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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

The aggregate market value of the voting common equity held by non-affiliates of the registrant, computed by reference to the last reported price at which the stock was sold on June 28, 2002 (the last business day of the registrants most recently completed second quarter) was $84,297,000.

The number of outstanding shares of registrant’s Common Stock, par value $0.01, as of March 27, 2003 was 18,242,728.

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Definitive Proxy Statement for its 2003 Annual Meeting of Shareholders, which Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the Registrant’s fiscal year-end of December 31, 2002, are incorporated by reference into Part III of this Form 10-K.

MEDALLION FINANCIAL CORP.

2002 FORM 10-K ANNUAL REPORT

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          The following discussion should be read in conjunction with our financial statements and the notes to those statements and other financial information appearing elsewhere in this report.

          This report contains forward-looking statements relating to future events and future performance of the Company within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions, or future strategies that are signified by the words expects, anticipates, intends, believes, or similar language.  Actual results could differ materially from those anticipated in such forward-looking statements.  All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any forward-looking statements.  The Company cautions investors that its business and financial performance are subject to substantial risks and uncertainties.

PART I

          ITEM 1. BUSINESS OF THE COMPANY

GENERAL

          Medallion Financial Corp. (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.  Since 1996, the year which we went public, we have increased our medallion loan portfolio at a compound annual growth rate of 8%, and our commercial loan portfolio at a compound annual growth rate of 15%.  Our total assets under our management, which includes assets serviced for third party investors, were approximately $647,557,000 as of December 31, 2002, and have grown from $215,000,000 at the end of 1996, a compound annual growth rate of 20%.

          The Company conducts its business through various wholly-owned subsidiaries including its primary operating company, Medallion Funding Corp. (MFC).  The Company also conducts business through Business Lenders, LLC (BLL), licensed by 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), which conducts a mezzanine financing business; and Freshstart Venture Capital Corp. (FSVC), a Small Business Investment Company (SBIC) which originates and services taxicab medallion and commercial loans.  MFC, MCI, and FSVC operate as SBICs and are regulated and financed in part by the SBA.

          As an adjunct to the Company’s taxicab medallion finance business, the Company operates a taxicab rooftop advertising business, Medallion Taxi Media, Inc. (Media), one of the largest taxicab rooftop advertising businesses in the nation, providing advertising space in 33 metropolitan areas in the United States and in 2 cities in Japan. Since 1996, we have increased the number of our U.S. taxicab rooftop displays from 1,550 to approximately 9,600 at December 31, 2002, a compound annual growth rate of 36%.  In Japan, the Company has contracts on 6,200 taxicab racks and rooftop displays.

          Alvin Murstein, the Company’s Chairman and Chief Executive Officer, has over 40 years of experience in the ownership, management, and financing of taxicab medallions.  Andrew Murstein, the Company’s President, is the third generation in his family to participate in the business.

          We are a closed-end, non-diversified management investment company under the Investment Company Act of 1940, as amended (1940 Act).  Our investment objectives are to provide a high level of distributable income, consistent with the preservation of capital, as well as long-term growth of net asset value.

          We have elected to be treated as a Business Development Company registered under the 1940 Act. In addition, we have historically elected to be treated for tax purposes as a Regulated Investment Company (RIC) under the Internal Revenue Code of 1986, as amended (the Code).  Assuming we qualify to be treated as a RIC for any taxable year, we will not be subject to U.S. federal income tax on any (i) investment company taxable income (which includes, among other things, dividends and interest reduced by deductible expenses) that we distribute to our stockholders (provided that at least 90% of our investment company taxable income for that taxable year is distributed) or (ii) any net capital gains that we distribute to our shareholders.  To the extent permitted under our bank agreements, we intend to pay cash dividends to take advantage of these rules and minimize or eliminate our federally taxable income.  The Company did not qualify to be treated as a RIC for 2002, primarily due to a shortfall of interest and dividend income in comparison to our total taxable income from other

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sources.  This shortfall was caused primarily by losses in MFC and other subsidiaries.  As a result, the Company was treated as a taxable entity in 2002, which had an immaterial effect on the Company’s financial position and results of operations for 2002.  The Company is currently assessing whether to attempt to requalify as a RIC in 2003 in view of this change in status, a proposed new tax law, and other strategic considerations, including the optimum utilization of possible taxable losses.  The Company believes that, if it so desires, it will be able to take appropriate measures to qualify as a RIC in 2003.

MEDALLION LOANS

          Medallion loans of $210,476,000 comprised 59% of our $356,246,000 net investment portfolio as of December 31, 2002.  Since 1979, we have originated, on a combined basis, approximately $913,800,000 in medallion loans in New York City, Chicago, Boston, Newark, Cambridge, and other cities within the United States.  Our medallion loan portfolio consists of mostly fixed-rate loans, collateralized by first security interests in taxicab medallions and related assets.  As of December 31, 2002, approximately 83% of the principal amount of our medallion loans were in New York City.  Although some of the medallion loans have from time to time been in arrears or in default, our loss experience on medallion loans has been negligible.  We estimate that the average loan-to-value ratio of all of the medallion loans is approximately 57%.  In addition, we have recourse against a vast majority of the owners of the taxicab medallions and related assets through personal guarantees.

          The New York City Taxi and Limousine Commission (TLC) estimates that the total value of all of New York City taxicab medallions and related assets exceeds of $3.1 billion.  We estimate that the total value of all taxicab medallions and related assets in the United States exceeds $4.6 billion.  We believe that we will continue to develop growth opportunities by further penetrating the highly fragmented medallion financing marketplace.  Additionally, in the future, the Company may enhance its portfolio growth rate through selective acquisitions of medallion financing businesses and their related portfolios.  Since our initial public offering, we have acquired several additional medallion loan portfolios.

          Portfolio Characteristics

          Medallion loans generally require equal monthly payments covering accrued interest and amortization of principal over a ten to fifteen year schedule, subject to a balloon payment of all outstanding principal after four or five years.  More recently, we have begun to originate loans with one-to-four year maturities where interest rates are adjusted and a new maturity period set.  Borrowers may prepay medallion loans upon payment of a fee of approximately 90 days’ interest.  We believe that the likelihood of prepayment is a function of changes in interest rates.  Borrowers are more likely to exercise prepayment rights in a decreasing interest rate environment when the interest rate payable on their loan is high relative to prevailing interest rates, and we believe that they are less likely to prepay in a rising interest rate environment.  We generally retain the medallion loans we originate; however, from time to time, we participate or sell shares of some loans or portfolios to interested third party financial institutions.  In these cases, we retain the borrower relationships and service the sold loans.  The total amount of medallion loans under management was $292,332,000 at December 31, 2002, compared to $346,458,000 at December 31, 2001.

          At December 31, 2002, substantially all medallion loans were collateralized by first security interests in taxicab medallions and related assets (vehicles, meters, etc.), and were originated at an approximate loan-to-value ratio of 80%.  In addition, we have recourse against the vast majority of direct and indirect owners of the medallions who personally guarantee the loans.  Although personal guarantees increase the commitment of borrowers to repay their loans, there can be no assurance that the assets available under personal guarantees would, if required, be sufficient to satisfy the obligations subject to such guarantees.

          We believe that our medallion loan portfolio is of high credit quality because medallions have generally increased in value and are relatively simple to repossess and resell in an active market.  In the past when a borrower has defaulted on a loan, we have seized the medallion collateralizing that loan.  If the loan was not brought current, the medallion was sold in the active market at prices at or in excess of the amounts due.  Although some of the medallion loans have from time to time been in arrears or in default, our loss experience on medallion loans has been negligible.

Market Position

          We have originated and serviced medallion loans since 1979, and have established a leading position in the industry.  Management has a long history of owning, managing, and financing taxicab fleets, taxicab medallions, and corporate car services, dating back to 1956.  Medallion loans collateralized by New York City taxicab medallions and related assets

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comprised 83% of the value of the medallion loan portfolio at December 31, 2002.  The balance of medallion loans are collateralized by taxicab medallions in Chicago, Boston, Newark, Cambridge, and other cities within the United States.  We believe that there are significant growth opportunities in these and other metropolitan markets nationwide.

          The following table displays information on medallion loans outstanding in each of our major markets at December 31, 2002.

          The New York City Market.  A New York City taxicab medallion is the only permitted license to operate a taxicab and accept street hails in New York City.  As reported by the TLC, individual (owner-driver) medallions sold for approximately $211,000 and corporate medallions sold for approximately $250,000 at December 31, 2002.  The number of taxicab medallions is limited by law, and as a result of the limited supply of medallions, an active market for medallions has developed.  The law limiting the number of medallions also stipulates that the ownership for the 12,053 medallions outstanding at December 31, 2002 shall remain divided into 5,086 individual medallions and 6,967 fleet or corporate medallions.  Corporate medallions are more valuable because they can be aggregated by businesses and leased to drivers and operated for more than one shift.

          A prospective medallion owner must qualify under the medallion ownership standards set and enforced by the TLC.  These standards prohibit individuals with criminal records from owning medallions, require that the funds used to purchase medallions be derived from legitimate sources, and mandate that taxicab vehicles and meters meet TLC specifications.  In addition, before the TLC will approve a medallion transfer, the TLC requires a letter from the seller’s insurer stating that there are no outstanding claims for personal injuries in excess of insurance coverage.  After the transfer is approved, the owner’s taxicab is subject to quarterly TLC inspections.

          Most New York City medallion transfers are handled through approximately 32 medallion brokers licensed by the TLC.  In addition to brokering medallions, these brokers also arrange for TLC documentation insurance, vehicles, meters, and financing.  The Company has excellent relations with many of the most active brokers and regularly receives referrals from them.  However, the Company receives most of its referrals from a small number of brokers.

          The Chicago Market.  We estimate that Chicago medallions currently sell for approximately $60,000.  Pursuant to a municipal ordinance, the number of outstanding medallions is currently capped at 6,700, which includes an additional 150 and 200 medallions that were auctioned and placed into service in July 1999 and December 2000, respectively.  We estimate that the total value of all Chicago medallions and related assets is over $536,000,000.

          The Boston Market.  We estimate that Boston medallions currently sell for approximately $191,000.  The number of Boston medallions had been limited by law since 1930 to 1,525 medallions.  However 300 additional medallions were authorized in 1993, 75 additional medallions were auctioned and put into service in January 1999, and an additional 57 medallions were auctioned in June 2000.  We estimate that the total value of all Boston medallions and related assets is over $412,000,000.

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          The Newark Market.  We estimate that Newark medallions currently sell for approximately $195,000.  The number of Newark medallions currently has been limited to 600 since 1950 by local law.  We estimate that the total value of all Newark medallions and related assets is over $129,000,000.

          The Cambridge Market.  We estimate that Cambridge medallions currently sell for approximately $195,000.  The number of Cambridge medallions has been limited to 248 since 1945 by a Cambridge city ordinance.  We estimate that the total value of all Cambridge medallions and related assets is over $53,000,000.

COMMERCIAL LOANS

          Commercial loans of $138,361,000 comprised 39% of the $356,246,000 net investment portfolio as of December 31, 2002.  From the inception of the commercial loan business in 1987 through December 31, 2002, we have originated more than 10,000 commercial loans for an aggregate principal amount of approximately $588,000,000.  The commercial loan portfolio consists of floating-rate, adjustable, and fixed-rate loans.  We have increased our commercial loan activity in recent years primarily because of the attractive higher yielding, floating rate nature of most of this business.  The outstanding balances of commercial loans grew at a compound annual rate of 15% since 1996, although balances declined 31% during 2002, as the Company sought to increase liquidity by selling and not renewing certain loans.  The increase since 1996 has been primarily driven by internal growth through the origination of additional commercial loans.  We plan to again expand our commercial loan activities by developing a more diverse borrower base, a wider geographic area of coverage, and by expanding targeted industries.

          Commercial loans are generally secured by equipment, accounts receivable, real estate, and other assets, and have interest rates averaging 200 basis points over the prevailing prime rate.  As with medallion loans, the vast majority of the principals of borrowers personally guarantee commercial loans.  The aggregate realized loss of principal on commercial loans has averaged less than 1.5% per annum for each of the last five years.

Asset Based Loans

          The Company originates asset-based loans to small businesses for working capital through its MBC subsidiary.  These loans are primarily collateralized by accounts receivable of small businesses that require credit facilities ranging from $250,000 to $3,500,000, a market we believe is underserved, and which represents approximately 29% of the commercial loan portfolio.  We had successfully established 39 credit lines at December 31, 2002.  These credit facilities are secured principally by the borrower’s accounts receivable, but may also be secured by inventory, machinery, or equipment.  Currently, our customer base is concentrated in the New York metropolitan area and includes manufacturers, distributors and service organizations.  These loans are generally priced at approximately 300 basis points over the prevailing prime rate.

Secured Mezzanine Loans

          Through our MCI subsidiary we originate both senior and subordinated loans to businesses in a variety of industries, including radio and television stations, airport food service operations, telephone companies, manufacturing concerns, and laser eye surgery clinics.  These loans are primarily secured by a second position on all assets of the businesses, range from $1,000,000 to $5,000,000, and represent approximately 23% of the commercial loan portfolio.  Frequently, we receive warrants to purchase an equity interest in the borrowers of secured mezzanine loans.

SBA Section 7 (a) loans

          The Company originates loans under the Section 7(a) program of the SBA through its BLL subsidiary.  Up to 85% of the amounts of these loans are guaranteed (up to $1,000,000) by the federal government.  These loans are secured by fixed assets and or real estate throughout the New England and the New York metropolitan regions, and comprise approximately 23% of the commercial loan portfolio.  BLL has achieved “preferred lender” status from the SBA in 9 geographical districts in which it originates loans, enabling them to obtain expedited loan approval and closing from the SBA.  These loans have floating interest rates tied to a spread over the prime rate.  Additionally, a liquid market exists for the sale of the guaranteed portion of these loans.  BLL regularly sells the guaranteed portion of the Section 7(a) loans in the secondary market and recognizes a gain on these sales.  This gain is accounted for 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.”  We believe that the floating-rate nature of these loans is beneficial for our interest rate exposure management.  Due to limitations imposed by the Company’s lenders, sources of liquidity were reduced for BLL, which

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resulted in BLL maintaining a business status quo as opposed to its previous rapid expansion.  Since late 2000, no additional funding has been provided to BLL for new business growth, and as a result, BLL has reduced the scope of its operations by reducing personnel and closing offices, and has funded all new loan activity and operations from its own internally generated cash flow, which is anticipated to be adequate to fund future operations as well.  The Company has sold certain retained unguaranteed portions of this loan portfolio during 2002, and may continue to do so in the future, and may also pursue other strategic alternatives.

Other Secured Commercial Loans

          The Company originates other commercial loans that are not concentrated in any particular industry.  These loans, which are generally fixed-rate loans, represent approximately 25% of our commercial loan portfolio.  Historically this portfolio had been made up of fixed-rate loans, but substantially all business originated over the last four years has been at adjustable interest rates, generally repricing on their anniversary date.  Borrowers include food service, real estate, dry cleaner, and laundromat businesses.

          The following table displays information on the types of loans outstanding in our commercial loan portfolio at December 31, 2002.

Portfolio Characteristics

          Commercial loans finance either the purchase of the equipment and related assets necessary to open a new business or the purchase or improvement of an existing business.  We have originated commercial loans in principal amounts ranging from $50,000 to approximately $5,000,000.  These loans are generally retained and typically have maturities ranging from one to ten years and require equal monthly payments covering accrued interest and amortization of principal over a four to five year term.  Substantially all loans generally may be prepaid with a fee ranging from 30 to 120 days’ interest.  The term of, and interest rate charged on, our outstanding loans are subject to SBA regulations.  Under SBA regulations, the maximum rate of interest permitted on loans originated by the Company is 19%.  Unlike medallion loans, for which competition precludes us from charging the maximum rate of interest permitted under SBA regulations, we are able to charge the maximum rate on certain commercial loans.  We believe that the increased yield on commercial loans compensates for their higher risk relative to medallion loans and further illustrates the benefits of diversification.

          Commercial loans are generally originated at an average loan-to-value ratio of 70 to 75%.  Substantially all of the commercial loans are collateralized by security interests in the assets being financed by the borrower.  In addition, we have recourse against the vast majority of the principals of borrowers who personally guarantee the loans.  Although personal guarantees increase the commitment of borrowers to repay their loans, there can be no assurance that the assets available under personal guarantees would, if required, be sufficient to satisfy the obligations secured by such guarantees. In certain cases, equipment vendors may provide full and partial recourse guarantees on loans.

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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.  Based upon the assessment of our collateral position, we evaluate most of these relationships on an “enterprise value” basis and expect to locate and install a new operator to run the business and reduce the debt.  For credit that is collateral based, we anticipate that a substantial portion of the principal amount of delinquent loans would be collected 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.

          The following table shows the trend in loans 90 days or more past due as of December 31,