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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    Form 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                          COMMISSION FILE NO.: 0-22910
                          ----------------------------

                              TFC ENTERPRISES, INC.
             (Exact name of registrant as specified in its charter)

        DELAWARE                                          54-1306895
(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization)

                              5425 Robin Hood Road
                                   Suite 101B
                             Norfolk, Virginia 23513
               (Address of principal executive offices) (Zip code)

       Registrant's telephone number, including area code: (757) 858-1400

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, $ .01 par value per share

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

      The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 15, 2002 was approximately $15,210,895 based on the
average of the high and low prices of the registrants Common Stock on the NASDAQ
Stock Market on such date.

      The number of shares outstanding of the registrant's Common Stock as of
March 15,2002 was 11,534,890.

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [X]

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                              TFC ENTERPRISES, INC.
                                 2001 FORM 10-K
                                TABLE OF CONTENTS

PART I..........................................................................

  Item 1.  Business.............................................................
  Item 2.  Properties...........................................................
  Item 3.  Legal Proceedings....................................................
  Item 4.  Submission of Matters to a Vote of Security Holders..................

PART II

  Item 5.  Market for Registrant's Common Equity and Related Stockholder
           Matters..............................................................
  Item 6.  Selected Financial Data..............................................
  Item 7.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations............................................
  Item 7A. Quantitative and Qualitative Disclosures about Market Risk...........
  Item 8.  Financial Statements and Supplementary Data..........................

PART III........................................................................

  Item 10. Directors and Executive Officers of the Registrant; Section 16(a)
           Beneficial Ownership Reporting Compliance
  Item 11. Executive Compensation...............................................
  Item 12. Security Ownership of Certain Beneficial Owners and Management.......
  Item 13. Certain Relationship and Related Transactions........................

PART IV.........................................................................

  Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....

                                     PART I

This report contains "forward-looking statements" as defined in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to the safe harbor created by
such acts. Any statements contained in this Report that are not statements of
historical fact are forward-looking statements. Without limiting the foregoing,
the words "believes," "anticipates," "plans," "expects," "seeks" and similar
expressions are intended to identify forward-looking statements. The important
factors discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Market Risk Disclosure and Risk Factors,"
among others, could cause actual results to differ materially from those
indicated by forward-looking statements made in this report and those presented
elsewhere by management from time to time.

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Please refer to the cautionary statement that appears at the beginning of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"

ITEM 1. BUSINESS
----------------

The Company

We began operations in 1977 in Alexandria, Virginia, with the founding of The
Finance Company by Robert S. Raley, Jr., our current Chairman of the Board and
Chief Executive Officer. Mr. Raley has spent his entire 42-year career
exclusively within the consumer finance industry. We now conduct consumer
finance operations primarily through two wholly owned subsidiaries, The Finance
Company and First Community Finance, Inc.

Through The Finance Company, we purchase and service retail installment sales
contracts originated by automobile and motorcycle dealers in the sale of
vehicles, consisting of new and used automobiles, vans, light trucks, and
motorcycles on an individual basis. Retail installment sales contracts are
acquired on an individual basis after we have reviewed and approved the vehicle
purchaser's credit application. The primary focus of our business is retail
installment sales contracts originated by dealers with consumers who are United
States enlisted military personnel, in the E-1 through E-4 pay grades and
non-military consumers who do not have access to traditional sources of credit.
To achieve an acceptable rate of return and provide for credit risks, contracts
are purchased from dealers at a discount to the remaining principal balance.
Most of the discount is held in a nonrefundable reserve against which credit
losses are first applied. We are based in Norfolk, Virginia, with nine Contract
Production Offices and three full service branches throughout the United States.

To maximize our results in 2001, we focused our efforts on our core businesses,
automobile retail installment sales contract at The Finance Company and Direct
Consumer Loans at First Community Finance. In order to maintain this focus and
maximize our strongest business lines, we have phased out as of March 2001 other
business lines such as Bulk Acquisitions from "Buy Here Pay Here" automobile
dealers.

Our purchases provide us with the ability to direct the credit underwriting
process at the initiation of the retail installment sales contract.
Participating dealers benefit by having a source of financing for a group of
customers who typically find financing difficult to obtain. This financing
allows a dealer to increase the number of vehicles sold and improves dealer
profitability. Consumers also benefit because the financing we provide enables
them to purchase a vehicle they otherwise might not be able to buy. We utilize a
network of nine strategically located contract production offices and three full
service branches to underwrite and purchase contracts from participating
dealers. As of December 31, 2001, $227.8 million, or 82%, of our gross contract
receivables represented point-of-sale purchases, compared to $202.5 million, or
68%, at December 31, 2000 and $175.6 million, or 68%, at December 31, 1999.

In the bulk purchase business, we had emphasized acquisitions of portfolios of
seasoned retail installment sales contracts. These contracts normally had a
payment history of at least three months. While the typical bulk purchase was
approximately $250,000, we had, at times, purchased portfolios totaling more
than $12 million. As of December 31, 2001, $20.3 million, or 7% of our gross
contract receivables was attributable to bulk purchases, compared to $64.5
million, or 22%, at December 31, 2000, and $60.9 million, or 24% at December 31,
1999.

Although we underwrite and purchase contracts through the various contract
production offices, the responsibility for servicing the military accounts is
centralized at our service center located in Norfolk, Virginia. Servicing of
non-military accounts, purchased by the full service branches, is performed by
each branch.

Through First Community Finance, which is headquartered in Richmond, Virginia,
we originate and service small consumer loans and purchase and service retail
installment sales contracts. First Community Finance began


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operations in the first quarter of 1995 with the opening of two branches in
Richmond, Virginia. As of December 31, 2001, it had twenty branches in Virginia
and North Carolina. As of December 31, 2001, $28.6 million, or 10%, of the
Company's gross contract receivables was attributable to First Community
Finance, compared to $26.9 million, or 9%, at December 31, 2000 and $20.9
million, or 8% at December 31, 1999.

TFC Enterprises, Inc. was incorporated under the laws of Delaware. Our principal
executive and administrative offices are located at 5425 Robin Hood Road, Suite
101B, Norfolk, Virginia 23513, and our telephone number is (757) 858-1400. In
this report, when we refer to "TFC Enterprises," "we" or "us" or make similar
references, we mean TFC Enterprises, Inc. and its wholly owned subsidiaries.

Industry Overview

Commercial banks and captive finance companies of major automobile manufacturers
tend to dominate most segments of the automotive finance industry. Although
consumer credit risk classifications are not standardized, institutions
generally concentrate on consumers that could be characterized as being
"low-risk" or "medium-risk" from a credit perspective. Our target market
involves consumers that are characterized as being "high-risk" from a credit
perspective.

The direct consumer loan industry established in the early 1900's has
traditionally been serviced by major national companies, smaller regional
companies and small local independent companies. Over the last 10-15 years many
of the major national companies have retreated from or reduced their involvement
in this market.

In 2001 and continuing in 2002, our management has directed TFC Enterprises
toward those sectors of the market in which management believes pricing more
closely reflects inherent risk. Areas of focus include the automobile retail
installment sales contract business and direct consumer loans, all of which
involve consumers whom have limited access to traditional sources of credit.

AUTOMOBILE FINANCE OPERATIONS (THE FINANCE COMPANY)

Dealer Selection and Program

Through its marketing efforts, The Finance Company has established relationships
with automobile dealers that originate retail installment sales contracts which
are then purchased by The Finance Company, through individual purchases. We have
relationships with both franchised automobile dealerships and independent used
car dealers that are not affiliated with us.

To achieve an acceptable rate of return and provide for credit risks, we
purchase contracts from dealers at a discount to the remaining principal
balance. In automobile retail installment sales contract purchases, the discount
is the difference between the purchase price we pay the dealer and the amount
financed, net of the cost of ancillary products such as warranty, other loss
protection products and physical damage insurance The amount of the discount at
which contracts are purchased reflects, among other things, term and credit
risk. We purchase contracts in accordance with applicable underwriting criteria
and pursuant to a Master Dealer Agreement, in the case of automobile retail
installment sales contract purchases, or an Asset Purchase Agreement, in the
case of the bulk purchases.

We believe that our dealer programs substantially benefit dealers. The programs
provide a source of financing for a group of customers which typically finds
financing difficult to obtain. Accordingly, dealers are able to sell more
vehicles and improve their profitability. In addition, we provide the following
services to dealers: (1) documentation designed to conform to applicable federal
and state laws; (2) timely response to credit applications; (3) timely payment
for approved installment contracts; and (4) access to a range of ancillary
products.

Sales and Marketing

We market to both franchised automobile dealerships and independent used car
dealers. Prospective dealers are contacted initially by our national marketing
by phone and by personal visits to dealer facilities by appropriate personnel.
In addition, we establish relationships with dealers through referrals from
existing dealers and


                                       4

<PAGE>

independent marketing contractors. We also distribute marketing brochures and
run advertisements in trade journals and other industry publications directed to
dealers. Further, we participate at automobile dealers association meetings and
conventions.

Competition

There are numerous providers of financing for the purchase of used vehicles.
These financing sources include banks, savings and loan associations, consumer
finance companies, credit unions and financing divisions of automobile
manufacturers or automobile retailers. Many of these providers of vehicle
financing have significantly greater resources than The Finance Company and have
relationships with established dealer networks. We have focused on a segment of
the market comprised of consumers who typically do not meet the more stringent
credit requirements of the traditional sources of consumer financing. As a
result, the borrowing needs of these less credit-worthy consumers have
historically not been consistently addressed by traditional financing sources.
If, however, the other providers of consumer financing were to assert a
significantly greater effort to penetrate our targeted market segment, given
their financial strength, The Finance Company could be materially and adversely
affected by the increased competition.

Automobile Retail Installment Sales Contract Purchase Program

The Finance Company establishes relationships with dealers who meet its
financial, organizational and compliance criteria. We currently make purchases
from dealers in approximately 30 states.

The Finance Company purchases contracts pursuant to a Master Dealer Agreement.
Upon entering into a Master Dealer Agreement, we provide the dealer with
necessary documentation for originating retail installment sales contracts and
training its personnel in the use of our documentation. The Master Dealer
Agreement contains representations and warranties by the dealer to The Finance
Company on certain matters, including the security interest in the vehicle. It
also sets forth the general terms upon which retail installment contracts will
be purchased by us. The agreements are nonexclusive and do not obligate a dealer
to sell, or The Finance Company to purchase, any particular contract or volume
of contracts. The Master Dealer Agreement may be terminated at any time by us or
by the dealer (without, however, affecting either party's obligations in respect
of contracts purchased prior to termination).

Typically, a dealer will submit a customer's credit application to more than one
financing source for review. Under our program, a dealer is required to provide
us with a completed credit application that lists the applicant's liabilities,
income, credit and employment history, and other personal information bearing on
the decision to extend credit. The information from the application is then
entered into our automated application processing system and an initial
screening is performed to determine whether the applicant satisfied our
threshold credit criteria. If a credit investigation is warranted, the system
will then automatically contact the credit bureau, include the information
obtained in the applicant's electronic file and identify any characteristics of
the applicant that are outside the parameters of our credit guidelines.

The application and collected information are then analyzed by one of our credit
analysts. The credit analyst's primary concern is the ability and likelihood of
the applicant to make regular monthly payments. Secondarily, the analyst
considers the value of the collateral securing the loan. A credit analyst
evaluates the applicant's personal cash flow requirements and ability to make
regular payments. The credit analyst also considers other factors, including the
size of the monthly payment in relation to the applicant's monthly income and
other monthly payment obligations, as well as the amount of money to be financed
in relation to the purchase price and value of the vehicle. We determine
collateral value based upon the NADA's Guides on Retail and Wholesale Values and
the Kelley Blue Book.


                                       5

<PAGE>

In addition to our standard underwriting investigation procedures, for a
military customer we require an employment letter which is a document from the
applicant's military command that details pay grade, enlistment date, time left
in the service, recent advancements or demotions, and any disciplinary action.
Contracts generally will not be purchased if the applicant has had a reduction
in rank or has had any serious disciplinary action while in the service. The
applicant's time left in service is used to determine the maximum term of the
loan. The maximum loan and payment amounts are established by an applicant's pay
grade. Every applicant in a particular pay grade earns the same salary. Pay
grades E-3's and below are generally limited to a maximum loan amount of $8,000,
while the maximum loan amount for E-4's and above is generally $12,000. A budget
margin is also calculated for each applicant and the margin generally cannot
exceed preset limits for specific pay grades.

Upon completion of the credit application review, a credit analyst will decide
whether to approve the financing as submitted, decline the financing or
conditionally approve the financing. Applicants with characteristics outside the
parameters of the credit guidelines require the approval of a senior credit
analyst or above. Conditional approval of the financing may involve amending the
proposed terms of the contract to enable an applicant to qualify under our
guidelines. Typical matters which might require amendment include requiring a
co-signer, changing the length of the term of payment, requiring a greater down
payment, substantiating certain additional credit information and requiring
proof of resolution of certain credit deficiencies as noted on the customer's
credit bureau reports. Approved, declined or conditional purchase decisions are
promptly communicated to the dealer. Prior to our funding an approved purchase,
another credit staff member completes a checklist which verifies that all
required documentation has been obtained and is accurate.

Typically, retail installment contracts are purchased by and assigned to The
Finance Company at a price that reflects a discount from the amount financed.
Most of the discount is held in a non-refundable reserve against which credit
losses are first applied. Dealers are generally advanced 75 to 80% of the amount
financed (less ancillary products) for their military customers with good credit
and 90 to 95% for non-military customers. The assigning dealer makes certain
warranties as to the validity of the contract and compliance with certain laws.
Also, the dealer generally agrees to indemnify us for any claim, defense or
set-off against the dealer that may be asserted against us by reason of the
assignment. At the time of purchase, we require either physical damage insurance
or a combination of GAP protection and total loss coverage on all automobiles
covered by the retail installment sales contracts that we purchase. To the
extent that material terms of a contract prove to be inaccurate, we generally
have the right under the Master Dealer Agreement to require the dealer to
repurchase the contract.

Bulk Purchase Program

Many dealers finance automobile sales through the use of their own funds. Prior
to March 2001, The Finance Company made bulk purchases of portfolios of seasoned
retail installment contracts from self-financing dealers in approximately 30
states. We considered only those dealers who generated sufficient business
volume, employed satisfactory credit approval procedures, and adequately
monitored and reported loan performance data. Bulk purchases are governed by an
Asset Purchase Agreement which requires the seller to make representations and
warranties to us regarding each contract purchased and the security interests in
the related vehicles. In a bulk purchase we did not have the opportunity to
verify the information relating to a retail installment contract before its
purchase by the dealer. Bulk purchases were made after the origination of the
retail installment contract. Generally, if a representation or warranty by the
dealer is breached in a bulk purchase transaction, we can require the dealer to
repurchase the applicable contract. In many cases, a special reserve or holdback
is established, against which these contracts can be charged. Before entering
into a bulk purchase relationship with a dealer, we obtained information to
ensure the dealer's compliance with licensure, bonding and organizational
requirements. We then performed extensive due diligence procedures to determine
whether to conduct business with the particular dealer.

Generally, The Finance Company purchased only the portion of a seller's
portfolio that met or exceeded its underwriting guidelines. Upon receipt of the
installment sales contracts, they were immediately reviewed for thoroughness and
accuracy. The residency and work history profile of the dealership's customers
was also reviewed, and, prior to purchase, this information on a significant
portion of accounts to be purchased is confirmed. Generally 30 days after
completing a Bulk Purchase, we confirmed by telephone with the purchasers of the
motor vehicles the


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<PAGE>

various terms of a majority of the contracts underlying each bulk purchase. To
the extent that material terms of any contract prove to be inaccurate, we
generally have the right under the Asset Purchase Agreement to require the
dealer to repurchase the contract.

Contract Duration

Contracts in The Finance Company's point-of-sale portfolio have an initial
duration normally ranging from 18 to 60 months, with an average original
maturity of approximately 46 months. Bulk purchase contracts generally had an
average remaining maturity of 18 to 24 months at the time of purchase.

Contract Purchase Volume

<TABLE>
<CAPTION>
                                                              2001            2000            1999            1998            1997
                                                            --------        --------        --------        --------        --------
(dollars in thousands)
<S>                                                         <C>             <C>             <C>             <C>             <C>
Gross Contracts purchased or originated:
Point-of-sale                                               $171,776        $150,895        $130,786        $142,221        $ 85,311
Bulk                                                          13,651          75,445          71,228          54,929          70,520
                                                            --------        --------        --------        --------        --------

Total                                                       $185,427        $226,340        $202,014        $197,150        $155,831
                                                            ========        ========        ========        ========        ========

Number of contracts purchased or originated:
Point-of-sale                                                 12,108          10,995          10,499          11,478           7,411
Bulk                                                           2,304          10,640          12,905          11,711          14,157
                                                            --------        --------        --------        --------        --------

Total                                                         14,412          21,635          23,404          23,189          21,568
                                                            ========        ========        ========        ========        ========

Average size of contract: (in dollars):
Point-of-sale                                               $ 14,187        $ 13,724        $ 12,457        $ 12,391        $ 11,511
Bulk                                                        $  5,925        $  7,091        $  5,519        $  4,690        $  4,981
Weighted average                                            $ 13,617        $ 10,462        $  8,632        $  8,502        $  7,228
                                                            ========        ========        ========        ========        ========
</TABLE>

The Finance Company's contract purchase volume is discussed more fully in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7 below.

Ancillary Products

The Finance Company offers through its dealers warranty and other loss
protection products as allowed by the state. These products are provided and
underwritten by third-party vendors. Accordingly, liabilities under the
ancillary products are not our obligation. We offer these products to dealers so
that they, in turn, may provide vehicle purchasers a more complete line of
products and services. By offering these products, we are able to generate
supplementary revenue without incurring significant additional expenses. During
2001, 2000 and 1999, The Finance Company generated gross revenues of
approximately $0.4 million, $0.2 million, and $0.4 million, respectively, from
the sale of ancillary products through its dealers.


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<PAGE>

Collections

The Finance Company receives payments on purchased contracts through a number of
different means, including electronic transfer, personal check, payroll check
endorsed to it, government check (such as Social Security, disability or income
tax refund check that is endorsed to it), cashier's check, traveler's check,
money order, Western Union Quick Collect Check, bank wire transfer and cash. We
monitor payments to maintain each customer's current address and banking data.
In certain instances, a customer will make a payment at one of our contract
production offices, auto center branch or our service center.

Our underwriting guidelines dictate that United States military enlisted
personnel must, prior to their origination of a contract with a dealer, execute
an authorized allotment form. The form provides for the automatic electronic
transfer of monthly payments to The Finance Company. The process is managed by a
third-party data processor, Military Assistance Corporation. Salary allotments
are effected monthly by the respective military branch's disbursement center. On
the first day of each month immediately following a month in which allotments
are effected, the amount of such allotment is deposited into a transaction
account at Fort Knox National Bank established by Military Assistance
Corporation in the name of the obligor. The salary allotment is immediately
transferred by Military Assistance Corporation first, from the obligor's account
to a Military Assistance Corporation custodial account at Fort Knox - National
Bank, and, second, to the collection account. The allotment system enables
United States military personnel to effect timely payment of their obligations
without regard to reassignment or temporary relocation characteristic of United
States military enlisted personnel. Although it is our policy to require United
States military enlisted personnel to initially authorize the allotment of their
respective monthly payments to The Finance Company, the allotments may be
withdrawn. The mere withdrawal of an allotment authorization does not constitute
an event of default under a contract, but it could make it more difficult to
effect collections on our delinquent related receivables.

Monitoring the payment history of accounts and implementing appropriate remedial
action is the responsibility of our Collections Department within the service
center and the auto center branches. At year-end 2001, a total of 88 employees,
or 42% of The Finance Company's total full-time equivalent employees, worked in
Collections.

One of the primary responsibilities of the Collections is to monitor customer
accounts that are delinquent in payment. Collections Department personnel work
with customers to resolve payment problems and bring accounts to current status
at the earliest possible stage of delinquency. Collections Department employees
are compensated, in part, through bonuses tied to their monthly collection
performance.

When calling a customer with a delinquent account, Collections Department
personnel utilize The Finance Company's Collections Training Manual. Developed
by us, the manual specifies the procedures to follow in different circumstances
in order to maximize the effectiveness of the call. The specific action our
employees take on a delinquent account will depend on the customer's particular
circumstances as well as the past payment history of the account. However, in
all cases, our primary focus is resolving the problem causing the delinquency,
arranging a modified payment plan, or working out a settlement agreement. Each
Department employee is responsible for keeping records of all collections
activity carried out on each account and for following up on "callback" and
"broken promise" dates as appropriate. In addition, Collections personnel are
responsible for following up as necessary on bankruptcies and requesting
repossession and legal action.

When we have difficulty locating a customer, Collections personnel attempt to
find the individual through skip tracing, which utilizes various sources of
available information about a customer. Military personnel have almost no
ability to become a "skip" as long as they remain in the military. In the event
of transfer, they can be located through the military locator service, which
provides current duty station addresses and phone numbers. All communications
with and efforts to locate the customer are reflected in our data files.

In certain situations, we will repossess a vehicle. If a deficiency exists after
we repossess and sell a vehicle, we may take action to obtain a judgment and
garnishee a customer's wages and assets. From an accounting perspective,
repossessed assets are carried at the lower of the unpaid loan balance or
anticipated liquidation proceeds.


                                       8

<PAGE>

We generally charge off accounts at the end of the month in which they become
180 days past due based on the contract. Additionally, in the month that a
repossession occurs, the carrying value of the repossessed asset is reduced
through charge-off to the lower of the unpaid contract balance or anticipated
liquidation proceeds. Once an account is charged off, it is transferred to the
Recovery Unit, a separate group of collectors who continue collection
activities. The collection activities undertaken by the Recovery Unit are
similar in many respects to those of the Collections personnel. Customers are
called as required and attempts are made to set up repayment plans or work out
settlement agreements as appropriate to a customer's circumstances. Each
Recovery Unit employee is responsible for keeping records of all collections
activity carried out on Recovery Unit accounts and for following up on callback
and broken promise dates as appropriate. The Recovery Unit is also responsible
for following up as necessary on bankruptcies and requesting repossession and
legal action.

The Finance Company's charge-off and delinquency experience is discussed more
fully in Management's Discussion and Analysis of Financial Condition and Results
of Operations included in Item 7 below.

CONSUMER FINANCE OPERATIONS (First Community Finance, Inc.)

Consumer Loan Program

In its Consumer Loan Program, First Community Finance, Inc. originates direct
loans through a network of branch offices. We obtain loans through print media,
customer referrals, renewals and other sources. We receive applications
primarily from the consumer directly, either by telephone or in person at one of
our branches.

Once an application has been received, we perform a background investigation on
the applicant, which includes such things as employment and income verification,
residence verification, direct references from other creditors and review of
credit bureau files. This information is reviewed by a branch manager or
assistant manager to determine creditworthiness. If the applicant is approved,
the applicant would visit the appropriate branch to execute necessary documents
and receive funding.

Loan Origination

Most Consumer Loan Program contracts have an initial duration of 36 months or
less.

The following table sets forth First Community Finance's loan volume, as well as
the number and average size of its loans, for the periods indicated. First
Community Finance commenced operations in 1995.

<TABLE>
<CAPTION>
                                       2001         2000         1999         1998         1997
                                     -------      -------      -------      -------      -------
<S>                                  <C>          <C>          <C>          <C>          <C>
Loans originated (in thousands)      $38,841      $37,359      $28,143      $21,391      $16,023
                                     =======      =======      =======      =======      =======

Number of loans originated            18,940       19,563       14,679       11,864        7,093
                                     =======      =======      =======      =======      =======

Average size of loan                 $ 2,051      $ 1,910      $ 1,917      $ 1,803      $ 2,259
                                     =======      =======      =======      =======      =======
</TABLE>

First Community Finance's loan volume is discussed more fully in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Item 7 below.

Ancillary Products

In connection with its consumer loan business, First Community Finance offers
its customers credit life, credit accident and health insurance and property
insurance. Third party vendors provide and underwrite these products.


                                       9

<PAGE>

Accordingly, liabilities under the ancillary products are not our obligations.
The products protect the customer and provide supplementary revenue to us.
During 2001, 2000, and 1999, First Community Finance generated gross revenues of
approximately $0.4 million, $0.3 million, and $0.3 million respectively from the
sale of ancillary products.

Collections

First Community Finance receives payments on consumer loans primarily through
the mail or by in-person payment at the appropriate branch. Each branch monitors
payments to maintain current information regarding each customer's current
address and banking data. Branch personnel, at times, will make a collection
through a field visit to the customer. The branch is responsible for monitoring
the payment history of the accounts and implementing appropriate remedial
action.

One of the primary responsibilities of a branch is to monitor customer accounts
that are delinquent in payment. Branch personnel work with customers to resolve
payment problems and bring accounts to current status at the earliest possible
stage of delinquency. Specific action on a delinquent account will depend on the
customer's particular circumstances as well as the past payment history of the
account. However, in all cases the primary focus is resolving the problem
causing the delinquency, arranging a modified payment plan or working out a
settlement. At times, branch personnel meet with the customers in the field or
at the branch. When First Community Finance has difficulty locating a customer,
collections personnel will attempt to find the individual by utilizing various
sources of information to which it has access. All communications with and
efforts to locate the customer are reflected in our data files.

Accounts are generally charged off at the end of the month in which they become
180 days contractually past due. Based on the contract, we continue collection
activities even after charge off. Branch personnel call customers regularly and
attempt to set up repayment plans or work out settlement agreements as
appropriate to customer's circumstances.

First Community Finance's charge off and delinquency experience is discussed
more fully in Management's Discussion and Analysis of Financial Condition and
Results of Operations included in Item 7 below.

Competition

There are numerous providers of direct loans. These financing sources include
banks, savings and loan associations, consumer finance companies and credit
unions. Many of these providers have significantly greater resources than First
Community Finance. We have focused on a segment of the market comprised of
consumers who typically do not meet the more stringent credit requirements of
the traditional sources of consumer financing. As a result, the borrowing needs
of the less credit-worthy consumer have historically not been consistently
addressed by traditional financing sources. If, however, the other providers of
consumer financing were to assert a significantly greater effort to penetrate
our targeted market segment, given their financial strength, we could be
materially and adversely affected by the increased competition.

INFORMATION SYSTEMS

We process all data relating to our contract receivables and financial reporting
through a distributed network of computers. Our computer systems are networked
together to provide information to management for analysis as well as automatic
posting to the general ledger for financial reporting purposes. The systems
provide for complete contract processing from the purchase of the contract,
payment to the dealer, posting of payments and all other collection activity
from the inception date of the installment contract. Our systems operate on
software that has been adapted to the specific manner in which we operate our
business.

We have invested in technology that enables us to electronically process credit
applications. This technology reduces processing time and improves
standardization of credit underwriting without significant staff increases.
TFC's loan servicing software systems interface with a predictive dialing system
designed to enhance collection activity by increasing the number of customer
contacts per collector hour. The system dials multiple telephone


                                       10

<PAGE>

numbers simultaneously based on parameters defined by the Collections
Department. Calls are connected automatically to a collector at the same time
the customer's account is displayed on the collector's computer screen. The
process permits better control of calling patterns for more effective calling
and improved customer contact rates. By eliminating busy signals, no answers and
answering machines, the system enables the collector to speak to more customers.
The system also reports collection performance by collector for improved
supervision and results.

First Community Finance uses a computer system designed for the consumer loan
industry. Each branch processes all data relating to that branch on a computer
within the branch. The system provides for complete contract processing from the
closing of the loan, posting of payments and all collection activity. These
systems are networked together to provide consolidated management information
and automatic posting to our general ledger for financial reporting.

We believe that we have sufficient management information systems in place, or
in the process of being implemented, to meet our current and near-term future
requirements.

Regulation

Our businesses are subject to regulation and licensing under various federal,
state and local statutes and regulations. Certain states where we operate have
adopted motor vehicle retail installment sales acts or variations, consumer
finance acts and third party debt collections acts. These laws regulate, among
other things, the interest rates and terms and conditions of motor vehicle
retail installment sales contracts. These state laws also impose restrictions on
direct consumer loan transactions, require disclosures in addition to the
requirements under federal law and impose specific statutory liabilities upon
creditors who fail to comply.

Numerous federal and state consumer protection laws and related regulations
impose substantive disclosure requirements upon lenders and servicers involved
in motor vehicle financing, (affecting The Finance Company) and direct consumer
loans, (affecting First Community Finance). Some of the federal laws and
regulations include the Truth-in-Lending Act, the Equal Credit Opportunity Act,
the Federal Trade Commission Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Motor Vehicle Information and Cost Savings Act,
the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z,
the Graham-Leach-Bliley Act of 1999 and the Soldiers' and Sailors' Civil Relief
Act.

In addition, the Federal Trade Commission has adopted the holder-in-due-course
rule. This rule has the effect of subjecting persons that finance retail
installment credit transactions (and certain related lenders and their
assignees) to all claims and defenses which the purchaser could assert against
the seller of the goods and services. A regulation which applies specifically to
the sale of used automobiles is the Federal Trade Commission's rule on Sale of
Used Vehicles. It requires all sellers of used vehicles to prepare, complete and
display a buyer's guide which explains the warranty coverage for these vehicles.
The Federal Trade Commission's Credit Practices Rules impose additional
restrictions on sales contract provisions and credit practices.

We believe that we are in compliance in all material respects with all
applicable laws and regulations.

Employees

At December 31, 2001, we had 276 full-time equivalent employees. No employees
are currently covered by collective bargaining agreements. We believe that our
employee relations are excellent.


                                       11

<PAGE>

Executive Officers of the Company

The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
Name                      Age*                            Position
<S>                       <C>       <C>
Robert S. Raley, Jr.      64        Chairman of the Board of Directors of TFC Enterprises, The
                                    Finance Company and First Community Finance; Chief Executive
                                    Officer of TFC Enterprises and The Finance Company; and
                                    Executive Vice President of First Community Finance

Ronald G. Tray            60        Director, President, and Chief Financial Officer of TFC
                                    Enterprises, and President, Chief Operating Officer, Chief
                                    Financial Officer and Director of The Finance Company

Delma H. Ambrose          42        Senior Vice President and Chief Servicing Officer of The Finance
                                    Company

G. Kent Brooks            65        President, Chief Executive Officer and Director of First
                                    Community Finance

Rick S. Lieberman         45        Executive Vice President and Chief Lending Officer of The
                                    Finance Company

Patricia Piccola          57        Senior Vice President, Chief Administrative Officer and
                                    Secretary of The Finance Company
</TABLE>

*As of December 31, 2001

Robert S. Raley, Jr. founded The Finance Company in 1977 and has served as
Chairman of the Board from that time until April 1990 and again from May 1990 to
the present. Additionally, he served as President and Chief Executive Officer of
The Finance Company from 1977 to April 1990, from May 1990 to December 1992 and
from August 1996 to the present. Mr. Raley has also served as Chairman of the
Board of TFC Enterprises since its inception in 1984 until April 1990 and again
from May 1990 to the present and as its President and Chief Executive Officer
from 1984 until April 1990 and again from May 1990 through 1992 and from August
1996 to the present. Mr. Raley has served as Chairman of the Board and Executive
Vice President of FCF since inception in 1995. Mr. Raley initially entered the
consumer finance industry in 1959.

Ronald G. Tray joined The Finance Company as a Vice President and director for
Management Information Systems in 1989. Mr. Tray was appointed Chief Operating
Officer and Director of The Finance Company in 1996 and then appointed President
in 2000. Mr. Tray was appointed Vice President of TFC Enterprises in 1996 and
then appointed President and Director in 2001. Prior to joining The Finance
Company, Mr. Tray was employed by MTech Corporation, a data processing service
bureau for banks, located in Fairfax, Virginia, for approximately 20 years. He
served as President of Mtech's Mid-Atlantic Division for the last 2 1/2 years.

Delma H. Ambrose joined The Finance Company in 1989 and has served in several
capacities prior to becoming the General Manager of the Norfolk Service Center
in 1996. Prior to joining The Finance Company, she was employed by Beneficial
Finance Corporation for 11 years.

G. Kent Brooks joined First Community Finance in 1994 as President. Prior to
that, he was employed by Peoples Finance Corporation, Richmond, Virginia, from
1956 to 1980, the last eight years of which he served as President. From 1980 to
1992, Mr. Brooks served as a Senior Vice President and Regional Manager for
Provident Financial Corporation, subsequent to its acquisition of Peoples
Finance Corporation. From 1992 to 1993, Mr. Brooks was employed by American
General Finance, subsequent to its acquisition of Provident Financial
Corporation. Mr. Brooks has been a Director of First Community Finance since
1994.


                                       12

<PAGE>

Rick S. Lieberman joined The Finance Company in 1989 and has served in several
capacities, including Vice President and General Manager of the Norfolk Regional
Service Center until 1996 when he assumed his current position. Prior to joining
The Finance Company, he was employed by ITT Consumer Financial Corporation for 8
years.

Patricia Piccola joined The Finance Company in 1980 through an acquisition of
another specialty finance company. During her tenure, Ms. Piccola has been
involved in nearly every function of The Finance Company's corporate finance and
administrative areas, most recently as Assistant to the Chief Operating Officer.
She assumed her current position in 2000.

Financial Information About Segments

The business segments of TFC Enterprises, Inc. are discussed in Note 13 to the
Consolidated Financial Statements of TFC Enterprises, Inc., presented in Item 8
below.

Item 2. Properties

Our principal executive offices, service center and a contract production
office, are located in Norfolk, Virginia. The combined facilities consist of
approximately 36,000 square feet of space pursuant to a lease expiring in 2006.

The Company has eight point-of-sale contract production offices and three auto
center branches which, on a combined basis, total approximately 18,700 square
feet of space pursuant to leases expiring from March 2002 to November 2005.
First Community Finance, Inc.'s 20 offices, on a combined basis, total
approximately 23,000 square feet of space pursuant to leases expiring March 2002
to January 2005.

We believe that our facilities are adequate for our current and near-term future
requirements.

Item 3. Legal Proceedings

We are a party to several legal actions that are ordinary, routine litigation
incidental to our business. We believe that none of those actions, either
individually or in the aggregate, will have a material adverse effect on our
results of operations or financial position.

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

No matters were submitted to a vote of our security holders during the fourth
quarter of the year ended December 31, 2001.


                                       13

<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Since December 22, 1993, TFC Enterprises, Inc. Common Stock has traded on the
Nasdaq National Market System under the symbol "TFCE." Share price information
with respect to the Common Stock is set forth in the "Selected Quarterly Data"
table included below. As of March 15, 2002, there were approximately 2,088
holders of the Common Stock, including approximately 166 holders of record. TFC
Enterprises, Inc. Bylaws have been amended to allow the Board complete
discretion in setting the annual meeting. No cash dividends have been paid with
respect to the Common Stock since issuance. We have no current plans to pay any
cash dividends relating to the Common Stock in the foreseeable future. Any
dividends on the Common Stock will be at the sole discretion of our Board of
Directors and will depend upon our profitability and financial condition,
capital requirements, statutory restrictions, requirements of our lenders,
future prospects and other factors deemed relevant by our Board of Directors.
If any dividends are paid to the holders of Common Stock, all holders will
share equally on a per share basis.

We have not issued any of our authorized preferred stock.

The following table sets forth the quarterly range of high and low sales price
per share of the Company's Common Stock for 2000 and 2001 as reported by the
NASDAQ Stock Market.

2000                                   High                       Low
First Quarter                         $4.12                      $2.69
Second Quarter                        $3.16                      $2.00
Third Quarter                         $2.34                      $1.25
Fourth Quarter                        $1.73                      $0.50

2001                                   High                       Low
First Quarter                         $1.84                      $0.69
Second Quarter                        $2.25                      $0.78
Third Quarter                         $2.88                      $1.60
Fourth Quarter                        $2.80                      $1.18

Item 6. Selected Financial Data

The following table contains certain consolidated financial and operating data
and is qualified by the more detailed Consolidated Financial Statements and
Notes thereto included elsewhere in this Report. The Consolidated Statements of
Income Data as of December 31, 1997, 1998, 1999, 2000 and 2001 for the years
then ended were derived from the Company's Consolidated Financial Statements and
Notes thereto. The Operating Data has been derived from the unaudited internal
records of the Company. The consolidated financial data shown below should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Report.


                                       14

<PAGE>

Five-Year Summary of Selected Financial Data

<TABLE>
<CAPTION>
                                                                Years ended December 31
(in thousands)                                2001          2000          1999          1998          1997
                                            --------      --------      --------      --------      --------
<S>                                         <C>           <C>           <C>           <C>           <C>
Statement of Operations Data:
Net interest revenue                        $ 32,360      $ 33,125      $ 34,922      $ 26,133      $ 20,298
Provision for credit losses                    1,887           735           466           737           719
                                            --------      --------      --------      --------      --------
Net interest revenue after provision
  for credit losses                           30,473        32,390        34,456        25,396        19,579

Other revenue                                  1,943         2,100         1,382         1,062         1,105
                                            --------      --------      --------      --------      --------
      Total interest and other revenue        32,416        34,490        35,838        26,458        20,684

Operating expense:
Amortization of intangible assets              1,111         1,103         1,091         1,092         1,091
Securitization costs                              --            --            --           448            --
Other                                         22,567        26,277        23,313        20,743        18,886
                                            --------      --------      --------      --------      --------
Total operating expense                       23,678        27,380        24,404        22,283        19,977
                                            --------      --------      --------      --------      --------

Income before income taxes                     8,738         7,110        11,434         4,175           707
Provision for income taxes                     3,662         3,042         4,947           150            --
                                            --------      --------      --------      --------      --------

Net income                                  $  5,076      $  4,068      $  6,487      $  4,025      $    707
                                            ========      ========      ========      ========      ========

Net income per common share :
     Basic                                  $   0.44      $   0.36      $   0.57      $   0.36      $   0.06
     Diluted                                $   0.43      $   0.34      $   0.53      $   0.33      $   0.06

Balance Sheet Data:
Net contract receivables                    $209,291      $218,594      $182,039      $155,895      $128,503
Total assets                                 246,786       252,963       208,511       172,597       147,833
Total debt                                   185,734       197,342       156,683       130,917       109,786
</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

                              Financial Information

                    Forward-looking and Cautionary Statements

We caution you that this report and other written and oral information presented
by our management from time to time, including but not limited to reports to
shareholders, quarterly shareholder letters, filings with the Securities and
Exchange Commission, news releases, discussions with analysts and investor
presentations, include "forward-looking statements" within the meaning of
Section 27A of the Securities of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are subject to the safe harbor
created by those acts. Among other things, these statements relate to our
financial condition, results of operation and business. More specifically, these
forward-looking statements address our business strategies, market potential,
potential for future point-of-sale and bulk purchases, future financial
performance and other matters that reflect management's expectations as of the
date the statements are made. These forward-looking statements are generally
identified by the words "believes," "anticipates," "plans," "expects," "seeks,"
and similar expressions which are intended to identify forward-looking
statements. These forward-looking statements are based upon management's
knowledge at the time of the statements and assumptions about future events and
involve certain risks and uncertainties and other factors that may cause actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking
statements.

There are a number of important factors that could cause our actual results to
differ materially from those indicated by such forward-looking statements. These
factors include, without limitation: our dependence on our lines of credit; our
ability to continue to obtain adequate funding under similar terms to purchase
contracts; intense competition within our markets: the fluctuating interest
rates associated with our line of credit, our reliance on estimates of future
recoveries, based on historical recoveries, from prior and future years
charge-offs and the impact of retail installment contract defaults. Please refer
to a discussion of these and other factors in this report and our other filings
with the Securities and Exchange Commission.


                                       15

<PAGE>

We caution you that the foregoing list of important factors is not exclusive. We
do not undertake to update any forward-looking statement that may be made from
time to time by us or on our behalf.

You should review this section in conjunction with the five-year Summary of
Selected Financial Data included in Item 6 above and the Consolidated Financial
Statements of TFC Enterprises, Inc., including the notes thereto included in
Item 8 below.

                                     General
                                     -------

We began operations in 1977 in Alexandria, Virginia, with the founding of The
Finance Company by Robert S. Raley, Jr., our current Chairman of the Board and
Chief Executive Officer. Mr. Raley has spent his entire 42-year career
exclusively within the consumer finance industry. We now conduct consumer
finance operations primarily through two wholly owned subsidiaries, The Finance
Company and First Community Finance, Inc.

Through The Finance Company, we purchase and service retail installment sales
contracts originated by automobile and motorcycle dealers in the sale of
vehicles, consisting of new and used automobiles, vans, light trucks, and
motorcycles on an individual basis. Retail installment sales contracts are
acquired on an individual basis after we have reviewed and approved the vehicle
purchaser's credit application. The primary focus of our business is retail
installment sales contracts originated by dealers with consumers who are United
States enlisted military personnel, in the E-1 through E-4 pay grades and
non-military consumers who do not have access to traditional sources of credit.
To achieve an acceptable rate of return and provide for credit risks, contracts
are purchased from dealers at a discount to the remaining principal balance.
Most of the discount is held in a nonrefundable reserve against which credit
losses are first applied. We are based in Norfolk, Virginia, with nine Contract
Production Offices and three full service branches throughout the United States.

To maximize our results in 2001, we focused our efforts on our core businesses,
automobile retail installment sales contract at The Finance Company and Direct
Consumer Loans at First Community Finance. In order to maintain this focus and
maximize our strongest business lines, we have phased out as of March 2001 other
business lines such as Bulk Acquisitions from "Buy Here Pay Here" automobile
dealers.

Our purchases provide us with the ability to direct the credit underwriting
process at the initiation of the retail installment sales contract.
Participating dealers benefit by having a source of financing for a group of
customers who typically find financing difficult to obtain. This financing
allows a dealer to increase the number of vehicles sold and improves dealer
profitability. Consumers also benefit because the financing we provide enables
them to purchase a vehicle they otherwise might not be able to buy. We utilize a
network of nine strategically located contract production offices and three full
service branches to underwrite and purchase contracts from participating
dealers. As of December 31, 2001, $227.8 million, or 82%, of our gross contract
receivables represented point-of-sale purchases, compared to $202.5 million, or
68%, at December 31, 2000 and $175.6 million, or 68%, at December 31, 1999.

In the bulk purchase business, we had emphasized acquisitions of portfolios of
seasoned retail installment sales contracts. These contracts normally had a
payment history of at least three months. While the typical bulk purchase was
approximately $250,000, we had, at times, purchased portfolios totaling more
than $12 million. As of December 31, 2001, $20.3 million, or 7% of our gross
contract receivables was attributable to bulk purchases, compared to $64.5
million, or 22%, at December 31, 2000, and $60.9 million, or 24% at December 31,
1999.

Although we underwrite and purchase contracts through the various contract
production offices, the responsibility for servicing the military accounts is
centralized at our service center located in Norfolk, Virginia. Servicing of
non-military accounts, purchased by the full service branches, is performed by
each branch.

Through First Community Finance, which is headquartered in Richmond, Virginia,
we originate and service small consumer loans and purchase and service retail
installment sales contracts. First Community Finance began operations in the
first quarter of 1995 with the opening of two branches in Richmond, Virginia. As
of December 31, 2001, it had twenty branches in Virginia and North Carolina. As
of December 31, 2001, $28.6 million, or 10%, of


                                       16

<PAGE>

the Company's gross contract receivables was attributable to First Community
Finance, compared to $26.9 million, or 9%, at December 31, 2000 and $20.9
million, or 8% at December 31, 1999.

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

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

Net income and earnings per basic common share

We reported net income of $5.1 million, or $0.44 per basic common share, in
2001, compared to net income of $4.1 million, or $0.36 per basic common share in
2000 and net income of $6.5 million, or $0.57 per basic common share in 1999.
The increase in net income and earnings per share in 2001 compared to 2000 was
primarily due to two items-lower cost of borrowed funds and lower operating
expenses.

Volume

Gross contracts purchased or originated in 2001 totaled $224.3 million, compared
to $268.7 million in 2000 and $230.2 million in 1999. The decrease in 2001
volume compared to 2000 was attributable to the phasing out of the Bulk business
from "Buy Here Pay Here" automobile dealers starting in March 2001. The increase
in 2000 volume compared to 1999 reflected growth in all business lines as shown
in the following table. The increases are a result of the continuing acceptance
of the programs we offer.

Gross contracts purchased or originated were as follows:

<TABLE>
<CAPTION>
                                                2001                         2000                       1999
                                                ----                         ----                       ----
(dollars in thousands)                   Amount       Percent        Amount        Percent       Amount        Percent
                                        --------      --------      --------      --------      --------      --------
<S>                                     <C>               <C>       <C>               <C>       <C>               <C>
Contracts purchased or originated:
  Auto finance:
    Point-of-sale                       $171,776          76.6%     $150,895          56.1%     $130,786          56.9%
    Bulk                                  13,651           6.1        75,445          28.1        71,228          30.9
  Consumer finance                        38,842          17.3        37,359          13.9        28,143          12.2
  Other                                       --            --         5,011           1.9            --            --
                                        --------      --------      --------      --------      --------      --------
      Total                             $224,269         100.0%     $268,710         100.0%     $230,157         100.0%
                                        ========      ========      ========      ========      ========      ========
Number of contracts purchased or
  originated:
  Auto finance:
    Point-of-sale                         12,108          36.3%       10,995          25.8%       10,499          27.6%

    Bulk                                   2,304           6.9        10,640          24.9        12,905          33.9
  Consumer finance                        18,940          56.8        19,563          45.8        14,679          38.5
  Other                                       --            --         1,495           3.5            --            --
                                        --------      --------      --------      --------      --------      --------
      Total                               33,352         100.0%       42,693         100.0%       38,083         100.0%
                                        ========      ========      ========      ========      ========      ========
</TABLE>

At year end 2001, we were purchasing automobile retail installment contracts
through nine Contract Production Offices ("CPO's") located in Norfolk, Virginia;
Killeen, Texas; Jacksonville, Florida; San Diego, California; Tacoma,
Washington; Clarksville, Tennessee; Columbus, Georgia; Wichita Falls, Texas;
Honolulu, Hawaii; and three full service branches located in Lakewood, Colorado;
Covina, California; and Fountain Valley, California.

In 2001, First Community Finance originated $38.8 million in consumer finance
contracts, compared to $37.4 million in 2000 and $28.1 million in 1999. The
growth is primarily attributable to the maturing of the existing


                                       17

<PAGE>

offices and their ability to capture a larger market share in the communities
they serve and to the purchase of two offices from a competitor in 2000. All
consumer finance contract originations are produced and serviced by 20 offices
located in Virginia and North Carolina. The number of offices increased from
sixteen in 1998 to seventeen in 1999 to twenty-one in 2000 and decreased to
twenty in 2001. First Community Finance closed one office in North Carolina
during 2001.

Net interest revenue

Net interest revenue was $32.3 million in 2001 compared to $33.1 million in 2000
and $34.9 million in 1999. The decline in net interest revenue in 2001 compared
to 2000 was primarily due to lower yields on our earning assets resulting from
the implementation of a more competitive program offered to the dealers and to a
decrease in the amount of contract discount accreted to interest revenue as a
yield enhancement because of the uncertain economic conditions. The decline in
net interest revenue in 2000 compared to 1999 was primarily due to two items-
higher cost of borrowed funds due to higher interest rates and lower yields on
our earning assets resulting from the implementation of a more competitive
program offered to the dealers.

The yield on interest earning assets was 20.47% for 2001 compared to 22.26% and
23.60% for the years of 2000 and 1999. The decrease in yield in 2001 compared to
2000 reflects a more competitive program offered to the dealers, a decrease in
the amount of contract discount accreted to interest revenue as a yield
enhancement because of uncertain economic conditions, and a decline in the Bulk
portfolio which carried a higher yield. The decrease in yield in 2000 compared
to 1999 reflects a more competitive program offered to the dealers and to a
decrease in the amount of contract discount accreted to interest revenue as a
yield enhancement because of increased charge-off levels in 2000.

The cost of interest bearing liabilities was 9.66% for 2001, compared to 10.37%
and 9.07%, for 2000 and 1999. The decrease in 2001 compared to 2000 reflects a
lower overall one-month LIBOR rate for 2001. The increase in 2000 compared to
1999 reflects a higher overall one-month LIBOR rate for 2000.

Net interest revenue

<TABLE>
<CAPTION>
                                                           Years ended December 31
                                                           -----------------------
(dollars in thousands)                                2001           2000           1999
                                                    --------       --------       --------
<S>                                                 <C>            <C>            <C>
Average interest earning assets (a)                 $251,321       $230,030       $203,428
Average interest bearing liabilities                 197,525        174,422        144,378
                                                    --------       --------       --------
Net interest earning assets                         $ 53,796       $ 55,608       $ 59,050
                                                    ========       ========       ========

Interest and other finance revenue on contract
receivables                                         $ 51,440       $ 51,213       $ 48,010
Interest expense                                      19,080         18,088         13,088
                                                    --------       --------       --------
Net interest revenue                                $ 32,360       $ 33,125       $ 34,922
                                                    ========       ========       ========

Yield on interest earning assets                       20.47%         22.26%         23.60%
Cost of interest bearing liabilities                    9.66          10.37           9.07
                                                    --------       --------       --------
Net interest spread                                    10.81%         11.89%         14.53%
                                                    ========       ========       ========

Net interest margin (b)                                12.88%         14.40%         17.17%
                                                    ========       ========       ========
</TABLE>

(a)   Average gross contract receivables net of unearned interest revenue.
(b)   Net interest margin is net interest revenue divided by average interest
      earning assets.

Other revenue

Other revenue was $1.9 million in 2001 compared to $2.1 million in 2000 and $1.4
million in 1999. The decrease in 2001 compared to 2000 reflects lower fee income
by Recoveries Inc which ceased operations in 2001. The increase


                                       18

<PAGE>

in 2000 compared to 1999 was the result of the increase in interest revenue on
the larger balance of restricted cash related to our asset securitization
activity and an increase in fee income generated by Recoveries, Inc.

Operating expense

Operating expense was $23.7 million in 2001 compared to $27.4 million in 2000
and $24.4 million in 1999. The $3.7 million decrease in 2001 compared to 2000
reflected the downsizing of the Bulk division and two small subsidiaries The
$3.0 million increase in 2000 over 1999 reflected increased salaries and
benefits relating to increased staffing needs as additional collection personnel
were necessary to service the larger receivable portfolio, increased staffing in
the national sales department, increased occupancy expenses related to the full
year cost of the additional contract production offices opened in 1999, and
additional costs associated the with the growth of two smaller subsidiaries.

Operating expenses as a percent of interest earning assets decreased to 9.42%
for 2001 from 11.90% and 12.00% in 2000 and 1999. The decrease in the operating
expense ratio in 2001 over 2000 resulted from the downsizing of the Bulk
division and two small subsidiaries. The decrease in the operating expense ratio
in 2000 over 1999 resulted from increasing net contract receivables without a
proportional increase in operating expense.

Provision for income taxes

We recorded a $3.7 million tax provision for 2001 compared to a $ 3.0 million
tax provision in 2000 and a $4.9 million tax provision in 1999. The effective
tax rate in 2001 of 41.9% and in 2000 of 42.8% is higher than the expected
combined federal and state tax rates due primarily to goodwill amortization that
is not deductible for tax purposes.

In 1993, contingent interest on our convertible notes was considered deductible
for Federal income tax purposes but was treated as non-deductible for income tax
expense in our financial statements. We are continuing to negotitate the IRS
regarding the deductibility of the contingent interest.

                               Financial Condition
                               -------------------

Assets

Total assets decreased by $6.2 million, or 2%, to $246.8 million at December 31,
2001, from $253.0 million at December 31, 2000. The decrease was primarily
attributable to a decrease in net contract receivables due to the phasing out of
Bulk purchases which was offset by an increase in restricted cash related to our
asset securitization activity.

Net contract receivables

Net contract receivables were $209.3 million, or 85% of total assets at December
31, 2001, compared to $218.6 million, or 86% of total assets at December 31,
2000.

Net contract receivables

                                 December 31,
                                 ------------
(dollars in thousands)        2001          2000
                            --------      --------

Auto finance:
  Point-of-sale             $156,737      $136,967
  Bulk                        24,725        53,619
Consumer finance              27,829        28,008
                            --------      --------
    Total                   $209,291      $218,594
                            ========      ========


                                       19

<PAGE>

Liabilities

Total liabilities were $195.7 million at December 31, 2001, an decrease of $11.3
million, or 5%, from $207.0 million at December 31, 2000. The decrease in
liabilities in 2001 reflected decreased borrowings as the result of the decrease
in net contract receivables. Liabilities represented 79% of total liabilities
and equity at December 31, 2001 compared to 82% at December 31, 2000.

                           Credit Quality and Reserves
                           ---------------------------

Net charge-off of auto finance contract receivables

Net charge-off (net of recoveries) to the allowance for credit losses and
nonrefundable reserve were $36.2 million in 2001, or 16.4% of average net
contract receivables, compared to $33.9 million, or 16.5%, in 2000, and $27.0
million, or 14.6% in 1999.

Provision for credit losses on auto finance contract receivables

Our primary business involves purchasing installment sales contracts at a
discount from the principal balance. A portion of this discount represents
anticipated credit loss and based upon projected loss experience, is held in a
nonrefundable reserve against which future credit losses will first be applied.
The remaining portion of the discount, if any, is recorded as unearned discount
and accreted to income using the interest method over the contractual life of
the related receivables. Additional amounts necessary to cover estimated future
credit losses are first reclassified from unearned discount to nonrefundable
reserve then, if necessary, an amount is charged to income sufficient to
maintain the combined allowance for credit losses and nonrefundable reserve at
an amount considered by management to be adequate to absorb estimated future
credit losses on the outstanding contract receivables.

Provision for credit losses is dependent on a number of factors, including, but
not limited to, the level and trend of delinquencies and net charge-off, the
amount of nonrefundable and refundable dealer reserves and the overall economic
conditions in the markets in which we operate. Due to the inherent uncertainty
involved in predicting the future performance of these factors, there can be no
assurance regarding the future level of provision for credit losses.

Reserves on auto finance contract receivables

The static pool reserve methodology is used to analyze and reserve for our
credit losses. This methodology allows us to stratify our portfolio into
separate and identifiable annual pools. The loss performance of these annual
pools is analyzed monthly to determine the adequacy of the reserves. The loss
performance to date combined with estimated future losses by pool year
establishes the estimated loss for each pool year. These combined estimated
losses are reduced by estimated future recoveries that are based on historical
recovery performance to establish the estimated required reserve for credit
losses. Estimates are reviewed regularly and if necessary, will be revised to
reflect historical experience if it deviates materially from the estimates. In
the quarter ended December 31, 2001 $0.7 million was reclassified from unearned
discount to non-refundable reserves due to the uncertain economic conditions. In
the quarter ended September 30, 2000, $1.8 million was reclassified from
unearned discount to non-refundable reserves to address increased charge-off.
These reclassifications reduce the amount of unearned discount to be accreted to
income over the contractual life of the related receivables, which impacts
future interest revenue.

At December 31, 2001, the combination of allowance for credit losses,
nonrefundable reserve and unearned discount totaled $15.1 million, or 7.4%, of
gross auto finance contract receivables, net of unearned interest revenue
compared to $26.2 million, or 11.7% at December 31, 2000. The decrease in the
percentage of reserves to contract receivables


                                       20

<PAGE>

in 2001 compared to 2000 is the result of the phase-out of the bulk purchases
which historically has carried a higher charge-off percentage.

The reserves as a percentage of gross auto finance contract receivables net of
unearned interest at December 31, 2001, of 7.4% are less than net charge-off as
a percentage of average net contracts receivable for 2001, of 16.4%. This
difference exists primarily because the reserves include an estimate of future
recoveries on prior year charge-off and future recoveries on current year
charge-off that are not reflected in the current year charge-off percentage.
These estimated future recoveries are based on historical recovery performance
and this estimate is an integral part of the evaluation of the adequacy of the
reserves performed by management quarterly. In addition, we have increased our
penetration of ancillary products such as warranty and other products that
minimize the loss incurred because of the difference between the debtors
insurance coverage and the contract balance that occurs when the collateral is a
total loss or is stolen. Finally the ratio is lower due to an increase in the
portion of the portfolio with lower expected loss because of the credit profile
of the debtor.

Our refundable dealer reserve decreased to $0.7 million at December 31, 2001
compared with $2.5 million at December 31, 2000. Under certain of our bulk
programs, contracts from dealers were purchased under a refundable, rather than
nonrefundable reserve relationship. Under certain circumstances, we may have to
remit some or all of the refundable reserve back to the dealer. No such
liability exists under a nonrefundable reserve relationship. Accordingly, the
refundable reserve is carried as a liability on our Consolidated Balance Sheet
and is not included in the calculation of our reserve ratio.

Consumer finance charge-off and reserves (First Community Finance)

Net charge-off (net of recoveries) of consumer finance contracts totaled $1.1
million or 3.88% in 2001 compared to $0.6 million or 2.92% in 2000 and $0.5
million or 2.47% in 1999. The provision for credit losses was $1.1 million in
2001, $0.7 million in 2000 and $0.5 million 1999, and the allowance for credit
losses was $1.1 million or 3.93% of outstanding gross contract receivables at
December 31, 2001, compared to $0.9 million or 3.40% of contract receivables at
December 31, 2000 and $0.8 million or 3.94% of contract receivables at December
31, 1999. Management has established the level of the allowance that it
considers to be adequate based on First Community Finance's loss experience.

Consolidated allowance and reserves for contract receivables

<TABLE>
<CAPTION>
                                                                      Years ended December 31
                                                                      -----------------------
(dollars in thousands)                                         2001             2000             1999
                                                             ---------        ---------        ---------
<S>                                                          <C>              <C>              <C>
Beginning of period                                          $  22,945        $  23,496        $  22,195
  Provision for credit losses                                    1,887              735              466
  Allocation for credit losses                                  27,581           33,343           28,315
  Charge-off                                                   (44,904)         (40,587)         (33,330)
  Recoveries                                                     6,264            5,958            5,850
                                                             ---------        ---------        ---------
End of period                                                $  13,773        $  22,945        $  23,496
                                                             =========        =========        =========

Average net contract receivables (a)                         $ 251,321        $ 230,030        $ 203,428

End of period net contract receivables (a)                   $ 233,234        $ 253,637        $ 216,900

Total net charge-off as a percent of average
  net contract receivables                                       15.38%           15.07%           13.51%
                                                             =========        =========        =========

Allowance, nonrefundable reserve and unearned discount
  as a percent of net contract receivables (period end)           7.03%           11.03%           12.96%
                                                             =========        =========        =========
</TABLE>

(a)   Gross contract receivables net of unearned interest revenue.


                                       21

<PAGE>

Net charge-off by line of business:

                           Years ended December 31
                           -----------------------
(in thousands)         2001         2000         1999
                      -------      -------      -------

Auto finance:
  Point-of-sale       $25,402      $19,652      $16,081
  Bulk                 10,814       14,267       10,892
Consumer finance        1,063          666          507
Other                   1,361           44           --
                      -------      -------      -------
    Total             $38,640      $34,629      $27,480
                      =======      =======      =======

Delinquencies

Gross auto finance contract receivables that were 60 days or more past due
totaled $15.2 million, or 6.12% of gross auto finance contract receivables at
December 31, 2001, compared to $16.1 million, or 6.06%, at December 31, 2000.
Gross auto finance contract receivables that were 30 days or more past due
totaled $22.5 million, or 9.09% of gross auto finance contract receivables at
December 31, 2001, compared to $25.1 million, or 9.42%, at December 31, 2000.

Gross consumer finance receivables, originated by First Community Finance, that
were 60 days or more past due totaled $1.3 million, or 4.7% of gross receivables
at December 31, 2001, compared to $0.9 million, or 3.3% at December 31, 2000.
Gross consumer finance receivables, originated by First Community Finance, that
were 30 days or more past due totaled $2.0 million, or 6.8% of gross receivables
at December 31, 2001, compared to $1.4 million, or 5.0% at December 31, 2000.

Consistent with standard industry practice, we measure delinquency at each month
end by classifying a contract that is unpaid for two monthly payments as 30 days
delinquent and a contract that is unpaid for three monthly payments as 60 days
delinquent.


                                       22

<PAGE>

Consolidated Delinquency

<TABLE>
<CAPTION>
                                                                         Years ended December 31
                                                                         -----------------------
(dollars in thousands)                                              2001           2000           1999
                                                                  --------       --------       --------
<S>                                                               <C>            <C>            <C>
Gross contract receivables                                        $278,470       $297,823       $257,391
Gross contract receivables 60 + days and over delinquent
  Gross contract amount                                           $ 16,732       $ 17,284       $ 15,528
  Percent of total gross contract receivables                         6.01%          5.80%          6.03%
Gross contract receivables 30 + days and over delinquent
  Gross contract amount                                           $ 24,830       $ 26,992       $ 23,525
  Percent of total gross contract receivables                         8.92%          9.06%          9.14%
</TABLE>

                        Liquidity and Capital Resources
                        -------------------------------

Cash Flows

As shown on the Consolidated Statements of Cash Flows, cash and cash equivalents
decreased by $1.2 million in 2001, to $0.4 million at December 31, 2001. The
decrease reflected $11.5 million of net cash used in financing activities which
was offset by $8.7 million in net cash provided by operating activities and by
$1.6 million of net cash provided by investing activities. Net cash provided by
investing activities principally reflected $7.4 million in net repayments of
contract receivables and a $5.5 million increase in restricted cash related to
the receivable backed notes. Net cash used in financing activities reflected
$14.0 million of net borrowing on our revolving lines of credit, $23.5 million
net payments received under the receivable backed notes, $1.8 million of new
subordinated debt, and $3.9 million paid on outstanding subordinated debt. Cash
and cash equivalents decreased by $0.7 million in 2000, to $1.6 million at
December 31, 2000. The decrease reflected $6.8 million of net cash provided by
operating activities and $39.3 million in net cash provided by financing, offset
by $46.8 million of net cash used in investing activities. Net cash used in
investing activities principally reflected $37.4 million in net purchases of
contract receivables and a $8.1 million increase in restricted cash related to
the receivable backed notes. Net cash provided by financing activities reflected
$8.9 million of net payments on our revolving lines of credit, $24.9 million
received under the receivable backed notes, $7.7 million of new subordinated
debt and $2.2 million paid on outstanding subordinated debt.

Liquidity Management

In March 2002, we placed $64.6 million of automobile receivables-backed
securities. The notes are expected to have an average life of 1.3 years with a
coupon to the investors of approximately 4.23%. The coupon cost compared to the
weighted average APR of the loans of approximately 18.22% leaves a gross
interest spread of approximately 13.99%.

We have $6.1. million of subordinated debt principal payments due in 2002. In
February, we deferred $1.6 million of this debt to payments starting in January
2003. $2.0 million is due in June 2002. The remaining $2.5 million is related to
the 12% and 15% notes and are expected to renew upon maturity. We intend to fund
the remaining amounts through cash flow from operations. We also hope to issue
additional subordinated debt in 2002, but we cannot offer assurance we will be
able to find investors interested in acquiring this debt. These payments, if not
replaced by additional subdebt, do however, negatively impact the availability
under our primary line of credit.

Currently, TFC's principal sources of borrowing are (i) a revolving line of
credit (the "GE Facility") in the maximum amount of $50 million until July 1,
2002 when it is reduced to $40 million, guaranteed by TFC's parent company, TFC
Enterprises, Inc., with General Electric Capital Corporation ("GE Capital") and
(ii) a revolving line of credit (the "Westside Facility") in the maximum amount
of $75 million, with Westside Funding Corporation, a special purpose funding
vehicle administered by WestLB. The GE Facility is scheduled to terminate on
January 2, 2003. There can be no assurance that a new credit facility will be
executed or available when the GE Facility expires. If a new credit facility is
not executed, then TFC will be required to seek alternative financing sources
and repay its outstanding balance on or before the expiration of the GE
Facility. No assurance can be given that alternative financing sources in
addition to the Westside Facility would be available in such event. TFC entered
into the


                                       23

<PAGE>

Westside Facility in June 2001 due to a reduction in the maximum amount of the
GE Facility and to facilitate future securitizations. The Westside Facility is
scheduled to expire on January 1, 2004.

Dividends

We did not declare dividends on our common stock during the years ended December
31, 2001, 2000 and 1999, nor do we anticipate paying cash dividends in the
foreseeable future. If and when we decide to declare cash dividends, the amount
would be limited by certain provisions of our various credit agreements.

                     Market Risk Disclosure and Risk Factors
                     ---------------------------------------

In evaluating TFC Enterprises, prospective investors should consider carefully
all of the information set forth throughout this Report and, in particular,
should evaluate the following risk factors.

Defaults on Retail Installment Contracts

We are engaged in consumer finance activities with consumers who have limited
access to traditional sources of consumer credit. The inability of an individual
to obtain financing through traditional credit sources is generally due to such
individual's past credit history or insufficient cash to make the required down
payment. As a result, retail installment contracts purchased by The Finance
Company or originated by First Community finance are generally with consumers
who are considered to have a higher risk of default on a retail installment
contract than certain other consumers. Accordingly, we engage in consumer loan
activities which typically have a higher risk of loss than those of other
consumer financings. While we believe that our expertise with this type of
credit customer enables us to evaluate and price accurately the higher risk
associated with our business, a significant economic downturn in the markets in
which we operate could materially increase the number of charged-off and
delinquent retail installment contracts as compared to our historical losses. If
we were to experience a material increase in charge-off or delinquencies, our
profitability could be adversely affected.

See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Credit Quality and Reserves."

Competition

There are numerous providers of financing for the consumers targeted by TFC
Enterprises, Inc. Those financing sources include commercial banks, savings and
loan associations, consumer finance companies, credit unions, financing
divisions of automobile manufacturers or automobile retailers, small sales
contract companies and other consumer lenders. Many of those providers have
significantly greater financial resources than we and have relationships with
established networks. We have focused on a segment of the market composed of
consumers who typically do not meet the more stringent credit requirements of
the traditional consumer financing sources and whose needs, as a result, have
not been addressed consistently by such financing sources. If, however, the
other providers of consumer finance were to assert a significantly greater
effort to penetrate our targeted market segment, we could be materially and
adversely affected.

Regulation

Our business is subject to regulation and licensing under various federal, state
and local statutes and regulations. Our business operations are conducted in
approximately 30 states and, accordingly, the laws and regulations of such
states govern our operations conducted in those states. Most states where we
operate limit the interest rate, fees and other charges that may be imposed by,
or prescribe certain other terms of, the contracts that we purchase and define
our rights to repossess and sell collateral. In addition, we are required to be,
and are, licensed to conduct our operations in certain states. As we expand our
operations into other states, we are required to comply with the laws of such
states.


                                       24

<PAGE>

An adverse change in those laws or regulations could have a material adverse
effect on our profitability by, among other things, limiting the states in which
we may operate or the interest rate that may be charged on retail installment
contracts or restricting our ability to realize the value of any collateral
securing contracts. We are not aware of any materially adverse legislation
currently pending in any jurisdiction where we currently transact business.

Restrictions on the Payment of Dividends

We currently intend to retain our earnings to finance the growth and development
of our business. Accordingly, we do not anticipate paying any cash dividends in
the foreseeable future.

Effect of Certain Charter, Bylaw and Statutory Provisions

Certain provisions of TFC Enterprises, Inc.'s Amended and Restated Certificate
of Incorporation and Amended and Restated Bylaws could delay or frustrate the
removal of incumbent directors. These provisions could make more difficult a
merger, tender offer or proxy contest involving TFC Enterprises, even if such
events could be beneficial, in the short term, to the interest of the
stockholders. For example, the Certificate of Incorporation provides for a
classified Board of Directors and for certain limitations on the calling of a
special meeting of stockholders. The Bylaws require advance notice of
stockholder proposals and nominations of directors. We also are subject to
provisions of Delaware corporation law that prohibit a publicly-held Delaware
corporation from engaging in a broad range of business combinations with a
person, or interested shareholder who, together with affiliates and associates,
owns 15% or more of the corporation's common stock for three years after the
person became an interested stockholder, unless the business combination is
approved in a prescribed manner. Those provisions could discourage or make more
difficult a merger, tender, offer or similar transaction, even if favorable to
our stockholders.

Authorized Preferred and Common Stock

Pursuant to our Certificate of Incorporation, shares of preferred stock and
Common Stock may be issued in the future without further stockholder approval
and upon such terms and conditions, and having such rights, privileges and
preferences, as the Board of Directors may determine. The rights of the holders
of Common Stock will be subject to, and may be adversely affected by, any
preferred stock that my be issued in the future. The issuance of preferred stock
provides desirable flexibility in connection with possible acquisitions and
other corporation transactions. However, Preferred Stock could have the effect
of making it more difficult for a third party to acquire, or effectively
preventing a third party from acquiring, a majority of the outstanding voting
stock of TFC Enterprises. We have not present plans to issue any shares of
preferred stock.

Dependence Upon Key Executive Officers

Our growth and development to date have been largely dependent upon the services
of key executive officers. The loss of a significant number of these officers
could have a material adverse effect on TFC Enterprises.

Recent Accounting Pronouncements

Financial Accounting Standards Board Statements No. 133 and 138 "Accounting for
Certain Derivative Instruments and Certain Hedging Activities" became effective
January 1, 2001. Statements No. 133 and 138 require that derivatives, as defined
by the Statements, be recorded for financial reporting purposes at fair value.
Changes in fair value are reported directly through the statement of income
unless specific hedge accounting criteria are met. Adoption of these Statements
did not have and are not expected to have a material impact on our financial
condition or results of operations.


                                       25

<PAGE>

In July, 2001, the Financial Accounting Standards Board issued two statements -
Statement 141, Business Combination, and Statement 142, Goodwill and Other
Intangible Assets, which will potentially impact the Company's accounting for
its reported goodwill and other intangible assets. Statement 141 eliminates the
pooling method for accounting for business combinations, requires that
intangible assets that meet certain criteria be reported separately from
goodwill, and requires the recording of negative goodwill arising from a
business combination as an extraordinary gain. Statement 142 eliminates the
amortization of goodwill and other intangibles that are determined to have an
indefinite life and requires, at a minimum, annual impairment tests for goodwill
and other intangible assets that are determined to have an indefinite life.

Financial Accounting Standards Board Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" became effective for fiscal years
beginning after December 15, 2001. Statement No. 144 requires that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired.

The Company has not yet completed its full assessment of the effects of
Statements 141, 142, and 144 on its financial statements and so is uncertain as
to the impact. The standards generally are required to be implemented by the
Company in its 2002 financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Our operations require substantial borrowing to provide funding for the retail
installment contracts purchased by The Finance Company and originated by First
Community Finance. Consequently, profitability is impacted by the difference
between the rate of interest paid on the funds we borrow and the rate of
interest charged on the retail installment contracts, which rate in some states
is limited by law. The floating interest rate for borrowings under the line of
credit are equal to the average one-month London Interbank Offered Rate, or
LIBOR rate, plus a spread. Thus, future increases in interest rates could
adversely affect our profitability. During 2001 and 2000, we mitigated a
substantial portion of this interest rate risk by the placement of asset backed
securities with fixed interest rates over the anticipated period required for
those receivables to liquidate.

We also believe we have certain flexibility to increase the discount at which
retail installment contracts are purchased, or to increase the rate of interest
charged on future retail installment contracts (to the extent not limited by
state law), in order to offset the adverse impact of any interest rate increase
on profitability. If one-month LIBOR averaged 10% more in 2001 than in 2000, net
income would decrease by approximately $0.5 million. These amounts are
determined by considering the impact of the hypothetical interest rates on our
borrowing cost, short-term investment balances, and interest rate cap agreement.
These analyses do not consider the effects of the reduced level of overall
economic activity that could exist in such an environment. Further, in the event
of a change of such magnitude, management would likely take actions to further
mitigate our exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, the sensitivity
analysis assumes no changes in our financial structure.


                                       26

<PAGE>
Item 8. Financial Statements and Supplementary Data


                         Report of Independent Auditors
                         ------------------------------

The Board of Directors and Shareholders
TFC Enterprises, Inc.

We have audited the accompanying consolidated balance sheet of TFC Enterprises,
Inc. as of December 31, 2001 and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for the year then ended. Our
audit also included the financial statement schedule listed in the Index at Item
14(a) as of and for the year 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 audit.

We conducted our audit 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 TFC Enterprises,
Inc. as of December 31, 2001 and the consolidated results of their operations
and their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.


                                        McGladrey & Pullen, LLP

Raleigh, North Carolina
January 18, 2002, except for the last
paragraph of Note 1, as to which
the date is March 19, 2002


                                       27

<PAGE>


                         Report of Independent Auditors


The Board of Directors and Shareholders
TFC Enterprises, Inc.

We have audited the accompanying consolidated balance sheet of TFC Enterprises,
Inc. as of December 31, 2000, and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for the years ended December 31,
2000 and 1999. Our audits also included the financial statement schedule listed
in the Index at Item 14(a) as of December 31, 2000 and for the years ended
December 31, 2000 and 1999. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits provide 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 TFC Enterprises,
Inc. at December 31, 2000, and the consolidated results of its operations and
its cash flows for the years ended December 31, 2000 and 1999, in conformity
with accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects, the information set forth therein.

                                              Ernst & Young LLP

Richmond, Virginia
March 9, 2001, except for the first
three sentences of the last paragraph
of Note 1, as to which the date is April 2, 2001

<PAGE>


                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        December 31
                                                                        -----------
(dollars in thousands, except share amounts)                           2001           2000
                                                                       ----           ----
<S>                                                               <C>            <C>
Assets
Cash and cash equivalents                                         $     422      $   1,603
Restricted cash                                                      23,176         17,677
Net contract receivables                                            209,291        218,594
Equipment and leasehold improvements, net                             2,094          2,615
Intangible assets, net                                                7,770          8,881
Other assets                                                          4,033          3,593
                                                                  ---------      ---------
  Total assets                                                    $ 246,786      $ 252,963
                                                                  =========      =========

Liabilities and shareholders' equity
Liabilities:
Revolving lines of credit                                         $ 117,751      $ 103,763
Automobile receivables-backed notes                                  55,056         78,531
Subordinated notes and other term debt                               12,927         15,048
Accounts payable and accrued expenses                                 2,989          4,291
Income taxes and other liabilities                                    6,254          2,954
Refundable dealer reserve                                               728          2,454
                                                                  ---------      ---------
  Total liabilities                                                 195,705        207,041

Commitments

Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized;
none outstanding                                                         --             --
Common stock, $.01 par value, 40,000,000 shares authorized;
11,534,890 and 11,449,559 shares issued and outstanding at
December 31, 2001 and 2000,  respectively                                51             50
Additional paid-in capital                                           56,187         56,105
Accumulated deficit                                                  (5,157)       (10,233)
                                                                  ---------      ---------
  Total shareholders' equity                                         51,081         45,922
                                                                  ---------      ---------
  Total liabilities and shareholders' equity                      $ 246,786      $ 252,963
                                                                  =========      =========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                       28

<PAGE>

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                       Years ended December 31
                                                       -----------------------
(in thousands, except per share amounts)              2001        2000        1999
                                                      ----        ----        ----
<S>                                                <C>         <C>         <C>
Interest and other finance revenue on contract
receivables                                        $51,440     $51,213     $48,010
Interest expense                                    19,080      18,088      13,088
                                                   -------     -------     -------
Net interest revenue                                32,360      33,125      34,922
Provision for credit losses                          1,887         735         466
                                                   -------     -------     -------
Net interest revenue after provision
  for credit losses                                 30,473      32,390      34,456
                                                   -------     -------     -------

Other revenue:
Commissions on ancillary products                      866         586         742
Other interest revenues                                690         553          34
Other                                                  387         961         606
                                                   -------     -------     -------
Total other revenue                                  1,943       2,100       1,382
                                                   -------     -------     -------

Total interest and other revenue                    32,416      34,490      35,838

Operating expense:
Salaries                                            12,047      14,027      12,561
Employee benefits                                    2,239       2,632       2,531
Occupancy                                            1,187       1,314         985
Equipment                                            1,467       1,595       1,437
Amortization of intangible assets                    1,111       1,103       1,091
Other                                                5,627       6,709       5,799
                                                   -------     -------     -------
Total operating expense                             23,678      27,380      24,404

Income before income taxes                           8,738       7,110      11,434

Provision for income taxes                           3,662       3,042       4,947
                                                   -------     -------     -------

Net income                                         $ 5,076     $ 4,068     $ 6,487
                                                   =======     =======     =======

Net income per common share:
     Basic                                         $  0.44     $  0.36     $  0.57
                                                   =======     =======     =======
     Diluted                                       $  0.43     $  0.34     $  0.53
                                                   =======     =======     =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                       29

<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                 Number of                Additional
                                   Shares      Common       Paid-in       Accumulated
(in thousands)                  Outstanding     Stock       Capital         Deficit          Total
                                -----------     -----       -------         -------          -----
<S>                                <C>           <C>        <C>            <C>              <C>
BALANCE, DECEMBER 31, 1998         11,405        $50        $56,020        $(20,788)        $35,282
Net income                             --         --             --           6,487           6,487
Stock options exercised                25         --             60              --              60
                                   ------        ---        -------        --------         -------
BALANCE, DECEMBER 31, 1999         11,430         50         56,080         (14,301)         41,829
Net income                             --         --             --           4,068           4,068
Stock options exercised                20         --             25              --              25
                                   ------        ---        -------        --------         -------
BALANCE , DECEMBER 31, 2000        11,450         50         56,105         (10,233)         45,922
Net income                             --         --             --           5,076           5,076
Stock options exercised                85          1             82              --              83
                                   ------        ---        -------        --------         -------
BALANCE, DECEMBER 31, 2001         11,535        $51        $56,187        $ (5,157)        $51,081
                                   ======        ===        =======        ========         =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                       30

<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                  Years ended December 31
                                                                                  -----------------------
(in thousands)                                                                 2001           2000           1999
                                                                               ----           ----           ----
<S>                                                                       <C>            <C>            <C>
Operating activities
Net income                                                                $   5,076      $   4,068      $   6,487
Adjustments to reconcile net income to  net cash provided by
operating activities:
   Amortization of intangible assets                                          1,111          1,103          1,091
   Depreciation and other amortization                                        1,215          1,332          1,301
   Provision for deferred income taxes                                        1,848          2,781            712
   Provision for credit losses                                                1,887            735            466
   Amortization of deferred financial costs                                   2,039          1,121             38
   Changes in operating assets and liabilities:
      Increase in other assets                                               (2,860)        (1,299)        (1,082)
      (Decrease) increase in accounts payable and accrued liabilities        (1,302)           752            359
      (Decrease) increase  in refundable dealer reserve                      (1,726)           935            695
      Increase (decrease) in income taxes and other liabilities               1,452         (4,768)         1,872
                                                                          ---------      ---------      ---------
      Net cash provided by operating activities                               8,740          6,760         11,939
                                                                          ---------      ---------      ---------

Investing activities
Net cost of acquiring contract receivables                                 (123,503)      (158,390)      (135,470)
Repayment of contract receivables                                           130,919        121,003        108,860
Purchase of equipment and leasehold improvements                               (303)        (1,286)        (1,160)
Increase in restricted cash                                                  (5,499)        (8,114)        (9,563)
                                                                          ---------      ---------      ---------
      Net cash provided by (used in) investing activities                     1,614        (46,787)       (37,333)
                                                                          ---------      ---------      ---------

Financing activities
Net (payments) borrowings on the revolving lines of credit                   13,988          8,897        (26,415)
Borrowings on automobile receivables - backed notes                          60,225         79,665         65,150
Payments on automobile receivables - backed notes                           (83,700)       (54,784)       (12,834)
Borrowings on subordinated notes                                              1,805          7,703          1,855
Payments on subordinated notes                                               (3,936)        (2,166)        (2,000)
Proceeds from stock options exercised                                            83             25             60
                                                                          ---------      ---------      ---------
    Net cash (used in) provided by financing activities                     (11,535)        39,340         25,816
                                                                          ---------      ---------      ---------

Increase (decrease) in cash and cash equivalents                             (1,181)          (687)           422
Cash and cash equivalents at beginning of year                                1,603          2,290          1,868
                                                                          ---------      ---------      ---------
Cash and cash equivalents at end of year                                  $     422      $   1,603      $   2,290
                                                                          =========      =========      =========

Supplemental disclosures:

Interest paid                                                             $  15,146      $  15,782      $  12,303
Income taxes paid                                                             1,789          4,712          2,611
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       31

<PAGE>

Notes to Consolidated Financial Statements

1. Summary of significant accounting policies

Organization and business

TFC Enterprises Inc. ("TFCE") is a holding company with two primary wholly-owned
subsidiaries, The Finance Company ("TFC") and First Community Finance, Inc.
("FCF"). TFCE has no significant operations of its own. TFC specializes in
purchasing and servicing installment sales contracts originated by automobile
and motorcycle dealers involved in the sale of new and used automobiles, vans,
light trucks, and motorcycles (collectively "vehicles") on an individual basis
("point-of-sale" purchase). Based in Norfolk, Virginia, TFC also has nine
contract production offices and three full service branches throughout the
United States in communities with a large concentration of military personnel.
FCF specializes in the direct origination and servicing of small consumer loans.
FCF operates 20 branches throughout Virginia and North Carolina.

Principles of consolidation

The accompanying financial statements include the accounts of TFCE and its
wholly-owned subsidiaries, (collectively, the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.

Cash and cash equivalents

Cash and cash equivalents are defined as cash and overnight repurchase
agreements, exclusive of restricted cash.

Restricted cash

Restricted cash relates to cash collected on contract receivables which are the
collateral for the automobile receivables-backed notes. The restricted cash is
used to pay the principal and interest on the automobile receivables-backed
notes.

Contract Receivables

Contract receivables that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
unpaid principal balances reduced by any charge-off or valuation accounts and
net of any unamortized deferred service fees and unamortized discounts on
purchased loans.

Credit losses

TFC

The Company's primary business involves purchasing installment sales contracts
at a discount from the remaining principal balance on both a bulk and
point-of-sale basis. A portion of this discount represents anticipated credit
loss and based upon projected loss experience, is held in a nonrefundable
reserve against which future credit losses will first be applied. The remaining
portion, if any, of the discount is recorded as unearned discount and accreted
to income as discussed below. Additional amounts necessary to cover estimated
future credit losses, if any, are first reclassified from unearned discount to
nonrefundable reserve then, if necessary, an amount is charged to income
sufficient to maintain the combined allowance for credit losses and
nonrefundable reserve at an amount considered by management to be adequate to
absorb estimated future credit losses on the outstanding contract receivables.


                                       32

<PAGE>

Management evaluates the reasonableness of the assumptions used in projecting
the loss experience by reviewing historical credit loss experience,
delinquencies, repossession and other recovery trends, the size of the finance
contract portfolio and general economic conditions and trends. Historical credit
loss experience is monitored on a static pool basis. Contract originations,
subsequent charge-off and recoveries are assigned to annual pools and the pool
performance is monitored separately. Projected recoveries are considered in
reserves anticipated for credit losses based on undiscounted amounts. If
necessary, any assumptions used will be changed in the future to reflect
historical experience to the extent it deviates materially from that which was
assumed.

It is generally the Company's policy, related to the installment sales contracts
purchased by TFC, to charge its nonrefundable reserve and then the allowance for
credit losses for all contract receivables which are 180 days past due. Any
amounts collected subsequent to being charged off are restored to the
nonrefundable reserve.

The carrying value of repossessed assets is reduced, through charge-off, to the
lower of the unpaid contract balance or anticipated liquidation proceeds.

FCF

The Company's policy related to unsecured consumer contracts originated by FCF
is to establish and maintain, through a charge to income, an allowance for
credit losses, based on historical credit experience of FCF and the industry.
Generally, consumer finance receivables which are 180 days past due are charged
against this allowance for credit losses. Any amounts collected subsequent to
being charged off are restored to the allowance for credit losses.

Equipment and leasehold improvements

Equipment and leasehold improvements are recorded at cost, less accumulated
depreciation. Depreciation expense is computed using the straight-line method
over each asset's estimated useful life, generally five to seven years.

Intangible assets

Intangible assets consist of a purchased dealer list and goodwill, which are
being amortized using the straight-line method over periods of 15 years and 20
years, respectively. The carrying values of the intangible assets are reviewed
on an ongoing basis. If this review indicates that the intangibles will not be
fully recoverable, as determined based on estimated undiscounted cash flows
generated by the intangible assets over their remaining lives, their carrying
values will be reduced to the recoverable amounts using discounted cash flows.
No impairment losses have been recorded for any period presented.

Income taxes

The Company uses the liability method to account for income taxes. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities (i.e., temporary differences) and are measured at the
enacted rates that will be in effect when these differences are expected to
reverse.

Income recognition

Interest revenue from precomputed contract receivables, simple interest-bearing
contract receivables and revenue from insurance commissions are recognized using
the interest method. Loan origination service fees and certain direct costs are
capitalized and recognized as an adjustment of the yield of the related loan
using the interest method.


                                       33

<PAGE>

The portion of the discount arising from purchases of contract receivables which
is not considered to be nonrefundable reserve for credit losses (see discussion
above) is recorded as a unearned discount. Unearned discounts are deferred and
accreted to income using the interest method over the contractual life of the
related receivables. The Company periodically reassesses the amount of contract
purchase discount accreted to interest revenue to reflect changes in delinquency
and charge-off experience.

Accrual of interest revenue and accretion of unearned discounts continue until
contracts are collected in full, become ninety days contractually delinquent, or
are charged-off (see discussion above) consistent with practices generally
applied by consumer finance companies.

Deferred Financing Costs

External costs incurred to obtain financing are deferred and amortized on the
effective interest method over the anticipated term of the borrowing. Deferred
financing costs of $1.9 million and $1.8 million at December 31, 2001 and 2000
are included in other assets.

Derivative Instruments

The Company uses derivative instruments to minimize significant unplanned
fluctuations in earnings that are caused by interest-rate volatility. The
Company's goal is to manage interest-rate sensitivity by modifying the
repricing or maturity characteristics of certain balance-sheet assets and
liabilities so that the net-interest margin is not, on a material basis,
adversely affected by movements in interest rates. As a result of interest-rate
fluctuations, hedged assets and liabilities will appreciate or depreciate in
market value. The effect of this unrealized appreciation or depreciation will
generally be offset by income or loss on the derivative instruments that are
linked to the hedged assets and liabilities.

Comprehensive Income

Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Components of
comprehensive income are required to be reported in a financial statement that
is displayed with the same prominence as other financial statements. The Company
has no other comprehensive income items for any periods presented.

Stock-based compensation

As permitted by the provisions of FAS No. 123, "Accounting for Stock Based
Compensation" (FAS No. 123) the Company continues to account for stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations.

Earnings per share

Basic earnings per share is based on the weighted average number of common
shares outstanding, excluding any dilutive effects of options and convertible
securities. Diluted earnings per share is based on the weighted average number
of common and common equivalent shares, including dilutive stock options and
convertible securities outstanding during the year.

Use of estimates

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

Risks and Uncertainties

In its normal course of business, the Company encounters two significant types
of risk: economic and regulatory. There are three components of economic risk:
interest rate risk, credit risk and market risk. The Company is subject to
interest rate risk to the degree that its interest-bearing liabilities mature or
reprice more rapidly or on a different basis than its interest-earning assets.
Credit risk is the risk of default on the Company's loan portfolio that results
from the borrowers' inability or unwillingness to make contractually required
payments. Market risk reflects changes in the value of collateral underlying
contracts receivable.

The determination of the allowance for loan losses is particularly susceptible
to significant changes in the economic, environment and market conditions.
Management believes that, as of December 31, 2001, the allowance for loan


                                       34

<PAGE>

losses and non-refundable reserves are adequate based on information currently
available. A worsening or protracted economic decline would increase the
likelihood of losses due to credit and market risks and could create the need
for substantial increases to the allowance for loan losses.

The Company's business is subject to regulation and licensing under various
federal, state and local statutes and regulations. Most states where the Company
operates limit the interest rate, fees and other charges that may be imposed by,
or prescribe certain other terms of the contracts that the Company purchases and
define the Company's rights to repossess and sell collateral. An adverse change
in those laws or regulations could have a material adverse effect on the
Company's profitability by, among other things, limiting the states in which the
Company may operate or the interest rate that may be charged on installment
contracts or restricting the Company's ability to realize the value of any
collateral securing contracts. The Company is not aware of any materially
adverse legislation currently pending in any jurisdiction where it currently
transacts business. In June 2001, The Finance Company completed a $75 million
warehouse facility for the interim financing of motor vehicle retail installment
contracts. The facility has an expiration date of January 1, 2004 with an option
to extend one year. The transaction was completed with Westside Funding
Corporation, a special purpose funding vehicle administered by Westdeutsche
Landesbank Girozentrale, New York Branch (WestLB). WestLB will assist TFC as
placement agent for structuring Securitization Transactions from the related
collateral in the warehouse facility.

In December 2000, GECC announced that it would no longer participate in the
business of financing automobiles or automobile finance companies and renewed
the amended revolving line of credit through March 2001. In March 2001, The
Finance Company signed a new agreement with this lender that terminates January
1, 2002. The credit line available under the new agreement declined from $130
million to $100 million at the closing of the securitization on April 2, 2001,
declined to $75 million on August 1, 2001, and terminated January 1, 2002. On
December 3, 2001 the credit line was reduced to $50 million and extended through
April 1, 2002. In March 2002, the Company signed a new agreement with this
lender that terminates January 2, 2003. The credit line available under the new
agreement declines from $50 million to $40 million on July 1, 2002.
Additionally, on March 19, 2002, The Finance Company completed a debt financing
consisting of $64.6 million of Automobile Receivables-Backed Notes, Series
2002-1. The notes were sold in a private placement to qualified institutional
buyers. The notes were issued through TFC's wholly-owned, bankruptcy remote,
receivables subsidiary, TFC Receivables Corporation V ("TRCV"), and are rated
"AA" by Standard & Poor's Ratings Services and Fitch Ratings Services. The notes
are collateralized by the assets of TRCV. Principal and interest payments under
the notes are guaranteed pursuant to a financial guaranty insurance policy
issued by Radian Asset Assurance Inc. Principal and interest payments on the
notes are made monthly based on cash collections relating to the collateral pool
of contract receivables. At the time of issuance, the notes had an expected
average life of 1.3 years and a final maturity of August 2007. Subject to
certain conditions, the notes may be redeemed in whole, but not in part, when
the outstanding principal balance of the notes is equal to or less than $12.0
million.


                                       35

<PAGE>

2. Contract receivables

The following is a summary of contract receivables at December 31:

(in thousands)                                              2001            2000
Contract receivables:
  Auto finance                                          $248,048        $266,105
  Consumer finance                                        28,616          27,095
  Other                                                    1,806           4,623
                                                        --------        --------
    Gross contract receivables                           278,470         297,823
Less:
  Unearned interest revenue                               45,236          44,186
  Unearned discount                                        2,622           5,012
  Unearned commissions                                     1,196             523
  Unearned service fees, net of costs                      1,040           1,081
  Payments in process                                      5,312           5,204
  Escrow for pending acquisitions                             --             278
  Allowance for credit losses                                971             902
  Nonrefundable reserve                                   12,802          22,043
                                                        --------        --------
    Net contract receivables                            $209,291        $218,594
                                                        ========        ========

The effective rate of interest earned on average net contract receivables assets
was 20.47%, 22.26%, and 23.60% for the years ended December 31, 2001, 2000, and
1999 respectively.

At December 31, 2001, contractual maturities of contract receivables were as
follows:

(In thousands)
--------------
2002                                                                    $122,653
2003                                                                      85,768
2004                                                                      50,557
2005                                                                      17,074
2006                                                                       2,006
2007                                                                         412
                                                                        --------
Gross contract receivables                                              $278,470
                                                                        ========

It has been the Company's experience that a substantial portion of the portfolio
generally is prepaid before contractual maturity dates. The above tabulation,
therefore, should not be regarded as a forecast of future cash collections.

Changes in the allowance for credit losses and nonrefundable reserve were as
follows:

(in thousands)                                           2001              2000
                                                         ----              ----

Beginning balance                                    $ 22,945          $ 23,496
  Allocation for credit losses                         27,581            33,343
  Provision for credit losses                           1,887               735
  Charge-off                                          (44,904)          (40,587)
  Recoveries                                            6,264             5,958
                                                     --------          --------
Ending balance                                       $ 13,773          $ 22,945
                                                     ========          ========


                                       36

<PAGE>

Included in the allocation for credit losses is $0.7 million and $2.2 million
for 2001 and 2000 respectively that was reclassified from unearned discount to
non-refundable reserves to address increased charge-off.

3. Equipment and leasehold improvements

The following is a summary of equipment and leasehold improvementsat December
31:

(in thousands)                                                 2001         2000
                                                               ----         ----

Leasehold improvements                                       $  425       $  301
Computer equipment and software                               3,586        3,511
Furniture and office equipment                                2,379        2,504
Automobiles                                                     232          243
                                                             ------       ------
    Equipment and leasehold improvements                      6,622        6,559
Less: accumulated depreciation and amortization               4,528        3,944
                                                             ------       ------
    Equipment and leasehold improvements, net                $2,094       $2,615
                                                             ======       ======

Depreciation and amortization of equipment and leasehold improvements for the
years ended December 31, 2001, 2000, and 1999, was $0.8 million, $0.9 million,
and $0.9 million, respectively

4. Intangible assets

The following is a summary of intangible assets at December 31:

(in thousands)                                           2001              2000
                                                         ----              ----

  Goodwill                                           $ 16,362          $ 16,362
  Dealer list                                           4,172             4,172
  Less: accumulated amortization                      (12,764)          (11,653)
                                                     --------          --------
  Intangible assets, net                             $  7,770          $  8,881
                                                     ========          ========


                                       37

<PAGE>

5. Pledged assets and debt

Debt outstanding at December 31 consisted of the following:

(in thousands)                                    2001         2000         1999
                                                  ----         ----         ----

Revolving lines of credit                     $117,751     $103,763     $ 94,866
Automobile receivables-backed notes             55,056       78,531       52,316
Subordinated notes (a)                          12,625       14,369        9,019
Other term debt                                    302          679          482
                                              --------     --------     --------
      Total debt                              $185,734     $197,342     $156,683
                                              ========     ========     ========

(a) The subordinated non-convertible notes are net of unamortized discount
totaling $5 thousand and $15 thousand at December 31, 2001 and 2000,
respectively.

Debt maturity schedule at December 31, 2001:

<TABLE>
<CAPTION>
(in thousands)                          2002         2003        2004        Total
                                        ----         ----        ----
<S>                                   <C>          <C>         <C>         <C>
Revolving lines of credit (c)         $ 50,459     $    --     $67,292     $117,751
7.36% ARB Notes (b)                     16,285       4,309          --       20,594
5.853% ARB Notes (b)                    27,521       6,941          --       34,462
Senior subordinated notes                3,667       1,667       1,527        6,861
Subordinated notes                       2,544         230         695        3,469
Debenture                                   --          --       2,300        2,300
Other term debt                            227          75          --          302
                                      --------     -------     -------     --------
                              Total   $100,703     $13,222     $71,814     $185,739
                                      ========     =======     =======     ========
</TABLE>

(b) Maturities are based on a cash flow analysis that incorporates various
assumptions tied to the performance of the contracts that collateralize these
notes. Variation from these assumptions could significantly impact the above
tabulation.

(c) See note 1 in the financial statements for further discussion.

Revolving lines of credit

Pursuant to the amended revolving line of credit agreement dated January 1,
1999, the Company's primary lender agreed to provide a credit line of $130
million through January 1, 2001. The agreement was extended through January 1,
2002. The credit line available under the extension: (i) declined to $100
million as of April 2, 2001; (ii) declined to $75 million on August 1, 2001; and
(iii) terminates January 1, 2002. In December 2001, the facility was further
extended through April 1, 2002 with an available credit line of $50 million. In
March 2002, the Company signed a new agreement with this lender that terminates
January 2, 2003. The credit line available under the new agreement declines from
$50 million to $40 million on July 1, 2002. The revolving line of credit is
secured by all assets of TFC and is guaranteed by TFCE. On a daily basis, the
Company remits all cash receipts relating to those receivables to the lender.
These daily cash receipts are first applied to accrued interest on the revolving
line of credit and the remainder to principal. Borrowings under the revolving
line of credit, totaled $29.0 million and $81.2 million at December 31, 2001 and
2000, respectively. The advance rate used to determine availability on this line
is limited to a percentage of eligible collateral as specified in this amended
agreement. Unused availability under this facility totaled $0.8 million and $3.8
million at December 31, 2001 and 2000, respectively, based on collateral in
existence at that time. The 1997 amended agreement along with the December 1996
amended agreement granted the


                                       38

<PAGE>

lender warrants to purchase a cumulative total of approximately 1.1 million
shares of the Company's common stock at $1 per share over a 5-year period. The
expiration of the warrants was subsequently amended to 120 days after the
termination of the agreement. The issuance of these warrants was recorded as
additional paid-in capital and as a discount to the line of credit. The amount,
$0.5 million in 1997 and $0.4 million in 1996 was amortized into interest
expense over the term of the 1997 amended agreement.

      Interest on the revolving line of credit accrues at a floating rate
      equivalent to one-month LIBOR plus a borrowing spread and line fees of
      $0.3 million for 2001 and 2000.

      The borrowing spread on the Company's primary revolving line of credit was
      as follows for the years ended December 31, 2001, 2000, and 1999:

                                                                Borrowing Spread
January 1, 1999 to July 31, 2001                                      3.50
August 1, 2001 to December 31, 2001                                   4.00

      The average outstanding balance on the revolving line of credit totaled
      $65.2 million, $90.2 million, and $118.1 million, respectively, in 2001,
      2000, and 1999. The average interest rate paid on the revolving line of
      credit was 7.98% in 2001, 9.89% in 2000 and 8.68% in 1999. At December 31,
      2001, 2000, and 1999 respectively, one-month LIBOR was 2.13%, 6.63% and
      5.56% and the total interest rate was 6.13%, 10.13% and 9.06%.

Another line of credit with another lender is secured by certain contract
      receivables of FCF and is guaranteed by TFCE. The $25 million facility was
      established in August 1999, replacing FCF's facility dated March 1997.
      Borrowings outstanding under FCF's credit facility totaled $21.0 million
      and $20.0 million at December 31, 2001 and 2000, respectively. The advance
      rate used to determine availability on the line is limited to 85% of
      eligible collateral as specified in the agreement. Interest on the
      revolving line of credit accrues at a floating rate equivalent to
      one-month LIBOR on the first day of the month plus 2.75%. There was no
      unused availability under this facility in 2001 or 2000. The average
      outstanding balance on the FCF revolving line of credit totaled $20.7
      million, $17.8 million and $13.8 million, in 2001, 2000 and 1999,
      respectively with an average interest rate of 6.85%, 9.14% and 8.65%, in
      2001, 2000 and 1999, respectively. At December 31, 2001, 2000, 1999
      respectively the total interest rate was 4.87%, 9.54% and 9.23%.

A third line of credit with a third lender is secured by certain
      receivables of PCA and is guaranteed by TFCE. This $6 million facility was
      established in December 1999 and renews annually in February. Borrowings
      outstanding under this facility totaled $0.9 million and $2.6 million at
      December 31, 2001 and 2000, respectively. Interest on the revolving line
      of credit accrues at a floating rate equivalent to prime on the first day
      of the month plus 3.25%. There was no unused availability under this
      facility in 2001 or 2000. The average outstanding balance on the PCA
      revolving line of credit totaled $1.7 million and $1.2 million with an
      average interest rate of 10.31% and 12.75% at December 31, 2001 and 2000,
      respectively. At December 31, 2001 and 2000 the total interest rate was
      8.25% and 12.75%.

Warehouse facility

In June 2001, The Finance Company completed a $75 million warehouse facility for
the interim financing of motor vehicle retail installment contracts. The
facility has an expiration date of January 1, 2004 with an option to extend one
year. The transaction was completed with Westside Funding Corporation, a special
purpose funding vehicle administered by Westdeutsche Landesbank Girozentrale,
New York Branch (WestLB). WestLB will assist TFC as placement agent for
structuring Securitization Transactions from the related collateral in the
warehouse facility.


                                       39

<PAGE>

Borrowings under the revolving line of credit, totaled $67.3 million at December
31, 2001. The advance rate used to determine availability on this line is
limited to a percentage of eligible collateral as specified in the agreement.
There was no unused availability under this facility at December 31, 2001.

Interest on the revolving line of credit accrues at a floating rate equivalent
to one-month LIBOR plus borrowing spread of 2.50%. The agreement utilizes
monthly interest-rate swaps to convert its variable-rate debt to a fixed-rate
debt. At December 31, 2001 the warehouse facility approximated fair value.

The average outstanding balance on the revolving line of credit totaled
      $30.1 million for 2001. The average interest rate paid on the revolving
      line of credit was 5.53% for 2001. At December 31, 2001, one-month LIBOR
      was 1.91% and the total interest rate was 4.41%.

Automobile Receivables-Backed Notes

On April 2, 2001, TFC completed a debt financing consisting of $60.2
      million of Automobile Receivables-Backed Notes, Series 2001-1. The notes
      were sold in a private placement to a qualified institutional buyer. The
      notes were issued through TFC's wholly-owned, bankruptcy remote,
      receivables subsidiary, TFC Receivables Corporation IV ("TRC IV"), and are
      rated "AA" by Standard & Poor's Ratings Services. The notes are
      collateralized by the assets of TRC IV. Principal and interest payments
      under the notes are guaranteed pursuant to a financial guaranty insurance
      policy issued by Asset Guaranty Insurance Company.

      Principal and interest payments on the notes are made monthly based on
      cash collections relating to the collateral pool of contract receivables.
      At the time of issuance, the notes had an expected average life of 1.3
      years and a final maturity of April 2007. Subject to certain conditions,
      the notes may be redeemed in whole, but not in part, when the outstanding
      principal balance of the notes is equal to or less than $9.0 million.

On September 26, 2000, TFC completed a debt financing consisting of $81.0
      million of Automobile Receivables-Backed Notes, Series 2000-1. The notes
      were sold in a private placement to a qualified institutional buyer. The
      notes were issued through TFC's wholly-owned, bankruptcy remote,
      receivables subsidiary, TFC Receivables Corporation III ("TRC III"), and
      are rated "AAA" by Standard & Poor's Ratings Services and Moody's
      Investors Service. The notes are collateralized by the assets of TRC III.
      Principal and interest payments under the notes are guaranteed pursuant to
      a financial guaranty insurance policy issued by Financial Security
      Assurance Inc.

      Principal and interest payments on the notes are made monthly based on
      cash collections relating to the collateral pool of contract receivables.
      At the time of issuance, the notes had an expected average life of 1.1
      years and a final maturity of March 2005. Subject to certain conditions,
      the notes may be redeemed in whole, but not in part, when the outstanding
      principal balance of the notes is equal to or less than $12.2 million.

On December 3, 1999, TFC completed a debt financing consisting of $65.2
      million of Automobile Receivables-Backed Notes, Series 1999-A. The notes
      were sold in a private placement to qualified institutional buyers. The
      notes were issued through TFC's wholly-owned, bankruptcy remote,
      receivables subsidiary, TFC Receivables Corporation 2 ("TRC"), and are
      rated "AA" by Standard & Poor's Ratings Services. The notes are
      collateralized by the assets of TRC. Principal and interest payments under
      the notes are guaranteed pursuant to a financial guaranty insurance policy
      issued by Asset Guaranty Insurance Company.

      Principal and interest payments on the notes are made monthly based on
      cash collections relating to the collateral pool of contract receivables.
      At the time of issuance, the notes had an expected average life of 1.2
      years and a final maturity of April 2004. Subject to certain conditions,
      the notes may be redeemed in whole, but not in part, when the outstanding
      principal balance of the notes is equal to or less than $9.8 million. The
      notes were redeemed in September 2001.

The terms of the various agreements supporting the issuance of the Automobile
Receivables-Backed Notes require TRC, TRC III and TRC IV to operate within
certain delinquency and credit loss parameters with respect to the collateral
pool and requires TFC to maintain a minimum net worth. As of December 31, 2000,
TRC, TRC III and


                                       40

<PAGE>

TRC IV were in compliance with the provisions of the agreements. TFC is
responsible for the administration and collection of TRC's, TRC III's, and TRC
IV's receivables.

Subordinated debt

10.48% Subordinated Notes, due 2002

      In June 1995, the Company issued $10.0 million of unsecured subordinated
      notes due. The interest rate is 10.48% and is payable semi-annually. The
      notes may be prepaid subject to a prepayment penalty. Principal payments
      of $2 million are due annually with the final payment due June 2002.

13.25% Subordinated Notes, due 2005

      In August 2000, the Company issued $5.0 million of unsecured subordinated
      notes. The interest rate is 13.25% and interest is payable monthly. The
      notes may be prepaid subject to a prepayment penalty. Principal payments
      of $0.1 million are due monthly beginning June 2002 with the final payment
      due June 2005. In December 2001, based on the prepayment penalty, the
      Company was required to start making the monthly principal payments.
      Therefore, the final payment will be November 2004.

15% Subordinated Notes, due 2002-2004

      From July 1998 to September 2001, the Company issued $2.2 million of
      unsecured subordinated debt due three years from origination. These notes
      were offered pursuant to a private placement to a limited number of
      prospective investors, including but not limited to, the Board of
      Directors, officers and certain existing shareholders of the Company. The
      unsecured notes bear interest at 15% per year. Members of the Board of
      Directors, Executive Officers, and certain relatives have purchased $0.9
      million of these notes.

12% Subordinated Notes, due 2002

      From July 2000 to December 2001, the Company issued $1.0 million of
      unsecured subordinated debt due six months from origination. These notes
      were offered pursuant to a private placement to a limited number of
      prospective investors, including but not limited to, the Board of
      Directors, officers and certain existing shareholders of the Company. The
      unsecured notes bear interest at 12% per year. Members of the Board of
      Directors and Executive Officers have purchased $1.0 million of these
      notes.

Subordinated Debenture, due 2001

      In June 1998, the Company signed a $1.0 million subordinated floating rate
      debenture with a subsidiary of a large U.S. based insurance company that
      is a major provider of credit insurance products to the industry. The
      debenture matured in January 2001, with interest adjusted quarterly and
      payable quarterly at 1% over prime. The weighted-average interest rate was
      10.21% for 2000 and 8.875% for 1999.

Subordinated Note, due 2004

      The Company issued $1.3 million in December 2000 and $1.0 million in
      January 2001 unsecured subordinated debt to an affiliate of an U.S. based
      insurance company that is a major provider of credit insurance products to
      the industry. The debt matures in January 2004 with interest adjusted
      quarterly and payable quarterly at 1% over prime. The weighted-average
      interest rate was 8.50% for 2001 and 10.50% for 2000.

The revolving lines of credit agreements and the Senior Subordinated Note
agreements provide for certain covenants and restrictions regarding, among other
things, minimum net worth and interest coverage, maximum debt to equity ratio,
maximum delinquency and charge-off and minimum reserve requirements.


                                       41

<PAGE>

Dividend restrictions

The Company did not declare dividends on its common stock during the years ended
December 31, 2001, 2000, and 1999, nor does it anticipate paying cash dividends
in the foreseeable future. If and when the Company decides to declare cash
dividends, the amount would be limited by certain provisions of the Company's
various credit agreements. Additionally, the various credit agreements provide
restrictions on TFC's and its subsidiaries ability to transfer funds to TFCE in
the form of dividends.

6. Income taxes

Significant components of deferred tax assets and liabilities were as follows as
of December 31:

<TABLE>
<CAPTION>
(in thousands)                                                    2001          2000
                                                                  ----          ----
<S>                                                           <C>           <C>
Deferred tax assets:
Excess of book nonrefundable reserve over tax                 $  6,775      $ 10,905
Excess of book allowance for credit losses over tax                103           322
Temporary difference relating to employee benefits                 117           123
Contingent interest                                                228           228
Other                                                              275            30
                                                              --------      --------
Total deferred tax assets                                        7,498        11,608
                                                              --------      --------

Deferred tax liabilities:
Recognition of unearned discount income for book purposes
  in advance of tax recognition                                 12,289        14,454
Temporary differences relating to intangible assets                352           458
Excess of tax over book depreciation                               160           151
                                                              --------      --------
Total deferred tax liabilities                                  12,801        15,063
                                                              --------      --------

Net deferred tax (liabilities) assets                         $ (5,303)     $ (3,455)
                                                              ========      ========
</TABLE>

The following is a summary of the income tax provision for the years ended
December 31:

(in thousands)                              2001            2000            1999
                                            ----            ----            ----
Current provision:
  Federal                                 $1,491          $  220          $3,559
  State                                      323              41             676
                                          ------          ------          ------
                                           1,814             261           4,235
                                          ------          ------          ------

Deferred provision:
  Federal                                  1,592           2,341             600
  State                                      256             440             112
                                          ------          ------          ------
                                           1,848           2,781             712
                                          ------          ------          ------

Total                                     $3,662          $3,042          $4,947
                                          ======          ======          ======


                                       42

<PAGE>

The differences between income taxes computed at the statutory Federal rate and
actual amounts were as follows for the years ended December 31:

(in thousands)                                      2001        2000        1999
                                                    ----        ----        ----

Computed at statutory Federal rate                $2,971      $2,417      $3,900
State taxes, net of Federal tax benefit              382         316         490
Amortization of intangible assets                    280         280         277
Other items                                           29          29         280
                                                  ------      ------      ------
Computed at effective rate                        $3,662      $3,042      $4,947
                                                  ======      ======      ======

In 1993, contingent interest on the Company's convertible notes was considered
deductible for Federal income tax purposes but was treated as non-deductible for
income tax expense on the Company's financial statements. The Company is
continuing to challenge the IRS regarding the deductibility of the contingent
interest. To the extent that the contingent interest on convertible notes is
ultimately determined to be deductible for Federal income tax purposes, the
benefit, which totals $1.7 million, will be recognized in the period that the
determination is made.

7. Employee benefit plan

The Company has a defined contribution savings plan covering all permanent
employees working 20 or more hours per week and with more than one year of
service. Under the terms of the plan, the Company matches 50% of employees'
contributions up to 10% of each employee's earnings as defined. In addition,
employees have the option of contributing additional amounts. The Company's plan
expense for 2001, 2000, and 1999 was $0.2 million.

8. Stock Plans

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (the "Stock Purchase Plan"),
which allows for options to purchase common stock to be granted to employees,
including eligible officers, of the Company. A total of 530,000 shares of common
stock have been reserved for issuance under the Stock Purchase Plan.

The Company periodically grants options to certain eligible employees under this
plan. These stock options are fully vested at the date of grant. Approximately,
15,000 options and 13,000 options were exercised in 2001 and 2000, respectively.
As of December 31, 2001, there are no outstanding unexercised options.

Any employee who is customarily employed for at least 20 hours per week and more
than five months per calendar year by the Company and has more than 6 months of
service is eligible to participate in the Stock Purchase Plan. No employee is
permitted to purchase shares under the Stock Purchase Plan if such employee owns
5% or more of the total outstanding shares of the Company. In addition, no
employee is entitled to purchase more than $25,000 of common stock (based upon
the fair market value of the shares of common stock at the time the option is
granted) in any calendar year. The price at which shares of common stock are
sold under the Stock Purchase Plan is the lower of 85% of the fair market value
on the date of grant or the purchase date of such shares.


                                       43

<PAGE>

Long-term Incentive Plan

The Company has established the 1995 Long-Term Incentive Plan ("Incentive
Plan"), which provides incentive stock options, non-qualified stock options and
restricted stock for certain executives of the Company. The options generally
vest over a period of five years. A total of 1.5 million shares of common stock
have been reserved for issuance under the Incentive Plan. On June 1, 1998,
104,679 options granted in 1995 were canceled and reissued at an exercise price
equal to the then fair market value of the Company's common stock of $2.94 with
vesting beginning January 1, 1999 over five years. The remaining options granted
in 1995 at an exercise price of $11.50 expired on December 31, 1999. On June 1,
1998, 483,750 options were granted to certain employees at an exercise price
equal to the then fair market value of the Company's common stock of $2.94, with
vesting beginning January 1, 1999 over five years. Approximately, 70,000 and
3,200 options were excised in 2001 and 2000, respectively. All outstanding
options generally expire five years from the vesting date.

Pro forma information regarding net income and earnings per share is required by
FAS No. 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994, under the fair value method of FAS No. 123 The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions: risk free
interest rate of 2.3% to 6% for 2001 and 2000; price volatility of 70% and a
weighted-average expected life of the options of 5.0 years.


                                       44

<PAGE>

8. Stock Plans (continued)

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of the Company's stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting periods. The Company's pro
forma net income (in thousands) and pro forma income per share based on options
issued during 2001, 2000 and 1999 were as follows:

                                                      Years ended December 31

                                                      2001       2000       1999
                                                      ----       ----       ----

Pro forma net income                                $4,806     $3,593     $6,312

Pro forma net income per basic share                $ 0.42     $ 0.31     $ 0.55

A summary of the activity for the Company's stock options with exercise prices
equal to the grant-date market value for the three years ended December 31 was
as follows:

<TABLE>
<CAPTION>
                                                  2001                        2000                        1999
                                        ------------------------------------------------------------------------------
                                         Shares       Weighted       Shares       Weighted       Shares       Weighted
                                          under        Average        under        Average        under        Average
                                         Option       Exercise       Option       Exercise       Option       Exercise
                                        (In 000s)       Price       (In 000s)       Price       (In 000s)       Price
                                        ------------------------------------------------------------------------------
<S>                                       <C>           <C>           <C>           <C>          <C>            <C>
Outstanding at beginning of year          1,204         $2.74           883         $2.55         1,367         $9.02
Granted                                      18          1.74           410          3.04           768          2.31
Exercised                                   (70)          .96            (3)         2.94           (26)         2.32
Forfeited and expired                      (139)         2.42           (86)         2.48        (1,226)         9.03
                                          -----                       -----                      ------
Outstanding at end of year                1,013         $2.58         1,204         $2.74           883         $2.55
                                          =====                       =====                      ======

Exercisable at end of year                  614         $2.27           567         $2.15           313         $1.82
                                          =====                       =====                      ======
Weighted-average fair value of
  options granted during the year                       $1.07                       $1.90                       $0.60
</TABLE>

For stock options outstanding at December 31, 2001, the range of exercise prices
were $1.25 to $3.13 and the weighted-average remaining contractual life was 5
years.


                                    Page 45

<PAGE>

9. Earnings per share

Earnings per share for the years ended December 31 were as follows:

<TABLE>
<CAPTION>
(in thousands, except per share amounts)                                2001        2000        1999
                                                                        ----        ----        ----
<S>                                                                  <C>         <C>         <C>
Numerator:
     Net income                                                      $ 5,076     $ 4,068     $ 6,487

Denominator:
Denominator for basic earnings per share-weighted-average shares      11,463      11,442      11,409
Effect of dilutive securities:
     Employee stock options                                               62         141         249
Warrants                                                                 411         535         692
                                                                     -------     -------     -------
Dilutive potential common shares                                         473         676         941
                                                                     -------     -------     -------
Denominator for diluted earnings per  share                           11,936      12,118      12,350
                                                                     =======     =======     =======
Basic earnings per share                                             $  0.44     $  0.36     $  0.57
                                                                     =======     =======     =======
Diluted earnings per share                                           $  0.43     $  0.34     $  0.53
                                                                     =======     =======     =======
</TABLE>

10. Commitments

The Company conducts its business in leased facilities with original terms of
one to eleven years with renewal options for additional periods. These leases
are classified as operating leases. Certain equipment, including automobiles,
are leased for original terms of one to five years and are classified as
operating leases. Options to purchase are also included in certain equipment
lease agreements. Rent expense for the years ended December 31, 2001, 2000, and
1999 was approximately $1.1 million, $1.2 million and $1.0 million,
respectively.

Future minimum annual lease payments for property and equipment under lease at
December 31, 2001 were as follows:

(In thousands)
--------------
2002                                                                      $1,004
2003                                                                         815
2004                                                                         583
2005                                                                         532
2006                                                                         203
                                                                          ------
  Total                                                                   $3,137
                                                                          ======

The Company is party to several legal actions which are ordinary, routine
litigation incidental to its business. The Company believes that none of those
actions, either individually or in the aggregate, will have a material adverse
effect on the results of operations or financial position of the Company.

11. Financial instruments with off-balance-sheet risk and concentrations of
credit risks

In its normal course of business, the Company engages in consumer lending
activities with a significant number of consumers (obligors) throughout the
United States. The maximum risk of accounting loss from these on- balance-sheet
financial instruments with these counterparties, assuming all collateral is
deemed worthless, is represented by their respective balance sheet amounts

At December 31, 2001 approximately 62% of the Company's contract receivables
portfolio is related to obligors who bought vehicles from dealers in California
(18%), Virginia (18%), Texas (17%) and Georgia (9%). Although the Company's
contract receivables portfolio includes consumers living throughout the United
States, a substantial portion of the obligors' ability to honor their
obligations to the Company may be dependent on economic conditions in these
states.


                                    Page 46

<PAGE>

12. Estimated fair value of financial instruments

Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," (FAS No. 107) requires the disclosure of the
estimated fair value of on- and off-balance-sheet financial instruments.

Fair value estimates are made at a point in time based on judgments regarding
current economic conditions, interest rate risk characteristics, loss experience
and other relevant market data and information about the financial instrument.
Many of these estimates involve uncertainties and matters of significant
judgment and cannot be determined with precision. Therefore, the estimated fair
value may not be realizable in a current sale of the instrument. Changes in
assumptions could significantly affect the estimates.

Fair value estimates exclude all non-financial assets and liabilities including
property and equipment, goodwill and other intangibles, prepaid assets, accrued
liabilities, taxes payable and refundable dealer reserves. Accordingly, the
estimated fair value amounts of financial instruments do not represent the
entire value of the Company.

The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments at December 31, 2001 and 2000:

Short-term financial instruments The carrying amounts reported on the Company's
balance sheet generally approximate fair value for financial instruments that
mature in 90 days or less, with no significant change in credit risk. The
carrying amounts approximate fair value for cash and cash equivalents,
restricted cash and certain other assets and liabilities. Financial instruments
included in other assets and liabilities primarily include trade accounts
receivable and payable.

Contract receivables The estimated fair value of contract receivables was
calculated using market rates of return required for a bulk purchase of contract
receivables with similar credit and interest rate characteristics. The estimated
fair value of contract receivables that did not meet the criteria for a bulk
purchase, generally contracts that were more than 30 days past due, was
calculated based upon the liquidation value of the collateral.

Revolving lines of credit, automobile-receivables notes, subordinated notes and
other term debt The estimated fair values for the revolving lines of credit,
automobile receivables backed notes, subordinated notes, and other term debt
were based on indicative market prices for debt with similar terms and remaining
maturities currently available to companies with similar credit ratings.

The estimated fair values of the Company's financial instruments at December 31,
2001 and 2000 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                    2001                          2000
                                                    ----                          ----
                                          Carrying      Estimated       Carrying      Estimated
                                            Amount     Fair Value         Amount     Fair Value
<S>                                       <C>            <C>            <C>            <C>
Financial assets:
Cash and cash equivalents                 $    422       $    422       $  1,603       $  1,603
Restricted cash                             23,176         23,176         17,677         17,677
Net contract receivables                   209,291        187,622        218,594        206,365
Other assets                                   438            438            646            646

Financial liabilities:
Revolving lines of credit                 $117,751       $117,751       $103,763       $103,763
Automobile receivables-backed notes         55,056         55,056         78,531         78,531
Subordinated notes                          12,625         10,425         14,369         11,168
Other term debt                                302            302            679            679
Other liabilities                            1,481          1,481          2,501          2,501
</TABLE>


                                    Page 47

<PAGE>

13. Segments

Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision makers in deciding how to allocate resources and in
assessing performance.

The Company is a specialty finance company with two business segments. Through
TFC, the auto finance segment, the Company is engaged in purchasing and
servicing installment sales contracts originated by automobile and motorcycle
dealers involved in the sale of used automobiles, vans, light trucks, and new
and used motorcycles (collectively "vehicles") throughout the United States.
This segment consists of two business units (i) point-of-sale which contracts
are acquired on an individual basis from dealers after the Company has reviewed
and approved the purchasers credit application and (ii) bulk which contracts
were acquired through the purchase of dealer portfolios. Through FCF, the
consumer finance segment, the Company is involved in the direct origination and
servicing of small consumer loans through a branch network in Virginia and North
Carolina. The other column consists of smaller subsidiaries and corporate
support functions not allocated to either of the business segments. All revenue
is generated from external customers in the United States.

Management measures segment performance based on revenue earned (yields
achieved) on the outstanding portfolio of contract receivables as well as income
before taxes.

The accounting policies are the same as those described in the summary of
significant accounting policies.

<TABLE>
<CAPTION>
(In Thousands)                    Auto Finance        Consumer Finance          Other                Total
                                  ------------        ----------------          -----                -----
------------------------------------------------------------------------------------------------------------
<S>                                 <C>                  <C>                  <C>                  <C>
2001
Interest revenues                   $  44,415            $   6,323            $     702            $  51,440
                                  --------------------------------------------------------------------------

Interest expense                       17,354                1,532                  194               19,080
                                  --------------------------------------------------------------------------

Income (loss) before
  unallocated amounts:                 10,485                  613                 (831)              10,267
                                  -----------------------------------------------------

Unallocated amounts:
Intangible amortization                                                                               (1,111)
Corporate expenses                                                                                      (418)
                                                                                                   ---------
Consolidated income
  before taxes                                                                                         8,738
                                                                                                   =========

Net contract receivables            $ 181,462            $  26,416            $   1,413            $ 209,291
                                  -----------------------------------------------------
Other assets                                                                                          37,495
                                                                                                   ---------
     Total assets                                                                                  $ 246,786
                                                                                                   =========
</TABLE>


                                    Page 48

<PAGE>

<TABLE>
<CAPTION>
(In Thousands)                    Auto Finance        Consumer Finance          Other                Total
                                  ------------        ----------------          -----                -----
------------------------------------------------------------------------------------------------------------
<S>                                 <C>                  <C>                  <C>                  <C>
2000
Interest revenues                   $  45,601            $   5,309            $     303            $  51,213
                                  --------------------------------------------------------------------------

Interest expense                       16,318                1,680                   90               18,088
                                  --------------------------------------------------------------------------

Income (loss) before
  unallocated amounts:                  9,648                  309               (1,309)               8,648
                                  -----------------------------------------------------

Unallocated amounts:
Intangible amortization                                                                               (1,103)
Corporate expenses                                                                                      (435)
                                                                                                   ---------
Consolidated income
  before taxes                                                                                         7,110
                                                                                                   =========

Net contract receivables            $ 190,468            $  25,206            $   2,920            $ 218,594
                                  -----------------------------------------------------
Other assets                                                                                          34,369
                                                                                                   ---------
     Total assets                                                                                  $ 252,963
                                                                                                   =========
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
(In Thousands)                    Auto Finance        Consumer Finance          Other                Total
<S>                                 <C>                  <C>                  <C>                  <C>
1999
                                  --------------------------------------------------------------------------
Interest revenues                   $  43,742            $   4,268            $      --            $  48,010

                                  --------------------------------------------------------------------------
Interest expense                       11,780                1,308                   --               13,088

Income (loss) before
  unallocated amounts:                 12,986                  395                 (162)              13,219
                                  -----------------------------------------------------

Unallocated amounts:
Intangible amortization                                                                               (1,091)
Corporate expenses                                                                                      (694)
                                                                                                   ---------
Consolidated income
  before taxes                                                                                        11,434
                                                                                                   =========

Net contract receivables            $ 162,288            $  19,519            $     232            $ 182,039
                                  -----------------------------------------------------
Other assets                                                                                          26,472
                                                                                                   ---------
     Total assets                                                                                  $ 208,511
                                                                                                   =========
</TABLE>

14. Bankruptcy remote subsidiaries

TFC Receivables Corporation 2, III and IV are wholly-owned bankruptcy remote
subsidiaries of TFC that were formed to facilitate certain asset-backed
financing transactions requiring bankruptcy remote structure. Bankruptcy remote
refers to a legal structure in which it is expected that the applicable entity
would not be included in any bankruptcy filing by its parent or affiliates.
These subsidiaries have issued $206.4 million of automobile receivables-backed
notes of which $55.1 is outstanding at December 31, 2001. Proceeds from the
issuances were used to purchase certain assets from the Company, which
collateralize the notes. At December 31, 2001, these subsidiaries had total
assets of $83.8 million, of which $67.3 million represented net contract
receivables, $15.2 million represented restricted cash and $1.3 million
represented other assets which primarily included deferred charges. All


                                    Page 49

<PAGE>

of the assets of these subsidiaries have been pledged as collateral on the
automobile receivables-backed notes. None of the assets of these subsidiaries
are available to pay other creditors of the Company or its affiliates. The
automobile receivables-backed notes are further discussed in Note 5 of the Notes
to Consolidated Financial Statements.

In June 2001, the Company completed a $75 million warehouse facility for the
interim financing of motor vehicle retail installment contracts. The facility
has an expiration date of January 1, 2004 with an option to extend one year. The
transaction was completed with

Westside Funding Corporation, a special purpose funding vehicle administered by
Westdeutsche Landesbank Girozentrale, New York Branch (WestLB). WestLB will
assist TFC as placement agent for structuring Securitization Transactions from
the related collateral in the warehouse facility. TFC Warehouse Corporation I is
the wholly-owned bankruptcy remote subsidiary of the Company that was formed to
facilitate the asset-backed financing transactions requiring bankruptcy remote
structure. The transaction is further discussed in Note 5 of the Notes to
Consolidated Financial Statements.

15.  Selected Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
                                                  2001                                                     2000

(dollars in thousands         Dec.         Sept.      June        March        Dec.      Sept.       June      March
except per share amounts)       31           30         30            31          31        30         30         31
 ---------------------------------------------------------------------------------------------------------------------
<S>                           <C>          <C>        <C>        <C>          <C>       <C>         <C>       <C>
Statement of operations:
Net interest revenue          $7,143       $8,045     $8,447     $8,725       $7,824    $8,116      $8,525    $8,660
Provision for credit losses    1,033 (1)      332        324        198          258       126         169       182
Other revenue                    393          493        571        486          767       509         465       359
Operating expense              5,570        5,483      5,849      6,776        6,831     6,646       6,613     7,290
                             ------------------------------------------------------------------------------------------
Net income                       493       $1,604     $1,679     $1,300          843    $1,066      $1,284      $875
                             ------------------------------------------------------------------------------------------
Net incme per basic
common share (2)                $0.04        $0.14      $0.15      $0.11        $0.07     $0.09       $0.11     $0.08
                             ------------------------------------------------------------------------------------------
Net income per diluted
common share (2)                $0.04        $0.13      $0.14      $0.11        $0.07     $0.09       $0.10     $0.07
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) In the fourth quarter of 2001, a $0.6 million provision was recorded for PC
Acceptance.com to cover the remaining expected losses.

(2) There may be a discrepency in YTD net income per share due to rounding.

16.  Recent Pronouncements

In July, 2001, the Financial Accounting Standards Board issued two statements -
Statement 141, Business Combinations, and Statement 142, Goodwill and Other
Intangible Assets, which will potentially impact the Company's accounting for
its reported goodwill and other intangible assets.

Statement 141:

      Eliminates the pooling method for accounting for business combinations.

      Requires that intangible assets that meet certain criteria be reported
      separately from goodwill.

      Requires negative goodwill arising from a business combination to be
      recorded as an extraordinary gain.

Statement 142:

      Eliminates the amortization of goodwill and other intangibles that are
      determined to have an indefinite life.

      Requires, at a minimum, annual impairment tests for goodwill and other
      intangible assets that are determined to have an indefinite life.

Upon adoption of these Statements, the Company is required to:

      Re-evaluate goodwill and other intangible assets that arose from business
      combinations entered into before July 1, 2001. If the recorded other
      intangibles assets do not meet the criteria for recognition, they should
      be reclassified to goodwill. Similarly, if there are other intangible
      assets that meet the criteria for recognition but were not separately
      recorded from goodwill, they should be reclassified from goodwill.

      Reassess the useful lives of intangible assets and adjust the remaining
      amortization periods accordingly.

      Write-off any remaining negative goodwill.

Financial Accounting Standards Board Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" became effective for fiscal years
beginning after December 15, 2001. Statement No. 144 requires that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired.

The Company has not yet completed its full assessment of the effects of these
new pronouncements on its financial statements and so is uncertain as to the
impact. The standards generally are required to be implemented by the Company in
its 2002 financial statements.


                                    Page 50

<PAGE>



                                    Page 51

<PAGE>

                                    PART III

The information required by Part III, Items 10, 11, 12, and 13 has been
incorporated herein, as set forth below, by reference to our definitive Proxy
Statement to be used in connection with the 2002 Annual Meeting of Shareholders
(the "2002 Proxy Statement"), to be filed within 120 days after the end of the
last fiscal year, in accordance with General Instruction G(3) of Form 10-K.

Item 10. Directors and Executive Officers of the Registrant; Section 16(a)
         Beneficial Ownership Reporting Compliance

Information relating to directors of TFC Enterprises, Inc. and compliance with
Section 16(a) of the Exchange Act is set forth in the sections entitled
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in our 2002 Proxy Statement and is incorporated herein by reference.
Pursuant to General Instruction G(3) of Form 10-K, certain information
concerning the executive officers of TFC Enterprises, Inc. is set forth under
the caption entitled "Executive Officers of the Company" in Part I, Item 1, of
this Form 10-K.

Item 11. Executive Compensation

Information regarding compensation of officers and directors of TFC Enterprises,
Inc. is set forth in the section entitled "Executive Compensation" in our 2002
Proxy Statement and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information regarding ownership of certain of TFC Enterprises, Inc.'s securities
is set forth in the section entitled "Security Ownership of Management and
Certain Beneficial Owners" in our 2002 Proxy Statement and is incorporated
herein by reference.

Item 13. Certain Relationship and Related Transactions

Information regarding certain relationships and related transactions with TFC
Enterprises, Inc. is set forth in the section entitled "Certain Relationships
and Related Transactions" in our 2002 Proxy Statement and is incorporated herein
by reference.


                                    Page 52

<PAGE>

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)   (1)   Financial Statements

      The following consolidated financial statements and the Auditors' Reports
      thereon, are included in Part II, Item 8 of this report.

      Report of McGladrey & Pullen LLP, Independent Auditors
      Report of Ernst & Young LLP, Independent Auditors
      Consolidated Balance Sheets at December 31, 2001 and 2000

      Consolidated Statements of Income for the Years ended December 31, 2001,
      2000 and 1999

      Consolidated Statements of Changes in Shareholders' Equity for the Years
      ended December 31, 2001, 2000 and 1999

      Consolidated Statements of Cash Flows for the Years ended December 31,
      2001, 2000 and 1999
      Notes to Consolidated Financial Statements

      (2)   Financial Statement Schedule

      Schedule I - Financial Information of Registrant - TFC Enterprises, Inc.

      All other schedules for which provision is made in the applicable
      accounting regulations of the Securities and Exchange Commission are not
      required under the related instructions or are inapplicable and therefore
      have been omitted.

      (3)   Exhibits

      The exhibits listed on the accompanying Exhibit Index are filed or
      incorporated by reference as part of this Form 10-K and such Exhibit Index
      is incorporated herein by reference.

(b)   Reports on Form 8-K (filed during the fourth quarter of 2001):

      None


                                    Page 53

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

                                          TFC ENTERPRISES, INC.


                                          By: /s/ Robert S. Raley, Jr.
                                              ----------------------------------
                                              Robert S. Raley, Jr.
                                              Chairman of the Board, and
                                              Chief Executive Officer

Dated:  March 28, 2002

            Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
            Signature                                              Title                         Date
            ---------                                              -----                         ----
<S>                                                     <C>                                 <C>
                                                           Chairman of the Board,           March 28, 2002
/s/ Robert S. Raley, Jr.                                Director and Chief Executive
------------------------------------                              Officer
Robert S. Raley, Jr.


/s/ Walter S. Boone, Jr.                                          Director                  March 28, 2002
------------------------------------
Walter S. Boone, Jr.


/s/ Douglas B. Bywater                                            Director                  March 28, 2002
------------------------------------
Douglas B. Bywater


/s/ Andrew M. Ockershausen                                        Director                  March 28, 2002
------------------------------------
Andrew M. Ockershausen


/s/ Phillip R. Smiley                                             Director                  March 28, 2002
------------------------------------
Phillip R. Smiley


/s/ Linwood R. Watson                                             Director                  March 28, 2002
------------------------------------
Linwood R. Watson


/s/ Ronald G. Tray                                          Director, President
------------------------------------                    and Chief Financial Officer         March 28, 2002
Ronald G. Tray
</TABLE>


                                    Page 54

<PAGE>
                                  EXHIBIT INDEX

     Exhibit
       No.                                   Description
     -------                                 -----------

          3.1     Amended and Restated Certificate of Incorporation of TFC
                  Enterprises, Inc. (Incorporated by reference to the
                  Registrant's Registration Statement on Form S-1, Commission
                  File No. 33-70638, previously filed with the Commission on
                  October 21, 1993.)

          3.2     Amended and Restated Bylaws of TFC Enterprises, Inc.
                  (Incorporated by reference to the Registrant's Registration
                  Statement on Form S-1, Commission File No. 33-70638,
                  previously filed with the Commission on October 21, 1993.)

          3.3     Second Amendment to Amended and Restated Bylaws of TFC
                  Enterprises, Inc. regarding the number of directors comprising
                  the Board of TFC Enterprises, Inc. (Incorporated by reference
                  to the Registrant's Form 10-K for the fiscal year ended
                  December 31, 1995, Commission File No. 0-22910, previously
                  filed with the Commission.)

            4     Form of Common Stock Certificate of the TFC Enterprises, Inc.
                  (Incorporated by reference to the Registrant's Registration
                  Statement on Form S-1, Commission File No. 33-70638,
                  previously filed with the Commission on October 21, 1993.)

     (a) 10.4     Employment Agreement between The Finance Company and
                  Robert S. Raley, Jr. dated October 22, 1992. (Incorporated by
                  reference to the Registrant's Registration Statement on Form
                  S-1, Commission File No. 33-70638, previously filed with the
                  Commission on October 21, 1993.)

     (a) 10.5     The Finance Company 401(k) Savings Plan dated May 1,
                  1991, and Amendment No. 1 dated August 1, 1993. (Incorporated
                  by reference to the Registrant's Registration Statement on
                  Form S-1, Commission File No. 33-70638, previously filed with
                  the Commission on October 21, 1993.)

     (a) 10.6     TFCEI Employee Stock Purchase Plan dated December 20,
                  1993. (Incorporated by reference to the Registrant's
                  Registration Statement on Form S-1, Commission File No.
                  33-70638, previously filed with the Commission on October 21,
                  1993.)

     (a) 10.7     TFC Enterprises, Inc. 1995 Long-Term Incentive Plan.
                  (Incorporated by reference to the Registrant's Form 10-K for
                  the fiscal year ended December 31, 1994, Commission File No.
                  0-22910, previously filed with the Commission.)

         10.8     Forms of Junior Subordinated Promissory Notes. (Incorporated
                  by reference to the Registrant's Registration Statement on
                  Form S-1, Commission File No. 33-70638, previously filed with
                  the Commission on October 21, 1993.)

         10.9     Office Lease dated June 1, 1995, by and between AFW No. 39
                  Corporation and The Finance Company. (Incorporated by
                  reference to the Registrant's Form 10-K for the fiscal year
                  ended December 31, 1994, Commission File No. 0-22910,
                  previously filed with the Commission.)

        10.10     Lease Agreement, dated April 28, 1995, between Three Oaks
                  Plaza, Ltd. and The Finance Company, Inc. (Incorporated by
                  reference to the Registrant's Form 10-Q for the quarter ended
                  March 31, 1995, Commission File No. 0-22910, previously filed
                  with the Commission.)

        10.11     Note purchase agreement among The Finance Company and
                  Connecticut General Life Insurance Company ("CIGNA") and
                  certain affiliates of CIGNA dated June 30, 1995, relating to
                  $10,000,000 in original principal amount of 9.38% Senior
                  Subordinated Notes due June 30, 2003. (Incorporated by
                  reference to the Registrant's Form 10-Q for the quarter ended
                  June 30, 1995, Commission File No. 0-22910, previously filed
                  with the Commission.)

<PAGE>

     Exhibit
       No.                                   Description
     -------                                 -----------

        10.12     Amendment No. 1 to note purchase agreement, dated as of June
                  30, 1995, by and between The Finance Company and Connecticut
                  General Life Insurance Company ("CIGNA") regarding CIGNA's
                  consent to the Company's $25 million credit facility with
                  NationsBank. (Incorporated by reference to the Registrant's
                  Form 10-Q for the quarter ended September 30, 1995, Commission
                  File No. 0-22910, previously filed with the Commission.)

        10.13     Amendment No. 2 and Waiver and Forbearance Agreement by and
                  among The Finance Company, CIGNA, and certain affiliates of
                  CIGNA, dated as of January 31, 1996, relating to 9.38% Senior
                  Subordinated Notes, dated as of January 31, 1996.
                  (Incorporated by reference to the Registrant's Form 10-K for
                  the fiscal year ended December 31, 1995, Commission File No.
                  0-22910, previously filed with the Commission.)

        10.14     Amended and Restated Motor Vehicle Installment Contract Loan
                  and Security Agreement dated January 1, 1999 between The
                  Finance Company and General Electric Capital Corporation.
                  (Incorporated by reference to the Registrant's Form 8-K
                  previously filed with the Commission, Commission File No.
                  0-22910, on January 29,1999.)

        10.15     TFC Enterprises, Inc. Warrant to Purchase Common Stock dated
                  December 20, 1996. (Incorporated by reference to the
                  Registrant's Form 10-K for the fiscal year ended December 31,
                  1996, Commission File No. 0-22910, previously filed with the
                  Commission.)

        10.16     Allonge to Warrant to Purchase Common Stock dated April 4,
                  1997. (Incorporated by reference to the Registrant's Form 10-K
                  for the fiscal year ended December 31, 1996, Commission File
                  No. 0-22910, previously filed with the Commission.)

        10.17     TFC Enterprises, Inc. Warrant to Purchase Common Stock dated
                  April 4, 1997. (Incorporated by reference to the Registrant's
                  Form 10-K for the fiscal year ended December 31, 1996,
                  Commission File No. 0-22910, previously filed with the
                  Commission.)

    (a) 10.18     Amended and Restated Registration Rights dated April 4,
                  1997 between TFC Enterprises, Inc. and General Electric
                  Capital Corporation. (Incorporated by reference to the
                  Registrant's Form 10-K for the fiscal year ended December 31,
                  1996, Commission File No. 0-22910, previously filed with the
                  Commission.)

        10.19     Amendment No. 3 and Waiver of Note Agreement by and among The
                  Finance Company, CIGNA, and certain affiliates of CIGNA, dated
                  as of April 4, 1997, relating to 9.38 % Senior Subordinated
                  Notes. (Incorporated by reference to the Registrant's Form
                  10-K for the fiscal year ended December 31, 1996, Commission
                  File No. 0-22910, previously filed with the Commission.)

        10.20     Loan and Security Agreement dated August 17, 1999, between
                  First Community Finance, Inc. and Bank of America National
                  Association. (Incorporated by reference to the Registrant's
                  Form 10-K for the fiscal year ended December 31, 1999,
                  Commission File No. 0-22910, previously filed with the
                  Commission.)

        10.21     Loan and Security Agreement between PC Acceptance Corporation
                  (name subsequently changed to PC Acceptance.com, Inc.) and
                  Sterling National Bank. (Incorporated by reference to the
                  Registrant's Form 10-Q for the quarter ending March 31, 2000,
                  Commission File No. 0-22910, previously filed with the
                  Commission).

        10.22     Purchase Agreement between The Finance Company and TFC
                  Receivables Corporation II dated December 1, 1999.
                  (Incorporated by reference to the Registrant's Form 10-K for
                  the fiscal year ended December 31, 1999, Commission File No.
                  0-22910, previously filed with the Commission.)

<PAGE>

     Exhibit
       No.                                   Description
     -------                                 -----------

        10.23     Sale and Servicing Agreement among The Finance Company, Asset
                  Guaranty Insurance Company, TFC Automobile Receivables Trust
                  1999-1, TFC Receivables Corporation 2 and Norwest Bank
                  Minnesota, National Association dated December 1, 1999.
                  (Incorporated by reference to the Registrant's Form 10-K for
                  the fiscal year ended December 31, 1999, Commission File No.
                  0-22910, previously filed with the Commission.)

        10.24     Indenture among Asset Guaranty Insurance Company, Norwest Bank
                  Minnesota, National Association and TFC Automobile Receivables
                  Trust 1999-1 dated December 1, 1999. (Incorporated by
                  reference to the Registrant's Form 10-K for the fiscal year
                  ended December 31, 1999, Commission File No. 0-22910,
                  previously filed with the Commission.)

        10.25     Insurance and Reimbursement Agreement among The Finance
                  Company, Asset Guaranty Insurance Company, TFC Automobile
                  Receivables Trust 1999-1, TFC Receivables Corporation 2 and
                  Norwest Bank Minnesota, National Association dated December 1,
                  1999. (Incorporated by reference to the Registrant's Form 10-K
                  for the fiscal year ended December 31, 1999, Commission File
                  No. 0-22910, previously filed with the Commission.)

        10.26     Purchase Agreement between The Finance Company and TFC
                  Receivables Corporation III dated September 26, 2000.
                  (Incorporated by reference to the Registrant's Form 10-Q for
                  the quarter ended September 30, 2000, Commission File No.
                  0-22910, previously filed with the Commission.)

        10.27     Sale and Servicing Agreement among The Finance Company, TFC
                  Automobile Receivables Trust 2000-1, TFC Receivables
                  Corporation III, Wells Fargo Bank Minnesota, National
                  Association and Wells Fargo Financial America, Inc. dated
                  September 26, 2000. (Incorporated by reference to the
                  Registrant's Form 10-Q for the quarter ended September 30,
                  2000, Commission File No. 0-22910, previously filed with the
                  Commission.)

        10.28     Indenture between Wells Fargo Norwest Bank Minnesota, National
                  Association and TFC Automobile Receivables Trust 2000-1 dated
                  September 26, 2000. (Incorporated by reference to the
                  Registrant's Form 10-Q for the quarter ended September 30,
                  2000, Commission File No. 0-22910, previously filed with the
                  Commission.)

        10.29     Insurance and Indemnity Agreement among The Finance Company,
                  Financial Security Assurance Inc., TFC Automobile Receivables
                  Trust 2000-1, TFC Receivables Corporation III, Wells Fargo
                  Financial America, Inc., and Wells Fargo Bank Minnesota,
                  National Association dated September 26, 2000. (Incorporated
                  by reference to the Registrant's Form 10-Q for the quarter
                  ended September 30, 2000, Commission File No. 0-22910,
                  previously filed with the Commission.)

        10.30     Note purchase agreement between The Finance Company and N M
                  Rothschild & Sons Limited dated August 24, 2000. (Incorporated
                  by reference to the Registrant's Form 10-Q for the quarter
                  ended September 30, 2000, Commission File No. 0-22910,
                  previously filed with the Commission.)

        10.31     Amendment No. 4 to Amended and Restated Motor Vehicle
                  Installment Contract Loan and Security Agreement dated
                  November 30, 2000, between The Finance Company and General
                  Electric Capital Corporation. (Incorporated by reference to
                  the Registrant's Form 8-K, Commission File No. 0-22910,
                  previously filed with the Commission on January 26, 2001.)

        10.32     Amendment No. 2 to Amended and Restated Motor Vehicle
                  Installment contract and Security Agreement dated August 18,
                  2000 between The Finance Company and General Electric Capital
                  Corporation.

<PAGE>

     Exhibit
       No.                                   Description
     -------                                 -----------

        10.33     Amendment No. 3 to Amended and Restated Motor Vehicle
                  Installment Contract and Security agreement dated September
                  29, 2000 between The Finance Company and General Electric
                  Capital Corporation.

        10.34     Senior Subordinated Debenture between First Community Finance
                  and Lyndon Life Insurance Company dated December 14, 2000.

        10.35     Senior Subordinated Debenture between The Finance Company and
                  Lyndon Life Insurance Company dated December 14, 2000.

        10.36     Senior Subordinated Debenture between The Finance Company and
                  Live Oak Investment Company, LLC dated January 12, 2001.

        10.37     Amended And Restated Motor Vehicle Installment Contract Loan
                  And Security Agreement between THE Finance Company and General
                  Electric Capital Corporation.

        10.38     Amendment No. 3 to Amended and Restated Motor Vehicle
                  Installment Contract and Security agreement 8 dated September
                  29, 2000 between The Finance Company and General Electric
                  Capital Corporation.

        10.39     Purchase Agreement between The Finance Company and TFC
                  Receivables Corporation IV dated March 30, 2001.

        10.40     Sale and Servicing Agreement among Asset Guaranty Insurance
                  Company, The Finance Company, TFC Automobile Receivables Trust
                  2001-1, TFC Receivables Corporation IV and Wells Fargo Bank
                  Minnesota, National Association dated March 30, 2001.

        10.41     Indenture among Asset Guaranty Insurance Company, Wells Fargo
                  Bank Minnesota, National Association and TFC Automobile
                  Receivables Trust 2001-1 dated March 30, 2001.

        10.42     Insurance and Indemnity Agreement among The Finance Company,
                  Asset Guaranty Insurance Company, TFC Automobile Receivables
                  Trust 2001-1, TFC Receivables Corporation IV, Wells Fargo
                  Financial America Inc., and Wells Fargo Bank Minnesota,
                  National Association dated March 30, 2001.

        10.43     Purchase Agreement between The Finance Company and TFC
                  Warehouse Corporation I dated June 28, 2001.

        10.44     Sale and Servicing Agreement among The Finance Company, TFC
                  Warehouse Corporation I, Wells Fargo Bank Minnesota, National
                  Association, Wells Fargo Financial America, Inc., and Westside
                  Funding Corporation dated June 28, 2001.

        10.45     Warehouse and Security Agreement among, Wells Fargo Bank
                  Minnesota, National Association, TFC Warehouse Corporation I,
                  The Finance Company, and Westside Funding Corporation dated
                  June 28, 2001.

        10.46     Insurance Agreement among The Finance Company, TFC Warehouse
                  Corporation I, and Royal Indemnity Company dated June 28,
                  2001.

    (b) 10.47     Amended And Restated Motor Vehicle Installment Contract Loan
                  And Security Agreement between

<PAGE>

     Exhibit
       No.                                   Description
     -------                                 -----------

                  THE Finance Company and General Electric Capital Corporation.

        10.48     Employment agreements with Ronald Tray, Delma Ambrose, Rick
                  Lieberman and G. Kent Brooks. These agreements provide for
                  their continued employment upon a change of control of the
                  Company.

     (b)   21     List of subsidiaries of TFC Enterprises, Inc.

     (b) 99.2     Financial Statement Schedule I.

----------

(a)   Represents a management contract or compensatory plan or arrangement per
      Item 14(a)3.

(b)   Filed herewith.

<PAGE>
                                                                    Exhibit 99.2
                 Schedule I- Financial Information of Registrant
                              TFC Enterprises, Inc.

Balance Sheets

                                                                 December 31
(in thousands)                                                2001        2000
                                                              ----        ----
Assets
Investment in subsidiaries                                 $ 22,716    $ 16,391
Intangible assets, net                                        7,704       8,796
Due from subsidiaries                                        21,083      22,233
Other assets                                                     13          13
                                                           --------    --------
  Total assets                                             $ 51,516    $ 47,433
                                                           ========    ========

Liabilities and shareholders' equity
Liabilities:
Income taxes payable                                       $    291    $  1,257
Accounts payable and accrued expenses                            20          24
Deferred income taxes                                           124         230
                                                           --------    --------
  Total liabilities                                             435       1,511

Shareholders' equity:
Preferred stock, $.01 per value, 1,000,000 shares
  authorized; none outstanding                                   --          --
Common stock, $.01 par value, 40,000,000 shares
  authorized and 11,534,890 and 11,449,559 outstanding
  in 2001 and 2000, respectively                                 51          50
Additional paid-in capital                                   56,187      56,105
Accumulated deficit                                          (5,157)    (10,233)
                                                           --------    --------
  Total shareholders' equity                                 51,081      45,922
                                                           --------    --------
  Total liabilities and shareholders' equity               $ 51,516    $ 47,433
                                                           ========    ========

<PAGE>

                 Schedule I- Financial Information of Registrant
                              TFC Enterprises, Inc.

Statements of Operations

                                                     Years ended December 31
(in thousands)                                      2001       2000       1999
                                                    ----       ----       ----
Net interest revenue:
  Interest revenue                                $    --    $    --    $    --
  Interest expense                                      7         --         --
                                                  -------    -------    -------
Net interest revenue                                   (7)        --         --

Other revenue:
  Equity in net income
    of subsidiaries                                 6,325      5,323      7,909
                                                  -------    -------    -------
Total other revenue                                 6,325      5,323      7,909

Operating expenses:
  Amortization of intangible assets                 1,092      1,091      1,091
  Other                                               416        435        694
                                                  -------    -------    -------
Total operating expense                             1,508      1,526      1,785

Income before income taxes                          4,810      3,797      6,124
(Benefit from) provision for income taxes            (266)      (271)      (363)
                                                  -------    -------    -------
Net income                                        $ 5,076    $ 4,068    $ 6,487
                                                  =======    =======    =======

<PAGE>

                 Schedule I- Financial Information of Registrant
                              TFC Enterprises, Inc.

Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                        Years ended December 31
                                                                        -----------------------
(in thousands)                                                        2001       2000       1999
                                                                      ----       ----       ----
<S>                                                                 <C>        <C>        <C>
Operating activities
Net income                                                          $ 5,076    $ 4,068    $ 6,487
Adjustments to reconcile net income to net cash used in operating
activities:
Equity in net (income) of subsidiaries                               (6,325)    (5,323)    (7,909)
    Amortization of intangible assets                                 1,092      1,091      1,091
    (Benefit from) provision for deferred income taxes                 (106)      (124)      (315)
    Changes in operating assets and liabilities:
       Decrease in other assets                                          --         73         20
       Decrease in due from subsidiaries                              1,150        573        990
       Increase in accounts payable and accrued expenses                 (4)       (98)       (18)
       Decrease in income taxes payable                                (966)      (285)      (406)
                                                                    -------    -------    -------
Net cash used in operating activities                                   (83)       (25)       (60)
                                                                    -------    -------    -------
Financing activities
Proceeds from stock options exercised                                    83         25         60
                                                                    -------    -------    -------
Net cash provided by financing activities                                83         25         60
                                                                    -------    -------    -------

Increase (decrease) in cash                                              --         --         --
Cash at beginning of year                                                --         --    $    --
                                                                    -------    -------    -------
Cash at end of year                                                 $    --    $    --         $-
                                                                    =======    =======    =======
Supplemental disclosures:
Income taxes paid                                                   $   725    $ 1,253    $   587
</TABLE>