United States
               Securities and Exchange Commission
                     Washington, D.C. 20549
                                
                           FORM 10-Q
                           (Mark One)
                                

[X] Quarterly Report Pursuant to Section 14 or 15(d) of the Securities 
    Exchange Act of 1934 for the Period Ended September 30, 1998
                            or
                                
[ ] 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
                                                                               
     (exact name of registrant as specified in its charter)
                                
                                
     Kentucky                                             61-1242009           
(State or other jurisdiction of               (I.R.S. Employer Identification
 incorporation or organization)                         number)


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




                        (606) 299-7656                                         
      (Registrant's telephone number, including area code)
                                

Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities and Exchange 
Act of 1934 during the preceding 12 months (or for such shorter periods that 
the registrant was required to file such reports), and (2) has been subject 
to such filing requirements for the past 90 days. Yes [X]   No [ ]  
                                                                 

             Applicable Only to Corporate Insurers
                                
Indicate 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 - 5,614,740 shares as of November 1, 1998.


<TABLE>
FIRST ALLIANCE CORPORATION
                                
CONDENSED CONSOLIDATED BALANCE SHEETS
                                
<CAPTION>
                                              September 30,     December 31,
                                                 1998              1997
                                              (Unaudited)
<S>                                           <C>               <C>
Assets                                 

Investments:
  Available-for-sale fixed maturities,  
  at fair value (amortized cost, $6,819,079 
  and $9,016,891 in 1998 and 1997, 
  respectively)                               $  7,051,265       $  9,038,694
Preferred stock at cost                          1,000,000          1,000,000
Common stock at cost                                20,000             20,000
Notes receivable (net of $149,698 valuation 
  allowance in 1998 and 1997)                      251,434            334,923

Total investments                                8,322,699         10,393,617

Cash and cash equivalents                        4,320,841          1,335,455
Investments in related parties                     125,000            125,000
Receivables from related parties                    22,880             21,286
Accrued investment income                          122,266            151,813
Deferred policy acquisition costs (net of 
  amortization of $200,201 in 1998 and 
  $128,183 in 1997)                              1,678,409          1,074,485
Prepaid expenses                                    50,674             20,662
Office furniture and equipment, less accumulated            
  depreciation of $65,208 and $53,533 in 1998 
  and 1997, respectively                            46,815             32,026
Advances to agents                                  50,788             23,251
Premiums due                                        24,022             27,951
Other assets                                        24,134             92,818

Total Assets                                  $ 14,788,528       $ 13,298,364

Liabilities and Shareholders' Equity

Policy liabilities and accruals                  3,197,107          2,259,567
Federal income taxes payable                       465,110            205,706
Accounts payable                                    83,778             31,134
Other liabilities                                  262,679            235,599

Total liabilities                                4,008,674          2,732,006

Commitments and Contingencies (Note H)

Shareholders' equity:

Common stock, no par value, 8,000,000 
  shares authorized; 5,614,740 shares 
  issued and outstanding at September 30,
  1998 and  5,579,840 shares issued and 
  outstanding at December 31, 1997                 561,514            557,984

Additional paid in capital                      12,148,658         12,141,546
Accumulated Comprehensive Income net of 
  deferred federal income tax expense of 
  $71,531 in 1998 and $7,413 in 1997               153,244             14,390
Retained Earnings                               (2,083,562)        (2,147,562)

Total Shareholders' equity                      10,779,854         10,566,358

Total liabilities and shareholders' equity    $ 14,788,528       $ 13,298,364

See notes to condensed consolidated financial statements.

</TABLE>
<PAGE>

<TABLE>
FIRST ALLIANCE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


<CAPTION>
                             Three months ended          Nine months ended
                       September 30, September 30, September 30, September 30,
                           1998          1997          1998          1997
                        (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
<S>                     <C>           <C>           <C>           <C>
                                
Revenues
  Premium Income        $   557,753   $   266,101   $ 1,582,031   $   912,296
  Net Investment Income     148,447       153,096       437,407       437,647
  Realized gains on 
      investments             6,664             -         6,664             -
  Earnings of 
  unconsolidated 
  affiliates and other 
  income                     25,143       (26,232)       62,654       (63,090)

Total revenue               738,007       392,965     2,088,756     1,286,853

Benefits and expenses
  Salaries, wages and 
   employee benefits        190,669       165,553       583,685       502,962
  Increase in policy 
   reserves                 158,828        86,428       520,156       268,120
  Commissions               246,296        99,978       644,255       321,522
  Policy acquisition 
   costs deferred          (275,675)     (118,490)     (821,118)     (541,856)
  Amortization of 
   deferred policy               
   acquisition costs         16,992        58,912       217,193       251,305
  Other insurance 
   benefits and                    
   expenses                  47,223       107,563       136,699       199,254
  Agency expenses            65,647        49,363       180,739       117,073
  Professional fees          26,467        52,019       111,147       157,960
  Other expenses             84,016       (86,284)      253,146       104,361

Total benefits and 
  expenses                  560,463       415,042     1,825,902     1,380,701

Income/(loss) from 
  operations                177,544       (22,077)      262,854       (93,848)

Federal income taxes         85,932        27,200       198,855       106,400

Net Income/(loss)       $    91,612   $   (49,277)  $    63,999   $  (200,248)

Net Income/(loss) per 
  common share-basic    
  and diluted           $      0.02   $     (0.01)  $      0.01   $     (0.04)

See notes to condensed consolidated financial statements.

</TABLE>
<PAGE>

<TABLE>
FIRST ALLIANCE CORPORATION
                                
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                
<CAPTION>                                
                                                     Nine months ended
                                               September 30,    September 30,
                                                   1998             1997
                                                (Unaudited)      (Unaudited)
<S>                                            <C>              <C>
Operating activities:

Net cash provided/(used) in operating 
  activities                                   $   390,040      $   (307,191)

Investing activities:
   
    Purchase of available-for-sale 
     fixed maturities                             (782,760)         (750,000)
    Maturity of available-for-sale 
     fixed maturities                            2,965,829         2,039,680
    Short-term investments sold/(acquired)               -                 -
    Notes Receivable                                 8,489                 -
    Purchase of Preferred Stock                          -        (1,000,000)
    Purchase of Common Stock                             -           (20,000)
    Purchase of furniture and equipment            (26,464)           (3,791)
    
    Net cash used in investing activities        2,165,094           265,889

Financing activities:

    Deposits on annuity contracts                  371,792           489,754
    Policyholder premiums                           47,817                 -
    Sale of common stock                            10,643                 -
    Cost of stock offering                               -                17
    
    Net cash provided by financing activities      430,252           489,771

Increase(Decrease) in cash and cash equivalents  2,985,386           448,469

Cash and cash equivalents beginning of period  $ 1,335,455      $    908,276

Cash and cash equivalents at end of period     $ 4,320,841      $  1,356,745

See notes to condensed consolidated financial statements.

</TABLE>
<PAGE>

<TABLE>
FIRST ALLIANCE CORPORATION
                                
STATEMENT OF COMPREHENSIVE INCOME
                                
                                                                                                           
                            Three months ended         Nine months ended
                       September 30, September 30, September 30, September 30,
                           1998         1997           1998          1997
<S>                     <C>           <C>           <C>           <C>
                                
Net Income               $  91,612     $ (49,277)    $  63,999     $ (200,248)


Other comprehensive 
 income, net of tax:     

 Unrealized gains on 
  securities               100,870        71,946       153,244         28,377


Comprehensive Income     $ 192,482     $  22,669     $ 217,243     $ (171,871)



See notes to condensed consolidated financial statements


</TABLE>
<PAGE>

                  FIRST ALLIANCE CORPORATION
                                
                NOTES TO CONDENSED CONSOLIDATED 
                      FINANCIAL STATEMENTS
                                
(A)  Basis of Presentation                                            

     The accompanying condensed consolidated financial statements of First 
     Alliance Corporation and its  Subsidiaries ( the "Company") for the nine 
     month period ended September 30, 1998 and 1997 are unaudited.  However, 
     in the opinion of the Company, all adjustments (consisting of normal 
     recurring accruals) considered necessary for a fair presentation have 
     been reflected therein.
  
     Certain financial information which is normally included in financial 
     statements prepared in accordance with generally accepted accounting 
     principles, but which is not required for interim reporting purposes, 
     has been omitted.  The accompanying condensed consolidated financial 
     statements should be read in conjunction with the financial statements 
     and notes thereto included in the Company's Form 10-K for the fiscal 
     year ended December 31, 1997.  Certain reclassifications have been made 
     in the prior period financial statements to conform with the current 
     year presentation.

(B)  Subsidiary Operations

     The Company's wholly owned subsidiaries', First Alliance Insurance 
     Company ("FAIC") and First Kentucky Capital Corporation ("FKCC"), 
     results of operations are included in the condensed consolidated 
     financial information for the nine month period ending September 30, 
     1998.

     During 1997, the venture capital investments of FKCC were written-off.  
     The Board of Directors of FKCC elected to place a moratorium on any new 
     investments until certain criteria can be established for these 
     investments.

(C)  Comprehensive Income

     The Company reports comprehensive income as required by FAS 130 
     "Reporting Comprehensive Income".  According to FAS 130, all items that 
     are required to be recognize d under accounting standards as components 
     of comprehensive income, shall be displayed in the financial statements.  
     Comprehensive income is defined as changes in the net equity of a 
     business from other than non owner sources.  Comprehensive income is 
     reported as a separate item from net income in the Statement of 
     Comprehensive Income.  Additionally, accumulated comprehensive income is 
     reported as a separate component in the equity section of the balance 
     sheet.  Comprehensive income reported in these financial statements 
     consists of unrealized holding gains and losses net of the appropriate 
     taxes.

(D)  Investments

     The Company classifies all of its available-for-sale fixed maturities at 
     the current market value. Adjustments to market value are recognized as 
     comprehensive income and reported net of applicable federal income taxes 
     as a separate component of shareholders' equity and in the Statement of
     Comprehensive Income.  Amortized cost of investments at September 30, 1998 
     was $6,819,079 with gross unrealized gains of $233,684 and gross unrealized
     investment losses of $1,498 resulting in a market value of $7,015,265 for 
     available-for-sale fixed maturity investments.  

     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 November 10,1998,  FACC had raised total  capital of 
     $12,500,000 from the sale of private placement shares through a 
     $12,500,000 Kansas inrastate public stock offering which commenced on 
     March 11, 1997.  A 10% over-sale of the offering was registered with 
     the Kansas Department of Securities which allows FACC to raise an 
     additional $1,250,000  of capital for a total of $13,750,000.  The 
     proceeds of the public offering have been used to form a Kansas 
     
<PAGE>     

     domiciled life insurance company, First Life America Corporation 
     ("FLAC").  FLAC began test marketing its initial insurance product 
     in October of this year.  When the public offering is completed, the 
     Company  will own less than 10% of outstanding common stock. 

     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.   At November 10, 1998, MAAC had raised total 
     capital of $2,976,800 from the sale of  shares through a $16,000,000 
     Missouri intrastate public stock offering.  On December 31, 1997, MAAC 
     acquired Mid American Century Life Insurance Company ("MACLIC"), a 
     Missouri domiciled life insurance company.  The proceeds of the public 
     offering will be used to further capitalize MACLIC.  When the public 
     offering is completed, the Company will own less than 10% of MAAC's 
     outstanding common stock.

     On March 31, 1997, the Company purchased 500,000 shares of the $2.00 par 
     value Secured Non-Cumulative Redeemable Convertible Preferred Stock of 
     U.S. Star Financial Corporation ("U.S. Star") for $1,000,000.  The 
     Preferred shares are collateralized with securities, which are in the 
     possession of the Company, that equal the total investment.  All 
     interest earned on the collateral is retained by U.S. Star.  The  
     Preferred shares are convertible into common shares at a rate of one 
     share of preferred for one share of common.  U.S. Star can require the 
     conversion if it meets conditions set forth in the security agreement.  
     If the Preferred shares are not converted within eighteen months of the 
     date of purchase, the Preferred shares can be redeemed at the original 
     purchase price.  As a result, these shares have been recorded in the 
     financial statements at cost.  On September 30, 1998 the Company's Board 
     of Directors voted to redeem the Preferred shares of the U.S. Star.

     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. 

     The carrying values of notes receivable and investments in unconsolidated 
     affiliates approximate their fair values.  At September 30, 1998 and 
     December 31, 1997, the fair values of notes receivable were $326,434
     and $334,923, respectively.


(E)  Deferred Policy Acquisition Costs

     Certain costs related to the acquisition of life insurance have been 
     deferred to the extent recoverable from future policy revenues and gross 
     profits.  Acquisition costs are initial expenses incurred by the Company
     related to the sale of life insurance such as commissions and 
     administrative service fees.  These acquisition  costs are being 
     amortized over the premium paying period of the related policies.

(F)  Net Loss Per Common Share

     In 1997, the Financial Accounting Standards Board issued SFAS No. 128, 
     "Earnings per Share".  SFAS No. 128 replaced the calculation of primary 
     and fully diluted earnings per share with basic and diluted earnings
     per share.  Unlike primary earnings per share, basic earnings per share 
     excludes any dilutive effects of convertible securities.  Diluted 
     earnings per share is very similar to fully diluted earnings per share.  
     The Company had 35,300 option shares outstanding which are convertible 
     securities and impacts the dilutive  earnings per share calculation.  
     The net income and loss per share amounts for all periods have been 
     presented to conform to the SFAS 128 requirements for basic earnings per 
     share.                
      
<PAGE>

     Diluted earnings per share are not presented since the minimal number of 
     outstanding dilutive securities does not change the basic earnings per 
     share amounts.  Net income per common share is based upon the weighted 
     average number of common shares outstanding each year.  For the nine 
     months ended September 30, 1998 and 1997, all shares are assumed to be 
     outstanding for the entire year.  The weighted average outstanding
     common shares were 5,614,740 in 1998 and 5,579,840 in 1997.  Diluted 
     outstanding common shares totaled 5,650,070 in 1998.

(G)  Stock Options

     The Company has adopted a stock option plan for 200,000 common stock 
     shares.  On December 31, 1997, the Stock Option Committee granted 54,650 
     options, all of which were exercisable and outstanding at December 31, 
     1997.  During the first three quarters of 1998, 35,300 of these options 
     were exercised.

(H)  Federal Income Taxes

     The company does not file a consolidated federal income tax return with 
     FAIC.  FAIC is taxed as a life insurance company under the provisions of 
     the Internal Revenue Code and must file a separate tax return for
     its initial six years of existence.  Federal income tax expense for the 
     nine months ended September 30, 1998 is calculated using an effective 
     rate derived from the previous year tax expense.  For the nine months 
     ended September 30, 1998 and 1997 estimated Federal Income tax expense 
     was $198,855 and $79,200, respectively.


(I)  Related Party Transactions

     The Company entered into service agreements with FACC and MAAC effective 
     September 1, 1996. Pursuant to the terms of the agreements, the Company 
     provides investment management, data processing, accounting and reporting 
     services in return for a $1,000 per month service fee from each company. 
     Upon commencement of their public stock offerings (April 1, 1997 for FACC 
     and November 1, 1997 for MAAC), these fees increased to $2,000 per month. 
     Under the terms of the agreements, FACC and MAAC each incurred expenses 
     of $12,000 during 1998.  Further, the Company has accounts receivable of 
     $19,933 and $2,947 from FACC and MAAC, respectively, at September 30, 
     1998 and $6,914 and $14,372 from FACC and MAAC, respectively, at December 
     31, 1997.  Various officers and directors of the Company hold similar 
     positions with FACC and MAAC.

(J)  Commitments and Contingencies

     The Company received a civil summons on October 6, 1997 related to an 
     automobile accident in October 1996 which involved an officer of the 
     Company, who was driving the automobile.   The summons was served by the 
     Circuit Court in Fayette County, Kentucky and lists Katherine Stockton, 
     Individually, and as Administratrix of the Estate of Frank Novak, and as 
     next friend of Bradley Novak, as the Plaintiff.  The legal action alleges 
     that the officer was acting in the course and scope of employment with 
     the Company at the time of the accident.  The outcome of this matter is 
     not predictable with assurance.  Although any actual liability is not 
     determinable as of September 30, 1998, the Company believes that any 
     liability resulting from this matter, after taking into consideration 
     insurance coverages, should not have a material adverse effect on the 
     Company's financial position.

            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS


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

<PAGE>

Results of Operations

Revenues for the nine months ending September 30, 1998 and September 30, 
1997 totaled $2,088,756 and $1,286,853, respectively.  For the three month 
period ending September 30, 1998 and 1997, revenues totaled $738,007 and 
$392,965, respectively. Total premium income increased $669,735 during 
the nine months ended September 30, 1998 as compared to the same period in 
1997.  This increase is the result of intensified marketing efforts and the 
increase in the sales agency.  These factors also accounted for the $291,652 
increase in premium revenue for the three months ended September 30, 1998 as 
compared to the same period of 1997.  First year premium income for the nine 
months ending September 30, 1998 and 1997 totaled $931,745 and $480,191
respectively. The primary product marketed by the company was modified in 
August of 1997 which changed the allocation between life and annuity 
premiums.  All first year premiums in 1998 are allocated to life insurance 
while 60% of premium income was allocated to life insurance through August 
of 1997.

Earnings of unconsolidated affiliates and other income increased $125,744 
during the first nine months of 1998 as compared to the first nine months of 
1997.  By December 31, 1997 all of the venture capital investments had been
written off.   For the nine months ended September 30, 1997 losses from 
unconsolidated affiliates totaled $47,278. In 1998 operating results are not 
impacted by any losses of venture capital investments.  The primary component 
of other income for the nine month period ended September 30, 1998 is 
revenues from service fees from First American Capital Corporation and 
Mid-American Alliance Corporation which totaled $36,000 for the nine months 
ending September 30, 1998.  These fees totaled $24,000 for the same period of 
1997.  

For the nine month period ended September 30, 1998, benefits and expenses 
totaled $1,825,902.  For the same period in 1997, benefits and expenses 
totaled $1,380,701.  This increase of $445,201 is the result of increased
volume of insurance operations.  Salaries, wages and employee benefits 
increased $80,723 due to additional employees hired,  an increase in employee 
wages and higher incentive compensation earnings based on premium revenues.  
During the first nine months of 1998, policy reserves increased $252,036 due 
to new business written and existing policies reaching another duration.  
Agency expenses increased $63,666 to $180,739 for the nine months ended 
September 30, 1998 compared to the same period in 1997.  Additional agents 
hired along with more extensive recruiting and agency contests accounted for 
the increase.  Professional fees decreased from $157,960 for the nine month 
period ended September 30, 1997 to $111,147 for the same period in 1998.  
During 1997, the company  incurred actuarial charges for the re-design of 
the revised product being marketed.  These costs did not reoccur in 1998.  

Income from operations for the nine months ended September 30, 1998 totaled 
$262,854.  For the same period in 1997, the loss from operations totaled 
$93,848. 

Income tax expense totaled $198,855 for the nine months ended September 30, 
1998.  Income tax expense is calculated based on the earnings of First 
Alliance Insurance Company.  Income tax expense for the same period in
1997 totaled $106,400.  Of the total tax expense of $198,855, $187,873 
represent deferred taxes which are based on timing differences between 
taxable income and income reported under generally accepted accounting 
principles.  


Consolidated Financial Condition

Changes in the consolidated balance sheet of September 30, 1998 compared to 
December 31, 1997 reflect the operations of the Company and the capital 
transactions listed below.

Total assets increased by $1,490,164 from December 31, 1997 to September 30, 
1998.  Available-for-sale fixed maturity investments decreased $1,987,429 
as the result of maturities and sale of investments.  Cash and cash 
equivalents increased $2,985,386 due to cash provided by insurance 
operations and investment maturities and sales held in interest bearing 
accounts.  Deferred acquisition costs increased $603,924 net of amortization 
of $217,193.  This increase is the result of commissions and service fees 
being deferred related to new business written.  Prepaid expenses increased 
$30,012 due to the timing of payroll checks and health insurance payments.  

<PAGE>

Advances related to newly submitted premiums and agents expenses accounted 
for a $27,537 increase in advances to agents.  Other assets decreased $68,684 
due to the repayment of employee advances owed to the company.   

Liabilities increased $1,276,668 as the result of increased insurance 
operations.  Policy liabilities and accruals increased $937,540.  Policy 
liabilities and accruals primarily consist of life insurance reserves and 
annuity contract deposits which increase due to new business written and 
policies reaching additional durations.  Federal income taxes payable 
increased $259,404 due to deferred federal income taxes based on the 
insurance operations.  Accounts payable increased $52,644 due to the accrual 
of audit fees for the 1998 fiscal year audit.  Other liabilities increased
$27,080 due to deposits by policyholders on pending policy applications.  

Liquidity

FAIC's insurance operations generally receive adequate cash flow from 
premium collections and investment income to meet their obligations.  
Insurance policy liabilities are primarily long-term and generally are paid 
from future cash flows.  Most of the Company's invested assets are in bonds 
which are readily marketable.  Although there is no present need or intent 
to dispose of such investments, the Company could liquidate portions of 
their investments if such a need arose.

<PAGE>

Part II.

Item 1.   Legal Proceedings

          Not Applicable

Item 2.   Changes in Securities

          Not Applicable

Item 3.   Defaults upon Senior Securities    

          Not Applicable 

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

          Not Applicable

Item 5.   Other Information

          Not Applicable

Item 6.   Exhibits and Reports on Form 8-K

          Exhibits  - None

          Form 8-K

          The Company did not file any reports on Form 8-K during the 
          nine months ended September 30, 1998



<PAGE>


Signatures

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

First Alliance Corporation
(registrant)


                                                          
Michael N. Fink, President                       Date     November 13, 1998

Thomas I. Evans, Vice President/Asst. Secretary  Date     November 13, 1998