Exhibit 99.2
Report of Ernst & Young LLP, Independent Auditors, on Schedule I
We have audited the consolidated financial statements of TFC Enterprises, Inc.
as of December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, and have issued our report dated February 12, 1998. Our
audits also included the financial statement schedule listed in Item 14(a) of
this Form 10-K. This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits.
In our opinion, the financial schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Washington, D.C.
February 12, 1998
Schedule I- Financial Information of Registrant
TFC Enterprises, Inc.
Balance Sheets
December 31
-----------------------
(dollars in thousands) 1997 1996
-------- --------
Assets
Due from subsidiaries $21,967 $25,320
Intangible assets, net 12,070 13,161
Other assets 148 165
---------- ---------
Total assets $ 34,185 $ 38,646
========== ========
Liabilities and shareholders' equity
Liabilities:
Deficit in subsidiaries $ 1,644 $ 4,100
Accounts payable and accrued expenses 31 203
Income taxes payable 506 3,579
Deferred income taxes 924 902
---------- ----------
Total liabilities 3,105 8,784
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 11,290,308 shares outstanding in 1997 and 1996 49 49
Additional paid-in capital 55,844 55,333
Retained deficit (24,813) (25,520)
-------- --------
Total shareholders' equity 31,080 29,862
---------- ---------
Total liabilities and shareholders' equity $ 34,185 $ 38,646
========= ========
Page 1 of 3
Schedule I- Financial Information of Registrant
TFC Enterprises, Inc.
Statements of Operations
Years ended December 31
-------------------------
(in thousands) 1997 1996 1995
---- ----- ----
Net interest revenue:
Interest revenue $ 346 $2,132 $3,404
Interest expense - - 30
-------- -------- ---------
Net interest revenue 346 2,132 3,374
Other revenue:
Equity in net income (loss)
of subsidiaries 1,945 (7,667) (7,241)
------- ------- --------
Total other revenue 1,945 (7,667) (7,241)
Operating expenses:
Amortization of intangible assets 1,091 1,091 1,091
Other 143 483 704
------- ------- ------
Total operating expense 1,234 1,574 1,795
------ ------ ------
Income (loss) before income taxes 1,057 (7,109) (5,662)
Provision for income taxes 350 487 799
-------- -------- -------
Net income (loss) $ 707 $(7,596) $(6,461)
======== ======== ========
Page 2 of 3
Schedule I- Financial Information of Registrant
TFC Enterprises, Inc.
Statements of Cash Flows
Years ended December 31
----------------------------------
(in thousands) 1997 1996 1995
---- ---- ----
Operating activities
Net income (loss) $ 707 $ (7,596) $ (6,461)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Equity in net (income) loss of subsidiaries (1,945) 7,667 7,241
Amortization of intangible assets 1,091 1,091 1,091
Provision for (benefit from) deferred income taxes 22 (108) (108)
Amortization of deferred charges - - 47
Changes in operating assets and liabilities:
Decrease (increase) in other assets 17 50 (80)
Decrease (increase) in due from subsidiaries 3,353 (2,455) (1,831)
(Decrease) increase in accounts payable and accrued
liabilities (172) 744 43
Increase (decrease) in income taxes payable (3,073) 595 (105)
------- -------- --------
Net cash used in operating activities - (12) (163)
Financing activities
Proceeds from stock options exercised - 12 20
------ ---- -------
Net cash provided by financing activities - 12 20
Decrease in cash - - (143)
Cash at beginning of year - - 143
------ ------ -------
Cash balance at end of year $ - $ - $ -
======= ======= =======
Noncash transactions:
Issuance of stock warrants $ 511 $ 423 $ -
Deferred compensation terminated and transferred to paid-in capital - 619 -
Conversion of due from subsidiaries to
equity in subsidiaries - - 20,000
Page 3 of 3