GENERAL

We are a specialty finance company that has a leading position in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses. A wholly-owned portfolio company of ours, Medallion Bank, also originates consumer loans for the purchase of recreational vehicles, boats, motorcycles, and trailers. Since 1996, the year in which we became a public company, we have increased our taxicab medallion loan portfolio at a compound annual growth rate of 8%, and our commercial loan portfolio at a compound annual growth rate of 5% (both 11% on a managed basis when combined with Medallion Bank). Since Medallion Bank acquired a consumer loan portfolio and began originating consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 16%. Total assets under our management, which includes assets serviced for third party investors and managed by Medallion Bank, were $1,036,883,000 as of September 30, 2009, and $1,075,509,000 and $1,048,705,000 as of December 31, 2008 and September 30, 2008, and have grown at a compound annual growth rate of 13% from $215,000,000 at the end of 1996. Since our initial public offering in 1996, we have paid dividends in excess of $141,594,000 or $9.10 per share.

We conduct our business through various wholly-owned investment company subsidiaries including:

• Medallion Funding, an SBIC and a RIC, our primary taxicab lending company;

• Medallion Capital, an SBIC and a RIC, which conducts a mezzanine financing business; and

• Freshstart, an SBIC and a RIC, which originates and services taxicab medallion and commercial loans.

We also conduct business through our asset-based lending division, Medallion Business Credit, an originator of loans to small businesses for the purpose of financing inventory and receivables, which prior to December 31, 2007, was a wholly-owned investment company subsidiary. On December 31, 2007, Medallion Business Credit was merged into us and ceased to exist as a separate legal entity.

In addition, we conduct business through a wholly-owned portfolio company, Medallion Bank, a bank regulated by the FDIC and the Utah Department of Financial Institutions which originates taxicab medallion, commercial, and consumer loans, raises deposits, and conducts other banking activities. Medallion Bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit issued to its customers. To take advantage of this low cost of funds, we refer a portion of our taxicab medallion and commercial loans to Medallion Bank, which then originates these loans, which are serviced by us. We earn referral and servicing fees for these activities.

Realized gains or losses on investments are recognized when the investments are sold or written off. The realized gains or losses represent the difference between the proceeds received from the disposition of portfolio assets, if any, and the cost of such portfolio assets. In addition, changes in unrealized appreciation or depreciation on investments are recorded and represent the net change in the estimated fair values of the portfolio assets at the end of the period as compared with their estimated fair values at the beginning of the period. Generally, realized gains (losses) on investments and changes in unrealized appreciation (depreciation) on investments are inversely related. When an appreciated asset is sold to realize a gain, a decrease in the previously recorded unrealized appreciation occurs. Conversely, when a loss previously recorded as unrealized depreciation is realized by the sale or other disposition of a depreciated portfolio asset, the reclassification of the loss from unrealized to realized causes a decrease in net unrealized depreciation and an increase in realized loss.

The credit markets are undergoing a crisis which has disrupted a wide range of traditional financing sources. The crisis has made it increasingly difficult and significantly more expensive through higher credit spreads for finance companies to obtain and renew financing. Continued turmoil in the credit markets could limit our access to funds and restrict us from continuing our current operating strategy or implementing new operating strategies. If funds are available to us, we anticipate that our cost of funds will increase as we obtain new financing.

The credit crisis has also caused many financial institutions to record significant write-downs, mostly on their residential mortgage related assets and structured investment vehicles and due to unsound lending practices. We are not involved in these types of transactions and always understand the importance of proper underwriting. Nonetheless, the judgments used by management in applying the critical accounting policies discussed herein may be affected by a further and prolonged deterioration in the economic environment, which may result in changes to future financial results. Subsequent evaluations of our loan portfolio and other investments, in light of the factors then prevailing, may result in changes to the fair value of the investments, including a decrease in the fair value. In addition, the fair value of investments in our portfolio may be negatively impacted by illiquidity or dislocation in marketplaces resulting in depressed market prices.

Trends in Investment Portfolio

Our investment income is driven by the principal amount of and yields on our investment portfolio. To identify trends in the balances and yields, the following table illustrates our investments at fair value, grouped by medallion loans, commercial loans, equity investments, and investment securities, and also presents the portfolio information for Medallion Bank, at the dates indicated.

                                                 September 30, 2009                   June 30, 2009                    March 31, 2009                   December 31, 2008                September 30, 2008
                                             Interest        Investment        Interest        Investment        Interest        Investment        Interest        Investment        Interest        Investment
(Dollars in thousands)                       Rate (1)         Balances         Rate (1)         Balances         Rate (1)         Balances         Rate (1)         Balances         Rate (1)         Balances
Medallion loans
New York                                         5.95 %     $    260,190           5.94 %     $    280,426           6.04 %     $    301,228           6.04 %     $    304,306           6.06 %     $    310,269
Boston                                           7.32             24,224           7.41             29,239           7.51             30,380           7.54             31,283           7.74             32,907
Chicago                                          6.93             25,097           7.03             29,474           7.10             29,279           7.15             28,172           7.16             28,547
Newark                                           8.03             23,253           8.07             26,285           8.12             27,582           8.17             27,809           8.23             27,529
Cambridge                                        7.39              2,842           7.59              4,301           7.57              4,371           7.59              4,387           7.65              5,199
Other                                            7.26              5,816           7.37              5,828           7.39              6,391           7.40              6,584           7.40              6,749

Total medallion loans                            6.29            341,422           6.33            375,553           6.42            399,231           6.42            402,541           6.46            411,200

Deferred loan acquisition costs                                      361                               341                               373                               423                               493
Unrealized depreciation on loans                                      -                                 -                                 -                                 -                                 -

Net medallion loans                                         $    341,783                      $    375,894                      $    399,604                      $    402,964                      $    411,693

Commercial loans
Secured mezzanine                               14.61 %     $     63,297          14.48 %     $     64,709          14.38 %     $     67,810          14.23 %     $     65,475          14.24 %     $     65,177
Asset based                                      5.80              9,265           5.75              8,249           5.00             13,794           5.29             13,552           6.47             17,234
Other secured commercial                         8.18             13,534           8.08             13,417           8.09             14,666           8.34             15,870           8.42             16,000

Total commercial loans                          12.65             86,096          12.65             86,375          12.08             96,270          11.97             94,897          11.93             98,411

Deferred loan acquisition costs                                     (249 )                            (154 )                            (233 )                            (171 )                            (138 )
Unrealized depreciation on loans                                  (4,060 )                          (3,332 )                          (5,366 )                          (5,115 )                          (3,443 )

Net commercial loans                                        $     81,787                      $     82,889                      $     90,671                      $     89,611                      $     94,830

Investment in Medallion Bank and other
controlled subsidiaries, net                     6.45 %     $     77,544           6.50 %     $     76,901           7.40 %     $     76,010           8.22 %     $     74,750           8.65 %     $     71,211

Equity investments                               3.57 %     $      3,143           4.22 %     $      3,143           5.49 %     $      3,075           4.33 %     $      2,835           4.45 %     $      2,635

Unrealized appreciation (depreciation) on
equities                                                            (245 )                            (628 )                            (282 )                             437                             2,027

Net equity investments                                      $      2,898                      $      2,515                      $      2,793                      $      3,272                      $      4,662

Investment securities                              -  %     $         -              -  %     $         -              -  %     $         -              -  %     $         -              -  %     $         -

Investments at cost                              7.38 %     $    508,205           7.35 %     $    541,972           7.49 %     $    574,586           7.56 %     $    575,023           7.64 %     $    583,457

Deferred loan acquisition costs                                      112                               187                               140                               252                               355
Unrealized appreciation (depreciation) on
equities                                                            (245 )                            (628 )                            (282 )                             437                             2,027
Unrealized depreciation on loans                                  (4,060 )                          (3,332 )                          (5,366 )                          (5,115 )                          (3,443 )

Net investments (2)                                         $    504,012                      $    538,199                      $    569,078                      $    570,597                      $    582,396

Medallion Bank investments
Consumer loans                                  18.01 %     $    197,563          18.05 %     $    196,930          18.14 %     $    192,769          18.26 %     $    189,886          18.38 %     $    186,691
Medallion loans                                  6.23            143,186           6.32            125,884           6.38            121,338           6.46            122,581           5.92             90,982
Commercial loans                                 5.88             74,584           5.85             82,938           5.71             84,510           5.64             87,800           7.23             97,972
Investment securities                            3.92             18,632           4.24             19,506           4.62             16,343           4.87             20,056           5.11             19,614

Medallion Bank investments at cost              11.43            433,965          11.57            425,258          11.63            414,960          11.54            420,323          12.09            395,259

Deferred loan acquisition costs                                    5,732                             5,663                             5,858                             5,994                             5,807
Unrealized appreciation (depreciation) on
investment securities                                                222                                24                                86                               (64 )                              10
Premiums paid on purchased securities                                178                               200                                84                                96                               106
Unrealized depreciation on loans                                 (12,860 )                         (12,749 )                         (11,712 )                         (10,936 )                          (9,885 )

Medallion Bank net investments (2)                          $    427,237                      $    418,396                      $    409,276                      $    415,413                      $    391,297

(1) Represents the weighted average interest or dividend rate of the respective portfolio as of the date indicated.

(2) The weighted average interest rate for the entire managed loan portfolio (medallion, commercial, and consumer loans) was 9.64%, 9.57%, 9.48%, 9.44%, and 9.61% at September 30, 2009, June 30, 2009, March 31, 2009, December 31, 2008, and September 30, 2008.

Investment Activity

The following table sets forth the components of investment activity in the
investment portfolio for the periods indicated:





                                                Three Months Ended September 30,                         Nine Months Ended September 30,
(Dollars in thousands)                          2009                         2008                       2009                         2008
Net investments at beginning of
period                                   $          538,199           $          575,362         $           570,597          $           653,046
Investments originated                               42,826                       71,374                     132,010                      240,644
Repayments of investments                           (77,937 )                    (62,243 )                  (196,709 )                   (308,142 )
Net realized gains (losses) on
investments (1)                                          26                          108                      (2,321 )                     (5,255 )
Net increase in unrealized
appreciation (depreciation) (2)                         898                       (2,120 )                       923                        1,812
Transfers (to) from other assets                         -                            -                         (480 )                        642
Amortization of origination costs                        -                           (85 )                        (8 )                       (351 )

Net increase (decrease) in
investments                                         (34,187 )                      7,034                     (66,585 )                    (70,650 )

Net investments at end of period         $          504,012           $          582,396         $           504,012          $           582,396

(1) Excludes net realized gains of $460 and $917 for the 2009 third quarter and nine months, and $0 and $1,386 for the comparable 2008 periods, related to foreclosed properties, which are carried in other assets on the consolidated balance sheet.

(2) Excludes net unrealized appreciation (depreciation) of ($496) and $1,236 for the 2009 third quarter and nine months, and $2,705 and $3,827 for the comparable 2008 periods, related to foreclosed properties, which are carried in other assets on the consolidated balance sheet.

PORTFOLIO SUMMARY

Total Portfolio Yield

The weighted average yield of the total portfolio at September 30, 2009 was 7.38% (7.57% for the loan portfolio), a decrease of 18 basis points from 7.56% at December 31, 2008, and a decrease of 26 basis points from 7.64% at September 30, 2008. The weighted average yield of the total managed portfolio at September 30, 2009 was 9.38%, (9.64% for the loan portfolio), an increase of 16 basis points from 9.22% at December 31, 2008, and a decrease of 1 basis point from 9.39% at September 30, 2008. The decreases from 2008 in the owned portfolio reflected the general market condition of falling interest rates, and the 2009 increases in the managed portfolio reflect the greater concentration of Medallion Bank consumer assets to the totals.

Medallion Loan Portfolio

Our medallion loans comprised 68% of the net portfolio of $504,012,000 at September 30, 2009, compared to 70% of the net portfolio of $570,597,000 at December 31, 2008, and 71% of $582,396,000 at September 30, 2008. Our managed medallion loans of $484,711,000 comprised 56% of the net managed portfolio of $864,233,000 at September 30, 2009, compared to 57% of the net managed portfolio of $922,007,000 at December 31, 2008, and 55% of $912,976,000 at September 30, 2008. The medallion loan portfolio decreased by $61,182,000 or 15% in 2009 ($40,661,000 or 8% on a managed basis), primarily reflecting loan payoffs and the sale of participation interests to third parties. Total medallion loans serviced for third parties were $93,779,000, $66,041,000, and $66,600,000 at September 30, 2009, December 31, 2008, and September 30, 2008.

The weighted average yield of the medallion loan portfolio at September 30, 2009 was 6.29%, a decrease of 13 basis points from 6.42% at December 31, 2008, and a decrease of 17 basis points from 6.46% at September 30, 2008. The weighted average yield of the managed medallion loan portfolio at September 30, 2009 was 6.27%, a decrease of 16 basis points from 6.43% at December 31, 2008, and a decrease of 9 basis points from 6.36% at September 30, 2008. The decrease in yield primarily reflected the impact of falling interest rates in the economy and the effects of borrower refinancings. At September 30, 2009, 24% of the medallion loan portfolio represented loans outside New York, compared to 24% at December 31, 2008 and 25% at September 30, 2008. At September 30, 2009, 25% of the managed medallion loan portfolio represented loans outside New York, compared to 26% at December 31, 2008 and 22% at September 30, 2008. We continue to focus our efforts on originating higher yielding medallion loans outside the New York market.

Commercial Loan Portfolio

Our commercial loans represented 16% of the net investment portfolio as of September 30, 2009, December 31, 2008, and September 30, 2008, and were 18%, 19%, and 21% on a managed basis for the comparable period. Commercial loans decreased by $7,864,000 or 9% during 2009 (decreased $20,925,000 or 12% on a managed basis), primarily reflecting reductions in asset-based and other secured commercial loans. Net commercial loans serviced by third parties were $13,270,000 at September 30, 2009, $8,646,000 at December 31, 2008, and $12,838,000 at September 30, 2008.

The weighted average yield of the commercial loan portfolio at September 30, 2009, was 12.65%, an increase of 68 basis points from 11.97% at December 31, 2008, and 72 basis points from 11.93% at September 30, 2008. The increases reflect the higher proportion of higher-yielding mezzanine loans in the portfolio. The weighted average yield of the managed commercial loan portfolio at September 30, 2009 was 9.51%, an increase of 58 basis points from 8.93% at December 31, 2008, and a decrease of 8

basis points from 9.59% at September 30, 2008. The changes in rates reflect the decline of market interest rates on the floating pool of loans, offset by higher levels of higher-rate mezzanine loans. We continue to originate adjustable-rate and floating-rate loans tied to the prime rate to help mitigate our interest rate risk in a rising interest rate environment. At September 30, 2009, variable-rate loans represented 18% of the commercial portfolio, compared to 22% and 24% at December 31, 2008 and September 30, 2008, and were 55%, 59%, and 58% on a managed basis. Although this strategy initially produces a lower yield, we believe that this strategy mitigates interest rate risk by better matching our earning assets to their adjustable-rate funding sources.

Consumer Loan Portfolio

Our managed consumer loans, all of which are held in the portfolio managed by Medallion Bank, represented 22%, 20% and 20% of the managed net investment portfolio as of September 30, 2009, December 31, 2008, and September 30, 2008. Medallion Bank originates adjustable rate consumer loans secured by recreational vehicles, boats, motorcycles, and trailers located in all 50 states. The portfolio is serviced by a third party subsidiary of a major commercial bank.

The weighted average gross yield of the managed consumer loan portfolio was 18.01% at September 30, 2009, compared to 18.26% and 18.38% at December 31, 2008 and September 30, 2008. Amortization of the portfolio purchase premium reduced the yield by an average of 0.14%, 0.25%, and 0.18% for the respective quarters. Adjustable rate loans represented 86% of the managed consumer portfolio at September 30, 2009, compared to 89% and 91% at December 31, 2008 and September 30, 2008.

Delinquency and Loan Loss Experience

We generally follow a practice of discontinuing the accrual of interest income on our loans that are in arrears as to interest payments for a period of 90 days or more. We deliver a default notice and begin foreclosure and liquidation proceedings when management determines that pursuit of these remedies is the most appropriate course of action under the circumstances. A loan is considered to be delinquent if the borrower fails to make a payment on time; however, during the course of discussion on delinquent status, we may agree to modify the payment terms of the loan with a borrower that cannot make payments in accordance with the original loan agreement. For loan modifications, the loan will only be returned to accrual status if all past due interest payments are brought fully current. For credit that is collateral based, we evaluate the anticipated net residual value we would receive upon foreclosure of such loans, if necessary. There can be no assurance, however, that the collateral securing these loans will be adequate in the event of foreclosure. For credit that is cash flow-based, we assess our collateral position, and evaluate most of these relationships as ongoing businesses, expecting to locate and install a new operator to run the business and reduce the debt.

For the consumer loan portfolio, the process to repossess the collateral is started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged off to realized losses. If the collateral is repossessed, a realized loss is recorded to write the collateral down to 75% of its net realizable value, and the collateral is sent to auction. When the collateral is sold, the net auction proceeds are applied to the account, and any remaining balance is written off as a realized loss, and any excess proceeds are recorded as a realized gain. Proceeds collected on charged off accounts are recorded as realized gains. All collection, repossession, and recovery efforts are handled on behalf of Medallion Bank by the servicer.

The following table shows the trend in loans 90 days or more past due:

                                                 September 30, 2009         June 30, 2009         March 31, 2009         December 31, 2008          September 30, 2008
(Dollars in thousands)                            Amount        %(1)        Amount     %(1)        Amount     %(1)         Amount       %(1)         Amount        %(1)
Medallion loans                                $        810       0.2 %    $     968    0.2 %    $    1,004    0.2 %    $        765     0.2 %    $        592        0.1 %

Commercial loans
Secured mezzanine                                    10,544       2.4         13,842    3.0          14,428    2.9             6,415     1.3               200        0.0
Asset-based receivable                                   -        0.0             -     0.0              -     0.0                -      0.0                -         0.0
Other secured commercial                                295       0.1            178    0.0             358    0.1               190     0.0               197        0.0

Total commercial loans                               10,839       2.5         14,020    3.0          14,786    3.0             6,605     1.3               397        0.1

Total loans 90 days or more past due           $     11,649       2.7 %    $  14,988    3.2 %    $   15,790    3.2 %    $      7,370     1.5 %    $        989        0.2 %

Total Medallion Bank loans                     $      3,917       0.9 %    $   3,683    0.9 %    $    3,478    0.9 %    $      4,345     1.1 %    $      1,305        0.3 %

Total managed loans 90 days or more past due   $     15,566       1.8 %    $  18,671    2.2 %    $   19,268    2.2 %    $     11,715     1.3 %    $      2,294        0.3 %

(1) Percentages are calculated against the total or managed loan portfolio, as appropriate.

In general, collection efforts since the establishment of our collection department have contributed to the reduction in overall delinquencies of medallion and other secured commercial loans. Medallion loan delinquencies have remained relatively flat over the last year. The economic recession has caused delinquencies in secured mezzanine financings to increase over 2008 due to lowered demand and consumer and industrial spending, which has impacted certain industrial and travel related customers. However, the delinquency decreased in the 2009 third quarter, attributable to improved loan repayment. High unemployment rates continue to impact Medallion Bank's customers, causing higher delinquency in the consumer recreational portfolio compared to September 2008, and seasonal factors impacted its decline from year end. We are actively working with each delinquent borrower to bring them current, and believe that any potential loss exposure is reflected in our mark-to-market estimates on each loan. Although there can be no assurances as to changes in the trend rate and further negative changes in the economy, management believes that any loss exposures are properly reflected in reported asset values.

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