MEDALLION FINANCIAL CORP - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended September 30, 2004

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

For the transition period from to

Commission file number 0-27812

MEDALLION FINANCIAL CORP.

(Exact name of registrant as specified in its charter)


DELAWARE		04-3291176
(State of Incorporation)		(IRS Employer Identification No.)

437 MADISON AVENUE, NEW YORK, NEW YORK 10022

(Address of principal executive offices) (Zip Code)

(212) 328-2100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No. ¨

The number of outstanding shares of registrant’s Common Stock, par value $0.01, as of November 8, 2004 was 17,555,109.

MEDALLION FINANCIAL CORP.

FORM 10-Q

TABLE OF CONTENTS



PART I – FINANCIAL INFORMATION		3

ITEM 1.	FINANCIAL STATEMENTS	3

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	46

ITEM 4.	CONTROLS AND PROCEDURES	46

PART II – OTHER INFORMATION		46

ITEM 1.	LEGAL PROCEEDINGS	46

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	46

ITEM 6.	EXHIBITS	47

SIGNATURES		48

CERTIFICATIONS		49

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

BASIS OF PREPARATION

Medallion Financial Corp. (the Company) is a closed-end management investment company organized as a Delaware corporation. The Company has elected to be regulated as a Business Development Company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, Medallion Funding Corp. (MFC), a Small Business Investment Company (SBIC) which originates and services taxicab medallion and commercial loans. As an adjunct to the Company’s taxicab medallion finance business, the Company had operated a taxicab rooftop advertising business through two subsidiaries, the primary operator Medallion Taxi Media, Inc. (Media), and a small operating subsidiary in Japan (Japan), (together MTM). During the 2004 third quarter, Media was merged with and into a subsidiary of Clear Channel Communications, Inc. (CCU), and Japan was sold in a stock sale to its management. The Company no longer conducts a taxicab rooftop advertising business. See note 3 for additional information about the transactions.

The financial information is divided into two sections. The first section, Item 1, includes the unaudited consolidated financial statements of the Company including related footnotes. The second section, Item 2, consists of Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and nine months ended September 30, 2004.

The consolidated balance sheet of the Company as of September 30, 2004, the related consolidated statements of operations for the three and nine months ended September 30, 2004, and the consolidated statements of cash flows for the nine months ended September 30, 2004 included in Item 1 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying consolidated financial statements include all adjustments necessary to summarize fairly the Company’s financial position and results of operations. The results of operations for the three and nine months ended September 30, 2004, or for any other interim period, may not be indicative of future performance. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Interest and dividend income on investments	$	10,692,530		$	6,558,507		$	27,169,393		$	19,441,511
Interest income on short-term investments		173,650			43,623			372,924			157,001
Medallion lease income		111,815			91,203			321,815			91,203

Total investment income		10,977,995			6,693,333			27,864,132			19,689,715

Interest on floating rate borrowings		2,493,258			1,840,736			6,158,612			6,074,940
Interest on fixed rate borrowings		2,033,317			971,067			4,922,050			3,263,850

Total interest expense		4,526,575			2,811,803			11,080,662			9,338,790

Net interest income		6,451,420			3,881,530			16,783,470			10,350,925

Gain on sales of loans		331,685			87,967			730,126			803,666
Other income		596,587			905,534			1,818,222			2,765,880

Total noninterest income		928,272			993,501			2,548,348			3,569,546

Salaries and benefits		2,463,084			2,070,463			7,167,565			6,943,720
Professional fees		307,528			430,916			1,311,133			819,241
Other operating expenses		2,201,942			1,709,192			5,889,500			4,876,287

Total operating expenses		4,972,554			4,210,571			14,368,198			12,639,248

Net investment income before income taxes		2,407,138			664,460			4,963,620			1,281,223
Income tax provision		566,180			21,846			1,674,277			41,149

Net investment income after income taxes		1,840,958			642,614			3,289,343			1,240,074

Net realized gains (losses) on investments		(2,784,101	)		4,494,411			(3,298,663	)		12,146,878
Net change in unrealized appreciation (depreciation) on investments		20,998,466			(4,025,981	)		18,933,821			(11,090,773	)

Net realized/unrealized gain on investments		18,214,365			468,430			15,635,158			1,056,105

Net increase in net assets resulting from operations	$	20,055,323		$	1,111,044		$	18,924,501		$	2,296,179

Net increase in net assets resulting from operations per common share
Basic	$	1.11		$	0.06		$	1.04		$	0.13
Diluted		1.09			0.06			1.02			0.13

Dividends declared per share	$	0.10		$	0.05		$	0.26		$	0.09
Weighted average common shares outstanding
Basic		18,075,879			18,245,228			18,144,724			18,243,570
Diluted		18,456,246			18,517,491			18,540,732			18,355,123

The accompanying notes are an integral part of these unaudited consolidated financial statements.

MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	September 30, 2004			December 31, 2003
Assets
Medallion loans, at fair value	$	348,412,907		$	288,211,557
Commercial loans, at fair value		134,013,635			85,970,205
Consumer loans, at fair value		67,389,895			—
Equity investments, at fair value		34,150,233			4,976,763
Investment securities, at fair value		15,407,620			—

Net investments ($259,611,000 at September 30, 2004 and $251,880,000 at December 31, 2003 pledged as collateral under borrowing arrangements)		599,374,290			379,158,525
Investment in and loans to MTM		—			3,614,485

Total investments		599,374,290			382,773,010
Cash ($670,661 at September 30, 2004 and $605,000 at December 31, 2003 restricted as to use by lender)		28,150,202			47,675,537
Accrued interest receivable		3,309,105			1,727,719
Servicing fee receivable		2,429,623			2,663,468
Fixed assets, net		1,079,688			1,351,887
Goodwill, net		5,007,583			5,007,583
Other assets, net		18,670,871			15,295,253

Total assets	$	658,021,362		$	456,494,457

Liabilities
Accounts payable and accrued expenses	$	11,556,172		$	5,726,830
Accrued interest payable		554,131			1,197,248
Floating rate borrowings		239,986,032			230,519,057
Fixed rate borrowings		232,530,101			56,935,000

Total liabilities	$	484,626,436			294,378,135

Shareholders’ equity
Preferred Stock (1,000,000 shares of $0.01 par value stock authorized-none outstanding)		—			—
Common stock (50,000,000 shares of $0.01 par value stock authorized)		182,901			182,524
Treasury stock at cost (451,451 shares at September 30, 2004 and 30,934 shares at December 31, 2003)		(4,150,391	)		(431,584	)
Capital in excess of par value		174,008,835			173,831,049
Cumulative effect of foreign currency translation		—			(72,861	)
Accumulated net investment losses		3,353,581			(11,392,806	)

Total shareholders’ equity		173,394,926			162,116,322

Total liabilities and shareholders’ equity	$	658,021,362		$	456,494,457

Number of common shares outstanding		17,860,611			18,242,178
Net asset value per share	$	9.71		$	8.89

The accompanying notes are an integral part of these unaudited consolidated financial statements.

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations	$	18,924,501		$	2,296,179
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used for) operating activities:
Depreciation and amortization		481,240			489,647
Amortization of origination costs and portfolio purchase premiums		1,916,396			999,063
Increase in net unrealized (appreciation) depreciation on investments		(21,760,421	)		7,763,081
Net realized (gains) losses on investments		3,298,663			(12,146,878	)
Gains on sales of loans		(730,126	)		(803,666	)
Increase in unrealized depreciation on MTM		2,826,604			3,327,692
(Increase) decrease in accrued interest receivable		(676,830	)		315,854
Decrease in servicing fee receivable		233,845			73,245
(Increase) decrease in other assets, net		139,808			(708,024	)
Increase (decrease) in accounts payable and accrued expenses		1,879,371			(726,487	)
Decrease in accrued interest payable		(643,117	)		(5,281,058	)

Net cash provided by (used for) operating activities		5,889,934			(4,401,352	)

CASH FLOWS FROM INVESTING ACTIVITIES
Investments originated		(228,132,400	)		(188,621,260	)
Purchase of RV/Marine loan portfolio		(87,213,656	)		—
Proceeds from principal receipts, sales, and maturities of investments		114,411,382			167,788,292
Investments in and loans to MTM, net		(1,608,903	)		(2,562,486	)
Capital expenditures		(215,010	)		(169,808	)

Net cash used for investing activities		(202,758,587	)		(23,565,262	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from floating rate borrowings		123,371,424			153,846,532
Repayments of floating rate borrowings		(113,904,449	)		(126,790,150	)
Proceeds from fixed rate borrowings		201,654,101			9,150,000
Repayments of fixed rate borrowings		(26,059,000	)		(26,060,000	)
Proceeds from exercise of stock options		178,165			—
Payments of declared dividends		(4,178,116	)		(729,710	)
Proceeds from the issuance of common stock		—			48,500
Purchase of treasury stock at cost		(3,718,807	)		—

Net cash provided by financing activities		177,343,318			9,465,172

NET DECREASE IN CASH		(19,525,335	)		(18,501,442	)
CASH, beginning of year		47,675,537			35,369,285

CASH, end of period	$	28,150,202		$	16,867,843

SUPPLEMENTAL INFORMATION
Cash paid during the year for interest	$	10,185,642		$	12,348,230
Cash paid during the year for income taxes		258,564			42,805
Non-cash investing activities-net transfers from other assets		1,229,571			2,051,473

The accompanying notes are in integral part of these unaudited consolidated financial statements.

MEDALLION FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2004

(1) ORGANIZATION OF MEDALLION FINANCIAL CORP. AND ITS SUBSIDIARIES

Medallion Financial Corp. (the Company) is a closed-end management investment company organized as a Delaware corporation. The Company has elected to be regulated as a Business Development Company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, Medallion Funding Corp. (MFC), a Small Business Investment Company (SBIC) which originates and services taxicab medallion and commercial loans. As an adjunct to the Company’s taxicab medallion finance business, the Company had operated a taxicab rooftop advertising business through two subsidiaries, the primary operator Medallion Taxi Media, Inc. (Media), and a small operating subsidiary in Japan (Japan), (together MTM). During the 2004 third quarter, Media was merged with and into a subsidiary of Clear Channel Communications, Inc. CCU, and Japan was sold in a stock sale to its management. The Company no longer conducts a taxicab rooftop advertising business. (See Note 3)

The Company also conducts business through Business Lenders, LLC (BLL), licensed under the Small Business Administration (SBA) Section 7(a) program; Medallion Business Credit, LLC (MBC), an originator of loans to small businesses for the purpose of financing inventory and receivables; Medallion Capital, Inc. (MCI), an SBIC which conducts a mezzanine financing business; Freshstart Venture Capital Corp. (FSVC), an SBIC which originates and services taxicab medallion and commercial loans; and Medallion Bank (MB), a Federal Deposit Insurance Corporation (FDIC) insured industrial bank that primarily originates medallion loans, commercial loans, and RV/Marine consumer loans, raises deposits, and conducts other banking activities. MFC, MCI, and FSVC, as SBICs, are regulated and financed in part by the SBA.

MB was capitalized on December 16, 2003, with $22,000,000 from the Company. On December 22, 2003, upon satisfaction of the conditions set forth in the FDIC’s order of October 2, 2003 approving MB’s application for federal deposit insurance, the FDIC certified that the deposits of each depositor in MB were insured to the maximum amount provided by the Federal Deposit Insurance Act and MB opened for business. MB is subject to competition from other financial institutions and to the regulations of certain federal and state agencies and undergoes examinations by both agencies.

MB is a wholly-owned subsidiary of the Company and was formed for the primary purpose of originating commercial loans in three categories: 1) loans to finance the purchase of taxicab medallions (licenses), 2) asset-based commercial loans and 3) SBA 7(a) loans. The loans are marketed and serviced by MB’s affiliates who have extensive prior experience in these asset groups. Additionally, MB began issuing brokered certificates of deposit in January 2004, and had purchased over $84,150,000 of taxicab medallion and asset-based loans from affiliates of the Company as of September 30, 2004. Additionally, on April 1, 2004, MB purchased a RV/Marine loan portfolio with a principal amount of $84,875,000, net of $4,244,000, or 5.0%, of unrealized depreciation, from an unrelated financial institution for consideration of $86,309,000. The purchase was funded with $7,700,000 of additional capital contributed by the Company and with deposits raised by MB. The purchase included a premium of approximately $5,678,000 to the book value of assets acquired, which will be amortized to interest income over the expected life of the acquired loans, and which is carried in other assets on the consolidated balance sheets.

In June 2003, MFC established several wholly-owned subsidiaries which, along with an existing subsidiary (together, Medallion Chicago), purchased certain City of Chicago taxicab medallions which are leased to fleet operators while being held for long-term appreciation in value.

In September 2002, MFC established a wholly-owned subsidiary, Taxi Medallion Loan Trust I (Trust), for the purpose of owning medallion loans originated by MFC or others. The Trust is a separate legal and corporate entity with its own creditors who, in any liquidation of the Trust, will be entitled to be satisfied out of the Trust’s assets prior to any value in the Trust becoming available to the Trust’s equity holders. The assets of the Trust are not available to pay obligations of its affiliates or any other party, and the assets of affiliates or any other party are not available to pay obligations of the Trust. The Trust’s loans are serviced by MFC.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The accounting and reporting policies of the Company conform with accounting principles generally accepted in the US and general practices in the investment company industry. The preparation of financial statements in conformity with generally accepted accounting principles in the US requires the Company to make estimates and assumptions that affect the reporting and disclosure of assets and liabilities, including those that are of a contingent nature, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, except for MTM. All significant intercompany transactions, balances, and profits have been eliminated in consolidation. As non-investment companies, MTM cannot be consolidated with the Company, which is an investment company under the 1940 Act. See Note 3 for the presentation of financial information for MTM.

Investment Valuation

The Company’s loans, net of participations and any unearned discount, are considered investments under the 1940 Act and are recorded at fair value. Loans are valued at cost adjusted for any unrealized appreciation (depreciation). Since no ready market exists for these loans, the fair value is determined in good faith by management, and approved by the Board of Directors. In determining the fair value, the Company and Board of Directors consider factors such as the financial condition of the borrower, the adequacy of the collateral, individual credit risks, historical loss experience, and the relationships between current and projected market rates and portfolio rates of interest and maturities. The Company’s RV/Marine portfolio purchase was net of unrealized depreciation of $4,244,000, or 5.0% of the balances outstanding, and included a purchase premium of approximately $5,678,000. Adjustments to the fair value of this portfolio are based on the historical loan loss data obtained from the seller, adjusted for changes in delinquency trends and other factors as described above.

Investments in securities and stock warrants are recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation, respectively. The fair value of investments that have no ready market are determined in good faith by management, and approved by the Board of Directors, based upon assets and revenues of the underlying investee companies as well as general market trends for businesses in the same industry. Included in equity investments at September 30, 2004 are marketable and non-marketable securities of $30,431,000 and $3,719,000, respectively. At December 31, 2003, the respective balances were $648,000 and $4,328,000. The increase in marketable investment securities reflected the receipt of 933,521 shares of stock of CCU in connection with the merger of Media into CCU. Because of the inherent uncertainty of valuations, management’s estimates of the values of the investments may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material.

The Company’s investments consist primarily of long-term loans to persons defined by SBA regulations as socially or economically disadvantaged, or to entities that are at least 50% owned by such persons. Approximately 58% and 76% of the Company’s investment portfolio at September 30, 2004 and December 31, 2003 had arisen in connection with the financing of taxicab medallions, taxicabs, and related assets, of which 76% and 81% were in New York City. These loans are secured by the medallions, taxicabs, and related assets, and are personally guaranteed by the borrowers, or in the case of corporations, are generally guaranteed personally by the owners. A portion of the Company’s portfolio represents loans to various commercial enterprises, in a variety of industries, including wholesaling, food services, financing, broadcasting, communications, real estate, and lodging. These loans are made primarily in the metropolitan New York City area. Approximately 11% of the Company’s portfolio consists of consumer loans collateralized by recreational vehicles, boats, and trailers to consumers in all 50 states. The remaining portion of the Company’s portfolio is from the origination of loans guaranteed by the SBA under its Section 7(a) program, less the sale of the guaranteed portion of those loans. Funding for the Section 7(a) program depends on annual appropriations by the US Congress.

Collateral Appreciation Participation Loans

During the 2000 first half, the Company originated collateral appreciation participation loans collateralized by 500 Chicago taxi medallions of $29,800,000, of which $20,850,000 was syndicated to other financial institutions. During 2002 and 2003, all of the medallions were returned to the Company in lieu of repayment of the loans. Subsequently, the Company reached agreement to sell 400 of the medallions to new borrowers at book value upon the transfer of the ownership of the medallion licenses by the City of Chicago, and 392 medallions for $19,232,000 had been reclassified back to medallion loans through September 30, 2004, reflecting the transfers to date, which includes portions of the original loan repurchased from the participants and refinanced elsewhere, primarily with the Merrill Lynch facility. Also, during 2003, 100 of the returned medallions were sold for $2,000,000 to subsidiaries of MFC, who subsequently repurchased the syndicated portion of $4,000,000, the purchase of which was mostly funded by notes of $3,700,000 with several banks. These medallions are leased to fleet operators while being held for long-term appreciation in value. The remaining 8 medallions for $82,000 are carried in other assets as of September 30, 2004. The Company has contracted with certain fleet operators to buy the 8 remaining medallions for full value, similar to the transactions described above; however, there can be no assurances that the balance of such refinancing will occur. As a RIC, the Company is required to mark-to-market these investments on a quarterly basis, as it does on all of its other investments. The Company believes that it has adequately calculated the fair market value of these investments in each accounting period, by relying upon information such as recent and historical medallion sale prices.

Investment Transactions and Income Recognition

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At September 30, 2004, December 31, 2003, and September 30, 2003, net origination costs totaled approximately $1,675,000, $1,646,000, and $1,620,000. Amortization expense for the quarters ended September 30, 2004 and 2003 was $442,000 and $403,000, and was $1,260,000 and $999,000 for the comparable year to date periods.

Investment securities are purchased from time-to-time in the open market at prices that are greater or lesser than the par value of the investment. The resulting premium or discount is deferred and recognized as an adjustment to the yield of the related investment. At September 30, 2004, the net premium on investment securities totaled $541,000, and amortization expense for the 2004 third quarter and nine months was $24,000 and $44,000. There were no premiums or amortization expense in the 2003 periods.

Interest income is recorded on the accrual basis. Taxicab medallion and commercial loans are placed on nonaccrual status, and all uncollected accrued interest is reversed, when there is doubt as to the collectibility of interest or principal, or if loans are 90 days or more past due, unless management has determined that they are both well-secured and in the process of collection. Interest income on nonaccrual loans is recognized when cash is received. At September 30, 2004, December 31, 2003, and September 30, 2003 total nonaccrual loans were approximately $23,614,000, $26,769,000, and $29,037,000. The amount of interest income on nonaccrual loans that would have been recognized if the loans had been paying in accordance with their original terms was approximately $5,199,000, $3,856,000, and $3,938,000, as of September 30, 2004, December 31, 2003, and September 30, 2003, of which $771,000 and $677,000 would have been recognized in the quarters ended September 30, 2004 and 2003, and $1,998,000 and $2,009,000 would have been recognized in the comparable year to date periods.

The recently purchased RV/Marine portfolio is a consumer loan portfolio with different characteristics compared to commercial loans, typified by a larger number of lower dollar loans that have similar characteristics. As a result, these loans are not typically placed on nonaccrual, but are charged off in their entirety when deemed uncollectible, or when they become 120 days past due, whichever is earlier, at which time appropriate collection and recovery efforts against both the borrower and the underlying collateral are initiated.

Loan Sales and Servicing Fee Receivable

The Company currently accounts for its sales of loans in accordance with Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities- a Replacement of FASB Statement No. 125” (SFAS 140). SFAS 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The principal portion of loans serviced for others by the Company was approximately $136,754,000 and $174,887,000 at September 30, 2004 and December 31, 2003.

Gain or losses on loan sales are primarily attributable to the sale of commercial loans which have been at least partially guaranteed by the SBA. The Company recognizes gains or losses from the sale of the SBA-guaranteed portion of a loan at the date of the sales agreement when control of the future economic benefits embodied in the loan is surrendered. The gains are calculated in accordance with SFAS 140, which requires that the gain on the sale of a portion of a loan be based on the relative fair values of the loan sold and the loan retained. The gain on loan sales is due to the differential between the carrying amount of the portion of loans sold and the sum of the cash received and the servicing fee receivable. The servicing fee receivable represents the present value of the difference between the servicing fee received by the Company (generally 100 to 400 basis points) and the Company’s servicing costs and normal profit, after considering the estimated effects of prepayments and defaults over the life of the servicing agreement. In connection with calculating the servicing fee receivable, the Company must make certain assumptions including the cost of servicing a loan including a normal profit, the estimated life of the underlying loan that will be serviced, and the discount rate used in the present value calculation. The Company considers 40 basis points to be its cost plus a normal profit and uses the note rate plus 100 basis points for loans with an original maturity of ten years or less, and the note rate plus 200 basis points for loans with an original maturity of greater than ten years as the discount rate. The note rate is generally the prime rate plus 2.75%.

The servicing fee receivable is amortized as a charge to loan servicing fee income over the estimated lives of the underlying loans using the effective interest rate method. The Company reviews the carrying amount of the servicing fee receivable for possible impairment by stratifying the receivables based on one or more of the predominant risk characteristics of the underlying financial assets. The Company has stratified its servicing fee receivable into pools, generally by the year of creation, and within those pools, by the term of the loan underlying the servicing fee receivable. If the estimated present value of the future servicing income is less than the carrying amount, the Company establishes an impairment reserve and adjusts future amortization accordingly. If the fair value exceeds the carrying value, the Company may reduce future amortization. The servicing fee receivable is carried at the lower of amortized cost or fair value.

The estimated net servicing income is based, in part, on management’s estimate of prepayment speeds, including default rates, and accordingly, there can be no assurance of the accuracy of these estimates. If the prepayment speeds occur at a faster rate than anticipated, the amortization of the servicing asset will be accelerated and its value will decline; and as a result, servicing income during that and subsequent periods would decline. If prepayments occur slower than anticipated, cash flows would exceed estimated amounts and servicing income would increase. The constant prepayment rates utilized by the Company in estimating the lives of the loans depend on the original term of the loan, industry trends, and the Company’s historical data. During 2001, the Company began to experience an increase in prepayment activity and delinquencies. These trends continued to worsen during 2001, and as a result the Company revised its prepayment assumptions on certain loan pools to between 25% and 35% from the 15% rate historically used on all pools. Since late in 2002, prepayment patterns have slowed. The Company evaluates the temporary impairment to determine if any such temporary impairment would be considered to be permanent in nature. In the first quarter of 2003, the Company determined that $856,000 of the temporary impairment reserve had suffered a permanent loss in value and was now permanent. Additionally, during 2003, the Company determined that $400,000 of the temporary impairment reserve was no longer warranted due to the above discussed prepayment patterns and consequently, was reversed and recognized as servicing fee income. The prepayment rate of loans may be affected by a variety of economic and other factors, including prevailing interest rates and the availability of alternative financing to borrowers.

The activity in the reserve for servicing fee receivable follows:


	2004		2003
Balance at December 31,	$	1,037,000	$	2,293,000
Adjustments to carrying values ⁽¹⁾		—		(856,000	)
Reduction charged to operations		—		(300,000	)

Balance at March 31,		1,037,000		1,137,000
Activity during the second quarter		—		—

Balance at June 30,		1,037,000		1,137,000
Activity during the third quarter		—		—

Balance at September 30,	$	1,037,000	$	1,137,000

⁽¹⁾

The Company determined that a fully reserved portion of the servicing asset had suffered a permanent loss in value in the 2003 first quarter, and accordingly, reduced both the balance of the gross servicing fee receivable and the related reserve by $856,000. There was no impact on the consolidated statement of income.

The Company also has the option to sell the unguaranteed portions of loans to third party investors. The gain or loss on such sales is calculated in accordance with SFAS No. 140. The discount related to unguaranteed portions sold would be reversed, and the Company would recognize a servicing fee receivable or liability based on servicing fees retained by the Company. The Company is required to retain at least 5% of loans sold under the SBA Section 7(a) program. The Company sold $3,815,000 of unguaranteed portions of loans to third party investors during the 2003 second quarter and nine months, and sold none during the comparable 2004 periods.

Unrealized Appreciation (Depreciation) and Realized Gains (Losses) on Investments

The change in unrealized appreciation (depreciation) on investments is the amount by which the fair value estimated by the Company is greater (less) than the cost basis of the investment portfolio. Realized gains or losses on investments are generated through sales of investments, foreclosure on specific collateral, and writeoffs of loans or assets acquired in satisfaction of loans, net of recoveries. Unrealized depreciation on net investments (which excludes MTM and foreclosed properties) was $14,798,000 as of September 30, 2004, $7,631,000 as of December 31, 2003, and $8,534,000 as of September 30, 2003. The Company’s investment in MTM, as wholly-owned portfolio investments, is also subject to quarterly assessments of its fair value. The Company uses MTM’s actual results of operations as the best estimate of changes in its fair value, and records the result as a component of unrealized appreciation (depreciation) on investments. See Note 3 for the presentation of financial information for MTM.

The following table sets forth the changes in the Company’s unrealized appreciation (depreciation) on net investments during the 2004 and 2003 quarters.


	Loans		Equity Investments			Total
Balance December 31, 2002 ⁽¹⁾	($6,997,426	)	$	6,039,584		($957,842	)
Increase in unrealized
Appreciation on investments	—			1,536,220		1,536,220
Depreciation on investments	86,610			39,600		126,210
Reversal of unrealized appreciation (depreciation) related to realized
Losses on investments	523,640			—		523,640

Balance March 31, 2003 ⁽¹⁾	(6,387,176	)		7,615,404		1,228,228
Increase in unrealized
Appreciation on investments	—			321,407		321,407
Depreciation on investments	(3,752,538	)		18,000		(3,734,538	)
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments	(11,811	)		(3,980,179	)	(3,991,990	)
Losses on investments	615,791			—		615,791

Balance June 30, 2003 ⁽¹⁾	(9,535,734	)		3,974,632		(5,561,102	)
Increase in unrealized
Depreciation on investments	395,815			(900	)	394,915
Reversal of unrealized appreciation (depreciation) related to realized
Gains on investments	—			(3,752,387	)	(3,752,387	)
Losses on investments	384,081			—		384,081

Balance September 30, 2003 ⁽¹⁾	($8,755,838	)	$	221,345		($8,534,493	)


	Loans		Equity Investments			Total
Balance December 31, 2003 ⁽¹⁾	($7,917,791	)	$	287,045		($7,630,746	)
Increase in unrealized
Depreciation on investments	(205,957	)		17,397		(188,560	)
Reversal of unrealized appreciation (depreciation) related to realized
Losses on investments	239,810			7,589		247,399

Balance March 31, 2004 ⁽¹⁾	(7,883,938	)		312,031		(7,571,907	)
Increase in unrealized
Appreciation on investments	—			81,400		81,400
Depreciation on investments	(497,406	)		(38,421	)	(535,827	)
Reversal of unrealized appreciation (depreciation) related to realized
Losses on investments	694,909			—		694,909
RV/Marine Reserve ⁽²⁾	(4,243,854	)		—		(4,243,854	)

Balance June 30, 2004 ⁽¹⁾	(11,930,289	)		355,010		(11,575,279	)
Increase in unrealized
Depreciation on investments	(3,425,857	)		(2,565,708	)	(5,991,565	)
Reversal of unrealized appreciation (depreciation) related to realized
Losses on investments	2,768,449			—		2,768,449

Balance September 30, 2004 ⁽¹⁾	($12,587,697	)		($2,210,698	)	($14,798,395	)

⁽¹⁾	Excludes unrealized depreciation of $304,881, $50,606, $0, $317,361, $158,000, $141,000, $28,874, and $128,738 on foreclosed properties at September 30, 2004, June 30, 2004, March 31, 2004, December 31, 2003, September 30, 2003, June 30, 2003, March 31, 2003, and December 31, 2002.

⁽²⁾	Reflects the difference between the purchase price of the portfolio and the actual nominal value of the loan contracts acquired.

The table below summarizes components of unrealized and realized gains and losses in the investment portfolio.


	Three months ended						Nine months ended
	September 30, 2004			September 30, 2003			September 30, 2004			September 30, 2003
Net change in unrealized appreciation (depreciation) on investments
Unrealized appreciation	$	—		$	—		$	81,400		$	1,857,627
Unrealized depreciation		(5,991,565	)		394,915			(6,715,952	)		(3,213,413	)
Unrealized gain on the sale of Media		24,989,099			—			24,989,099			—
Unrealized depreciation on MTM		(513,242	)		(1,052,971	)		(2,826,604	)		(3,327,692	)
Realized gains		—			(3,752,387	)		—			(7,744,377	)
Realized losses		2,768,449			384,081			3,710,757			1,523,512
Other		—			381			—			381
Unrealized depreciation on foreclosed properties		(254,275	)		—			(304,879	)		(186,811	)

Total	$	20,998,466		($	4,025,981	)	$	18,933,821		($	11,090,773	)

Net realized gains (losses) on investments
Realized gains	$	269,015		$	4,922,496		$	584,929		$	13,769,739
Realized losses		(2,768,449	)		(384,081	)		(3,710,757	)		(1,523,512	)
Direct recoveries (charge offs)		(278,826	)		7,767			(201,892	)		83,191
Realized gains (losses) on foreclosed properties		(5,841	)		(51,771	)		29,057			(182,540	)

Total	($	2,784,101	)	$	4,494,411		($	3,298,663	)	$	12,146,878

Goodwill

Costs of purchased businesses in excess of the fair value of net assets acquired (goodwill) was amortized on a straight-line basis over fifteen years. Effective January 1, 2002, coincident with the adoption of SFAS No.142, “ Goodwill and Intangible Assets,” the Company ceased the amortization of goodwill, and engaged a consultant to help management evaluate its carrying value. The results of this evaluation demonstrated no impairment in goodwill for 2003 and 2002. The Company intends to conduct an annual appraisal of its goodwill, and will recognize any impairment in the period the impairment is identified.

Fixed Assets

Fixed assets are carried at cost less accumulated depreciation and amortization, and are depreciated on a straight-line basis over their estimated useful lives of 3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated economic useful life of the improvement. Depreciation and amortization expense was $151,000, $481,000, $165,000 and $490,000 for the 2004 and 2003 third quarters and nine months, respectively.

Deferred Costs

Deferred financing costs, included in other assets, represents costs associated with obtaining the Company’s borrowing facilities, and is amortized over the lives of the related financing agreements. Amortization expense for the three and nine months ended September 30, 2004 and 2003 was $622,000, $1,568,000, $491,000 and $2,374,000, respectively. In addition, the Company capitalizes certain costs for transactions in the process of completion, including those for acquisitions and the sourcing of other financing alternatives, and during the nine months was increased by the purchase premium paid on the RV/Marine portfolio purchase of $5,678,000. Upon completion or termination of the transaction, any accumulated amounts will be amortized against income over an appropriate period, capitalized as goodwill, or written off. Amortization expense for the 2004 quarter and nine months was $484,000, $898,000, and was $0 for the 2003 periods. The amounts on the balance sheet for all of these purposes were $8,217,000 and $2,997,000 as of September 30, 2004 and December 31, 2003.

Federal Income Taxes

Traditionally, the Company and each of its corporate subsidiaries other than Media (the RIC subsidiaries) have qualified to be treated for federal income tax purposes as regulated investment companies (RICs) under the Internal Revenue Code of 1986, as amended (the Code). As RICs, the Company and each of the RIC subsidiaries are not subject to US federal income tax on any gains or investment company taxable income (which includes, among other things, dividends and interest

income reduced by deductible expenses) that it distributes to its shareholders, if at least 90% of its investment company taxable income for that taxable year is distributed. It is the Company’s and the RIC subsidiaries’ policy to comply with the provisions of the Code. The Company did not qualify to be treated as a RIC for 2002, primarily due to a shortfall of interest and dividend income related to total taxable income caused primarily by losses in MFC and other subsidiaries, and also for 2003. As a result, the Company was treated as a taxable entity in 2003 and 2002, which had an immaterial effect on the Company’s financial position and results of operations for 2002. The Company anticipates qualifying and filing it’s federal tax returns as a RIC for 2004.

As a result of the above, for 2003 and for 2002, income taxes were provided under the provisions of SFAS No. 109, “Accounting for Income Taxes,” as the Company was treated as a taxable entity for tax purposes. Accordingly, the Company recognized current and deferred tax consequences for all transactions recognized in the consolidated financial statements, calculated based upon the enacted tax laws, including tax rates in effect for current and future years. Valuation allowances were established for deferred tax assets when it was more likely than not that they would not be realized.

Media and MB are not RICs and are taxed as regular corporations. For 2003 and 2002, Media’s losses have been included in the tax calculation of the Company along with MFC. For 2004, Media will file a partial year tax return covering the period prior to the merger with CCU. The Trust is not subject to federal income taxation. Instead, the Trust’s taxable income is treated as having been earned by MFC.

During the 2004 second quarter, BLL changed its tax election from that of a disaggregated “pass-through” entity of the Company to that of a standalone taxable Subchapter C corporation. For the 2004 year to-date, BLL has no tax liability as a result of this election, and it is expected that any future tax liabilities will be generally immaterial to the Company as a whole.

Net Increase (Decrease) in Net Assets Resulting from Operations per Share (EPS)

Basic earnings per share are computed by dividing net increase (decrease) in net assets resulting from operations available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if option contracts to issue common stock were exercised, and has been computed after giving consideration to the weighted average dilutive effect of the Company’s common stock and stock options. The table below shows the calculation of basic and diluted EPS.


	Three months ended
	September 30, 2004						September 30, 2003
			# of Shares	EPS					# of Shares	EPS
Net increase in net assets resulting from operations available to common shareholders	$	20,055,323					$	1,111,044

Basic EPS
Income available to common shareholders	$	20,055,323	18,075,879	$	1.11		$	1,111,044	18,245,228	$	0.06
Effect of dilutive stock options			380,367		(0.02	)			272,263		—

Diluted EPS
Income available to common shareholders	$	20,055,323	18,456,246	$	1.09		$	1,111,044	18,517,491	$	0.06


	Nine months ended
	September 30, 2004						September 30, 2003
			# of Shares	EPS					# of Shares	EPS
Net increase (decrease) in net assets resulting from operations available to common shareholders	$	18,924,501					$	2,296,179

Basic EPS
Income (loss) available to common shareholders	$	18,924,501	18,144,724	$	1.04		$	2,296,179	18,243,570	$	0.13
Effect of dilutive stock options			396,008		(0.02	)			111,553		—

Diluted EPS
Income (loss) available to common shareholders	$	18,924,501	18,540,732	$	1.02		$	2,296,179	18,355,123	$	0.13

Derivatives

The Company had no interest rate cap agreements or other derivative investments outstanding during 2004 and 2003.

Reclassifications

Certain reclassifications have been made to prior year balances to conform with the current year presentation.

(3) INVESTMENT IN AND LOANS TO MTM

On September 3, 2004, Media entered into a merger agreement with CCU, whereby 100% of the Company’s investment in Media was exchanged on a tax deferred basis for 933,521 shares of CCU stock (NYSE: CCU) and a cash payment of $1,477,000, resulting in an unrealized gain of approximately $24,989,000, after costs associated with completing the merger, including costs accrued for potential contractual purchase accounting adjustments. Additionally, during the 2004 third quarter, the Company sold its investment in Japan to Japan’s management team for $1,600,000, which after considering all sales costs, resulted in a gain on sale of approximately $255,000.

The following table represents MTM’s combined statements of operations, where applicable, through the respective dates of sale in September 2004.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
Advertising revenue	$	1,092,562		$	1,562,439		$	4,302,993		$	4,226,045
Cost of fleet services		733,457			1,004,775			3,305,579			3,349,970

Gross profit		359,105			557,664			997,414			876,075
Depreciation and other non cash adjustments		290,470			595,898			860,431			1,829,210
Other operating expenses		575,692			1,062,369			3,031,722			3,251,418

Loss from operations		(507,057	)		(1,100,603	)		(2,894,739	)		(4,204,553	)
Other income		—			42,124			—			877,336

Loss before taxes		(507,057	)		(1,058,479	)		(2,894,739	)		(3,327,217	)
Income tax provision		237			(5,508	)		2,005			475

Net loss	($	507,294	)	($	1,052,971	)		(2,896,744	)	($	3,327,692	)

The following table presents MTM’s combined balance sheets. As a result of the sale of MTM on September 3, 2004, there is no balance sheet at September 30, 2004, reflecting the 2004 third quarter sales of MTM.


	December 31, 2003
Cash	$	422,432
Accounts receivable, net		1,668,790
Equipment, net		919,138
Prepaid signing bonuses, net		1,377,596
Goodwill		2,082,338
Other		417,338

Total assets	$	6,887,632

Accounts payable and accrued expenses	$	1,148,853
Deferred revenue		1,747,042
Note payable to banks		377,252

Total liabilities		3,273,147

Shareholder equity		14,503,772
Accumulated net losses		(10,889,287	)

Total shareholder equity		3,614,485

Total liabilities and equity	$	6,887,632

During the last three years, Media’s operations were constrained by a very difficult advertising environment that resulted from the September 11, 2001 terrorist attacks and a general economic downturn, compounded by the rapid expansion of taxicab tops inventory that occurred during 1999 and 2000. Media began to recognize losses as growth in operating expenses exceeded growth in revenue.

In the 2003 third quarter, negotiations with certain fleets were concluded with the result that $324,000 that Media had accrued as payments to these fleets was reversed against Media’s cost of fleet services. Also in the 2003 nine months, Media settled a claim against one of its fleet operators. The result was a termination of certain contractual relations, the payment of $950,000 to Media, and the forgiveness of certain liabilities Media owed the fleet operator. The net result of this settlement was an $835,000 gain reflected as other income in the accompanying statement of operations. A portion of the proceeds from this settlement was used by Media to repay the balance of its US third-party outstanding debt. Also during the 2003 second quarter, Media determined that certain tops were no longer usable, and $398,000 of these tops were written off to other operating expenses.

The Company charged Media for salaries and benefits and corporate overhead paid by the Company on Media’s behalf. During 2004 and 2003, these amounts owed by Media and Japan to the Company were contributed to Media and Japan as equity.

In July 2001, the Company acquired certain assets and assumed certain liabilities of MMJ, a taxi advertising operation similar to those operated by Media in the US, which has advertising rights on approximately 4,800 cabs servicing various cities in Japan. The terms of the agreement provide for an earn-out payment to the sellers based on average net income over the three year period following the acquisition. MMJ accounted for approximately 6% and 4% of MTM’s combined revenue during 2004 and 2003.

(4) FLOATING RATE BORROWINGS

In September 2002, the Company and MFC renegotiated a substantial portion of their outstanding debt. The Trust entered into a revolving line of credit with Merrill Lynch Commercial Finance Corp., as successor to Merrill Lynch Bank, USA (MLB), for the purpose of acquiring medallion loans from MFC and to provide for future growth in the medallion lending business. The funds paid to MFC by the Trust were used to pay down notes payable to banks and senior secured notes. As a result of these paydowns, the Company and MFC were able to negotiate amendments to their existing facilities with the banks and noteholders. As of May 31, 2003, the Company and MFC had fully satisfied all of the previous notes payable to banks and senior secured notes, were current on all debt obligations, and in full compliance with all terms and conditions.

Borrowings under the Trust’s revolving line of credit are collateralized by the Trust’s assets and borrowings under the notes payable to banks and the senior secured notes were collateralized by the assets of MFC and the Company.

The outstanding balances were as follows:


	Payments Due By Period
*Dollars in Thousands*	2004		2005		2006		2007		2008		Thereafter		September 30, 2004		December 31, 2003		Interest Rate ⁽¹⁾
Revolving line of credit	$	41,914	$	80,000	$	35,000	$	70,000	$	—	$	—	$	226,914	$	222,936	3.65	%
Notes payable to banks		42		9,867		1,639		1,524		—		—		13,072		7,583	4.55

Total	$	41,956	$	89,867	$	36,639	$	71,524	$	—	$	—	$	239,986	$	230,519	3.70

⁽¹⁾	Weighted average contractual rate as of September 30, 2004.

(A) REVOLVING LINE OF CREDIT

In September 2002, and as renegotiated in September 2003, the Trust entered into a revolving line of credit agreement (amended) with MLB to provide up to $250,000,000 of financing to acquire medallion loans from MFC (MLB line. MFC is the servicer of the loans owned by the Trust. The MLB line includes a borrowing base covenant and rapid amortization in certain circumstances. In addition, if certain financial tests are not met, MFC can be replaced as the servicer. The MLB line matures in September 2005. The interest rate is generally LIBOR plus 1.25% with an unused facility fee of 0.125%, effective September 2003, and was LIBOR plus 1.50% and 0.375%, previously. The facility fee was $375,000 in September 2003, and $900,000 in September 2004.

(B) NOTES PAYABLE TO BANKS AND SENIOR SECURED NOTES

New Bank Loans

On April 26, 2004, the Company entered into a $15,000,000 revolving note agreement with Sterling National Bank that matures on April 25, 2005. The line is secured by certain pledged assets of the Company and MBC, and is subject to periodic borrowing base requirements. The line bears interest at the prime rate, payable monthly, and is subject to an unused fee of 0.125%. As of September 30, 2004, $9,700,000 had been drawn down under this line.

On July 11, 2003 certain operating subsidiaries of MFC entered into an aggregate $1,700,000 of note agreements with Atlantic Bank of New York and Israel Discount Bank, collateralized by certain taxicab medallions owned by Medallion Chicago of which $1,531,000 was outstanding at September 30, 2004. The notes mature July 8, 2006 and bear interest at LIBOR plus 2%, adjusted annually, payable monthly. Principal and interest payments of $17,000 are due monthly, with the balance due at maturity.

On June 30, 2003, an operating subsidiary of MFC entered into a $2,000,000 note agreement with Banco Popular North America, collateralized by certain taxicab medallions owned by Medallion Chicago, of which $1,841,000 was outstanding at September 30, 2004. The note matures June 1, 2007 and bears interest at Banco Popular’s prime rate less 0.25%, payable monthly. Principal and interest payments of $18,000 are due monthly, with the balance due at maturity.

On April 30, 2003, the Company entered into a $7,000,000 note agreement with Atlantic Bank of New York, collateralized by certain assets of MBC, of which $0 was outstanding at September 30, 2004. The Note was paid in full during the 2004 first quarter. The note had a maturity of May 1, 2004 and bore interest at Atlantic Bank’s prime rate plus 0.25%, payable monthly. Principal was due at maturity.

The Company Bank Loan

The Company Bank Loan was paid off in the 2003 second quarter. It bore interest at the rate per annum of prime plus 0.5%. The Company Bank Loan permitted the payment of dividends solely to the extent necessary to enable the Company to maintain its status as a RIC, and to avoid the payment of excise taxes, consistent with the Company’s dividend policy. The Company Bank Loan was collateralized by all receivables and various other assets owned by the Company. All financial covenants except for the borrowing base covenants were waived during the term of the loan.

On July 31, 1998 (and as subsequently amended and restated), the Company and MBC entered into the Company Bank Loan, a committed revolving credit agreement with a group of banks. On September 21, 2001, the Company Bank Loan was extended to November 5, 2001 to allow for continuation of renewal discussions which were completed and an amendment signed on February 20, 2002. The Company Bank Loan was further amended on September 13, 2002.

The MFC Bank Loan

The MFC Bank Loan was paid off in the 2003 second quarter. It bore interest at the rate per annum of prime, which increased to prime plus 0.5% on January 11, 2003, and further increased to prime plus 1% on May 11, 2003. The MFC Bank Loan permitted the payment of dividends solely to the extent necessary to enable MFC to maintain its status as a RIC and to avoid the payment of excise taxes, consistent with MFC’s dividend policy. The MFC Bank Loan was collateralized by all receivables and various other assets owned by MFC. The collateral for the MFC Bank Loan collateralized both the MFC Bank Loan and the MFC Note Agreements on an equal basis. All financial covenants except for the borrowing base covenants were waived during the term of the loan.

On March 27, 1992 (and as subsequently amended and restated), MFC entered into the MFC Bank Loan, a line of credit with a group of banks. Effective on June 1, 1999, MFC extended the MFC Bank Loan until September 30, 2001 at an aggregate credit commitment amount of $220,000,000, an increase from $195,000,000 previously, pursuant to the Amended and Restated Loan Agreement dated December 24, 1997. The MFC Bank Loan was further amended on March 30, 2001, September 30, 2001, December 31, 2001, April 1, 2002, and September 13, 2002.

MFC Note Agreements

The MFC Note Agreements were paid off in the 2003 second quarter, and had similar terms to the MFC Bank Loan, except the initial interest rate was 8.85%, which increased to 9.35% on January 12, 2003, and further increased to 9.85% on May 12, 2003. A prepayment penalty of approximately $3,500,000 was paid in accordance with the prepayment provisions of the agreement.

On June 1, 1999, MFC issued $22,500,000 of Series A senior secured notes and on September 1, 1999, MFC issued $22,500,000 of Series B senior secured notes (together, the Notes). The Notes ranked pari passu with the Bank Loans through inter-creditor agreements, and were generally subject to the same terms, conditions, and covenants as the MFC Bank Loans.

Amendments to the Company Bank Loan, MFC Bank Loan, and MFC Note Agreements

Previously, in the 2001 fourth quarter, the Company Bank Loan matured and MFC was in default under its bank loan and its senior secured notes. As of April 1, 2002 and September 13, 2002, the Company and MFC obtained amendments to their bank loans and senior secured notes. The amendments, in general, waived all defaults through September 13, 2002, changed the maturity dates of the loans and notes, modified the interest rates borne on the bank loans and the secured notes, required certain immediate, scheduled or other prepayments of the loans and notes and reductions in the commitments under the bank loans, required the Company and MFC to engage or seek to engage in certain asset sales, and instituted additional operating restrictions and reporting requirements, with the final amendment reducing such rates.

In addition to the changes in maturity, the interest rates on the Company and MFC’s Bank Loans and MFC’s Note Agreements were modified, and additional fees were charged to renew and maintain the facilities and notes. The last amendments contained substantial limitations on our ability to operate and in some cases required modifications to our previous normal operations. Covenants restricting investment in certain subsidiaries, elimination of various intercompany balances between affiliates, limits on the amount and timing of dividends, the tightening of operating covenants, and additional reporting obligations were added as a condition of renewal.

Interest and Principal Payments

Interest and principal payments were paid monthly. Interest on the bank loans was calculated monthly at a rate indexed to the bank’s prime rate. Substantially all promissory notes evidencing the Company’s and MFC’s investments, other than those held by the Trust, were held by a bank as collateral agent under the agreements. The Company and MFC were required to pay an amendment fee of 25 basis points on the amount of the aggregate commitment for the Company. As noted above, the amendments to the Company’s bank loans and senior secured notes, entered into in 2002, involved changes, and in some cases increases, to the interest rates payable thereunder. In addition, during events of default, the interest rate borne on the lines of credit was based upon a margin over the prime rate rather than LIBOR. In addition to the interest rate charges, approximately $15,980,000 had been incurred through September 30, 2004 for attorneys and other professional advisors, most working on behalf of the lenders, and for prepayment penalties and default interest charges, of which $123,000 and $63,000 was expensed as part of costs of debt extinguishment during the three and nine months ended September 30, 2003, and $433,000, $1,178,000, $312,000, and $1,995,000 was expensed as part of interest expense during the three and nine months ended September 30, 2004 and 2003. The balance of $998,000, which relates solely to the MLB Line, will be charged to interest expense over the remaining term of the line of credit.

(5) FIXED RATE BORROWINGS

The following table shows all fixed rate borrowings, including brokered certificates of deposit issued by MB and all outstanding SBA debentures.


	Payments Due for year ended December 31,
*Dollars in thousands*	2004		2005		2006		2007		2008		Thereafter		September 30, 2004		December 31, 2003		Interest Rate ⁽¹⁾
Certificates of deposit	$	41,699	$	44,735	$	41,049	$	25,661	$	9,658	$	5,293	$	168,095	$	—	2.25	%
SBA debentures		—		—		—		—		—		64,435		64,435		56,935	5.78

Total	$	41,699	$	44,735	$	41,049	$	25,661	$	9,658	$	69,728	$	232,530	$	56,935	3.23

⁽¹⁾	Weighted average contractual rate as of September 30, 2004.

In January 2004, MB commenced raising deposits to fund the purchase of various affiliates’ loan portfolios. The deposits were raised through the use of investment brokerage firms who package deposits qualifying for the FDIC insurance guaranty into pools that are sold to MB. The rates paid on the deposits are highly competitive with market rates paid by other financial institutions and include a brokerage fee of 0.25% to 0.55%, depending on the maturity of the deposit, which is capitalized and amortized to interest expense over the life of the respective pool. Interest on the deposits is accrued daily and paid at maturity if term is one year or less, and semiannually if greater than one year.

During 2001, FSVC and MCI were approved by the SBA to receive $36,000,000 each in funding over a period of five years. In November 2003, FSVC applied for and received an additional commitment of $8,000,000. As of September 30, 2004, $15,565,000 was available to be drawn down under the SBA commitments.

(6) SEGMENT REPORTING

The Company had two reportable business segments historically, lending and taxicab rooftop advertising. The lending segment originates and services medallion and secured commercial and consumer loans. The taxicab rooftop advertising segment, which was sold in its entirety in the 2004 third quarter, sold advertising space to advertising agencies and companies in several major markets across the US and Japan, and was conducted by MTM. MTM was reported as a portfolio investment of the Company and was accounted for using the equity method of accounting. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The lending segment is presented in the consolidated financial statements of the Company. Financial information relating to the taxicab rooftop advertising segment is presented in Note 3.

For taxicab rooftop advertising, the increase in unrealized appreciation (depreciation) on the Company’s investment in MTM represented MTM’s net income or loss, which the Company used as the basis for assessing the fair market value of MTM. Taxicab rooftop advertising segment assets were reflected in investment in and loans to MTM on the consolidated balance sheets. See Note 3.

(7) OTHER INCOME AND OTHER OPERATING EXPENSES

The major components of other income were as follows:


	Three months ended September 30,				Nine months ended September 30,
	2004		2003		2004		2003
Servicing fees	$	188,251	$	239,250	$	695,300	$	987,496
Late charges and prepayment penalties		184,606		360,983		682,074		936,577
Accretion of discount		70,864		85,391		194,581		395,405
Other		152,866		219,910		246,267		446,402

Total other income	$	596,587	$	905,534	$	1,818,222	$	2,765,880

Included in servicing fees was $300,000 in the 2003 first quarter to reduce the valuation reserve for the servicing fee receivable, which resulted from improvements in prepayment patterns (see Note 2). The reduction in accretion of discount in 2004 was primarily due to reduced prepayment activity compounded by a smaller and more mature SBA Section 7 (a) loan portfolio.

The major components of other operating expenses were as follows:


	Three months ended September 30,				Nine months ended September 30,
	2004		2003		2004		2003
Rent expense and utilities	$	337,643	$	321,165	$	1,012,997	$	888,605
Loan collection expense		200,076		315,622		614,747		587,971
Depreciation and amortization		150,801		164,784		481,240		489,647
Consumer loan servicing		214,102		—		441,191		—
Insurance		146,134		141,770		439,747		463,366
Travel, meals, and entertainment		122,341		120,475		394,460		352,688
Directors fees		115,980		54,062		334,975		172,039
Miscellaneous taxes		86,045		56,018		294,600		99,735
Office expense		73,946		54,550		211,349		218,154
Computer expense		58,228		69,164		165,418		188,522
Telephone		49,013		45,192		154,369		136,026
Bank charges		33,271		38,748		133,328		179,772
Dues and subscriptions		23,168		18,976		76,732		81,387
Other expenses		591,194		308,666		1,134,347		1,018,375

Total other operating expenses	$	2,201,942	$	1,709,192	$	5,889,500	$	4,876,287

Consumer loan servicing represents the service bureau costs for the newly acquired RV/Marine portfolio. Included in miscellaneous taxes for the 2004 nine months were $71,000 related to sales tax audit results covering years dating back to 1995. Directors fees increased primarily due to increases in the amounts paid to directors, in the number of directors serving on the Board, in the number of board meetings held. Increased rent reflects the offices of MB and a new facility in New Jersey, in addition to rental rate increases. Included in loan collection expense was a $64,000 payment for back taxes on a foreclosed property.

(8) SELECTED FINANCIAL RATIOS AND OTHER DATA

The following table provides selected financial ratios and other data for the periods ended as follows:


	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Net share data:
Net asset value at the beginning of the period	$	8.68		$	8.93		$	8.89		$	8.87
Net investment income after taxes		0.10			0.03			0.18			0.07
Net realized gains (losses) on investments		(0.16	)		0.24			(0.19	)		0.67
Net change in unrealized depreciation on investments		1.18			(0.22	)		1.06			(0.61	)
Other		(0.01	)		0.01			(0.01	)		0.00

Net increase (decrease) in net assets resulting from operations		1.11			0.06			1.04			0.13
Distributions of net investment income		(0.08	)		(0.03	)		(0.23	)		(0.04	)
Other		0.00			0.00			0.01			0.00

Net asset value at the end of the period	$	9.71		$	8.96		$	9.71		$	8.96

Per share market value at beginning of period	$	7.95		$	6.97		$	9.49		$	3.90
Per share market value at end of period		9.05			6.30			9.05			6.30
Total return ⁽¹⁾		23	%		(36	%)		(4	%)		83	%

Ratios/supplemental data
Average net assets (shareholders’ equity)	$	160,794,000		$	163,151,000		$	160,207,000		$	162,071,000
Operating expenses ratio ⁽²⁾		12	%		10	%		12	%		10	%
Net investment income ratio ⁽²⁾		4.55	%		1.56	%		2.74	%		1.02	%

⁽¹⁾	Total return is calculated by comparing the change in value of a share of common stock assuming the reinvestment of dividends on the payment date.

⁽²⁾	Calculated by dividing annualized described income statement line item by average net assets.

(9) MB REGULATORY GUIDELINES

MB is subject to various regulatory capital requirements administered by the FDIC and State of Utah Department of Financial Institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on MB’s and our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, MB must meet specific capital guidelines that involve quantitative measures of MB’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. MB’s capital amounts and classification are also subject to qualitative judgments by the bank regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require MB to maintain minimum amounts and ratios as defined in the regulations (set forth in the table below). Additionally, as conditions of granting MB’s application for federal deposit insurance, the FDIC ordered that beginning paid-in-capital funds of not less than $22,000,000 be provided, and that the Tier I Leverage Capital to total assets ratio, as defined, of not less than 15% and an adequate allowance for loan losses shall be maintained and no dividends shall be paid to the Company for its first three years of operation.

The following table represents MB’s actual capital amounts and related ratios as of September 30, 2004 and December 31, 2003, compared to required regulatory minimum capital ratios and the ratio required to be considered well capitalized. Management believes, as of September 30, 2004, that MB meets all capital adequacy requirements to which it is subject, and is well-capitalized.


	Regulatory
	Minimum		Well-capitalized		September 30, 2004			December 31, 2003
Tier I capital					$	31,277,000		$	21,073,000
Total capital						31,668,000			21,073,000
Average assets						201,158,000			4,729,000
Risk-weighted assets						216,857,000			4,606,000
Leverage ratio ⁽¹⁾	4	%	5	%		15.5	%		446	%
Tier I capital ratio ⁽²⁾	4		6			17.5			458
Total capital ratio ⁽²⁾	8		10			17.7			458

⁽¹⁾	Calculated by dividing Tier I capital by average assets.

⁽²⁾	Calculated by dividing Tier I or total capital by risk-weighted assets.

ITEM 2.

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

GENERAL

The Company is a specialty finance company that has a leading position in originating and servicing loans that finance taxicab medallions and various types of commercial businesses, and more recently, in lending for consumer purchases of recreational vehicles, boats, and trailers. Since 1996, the year in which the Company became a public company, it has increased its taxicab medallion loan portfolio at a compound annual growth rate of 13%, and its commercial loan portfolio at a compound annual growth rate of 16%. Total assets under our management, which includes assets serviced for third party investors, were approximately $794,776,000 as of September 30, 2004, and have grown from $215,000,000 at the end of 1996, a compound annual growth rate of 18%.

The Company’s loan-related earnings depend primarily on its level of net interest income. Net interest income is the difference between the total yield on the Company’s loan portfolio and the average cost of borrowed funds. The Company funds its operations through a wide variety of interest-bearing sources, such as revolving bank facilities, bank certificates of deposits, debentures issued to and guaranteed by the SBA, and bank term debt. Net interest income fluctuates with changes in the yield on the Company’s loan portfolio and changes in the cost of borrowed funds, as well as changes in the amount of interest-bearing assets and interest-bearing liabilities held by the Company. Net interest income is also affected by economic, regulatory, and competitive factors that influence interest rates, loan demand, and the availability of funding to finance the Company’s lending activities. The Company, like other financial institutions, is subject to interest rate risk to the degree that its interest-earning assets reprice on a different basis than its interest-bearing liabilities.

The Company also invests in small businesses in selected industries through its subsidiary MCI. MCI’s investments are typically in the form of secured debt instruments with fixed interest rates accompanied by warrants to purchase an equity interest for a nominal exercise price (such warrants are included in equity investments on the consolidated balance sheets). Interest income is earned on the debt investments.

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 Company’s investment in MTM, as wholly-owned portfolio investments, was also subject to quarterly assessments of fair value. The Company used MTM’s actual results of operations as the best estimate of changes in fair value, and recorded the result as a component of unrealized appreciation (depreciation) on investments.

Trends in Investment Portfolio

The Company’s investment income is driven by the principal amount of and yields on its investment portfolio. To identify trends in the yields, the portfolio is grouped by medallion loans, commercial loans, consumer loans, investment securities and equity investments. The following table illustrates the Company’s investments at fair value and the portfolio yields at the dates indicated.


	September 30, 2004					June 30, 2004					December 31, 2003					September 30, 2003
*(Dollars in thousands)*	Interest Rate⁽¹⁾		Principal Balance			Interest Rate⁽¹⁾		Principal Balance			Interest Rate⁽¹⁾		Principal Balance			Interest Rate⁽¹⁾		Principal Balance
Medallion loans
New York	5.72	%	$	263,621		5.60	%	$	263,225		6.00	%	$	231,956		6.23	%	$	223,810
Chicago	6.29			51,222		6.37			34,591		6.74			26,542		7.08			25,266
Boston	7.30			18,930		7.41			16,659		7.54			15,491		7.85			14,089
Newark	9.15			7,325		9.35			7,102		9.52			7,744		9.51			7,867
Cambridge	7.18			4,772		7.28			4,592		7.20			4,076		7.48			3,297
Other	8.50			2,916		9.28			2,601		9.77			2,556		9.86			3,123

Total medallion loans	6.00			348,786		5.91			328,770		6.29			288,365		6.54			277,452

Deferred loan acquisition costs				843					939					905					860
Unrealized depreciation on loans				(1,216	)				(1,093	)				(1,058	)				(1,069	)

Net medallion loans			$	348,413				$	328,616				$	288,212				$	277,243

Commercial loans
Secured mezzanine	13.99	%	$	46,753		13.77	%	$	40,911		13.02	%	$	27,166		13.43	%	$	34,686
Asset based	7.47			46,488		6.97			40,275		7.23			18,179		6.50			21,976
SBA Section 7(a)	7.16			18,482		6.79			18,317		6.93			17,540		6.90			21,811
Other secured commercial	9.81			30,412		7.64			30,094		7.58			30,202		8.73			33,669

Total commercial loans	9.73			142,135		9.21			129,597		8.98			93,087		9.39			112,142

Deferred loan acquisition costs				807					794					741					759
Discount on SBA Section 7(a) loans sold				(1,098	)				(981	)				(998	)				(364	)
Unrealized depreciation on loans				(7,830	)				(7,004	)				(6,860	)				(7,687	)

Net commercial loans			$	134,014				$	122,406				$	85,970				$	104,850

Consumer loans
Marine	18.56	%	$	37,303		18.54	%	$	40,150		—	%	$	—		—	%	$	—
RV	18.74			16,050		18.73			16,511		—			—		—			—
Other	18.57			17,555		18.57			19,611		—			—		—			—

Total consumer loans	18.60			70,908		18.59			76,272		—			—		—			—

Deferred loan acquisition costs				25					—					—					—
Unrealized depreciation on loans				(3,543	)				(3,833	)				—					—

Net consumer loans			$	67,390				$	72,439				$	—				$	-

Equity investments	1.39	%	$	36,361		0.00	%	$	4,670		0.00	%	$	4,690		0.00	%	$	1,375

Unrealized appreciation (depreciation) on equities				(2,211	)				356					287					221

Net equity investments			$	34,150				$	5,026				$	4,977				$	1,596

Investment securities	3.93	%	$	14,873		3.67	%	$	5,992		—	%	$	—		—	%	$	—

Premiums paid on purchased securities				541					198					—					—
Unrealized depreciation				(7	)				(1	)				—					—

Net investment securities			$	15,408				$	6,191				$	—				$	—

Investments at cost	8.00	% ⁽²⁾	$	613,063		8.46	% ⁽²⁾	$	545,302		6.95	% ⁽²⁾	$	386,142		7.36	% ⁽²⁾	$	390,968

Deferred loan acquisition costs				1,675					1,733					1,646					1,620
Discount on SBA Section 7(a) loans sold				(1,098	)				(981	)				(998	)				(364	)
Premiums paid on purchased securities				541					198					—					—
Unrealized appreciation (depreciation) on equities, investments and investments securities				(2,211	)				355					287					221
Unrealized depreciation on loans				(12,588	)				(11,930	)				(7,918	)				(8,756	)

Net investments			$	599,374				$	534,679				$	379,159				$	383,689

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

⁽²⁾	The weighted average interest rate for the entire loan portfolio (medallion, commercial, and consumer loans) was 8.54%, 8.52%, 6.95%, and 7.36% as of September 30, 2004, June 30, 2004, December 31, 2003, and September 30, 2003.

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,
	2004			2003			2004			2003
Net investments at beginning of period	$	534,678,321		$	377,176,405		$	379,158,525		$	356,246,444
Investments originated		82,464,946			50,652,267			228,132,400			188,621,260
Purchase of RV/Marine loan portfolio		(195	)		—			80,631,534			—
CCU stock received in exchange for investment in Media		31,683,703			—			31,683,703			—
Repayments of investments		(42,579,736	)		(44,347,442	)		(114,411,378	)		(167,788,292	)
Transfers from (to) other assets		(492,029	)		(1,050,394	)		1,229,571			2,051,473
Net increase in unrealized appreciation (depreciation) ^(1) (2)		(3,223,114	)		(2,973,010	)		(2,923,795	)		(7,576,270	)
Net realized gains (losses) on investments ⁽³⁾		(3,047,275	)		4,546,182			(3,596,734	)		12,329,418
Realized gains on sales of loans		331,685			87,967			730,126			803,666
Amortization of origination costs		(442,016	)		(403,339	)		(1,259,662	)		(999,063	)

Net increase in investments		64,695,969			6,512,231			220,215,765			27,442,192

Net investments at end of period	$	599,374,290		$	383,688,636		$	599,374,290		$	383,688,636

⁽¹⁾	Net of unrealized depreciation related to MTM of $513,242, $2,826,604, $1,052,971, and $3,327,692 for the three and nine months ended September 30, 2004 and 2003, respectively, and for the 2004 periods, excludes $24,989,099 related to the gain on the Media exchange.

⁽²⁾	Excludes unrealized depreciation of $254,275, $304,879, $0, and $186,811 for the three and nine months ended September 30, 2004 and 2003, respectively, related to foreclosed properties, which are carried in other assets on the consolidated balance sheet.

⁽³⁾

Excludes realized gains (losses) of ($5,841), $29,057, ($51,771) and ($182,540) for the three and nine months ended September 30, 2004 and 2003, respectively, related to foreclosed properties, which are carried in other assets on the consolidated balance sheet, and realized gains of $269,015 for the three and nine months ended September 30, 2004 related to the sale of Japan.

PORTFOLIO SUMMARY

Total Portfolio Yield

The weighted average yield of the total portfolio at September 30, 2004 was 8.00% (8.54% for the loan portfolio), an increase of 105 basis points from 6.95% at December 31, 2003, and an increase of 64 basis points from 7.36% at September 30, 2003. The increases primarily reflected the impact of the higher yielding RV/Marine portfolio partially offset by the reduction in market interest rates in the traditional businesses over the last several years as borrowers refinance. The general rate decrease is partially mitigated by the sizable number of fixed-rate medallion loans which reprice at longer intervals, and the generally high yields including some at fixed rates, on the commercial portfolio. The Company expects to try to increase the percentage of commercial and consumer loans in the total portfolio, the origination of floating and adjustable-rate loans, and the level of non-New York medallion loans to enhance our yields.

Medallion Loan Portfolio

The Company’s medallion loans comprised 58% of the net portfolio of $599,374,000 at September 30, 2004, compared to 76% at December 31, 2003 and 72% at September 30, 2003. The medallion loan portfolio increased by $60,201,000 or 21% in 2004, reflecting increases in most markets, particularly in New York and Chicago. The increase in the New York market can be attributed to the conversion of participations into owned loans, the general increase in medallion values and related refinancings, and also to the recent auction of 300 medallions. The increase in the Chicago market primarily reflects efforts to increase our market share in this higher-yielding market. In 2004 and 2003, a portion of the growth reflected the repurchase of participations generated, complimented by new business and the conversion of owned medallions into earning assets. Total medallion loans serviced for third parties were $22,695,000, $36,245,000, and $32,742,000 at September 30, 2004, December 31, 2003, and September 30, 2003.

The weighted average yield of the medallion loan portfolio at September 30, 2004 was 6.00%, a decrease of 29 basis points from 6.29% at December 31, 2003 and 54 basis points from 6.54% at September 30, 2003. The decreases in yield primarily reflected the generally lower level of interest rates in the economy and the effects of borrower refinancings. At September 30, 2004, 24% of the medallion loan portfolio represented loans outside New York, compared to 20% at

December 31, 2003 and 19% at September 30, 2003. The Company continues to focus its efforts on originating higher yielding medallion loans outside the New York market.

Commercial Loan Portfolio

The Company’s commercial loans represented 22% of the net investment portfolio as of September 30, 2004, compared to 23% and 27% at December 31, 2003 and September 30, 2003. The commercial loan portfolio increased $48,043,000 or 56% in 2004, primarily reflecting increased loan originations in the mezzanine and asset-based loan portfolios, and the repurchase of participated commercial loans in the asset-based loan portfolio, since the removal of liquidity constraints in mid-year 2003. Total commercial loans serviced for third parties were $114,059,000, $138,643,000, and $144,395,000 at September 30, 2004, December 31, 2003, and September 30, 2003, and included $104,613,000, $117,548,000 and $124,806,000, respectively, related to the SBA Section 7(a) business.

The weighted average yield of the commercial loan portfolio at September 30, 2004, was 9.73%, an increase of 75 basis points from 8.98% at December 31, 2003, and an increase of 34 basis points from 9.39% at September 30, 2003. The increase in 2004 was primarily due to the higher origination volume in the high yielding mezzanine loan portfolio, partially offset by increased customer refinancing activities at lower rates. The Company continues to originate adjustable-rate and floating-rate loans tied to the prime rate to help mitigate its interest rate risk in a rising interest rate environment. At September 30, 2004, variable-rate loans represented approximately 58% of the commercial portfolio, compared to 58% and 51% at December 31, 2003 and September 30, 2003. 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 portfolios

The Company’s consumer loans represented 11% of the net investment portfolio as of September 30, 2004. The existing portfolio was purchased on April 1, 2004 from an unrelated financial institution and the transaction closed May 6, 2004. The loans are collateralized by recreational vehicles, boats, and trailers in all 50 states. The portfolio is serviced by a third party subsidiary of a major commercial bank.

The weighted average yield of the consumer loan portfolio at September 30, 2004, was 18.60%. Premium amortization was 2.29% for a net yield of 16.31%. At September 30, 2004, adjustable rate loans represented approximately 84% of the consumer portfolio. The Company started originating new adjustable rate RV/Marine loans in 21 states during the 2004 third quarter.

Delinquency and Loan Loss Experience

We generally follow a practice of discontinuing the accrual of interest income on our commercial 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 and there is a period of performance subsequent to the modification. 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 on an “enterprise value” basis, 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 loan down to 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 recovery or a realized gain. Upon final disposition, any losses are subject to subsequent recovery efforts. Consumer portfolio charge offs were $805,000 or 4.61% during the 2004 third quarter, and $1,367,000 or 5.17% for the 2004 nine months, which was lower than what is expected in future quarters. All collection, repossession, and recovery efforts are handled on behalf of MB by the servicer.

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


*Dollars in thousands*	September 30, 2004				June 30, 2004				December 31, 2003				September 30, 2003
Medallion loans	$	6,665	1.2	%	$	8,791	2.1	%⁽¹⁾	$	4,569	1.2	%⁽¹⁾	$	5,258	1.4	%⁽¹⁾

Commercial loans
Secured mezzanine		8,122	1.5			10,860	2.0			7,543	2.0			10,682	2.7
SBA Section 7(a)		2,041	0.3			2,504	0.8			4,143	1.1			5,279	1.4
Asset-based receivable		—	0.0			—	0.0			—	0.0			—	0.0
Other secured commercial		3,365	0.6			3,191	0.8			2,842	0.7			2,990	0.8

Total commercial loans		13,528	2.4			16,555	3.6			14,528	3.8			18,951	4.8

Consumer loans		424	0.1			226	0.0			—	0.0			—	0.0

Total loans 90 days or more past due	$	20,617	3.7	%	$	25,572	5.7	%	$	19,097	5.0	%	$	24,209	6.2	%

⁽¹⁾	Percentage is calculated against the total loan portfolio.

In general, collection efforts during the past 3 years since the establishment of our collection department have substantially contributed to the sizable reduction in overall delinquencies. The decrease in medallion delinquencies primarily represented improvements in business for many fleet owners and individual drivers. The increase from year end was concentrated in the Chicago medallion portfolio, is viewed as a temporary spike, and remains at a relatively low historical level. The increase in secured mezzanine financing delinquencies primarily reflected the impact of the economy on certain concession and media properties, some of which is believed to be of temporary nature, and is not unusual given the nature of this kind of business and the current stage of the economic cycle. The decrease compared to a year ago primarily reflected the conversion of a $3,621,000 loan into an equity position in a portfolio investment, and chargeoffs taken. The continued improvement in the trend of delinquencies in the SBA Section 7(a) portfolio, and the relatively low level of delinquencies in the other commercial secured loan portfolio primarily reflected management’s efforts to collect and restructure nonperforming loans, and the foreclosure of certain loans, transferring them to other assets. Included in the SBA Section 7(a) delinquency figures are $288,000, $289,000, $845,000, and $983,000 at September 30, 2004, June 30, 2004, December 31, 2003, and September 30, 2003, respectively, which represent loans repurchased for the purpose of collecting on the SBA guarantee. The Company is actively working with each delinquent borrower to bring them current, and believes that any potential loss exposure is reflected in the Company’s mark-to-market estimates on each loan. Although there can be no assurances as to changes in the trend rate, management believes that any loss exposures are properly reflected in reported asset values.

We monitor delinquent loans for possible exposure to loss by analyzing various factors, including the value of the collateral securing the loan and the borrower’s prior payment history. Under the 1940 Act, our loan portfolio must be recorded at fair value or “marked-to-market.” Unlike other lending institutions, we are not permitted to establish reserves for loan losses. Instead, the valuation of our portfolio is adjusted quarterly to reflect our estimate of the current realizable value of our loan portfolio. Since no ready market exists for this portfolio, fair value is subject to the good faith determination of management and the approval of our Board of Directors. Because of the subjectivity of these estimates, there can be no assurance that in the event of a foreclosure or the sale of portfolio loans we would be able to recover the amounts reflected on our balance sheet.

In determining the value of our portfolio, management and the Board of Directors may take into consideration various factors such as the financial condition of the borrower and the adequacy of the collateral. For example, in a period of sustained increases in market interest rates, management and the Board of Directors could decrease its valuation of the portfolio if the portfolio consists primarily of fixed-rate loans. Our valuation procedures are designed to generate values which approximate the value that would have been established by market forces and are therefore subject to uncertainties and variations from reported results. Based upon these factors, net unrealized appreciation or depreciation on investments is determined, or the amount by which our estimate of the current realizable value of our portfolio is above or below our cost basis.

The following table presents credit-related information for the investment portfolios for the periods shown below:


	September 30, 2004			June 30, 2004			December 31, 2003			September 30, 2003
Total loans
Medallion loans	$	348,412,907		$	328,616,456		$	288,211,557		$	277,242,543
Commercial loans		134,013,635			122,405,715			85,970,205			104,849,594
Consumer loans		67,389,895			72,438,909			—			—

Total loans		549,816,437			523,461,080			374,181,762			382,092,137
Equity investments ⁽¹⁾		34,150,233			5,026,303			4,976,763			1,596,499
Investment securities		15,407,620			6,190,938			—			—

Net investments	$	599,374,290		$	534,678,321		$	379,158,525		$	383,688,636

Net unrealized appreciation (depreciation) on investments
Medallion loans		($1,215,962	)		($1,093,310	)		($1,058,196	)		($1,069,395	)
Commercial loans		(7,828,969	)		(7,003,609	)		(6,859,595	)		(7,686,443	)
Consumer loans		(3,542,766	)		(3,833,370	)		—			—

Total loans		(12,587,697	)		(11,930,289	)		(7,917,791	)		(8,755,838	)
Equity investments		(2,203,832	)		354,079			287,045			221,345
Investment securities		6,866			931			—			—

Total net unrealized appreciation (depreciation) on investments		($14,798,395	)		($11,575,279	)		($7,630,746	)		($8,534,493	)

Unrealized appreciation (depreciation) as a % of balances outstanding ⁽²⁾
Medallion loans		(0.35	%)		(0.33	%)		(0.37	%)		(0.39	%)
Commercial loans		(5.52	)		(5.41	)		(7.39	)		(7.33	)
Consumer loans		(4.99	)		(5.03	)		—			—
Total loans		(2.24	)		(2.23	)		(2.07	)		(2.29	)
Equity investments		(12.51	)		7.58			6.12			13.86
Investment securities		(0.02	)		0.02			—			—
Net investments		(2.41	)		(2.12	)		(1.97	)		(2.22	)

	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Realized gains (losses) on loans and equity investments
Medallion loans		($112	)		($60,000	)	$	2,184			($104,219	)
Commercial loans		(2,242,481	)		(316,315	)		(2,541,332	)		(1,332,863	)
Consumer loans		(804,932	)		—			(1,366,951	)		—

Total loans ⁽³⁾		(3,047,525	)		(376,315	)		(3,906,099	)		(1,437,082	)
Equity investments		269,407			4,870,726			613,419			13,583,960
Investment securities		(5,983	)		—			(5,983	)		—

Total realized gains (losses) on loans and equity investments		($2,784,101	)	$	4,494,411			($3,298,663	)	$	12,146,878

Realized gains (losses) as a % of average balances outstanding
Medallion loans		0.00	%		(0.09	%)		0.00	%		(0.05	%)
Commercial loans		(7.01	)		(1.19	)		(3.04	)		(1.73	)
Consumer loans		(4.61	)		—			(5.17	)		—
Total loans		(2.24	)		(0.40	)		(1.11	)		(0.53	)
Equity investments		15.60			764.34			14.31			337.63
Investment securities		(0.16	)		—			(0.12	)		—
Net investments		(1.97	)		4.69			(0.92	)		4.41

⁽¹⁾	Represents common stock and warrants held as investments.

⁽²⁾

Unlike other lending institutions, we are not permitted to establish reserves for loan losses. Instead, the valuation of our portfolio is adjusted quarterly to reflect estimates of the current realizable value of the loan portfolio. These percentages represent the discount or premiums that investments are carried on the books at, relative to their par value.

⁽³⁾	Includes realized gains (losses) of ($5,841), $29,057, ($51,771), and ($182,540) for the three and nine months ended September 30, 2004 and 2003, respectively, related to foreclosed properties which are carried in other assets on the consolidated balance sheet.

Equity Investments

Equity investments were 6%, 1%, and 1%, of the Company’s total portfolio at September 30, 2004, December 31, 2003, and September 30, 2003. Equity investments are comprised of common stock and warrants, primarily held by MCI. The increase in equity investments during the 2004 third quarter primarily reflected the receipt of 933,521 shares of common stock of CCU in a tax-free exchange for 100% of our ownership interest in Media. The increase in equity cost from September 30, 2003 primarily reflected the conversion of a $3,621,000 loan into an equity position in a portfolio investment.

Investment Securities

Investment securities were 3% of the Company’s total portfolio at September 30, 2004, and represent a new investment category during the 2004 first quarter. The investment securities are primarily adjustable-rate mortgage-backed securities purchased by MB to better utilize required cash liquidity.

Investment in and loans to MTM

The investments and loans to MTM represent the Company’s investment in its taxicab advertising business, including contributed capital, the Company’s share of accumulated losses, and intercompany loans provided to MTM for operating capital. These investments were sold in their entirety during the 2004 third quarter.

Trends in Interest Expense

The Company’s interest expense is driven by the interest rates payable on its short-term credit facilities with banks, bank certificates of deposit, fixed-rate, long-term debentures issued to the SBA, and other short-term notes payable. The establishment of the Merrill Lynch Bank, USA (MLB) line of credit in September 2002 and its favorable renegotiation in September 2003 had the effect of dramatically reducing the Company’s cost of funds. In addition, MB began raising brokered bank certificates of deposit during 2004 which were at the Company’s lowest borrowing costs. As a result of MB raising funds through certificates of deposits as previously noted, the Company was able to realign the ownership of some of its medallions and related assets to MB allowing the Company and its subsidiaries to use cash generated through these transactions to retire debt with higher interest rates.

During the 2002 third quarter, the Trust closed a $250,000,000 line of credit with MLB for lending on medallion loans, which was priced at LIBOR plus 1.50%, excluding fees and other costs. All of the draws on this line were paid to MFC for medallion loans purchased, and were used by MFC to repay higher priced debt with the banks and noteholders, and to purchase loans for the Trust from participants and affiliates. During the 2003 third quarter, this line was renewed and extended, and borrowings are now generally at LIBOR plus 1.25%. In addition, $20,060,000 of higher priced SBA debentures were repaid during 2003, and $15,150,000 was drawn back at lower borrowing rates.

The September 13, 2002 amendments repriced the bank loans to 5.25% for the Company and 4.75% for MFC, and repriced MFC’s senior secured notes to 8.85%. In addition to the interest rate charges, approximately $15,980,000 had been incurred through September 30, 2004 for attorneys and other professional advisors, most working on behalf of the lenders, and for prepayment penalties and default interest charges, of which $123,000 and $63,000 was expensed as part of costs of debt extinguishment during the three and nine months ended September 30, 2003, and $433,000, $1,178,000, $312,000, and $1,995,000 was expensed as part of interest expense during the three and nine months ended September 30, 2004 and 2003. The balance of $998,000, which relates solely to the MLB Line, will be charged to interest expense over the remaining term of the line of credit.

The Company’s cost of funds is primarily driven by the rates paid on its various debt instruments and their relative mix, and changes in the levels of average borrowings outstanding. See Notes 4 and 5 to the consolidated financial statements for details on the terms of all outstanding debt. The Company’s debentures issued to the SBA typically have terms of ten years.

The Company measures its borrowing costs as its aggregate interest expense for all of its interest-bearing liabilities divided by the average amount of such liabilities outstanding during the period. The following table shows the average

borrowings and related borrowing costs for the 2004 and 2003 third quarter and nine months. Average balances have increased from a year ago, primarily reflecting the establishment of MB and its resulting growth, and the funding needs to support the growth in the Company’s other investment portfolios. The decline in borrowing costs reflected the utilization of the lower cost revolving line of credit with MLB, the raising of low-cost deposits by MB, and the trend of declining interest rates in the economy, partially offset by higher cost bank debt and related renewal expenses, and additional long-term SBA debt also at higher rates.


	Three months ended						Nine months ended
	Interest Expense		Average Balance		Average Borrowing Costs		Interest Expense		Average Balance		Average Borrowing Costs
September 30, 2004
Floating rate borrowings	$	2,493,258	$	231,935,000	4.28	%	$	6,158,612	$	209,644,000	3.92	%
Fixed rate borrowings		2,033,317		231,092,000	3.50			4,922,050		177,337,000	3.71

Total	$	4,526,575	$	463,027,000	3.89		$	11,080,662	$	386,981,000	3.83

September 30, 2003 ⁽¹⁾
Floating rate borrowings	$	1,840,736	$	205,945,000	3.55	%	$	6,074,940	$	190,071,000	4.27	%
Fixed rate borrowings		971,067		56,281,000	6.85			3,263,850		63,225,000	6.90

Total	$	2,811,803	$	262,226,000	4.25		$	9,338,790	$	253,296,000	4.93

⁽¹⁾	Included in interest expense in the 2003 first quarter was $538,000 of interest reversals. Adjusted for this amount, the floating rate borrowings average borrowing costs would have been 4.65%, and the total average borrowing costs would have been 5.21% in the 2003 nine months.

The Company will continue to seek SBA funding to the extent it offers attractive rates. SBA financing subjects its recipients to limits on the amount of secured bank debt they may incur. The Company uses SBA funding to fund loans that qualify under SBIA and SBA regulations. The Company believes that financing operations primarily with short-term floating rate secured bank debt has generally decreased its interest expense, but has also increased the Company’s exposure to the risk of increases in market interest rates, which the Company mitigates with certain hedging strategies. At September 30, 2004, December 31, 2003, and September 30, 2003, short-term floating rate debt constituted 51%, 80%, and 80% of total debt, respectively.

Taxicab Advertising

In addition to its finance business, the Company also conducted a taxicab rooftop advertising business primarily through Media, which began operations in November 1994, and ceased operations upon the merger of Media with and into a subsidiary of CCU, and the sale of Japan to its management. See Note 3 to the financial statements for additional information. Media’s revenue was affected by the number of taxicab rooftop advertising displays showing advertisements, and the rate charged customers for those displays, which totaled 6,800 in the US at the date of sale. Although Media was a wholly-owned subsidiary of the Company, its results of operations were not consolidated with the Company’s operations because SEC regulations prohibit the consolidation of non-investment companies with investment companies.

In July 2001, through its subsidiary MMJ, the Company acquired certain assets and assumed certain liabilities of a taxi advertising operation similar to those operated by Media in the US, which had advertising rights on approximately 4,800 cabs servicing various cities in Japan. The terms of the agreement provided for an earn-out payment to the sellers based on average net income over the next three years. MMJ accounted for approximately 6% and 4% of MTM’s combined revenue during 2004 and 2003.

Factors Affecting Net Assets

Factors that affect the Company’s net assets include net realized gain or loss on investments and change in net unrealized appreciation or depreciation on investments. Net realized gain or loss on investments is the difference between the proceeds derived upon sale or foreclosure of a loan or an equity investment and the cost basis of such loan or equity

investment. Change in net unrealized appreciation or depreciation on investments is the amount, if any, by which the Company’s estimate of the fair value of its investment portfolio is above or below the previously established fair value or the cost basis of the portfolio. Under the 1940 Act and the SBIA, the Company’s loan portfolio and other investments must be recorded at fair value.

Unlike certain lending institutions, the Company is not permitted to establish reserves for loan losses, but adjusts quarterly the valuation of the loan portfolio to reflect the Company’s estimate of the current value of the total loan portfolio. Since no ready market exists for the Company’s loans, fair value is subject to the good faith determination of the Company. In determining such fair value, the Company and its Board of Directors consider factors such as the financial condition of its borrowers and the adequacy of its collateral. Any change in the fair value of portfolio loans or other investments as determined by the Company is reflected in net unrealized depreciation or appreciation of investments and affects net increase in net assets resulting from operations but has no impact on net investment income or distributable income.

The Company’s investment in MTM, as a wholly-owned portfolio investments, were also subject to quarterly assessments of its fair value. The Company used MTM’s actual results of operations as the best estimate of changes in fair value, and recorded the result as a component of unrealized appreciation (depreciation) on investments.

SELECTED FINANCIAL DATA

Summary Consolidated Financial Data

You should read the consolidated financial information below with the Consolidated Financial Statements and Notes thereto for the quarters ended September 30, 2004 and 2003.


	Three Months Ended September 30,						Nine months Ended September 30,
*Dollars in thousands*	2004			2003			2004			2003
Statement of operations
Investment income	$	10,978		$	6,694		$	27,864		$	19,690
Interest expense		4,527			2,812			11,081			9,339

Net interest income		6,451			3,882			16,783			10,351
Noninterest income		928			994			2,549			3,569
Operating expenses		4,973			4,211			14,368			12,639

Net investment income before taxes		2,406			665			4,964			1,281
Income tax provision		566			22			1,674			41

Net investment income after taxes		1,841			643			3,289			1,240
Net realized gains (losses) on investments		(2,784	)		4,494			(3,299	)		12,147
Net change in unrealized appreciation (depreciation) on investments ⁽¹⁾		20,999			(4,026	)		18,934			(11,091	)

Net increase in net assets resulting from operations	$	20,055		$	1,111		$	18,925		$	2,296

Per share data
Net investment income after taxes	$	0.10		$	0.03		$	0.18		$	0.07
Net realized gains (losses) on investments		(0.16	)		0.24			(0.19	)		0.67
Net change in unrealized appreciation on investments		1.18			(0.22	)		1.06			(0.61	)
Other		(0.01	)		0.01			(0.01	)		0.00

Net increase (decrease) in net assets resulting from operations		1.11			0.06			1.04			0.13

Dividends declared per share		($0.10	)		($0.05	)		($0.26	)		(0.09	)

Weighted average common shares outstanding
Basic		18,075,879			18,245,228			18,144,724			18,243,570
Diluted		18,456,246			18,517,491			18,540,732			18,355,123

Balance sheet data
Net investments							$	599,374		$	383,689
Total assets								658,021			431,042
Total borrowed funds								472,516			260,914
Total liabilities								484,626			267,562
Total shareholders’ equity								173,395			163,480


	Three Months Ended September 30,				Nine months Ended September 30,
	2004		2003		2004		2003
Selected financial ratios and other data
Return on average assets (ROA) ⁽²⁾
Net investment income after taxes	1.16	%	0.59	%	0.80	%	0.39	%
Net increase in net assets resulting from operations	12.65		1.02		4.59		0.72
Return on average equity (ROE) ⁽³⁾
Net investment income after taxes	4.56		1.57		0.76		1.03
Net increase in net assets resulting from operations	49.62		2.70		15.78		1.89

Weighted average yield	7.59	%	6.83	%	8.51	%	7.05	%
Weighted average cost of funds	3.16		2.91		3.98		3.36

Net interest margin ⁽⁴⁾	4.43	%	3.92		4.53		3.69

Noninterest income ratio ⁽⁵⁾	0.65	%	1.04	%	0.71	%	1.30	%
Operating expense ratio ⁽⁶⁾	3.50		4.40		3.99		4.59

As a percentage of net investment portfolio
Medallion loans					58	%	72	%
Commercial loans					22		27
Consumer loans					11		—
Equity investments					6		1
Investment securities					3		—

Investments to assets ⁽⁷⁾					91	%	89	%
Equity to assets ⁽⁸⁾					26		38
Debt to equity ⁽⁹⁾					273		160

⁽¹⁾	Net changes in unrealized appreciation (depreciation) on investments represents the increase (decrease) for the period in the fair value of the Company’s investments including foreclosed properties, and also including the results of operations for MTM, where applicable.

⁽²⁾	ROA represents the net investment income (loss) or net increase (decrease) in net assets resulting from operations, divided by average total assets.

⁽³⁾	ROE represents the net investment income (loss) or net increase (decrease) in net assets resulting from operations divided by average shareholders’ equity.

⁽⁴⁾	Net interest margin represents net interest income for the year divided by average interest earning assets.

⁽⁵⁾	Noninterest income ratio represents noninterest income divided by average interest earning assets.

⁽⁶⁾	Operating expense ratio represents operating expenses divided by average interest earning assets.

⁽⁷⁾	Represents net investments divided by total assets as of September 30.

⁽⁸⁾	Represents total shareholders’ equity divided by total assets as of September 30.

⁽⁹⁾	Represents total debt (floating rate and fixed rate borrowings) divided by total shareholders’ equity as of September 30.

CONSOLIDATED RESULTS OF OPERATIONS

2004 Third Quarter and Nine Months compared to the 2003 Periods

Net increase in net assets resulting from operations was $20,055,000 or $1.09 per diluted common share and $18,925,000 or $1.02 per share in the 2004 third quarter and nine months, up $18,944,000 and $16,629,000 from $1,111,000 or $0.06 per share and $2,296,000 or $0.13 per share in the 2003 third quarter and nine months, primarily reflecting the unrealized appreciation associated with the exchange of our investment in Media for stock of Clear Channel, partially offset by realized and unrealized depreciation on certain mezzanine investments. The year-to-date period also reflected the increased net interest income resulting from the RV/Marine portfolio purchase, partially offset by higher taxes and higher operating expenses associated with servicing these acquired assets, and the realized gains associated with the sale of Select Comfort. Net investment income after taxes was $1,841,000 or $0.10 per diluted common share and $3,289,000 or $0.18 per share in the 2004 third quarter and nine months, up $1,198,000 and $2,049,000 from $643,000 or $0.03 per share and $1,240,000 or $0.07 per share in the 2003 third quarter and nine months.

Investment income was $10,978,000 and $27,864,000 in the 2004 third quarter and nine months, up $4,285,000 or 64% and $8,174,000 or 42% from $6,693,000 and $19,690,000 in the year ago periods, primarily reflecting $2,880,000 and $6,184,000 in income earned on the newly purchased RV/Marine portfolio. Excluding that, investment income increased $1,405,000 or 21% and $1,990,000 or 10% compared to the year ago quarter and nine months, primarily reflecting the growth in the other investment portfolio’s, partially offset by lower investment yields. The yield on the investment portfolio was 7.59% and 8.50% in the 2004 third quarter and nine months, up 11% and 21% from yields of 6.83% and 7.04% in the

year ago periods, reflecting the impact of the higher yielding RV/Marine portfolio, partially offset by the reduction in market interest rates in the traditional businesses over the last several years as borrowers refinance. The yield on the investment portfolio excluding the RV/Marine portfolio purchase was 6.36% and 6.98% in the 2004 three and nine months, down 7% and 1% from the comparable 2003 periods. Average investments outstanding were $569,270,000 and $485,896,000 in the quarter and nine months, ($499,805,000 and $450,555,000 excluding the RV/Marine portfolio) up 48% and 31% from $383,585,000 and $371,990,000 in the year ago periods (up 30% and 21% excluding the RV/Marine portfolio), primarily reflecting RV/Marine purchase and growth in most other portfolios.

Medallion loans were $348,413,000 at quarter end, up $71,170,000 or 26% from $277,243,000 a year ago, representing 58% of the investment portfolio compared to 72% in 2003, and were yielding 6.00% compared to 6.54% a year ago, a decrease of 8%. The increase in outstandings primarily reflected efforts to book new business and repurchase certain participations, primarily in the New York City and Chicago markets, to maximize the utilization of the lower cost MLB line. As medallion loans renewed during the year and new business was booked, they were priced at generally lower current market rates. The commercial loan portfolio was $134,014,000 at quarter end, compared to $104,850,000 a year ago, an increase of $29,164,000 or 28%, and represented 22% of the investment portfolio compared to 27% in 2003. Commercial loans yielded 9.73% at quarter end, compared to 9.39% a year ago, reflecting the increases in market interest rates during the quarter. The increase in commercial loans was concentrated in asset based receivables and high-yield mezzanine loans, partially offset by decreases in loans in the other commercial categories. The new consumer loan portfolio of $67,390,000 represented 11% of the investment portfolio at quarter end, and yielded 18.60%. Equity investments were $34,150,000, up $32,554,000 from a year ago, reflecting the receipt of Clear Channel common stock for our ownership interest in Media, and represented 6% of the investment portfolio and had a dividend yield of 1.39% at quarter end. Investment securities of $15,408,000, or 3% of the investment portfolio, represented more liquid investments in 2004 required by MB, and yielded 3.93%. See page 23 for a table which shows balances and yields by type of investment.

Interest expense was $4,527,000 and $11,081,000 in the 2004 third quarter and nine months, up $1,715,000 or 61% and up $1,742,000 or 19% from $2,812,000 and $9,339,000 in the 2003 third quarter and nine months. Included in interest expense in 2004 was $433,000 and $1,148,000 related to the amortization of debt origination costs on the ML Line, compared to $313,000 and $1,994,000 in 2003, which was partially offset by $543,000 of interest reversals in the nine months. The increases in interest expense were due primarily to higher average borrowed funds outstanding, partially offset by lower borrowing costs. Average debt outstanding was $460,392,000 and $383,158,000 in the quarter and nine months, compared to $262,227,000 and $253,296,000 in the year ago periods, increases of 76% and 51%, reflecting the newly raised brokered CD’s, increased utilization of the ML Line, and other borrowings used to fund the RV/Marine portfolio purchase and other investment growth. The cost of borrowed funds was 3.36% and 3.25% in the quarter and nine months, compared to 3.70% and 3.98% a year ago, decreases of 9% and 18%, primarily attributable to the increased utilization of low cost brokered deposit financing and the lower cost ML Line. Approximately 51% of the Company’s debt was short-term and floating or adjustable rate at quarter end, compared to 80% a year ago. See page 31 for a table which shows average balances and cost of funds for the Company’s funding sources.

Net interest income was $6,451,000 and $16,783,000, and the net interest margins were 4.43% and 4.53%, for the 2004 quarter and nine months, up $2,569,000 or 66% and $6,432,000 or 62% from $3,882,000 and $10,351,000 in the 2003 periods, which represented net interest margins of 3.92% and 3.69% for the 2003 periods, all reflecting the items discussed above.

Noninterest income was $928,000 and $2,548,000 in the 2004 third quarter and nine months, down $66,000 or 7% and $1,022,000 or 29% from $994,000 and $3,570,000 in the year ago periods. Gains on the sale of loans were $332,000 and $730,000 in the 2004 quarter and nine months, up $244,000 from $88,000 in the quarter, and down $74,000 or 9% from $804,000 in the nine months, which included $179,000 of gains from the sale of $3,815,000 of unguaranteed portions of the SBA portfolio. During 2004, $3,508,000 and $7,930,000 of guaranteed loans were sold under the SBA program in the quarter and nine months, compared to $1,095,000 and $6,778,000 in 2003, an increase of 17% year-to-date. The increase in gains on sale under the SBA program primarily reflected the pickup in loan origination and sales activities as new loan originators began producing, as well as higher market-determined net premiums received on the sales in 2004. Other income, which is comprised of servicing fee income, prepayment fees, late charges, and other miscellaneous income, was $597,000 and $1,818,000 in the 2004 third quarter and nine months, compared to $906,000 and $2,766,000 in the year ago periods, decreases of $309,000 and $948,000, both down 34%. Included in the 2004 periods was a $123,000 reclassification of expense reimbursements to operating expenses, and included in the 2003 quarter was $132,000 from deal-termination fees, and also in the nine months was $300,000 related to reversing a portion of the servicing asset impairment reserve which was no longer required due to improved prepayment patterns in the servicing asset pools. Excluding those items, the decreases

generally reflected lower servicing fee income from the SBA (7) a business and lower fee income from prepayments and other refinancing activities.

Operating expenses were $4,973,000 and $14,368,000 in the 2004 third quarter and nine months, compared to $4,211,000 and $12,639,000 in the 2003 periods, increases of $762,000 or 18% and $1,729,000 or 14%. Salaries and benefits expense was $2,463,000 and $7,168,000 in the quarter and nine months, up $393,000 or 19% and $224,000 or 3% from $2,070,000 and $6,944,000 in the 2003 periods, primarily reflecting higher levels of salaries and increased headcount in 2004, which in the nine months was partially offset by 2003 severance accruals for terminated employees. Professional fees were $308,000 and $1,311,000 in the 2004 periods, down $123,000 or 29% and up $492,000 or 60% from $431,000 and $819,000 in the 2003 periods, primarily reflecting increased legal and accounting costs, including costs related to the Company’s compliance with Sarbanes-Oxley, and in the current quarter was partially offset by expense reimbursements for professional fees associated with the Media sale. Other operating expenses of $2,202,000 and $5,890,000 in the 2004 quarter and nine months were up $493,000 or 29% and $1,014,000 or 21% from $1,709,000 and $4,876,000 in 2003, primarily reflecting a higher level of operating expenses, mostly due to the growth of MB, including the newly incurred service costs for the RV/Marine portfolio, and a lower level of capitalized expenses related to loan origination activity.

Income tax expenses were $566,000 and $1,674,000 in the quarter and nine months, compared to $22,000 and $41,000 in the year ago periods, primarily reflecting MB’s provision for taxes.

Net unrealized appreciation on investments was $20,998,000 and $18,934,000 in the 2004 third quarter and nine months, compared to depreciation of $4,026,000 and $11,091,000 in the year ago periods, improvements of $25,024,000 and $30,025,000. During the 2004 third quarter, the Company exchanged its investment in Media for common stock of Clear Channel, resulting in an unrealized gain of $24,989,000. Net unrealized depreciation net of the exchange gain and Media’s pre-sale operations was $3,477,000 and $3,229,000 in the 2004 quarter and nine months, compared to $2,973,000 and $7,763,000 in the 2003 periods, an increase of $504,000 and an improvement of $4,534,000. Unrealized appreciation (depreciation) arises when the Company makes valuation adjustments to the investment portfolio. When investments are sold or written off, any resulting realized gain (loss) is grossed up to reflect previously recorded unrealized components. As a result, movement between periods can appear distorted. The 2004 third quarter activity resulted from net decreases in the valuation of equity investments of $2,566,000 ($2,506,000 for the nine months), net unrealized depreciation on loans of $3,426,000 ($4,129,000 in the nine months), and net unrealized depreciation of $254,000 ($305,000 in the nine months) on foreclosed property, partially offset by the reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $2,769,000 ($3,711,000 for the nine months). The 2003 third quarter activity resulted from the reversals of unrealized appreciation associated with appreciated equity investments that were sold of $3,752,000 ($7,744,000 for the nine months) and net unrealized depreciation of $187,000 for the nine months on foreclosed property, partially offset by net unrealized appreciation on loans and equities of $395,000 ($3,213,000 of depreciation for the nine months), reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $384,000 ($1,524,000 for the nine months), and increases in the valuation of equity investments of $1,857,000 for the nine months.

Also included in unrealized appreciation (depreciation) on investments were the net losses of the MTM divisions of the Company prior to their sale during the 2004 third quarter. MTM generated net losses of $513,000 and $2,827,000 in 2004 third quarter and nine months, improvements of $540,000 or 51% and $501,000 or 15% from net losses of $1,053,000 and $3,328,000 in the 2003 periods. Included in the 2003 third quarter was a $324,000 reversal of accrued fleet costs which resulted from continued contract renegotiations, and in the nine months was an $835,000 net gain from the settlement of a lawsuit with one of our fleet operators, partially offset by a $398,000 writeoff of damaged/missing tops. The Company’s investment in Media was exchanged for stock in Clear Channel, as described above, and Japan was sold to its management which, resulted in a realized gain of $255,000.

The Company’s net realized loss on investments was $2,784,000 and $3,299,000 in the 2004 third quarter and nine months, compared to gains of $4,494,000 and $12,147,000 for the 2003 periods, reflecting the above, and net direct chargeoffs of $278,000 ($202,000 in the nine months) and direct losses on sales of foreclosed property of $6,000 ($30,000 of direct gains in the six months), partially offset by direct gains on sales of equity investments of $269,000 ($584,000 for the nine months). The 2003 activity reflected the above and direct gains on sales of equity investments of $1,170,000 in the quarter ($6,025,000 for the nine months) and by net recoveries of $8,000 ($83,000 for the nine months), partially offset by $52,000 of realized losses on foreclosed properties in both periods.

The Company’s net realized/unrealized gains on investments were $18,214,000 and $15,635,000 in the 2004 third quarter and nine months, compared to gains of $468,000 and $1,056,000 for the 2003 periods, reflecting the above.

ASSET/LIABILITY MANAGEMENT

Interest Rate Sensitivity

The Company, like other financial institutions, is subject to interest rate risk to the extent its interest-earning assets (consisting of medallion, commercial, and consumer loans, and investment securities) reprice on a different basis over time in comparison to its interest-bearing liabilities (consisting primarily of credit facilities with banks, bank certificates of deposit, and subordinated SBA debentures).

Having interest-bearing liabilities that mature or reprice more frequently on average than assets may be beneficial in times of declining interest rates, although such an asset/liability structure may result in declining net earnings during periods of rising interest rates. Abrupt increases in market rates of interest may have an adverse impact on our earnings until we are able to originate new loans at the higher prevailing interest rates. Conversely, having interest-earning assets that mature or reprice more frequently on average than liabilities may be beneficial in times of rising interest rates, although this asset/liability structure may result in declining net earnings during periods of falling interest rates. This mismatch between maturities and interest rate sensitivities of our interest-earning assets and interest-bearing liabilities results in interest rate risk.

The effect of changes in interest rates is mitigated by regular turnover of the portfolio. Based on past experience, the Company anticipates that approximately 40% of the taxicab medallion portfolio will mature or be prepaid each year. The Company believes that the average life of its loan portfolio varies to some extent as a function of changes in interest rates. Borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment because the interest rate payable on the borrower’s loan is high relative to prevailing interest rates. Conversely, borrowers are less likely to prepay in a rising interest rate environment. However, borrowers may prepay for a variety of other reasons, such as to monetize increases in the underlying collateral values, particularly in the medallion loan portfolio.

In addition, the Company manages its exposure to increases in market rates of interest by incurring fixed-rate indebtedness, such as ten year subordinated SBA debentures, and by setting repricing intervals or the maturities of tranches drawn under the revolving line of credit or issued as certificates of deposit, for terms of up to five years. The Company had outstanding SBA debentures of $64,435,000 with a weighted average interest rate of 5.78%, constituting 14% of the Company’s total indebtedness as of September 30, 2004. Also, portions of the adjustable rate debt with Banks reprice at intervals of as long as 36 months, further mitigating the immediate impact of changes in market interest rates.

A relative measure of interest rate risk can be derived from the Company’s interest rate sensitivity gap. The interest rate sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities, which mature and/or reprice within specified intervals of time. The gap is considered to be positive when repriceable assets exceed repriceable liabilities, and negative when repriceable liabilities exceed repriceable assets. A relative measure of interest rate sensitivity is provided by the cumulative difference between interest sensitive assets and interest sensitive liabilities for a given time interval expressed as a percentage of total assets.

The following table presents the Company’s interest rate sensitivity gap reflecting actual contractual repricing of assets and liabilities, and does not reflect any prepayment assumption on the loan portfolio.


	Cumulative rate gap ⁽¹⁾
*(Dollars in thousands)*	Less Than 1 Year		More Than 1 and Less Than 2 Years		More Than 2 and Less Than 3 Years	More Than 3 and Less Than 4 Years	More Than 4 and Less Than 5 Years	More Than 5 and Less Than 6 Years	Thereafter
September 30, 2004 ⁽²⁾	39,130		71,244		68,205	98,795	171,171	176,234	131,490
December 31, 2003 ⁽²⁾	(61,987	)	(6,176	)	104,121	123,280	181,851	189,272	141,674
December 31, 2002	(24,529	)	38,168		116,363	129,245	141,889	149,975	140,526

⁽¹⁾	The ratio of the cumulative one year gap to total interest rate sensitive assets was 6%, (14%), and (6%) as of September 30, 2004, December 31, 2003, and December 31, 2002.

⁽²⁾	Adjusted for the medallion loan 40% prepayment assumption results in cumulative one year positive interest rate gap and related ratio of $135,613,000 or 22% and $19,136,000 or 4% for September 30, 2004 and December 31, 2003, respectively.

Liquidity and Capital Resources

Our sources of liquidity are the revolving line of credit with MLB, unfunded commitments from the SBA for long-term debentures that are issued to or guaranteed by the SBA, loan amortization and prepayments, participations or sales of loans to third parties, and our ability to raise brokered certificates of deposit through MB. As a RIC in 2001 and earlier years, and as expected for 2004 and later years, we are required to distribute at least 90% of our investment company taxable income; consequently, we have primarily relied upon external sources of funds to finance growth. In September 2002, the Trust entered into a $250,000,000 revolving line of credit with MLB for the purpose of funding medallion loans acquired from MFC and others. At September 30, 2004, $23,086,000 of this line was available for future use. At the current required capital levels, it is expected, although there can be no guarantee, that deposits of approximately $6,800,000 could be raised by MB to fund future loan origination activity. In addition, MB as a non-RIC subsidiary of the Company is allowed (and for three years required) to retain all earnings in the business to fund future growth. In May 2001, the Company applied for and received $72,000,000 of additional funding with the SBA ($113,400,000 to be committed by the SBA in total), subject to the infusion of additional equity capital into the respective subsidiaries, and in December 2003, an additional $8,000,000 of funding was committed by the SBA, free from any additional equity capital contribution. At September 30, 2004, $15,565,000 is available under these commitments ($7,500,000 of which requires a capital contribution from the Company of 2,500,000), $8,065,000 of which requires no capital contribution. Since SBA financing subjects its recipients to certain regulations, the Company will seek funding at the subsidiary level to maximize its benefits. Lastly, approximately $12,153,000 was available at September 30, 2004 under a loan sale agreement that MBC has with a participant bank, and $5,300,000 is available under a revolving credit agreement with a commercial bank.

The components of our debt were as follows at September 30, 2004:


	Balance		Percentage		Rate ⁽¹⁾
Revolving line of credit	$	226,914,000	48	%	3.65	%
Certificates of deposits		168,095,000	35		2.25
SBA debentures		64,435,000	14		5.78
Notes payable to banks		13,072,000	3		4.55

Total outstanding debt	$	472,516,000	100	%	3.47

⁽¹⁾	Weighted average contractual rate as of September 30, 2004.

The Company values its portfolio at fair value as determined in good faith by management and approved by the Board of Directors in accordance with the Company’s valuation policy. Unlike certain lending institutions, the Company is not permitted to establish reserves for loan losses. Instead, the Company must value each individual investment and portfolio loan on a quarterly basis. The Company records unrealized depreciation on investments and loans when it believes that an asset has been impaired and full collection is unlikely. The Company records unrealized appreciation on equities if it has a clear indication that the underlying portfolio company has appreciated in value and, therefore, the Company’s security has also appreciated in value. Without a readily ascertainable market value, the estimated value of the Company’s portfolio of investments and loans may differ significantly from the values that would be placed on the portfolio if there existed a ready market for the investments. The Company adjusts the valuation of the portfolio quarterly to reflect management’s estimate of the current fair value of each investment in the portfolio. Any changes in estimated fair value are recorded in the Company’s

statement of operations as net unrealized appreciation (depreciation) on investments. The Company’s investment in MTM, as wholly-owned portfolio investments, was also subject to quarterly assessments of its fair value. The Company used MTM’s actual results of operations as the best estimate of changes in fair value, and recorded the result as a component of unrealized appreciation (depreciation) on investments.

In addition, the illiquidity of our loan portfolio and investments may adversely affect our ability to dispose of loans at times when it may be advantageous for us to liquidate such portfolio or investments. In addition, if we were required to liquidate some or all of the investments in the portfolio, the proceeds of such liquidation may be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest rates, our cost of funds would increase, which would reduce our net operating income before net realized and unrealized gains. We use a combination of long-term and short-term borrowings and equity capital to finance our investing activities. Our long-term fixed-rate investments are financed primarily with long-term fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. The Company has analyzed the potential impact of changes in interest rates on interest income net of interest expense. Assuming that the balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity, a hypothetical immediate 1% change in interest rates would have positively impacted net increase (decrease) in net assets resulting from operations as of at September 30, 2004 by approximately $802,000 on an annualized basis, compared to $822,000 as of December 31, 2003, and the impact of such an immediate 1% change over a one year period would have been $463,000 compared to ($112,000) for 2003. Although management believes that this measure is indicative of the Company’s sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet, and other business developments that could affect net increase (decrease) in net assets resulting from operations in a particular quarter or for the year taken as a whole. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.

The Company continues to work with investment banking firms and other financial intermediaries to investigate the viability of a number of other financing options which include, among others, the sale or spin off certain assets or divisions, the development of a securitization conduit program, and other independent financing for certain subsidiaries or asset classes. These financing options would also provide additional sources of funds for both external expansion and continuation of internal growth.

The following table illustrates sources of available funds for the Company and each of the subsidiaries, and amounts outstanding under credit facilities and their respective end of period weighted average interest rates at September 30, 2004.


*(Dollars in thousands)*	The Company			MFC			BLL		MCI			MBC		FSVC			MB			Total 9/30/04			12/31/03
Cash	$	3,586		$	2,837		$	872	$	581		$	1,899		732		$	17,644		$	28,150		$	47,676
Bank loans⁽¹⁾		15,000																			15,000			—
Amounts undisbursed		5,300																			5,300			—
Amounts outstanding		9,700			3,372																13,072			7,583
Average interest rate		4.75	%		3.98	%															4.55	%		3.87	%
Maturity		4/05			6/07																4/05-6/07			5/04-6/07
Lines of Credit⁽²⁾					250,000																250,000			250,000
Amounts undisbursed					23,086																23,086			27,064
Amounts outstanding					226,914																226,914			222,936
Average interest rate					3.65	%															3.65	%		2.54	%
Maturity					9/05																9/05			9/05
SBA debentures⁽³⁾										36,000					44,000						80,000			80,000
Amounts undisbursed										7,500					8,065						15,565			23,065
Amounts outstanding										28,500					35,935						64,435			56,935
Average interest rate										5.40	%				6.08	%					5.78	%		5.93	%
Maturity										9/11-3/14					9/11-9/13						9/11-3/14			9/11-3/14
Certificates of deposit																		168,095			168,095
Average interest rate																		2.25	%		2.25	%
Maturity																		10/04-5/09			10/04-5/09

Total cash and remaining amounts undisbursed under credit facilities	$	8,886		$	25,923		$	872	$	8,081		$	1,899	$	8,797		$	17,644		$	72,101		$	97,804

Total debt outstanding	$	9,700		$	230,286		$	—	$	28,500		$	—	$	35,935		$	168,095		$	472,516		$	287,454

⁽¹⁾	On April 30, 2004 Financial established a $15,000,000 line of credit with Sterling National Bank secured by certain loans of MBC and other affiliates.

⁽²⁾	Line of credit with MLB for medallion lending. Line extended on September 12, 2003 until September 2005 at improved pricing, fees, terms, and conditions.

⁽³⁾

MCI has $7,500,000 under the approved commitment from the SBA which may be drawn down through May, 2006, upon submission of a request for funding by the Company and its subsequent acceptance by the SBA. FSVC has a commitment of $8,065,000 from the SBA, which expires in December 2008. In the 2004 third quarter, MCI pulled down an additional $1,500,000 under their commitment.

Loan amortization, prepayments, and sales also provide a source of funding for the Company. Prepayments on loans are influenced significantly by general interest rates, medallion loan market rates, economic conditions, and competition. Loan sales are a major focus of the SBA Section 7(a) loan program conducted by BLL, which is primarily set up to originate and sell loans. Increases in SBA Section 7(a) loan balances in any given period generally reflect timing differences in closing and selling transactions. The Company believes that its credit facilities with MLB and the SBA, deposits generated at MB, and cash flow from operations (after distributions to shareholders) will be adequate to fund the continuing operations of the Company’s loan portfolio and advertising business. Also, MB is not a RIC, and therefore is able to retain earnings to finance growth.

Recently Issued Accounting Standards

In December 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (revised), “Consolidation of Variable Interest Entities” (FIN 46R), an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”. Variable interest entities, some of which were formerly referred to as special purpose entities, are generally entities for which their other equity investors (1) do not provide significant financial resources for the entity to sustain its activities, (2) do not have voting rights or (3) have voting rights that are disproportionately high compared with their economic interests. Under FIN 46R, variable interest entities must be consolidated by the primary beneficiary. The primary beneficiary is generally defined as having the majority of the risks and rewards of ownership arising from the variable interest entity. FIN 46R also requires certain disclosures if a significant variable interest is held but not required to be consolidated. The Company does not expect this standard to have a material impact on its consolidated financial condition or results of operations.

In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”). This statement requires that an issuer classify financial instruments that are within its scope as a liability. Many of those instruments were classified as equity under previous guidance. Most of the guidance in SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and

otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect this standard to have a material impact on its consolidated financial condition or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (SFAS No. 149). The provisions of SFAS No. 149 that relate to SFAS No. 133 and No. 138 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, provisions of SFAS No. 149 which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. The changes in SFAS No. 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, SFAS No. 149 (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS No. 133 and No. 138, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying financing component to conform it to language used in FIN 45, and (4) amends certain other existing pronouncements. Those changes will result in more consistent reporting of contracts as either derivatives or hybrid instruments. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except as stated above and for hedging relationships designated after June 30, 2003. In addition, except as stated above, all provisions of SFAS No.149 should be applied prospectively. The Company does not expect this standard to have a material impact on its consolidated financial condition or results of operations.

Common Stock

Our common stock is quoted on the Nasdaq National Market under the symbol “TAXI.” Our common stock commenced trading on May 23, 1996. As of November 8, 2004, there were approximately 115 holders of record of the Company’s common stock.

On November 8, 2004, the last reported sale price of our common stock was $8.97 per share. Historically, our common stock has traded at a premium to net asset value per share, and although there can be no assurance, the Company anticipates that its stock will again trade at a premium in the future.

The following table sets forth, for the periods indicated, the range of high and low closing prices for the Company’s common stock on the Nasdaq National Market.


	HIGH		LOW
2004
Third Quarter	$	9.19	$	6.78
Second Quarter		9.03		7.46
First Quarter		9.25		7.91

2003
Fourth Quarter	$	9.49	$	6.49
Third Quarter		7.08		6.28
Second Quarter		7.03		3.70
First Quarter		4.82		3.19

As a non-RIC in 2002 and 2003, dividend distributions were at management’s discretion. Prior to 2002, as required, we met all qualification requirements under IRC Section 851 and distributed at least 90% of our investment company taxable income to our stockholders, and if we requalify as a RIC in 2004 and subsequent years, we intend to distribute at least 90% of our investment company taxable income to our shareholders as well. Distributions of our income were generally required to be made within the calendar year the income was earned as a RIC; however, in certain circumstances distributions can be made up to a full calendar year after the income has been earned. Investment company taxable income includes, among other things, interest, dividends, and capital gains reduced by deductible expenses. Our ability to make dividend payments as a RIC is restricted by certain asset coverage requirements under the 1940 Act and has been dependent upon maintenance of our status as a RIC under the Code in the past, by SBA regulations, and under the terms of the SBA debentures. There can be no assurances, however, that we will have sufficient earnings to pay such dividends in the future.

We have adopted a dividend reinvestment plan pursuant to which stockholders may elect to have distributions reinvested in additional shares of common stock. When we declare a dividend or distribution, all participants will have credited to their plan accounts the number of full and fractional shares (computed to three decimal places) that could be obtained with the cash, net of any applicable withholding taxes that would have been paid to them if they were not

participants. The number of full and fractional shares is computed at the weighted average price of all shares of common stock purchased for plan participants within the 30 days after the dividend or distribution is declared plus brokerage commissions. The automatic reinvestment of dividends and capital gains distributions will not release plan participants of any incoming tax that may be payable on the dividend or capital gains distribution. Stockholders may terminate their participation in the dividend reinvestment plan by providing written notice to the Plan Agent at least 10 days before any given dividend payment date. Upon termination, we will issue to a stockholder both a certificate for the number of full shares of common stock owned and a check for any fractional shares, valued at the then current market price, less any applicable brokerage commissions and any other costs of sale. There are no additional fees or expenses for participation in the dividend reinvestment plan. Stockholders may obtain additional information about the dividend reinvestment plan by contacting the Plan Agent at 59 Maiden Lane, New York, NY, 10038.

ISSUER PURCHASES OF EQUITY SECURITIES ⁽¹⁾


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs
December 1 through December 31, 2003	10,816	$	9.20	10,816	$	9,900,492
January 1 through March 31, 2004	85,517		8.32	85,517		9,188,675
April 1 through June 30, 2004	35,000		8.61	35,000		8,887,280
July 1 through September 30, 2004	300,000		9.00	300,000		6,181,280

Total	431,333		8.85	431,333		—

⁽¹⁾

The Company publicly announced its Stock Repurchase Program in a press release dated November 5, 2003. The Board of Directors approved the repurchase of up to $10,000,000 of the Company’s outstanding common stock. The Board of Directors did not set an expiration date for the Stock Repurchase Program.

INVESTMENT CONSIDERATIONS

Interest rate fluctuations may adversely affect the interest rate spread we receive on our taxicab medallion and commercial loans.

Because we borrow money to finance the origination of loans, our income is dependent upon the difference between the rate at which we borrow funds and the rate at which we loan funds. While the loans in our portfolio in most cases bear interest at fixed-rates or adjustable-rates (which adjust at various intervals), we finance a substantial portion of such loans by incurring indebtedness with adjustable or floating interest rates (which adjust immediately to changes in rates). As a result, our debt may adjust to a change in interest rates more quickly than the loans in our portfolio. In periods of sharply rising interest rates, our costs of funds would increase, which would reduce our portfolio income before net realized and unrealized gains. Accordingly, like most financial services companies, we face the risk of interest rate fluctuations. Although we intend to continue to manage our interest rate risk through asset and liability management, including the use of interest rate caps, general rises in interest rates will tend to reduce our interest rate spread in the short term. In addition, we rely on our counterparties to perform their obligations under such interest rate caps.

A decrease in prevailing interest rates may lead to more loan prepayments, which could adversely affect our business.

Our borrowers generally have the right to prepay their loans upon payment of a fee ranging from 30 to 120 days interest. A borrower is likely to exercise prepayment rights at a time when the interest rate payable on the borrower’s loan is high relative to prevailing interest rates. In a lower interest rate environment, we will have difficulty re-lending prepaid funds at comparable rates, which may reduce the net interest margin we receive.

We have traditionally qualified to be a RIC, and in order to be taxed as a RIC we must distribute our income, we may have a continuing need for capital if we continue to be taxed as a RIC in the future.

We have a continuing need for capital to finance our lending activities. Our current sources of capital and liquidity are the following:

•

line of credit for medallion lending;

•

raising deposits at MB;

•

loan amortization and prepayments;

•

sales of participation interests in loans;

•

fixed-rate, long-term SBA debentures that are issued to the SBA; and

•

borrowings from other financial intermediaries.

In order to be taxed as a RIC in 2001 and earlier years, and as expected for 2004 and later years, we are required to distribute at least 90% of our investment company taxable income; consequently, we have primarily relied upon external sources of funds to finance growth. At September 30, 2004, we had $23,086,000 available under the Company’s revolving line of credit with MLB, $15,565,000 available under outstanding commitments from the SBA, $12,153,000 available under a loan sale agreement with a participant bank, $6,800,000 of additional deposits can be raised by MB at existing capital levels, and $5,300,000 is available under a revolving credit agreement with a commercial bank.

We may have difficulty raising capital to finance our planned level of lending operations.

Although the Company has demonstrated an ability to meet significant debt amortization requirements in the last two years, has received approval to operate MB and begin raising federally-insured deposits, and has several refinancing options in progress and under consideration, there can be no assurance that additional funding sources to meet amortization requirements or future growth targets will be successfully obtained. See the additional discussion related to the credit facilities and note agreements in the Liquidity and Capital Resources section on page 38.

Lending to small businesses involves a high degree of risk and is highly speculative.

Lending to small businesses involves a high degree of business and financial risk, which can result in substantial losses and should be considered speculative. Our borrower base consists primarily of small business owners that have limited resources and that are generally unable to achieve financing from traditional sources. There is generally no publicly available information about these small business owners, and we must rely on the diligence of our employees and agents to obtain information in connection with our credit decisions. In addition, these small businesses often do not have audited financial statements. Some smaller businesses have narrower product lines and market shares than their competition. Therefore, they may be more vulnerable to customer preferences, market conditions or economic downturns, which may adversely affect the return on, or the recovery of, our investment in these businesses.

Our borrowers may default on their loans.

We primarily invest in and lend to companies that may have limited financial resources. Numerous factors may affect a borrower’s ability to repay its loan, including:

•

the failure to meet its business plan;

•

a downturn in its industry or negative economic conditions;

•

the death, disability or resignation of one or more of the key members of management; or

•

the inability to obtain additional financing from traditional sources.

Deterioration of a borrower’s financial condition and prospects may be accompanied by deterioration of the collateral for the loan. Expansion of our portfolio and increases in the proportion of our portfolio consisting of commercial loans could have an adverse impact on the credit quality of the portfolio.

We borrow money, which may increase the risk of investing in our common stock.

We use financial leverage through banks and our long-term subordinated SBA debentures. Leverage poses certain risks for our stockholders, including the following:

•

it may result in higher volatility of both our net asset value and the market price of our common stock;

•

since interest is paid to our creditors before any income is distributed to our stockholders, fluctuations in the interest payable to our creditors may decrease the dividends and distributions to our stockholders; and

•

in the event of a liquidation of the Company, our creditors would have claims on our assets superior to the claims of our stockholders.

Our failure to remedy certain internal control deficiencies at our BLL subsidiary could have an adverse affect on our business operations.

The Company’s BLL subsidiary has been operating under an agreement with the State of Connecticut to, among other things, improve BLL’s liquidity and capital ratios, correct certain operational weaknesses, improve the quality of assets, and increase the level of valuation allowances, the latter of which has already been reflected in these financial statements. The Board of Directors of BLL has entered into an agreement to address these areas of concern, which are similar to those in previous reports. There can be no assurance that BLL will be able to fully comply with its provisions. BLL has historically represented less than 1% of the profits of the Company.

If we are unable to continue to diversify geographically, our business may be adversely affected if the New York City taxicab industry experiences a sustained economic downturn.

Although we have diversified from the New York City area, a significant portion of our taxicab advertising and loan revenue is derived from New York City taxicabs and medallion loans collateralized by New York City taxicab medallions. An economic downturn in the New York City taxicab industry could lead to an increase in defaults on our medallion loans. There can be no assurance that we will be able to sufficiently diversify our operations geographically.

An economic downturn could result in certain of our commercial loan customers experiencing declines in business activities, which could lead to difficulties in their servicing of their loans with us, and increasing the level of delinquencies, defaults, and loan losses in our commercial loan portfolio. Although the Company believes the estimates and assumptions used in determining the recorded amounts of net assets and liabilities at September 30, 2004 are reasonable, actual results could differ materially from the estimated amounts recorded in the Company’s financial statements.

The loss of certain key members of our senior management could adversely affect us.

Our success is largely dependent upon the efforts of senior management. The death, incapacity, or loss of the services of certain of these individuals could have an adverse effect on our operations and financial results. There can be no assurance that other qualified officers could be hired.

Acquisitions may lead to difficulties that could adversely affect our operations.

By their nature, corporate acquisitions entail certain risks, including those relating to undisclosed liabilities, the entry into new markets, operational, and personnel matters. We may have difficulty integrating acquired operations or managing problems due to sudden increases in the size of our loan portfolio. In such instances, we might be required to modify our operating systems and procedures, hire additional staff, obtain and integrate new equipment, and complete other tasks appropriate for the assimilation of new business activities. There can be no assurance that we would be successful, if and when necessary, in minimizing these inherent risks or in establishing systems and procedures which will enable us to effectively achieve our desired results in respect of any future acquisitions.

Competition from entities with greater resources and less regulatory restrictions may decrease our profitability.

We compete with banks, credit unions, and other finance companies, some of which are SBICs, in the origination of taxicab medallion loans and commercial loans. Many of these competitors have greater resources than the Company and certain competitors are subject to less restrictive regulations than the Company. As a result, there can be no assurance that we will be able to continue to identify and complete financing transactions that will permit us to continue to compete successfully.

The valuation of our loan portfolio is subjective and we may not be able to recover our estimated value in the event of a foreclosure or sale of a substantial portion of portfolio loans.

Under the 1940 Act, our loan portfolio must be recorded at fair value or “marked-to-market.” Unlike other lending institutions, we are not permitted to establish reserves for loan losses. Instead, the valuation of our investment portfolio is adjusted quarterly to reflect our estimate of the current realizable value of our loan portfolio. Since no ready market exists for this portfolio, fair value is subject to the good faith determination of our management and the approval of our Board of Directors. Because of the subjectivity of these estimates, there can be no assurance that in the event of a foreclosure or the sale of portfolio loans we would be able to recover the amounts reflected on our balance sheet. If liquidity constraints required the sale of a substantial portion of the portfolio, such an action may require the sale of certain assets at amounts less than their carrying amounts.

Considering these factors, we have determined that the fair value of our portfolio is below its cost basis. At September 30, 2004, our net unrealized depreciation on investments was approximately $14,798,000 or 2.41% of our net investment portfolio. Based upon current market conditions and current loan-to-value ratios, management believes, and our Board of Directors concurs, that the net unrealized depreciation on investments is adequate to reflect the fair value of the portfolio.

Changes in taxicab industry regulations that result in the issuance of additional medallions could lead to a decrease in the value of our medallion loan collateral.

Every city in which we originate medallion loans, and most other major cities in the US, limits the supply of taxicab medallions. This regulation results in supply restrictions that support the value of medallions. Actions that loosen these restrictions and result in the issuance of additional medallions into a market could decrease the value of medallions in that market. If this were to occur, the value of the collateral securing our then outstanding medallion loans in that market could be adversely affected. New York City has determined to increase the number of medallions by 900, auctioned over a three year period beginning in 2004, preceded by a 25% fare hike. The first of these auctions for 300 medallions concluded in April 2004 and generated high levels of bid activity and record medallion prices. Although there can no be no assurances, we would expect the balance of the auctions to obtain similar results. We are unable to forecast with any degree of certainty whether any other potential increases in the supply of medallions will occur.

In New York City, Chicago, Boston, and in other markets where we originate medallion loans, taxicab fares are generally set by government agencies. Expenses associated with operating taxicabs are largely unregulated. As a result, the ability of taxicab operators to recoup increases in expenses is limited in the short term. Escalating expenses can render taxicab operations less profitable, and could cause borrowers to default on loans from the Company, and could potentially adversely affect the value of the Company’s collateral. As mentioned above, New York City approved a 25% fare increase as a part of the auction program which was effective May 1, 2004.

A significant portion of our taxicab advertising and loan revenue is derived from loans collateralized by New York City taxicab medallions. According to New York City Taxi and Limousine Commission data, over the past 20 years New York City taxicab medallions have appreciated in value an average of 10% each year. However, for sustained periods during that time, taxicab medallions have declined in value. During 2004, the value of New York City taxicab medallions increased by approximately 28% for individual medallions and 25% for corporate medallions.

Our failure to re-establish our RIC status in 2003 and beyond could lead to a substantial reduction in the amount of income distributed to our shareholders.

In 2003, changes were enacted to the federal tax laws which, among other things, significantly reduced the tax rate on dividends paid to shareholders from a corporation’s previously taxed income. Assuming we qualify as a RIC for 2004 or subsequent taxable years, we are unable to predict the effect of such changes upon our common stock.

As noted above, we did not qualify as a RIC in 2002 and 2003, and as a result we will be able to take advantage of corporate net operating loss carryforwards. If we do not file as a RIC for more than two consecutive years, and then seek to requalify and elect RIC status, we would be required to recognize gain to the extent of any unrealized appreciation on our assets unless we make a special election to pay corporate-level tax on any such unrealized appreciation recognized during the succeeding 10-year period. Absent such special election, any gain we recognize would be deemed distributed to our stockholders as a taxable distribution. Prior to 2002, we (along with some of our subsidiaries) qualified to be treated as RICs under the Code. As RICs, we generally were not subject to federal income tax on investment company taxable income (which includes, among other things, interest, dividends, and capital gains reduced by deductible expenses) distributed to our shareholders. If we or those of our subsidiaries that were also RICs fail to qualify as RICs in 2004 or beyond, our respective income would become fully taxable and a substantial reduction in the amount of income available for distribution to us and to our shareholders could result.

To qualify and be taxed as a RIC, we must meet certain income, diversification, and distribution requirements. However, because we use leverage, we are subject to certain asset coverage ratio requirements set forth in the 1940 Act. These asset coverage requirements could, under certain circumstances, prohibit us from making distributions that are necessary to maintain our RIC status or require that we reduce our leverage.

In addition, the asset coverage and distribution requirements impose significant cash flow management restrictions on us and limit our ability to retain earnings to cover periods of loss, provide for future growth and pay for extraordinary items. Certain of our loans, including the medallion collateral appreciation participation loans, could also be re-characterized in a manner that would generate non-qualifying income for purposes of the RIC rules. In this event, if such income exceeds the amount permissible, we could fail to satisfy the requirement that a RIC derive at least 90% of its gross income from qualifying sources, with the result that we would not meet the requirements of Subchapter M for qualification as a RIC. Qualification as a RIC is made on an annual basis and, although we and some of our subsidiaries qualified as regulated investment companies in the past, no assurance can be given that each will qualify for such treatment in 2004 and beyond. Failure to qualify as a RIC would subject us to tax on our income and could have material adverse effects on our financial condition and results of operations.

Our SBIC subsidiaries may be unable to meet the investment company requirements, which could result in the imposition of an entity-level tax.

The SBIA regulates some of our subsidiaries. The SBIA restricts distributions by a SBIC. Our SBIC subsidiaries that are also RICs could be prohibited by SBA regulations from making the distributions necessary to qualify as a RIC. Each year, in order to comply with the SBA regulations and the RIC distribution requirements, we must request and receive a waiver of the SBA’s restrictions. While the current policy of the SBA’s Office of SBIC Operations is to grant such waivers if the SBIC makes certain offsetting adjustments to its paid-in capital and surplus accounts, there can be no assurance that this will continue to be the SBA’s policy or that our subsidiaries will have adequate capital to make the required adjustments. If our subsidiaries are unable to obtain a waiver, compliance with the SBA regulations may result in loss of RIC status and a consequent imposition of an entity-level tax.

The Internal Revenue Code’s diversification requirements may limit our ability to expand our business.

These requirements provide that to qualify as a RIC, not more than 25% of the value of our total assets may be invested in the securities (other than US Government securities or securities of other RICs) of any one issuer. While our investments in RIC subsidiaries are not subject to this diversification test so long as these subsidiaries qualify as RICs, our investments in CCU and MB would be subject to this test, and could impact requalification as a RIC.

The merger of Media into CCU in exchange for stock created a diversification issue as well, as it represents 15% of the Company’s RIC assets. The level of the investment will need to be monitored to ensure it remains within the diversification guidelines.

Additionally the Company’s investment in MB, while representing only 16% of the Company’s total RIC assets at September 30, 2004, currently falls well within the guidelines of the 25% test described above. However, as an anticipated future growth vehicle of the Company, the investment in MB will need to be monitored for continued compliance with the test.

The fair value of the collateral appreciation participation loan portfolio at September 30, 2004 was $19,232,000, which represented 7% of MFC’s total RIC assets, and the owned medallion portion was $6,082,000 or 2% of total assets. We will continue to monitor the levels of these asset types in conjunction with the diversification tests, assuming we re-qualify for RIC status.

Our past use of Arthur Andersen LLP as our independent auditors may pose risks to us and also limit your ability to seek potential recoveries from them related to their work.

Effective July 29, 2002, the Company dismissed its independent auditors, Arthur Andersen LLP (Andersen), in view of recent developments involving Andersen.

As a public company, we are required to file periodic financial statements with the SEC that have been audited or reviewed by an independent accountant. As our former independent auditors, Andersen provided a report on our consolidated financial statements as of and for each of the five fiscal years in the period ended December 31, 2001. SEC rules require us to obtain Andersen’s consent to the inclusion of its audit report in our public filings. However, Andersen was indicted and found guilty of federal obstruction of justice charges, and has informed the Company that it is no longer able to provide such consent as a result of the departure from Andersen of the former partner and manager responsible for the audit report. Under these circumstances, Rule 437A under the Securities Act of 1933, as amended, permits the Company to incorporate the audit report and the audited financial statements without obtaining the consent of Andersen.

The SEC has recently provided regulatory relief designed to allow public companies to dispense with the requirement that they file a consent of Andersen in certain circumstances. Notwithstanding this relief, the inability of Andersen to provide either its consent or customary assurance services to us now and in the future could negatively affect our ability to, among other things, access the public capital markets. Any delay or inability to access the public markets as a result of this situation could have a material adverse impact on our business, financial condition, and results of operations.

We depend on cash flow from our subsidiaries to make dividend payments and other distributions to our shareholders.

We are primarily a holding company, and we derive most of our operating income and cash flow from our subsidiaries. As a result, we rely heavily upon distributions from our subsidiaries to generate the funds necessary to make dividend payments and other distributions to our shareholders. Funds are provided to us by our subsidiaries through dividends and payments on intercompany indebtedness, but there can be no assurance that our subsidiaries will be in a position to continue to make these dividend or debt payments. Furthermore, as a condition of its approval by its regulators, MB is precluded from making any dividend payments for its first three years of operations.

We operate in a highly regulated environment.

We are regulated by the SEC, the SBA, and the FDIC, and the Utah Department of Financial Institutions. In addition, changes in the laws or regulations that govern BDCs, RICs, SBICs, or banks may significantly affect our business. Laws and regulations may be changed from time to time, and the interpretations of the relevant laws and regulations also are subject to change. Any change in the laws or regulations that govern our business could have a material impact on our operations.

Our use of brokered deposit sources for MB’s deposit-gathering activities may not be available when needed.

MB relies on the established brokered deposit market to originate deposits to fund its operations. While MB has developed contractual relationships with a diversified group of investment brokers, and the brokered deposit market is well-developed and utilized by many banking institutions, conditions could change that might affect the availability of deposits. If the capital levels at MB fall below the “well-capitalized” level, or if MB experiences a period of sustained operating losses, the cost of attracting deposits from the brokered deposit market could increase significantly, and the ability of MB to raise deposits from this source could be impaired. MB is able to manage its growth to stay within the “well-capitalized” level, and the capital level currently required by the FDIC during MB’s first three years of operation is also considerably higher than the level required to be classified as “well-capitalized”.

Consumer lending is a new product line for us that carries a higher risk of loss and could be adversely affected by an economic downturn.

The acquisition of the RV/Marine loan portfolio represents an entry into the new market of consumer lending for the Company. Although it is a seasoned portfolio, and MB management has considerable experience in managing consumer loans, there can be no assurances that these loans will perform at their historical levels under different management going forward.

By its nature, lending to consumers that have blemishes on their credit reports carries with it a higher risk of loss. Although the net interest margins should be higher to compensate the Company for this increased risk, an economic downturn could result in higher loss rates and lower returns than expected, and could affect the profitability of the consumer loan portfolio.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in disclosure regarding quantitative and qualitative disclosures about market risk since the Company filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

ITEM 4.

CONTROLS AND PROCEDURES

Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of September 30, 2004 and December 31, 2003 and (ii) no change in internal control over financial reporting occurred during the quarters ended September 30, 2004 and 2003 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

PART II- OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

The Company and its subsidiaries are currently involved in various legal proceedings incident to the ordinary course of its business, including collection matters with respect to certain loans. The Company intends to vigorously defend any outstanding claims and pursue its legal rights. In the opinion of the Company’s management and based upon the advice of legal counsel, there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision would result in a material adverse effect on the Company’s results of operations or financial condition.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In November 2003, the Board of Directors authorized the Company to repurchase up to $10,000,000 of its common stock. As of September 30, 2004, the Company had repurchased a total of 431,333 shares of its common stock for an aggregate purchase price of $3,818,720. Thus, the Company is authorized to repurchase an additional $6,181,280 of its common stock. The repurchased shares are held in treasury stock.

ITEM 6.

EXHIBITS

(A) REPORTS ON FORM 8-K

On August 5, 2004, the Company filed a Current Report on Form 8-K, announcing by press release the financial results for the quarter ended June 30, 2004.

On August 26, 2004, the Company filed a Current Report on Form 8-K, announcing a change in the Company’s independent public accounting firm.

On September 7, 2004, the Company filed a Current Report on Form 8-K, announcing by press release the signing of an Agreement and Plan of Merger to merge the Company’s wholly-owned subsidiary, Medallion Taxi Media, Inc., with and into a subsidiary of Clear Channel Communications, Inc.

On September 10, 2004, the Company filed a Current Report on Form 8-K, announcing its entry into a material definitive agreement to merge the Company’s wholly-owned subsidiary, Medallion Taxi Media, Inc., with and into a subsidiary of Clear Channel Communications, Inc., together with a copy of the Agreement and Plan of Merger, dated September 3, 2004.

(B) EXHIBITS


Number		Description

31.1		Certification of Alvin Murstein pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

31.2		Certification of Larry D. Hall pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

32.1		Certification of Alvin Murstein pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

32.2		Certification of Larry D. Hall pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

IMPORTANT INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in such statements. In connection with certain forward-looking statements contained in this Form 10-Q and those that may be made in the future by or on behalf of the Company, the Company notes that there are various factors that could cause actual results to differ materially from those set forth in any such forward-looking statements. The forward-looking statements contained in this Form 10-Q were prepared by management and are qualified by, and subject to, significant business, economic, competitive, regulatory and other uncertainties and contingencies, all of which are difficult or impossible to predict and many of which are beyond the control of the Company. Accordingly, there can be no assurance that the forward-looking statements contained in this Form 10-Q will be realized or that actual results will not be significantly higher or lower. The statements have not been audited by, examined by, compiled by or subjected to agreed-upon procedures by independent accountants, and no third-party has independently verified or reviewed such statements. Readers of this Form 10-Q should consider these facts in evaluating the information contained herein. In addition, the business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in the forward-looking statements contained in this Form 10-Q. The inclusion of the forward-looking statements contained in this Form 10-Q should not be regarded as a representation by the Company or any other person that the forward-looking statements contained in this Form 10-Q will be achieved. In light of the foregoing, readers of this Form 10-Q are cautioned not to place undue reliance on the forward-looking statements contained herein. These risks and others that are detailed in this Form 10-Q and other documents that the Company files from time to time with the Securities and Exchange Commission, including annual reports and form 10-K, quarterly reports on Form 10-Q, and any current reports on Form 8-K must be considered by any investor or potential investor in the Company.

SIGNATURES

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


MEDALLION FINANCIAL CORP.

Date:		November 9, 2004

By:		/s/ Alvin Murstein
		Alvin Murstein
		Chairman and Chief Executive Officer

By:		/s/ Larry D. Hall
		Larry D. Hall
		Senior Vice President and Chief Financial Officer
		Signing on behalf of the registrant as principal financial and accounting officer