 30 months, if
certain  conditions  occur.  On  December  7,  2000 a new purchase agreement was
entered  into  whereby  the  Company will purchase 12,500 shares per quarter for
eight  consecutive  quarters,  beginning  December  7,  2000.  At June 30, 2001,
12,500  shares have been purchased by the Company and the remaining shares to be
purchased under the agreement have been purchased by third parties.  The Company
has  no  obligation  remaining  under  the  agreement



                                       40
<PAGE>


Item  8.     Changes  in  and  Disagreements  with Accountants on Accounting and
             Financial  Disclosure

             None

PART  III

Item  9.     Directors,  Executive  Officers,  Promoters  and  Control  Persons;
             Compliance  With  Section  16(a)  of  the  Exchange  Act

The  information  required  by  this  Item is incorporated by reference from the
Company's  proxy  statement  for  the annual meeting of shareholders to be filed
with the Securities and Exchange Commission by the Company within 120 days after
the  end  of  its  2001  fiscal  year.

Item  10.     Executive  Compensation

The  information  required  by  this  Item is incorporated by reference from the
Company's  proxy  statement  for  the annual meeting of shareholders to be filed
with the Securities and Exchange Commission by the Company within 120 days after
the  end  of  its  2001  fiscal  year.

Item  11.     Security  Ownership  of  Certain  Beneficial Owners and Management

The  information  required  by  this  Item is incorporated by reference from the
Company's  proxy  statement  for  the annual meeting of shareholders to be filed
with the Securities and Exchange Commission by the Company within 120 days after
the  end  of  its  2001  fiscal  year.

Item  12.     Certain  Relationships  and  Related  Transactions

The  information  required  by  this  Item is incorporated by reference from the
Company's  proxy  statement  for  the annual meeting of shareholders to be filed
with the Securities and Exchange Commission by the Company within 120 days after
the  end  of  its  2001  fiscal  year.

Item  13.     Exhibits  and  Reports  on  Form  8-K

    (a) The  following  documents  are  filed  as  part  of  this  form  10-KSB:

    (1) The  audited  consolidated  financial  statements of the Company and its
subsidiaries  and the related report of Independent Auditors listed in the Index
to  Financial  Statements  appearing  under  Item  7  of  this  Form  10-KSB are
incorporated  by  reference  as  set  forth  herein.

    (2) The  exhibits  set  forth  on  the following Exhibit Index are
filed  with  this  report  or are incorporated by reference as set forth herein.

Exhibit  Index
---------------
Exhibit
Number         Name  of  Exhibit
---------      -------------------
3.1            Articles  of  Incorporation,  as  amended  (1)

3.2            By-laws,  as  amended  (1)

4              Instruments  defining  the  rights  of  security  holders,
               including  indentures  (1)

10             Material  Contracts

                 (a)    Lease  (1)
                 (b)    Sub-lease  (2)
                 (c)    Advisory  Board  Contract  (1)


                                       41
<PAGE>



     (d) Service agreement between First Alliance Insurance Company and
         First Alliance  Corporation  (2)
     (e) Management  Employment  Agreements  (2)
     (f) Lease  agreement  dated  February  26,  1999  (3)
     (g) Management  agreement  between  First Alliance Corporation and
         First    American  Capital  Corporation  (4)
     (h) Management and Administration Agreement between First Alliance
         Insurance Company  and  First  Alliance  Corporation
         (filed  herewith)


11   Statement  regarding  computation  of  per  share  earnings  (5)

21.1 List  of  subsidiaries  (filed  herewith)

     (b) Reports  on  Form  8-K

         None

-----------------------------------------------------------------------------
(1)  Filed  as  an Exhibit to the Registrant's Registration Statement on Form
      S-1,  Amendment  Number 4, File Number 33-67312, which was declared
      effective on  March  4,  1994, and incorporated  herein  by  reference.

(2)  Filed  as  an  Exhibit  to  the Registrant's 1995 Form 10-K, File Number
     33-67312,  and  incorporated  herein  by  reference.

(3)  Filed  as  an  Exhibit  to  the Registrant's 1998 Form 10-K, File Number
     33-67312,  and  incorporated  herein  by  reference.

(4)  Filed  as  an  Exhibit to the Registrant's 2000 Form 10-KSB, File Number
     33-67312,  and  incorporated  herein  by  reference

(5)  Note  2  in  Notes to Consolidated Financial Statements included in this
     Report  beginning  on  Page  28



                                       42
<PAGE>
                          SIGNATURES

In  accordance  with  Section  13  or  15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

FIRST  ALLIANCE  CORPORATION


By /s/  Michael  N.  Fink                           Date  3/26/2002
   -----------------------------------------------
       Michael  N.  Fink,  Chairman/President

                                       43
<PAGE>
                         SIGNATURES

In  accordance  with  the Exchange Act, this report has been signed below by the
following  persons  on behalf of the registrant and in the capacities and on the
dates  indicated.


By   /s/  Michael  N.  Fink                         Date  3/26/2002
    ----------------------------------------------
   Michael  N.  Fink,  Chairman/President/Director


By   /s/  Scott  J.  Engebritson                    Date  3/26/2002
    ----------------------------------------------
   Scott  J.  Engebritson,  Vice-Chairman/Director


By   /s/  Thomas  I.  Evans                         Date  3/26/2002
     ---------------------------------------------
 Thomas  I.  Evans,  Sr.  VP/Secretary/Treasurer/Director


By   /s/  Jimmy  Dan  Conner                        Date  3/26/2002
     ---------------------------------------------
     Jimmy  Dan  Conner,  Director


By  /s/  Denzel  E.  Crum                          Date  3/26/2002
    ----------------------------------------------
     Denzel  E.  Crum,  Director


By   /s/  James  M.  Everett                        Date  3/26/2002
     ---------------------------------------------
     James  M.  Everett,  Director


By   /s/  Charles  L.  Hamilton                     Date  3/26/2002
    ----------------------------------------------
     Charles  L.  Hamilton,  Director


By   /s/  Ronda  S.  Paul                           Date  3/26/2002
     ---------------------------------------------
     Ronda  S.  Paul,  Director



                                       44
<PAGE>

                                  EXHIBIT 21.1

                           Subsidiaries of Registrant




First  Alliance  Corporation  (Kentucky  corporation)

100%  First  Alliance  Insurance  Company  (Kentucky  corporation)
100%  First  Kentucky  Capital  Corporation  (Kentucky  corporation)
100%  Alliance  Insurance  Management,  Inc.  (Kentucky  corporation)

First  Alliance Insurance Company owns 100% of KYWIDE Insurance Management, Inc.
(Kentucky  corporation)


                                       45
<PAGE>


                                 EXHIBIT  10(H)
                     MANAGEMENT AND ADMINISTRATION AGREEMENT

     THIS MANAGEMENT AND ADMINISTRATION AGREEMENT ("Agreement") made and entered
into  by  and  between  FIRST  ALLIANCE  CORPORATION,  a  Kentucky  corporation
("Company")  and  FIRST  ALLIANCE  INSURANCE COMPANY (the "Insurer"), a Kentucky
corporation,

                            W-I-T-N-E-S-S-E-T-H:

     WHEREAS,  Company  owns  all of the issued and outstanding capital stock of
Insurer;  and
     WHEREAS,  Insurer  is  engaged in the business of life and health insurance
and  annuities;  and
     WHEREAS,  Insurer  and  Company  desire  to  contract  for the rendition of
management  and  administration  services  and advice by Company to the Insurer,
subject  to  the  terms  and  conditions  hereinafter  set  forth.
     NOW, THEREFORE, in consideration of the premises and the mutual promises of
the  parties  hereto,  they  hereby  covenant  and  agree  as  follows:

     1.  MANAGEMENT  OF  REAL  ESTATE  AND  MORTGAGE  PORTFOLIOS

     1.1  Definition  of Real Estate and Mortgages.  For the purposes of this
Agreement, the term "Real Estate" shall mean any ownership or leasehold interest
in  real  property,  including  any  and  all improvements thereon, and the term
"Mortgage"  shall include any note, evidence of indebtedness or other obligation
secured  in  whole or in part by an interest in Real Estate or by the assignment
of  an  interest  in  Real  Estate.

     1.2  Services  and  Advice.  Company agrees to manage and service and/or
to  cause  the  Insurer's  Real Estate and Mortgage portfolios to be managed and
serviced.  The services to be rendered by or on behalf of Company to the Insurer
pursuant  to  this  Section  1 shall include, without limitation, to take or to
cause all supervisory and ministerial actions to be taken which are necessary to
implement,  manage and service the Insurer's Real Estate and Mortgage investment
program  to  include,  but  not  limited  to,  (i) effecting and documenting all
transactions  in Real Estate and Mortgages; (ii) obtaining and delivering to the
Insurer  legal  evidence  of  the  ownership  of  all  Real Estate and Mortgages
purchased  for  its  account;  (iii)  monitoring all legal actions taken by the
Insurer  relating  to said Real Estate and Mortgages; (iv) obtaining on behalf
of the Insurer such property and casualty insurance coverage's on Real Estate as
the  Insurer's  Board of Directors may request; (v) reporting to the Insurer and
to  its insurance carriers any damages to Real Estate caused by fire, wind storm
or  other  hazard;  and  (vi)  servicing  all  Mortgages owned by the Insurer.

                                        1
<PAGE>

     1.3  Compliance  With  Investment  Laws.  All  Real  Estate and Mortgage
investment  programs  provided  by  Company  pursuant to this Section 1, and any
supervisory or ministerial actions taken by Company hereunder, shall comply with
the  applicable  laws  and  regulations  of  the  Insurer's  domiciliary  state.

     1.4  Reports  to  Boards  of  Directors.  Company  shall  furnish  such
periodic  reports  as  reasonably  may  be  requested  by the Insurer's Board of
Directors  or the duly authorized Executive Committee or Investment Committee of
the Insurer with respect to (i) the performance of the Insurer's Real Estate and
Mortgage investment program; (ii) Company's recommended changes, if any, in said
Real Estate and Mortgage investment program; and (iii) any and all other actions
taken  by  Company  pursuant  to  this  Section 1 relating to the Insurer's Real
Estate  and  Mortgage  investment  program.

     1.5  Supervision  by Board of Directors.  Company acknowledges that the
Board  of  Directors  of  the  Insurer  is  vested with the power, authority and
responsibility  for managing the business and affairs of the Insurer, including,
without  limitation,  its  Real Estate and Mortgage investment program.  Company
acknowledges that any and all actions, whether supervisory or ministerial, taken
pursuant  to  this  Section  1  by  Company  shall  be subject to the continuous
supervision  of  said Board of Directors and agrees not to purchase or otherwise
acquire  or  to sell or otherwise dispose of any Real Estate or Mortgages unless
approved  by  the  Insurer's Board of Directors or its duly authorized Executive
Committee  or  Investment  Committee.

     2.  ELECTRONIC  DATA  PROCESSING  SERVICES

     2.1  Certain  Definitions.  For  the  purposes  of  this Agreement, the
following  terms  shall  have  the  meanings  set  forth  below:

          (a)  The  term  "System"  or  "Systems" means computer programs and
programming aids with supporting documentation, including, but not limited to,
input  and  -output  formats,  program  listings, systems flow charts, narrative
descriptions and operating instructions, and shall include tangible media upon
which  such  programs  are  record-ed.

          (b)  The term "Insurer Systems" means the completed and operational
Systems  owned by the Insurer as they existed as of the effective date of this
Agreement.

          (c)  The  term  "Company  Systems" means any System or part thereof
(including  any  modification,  other  than of a routine nature, of any Insurer
System)  which is designed, developed, purchased, owned or modified by Company
or  by any third party, with which Company enters into or assumes any agreement
for  electronic  processing  services to be rendered to Company and/or to the
Insurer  (hereinafter  referred  to  as  "Company's  Agent").


                                        2
<PAGE>
     2.2  Services.  Company  agrees  to  provide  or to cause all electronic
data  processing  services ("EDP Services") to be provided to the Insurer as are
necessary  or  may  reason-ably  be  required for the operation of its business.

     2.3  Insurer  Systems.  Company shall have the unrestricted right to use
any  Insurer  Systems.  To effect Company's right to use any Insurer System, the
Insurer  agrees  to  enter  into  licensing  agreements  with Company; provided,
however,  that  the  term of said licensing agreements and assignments shall not
extend  beyond  the  term  of  this  Agreement as it relates to the provision of
electronic  data  processing  services.

     2.4  Right  to  Use  Software  Programs.  Company  Systems  shall be and
remain  the  property of Company or the property of Company's Agent, as the case
may  be,  and  the  Insurer  shall  have no rights or interest therein except as
described  herein.  Company  shall  grant  to  the Insurer, and shall obtain the
consent  of  Company's  Agent  to  grant  to  the  Insurer,  as of the date this
Agreement is terminated, in perpetuity, a non-exclusive, royalty-free license to
use  any  application software program including all related documentation (the
"Programs")  of any Company System then being used by Company or Company's Agent
in  rendering  services  to  the  Insurer;  provided that the Insurer shall give
Company not less than thirteen (13) months prior written notice of its intention
to  use  such programs following the termination of this Agreement; and provided
further  that  in  order  to  preserve and to protect the confidentiality of the
Company  Systems,  if the Insurer shall elect to operate such programs after the
date  this Agreement is terminated, the Insurer shall enter into an agreement or
agreements  with  Company  and  Company's  Agents, containing such covenants and
conditions  as  are  necessary  or  reasonably  required  to  protect  the
confidentiality  of  the  Company  Systems.

     2.5  Computer  Equipment.  Company  will  furnish  or  will  cause  all
computer  equipment  to be furnished which, together with the computer equipment
presently  owned  by  the Insurer, is necessary or reasonably required to render
the EDP Services required to be rendered to the Insurer pursuant to this Section
2.

     2.6  Safeguarding  Data.  Company  shall  establish  or  will  cause
reasonable  safeguards  to  be  established to protect against the distribution,
loss  or alteration of the Insurer's data and data files.  Such safeguards shall
be  no less rigorous than those required by any regulations or guidelines of any
regulatory  authority  having  jurisdiction  over  the  business of the Insurer.

     2.7  Supervision by Board of Directors.  Company acknowledges that the
Board  of  Directors  of  the  Insurer  is vested with the power, authority, and


                                        3
<PAGE>

responsibility  for  managing  the  business  and  affairs  of  the Insurer, and
acknowledges that any and all actions, whether supervisory or ministerial, taken
by  Company  pursuant  to  this  Section  2  shall  be subject to the continuous
supervision  of  said  Board  of  Directors.

     3.  MANAGEMENT, PERSONNEL, ADMINISTRATIVE SERVICES, FACILITIES AND COSTS

     3.1  Services of Executive Officers.  Company shall cause the directors,
officers  and  employees  of Company, whom Company considers to be qualified, to
serve  as  officers  of the Insurer to the extent that the Board of Directors of
the  Insurer  may, from time to time, elect any of said persons to serve in such
capacities.

     3.2  Compensation  of  Company  Employees.  No  director,  officer  or
employee  of Company, whether or not any of said persons are elected to serve as
officers  of  the  Insurer,  shall  receive  any  salary or other compensation,
including,  without  limitation,  directors'  fees,  from  the  Insurer.

     3.3  Additional  Management  Services.  In  addition  to  the management
duties  and  functions  performed  by  the  directors, officers and employees of
Company  in fulfilling the responsibilities of any offices to which they may be
elected  by the Board of Directors of the Insurer, and in addition to performing
the  management  duties  and  functions which are necessary or reasonably may be
required  to  render  all  of  the other investment, electronic data processing,
management  and  administrative  services  provided  for  under this Agreement,
Company  shall provide such general supervisory and executive services as may be
required to manage the business of the Insurer in accordance with sound business
practices.  Without  limiting  the  generality of the foregoing, Company shall,
directly  or indirectly, and at the reasonable request of the Board of Directors
of  the  Insurer,  perform or render additional management services, including,
but  not  limited  to,  the  following:

          (a)  Investigate,  evaluate  and  assist  in  the  selection of and
participate  in consultations and negotiations with lenders, attorneys, brokers,
underwriters,  corporate  fiduciaries, escrow agents, depositaries, custodians,
banks  and  other  persons  acting  in any other capacity deemed by the Board of
Directors  of  the  Insurer  to  be  necessary  or  appropriate;

          (b)  Advise  and  consult  and  assist  with respect to the general
financial  policies  and  the  capital  and  debt  structure  of  the  Insurer;

          (c)  Advise,  consult  and  negotiate  with  respect  to any future
financings  by  the  Insurer;

          (d)  Advise,  consult and assist with respect to proceedings
and  hearings  held  and  conducted by regulatory agencies, including, but not
limited  to,  insurance  regulatory  hearings  or  proceedings;


                                        4
<PAGE>

          (e)  Advise,  consult,  negotiate  and  assist  with respect to the
acquisition  and  disposition  of  insurance  business  and  to  mergers,
consolidations,  reorganizations  or  other  business  combinations;

          (f)  Advise,  consult  and  assist with respect to the development,
design  and  marketing  of  insurance  products;

          (g)  Advise,  consult  and  assist with respect to other aspects of
the  business  and  affairs  of  the  Insurer.

     3.4  Administrative  and  Other  Services.  In  addition to the services
expressly  provided  for  herein,  Company  agrees  to  render or to cause to be
rendered  to  the  Insurer,  all  administrative  and  other services which are
necessary  or  are  reasonably  required  to effectively operate its business to
include,  without  limitation:

          (a)  All actuarial services required for the design and preparation
of  new insurance products, the calculation of reserves and the evaluation of
the  results  of  insurance  operations.

          (b)  All  accounting  services  necessary to maintain all books and
records  required  to  properly  account for all financial aspects and to comply
with  all  re-porting  requirements  of  the  business  of  the  Insurer.

          (c)  All  legal  services  necessary  to comply with all applicable
laws  affecting  the  business  of  the  Insurer.

          (d)  All  administrative  services  required for internal insurance
operations,  including,  underwriting,  policy  issuance, reinsurance, policy
service  and  claims;  and

          (e)  All  administrative  services  required  for  insurance agency
operations,  including licensing, coinsurance accounting and the tabulation of
sales.

     3.5  Personnel.  Company  shall  furnish  all  personnel  necessary  to
provide  all  of  the  services,  advice and assistance to the Insurer which are
required  to  be  rendered  under  this  Agreement.

     3.6  Facilities.  Except  as  otherwise  specified  below, Company shall
furnish  all  "Facilities"  (as hereinafter defined) necessary to provide all of
the  services,  advice  and  assistance  to the Insurer which are required to be
rendered  under  this  Agreement:

          (a)  For  the  purposes  of  this  Agreement, the term "Facilities"
means  office  space,  furniture,  fixtures  and  equipment.


                                        5
<PAGE>

          (b)  Office  space  owned  and  used  by  the  Insurer  on the
effective  date of this Agreement shall be leased by it to Company under a lease
the  terms  of  which are consistent with this Agreement and which are not less
favor-able  than  the  terms  which  could be obtained from unaffiliated third
parties.

          (c)  Office furniture, fixtures and equipment owned or used by
the  Insurer  on the effective date of this Agreement shall remain the property
of  the Insurer and Company's personnel shall be entitled to use said furniture,
fixtures and equipment without cost; provided, however, that Company- shall pay
all  maintenance  and  repair  costs  incurred  with  respect to said furniture,
fixtures and equipment used by Company after the effective date hereof to render
any services hereunder to the Insurer.  Notwithstanding the foregoing, Company,
at  its  option, may, at any time within six months after the effective date of
this  Agreement,  purchase  all  or  any  part  of  said  furniture, fixtures or
equipment  from  the  owner thereof for a cash purchase price equal to its then
market  value.  If  upon the termination of this Agreement, as it relates to the
provision  of  services  other than electronic data processing services, Company
owns  any furniture, fixtures or equipment, other than computer hard-ware, which
it  purchased  under  said  option, the Insurer, at its option, may, at any time
within six months after the date of said termination purchase all or any part of
said  furniture,  fixtures  or  equipment,  other than computer hard-ware, from
Company  for  a  cash  price  equal  to  its  then  market  value.  If  upon the
termination  of  this  Agreement,  as  it  relates  to providing electronic data
processing  services,  Company  owns any computer hard-ware which it purchased
under  the aforesaid option, the Insurer, at its option, may, at any time within
six months after the date of said termination, purchase all or any part of said
computer  hardware from Company for a cash price equal to its then market value.

          (d)  Any  furniture,  fixtures  or equipment required by Company to
render  the  services hereunder which is owned by Company on the effective date
of this Agreement shall remain the property of Company.  Any furniture, fixtures
or  equipment  required  to  render the services hereunder which is purchased or
leased  after the effective date of this Agreement, whether or not such purchase
or  lease  is made to replace existing furniture, fixtures or equipment owned

                                        6
<PAGE>

by Company or by  the  Insurer,  shall  be  purchased  or  leased  by  Company.

     3.7  Exception.  Notwithstanding  any  other  provisions  herein, to the
extent,  if any, that the laws, rules or regulations of the domiciliary state of
the  Insurer,  whether  existing  as  of the effective date of this Agreement or
adopted  during  the  term  of  this  Agreement, requires that certain specified
services  shall only be rendered by the employees of the Insurer, those services
so  specified shall not be rendered or paid for hereunder but shall  be rendered
by  the employees of the Insurer and paid for by the Insurer; provided, however,
that  all other services provided for hereunder shall be rendered to Insurer and
paid  for  by  the  Insurer
in  the  manner  provided  in  this  Agreement.

     3.8  Costs.  Company  shall  pay  all  personnel  and  other  costs  and
expenses  necessary  or  required  to render the services, advice and assistance
provided  for  by this Agreement, except the following costs which shall be paid
direct  by  the  Insurer,  or,  if  previously paid by Company, shall be paid to
Company  by  the  Insurer:

          (a)  All  costs  and expenses incurred, in connection with the move
or  relocation  of  any  principal  or  administrative  offices of the Insurer;

          (b)  All  costs  and  expenses  incurred  in the acquisition by the
Insurer  of control of any company which is not affiliated with the Insurer on
the  effective  date  of  this  Agreement,  including  any  subsequent  merger,
consolidation  or  other business combination of the acquired company with the
Insurer;

          (c)  All  costs and expenses incurred in establishing new insurance
markets,  expanding  existing  insurance  markets  or introducing new insurance
products  not  marketed  as of the effective date of this Agreement or expanding
into  new  geo-graphic-al  areas  not served by the Insurer as of the effective
date  of  this  Agreement;

          (d)  All  costs  and  expenses  incurred  in converting any Insurer
System  or  any  Company  System from any existing System to another System; in
substantially  modifying  any  Insurer  System  or  any  Company  System; or in
providing  any  specialty  Company  System  which  is  not currently used in the
Insurer  Systems;

          (e)  All  costs  and  expenses  incurred  in  connection  with  the
employment  of  legal  counsel  who  are  not  full time employees of Company.

          (f)  All  costs  and  expenses incurred in connection with auditing
the  financial statements of the Insurer, individually, and for consolidated
statements  in  which  the  Insurer  is  included.


                                        7
<PAGE>

          (g)  All  costs  and  expenses  incurred in connection with special
actuarial,  tax, accounting, systems or other studies performed by independent
professional  or  consulting  individuals  or  organizations;

          (h)  All  costs and expenses incurred in connection with or related
to  the  payment  of  the  following:

          (i)  The investigation and settlement of policy claims by personnel
who  are  not  full-time  employees  of  Company.

               (1)     Agents'  commissions.
               (2)     Agents'  balances  charged-off.
               (3)     Agency  conferences  and  conventions.
               (4)     Agents'  awards  and  audio-visual  costs.
               (5)     All  taxes,  excluding  FICA and employment taxes paid by
                       Company  with respect to Company's employees and federal,
                       state and local taxes withheld  by  Company.
               (6)     Medical  examination  fees.
               (7)     Inspection  Report  fees.
               (8)     Agents'  licenses.
               (9)     State  insurance  department  licenses  and  fees.
               (11)     All  policyholder  liabilities.

Company  shall  not  incur  or  pay  on  behalf of the Insurer any expenses
referred  to in Sections 3.8(b) through (h) without the approval of the Board of
Directors  or  the  Executive  Committee  of  the  Insurer.  No  personnel costs
incurred  by Company in the rendition of services hereunder shall be included in
any  of  the  costs or expenses referred to in Section 3.8(a) through (h) above.

     3.9  Supervision by Board of Directors.  Company acknowledges that the
Board  of  Directors  of  the  Insurer  is vested with the power, authority, and
responsibility  for  managing  the  business  and  affairs  of  the Insurer, and
acknowledges that any and all actions, whether supervisory or ministerial, taken
by  Company  pursuant  to  this  Section  3  shall  be subject to the continuous
supervision  of  said  Board  of  Directors.

                                        8
<PAGE>

     4.  AMOUNT  AND  PAYMENT  OF  FEES

     4.1  Fee  for  Management  of  Real  Estate  and  Mortgage  Port-folios.
     As  consideration for Company providing the Services, advice and assistance
to manage the Real Estate and Mortgages owned by the Insurer pursuant to Section
1  above,  the  Insurer agrees to pay to Company, not later than the end of each
calendar  quarter, a cash fee equal to the sum of the products of the book value
of  all  of  the  Real  Estate  and  Mortgages  owned  by  the Insurer as of the
beginning  of  said  calendar  quarter  multiplied by the percentages set forth
below:

     Non-Income  Producing  Real Estate:  0.0625% for each one dollar ($1.00) up
to  and including $10,000,000 in book value; 0.0500% for each one dollar ($1.00)
in  excess  of $10,000,000 in book value up to and including $20,000,000 in book
value;  0.0375%  for  each  one  dollar ($1.00) in excess of $20,000,000 in book
value  up  to  and including $30,000,000 in book value; and 0.0250% for each one
dollar  ($1.00)  in  excess  of  $30,000,000  in  book  value.

     Income  Producing Real Estate: 0.75% for each one dollar ($1.00) up to and
including  $10,000,-000  in  book  value;  0.625% for each one dollar ($1.00) in
excess  of  $10,000,000  in  book  value up to and including $20,000,000 in book
value; 0.500% for each one dollar ($1.00) in excess of $20,000,000 in book value
up  to  and  including  $30,000,000  in  book  value; 0.375% for each one dollar
($1.00)  in  excess  of  $30,000,000  in  book  value.

     Home  Mortgages:  0.125%  for  each  one dollar ($1.00) up to and including
$10,000,000  in  book  value;  0.100%  for  each one dollar ($1.00) in excess of
$10,000,000  in book value up to and including $20,000,000 in book value; 0.075%
for  each  one  dollar  ($1.00) in excess of $20,000,000 in book value up to and
including  $30,000,000  in book value; and 0.050% for each one dollar ($1.00) in
excess  of  $30,000,000  in  book  value.

     All  Other  Mortgages:  0.175%  for  each  one  dollar  ($1.00)  up  to and
including  $10,000,000  in  book  value;  0.150%  for each one dollar ($1.00) in
excess  of  $10,000,000  in  book  value up to and including $20,000,000 in book
value; 0.125% for each one dollar ($1.00) in excess of $20,000,000 in book value
up  to  and including $30,000,000 in book value; and 0.0875% for each one dollar
($1.00)  in  excess  of  $30,000,000  in  book  value.

     In  addition  to  the foregoing fee, Insurer shall pay to Company, not less
than  thirty  (30)  days  following  the  completion  of  any  of the following
transactions  by  the  Insurer,  fees  in  the  following  amounts:

          (a)  Upon the completion of the foreclosure on Real Estate securing
any  Mortgage  owned by the Insurer since the effective date of this Agreement -
an  amount equal to the costs incurred by Company in effecting the foreclosures.



                                        9
<PAGE>

         (b)  Upon the receipt of a stand-by commitment fee for a Mortgage -
a  fee  equal  to  25%  of  the  stand-by  commitment  fee  received.

         (c)  Upon the receipt of a non-refundable fee for a permanent
commitment or  for  any modification of a permanent commitment - a fee equal
to 50% of the non-refundable  fee  received.

         (d)  Upon  a  refundable  commitment  fee  or  deposit previously
received  becoming  non-refundable  because  of  a forfeiture a fee equal to
25% of the refund-able fee previously received.

         (e)  Upon  the sale of any Real Estate, other than by foreclosure -
a  fee  equal to 10% of the capital gains, if any, realized as a result of said
sale.
     In  addition  to the foregoing fees, Insurer shall pay to Company, not less
than  thirty  (30) days following the end of each calendar month, a fee equal to
5%  of  the  gross  rental income on Real Property received during said calendar
month.

     4.2  Fee  For  Electronic  Data  Processing  and  Other  Services.  As
consideration  for  Company  providing  all electronic data processing services
required  under  Section 2 above and as consideration for Company providing all
other services required under Section 3 above, Insurer agrees to pay to Company,
not less than monthly, a cash fee equal to one hundred fifteen percent (115%) of
all  costs incurred by Company in rendering said services (other than costs paid
or  to  be  paid  by the Insurer pursuant to Section 3.8) during the immediately
preceding  calendar  month.

     4.3  Accountings.  Company  agrees to periodically provide to Insurer an
accounting  of  the  costs incurred by Company which form the basis for the fees
payable  by  the  Insurer  to  Company  pursuant  to  Section  5.3  above.  Said
accountings  shall  be  in  such  detail  and be accompanied by such substantive
documentation  as  Company  and  Insurer  mutually agree.  In addition, Company
shall  furnish  to  the  Insurer  the following statements on or before the date
specified  below:

       (a)  Not  later  than the thirteenth day following the first day of each
calendar  quarter, commencing with the first calendar quarter during the term of
this  Agreement,  a  statement  showing  the computation of the fees payable in
respect  of  such  calendar  quarter  under  Sections  4.1  and  4.2 hereof; and

       (b)  Not  later than the thirteenth day of each month, commencing with
the  second  month  occurring  during  the  term of this Agreement, a statement
showing  the  computation  of  the  fees  payable  in respect of the

                                       10
<PAGE>

preceding calendar  month  pursuant  to  Section  4.3  hereof.

     4.4  Excess  Capacity.  Notwithstanding  any  other  provisions  herein,
Company  shall  not,  directly  or  indirectly, charge Insurer for any services,
costs or expenses which are attributable to Company's development or maintenance
of Systems or management, administrative or other servicing capabilities which
exceed  those reasonably required to render the services to the Insurer provided
for  hereunder.

     5.  CONFIDENTIALITY,  PERFORMANCE  AND  RELATIONSHIP  OF  PARTIES

     5.1  Disclosure  of  Information.  Company  agrees that all information
communicated  to  it  by  or on behalf of the Insurer while this Agreement is in
force  shall  be  used  by  Company  only for the purposes of this Agreement and
that,  during  the  term  of  this  Agreement  and thereafter, Company will not
disclose  such  information  to  any  person  who  is  not a director, officer,
employee or agent of the Insurer or of any of its affiliated companies except to
the  extent  that  such  disclosure  is  directly  or  indirectly related to the
performance  of  this  Agreement or is otherwise required by any applicable law,
rule  or  regulation.

     5.2  Records  and  Reports.  Except  as previously provided in Section 2
above,  all  forms,  records,  statements,  reports,  files  and  other data and
information  prepared,  maintained or collected by Company in the performance of
this  Agreement  shall  become  the  sole  property  of the Insurer and shall be
furnished  to  Insurer  upon  request.

     5.3  Inspection  of  Books and Records.  Company shall keep proper books
of  account  and  records  relating to the services performed hereunder in which
full  and  correct  entries  will  be made in accordance with generally accepted
accounting  procedures.  The  Insurer  or its designated agents, shall, upon not
less  than  ten  (10)  days  prior  written notice to Company, have the right to
inspect the books and records of Company at the offices of Company in which said
books  and  records  are maintained during normal business hours for any purpose
related  to  Company's  performance  of  this  Agreement  or  the collection and
determination  of  the  fees required to be paid by the Insurer to Company under
this  Agreement.

     5.4  Performance.  The  failure  of  any  party  to  insist  upon strict
performance  of any provision of this Agreement shall not constitute a waiver of
the  right  to  insist  upon  strict  performance  or the obligation to strictly
perform  thereafter.

     5.5  Relationship  of Parties.  Company assumes no responsibility under
this Agreement other than to render the services, advice and assistance provided
for  hereunder  in  good faith.  It is expressly understood and agreed

                                       11
<PAGE>
that with respect  to and for the purposes of this Agreement, that Company and
the Insurer are  not partners or joint ventures and nothing herein shall be
construed so as to  make  them  partners  or  joint ventures or impose any
liability as such on either  of  them.  The relation-ship between Insurer and
Company with respect to and  for the purposes of this Agreement shall be that
of independent contractor.

     5.6  Other  Agreements.  The Insurer acknowledges that Company may, from
time  to  time, enter into agreements to provide services, advice and assistance
to  other  companies  which  may  or  may  not  be affiliated with Insurer; that
employees  of  Company,  whether  or  not they are also officers or directors of
Insurer, may render services to such other companies pursuant to said agreements
and  may  also serve as officers or directors of such other companies; and that
the  Facilities  and Systems used in providing services hereunder to the Insurer
may  also  be  used  by  Company  to  provide  services to such other companies.
Company-  further  covenants that, in performing services, advice or assistance
to  such  companies,  it  shall  not provide any preferential treatment to such
other  company  which  would  reduce  or  impair  the  amount  or quality of the
services,  advice  or  assistance  required to be provided under this Agreement.

     5.7  Indemnification.  Company  agrees  to  indemnify  and  to  hold the
Insurer  harmless  from  any and all damages, costs, claims or other liabilities
incurred  by  it  as  the  result  of  any  act  or  omission  by Company in the
performance  of  its  duties  hereunder  (except  to  the extent that the act or
omission  resulting  in said damages were performed or omitted by or pursuant to
the  direction of any duly elected director or executive officer of the Insurer)
if  Company's act or omission constitutes bad faith, willful malfeasance, gross
negligence  or  reckless  disregard  of  its  duties.

     6.  TERM  OF  AGREEMENT  AND  NOTICES

     6.1  Term  of  Agreement.  Subject to the next to last paragraph of this
Section  6.1,  this Agreement shall remain in full force and effect for a period
of  five  (5) years from the date hereof.  Following the expiration of said five
(5) year period, this Agreement shall automatically continue in effect and shall
thereafter  be  terminated  only  as  follows:

          (a)  This  Agreement,  as  it  relates  to  the  performance of all
services  hereunder  other  than  electronic  data processing services, shall be
terminated  only  upon  ninety (90) days prior written notice to the other party
hereto;  provided,  however,  that  Company  shall  not terminate this Agreement
unless  and until Insurer has obtained the services of another person engaged in
the  business  of  rendering  management  services  and advice to life insurance
companies or has made other arrangements satisfactory to it for the management
of  the  operations  and  business  of  the  Insurer.

                                       12
<PAGE>

          (b)  This Agreement, as it relates to the performance of electronic
data  processing  services,  shall be terminated only upon thirteen (13) months'
prior  written  notice  to  the  other  party  hereto.

     At  the  option  of  the  Insurer,  this Agreement may be terminated by the
Insurer  if  Company  has  failed in any material respect to observe, perform or
comply  with any material agreement or obligation required by this Agreement to
be  observed  or  complied with by it and such failure continues for a period of
thirty  days  after  receipt  by  Company  of  a notice from the Insurer of such
failure.

     Upon  termination  under  Subparagraph  (a)  above,  the  Insurer  shall
immediately  pay  Company all sums due hereunder through the date of termination
for  the  rendition of non-electronic data processing services and Company shall
immediately  deliver  to  the  Insurer  or  its  designee  all  forms, records,
statements,  files, reports and other data and information prepared or collected
by Company in connection with the performance of this Agreement as it relates to
the  rendition  of  non-electronic  data  processing services.  Upon termination
under  Subparagraph  (b)  above,  the Insurer shall immediately pay Company all
sums  due  hereunder  through  the  date  of  termination  for  the rendition of
electronic  data  processing  services, and Company shall immediately deliver to
the  Insurer  all  forms, records, statements, files, reports and other data and
information  prepared  or collected by it in connection with the performance of
this  Agreement  as  it  relates  to the rendition of electronic data processing
services.

     6.2  Notices.  Any  notices  required  or permitted under this Agreement
shall  be in writing and shall be deemed to have been duly given if delivered or
mailed,  first  class postage prepaid, to the parties at the following addresses
(or  at  such  other  address for a party as shall be specified by like notice):

     If  to  Insurer,  to:
     ---------------------
          First  Alliance  Insurance  Company
          2285  Executive  Drive,  Suite  308
          Lexington,  Kentucky  40505
          Attn:  Thomas  I.  Evans,  Vice  President

     If  to  Company,  to:
     ---------------------
          First  Alliance  Corporation
          2285  Executive  Drive,  Suite  308
          Lexington,  Kentucky  40505
          Attn:  Michael  N.  Fink,  President

                                       13
<PAGE>

     7.  MISCELLANEOUS

     7.1  Entire Agreement.  This Agreement contains the entire understanding
of  the  parties  hereto and supersedes all prior agreements of the parties with
respect  to  the  subject  matter  contained herein.  Any condition to a party's
obligation  hereunder  may  be  waived  in  writing  by  such  party.

     7.2  Amendments.  This  Agreement  shall  not  be  amended,  changed,
modified,  terminated or discharged in whole or in part, except by an instrument
in  writing duly executed by both parties hereto, or their respective successors
or  assigns.  Insurer  and  Company  each  covenant  that it will not amend this
Agreement  so  as  to  (a)  increase  the  fees  payable  by Insurer to Company
hereunder  or  otherwise materially increase the obligations of the Insurer, (b)
surrender  or  eliminate  any  right  or power reserved to or conferred upon the
Insurer  in  this Agreement, (c) reduce the obligations of Company or confer any
addition-al  rights or power upon it or (d) reduce the term of this Agreement or
amend  this Section 7.2 unless, in each case, the Insurer has first obtained all
required  regulatory  approvals,  consents  and/or  exemptions.

     7.3  Binding  Agreement.  This Agreement shall be binding upon and inure
to  the  benefit  of  the  parties  hereto  and their respective successors and
assigns.

     7.4  Severable Provisions.  If any provisions of this Agreement shall be
found  to  be  invalid  by  any  administrative  agency  or  court  of competent
jurisdiction,  such  finding  shall  not affect the remaining provisions of this
Agreement and all other provisions herein shall remain in full force and effect.

     7.5  Governing Law.  This Agreement shall be interpreted and enforced in
accordance  with  the  laws  of  the  Commonwealth  of  Kentucky.

     7.6  Assignment.  This  Agreement  may  be  assigned  by
Company  to  a  wholly-owned  subsidiary (the "Subsidiary"); provided, however,
that  such  assignment shall not be deemed to release Company from liability for
the  performance  of  its  duties  and  obligations  hereunder. Otherwise, this
Agreement shall not be assigned by either party hereto without the prior written
consent  of  the  other  party  hereto.

     7.7  Counterparts.  This  Agreement  may  be  executed  in  two  or more
separate  counterparts,  each of which shall be deemed to be an original hereof,
but  all  of  which  shall  constitute  one  and  the  same  instrument.

     7.8  Interpretation.  As  used  herein, the term "affiliate" shall mean,
as  to any corporation, partnership or trust, any person who holds beneficially,
directly  or  indirectly, ten percent or more of the outstanding capital stock,

                                       14
<PAGE>

shares  or  equity  interest of such corporation, partnership or trust, or is an
officer,  director,  employee,  partner  or  trustee  of  such  corporation,
partnership  or  trust  or of any person which controls, is controlled by, or is
under common control with, such corporation, partnership or trust and any person
which  controls,  is  controlled  by  or under, control with, such corporation,
partnership  or  trust.

  The  "book value" of any asset shall mean the value of such asset on the books
of the Insurer determined in accordance with accounting practices prescribed or
permitted  by  the  Kentucky  Commissioner  of  Insurance.

                                       15
<PAGE>

     IN  WITNESS  WHEREOF,  the  parties hereto have caused this Agreement to be
executed  as  of  the 29th day of December, 2000, to be effective the 1st day of
January,  2001.

                         FIRST  ALLIANCE  INSURANCE  COMPANY

                         By:  /s/  Thomas  I.  Evans
                             ------------------------
                                Thomas  I.  Evans
                                Vice  President

                         FIRST  ALLIANCE  CORPORATION

                         By:  /s/  Michael  N.  Fink
                             ------------------------
                                Michael  N.  Fink
                                President
                                       16
<PAGE>